Category: Economy

American gamble or bluff: WTO members bet on Antigua | The Register

No Comments

When you look at the legislation, and the debate in the Congress, it was clearly about protecting US race tracks and casinos.

There are some movies that I would dearly love to download form Antigua, and they could manufacture some very cheap generics of high demand drugs.

The drug tourism should more than make up for the loss of gambling revenue.

American gamble or bluff: WTO members bet on Antigua

By Burke Hansen in San Francisco

Antigua yesterday filed for formal trade sanctions against the United States, demanding $3.4 billion in compensation from the truculent, recalcitrant super power for failing to open its domestic market to remote gambling services. Antigua, as expected, was not alone; the hottest online gaming market in the world, the EU, also filed for sanctions.

Antigua has been embroiled in a four year battle with the US over the provision of remote gambling services, and the WTO has repeatedly ruled against the US, in increasingly stern terms. After the US tried to insist to the WTO that it had brought itself into compliance without doing anything at all – a novel argument that riled the WTO compliance panel – the WTO issued a definitive and far reaching ruling in favor of Antigua, opening the door for sanctions for the tiny Caribbean country that has seen one of its principal industries pummeled repeatedly by the American Department of Justice (DOJ).

The rules of the WTO typically provide for traditional tit-for-tat trade sanctions, but for tiny countries like Antigua that depend heavily on imports, such an approach can be economically devastating, while doing virtually nothing to penalize the offending nation. The WTO thereby provides an alternative: countries may suspend their own obligations to the offending country. Antigua thus could sell unlicensed copies of American movies or software, for example, to compensate itself for losses resulting from the American actions.
…

More Housing Bubble Contagion

No Comments

As shown by this article, no one actually knows how much these collateralized debt obligations are actually worth.

What happens if the $800 million of securities sells for $700 million? What if they sell for $400 million? What if they sell for less?

A number of funds, and possibly firms, could become insolvent over night.

Bear Stearns Fund Collapse Sends Shock Through CDOs

By Mark Pittman

June 21 (Bloomberg) — Merrill Lynch & Co.’s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street.

A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.

Because there is little trading in the securities, prices may not reflect the highest rate of mortgage delinquencies in 13 years. An auction that confirms concerns that CDOs are overvalued may spark a chain reaction of writedowns that causes billions of dollars in losses for everyone from hedge funds to pension funds to foreign banks. Bear Stearns, the second-biggest mortgage bond underwriter, also is the biggest broker to hedge funds.

“More than a Bear Stearns issue, it’s an industry issue,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. Hintz was chief financial officer of Lehman Brothers Holdings Inc., the largest mortgage underwriter, for three years before becoming an analyst in 2001. “How many other hedge funds are holding similar, illiquid, esoteric securities? What are their true prices? What will happen if more blow up?”

…

“Bloodbath” In Housing

No Comments

The crash is here, it’s just not yet being reported on by the papers, because realtors buy too many ads.

Rate Rise Pushes Housing, Economy to `Blood Bath’
By Kathleen M. Howley

June 20 (Bloomberg) — The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors.

“It’s a blood bath,” said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. “We’re talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.”

…..

The increase in mortgage rates meant an 8% decrease in buying power in about a month.

Mortgage Woes `Tip of Iceberg,’ Bank of America Says

By Sebastian Boyd

June 22 (Bloomberg) — Losses in the U.S. mortgage market may be the “tip of the iceberg,” Bank of America Corp. analysts said today in a note for clients.

Higher interest rates have yet to affect many home owners who took out adjustable-rate mortgages, the Charlotte, North Carolina-based bank said. Interest payments on about $900 billion of the riskiest subprime home-loans are due to increase this year and next, the analysts wrote.

Bear Stearns Cos., the second-biggest underwriter of mortgage bonds, plans to assume $3.2 billion of loans to stop creditors from taking over assets of one of its hedge funds, people with knowledge of the proposal said. Concern about the collapse of the funds, which made bad bets on mortgage-backed securities, sent bonds and stocks of finance companies lower.

