Investors are bracing for the Dubai backlash — a potential global domino affect — as this trading week begins.

Washington Post: While markets around the world assess the fallout from Dubai's worrisome debt problems, investors trying to get a handle on the global economy will also have to factor in some encouraging U.S. retail sales over the Thanksgiving weekend. The question for many is whether they should focus on the possibility of another spreading credit crisis, or signs that consumer spending in this country may indeed be stabilizing.

News that Dubai's investment arm, Dubai World, could default on $60 billion in debt sent world markets skidding on Thanksgiving, and U.S. stock markets initially followed when trading resumed Friday after the holiday. Wall Street regained some ground as overseas exchanges stabilized and as analysts reported that U.S. banks had relatively limited exposure to the problems in the Persian Gulf city-state.

Dubai World's troubles gave a jolt to investors who had set aside many of their concerns about risk during the stock market's almost nine-month rally. Suddenly, they had to worry that the crisis in Dubai could be a harbinger of similar problems in other countries.  (keep reading...)

Mon Nov 30

On Friday, Mideast markets were unaffected because of an extended Islamic holiday, but they reopen today.  The UAE central bank is offering more cash amid panic over the Dubai debt crisis.  

AP: The United Arab Emirates has pledged to stand behind foreign and domestic banks in the country, offering additional money while extolling the strength of the Gulf nation's financial sector as world markets brace for a potential day of reckoning Monday over Dubai's crushing debt.

The UAE's immediate priority was arguably to avert any run, however unlikely, on banks by panicked depositors. But the promise of cheap funds also signaled to global investors that the country's federal government -- backed by oil money -- will do what it can to limit the fallout from its indebted emirate's woes.

In a statement Sunday, the UAE's central bank said it had sent notice to Emirati banks and foreign banks with branches in the country making clear they would have access to "a special additional liquidity facility."

The offer comes after Dubai World, the conglomerate that has long been the chief engine behind Dubai's explosive growth, on Wednesday announced it needed at least a six-month reprieve from paying its roughly $60 billion debt. The news sent global markets tumbling. (keep reading...)

Mon Nov 30

A commentary about how Dubai fell far short of its great expectations from Zerohedge: 

Amusingly, no sooner than a series of commentators rushed to point out how stable and friendly Dubai is (including some local names that might surprise you) Dubai reminded everyone that there is no freedom of the press in the city-state by yanking Western papers critical of the jurisdiction off the stands.

The Sunday London Times newspaper was removed by authorities from shelves in the United Arab Emirates on Sunday amid intensive reporting of Dubai's debt problems, an executive at the paper said.

The National Media Council ordered the paper blocked by distributors without providing a reason, an executive at the paper in Dubai told Zawya Dow Jones.

The Sunday Times edition available in the U.A.E. on Nov. 29 featured a double-page spread graphic illustrating Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum sinking in a sea of debt. The Times wasn't given a reason for the block, or a timeframe when it will be lifted, the executive said.

Good thinking.  No word yet if the powers that be have blocked internet traffic.  We wouldn't want the locals reading in Reuters, for example, that the Crown Prince had likely lied through his teeth to Westerners in Davos not two weeks ago.

"Where next for the ruling family in Dubai?" said British historian Christopher Davidson. "The massive loss of legitimacy that the ruler is now facing, the massive loss of legitimacy that his son and crown prince face after lying to the World Economic Forum last week -- where do these guys go from here?"

Sheikh Mohammed, whose face and words grace posters all over town, told the forum this month that the worst had passed for Dubai which was well-placed to pursue its development plans.

The news that investment vehicle Dubai World could not pay a $3.5 billion bond was released just before the Muslim Eid al-Adha holiday and UAE national day on December 2. Local media have almost entirely avoided comment on the debacle.

Then the news that Dubai World, forced to deal with upcoming payments, apparently refused an asset sale.  (Talk about confident in the indulgence of your creditors, and the support of local Daddy Petrobucks, Abu Dhabi).

"The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices," al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the center of Dubai's debt crisis.

Critical question of the day: Who will be the first to register abandubai.com?

 Mon Nov 30

Today's (Sunday) LondonTimes was banned in Dubai due to the unflattering picture portrayal (shown here) of the ruling Sheikh.

Another media cartoon stirs up major controversy. Watch out now: just because Dubai is a hot mess, the media may not want to bring foreign tempers to a boil too.

Check out the article drawing controversy here.

Sun Nov 29

Paul Ferrel gives 15 symptoms of a Wall Street disease destroying democracy and capitalism:

In "The Battle for the Soul of Capitalism" Jack Bogle no longer sees Adam Smith's "invisible hand" driving "capitalism in a healthy, positive direction." Today, his "Happy Conspiracy" of Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious "pathological mutation of capitalism" driven by the new "invisible hands" of this new "mutant capitalism," serving their selfish agenda in a war to totally control America's democracy and capitalism.

