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Fed Facing Liquidity Trap
Comstock Partners, Inc.
August 26, 2010
Five years ago on the eve of another of the Fed's annual financial symposiums at Jackson Hole, we wrote the following"
"Since 1999 when the financial bubble was in full bloom (due in large part to the Fed) we have been saying that the central bank faced a dilemma with limited choices----none of them good. They could either kill the bubble, let the economy and markets take a hit and come out of it ready to resume healthy growth----or they could keep extending the bubble for a while longer with far worse consequences down the road. The Fed, under Greenspan, chose the latter course, resulting in a dangerous housing bubble following the financial bubble of the late 1990s. This is evident in the fragile economic unbalanced recovery, the massive trade deficit, low consumer savings rate and record household debt. The standard measures of the economy indicate to many that Greenspan has won his bet, and the Jackson Hole symposium will probably be full of praise for his long tenure. We hope that they are right, but we believe that the final word on Greenspan's reign as Fed Chairman is not yet written, and history may not view him kindly."
Now, five years later another Jackson Hole symposium will attempt to find solutions to the economic mess that partially resulted from the Fed's reckless actions. The problem is that an already sub-par recovery (if we can even call it that) is giving signs of petering out even after all the massive stimulus programs provided by the Fed, the Administration and Congress. Sales of existing and new homes have dropped to new lows while consumers beset by high unemployment, minimal wage increases, near-record debt and limited access to credit are reluctant to spend. At the same time the inventory replenishment that was one of the few contributors to growth is now winding down and yesterday's report indicated that core capital goods orders declined by 8% in July.
With the recognition that economic growth is showing signs of coming to a halt, the talk has turned to the possibility of more quantitative easing or QE2. The problem, though, is that after TARP, the stimulus plan, Fed purchases of $1.7 trillion of government securities and near-zero interest rates, there is little more the Fed can do that they haven't already done. At this point the Fed cannot use monetary policy to force companies, banks and consumers to take credit that they do not want to use. In economic literature, this situation is known as a "liquidity trap", a phrase you will probably hear a lot in coming months.
The dilemma is well presented in today's Wall Street Journal op-ed column by Alan Blinder, a Princeton economist and former Fed member, who is certainly not a perma-bear. The article, called "The Fed is Running Out of Ammo", outlines three options for the Fed-----expanding the Fed's balance further, changing the "extended period" language in the Fed's statement or lowering the interest rate on bank reserves. He then demonstrates that each one of these options has either negative political consequences, economic drawbacks or limited effectiveness. He concludes by saying that if the economy doesn't pick up, it's time to use even this "weak ammunition", although he obviously doesn't think it would be of much help.
In sum we believe that all of the options with regard to economic policy are negative, a point being gradually recognized by the stock market. The S&P 500 peaked exactly three months ago on April 26th. Yesterday it found support at about 1040 for the third time, although it has temporarily dipped to 1010 on July 1st. In our view both of these support lines will be pierced and the market is likely to decline significantly from there.
http://www.comstockfunds.com/default.aspx/MenuItemID/29.htm
Few May Imagine What Is Coming
By: Rick Ackerman, Rick's Picks
Posted Wednesday, 25 August 2010
[From self-described, “radical ol’ gloom-and-doomer” and frequent Rick’s Picks forum contributor Steven George Fair, here’s a tormented essay on why most of us are too far removed from the experience of the 1930s Depression to have any idea or imagination about what is coming. And make no mistake, he warns: Bears who think their timing and strategy will be good enough to gloat about are the most delusional of us all. RA]
There seems to be a single constant in the financial world, and those who play. There are few if any perma-anythings, with most chasing the bull, or chasing the bear as a bear-bull in the moment. It looks like the last of the Perma for Life people are dying off as the last of the generation that endured the Great Depression find their rest in the soil.
The generation who made roads in the dirt, flew paper airplanes, and dreamed the impossible dream are now gray haired, and either broke or millionaires. There is little ground in between the extremes that was once a maxim 20-60-20 rich/middle class/poor. What seems to exist today is a younger generation with no imagination, incapable of taking a block of wood and shoving it around the dirt pile in dreams of logging trucks, and crawler tractors. Lost are the majority who created art, and music in its natural form. There are no lifelong collectors of anything, only a headlong rush from contemporary to abstract, and back in hyper-realism. Value is now replaced with greed, and get it now before the color fades. Bringing a face to this reality was a conversation with a PhD, retired, from NASA, who spoke to me about the fear in NASA that the upcoming generation’s imagination has been lulled to sleep by fast TV, fast girls, and constant bombardment of stimulation instead of self-generated creativity.
To a more direct point. Even the supposed perma-bears of today run helterskelter, seeking profit and gain first in that, and then in this, with no long-living devotion to any belief. Most current Bears do not care about fundamentals and history. None seem to care whether or not they are playing in a AntLion hole from which they will never escape. The greed of gaining the last drop of blood from the dying carcass of both bears and bulls is foremost on the heart of the young and younger. No person not directly from a Great Depression family is prepared for what will come. That means that unless your parents where born no later than 1920, you cannot have any basis to form an understanding for the potential pain of a real collapse. There are a few foreigners who understand, but I read nothing of what they may have to say.
‘They Won’t Let It Happen’
It can never happen…Bernanke will not let it happen…the Government is not going to . . .. they will take care of us…I’ll make so much in the crash it will not matter. . . I’ll be OK. Please add your own reassurance to the list, as there are many more excuses offered by temp-bearbulls. The pessimist rarely makes the big killing in the stock market like a tempbull will. Someone who experienced the Great Depression does not act like today’s tempbull. There is one great difference between the Great Depression and today where The People are concerned. Nearly everyone in 1920 knew how to take care of him or herself. They knew meat came from a cow, and milk did not come from a bottle. And yet today, the young cannot imagine a milk bottle delivered to the door by the milkman. Nor have they ever imagined a family coming together to butcher a steer and can the meat because there was no freezer.
I see no imagination in the pages, blogs, and opinions written by financial wizards, or the wizard bulls who are smarter than a non-emotional chartist who knows the pendulum slows, stops, and slowly speeds up to strike down everything past dead center. There is only one thing that cannot be taken from someone, and that is knowledge. And even here, I have seen hypothermia take my mind, my strength, and my soul into a black pit of nothingness. The majority of bulls and bears today have never experienced hypothermia. Nor have the wishy-washy bears seen $1 million on the books that they will never eat, that they cannot turn into warmth or food.
A Rosy Filter
I guess that unless one has seen the valuelessness of gold while you shiver your way into darkness, there just isn’t a perspective to create a reality. This is why I spoke of imagination and NASA as I wrote. The generation born into the Sixties has not experienced loss in any form. That generation is without understanding, or imagination to see through a mental filter created by pain and loss as past generations have. The 1960s filter of democracy is a rosy filter of much, more, and always more. Even in the annals of bear-market writers there exists temp-bearbulls looking to ride the next wave for an hour or a day.
Is it time for the Super Depression ? Probably, because the majority who have lived through that kind of pain are all dead and gone. Will the greedy temp-bearbulls get trampled? Yes ! But not before they see the millions they’ve won by trading correctly fail to provide them with anything of value. And what of us hard-currency nuts? You tell me! But Steve, you say: there are so many suffering without jobs today. True enough. But in 1934, there wasn’t any unemployment in the place where my dad pulled a crosscut saw for $1.00 pre thousand, part-time. (That’s about 50 cents a day, since there was someone on the other end of the saw). There weren’t any government handouts in Sutherland, where the mill ran one day a week, or one day a month, and where the women rejoiced in their diary: “The men worked today!” The more bears who think they are going to make a killing on the crash, the nearer we are to that crash.
I think Mr. Market is going to suck the blood out of nearly everyone — but especially from Bears who think Mr. Market is their friend in crushing the Bulls. Imagine “Value” and imagine what value really is in its most basic sense. I’d tell you what value is, but you either know, or will not listen to this ol’ radical gloom-and-doomer.
http://news.goldseek.com/RickAckerman/1282716000.php
Some residents unhappy with visiting roadshow's offers on antiques
Cliff White- cwhite@centredaily.com
August 26, 2010 11:41am EDT
Hank Aaron and Mickey Mantle baseball cards, 50-year-old Barbie dolls, Morgan silver dollars and an old accordion walked one-by-one into the showroom of the Treasure Hunters Roadshow. Not all were priced as treasures by the roadshow's appraisers.
“I’m very disappointed with the prices they offered me,” said Bellefonte resident Marva Hillard.
Hillard had brought several old bills and coins with her Wednesday to the showroom at the Toftrees Golf Resort and Conference Center, along with her mother’s silver and a diamond ring. Hillard declined to sell any of the items.
State College resident Nora Lynn Whitmarsh brought in 220 of her husband’s old baseball cards to the show on Tuesday, including cards featuring Ted Williams, Willie Mays, Ernie Banks and Hank Aaron, all in good to excellent condition. She was offered $275 for the collection, and declined, as she had done prior research that led her to believe it was worth much more.
Not all visitors to the event left dissatisfied. Rhonda Mann, of Snow Shoe, took the day off work to get a price on her collection of coins, comic books and Barbie dolls, though she ended up deciding not to sell any items.
“It was a good experience,” she said. “Everybody’s trying to make a buck — they are and we are.”
While the roadshow advertises on its website that it aims to buy items at “fair and honest prices,” its representatives at the State College event cautioned potential sellers that the price they set was not an appraisal but an offer that the sellers were free to decline.
Lori Verderame, a professional appraiser who writes a syndicated column, said the public should be wary of traveling “shows” offering to buy items such as jewelry, memorabilia, antiques or precious metals. To determine an item’s true worth, she recommended finding an appraiser.
“You need to find someone who’s going to be honest with you,” she said. “You need to find someone who’s not trying to make a buck off it.”
The recession has increased the public’s vulnerability, making them more needy of ready cash and more willing to part with family heirlooms in order to make ends meet.
“As tempting as it is to take the cash, don’t let your item go until you know what it’s worth,” she said.
The Internet’s global reach has largely canceled out the recession’s impact on the collectibles market, she said. Now it’s easier than ever for those looking for rare items, no matter where they are in the world, to connect with sellers and arrive at a mutually agreeable price.
Coin expert Dave Kreamer runs the State College Coin Shop, which has an A+ rating from the Better Business Bureau of Western Pennsylvania. He said local shops are more trustworthy because their livelihood is based on their reputation within the community.
“My customers know where to find me,” he said. “They’re very slick at posing as professional buyers, but moving from town to town, these people have no stake in the community.”
THR & Associates, the company that runs Treasure Hunters Roadshow operations, is based in Illinois and has an A-rating from the Better Business Bureau of Central Illinois. It has received 11 complaints in the last 36 months, 10 of which have been resolved.
The company has purchased more than $250 million of precious metals, collectibles, antiques and historical items, according to a press release.
Matthew Enright, vice president of media relations for THR, defended the company’s practices in the Bowling Green Daily News (Ohio) on Aug. 12.
“We don’t appraise, we purchase,” Enright said.
Correction: An earlier version of the story incorrectly quoted Nora Lynn Whitmarsh regarding the value of one of her baseball cards.
Cliff White can be reached at 235-3928.
http://www.centredaily.com/2010/08/26/2171181/sell-with-caution.html
ATA Truck Tonnage Index Rose 1.5 Percent in July
August 25, 2010 12:00 PM
Connie Heiss 703-838-8894
ARLINGTON, VA — The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.5 percent in July, although June’s reduction was revised from 1.4 percent to 1.6 percent. The latest improvement raised the SA index from 108.3 (2000=100) in June to 110 in July.
The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 109.9 in July, down 5 percent from the previous month.
Compared with July 2009, SA tonnage climbed 7.4 percent, which matched June’s increase and was the eighth consecutive year-over-year gain. Year-to-date, tonnage is up 6.7 percent compared with the same period in 2009.
ATA Chief Economist Bob Costello said that July’s data didn’t change his outlook for subdued tonnage growth in the months ahead, stating, “The economy is slowing and truck freight tonnage has essentially gone sideways since April 2010.” Nevertheless, Costello believes that tonnage will post moderate gains, on average, for the second half of the year. “After accounting for the reduction in supply over the last few years, even small gains in tonnage will have a larger impact on the industry than in past.”
Note on the impact of trucking company failures on the index: Each month, ATA asks its membership the amount of tonnage each carrier hauled, including all types of freight. The indexes are calculated based on those responses. The sample includes an array of trucking companies, ranging from small fleets to multi-billion dollar carriers. When a company in the sample fails, we include its final month of operation and zero it out for the following month, with the assumption that the remaining carriers pick up that freight. As a result, it is close to a net wash and does not end up in a false increase. Nevertheless, some carriers are picking up freight from failures, and it may have boosted the index. Due to our correction mentioned above, however, it should be limited.
Trucking serves as a barometer of the U.S. economy, representing 68 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 8.8 billion tons of freight in 2009. Motor carriers collected $544.4 billion, or 81.9 percent of total revenue earned by all transport modes.
