In the report, the IMF discusses how the riskiest mortgage lenders were the most active lobbyists in Washington. These lenders pushed for more lax laws regarding mortgage securitization, ultimately contributing to the housing meltdown of the past year and a half. In fact, lobbying can be attributed to a lot of the blame associated with the crisis.A Fistful of Dollars -
The whole report, all 78 pages, is embedded below:
1) Those darned analysts - The greatest risk heading into 2010 is an analyst community that becomes wildly bullish and sets the expectation bar too high for corporate America to hurdle itself over. Early readings show this is not a great risk at this point, but it continues to tick higher.
2) Stimulus, stimulus, stimulus - Unfortunately, government spending isn’t the path to prosperity and the private sector will be forced to pick up the slack sooner rather than later. 2010 is likely to largely hinge on this transition. The government will begin to sap the economy of its massive stimulus as the year drags on and with that comes increased risks that the equity markets will struggle on without big brother’s aid.
3) Anything China - The rally in commodities and manufacturing continues to chug along with a great deal of help from China. If anything goes wrong in China (and we mean anything) equity markets will tumble.
4) The almighty bond market - (Keep reading...)
James Altucher has a lengthy column on why you should rent rather than buy. Shorter version: there are a lot of hidden costs, and outside of the bubble, housing has not historically been a great investment. The phenomena that made it a great investment for some people (the emptying out and then filling up of cities, the introduction of self-amortizing mortgages, rising and then plummeting interest rates, and the special status of mortgage debt after 1986) will not indefinitely continue to push prices up; most of them have played out. Over the long run, housing prices cannot grow much faster than incomes.Wed Dec 30
I agree with all of this. You should not buy a house because "renting is throwing your money away" or because you expect the house to become a cash cow. As an investment, housing is a good form of forced savings, but do not expect price appreciation to make you rich--nay, not even if it made your parents and all your neighbors rich.
But these articles, and the homeownership-skeptics (of which I am sort of one) often give short shrift to the benefits of owning. Renting has hidden costs, too. (Keep reading...)
Clusterstock: a Goldman subsidiary, J. Aron and Company, says that Shenzhen Nanshan Power owes them $80 million.Wed Dec 30
But Shenzhen Power is refusing to pay. They say that J. Aron is trying to collect $80 million in terminated oil option contract fees and losses, but the contracts were signed without company approval.
This is not the first time this year that the enforcement of derivatives contracts has become an issue in China, and from the sound of it it will probably grow as local officials are forced to adjudicate between homegrown companies and the international croupiers looking to do business there. (Read the full article on Reuters.)
Life may not be fair, but Henry Blodget says the system is utterly backstabbing those who try to play it safe and smart: the savers.
As PIMCO's Bill Gross notes in this NYT article on zero-percent interest rates, the Fed's ongoing Wall Street bailout is coming at a cost: Anyone who has any cash savings is getting screwed.This includes retirees who did exactly what they were supposed to do--save. Their incomes are now getting clobbered.
Meanwhile, for those who prefer to borrow money, the ongoing bailout has created the world's easiest way to make $1 billion. Borrow short-term from the taxpayers and lend the same money back to the taxpayers--and get a guaranteed risk-free spread.
Here's Bill Gross:
“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”
Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.
The Huffington Post says you can call the upcoming decade a case of the Terrible Teens:
Mon Dec 28The decade ahead could be a brutal one for America's unemployed – and for people with jobs hoping for pay raises. At best, it could take until the middle of the decade for the nation to generate enough jobs to drive down the unemployment rate to a normal 5 or 6 percent and keep it there. At worst, that won't happen until much later – perhaps not until the next decade.
The deepest and most enduring recession since the 1930s has battered America's work force. The unemployed number 15.4 million. The jobless rate is 10 percent. More than 7 million jobs have vanished. People out of work at least six months number a record 5.9 million. And household income, adjusted for inflation, has shrunk in the past decade.
Most economists say it could take at least until 2015 for the unemployment rate to drop down to a historically more normal 5.5 percent. And with the job market likely to stay weak, some also foresee another decade of wage stagnation. (Keep reading...)
From Bruce Krasting at ZeroHedge:
I was disappointed with the Christmas Eve ditties from Treasury and FHA re: the Agencies. To be honest, I was appalled. The two releases contained significant information. The timing was obviously an attempt to slip in some bad news while everyone is drinking eggnog. Of course that backfired. The blogs, and yes, the MSM disintegrated those that sent the emails out on Christmas Eve. The smell that these announcements have created is not likely to go away anytime soon.