The "Goldman Conspiracy" is the perfect B-school case study of Wall Street's secret contagious pathology, with insiders like Lloyd Blankfein, Henry Paulson and others pocketing billions more of the firm's profits than shareholders, evidence the new "mutant capitalism" has replaced Adam Smith's 1776 version which historically endowed the soul of American democracy as well as our capitalistic system.

Sadly for America Goldman's disease is rapidly becoming a pandemic spreading beyond Wall Street's too-greedy-to-fail banks, infecting our economy, markets and government as it metastasizes globally.  (keep reading...)

Wed Nov 25

No, it's not just your imagination making you feel like there are sharks swimming in the credit card pool with you.   Former banking executive Shailesh Mehta, who helped run Providian bank into the ground, has gone on the record with Frontline to detail just how he operated his business.

Hint: it involves targeting low-income demographics for maximum profitability:


Wed Nov 25

Douglas McIntyre cuts through the wishy-washy numbers to arrive at a clear figure of the state of U.S. mortgages, and it's not pretty:

There have been a number of attempts to come up with a figure about how many U.S. home mortgages are under water -- in other words, the value of the home loan is more than the value of the house.

All estimates are bound to be wrong because no one has had the time or money to appraise every house in America and match it with the value of its mortgage plus any second mortgages. But The Wall Street Journal has asked First American CoreLogic, a real estate research company, to give it a try. The report, which is available free online, says that that 23% of mortgages were under water at the end of the third quarter.

The data makes two salient points: 1) Negative equity and near negative equity mortgages account for nearly 28% of all residential properties with a mortgage nationwide, and 2) The rise in negative equity is closely tied to increases in pre-foreclosure activity. (keep reading...)

Wed Nov 25

According to George Mellon at the WSJ, future living standards will take a hit as federal borrowing balloons and bank lending to business shrinks.

For anyone who wondered if last winter's federal seizure of the financial services industry would have adverse economic consequences, an answer is now available. The credit market has been tilted to favor a single borrower with a huge appetite for money, Washington. Private borrowers, particularly small businesses, have been sent to the end of the queue. 

Washington hasn't been able to milk the taxpayers sufficiently to finance its massive deficit. The Chinese are getting skittish as well. So tapping bank deposits is yet another avenue to a big pot of cash. As for the bankers, they've been awarded an easy life. Thanks to the Fed's zero interest-rate policy, they can make a decent profit on "safe" Treasury and agency securities yielding 3% or more.  (keep reading...)

Wed Nov 25

Never thought the day would come when I read, "Go Nukes!"  But Money Matters Editors say that finally, the United States appears to be heading in the correct direction, from a nuclear power for electricity standpoint.

And there’s even better news: environmentalists, in an impressive switch, are starting to side with nuclear power, too, so says The Washington Post. Here’s why:

Environmentalists now realize that nuclear power represents ‘the lesser of two evils’ versus coal-fired electric power generation plants. When faced with a choice of processing nuclear waste or seeing soot and other carbon emissions spew into the atmosphere – heating up the atmosphere to irreversible levels – the choice is clear: nuclear power wins, easy.  Read more from the Money Matters blog….

Wed Nov 25

As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess.

Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans.

But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.

While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers. (Keep reading...)

 Mon Nov 23

Suddenly the Federal Reserve is everybody's punching bag. Should it be?  From the Washington Post:

Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.

The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.

Former Fed Chairman William McChesney Martin Jr. famously said that the central bank's job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come. (keep reading...)

 Mon Nov 23

What has really been stimulated by the Obama Administration's $787 billion economic stimulus bill?  Perhaps just more skepticism and distrust toward the government.  The WSJ reports an angering disparity between government reports and reality:

To wit, how many Americans does it take to make nine pairs of work boots? According to the White House's recovery.gov site, an $890 shoe order for the Army Corps of Engineers, courtesy of the stimulus package, created nine new jobs at Moore's Shoes & Services in Campbellsville, Kentucky.

The job-for-a-boot plan may not be American productivity at its best. But such stories go a ways toward explaining how the Administration has come up with 640,329 jobs "created/saved" by the American Recovery Act as of October 30.

Jonathan Karl of ABC News deserves credit among Beltway reporters for committing journalism and actually fact-checking White House claims. Head Start in Augusta, Georgia claimed 317 jobs were created by a $790,000 grant. In reality, as Mr. Karl reported this week, the money went toward a one-off pay hike for 317 employees.  (Keep reading...)

Mon Nov 23

Will these emails change your mind about Climate Change?  Diminish all your worries?  Or will they have you saying, "I told you so!"  This is damning stuff!  From Investing Contrarian:

We always knew the fraud around climate and global warming was facade to rule in some of the weaker nations but we were running short of evidence. Here it is then to the hacker who got in to The University of East Anglia’s Climatic Research Unit (CRU).

