Category: Economy

George W. Bush Can Kiss My Shiny Metal Ass

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Well, it now appears that the lamest lame duck since Nixon announced his resignation 18 hours hence is now warning about the dangers of over regulation of a free market economy.

It appears that he is concerned that the G-20 meeting will result in calls for additional regulation to keep the Harvard Business School types from raping the general public.

So, George W. Bush, a man who was born on 3rd base, and thought that he had hit a home run,* can kiss my shiny metal ass.

*Yes, I know that I am mixing my metaphors. So sue me.

Economics Update

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Well, Calculated Risk has your daily inventory of interest ratescredit crisis indicators, and today, they are pretty neutral.

In Hank Paulson and His Evil Minions™ news, he has finally publicly eschewed the idea of buying distressed assets.

I think that the reason for this is that the sales price would either be so low that all of his Wall Street friends would be technically insolvent, or so high as to land his corrupt ass in jail, because the big sh$#pile is near worthless. That’s why there is no market. Wall street cannot handle the truth.

It also looks like he will start requiring some level of private capital to match any bailout money. My translation is that now that he’s bailed out his Wall Street friends, anyone else who wants money needs to work for it.

Of course none of this will do much for the economy, with estimates that holiday sales will drop 1%, the first decrease since 1985, and home values falling for the 7th straight quarter.

What we should be thinking about is not how to rescue Wall Street, but rather how to amputate it from out economy, because these parasites are on a path to destroy more than 10% of US GDP.

Speaking of parasites, it looks like GE capital just got the FDIC to insure $139 billion of their debt. It appears that, “GE’s finance businesses are able to seek FDIC debt coverage because its GE Capital subsidiary also owns a federal savings bank and an industrial loan company, both of which already qualify.”

Like I said, parasites.

In the mean time, recession worries drove oil down again today, to a 21 month low, and it appears that the world thinks that the UK is in worse shape than the US, because not only was the dollar up today, it hit a 6-year high vs. the pound.

If you are worried about a resurgent Russia though, you have less to worry about, with Russia easing up support on the Ruble, which promptly fell.

Economics Update

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Well, it’s a bank holiday, so it’s a little bit slow, but the fact that American Express is filing to become a bank holding company, so that it can take part in the Federal Reserve’s sh&%pile for cash program.

My guess would be that they are seeing their default rate going up, and that they can’t find anyone to buy the debt.

In retail, General Growth Properties, the 2nd largest mall operator in the US, said that it may file for bankruptcy protection, and National Wholesale Liquidators filed for bankruptcy.

In other impending bankruptcies, option ARM lender Downey Savings and Loan just said in it’s 10Q that it cannot see a way to avoid being taken over by the Office of Thrift Supervision.

Most of the interest rate indicators were unavailable today because of the holiday, but the LIBOR (the L stands for London) was down a bit again today.

Also from that little island off the coast of France, retail and home sales are heading south quickly there too.

The joys of Anglo-Saxon capitalism, I guess.

In any case, there is no joy in Mudville, if by Mudville you mean the real estate market, so Fannie Mae and Freddie Mac have instituted a new program to modify mortgages to minimize foreclosures.

I still think that bankruptcy changes are the best solution here.

In any case, the impending recession drove oil to a 19 month low, and drove the dollar up, as people tend to flee to the dollar in bad times.

Falling oil is also absolutely killing the Ruble, which appears to be on the brink a devaluation.

The, “He’ll Take Our 401(k)” Myth

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You’ve probably seen the email….Somehow, I mercifully missed screaming that “Bqrack Obama will take your 401(k)/403(b) to finance something….Not quite sure what….Maybe an arms for hostages swap, but that seems to be Republican foreign policy.

Not surprisingly, this is complete crap. Generally the finger is pointed at Education and Labor Committee Chairman George Miller (D-CA) for this scheme, and there are two very small grains of truth.

The first is that Miller he wants to regulate, not take 401(k)s, specifically, he’s talking about reigning in fees, which will mean, of course, lower fees, but also mean less aggressively managed portfolios, because aggressively managed portfolios are more expensive, since aggressively managing anything takes resources.

In the long run, since stuff like S&P 500 funds beat actively managed funds, particularly when fees are taken into account, this would be a good thing, as people who lose their retirement in Emu farms generally run screaming for a taxpayer bailout.

The second grain of truth is that Teresa Ghilarducci has this pet program that she touted as a witness at the hearing: that 401(k) holders be allowed to voluntarily trade in their 401(k)s for a so called, “Guaranteed Retirement Account”. She also suggests that in the long term the pre-tax income features of 401(k)s be abolished and be replaced with a retirement plan with guaranteed payout (which sounds an awful like what social security already is).