If you are reading this you know the story. Treasury ponied up for another $200b for Fannie and Freddie and the management of these entities are getting serious paychecks.
A question for Mr. Geithner; What are the salaries and bonuses being paid to the people who run FHA? These are government salaries. FHA is a part of HUD. Compensation for Fannie and Freddie Exec’s should conform to those guidelines. Not the other way around. We need to end the myth that F/F are private sector entities. They are not. We are not stupid Mr. Geithner. (Keep reading...)
Mon Dec 28
Bloggingstocks: The recession "officially" ended in the third quarter with 3.5% GDP growth. Time to start celebrating, right? Not so fast.Analyst and editor of Shadow Government Statistics, John Williams, wrote: "The estimate of 3.5% annualized real growth for third-quarter GDP included a 1.7% gain from auto sales, a 0.6% gain from new residential construction, and a 0.9% gain from a largely involuntary inventory buildup, which appears to be understated. ... In aggregate, those one-time stimulus or inventory items represented 92% of the reported quarterly growth."
What's more, in November, the 3.5% Q3 GDP growth was revised down to 2.8%. If you consider Williams analysis in light of the sharply lower GDP number, I'd say we're looking at real GDP growth of zero -- or worse.
Lesson for investors in 2010: You can trade headlines, but I expect we will see a double-dip recession in the real world no later than the second quarter of next year.
Next: Lie #4: Unemployment Will Bottom Around 10%
Have you been naughty or nice this year, Moneyswat readers? Because it's known that Santa likes to bless the stocks in your stockings.
Washington Post: Skeptical kids can doubt whether Santa Claus exists. But for stock-market statisticians, there's not much debate: The year-end lift known as the Santa Claus rally is no myth.The stock market typically posts modest, but reliable, gains in late December into the beginning of early January.
"It's pretty much like clockwork," says Jeff Hirsch, editor of the Stock Trader's Almanac, which tracks market trends. "And when it doesn't happen, it can be a very helpful warning of impending trouble."
This year the stock market began December in somewhat typical fashion with a stagnant first half of the month. The Standard & Poor's 500 Index is up just 0.6 percent so far in December, and the Dow Jones industrial average is down 0.2 percent.
That leaves room for the market to snap back by the end of the year, although stocks are still facing headwinds from lingering doubts about the economy as well as trepidation among investors about the huge gains logged so far this year. The S&P is already up 22 percent in 2009, the Dow 18 percent. (Keep reading...)
John Mauldin: I will make mine, as I traditionally do, in the first letter of January. But already we have seen a wide range of forecasted outcomes. Are we going to grow at 5-6% or at 1-2% or dip back into recession? Why such disparity? I think part of the reason is a basic disagreement on the nature of the just-lapsed recession. Today we explore that issue. Then I point you to a way to help those who are desperately in need and only wish they had our problems. And finally, I start the process of getting ready, after ten years, to actually buy some stocks. Yes, it is true. Am I throwing in the towel and becoming a bull, or do I just see an opportunity? Stay tuned.
It's All About Deleveraging
This recession was caused not by too much inventory but by too much credit and leverage in the system. And now we are in the process of deleveraging. It is a process that is nowhere near complete. While the crisis stage is over (at least for now), there is still a lot of debt to be retired on the consumer side of the equation, and a lot of debt to be written off on the financial-system side. And this is true in Europe as well, and maybe more so; but today we will look at some data in the US.
Total consumer debt is shrinking for the first time on 60 years. And the decline shows no sign of abating. Credit card companies have reduced available credit by $1.6 trillion dollars. And for good reason. Credit card delinquencies are hovering near all-time highs. Bank charge-offs for credit cards are going to rise as the unemployment numbers get worse. (Keep reading...)
WP: Foreclosures already pocked Chicago's poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007. The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.
Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine. "Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession. (Keep reading...)
Huffington Post: After barreling ahead about 130% in the past five years, 29% in the past two years, busting through $1,000 an ounce last September and then tacking on another 20% from there, the investment darling of the worry-warts has suddenly gone limp.
Gold hit an all-time high of $1,227.50 an ounce on December 3, but then retreated to $1,102, largely reflecting a strengthening greenback. This past Friday, though, gold, widely viewed as a fear investment, had one of its better days, rising $6.10 to $1,113,50 on reports of an Iranian incursion into an Iraqi oil field. That's up sharply from last year's close of $880.80.
For some thoughts on what's going on with the precious metal and where it goes from here, I rang up Mark Leibovit, a dogged gold tracker who has demonstrated considerable prowess in timing moves in the metal, both up and down. (keep reading...)