Let us accept that global warming is the greatest facade which US politicians are trying to pull off. Have you ever heard politicians actually trying to achieve something useful for the world? None right? Link to the files: Rapidshare

Here are many things to love about these e-mails. For example, the word “funded” appears roughly 66 times over there. Stepan Shiyatov instructs his colleagues about the optimal ways to commit tax evasion:

… That is why it is important for us to get money from additional sources, in particular from the ADVANCE and INTAS ones. Also, it is important for us if you can transfer the ADVANCE money on the personal accounts which we gave you earlier and the sum for one occasion transfer (for example, during one day) will not be more than 10,000 USD. Only in this case we can avoid big taxes and use money for our work as much as possible. Please, inform us what kind of documents and financial reports we must represent you and your administration for these money….

You need a lot of patience to go through all of it. Let me summarize a few of the emails... (keep reading...)

Mon Nov 23

A Money Matters Editors memo to Congress: What would be the best Christmas/ Hanukkah present for the American people? Oh, 15 million or so new jobs.

U.S. House Majority Leader Steny Hoyer, D-Maryland, indicated he expects the U.S. House of Representatives to vote on legislation that would create more jobs by the year-end holiday recess.

“Clearly 10.2 percent unemployment is unacceptable and is causing great pain to literally millions of people around the country.” U.S. Rep. Hoyer said, CNN reported.

To be sure, early into the globalization era, there are many problems facing the United States, but a strong argument can be made that job creation ranks at the top, above universal health care, the Iraq/Afghanistan Wars, climate change / energy policy legislation, U.S. relations with key European allies, Middle East issues, and the budget deficit.  Read more from the Money Matters blog….

Mon Nov 23

During his testimony Thursday, two Republican Congressmen urged U.S. Treasury Secretary Tim Geithner to resign, or said he should be fired.

Geithner is in the hot seat in front of Congress.  The video is great to watch.  He literally squirms.  I could feel the awkwardness just watching.

What advice does rapper 50 Cent have for everyone worried about their finances?  Worry less.  And turn "shit into sugar."  Fom 50 Cent's book The 50th Law:

Every negative situation contains the possibility for something positive, an opportunity. It is how you look at it that matters. Your lack of resources can be an advantage, forcing you to be more inventive with the little that you have. Losing a battle can allow you to frame yourself as the sympathetic underdog. Do not let fears make you wait for a better moment or become conservative. If there are circumstances you cannot control, make the best of them. It is the ultimate alchemy to transform all such negatives into advantages and power.

Events in life are not negative or positive. They are completely neutral. The universe does not care about your fate; it is indifferent to the violence that may hit you or to death itself. Things merely happen to you. It is your mind that chooses to interpret them as negative or positive. And because you have layers of fear that dwell deep within you, your natural tendency is to interpret temporary obstacles in your path as something larger--setbacks and crises.

In such a mind-frame, you exaggerate the dangers. If someone attacks and harms you in some way, you focus on the money or position you have lost in the battle, the negative publicity, or the harsh emotions that have been churned up. This causes you to grow cautious, to retreat, hoping to spare yourself more of these negative things. It is a time, you tell yourself, to lay low and wait for things to get better; you need calmness and security. (Keep reading...)

Fri Nov 20

Marketoracle sees five reasons China is not a bubble and believes that its prospects remain strong for at least the next 20 years:

China is transitioning to a consumption-based workforce. Retail sales rose 16.2 percent in nominal terms during October and have been accelerating. The retail sales figure isn’t a perfect proxy, but it is the best available indicator of overall consumption because it does include sales to consumers and not just purchases made by the government.
We’re seeing a transition to a service-related economy. The service industry is the fastest-growing sector (roughly 20 percent faster than construction) and now accounts for one-third of China’s workforce.
China’s stimulus exit strategy is simple--create a strong economic base that the private sector can launch from. After private investment surpassed that of state-owned enterprises in September, the two flip-flopped during October.
After lending more money over the first five months of 2009 than all of 2008, we’ve seen loan numbers come down.  There’s a longstanding pattern of new loans slowing down during the second part of the year as banks have historically rushed to meet government-mandated loan quotas.
In the U.S., the Federal Reserve and policymakers are faced with conflicting goals. They need people to spend in order to get the economy rolling again, but their end game is to have the American people spend less and save more. It’s the opposite for China.

(Read whole expanded article...)

Fri Nov 20

Admit it: You're a coward. When you look danger in the eye, it's from the lens of a telescope. But that's not necessarily a bad thing when it comes to investing. And if you're tempted by this stock market – but too scared to do anything – you should create a cowardly portfolio.A truly terrified investor doesn't ask what he will gain from an investment, but what he stands to lose. As investors learned last year, the answer to this question is important. If you lose 50% of your money, you'll need to earn 100% to break even.

Only 148 stock funds out of 5,554 distinct portfolios tracked by Lipper have recouped their losses since the bear market started on Oct. 9, 2007. And 2,085 are still down 25% or more since the market's 2007 peak. No wonder you're terrified.

