Category: Finance

Economics Update

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While the (only relative to prior months) good job numbers for July got their own post, there is other news out there.

Most notably, conflicting figures on two important economic indicators, with the Baltic Dry Index hitting a 10 month low, indicating that international shipping is hurting, but the July Manufacturing hour numbers up.

Not surprisingly, the job numbers increased risk appetite, and so Treasuries fell, and their yields rose, as people pulled out of them in search of a greater return.

Currency and energy have me confused…..Good jobs news should push the dollar down, as there is less of a flight to safety, and oil up, as it signals increased demand, but today, the dollar rose sharply, and oil fell.

You know, as much as I blog about this stuff, I really don’t have a damn clue.

This is a Sloppy Blowjob

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It appears that the mortgage industry has rolled out an industry “self regulation” group to forestall meaningful regulation by the government, and the New York Times presents it as the biggest move towards honesty since the birth of Jesus:

The Fair Mortgage Collaborative, a consortium of lenders, brokers and mortgage technology providers, made its debut in June with financial backing from the Ford Foundation, among other groups. Its purpose, the organizers say, is to make only those loans in a borrower’s best interest and to identify and certify the lenders that adhere to certain strict standards.

Because self regulation has worked so f%$#ing well in the past.

Bob Tedeschi, there is some semen on the corner of your mouth.

Foreclosures Have Not Yet Crested

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It’s still getting worse, and the commercial real estate crash is still on the way.

You will notice dips in foreclosures (purple) and REOS (yellow), but delenquencies have continued to increase unabated:

90 day delinquency rate: “everything 3 months late or more. Likely includes most all Foreclosures in Process. The categories are not separate.”

Foreclosure Rate is actual foreclosures in process: “Everything with NOD [Notice of Default] and Trustee’s Sale filing.”

REO Rate: “Everything foreclosed but still held by bank or servicer. This category is separate from other two.”

What we are seeing here is not a reduction in foreclosures, but delays in foreclosures, that are in response to regulatory changes at the federal and state level.

People still can’t pay their mortgages, and with half of all mortgage holders expected to be “under water” by 2011, we will be seeing more “walk-aways” and “jingle-mail”

The most effective solution is to make “Cramdown” legal again, as it was during the first 210 years so of the republic, but it won’t happen with the current crew in Washington, at both ends of Pennsylvania Avenue.

Economics Update

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Yes, it does appear as if things may be bottoming in this pic, H/t Calculated Risk

So, initial unemployment claims fell by 38,000 to 550,000 (seasonally adjusted), which is good, but continuing claims* rose by 69K to 6.31 million, and this number does not include folks who have exhausted benefits, and those who are getting extended benefits, and any number much above 400K is bad news anyway, so this week is just less bad than expected.

We’ve also now had a 5th straight month of pending home sales increases, which seems like good news, though the foreclosure rate seems to still be on the “getting worse” side of the trend, (more in another post) and this includes the fact that somewhere between 30% and 50% of current home sales are in some manner distressed sales.

It’s likely that the continued rise in bankruptcy filings (click on pic for bigger picture), has a lot to do with this.

BTW, this is one of the problem that I have with the Obama/Geithner/Summers “stimulus”: it has very little to do with ordinary people in pain, and a lot to do with keeping the banks healthy.

The fake economy is a higher priority than the real economy.

Which is why the Institute for Supply Management’s Non-Manufacturing Index and the Manufacturing Index both fell again in July, while in the UK, where the stimulus was, you know, stimulus, and not a half baked plan which included inefficient tax cuts, and genuflecting to conservatives in the name of “bipartisanship”, manufacturing rose for the first time in 16 Months.

We do have some good news in real estate, with June pending homes sales increased for the fifth straight month, though I’m still of the opinion that this is largely vulture investors looking for cheap bargains.

Additionally, mortgage rates fell, though one cannot be too certain about how long that will last, as the yields on the mortgage backed bonds hit a 2-month high.