CNBC: Americans are the most pessimistic they've been since the beginning of this year, when the US was mired in a deep recession, while confidence in President Obama and Congress is at the lowest level of 2009, according to the latest NBC/Wall Street Journal poll.Thu Dec 17
Of those surveyed by telephone during the past weekend, 55 percent feel the nation is headed in the wrong direction, compared with 33 percent who felt the US was headed in the right direction. That's the worst showing since January, during the height of the economic crisis, when 59 percent felt that nation was on the wrong track and 26 percent felt it was on the right track.
President Obama's approval rating also edged to the lowest level since he took office in January. Only 47 percent approve of the job he's doing, while 46 percent disapprove. That compares with a 51 percent approval rating in October and 60 percent in February. (Keep reading...)
The US dollar has now moved above its 50-day and 100-day moving averages, with strategists writing clients that they see the greenback on the verge of a major, sustainable upside breakout from its 13-month slump versus the euro.
The comeback could present opportunities for investors that have been itching for better entry points into the metals and some select energy names, say market pros.
As the dollar fell, investors plowed into metals like gold to hedge against the weakening paper. As the greenback strengthens, Hesler told us in a brief chat this afternoon, commodity traders could find the excuse they’re looking for to lock down some profits before year-end.Fri Dec 17
A subsequent buying opportunity could present itself later this month in the metals, where he says he will get more enthusiastic about grabbing gold at around $1000. Gold ended Wednesday at $1139. He’s also looking to pounce on some select energy issues. (Keep reading...)
From MarketOracle: The S&P 500 PE ratio is the primary measure used by many investors to value the stock market and assess S&P 500 trend. Historically, the S&P 500 PE ratio has a median of 15.7. As of September 30, 2009, the S&P PE ratio was 86 based on a closing price of 1057 and trailing annual earnings of the S&P 500 of $46.36. All numbers are from the Standard & Poor’s S&P 500 index reporting. Part of the reason the PE ratio is so high is the negative affect of earnings in the December 2008 and March 2009 quarters. After the recent market rally, what should investors expect for 2010?
Investors look forward when they think about where the markets will be. The S&P 500 PE ratio reflects this view and it helps to explain the sudden spike in the S&P 500 PR ratio in the chart below. After earnings for the S&P 500 companies fell off a cliff, investors anticipated the market would recover, leading to the record high PE ratio for the S&P 500. (Keep Reading...)
WSJ: The Obama Administration desperately wants a strong economic recovery, or so it says, but does it have any idea how to encourage one?Wed Dec 16
It says it wants job growth, but its policies keep raising the cost of creating new jobs. It says it wants small business to take risks, but it keeps reducing the rewards if those risks succeed. And it says it wants banks to lend more money, even as it keeps threatening to punish bankers if they make too many bad loans or make too much money.
The last contradiction is again on display as President Obama rolls out his latest populist blame-the-bankers campaign. This is becoming a White House financial staple. Recall how the President joined the Congressional posse amid this year's earlier AIG bonus uproar, until it threatened to run out of control. Later Mr. Obama targeted Chrysler's bond holders who weren't eager to accept the government's meager dictated terms. The bond holders rolled over, but everyone in financial markets got a message about what this Administration thinks about the sanctity of contracts.
Now, amid Democratic panic over 10% unemployment heading into an election year, the President is attempting a double populist play: Blame the bankers for causing the financial crisis and recession by lending too much, and blame them again for causing high joblessness now by lending too little. (Keep reading...)
Market Oracle: Over the last few years we’ve made reference to the “cult” of non-participation. By this I mean the relative lack of retail investor interest in the stock market compared to the former decade. In tonight’s report we’ll look at why this trend of non-participation may be soon coming to an end.Wed Dec 16
The so-called “buyer’s strike” that was the topic of discussion last year during the credit crisis actually began in 2004 when the 10-year cycle last bottomed. It was then that a definite trend came into being whereby small retail investors became bearish on the market outlook and were convinced that a repeat of the 2001-2002 market debacle was imminent. When the 10-year cycle bottomed in October 2004, however, the market disappointed this expectation and began a long upward path to new all-time highs in the major indices. Yet the small retail investor remained largely unconvinced of the bull’s durability and remained on the sidelines, effectively launching what became a 5-year-long buyers strike. (Keep reading...)