“The demise of two Bear Stearns managed leveraged mortgage funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration,” wrote Bank of America analysts led by Robert Lacoursiere in New York.

…

This is where the housing crash infects the rest of the financial markets.

Merrill takes over $800 million Bear hedge fund assets – Jun. 20, 2007

No Comments

I’ve post dated this a bit, because this is Very important, so it will be on the top of the list until about 5pm today.

The hedge funds are typically Highly leveraged, which means that this could start a house of cards type collapse.

Merrill takes over $800 million Bear hedge fund assets

A plan to restructure Bear Stearns’ funds heavily invested in securities backed by subprime mortgages gets thrown into doubt.
June 20 2007: 7:31 PM EDT

LONDON (CNNMoney.com) — Merrill Lynch has seized about $800 million of assets from troubled hedge funds managed by Bear Stearns, throwing in doubt the chances that the funds will survive.

By late Wednesday, Merrill Lynch had sold enough of the assets, which were used as collateral for loans made to the two funds, to cover its exposure to the ailing funds, the news agency Reuters reported.

The assets were were mainly bonds backed by other securities. More asset sales are expected Thursday.

Merrill Lynch (Charts, Fortune 500) declined to comment. Bear Stearns (Charts, Fortune 500) was not immediately available for comment.

The two funds suffered double-digit losses through April after making bad bets on securities backed by subprime loans, according to Reuters. The subprime market, which gives home loans to borrowers with weak credit, has been roiled by rising defaults.

….

I’m wondering if this might not take down Bear Stearns the same way that Barings Bank was taken down.

Economics Blog : Why Bernanke’s Great Depression Research Matters Today

No Comments

I think that this is a good rebuttal to the “Just make it tradable, and your problems go away” school of regulation.

Things like “Carbon Trading” encourage speculative money flows that eventually overwhelm the process for which the markets were created.

Economics Blog : Why Bernanke’s Great Depression Research Matters Today
–Greg Ip

Ideas that Ben Bernanke pioneered years before becoming Federal Reserve Chairman could prove important in evaluating how financial stress, such as the subprime mortgage mess, affects the economy.

Since becoming Fed Chairman, Mr. Bernanke has spoken on countless issues ranging from China’s economy to free trade. But to understand where his economic heart truly lies, read the speech he delivered at the Atlanta Fed today, “The Financial Accelerator and the Credit Channel.”

As an academic in the early 1980s, Mr. Bernanke pioneered the idea that the financial markets, rather than a neutral player in business cycles, could significantly amplify booms and busts. Widespread failures by banks could aggravate a downturn, as could a decline in creditworthiness by consumers or businesses, rendering them unable to borrow. Mr. Bernanke employed this “financial accelerator” theory to explain the extraordinary depth and duration of the Great Depression. (Much of that work was done with New York University’s Mark Gertler, now a visiting scholar at the New York Fed.)

A lot has changed since the 1930s, but the financial accelerator is still relevant. Although Mr. Bernanke doesn’t say so specifically, the record level of consumer leverage today means a change in asset prices (such as homes or stocks) can produce a much larger change in consumers’ net worth, and as a result their ability to borrow and spend. “If the financial accelerator hypothesis is correct, changes in home values may affect household borrowing and spending by somewhat more than suggested by the conventional wealth effect,” that is, the tendency of a changes in asset prices to make consumers feel more or less wealthy, and thus spend differently. That is because “changes in homeowners’ net worth also affect their … costs of credit.”

…

Renters Paying Almost Nothing in Rent.

No Comments

Seriously. This guy is paying just the condo fees and taxes, which means that the landlord is eating about $3000/month on this.

He’s doing it because the complex is empty, so he can’t sell what he has.

Renters hold cards in today’s market

By Dick Hogan
Originally posted on June 18, 2007

Lee County’s burgeoning skyscraper condominium market is a renter’s paradise — but a landlord’s hell.

