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Q2 2010 Flow of Funds
By: Doug Noland | Fri, Sep 24, 2010
For the week, the S&P500 jumped 2.1% (up 3.0% y-t-d), and the Dow gained 2.4% (up 4.1%). The S&P 400 Mid-Caps rose 2.0% (up 9.6%), and the small cap Russell 2000 jumped 3.0% (up 7.3%). The Morgan Stanley Cyclicals rose 1.9% (up 6.6%), and the Transports increased 1.8% (up 10.1%). The Morgan Stanley Consumer index gained 2.1% (up 5.1%), and the Utilities increased 2.0% (up 1.5%). The Banks added 0.2% (up 9.0%), while the Broker/Dealers were little changed (down 9.3%). The Nasdaq100 surged 3.5% (up 8.8%), and the Morgan Stanley High Tech index jumped 2.6% (up 1.5%). The Semiconductors rallied 3.5% (down 3.8%). The InteractiveWeek Internet index jumped 3.9% (up 19.1%). The Biotechs gained 1.5%, boosting 2010 gains to 24.1%. With bullion jumping $22, the HUI gold index rose 2.0% (up 17.5%).
One-month Treasury bill rates ended the week at 8 bps and three-month bills closed at 14 bps. Two-year government yields declined 2 bps to 0.43%. Five-year T-note yields dropped 9 bps to 1.32%. Ten-year yields sank 14 bps to 2.60%. Long bond yields fell 11 bps to 3.78%. Benchmark Fannie MBS yields were down 14 bps to 3.44%. The spread between 10-year Treasury yields and benchmark MBS yields was little changed at 84 bps. Agency 10-yr debt spreads were unchanged at 27 bps. The implied yield on December 2010 eurodollar futures declined 3.5 bps to 0.375%. The 10-year dollar swap spread increased 1.75 to 3.50. The 30-year swap spread declined 1.0 to negative 36.50. Corporate bond spreads were mixed. An index of investment grade bond risk rose 4 to 108 bps. An index of junk bond risk declined 2 to 544 bps.
It was yet another big week of debt issuance. Investment grade issuers included Microsoft $4.75bn, Dupont $2.0bn, MetLife $2.2bn, Citigroup $1.5bn, Anglo American $1.25bn, MassMutual $700 million, Mattel $500 million, KKR Group $500 million, Alterra $350 million, Liberty Property $350 million, Washington REIT $250 million, Entergy Louisiana $250 million,and DCP Midstream $250 million.
Junk issuers included Pinafore $1.15bn, CCO Holdings $1.0bn, ABI $850 million, Hertz $700 million, Genon $1.25bn, Freescale Semiconductor $750 million, NBTY $650 million, Valeant Pharmaceuticals $2.1bn, Gannett $500 million, Lifepoint Hospitals $400 million, Whiting Petroleum $350 million, CMS Energy $250 million, Sinclair Television $250 million, Liberty Tire Recycling $200 million, Titan International $200 million, Stoneridge $175 million, and Exopack $100 million.
Converts issues included Vertex Pharmaceuticals $375 million and CBIZ $115 million.
The list of international dollar debt sales included Credit Agricole $1.6bn, Stadshypotek $1.6bn, Gerdau $1.25bn, Warner Chilcott $1.25bn, CHC Helicopter $1.1bn, National Australia Bank $1.0bn, TransCanada Pipeline $1.0bn, ENI $800 million, HSBC $750 million, Petroleos Mexicanos $750 million, Harvest Operations $500 million, Rhodia $400 million, Canadian Pacific $350 million, WPE Intl $275 million, Westpac Banking $250 million, Evertec $220 million and Credito Real $210 million.
September 23 - Bloomberg (Lee Spears): "Companies in the U.S. are raising less this year from initial public offerings than any time in at least a decade compared with the amount they filed to sell. IPOs on the New York Stock Exchange and the Nasdaq Stock Market have raised $19.1 billion in 2010..."
U.K. 10-year gilt yields dropped 8 bps to 3.04%, and German bund yields fell 8 bps to 2.34%. Greek 10-year bond yields sank 50 bps to 11.04%, while 10-year Portuguese yields surged 31 bps to 6.37%. Ireland yields jumped 17 bps to 6.47%. The German DAX equities index gained 1.4% (up 5.7% y-t-d). Japanese 10-year "JGB" yields fell 7 bps to 1.00%. The Nikkei 225 dropped 1.6% (down 10.2%). Emerging equity markets were mostly higher. For the week, Brazil's Bovespa equities index gained 1.7% (down 0.6%), and Mexico's Bolsa added 0.7% (up 3.6%). Russia's RTS equities index rose 1.8% (up 3.3%). India's Sensex equities index jumped 2.3% (up 14.8%), to a new 2010 high. China's Shanghai Exchange was closed most of the week for holiday (down 20.9%). Brazil's benchmark dollar bond yields declined 7 bps to 3.90%, and Mexico's benchmark bond yields fell 14 bps to 3.88%.
Freddie Mac 30-year fixed mortgage rates were unchanged last week at 4.37% (down 67bps y-o-y). Fifteen-year fixed rates were unchanged at 3.82% (down 54bps y-o-y). One-year ARMs jumped 6 bps to 3.44% (down 96bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates up one basis point to 5.33% (down 81bps y-o-y).
Federal Reserve Credit declined $2.8bn to $2.287 TN. Fed Credit was up $66.6bn y-t-d (4.1% annualized) and $154bn, or 7.2%, from a year ago. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 9/22) rose $3.7bn (15-wk gain of $138bn) to $3.213 TN. "Custody holdings" have increased $258bn y-t-d (12.0% annualized), with a one-year rise of $359bn, or 12.6%.
M2 (narrow) "money" supply gained $4.9bn to $8.704 TN. Narrow "money" has increased $171bn y-t-d, or 2.8% annualized. Over the past year, M2 grew 2.9%. For the week, Currency added $1.1bn, while Demand & Checkable Deposits declined $14.8bn. Savings Deposits jumped $24.5bn, while Small Denominated Deposits fell $6.3bn. Retail Money Fund assets increased $0.3bn.
Total Money Market Fund assets (from Invest Co Inst) declined $10.6bn to $2.803 TN. In the first 38 weeks of the year, money fund assets droped $490bn, with a one-year decline of $679bn, or 19.5%.
Total Commercial Paper outstanding jumped $27.8bn to $1.064 TN. CP has declined $106bn, or 12.4% annualized, year-to-date, and was down $148bn from a year ago.
International reserve assets (excluding gold) - as tallied by Bloomberg's Alex Tanzi - were up $1.367 TN y-o-y, or 19.0%, to $8.578 TN.
Global Credit Market Watch:
September 24 - Bloomberg (Tim Catts): "Banks are sitting out the busiest September for corporate bond sales in a sign they may refrain from lending while the Federal Reserve considers how to jolt the economic recovery. Microsoft... led $124.3 billion of U.S. issuance this month, on pace to beat the high of $125.1 billion in September 2009..."
September 20 - Bloomberg (Lynn Thomasson and Alexis Xydias): "Record-low interest rates are stoking the biggest increase in U.S. share buybacks ever. American companies announced $55.9 billion in repurchases since June, data compiled by Birinyi Associates Inc. show. That adds to $93.5 billion in the second quarter and $108.3 billion during the first three months of the year, compared with $125 billion in all of 2009. Corporations are using debt to pay for buybacks..."
September 21 - Bloomberg (Kate Haywood and Sonja Cheung): "Sales of European corporate hybrid bonds, shunned by investors in the credit crisis, surged to a five-year high of 5.2 billion euros ($6.8bn) in 2010 as investors snap up the high-yielding equity-like securities."
September 23 - Bloomberg (Tatiana Bautzer and Gabrielle Coppola): "Sales of securities backed by Brazilian real estate assets are surging to a record as homebuilders and mall owners expand amid the fastest economic growth in two decades. Debt offerings tied to homebuyer contracts and retail lease payments... are on pace to reach 6 billion reais ($3.5bn) this year, up from 3.2 billion reais in 2009..."
September 23 - Bloomberg (Jason Kelly and Cristina Alesci): "Blackstone Group LP, the world's biggest private-equity firm, said a $10 billion company buyout is possible with banks' growing willingness to lend, and that the real estate market is stabilizing. Garrett Moran, a senior managing director at the...firm, said lenders can provide $5 billion in financing, making such a deal possible. 'We have a very workable market,' oran said..."
September 24 - Bloomberg (Richard Bravo): "Leveraged-loan returns rose to their highest level of the year this week as Brickman Group Holdings Inc. took advantage of investor demand and marketed a loan without financial-maintenance requirements... Investors in search of extra yield have turned to high- risk, high-return loans, driving supply to more than double this year and allowing companies to bring so-called covenant-lite deals to market. Those loans are devoid of restrictions such as a mandate on maximum leverage, or debt to earnings before interest, taxes, depreciation and amortization."
September 22 - Bloomberg (Kristen Haunss and Katrina Nicholas): "The number of U.S. companies at greatest risk of default dropped to the lowest level in two years as Federal Reserve efforts bolstered the economy, according to Moody's... Companies rated at or below B3 with a negative outlook declined to 195 as of Sept. 1 from a high of 288 in June 2009..."
Global Government Finance Bubble Watch:
September 22 - Bloomberg (Scott Lanman and Joshua Zumbrun): "The Federal Reserve moved closer to a second wave of unconventional monetary easing and said for the first time that too-low inflation, in addition to sluggish growth, would warrant taking action. The Federal Open Market Committee's statement... that inflation is 'somewhat below' levels consistent with its congressional mandate for stable prices pushed yields on two- year Treasuries to a record low. The language evoked FOMC warnings in 2003 of the risk of inflation 'becoming undesirably low' that justified the era's low-rate policy."
September 24 - Bloomberg (Joshua Zumbrun and Matthias Wabl): "Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank might be pressured into policies that spur inflation unless a limit is placed on the size of its balance sheet. 'Without explicit constraints on the size of the balance sheet, the Fed runs the risk of being pressured to use its balance sheet to engage in policies whose goals have nothing to do with monetary policy,' Plosser said... Plosser's warning comes as U.S. central bankers consider further expanding the Fed's $2.31 trillion balance sheet to boost growth... Without constraints on the Fed, 'the temptation may be too great to renege on the pre-announced policy and pursue policies that deliver temporary economic benefits that may be inconsistent with longer-run goals,' Plosser said... 'In the context of monetary policy, this time inconsistency typically results in higher than desired inflation.'"