And it’s not just because the Fed needs to stimulate the U.S. economy: there’s a new fad making the rounds in Washington – it’s called ‘scapegoat the Fed.’Tue Dec 15
The fad appears every 20 years or so when lawmakers want to blame someone or something for the nation’s economic woes: why not blame the Fed.
One faction of Congress – a terribly misinformed one at that – has blamed primarily the Fed for the housing bubble, subsequent bust, and the financial crisis. The Fed and other government agencies forced banks to lend to poor/working poor people that banks would not normally lend to, and that caused mortgages to go bad – triggering the financial crisis.
The above argument strains credulity! Read more from the Money Matters blog….
Marketwatch: Although it thinks it is working to create jobs, the Administration is actually doing just the opposite. The first stimulus package is a prime example of Washington's wrong-headed thinking. So far it has created few, if any, new jobs for two reasons.(Keep reading...)
First, very little of the $787 billion package has actually reached the economy -- only 20%, to be precise. Second, only a tiny piece of that has gone directly into job creation. The Administration's latest proposals to increase jobs give with one hand while taking back with the other.
Tax credits for hiring, more generous depreciation allowances and no capital gains tax for small business are a start in the right direction. So are tax credits for homebuyers and extending jobless benefits. But most companies remain reluctant to hire people because when they look ahead, they are facing more than the usual uncertainties, most of which are being created by the Obama Administration -- whether it realizes it or not.
Obama goes back to his Wall Street-bashing rhetoric in today's 60 Minutes on CBS, after he has already doomed this country to tens of trillions in excess debt to make sure that Wall Street not only thrives, but prospers, courtesy of Bernanke's vertical bond curve and the daily destruction of the dollar. With statements such as "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street" which the WSJ disclosed will be uttered by Obama shortly, only the most clueless viewers will find empathy with Obama's latest message of banker "anti-hope."What do you think, Moneyswat readers — is Obama being sincere?
And it is not only Obama, but Wall Street protege Larry Summer himself who continues the banker bashing. First you bail them out, and now you bash them? It is one thing to dash criticism upon rhetoric but at least be consistent. If people can not read between the lines of this administration's endless hypocrisy, they deserve all they get. And if Matt Taibbi's latest controversial piece in Rolling Stone "Obama's Big Sellout" needed any final validation, you just provided it Mr. President. Because while your Wall Street-centric policies can be explained by your lack of financial comprehension and private-sector experience (thereby justifying your desire to be "advised" by those who are an integral part of the banker syndicate), your complete disdain for the average American's intellectual level exemplified by your most recent, upcoming 7 pm TV appearance is what is truly insulting. Maybe you can put Mr. Geithner up there next to you on the TV screen, and he can justify his reasoning for why incremental "fat cat" bonuses are such a bad idea. Come to think of it, why not make it into a round table, and include Larry Summer and Robert Rubin: we are confident they will have no problem distancing themselves from the very bankers they talk to 10 hours a day, telling them (and thus you) how to run national policy.
You say "Some people on Wall Street still don't get it"... The problem, Mr. President, is that more and more people on Main Street, do get it. They now realize just whose agenda you have at heart. And said Main Street expects nothing but merely more theatrics during your upcoming meeting with Wall Street "fat cats" tomorrow.
Mauldin: We are going to look at the unemployment numbers of last week, along with the unemployment claims that came out yesterday. But first, I want to quote a section from Dennis Gartman's letter this morning. It illustrates why we have to be very careful how we use government data. Too often, we think the data is straightforward math and simply draws on the underlying data sources. The reality is that it is anything but. To wit:
"A PROBLEM AT THE VERY HEART OF DATA GATHERING: Recently in Washington a rather large number of economists from academia and from government met to try to hash out a problem with data gathering that has become more and more serious here in the US and has more and more distorted how we value the American economy itself. At heart is how imports into the US are accounted for.
"For example, when a part for perhaps $100 is imported from China and is used in an American automobile ... something that happens more and more and more often these days ... the stats show that the finished car is American-made because it was assembled here in the US and in the process the US GDP is raised by that same $100 when in fact it should have been deflated by that figure instead. In the process, American workers who might in the past have made the part in question are no longer doing so and are obviously made redundant, hence a job or jobs is lost.
"The unemployment data then 'finds' that unemployed worker and accounts for him or her, but the car that is assembled does not, and when it is produced and sold and its value makes its way through the system, it appears that productivity has risen ... and rather dramatically so, when in fact it has not. (Keep reading...)Mon Dec 14
"...it’s good news for President Obama and Congressional Democrats, not as good news for Republicans.