It’s guaranteed benefits, as opposed to guaranteed asset, a return to the pensions of old.

I’m not sure of her concept, though on the face of it, it seems to be a better one than the Chilean model, where broker fees, and the market depressing effects of large population echelons end up leaving people with far less than they anticipated.

Of course the real conundrum of defined asset retirement plans is the equation that if you die young, you win.

Economics Update

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Let’s start with retail, where the inestimable Barry Ritholtz points us to a pretty picture on the retail collapse from the NY Times (click on image for the NY times article):

I would note that the 4 weeks before November 1 are now firmly part of the Christmas season, and the Christmas season is typically 40% of revenue, and 80% of profits.

In related news Circuit City files chapter 11, this should come as no surprise for the people who have followed this sad tale, as was predicted when they laid off senior sales staff and replaced them with clueless low wage drones while issuing large executive bonuses: (Story dated December 22, 2007)

Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing with the Securities and Exchange Commission.

If you don’t have competent sales staff, then why won’t your customers go to the Amazon and Walmart?

Karma, Neh?

In the world of mortgages, we have Fannie Mae Posting a ecord $29 billion loss for the quarter, which is actually worse than it seems, since the last quarter’s profits were largely from banking losses as tax breaks.

It will likely never see those tax breaks, because a profitable year is so far off.

Yesterday, it was monoliner Ambac, today, Moody’s cuts MBIA. No surprise….dead insurers walking.

Meanwhile, in energy, it appears that the House of Saud is actually adhering to the OPEC oil production cuts, which along with China’s announcement of a $586 billion stimulus package should drive commodities up.

The Russians are hoping that it will work, as falling oil prices seems to indicate a devaluation in the Ruble.

So far, it appears to be working, oil finished the day up $4.52/bbl….Good for them, bad for us.

In any case the Chinese stimulus package has had the effect of driving the dollar down, though I’m not sure why…I just don’t know the underlying theory.

Carnegie Taken Over by Swedish Government, to Be Sold

Finally, we have a report from Calculated Risk on credit crisis indicators:

  • Libor down (good)
  • 3 month treasury yields down (bad)
  • TED spread up a smidgen (a smidgen bad)

They also have a nice scare picture of the Federal reserve balance sheet here:

Basically, it’s how much of the sh%$pile that the Fed owns, and this is fracking terrifying.

Economics Update

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Unemployment rose to 6.5% from 6.1%, a 14 year high, and total non farm employment fell by 240 thousand.

Can we call it a recession already?

If not, how about I draw you a picture:

Meanwhile, the Institute for Supply Management’s manufacturing report fell to 38.9%, the worst number since September 1983.

And, just so now, the real estate recovery ain’t coming soon, not with Property & Portfolio Research Inc. the New York City metro commercial property vacancy rate hitting 17.6%.

FWIW, they had predicted a peak of 13% 3 months ago, but it’s already at 12%.

Meanwhile the National Association of Realtors® says that pending home sales fell 4.6% in Septmeber.

At least we are not in the UK, where house prices fell 15% year over year.

That being said, some of the indicators for the finance market appear to be moderating, with spreads edging down, and money flowing back into mutual funds for the first time in 3½ months.

Additionally, it looks like consumers are using their credit cards a bit more.

The bad economic news news has driven the dollar down, and the weak dollar appears to have beaten recession today on the oil markets, where crude is up a smidgen.

Not surprisingly, Gasoline is down at the pump, the 51st day in a row.

Economics Update

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Jeebus! The Bank of England cut it’s benchmark interest rate 150 basis points (1.5%)…To 3%.

That’s not strong action, that is TEOTWAWKI panic.

The ECB and the Swiss central bank also cut rates, by 50 basis points…The central banks think that we are in end of the world territory.

As further evidence, we have the ECB’s president saying that there may be more rate cuts.

This from an institution that’s only charter is to fight inflation.

Not surprisingly, all these rate cuts had the effect of sending the Dollar and Yen skyrocketing.

Meanwhile, jobless claims dropped a bit, but only through “Jedi Mind Trick” statistics:

The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, ….

The department revised up its estimate for jobless claims in the prior week to 485,000 from a previously reported 479,000.

So comparing initial estimates, it went up by 2,000, but after the “correction”, it was down by 4000.

