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It's not exactly clear what compelled me to sit through the entire two-and-a-half minutes of this video because, though keenly interested in Ben Bernanke and the Federal Reserve, this type of music has never been my favorite. Somehow, I just couldn't look away.
With the price of oil now plummeting - just $62 a barrel as this is written - the commodity bulls of the world may need some "positive reinforcement" regarding the longer-term picture for this asset class and the Financial Times is happy to supply such in this report.
Commodities: Cinderella class slowly gains allureIt is notable that, with all the hand-wringing over endowment fund losses and the many asset allocation changes that resulted, there seems to be an almost unwavering commitment to the natural resource sector in general and commodities in particular.
The world of commodities, encompassing everything from gold to pork bellies, emerges as a real Cinderella asset class in the Watson Wyatt survey. Of the $872bn (£527bn, €621bn) held in alternative assets on behalf of pension funds by the 100 largest managers, a meagre 0.4 per cent resides in commodities.David Hoile, head of asset research at Watson Wyatt, believes the asset class is not quite as unloved an ugly sister as it first appears; the survey only picks up direct exposure to commodities, whereas many pension funds will also have exposure via vehicles such as multi-strategy and global macro hedge funds.
“Pension funds are likely to have a 5-10 per cent allocation to commodities,” says Mr Hoile, with North American funds much keener than their European counterparts. A slice of funds’ equity allocation will also be in commodity-related stocks, providing another element of exposure.
The low allocations are, in part, simply a result of history; commodities are a newer asset class than, for example, real estate or private equity.
Philippe Comer, head of commodity investor solutions for the Americas at Barclays Capital, says it is only in the past decade that financial investors have entered a market still dominated by the producers and consumers of commodities.There's much more in this very good piece on historical cycles, the difficulties with yield roll, active management, and a number of other topics.
Mr Hoile adds: “The financialisation of commodities by institutional funds was something we only really started to see from 2001-02. The modest allocation currently reflects that fact that we are at the start of a trend.” But there are also deeper forces at play that even a particularly benevolent fairy godmother would struggle to wish away; both the rationale for investing in commodities, and the mechanics of how any exposure should be generated, are questions still up for debate.
Mr Comer reports that institutional interest has been driven by a desire to increase diversification and to hedge against the risk of higher inflation.
David Rosenberg, chief economist at Glusskin Sheff, was on CNBC's Sqawkbox this morning. His views can best be summarized as, "This is not a normal recession".
It looks as though the Commodity Futures Trading Commission will propose new rules today to rein in speculators in commodity markets so as to prevent a repeat of last year's surge in crude oil prices that, almost exactly one year ago, saw prices peak at almost $150 a barrel.
The Washington Post provides the following details:
With any new heavy-handed regulation, the laws of unintended consequences will quickly come into play as there is a very real (and very understandable) interest by a growing number of investors to exchange their paper money for something more tangible.The move aims to reduce the volatility of prices but faces resistance from top Wall Street firms, which fear the efforts could cut into profits. Regulators and lawmakers increasingly worry that these firms have used their size and power to inflate the prices of commodities, booking profits in the process.
Concern over such deal-making reached a fever pitch last summer, when oil prices were sky high and people were feeling pain at the gas pump. CFTC data showed last year that a significant amount of trading in oil was concentrated in the hands of just a few speculators. These worries have waned since then, as gas prices have moderated from last year's highs, though a recent run-up in fuel prices may prompt new questions.
Matt Taibbi's feature on Goldman Sachs - The Great American Bubble Machine - in the current issue of Rolling Stone is now available online and, in conjunction with its release, a series of interviews are now available on the conspiracy-minded Alex Jones YouTube Channel.
TOP STORIES
• Goldman: Morgan Is Wrong About Fed Exit Strategy - Bloomberg
• CFTC Floats Rules Aimed at Speculation - Washington Post
• Economic recovery faces serious hurdles - MarketWatch
• Speaker boycotts California budget session - LA Times
• The Wealthy World at its 'oil break point' - Calgary Herald
• Ten sneaky bank fees that sting consumers - MarketWatch
• America's Fiscal Train Wreck - Morgan Stanley
• The Free and the Dead - Kunstler, CFN
Here's an interesting story($) in the WSJ about a company that makes guitars in Nazareth, Pennsylvania, not far from where your humble editor grew up.