ATA calculates the tonnage index based on surveys from its membership and has been doing so since the 1970s. This is a preliminary figure and subject to change in the final report issued around the 10th day of the month. The report includes month-to-month and year-over-year results, relevant economic comparisons, and key financial indicators.
The American Trucking Associations (www.truckline.com) is the largest national trade association for the trucking industry. Through a federation of other trucking groups, industry-related conferences, and its 50 affiliated state trucking associations, ATA represents more than 37,000 members covering every type of motor carrier in the United States. Follow ATA on Twitter @TruckingMatters (www.twitter.com/truckingmatters), or become a fan on Facebook ( http://tinyurl.com/y4qwp6h ).
http://www.truckline.com/pages/article.aspx?id=780%2F{8E1C7279-ED27-4C03-B189-CEEEE26BBB12}
Richard Russell's Take On The Current Gold Price
Richard Russell snippet
Dow Theory Letters
August 26, 2010
http://www.321gold.com/editorials/russell/russell082610.html
Japan's jobless rate falls, but deflation persists
Tomoko A. Hosaka, Associated Press Writer
On Friday August 27, 2010, 12:49 am EDT
Lower unemployment in Japan but persistent deflation signal murky outlook
TOKYO (AP) -- Japan's government released a mixed bag of economic indicators Friday that did little to inspire confidence in the country's fragile recovery.
The unemployment rate in July improved for the first time since January, but families made less money. Deflation persisted as consumer prices fell for the 17th straight month.
Household spending rose, but the upswing may falter once government incentives for purchases of goods such as energy-efficient household appliances expire later this year.
The latest numbers underscore growing uncertainty for Japan's export-driven economy as it faces a surging yen and slowing global growth. In the April-June quarter, Japan lost its place to China as the world's No. 2 economy after posting annualized growth of just 0.4 percent.
Prime Minister Naoto Kan will probably unveil a new stimulus package soon, and growing political pressure is expected to prompt the central bank to ease monetary policy next month.
"In our view, concern looms large for consumption given a weak labor market and fading policy stimulus," said Goldman Sachs economist Chiwoong Lee said in a note to clients.
The nation's seasonally adjusted unemployment rate improved to 5.2 percent from 5.3 percent in June, according to the Ministry of Internal Affairs and Communications. The result marked the first decline since January.
The number of jobless fell 7.8 percent from a year earlier to 3.31 million, while the number of those with employment stayed flat at 62.71 million.
Meanwhile, the country's core consumer price index, which excludes fresh food, fell 1.1 percent from a year earlier. Lower prices may boost individual purchasing power, but deflation is generally bad for an economy. It plagued Japan during its "Lost Decade" in the 1990s, hampering growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.
The government's new high school tuition breaks weighed heavily on the CPI, dragging education costs down 13 percent. A strong yen also pushed down prices of imported goods.
Retailers in heated competition for customers have been dropping prices to take advantage of the yen, which hit a fresh 15-year high against the dollar earlier this week. Major supermarket chains Ito-Yokado, Daiei and Aeon launched sales this month on imported products such as American pork and Australian beef.
The preliminary core CPI for Tokyo -- considered a barometer of broader price trends -- fell 1.1 percent in August, pointing toward another nationwide drop this month.
Kyohei Morita, chief economist at Barclays Capital Japan, does not expect the CPI to return to positive territory until mid-2012.
In a separate report, the ministry said average monthly household spending rose a real 1.1 percent in July. Monthly household income fell 1 percent to 562,094 yen ($6,645).
http://finance.yahoo.com/news/Japans-jobless-rate-falls-but-apf-3816646866.html?x=0&sec=topStories&pos=9&asset=&ccode=
World stocks lower ahead of Bernanke's speech
Elaine Kurtenbach, AP Business Writer
On Friday August 27, 2010, 5:20 am
World stocks waver as investors await Bernanke's speech amid recovery worries
SHANGHAI (AP) -- World markets were mostly lower Friday as investors fretful over the pace of economic recovery awaited a speech later in the day by Federal Reserve Chairman Ben Bernanke, and the latest data on the state of the U.S. economy.
Global markets have been rattled in recent weeks by signs the global economic recovery is losing momentum. Bernanke's comments on the U.S. economy, the world's largest, may give investors some insight into how deep the slowdown will be.
After a mixed session in Asia, most European markets opened down.
Britain's FTSE 100 was off 22.04 points, or 0.4 percent, at 5,133.80, France's CAC-40 shed 21.64, or 0.6 percent, to 3,453.39 and Germany's DAX fell 22.70, or 0.4 percent, to 5,889.88. Wall Street looked set to open little changed with Dow futures up 2 points at 9,969.00.
Japan's benchmark Nikkei 225 stock average recovered from early losses on news that Prime Minister Naoto Kan plans was meeting reporters to discuss how the government will handle the yen's surge in value. The Nikkei gained 84.58, or 1 percent, to 8,991.06.
A pledge by Japan's finance minister to work more closely with the central bank to curb the yen's rise helped boost exporters. Sentiment was buoyed, also, by the government's report Friday that the jobless rate in July fell to 5.2 percent from 5.3 percent in June -- the first decline in six months.
Chinese investors resumed buying to boost the benchmark Shanghai Composite Index by 0.3 percent to 2,610.74. But the gains were capped by mixed earnings from major companies and uncertainty over whether the government will loosen tight credit policies as the economy slows.
Sentiment worldwide has been dampened by expectations the United States will revise down economic growth for the April-June quarter from an annual pace of 2.4 percent announced earlier.
Hong Kong's Hang Seng fell 0.1 percent to 20,597.35 while South Korea's Kospi dropped less than 0.1 percent to 1,729.56. But shares in most other markets were higher, with Australia's S&P/ASX 200 up 0.3 percent to 4,370.10 and Taiwan's benchmark adding 0.4 percent to 7,722.91.
In New York on Thursday, the Dow Jones industrial average fell 74.25 points, or 0.7 percent, to 9,985.81. The Dow had traded below 10,000 several times this week, but hadn't closed below that level since July 6.
With many indicators, including housing sales, pointing to a slowing economic recovery, investors are hoping Bernanke's speech may clarify how weak the U.S. economy is and what the Fed will do to revive it.
The U.S. is to release revised GDP data for the April-June quarter Friday.
In currencies, the dollar rose to 84.69 yen from 84.28 yen in New York late Thursday. The euro gained to $1.2714 from $1.2702.
Benchmark crude for October delivery was down 42 cents at $72.96 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 84 cents to settle at $73.36 on Thursday.
Associated Press writer Shino Yuasa in Tokyo and researchers Bonnie Cao and Ji Chen in Beijing and Shanghai contributed to this report.
http://finance.yahoo.com/news/World-stocks-lower-ahead-of-apf-117781197.html?x=0&sec=topStories&pos=1&asset=&ccode=
Could A Market Meltdown Begin Tomorrow?
by Scott Rubin
Posted on 08/25/10 at 8:40pm
I am not saying that this will happen, but let me lay out the case for tomorrow being the day that the stock market craters and begins a descent to 8,000 on the Dow and below in the coming months.
A lot of factors are aligning that could make tomorrow and Friday harrowing days in the markets. First thing in the morning, we will have the initial and continuing jobless claims numbers.
Last week's initial claims number came in at 500,000 compared to consensus estimates of 475,000 indicating a worse than expected deterioration on the jobs front. This sent a shiver through the market on August 19th, when the Dow opened above 10,400. We are now at 10,060.
Today's trading action ahead of Thursday's and Friday's economic reports also sets up for a possible steep decline tomorrow. Stocks staged a dramatic reversal after initially sinking on the Durable Goods and Home Sales data. The bullish price action, and the fact that the market held support at Dow 10,000 and S&P 1040, has possibly breathed a bit of optimism back into the market.
If the numbers are sufficiently bad tomorrow, and they have been terrible for some time, the optimists will be forced to examine their positions and will likely puke up what they bought on Wednesday. This may add to selling momentum which could catalyze a move below major support levels which are within striking distance for the bears.
A move first below Dow 10,000 and then below S&P 1040 on heavy volume is sure to get traders attention. It could potentially trigger a cascade of sell stops and beckon technical traders to jump in on the short side.
Furthermore, if we see terrible jobs numbers, there is unlikely to be a lot of big buyers ahead of Friday's GDP revision and the final reading on the University of Michigan Consumer Sentiment index for August. There are likely to be even less buyers if an initial push down takes out the key support levels highlighted above.
Add to this the flurry of Hindenburg Omens that have been flashing in recent weeks, and the odds of a substantial leg lower in stocks beginning tomorrow appears to be much higher than normal. For those of you who have not heard of the dreaded "Hindenburg Omen," it is a technical indicator that has a reasonably accurate track record predicting imminent stock market declines.
Now all of this is highly speculative, and the odds are against a 400 or 500 point down day in the Dow, but I think it could happen. We have not seen any big panic sell-offs during the recent stock swoon which began on August 11th, when the Dow fell 265 points. I wouldn't consider that day a panic sell off, but a sell off nonetheless.
But what we have witnessed is a grinding decline and it feels as if something more climatic may be around the bend...If we make an early morning run below Dow 10,000, I would head for the hills.
http://www.benzinga.com/general/10/08/442840/could-a-market-meltdown-begin-tomorrow
Barclay CTA Index Up 0.09% in July;
BarclayHedge.com
August 18 2010
Commodities Rally While Dollar Weakens
FAIRFIELD, Iowa, August 18, 2010– Managed futures gained 0.09% in July according to the Barclay CTA Index (Commodity Trading Advisor) compiled by BarclayHedge. Year-to-date, the Barclay CTA Index has lost 0.91%.
“As market participants moved from a risk-avoidance posture to a more risk-seeking strategy in July, many traders were caught on the wrong side of a rally in global commodities,” says Sol Waksman, founder and president of BarclayHedge.
“Even with the negative impact of commodity losses on portfolio returns, July provided its fair share of profitable trades for CTAs.”
“The rally in wheat amid fears of shortages in Russia captured the attention of the press and drove prices 30 percent higher. If you got the wheat trade right, then it was a very good month.”
Six of Barclay’s eight managed futures indices had a positive return in July. Currency Traders gained 0.64%, Discretionary Traders were up 0.52%, Agricultural Traders gained 0.51%, and Financial & Metals Traders rose 0.31%.
“The continuing rally in bond prices and an across-the-board weakening of the US Dollar against G-10 currencies during July provided profitable trend trading opportunities for portfolios invested in those sectors, ” says Waksman.
The Diversified Traders Index lost 0.17% in July. The Barclay BTOP50 Index, which monitors performance of the largest traders, was down 0.77% in July.
Click here to view 30 years of Barclay CTA Index data.
Sol Waksman is an experienced media source, providing perspectives on hedge fund and managed futures trends. For more commentary or background, call 641-472-3456 or email swaksman@barclayhedge.com.
BarclayHedge was founded in 1985 and actively tracks more than 5,700 hedge funds, funds of hedge funds, and managed futures programs. Each month Barclay provides updated performance rankings for 38 Hedge Fund categories and 16 CTA categories.
Institutional investors, brokerage firms and private banks worldwide utilize Barclay’s data as performance benchmarks for the hedge fund and managed futures industries.
http://www.barclayhedge.com/research/press_releases/PR_Aug_18_2010.html
Google & Verizon's Evil Plan Is Really Bad News for Regular Internet Users
By Scott Thill / AlterNet
August 25, 2010
If we wake up one day to an Internet that has a carpool lane for the upper class, it's worth thinking about the alternatives.
The firestorm over tech giant Google and telco titan Verizon's self-interested proposal to arbitrarily codify a pay-to-play Internet will dominate the news in the coming months, as net neutrality steps onto a mainstream media stage crowded with Muslim mosques and other distracting fodder. But now that other telcos like warrantless wiretapper AT&T have quickly endorsed Googlezon's proposal, it was left to Jon Stewart on a recent episode of the Daily Show to sum up the mammoth migraine awaiting us all: "We're fucked."
My colleague Ryan Singel at Wired had a similar take, calling the one-time staunch net neutrality defender Google a "carrier-humping net neutrality surrender monkey." Both assessments are dead-on: By giving up its previous commitment to open networks and devices in both the wireline and the wireless space, Google -- arguably the most powerful tech company in the world -- has simply cashed in its neutrality chips, nearly fully compromised "Don't Be Evil" corporate philosophy, and screwed us all. The irony is that the Internet we've become used to over the last couple decades has made Google and Verizon powerhouses in the first place.
"The Internet and communications industries are in the same category as the energy, transport and finance industries: for they are the lifeblood of commerce and speech in this nation," said Columbia Law School copyright and communications professor Tim Wu, whose 2003 paper "Network Neutrality, Broadband Discrimination" helped shape the network neutrality issue. "Just consider the power and public role of firms like Verizon or Google (especially if they work together). Sitting atop the web, they can influence what firms succeed or fail -- by making sites load faster or slower, or end up on page 10 of search results. It goes further -- in subtle ways, the information carriers have the power to influence elections and even censor speech they don't like."
