Posted By thestatedtruth.com on January 21, 2010

Jan. 21 (Bloomberg) — More than 40 U.S. homebuilders have teamed up with private equity firms to acquire and complete unfinished subdivisions as banks cut construction lending.

The investments will pay off for the builders and their investors if the prices are low enough and the locations are in areas where demand is recovering, said Megan McGrath, a home building industry analyst at Barclays Capital Inc. in New York.

“I’ve been getting the question: Why aren’t housing starts at zero?” McGrath asked. “The answer is, they’re probably as close to zero as they’re going to get and in some cases it still makes sense to build.”

Managers of at least 22 funds raised $12 billion in 2009 for development projects and other residential real estate deals, Bloomberg BusinessWeek magazine reports in its Feb. 1 issue, citing data compiled by Bloomberg, Institutional Real Estate Inc. of San Ramon, California, and Real Estate Alert, an industry newsletter in Hoboken, New Jersey. Those firms have invested with at least 42 builders, the data show.

Home building permits climbed to 653,000 in December, the most since October 2008 and a sign of optimism about demand, the Commerce Department reported yesterday.

More at ……http://www.bloomberg.com/apps/news?pid=20601109&sid=a3R7wGx9kIYw&pos=10

 

 

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Posted By thestatedtruth.com on January 21, 2010

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  China: Lending Restrictions and Beijing’s Predicament Stratfor Today | January 20, 2010 | 1808 GMT Liu Mingkang, head of the China Banking Regulatory Commission (CBRC), said in an interview Jan. 20 that several Chinese banks had been asked to restrain their lending after proving to have inadequate capital reserves. Chinese media reports claimed that new bank loans so far in January have risen to as high as 1 and 1.5 trillion yuan ($146-$220 billion) — approaching or equaling the massive hike in January 2009. As a result, several major Chinese commercial banks (whose names were not given) were given oral commands to stop new lending for the rest of the month. While the regulators will strive to control credit flows, the broader Chinese imperative to maintain growth at any cost contradicts the ability to preserve loan quality and allocate capital efficiently. Under the guidance of the central government, bank lending — the dominant form of financing in China — has skyrocketed in the past year to spur growth, fend off the effects of slower global trade and thereby maintain social order. Amid the loan boom, Chinese authorities have at times sought to restrain banks, fearing a massive buildup of bad loans. In February, April, July and October 2009, Beijing restrained the banks, only to see lending spike again in March, June and September 2009 — and now again in January 2010. Essentially, Beijing was caught in a cycle of speeding up and slowing down credit expansion. With each deceleration, China’s loan-dependent businesses, mostly state-owned and state-controlled, cry out in pain, resulting in another acceleration to make sure they do not grind to a halt. 2010 is expected to be another year of high lending, with Beijing projecting 7.5 trillion yuan ($1 trillion) in new loans — a smaller sum than the 9.6 trillion yuan ($1.4 trillion) lent in 2009, but indicative of a glut of credit consumption. In order to achieve even a mild reduction in lending in 2010 (not to mention the roughly 28 percent reduction target), the Chinese authorities know they will have to take some serious actions to restrict the banks. Hence, the demands for banks to increase their capital bases beginning in late 2009, and the raising of reserve ratio requirements on Jan. 12, forced banks to set more cash aside that would otherwise be lent out. The Jan. 20 demand that certain commercial banks stop lending for the rest of the month is another such move. The problem for China is that the entire economy depends on extremely loose lending policies, and when credit slows, companies in the critical manufacturing and trade sectors get squeezed. A great many Chinese companies rely on external consumers for their profits, but while exports showed growth for the first time in December, they face the usually slow months of January and February; only when spring comes around will it really be clear whether global demand has recovered sufficiently to support China’s exporters. Thus, exports are no refuge yet, and since Beijing has no intention of knocking the legs out of growth, it will continue shoving credit into the system.

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Posted By thestatedtruth.com on January 21, 2010

 

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Posted By thestatedtruth.com on January 21, 2010

Jan. 21 (Bloomberg) — President Barack Obama, tapping into voter anger over bank bailouts, called for limiting the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis.

The proposals, to be added to an overhaul of regulations being considered by Congress, would prohibit banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds. He also proposes expanding a 10 percent market-share cap on deposits to include other liabilities such as non-deposit funding to restrict growth and consolidation.

“While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse,” Obama said at the White House after meeting with former Federal Reserve Chairman Paul Volcker, who has been an advocate of taking such steps. “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

The proposals could affect trading at some of the nation’s largest banks, including New York-based Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., In derivatives markets trading, the perceived credit risk of the largest U.S. banks rose. Credit-default swaps on bonds issued by Goldman Sachs cost buyers 18 basis points more, reaching a mid-price of 120 basis points, the biggest increase in five months, according to broker Phoenix Partners Group.

The plan is subject to approval by Congress, where the president’s earlier regulatory proposal has hit resistance from some lawmakers and opposition from financial firms.

House Financial Services Committee Chairman Barney Frank said that while he generally supports the administration’s plan, financial institutions should get at least five years to comply.

“It would be a mistake to mandate divestiture of all the hedge funds of all the private equity entities that might be covered within a short period of time,” the Massachusetts Democrat said on Bloomberg Television. “You create fire-sale conditions.”

Senator Christopher Dodd, the Connecticut Democrat who heads the Banking Committee, gave a measured response, saying he’ll give “careful consideration” to Obama’s proposal.

More at …..http://www.bloomberg.com/apps/news?pid=20601087&sid=aGwoMdcKbVFk

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Posted By thestatedtruth.com on January 21, 2010

Well, listening to Barney Frank suggesting it will take 3-5 years to engage separation or reform; that would give time for lobbyists to water-down the inhibiting of what for a period of years we’ve considered extracurricular activities by the banks. Recent new members may not realize that the importance of our emphasizing the Fed ‘waivers’ to the banks in 2007 (triggering our ‘epic debacle’ coming call) comes down to allowing the banks comingling of funds between banking and brokerage operations (because the securitized derivates and CMO’s were not investment grade and thus qualification as ‘net capital’ for the brokerages was nullified). That was taking down a firewall just I thought as the fire was starting. A firewall has no purpose if deactivated in presence of a fire. We suspected that would eventually occur all the way since Glass-Steagall was repealed; something we slightly cynically thought would come back to bite later.

Not only did it bite; but now the ‘fire sale’ pitch is being given for why they won’t be in a reform mode very quickly. Could that be to talk about it all the way through election time, and thus hold the jobs for Congressmen until later, and then water things down a bit? Perhaps; but we’ll hold off on some of the politics, as now it becomes clearer of course that to keep their jobs, politicians had better support the centrist politics we’ve embraced, but so many have eschewed in favor of unsustainable political extremes of the left or the right. As the Obama Administration departed from early campaign or other promises, and it became clearer that the ‘Chicago sausage’ style would prevail in shoved-through politics for awhile, we actually suggested repeatedly that over time a movement back to the center would develop, because most Americans really want a fair and balanced Government; not one that advocates on behalf of either extreme.