Experts say as increasing numbers of condo units pour into an already overflowing supply of residential real estate, renters can almost name their price for even the costliest luxury units.

Jim Simon, for example, recently moved into a condo in the 32-story High Point Place in downtown Fort Myers, where the owners of its 105 units typically paid as much as $600,000 for the convenient riverfront location.

But Simon, a commercial real-estate broker, is paying only $1,350 a month — barely enough to cover the taxes and condo association fees.

“It’s like living in the Ritz-Carlton,” Simon said. “It’s got great amenities, it’s clean, it’s safe, it’s got a beautiful view.”

With only about 20 people living there, he practically has the place to himself, and with a number of similar projects under construction around downtown, he expects the good times for renters to last for awhile.

“It wouldn’t surprise me to see people get in for a little less than I’m paying,” Simon said.

The median condo resale price maxed out in February 2006 at $353,900, and by April 2007 the price had fallen to $244,100, down 31 percent, according to Florida Association of Realtors statistics.

As prices have fallen, so have rents. In late 2006 the average rent for a two-bedroom house was $940, down from an all-time high of $1,041 a year earlier, according to rental information service RealFacts.

Rents have continued to fall in recent months, as well, while the inventory of dwellings for sale stays at an all-time high of about 15,000, experts say.

Non-beachfront condos have been coming on line at an accelerating rate as well, in a trend fueled by speculators who bought pre-construction hoping to sell them quickly for a profit.

As a result, 829 new condo units in that category have been completed in the past 2€ years with another 1,769 under construction.

Owners are feeling the pinch on prices as renters have more to choose from.
A lot of people who bought condos as investments want to rent them out now because the market’s slow, said Joe Crimaldi of Rent SWFL in Fort Myers, who handles RENTALS leasing for condo owners throughout the area.

Not all equal

But not all skyscrapers are created equal, Crimaldi said.

For example, he handles leases in Riva Del Lago next to Lakes Park and Mastique on Bunche Beach Road, both in south Fort Myers, which he said are relatively easy to rent out. Riva Del Lago, which had three-bedroom units selling for more than $650,000, now has rentals around $1,500 a month. A three-bedroom condo in Mastique that sold for about $750,000 can be had for $1,750 a month.

…

Consumer sentiment weakest in 10 months

No Comments

Gas prices are not going down. Credit is tightening.

Inflation is consistently understated.

This is sanity entering the American psyche.

Consumer sentiment sinks to 10-month low

June index fell more-than-expected 83.7 on higher gasoline prices.
June 15 2007: 11:05 AM EDT

NEW YORK (Reuters) — U.S. consumer sentiment dropped unexpectedly sharply in June to its weakest in 10 months, as high gasoline prices dampened consumers’ mood.

The Reuters/University of Michigan Surveys of Consumers said the preliminary reading on the June consumer sentiment index showed a decline to 83.7 from 88.3 at the end of May.

The decline was much sharper than predicted by economists, who had forecast a median reading of 88.0 in a Reuters poll.

The decline was “hardly surprising,” the survey said, however, noting that U.S. gasoline prices have topped $3 per gallon for six straight weeks.

Chinese Gold Farming

No Comments

The fact that this underground meatspace economy exists in parallel to the cyber economy of World of Warcraft indicates that the “money” of this game is not properly valued.

What’s an economist’s take on what is going on here?

The Life of the Chinese Gold Farmer

By JULIAN DIBBELL
Published: June 17, 2007

It was an hour before midnight, three hours into the night shift with nine more to go. At his workstation in a small, fluorescent-lighted office space in Nanjing, China, Li Qiwen sat shirtless and chain-smoking, gazing purposefully at the online computer game in front of him. The screen showed a lightly wooded mountain terrain, studded with castle ruins and grazing deer, in which warrior monks milled about. Li, or rather his staff-wielding wizard character, had been slaying the enemy monks since 8 p.m., mouse-clicking on one corpse after another, each time gathering a few dozen virtual coins — and maybe a magic weapon or two — into an increasingly laden backpack.