Nevertheless, stocks are your best bet for gains over long periods of time. If you have a long-term goal, such as retirement, you need to tiptoe back into the stock market, if only to get returns somewhere above "pathetic." (keep reading...)

Fri Nov 20

Money Matters Editors are sending a memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.

If you undertake the above measure, you’ll help your economy, and the global economy.

If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:

Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate currency are increasing protectionist sentiment in the United States, a key trading partner. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Read more from the Money Matters blog….

Fri Nov 20

It's a Debt Economy World, and we're just living in it.  James Surowiecki writes in the upcoming New Yorker:

"John Kenneth Galbraith wrote that all financial crises are the result of “debt that, in one fashion or another, has become dangerously out of scale.” The recent financial crisis was no exception, with everyone—homeowners, private-equity investors, our biggest banks—taking on enormous amounts of debt. If it’s frustrating that the government is footing the bill to clean up the mess, it’s even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn’t get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked.

The government doesn’t make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments. Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a “tax shield.” Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it’s not surprising that many companies prefer to pile on the leverage." (Read more...)

Wed Nov 18

It's not just a doomsday Hollywood movie, 2012 is also a year predicted by doomsayers to be disastrous for Wall Street.  From Marketwatch:

Coming in 2012: Another, bigger meltdown of Wall Street's "too-greedy-to-fail" banks. No, this is not another fanatical warning about that Dec. 21, 2012 end-of-days prediction based on the Mayan calendar, though you may well ask "Who will survive?"
Here is what's happening: History is repeating itself. Wall Street's soul-sickness is setting up a new meltdown. Dead ahead. Be prepared.

Last June we summarized 20 predictions made between 2000 and 2007 warning of a subprime meltdown coming. Oddly, no one seemed to be listening to all the warnings from leading minds like Buffett, Grantham, Gross, Faber, Shilling, Roubini, Fed governors, and many more. Was that a repeat of 2000 with no one listening?  Suddenly it hit me: It's just the opposite: Everyone is listening and everybody knew a crash was coming -- but we were in a trance, including Washington's bosses. Bernanke, Bush, Paulson, Greenspan all heard it. So did Wall Street, and Main Street.

Unfortunately America's collective brain was addicted to the adrenaline rush of gambling in a risky bull. The euphoria is intoxicating. We were caught up in a game of musical chairs, squeezing out every last dollar of return, blind to the catastrophe ahead until caught by surprise. Unfortunately, Wall Street lacked a moral compass and stole trillions from American taxpayers. Today, the only lesson Wall Street has learned is "greed is good." Now the beginning of the end has become a moral tragedy that is setting the stage for an implosion of Wall Street, capitalism and our economy circa 2012. (Keep reading...)

Wed Nov 18

Perhaps the wind is starting to change in Washington, and logic guided by prudence is starting to prevail.

U.S. Federal Reserve Chairman Ben Bernanke, in a question and answer session after a speech before the Economic Club of New York, said Monday regulators should have the power to shrink or downsize banks that pose risk to the markets.

“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said in response to a question.

And to that, Money Matters Editors say, “High time!”

Congress is considering legislation giving the federal government the power to force the break-up of a company that has become so large that its failure in bankruptcy could threaten the U.S. economy. This is legislation that should have been passed decades ago.

Somewhere on the road to efficiency, the United States fell prey to ‘the size monster’ - the notion than a bigger corporation, a bigger bank etc. is always better if the profit metrics indicate such. As it relates to banks, the theory is inherently flawed: bigger is not always better. In fact, it could be worse, particularly if an interruption in a large bank’s operation... (Read more from the Money Matters blog)
 
Wed Nov 18

You can't keep a good Dow down, according to Michael Kahn: 

When the Dow Jones Industrial Average set what was then its rally high in mid-October, the venerable blue-chip measure turned from a slight laggard to a clear leader relative to the broader market benchmark, the Standard & Poor's 500. Bigger suddenly was better.

More than a third of the Dow's 30 component stocks already were in strong trends while most of the rest were in decent technical shape. From a chart-reading point of view, the overall trend is up. If we dig deeper we see that breadth, or the participation by component stocks, confirms the Dow's trend.

In looking over the 30 Industrials, I put them in four buckets. The first was the "strong-trending" group. Among those, American Express (ticker: AXP) exhibits a very impressive technical structure... (Click here to keep reading and to view all charts)

Wed Nov 18

Even though Bernanke is realizing "Too Big to Fail" is just too big now, some worry that it has become the new U.S. national slogan.  Peter Wallsion writes in WSJ that the current financial reform proposals will make sure TARP never goes away:

It's hard to imagine a worse piece of financial regulatory legislation than the bill Barney Frank and the administration put before the House Financial Services Committee last month. But Sen. Chris Dodd's (pictured here) effort, introduced last week, clears this hurdle.