As I mentioned yesterday and before (and today after hearing the President’s speech this morning), I think eventually this restraint will be as good for the Nation long-term, as the lack of restraint in spending and financial combinations has been short-sighted and bad in the intermediate term. It’s taken a generation (through both parties errors) to get to where we are, and it may take the better part of a generation to emerge from it in good shape; but one has to start, and the kickoff at least officially may be today. I hesitate to think that if Scott Brown had not won the Massachusetts Senate seat we’d be looking at more of the same from the Congress and the White House; but suspect the handwriting’s been on the wall for some time with respect to popular frustration. If so this is what we like to see: ‘regression to the mean’ not only in stocks, but in life as well; given a predilection to view extremes as unsustainable temporary anomalies. At the same time (and we’re glad it’s not completely squashed by media) our initial take on the Chinese espionage and targeting of U.S. companies through Google is terribly sobering about the risks of becoming too dependent on trade with a particular entity. Not to even mention the prospect of a broad disengagement with that regime; which it strikes me might engender some (whether heard or not) internet upheaval in China; who also knows how important (and symbolic elsewhere) their relationship with the U.S. is from a broader context. Plus we owe them too much money for them to try to fiddle with us beyond a point. Remember my saying; if you owe your banker let’s say a hundred thousand dollars, you have a problem. If you owe your banker let’s say a million bucks, he has a problem.

Finally, there is the argument that the President’s outline hit all the wrong triggers in today’s statement. Actually I think that’s off-base. He didn’t hit enough of the triggers might be more accurate. While ‘private equity’ did not have much to do with the panic or what led to it, ‘hedge funds’ were involved, whether directly or indirectly with banks in some cases. Many hedgers saw this coming after our projections of 2007 (typically in 2008 and at the start of 2009) and either limited their business or simply exited it. It is also the case that those who stuck around actually did well especially in leveraging financials in the past 8 months or so; until the distribution began actually in late Fall in that category. However my point here is that profligate lending and political pressures to facilitate that lending, were at the root cause of the problem; and the derivatives as such became an effort to offload risk to other unsuspecting parties. The banks were unable to accomplish that task once everyone wised-up, and got stuck with worthless (or nearly so) inventory; and it was downgraded so not able to be investment grade in an important way for those to whom qualification as ‘net capital reserves’ mattered. In this area I’m simply saying that those suggesting the President is off-base are wrong; but that there were more bases to cover, would be a reasonable way to approach it.

I fear that you’re not going to create reforms that’s truly tailored-for-the-situation, until or unless they acknowledge the myriad aspects of contributing factors to the fiasco. If they do, then it’s like an air tragedy investigation which hasn’t truly yet-occurred; find all the dots to connect which allowed this to occur. We projected that back in 2007 to greater accuracy than even we suspected; and since then hindsight books affirmed a majority of what was then for us a forecast. However nobody talks specifically about the waivers, with only hints of Fed knowledge (from a Geithner tidbit at a Hearing that he may not have meant to acknowledge) in advance of the panic (typically they deny it; but the waivers of course proved that they were embroiled right in the midst of it).

For more, go to…………www.ingerletter.com

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Posted By thestatedtruth.com on January 20, 2010

Airline Revenue: Worst Drop Ever

By Ben Rooney, staff reporterJanuary 20, 2010: 1:05 PM ET

NEW YORK (CNNMoney.com) — The airline industry suffered its largest drop ever in passenger revenue last year as a weak economy grounded many would-be travelers, an industry group said Wednesday.

The Air Transport Association of America said total passenger revenue for the major U.S. carriers fell 18% in 2009 versus the year before. It was the largest drop on record, exceeding the 14% decline in 2001.

The revenue decline was due to a 6% drop in passenger volume, and a 13% plunge in the average price paid to fly one mile, the ATA said.

“The global recession, accompanied by high levels of unemployment, hit air travel demand especially hard in 2009,” said James May, ATA chief executive and president, in a statement.

But the outlook for the current year is a bit brighter. “Anecdotal evidence suggests a positive revenue trajectory in 2010,” May added.

Still, he warned that the airline industry remains vulnerable. “We are seeing higher fuel prices as well, which could hinder recovery efforts,” May said.

For December, passenger revenue was down 4% versus the month before. It was the 14th consecutive month of declining sales, as traffic fell 3% in the month.  

http://money.cnn.com/2010/01/20/news/economy/air_traffic_2009/index.htm

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Posted By thestatedtruth.com on January 20, 2010

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Posted By thestatedtruth.com on January 19, 2010

Credit cards are ubiquitous like air in the American economy.  Virtually every American that can qualify for a credit card has one (or many) in their wallet.  Credit card companies have flooded the market with millions of plastic rectangles that have now come back to bite many American consumers.  If we rewind back to the early days of this crisis, (so much has happened since that time) we will remember that the banking bailout involved some necessity of keeping credit alive.  At least this is how it was presented to the American public.  No bailout equaled no access to credit.  Yet since that time we have seen consumer credit simply collapse on a record pace.  Part of this is due to the extinguishing of debt via bankruptcy but also the fact that credit card companies (aka big banks) are not making loans accessible to the public.

 Credit card debt is contracting at its fastest pace since the Great Depression.  In fact, over $17 billion in consumer credit was yanked from the market last month.  And you don’t need to know the hard data coming out of the Federal Reserve to know this.

Banks are holding over $2 trillion in excess reserves.  This is taxpayer money funded through the Federal Reserve and U.S. Treasury.  What this actually tells us is that banks are gearing up for more internal problems like the $3.5 trillion implosion of the commercial real estate market or rising defaults.  Currently banks have made massive profits by gambling with taxpayer money in the stock markets.  The spigot to the consumer is nowhere to be found.

http://feeds.feedburner.com/mybudget360/QePx

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Posted By thestatedtruth.com on January 19, 2010

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Posted By thestatedtruth.com on January 18, 2010

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Posted By thestatedtruth.com on January 18, 2010

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Posted By thestatedtruth.com on January 18, 2010

January 18, 2010

The added jobs amount to just a fraction of the roughly 40,000 that carmakers shed during their tailspin last year. But it is a sign that the big manufacturers expect business to improve this year.

Significantly, several automakers are making big investments in their lines of trucks as they anticipate that an improved outlook for housing and construction will encourage contractors and tradesmen to buy new vehicles.