At a bustling factory on the outskirts of this eastern Pennsylvania town, one of the world's oldest guitar makers is using a Depression-era strategy to keep production flowing and avert layoffs.The family company was founded almost 200 years ago - they've seen a lot.Workers at C.F Martin & Co. are putting finishing touches on the solid-wood 1 Series model, so named for its simplicity. It lacks inlay, as did the company's stripped-down 1930s model, and is expected to sell for less than $1,000, breaking a key price point and far less than its $100,000 limited-edition guitars made of Brazilian rosewood. More popular Martins generally sell for $2,000 to $3,000.
Reuters reports that Fitch Ratings reduced the rating on California's general obligation bonds from "A-minus" to "BBB", just two steps above junk status, as legislators continue to grapple with trying to make ends meet during the fiscal year that just started last week.
The state began issuing IOUs a few days ago, prompting the question, "Just what do you have to do to get downgraded to junk?"
At this point, they'll probably reach that milestone by simply doing nothing, which is, effectively, what they've been doing for about the last nine months to resolve the state's budget mess.
The ratings agency said they were keeping California "on watch" for another downgrade, the state's debt already the lowest rated of all 50 states.
The last time that the state had a "BBB" rating was in 2004, during the last budget crisis, shortly after Governor Gray Davis was recalled and replaced by Arnold Schwarzenegger who presided over one the largest housing bubbles in history which, in turn, generated oodles of tax revenue and helped make the budget problems go away for a few years.
They're baaaa-aaaack!
There's a bit more in the report from Reuters:Tom Dresslar, a spokesman for State Treasurer Bill Lockyer, said the other two main credit rating agencies, Standard & Poor's and Moody's Investors Service, could soon follow Fitch's example. "I'm sure their patience is not deep," he said.
Things will probably get worse before they get better...
Lower ratings threaten to raise California's borrowing costs during a severe cash crunch in Sacramento, the state capital, one of Fitch's top concerns.
"The folks who are going to end up paying the price are not investors, not the governor, not the legislature, but the taxpayers," Dresslar said.
Standard & Poor's has California's general obligation bonds rated "A" with CreditWatch with negative implications. Moody's has warned of a possible "multi-notch" downgrade in its "A2," sixth-highest investment grade credit rating of California's general obligation debt.
In a statement, Fitch said it cut its "A-" rating "based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis."
California faces a $26.3 billion budget deficit for its fiscal year that began on July 1 and talks between Governor Arnold Schwarzenegger and lawmakers to balance the state's books are plodding along.
Having visited Las Vegas last fall as financial markets were crashing, it was odd to see how remarkably cheery the City Center sales staff were in peddling condos for what will probably rival the construction boom in Dubai as the great White Elephant of a now bygone era.
In fact, when asked about plunging real estate prices and global financial markets that were following suit back in late-September, the sales staff almost appeared to be living in some parallel universe where asset prices only go in one direction - UP.
The response to this query was either a "deer-in-the-headlights" look or a brief moment of agitation before a well-honed sales instinct could wrest control back from what was clearly a more emotional (and more genuine) reaction.
Well, apparently, those who signed on the bottom line for condos a couple years ago (with move in dates this fall rapidly approaching) are all too aware of what's been happening in the local real estate market and they're none-too-happy about it.
According to the latest data from the Case-Shiller Home Price Index, Las Vegas property values are down some 33 percent from a year ago and a stunning 52 percent below the peak in 2006, around the time that many of the City Center sales were made.
The Wall Street Journal provides the following update on the project and the plight of the soon to be none-too-proud owners of some of these condos.One of the costliest and highest-profile condominium developments in the country -- the $8.4 billion City Center project in Las Vegas -- is facing a revolt from some early buyers.
It's funny how contract law is seemingly being ignored these days and how those who are clearly not "too big to fail" think they're entitled to be bailed out somehow.
Some buyers who signed contracts are demanding significant price reductions, and have hired a law firm to take their grievances to the project's principal developer, gambling company MGM Mirage. Others want their deposits back. Some are using a Web site, citycentercondodepositgroup.blogspot.com, to air their grievances.
So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Those who agreed to buy early on now fear they will take possession of condos whose market values are far below what they agreed to pay. Many of the contracts were signed in 2006 and 2007, when Vegas was booming.
"It is simply not possible by any stretch of the imagination to close on the units at the contracted price," said Mark Connot, a partner with Hutchinson & Steffen, a Las Vegas law firm hired to represent a handful of buyers demanding price reductions. "Our position is they need to adjust the price to market value. And until that's done I don't think they will find any buyers."
Well, maybe funny isn't the right word there.
Perhaps disturbing would be a better one.