The really surprising results were that only 27% felt tax cuts for the wealthy were justified, and 66% favored raising taxes on the wealthy to cut the budget deficit.
Also surprising: 70% of respondents favored spending public money on programs to help unemployed Americans retrain for new jobs. That’s a very high support level, and shows that Americans are concerned about the high unemployment rate created by the nearly 2-year recession." Read more from the Money Matters blog for a list of the major findings.
Long-term readers know that gold moves inversely to the dollar, meaning if the dollar drops, gold tends to rise (and vice versa). This happens with about 80% regularity. But what many gold writers haven’t acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world’s reserve currency.
The U.S. dollar index, a six-currency gauge of the greenback’s value, has dropped 7.8% so far this year (as of December 3). Meanwhile, gold is up 38.7% year-to-date. In other words, for every 1% drop in the dollar index, gold has risen 4.9%. If that approximate percentage holds over time, one can begin to estimate what the gold price might be if you know what the dollar might do.
While the dollar is likely to bounce at some point, making gold correct, the long-term fate of the dollar has already dried in cement. If the dollar were simply to return to its March 2008 low of 71.30 next year – a 4.6% drop from current levels – this would imply a rise in gold of 22.5% and a price of about $1,478 an ounce.
The long-term scenario is more dramatic. If you believe the dollar will lose half its value from current levels, this would imply a gold price around $4,164. If you believe it will lose 75% of its value, gold would reach about $5,642. Doug Casey has called for a $5,000 gold price; if he’s right, guess what that implies for the dollar?
And think about this: these calculations ignore what else might “show up,” such as when price inflation shows up in the economy, the greater public shows up to buy gold, or the Chinese don’t show up at an auction. Could $5,000 gold be too low?
Unless you think the dollar’s problems are solved, its eventual demise is gold’s eventual glory. Prepare, and invest, accordingly. (Keep reading...)Fri Dec 11
Fri Dec 11Currently, investors can choose from 7,762 stock, bond and money market funds, according to the Investment Company Institute, the funds' trade group. The universe of mutual funds has shrunk by 150 funds since this time last year, the ICI says.
Most of the fatalities have been money market funds: The number of taxable money funds has dropped 11%. Money market yields are so low — about 0.03% — that most fund companies can't run them profitably. Even though the fund industry has shuffled some funds off to Palookaville, the fund industry has pumped out more than 300 new funds this year, and more are in the works. Unfortunately, very few new funds are worth buying.
The first reason to avoid new funds: With 7,762 funds available, why choose one without a track record? True, a red-hot performance doesn't guarantee excellent future returns. On the other hand, wretched performance tends to persist. (Keep reading...)
With all the banks paying back the TARP money, some folks are assuming that the great Wall Street bailout is finally coming to an end. But of course it isn't!
Taxpayers are still guaranteeing all big bank bonds (Too Big To Fail) and subsidizing huge bank earnings and bonuses with absurdly low interest rates.
But instead of bellyaching about it, you might as well just smile and cash in. After all, that's what Wall Street's doing.
So here's how to make the world's easiest $1 billion:
STEP 1: Form a bank.
STEP 2: Round up a bunch of unemployed friends to be "bankers."
STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it's not that tricky. See below.*)
STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.
STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%
STEP 6: Sit back and watch the cash flow in.
At this spread, you should be earning at least 4% per year on your $10 billion of capital, or $400 million. Sure, there's some risk that the Fed will grow a backbone and raise short rates, but there's not much risk. (They have an economy to fix and banks to secretly recapitalize). And in any event, if the Fed raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it will be someone else's problem.)
You'll have made $400 million in a single year! So pay yourself a fat salary for all your hard work. And pay your "bankers" fat salaries for all their hard work (But don't worry--your bankers won't actually have to do anything. You'll just need one of them to borrow the money from the Fed and buy the Treasuries, which he will be able to do part-time.) At the end of the year, celebrate. It's bonus time!
Don't be greedy. Pay yourself and your bankers the industry-standard compensation ratio of 50% of revenue. Your revenue was $400 million, so that creates a $200 million bonus pool. Pay each of your unemployed friends bankers, say, $1 million. And give yourself the rest for being such a smart entrepreneur and creating all the jobs and value.
Now, you've already made at least $150 million, so it doesn't really matter what happens next. But you're in this for the world's easiest $1 billion, right?
So proceed to Step 7.
STEP 7: Go public. After bonuses, your bank will be earning about $200 million a year, your capital ratio will be super-strong (10% equity-to-debt!), and your balance sheet will be clean as a whistle (all risk-free Treasuries!). So you ought to be able to persuade investors to pay you at least 20-times earnings, or a valuation of $4 billion. Sell 25% of the company for $1 billion.