Although it has not announced a resumption in hiring, General Motor Co. plans to put $1 billion into developing new versions of its full-size pickups, the Chevrolet Silverado and the GMC Sierra, a vote of confidence in the idea that construction and housing starts are about to rebound.

“Pickup sales are unbelievably correlated with housing starts,” said Mike DiGiovanni, GM’s executive director of global market and industry analysis.

“We are pretty confident that the economy is turning,” he said.

Automakers are preparing for a far better year of sales than they are admitting, said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich.

He believes that auto sales will grow about 20% this year to 12.4 million vehicles. Most automakers are estimating a gain of roughly 10% to 11.5 million.

But McAlinden noted that even his more optimistic sales estimate, if made two years ago, “would have been a horrible market.” He said the recovery in both jobs and sales could be uneven.

An unfavorable currency exchange rate creates a powerful economic incentive for the Japanese nameplates to increase production here, he said.

“For all but the most expensive luxury models, they are unable to make money on a car they import when the yen is under 100 to the dollar,” he said.

Payrolls at Detroit’s Big Three automakers dropped to 178,000 from more than 200,000 last year, and they are likely to continue their slide this year.

“There are another 15 plants scheduled to shut down through 2012, and that would push employment down to 150,000,” McAlinden said.

The combination of closure and hiring plans represents a decades-long shift of auto assembly jobs out of the Midwest and Northeast to the South as international automakers open new factories and build their sales in the U.S., McAlinden said.

Complete article at:   http://www.latimes.com/business/la-fi-autos-hiring18-2010jan18,0,2762921.story

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Posted By thestatedtruth.com on January 17, 2010

Just think about the bailouts and which companies were saved.  We ended up bailing out the worst performing and troubled companies thus keeping alive companies that should have completely failed.  Did we bail out Google?  Proctor and Gamble?  Of course not.  These companies actually produce something that people want.  Banks and especially the Wall Street kind merely keep that 42 percent happy by making sure their stock values stay high so they can keep on making money while the average Americans is sold up the river

Yet many were brought into the easy money fold by going into massive amounts of debt.  And who has most of the debt?  That is right, the average American:

The bottom 90 percent have been saddled with 73 percent of all debt.  In other words much of their so-called wealth is connected to debt.  Debt is slavery for many especially with egregious credit card companies taking people out with absurd credit card tricks and scams.  Yet the corporate propaganda machine is strong and mighty.  Have you ever received an inheritance?  A large one?  Probably not because only 1.6% of all Americans receive an inheritance larger than $100,000.  If this is the case, why in the world do politicians worry so much about the tax impacts of this?  Because they want to keep the corporatocracy alive and well so their spawn can get a piece of their pie.  They give the illusion to average Americans that if you only work hard enough you too can join this elusive club of cronies.  The data shows otherwise.

But if we start looking at investment assets, the true wealth in the country, we start realizing why Wall Street is all giddy about the recent stock market government induced rally:

Of investment assets 90 percent of Americans own 12.2 percent.  The rest goes to the top 10 percent.  Welcome to the new serfdom.  The bailouts that went out to the filthy rich were more about protecting their tiny corner of the world than actually making the economy better.  That is why it is interesting to see companies fire people and Wall Street cheer for the increase in earnings per share.  Good for the few at the expense of the many.  Yet the propaganda out of Wall Street and our government is what is good for Wall Street is good for you.  Just like that 1.6% inheritance issue, the vast majority of Americans won’t deal with that and their primary concern is simply a job.  A job that has provided stagnant wages for a decade while the ultra wealth get richer and richer in a phony form of corporate socialism.

If you break down the data you realize that most Americans don’t have time to speculate in stock markets:

Only 34% of U.S. households make more than $65,000 per year.  What is that after taxes?  Let us use a state like California for example:

Now if we breakdown this data further you will realize that most of the money is consumed by cost of living necessities, not Wall Street speculation.  Just to show this example let us look at a family budget for someone in California making $100,000:

Notice after running the budget we are in the hole for $1,000?  That is because of many costs that typical families have.  We can debate the merits of where they are spending money but the point is this; are these people really making beaucoup money from the stock market?  They are putting away $12,000 a year into their 401k.  As we have now found out, 8 percent a year is never guaranteed in the stock market although the corporate powers would like you to believe that so they can have other suckers to unload stocks onto.

“Yet the median household income in the U.S. is $50,000 and not $100,000.  They have even less to invest.

They are more concerned on working to have a paycheck to pay for necessities.  They are more concerned about paying their house off by the time they retire and hopefully, have a little bit of retirement funds coming in.  The sad fact is most Americans rely on Social Security when they retire.  Goldman Sachs through AIG received 100 cents on the dollar for their horrible bets.  The banks have unlimited back stops thanks to taxpayers.  This is how the top 1 percent rule the new feudal state.

www.mybudget360.com

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Posted By thestatedtruth.com on January 17, 2010

Some of you are probably not aware that the commercial real estate market has crossed a dreaded line in the sand. Commercial real estate (CRE) that includes apartments, industrial, office, and retail space is now performing worse than residential real estate. Not just by a little but by a good amount. While the CRE bust took about a year longer than the residential housing bust, once problems started hitting in this market prices have been steadily collapsing. At the peak, it was estimated that CRE values hit $6.5 trillion in the country. With $3.5 trillion in CRE debt outstanding, this seemed to provide a nice equity buffer. That buffer is now erased.

First we, need to examine the actual decline in CRE values by looking at data gathered by MIT:

Putting together all CRE values we find that the market has fallen by a significant 42 percent. Now assuming this figure, that $6.5 trillion is now “worth” approximately $3.7 trillion giving us an equity cushion of $200 billion for all CRE properties in the U.S. I doubt this figure is even that high. It is safe to say that commercial real estate is now in a negative equity position. The U.S. Treasury has discussed plans on bailing out this industry but not much has been done on this front since all the bailout funds have been concentrated on residential real estate and protecting the too big to fail banks. Many CRE loans are held in the smaller regional banks that are actually small enough to fail. The FDIC will be busy in 2010 given the above data.

Now looking at the residential market, prices fell earlier but have recently stabilized because trillions of dollars have been used to prop up the system:

 

If we look at residential real estate, prices are down 32 percent from their peak. Keep in mind it is likely to fall further because many items like the Fed buying up $1.25 trillion in mortgage backed securities and keeping rates artificially low cannot go on forever. Also, is the government going to give our a tax credit forever? This is highly unlikely and when each program is phased out, we can expect minor shocks back into the market. Plus, we have to remember that many homes have been in a state of purgatory because of moratoriums and other patchwork programs. These only delay foreclosure and once they hit the market prices will continue moving lower.