The ramifications of allowing dumb-pipe telcos like AT&T, Comcast, Verizon and others to instead provide tiered services -- with the so-called "public Internet," no doubt slowed to a crawl, firmly stashed at the bottom of that traffic hierarchy -- is simply insane. It would be like your city allowing businesses, local and otherwise, to determine which blocks of your homeward commute become toll roads. Sure, one road would be spared in the interest of the public good, and it would be claustrophobically crowded with anyone and everyone who decided against paying the toll because of economic hardship, because of philosophical disagreement, because of whatever.
"The greatest danger of the fast lane is that it completely changes competition on the net," Wu explained in a New York Times roundtable on Google and Verizon's sweetheart deal. "The advantage goes not to the firm that's actually the best, but the one that makes the best deal with AT&T, Verizon, or Comcast. Had there been a two-tier Internet in 1995, likely, Barnes and Noble would have destroyed Amazon, Microsoft Search would have beaten out Google, Skype would have never gotten started -- the list goes on and on. We'd all be the losers."
Or as IO9's Annalee Newitz put it: "Googlezon has succeeded in creating a caste system in the online world, and the public is the lowest caste of all." Cue Jon Stewart's disturbing truth. No laugh track please.
But is there an option available to the public, other than pressuring Federal Communications Commission chairman Julius Genachowski to join his FCC colleagues Michael Copps and Mignon Clyburn -- as well as level-headed politicians like Al Franken, Alan Grayson and others -- in their efforts to reclassify broadband as a communications service, a political no-brainer if there ever was one? After all, the FCC has already filed a plan to do just that, but has yet to move on it, although with Copps, Clyburn and Genachowski on board it has the needed votes. It seems the easiest place to start, although Grayson has rightly complained that the whole debacle "doesn't inspire confidence that the FCC can hold the line against telecom and cable companies, when those companies have something else in mind."
Because of this collusion -- empowered by an April federal court ruling, spearheaded by Clinton-appointed judge David S. Tatel, declaring that the FCC lacks Internet regulatory authority and needs specific permission from Congress to get it -- open-spectrum and other utopian proponents and are hamstrung by cold, economic reality. Tatel's pointed barb that FCC and congressional "policy proposals" about network neutrality or regulatory authority "are just that -- statements of policy…not delegations of regulatory authority" was a not-subtle reminder that the FCC's only play is to get Congress to step up and give it the power it pretends it has. But instead of doing just that, Genachowski has wasted time diving back and forth between the boardrooms of Microsoft, AT&T and other heavyweights to forge a corporate consensus. But feel his pain: Congress couldn't pass a football in the name of the public good these days. Getting them to agree that the FCC should be able to regulate AT&T's management of its networks -- after asking the company to spy like crazy on Americans -- is beyond a non-starter.
As Google and Verizon made clear in their proposal, emboldening a publicly engineered alternative wireless Internet is going to be hard to do when indispensably well-meaning spectrum reformers like Gigi Sohn and Laurie Racine's nonprofit Public Knowledge are counting on both telco goodwill and congressional power. Public Knowledge's first principles on open spectrum demands that "bidders for half of the spectrum to make access to that spectrum available to third parties at wholesale rates" and respect consumers' "right to use any equipment, content, application or service on a non-discriminatory basis without interference." Good luck enforcing that without FCC regulatory authority.
Everything comes down to parsing the signals. At last report, more than half of current wifi hotspots are free; a 12 percent increase from the first quarter of 2010. A comparative deluge of broadband-enabled devices are on the way, a thankful development for those who are tired of having to connect their DVD players, sound systems, television, computers and phone with nearly obsolete cables. The logical pattern leads forward into a future littered with free, fast Internet connections, right? Wrong.
In the absence of neutral, enforceable legislation, who controls the spectrum controls the wireless world. And right now, the spectrum is seen as a revenue stream by the FCC: The controversial 2008 spectrum auction raised nearly $20 billion from the usual suspects like Verizon and AT&T, who carved up America's wireless empire for themselves and left crumbs for the rest. (Proceeds from the auction, according to the FCC, were transferred to the U.S. Treasury to be used for the nation's digital television transition efforts, but given Treasury's economic malfeasance, who knows where that $20 billion went?) And the throttling wasn't far behind: Earlier this year, Genachowski proposed the "Mobile Future Auction" in an effort to encourage television broadcasters to stop hoarding unused spectrum, which is what monopolies routinely do when they own it.
"The highly valuable spectrum currently allocated for broadcast television is not being used efficiently," Genachowski said. "Indeed, much is not being used at all."
Freeing up that wireless, radio, television and microwave spectrum, whether through voter initiative or anti-capitalist hacking, should be the prime objective of any net neutrality advocate or official. Even nationalization shouldn't be off the table; in fact, it should probably be at the head of it. Because it is pure folly to rely on corporations looking to carve the Internet into variously monetized thoroughfares to provide unrestricted access, although the airwaves belong to the same public it has been fleecing for decades.
As civilization as we know it fully enters the wireless 21st century, setting aside net neutrality provisions only for the wireline world, as Google and Verizon have proposed, is both like naming technocratic educational downsizing No Child Left Behind and actually expecting it to work. Without a government-sponsored open spectrum available without restriction to the public, which can also choose become a living broadcaster in its own right, net neutrality will remain but a theory in search of an application.
Even if the FCC decides to reclassify broadband, we have already learned from the evolution of the communications industry that, when left unregulated, it trends toward consolidation and complexity rather than diversification and simplicity. We are in the early stages of the 21st century with what seems like unlimited capacity, pardon the pun, for tremendous connectivity and capitalization. But instead we're watching the same corporations squeeze us dry of options and alternatives. And until advances in multi-node mesh networking and similarly minded wireless workarounds put the lie to mounting warnings of a suspicious spectrum crunch, we're left with the usual options: Crawl up Congress' lazy ass and make net neutrality more important than Muslim mosque controversies, or economically punish service and content providers like AT&T, Verizon and Google for their selfish behavior. (Killing off redundant landline and wireless accounts would be a good start.)
Google already got the message after publicly selling out its corporate slogan "Don't Be Evil," while Verizon got a pass because everyone already knows telcos are evil incarnate. But pressure must be kept on Google, telcos, the FCC and the Obama administration to make net neutrality an election issue. Otherwise, we're all going to wake up one day and find that the internet has a carpool lane for the upper class, and we're not invited unless we're willing to cough up our cash and our principles.
http://www.alternet.org/story/147953/google_%26_verizon%27s_evil_plan_is_really_bad_news_for_regular_internet_users/?page=entire
CBO Report Misses the Mark on the Estate Tax
by Shawn Arnold - NoDeathTax.org
Posted on August 20th, 2010 12:30 pm
The Congressional Budget Office (CBO) released a report yesterday about the effects of the Obama tax hikes. The report broke down earned revenues in terms of individual income taxes, corporate income taxes, social insurance taxes and “other revenues”.
The Federal Estate Tax, which is set to return in 2011 at a rate of 55 percent on assets over $1 million, was accounted for in the “other revenues” category. The report indicated that combined, “other revenues” will raise about $2.8 trillion over the next decade.
Bloggers immediately began spinning the data, suggesting that keeping full repeal of the Federal Estate Tax would double the deficit because another $2.6 trillion would be added to our current deficit without the Obama tax hikes.
But if you look at the fine print, what you see is that the CBO’s “other revenues” category also includes the Federal Reserve System and new excise taxes like the tanning tax, customs duties, and miscellaneous fees and fines. In fact, the largest revenue producer is the Federal Reserve System – not the estate tax -- which expects payment in full with interest for several trillion dollars of bailout packages: the auto bailout, the bank bailout, the new union bailout and a few other major bailout programs. Combined, these programs absolutely trump the impact of the Federal Estate Tax on revenue generation.
Considering the full economic effect of the death tax and its impact on the income, payroll and capital gains taxes, former U.S. Treasury Economist Steve Entin projects that repeal would increase net revenues by as much as $23.3 billion to $38 billion (or 1% of Federal Revenues each year over a ten year period).
Given the current public opinion on the debt and the deficit, it’s safe to suggest Congress make the obvious choice here: Kill the death tax!
http://www.nodeathtax.org/cbo-report-misses-the-mark-on-the-estate-tax---
Credit card debt drops to lowest level in 8 years
Eileen Aj Connelly, AP Personal Finance Writer,
On Wednesday August 25, 2010, 3:32 am
Credit card debt drops 13 percent in 2nd qtr to lowest level since 2002; late payments decline
NEW YORK (AP) -- The amount consumers owed on their credit cards in this year's second quarter dropped to the lowest level in more than eight years as cardholders continued to pay off balances in the uncertain economy.
The average combined debt for bank-issued credit cards -- like those with a MasterCard or Visa logo -- fell to $4,951 in the three months ended June 30, down more than 13 percent from $5,719 in the same period a year ago, according to TransUnion.
The credit reporting agency said it was the first three-month period during which card debt fell below $5,000 since the first quarter of 2002.
Credit card debt remained the highest in Alaska, but slid 7 percent there to $7,148. A total of 22 states recorded debt higher than the national average.
Residents of Alabama paid off the most debt, dropping their average balance by 27 percent to $4,753.
More borrowers also made payments on time. The rate of cardholders past due by 90 days or more fell to 0.92 percent in the second quarter, from 1.17 percent last year.
That's the first time the delinquency rate has been below 1 percent since the second quarter of 2007, before the recession, said Ezra Becker, director of consulting and strategy in TransUnion's financial services unit. The rate fluctuates during the year, he said, but the improvement is more evidence that consumers are working to make sure their credit cards remain in good standing.
That concern reflects several economic factors, from the fear of unemployment to the fact that the collapsed housing market means it's harder to cash in on home equity when money gets tight. "You can't buy groceries with your house anymore," Becker said.
Reflecting the weak economies in the states hardest hit by the housing crisis, the delinquency rate was highest in Nevada, at 1.5 percent of cardholders, followed by Florida, 1.24 percent, Arizona, 1.11 percent and California, 1.08 percent. In all, 16 states fared worse than the national average for delinquencies.
The lowest delinquency rates remained in North Dakota, at 0.54 percent, and South Dakota, at 0.55 percent.
In a twist, Becker said the foreclosure crisis could be helping to improve the timeliness of credit card payments and lower balances. When people don't make mortgage payments, he suggested, they have a short-term cash boost.
"That can provide extra money to pay down credit cards," he said.
Besides paying down debt, consumers are getting fewer new cards. Nationwide, the number of new accounts opened dropped almost 6.5 percent from last year.
TransUnion predicts that the national delinquency rate will remain below 1 percent for the rest of the year. However, on the high end, the Nevada rate is forecast to edge up to 1.6 percent.
http://finance.yahoo.com/news/Credit-card-debt-drops-to-apf-3078079176.html?x=0&sec=topStories&pos=1&asset=&ccode=
Low prices and rates can't slow fall in home sales
Alan Zibel and J.W. Elphinstone, AP Real Estate Writers,
On Tuesday August 24, 2010, 4:54 pm EDT
Low mortgage rates and prices fail to stop home sales from sinking to weakest in 15 years
WASHINGTON (AP) -- Home prices in many parts of the country scream bargain, and mortgage rates haven't been this low for decades. So why are houses across the nation sitting on the market for so long?
Sales of previously occupied homes in the United States fell 27 percent in July, the weakest showing in 15 years, the National Association of Realtors said Tuesday. It was the largest monthly drop in the four decades that records have been kept.
Potential buyers are hesitating because they think home prices still have further to fall. Potential sellers -- those with the stomach to put their homes on the market at all, anyway -- are reluctant to lower their prices.
"It really is a self-fulfilling prophecy," said Aaron Zapata, a real estate agent in Brea, Calif. "If all buyers perceive that home prices are coming down, then they will stop making offers -- and home prices will come down."
While the standoff plays out, home sales are plummeting.
Sharp declines were recorded in each of the four regions the group tracks. Yet the pain is being felt unevenly from state to state and city to city. Some markets are rebounding even as others languish.
Sellers in sluggish markets like Las Vegas and Chicago can expect to wait an average of more than five months to sell their homes, according to real estate brokerage ZipRealty Inc. It's even worse in Palm Beach, Fla., where it takes nearly six months, longest in the nation.
In healthier markets such as San Francisco and Denver, the average wait is only about two months. Sellers in Washington appear to have the nation's best major market; they are waiting only about a month and a half.
Beyond geography, the sales numbers vary depending on the price of the home.
The biggest drops in sales are among homes in the low and middle price ranges. For example, 47 percent fewer homes in the Midwest priced between $100,000 and $250,000 sold in July, compared with July last year. By contrast, sales of million-dollar-plus homes in that region actually rose slightly year over year.
This spring, government tax credits helped drive sales, especially among first-time buyers of less expensive homes. But those tax credits have expired now, and many people rushed to lock in sales before they did.