STEP 8: Use your $1 billion of new equity to borrow another $9 billion at 0.25% from the Fed. Buy another $9 billion of Treasuries. Collect another $400 million a year. Pay yourself and your team bonuses that are twice as large as last year's. You deserve it! And you're now about $500 million to the good.
STEP 9: Wait for your stock to double or triple, which won't take long given your amazing growth trajectory and clean balance sheet. When your market cap hits $10 billion, sell another 10% of the company for $1 billion. Now you're really ready to grow.
STEP 10: If you want to get fancy and get nice profiles written about you in business magazines, start buying branch networks from defunct banks (the FDIC will pay you to take them) and start making actual loans. Also, start hiring trading desks to gamble on things more exotic than Treasuries. Yes, all this sounds risky, but just remember--the risk isn't yours, and you're already $500 million to the good.
STEP 11: Sell $500 million of your stock to a "strategic investor" and let the rest ride. Don't worry, if your traders and loan officers turn out to be idiots or the Fed suddenly raises rates, the taxpayers will handle it. And you've already made your $1 billion.
So, congratulations, you're now a billionaire! Now all there is left to do is celebrate!
And there you have it folks! Any takers?
* If you've been paying attention, you will note that the only potentially tricky step in this process is the "raise $1 billion of equity." Where, exactly, are you going to get $1 billion of equity? Well, you will have to do some selling there.
Basically, you'll have to tell a few investors about your awesome new business plan (see above) that will earn them returns of at least 20% on their equity from Day 1. A 20% return on equity is a lot, especially when the return is largely risk free. So you should have no problem raising that $1 billion of equity.
Given the government's desperate desire to get banks to start lending again, you might also want to try to hit up the government for some funds. The pitch will be simple: Old banks aren't lending because they're hiding embedded losses and need to protect their balance sheets. You don't have that problem. You'll use the equity to LEND. (And you will use it to lend! You don't have to say that you're going to lend it to the US government. None of the other banks are saying that.)
Not so fast regarding shale gas or ‘unconventional gas.’ Accessing the potentially plentiful, domestic energy source has encountered a obstacle: it may be contaminating wells and groundwater, The New York Times reported.
The new techniques used to access the gas – one major technique is called hydraulic fracturing – are causing environmental problems, The Times said. So far, the incidence of groundwater contamination is thin, but more-thorough government checks may turn up many more problems.Fri Dec 11
Natural gas companies acknowledge the validity of some concerns, The Times added, but they argue that their technology remains fundamentally safe. The U.S. Environmental Protection Agency is investigating various contaminated wells and sites. Read more from the Money Matters blog….
Mike Whitney: There's no fixed number of greenbacks in a vault at the Treasury which limit how much the federal government can spend. Since the US pays its debts in its own currency--it can print as many dollars as it pleases. Of course, if boosting the money supply triggers inflation, the Fed has to withdraw liquidity and raise interest rates. But that's not the problem at present. The problem is how to zap the economy back to life.
The problem is how to get 16 million people out of unemployment lines and back to work. That's the real challenge. The problem is political not economic. Obama is surrounded by industry reps who are trying to scare him about the size of the deficits. But deficits aren't the problem; unemployment is. Once people get back to work and build their savings, their creditworthiness will improve, and the next economic expansion will begin. When more people are paying into the system, the deficits will come down. But the deficits won't come down if tens of millions of people are still on the sidelines and forced to cut their spending. Judging by last Thursday's speech at the "Jobs Summit", Obama still doesn't grasp this:Fri Dec 11
"But I want to be clear," Obama boomed. "While I believe that government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector. We don't have enough public dollars to fill the hole of private dollars that was created as a consequence of the crisis. It is only when the private sector starts to reinvest again, only when our businesses start hiring again and people start spending again and families start seeing improvement in their own lives again that we're going to have the kind of economy that we want. That's the measure of a real economic recovery." (Keep reading...)
Market Oracle: Unless we start seeing confirmations of Gold’s breakout coming from other precious metals or gold mining stocks, then we could very well see Gold stage a massive reversal in the near-term.
Last week, Gold proved this with a sharp reversal falling 6% in two days’ time. Those caught on the wrong side of this trade got absolutely obliterated.
The reason for the reversal? A sudden, and sharp US Dollar rally. Indeed, last week the “short the Dollar, go long everything else” crowd got hammered when the Dollar rallied more than 2% in a little less than 48 hours.