Yet commercial real estate is falling with no support. And what would be the support given that our economy is contracting so viciously? Why would we need any more retail space near sub-divisions where people didn’t even move in? With housing there is a price point where people will move in. Take for example the college student graduate that is only making $10 an hour because of the poor employment situation. He may need to move back home even though this isn’t what they want. If apartment rents are $1,000 a month, then renting on their own won’t make any sense. But if apartment rents are $400 in this area he may consider moving out. This is the new calculus of the market. And apartment pricing is seeing pressure to the downside because of massive vacancies:

And it gets even worse when we look at rental vacancies and this is where apartments fall under:

This is the highest rate on record and tells us that we have over built and the market is still unable to sop up the excess properties. So what will happen is competition for cheap housing by lowering rents. This is the only way to drive demand in a market where average Americans are becoming more price conscious every day. The problem with many of the CRE projects is that they were expecting peak value rents and will have no ability to service their debt with new market rental rates. That is, they are insolvent. And many bankruptcies will happen because of this. Or if you are a too big to fail bank you can simply walk away from your commitments.

www.mybudget360.com

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Posted By thestatedtruth.com on January 16, 2010

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Posted By thestatedtruth.com on January 16, 2010

 

Decade 2000-2009: Gold’s gain against 17 currencies (in %)

Major world currency prices versus gold (1900-2009) (Euro = Deutsche Mark before 1999, the broken line is German inflation of 1922 and the breakdown after WW2) – Source: World Gold Council / Matterhorn, 12/07/2009

 http://www.leap2020.eu/GEAB-N-41-is-available!-The-Decade-2010-2020-Towards-a-knockout-victory-by-gold-over-the-Dollar_a4201.html

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Posted By thestatedtruth.com on January 16, 2010

Comstock Partners, Inc.

The Bank Chiefs’ Incredible Testimony

January 14, 2010

When we saw the esteemed chiefs of the nation’s top banks testify that nobody could foresee the coming devastating residential mortgage problem or that home prices could ever come down we stared at our TV sets in disbelief and disgust.  After all, we had only been writing about the problem continuously since as early as 2003, and we obtained all of our information from public sources.  It was all there for anyone who wanted to take the trouble to keep informed.  Unfortunately the bankers were not alone.  Others ignorant of what was taking place around them was the then Chairman of the Federal Reserve Board, the future Chairman of same, the regulators, Congress (both parties), the White House, the media and the vast majority of Wall Street.  Or perhaps a lot of them did know and chose to ignore it for fear of ruining the party while everyone was having a great time.  This attitude was neatly summed up by former Citicorp CEO Charles Prince when he famously said, “as long as the music keeps playing, we’ll keep dancing.”  

   © 2000 Gabelli & Company, Inc. All rights reservered.

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Posted By thestatedtruth.com on January 16, 2010

Comstock Partners, Inc.

Recovery or Recession?

January 2010

Bombarded by a constant stream of primary, secondary and tertiary economic statistics being released daily with a highly positive spin in the financial media, investors need to be reminded that the numbers that really count indicate an economy still in a deep rut.  Let’s take a look at the major numbers that tell us what the economy is really doing—employment, retail spending, new single family home sales, core new durable goods orders and production.

1)  Payroll employment has dropped 5.2% from the peak.  That’s 7.2 million jobs. Perhaps tomorrow’s report will show the first increase, but even so it will amount to a slim fraction of the number of jobs lost.  Keep in mind, too, that the Bureau of Labor Statistics has already told us that the next benchmark revision will bring last year’s numbers down significantly.  (See archives for 10/15/09).  We also note that it takes somewhere between 100,000 and 150,000 new jobs each month just to keep unemployment flat.

2)  At the lows retail spending was down 12.4% from the peak and has since gained back 5.1%.  However, even now spending remains at a recessionary 8.4% from the top despite near-zero interest rates, the cash for clunkers program and a tax refund.

3)  New single-family home sales plunged 75.4% peak-to-tough and has bounced by only 2.6% despite record low mortgage rates, home-buyer tax credits and government purchases of mortgage-backed securities and Treasury bonds.

4)  Core durable goods orders declined 27.3% overall and have climbed back 10.5% where they are still down 19.6% from the peak.

5)  Industrial production fell 14.8% from the top and has come back 3.8% where it is still a dismal 11.5% below the peak.

So let’s sum this up.  Even in this big “recovery” that is being spun so heavily on financial TV, employment is still down 5.2%, retail spending 8.4%, new single-family home sales 73.3%, core new durable goods orders 19.6% and industrial production 11.5%.  Since the numbers have moved up slightly we suppose that by definition it’s technically a “recovery” rather than a recession, but it does seem like a distinction without a difference.  And remember this is all we’ve gotten from the stimulus plans, the first-time home-buyer credit, cash for clunkers, the foreclosure moratoriums, zero interest rates, unprecedented quantitative easing, mortgage-backed security purchases, Treasury bond purchases, virtual government takeover of the housing market  massive aid to the GSEs and record deficits.  As we have previously pointed out all we have done is shift private debt burdens to the Federal government.  With all that, it is still doubtful that the economy can stand on its own once these artificial supports are removed.  Nevertheless the debts will remain, eventually to be resolved either by future inflation or default.     

© 2000 Gabelli & Company, Inc. All rights reservered.

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Posted By thestatedtruth.com on January 16, 2010

Eurozone central-bank president Jean-Claude Trichet yesterday described the idea that Greece will be forced to quit the monetary union because of its huge budget deficits and weakening government bonds.

Greece today submits a new budget to the European Commission, aimed at cutting its debts from 113% of annual economic output.

“These internal strains are independent of the external value of the Euro,” says US banking giant Citigroup in a forex report, “but will in turn continue to undermine it.”

“It is not a Greek problem but a problem inherent in the whole system,” warns Steven Barrow, chief currency strategist at South Africa’s Standard Bank in London. “Greece is only the focus.”

Repeating his call for the Euro to trade as high as $1.60 as the Dollar weakens to end-2010, “we see Euro/Dollar falling to $1.35 at least by the summer,” Barrow says.

“The increase in interconnections…means a higher level of systemic risk than ever before,” says Switzerland’s independent, not-for-profit World Economic Forum today in its Global Risk Report 2010.

Citing a slowdown in the Chinese economy, government fiscal crises and a new asset-price collapse as the greatest and most costly risks for 2010, the WEF also warns on food-price volatility, a potential oil-price spike and retrenchment from globalization, both amongst developed and emerging economies.

“While sudden shocks can have a huge impact…the biggest risks facing the world today may be from slow failures or creeping risks,” says the report.

“Because they emerge over a long period of time, their potentially enormous impact and long-term implications can be vastly underestimated.”

The International Energy Agency in Paris today forecast a strong bounce in global oil demand, taking daily consumption back towards 2007 levels.