Since then, the number of homes lingering on the market has swelled to nearly 4 million in July. At the current pace of sales, it would take about a year and two weeks to sell all those homes and get them off the market. A healthy level is six months.
Laurie Salaman has been trying to sell her home in New York for a year so she can move to the suburbs. She's had no offers, even after cutting her listing price on the three-bedroom Bronx home from $475,000 to $449,900.
She notes that she has upgraded the kitchen and bathrooms, refinished the basement and put in new decks and patios. Her goal is to take about $100,000 from the sale and put it toward the purchase of the new house. She said she won't lower the price again.
"That's my bottom price," Salaman said. "If I don't get that price, then I will hold off until the market gets a little better."
Not every seller is so firm. Scott Prestopino has cut his listing price on a five-bedroom home in Carmel, N.Y., to $550,000, from $675,000 in December. He had one offer in April, but the buyer backed out.
Prestopino and his family want to move back to Briarcliff Manor, N.Y., where they had lived for 15 years. They've looked at homes on the market there, but that's all they can do.
"I can't carry two houses," he said.
The housing market is also being hampered by the weakening economic recovery. Unemployment remains stuck at 9.5 percent, and many potential buyers worry that they might not have a job to pay the mortgage.
Prices have also fallen because foreclosures are running about 10 times higher than before the housing bust. Though the average rate for a 30-year fixed mortgage has fallen to 4.42 percent, many people can't qualify because banks have tightened lending standards.
The drop in July sales compared with June was worst in the Midwest, at 35 percent. Sales sank 30 percent in the Northeast, 25 percent in the West and 23 percent in the South.
Nationally, the median sale price was $182,600, up 0.7 percent from a year ago, but down 0.2 percent from June.
More broadly, the plunge in home sales is magnifying fears that a worsening real estate market could cause consumers to pull back on spending. The overall economy would suffer.
"The housing market is undermining the already faltering wider economic recovery," said Paul Dales, U.S. economist with Capital Economics. "With the increasingly inevitable double-dip in prices yet to come, things could yet get a lot worse."
Elphinstone reported from New York.
http://finance.yahoo.com/news/Low-prices-and-rates-cant-apf-2949326144.html?x=0&sec=topStories&pos=9&asset=&ccode=
25 Credit Card Facts
by John Lee
August 24th, 2010
The WSJ put out this article today regarding credit cards and how issuers jacked up rates to a nine-year high.
New credit-card rules that took effect Sunday limit banks’ ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers’ ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
That’s 14.7%, up from 31.1%, or the 2001 high. Did anyone tell the issuers that the average consumer is still struggling? They don’t care because it’s all about pinching as much as they can from each credit card holder. The moment you make a mistake and not pay, then you’re done. Highway robbery, homie. You better pay up.
Here are some more credit card (CC) facts:
1) Average CC debt per household is approximately $15,788.
2) Over 609.8 million CCs are held by U.S. consumers.
3) The average person holds 3.5 CCs.
4) Total U.S. revolving debt is $852.6 billion and counting.
5) Total U.S. consumer debt stands at $2.46 trillion, also counting.
6) The CC 60-day delinquency rate stands at 4.27%.
7) The overall CC default rate is 13%.
8) Total circulation of CC’s by Visa, MasterCard, AmEx, and Discover is 576.4 million.
9) The average age of obtaining the first CC is 20.8 years old.
10) Consumers with a rewards CC makes up about 60%.
11) If you stacked all of the credit cards in use in the U.S., it would reach 70 miles into space.
12) Over 80% of the student population hold CCs.
13) Over 50% of college students had four or more CCs in 2008.
14) 65% of students pay their CC bill in full every month.
15) Consumers have, on average, about 13 credit obligations (includes CCs, auto loans, student loans, mortgages, etc.).
16) New Jersey and New Hampshire, both at 20%, have the highest concentration of CC holders with 10 or more CCs.
17) On the J.D. Power and Associates 2009 CC Satisfaction Study Rankings, AmEx ranked #1, Discover ranked #2, National City ranked #3 (out of business, acquired by PNC).
18) As evidence of struggle, 72% of consumers say that they used a credit card in 2008. This is down from 97% for 2007.
19) Residents of Alaska and Hawaii, both at 17% each, have the highest number of consumers who use 50% or more fo their available credit.
20) The average balance for college students is $3,173, double from what it was in 2004. 21% of college students carry a balance between $3,000-$7,000.
21) In 2004, 69% of freshman had no balance. In 2008, only 15% of freshman carry no balance.
22) Credit card debt is #1 on the “taboo list of things people are unlikely to talk about”: credit card debt (81%), sex life (81%), salary (77%), mortgage/rent payment (72%), health (62%), weight (50%).
23) 36% of respondents from a Dec 2009 FINRA survey stated that they didn’t even know the interest rate on the card they used most frequently.
24) As of early 2010, the default rate stands at 27.8%.
25) 93% of issuers are allowed to raise the interest rate at any time because the account agreement states that the agreement can be changed at anytime.
Rates have increased and CC issuers will be looking for more ways to rape and pillage you, so be smart about what your doing with your cards.
http://chartsgonewild.com/2010/08/24/25-credit-card-facts/
$SPY Analysis 8/24/10
Posted by: John Lee,
August 24th, 2010 at 8:34 am
I display continued caution as we are still in a very wide intermediate-term neutral range. You could clearly see my cautious behavior on last night’s premier Chart.ly show on Stocktwits.tv. We are currently at oversold levels, but keep in mind that we could get even more oversold. The McClellan Oscillator:
We have existing home sales at 10AM, so don’t forget about that.
As of 8:30AM, we will be gapping below Friday’s low, obviously not a good sign. There is descending support, but apparently it’s already been cut (watch it). There is also horizontal support/resistance at 106 from July (threatened). In the event that we do rally for some reason, there is overhead resistance first at 106 then the Friday low 106.75. Extreme support levels would include the May/June lows at 104.
Either way, the smaller range inside of a larger range will continue to make this environment difficult. I urge caution to traders of all styles. Keep the sizes small, don’t be so overzealous, and preserve that capital of yours. I am normally known for the aggressive nature of my day trades, but I considerably reduced my activities since June. Just my professional opinion…that’s all.
http://chartsgonewild.com/2010/08/24/spy-analysis-82410/
Morgan Stanley: The 15 Must-See Charts That Explain The Global Economy
slide show: 1/17
Are Sentiment Indicators Topping Out?
http://www.businessinsider.com/morgan-stanleys-15-economic-charts-you-simply-cant-miss-2010-3#are-sentiment-indicators-topping-out-1
How the Unions Betrayed America
Robert Morley | From theTrumpet.com
August 17, 2010
And why unions are just one tiny part of the problem
The union worker, the chief executive, the capitalist, and all of us are facing the same problem: We stand on the very brink of economic breakdown. Can America come together to fix its problems?
States and cities across the country are on the verge of failure. Some small cities have already gone bankrupt. Government officials are being forced to consider unprecedented actions.
But the times are unprecedented!
In Hawaii, the state has not only furloughed its teachers, it has furloughed its students—instituting a four-day school week. Student classroom time was cut by 20 percent. The state is far from alone, and the New York Times reports that more school districts are considering doing the same.
In Georgia, Clayton County shut down its bus system in a desperate attempt to balance its budget. The hard decision stranded 8,400 daily commuters.
In Colorado Springs, the city switched off one third of its 24,512 streetlamps to conserve cash. It slashed its police force and parks department.
And all the while, one small business after another shutters its doors for good.
It is deindustrialization on a national scale. But it is more than that.
All across America—North Dakota, Michigan, Alabama, Pennsylvania, and elsewhere—states are grinding up asphalt roads and letting them go back to gravel. Some states, like Ohio, can’t even afford the grinding costs and are simply letting the roads erode back to gravel. The arteries, the linkages connecting small-town America with the giant interstate markets, are being chewed up and spit out.
Is it a sign that America is headed “back to the Stone Age”? wonders Purdue University’s John Habermann.
Furloughing children, pawning the city’s buses, street lights going dark, reverting to gravel: All these stories have a common theme: squandered wealth. More specifically, plundered wealth.
Almost without exception, the high cost of unions—and the corrupt officials who allowed states to indenture themselves, their children and their children’s children to the unions—are bankrupting the nation.
Don’t believe it? It is simple math.
On a national level, it is well known that Social Security, Medicaid and Medicare are on course to break the nation. Former U.S. Comptroller General David Walker estimates the U.S. government will need over $60 trillion to pay for these programs over the coming years. Since the total U.S. budget is only around $3.5 trillion, the dirty little secret that everyone in Washington knows, but won’t admit, is that these programs are soon to be severely cut or eliminated. America just doesn’t have the money to pay for all these retirement promises.
Social Security is already giving out more in benefits than it collects in premiums. To make up the difference, the federal government borrows money to pay benefits.
This kind of financial irresponsibility can only go on for so long. The system is already breaking and it is primarily due to two gigantic unions. They are called Democrats and Republicans. Both unions pretend to stand for different things, but in the end, they both just want your vote. And in America, you are a card-carrying member of one or the other or your voice gets squashed.
At the more local level, employee unions are doing a fantastic job of sabotaging the economy too. Take the recent state multibillion-dollar bailout just passed by Congress.
On August 10, at a special session, the House voted to give states $26 billion to prevent 300,000 teachers, police and other public employees from being laid off.
But why do the states need a bailout in the first place? Why is it the federal government is now paying the salaries of state employees? Because states are bankrupt. According to the New York Times, states are running a cumulative $3 trillion funding deficit.
Why such a huge deficit? Because they have made unsustainable and extravagant promises to unions.
For example, in Milwaukee, the teachers union is fighting the school board to get taxpayer-funded Viagra back into their health plans. If a judge forces the school board to pay up, based on historical usage it will cost the city an astounding $786,000 per year.
Think about that.
Seven hundred and eighty-six thousand dollars—each and every year—so teachers can get paid access to the passion pill. This is how ridiculous unions have become. With the whole nation mired in a deep recession, with millions of people losing their jobs, this is the union’s priority?
But here is the real kick in the pants for taxpayers.
According to a consultant for the school board, the $786,000 could be instead used to “keep perhaps a dozen first-year teachers employed.”
Did you get that? In other words, the cost to the city for hiring a unionized rookie teacher straight out of college is $65,000 per year (when including benefits). In some school districts, teachers are paid more than $72,000 per year, not including benefits. Benefits like family health care for a family of four can cost around $22,000 per year.
And when public employees retire, they are often entitled to a salary plus benefits equal to their highest wage earned throughout their career. And employees have learned to take advantage of this, engaging in retirement spiking—by working as much overtime as possible during the final year of employment—and then collecting “juiced” pension payments for the rest of their life.
Let’s assume a private-sector employee wanted to retire and receive a $65,000 annual salary. If that person thought he or she would live for 20 years beyond retirement, assuming a generous 7 percent annual return he or she would need to plop down almost $700,000.
How many people have that kind of money at retirement? Unions have done well.
Next question: How many teachers, police, firefighters and other unionized employees are on state payrolls heading for retirement? New Jersey, for example, has 200,000 members in just its teachers union. Can you see why states are going bankrupt? Look how much money will be needed to cover all these teachers’ salaries as they retire.
New Jersey Gov. Chris Christie has been very vocal about the union parasites in his state. In a speech earlier this year he told how each and every teacher is required to pay $730 per year in mandatory dues to the union. And if teachers wants to opt out of the union, that is fine, but they still have to pay $620 per year to the union just for the privilege of opting out. The New Jersey teachers union alone collects around $130 million per year in mandatory dues. According to Christie, it is blood money used to coerce and blackmail politicians into supporting union initiatives.
In Los Angeles, the teachers union is currently trying to blackmail the Los Angeles Times into not reporting on the state of the local school system.
America’s education system is a shambles. Union gangsters care more about preserving their power than helping children.
Teachers unions have become so corrupt that it is virtually impossible to fire bad teachers. Unions won’t even allow teachers “engaging in lewd behavior,” or who make sexual advances to students, to be fired. Some unions have even become child molesters’ best friends, protecting them from losing their jobs and paychecks. Here is a snippet from the Los Angeles Times:
Every school day, Kim’s shift begins at 7:50 a.m., with 30 minutes for lunch, and ends when the bell at his old campus rings at 3:20 p.m. He is to take off all breaks, school vacations and holidays, per a district agreement with the teachers union. At no time is he to be given any work by the district or show up at school.
He has never missed a paycheck.
In the jargon of the school district, Kim is being “housed” while his fitness to teach is under review. A special education teacher, he was removed from Grant High School in Van Nuys and assigned to a district office in 2002 after the school board voted to fire him for allegedly harassing teenage students and colleagues. In the meantime, the district has spent more than $2 million on him in salary and legal costs.
Last week, Kim was ordered to continue this daily routine at home. District officials said the offices for “housed” employees were becoming too crowded.
About 160 teachers and other staff sit idly in buildings scattered around the sprawling district, waiting for allegations of misconduct to be resolved.