Twelve hours a night, seven nights a week, with only two or three nights off per month, this is what Li does — for a living. On this summer night in 2006, the game on his screen was, as always, World of Warcraft, an online fantasy title in which players, in the guise of self-created avatars — night-elf wizards, warrior orcs and other Tolkienesque characters — battle their way through the mythical realm of Azeroth, earning points for every monster slain and rising, over many months, from the game’s lowest level of death-dealing power (1) to the highest (70). More than eight million people around the world play World of Warcraft — approximately one in every thousand on the planet — and whenever Li is logged on, thousands of other players are, too. They share the game’s vast, virtual world with him, converging in its towns to trade their loot or turning up from time to time in Li’s own wooded corner of it, looking for enemies to kill and coins to gather. Every World of Warcraft player needs those coins, and mostly for one reason: to pay for the virtual gear to fight the monsters to earn the points to reach the next level. And there are only two ways players can get as much of this virtual money as the game requires: they can spend hours collecting it or they can pay someone real money to do it for them.

At the end of each shift, Li reports the night’s haul to his supervisor, and at the end of the week, he, like his nine co-workers, will be paid in full. For every 100 gold coins he gathers, Li makes 10 yuan, or about $1.25, earning an effective wage of 30 cents an hour, more or less. The boss, in turn, receives $3 or more when he sells those same coins to an online retailer, who will sell them to the final customer (an American or European player) for as much as $20. The small commercial space Li and his colleagues work in — two rooms, one for the workers and another for the supervisor — along with a rudimentary workers’ dorm, a half-hour’s bus ride away, are the entire physical plant of this modest $80,000-a-year business. It is estimated that there are thousands of businesses like it all over China, neither owned nor operated by the game companies from which they make their money. Collectively they employ an estimated 100,000 workers, who produce the bulk of all the goods in what has become a $1.8 billion worldwide trade in virtual items. The polite name for these operations is youxi gongzuoshi, or gaming workshops, but to gamers throughout the world, they are better known as gold farms. While the Internet has produced some strange new job descriptions over the years, it is hard to think of any more surreal than that of the Chinese gold farmer.

…

Home Buyers: A Borrowed Dime Grows More Costly – washingtonpost.com

No Comments

Until about 5-6 years ago, I had never seen interest rates as low as 6.74% on a 30 year fixed, now it’s “Shockingly High”.

Rates have been unsustainably low for the past few years, and as opposed to making houses more affordable, they have monetized house prices (Driven price increases).

The historic rate has been around 9%. We can expect some overshoot, so I expect to see 15+% for a few months at least as the lending industry gets over its “mortgage for anyone with a pulse” hangover.

Home Buyers: A Borrowed Dime Grows More Costly

Higher Mortgage Rates Reflect Inflation Fears

By Nell Henderson
Washington Post Staff Writer
Sunday, June 17, 2007; Page F01

The price of money has gone up.

Or more technically, long-term interest rates have jumped in recent weeks, rattling the already slumping housing market.

When potential home buyers call for mortgage rate quotes these days, “they’re shocked; they almost don’t believe you,” said Jim Foley, senior vice president of George Mason Mortgage. “They’re quick to get off the phone to make more calls.”

The average rate on a 30-year, fixed-rate mortgage rose to 6.74 percent last week, up more than half a percentage point in four weeks, from 6.21 percent, according to mortgage financier Freddie Mac. That would boost the monthly payment on a $400,000 mortgage by $139.

Underlying the jump in interest rates was a shift in sentiment in the financial markets. Early this year, many investors worried about a possible recession, causing rates to fall. More recently, they have concluded that strong U.S. and global economic growth will sustain inflation pressures in the months ahead, pushing rates higher.

Consumers are also paying higher rates on new home-equity and auto loans than they would have two weeks ago. Many companies are facing higher borrowing costs.