While the group of disgruntled owners may be able to negotiate from a position of collective power, they seem like a rather sad lot in the process. Most people who put down $100,000 on a million dollar condo that might now be worth only about $500,000 would surely just walk away and chalk that $100K up to experience.
What surviving mortgage company would lend $900,000 against that condo anyway?
Then again, what do the buyers really have to lose at this point?
Their entire downpayments have surely been sucked into the asset deflation abyss already, along with another $10 trillion or so of supposed "wealth" around the world, and if they walk away now, they may never get to ride the monorail.The 67-acre project, due to open in November, includes 5,000 hotel rooms and 2,440 condos rising in sleek towers over the Las Vegas Strip. The development will have a public parks system, its own monorail, fire department, mall and theater.
This should be interesting to watch this fall.
...
The City Center condos range in price from $600,000 for a smaller studio unit to more than $9 million for an expansive penthouse suite built atop of the Mandarin Oriental hotel. So far, the most expensive unit under contract is a 3,910-square-foot suite at the Mandarin for $9.4 million, or $2,392 per square foot.
It is unclear how many buyers are agitating for better deals or for deposit refunds, but real-estate analysts in the area have raised fears that a good portion of them may no longer be able to secure financing and could just decide to walk away, leaving their units empty.
...
"You have 1,500 condo buyers right now who wish they'd never put this thing into contract and most of them have some kind of relationship with MGM Mirage," said one buyer who put a $600,000 deposit on a $3 million unit, and would like to get his deposit back. "It's tricky for MGM Mirage. You make your best customers angry."
Any word on how Donald Trump is doing these days?
Roger Bootle writes in today's Telegraph on the near certainty that conventional wisdom at the Bank of England is quite wrong, but he may as well be talking about the Federal Reserve here in the U.S. as the two banks are cut from the same cloth.
What is still surprising to me after what we've been through over the last couple years is that this conventional wisdom has not already been universally discredited and that those promoting this errant thinking have not already been taken around back to the woodshed.After we left the Exchange Rate Mechanism (ERM) in September 1992, the era of inflation-targeting was born. Its current format, with an independent Bank of England, was the result of one of Labour's first acts upon gaining power in 1997.
Under this system, the MPC sets interest rates in order to ensure that inflation is kept on target all the time, but the forecast horizon is two years ahead. Asset prices are only taken into account in so far as they affect the outlook for inflation.
For a time, this approach seemed to work very well. In fact, though, all along it had major problems. Most importantly, it seemed to assume that as long as the inflation rate was OK then the whole monetary system would be OK. But, as we have seen, while inflation can stay relatively close to the target for several years, an asset bubble may be inflating.
An alternative approach would be to introduce some other macro-instruments designed specifically to control lending and asset prices – what Mervyn King has called a "macro-prudential toolkit". The favoured option is variable capital ratios – whereby banks would be forced to hold more capital during the "good times" in order to create a bigger buffer for the inevitable "bad times". Again, if we could rely on such a system then interest rate policy could be left to get on with inflation targeting in the way we have grown used to.Just as in the U.S., the default solution appears to be giving even more power to the central bank, the group that many feel is most responsible for the current mess.
Yet I find this idea unappealing on its own. Who knows what the shape of the next bubble will be? Perhaps it will not involve banks lending large multiples of their capital. Every bubble is different.
Even though such variable capital ratios will help, I suspect that the only way forward is to give the Bank of England a wider brief in the way it sets interest rates. The objective could still be to hit an inflation objective, say 2pc per annum on the CPI, but the Bank would be charged with achieving this only over the medium–term.
In such a regime it would have the power to raise interest rates in the midst of a housing boom even if CPI inflation was modest, on the grounds that in the long run, housing booms are not compatible with monetary stability.
I know that the objection to such a regime is that it gives too much discretion to central bankers.
Riots in Western China have, so far, resulted in more than a hundred deaths. A dispute at a toy factory thousands of miles away in Guangdong province caused tensions to boil over.
TOP STORIES
• Bankruptcy judge OKs GM sale plan - AP
• Biden: White House does not favor second stimulus now - Reuters
• 'This Week' Transcript: EXCLUSIVE: Vice President Joe Biden - ABC News
• Calls grow to supplant dollar as global currency - Globe & Mail
• China Begins Pilot Program to Settle Trade in Renminbi - NY Times
• Gold is still money when money is still not wealth - Commodity Online
• Pepsi plans $1 billion Russian investment - MarketWatch
• A Goldman trading scandal? - Winkler, Reuters
Those of you who were around during the late-1980s/early-1990s real estate boom/bust will surely remember all the homeowners who requested that their property taxes be reduced after home values declined. The situation seems much more dire this time around as detailed in this story in the New York Times and codified in the caption for the photo below.