The housed are accused, among other things, of sexual contact with students, harassment, theft or drug possession. Nearly all are being paid. All told, they collect about $10 million in salaries per year—even as the district is contemplating widespread layoffs of teachers because of a financial shortfall. …
“It’s a glaring example of how hard it is to remove someone from the classroom and how the process is tilted toward teachers,” said school board member Marlene Canter, who recently proposed—unsuccessfully—to revamp the disciplinary process.
As sad as that is, it is just one sad example of what unions have become. And teachers unions are only the beginning.
In Oakland, California, 75 percent of the city budget goes toward paying police and firefighters salaries and 10 percent goes to paying interest on city debt. California has one of the highest rates of unemployment in the country, and still these unions are not happy with 75 percent of the money.
Writing for the Plain Truth magazine in April 1985, Herbert W. Armstrong highlighted the problem that unions were becoming. He noted how in the past unions had helped the common workers, preventing them from being exploited by unscrupulous employers.
However, as Herbert Armstrong wrote, the labor unions became corrupted: They “went all out to ‘get’ all possible …. A new ‘get’ economic philosophy infiltrated labor unionism. No longer was a single company a ‘team’ where all worked together against rival competition. … But now capital and management became the enemy of labor. …
“Too often a union leader said to an employee, ‘Slow down, there, buddy—or we’ll all have to work as conscientiously as you are!’”
So now America has come to the state where America can no longer afford unions. When 75 percent of city budgets go just toward the salaries of two unions, they have literally gotten just about all that there is to give.
Yet when it gets right down to it, are the unions really all that different from what goes on in the rest of America?
There are two ways of life: the give way and the get way. As Herbert Armstrong wrote: “‘Get’ seems to have got us all! The ‘get’ incentive is the root cause of all the world’s troubles and evils! The way of ‘give,’ cooperate, serve, help, share, is the basic spiritual law of our Maker! The world has been trying to beat that law—and is being beaten by it!” (ibid.).
http://www.thetrumpet.com/index.php?q=7421.6001.0.0
The Fed’s Biggest Bubble
By: Michael Pento
Tuesday, August 24, 2010
I’ve made a living out of exposing economic fallacies, but there’s one whale that I can’t seem to harpoon. Even top-flight Wall Street analysts seem to believe that the Fed’s doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like so: “The money the Fed created and dropped from helicopters has all been caught in the trees.” In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public. Therefore, the money supply hasn’t truly increased, there is no money multiplier effect, and aggregate price levels are behaving themselves.
But this is only a half-truth. Yes, most of the money created by the Fed has been kept by commercial banks as excess reserves. However, the Fed doesn’t conjure reserves by magic. It first creates an electronic credit by fiat, then purchases an asset held by a financial institution. Those primary dealers then deposit that Federal Reserve check into their reserves. The act of creating money from nothing and buying an asset — be it a Treasury bond or Mortgage Backed Security (MBS) — drives up the price of that asset in the open market. Those price distortions send erroneous signals to private buyers and sellers, eventually creating gross economic imbalances.
Therefore, the inflation created by the Fed first gets concentrated in whatever asset it has chosen to purchase – before spreading throughout the economy.
In the latest example of the Fed’s monetary manipulations, Bernanke & Co. purchased $1.25 trillion in MBS. The prices of MBS were therefore driven up (and yields down). Before that, the Fed forced the entire yield curve lower by purchasing not only Treasury bills but also $300 billion in notes and bonds. The Fed has also recently indicated that it will be swapping maturing MBS for longer-dated Treasury securities in an effort to keep its balance sheet from shrinking.
While it is true that — for now at least — we have been spared from the imminent curse of skyrocketing consumer prices, thanks to the falling money multiplier, it is blatantly untrue that the trillion-plus dollars the Fed created have been rendered inconsequential.
Not only has the huge buildup in the monetary base put pressure on the US dollar and caused gold to soar, but it has also broadcast an egregious and distortive price signal for US debt securities. The 10-year note is now trading just above 2.5%. That yield is near its all time record low, nearly 5 percentage points below its 40-year average, and 13 percentage points below its record high of September 1981.
US sovereign debt should only enjoy such historically low yields due to an overabundance of savings, low inflation, and low debt. None of those preferable conditions currently exist. Hence, US Treasuries are the most over-supplied, over-owned, and over-priced asset in the history of the planet! Once the debt dam breaks, it will send the dollar and bond prices cascading lower, and consumer prices and bond yields through the roof.
While Wall Street and Washington are petrified of the deflation boogieman, the real menace lurking in the shadows is the Fed’s bond bubble – and it’s going to eat small investors alive.
Please note: Opinions expressed are those of the writer.
http://www.europac.net/commentaries/fed%E2%80%99s_biggest_bubble
Junk Bond ETFs: Another Big Short
by John Rubino
on August 22, 2010
Desire for income drives high-yield bond ETFs’ popularity
BOSTON (MarketWatch) — Investors fed up with U.S. stocks’ negative returns over the past decade and paltry rates in today’s fixed-income markets are piling into exchange-traded funds that invest in high-yield corporate bonds.
“Where else can you get an 8% yield? The S&P 500 (MARKET:SPX) is flat over the last dozen years,” said Matt Hougan, head of ETF analytics at IndexUniverse. “I’m not surprised people are looking elsewhere on the capital spectrum.”
Still, investors need to be wary of the higher risk in “junk” bonds, which can manifest itself in big price swings relative to other categories of bonds. Structurally, Hougan noted the high-yield bond ETFs can trade at “significant premiums” to their net asset values. ETFs following less-liquid markets can see wider trading spreads.
Two high-yield ETFs with large asset bases — iShares iBoxx $ High Yield Corporate Bond Fund (CONSOLIDATED:HYG) and SPDR Barclays Capital High Yield Bond ETF (CONSOLIDATED:JNK) — both saw year-to-date inflows of more than $1.2 billion through July, according to data from the National Stock Exchange. More cash likely moved in the door this month amid a surge in bond issuance from corporate America.
The high-yield bond ETFs rallied in 2009 on easing economic and credit concerns, but are essentially treading water so far this year. The SPDR Barclays Capital High Yield Bond ETF gained 37.7% in 2009, according to investment researcher Morningstar Inc., as worries over defaults and bankruptcies eased. The fund lost 24.7% in 2008 as the credit storm raged. Both ETFs are currently yielding around 8%.
Hunting for income
With six-month certificate of deposit rates averaging less than 1% nationally according to BankRate.com, it’s no wonder many individuals are looking well beyond traditional savings accounts for income. The Federal Reserve has indicated it intends to keep short-term rates near zero to help stimulate the troubled economy and job market.
“The measly yields offered by the vast majority of fixed-income securities have forced investors to step up their hunt for current returns,” said Michael Johnston, senior analyst at ETF Database. “For many, that search has led to junk bonds.”
Although low rates have punished savers and investors approaching or in retirement who rely on income, they need to consider the risks of bond funds that are offering tempting yields, such those that invest in paper from companies that have lower credit ratings.
Investing in high-yield corporate bonds is “similar to investing in the equities of companies with highly leveraged balance sheets,” said Morningstar ETF analyst Timothy Strauts.
In his latest report on SPDR Barclays Capital High Yield Bond, he said the ETF “should be viewed as a satellite holding, and a risky one at that.” The fund takes an indexed approach with 166 holdings. The expense ratio is 0.4%, compared with 0.5% for iBoxx $ High Yield Corporate Bond Fund.
Some investors may be drawn to junk-bond ETFs because their yields are much higher than those offered by Treasury funds.
“With increased leverage comes the increased probability of default and bankruptcy,” says Morningstar’s Strauts. “In the grand scheme of things, risk equals return, and the ‘high’ yield of these bonds is designed to compensate investors for this risk.”
Recently, there are signs volatility in equity markets “has taken its toll on retail investor enthusiasm about high-yield bonds,” said Oleg Melentyev, credit strategist at Banc of America Securities LLC, in an Aug. 9 research note.
The strategist said inflows into the fund sector slowed to $50 million in the latest week, a “marked departure” from intakes of at least $500 million seen in each of the previous five weeks.
The volume of U.S. junk bonds has topped $155 billion this year and is on pace to break 2009's record, The Wall Street Journal reported earlier this month.
Some thoughts:
• I used to be a junk bond analyst and learned from that experience that the math generally doesn’t work. Think about it. If you buy a junk bond at par and its price rises because the issuing company is doing well, they’ll call the bonds away from you. So your upside is limited to the coupon plus a modest take-out premium. But your downside risk if the company runs into trouble — as a big percentage of junk issuers do — is much higher, frequently 50% or more. Even in good times these aren’t attractive odds.
• The default rate for junk bond issuers has been very low lately. This is always the case when money is easy, because even weak companies are able to avoid default by refinancing their loans. But when the economy turns down or interest rates rise you discover, as Warren Buffett likes to say, who’s been swimming naked. Typically the junk market has a lot of skinny-dippers.
• The whole sad story of junk bond ETFs is encapsulated in a quote early in the article: “Where else can you get an 8% yield?” It illustrates a point that tends to be missed by small investors who are induced by Wall Street to pile into risky instruments, which is that yield and return are two different things. A bond can yield 10% but return -10% if its price drops by 20%. So buying the highest yielding security is a fairly sure way to get a positive yield and a negative total return. The current generation of yield chasers will learn this lesson in 2011.
• Their tragedy is an opportunity for the rest of us, because junk-bond ETFs can be shorted like stocks. And as if they weren’t leveraged enough, these things have options! So short the ETFs, write covered puts on them to lower your cost basis, and wait for the market to show signs of cracking. Then close the covered puts and let your shorts ride. This is as close to a no-brainer as we’re going to get.
http://dollarcollapse.com/articles/junk-bond-etfs-another-big-short/
America's century is over, but it will fight on
Larry Elliott The Guardian
Monday 23 August 2010
The structural problems of the US economy are too deepseated and intractable to be solved by regular doses of cheap money
"This sucker's going down." That was George Bush's pithy description of the US economy when the financial crisis in the autumn of 2008 threatened to bring down every bank on Wall Street.
Concerted international co-operation of a sort never seen before averted disaster that winter and by the middle of last year the world's biggest economy seemed to be on the mend. American factories started to hum again, shares rallied sharply and growth resumed. The US was showing its traditional resilience when faced with adversity and all was right with the world.
That judgment now appears premature. The latest economic data from the US has been poor. Traditionally, America's flexible labour market has meant job creation in the aftermath of recessions has been robust; this time it was weak even when output was growing strongly in late 2009 and 2010. Recently it has gone into reverse.
The official unemployment rate in the US is 9.5% but the real level of joblessness is far higher after part-time workers who would prefer to have full-time jobs are taken into account. In a country with a less generous welfare system than that in Europe, unemployment acts as a brake on demand, making consumers save rather than spend.
That sense of caution has been reinforced by the state of the US property market, which is also going backwards after the expiry in the spring of tax breaks to buy homes. Those states that enjoyed the biggest boom in house prices during the bubble years are now caught in a vicious downward spiral where a crashing property market leads to higher unemployment, rising foreclosures and further downward pressure on house prices.
Pressure on individual states to balance their budgets has made matters worse. Public sector workers are being laid off, leading to still higher unemployment and even lower house prices.
The risk of the US suffering a double-dip recession should come as no surprise given the profound nature of the shock provided by the seizure in financial markets two years ago. What happened then was that the flow of credit dried up as banks hoarded liquidity and became ultra-reluctant to lend.
Central banks and finance ministries everywhere rightly concluded that there would be a repeat of the deflationary slump of the 1930s unless they flooded the global economy with money. So they slashed interest rates, cranked up the electronic printing presses and announced massive fiscal stimulus packages.
Money supply
This process has worked, but only up to a point. Excluding China, the annual growth rate in the global money supply has fallen from 10% at the height of the financial crisis to zero. Without the action taken by the Federal Reserve, the Bank of England, the European Central Bank and other central banks there would have been a collapse of credit every bit as disastrous as that seen in the Great Depression.
China's stringent capital controls meant most of the benefit from its monetary and fiscal stimulus was felt domestically. Output rebounded quickly and strongly from the collapse in late 2008, and this in turn convinced investors that Asia could provide the engine for global growth while North America and Europe gradually recuperated. That explains why equity and commodity prices rebounded with alacrity from the spring of 2009 onwards, and why Germany – the world's main supplier of the machinery to power industrial development in the emerging world – enjoyed an export-led boom in recent months. But welcome as it was, China's emergency action was not cost-free. The economy lacked the capacity to cope with the sheer scale of the stimulus and showed signs of overheating. Policy has been tightened and China is now showing signs of slowing.
Stalling China
Provided China has a pause for breath rather than a sharp retrenchment there is still a chance that the global economy will muddle through. Factories in Germany and Japan will churn out manufactured goods for Asia, stock markets will take heart that a second leg to the global downturn has been avoided, and cheap money will start to stimulate demand growth in the US once consumers have built up their savings to a level they consider prudent.