…

Foreclosure Rate Hits Historic High – washingtonpost.com

No Comments

You have to remember that this is going on when interest rates are about a percent above historic lows.

We have a crash, the only question is when it becomes a panic.

Foreclosure Rate Hits Historic High

By Dina ElBoghdady and Nancy Trejos
Washington Post Staff Writers
Friday, June 15, 2007; D01

The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association.

As the association released its numbers, the Federal Reserve held a hearing to determine whether regulators could do anything to crack down on abusive lending practices, which have exacerbated the problem

The problems arose last year as the housing market softened, driving down home prices and making it more difficult for cash-strapped borrowers to sell their homes or refinance their way out of trouble.

The most dramatic fallout took place in the subprime market, which caters to people with blemished credit or other factors that make them a risk to lenders.

Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter. The percentages seem small, but they are far above norms, particularly in a healthy economy. The concern is that the mortgage industry’s troubles could damage the economy if they are not contained.

For more credit-worthy, prime borrowers, foreclosures rose slightly, to 0.25 percent, in the first quarter from 0.24 percent in the previous one.

New foreclosures for prime and subprime borrowers combined hit record highs. They rose to 0.58 percent on a seasonally adjusted basis, compared with 0.54 percent in the previous quarter and 0.41 percent a year earlier.

The high translates into about 254,591 mortgages, or one in 172 loans, the association said.

The problems weren’t uniformly spread around the country. Doug Duncan, chief economist for the mortgage bankers group, said the rate of new foreclosures would have dropped had it not been for big jumps in California, Florida, Nevada and Arizona. He said high rates in Ohio, Michigan and Indiana also drove up the overall percentage of loans in foreclosure.

Some who track the industry say the worst is yet to come.

…..

“Shrinkage”, aka Theft is Rising at U.S. Wal-Mart stores

No Comments

Gee, you treat you employers and suppliers like crap, and we are supposed to be surprised when they rob you blind?

Payback is a bitch, huh.

Theft rising at U.S. Wal-Mart stores

Theft rising at U.S. Wal-Mart stores
June 14, 2007: 06:25 AM EST

Jun. 14, 2007 (AFX International Focus) —

NEW YORK (AP) – businessminute
Shoppers at Wal-Mart stores (NYSE:WMT) across America are loading carts with merchandise — maybe a flat-screen TV, a few DVDs and a six-pack of beer — and strolling out without paying. Employees also are helping themselves to goods they haven’t paid for.

The world’s largest retailer is saying little about these kinds of thefts, but its recent public disclosures that it is experiencing an increase in so-called shrinkage at its U.S. stores suggests that inventory losses due to shoplifting, employee theft, paperwork errors and supplier fraud could be worsening.

…

PPI rises in May on higher energy costs – Jun. 14, 2007

No Comments

Prices are rising, but don’t worry, it’s only on sh%^ that we need to live.

PPI rises in May on higher energy costs

Producer Price Index up on higher energy costs; core prices increase in line with forecasts.
June 14 2007: 8:39 AM EDT

NEW YORK (CNNMoney.com) — Prices paid by businesses rose in May due to higher energy costs, as the latest inflation reading was roughly in line with Wall Street expectations.

The Producer Price Index, the government’s key measure of inflation at the wholesale level, was up 0.9 percent in May, compared to a 0.7 percent rise in April. Economists surveyed by Briefing.com had forecast a 0.6 percent increase. Energy prices were up 4.1 percent.

The more closely watched core PPI, which strips out often volatile food and energy prices, was up 0.2 percent, in line with forecasts of economists, although it’s up from the April report that showed no change in those prices.

…

I just love how the “important” inflation number strips out the stuff that we need to live.

More Signs that We are in for a Bumpy Economic Ride

No Comments

These “financial instruments” are not hedges, they are a highly speculative instruments to boost profits to satisfy share holders.

Between their core business tanking with problems with sub prime and Alt-A loans, and speculative derivatives, this will get ugly.