What struck me as very surprising, something that, here on the West Coast, falls into the category of "unthinkable", were the exorbitantly high tax rates in places like New Jersey.
I've long heard of people fleeing to Pennsylvania to escape property taxes to the east, but the figures for Ms. Tombro's tax situation detailed below are just mind-boggling.New Jersey, which has the nation’s highest property taxes, has been besieged by tax appeals from homeowners like Peggy Tombro, whose rambling home in Bound Brook is assessed at a value of $1.8 million but is languishing on the market with an asking price of $1.3 million. Her taxes are increasing to $53,000 a year.
She's going to have to sell a lot of antiques...
“I don’t know what else to do,” said Ms. Tombro, 63, who has gone back to work selling antiques to pay her tax bill.
With entire neighborhoods populated by million dollar homes quickly vanishing, the days of plentiful $25,000 a year property tax bills also appear to be numbered, boding ill for the spendthrift ways of many local and state governments.
Surely, the case of New Jersey property taxes is an extreme one.
For example, in California, the tax bill that comes after the purchase of a $1.3 million home would be around $16,000 rather than an amount that approaches the national median household income.
Of course, the State of California also has a bit of a budget problem these days, so maybe that's not the best example to use.
Perhaps even more intriguing than the ongoing adjustments being made by typical Americans as a result of the new economic reality that has arrived on all our doorsteps will be the changes that state and local governments are forced to undergo, kicking and screaming all the way, most likely, a process that has just begun.
Naturally, the biggest and baddest adjustment of them all will someday come at the Federal government level where spending beyond ones' means has not only become accepted practice, but a way of life.
That too will change someday...ooo
This week's cartoon from The Economist: 
TOP STORIES
• North Korea Test-Fires Seven Missiles - Bloomberg
• Statue of Liberty crown reopens to the public - LA Times
• Tax Bill Appeals Take Rising Toll on Governments - NY Times
• Goldman Sachs: The great American bubble machine - Seattle PI
• North Korea moves to restrict economy - LA Times
• California's Broke. Should You Invest in It? - Wash. Post
• The unemployment timebomb is quietly ticking - Telegraph
• Banks own the US government - Baker, Guardian
MARKETS/INVESTING
• A U-Turn on Market Risk - NY Times
• Kuwait Wants Oil Prices to Stay Above $60 - Bloomberg
• Commodities: Cinderella class slowly gains allure - FT
• Dollar Rises Versus Euro on Signs of Faltering Rebound - Bloomberg
• Awful jobless rate is not a good stock market barometer - LA Times
• Getting a return on your savings is tricky - APP
ECONOMY
• Preview: Service Industries Probably Contracted - Bloomberg
• Graduates Can Find Help Scaling Mountain of Debt - Wash. Post
• Deflation vs. Inflation: The Great Debate Rages On - Seeking Alpha
• Hope and Peril After an Escape From the Cubicle - NY Times
• Vacancies give renters room to negotiate - LA Times
INTERNATIONAL
• World Bank Chief Warns Against Protectionism - Wash. Post
• France: Changing World Requires More Currency Coordination - Bloomberg
• QE just acting as a sugar rush for insolvent banks that deserve to fail - Telegraph
• Trichet Says Deflation Risk Has Yet to Materialize in Europe - Bloomberg
• Australia Faces the ‘Full Brunt’ of Global Recession - Bloomberg
• Venezuela assumes control of Spanish-owned bank - AP
• Dubai Shares Tumble Most in a Week on Oil - Bloomberg
• Europe Tests Banks, and Worries - NY Times
HOUSING
• Mortgages Made Simpler - NY Times
• Another wave of foreclosures is poised to strike - LA Times
• So Many Foreclosures, So Little Logic - NY Times
• Housing market spurs bidding wars - Bakersfield.com
FED/TREASURY/BANKING
• The Mother of All Bubbles - Seeking Alpha
• Fed more worried about deflation than inflation - Taipai Times
• Obama plan could trim back financial powerhouses - AP
• For Banks, Wads of Cash and Loads of Trouble - NY Times
INTERESTING
• Chestnut wins NY hot dog eating match, 3d in row - AP
• D.C. Portraitist Breaks Starving-Artist Mold - Wash. Post
• Ire at Madoff Swings Toward the Referee - NY Times
• Palin's exit as Alaska governor stuns, puzzles observers - LA Times###
Richard Ebeling offers these thoughts over at the American Institute for Economic Research about the history of big government in the U.S., that is, before it became the U.S.