Much attention has focused on the fact that his "Restoring American Financial Stability Act" differs from the administration and Frank proposals by creating an entirely new agency to function as a "systemic regulator" of nonbank financial institutions, instead of the Federal Reserve. Far more important, however, is the regulatory and bailout powers it gives to the government. Here the Dodd bill follows the same flawed ideas advanced by the administration and Mr. Frank, but in some ways make things worse.

The Dodd bill is a blunter instrument, proposing to regulate all companies that include financial activities "in whole or in part." But almost all companies—retailers, manufacturers and service organizations—engage in some financial activities, if only to promote the sale of their products and services. (Keep reading...)

 Wed Nov 18

Whether you agree or disagree with Claude Cartaginese, the numbers he gives in his post, "Obama Continues to Lie About the Economy," are something to think about:

Barack Obama: The economy is now growing again for the first time in more than a year and faster than at any time in the past two years. But even though we’ve slowed the loss of jobs, and today’s report on the continued decline in unemployment claims is a hopeful sign, the economic growth that we’ve seen has not yet led to the job growth that we desperately need.

Cutting through the turgid prose, what the President is really saying here is: “I’m scheduling this summit, because every measure I have taken to stimulate jobs growth thus far has failed, and I don’t know what else to do.” In fact, the $787 billion economic stimulus package he ran through last January has had no effect whatsoever on employment recovery, and it is now evident that the President has no clear plan or strategy mapped out to address the deteriorating employment situation. Consider the following:

•The official unemployment rate is now over 10% (10.2%) with the real figure pegged at 17.5% if you count the underemployed.
•Economists analyzing the unemployment data are expressing concern that many of the jobs shed by business have been lost permanently. They are not expected to return, even if businesses turn around and become more profitable. Companies are adapting to functioning with less personnel.
•A record 5.6 million people have been unemployed for more than 6 months (that’s a whopping 36% of all unemployed individuals), a statistic not seen in years.
•Over 11 million full-time jobs have been lost, and because many of those workers have been shifted (through no choice of their own) to part-time work, those underemployed individuals are not counted in the overall unemployment figures. The average workweek is now down to 33 hours. And through it all, the President goes on lying. (Keep reading...)

Mon Nov 16

Getting political this Monday morning.  Here is an expert from a post defending President Obama's economic moves.

The worry is, with rising deficits, foreigners will cut back on the purchase of Treasury debt. The deficit for October alone was $176 billion, $26 billion higher than the $150 billion economists expected. And the deficit for the year ending in September 2009 was $1.42 trillion. That's right. Trillion. Which was 989 billion more than the record deficit Bush ran up for 2008.

But while the tea party hypocrites and conservatives with their Hitler signs and swastikas protest , and squeal over the deficit,  here is something they can remember. When conservative George W. Bush came into office, liberal Democrat Bill Clinton left the country with a $5.5 trillion budget surplus.

That's right. Surplus.  That was a result of Clinton's budgets and his tax polices. That was enough money to have wiped out the entire 2009 deficit, pay the $2 trillion for Bush's Iraq war (which Bush and the Republicans refused to pay for), pay the entire cost of the health care reform and still have $1.1 trillion left over. Let the conservatives wave their Hitler signs over that.

Bush's blowing of the $5.5 trillion surplus in his first three years in office was something that Paul Volker, Chairman of the Fed under Reagan said in an interview he found almost incomprehensible. Reprehensible might also be a word one could use.

So the next time the tea baggers want to protest the deficit and whine and complain about Democrats and spending, they can remind themselves it was one of their own that not only put the country into these deficits, but blew surpluses created by a Democratic president that would have bailed out the country instead of AIG. (Keep reading...)

 Mon Nov 16

Put on your rose-colored glasses to read this one from the Good News Economist blog.

Even though markets were sliding rapidly last year at this time, the stock market indexes have now recovered to the point that year over year gains are quite substantial.

For the Dow Jones industrial average, the one year gain is now 1,773 points, up 21% from a year ago at this time:

The S&P500 Index is up 220 points or 25% since it's pre-Thanksgiving 2008 level:



And the technology laden Nasdaq has had the best year of the three, rising 651 points, up an impressive 43% from a year ago at this time:


And you might remember that back in early March we speculated that these charts would look very similar to the charts for 1975. And indeed they do.

Mon Nov 16

Don't hold your breath waiting for the job market to recover. Analysts are saying to get back to "full employment" defined as 5%, it may take until 2015 at least, possibly 2020.

John Mauldin touched upon this theme in Welcome to the New Normal. John's analysis stopped short of making actual projections as to when full employment would return, or the detailed path it would take to get there year by year. However, I thank John for providing a nice starting point for discussion.

In Scarred Job Market Expected to Weigh on Economy The Wall Street Journal offers this look at how long it would take to return to employment levels before the start of the recession. Please consider the long road back.

Grim Statistics.