September 21 - Bloomberg (Denise Pellegrini): "Ally Financial Inc.'s GMAC Mortgage unit told brokers and agents to halt evictions tied to foreclosures on homeowners in 23 states including Florida, Connecticut and New York... Brokers were told to immediately stop evictions, cash- for-key transactions and lockouts, according to the document, addressed to GMAC preferred agents. The lender will also suspend sales of properties on which it has already taken possession."
September 21 - Bloomberg: "China needs to increase domestic consumption to help survive in a global economic environment that is growing more challenging, Li Daokui, an adviser to the People's Bank of China, said... China's economy retains strong growth potential even as the international situation grows more complicated after the global financial crisis, said Li... 'Pressure for yuan appreciation is just starting and far from ending,' Li told an audience of corporate leaders. 'China faces challenges including the housing price surge that's impeding progress in urbanization.'"
September 20 - Bloomberg (Chris Fournier and Christopher Donville): "International investors frustrated with some of the lowest yields on record for U.S. housing bonds are turning to Canada for higher returns. Canada Housing Trust sold C$6.25 billion ($6.1bn) of five-year bonds last week to yield 24.5 bps more than benchmark rates... Non-Canadians took 37% of the sale, versus an average of 25% to 30% over the past two years, said Mark Chamie,... treasurer of Canada Mortgage and Housing Corp."
Currency Watch:
The dollar index sank 2.6% to 79.283 (up 3.2% y-t-d). For the week on the upside, the Norwegian krone increased 4.0%, the Swedish krona 3.9%, the Euro 3.4%, the Danish krone 3.3%, the Swiss franc 2.5%, the Australian dollar 2.5%, the Mexican peso 2.1%, the Japanese yen 2.0%, the South African rand 1.8%, the British pound 1.2%, the New Zealand dollar 1.2%, the Singapore dollar 1.1%, the Canadian dollar 0.8%, the Taiwanese dollar 0.6%, the Brazilian real 0.6%, and the South Korean won 0.5%. For the week on the downside, the the dollar did gain 2.7% against the Iranian rial.
Commodities Watch:
September 21 - Bloomberg (Jeff Wilson): "The price of Class III milk, used to make cheese, rose in Chicago to the highest level in almost two years as global demand for dairy products increases. Cheese exports by major milk producers, including the European Union, New Zealand, Australia and the U.S., will rise 10% this year, the U.S. Department of Agriculture said... Wholesale-cheese prices are up 22% since the end of June, butter gained 25% and Class III milk rose 16%... 'Export demand continues to improve' for U.S. dairy products, said Roy Huckabay, the executive vice president for the Linn Group... 'Milk is playing catch-up with the gains in butter and cheese.'"
September 21 - Bloomberg: "Imports of refined copper by China, the largest consumer, gained for the second consecutive month in August, as traders ordered material to benefit from a profitable arbitrage window. Inbound shipments totaled 267,153 metric tons last month... That's 19% higher than... July and 22% more than...a year earlier..."
September 21 - Financial Times (Gregory Meyer): "The price of jeans and T-shirts could be about to rise. The world's textile mills, nervous about a global shortage of cotton, have propelled prices of the fibre to their highest in more than a decade. This week's jump in cotton prices above the $1 a pound level, for only the second time since the US civil war, has been a long time coming."
September 21 - Bloomberg (Aya Takada): "Rubber advanced to the highest level in almost five months amid expectation that the global market is set for the worst shortage in four years next year as weather constrains supply and demand keeps expanding... The price increased for a second day and has gained 10% this year."
September 21 - Bloomberg (Aya Takada and Supunnabul Suwannakij): "Bridgestone Corp., the largest tiremaker by sales, is raising European prices for the second time this year and Goodyear Tire & Rubber Co. is charging more as rubber gains on prospects for the biggest shortage since 2007. 'Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations,' said Pongsak Kerdvongbundit, managing director of... Von Bundit Co., the largest natural-rubber producer and exporter in the world's biggest supplier. 'Global production will lag behind soaring demand for at least another two years.'"
The CRB index gained 1.4% (up 0.1% y-t-d). The Goldman Sachs Commodities Index (GSCI) also added 1.4% (up 1.8% y-t-d). Spot Gold rose another 1.8% to $1,297 (up 18.2% y-t-d). Silver surged 3.2% to $21.475 (up 27.5% y-t-d). November Crude rose $1.59 to $76.51 (down 3.6% y-t-d). October Gasoline rose 1.5% (down 5% y-t-d), while October Natural Gas dropped 3.4% (down 30% y-t-d). December Copper jumped 2.9% (up 8.3% y-t-d). December Wheat declined 2.6% (up 33% y-t-d), while December Corn gained 1.7% (up 26% y-t-d).
China Watch:
September 23 - Bloomberg (Ye Xie): "Chinese Premier Wen Jiabao said a 20% rise in the yuan would cause severe job losses and trigger social instability, putting the nation on course for a clash with U.S. lawmakers demanding a stronger currency. 'We cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs, and how many migrant workers will return to the countryside' should China acquiesce to demands for a 20% to 40% gain, Wen said... 'China would suffer major social upheaval.'"
September 21 - Bloomberg: "China may announce property tax measures as early as the October National Day holidays to cool home prices, China Business News reported... The new tax, which will be extended to include residential property, is more likely to be implemented at the start of next year.... The government currently imposes a tariff on business-use real estate and exempts individuals' residential housing."
September 20 - Bloomberg (Sophie Leung): "China should expand investment channels to avoid asset bubbles, Radio Television Hong Kong reported... citing Fan Gang, a former central bank adviser. Inflation in China is unlikely to accelerate to the peak in 2007 and 2008, RTHK cited Fan as saying."
September 21 - Bloomberg (Sophie Leung): "Hong Kong's inflation accelerated to the fastest pace in 19 months in August... Consumer prices gained 3% from a year earlier..."
India Watch:
September 21 - Bloomberg (Anil Varma and V. Ramakrishnan): "Investors are the most confident in India's rupee since May 2009 as global funds pour an unprecedented $25 billion into the nation's stocks and bonds."
Asia Bubble Watch:
September 21 - Bloomberg: "China's rising labor costs prompted Top Form International Ltd., a bra maker for Calvin Klein, to pick Southeast Asia for a new factory, adding to signs of a reshaping of the economy away from export-tied regions. 'We've halted plans to open a fourth factory in China,' Eddie Wong, group managing director..."
September 21 - Bloomberg (Shiyin Chen): "Asian companies outside of Japan may raise a further $116 billion in share sales by the end of the year, taking the total for 2010 to a record $291 billion, Citigroup Inc. said."
September 21 - Bloomberg (Simon Packard): "Tokyo and Seoul moved up in a global ranking of the most expensive store rents as the Asia- Pacific region's economic outlook made international retailers and luxury brands compete to open stores there. Tokyo's Ginza district rose two places to third, and Seoul's Myeongdong climbed to eighth from 11th, according to... Cushman & Wakefield Inc. A 9.6% increase in rents kept Hong Kong's Causeway Bay in second place after New York's Fifth Avenue, which had an 8.8% gain. London's New Bond Street saw a 19% jump in rents, replacing Paris's Avenue des Champs Elysees as Europe's most expensive street."
September 23 - Bloomberg (Chinmei Sung): "Taiwan's industrial production rose more than estimated, gaining for a 12th straight month, while the jobless rate fell to a 20-month low... Output advanced 23.4% in August from a year earlier... Taiwan's 13.1% first-half economic growth spurred factory output and employment as well as home prices, raising the risk of a property bubble."
September 21 - Bloomberg (David Yong): "Malaysia's ringgit traded near a 13-year high on speculation the nation's yield advantage over developed countries will lure more overseas investment."
September 21 - Bloomberg (Barry Porter and Ranjeetha Pakiam): "Malaysia plans to develop a nuclear energy industry, build a mass rail network and create a shopping district to rival Singapore's Orchard Road as part of efforts to boost investment and spur growth. These are among $444 billion worth of potential private- sector-led projects..."
Latin America Watch:
September 20 - Bloomberg (Andre Soliani): "Brazilian central bank President Henrique Meirelles is making his boldest bid in 11 months to contain gains in the real as traders estimate he's buying as much as $1 billion a day in the foreign-exchange market. The central bank purchased about $4 billion in the first four days of last week as the real jumped to the strongest since December... While central banks from Japan to Colombia are beginning to weaken their currencies, Meirelles faces additional pressure as investors move money into Brazil to take part in a $78 billion share sale by state-run Petroleo Brasileiro SA."
September 24 - Bloomberg (Peter Millard): "Petroleo Brasileiro SA, the state-controlled oil company, raised 120.4 billion reais ($70bn) from the Brazilian government and other investors in the world's largest share sale as it seeks cash to develop offshore fields."
Unbalanced Global Economy Watch:
September 21 - Bloomberg (Scott Hamilton): "Britain posted the largest budget deficit for any August since records began in 1993 as debt costs soared... Net borrowing was 15.3 billion pounds ($23.7bn), compared with 13.5 billion pounds a year earlier..."
September 23 - Bloomberg (Emma Ross-Thomas): "Growth in Europe's services and manufacturing industries weakened more than economists forecast in September... A composite index based on a survey of euro-area purchasing managers in both industries declined to 53.8 from 56.2 in August..."
September 24 - Bloomberg (Jana Randow): "German business confidence unexpectedly rose to the highest level in more than three years in September, suggesting companies can weather weaker demand from abroad as the global economic recovery slows."
September 21 - Bloomberg (Emma Ross-Thomas and Joao Lima): "Portugal's budget gap widened in the first eight months of the year... The central government's shortfall rose to 9.19 billion euros ($12bn) from 8.74 billion euros a year earlier... Tax revenue rose 3.3%... and spending increased 2.7%..."
September 21 - Bloomberg (Kati Pohjanpalo): "Finland's economy is rebounding at a 'fast pace' from last year's decline, the Helsinki-based PTT research institute said... PTT raised its forecast for GDP growth to 3.4% this year..."
September 21 - Bloomberg (Wendy Pugh): "Australia, the world's largest shipper of coal, iron ore and wool, raised its forecast for commodity exports this fiscal year to a record amid increasing demand and climbing prices. Sales may be A$214.9 billion ($203.4 billion) in the year... That compares with its June estimate of A$202.5 billion and a revised A$170.6 billion for the previous year."
September 21 - Bloomberg (Jacob Greber): "Australia is likely to need higher interest rates if the central bank's forecast is realized for the nation's economy to continue expanding at its trend pace or faster, policy makers said."
U.S. Bubble Economy Watch:
September 24 - Bloomberg (Vivien Lou Chen and Joshua Zumbrun): "Former Federal Reserve Chairman Paul Volcker... said he doesn't expect a broad-based decline in prices. 'I'm not worried about deflation,' Volcker said... 'I think we're on a path to price stability.' 'I do not think we should be worried about and consumed by the problem of a potential deflation that doesn't exist,' he said."