In any case, the good initial claims numbers strengthened the US dollar, which in turn pushed oil down from yesterday’s 6 week high.

*Full disclosure, this includes me…..Any engineering openings in the greater Baltimore area would be very much appreciated.

Federal Reserve Consumer Protection Theater

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With the Federal Reserve actively lobbying to become the sole protector of consumers in the financial system, it was inevitable that they would have to engage in some consumer protection theater so as to make people forget just how badly they have fumbled this ball over the past 30 years or so:

The Federal Reserve on Thursday proposed sweeping new consumer protections for mortgages and home-equity loans.

The proposals seek to overhaul the timing and content of disclosures to consumers, and to ban controversial side payments to mortgage brokers for steering customers to higher-cost loans.

The cow has left, so now they are closing the barn door, in the hope that they can continue to manage the herd.

The Federal Reserve really does not want a dedicated consumer financial protection agency, because it would engage in real consumer protection, which, based on the record of both the Federal Reserve and its New York bank (*cough* Timothy Geithner *cough*), have not done, choosing instead to pimp for Goldman Sachs and its ilk.

Revenge of the FASB

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Following the humiliating climedown by the Federal Accounting Standards Board (FASB) on mark to market in April of this year, where they re-enabled fantasy accounting, because of pressure from whores Congress and financial services industry, it now appears that the FASB has found its inner punk, and is saying that it might, “expand the use of fair-market values on corporate income statements and balance sheets,” which means that there is a whole lot of the big sh%$ pile that will shortly be valued on balance sheets as, well, sh%$.

It’s Bank Failure Friday!

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And here they are, ordered, and numbered for the year so far.

  1. Waterford Village Bank, Williamsville, NY
  2. Security Bank of Gwinnett County, Suwanee, GA
  3. Security Bank of North Fulton, Alpharetta, GA
  4. Security Bank of North Metro, Woodstock, GA
  5. Security Bank of Bibb County, Macon, GA
  6. Security Bank of Houston County, Perry, GA
  7. Security Bank of Jones County, Gray, GA

Great Googly Moogly!!!!!That’s 7 banks in one weekend, though 6 of the banks are all subsidiaries of one bank, Security Bank Corporation of Macon, GA.

There may be a few more further west, but the FDIC is not listing them as of 8:30 EDT.

Full FDIC list

It’s a Half Step

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Barack Obama is now proposing a tax on “risky” financial transactions.

The problem here is two fold:

  • Many of the risky financial transactions were there to skirt regulations, and this just creates another incentive for people to do this again.
  • Many of the problems with our markets come from people who attempt to generate minuscule profits across thousands, or millions, of trades, Goldman Sachs front-running the entire US stock market comes to mind.

The solution to fixing this is to make rapid-fire low margin speculation unprofitable, and the way to do this is to to tax all financial transactions at something like ¼-½%.

For the investor, this is an infinitesimal cost of doing business, but it puts the rampant speculator out of business.

It eliminates regulatory arbitrage, and could go a long way toward paying for health care reform.

Economics Update, One Day Late

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Normally, I don’t comment on stock market swings, but the Dow closing above 9000 for the first time since January allows me to invoke this Dragonball Z meme, sorry.*

Yes, I know that this should have been done yesterday, but once I got all the links together, we had heavy thunder storms, and so I shut down for the evening.

In any case, yesterday was unemployment claims Thursday, and new claims are up by 30K to 554K, but note that these numbers are all seasonally adjusted, which means that they really are not particularly valid, since the July shutdowns of GM and Chrysler happened in the spring of this year, so for this week, and to a lesser degree next week, we are flying blind on these statistics.

That being said, I think that the numbers on continuing claims are still valid, or at least more valid, and those numbers fell 88K to 6.225 million.

In any case, 550,000 weekly new unemployment claims, or for that matter anything over 400,000 new claims, is a grim picture, and so we are still well within the “grimness event horizon.”

I would also note that downward pressure on the continuing claims numbers is coming from people who are exhausting their unemployment benefits, and as Peter Boockvar at The Big Picture notes, the number of people on emergency unemployment benefits, which cut in after 26 weeks, are way up, but they are not counted in the continuing claims numbers.