Freddie Mac falls into loss

Jun 14, 2007 08:17 AM
Associated Press

WASHINGTON – Freddie Mac, the nation’s second largest buyer and guarantor of home mortgages, reported a first-quarter loss of $211 million (U.S.), mainly from erosion in the value of financial instruments it uses to hedge against interest rate swings.

…

Mortgage Bond Funds Running Screaming for the Door

No Comments

This is an attempt to sell at fire sale prices, so they can get out before everyone is heading for the exits.

It is the start of a panic.

Bear Stearns fund scrambles to sell bonds

Hedge fund faces losses as it tries to sell about $4 million in mortgage-backed bonds to raise cash for redemptions, according to a report.
June 14 2007: 8:03 AM EDT

NEW YORK (Reuters) — A hedge fund managed by Bear Stearns Cos. Inc. is trying to sell large amounts of mortgage-backed bonds in a potentially troubling sign for the broader mortgage-backed bond market, The Wall Street Journal reported in its online edition.

Bear Stearns’ (Charts, Fortune 500) High-Grade Structured Credit Strategies Enhanced Leverage Fund is facing losses and, together with a sister fund, is trying to sell about $4 billion in bonds to raise cash for redemptions and to prepare for likely margin calls, according to the report, which cited people close to the fund.

Freddie Mac Ranks No. 50 on the 2007 Fortune 500 – Jun. 13, 2007

No Comments

I would not be surprised if they are completely off the Fortune 500 in a couple of years because of bad loans.

Freddie Mac Ranks No. 50 on the 2007 Fortune 500

June 13 2007: 10:51 AM EDT

NEW YORK (Fortune) — Freddie Mac (FRE (Charts, Fortune 500)) ranks no. 50 on FORTUNE’s list of America’s largest corporations.

The McLean, VA-based company was ranked No. [omitted in article] on the 2006 list. Its 2006 revenues were up 20.5 percent from the previous year; profits were up 3.8 percent from the previous year.

…

May import prices rise 0.9 percent, higher than expected – Jun. 13, 2007

No Comments

The dollar is falling, pushing up import prices, and interest rates.

This is going to get worse, hitting housing, and the stock market.

May import prices rise 0.9 percent, higher than expected

WASHINGTON (Reuters) — Import prices rose 0.9 percent, the fourth straight monthly gain, on higher petroleum costs, according to a Labor Department report issued Wednesday.

Wall Street economists were expecting to see a 0.3 percent gain in import prices following an upwardly revised 1.4 percent increase in April.

U.S. government bond prices fell Wednesday after higher-than-expected retail sales and import prices exacerbated bond investors concerns that the Federal Reserve might have to raise interest rates next year.

…

Some Interesting Pieces of Economic News

No Comments

Some news that, when taken together, sounds like a perfect storm.

This first one is most straightforward:

Home foreclosures leap 19 percent in May – Jun. 12, 2007
90% leap over last year; figure pushed up by slowing real estate market, subprime meltdown.
June 12 2007: 3:23 PM EDT

NEW YORK (Reuters) — Home foreclosures in May jumped 90 percent from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007, real estate data firm RealtyTrac said Tuesday.

The May foreclosures – a sum of default notices, auction sale notices and bank repossessions – totaled 176,137, up 19 percent from April, the firm said in its May
‘After a barely perceptible dip in April, foreclosure activity roared back with a vengeance in May,’ James Saccacio, chief executive officer of RealtyTrac, said in a statement.

‘Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,’ said Saccacio. ‘Certainly not every community nationwide is seeing an increase in foreclosures, but foreclosed properties are becoming more commonplace and adding to the downward pressure on home prices in many areas.’

RealtyTrac said there was a national foreclosure rate of one foreclosure filing for every 656 U.S. households during May.

…

The message here is very basic. We are headed for some VERY bad times in real estate.