The question now is whether last week’s carnage was a mere blip in the continued Gold rally/ Dollar drop or if this is indeed the start of something more significant. To determine this, we’ll take a look at the bigger picture for both assets. (Keep reading...)
Looking back over the decade now drawing to a close, it's clear that the United States economy experienced a number of ups and downs that might well have been avoided with the correct economic policies.
This wasn't what forecasters were expecting when they looked into their crystal balls 10 years ago, at the close of the 1990s. Then, the consensus was for smooth sailing as far ahead as the eye could see -- not surprising since the economy had boomed during most of that decade, logging in a record 120 months of growth.
If there was a concern 10 years ago, it was that an ongoing budget surplus would soon result in Washington eliminating all its outstanding debt, thus leaving no Treasurys for the Federal Reserve to use in conducting its open-market operations.
This period of reduced demand for funds was expected to push interest rates down to levels not seen since the 1930s. Concomitantly, inflation was projected to be a thing of the past. (Keep reading...)Wed Dec 9
From Bloomberg: Kenneth Feinberg, the U.S. paymaster for rescued companies, will exempt some executives at American International Group Inc. from a $500,000 salary cap after at least five employees threatened to quit because of the limits, people familiar with the matter said.
Feinberg may issue a ruling as early as next week on pay limits for 75 of the bailed-out insurer’s executives, the people said. Last week, five executives said they were prepared to resign if their compensation was significantly cut, according to the people, who declined to be named because the talks are ongoing. Two have since retracted the threat, the people said.
“It’s the equivalent of saying, ‘We’re going home and we’re taking our toys with us,” Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC, said yesterday in an interview. By paying more in salary, AIG is “increasing what may be considered guaranteed pay.”
Feinberg, the Obama administration’s special master for executive compensation, said in October that base salaries at AIG wouldn’t exceed $500,000 a year except in cases where there was “good cause” to pay more. (Keep reading...)Wed Dec 9
Consider these newly-released numbers: Out of every 100 homeowners who came to JPMorgan Chase for help under the program, just 15 have or will likely receive a permanent payment reduction.(Keep reading...)
What happened to the other 85? For every 100 trial plans initiated from April through September 2009 under the Home Affordable Modification Program:
- 29 borrowers did not make all required payments under their trial plan;
- 20 borrowers did not submit all documents required for underwriting;
- 31 borrowers submitted all required documents but the documents did not meet HAMP underwriting standards, due to such things as missing signatures or nonstandard formats;
- 4 borrowers were or are likely to be rejected for undisclosed reasons;
- 1 borrower will not or is not likely to get their payment lowered.
Times: Fears are growing among western banks that Dubai Holding, the personal investment vehicle of the emirate’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, will be the next state-owned Dubai company to default.Mon Dec 7
The conglomerate went on a debt-fuelled spending spree in the past decade, borrowing $12 billion (£7.3 billion) to fund ambitious projects in Dubai and to create a private equity arm that bought stakes in Tussauds and the budget hotel chain Travelodge.
Details of the main lenders to Dubai Holding are not public but bankers in Dubai say the group borrowed from international banks, including Royal Bank of Scotland and HSBC, as well as local lenders. One official close to the company conceded the firm was “a bloody mess” (keep reading...)
Mish's: Bernanke keeps piling on proof of how inept he really is. After arguing for years that it is best to leave bubbles alone then take care of them after they pop, he now thinks that "maybe" he was wrong. He was then and still is because he does not even know what causes bubbles.
Please consider Fed Debates New Role: Bubble Fighter. Bernanke is amazingly inept. Bernanke keeps proving over and over again how inept he is. The only source of bubbles is the Fed in conjunction with fractional reserve lending. Sign the Petition. This is unlikely to help, but it sure cannot hurt. Bernie Sanders says We Need a Change at the Federal Reserve.
(Keep reading..."Bernanke Rethinks Bubbles But Still Gets It Wrong; Sign The Petition To Dump Him")Dec 7
Mint: There’s a stereotype in America that successful CEOs and entrepreneurs were born with silver spoons in their mouths. Their eye-popping fortunes were little more than a gift from luck, genetics or privilege. Given this stereotype, it’s tough to imagine people like Warren Buffett ever working “regular jobs” like the rest of us. However, you may be surprised to learn that many titans of industry got their start in very pedestrian positions that you wouldn’t suspect. Today, we look back on the first jobs of 10 wealthy CEOs and entrepreneurs.(Keep reading...)