The official unemployment rate is 10.2% and rising. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is 17.5%.  (Keep reading to see charts and figures on these statistics....)

Mon Nov 16

Manas Chakravarty says the current shift in the centre of gravity of the world economy from West to East is a major trend.

One of the notions we hear about a lot these days is the idea of a so-called new normal.  There are many strands to this thesis, but the underlying idea is that the global economy has irrevocably changed as a result of the financial crisis and, as a result, we have to redefine what used to be the normal.

One important conclusion of those who swear by this new normal is that it’s going to take a long time before global growth goes back to the levels reached during the boom of 2003-07. You don’t have to search too hard for the reasons: many developed countries, including the US, were able to grow so fast only by increasing household debt and borrowing against rising asset prices, particularly rising house prices.

Now that the housing bubble has burst, US consumption will be depressed because all that the US consumer was doing was borrowing from the future. Also, since most emerging countries had high growth rates by exporting to the developed markets, even they will be affected. Pacific Investment Management Co. boss and bond guru Bill Gross is the best known exponent of this theory. (Keep reading...)

Fri Nov 13

Henry Blodget says investors always need to be terrified about something.

"Eight months ago, it was that the world was about to end: Stocks were down 60% from their highs, the economy was tanking, unemployment was soaring, and commentators everywhere were talking about a second Great Depression.

Now, there's a new concern: We're in the early stages of another humongous asset bubble.
Another BUBBLE?  Didn't we just learn our lesson about those?

Well, yes, we did.  But then we learned that there is one thing that's WORSE than a bubble, and that's global economic collapse.  So, faced with those two alternatives, governments the world over are opting for door No. 2.

Specifically, governments have stomped down on the monetary and fiscal accelerators with both feet, and they show no signs of letting up.

And will this cause another bubble?  Liz Ann Sonders, the chief investment strategist at Charles Schwab, says no."  (Keep Reading...)

Fri Nov 13

The New York Post describes the dilemma facing the job market:

If stock prices stay at current levels or go even higher, corporate executives will remain unwilling to hire new workers. But if stock prices fall, the job situation will be even worse.If you've been listening to the current rhetoric about the labor markets, you've been hearing a different story.

Most "experts" think companies aren't hiring for two reasons: either executives don't believe their business prospects have picked up enough or they are unable to get enough financing for things like expansion.

Those are the two areas on which Washington has been focused -- expanding the economy (although it's been through tricky one-time methods like Cash for Clunkers) and making sure there is enough money in the banking system to be borrowed.

The latter is most disturbing because one of the ways Washington has been keeping the banking system liquid is through the so-called quantitative easing program, which means the outright printing of money. (Keep reading...)

Fri Nov 13

Pinch me.  Is the recession just a dream?  Americans don't seem to be that worried about it anymore.  Forgiven, forgotten so soon?

As Andrew Leonard says, If Americans are consuming merrily away, the recession can't have been all that bad.  "No economic disaster here, folks. Just move along."

Money Matters Editors think most Americans, perhaps even most U.S. investors, are not aware of the seriousness of the U.S. budget deficit situation.

They’ve been lulled into a sort of trance – encouraged by one political party – that a simple cut in federal spending will get the budget back in balance.

Nothing could be further from the truth. In fact, unless the conservatives want to abolish Social Security (not a politically smart move) or turn both Medicaid and Medicare entirely over to the states, no amount of nip-and-tuck spending cuts will balance the budget.

Taxes have to go up, and in particular, they have to be raised on upper-income groups. The middle and working classes will pay slightly more too, but the bulk of the tax increase has to fall on the upper income groups. The tax burden shifted from upper income citizens to middle and working class Americans via a series of tax cuts from 1981 to 2001 that substantially reduced upper income tax rates and total taxes paid by the upper tier. Most upper income Americans think they’re taxed too much already. Not exactly: when they see the tax increase that’s coming in the years ahead, they’ll realize then just how low their taxes have been…for decades. Read more from the Money Matters blog….

Thu Nov 12

Market pros identify the risk measures they consider most important for the stock and bond markets in BusinessWeek:

It's still hard for a lot of investors not to be skeptical about the ongoing stock market rally, now entering its ninth month. But there's one thing for certain: Market volatility has decreased even as stocks have advanced. The VIX equity volatility index, a favored "fear gauge" for the stock market, settled at 22.84 on Nov. 10, down from 30.0 just a week earlier and over 80 at the height of the market panic in November 2008.

But lower volatility shouldn't be confused with a lack of market direction, says Joe Cusick, an analyst at optionsXpress in Chicago. "A low VIX doesn't mean we won't have the market going up or down. It just means we won't have violent swings."

While the most obvious risk indicators—volatility for equities and yield spreads over risk-free Treasury securities for bonds—show that market risk is down considerably since March, they only tell part of the story. There are lesser-known indicators that can also be used to gauge ongoing risk, according to Perry Piazza, co-chief investment officer at Contango Capital Management in San Francisco. (Keep reading...)