Even if one assumes a 24% YoY increase in foreclosures in the next three years, that puts foreclosures down to about 1 filing for every 328 homes at the end of that, and we have a few TRILLION in mortgage resets on adjustable rate mortgages coming down the pipe.

I’m not sure if the market will drop significantly, or just become illiquid. The latter is MUCH worse, becaude it means that you can’t sell a house period.

The next one is a bit more complex. Basically, the private equity frenzy is being squeezed by higher interest rates. This is yet ANOTHER bubble, in this case, it is driving the stock market, and it looks to be close deflating

The people who really drive these deals make their money on the transaction, and if they can’t buy, then they will sell.

Rising rates threaten the buyout boom

A shift in the bond market could signal an end to the cheap money that has fueled the surge in private equity buyouts.
By Grace Wong, CNNMoney.com staff writer

By Grace Wong, CNNMoney.com staff writer
June 12 2007: 1:08 PM EDT

LONDON (CNNMoney.com) — Stephen Schwarzman, CEO of the Blackstone Group, took home nearly $400 million in pay last year and stands to reap billions when his firm goes public – a reflection of the booming success of private equity firms.

But the favorable conditions that have lined the pockets of Schwarzman and other kings of the buyout business are running into headwinds.

For years, Blackstone and other private equity firms – which have become the new face of dealmaking on Wall Street – have basked in an era of cheap money and low interest rates. But turmoil in the Treasury bond market is raising worries that this golden age may be coming to an end.

Bond pricesfrom Tokyo to Frankfurt to New York have sold off in recent weeks amid concerns that interest rates are marching higher worldwide. That’s pushed up bond yields and fueled worries that it will be harder to borrow money. Bond prices and yields move in opposite directions.

“This is the end of the cheap money cycle,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

In the United States, the yield on the benchmark 10-year Treasury note has kept pushing higher since it eclipsed the key 5 percent level last week. Early Tuesday, the yield was around 5.21 percent, up from 4.88 percent just two weeks ago.

Analysts say the rise in bond yields means bond investors are finally coming to terms with big changes in the global economy – such as rising commodity prices and rising labor costs in former low-cost countries like China – and many expect long-term yields to keep heading higher.

…

Finally, we have inflation heating up in China. This means that the Chinese central bank will have have to raise interest rates, which will have the effect of strengthening the Chinese Yuan, which will have the effect of weakening the dollar, increasing US inflation.

This will likely, for both currency and inflation reasons, lead to increased rates from our central bank, the Fed.

Food costs send inflation in China to 27-month high – Jun. 12, 2007

Rising cost of pork sends food prices soaring in May; more interest rate hikes expected.
June 12 2007: 3:50 AM EDT

BEIJING (Reuters) — Surging food prices boosted China’s annual consumer price inflation in May to a 27-month high, extending a rising trend and reinforcing expectations that interest rates will rise further.

Inflation quickened to 3.4 percent from 3.0 percent in April, the National Bureau of Statistics said on Tuesday, as food prices, which make up a third of the consumer basket, rose 8.3 percent from a year earlier and a shortage of pork caused meat prices to jump 26.5 percent.

The overall inflation figure was in line with the median forecast of a Reuters poll of economists, but Shanghai’s benchmark stock market index fell as much as 2.1 percent at one point on expectations of tighter monetary policy. It recovered in early afternoon to stand 0.65 percent higher.

…

You Know Housing Sucks when the San Diego Paper is Pessimistic

No Comments

So much of their revenue of all papers comes from realtors ads that they are universally cheerleaders for real estate.

Just a few months ago, they said it would be over in the 2nd half of 2007, now it’s “Well into 2008”.

I was in the Massachusetts real estate crash in the late 1980s/early 1990s. It was local, and relatively small.

It took 2-3 years to get back to normal, and the price drop was far less than we will see here.

This will be 5-10 years.

Subprimes, affordability cited for industry’s woes

By Emmet Pierce
UNION-TRIBUNE STAFF WRITER

June 12, 2007

The implosion of the subprime mortgage market is likely to prolong the national housing slump, Harvard University researchers said yesterday in their annual report on the state of the nation’s housing.