But in the US, the Fed is starting to contemplate a much bleaker scenario in which the US and Chinese economies stall simultaneously, with knock-on effects on those countries (a vast number) seeking to export their way out of trouble. The fear, already reflected in global bonds markets, is of softer output, fresh trouble for the banks, and deflation. James Bullard, the president of the St Louis Federal Reserve Bank, noted last week that the US was closer to the deflation seen in Japan in the 1990s than it has been at any other time in its history.
This is a clear sign that the Fed is considering another dose of quantitative easing this autumn. It probably wouldn't take much more poor economic news to trigger it. The mid-term elections for Congress are looming and plenty of the Democrats elected on Obama's coattails two years ago are fretting about losing their seats in November. Ben Bernanke's speech at the annual symposium of central bankers in Jackson Hole on Friday will be scrutinised for hints that the Federal Reserve chairman might be preparing to live up to his nickname of "helicopter Ben" and spray the US economy with more money.
It would be a controversial move. Some would argue that the excesses of the bubble years have to be purged from the system and that any attempts to avoid the necessary adjustment merely prolongs the Great Reckoning and threatens a burst of inflation. Others believe that the problems of the US economy are too deep seated and intractable to be solved by regular doses of cheap money.
Giovanni Arrighi in his book The Long Twentieth Century argues that there have been four major phases of capitalist development since the Middle Ages, starting in Genoa and moving on to Holland and Britain before the start of American dominance during the Great Depression of 1873-96.
It was during this period, Arrighi argues, that commerce started to play second fiddle in Britain to finance, just as it had in Genoa and Holland when their phases of pre-eminence were drawing to a close. The financialisation of the American economy in turn can be traced back to the mid-1970s, so by this interpretation of history, the dotcom collapse of 2000-01 and the financial crisis of 2007-08 (with the military entanglements in Iraq and Afghanistan sandwiched in between) are part of a much longer term development. According to this thesis, the concentration of economic power on Wall Street, the stagnation of incomes for all but the rich, the structural trade deficit, the military overreach, the switch from being the world's biggest creditor nation to its biggest debtor add up to a simple conclusion: we are in the twilight years of the long American century.
Such a conclusion is contested in Washington but may help explain why, as Albert Edwards of Société Générale puts it: "Unprecedentedly strong monetary and fiscal stimulus has led to unprecedentedly weak recovery." This will worry Bernanke, who made his name explaining how policy makers could avoid repeating the mistakes made during Japan's lost decade and can anticipate the dire consequences of a period of deflation for a nation wallowing in debt.
Despite rising commodity prices, core inflation in the US is low. The Fed still has levers to pull and if there is the remotest possibility of this sucker going down again, it will pull them.
http://www.guardian.co.uk/business/2010/aug/23/us-economy-unemployment-property-market
The latest real estate rip-off?
By Les Christie, staff writer
August 23, 2010: 3:21 PM ET
NEW YORK (CNNMoney.com) -- Would you be willing to pay the original builder a fee when you resell your home? That's an obligation some developers are trying to slap on homeowners in their communities.
Many condo and townhouse dwellers are already familiar with the "flip tax," more formally known as a resale fee. Typically calculated as a percentage of the sale price, it's a fee due to the condo association or community when an owner sells. These charges fund common-area maintenance or provide a boost to reserve funds, which benefits the association's homeowners.
But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets.
That has the real estate industry and consumer protection groups up in arms.
"It's of no benefit to consumers," said Kathleen Day, of the Center for Responsible Lending. "It's another innovative way to price gouge. Every extra dollar they suck out of people's wallets takes away from other spending. It's not good for the economy."
The issue has attracted the attention of Washington, where Rep. Brad Sherman, D-Calif., is leading a charge against the fees. "Consumers are not in a position to deal with another level of complexity, one that pits plain vanilla homes against ones that come with fees," he said.
5 most affordable cities to buy a home
Freehold Capital Partners, the New York-based financial company that is developing the program, claims it has already signed up thousands of developers nationwide, representing hundreds of billions of dollars of development.
The company's plan is to monetize that future income -- essentially allowing developers to get paid now rather than later. To do that, Freehold would bundle together the estimated income from the future fees and sell that package to investors. It claims this new "asset" would be worth about 5% of the original home prices.
One company that is working with Freehold is Thieman Enterprises, a developer based in Ohio. "I think it's a fantastic program," said owner Ted Thieman. "I can get my development going again."
He said he needs the upfront cash to fund the building of infrastructure -- roads, sewers and other essentials. Working with Freehold to sell the fee package on to investors would potentially give him enough cash to get projects going and land construction loans more easily.
Ohio, though, has banned the practice. Thieman thinks that removing this potential funding source will discourage development. He said he will relocate one of his development plans to West Virginia, where he has acquired land. He's disappointed for his home state.
"We can bring billions into Ohio and jump-start the economy," he said.
A Utah builder, Development Associates, initiated a similar program several years ago in order to recover some of the up-front costs of its developments. But after complaints from homebuyers, who said they were unaware of the fees, the company withdrew them.
Some developers regularly include "transfer fees" in their sales contracts, including Lennar, one of the nation's largest builders. But the fees Lennar collects go to local housing-assistance organizations and charities, not back into its own pocket. That has helped keep the practice off lawmakers' radar.
Still, most real estate experts are against these fees. A coalition of real estate industry organizations and community groups recently sent a letter to Treasury Secretary Tim Geithner recommending that he not allow Freehold's securitization plan to go forward.
In the letter, the coalition quoted Rep. Sherman, who called the fees "a new predatory scheme."
In the past month, the Federal Housing Finance Agency proposed restricting Fannie Mae and Freddie Mac from buying or backing any mortgages that include home resale fees.
Freehold, of course, defends the program. Chief Operating Officer William White argues that the 1% resale fee will actually benefit consumers by lowering home prices: "No one will pay the same for a home with a [resale fee] as they would for the same home without the fee," he said.
That would make buying a home easier -- but reselling one at a profit harder. Meanwhile, builders could offset their lower initial selling prices by either collecting on the back-end income stream from future sales, or selling those future earnings off to investors.
No securitization package has yet been created, according to White. But he's optimistic: "We have been pleased with Wall Street's response to date."
Whether the program will ever gets off the ground is an open question: 18 states have already banned or restricted the practice, and if the FHFA proposal goes through, it could derail it entirely.
Sherman does not think the idea is dead. Not yet.
"We've wounded the beast, but we haven't put a stake through its heart," he said.
http://money.cnn.com/2010/08/23/real_estate/home_resale_fee/index.htm?hpt=T2
Avoiding Fees Under New Credit Card Rules
ConsumerAffairs.Com
August 24, 2010
Consumers must stay watchful as credit card issuers try to make up lost revenue
The last of a series of new credit card rules took effect this week, offering new protections for consumers. But it still requires vigilance if you want to avoid high rates and fees.
The new rules are part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act that became law law earlier this year. Like previous changes, these new rules are designed to protect consumers by adding clarity and transparency to interactions between card issuers and holders.
However, as these new rules take away revenue opportunities for card companies, issuers are raising other fees or creating new ones to compensate. Bills.com, an online money resource, cautions consumers to be aware of the new rules and also learn how to avoid new fees.
"Unfortunately, one of the unintended consequences of these new regulations is that consumers must be more vigilant than ever as we enter a period of uncertainty surrounding fees and services," said Ethan Ewing, president of Bills.com. "These actions by most card issuers are perfectly legal, but they are certainly outside the spirit of the new law."
The first rounds of changes brought on by the CARD Act required issuers to provide more notice about interest rate increases to consumers, end controversial practices such as inactivity fees, and required more transparent communication around payment windows and information.
Changes in the law
The final set of changes that took effect on August 22nd, 2010 include:
• Maximum limit on late fee penalties of $25 or no more than your minimum payment due. The one exception allows for high penalties if the cardholder has multiple late payments within the past six months.
• Limiting penalties to one charge per issue. For example, the issuer cannot charge an additional penalty for each day a payment is late.
• Any increase in interest rates must be accompanied by a clear explanation for the reason behind the increase.
• Issuers must re-evaluate any interest rate increase six months after it is instituted to determine if there is cause to revoke the increase.
• The official end to inactivity fees so that issuers can no longer charge for not using a credit card over a certain time period.
Consequences of changes
These changes have not occurred in a vacuum. Because they mean card issuers will realized diminished revenue, these companies have begun to identify workarounds or even new fees to supplement their losses. The most straightforward example of these changes is a rise in annual fees by many card issuers.
According to a report by Pew Charitable Trusts, the industry's median annual fee on bank credit cards has jumped 18 percent between July 2009 and March 2010. Similarly, issuers have begun to raise balance transfer fees and foreign transaction fees, shorten billing cycles, and issue rebate cards that are exempt from the CARD Act to combat rate increases. Additionally, some issuers are skirting the ban on inactivity fees by raising annual fees but waiving or reducing them if cardholders meet an annual spending threshold.
Solutions
Bills.com suggests six strategies In order to avoid these fees:
1. Monitor your communications from your credit card issuer.
One of the best ways to stay abreast of changes specific to your cards or situation is to closely monitor information sent from your issuer. New regulations require much greater disclosure on all changes, so any update will be sent to your attention. Be alert for all mailings and read them carefully before throwing away or destroying.
2. Maintain prompt payment status with your credit card company.
Despite all these changes, the simplest way to avoid fees is to pay your credit card bills on time. By missing or being late on a payment you will incur fees, potentially increase your interest rate, and lower your overall credit score.
3. Pay down high balances to improve credit card utilization.
This will show that you can responsibly manage your credit limit, minimizing the chance of higher tiers of interest rates or reductions in credit limit. Additionally, better credit utilization will help boost your credit score.
4. Maintain activity on your credit card accounts.
By using the revolving credit lines that you need or want to keep and promptly paying on them, you can help avoid cancellation of those credit card accounts. This will also help avoid faux inactivity fees and help boost your credit score, while having a long existing credit line closed could lower your score.
5. Avoid over-limit fees through responsible spending habits.
Credit card issuers have begun to charge fees for opt-in over-limit coverage. By remaining aware of credit limits and balances, consumers can avoid a need for this service and these fees altogether.
6. New regulations do not apply to corporate or small business cards.
This means some small business owners might consider using personal cards for business expenses because of fee and rate limitations. However, these owners should remain cautious because their personal credit scores could suffer in the event of missed payments or defaults. Conversely, be aware of companies that are increasing solicitations for corporate card members to avoid new regulations.
As a result of the reforms passed in May 2009, many credit card issuers have increased interest rates and lowered credit limits for millions of credit card customers. The accounts have been closed unilaterally. As a result, millions of consumers have less access to credit than they did a year ago.
July Existing-Home Sales Fall To Lowest Level In 15 Years
By James Limbach
ConsumerAffairs.Com
August 24, 2010
Soft sales pace seen continuing for several months in the absence of the homebuyer credit
Sales of previously-owned home were down sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of Realtors (NAR).
Existing-home sales -- completed transactions that include single-family, townhomes, condominiums and co-ops -- dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June. Sales were 25.5 percent below the 5.14 million-unit level in July 2009.
Sales are at the lowest level since the total existing-home sales series launched in 1999, and single-family sales -- accounting for the bulk of transactions -- are at the lowest level since May of 1995.
Cautious optimism
NAR Chief Economist Lawrence Yun said a soft sales pace likely will continue for a few additional months. "Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September," he said. "However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.
"Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year," he said. "To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years."
Joel L. Naroff, President and Chief Economist of Naroff Economic Advisors, says It's not clear if the housing market hit a huge air pocket or crashed and burned. But, he says, "for now, this sector looks to be flaton its back."
Naroff sees the latest numbers as illustrative of consumer uncertaintly about the economy. "Unless households and businesses have confidence about the future, they are not going to buy homes or invest regardless of the interest rate," he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009. Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.
Rising home prices
The national median existing-home price for all housing types was $182,600 in July -- up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.3
"Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses," Yun said. "Over the short term, high supply in relation to demand clearly favors buyers. However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward."
Total housing inventory at the end of July increased 2.5 percent -- to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace compared with an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.
A parallel NAR practitioner survey shows first-time buyers purchased 38 percent of homes in July, versus 43 percent in June. Investors accounted for 19 percent of sales in July, compared with 13 percent in June; the balance were to repeat buyers. All-cash sales rose to 30 percent in July from 24 percent in June.
What's selling
Single-family home sales dropped 27.1 percent to a seasonally adjusted annual rate of 3.37 million in July from a pace of 4.62 million in June, and are 25.6 percent below the 4.53 million level in July 2009; they were the lowest since May 1995 when the sales rate was 3.34 million. The median existing single-family home price was $183,400 in July -- 0.9 percent above a year ago.
Single-family median existing-home prices were higher in 11 out of 19 metropolitan statistical areas reported in July in comparison with July 2009 (the price in one of 20 tracked markets was not available). However, existing single-family home sales fell in all 20 areas from a year ago.