Thu Nov 12

Boston Globe: While Massachusetts recipients of federal stimulus money collectively report 12,374 jobs saved or created, a Globe review shows that number is wildly exaggerated. Organizations that received stimulus money miscounted jobs, filed erroneous figures, or claimed jobs for work that has not yet started.

The Globe’s finding is based on the federal government’s just-released accounts of stimulus spending at the end of October. It lists the nearly $4 billion in stimulus awards made to an array of Massachusetts government agencies, universities, hospitals, private businesses, and nonprofit organizations, and notes how many jobs each created or saved.

But in interviews with recipients, the Globe found that several openly acknowledged creating far fewer jobs than they have been credited for. (Keep reading...)

Thu Nov 12

Dan Burrows writes in Daily Finance: India, the world's largest consumer of gold, is in the midst of its traditional wedding season, and that always creates extra demand for the pretty much useless yellow metal. Judging by the recent actions of that nation's central bankers, they must have been invited to every instance of nuptials in the entire country.

The Reserve Bank of India purchased almost $7 billion worth of gold from the International Monetary Fund last week, helping to propel prices to $1,100 an ounce. (That's a nominal all-time high, by the way, not a real one. Adjusted for inflation, gold would need to more than double to set a true record.)

Of course, the wedding season has nothing to do with India taking 200 tons of gold of the IMF's hands. More likely, it's the ever-crashing greenback. The U.S. Dollar Index, which measures the buck against a basket of six major currencies, is perilously close to falling through its 52-week low.

There's little wonder why: As long as the Federal Reserve continues to print money with a zero interest-rate policy, it's only wise for other nations to purge rapidly depreciating dollars from their foreign exchange reserves and go gaga for gold. The yellow metal is, after all, the ultimate hedge against inflation. (keep reading...)

Thu Nov 12

President Obama signed the Credit CARD Act in May to help protect consumers from the dirty tricks and abusive practices of credit card companies.  However, the new rules do not go into effect until February, and in the meantime, credit card companies are testing new ways to generate revenue—at the consumer's expense.

Josh Frank of the Center for Responsible Lending, which studies abuses practices by credit card issuers, says credit card issuers are "sneaking in last-minute price changes after the law was passed but before it takes effect." Also, they are "experimenting with new ways to create hidden price increases even after the new law takes effect."

See a slideshow of "10 Ways Credit Card Companies Are Still Screwing You" here...

Thu Nov 12

Die-hard capitalists are shaking their heads at this disgusting display of twisted, corrupt capitalism.  "Capitalism" is not what it used to be, or what it is supposed to be, right now.  Paul Farrell says that the new mutant American capitalism has no moral compass:

Rip-off? Joke? Oxymoron? Maybe "Wall Street's big lie?" Or "Financial innovation: Wall Street's deadliest sin, greatest evil, even soul-sickness?"


They all fit. Each reveals Wall Street's dark side: Why are they at war to keep financial innovation secret, hidden, without public transparency? And why is Wall Street spending millions on lobbyists to kill financial-regulation reforms? Why? Because Wall Street rakes in tens of billions of dollars annually from their financial innovations, gambling in the shadowy $670 trillion global derivatives market. And Wall Street does not want government, investors or competitors digging into their "financial weapons of mass destruction," as Buffett calls them.

Remember, financial innovation is just a Wall Street code word. Translated it simply means derivatives and other proprietary secrets like the high-frequency trading algorithms used by their quants. Yes, Wall Street wants you to believe that financial innovations also help Main Street, but that's just Wall Street lobbyist propaganda to mislead the public, regulators and legislators. Remember when Washington proposed standardized mortgages as a way to help consumers? Wall Street attacked, spending millions to kill it.

Wall Street has no interest in helping Main Street. Time magazine's Justin Fox, author of "The Myth of the Rational Market," said it best in his "Curious Capitalist" column. Most so-called financial innovations are "just new ways to fleece customers or hide risk, and all major financial crises have been associated with some financial innovation." Even credit-card innovations are used against customers as marketing tools to increase fees. The truth is: Wall Street's greed-driven financial innovations fuel our bubble/meltdown cycles in many ways. (Keep Reading...)

 Wed Nov 11

Prediction: the Fed will get tripped up in its own exit strategy.  The Federal Reserve has massively boosted its balance sheet in response to the financial crisis. Klaus Adam, an economics professor at Mannheim university and former principal economist at the European Central Bank, says unwinding the interventions may prove especially difficult if inflation comes in fast:

The Federal Reserve’s balance sheet has expanded enormously since the start of the financial crisis — to $2.2 trillion from $875 billion — leaving the Fed sitting on claims worth 15% of gross domestic product. The inflationary risks stemming from this expansion shouldn’t be underestimated.