September 22 - Bloomberg (Ye Xie): "Chinese Premier Wen Jiabao said the yuan's value isn't causing the U.S. trade deficit with his country, rejecting President Barack Obama's assessment that China is keeping the currency cheap to aid exports. 'The main cause of the U.S. trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings,' Wen said... 'There's a trade imbalance between the U.S. and China, which is not something we want to see. China doesn't pursue a trade surplus intentionally.'"
September 23 - Bloomberg (Lu Wang): "U.S. corporate pensions face their biggest funding shortfalls since at least 1999, forcing companies to use profits and cash stockpiles to pay retirees instead of investing in their businesses, according to Credit Suisse Group AG. Defined-benefit pension plans at companies in the S&P 500 Index are probably 75% funded, below the previous trough of 78% in 2008, leaving a total $402 billion in shortfalls..."
September 21 - Bloomberg (Mike Dorning): "The U.S. has fallen behind emerging markets in Brazil, China and India as the preferred place to invest, a Bloomberg survey shows... Along with the slipping perceptions of the U.S. markets in the most recent survey, conducted Sept. 16-17, poll respondents say the Federal Reserve is likely to take further steps to try to bolster the economy."
Central Bank Watch:
September 22 - Bloomberg (Scott Lanman and Jana Randow): "The world's major central banks are finding it tough to exit crisis mode, dusting off unconventional stimulus tools shelved earlier this year or prolonging aid as the global recovery loses momentum. The U.S. Federal Reserve... said it's prepared to ease monetary policy further if needed and has highlighted asset purchases as an option. The Bank of England today signaled policy makers are moving closer to adding stimulus. The European Central Bank extended liquidity support for banks into 2011... The stances are a turnabout from early 2010, before Greece's debt crisis came to a head in May, when central bankers were halting stimulus or discussing how to tighten policy."
September 22 - Bloomberg (Svenja O'Donnell): "The Bank of England signaled that policy makers are moving closer to adding more stimulus to the economy, joining the Federal Reserve in contemplating further bond purchases to revive a flagging recovery."
Muni Watch:
September 23 - Bloomberg (Darrell Preston): "Illinois, facing the worst financial crisis in its history, received a negative outlook on $25 billion of general obligation bonds from Moody's... after failing to address a deficit that almost tripled in one year."
September 22 - Bloomberg (Darrell Preston and Brendan A. McGrail): "Texas, which may face a budget deficit of $21 billion a year from now, is set to cut its cost on a $1 billion highway-bond sale as investors receive about 17% less yield than in a previous issue."
California Watch:
September 24 - Bloomberg (Michael B. Marois and Christopher Palmeri): "California Governor Arnold Schwarzenegger and top lawmakers agreed on a 'framework' to close a $19 billion deficit that left the most populous U.S. state without a budget for almost three months. The governor and the Democratic and Republican leaders of the Senate and the Assembly, known as the Big Five, will hammer out the details at a meeting in Sacramento on Sept. 27..."
Speculator Watch:
September 21 - Bloomberg (Bei Hu): "As much as 20% of hedge funds globally may be liquidated by the first quarter because smaller managers are starved for fees and new capital, according to Bank of America... Hedge fund managers overseeing less than $100 million may be the worst hit, said Justin Fredericks... head of U.S. capital introductions, a prime brokerage team... Hedge funds globally returned on average 1.65% this year... About 93% of the $9.5 billion net inflows into the industry in the second quarter went to managers overseeing $5 billion or more, said HFR."
Q2 2010 Flow of Funds
From the Fed's Q2 2010 Z.1 - "Flow of Funds," Total Non-financial Credit growth expanded at a respectable 4.8% pace. This compares to Q1's 4.5%, and it was actually the strongest rate of growth since Q4 2008's 5.7%. The bad news is that federal government Credit continues to completely dominate. During Q2, federal borrowings expanded at a 24.4% rate, up from Q1's 20.5% and Q4 '09's 11.9%. With Household Mortgage Credit contracting at a 2.3% rate (down from Q1's 4.3%), Total Household Debt also declined at a 2.3% pace during the period. Corporate debt grew at a 3.8% rate, down from Q1's 5.8%. State & Local borrowings contracted at a 1.3% pace, a notable reversal from Q1's 5.7% rate of expansion.
In nominal dollars, Total (non-financial and financial) outstanding System Credit was little changed during the quarter at $52.055 TN. Total Credit was down $455bn, or 0.9% from a year earlier. And from the peak set Q1 2009, Total System Credit has declined a $694bn, or 1.3%. It's worth recalling that Total Credit began the decade at $25.389 TN. Total Credit ended the second quarter at 357% of GDP, after beginning the decade at about 260%. While it can be said that the household sector is somewhat "de-leveraging," the same is not true of the system overall.
In Seasonally-Adjusted and Annualized Rates (SAAR), Total Non-financial borrowings increased $1.671 TN during the quarter. This was up from Q1's $1.563 TN, to the strongest Credit growth since Q4 2008's $1.90 TN. Federal borrowings increased to a SAAR $2.00 TN, up from Q1's $1.60 TN and second only to Q4 2008's $2.10 TN. Total Household debt contracted SAAR $309bn during the quarter, while Corporate debt expanded SAAR $278bn. State & Local borrowings contracted SAAR $32bn.
The massive inflation of government Credit continues to coincide with the "de-Bubbling" of the U.S. financial sector. Financial sector borrowings contracted SAAR $1.070 TN, or a pace of negative 7.1%. This was, however, the slowest rate of contraction in six quarters. By financial sector category for the quarter, Open Market Paper contracted SAAR $277bn; GSE Issues contracted SAAR $110bn; Corporate Bonds contracted SAAR $482bn; Bank Loans (business) contracted SAAR $83bn; and Other Loans & Advances contracted SAAR $140bn. Expanding during the quarter, Agency MBS increased SAAR $245bn and Mortgages rose SAAR $2.0bn.
Banking sector stagnation ran unabated. Total Bank Assets declined slightly during Q2 to $14.411 TN. At the same time, Bank Credit contracted at a 5.6% pace during the quarter to $9.394 TN. Bank Credit was down 1.3% from a year ago. Bank (business) Loans declined at a 6.7% annualized rate and were down 14.4% y-o-y. Mortgage loans contracted at a 5.7% pace (down 4.9% y-o-y), as write-downs continue. Meanwhile, Bank holdings of government debt were up 12.1% y-o-y to $1.507 TN. And Miscellaneous Bank Assets jumped (nominal) $177bn during the quarter to $4.069 TN (up 0.2% y-o-y).
Broker/Dealer assets dropped (nominal) $120bn during the quarter to $1.966 TN, with assets down 2.3% y-o-y. Elsewhere, Finance Company assets declined at a 5.4% pace (down 7.5% y-o-y). Savings Institution assets fell at a 5.5% rate to $1.245 TN, with a y-o-y decline of 10.9%. Credit Unions bucked the trend, with 3.2% quarterly and 3.9% y-o-y growth - to $903bn. REIT liabilities expanded at a 1.1% rate to $488bn (down 0.2% y-o-y).
The ongoing financial sector contraction has not been an indication of a systemic downward debt spiral. There have been ongoing write-downs of problem mortgages and loans, while lending has remained weak generally. Yet it is important to also recognize that the massive expansion of government debt has been playing an integral role in spurring financial sector contraction. During a private-sector Credit boom, financial sector liabilities grow as part of the debt intermediation process. Bank Credit expands as loans are made and deposits are created. MBS and ABS expand as mortgage and consumer Credit are intermediated through the securitization marketplace. The expansion and financial sector intermediation of private-sector Credit would increase a wide range of the sector's liabilities and assets.
The ballooning of the government's balance sheets (expansion in public Credit) has altogether different effects on financial sector assets and liabilities. Importantly, there is little need to intermediate government borrowings. The government issues its own debt and sells it directly into the marketplace (in contrast to mortgage Credit extended during the boom).
Today's government finance Bubble also feeds enormous amounts of income and "cash flow" throughout the household, corporate and financial sectors. This would tend to support so-called "de-leveraging" (debt repayment) for households and corporations, in the process reducing the need for financial sector risk intermediation. This helps to explain the stagnation in "money" supply and Bank Credit - and why these traditional indicators of system "liquidity" have lost much of their relevance.
It is worth noting that National Income ended Q2 up 5.3% y-o-y at $12.767 TN. This was the strongest 12-month growth since Q1 2008. National Income has almost recovered back to its Q3 2008 high of $12.781 TN. Total Compensation enjoyed its strongest quarterly growth in two years. While employment and overall economic performance have badly lagged during this recovery, there should be no disputing that the massive issuance of government debt has worked wonders in stabilizing incomes and overall expenditures (at inflated Bubble levels).
The media jumped on the $1.521 TN quarterly decline in Household Net Worth. Most of this decline was due to the stock market drop. It should be noted that equities were near their low for the year as of June 30, and have since rallied about 10%. Despite weaker stocks, Household Net Worth was up 6.3% y-o-y to $53.50 TN. This was up from the Q1 2009 low of $48.80 TN low, but still significantly below the Q4 2007 high of $64.24 TN. Household Net Worth is today probably near the early 2006 level. Total Household Assets ended Q2 at $67.413 TN (up 4.6% y-o-y), with Liabilities at $13.913 TN (down 1.5% y-o-y).
Rest of World (ROW) holdings of U.S. financial assets expanded SAAR $972bn during the quarter to $16.255 TN. Keep in mind that this number began the 1990s at about $1.9 TN and started this decade at $6.1 TN. For the quarter, ROW increased holdings of Treasurys SAAR $709bn, with Agency securities up SAAR $147bn. ROW reduced holdings in "repos" (SAAR $359bn) and corporate bonds (SAAR $120bn). ROW holdings of U.S. financial assets were up $1.436 TN y-o-y, or 9.7%. Treasury holdings were up 12.1% y-o-y to $4.014 TN. Corporate bond holdings were up $375bn y-o-y to $2.278 TN.
On a year-over-year basis, Federal government expenditures were up 5.0% to $3.704 TN (expenditures up 30% from three years ago). Over the past nine quarters, federal expenditures have jumped from about 21% to 25% of GDP. Federal receipts were up 8.5% y-o-y during Q2 to $2.378 TN, or 16.3% of GDP. During the past nine quarters, receipts have fallen from about 19% of GDP. State & Local receipts grew 6.4% y-o-y to $2.113 TN, while State & Local expenditures were up 3.5% y-o-y to $2.092 TN. Total government expenditures during the quarter jumped to 40% of GDP.