A Declaration of Independence from Big GovernmentThere's much more over at the AIER - happy Fourth of July everyone!
The Declaration of Independence, signed by members of the Continental Congress on July 4, 1776, is the founding document of the American experiment in free government. What is too often forgotten is that what the Founding Fathers argued against in the Declaration was the heavy and intrusive hand of big government.Most Americans easily recall those eloquent words with which the Founding Fathers expressed the basis of their claim for independence from Great Britain in 1776:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness – That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed – That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”
But what is usually not recalled is the long list of enumerated grievances that make up most of the text of the Declaration of Independence. The Founding Fathers explained how intolerable an absolutist and highly centralized government in faraway London had become.
A new approach aimed at getting Air New Zealand airline passengers to pay closer attention to the safety instructions provided before each flight.
To be honest, I didn't even read this story in the Wall Street Journal before deciding to make it the subject of a post. With glasses like the ones worn by Mr. Langerman and the well worn phrase "Easy Money" in the title, how could I go wrong?
Managers Bemoan Loss of Easy MoneyWhile "dried up" easy money is, undoubtedly, a welcome development in this world, perhaps it would be best to read the article next time before making any rash decisions about its suitability for this blog. Then again, the idea that value fund managers would be unduly affected by such a development is kind of interesting.Mutual-fund managers, especially those with a value-stock approach, said tighter credit has had such an effect on the market that it has changed the way they look at stocks.
The issue, said managers, is that so much cheap money headed to private-equity firms in recent years that it allowed the firms to buy up companies if a stock's price fell too low. The demise of that system has removed a floor in stock prices, said managers, adding a layer of uncertainty.
...
Fund managers said that while they didn't rely on what is known as the "private-equity put" in their strategies, the presence of private equity factored into their thinking.
"It was an analysis that a lot of value players used," said Peter Langerman, chief executive of Mutual Series, a group of value funds offered through Franklin Templeton Investments.
But as easy money has dried up, private-equity firms have been far less active.
Spotted over at the Daily Bail, just in time for the nation's 233rd birthday (wow - that number is an unpleasant reminder of just how old you are if you remember the 200th).
Jefferson would surely not be pleased with how things developed. Hamilton, on the other hand, may think they turned out swimmingly. Is that Hamilton all the way on the left?
California leads a gaggle of states that entered a new fiscal year on Wednesday with no viable plan to fund their spending. The AP reports that Florida, Oregon, North Carolina and other states have similar problems, though none quite as severe as in the "Golden State".
Until home prices stop falling and unemployment stops rising, there doesn't appear to be any improvement on the horizon.Several states are facing the prospect of government shutdowns and program cuts as they enter the first weekend of the fiscal year and July Fourth holiday without a budget in place.
"This downturn, even more so than previous downturns, really is affecting every state right now," said Brian Sigritz, a staff associate with the National Association of State Budget Officers.
The Washington-based organization says 42 states wrestled with budget deficits this spring, the most since it began tracking budgets 30 years ago.
States weathered similar problems in the recessions of the early 1980s, 1990s and earlier this decade. The confluence of so many problems hammering the economy at once make the present situation seem dire.
Pennsylvania schools still don't know how much state money they'll receive and may have to reopen their budgets to add or subtract spending. The state's budget year began Wednesday with no sign of a deal between lawmakers and Gov. Ed Rendell.This cartoon by R.J. Matson is really starting to grow on me...
Ohio Gov. Ted Strickland and lawmakers are stymied over a proposal to allow casino-style gambling to raise money. As a result, the state started its budget year with a one-week temporary budget.
...
"This budget impasse is impacting real Ohioans," said Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Banks. "People for the first time in their lives are now finding themselves standing in the food line because they've lost their jobs, their incomes aren't stretching."
It's about time... Nothing against New Yorkers - it's all about sharing the pain at this point.