So, I would not put a whole bunch of credence in the normally reported unemployment numbers until probably the August 7 numbers.

In terms of more general economic news, we have credit card charge offs rising again in June, hotel revenues down and vacancies up, and on a conference call, the CEO of UPS noted that he is not seeing any signs of recovery in his shipping business.

On the plus side, Canadian consumer confidence rose in July, and there was a surprise jump in U.K. retail sales, largely on increased purchases of clothing, which means that the Brits are poor, but not poorly dressed.

In real estate, existing home sales rose in June, but it should be noted that 1/3 of these are distressed sales, either foreclosures or short sales, and it should also be noted that prices are still falling off a cliff, down 15.4% year over year.

Mortgage rates are marginally lower, probably in reaction to Bernanke’s testimony before the Congress.

In the area of news that sounds important, but that I cannot for the life of me suss out what it means, it appears that Swiss banks are running out of vault space for gold bullion.

Finally, oil rose and the dollar fell yesterday.

*OK, I’m really not sorry, not one little bit.

Largest Arbitration Firm in Nation Shut Down

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Three cheers to Minnesota Attorney General Lori Swanson (pictured) who just put the criminally corrupt National Arbitration Forum (NAF) out of business.

As of the end of this week, they will no longer be accepting any cases on consumer disputes under a consent decree.

The NAF, the favorite venue for credit card and cell phone company kangaroo courts, argues that they did not have the resources to defend themselves in this case, but the reality is that they do not have the facts to defend themselves in this case:

….In one case, NAF ordered a woman to pay the credit card company MBNA almost $8000 because she had the same name as another woman who owed MBNA money. Conversely, when a Harvard Law Professor named Elizabeth Bartholet, who used to work part-time as an NAF arbitrator, handed down a single decision against a credit card company she was immediately stripped of her caseload by NAF at the request of the credit card industry.

….

Unfortunately, NAF was vulnerable to this kind of attack because the evidence against it was so overwhelming–not every forced arbitration company has a Harvard Law professor prepared to testify about how they were strongarmed into shafting consumers–so it remains to be seen whether another, equally offensive company will emerge to fill the void (a bill, currently pending in Congress, would end the practice of forced arbitration in consumer and employment contracts altogether). Even so, the near-total demise of NAF is one of the most important pro-consumer developments in decades; for the first time in years, credit card companies may actually have to follow the law.

When a member of the Harvard Law faculty gets kicked for ruling for the consumer once, it will be hard impossible to get a jury not to throw your sorry asses in jail.

Pam Martens of Counter Punch properly calls the mandatory arbitration system Judicial Apartheid, and she also notes that the NAF was quite literally owned by the bill collection agencies like Mann Bracken, Wolpoff & Abramson, and Eskanos & Adler, and testimony that, “Management meetings in which personnel were instructed to call arbitrators and tell them, prior to the release of the decision to the parties to the arbitration, to change decisions they had issued that found against the Famous Parties [credit card companies].”

There is a bill in Congress to put an end to this, but I am not inclined to believe that it will see the light of day, and in any case, the people behind this need to go to jail, not just be put out of business.

Previous posts are here.

Imprison Ben Bernanke for Treason

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I’m shocked, shocked to find that gambling is going on here!

Seriously, Ben Bernanke is saying that there is no need for a Consumer Financial Product Agency, because the Federal Reserve can handle this job.

He is referring to the same Federal Reserve that was run by Alan Greenspan for over 20 years and was an enthusiastic cheerleader of the toxic financial products.

The same secretive and opaque agency that revels in its lack of response to the public’s perceived needs.

The same one that was run by a man, who said, “Wasn’t a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him,” for over 20 years.

That Federal Reserve? The one whose New York bank, which is charged with regulating Wall Street, leaves seats on its banks allocated to consumer advocates empty?