The Government Finance Bubble thesis holds that government debt is the latest - and greatest - episode of Hyman Minsky's "Ponzi Finance." During Q2, the markets accommodated a $2.0 Trillion annualized pace of federal debt growth. In just eight quarters, federal government debt expanded $3.610 TN, or 54%, to $10.308 TN. In a short 24 months, federal debt has jumped from 46% to 71% of GDP. And as long as the markets allow such unprecedented issuance of non-productive Credit at historically low yields, it's quite possible that household incomes, corporate earnings, the general economy, and the securities markets might appear ok. Heck, Washington seems awfully determined to resuscitate asset prices. But we don't have to look back too many quarters for a stark reminder of the nature of Ponzi Dynamics and Fragilities.
http://www.safehaven.com/article/18319/q2-2010-flow-of-funds
Failures In Money Control Becoming More Obvious
By: Bob Chapman, The International Forecaster
--Posted Wednesday, 22 September 2010
A weekly excerpt from the subscription issue of The International Forecaster, taken from Bob Chapman's weekly publication.
Fed makes its own rules, liquidity injections dont work, therapy proves costly, European banks broke, a return to austerity, Markets look for reflation, a broader net for SEC, Fanny and Freddie losses at around 400 billion, state pension death spiral.
As quantitative easing again gets underway the failure of QE1 becomes more obvious. The crisis worsens and the illusion of any recovery is light years away. Over the past three years almost $13 trillion that we know about has been thrown down a rat hole to bail out banking, Wall Street, insurance and selected elitist entities. The dollar figure is probably much higher. We will never know, because the privately owned Federal Reserve makes its own rules. Everything they do is a state secret. The five successful quarters were only a mirage. The funds have been vaporized among lending and financial institutions worldwide. There has been no accounting and there never will be as long as the Fed is not audited and investigated. We are in an inflationary depression and have been since February 2009. Massive injections of liquidity do not work, nor have they worked for centuries under these conditions. You cannot resurrect an insolvent country in a system that is corrupt. The controllers of the US economy are about to lead the American economy and financial structure into a great dark pit. The US and the world is soon to face a global breakdown deliberately engineered by the forces of darkness.
As usual the Fed was late in applying remedial therapy and that will prove costly. The funding of US debt by foreigners has become very costly and some are jumping ship and some are even using their dollars to buy gold. The game is changing, but will other countries risk a worldwide collapse by not rescuing the US economy? We don’t know but it doesn’t look promising. Monetization is coming and most nations are frozen in the headlights. Washington and NYC have applied pressure over and over again, but their arrogance has not gone unnoticed. There is a pretense of control as unemployment climbs and stability comes more into question. Headlining unemployment, U3, at 9-3/4% is dumb, when anyone with any sense can see U6 and the bogus birth/death ratio. Yes, unemployment is 21-5/8% and for those who want to see the truth it is visible worldwide. Real estate continues to descend, as the consumer reduces debt and consumption.
Much of the public is deeply disturbed and that has been borne out by the primary elections and the success of the Tea Party. People are thrashing around for answers with 14.3% living in poverty, 44 million on food stamps and every day more jobs are lost to free trade, globalization, offshoring and outsourcing. It is not surprising that Tea Partiers and secessionists want to dramatically change Washington and make radical changes in how the one party-two party system works. People have finally had it. They know full well where trillions of dollars went. That the US and European banking system were temporarily rescued. These were the same people who caused the problem in the first place and the public unceremonially is thrown a bone, like some stray dog. It is time for Americans to use their voting power to remove these criminals they voted into office. After January 2, 2011, America will have a lame duck president and a gridlock that will keep congress from creating any further damage. This will only be the beginning as people vent their anger at Wall Street and banking and its den of thieves. This tidal wave of rejection will really manifest itself when the elitist insiders in retribution collapse the stock and bond markets. Mark our words that will happen over the next few years, as will dollar devaluation and debt default. The ball has just started to roll and where it will all end up no one knows. The temple of the Federal Reserve and Wall Street could very well be doomed to destruction. The public now understands that Wall Street and banking own the Fed and they really make all the decisions and are the creators of all inside information. they profit on almost every trade. They cannot lose. They own the game. That is why for the last 18 months there has been an exodus of funds from the stock market to bonds, gold and silver and commodities. Naked shorting is rampant and the SEC and CFTC do nothing about it. Front running, known as flash trading, rigs every trade. More than 70% of trades are computer, black box driven by pros. Is it any wonder gold and silver hit new highs every day, Weiner & Waxman bring legislation to regulate coin dealers, when in fact they want to collect data on coin and bullion buyers. America has turned into a cesspool.
The reaction of the public to this crime syndicate will be staggering. Glass-Steagall will return and the wall between brokerage, banking and insurance will be re-erected. The system will be stripped in a way that 1933 and 1934 could never imagine. The system will be purged of malinvestment and banks, brokerage firms and insurance companies that are now broke will be allowed to fail. No more two sets of books. The Fed is responsible for all this debt and failure. It all lies at the feet of those who control the Fed. These are the people who have deliberately collapsed the system for more profit and power and the imposition of their dream of world government. The illusion of wealth that the Fed foisted on the public is over and the public is not ready to fall for it again. The public realizes they and the system are insolvent and they are very unhappy about it. Any effort to revive consumption will be futile. Veiled and overt threats to the public and Congress, as we saw from Henry Paulson and more recently by Ben Bernanke, are not going to work. The public is spoiling for a fight and when that happens a fight is sure to ensue. If these malevolent creatures take down Wall Street and banking you can be sure Paris, On July 14, 1789 will look like a picnic. Our aristocracy had best heed the message or they’ll end up like the 300,000 who lost their heads so long ago. Hell hath no fury like an enraged mob. The elitists had better wake up and stop their games robbery and extortion. They have to come to an end.
European bankers are terrified because they are equally broke. Their pursuit of austerity is commendable, but you do not raise taxes with 1% growth. This way you have austerity coming from both ends. This policy can only end in a very hard landing. They at least are smart enough to know that throwing money at the problem, stimulus, is not going to work. They realize the financial system is going to collapse and they are trying to find ways to ease the pain. Unfortunately there is no way to do so. They’ll take all the money and credit they can from the Fed, but they still believe those running the US from behind the scenes are suicidal. Like so many before them American elitists cannot entertain that their reign of power is over.
Early in 2011 the real fireworks will begin. In spite of stimulus of various kinds the economy will falter and unemployment will grow. The plight of what is really, truthfully, going on in the country and the world will become more manifest to the public via talk radio and the Internet. Government, Wall Street and banking will get little public support. The Fed will start to run into major opposition from foreigners in the funding of debt. As the lender of last resort, the injections of capital needed will grow exponentially.
What we will see is austerity and growing inflation at a level not seen since WWII. The people will become more and more disillusioned with the incompetence and growing impotence of the Fed and the administration. The public will become more and more enraged as they realize who has done this to them and why. That is why talk radio and the Internet will be so important in the future. They are almost the only way the public can learn the truth regarding their plight. More than 15% of Americans are experiencing what citizens experienced in the 1930s. Deficits will go exponential, but will not redevelop the economy. More and more funds will go to the destitute who will find it impossible to find work as our transnational conglomerates continue to move American jobs to foreign lands further crippling the economy. America is in a state of financial and economic collapse that will stretch out over years. Get ready to live like Americans did in the 1930s, 40s and 50s. The world that receives US dollars for its goods and services will no longer want to recycle them for worthless Treasury and Agency bills, bonds and notes. They will dump them on the market one way or another. The dollar now at 81.32 on the USDX will fall to 74, then to 71.18, and eventually to 40 to 45. In that process the dollar and many other currencies will be devalued and their debt defaulted upon. During that process the failure of these fiat currencies will, minute by minute, be reflected in the rising prices of gold and silver in markets that will eventually become free again. In reality no currency needs to be devalued. Gold and silver accomplish that daily. Why do you think since 1988 our government and those who control our government have suppressed gold and silver prices? Gold is the barometer of fear, the only real currency that owes no one anything. Gold and silver are the antithesis of fiat money. They are the only way to restore order out of chaos.
Europe’s problems are not going away. Yields on Irish bonds continue to rise as well as those of Portugal reflecting concern that they may be in a position similar to Greece. In fact the spreads are near the highs experienced last May. Ireland’s yields jumped almost half a point last week. These events can only mean Europe is headed into further financial trouble and those problems will effect bond and share markets worldwide.
Markets are looking for re-flation. Whether this is the case in Europe remains to be seen, but it sure is manifesting itself in European and US stock markets. European bond markets are showing pressure, but as yet it doesn’t seem severe. It looks like the markets are looking for a negative event and that could be in Greece in the form of a forced, change of government. In addition, we believe the markets are positioning themselves for a weaker dollar and to them that means gold and silver and commodities are headed higher. Most internationals believe that global government policy makers have the situation financially under control, when nothing could be further from the truth. Just how long do they think the public will tolerate severe austerity accompanied by inflation in the US and England and to a lesser extent in Europe? Greece could again prove a catalyst for problems that could spread worldwide.
Leverage is certainly in play in world markets, but not nearly to the extent that it once was. No one has a handle on the degree of leverage, but in time we believe we will find it was a fraction of what occurred 2-1/2 years ago. On the other hand, world speculators are convinced there will be quantitative easing in the US, which they believe will definitely be followed in England and Europe. Contagion continues in many phases. We might even call it a lemming process. Europe feels they have seen the worst and they Are wrong. Europe has many problems that have not been solved including the near bankruptcy of five major nations. Do not forget as well that Germany has said that is it. No more bailouts. Close to $1 trillion was enough. We believe far more will be needed. If Germany sticks to its announcements that could be the end of the euro, which is back trading above $1.30, having bottomed close to $1.19. Don’t forget as well the 8-month rally on European exports is over due to this higher euro. Bond dealers keep telling us the worst is over, but they do not have a very good track record, so we look at their statements skeptically, just as we do the dog and pony show called CNBC.
We see danger in liquidity borne prices of stocks and bonds. Even speculative paper is selling at its fastest pace this year. There are obviously those who think otherwise as gold, silver and commodities move higher. Investors are chasing yields and it is the worst possible thing they can do. That always leads to a quality trap and losses. We learned our lesson on that count many years ago.
The Fed and the Treasury have created an intolerable situation for those who need income. Retirees in their 70s and 80s should not be forced to chase yields.
Deflation certainly has been an underlying factor in the US economy for the past seven years, only to be offset by money and credit creation. The issue is very complex and it is a constant question and understandably so. The entire world has offset deflation with inflation over that period. There is no question in our minds that higher inflation is in the offering and the antics of the Fed could very well lead to hyperinflation, before deflation finally wins out over a broken system. The path we are following may be fascinating, but it will also be devastating. A robust inflationary bias burns off very quickly. Inflation once used, as an instrument of control has to be continued indefinitely. If it isn’t the system collapses into deflation. Even moving currencies around by treasuries’ is not easy in a $4 trillion daily market. Look at Japan last week they spent $500 billion to weaken their currency and got next to nowhere. This is a strong indication of the limits of power of governments’ in currency markets. Government controls of markets are nearing an end.