TOP STORIES
• GM awaits judge's ruling on sale plan - AP
• Job Losses Dampen Hopes for Recovery - Wash. Post
• Seven banks bring 2009 U.S. failures total to 52 - MarketWatch
• GM could exit Chapter 11 this month, IPO in 2010 - MarketWatch
• Cash-poor California turns to IOUs - CNN/Money
• The scandal of overdraft fees - Salmon, Reuters
• On giving Goldman a chance - True Slant
• California sends out IOUs - LA Times
MARKETS/INVESTING
• Oil's record high, one year later - CNN/Money
• Gold edges up on overseas markets, rupee - Economic Times
• Rogue oil trader blamed for Tuesday's spike - MarketWatch
• Hurricanes May Increase in Gulf as El Nino Shifts - Bloomberg
• June jewellery sales soar in Abu Dhabi - Commodity Online
• OPEC president satisfied with current oil price - Globe & Mail
ECONOMY
• Taking a weed whacker to green shoots - CNN/Money
• American Jobs Data Are Worse than We Think - Pimco
• Grim jobless numbers damp economic recovery hopes - LA Times
• Is free checking on its way out? - CNN/Money
• That ’30s Show - Krugman, NY Times
INTERNATIONAL
• World markets slide on grim US jobs report - AP
• PBOC's Zhou: China is saving too much - MarketWatch
• Darling: Bankers will be 'brought back to earth' - Telegraph
• Major nations should back dollar as key currency: Japan - Reuters
• Japan's Hayashi: U.S. economy has yet to hit bottom - MarketWatch
• Appraising the European Central Bank: Hard talk, soft policy - Economist
• Green Power Takes Root in the Chinese Desert - NY Times
• The relaunch of Gordon Brown: The vision thing - Economist
HOUSING
• House prices and the wealth effect - Economist
• Manhattan real estate market finally craters - WalletPop
• Spring U.S. housing market hints at awaited recovery - Reuters
• Bear Market in U.S. Housing to Last Years - Rosemanblog
FED/TREASURY/BANKING
• Crisis Won’t End Until Balance Sheets Get Real - Bloomberg
• US toxic securities funds launch seen at $20 bln - Reuters
• Fed Assets Shrink to $2.01T as Lending Declines - Bloomberg
• Small business lending falls sharply - CNN/Money
INTERESTING
• Recession-fed tensions grow in luxury hotel industry - LA Times
• NYPD rookie makes arrest moments after graduation - AP
• The Strange Ingredients in Fireworks - LiveScience
• A comedian in the Senate: Eight months later - Economist###
It was a busy Thursday for the FDIC as seven banks were shut down, prompting the question, "What the heck is going on in Illinois?" Are they trying to challenge Georgia, the clear leader in failed banks? MarketWatch reports that the "Prairie State" is catching up quickly.
Seven banks bring 2009 U.S. failures total to 52You can go to the FDIC website and get a list of all the banks that have failed since October of 2000, sortable by name, state, and closing date.
Seven banks were closed by regulators on Thursday, including six in Illinois, bringing the total for 2009 to 52 as the U.S. banking system remains under pressure from rising unemployment and record foreclosures.
...More than 1,000 banks may fail in the next three to five years as the recession intensifies and loan losses climb, RBC Capital Markets estimated in February.
Bank failures on such a scale will deplete some of the money the FDIC has stored to pay depositors. On Thursday, the FDIC estimated that the seven bank failures will cost its deposit-insurance fund a total of roughly $314.3 million.
Equity strategist Peter Bookvar of Miller Tabak explains the many reasons why every investor should own some gold (and maybe not just a little of the stuff).
David Rosenberg at Gluskin-Sheff comments on Tuesday's cheery 0.6 percent monthly decline in the 20-city Case-Shiller Home Price Index (CS-HPI).
Maybe a chart would help to put the latest data into its proper context...Even Robert Shiller himself seemed excited about the fact that his own home price index was down just 0.6% in April, which admittedly compares favourably to the 2%+ slides posted since last October. But it's one month for crying out loud and we have seen these sorts of brief periods of more moderate home price declines before in this cycle that triggered premature bouts of optimism. If memory serves us correctly, in the spring of 2007, we went through about three or four months when the Case-Shiller index was declining by just 0.2% and this got a whole lot people excited that the worst was over (Alan Greenspan being one of them). Then from May to July of 2008, after a series of awful declines, the Case Shiller posted numbers of -0.8% or better – again, the moderation in the pace of decline was brief. It could well be that we have seen the worst in terms of the pace of decline, but it seems hardly reason to be enthused by the fact these 'green shoots' which are little more than noise on what is still a fundamental downtrend.
While it seems improbably that we'll return to the -2.0 to -2.5 percent monthly declines for a sustained period of time, you can see how a multi-month period of smaller price declines would be typical of stretches during 2007 and 2008 that were not followed by higher prices.
Here's the video to go along with yesterday's item about the Chinese wanting to exchange lots more U.S. dollars for gold. Skip directly to 3:20 to hear about their future buying plans.
Peter Brimelow at MarketWatch comments on the latest prognostications from the group of perma-deflationists over at Elliott Wave International.