Management consultants McKinsey meantime warned that the major economy most exposed to excessive debt is the United Kingdom, where public plus private borrowing now stands at 449% of annual GDP – greater by more than a quarter from the start of last decade.

“Even excluding the liabilities of foreign banks based in the UK,” says the Financial Times, “the [UK’s] ratio still runs at 380% – higher than any country except Japan and closely followed by Spain, where debt has also spiraled dramatically.”

Adrian Ash

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Posted By thestatedtruth.com on January 16, 2010

The SHEER SIZE of the US government’s debt hasn’t put off new bond buyers so far in 2010.

You’ve got to wonder what kind of news – or debt – it might take to deter them

In just two days this week, the Treasury issued $61 billion in new debt – twice as much money as Japanese households put into their domestic equity funds during all of 2009, itself a 50% jump from 2008.

Yet one “big bidder” still opted to lend the federal government one fifth of that sum, according to bond analysts speaking to the Financial Times at least. And overall, the government’s creditors offered to lend Washington three times the money it sought.

Now, if the Treasury didn’t need that $61,000,000,000 to cover 6.3 days of spending, the money raised in new bonds between Tuesday and Wednesday this week could cover 12 days of interest due on the outstanding debt, already running above $12.3 trillion and outweighing the market value of every company listed on the New York Stock Exchange.

Put another way, the United States national debt is greater than the GDP forecast this year for Japan, China, Brazil and Canada added together. (That’s excluding the $107 trillion of unfunded liabilities yet to come, of course.) If today’s lenders ever see their money again, they could just about buy all the gold ever mined in history – all 165,500 tonnes of the stuff – twice over at today’s prices.

Or they could simply pay twice today’s gold price, of course.

Repaying the US national debt looks a struggle, however. Settling $1 per second – rather than racking up an extra $37,132 every second, as the federal government’s scheduled to do in 2010 – would take until the start of February A.D. 392,372. Settled for cash, and piled up in $1 bills, the current US debt would reach to the moon…and back…and back to the moon again…and then round the moon’s equator ten or perhaps 20 times, depending on how much you squashed them.

Or to put the US national debt into historical perspective – a very historical perspective – the US government has borrowed the equivalent of $2.46 each and every day since the beginning of time…last computed to have occurred some 12.7 billion years ago, back when $2.46 really meant something.

For creationists sticking with Archbishop Ussher, that’s $2 billion per year since God said “Let there be light”…back when fiat really meant something, too.

And lo!   The bond market still kept on buying.

Adrian Ash

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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Posted By thestatedtruth.com on January 15, 2010

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Posted By thestatedtruth.com on January 15, 2010

JP Morgan Chase Earns $11.7 Billion in Year

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Posted By thestatedtruth.com on January 14, 2010

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Posted By thestatedtruth.com on January 14, 2010

 

THE PROBABILITY OF A CRISIS WILL BUILD DURING 2010

 

January 2010

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Posted By thestatedtruth.com on January 14, 2010

 

The End of Extend and Pretend

By Dan Amoss
Jacobus, Pennsylvania

Attention REIT investors! The commercial real estate is a disaster-in- the-making – both for property investors and for the thousands of American banks that are carrying outsized exposure to commercial borrowers.

Commercial real estate borrowers and their lenders face a mountain of debt maturities over the next few years. And re-financing this debt will be next to impossible, thanks to soaring vacancy rates and plummeting property values. “Zombie buildings” are popping up all over the place, according to Crain’s New York Business.

“Virtually all the assets bought between ’05 and ’07 cannot be refinanced today without a significant capital infusion,” says Shawn Mobley, executive vice-president at real estate firm Grubb & Ellis Co. “These buildings need to be recapitalized to get back in the business of being active real estate.”

Unfortunately, these “zombie buildings” can’t compete for new tenants because they lack the money to cover brokers’ commissions and interior office reconstruction. The number of zombie buildings in the Chicago area is likely to grow in 2010, according to a forecast by Grubb & Ellis. For landlords, the trend means even top-quality office properties are likely to divide themselves into “haves” and “have- nots,” with the latter seeing their vacancy rates worsen because of the lack of financing.

We’ll see many more zombie buildings emerge in 2010.

Many REIT investors seem to have grown complacent about the risks in the commercial real estate market. These investors seem to believe that banks will simply roll over underwater loans once they reach maturity, in the hopes that a future rebound in property values will catapult these loans back into solvency. This phenomenon is known as “extend and pretend.”

The “extend and pretend” strategy did not work for Japan’s banking system, and it won’t work for the US either. It won’t work because it will lead to a two-tiered commercial property market. In one tier, we’ll see property owners with affordable mortgages cut rents to fill their vacancies. In the other tier, we’ll see property owners and lenders hoping for a return to bubble values, and maintaining a high- mortgage, high-rent strategy.

Property owners in the high-rent tier may be making payments on their underwater mortgage for now. But once the low-rent tier starts winning all of the scarce leasing activity, vacancies in the high-rent, high- mortgage tier will accelerate and property-level cash flow will fall dramatically.

In other words, just because a mortgage happens to be performing now does not mean it will be viable in the long run. As commercial landlords with negative mark-to-market equity watch their tenants flee, they will stop making mortgage payments and surrender their properties to the lenders. Thus, sooner or later, commercial real estate will find its way down to the prices that would attract new investors and speculators. This process is known as “price discovery.”

By rolling over the maturing bubble-vintage loans made to underwater, but cash-flowing properties, the banking system (if allowed to do so by its regulators) would establish an artificially high price floor. Such industry-wide collusion would slow – but not prevent – the slide toward real-world pricing – the kind that would attract new investment.

But even if the process of price discovery in real estate is delayed by “extend and pretend” at banks, some measure of price discovery will come from the liquidation of properties that collateralize commercial mortgage-backed securities (CMBS). In these securities, when the underlying properties default on mortgages, the holders of the senior CMBS tranches usually push for liquidation. This means that junior tranche holders get wiped out, but losses to the senior tranches are minimized. The senior tranche holders have neither the patience nor the risk tolerance to hope for a rebound in property values. They just want their principal back as soon as possible.

One way or another, commercial real estate prices will fall toward their real-world prices…which are clearly below the prices that most banks are using today.

REITs, despite facing the toughest fundamental outlook in the history of the asset class, are trading at valuations typical of market peaks. Citigroup’s REIT team, in a recent research note, estimates that the REITs it follows are trading for 18 times estimated 2010 cash flow and a 7.2% implied cap rate. This is expensive in ANY market environment. Investors speculating in REITs at today’s high valuations give themselves no margin of safety.

Citigroup’s estimated 2010 cash flow for its REIT coverage universe assumes a strong rebound in demand for commercial space, which I do not expect. Demand will remain below supply for years, forcing REIT landlords to cut the asking price for rents on vacant space.