In any case, the number sucks, and continuing unemployment claims are the highest that they have been since 1983, when unemployment topped 10%.

It won’t help that retail sales fell to their lowest levels in at least 39 years…..It may be longer, but they only started collecting the statistics in 1969!

Interest rates on interbank lending trending down, but considering all the interest rate cuts, that is pretty unavoidable.

I think that it is more significant that credit card companies were unable to sell bonds at all for the first time since 1993, and when you consider that they charge something north of 20% on carried balances, that is ugly.

BTW, y friends the monoliner bond insurers are back again, with Moody’s cutting Ambac to ‘Baa1’.

It should surprise no one that with massive indications of a deep recession, and the dollar up, oil fell again to $60.77/bbl.

Economics Update

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Calculated Risk: Fannie Mortgage Bond Spreads Decline

Well, we have payroll services firm ADP saying that job cuts in October totaled 157,000, above the 100,000 predicted, with September numbers up too, and Challenger, Gray & Christmas, the grim reapers of the corporate world reporting that more firms are planning to cut jobs.

Meanwhile the ISM’s non-manufacturing index, an index of the service economy, fell to 44.4 the worst number recorded since the index was created in 1997.

It’s not just the US either. U.K. factory output is dropping like a stone.

In the credit crunch, while gross interest are improving, the spreads between these interest rates and treasury notes remain high.

For example, the LIBOR rate has fallen to 2.51% from 4.82% on 10/10, but the spread remains 151 basis points (1.51%) over the Fed’s target rate

Prior to the credit crunch it averaged 22 basis points.

This may be mortgage applications are down, banks are still skittish, and costs are higher.

This is a normal response by banks when you consider that you have things like the bath that Glitnir swap sellers took. They look to being left with 3¢ on the dollar.

The swaps in question are a sort of bond insurance, so it’s no surprise that the two largest, monoliners Ambac and MBIA just posted big losses.

It appears that there are expectations of more rate cuts, as the dollar is down, though paradoxically, so is crude oil….Normally, they tend to move in opposite directions.

Quote of the Day: Alan Greenspan’s Woman

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Dean Baker on Andrea Mitchell on Obama cabinet appointments:

I usually don’t watch much television news. When I do, I realize why. I saw Andrea Mitchell tonight talking about who President Obama will turn to for help in dealing with the financial crisis. The first two names were at the top of the list of people who gave us the financial crisis: Robert Rubin and Larry Summers. This would be a bit like turning to Osama Bin Laden for aid in the war on terrorism.

(emphasis mine)

On a deeper note, Andrea Mitchell is about as close to ground zero on conventional wisdom as one could get, and so the general level of clueless of the Beltway Boyz™ is just a complete mind f^%$.

Economics Update

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Well, it looks like the credit crunch is thawing a bit, as the dollar LIBOR and the TED Spread have both dropped over the past few days.

Of course, banks are still not lending to anyone other than each other, though.

Yesterday, I mentioned the ISM’s manufacturing index falling. Well today, it’s the full report from the Commerce Department, with factory orders falling 2.5%, seasonally adjusted, which was more than 3 times the predicted number.

In the mean time, the dollar fell the most against the euro since 1999, 2.7%, which is kind of odd, since the stock market was up strongly, in what I call the “No More Bush Rally”.

I think that this is all election arbitrage, kind of a financial rain dance, as is today’s bump in oil prices.

In any case, I would expect that the ECB will be cutting rates soon, which should further buttress the dollar, as their producer price inflation numbers came in below expectations.

Still, we are not out of the woods, as evidenced by soaring bankruptcies in October.

Economics Update

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I guess the news from the central banks is as good a place to start as any.

It looks like the the Federal Reserve’s initiative to buy commercial paper is bearing fruit, to the tune of $145.7 billion between October 27 and October 31….Annualize it out, it’s about 7.6 trillion a year.

I also must note that the Bank of Japan cut rates for the first time in 7 years.

It also looks like the ECB will be cutting rates at their next meeting, because Euro Zone inflation numbers were low.

I’m not sure that it’s going to help when consumer spending is falling, by 0.3% in September.

Remember, even though it seems a very long time ago, the Lehman collapse was on September 15, halfway through the month, so the October will likely be worse.

In real estate, one of the leading indicators, the Architecture Billings Index, which presages construction by 9-12 months just dropped off a cliff.

This ain’t no ‘V’ shaped recession.

In any case, the oncoming recession has significantly lowered commodities prices in October, even oil, which posted a record drop, though it was up yesterday to $67.81/bbl.