The good news: One successful survivor of the Crash of 2008 thinks the bear-market rally has further to go. The bad news: It's still a bear market, and it will end in devastating deflation.Like many others, Elliott Wave Theory has always been bewildering to me, but that may have something to do with the fact that I have a degree in engineering and worked as a hardware/software designer for more than twenty years.
...Elliott Wave Theory can be bewilderingly complex. One reason it tends to leave investors incensed is that they believe EWFF's overlapping waves constitute a sort of bait-and-switch, always leaving the forecaster with an out.
Right now, for example, EWFF is showing what it calls the "intermediate" trend as down. But the somewhat longer "primary" trend, which began in March, is intact and is projected to reach 9,000-10,000 on the Dow.
EWFF writes: "The probabilities favor a second phase of advance that carries the rally off the March lows to new recovery highs later."
For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.
Don't ask me to explain it but, from my limited exposure to it, there always seems to be a debate between wave 3 and wave 5. There's more from Wikipedia here. The Labor Department reported a sharp decline in nonfarm payrolls last month and a slight increase in the unemployment rate as the labor market continues to shed jobs during the worst recession in decades.
Employers in the U.S. cut a total of 467,000 jobs in June following losses of 519,000 in April and 322,000 in May. Revisions to prior months resulted in 8,000 fewer jobs lost than previously reported, the May total revised downward from -504,000 and the June data revised upward from -345,000.
The unemployment rate continued to rise, up from 9.4 percent in May to 9.5 percent in June, however, this was the smallest increase since last September, just prior to the financial market and economic crisis taking a turn for the worse. The current 9.5 percent rate is the highest since August of 1983.
In a separate report, new claims for unemployment insurance fell to 614,000 for the week ended June 27 from an upwardly revised 630,000 the week before.
Since the start of the recession in December of 2007, non farm payrolls have declined every month, the total labor market decline now totaling 6.5 million jobs.
By category, June job losses were concentrated in the manufacturing and business services sectors that shed 136,000 and 118,000 positions, respectively, and the decline in manufacturing payrolls included 26,500 fewer jobs in the auto and auto parts industries.
As usual, the education and health care sectors added to the work force, a gain of 14,900 seen in education services and 18,600 more workers now collecting paychecks in the health care and social assistance sectors.
Government payrolls posted their second consecutive decline, down 52,000 in June after a drop of 10,000 in May, much of this a result of layoffs for temporary workers hired to prepare for the 2010 census. Over a million temporary workers are expected to be hired in the months ahead to conduct the census next year.
TOP STORIES
• Manhattan home prices plunge - Fortune
• As deficit grows, Calif. prepares to issue IOUs - AP
• Staffer at SEC Had Warned Of Madoff - Wash. Post
• As oil rallies, passive investors increase their holdings - MarketWatch
• GM Plans ‘Garage Sale’ for Toxic Plants, NJ Golf Course - Bloomberg
• Clock Ticking on Accord to Sell Good G.M. Assets - NY Times
• Madoff customers get $231 million so far - Reuters
• Feds could seize Calif. parks if closed by budget - AP
MARKETS/INVESTING
• Oil slips to $68 a barrel ahead of US jobs report - AP
• Gold slips ahead of data; dollar strengthens - Reuters
• Asia stocks end mostly down before U.S. jobs data - MarketWatch
• Newsletter Insights: Elliott Wave of Mutilation - MarketWatch
• Oil market oversupplied, demand weak -Kuwait - Maktoob
• Case Shiller Housing Market ETFs Start Trading - Altos Research
ECONOMY
• 467K jobs cut in June; jobless rate at 9.5 percent - AP
• Initial Jobless Claims Fell 16,000 to 614,000 Last Week - Bloomberg
• Pimco: Consumer "greed" hibernating, fear rules - Reuters
• June Sales at Ford Fall Less Than G.M. or Chrysler - NY Times
• Meltdown 101: Shuttered stores' sites still sell - AP
INTERNATIONAL
• ECB keeps interest rate at 1 pct - AP
• Swedish Central Bank Cuts Rate to Record - Bloomberg
• Australia's trade deficit almost doubles in May - MarketWatch
• Dollar Gains . China ‘Not Aware’ of Reserve Currency Talk - Bloomberg
• China reportedly to concede on iron-ore pricing - MarketWatch
• China Renews Call for ‘Stable’ Dollar, Diversification - Bloomberg
• Banking system like South Sea bubble - Guardian
• Moody's cuts Ireland's Aaa credit rating - MarketWatch
HOUSING
• Foreclosure help will reach more homeowners - USA Today
• Fannie, Freddie ease terms for mortgage refinance - Reuters
• Home Sales Perk Up, but Expensive Houses Languish - Time
• Gov't foreclosure help will reach more homeowners - AP
FED/TREASURY/BANKING
• Treasury to name up to 9 managers for toxic-asset plan - Reuters
• Bank Fees Rise as Lenders Try to Offset Losses - NY Times
• Chicago Fed President sees U.S. growth in H2 - Reuters
• Some Thoughts on the Fractional Reserve Banking System - Elliot Wave
INTERESTING
• Sears Tower unveils 103rd floor glass balconies - AP
• Palin story sparks GOP family feud - Politico
• light diverted after passenger undresses in seat - AP
• New class of black hole could explain cosmic leviathans - AP###
Well, we just got back from a quick trip to Cali (as they call it up here in Oregon) and, after catching bits and pieces of the news on the way back - the ISM manufacturing index and pending home sales were both up - we were sure there was a "green shoots" revival underway.