We do not have exact figures of the Fed’s intervention in the MBS, CDO, GSE and Treasury markets it has to have been at least $2.2 trillion over a one-year period plus the last stimulus package, which puts the number at $3 trillion. Unfortunately it looks like that will have to be done all over again for another year and perhaps two years. You say, where does it all end? Well it doesn’t – it just gets worse as purchasing power falls at least 7% a year, wages remain stagnant and unemployment rises, as government and the Fed cannot stem deflation even by creating $3 trillion, or so, a year. This should give you an idea of the trouble we are in. In this process unfortunately the dollar is being destroyed. Just think of what will happen if China, Japan and Korea have to sell or want to sell dollars? Are we to see competitive monetization? Of course we are. Alliances are one thing and reality is another. As we said 17 months ago what you are seeing is a battle between the US dollar and gold for supremacy and gold has already won. Those who realize and understand this know where we are headed. Those who do not could lose it all.
This past week the Dow rose 1.4%, S&P 1.4%, Russell 2000 2.4% and Nasdaq 3.4%. Banks rose 0.6%; broker/dealers were unchanged; cyclical 2%; transports 0.7%; consumers 1%, as utilities fell 0.9%. High tech rose 3.4%; semis 5.6%; Internets rose 3.2% and biotechs 1%. Gold bullion rose $28.00, as the HUI jumped 2.8%, and the USDX fell 1.6% TO 81.40. The 10-year notes fell 5 bps to 2.74% and the 10-year German bunds rose 3 bps to 2.43%.
Freddie Mac’s 30-year fixed rate mortgage rates increased 2 bps to 4.37%. The 15’s fell 1 bps to 3.82%. One-year ARMs fell 6 bps to 3.4% and 30-year fixed rate jumbos fell 5 bps to 5.32%.
The Fed credit expanded 2.7%. Fed foreign holdings of Treasuries fell $11.1 billion.
Homebuilder sentiment from the NAAB/Wells Fargo Housing Market Index was unchanged at 13, unchanged from last month, the lowest since March 2009. This survey is very subjective.
We saw the FDIC Friday Night Financial Follies again with one bank going under.
A Florida judge has found JPMorgan Chase, as servicer for Fannie Mae, committed fraud by foreclosing withholding a mortgage. This is big news and sets a precedent. This stops banks in their tracks if they do not have the mortgage paper.
GMAC mortgages has halted all foreclosures in 23 states. This and the JPM action could take many lenders under because they do not have the mortgages, they sold them.
Corporate executives are more likely to end up in court for their employees’ misconduct now that Congress has handed broader powers and more money to the U.S. Securities and Exchange Commission, former agency officials said.
Since the start of the financial crisis, lawmakers, investors and judges have criticized the agency for giving bosses a pass while accusing companies of wrongdoing, as in recent cases involving Citigroup Inc. and Bank of America Corp. The Dodd-Frank regulatory act lowers the bar for filing fraud lawsuits against individuals and authorizes the SEC to double its spending within five years.
“The SEC is going to cast a much broader net to include people on the edge of a fraud,” said Steve Crimmins, a former trial attorney at the agency who’s now at law firm K&L Gates LLP in Washington. “There will be legions more SEC cops on the beat and that will mean a lot more activity.”
Under Dodd-Frank, which was signed into law in July, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing. Previously, lawyers had to show the person knowingly assisted the misconduct. The law also allows the agency to sue senior officers, directors or other people directly or indirectly accountable for the fraud.
Robert Khuzami, the SEC’s top enforcement official, is scheduled to answer for the agency’s progress tomorrow before the Senate Banking Committee after Senator Ted Kaufman, a Delaware Democrat, told him in December he was “frustrated” that regulators hadn’t been able to prosecute more executives and bankers.
Citigroup Inc. said Friday it is selling its student loan business and about $32 billion in related assets to Discover Financial Services and the student lender Sallie Mae, Citi's latest move to focus on its core consumer banking business.
The big banking company has been looking for a buyer for its 80 percent stake in the Student Loan Corp. for some time as it refocuses it operations. Citi was one of the hardest hit banks by the recession and credit crisis.
Citigroup Inc. said Friday it will take a loss of about $500 million loss on the deal in this year's third quarter.
Discover has agreed to pay $600 million for the Citi stake in the Student Loan Corp. and will also acquire $4.2 billion of private student loans.
Sallie Mae will get $28 billion of assets, adding another 1.3 million new customers.
The complex deal comes amid rapid change in the student loan market, after a law this year consolidated the federal student loan program and largely cut private lenders out of the process. By making loans directly, and ending federal guarantees of private student loans, the government hopes to save money. That has left private lenders seeking alternatives to making loans, and trying to sustain their business by acting as servicers collecting payments on loans the government makes.
Larry Summers, director of the White House's National Economic Council, is expected to leave that post in November, Bloomberg News reported Tuesday, citing three unidentified people close to the matter. Summers has already discussed his future plans with President Barack Obama, according to one of the sources cited by Bloomberg. Summers' departure would leave Timothy Geithner as the last of Obama's original economic team still standing.
Bad news is good news for stocks because the Fed and solons are determined to rig stocks and other financial markets to prevent any serious decline. This is why we have been advocating: “Wait & Watch”.
Any ugly news or negative technical development in stocks (i.e. Hindenburg Omen or breach of key support) is immediately countered by POMOs or some other intervention – both direct and indirect (i.e. sending in stooges to juice SPZs, etc.)
Koch Industries Lawyer to White House: How Did You Get Our Tax Information?
http://weeklystandard.com/blogs/koch-industries-lawyer-white-house-how-did-you-get-our-tax-information-1
Abuse of the IRS was one of the articles of impeachment against Richard Nixon.
Naked short-sales of shares and government bonds would be limited and some over-the-counter derivatives trades forced through clearinghouses, under European Commission proposals to safeguard financial markets. Frequent traders of some OTC derivatives in Europe will be forced to use central clearinghouses to close sales, while naked short-sellers would be required to submit proof they can access the underlying security to settle a trade designed to profit from falling prices, under two separate initiatives.
The financial crisis will accelerate the shift of economic power to emerging economies as their recovery outpaces that of developed countries, the Centre For Economics and Business Research said. Nations in the Organization for Economic Cooperation and Development will account for 66% of the world’s gross domestic product by 2015, compared with 77% in 2004. ‘The focus of global economic activity will shift increasingly to countries like China, India, Russia and Brazil and to a lesser extent Mexico, Canada and Australia.
Efforts to tame America’s ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history. At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center… A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything.
The American dream of owning a home has lost some of its allure after years of falling home prices and owners facing financial ruin. A new survey by Fannie Mae shows the number of people who say they consider housing a safe investment continues to decline, falling to 67% in July from 70% in January and 83% in 2003.
Parking garages serving the new Yankee Stadium in the Bronx are headed for default on $237.6 million of tax-exempt bonds due to low usage in the face of cheaper alternatives.
US home seizures reached a record for the third time in five months in August as lenders completed the foreclosure process for thousands of delinquent owners, according to RealtyTrac Inc. Bank repossessions climbed 25% from a year earlier to 95,364, the most since the data provider began keeping records in 2005. ‘We’re on track for a record year for homes in foreclosure and repossessions,’ Rick Sharga, RealtyTrac’s senior vice president, said. There is no improvement in the underlying economic conditions.
Taxpayer losses from the government seizure of failed housing finance giants Fannie Mae and Freddie Mac could reach nearly $400 billion, but likely won’t top that level as some had feared, the firms’ federal regulator said To offset some losses, the Federal Housing Finance Agency is seeking billions of dollars in repayment from banks that sold bad loans to the firms, acting director Edward J. DeMarco said.
US lawmakers will grapple today with how to end the bailout of Fannie Mae and Freddie Mac after two years and almost $150 billion, and who pays the bill for bad loans made during the housing boom. Regulators who seized control of the two mortgage lenders in 2008 are under pressure to stem losses for taxpayers and recoup money from banks that sold faulty loans to Fannie Mae and Freddie Mac -- all without hindering the housing market’s recovery.
US state pensions such as Illinois, Kansas and New Jersey are in a ‘death spiral,’ with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains. Less than half the 50 state retirement systems had assets to pay for 80% of promised benefits in their 2009 fiscal years. Two years earlier, only 19 missed the mark. Illinois covered just 50.6% of benefits last year, the lowest so-called funded ratio. In 2007, none exceeded the threshold. The growing burden prompted Colorado, Minnesota, Michigan and other states to trim benefits for millions of teachers and government workers… The largest Illinois pension, the $33 billion Illinois Teachers’ Retirement System, paid $3.7 billion of benefits in the year ended June 30, 2009. That’s 13% of its assets at the time, up from 8% two years earlier.
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Failures_In_Money_Control_Becoming_More_Obvious
"MMA Weekly Comments and Recommendations on Financial Markets"
MMA Comments for the Week Beginning September 27, 2010
Written by Raymond Merriman
Please note that I am lecturing in Buenos Aries and Rio de Janeiro through next week. Thus there will be no report due next week (for the week of October 4). Our offices will be open during usual times while I am away.
Review and Preview
As expected, the Federal Reserve Board maintained its position that it will execute further “quantitative easing” measures to support the USA economy if it considers it necessary. That means the Fed will continue keeping Fed funds rates low, at 0-.25%, AND they will purchase long-term U.S. Treasury Bonds and Notes, if they deem it necessary to support the economy in the event that it starts to fall again. In other words, they will continue with their stimulative monetary policy because they are not yet convinced that the economy’s growth is on a secure and sustainable foundation. This is no surprise because Fed Chairman Ben Bernanke has stated on several occasions that the USA government must address its ballooning deficit before the economy will be on the proper path. There has been no sign yet that Congress and White House are willing to do that, so there is no reason for the Fed to change its position either. In fact, if it changed its position BEFORE the U.S. Government changed its spending policies, it would probably lead to another economic plunge immediately.
This announcement to maintain the Fed’s quantitative easing option came right on September 21, within hours of the full moon on the Vernal and Spring equinox, in conjunction with Jupiter and Uranus. In fact, Jupiter and Uranus reached their closest distance to the earth in decades around that time. It was a critical reversal date, and immediately after the announcement, equity markets in the USA soared to new multi-month highs. It lasted only a few moments, and then the Dow Jones Industrial Average fell about 100 points towards the close of that day. Equity prices continued falling over the next two days. But on Friday, they began to recover again and rallied to a new cycle high.
