Category: Finance

Economics Update

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Consumer borrowing has fallen for the 4th straight month, as households continue to deleverage.

The real question is whether this is a long term or a temporary change in consumer behavior.

In banking, interest rates are falling again, with yields on treasuriess falling as more people flock to their relative safety, and falling interest rates on mortgages have boosted mortgage applications.

In currency, concerns over unrest in China have driven both the Yen and the dollar up vs the Euro, though the dollar is has fallen to a 5 month low vs. the Yen.

I think that the currency traders are more sanguine about Japan than about the US.

In energy, increased inventories and concerns about future demand drove the priuce of oil down to near 60.

Economics Update

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So much for green shoots. We now know that delinquencies in loans and credit cards have hit an all time high, and records for this have been kept for 35 years.

We’re also machine orders in Japan falling for the 3rd straight month.

So, we are seeing a continuing pullback in both manufacturing and consumers, so perhaps the focus on reviving the banking incumbents was a bit short sighted.

In real estate, we have the pending home sales rising slightly, and mortgage rates falling, though it must be noted on all home sales reports that the percentage of distressed sales, foreclosures and short sales, has been increasing, so any increase in sales reflects this phenomenon.

In any case, fears of a continued recession have pushed up the dollar and the Yen, while depressing the price of crude oil.

We Want Your Immortal Soul

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Seriously, there is a Latvian banker who is demanding borrowers souls as collateral, Viktor Mirosiichenko of the Kontora loan company:

Clients have to sign a contract, with the words “Agreement” in bold letters at the top. The client agrees to the collateral, “that is, my immortal soul”.

Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence.

I hope that this is not the face of market reform in other parts of the former Warsaw Pact nations.

Well, This is a Weird 5-Way

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Justices Antonin Scalia, John Paul Stevens, David Souter, Ruth Bader Ginsburg and Stephen Breyer formed the majority on “Cuomo vs. Clearing House Association, (Eliot Spitzer originally brought the case) where they affirmed a states right to enforce laws against unfair lending practices.

If you had told me that a 5-4 decision in the Supreme court would have this makeup, I would have thought that you were pulling my leg.

While the Supreme Court did limit the scope of state Attorneys General, they do not have the right to simply demand documents, as federal regulators do, they have to get a court order, this is a big victory for consumers, and Scalia authored it.

Reality is sometimes odd.

Economics Update

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Slow news day on the economic front.

We are seeing a big drop in lending by the SBA to small businesses, largely because in the SBA guaranteed program are refusing to lend.

Additionally, we are seeing the Federal Reserve’s plan to purchase mortgage backed securities opening much smaller than originally stated, $20 billion, as opposed to more than $100 billion.

I think that a lot of this is because the relaxation of accounting rules make it easier for executives to write themselves big pay checks with all the crap remaining on their books priced as gold, or if not gold, at least copper.

In any case, the dismal job numbers, are driving concerns that the economy has not yet hit bottom, which drove the dollar up, and oil down.

It’s Bank Failure Friday on Thursday!

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Great Googly Moogly! 7 Banks, 6 of them in Illinois, shuttered by the FDIC on one weekend.

July 2 is literally the middle of the year, day 183, and we are now on a pace to break 100 for the year.

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

  1. John Warner Bank, Clinton, IL
  2. First State Bank of Winchester, Winchester, IL
  3. Rock River Bank, Oregon, IL
  4. Elizabeth State Bank, Elizabeth, IL
  5. First National Bank of Danville, Danville, IL
  6. Millennium State Bank of Texas, Dallas, TX
  7. Founders Bank, Worth, IL

Full FDIC list

Economics Update

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Scary Picture of the Day
H/T Calculated Risk

Today is the official unemployment numbers, and they are worse than expected. Non-Farm payroll fell by 467K, and unemployment (U-3) rose to 9.5%.

For those of you following the more expansive, and to my mind, more accurate, U-6, it rose to 16.6%.

Unemployment is hitting new highs in the Euro zone too, which is why the ECB is keeping its rates at 1%.

It’s no wonder that a CNN/Opinion Research Corporation survey showed that people are getting more pessimistic about the economy.

We do have a bit of good news, with factory orders rising in May, and
mortgage rates falling this week.

In energy, both crude oil and wholesale gasoline prices fell, on the weak employment numbers and expanding inventory.

The investor flight to safety has strengthened the dollar.

She’s persona non grata in Palm Beach

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Pity Ruth Madoff. She’s going to have to live the rest of her life on just $2.5 million in cash:

Ruth will be left with just $2.5 million in cash by federal authorities under that deal.

“In the deal, she lost everything. She’s lost everything she holds dear,” said one source. “She’s lost her husband. She has no friends.”

“She’s persona non grata in Palm Beach, everywhere she cared about. She’s a beaten woman. There’s nothing left on the carcass to take,” the source said.

(emphasis mine)

$2½ million and PNG in Palm Beach!

The horror.

Economics Update

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Unemployment Rate Actual data vs. the Summers-Geithner Stress Test Assumptions
H/T Calculated Risk

The obvious lede is the various corporate measures of job cuts, with ADP Employer Services saying that there were 393K private-sector jobs cut, Challenger, Gray & Christmas saying that planned job cuts in June were 74,393, and the Monster Employment Index (PDF) moderating somewhat for June.