In looking at the actual data, Tom Toles probably had it right yesterday.
The increase in pending home sales, reported by everyone's favorite trade group the National Association of Realtors, was pretty funny - we must have heard four or five times today about how "pending home sales were up last month" without hearing any figures.
As it turned out, it was a monthly increase of just 0.1 percent, but that didn't stop talking heads from spouting "After today's rise in pending home sales..." I'm not so sure it's a good thing that XM radio carries CNN, CNBC, Bloomberg, and Fox News.
It comes as no surprise that the Chinese want to swap some of their U.S. dollar holdings for dumb 'ol gold bars, but the amount is a bit of a shock. Numismaster has the details:
It wasn't until about June 9 that the mainstream media was told that the Chinese government was planning to purchase an additional huge quantity of gold. The information became public when U.S. Rep. Mark Kirk (R-Ill.) was interviewed on Fox News by Greta Van Susteren.The Chinese are different than the Japanese in many ways - this is one of those ways... Read more...
Kirk accompanied Treasury Secretary Timothy Geithner on his trip to China in May. While the Chinese were laughing at Geithner during his speech at Beijing University for claiming that the U.S. dollar was strong (By the way, laughing at a speaker is a major social no-no in China, a sign that Geithner's comments were not respected at all!), Kirk was engaged in a private conversation with lesser Chinese officials. In this non-public discussion, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the U.S. dollar because of the explosion of government debt. As part of the reaction to this concern, the Chinese government had established another reserve to stockpile petroleum and was planning to purchase another $80 billion of gold (about 85 million ounces at today's price level).
Kirk's revelation about the Chinese plan to purchase another $80 billion of gold was the very last comment in the interview. This extraordinary news received almost no coverage until last week when multiple hard-asset Web sites picked up the interview.
In this commentary at Bloomberg today, Caroline Baum stirs memories of the late, great housing bubble as it was inflating and looks at the current "home staging" mania.
Note that the panic buttons shown above didn't appear until Condoflip.com was about to turn into Condoflop.com, as BusinessWeek noted a few years back.When CondoFlip.com debuted in 2004, you knew housing was headed for a tumble.
Here was a Web site where customers could buy and sell, sight unseen, condominiums that had yet to be built. It was confirmation of the degree to which home prices had come untethered from housing fundamentals.
If CondoFlip.com represented the peak of the home-buying frenzy, the proliferation of “home staging” businesses to gussy up houses for sale may turn out to be a sign of a bottom. That would certainly validate the message from recent reports showing home sales and single-family starts moving sideways for the last four to six months and home prices falling at a slower pace.
The term, if not the concept, was new to me.There's lots more at Bloomberg - a sign of the times, to be sure. Read more...
I was dimly aware that real estate agents rearrange the deck chairs in order to make a home appealing to prospective buyers, especially in a down market. But I had no idea there was such an animal as an Accredited Staging Professional, an ASP mission statement, books and courses on the subject and, what else, a reality TV show.
My education started when a press release for a new book, “Staging to Sell: The Secret to Selling Homes in a Down Market,” by Barb Schwarz, landed in my inbox.
The pitch included rave reviews -- a “must-read” -- testimonials by brokers on the secrets of Barb’s success, and compelling data: “Even in today’s slower housing market, 95 percent of staged homes sell, on average, in 35 days or less.” There was no indication what price those staged homes fetched.
At a minimum, the success rate would seem to offer more Hope for Homeowners than all the government programs combined.
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