Gold soared to another new all-time high last week, and Silver continued to rise to its highest level since the 1980’s. And why not? After all, the exploding deficits and continuous spending policies of the USA government, and the zero-interest rate and quantitative easing monetary policies of the Federal Reserve Board, are extremely inflationary for most assets. They are not supportive for a strong U.S. dollar. Somewhere down the road the piper will have to be paid, and he won’t want payment in the form of paper fiat dollar currency. Accordingly, foreign currencies also rallied strongly against the U.S. Dollar last week. This was especially true with the Swiss Franc, which is rapidly resuming its historical role as the currency of “safe haven,” replacing that status previously held by the U.S. Dollar.
Short-Term Geocosmics
Although last week’s September 21 critical reversal date produced the expected reversal in several markets, it cannot yet be said that it created much of a shift in equity markets around the world. The orb of influence is still in force, however. But now our attention will begin to focus on Venus retrograde, taking place on October 8. This signature has a 78% historical correlation to primary or greater cycles within an orb of 12 trading days, as reported in “The Ultimate Book on Stock Market Timing, Volume 3: Geocosmic Correlation to Trading Cycles.” It has an 83% correlation to a 4% or greater reversal in stock indices within 4 trading days. Since the Jupiter-Uranus conjunction of September 18 and Sun-Jupiter opposition of September 21 also have a 75+% correlation to primary or greater cycles within 12 trading days, it is possible that all signatures could be fulfilled with a cycle crest during the period all these time bands overlap.
This week is important also because the Sun will square Pluto on September 25 and then conjunct Saturn on September 30. This means it “translates” the Saturn-Pluto square, which was exact August 21. You may remember that just a couple of days later (August 25 and 27), many stock markets of the world bottomed. Shortly after, this big 10+% rally began. That was also during the time that the Russians loaded the Iranian nuclear reactor rods. Hence we may see more news regarding Iran’s nuclear ambitions announced shortly.
The Sun-Saturn takes place in Libra, which is the sign of justice and fairness. Saturn with the Sun may pertain to new laws. Thus there may be a new initiative in some lands to enact laws that provide greater justice to its citizens. At its worst, it could instead indicate an effort to take greater control of the government and disguise the maneuver as an act of providing greater safety and security for its citizens, but in reality, it provides greater control only for the government itself. In terms of markets, Sun-Saturn conjunctions have been observed to coincide with trend changes in some markets. It does not have a high correlation by itself to trend changes in equity markets, but more often with some commodities, especially those that are affected by weather. There could be crop damage, or the end of a threat of crop damage. Economically, the Sun transiting the Saturn-Pluto square will keep the attention on deficits and debt.
Longer-Term Thoughts
It is not only the Sun translating the Saturn-Pluto square that will rivet attention on debt and deficits. It is also the combination of both Venus and Mars transiting through Scorpio that does the same. Scorpio is associated with Pluto, the principle in Financial Astrology related to debt. Venus, which rules money, is in Scorpio an unusually long time (September 8-November 7, and then again November 29-January 8) because it turns retrograde there on October 8. Mars will be in Scorpio September 14 through October 28. Even after that, the Moon’s North Node will be in conjunction to Pluto through much of November. With Pluto and Scorpio in such prominence, the three D’s (debt, deficit, and default) will be the major topics of discussion by world leaders and populations angered over their government’s fiscal mismanagement over the prior decade.
But Pluto also rules taxes, and governments everywhere are in conflict as to the role taxes should play in reducing their national deficits. Which brings up the question: Why is it that every new president or Congress of the United States (and probably every other country) feels compelled to change the tax laws once they come into power?
What is it about politicians – government leaders - that refuse to let businesses and individuals have the certainty of knowing what their taxes are – or will be - so that they can make plans for the future of their business or families? When the tax laws change, every business and many individuals have to make changes in their financial planning. It causes an interruption in their journey through life, a confusion that delays progress until one can figure out a new map to achieve their goals, especially when the changes being contemplated are for greater taxes. Businesses stop hiring and individuals stop spending until the picture clears and they can once again enact the ability to make plans, assuming they can afford the goals they have with less money than they had before.
Who really benefits from the tax tinkering that takes place every time a new party comes into power? Certainly not businesses, which are the driving force behind a growing economy. The only people who benefit - in almost all cases - are the politicians themselves and the government bureaucracy that they grow. Constantly changing the tax law is one of the greatest detriments to a sustainable growing economy because it constantly interrupts the ability to plan one’s financial future, whether as a business or tax-paying citizen of that country.
The problem is not that the tax laws need to be changed every 4 years or so in order to help the economy. This argument is bogus and disingenuous. The problems of the economy are not caused by taxes that are too low, or solved by raising taxes. The problem is that most governments do not intelligently manage the receipts it gets from taxes to run the country, state, or city. That is all it is. And this is the argument that will be debated over and over again into the mid-term election and even beyond, as Scorpio the sign and Pluto the planet will be highlighted.
With Venus soon to turn retrograde in Scorpio, it is likely that we will hear of bizarre proposals being offered about taxes. This may result in the change of a tax policy. Right now in the USA the discussion is about letting the “Bush tax cuts” from 2001 expire on January 1, 2011, which will result in a huge tax increase from everyone who pays taxes (in the USA, this about 50% of its citizens). But the White House has promised not to let them expire (i.e. taxes increase) for 95-97% of the population, or those whose households do not exceed $250,000 if married, or $200,000 if single. However some Democrats and all Republicans want to maintain the current tax code for everyone until the economy is on sound footing. According the Federal Reserve Board’s monetary policies, the economy is not on sound footing yet or else it wouldn’t continue its quantitative easing option.
With Venus retrograde during the election, it would not be a surprise if the expiring “Bush tax cuts” (i.e. new tax increases) alone became the dominant election theme. With Venus retrograde, it is not likely that a decision will be made, or if it is, it may not be very popular and will require another modification after Venus turns direct. With Venus retrograde in Scorpio, it may yet be another opportunity for politicians to exhibit their capacity for short-sighted fiscal mismanagement, versus longer-term effective fiscal management policies that the populace wishes from their elected representatives.
In the meantime, it is beginning to look like the massive rally in stocks and other assets (i.e. asset inflation) discussed in the Forecast 2010 Book is starting to manifest. The “pedal to the metal” behavior of the Federal Reserve Board, combined with the lack of spending control on the part of the Congress and White House, is starting its anticipated effect just as described therein.
http://www.mmacycles.com/weekly-preview/mma-comments-for-the-week/mma-comments-for-the-week-beginning-september-27,-2010/
Amanita Newsletter
Free Amanita Newsletter 9/22/10
http://www.amanita.at/docs/open/newsletter-e.pdf
Cycle Predictive Graph
by WCA Model
http://www.cyclelt.com/LT144Z.htm
Bespoke's Commodity Snapshot
Wednesday, September 22, 2010 at 11:12AM
With gold breaking to record highs every day lately, we thought now was as good a time as any to update our commodity snapshot. Below we provide our trading range charts for ten major commodities. In each chart, the green shading represents between two standard deviations above and below the 50-day moving average. Moves above or below the green zone are considered overbought or oversold.
Aside from oil and natural gas, every commodity shown is either at or above the top of its trading range. As shown, gold's recent move has pushed it outside of its range. Moves to similar levels over the last year have been met with pullbacks. Silver and platinum are also just above the top of their trading ranges as well. And if you thought the metals were overbought, check out the charts of corn and orange juice!
http://www.bespokeinvest.com/thinkbig/2010/9/22/bespokes-commodity-snapshot.html
Chart of the Day - Recessions
Earlier this week, the National Bureau of Economic Research (the official arbiter of recession dates) declared that the recession that began in December 2007 (Chart of the Day declared that the recession was 'underway' back in early January 2008), ended in June 2009 (Back in June 2009, Chart of the Day stated that the recession would ultimately be declared to have ended in June 2009 -- plus or minus one month). For some perspective on the recession just past (a.k.a. the Great Recession), today's chart illustrates the duration of all US recessions since 1900. There are a couple points of interest... Of the 22 recessions that occurred over the past 110 years, the most recent recession is tied for fifth in terms of duration. It is also worth noting that the recession just passed was above average in duration and the longest since the Great Depression.
Insider Trade Activity thru Sep 26th
Top Buys/Sells Over Last 30 Days
http://news.moneycentral.msn.com/process/insider/top10insider.aspx?
Book-To-Bill Ratio of 1.17
North American Semiconductor Equipment Industry Posts August 2010 Book-To-Bill Ratio of 1.17
SAN JOSE, Calif. – September 16, 2010 – North America-based manufacturers of semiconductor equipment posted $1.82 billion in orders in August 2010 (three-month average basis) and a book-to-bill ratio of 1.17, according to the August 2010 Book-to-Bill Report published today by SEMI. A book-to-bill of 1.17 means that $117 worth of orders were received for every $100 of product billed for the month.
The three-month average of worldwide bookings in August 2010 was $1.82 billion. The bookings figure is 1.1 percent lower than the final July 2010 level of $1.84 billion, and is 195.5 percent above the $614.5 million in orders posted in August 2009.
The three-month average of worldwide billings in August 2010 was $1.55 billion. The billings figure is up 3.8 percent from the final July 2010 level of $1.50 billion, and is 167.6 percent above the August 2009 billings level of $580.0 million.
"Overall equipment billings increased four percent in August resulting in the highest levels experienced since September 2007," said Stanley T. Myers, president and CEO of SEMI. "While bookings declined slightly in August, 2010 is still on track to be a record growth year for semiconductor equipment.”
The SEMI book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. Billings and bookings figures are in millions of U.S. dollars.
http://www.semi.org/en/Press/CTR_040401
You're welcome 8^)
The Tea Party: 5 Things Men Should Know
By Benjamin Gold
Tea Bagger used to mean something very different, but thanks to outspoken personalities like Sarah Palin, Glenn Beck and, most recently, Christine O'Donnell, Tea Baggers and the Tea Party movement with which they associate themselves has been dominating headlines and changing connotations.
O’Donnell especially has been driving more than her fair share of media chatter. The controversial Senate candidate from Delaware is in hot water over her stances on celibacy, masturbation and witchcraft. But is she representative of all Tea Baggers?
The Tea Party movement, named after the Boston Tea Party of 1773, began in 2009 as a series of protests against some of President Obama's more progressive initiatives, like national health care reform and the Emergency Economic Stabilization Act of 2008, which rescued the banks from financial collapse.
For supporters, the Tea Party movement is a rally cry against what’s perceived to be a broken government taxing the working person out of everything they have. But to detractors, Tea Baggers are nothing but a group of insane and out-of-touch conservatives.