GMAC is looking at becoming a bank and restructuring extensively.

Finally some historical chart pr0n, graphs or recent market crashes:

VERY scary image courtesy of Calculated Risk.

Click image for full size graphic.

Economics Update

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First news is a question, can we please admit that we are in a recession? Please?

The economy contracted at an 0.3% annual rate last quarter, with a a 6.4% rate decline on purchases of non-durable goods, and a 3.1% rate decline on consumer spending.

This is not just a “recession”. This is a big MoFo.

There are predictions of a rate approaching 5% in the 4th quarter.

In any case, credit remains tight, though there appears to be some loosening, see here and here.

We are also seeing the first growth in commercial paper since the collapse of Lehman.

However, we also just saw 30 year mortgage rates spiked by 40 basis points, even though the Fed cut rates.

This ain’t over, and the Japanese have released details on a ¥ 5 trillion stimulus package, and the Germans have done so with a €30 billion stimulus package.

Still, the sounds of an oncoming train continue to drive oil prices down.

The dollar and Yen are both lower too.

Economics Update

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Well, the Federal Reserve cut the federal funds rate by 50 basis points (½%) as expected.

the Bank of China cut its rates too, for the 34d time in 6 weeks.

In response, the dollar dropped the most since 1998, (this article says since 1985) which is what is supposed to happen when you cut rates, people go elsewhere looking for higher rates of return.

Unfortunately, driving down the dollar is probably all it did. Below a certain level, the difference between the rate set and 0% (giving money away) becomes pretty immaterial, and I think that we are pretty close on this. That’s what my oft repeated phrase, “pushing on a string” means.

I would also note that the falling dollar pushed oil prices higher, which I’ll qualify, so as not to invoke the wrath of Dean Baker, since oil is dollar denominated, a falling dollar does not do anything directly, but it does effect the positions taken by traders in the oil futures market.

In any case, the monoliner insurers are back in the news, with Ambac wanting a capital infusion from the government, but MBIA saying that the money should instead go to assets that they insure. New York State Insurance Commissioner Eric Dinallo agrees with Ambac.

I think that MBIA’s proposal is a bigger bailout, since it means that they have less to pay on the sh^%pile without giving an ownership stake to the feds.

In any case, it looks like the Treasury and the FDIC are working to do MBIA’s bidding, with more signs of plans to buy bad mortgages.

BTW, here is a story to follow, the SEC is looking at tightening rules on credit rating agencies. The story I linked to has 2 ‘graphs, but when the details start coming out, this will be important.

The systemic failure of the ratings agencies is at the core of much of this problem.

Speaking of failures, the Treasury just bought $125 billion in stock in the big boys:

The report showed that the payments included $25 billion each to Citigroup Inc. (C, Fortune 500), JPMorgan Chase & Co. (JPM, Fortune 500) and Wells Fargo & Co. (WFC, Fortune 500) Bank of America Corp. (BAC, Fortune 500) received $15 billion andMerrill Lynch & Co. (MER, Fortune 500), which is being acquired by Bank of America, got $10 billion. Bank of New York Mellon (BK, Fortune 500) received $3 billion and State Street Corp. (STT, Fortune 500) of Boston got $2 billion.

Really about the only good news that I’ve heard today is New York GA Andrew Cuomo getting medieval on senior bank management:

NEW YORK (Reuters) – New York Attorney General Andrew Cuomo, who negotiated executive payment clawbacks by American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) as it received a taxpayer bailout, warned nine banks receiving government money on Wednesday that using the funds for bonus payments may be illegal under state law.

….

“Specifically, corporate expenditures and payments, made in the absence of fair consideration of undercapitalized firms, may well violate NY Debtor and Creditor Law 274, which deems such payments illegal fraudulent conveyances,” Cuomo’s letter said.

Obama really needs to give this guy a senior post if he’ll take it.

Iceland,Ukraine, Hungary to get IMF’d

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Icelnad has gotten a deal for a $2 billion loan from the IMF. That’s about $6250.00 for every man, woman, and child on the island. They could not cut a deal with the Russians who, my wild-assed guess here, wanted some naval basing consideratins.

There are conditions, such as, “Iceland said it would use the funds to reintroduce a flexible interest rate regime and revise its financial regulation, particularly insolvency laws.”

What does that mean, for a start it means that Iceland’s central bank just raised rates to 18%.

As to the insolvency laws, my guess is that they were told to change the laws so that foreign investors are at the front of the line, and that those debts could not be discharged at all.

Iceland has just become 320,000 people working for foreign masters.