The REIT sector has already “priced in” the typical sharp post-WWII inventory-led economic recovery. But I expect a very tepid, narrow recovery with a “double dip” recession by late 2010. The current “recovery” is not typical. It is merely a stimulus-induced bounce in the midst of what will likely wind up as a decade-long deleveraging, downscaling economy.

So all that’s necessary for a 40% decline in the REIT index is for net operating income to fall 20% to 30% (through a combination of falling rents, rising tenant defaults, and higher interest rates on new CRE mortgages), and cap rates to increase by 200 to 300 basis points – just slightly above the long-term average. A slow economy could easily produce such an outcome…if not much worse.

Until next time,

Dan Amoss
for The Daily Reckoning

The above article does not represent the opinion of  www.thestatedtruth.com and is intended for informational purposes only.

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Posted By thestatedtruth.com on January 14, 2010

 (Bloomberg) — Kenneth Laub has been through three commercial real estate boom and bust cycles during almost five decades as a broker and consultant to corporations such as Hess Corp. and International Paper Co.

He says the current downturn will overshadow all of the others, Bloomberg Markets reports in its February 2010 issue.

“It won’t be a typical part of a cycle where we’re down for two or three years and things recover, says Laub, 70, whose New York firm, Kenneth D. Laub & Co., says it has handled more than $40 billion of real estate transactions since its inception in 1969. It will be longer than we’ve gone through before.

As in past slumps, the weak U.S. economy is curbing demand for commercial space, increasing vacancies and causing rents and property values to fall. The key difference today is the explosion in debt financing and related derivatives that fueled a run-up in commercial real estate prices in the 2000s, Laub says. That’s left property owners struggling to make mortgage payments. The overhang of debt will delay any recovery, he says.

“It’s not a supply-demand thing; it’s an overleveraged condition, Laub says.

Laub, who scaled back his operations in 1997 amid a battle with thyroid cancer, now monitors the market from his office at his four-story town house on Manhattan’s Upper East Side. He says that some deals that piled on too much debt were done with a lack of foresight. Some of this stuff could have been avoided, he says.

Laub expects a wave of restructurings by troubled commercial borrowers as hundreds of billions of dollars of loans come due annually during the next few years. Commercial real estate may still be recovering a decade from now, he says. What you’re going to see is a tremendously long workout period unprecedented in commercial real estate in this country,Laub says. That’s where we’re going, and it’s just beginning.

U.S. commercial property prices have plunged more than 40 percent from their October 2007 peak, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from a year earlier, according to data compiled by Moody’s Investors Service and Real Estate Econometrics. Landlords in the U.S. will confront office vacancy rates approaching 20 percent this year as employers hold off hiring, commercial property broker Jones Lang LaSalle Inc. predicted in mid-November.

As bleak as Laub’s outlook is, he sees a silver lining for investors who have cash on hand and are willing to wait as long as a decade for bets on U.S. real estate to pay off. There will be giant opportunities that come out of this, he says.

Hedge funds, foreign investors and real estate companies will step in and take advantage of falling property values to make acquisitions at prices as low as one-third of their peak 2007 value, Laub predicts. Wouldn’t you like to be in their position? he says. The money is going to talk.

New consulting and advisory services will emerge in the industry as property owners seek ways to restructure their finances, lure tenants or sell off stakes to prospective buyers, Laub says. We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before, he says.

Laub found his calling in real estate almost 50 years ago. Born in Brooklyn and raised on New York’s Long Island, in Cedarhurst, Laub held jobs from the age of 13, starting as a grocery clerk and then working as a cabana boy and a tennis instructor at a local beach resort and country club during high school. My father gave me a bar mitzvah, and that’s the last money he ever gave me,he says with a chuckle.  

 Laub says he was drawn to real estate because of what he could learn on the job — and for the potential for making money. He joined brokerage firm Collins Tuttle & Co. as a trainee. There was a rainbow out there to make a lot of money and get an education,Laub says.

In 1963, Laub moved to New York developer Tishman Realty & Construction Co. He started in the leasing department and helped Tishman to develop a brokerage and consulting arm before leaving to start his own firm in 1969. Specializing in tenant brokerage — representing corporations in need of office space in New York and nationally — Laub attracted clients such as American Airlines Inc. He placed some of the first tenants in the World Trade Center’s twin towers.

By 1987, Laub’s company had the largest average transaction size — $183 million — of any U.S. broker, according to an analysis by a unit of the firm now known as Deloitte LLP. Laub says he is currently representing an investment-banking firm seeking 500,000 square feet (46,000 square meters) of space. He declined to provide further details.

www.bloomberg.com

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Posted By thestatedtruth.com on January 14, 2010

Is It Written In The Stars?– Peter Brimelow devotes his column this morning to the latest projections from Arch Crawford.  Crawford in case you didn’t know, bases many, in fact most, of his projections through the use of astrology.

Brimelow noted that Crawford sees not just another crash this year but dramatic societal changes to go with it.  Brimelow cites one of Crawford’s paragraphs that ends hyperbolically:

“We will do everything but guarantee you that stocks will crash worldwide within three months of August first (that is between May 1 and November 1). It is expected that technical market analysis of data generated by current market action will assist in pinpointing most danger/opportunity as critical moments approach. The fate of the world is in the balance!”

We, too are concerned about societal strains produced by the strident populist posturings in Washington and elsewhere.  We also think this could be a year of food shortages which will strain societal bands.  This truely may be an unusual year ahead. 

The article  above does not represent the opinions of www.thestatedtruth.com, and is intended for informational purposes only.

 

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Posted By thestatedtruth.com on January 14, 2010

Chatter About The Latest Mystery In The Treasury Market – Stock traders spend a lot of time watching interest rates.  So, they have homed in this huge Treasury auctions this week.  The auctions have gone much better than expected.  That may be the result of aggressive bidding by one mysterious bidder.  Here’s how the FT put it:

Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that “one big bidder” has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.

The surprising demand for Treasury notes has come in the form of “direct bids”, the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales.

Yesterday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005.

On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.

Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.

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Posted By thestatedtruth.com on January 14, 2010

U.S. retail sales fell unexpectedly in December, signaling restraint by consumers during the holiday season.  In a separate report, inventories rose by more than forecast for December, helping to temporarily add to the economies recovery in the last quarter of 2009.

Excluding car sales, all other retail sales in December fell 0.2% vs. an expected 0.3% increase.  Consumer spending makes up 70% of  gross domestic product.