Regardless of your stance, here are five things you might not know about the Tea Party movement.
1- The Tea Party is not synonymous with the Republican Party
Christine O’Donnell upset more than a few established Republicans when she defeated incumbent Mike Castle for the party’s Senate nomination. Karl Rove, a major George W. Bush adviser, has come out publicly against O’Donnell, questioning the “nutty” things she’s said and worrying that with the ascent of the Tea Party, there will be a shrinking role for non-Tea Party Republicans in government.
According to a New York Times/CBS News poll, Tea Baggers are more conservative than traditional Republicans. They’re also more likely to describe themselves as “very conservative” and President Obama as “very liberal.” Also, while most Republicans say they are “dissatisfied” with Washington, Tea Party supporters are more likely to classify themselves as “angry.” These are important distinctions, especially when it comes to writing protest signs.
2- The Tea Party doesn’t like Captain America
Of all comic book characters, you’d think Captain America would be a Tea Party favorite, but he is not. Back in February’s issue of Captain America #602, Captain America and fellow hero The Falcon encountered a rally where protesters brandished signs like “Tea Bag The Libs Before They Tea Bag You!” and “America 4 Sale.” The Falcon, who is black, commented that he would probably not fit in with a bunch of “angry white folks.”
Turns out the comic’s letterer decided to use slogans from actual protest signs. Unsurprisingly, Tea Baggers flipped out. Michael Johns, a board member of the National Tea Party Coalition, called the comic book juvenile for its assertion that the Tea Party isn’t accepting of all Americans, regardless of race, religion or political affiliation.
He also demanded an apology or retraction, which publisher Marvel Comics has since provided. When the issue is reprinted as part of a trade paperback, the signage will be changed.
3- Bill Clinton agrees with them
Well, kind of. On Meet the Press, former President Bill Clinton stated that he agrees with the impulses of the people who voted for Tea Party candidates like Christine O’Donnell. He thinks they’re right to want to expunge those from office who don’t have the best interest of working-class America in mind. Further, he agrees that everyday people, and not just corporations, need to feel the effects of the government's financial recovery reform.
But don’t get too excited, because the former president doesn’t exactly support the candidates who Tea Baggers seek to place in office either. He disagrees with Tea Party candidate Joe Miller, who’s running to become a Senator for Alaska, on his belief that unemployment benefits are unconstitutional. For Bill Clinton, good intentions are simply not good enough.
4- There is division within the ranks
One of the major aspects separating the Tea Party movement from other politically-minded groups is its lack of centralized leadership. There are, however, several prominent Tea Party groups fighting for recognition, like Tea Party Nation, Tea Party Patriots and conservative strategist Sal Russo’s influential Tea Party Express bus tour.
Russo has lately been the most vocal in unifying the Tea Party’s message. According to Politico’s Ken Vogel: "They're the ones who have managed to seize on the Tea Party momentum for the most fundraising success and political success."
But with far-out Tea Baggers and super-right-wing nutjobs monopolizing airtime, questioning President Obama’s citizenship and brandishing racist signs at rallies, Russo certainly has his work cut out for him.
5- The Tea Party’s symbol dates back to 1751
Since their inception in 2009, Tea Baggers have proudly waved the Gadsden flag, one of the oldest flags in American history. Featuring a coiled and ready-to-attack snake set in yellow, and with the words “Don’t Tread On Me” inscribed below it, Tea Baggers view this flag as an alternative to Old Glory, and as a representation of the group’s fighting rebelliousness.
The flag’s imagery was inspired by Benjamin Franklin’s famous “Join, or Die” political cartoon. His also featured a snake, but it was divided into sections representing the colonies, and was meant to be a satirical take on Britain's policy of sending convicted criminals to America (we don’t get it either). By 1775, Franklin’s cartoon became a symbol for the American Revolution.
The snake was later adopted by the United States Navy during the Revolutionary War. They’re credited with being the first to use the “Don’t Tread On Me” slogan, and to portray the snake in attack mode, instead of being cut into sections. The drawing was named for Continental Colonel Christopher Gadsden, who was the leader of the Patriot movement during the American Revolution.
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Reader Comments: 17 PostsRating: N/A OldSkoolRep says:
I didn't know Fox News and Glen Beck fans go to this website. Considering that every other media is sooooooooooooooo left leaning and what not. If you don't like what Ben Gold said in his article, go back to Fox Nation, and stay there.
Posted 2010-09-25 02:12:35 ESTRating: N/A WholeGrain says:
The writer of the article doesn't represent the view or opinions of this website. Y'all right wing nuts need to drink some ice cold tea and chill the out.
Posted 2010-09-25 02:04:36 ESTRating: N/A Under 30 says:
Why is it that the only people in the tea party are white and over 50? Oh look, grandma and grandpa found the Internet! Happy happy! They reaffirm the oldest tenet on the Internet: arguing on the web is like the Special Olympics: everyone's retarded.
Posted 2010-09-25 01:47:17 ESTRating: UNBIASED says:
Please, next time do everyone a favor and cite sources for all your "facts." The title of the article makes you think that the information will contain five facts about the Tea Party. The real article consists of five pieces of BIASED information--the writer obviously is leaning left. Thank you for pushing me to never come to this site again. See you at the polls!
Posted 2010-09-25 00:13:16 ESTRating: Ray Taylor, Vero Beach FL says:
I would call this Lyin' Liberal BS, but that's an insult to self-respecting BS. WHAT A CROCK !! hon
Posted 2010-09-24 23:16:55 ESTRating: N/A Roman says:
A bunch of losers who hate the president because he is black.
Posted 2010-09-24 22:15:12 ESTRating: Ishness says:
The following is not correct: "...against some of President Obama's more progressive initiatives....and the Emergency Economic Stabilization Act of 2008, which rescued the banks from financial collapse."
The EESA of 2008 was a Bush initiative. President Obama took office in January of 2009. I may not always agree with Obama, but the idiot who wrote this article needs to stop inventing alternate history....
Posted 2010-09-24 21:34:07 ESTRating: N/A Fed Up says:
Well I used to check this website almost daily. But now that they are so clearly biased and refer to hard working American people such as myself as Tea Baggers I will no longer be looking at this site. Quite a shame.
Posted 2010-09-24 20:37:19 ESTRating: freedom#1 says:
This article is pure propoganda need i say no more
Posted 2010-09-24 20:13:06 ESTRating: By the left?? says:
teapartier2, you think AskMen is bought and paid for by the left? Do just a tiny bit of research, the smallest amount is all anyone asks of anyone before they open their proverbial mouth.
AskMen is owned by Fox.
http://www.askmen.com/entertainment/special_feature_500/550b_the-tea-party-5-things-men-should-know.html
re: Galt's Gulch
Been here a while myself, have given up on taking notes and trying to warn those who would listen to reason. It's a never ending job and it does not pay too well either.
Life goes on and sooner or later you lose that loving feeling and just let it all fall through the cracks like everything else sacred on this earth.
Unfortunately the fight in me is gone, just the way they want it.
R.I.P. "Spin of the Day"
Sometimes I think animals are smarter than most people. Time to go chime in with the doberman's and the monkeys, at least they get it...
It worked for 8 years (supposedly), whattsamatta with another 8 years except by committee, no kings this time.
It's that or raise taxes, pick your poison...
Afterall, we've gotta bunch more trees to kill still or are you an environmentalist?
You are certainly not an economist.
That's the funny thing 'bout da net, ya never do know.
If so, you've made that list by my standards .. Yeeehaw!
Time to tilt one back? Out here in CA tilting time has just commenced...
Just curious if this lovely lady in the profile image might be yourself there me2.
Why soitainly,.. nyuk nyuk nyuk 8^)
Would you happen to be #42?
41 Bodacious Beer Babes
Enjoy
http://crazycrackerz.com/40-bodacious-beer-babes/
Russia’s kopeck coin may soon be scrap metal
September 22, 2010 9:30am
by Courtney Weaver
Vladimir Putin jumped to the rescue of Russian carmakers this summer, lashing out at metallurgical companies for a sharp rebound in metals prices and the harm it did to carmakers’ balance sheets. Now it seems price hikes have hit yet another victim: the Russian kopeck.
Russia’s Central Bank is urging the Duma to cut production of Russia’s smallest coin, and its big sister the 5-kopeck coin as the cost of producing the coins continues to balloon against their actual monetary value.
The cost of producing a kopeck is now 45 times higher than the value of the coin itself, which is equal to one hundredth of a rouble or one hundredth of $0.32. A five-kopeck coin costs 69 kopecks to make.
While previous Central Bank efforts to kill the kopeck have been unsuccessful, its argument is likely to hold more weight now because of a sharp rise in copper and nickel prices since 2008.
Over the past year, the average price of copper has gone up 37.8 per cent, while nickel has risen 43.6 per cent and compressed steel, another ingredient, has added 32.6 per cent.
Putting 234m new 1-kopeck and 58m new 5-kopeck coins into circulation last year cost the Central Bank Rb168m, versus the coins’ total value of Rb5.2m.
On top of that, the coins’ usefulness is also increasingly doubtful as years of inflation have diminished their value: there’s certainly nothing you can buy for a single kopeck.
Next year Russia’s central bank is hoping it won’t have to produce any new 1- and 5-kopeck coins at all– and it seems it might get its wish, or at least half of it.
Pavel Medvedev, deputy head of the Duma’s financial committee, said he was “100 per cent certain” the Duma would accept the Central Bank’s proposal regarding the 1-kopek coin within the next one to two weeks, Vedomosti reported.
Vladislav Reznik, another member of the committee, explained the population itself was for the idea, telling the rest of the Duma’s lower house, “Even in the villages, where there are no roads, they use kopecks to make the floors”, Reuters reported.
While the comments of the financial committee would suggest the kopeck’s fate is in the bag, the future of the 5-kopeck remains less certain.
Medvedev, the Duma representative, said eliminating the 5-kopeck coin could hurt inflation and increase electricity and mobile phone prices - because businesses would be tempted to round prices up to the nearest 10.
While economists, such as Natalia Orlova of Alfa Bank, have dismissed such claims, it seems likely the Duma’s opinion will prevail.
After years of rising metal prices, it appears that for Russia’s political elite the kopeck has finally dropped.
http://blogs.ft.com/beyond-brics/2010/09/22/russias-kopeck-coin-may-soon-be-scrap-metal/
Amid Tension, China Blocks Vital Exports to Japan
By KEITH BRADSHER
Published: September 22, 2010
Didymium oxide is a rare earth mineral used in delicate electronics
HONG KONG — Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.
Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loading aboard ships at Chinese ports, industry officials said on Thursday.
On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese coast guard vessels about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.