You are suggesting that an organization that aided the elevation Alan “Bubbles” Greenspan, a man who basically got his PhD from the back of a cereal box, to a position the preeminent economic guru of the United States of America be allowed to be in charge of protecting consumers?

I’s just time to cue Captain Renault. (Top Pic)

What’s more the, as Elizabeth Warren, the woman who chairs the oversight committee being stonewalled by the US Department of the Treasury on TARP oversight notes, the arguments against a dedicated consumer protection agency are 3 parts outright lies, and 4 parts intentional stupidity.

Put the Federal Reserve in charge of consumer protection? Goldman F$#@ing Sachs would do a more honest and competent job of that.

Wow Very White of Them

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It appears that after the obscene profits, generated by risk taking that is being bankrolled by an implicit federal guarantee, Goldman Sachs has deigned to accept the US Treasury’s price offer on the sale of their stock warrants. (See also here and here)

I think that someone there realized that when people were referring to them as, “That great vampire squid wrapped around the face of humanity,*” that it was time to throw a few crusts to the peasants government of the United States of America.

As a result of their unprecedented generosity, the chattering classes are once again singing their praises.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Economics Update

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Well, it was a tough day for bonds, with prices falling, and yields rising, on US Treasuries, as investors look more to the downside of the economy.

Interestingly enough, we had a lot of mixed signals from real estate, with the
Federal Housing Finance Agency saying that single family home prices rose 0.9% in May, though they are down 5.6% year over year, the U.S. architecture billings index down again in June, which indicates a continued fall in construction, mortgage applications rose last week, though they remain very low, and Standard & Poor’s losses on subprime mortgage backed securities was revised higher.

In the world of real people, the PBGC took over struggling auto parts maker Delphi’s pension obligations, which should come as a surprise to no one.

We do seem to be seeing signs of “green shoots” in other countries though, with the
South Korean GDP growing at the fastest rate in 6 years in the last quarter, and the Central Bank of Brazil cutting its benchmark rate by the smallest amount since beginning of the year, indicating that they think that their recession is largely over.

In the old standbys of energy and currency, oil ended above $65/bbl on reports of tight inventories, and the dollar hit a 7 week low on increased optimism.

CFTC Showing Some Balls

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The Commodity Futures Trading Commission is considering eliminating waivers on position limits in wheat trading:

The [Senate] subcommittee [on Investigations] released a study in June that showed wheat prices were inflated by index investors last year. It called for the elimination of waivers that allow funds to hold more than 6,500 Chicago Board of Trade contracts at any one time, which would lower the influence of non-agricultural buyers and curb speculation. [CTFC Chairman] Gensler said earlier this month the CFTC, which currently grants waivers for agricultural products, also is considering limits on holdings by oil and gas speculators.

It’s been a while since I’ve seen stuff like this, and I can’t quite remember the word for it….Oh….Yes….It’s called regulation.

Student-Loan Overhaul Passes House Education and Labor Committee

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Basically, the proposal becomes law, it will end subsidies to private student loan providers, saving money for students and taxpayers to the tune of $87 billion over 10 years.

The student loan providers are even less deserving than Goldman Sachs, so here is hoping that this becomes law, though getting it through the Senate may be difficult, as the 3rd largest student loan provider is Nelnet, based in Lincoln, Nebraska, home of Senator Ben Nelson, who will almost certainly support a filibuster against the measure.

Inspector General Says Insufficient Oversight for TARP

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Neil Barofsky, the special inspector general for the TARP, is saying that oversight by the US Treasury Department and the Federal Reserve is woefully inadequate, and he also places the price tag for the bank bailouts at as much as $23.7 trillion.

By way of perspective, the whole US economy (GDP) is about $15 trillion, and the the world GDP is is listed at $65.82 Trillion.

To quote the Bloodhound Gang:

The roof the roof the roof is on fire
The roof the roof the roof is on fire
The roof the roof the roof is on fire
We don’t need no water let the motherf#$%er burn
Burn motherf#$%er burn

We need to amputate the current banking system, and replace it with something that works.