The Fed has financed its balance sheet expansion almost exclusively by increasing the monetary base, or notes and coins in circulation plus banks’ deposits. It may be difficult to undo that move because it requires the Fed selling a substantial amount of mortgage backed securities and other assets. Even if markets were to absorb the assets — which is unlikely — it’d happen only at sizable discounts that could potentially wipe out the Fed’s equity.  (Keep Reading...)

Wed Nov 11

Grant Thornton, an international business advisers firm, has raised the most extreme anti-HFT argument to date.


 Wed Nov 11

Despite Americans negative (and rightly so, as taxpayers) attitude regarding big banker bonuses right now, the "big 3" will be dishing out $30 billion in bonuses, according to Bloomberg:

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank, survivors of the worst financial crisis since the Great Depression, are set to pay record bonuses this year.

The firms -- the three biggest banks to exit the Troubled Asset Relief Program -- will hand out $29.7 billion in bonuses, according to analysts’ estimates. That’s up 60 percent from last year and more than the previous high of $26.8 billion in 2007. The money, split among 119,000 employees, equals $250,400 each, almost five times the $50,303 median household income in the U.S. last year, data compiled by Bloomberg show.  Keep reading...

Wed Nov 11

From Money Matters Editors:

U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.

“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.

Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.  Read more from the Money Matters blog….

Wed Nov 11

The megabanks are not too big to fail. They’re too big and irresponsible to exist, says Holly Sklar.

Sklar: "Wall Street is doing to America what private equity firms did to Simmons Bedding and many other productive companies. Taking control with borrowed money, stripping assets, slashing jobs and cashing out.

Taxpayer bailouts saved Wall Street from choking on its own greed. Now, as the Wall Street Journal reports, “Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high.”

$140 billion is more than the combined budgets of the U.S. departments of Commerce, Education, Energy, Housing and Urban Development, the National Science Foundation and the Environmental Protection Agency.

Typical workers, meanwhile, make less today adjusting for inflation than they did in the 1970s. Wall Street rewarded CEOs who cut employee wages and benefits and offshored manufacturing, services, and research and development; feasted on Bush’s tax cuts; turned mortgages into loan sharking; and vacuumed up home equity, college funds, retirement funds and other private and public investments into their rigged casino."  Keep reading...

Tue Nov 10

David Einhorn, the founder of Greenlight Capital was one of the first big credit default swapper.  But now he is calling for a CDS ban. Surprised? 

FT: “I think that trying to make safer credit default swaps is like trying to make safer asbestos,” Einhorn writes in a recent letter to investors, adding that CDSs create “large, correlated and asymmetrical risks” having “scared the authorities into spending hundreds of billions of taxpayer money to prevent speculators who made bad bets from having to pay”.

CDSs are “anti-social”, he goes on, because those who buy credit insurance often have an incentive to see companies fail. Rather than merely hedging their risks, they are actively hoping to profit from the demise of a target company. This strategy became prevalent in recent years and remains so, as holders of these so-called “basis packages” buy both the debt itself and protection on that debt through CDSs, meaning they receive compensation if the company defaults or restructures. These investors “have an incentive to use their position as bondholders to force bankruptcy, triggering payments on their CDS rather than negotiate out of court restructurings or covenant amendments with their creditors”, Mr Einhorn says.

Keep reading >

Tue Nov 10

What is even worse than the wrongdoing on Wall Street, is the lack of consequences laid on the wrongdoers.  No one is forcing them to own up to the fact that a wrong was done at all.   We demand responsibility for their actions.  We demand they face consequences like the rest of us.

Arianna Huffington is calling them out on the injustice:

"The struggle of man against power is the struggle of memory against forgetting."

So wrote Milan Kundera in The Book of Laughter and Forgetting. It is one of my favorite quotes and it popped into my head as I was reading about last week's settlement between JPMorgan and the SEC in which the banking giant agreed to pay a $25 million penalty and cancel $647 million in fees owed by Alabama's Jefferson County as the result of a complicated derivatives deal that blew up in the county's face.

As part of the settlement, JPMorgan neither admitted nor denied wrongdoing -- despite ample evidence that it had engaged in plenty of wrongdoing. Things like paying off local officials with millions to win no-bid contracts worth billions and convincing county officials to switch from fixed-rate bonds to bonds hedged with risky derivatives -- a switch that has driven Jefferson County to the brink of bankruptcy. "We have been victimized by our creditors," said a county official.

JPMorgan released a statement that it was "pleased to have reached a settlement with the SEC," and acted as if it was practically a disinterested party: "The charges relate principally to municipal transactions that occurred six and seven years ago. JPMorgan has since discontinued that business, and the employees in question are no longer employed by the firm." Keep reading...

Tue Nov 10

Weak jobs situation guarantees more Fed loosening, which means a weaker dollar, which means higher stocks.



Jan Hatzius (via PragCap) argues that the Fed won't raise rates even in 2010.  Watch video:


Tue Nov 10