Existing condominium and co-op sales fell 28.1 percent to a seasonally adjusted annual rate of 460,000 in July from 640,000 in June, and are 24.0 percent below the 605,000-unit level in July 2009. The median existing condo price5 was $176,800 in July, down 1.7 percent from a year ago.
Where they're selling
Regionally, existing-home sales in the Northeast dropped 29.5 percent to an annual pace of 620,000 in July and are 30.3 percent lower than a year ago. The median price in the Northeast was $263,800, up 4.8 percent from July 2009.
Existing-home sales in the Midwest fell 35.0 percent in July to a level of 800,000 and are 33.3 percent below July 2009. The median price in the Midwest was $151,600, down 2.8 percent from a year ago.
In the South, existing-home sales dropped 22.6 percent to an annual pace of 1.54 million in July and are 19.8 percent below a year ago. The median price in the South was $156,300, down 3.3 percent from July 2009.
Existing-home sales in the West fell 25.0 percent to an annual level of 870,000 in July and are 23.0 percent below a year ago. The median price in the West was $224,800, up 3.3 percent from July 2009.
http://www.consumeraffairs.com/news04/2010/08/july_home_sales.html
'Quantitative Easing': What Does It Really Mean for Investors?
By: Jeff Cox CNBC.com Staff Writer
Published: Monday, 23 Aug 2010 | 2:27 PM ET
Investors queasy over whether there's anything that can be done to boost the flagging US economy could get a trillion-dollar answer this week from the Federal Reserve.
When officials from the central bank emerge from this week's Jackson Hole, Wyo., retreat, they will likely disclose the latest in the arsenal of so-called "quantitative easing" measures.
The term has become a regular part of investor vernacular since the beginning of the financial crisis. Primarily, it describes the various measures the Fed has taken and will take to keep money flowing in a recessionary economy—"printing money," as some say.
How the latest steps get implemented likely will be a cornerstone of the address Fed Chairman Ben Bernanke will deliver Friday.
"Traders are going to be paying attention to whether or not he talks about quantitative easing and whether he downgrades the economic projections even more," says Quincy Krosby, strategist at Prudential Financial in Newark, N.J.
"If he does, it's almost a foregone conclusion that he's setting the stage for major quantitative easing," Krosby adds. "There is growing acceptance that if the data continue to deteriorate, the Fed will embark upon major quantitative easing to the tune of perhaps a trillion dollars."
So what does that mean to investors?
Quantitative easing—or "QE" as it has become known—looks to increase money in the economy. For the Fed, the most prevalent tool is the cutting of its funds rate, which in turn pushes other rates lower.
But the Fed can no longer cut rates, as the funds rate is near zero. So it will have to use other measures. The most likely under consideration being the purchase of Treasurys and perhaps other debt-backed instruments, such as auto loans and credit card securities—in the interest of driving down rates and making capital more accessible for consumers and businesses.
How dramatic the changes will be is unclear, but most observers expect Bernanke to be aggressive in guarding against deflation. That will be an important point for investors to remember when the chairman starts talking about QE.
"Part of it's psychological—the Fed's acting like a backstop. They're saying, 'We've got your back,'" says Doug Roberts, chief investment strategist at Channel Capital Research in Shrewbury, N.J. "What you want to do is make sure the Fed's not behind the curve."
But the Fed has done little to assuage market fears lately.
After the last Fed meeting, the market nosedived when it interpreted the Open Market Committee's statement to mean that the central bank was standing pat and would not be providing stimulative measures.
Since then, a variety of regional Fed presidents have delivered marks that have been increasing hawkish on deficits and inflation, providing further uncertainty.
Wall Street, then, likely will want some firm direction from Bernanke about what role the central bank will play going forward.
"Bernanke could cut through much of this confusion—and clarify the views held by the majority on the FOMC—at Jackson Hole," Bank of America Merrill Lynch said in a research note. "Still, that is a long time for the market to hold its ears while the hawks keep squawking."
Should Bernanke provide reassurance, that could pull the market out of the rangebound trading it has seen for much of the summer. The market was at almost the exact level Monday as it was on June 24.
"The goal will be for the Fed to push down yields and help companies and help consumers," Quincy Krosby says. "The issue is how much pushback there will be. Which side will the market take?"
Investors could take another round of Fed Treasury purchases as the cue to keep the improbable bonds rally going.
They could also react to more QE by simply buying stocks, on the notion that more liquidity in the system will be a good reason to boost equity levels at least on a nominal basis. The heightened money supply is often cited as a reason for the massive rally off the March 2009 stock market lows.
But Wall Street likely will need more coaxing by Washington before jumping full-bore back into the stock market.
"Given the concern of what's going on in the economy and the potential for a double-dip, I'm looking for more substance to come out of the executive and legislative branches of government and not necessarily out of the Fed," says Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles.
The primary question from this week's conference, then, seems to be a matter of degree.
"I don't think they're going to make a lot of changes. They're going to continue to say they support the economy and continue to use quantitative easing," says Vern Sumnicht, CEO at iSectors, an ETF-focused investment company based in Appleton, Wisc. "Quantitative easing for the Fed means printing money."
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http://www.cnbc.com/id/38817908
Industrial Production and Death Crosses - Weekly Market Outlook
by Price Headley
Aug 24 2010
Indecision anyone? That's what we all got a plate-full of last week, with a very bullish Tuesday, a very bearish Thursday, and a surprising rebound after what started out to be a pretty rough Friday. All told, the S&P 500 only ended up losing 7.56 points last week (-0.70%) on 'average August' volume, slightly upsetting sure-fire talk that the next apocalypse was just was just around the corner (which it may well be, but it had other plans for the weekend).
We'll lay out the fine details for the index charts below. First, let's dig in with the bigger economic picture.
Economic Calendar
No sense in skirting the key issue - new unemployment claims surged to multi-month highs last week, reaching 500K... the greatest number since November, and a clear question mark for the pending recovery.
We won't deny it's a nasty number. We'll just ask the question nobody else has... how many of those new claims were former census workers? Unemployed is still unemployed, but the answer may offer some perspective on the last several months. Interestingly, continuing clams were a tad lower, to 4.478 million.
New, Initial Unemployment Claims
Elsewhere, we saw healthy stability on the inflation front; producer prices were up about 0.2% - much better than the expected 0.5% dip. No deflation yet.
Housing starts were down to 546K, but better than expected. Building permits were down as well, to 565K, which was worse than expected. Don't over-react though (despite the media's ability to do so), as this is about the time builders start to slow things down for the year.... a convenient fact ignored by the 'crash loving' press.
The rest of the important news was all in the industrial front.... everything from the NY 'Empire' Manufacturing Index to the Philadelphia Fed's leading indictors. Let's call it a mixed bag, tough net-positive. The two 'biggies - industrial production and capacity utilization - rolled in at +1.0% and 74.8%, respectively. Both were improvements, and both were better than estimates. Most importantly, both point to continued economic growth that ultimately fuels bullishness.
Industrial Production & Capacity Utilization
Economic Calendar
As for the coming week, much less is in store, though what we've got on the plate is big stuff.
We'll kick things off on Tuesday with existing home sales; they should be lower. New homes sales will be reported on Wednesday. The pros are looking for flat numbers. Though flat = disaster for homebuilders at this juncture.
We'll also get durable orders numbers on Tuesday, which should be up by 0.5%. Of course, considering the low bar set by June's 0.9% dip, any upside may not mean much, as it will be easy to muster.
Don't sweat Friday's Q2 GDP guesstimate. It's old news anyway (as we near the third quarter), and it's still not the final number. If you want something to worry about on Friday, watch out for the Michigan Sentiment Index instead. Experts are looking for a slight dip.
S&P 500
Like we said above, last week was pretty modest for the market... about a 0.7% dip for the SPX, and a decent 'save' on Friday to leave things off on a not-disastrous note. Unfortunately, that's not going to cut it for the bulls at this point - they need a decisive string of gaining days to reignite last month's bullishness.
Why's that? Because, while the S&P 500 has shown us a couple of glimmers of hope over the last week and a half, we've also come much closer to a couple of the proverbial 'death crosses'.... bearish crosses of key moving averages that suggest a much bigger - and bearish in this case - shift in the market's broad momentum.
Specifically, the 100-day line (gray) is about a day away from falling under the 200-day average (green), while the 20-day line (blue) is just a couple of points away from moving below the 50-day moving average line (brown). Until we see those two problems undone, even solid bullish hints will be tainted.
That being said, at this point we have to reiterate the importance of the ceiling at 1129 (dashed), which has been a key downside reversal level twice for the S&P 500 over the last three months. Getting above those levels may also unwind the brewing death crosses anyway, so mark your charts there until further notice - it will make or break us
By the way, the lower 50-day Bollinger band (2 standard deviations) at 1035 is the next major likely floor for the SPX,
S&P 500
NASDAQ Composite
The bulk of what was said about the S&P 500's chart also applies to the NASDAQ's, and vice versa. So, we'll not waste time or space rehashing the same points here. Rather, we'll point out a couple of the NASDAQ's more unique aspects... like the fact that it actually closed higher last week, by 6.28% (+0.29%). And, it wasn't just Friday's late bounce that pulled off that trick; Tuesday's and Wednesday's strength was still better than Thursday's big dip.
It may seem like a trivial detail on the surface, but given the fact that the NASDAQ generally leads [both up and down], the small victory offers a legitimate glimmer of hope.
On the flipside, and partially thanks to last week's indecision, it's becoming fairly clear that the composite is trading within a range, between 2157 and 2311 (green, dashed). You could actually make a decent case that the lower edge of the range could fall anywhere between 2077 and 2139 (traced by blue lines), but we'll start with a floor of 2157 given last week's action. On both sides of the range, however, the Bollinger bands are starting to squeeze tighter and tighter.
As was the case with the S&P 500, even "a little bullishness" just won't be enough to do the NASDAQ any good. We need to see this index clear all of its key moving averages as well as 2311 before we can feel comfortable with a bullish outlook. Anything less, and it's just too vulnerable to a breakdown.
NASDAQ Composite
http://www.bigtrends.com/articles/weeklyoutlook/13597-industrial-production-and-death-crosses-weekly-market-outlook.html
Debtor's prison or credit control
By Hossein Askari and Noureddine Krichene
Aug 25, 2010
The severity of the ongoing financial crisis has invoked more debate than the run-of-the-mill financial crisis that seems to occur about once every 10 or so years. The suggested reasons for this financial crisis have been many: deregulation, failed supervision, unsupervised non-bank financial institutions, inadequate capital, an extended episode of low interest rates, excessive risk taking; then there is the emergence of a parallel banking sector (the repo market), financial innovations (derivatives), mark-to-market accounting, financial sector consolidation and the emergence of "too big to fail" financial institutions.
There are the shortcomings of the credit rating agencies and especially the conflict of interest in their operations, excessive
assumption of debt and leveraging, increased international capital mobility, and yes, human greed, fraud and Ponzi finance. The list is long and could be lengthened even further.
Depending on which of these reasons one considers the culprit(s), recommendations for reform have also been numerous. But most reforms are little more than a "bandaging" of the current financial system: higher levels of capital, breaking up financial institutions, re-regulation to include all financial institutions, measures to limit risk taking and to increase transparency and more.
But it is difficult to see how any of these changes will eliminate the likelihood of future financial crises. For example, higher capital would reduce bank lending, to create money and to leverage, but there is always the chance that bad loans could still wipe out a bank's capital. And on and on.
The foundational problem is that the conventional banking system is a fractional reserve banking system that is predominantly based on debt financing and, by its structure, creates money, debt and encourages leveraging. The embedded risk of such a system is that its money and debt creation and leveraging could be excessive. Safeguards, such as deposit guarantee schemes, for example, the Federal Deposit Insurance Corporation in the United States, and the classification of some banks as "too big to fail", are the implicit government subsidies that reduce funding cost and create moral hazard, encouraging mispricing and excessive assumption of risk by financial institutions.
Systemic risks inherent in the system, such as the linkages and the interdependencies of institutions as well as the prominence of too large too fail institutions, create financial instability and threaten the entire financial and real economy.
In other words, the financial institutions of today, in particular the commercial banks, create excessive debt. It is this debt that is, in turn, the basis of systemic risk and threatens the financial system. Carmen Reinhart and Kenneth Rogoff have confirmed that in every financial crisis for the last eight centuries and the world over, excessive debt has been the recurring feature. There is only one road to financial stability - adopt policies and practices that eliminate moral hazard and excessive debt creation and leveraging.
One way to ensure the stability of the financial system is to eliminate the type of asset-liability risk that threatens the solvency of all financial institutions, including commercial banks. This requires commercial banks to restrict their activities to two - (i) cash safekeeping, and (ii) investing client money as in a mutual fund. Banks would accept deposits for safekeeping only (as for example in a system with 100% reserve requirement) and charge a fee for providing this service and for check-writing privileges.