“At a minimum it will slow any recovery,” said Nicolas P. Retsinas, director of Harvard’s Joint Center for Housing Studies, which issued the report. “Add to that the overbuilding and the inventory correction and you can see why it appears, particularly for the new-home market, that this slump will last well into 2008.” (emphasis mine)

Housing-industry analysts say the riskiest subprime adjustable-rate loans were made in 2005 and 2006. As they reset at higher interest rates through 2008, they are likely to fuel the current surge in foreclosures.

As lenders move to tighten loose credit standards and prevent defaults, it will become harder and harder for subprime borrowers to refinance into more affordable loans, Retsinas said.

…

This is Bullsh$#!

No Comments

Here is the problem: You want the most numerate students entering college to select a profession where pay is marginal, layoffs are rife, status is low (how many engineers have a secretary?), the positions are constantly under threat of outsourcing, and your bosses are technically and mathematically illiterate morons.

So you are saying, “Gee you have special and valuable skills, how about taking a low paying job for a career where you will be dumped for younger cheaper labor when you are in your 40s.

Had I thought more about the real world, I would not have gone into engineering school. I would have gone into business school, made my millions, spent my two years in a low security prison playing ping pong with Jack Abramhoff, and have gotten out with three homes, 5 cars, and my kids college education fully funded.

If you want more people to be engineers, pay them more and make their employment more stable.

Engineering Encouragement for Youth(Subscription Required)
Aviation Week & Space Technology
06/11/2007, page 13

Edited by Patricia J. Parmalee

Printed headline: Engineering Future Talent

A New Jersey fifth-grader will get a taste of the future this summer as winner of a Lockheed Martin-sponsored essay competition, a part of its national Space Day initiative. Victoria Geyer’s entry earned her a spot at Space Camp at the U.S. Space & Rocket Center in Huntsville, Ala. See http://www.spaceday.org. And BAE Systems has launched a nationwide competition offering a team of students the chance to be ‘test pilots for a day’ at their Military Air Solutions site in the U.K. where they will fly the Typhoon simulator. See http://www.baesystemseducationprogramme.com

Greenspan Being Fingered As Allowing Subprime Meltdown

No Comments

Finally!!!! It’s about time that he gets credit for the mess that HE made.

Greenspan rejected proposal to tighten subprime lending – Jun. 9, 2007

Former Fed governor says Greenspan blocked proposal to crack down on subprime lending practices.
June 9 2007: 2:21 PM EDT

(CNNMoney.com) — Former Federal Reserve Governor Edward Gramlich claims that former Fed Chairman Alan Greenspan blocked a proposal to crack down on subprime lending practices back in 2000, according to The Wall Street Journal.

Gramlich, who was Fed governor from 1997-2005, says he proposed the idea to Greenspan personally, The Journal reported. He suggested that the Fed send examiners into offices of lenders that were units of Fed-regulated bank holding companies. He claims Greenspan – well-known for his deregulatory practices – rejected the idea.

He was opposed to it, so I didn’t really pursue it,” says Gramlich, who is now a scholar at the Urban Institute.

Subprime lending practices – giving high-interest loans to individuals with poor credit history – became increasingly popular during the real estate boom of the last several years. But since 2006, subprime borrowers have been defaulting at alarming rates, putting downward pressure on the overall housing market.

The Democratic Congress is now pointing fingers at regulators – particularly the Fed – for failing to prevent the subprime fallout.

When asked about the proposal, Greenspan claimed he did not recall the specific conversation with Gramlich, but did confirm that he was opposed to the idea, for fear that “Fed-inspected” lenders might give borrowers a false sense of security.

…

This is crap. Alan Greenspan was a close friend of Ayn Rand, and has always had a visceral opposition to any government programs.

Witness social security, where he was part of the panel that came up with the fix in the 1980s, and then immediately started to suggest that the program be dumped.