Ross Perot — at age six, broke horses for a dollar apiece.
Warren Buffett — a newspaper delivery boy at age 13.
Donald Trump — collected empty cans and bottles with his brother for the redemption value.
We felt thankful for some good news following Thanksgiving. But will the holidays be merry and bright for markets?
Washington Post: If the bulls have their way, Wall Street's rally will keep going next week on signs of stability in the labor market. But concerns about penny-pinching consumers during the holiday shopping season and the specter of higher interest rates may be a hurdle to jump.
Investors are optimistic after Friday's data showed employers cut far fewer jobs than expected in November. Even so, worries that consumers will remain frugal during the holiday shopping season are keeping a lid on investors' enthusiasm. And after Friday's data showing the labor market picture improved in November, there's speculation that the Federal Reserve may have to raise interest rates sooner than previously expected.
Investors will watch next week's initial jobless claims report for further evidence that the job market is stabilizing, while a separate report on retail sales for November will show how stores fared during Black Friday. (Keep reading...)Mon Dec 7
Fri Dec 4Pragmatic Capitalist: For months investors have been taking stabs at capitalizing on potential upside in the VIX, but every time the market looks like it might sell-off the VIX makes a new low. We’ve been quick to report on the massive surges in VIX buying in recent months and have seen these trades routinely fail. Well, traders are finally starting to make big bets on the opposite side of the trade now. Bloomberg reports:
Trading of options on the benchmark index for U.S. equity derivatives surged to a record in a bet that the so-called VIX may decline in the next two months.With these large traders now taking the opposite side of this trade you have to wonder whether this isn’t a good contrarian sign for the markets going forward. Is this a sign of the bears throwing in the towel or simply a rational bet on the 2010 recovery trade?
“It looks like they’re trying to short the VIX in January and February,” said Dan Deming, a VIX options trader at Stutland Equities LLC in Chicago. “They’re selling the call spreads, so that would indicate they think it’s going to be under pressure.”
More than 634,000 calls to buy futures on the VIX, as the Chicago Board Options Exchange Volatility Index is known, traded today, six times the four-week average. Eighty-seven percent of those contracts changed hands as part of two spread trades, according to data compiled by Bloomberg. The calls were probably sold, meaning the traders who initiated the transaction were betting the VIX would decline, Deming said.
CBOE also said VIX options volume reached a record monthly total of 4.16 million in November, a daily average of 208,119.
"We will be going back to Shanghai and Hong Kong in January for another look at the region and to examine how US policy is playing out there. Or should I say, how US policy is failing miserably to play out there.
We believe that few trust the United States. This is obvious in private conversation. And it is clear to all that confidence in the dollar is low. This is mostly mentioned only in private. In public there is quiet response when the Treasury Secretary of the United States utters words about a strong dollar. Asians have heard that for years and with the many different accents of the various Treasury Secretaries. Geithner would serve the country better by ceasing to mouth the same words that his predecessor Snow and others used. He is not believed.Thursday Dec 3
The American federal budget deficits are worrisome everywhere. Policy promises from Washington to reduce them are greeted with great skepticism. Often they are privately described as American arrogance.
Publicly, Asians are very polite and do not often subject their guests to embarrassing criticism. Privately they are quite candid. In my view they are correct: America is arrogant and seems to pretend that it is still the best and most trustworthy financial and capital market in the world. There is no basis for the US to have such a view of itself. We have squandered our reputational capital as a financial center leader." (Keep reading...)
Slate: Dubai was supposed to be a new model for economic development in the Persian Gulf, and in the world. And like so many recent "new models," Dubai is proving to be a lemon.Wed Dec 2
The theory was that Dubai would be a competitive, free oasis in a region generally hostile to the open market. Lacking oil resources of its own, it set itself up as a sponge to sop up resources-generated cash. Dubai would be the playground, shopping mall, financial center, cultural zone, beach resort, and second-home mecca of the global oil patch—New York, Las Vegas, and Miami wrapped up in one. In a part of the world where politics were generally poisonous, Dubai was a comparatively free space, open to all investors. The world's financial elite embraced Dubai's new image as a blue-chip. In this year's World Economic Forum's ranking of the most competitive economies, Dubai came in 23rd, up from 31st the year before. It was the highest-ranking country not in Europe, developed Asia, or North America. Conservatives embraced Dubai as a small-government, capitalist heaven. "Think Dubai. Free and rich," as Donna Wiesner Keene wrote in a letter to the New York Times. (Keep reading...)
Pay attention, America. This is the way markets work.