These are a bit better than May, but only in “the 2nd derivative is improving” way.

Jobs are still being cut, when you need to job growth to match the growth of the work force.

In related “2nd derivative” news, there is CNN trumpeting the fact that the Institute for Supply Management’s (ISM) manufacturing index rose for the 6th straight month:, while Bloomberg correctly notes that what this really means is that Manufacturing in U.S. Shrank at Slower Pace in June.

Falling less slowly is not improvement.

I am so sick of hack Panglossian journalists.

We also have mortgage applications falling to a 7 month low, which indicates that right now the housing market is in a death dance with economic recovery.

Any recovery will bump interest rates a few points, but that will kill any recovery in real estate……Catch 22.

If you want some good news, industrial sentiment rose in Japan, but it’s a “2nd derivative” thing too, with the index rising to minus 48 in June from minus 58 in March.

The only really good news, is that Calculated Risk’s June Economic Summary in Graphs is out, so there is some good chart pr0n for the wonks.

In energy, we have US Diesel inventories up, along with both oil and gasoline falling on increasing inventories.

Finally, the dollar fell, though I can’t tell if this is China’s suggestion of an alternate reserve currency, or because all the “2nd derivative” stuff make investors feel less of a need for a safe haven.

Talk About Regulatory Capture

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Remember those bank warrants we got for TARP money?

Well Timothy Geithner and His Evil Minions™ want the banks themselves to set the price, at least initially:

The Treasury Department said the banks will make the first offer for the warrants. Treasury will then decide to sell at that price or make a counteroffer. If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.

If you want a fair price, put them out for public bid.

This is just another backdoor payout to the investment banks.

First, we overpay for the warrants, and now, we sell them back at less than their value.

The hole damn system is corrupt, and the bank bailout needs to be pursued as a criminal investigation, not as a crisis.

Economics Update

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Case-Shiller data vs. the Stress Test Assumptions
H/T Calculated Risk


Default rates on mortgages, Also
H/T Calculated Risk

Uh-oh, consumer confidence fell in June, largely based on job concerns.

The reporter interviews an analyst who is surprised about this, because of , “the fact that the S&P 500 is close to 40 percent off its March lows.”

The fact is that the general public is better at recognizing a dead cat bounce than this analyst, because they are concerned about jobs, which are still being lost.

Meanwhile in the world of real estate, or perhaps we should call it unreal estate, the
Case-Shiller index posted an 18.1% year over year drop, and delinquencies on prime mortgages going off the charts.

We also got GDP numbers for the 1st quarter from the UK, and we have their economy falling off a cliff, down 2.4% for the quarter, and 4.9% year over year.

Maybe the good news is that there U.K. house prices rose in June, following May’s increase, up 0.9%, though it’s still down 9.3% year over year.

Until I see year over year numbers below 2%, I don’t see any green shoots, just the 2nd derivative of price going positive.

In any case, the crappy consumer confidence report drove oil down and the dollar up, as there are concerns about reduced demand for oil, and a flight to safety in dollars.

Financial Products Should be Precertified as Safe and Effective

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That’s what the Bank for International Settlements (BIS) is saying about financial products:

Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last year’s financial meltdown, the world’s central bankers said on Monday.

The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.

…

The BIS was alarmed by how a collapse in the value of opaque and complex securitized products propelled the world’s financial system into crisis. It said in its annual report all financial products should be registered like medicines.

The safest instruments would be available to everyone, a second tier only to people with authorization, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are.

It’s a very good idea, but it won’t happen, because it’s what the Masters of the Universe want, so the Masters of the Universe won’t let it happen.

If you require that products be safe and effective, you prevent them from churning money into fees, and reduce their base salaries and bonuses, so they say, and so says Summers and Geithner.

Fundamentally, until financial instruments are completely clear and transparent to regulators, and certified as such, they should be forbidden.

Economics Update

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It’s a fairly slow day, with bond prices rising, and yields falling as the markets wait for the non-farm payroll (NFP) and unemployment rates later this week, so investors are concerned about risk, and moving into Treasurys.

This sentiment has also strengthened the dollar today.

Still, we are seeing decreased volatility in the markets, with the VIX volatility index falling to its lowest level since September.

Losses for insurers in the 1st quarter hit a new record, but that should surprise no one who has been watching.

There has actually been a fair amount of news about energy though, with natural gas declining on high stockpiles, and the IEA cutting its 5 year outlook on oil demand because of the economic downturn.

Oil was actually up today, on further violence in the Niger delta, though it appears that retail gasoline prices will hold steady for the July 4 holiday.

If Only the Czar Knew

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This is an interesting article on how Larry Summers and Tim Geithner have successfully neutralized Paul Volcker’s attempts to create meaningful reform in the financial industry.

The subtext that the article misses is that this is that this is not Summers’ or Geithner’s doing, it is Barack Obama’s doing.

The fact that Paul Volker has been marginalized is obvious to anyone with two brain cells to rub together, and President Obama is not a stupid man.

The increases in regulation and the reform have been held to a minimum because that is what Obama wants.