Ukraine is well along the way to the same fate, with the IMF demanding budget cuts in the middle of an economic downturn.

This is the sort of policies that created the Great Depression following the stock market crash.

There has also been a deal cut between the IMF and Hungary, but I don’t have details.

As I’ve said before, let’s see how free market fundamentalist the IMF goes on white people. I think that it will be far more gentle than it would be if the people were black, brown, or yellow.

Not Enough Bullets: A Continuing Series

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Well, now that Merrill Lynch was forced to sell itself to Bank of America, some of it’s employees are feeling insulted by the retention packages offered:

The problem isn’t with high-flying producers bringing in at least $1.75 million in annual revenues. Those employees will most likely get 100 percent of their annual revenue as a retention bonus, spread out over seven years. The bad feelings are among those making less. A financial advisor producing $700,000 in revenues is being offered $175,000 in cash over seven years and a 25% growth bonus over three years. Manis says that same producer could get a lot more defecting to a competitor—”around $850,000 in cash on about a 9 year deal plus another $700,000 or so back end bonuses (after one to two years).”

Yeah, because so many investment banks are hiring so many people right now…..You have options.

Seriously, the unbridled sense of entitlement of these folks just buggers the mind.

These people are overpaid used car salesmen, and as has been shown over the past few months, their advice is less reliable than my cats, who at least don’t try to conceal their self interest.

In the mean time, RJ & Mckay, a financial services body shop has a video out to try and generate some recruiting fees:

The Greenspan Putz

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No, it’s not a typographical error, it’s a great play on the concept of, “The Greenspan Put“

The indispensable Barry Ritholtz of The Big Picture found an article of that title by Alan Kohler:

The Greenspan putz

…

As Alan Greenspan said in his testimony to Congress last night: “With … home prices rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, (mortgage securities) were wrongly viewed as a ‘steal’.”

Unsophisticated investors didn’t stand a chance.

Now the “steal” is going to work the other way. Mortgage securities vehicles everywhere are being liquidated because their risk is being repriced – in most cases dramatically, to the point where investors don’t want their money in them at all.

….

I am amused, though I would disagree with the characterization. A putz has a head.

This has been another episode of Yiddish vocabulary.

Economics Update

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OK, the markets went wild on the expectation that the Fed will cut rates tomorrow….I’m not impressed, truth be told….As I’ve said before, I think that the Fed is pushing on a string with interest rates.

What is or more interest is the fact that the Federal Reserve’s intervention in the commercial paper market has appeared to raise rates, rather than lower them. From Bloomberg:

Yields on commercial paper rose as the Federal Reserve began buying the debt directly from companies, showing the central bank’s efforts to unfreeze short- term credit markets have yet to take hold.

I think that the Fed is looking at a monetary solutiuon, when the solution is government legislation and government spending.

Still, this has not stopped GMAC from going in with the Fed’s commercial paper facility.

BTW, the Fed is doing something else, currency swaps with other central banks, most recently the Central Bank of New Zealand, though it has set up similar arrangements with Australia, Canada, and Japan too.

It’s supposed to help maintain liquidity, but I have no clue how this works. Anyone want to explain this to me?

What I do understand is the Federal Reserve going into the commercial paper market in the US. Ge just borrowed $5 billion from the fed.

Of course, even there, there is stuff that I don’t get, like why is the Federal Reserve starting to buy foreign commercial paper?

In any related news, the Treasury is looking at extending the bailout to privately held banks, though one wonders how they get a meaningful equity stake, as Bush Paulson and His Evil Minions™ had promised for any direct aid.

I’m not sure if this is working, as is noted at Calculated Risk:

  • 3 month treasuries are essentially unchanged.
  • TED spread is marginally better.
  • The two year swap spread is a bit worse.

Of course, that is just the world of banking. In the real world, the perceptions are actually worse, with the Conference Board’s measure of Consumer Confidence hitting the lowest reading ever recorded, dropping to 38 from September’s 61.4

This graph (click for full size), courtesy of Calculated Risk, of the Case Shiller numbers and makes a good counterpoint to the most recent housing data, also from Calculated Risk, and it is rather grim.

Short form, house prices are retrenching in a major way, and I would expect significant overshoot on the way down:

  • The Composite 20 index is off 20.3% from the peak.
  • The Composite 10 is off 17.7% over the last year.
  • The Composite 20 is off 16.6% over the last year.

In energy, oil has continued to fall rapidly, and I think that I have finally come across a good reason for this, which I will cover in a separate post.