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Posted By thestatedtruth.com on January 13, 2010

 Credit woes piling up . . . threaten to dose the optimism generated by a false rally in terms of the extension by the stock market. This will be felt (didn’t say may be felt) by a slew of commercial sectors first, and by the consumer sector as the year advances I fear. After the close today, S&P downgraded ‘the State’ of California, cutting ratings on $64 billion of ‘general obligation bonds’ as Sacramento feels strains over what is a $20 billion budget deficit. Interesting how the financial press obscures that today as if everyone knew it was coming (sure); and it doesn’t therefore matter (not). Note S&P also issued a ‘negative outlook’ on California debt; a sign it may decline further than the A- (7^th highest investment grade) rating of today. Now closer to Moody’s or Fitch (not that any of them were efficient or realistic in any of this) with a Baa1 or BBB rate, this emphasizes (or should) the coming ‘cash crunch’ in March, pre April tax revenue.

Just because many expected this; does not make it irrelevant; my goodness. When it occurs that California goes into a negative cash position in March, will they also say it doesn’t matter? Probably. Perhaps the jousting at the Washington ‘crisis’ hearings in this case may have inferred that if Wall Street banking houses were to fund California through this, Government would look the other way about possible ‘fraud’ accusation discussion, one would have a short-term loan solution to buy yet-more time for them.

I’m being slightly cynical because this bad news is good news stuff from the market is wearing thin. Then there is the crowd who believes hurricanes and earthquakes are a good thing for markets, if not for victims. Perhaps both if they are uprooted or moved to safer hygienic quarters. But this Government has squandered and misdirected lots of our tax (and borrowed) Dollars; so that there is a limit to what can be done for Haiti (which has not been a productive country previously). The point is whether what is an essentially ‘total devastation’ earthquake ‘event’ of historic proportions (never seen in the Caribbean since 1770) greater than nuclear bombs according to the AP regarding the potential death toll (they speak in horrific terms of up to half a million dead as well as all but 10 out of the 100 plus UN staff HQ personnel), means tens of thousands of impoverished Haitians legally or illegally leaving for Dominica, Cuba, or .. Florida??

It’s with all compassion that one has to also protect American citizens from again new overwhelming influxes, while doing what can be done to help the tragic victims of this; and it is not unfair to mention that TB is rampant in Haiti, whereas the original influx in the 1960’s of Cubans to Florida were the educated and middle class, who had a lot to lose in a communist regime. They were healthy, and not necessarily destitute. As for Florida; it’s as broke as California (on a slightly smaller scale); with no quick prospect for resolution; and services already cut to the bone (making Miami more dangerous).

There is no immediate answer; just challenges. A carrier battle group may provide at least a bit of aid, and it will be interesting to see if they even allow ‘sponsored’ victim emigration from Haiti to Florida (why now are warships being sent?); or in that case to other struggling countries, like Brazil, or the always critical Chavez of Venezuela. Is this a market event? Perhaps. Especially since there is no funding to adequately address the crisis; other than short-run remedial assistance which won’t do much in terms of long-term stability. Perhaps France would like to reoccupy the place? Not.

Why mention this at all? First, the humanity of tragedy requires it. Second, because it exemplifies what’s wrong when you squander what resources you have on helping a small number of citizens buy depreciating assets (cash for clunkers or houses, which are not at a low point; or if they are, will flirt with low levels for years to come), while a sensible tax-based strategy of cutting taxes and adding incentives to small business, has either not occurred or been too little too late, while the ‘crisis commission’ talks of reform two years after the panic, which was clearly evident well before the crumbling of 2008; per our ‘epic debacle’ call. Where this leaves the world is without a ‘cushion’ to adequate respond to Haiti; or much less to the forthcoming earthquake you know I am concerned about, along the West Coast of the U.S. Mainland. Exaggerating? No. Time Magazine has a piece on it today, agreeing that it’s overdue; and a real risk.

In Great Britain the economy continues to contract. Worst in 88 years now; a bigger single year fall than any single year of the Great Depression, and that won’t be heard (at least not yet that we know of) on financial media. Source: The Times of London. If you want to know the next worst year? 1921; when all the troops came back from the front lines after WW I, and the result was large unemployment and a recession then.

Now, if I wanted to throw more cold water on the ‘recovery optimism’ beyond reprieve I could reference ‘rail traffic’ in 2009; the lowest since at least 1988. And that’s with at least 12 of 19 major commodity categories of cartage being up due to foreign sales in the most part. It means that domestic demand isn’t zilch, but it’s definitely still slim. Of course I take no pleasure in reporting grim reality; but somebody has to do it if what a large segment of the public relies on for balance is actually imbalanced with regard to their perspectives. Perhaps Government has no choice (they are pained to spin most things favorably; and it shows); we understand. But the reality is actually fairly risky. I do not know for sure whether more would have improved had Government listened to a chorus of citizens of both parties and directed funds better, or cut taxes, or both vs. a ridiculous approach equivalent to the little Dutch boy sticking his finger in the dike. I do suspect it would have been better; especially had we not borrowed any funds with the realization that while they would argue that would keep us down; we are down in any event; so why be down and owe all that debt on top of it we ask, and asked lots earlier, because we expected Government to do just what they did; mediocre rescue of the economy, with we suspect close to a 40% risk of a double-dip recession scene.

For more go to…….www.ingerletter.com

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Posted By thestatedtruth.com on January 13, 2010

Elements That Rule The Globe

Rare-earths are so-called because when they were first discovered in the 19th Century in Sweden, they were believed to be some of the most uncommon elements.

But through further scientific discovery, rare-earths have been found to be relatively abundant in the Earth’s crust. However, the high cost of extraction means that only areas with rich deposits are worth exploiting.

Rare-earth metals are typically malleable. They also have high electrical conductivity.

They are often extracted from minerals through a process that involves dissolving elements in different liquids – usually water and a solvent.

There are 17 rare-earths and their purposes include being used in shielding for nuclear reactors, fibre optics, flatscreen displays and earthquake monitoring equipment.

One rare-earth, erbium, acts as a natural amplifier so it is used in fibre-optic cables to boost signals. Terbium generates a change in an electrical circuit when the metal is compressed. That is why it is often found in earthquake monitoring devices for detecting movement along fault-lines.

Sometimes rare-earth elements are combined in alloys to create strong magnets, which are used in wind turbines. The magnets are a crucial part of the generators that convert the rotational motion of the turbine blades into electricity.

The magnets can be made from rare-earths neodymium and samarium, although they are extremely brittle and also vulnerable to corrosion, so are usually plated or coated.

Another rare-earth, dysprosium, is used in many of the advanced electric motors and battery systems in hybrid vehicles because magnets containing the element can be much lighter and therefore more energy efficient.

Dysprosium has a tendency to soak up neutrons – the tiny particles that occur in atoms and are produced in nuclear reactions. Metal rods containing dysprosium are also used in nuclear reactors to control the rate at which neutrons are available. The magnetic properties of dysprosium alloys make them useful in CD players.