A Chinese Commerce Ministry spokesman declined on Thursday morning to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the Chinese government’s position. News agencies later reported that Chen Rongkai, another ministry spokesman, had denied that any embargo had been imposed.
Any publication of government regulations or other official pronouncements barring exports would allow Japan to file an immediate complaint with the World Trade Organization, alleging a violation of free trade rules. But an administrative halt to exports, by preventing the loading of rare earths on ships bound for Japan, is much harder to challenge at the W.T.O.
An engine of a Toyota Prius. Each Prius uses at least two pounds of rare earth elements
in its various parts.
The United States, the European Union and Mexico brought W.T.O. complaints against China last November after it issued regulations limiting the export of yellow phosphorus and eight other industrial materials. American trade officials have been considering for months whether to challenge China’s longstanding and increasingly tight quotas on rare earth exports as well.
China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.
Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company, said that several executives in the rare earths industry had already expressed worries to him about the export ban. The executives have been told that the initial ban lasts through the end of the month, and that the Chinese government will reassess then whether to extend the ban if the fishing captain still has not been released, Mr. Kingsnorth said.
“By stopping the shipments, they’re disrupting commercial contracts, which is regrettable and will only emphasize the need for geographic diversity of supply,” he said. He added that in addition to telling companies to halt exports, the Chinese government had also instructed customs officials to stop any exports of rare earth minerals to Japan.
Industry officials said that mainland China’s customs agency had notified companies that they were not allowed to ship to Japan any rare earth oxides, rare earth salts or pure rare earth metals, although these shipments are still allowed to go to Hong Kong, Singapore and other destinations. But no ban has been imposed on the export to Japan of semi-processed alloys that combine rare earths with other materials, the officials said. China has been trying to expand its alloy industry so as to create higher-paying jobs in mining areas, instead of exporting raw materials for initial processing.
Japan has been the main buyer of Chinese rare earths for many years, using them for a wide range of industrial purposes, like making glass for solar panels. They are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius.
American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.
The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.
The House Armed Services Committee has scheduled a hearing on Oct. 5 to review the American military dependence on Chinese rare earth elements.
The Defense Department has a separate review under way on whether the United States should develop its own sources of supply for rare earths, which are also used in equipment including rangefinders on the Army’s tanks, sonar systems aboard Navy vessels and the control vanes on the Air Force’s smart bombs.
The export halt is likely to prompt particular alarm in Japan, which has few natural resources and has long worried about its dependence on imports. The United States was the main supplier of oil to Japan in the 1930s, and the imposition of an American oil embargo on Japan in 1941, in an effort to curb Japanese military expansionism, has been cited by some historians as one of the reasons that Japan subsequently attacked Pearl Harbor.
Jeff Green, a Washington lobbyist for rare earth processors in the United States, Britain, Canada and Australia, said that China and Japan were the only two sources for the initial, semiprocessed blocks of rare earth magnetic material. If Japan runs out of rare earths from China — and Japanese companies have been stockpiling in the last two years — then the United States will have to buy the semiprocessed blocks directly from China, he said.
“We are going to be 100 percent reliant on the Chinese to make the components for the defense supply chain,” Mr. Green said.
Japanese companies are now setting up rare earth processing factories in northern Vietnam, partly to use small reserves of rare earth elements found there but also to process rare earth elements smuggled across the border from southern China. But the Chinese government has been rapidly tightening controls on the industry in the last four months to try to limit smuggling.
Rare earth elements are already in tight supply and prices are soaring after the Chinese government announced in July that it was cutting export quotas by 72 percent for the remainder of the year. A delegation of Japanese business leaders met with Chinese officials in Beijing on Sept. 7 to protest the sharp reduction in quotas.
The price of samarium, crucial to high-temperature military applications like missile guidance motors, has more than tripled since July, to $32 a pound, Mr. Green said.
Deng Xiaoping, the late leader of China, is widely reported to have said that while the Middle East has oil, China dominates rare earths. But while Arab states used restrictions on oil exports as a political weapon in 1956, 1967 and 1973, China has refrained until now from using its near monopoly on rare earth elements as a form of leverage on other governments.
China tried to position itself instead as a reliable supplier, partly to discourage other nations from digging their own rare earth mines.
Despite the name, rare earths are actually fairly common; they are expensive and seldom mined elsewhere because the processing equipment to separate them from the ore is expensive and because rare earths almost always occur naturally in deposits mixed with radioactive thorium and uranium. Processing runs the risk of radiation leaks, — a small leak was one reason the last American mine was unable to renew its operating license and closed in 2002 — and disposing of the radioactive thorium is difficult and costly.
A senior Japanese Foreign Ministry official, who declined to be named, said that the Japanese government had not yet received any notice from China regarding the suspension. The official said, however, that the Japanese government has repeatedly asked China to not restrict its exports of rare earth elements, citing the severe consequences such a move would have on global production and trade.
Toyota had not yet received any information on an embargo and was unable to comment, said Masami Doi, a spokesman for Toyota in Tokyo.
Hiroko Tabuchi contributed reporting from Tokyo.
http://www.nytimes.com/2010/09/23/business/global/23rare.html?_r=1&pagewanted=all
One thing I have noticed when dealing with coin dealers, the ones they have a special interest in are the keepers. They cannot help themselves, they want the good stuff as much as we want the $$$$$
I agree, those are beauties...
Obviously I am no numismatist, but majority of those look boo-T-ful...
Much cleaner (wear & tear) than the ones I possess
What deflation? Prices are rising!
By Annalyn Censky, staff reporter
September 23, 2010: 10:52 AM ET
NEW YORK (CNNMoney.com) -- Deflation might be the economic buzzword right now, yet prices seem to be going up on everything from a cup of coffee to Dallas Cowboys tickets.
Nationwide, prices rose at a sluggish 1.1% pace over the last year, and economists say falling prices could be a concern going forward. But while deflation fears make headlines, prices for all sorts of consumer staples, luxury items and leisure activities are on the rise.
"I certainly don't see any deflation in my life whatsoever... I just keep seeing prices going up, and I'm a bargain hunter," said Terri Huggins of Brunswick, N.J.
Huggins used to commute to New York several times a month to pursue freelance jobs. But after New Jersey Transit hiked its fares by 25% earlier this year, she cut those trips in half.
She's not alone. Across the country, public transportation prices have gone up an average of 6.6% in the last year, according to the government's latest report on inflation. And the situation for drivers isn't much better; the price of gas has also risen -- about 7% -- to $2.72 per gallon.
While some major costs may be falling and keeping overall inflation low, many other costs of daily life are in fact becoming more expensive.
For example, sinking home prices have been dragging down the inflation rate, said Dean Baker, co-director and economist with the Center for Economic and Policy Research. But some basic costs of maintaining a home, like water, sewer and trash services, have risen 5.7% in the last year.
And that's not all.
Economy improving, but still hurting
Hospital bills are up 6.3%, and tuition and childcare are up 4.4%, according to the Consumer Price Index compiled by the Bureau of Labor Statistics.
Hoping to send your kid to Harvard? Last year, fees including room and board totaled $48,868. Now you'll pay $50,724 -- a 3.8% increase.
Even the cost of that morning cup o' joe is on the rise. Coffee futures on commodities exchanges surged more than 40% over the last six months, and brands like Folgers, Dunkin' Donuts and Millstone increased their prices for bagged coffee by 10%.
Starbucks (SBUX, Fortune 500) announced Wednesday that it will raise the price of "labor-intensive and larger-sized" beverages because of soaring prices of green arabica coffee beans.
And rising cotton prices, which surged to a 15-year high this year, could lead to more costly clothing. Consumers could see the price of the most basic t-shirt rise a couple bucks as early as Christmas.
Hoping to just get away from it all? Leisure is also getting pricier. Going on vacation is definitely more expensive, with some industry groups saying air fares have risen 17% in the last year.
And one popular domestic family getaway -- Disney World -- just raised its adult ticket price this month to $82, up 3.8% from $79 before.
Even activities like sporting events and movies are going up. NFL tickets sold on online fan-to-fan resale or auction sites rose 64% this year, according to ticket search engine FanSnap.
For the Super Bowl champion New Orleans Saints, home game tickets are selling for $404 on average, up a whopping 264% from last year. For the Dallas Cowboys, the increase was 35%.
Even enjoying the games at home can be tougher on the wallet these days. Anheuser-Busch InBev (BUD) recently raised prices in many markets throughout the country, with some local liquor stores reporting the price for a 30-pack of Bud Light as up a $1, or about 3.7% last month.
And the average movie ticket is 5.5% up from last year, coming in at around $7.91, according to the National Association of Theatre Owners.
Bargain shopper Huggins says rising prices have spurred her to cut down on some hobbies and activities too. She took a break from dance classes after the instructor raised fees for an 8-week session to $135 from $115, and has been doing less shopping for luxury items.
"A lot of places where I used to shop -- they're not really a bargain anymore," she said. "It just seems everything, everywhere is getting more expensive.
http://money.cnn.com/2010/09/23/news/economy/rising_prices/index.htm
>>> Just mho, of course.... >>>
And an excellent observation at that...
Things will only be twice as bad by cutting the life line that has served this country well up until now that everything is cut throat city.
Edit: Those 90% ballgame ticket buying, mall attending patrons can afford tax hikes. You can't make poor people more poor and whatever cuts you propose is spittle in the bucket.
Don't worry though, if Meg Whitman takes over CA Gov, she's ready to slash another 40K Gov't jobs. Nothing like having the inmates running the asylum...
You da man al... 8^)
It makes me laugh that so many people still cannot get it through there heads that this crap was all inherited...
You do what you must do to survive, no matter how unsavory. Even then the people will only remember Obama as being the worst president to ever reside over the worst presidents brain farts...
No matter who took office after the war mongering, tax cutting, ownership society presidency would the outcome be the same, it's the game plan.
Sooner or later patronage will get out of the way of clearer thinking.
One could only hope
Sheeeesh
I hate to be the messenger of truth, but the only way to begin digging our way out is to start raising taxes. Ugh!
Like it or not, you cannot have your cake and eat it too as we have done for the last decade.
You cannot have wars, tax cuts and no sacrifice of any kind and expect things to work there way out.
Uhh .. it does not work that way...
>>> Getting a parking place at the mall or a good sporting event ticket is still not easy no matter what the doomsday talking heads tell you. >>>
A perfect example of where our priorities rest... Don't know 'bout you, but it makes me want to puke.
U-6 slightly closer to reality
http://www.bls.gov/news.release/empsit.t15.htm
To each his own, but IMO, that woman has a screw loose...
That is precious .. I had to watch it again and then bookmarked it.
2012, shit hits the fan and there won't be a damn thing anyone can do about it except try to stall the inevitable a little longer.