Cerium is used in catalytic converters, which cut carbon dioxide emissions from vehicles, while praseodymium creates a yellow colour in ceramics. In alloys, lanthanum softens a metal, making it easier to work with and sometimes more durable too.

Read more: http://www.dailymail.co.uk/news/article-1241872/EXCLUSIVE-Inside-Chinas-secret-toxic-unobtainium-mine.html#ixzz0cYHOnxDc

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Posted By thestatedtruth.com on January 13, 2010

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Posted By thestatedtruth.com on January 12, 2010

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Posted By thestatedtruth.com on January 12, 2010

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Posted By thestatedtruth.com on January 11, 2010

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Posted By thestatedtruth.com on January 10, 2010

You wanna see 21 reasons why we’re not embarking on a new secular bull run, despite what you’ll read in the popular press?

Check out the table below, courtesy of our friends at Gluskin Sheff:  Click on the box below to enlarge………..

Thanks to…..http://www.minyanville.com/articles/todd-harrison-markets-minyanville-stock-finance/index/a/26255

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Posted By thestatedtruth.com on January 10, 2010

In March 2009 Singapore legalized a government plan for paying organ donors. Although it’s not clear yet when this will be implemented, the amounts being discussed for payment, around $50,000, suggest the possibility of a significant donor incentive. So far, the U.S. has lagged other countries in addressing the shortage, but last year, Sen. Arlen Specter circulated a draft bill that would allow U.S. government entities to test compensation programs for organ donation. These programs would only offer noncash compensation such as funeral expenses for deceased donors and health and life insurance or tax credits for living donors. 

Bloomberg NewsSource: Organ Procurement and Transplantation Network

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Posted By thestatedtruth.com on January 10, 2010

Here are some comments from the Alan M. Newman Stock Market CROSSCURRENTS  Report out for January 2010……………..

On the hourly charts, there are a series of bottoms just above Dow 10,200 dating back to November 12th.  When this level breaks, we should be on our way and accelerate down to anticipated support between 8100-8400.  We do not see the Dow testing the March ‘09 bottom unless there is a catalyst at least as significant as the crisis that took us to the precipice last year.  

The psychological aspect is fascinating.  Given the fundamental background of a near economic and financial collapse, to see investment advisors at their least bearish in 22 years is just mind numbing.  The economy requires jobs.  Each decade from the 40s to the 90s witnessed at least 20% growth in payroll employment.  There was ZERO job creation in the 00s.  We expect recognition of this plight to soon surface.

                                                         The Odds

                             

The highest odds scenario we offered for last year was 30% for the recession to worsen and clearly, it did.  A “double dip” return to recession is again our biggest fear and highest odds scenario.  Despite the modest gains for the economy in late 2009, we have reason to suspect that there was a bit of illusion created by the inevitable rebound from the abyss.  As we have stated before, business is not good, it is just less bad than before.  The consumer is not well heeled, just less strapped than before.  A double dip into recession is quite possible.

We have raised the odds for a major Terrorist Event from 10% to 15%.  While we would like to believe the odds grow smaller over time, the reports of terror episodes in other countries have not abated.  It is likely only a matter of time before we suffer a disaster that while not on the scale of 911, may temporarily bring a large segment of our commerce to a halt.  

We have increased the odds of another derivative event to 20%.  We have conclusive evidence that the skew provided by credit default swaps (CDS) and collateralized debt obligations (CDOs) incentivized parties to create uncertainty where none existed or to dramatize and exaggerate uncertainties to profit from short sales.  We need go no further than a recent NY Times article on the debacle that nearly took the country to ruin (see http://tinyurl.com/yejhqgd).  As well, we hasten to reference David Einhorn’s October 19th speech to the Value Investing congress (see http://tinyurl.com/ykcb3m5) wherein he claimed, “trying to make safer credit-default swaps is like trying to make safer asbestos.”  As you can see at bottom left, the $136 trillion in notional values for SWAPS comprises roughly two-thirds of all derivatives, and their share is still growing.  Over the years, we have continually referred to a worst case of 1% to 2% of notional values at risk.  Losses thus far from the 2007-2008 disaster are within that range.  The risks remain in place.  As always, it’s not a question of if, but when.  

Armed conflict remains at 15%.  The principal trouble spots appear to be limited to insurgencies but we worry about a re-ignition of an Iran-Iraq conflict that would disrupt fuel supplies as  Iran’s radical leadership attempts to re-focus opposition within the country.  Clearly, U.S. forces are already spread too thinly and any further confrontation would likely cause the markets great concern. 

There is also a modest chance that the Federal Reserve will at some point be forced to raise interest rates, even if the economy remains under pressure.  Add to the mix the odds of debt implosions, such as those seen in Iceland, Greece, Dubai, Spain and others, and we have the backdrop for increased uncertainty and the possibility of sovereign debt problems.  Uncertainty is never good for stocks. 

The above is the opinion of the writer and is for informational purposes only.

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Posted By thestatedtruth.com on January 9, 2010

U.S. apartment vacancy rate hits 30-year high
Thu Jan 7, 2010 1:01am EST
By Ilaina Jonas

NEW YORK, Jan 7 (Reuters) – The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump, according to real estate research company Reis Inc.

The report reflects the job market, which so far has stubbornly refused to follow positive economic indicators such as the stock market rebound and improved manufacturing demand.

Even large apartment landlords such as Equity Residential (EQR.N), AvalonBay Communities Inc (AVB.N), Essex Property Trust Inc (ESS.N), UDR Inc (UDR.N) and Post Properties Inc (PPS.N) have reduced rents and offered perks to retain and attract tenants.

Yet, the apartment market may still turn around this year if those out of work become confident enough about a job market recovery to move into a rental, Victor Calanog, Reis’ director of research, said on Thursday.

In addition, the supply of newly built apartments is winding down as the last projects funded before credit dried up start to open for business.

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Posted By thestatedtruth.com on January 9, 2010

Friday evening the FDIC released information regarding the first bank closure of 2010 Horizon Bank of Bellingham, Washington. The statistics regarding this closure are terrible. If it is indicative of things to come it will be a very rough year for the FDIC.

According to the FDIC, Horizon Bank had $1.1 billion in deposits and balance sheet assets of $1.3 billion; yet the FDIC’s estimated cost to close the bank is $539.1 million. That means the real market value of Horizon’s assets is believed to be about $561 million  41.5% of the value claimed. As has become the norm, the FDIC had to enter into a loss-share transaction with respect to $1.0 billion of the assets purchased, meaning there is significant concern the assets will turn out to be worth even less than presently estimated.

This cost of closing this bank amounted to 49% of the value of Horizon’s deposits  the highest relative cost seen so far in this crisis. By way of comparison, the cost of closing the first three banks in this crisis (in late 2007) was about 5.7% of deposits.

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