In other words, in such a financial system, there would be no debt financing by institutions, only equity financing and risk sharing. Banks would not create money as under a fractional reserve banking system. Financial institutions would be serving their traditional role as intermediaries between savers and investors (affording savers instruments to encourage savings and channeling their savings to the most productive investments) but with no debt on their balance sheets, no leveraging and no predetermined interest rate payments as an obligation.
Proposals along these lines are not new. During the biggest crisis of all, the Great Depression, such an approach was recommended in the "Chicago Plan". This reform plan was formulated in a memorandum written in 1933 by a group of renowned Chicago professors, including Henry Simons, Frank Knight, Aaron Director, Garfield Cox, Lloyd Mints, Henry Schultz, Paul Douglas and A G Hart, and was forcefully advocated and supported by the noted Yale University professor Irving Fisher.
Noting the fundamental monetary cause underlying each of the severe financial crises in 1837, 1873, 1907 and 1929-1934, the Chicago Plan called for a full monopoly for the government in the issuance of currency and forbidding banks from creating any money or near money by establishing 100% reserves against checking deposits. Investment banks that play the role of brokers between savers and borrowers were to undertake financial intermediation.
Hence, the inverted credit pyramid, the high leveraged financial schemes (eg, hedge funds), and monetization of credit instruments (eg, securitization) are excluded. The credit multiplier is far smaller and is determined by the savings ratio instead of the reserves ratio.
More recent than the Chicago Plan, Laurence Kotlikoff in a book published in 2010 has made a proposal along similar lines, coining it "Limited Purpose Banking" (LPB). Henry and Kotlikoff, writing in Forbes, said of this approach: "Were we really serious about fixing our financial system, there's a very simple alternative - Limited Purpose Banking. LPB would transform all financial intermediaries with limited liability into mutual fund companies. Under LPB a single regulatory agency - the 'Federal Financial Authority' - would organize the independent rating, verification, custody and full disclosure of all securities held by the mutual funds. Voila, by dint of competition and transparency, 'liar loans', off-balance sheet gimmickry, and toxic assets would all disappear. LPB would let the financial sector do only what Main Street needs it to do - connect lenders to borrowers and savers to investors. The financial sector's job is not to take taxpayers to the casino and collect the winnings."
There are many reasons why reform along this, or similar lines, has not entered the political and financial mainstream until the recent financial turmoil. For starters, there is the opposition of the powerful financial sector. The lobbying of the financial sector against fundamental financial reform in the United States is well documented and its interest is evident. Starting in the 1970s, the financial sector has now gained relative to the real sector, as measured by its growing share of gross domestic product, aggregate corporate profits and salaries and bonuses. The financial sector will not readily give up activities and instruments that have allowed it to establish such a dominant position and to accumulate such gains.
A second popular concern is the "assumed" impact on economic growth and prosperity if debt financing is significantly reduced or eliminated. Although most observers attribute a significant role to the explosion of debt and leveraging in bringing about financial crises, at the same time some argue that the reduction, let alone elimination, of debt financing and bank money creation would reduce economic growth.
This is an empirical issue that deserves careful estimation - how would growth over the long haul compare under each regime? And what would be the attendant social benefits and costs under each regime? While many have prejudged the result, we are not sure that booms and busts are superior to steady growth.
A third reason for inaction on fundamental reform is that politicians are by nature and temperament "incrementalists", always with an eye on the next election. Given the lobbying of the financial sector, politicians invariably put off wholesale and fundamental reforms until they have no other option.
Henry and Kotlikoff (2010) judge the recently adopted Dodd-Frank Bill and provide their reason why fundamental reform may have been sidestepped yet again: "This kind of 'cowboy capitalism' is far too dangerous to maintain. But Dodd-Frank does precisely this, albeit with many more regulatory cops on the beat. In contrast, LPB would put an end to Wall Street's gambling with taxpayer chips. Since mutual funds are, in effect, small banks with 100% capital requirements in all circumstances, they can never fail. Neither can their holding companies.
"Under LPB, financial crises and the massive damage they inflict on the entire (global) economy would become a thing of the past. Of course, there would be losers. Some Wall Street executives might have to find employment in Las Vegas or offshore banks. Some lobbyists, lawyers, credit analysts and accountants might need to find higher callings. Some politicians might even have to solicit more support from Main Street. Alas, Dodd-Frank bears no resemblance to Limited Purpose Banking. But bad laws don't always last, and this one may eventually lead us to LPB by showing us precisely what not to do - if we ever get another chance."
While the Chicago Plan or LPB are two approaches to alleviate financial booms and busts, Islamic teachings long ago recommended a similar financial system, incorporating equity financing (risk sharing) and prohibiting debt financing, its attendant interest payments and the risks that accompany excessive debt creation and leveraging; in other words a two-tiered banking system, one that handles deposits for safekeeping only and the other that acts much like an investment bank.
These investment banks invest directly in real projects with investor capital as well as with their own capital, and share directly in the risks of the project. They invest directly in every segment of the economy (except activities that are prohibited, such as gambling and alcohol).
Call reform along these lines whatever you wish as the name is unimportant. But what is important and undeniable is that effective reform must limit debt creation. Otherwise, recurring episodes of excessive debt creation will put countries in debtors' prison with no possibility of avoiding financial and economic crises that keep on coming with regular frequency.
Hossein Askari is professor of international business and international affairs at George Washington University. Noureddine Krichene is an economist with a PhD from UCLA
http://www.atimes.com/atimes/Global_Economy/LH25Dj02.html
Book-To-Bill Ratio of 1.23
Source: SEMI
August 19, 2010
North American Semiconductor Equipment Industry Posts July 2010 Book-To-Bill Ratio of 1.23
SAN JOSE, Calif. – August 19, 2010 – North America-based manufacturers of semiconductor equipment posted $1.83 billion in orders in July 2010 (three-month average basis) and a book-to-bill ratio of 1.23, according to the July 2010 Book-to-Bill Report published today by SEMI. A book-to-bill of 1.23 means that $123 worth of orders was received for every $100 of product billed for the month.
The three-month average of worldwide bookings in July 2010 was $1.83 billion. The bookings figure is up 5.9 percent from the final June 2010 level of $1.73 billion, and is 220.4 percent above the $571.8 million in orders posted in July 2009.
The three-month average of worldwide billings in July 2010 was $1.49 billion. The billings figure is up 1.8 percent from the final June 2010 level of $1.47 billion, and is 177.6 percent above the July 2009 billings level of $538.0 million.
"The July report shows continued momentum in the market for new semiconductor manufacturing equipment," said Stanley T. Myers, president and CEO of SEMI. "While there are some questions about the semiconductor industry sustaining its strong growth trends in the second half of this year, bookings for new equipment continue to increase and are at the highest levels recorded since January 2001.”
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_039538?id=highlights
Bank Failures #115 to #118: California
by CalculatedRisk
Friday, August 20, 2010
From the FDIC: Rabobank, National Association, El Centro, California, Acquires All the Deposits of Two Banks in California
As of June 30, 2010, Butte Community Bank had total assets of $498.8 million and total deposits of $471.3 million; and Pacific State Bank had total assets of $312.1 million and total deposits of $278.8 million. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Butte Community Bank will be $17.4 million; and for Pacific State Bank, $32.6 million. ... These closings bring the total for the year to 116 banks in the nation, and the seventh and eighth in California.
From the FDIC: Pacific Western Bank, San Diego, California, Assumes All of the Deposits of Los Padres Bank, Solvang, California
As of June 30, 2010, Los Padres Bank had approximately $870.4 million in total assets and $770.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.7 million. ... Los Padres Bank is the 117th FDIC-insured institution to fail in the nation this year, and the eighth in California.
From the FDIC: Westamerica Bank, San Rafael, California, Assumes All of the Deposits of Sonoma Valley Bank, Sonoma, California
As of June 30, 2010, Sonoma Valley Bank had approximately $337.1 million in total assets and $255.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $10.1 million. ... Sonoma Valley Bank is the 118th FDIC-insured institution to fail in the nation this year, and the ninth in California.
Eight down today.
http://www.calculatedriskblog.com/2010/08/bank-failures-115-to-118-california.html
Caught In A Synthetic World
Cornerstone Investment Services
08/09/2010
http://www.cornerstoneri.com/PDFs/White/Synthetic.pdf
Economic Weakness Accelerating
Comstock Partners, Inc.
August 19, 2010
It becomes clearer every day that the economy is headed for a renewed recession or a recovery so slow it will seem like one. Initial unemployment claims climbed to 500,000 last week for the first time since November while the Philadelphia Fed index dropped below the zero line for the first time since July 2009. This follows a pattern of generally softening economic data over the last two or three months.
As we have long expected, the economy is tracing out a trajectory typical of a balance sheet induced recession rather than the garden-variety inventory recessions typical of the period since the end of World War ll. In a balance sheet recession the dire effects of debt deleveraging overwhelm the efforts of the government to stimulate the economy as is happening now, and the economy undergoes a lengthy period of deflation, sub-par recoveries and frequent slowdowns as the U.S. experienced during the 1930s and Japan over the last 20 years.
While the massive stimulative measures undertaken by the Fed, Congress and the White House have succeeded in averting a financial collapse, they are being more than offset by the deleveraging now taking place. The effects of inventory replenishment are winding down without any other major drivers to sustain growth. Typically a new economic expansion is led by inventories, consumer spending, employment, housing and readily available credit. This time only inventories have performed their usual function, meaning that the economy has been acting on only one of five cylinders.
The Fed has already used all of its conventional weapons and will undoubtedly resort to untried unconventional measures with unknown outcomes and the possibility of unintended consequences. The most likely measures will probably be further large purchases of Treasury securities and mortgage bonds together with a ceiling on Treasury bond yields as outlined in Chairman Bernanke's famous 2002 speech that earned him the nickname "Helicopter Ben". This is commonly referred to as quantitative easing or QE2. We doubt, however, that this will have any more effect than QE1 as it would be more than offset by debt deleveraging in the private sector.
We also believe that the market is currently too complacent about the global economy. China is attempting to prevent a bubble by engineering a soft landing that will at best result in a substantial slowing of imports, and at worst a full-fledged recession as often happens when governments aim for soft landings. Japan, too, is undergoing renewed economic weakness following two decades of deflation and minimal growth. Europe is going through a short period of temporary calm after the EU and the IMF threw a lifeline to the struggling southern tier. However, the authorities have failed to deal with the underlying structural debt problems that will continue to be a major problem while the austerity measures that that are being implemented will be a major drag on the various economies.
For example the German magazine, Der Spiegel points out that the austerity measures applauded by the EU are already having dire effects on the Greek economy. The Greek government has reduced its budget deficit by an astounding 39.7% and spending by 10%. This has had a drastic effect on income, consumption, employment and bankruptcies, leading to a "mixture of fear, hopelessness and anger". According to the article another wave of layoffs is likely in the fall and this could have "extreme social consequences." Such an outcome could come as a severe shock to a U.S. market that has factored in a quieter Europe.
In sum, we believe that the market is still discounting a continued U.S. recovery as well as a supportive global economy. In the current climate such hopes are likely to be disappointing and corporate earnings estimates for 2010 and 2011 will probably be revised down sharply. The market peaked in late April and is now trending down amid a lot of volatility.
http://www.comstockfunds.com/default.aspx?MenuItemID=29&&AspxAutoDetectCookieSupport=1
Western Economies Face Hyperinflation: Gold Bull
By: Antonia Oprita, Web Producer, CNBC.com
Published: Thursday, 19 Aug 2010 | 8:09 AM ET
The decline of the Western economic model will bring about hyperinflation and decades of painful readjustment, Egon von Greyerz, founder of gold investment intermediary Goldswitzerland.com told CNBC Thursday.
Fear of inflation causes investors to take refuge in gold. However, another analyst told CNBC that buying gold now is as pointless as the rush to buy tulips was in the 1630s.
From 1971, when President Richard Nixon's administration decided to take the dollar off the gold standard, economic growth in the Western world has been spurred by a massive increase in credit, according to von Greyerz.
The US debt increased from $9 trillion in 1971 to $59 trillion currently, while nominal gross domestic produce rose only from $1.1 trillion to $14.5 trillion in the same period, according to a research paper written by von Greyerz.
"The wealth that has been created in the last 40 years is not due to good times. The good times were created by credit creation," he said.
In 2008 and 2009, after the beginning of the world financial crisis, governments worldwide issued or guaranteed a total of about $20 trillion, von Greyerz estimated.
This gave a temporary boost to stock markets but "none of the problems in the banking systems have been solved, the toxic assets are still there, derivatives are still there," he said.
This burst determined by cash injections "had no effect on ordinary people," as 8 million became unemployed in the US and government deficits went up all over the world, von Greyerz added.
But central banks are going to keep resorting to printing money, causing hyperinflation, because the alternative will be a deflationary collapse in which debts owed to banks will not be paid, he said.
"It's simple. Just take this current year. Sovereign states worldwide need to issue around $5 trillion debt to finance deficits… where's that money going to come from?" he said.
"Clearly, as I see it, the long trends are now a structural decline of the West which will last a long time, and the East will be the coming economy," von Greyerz said.
However, in the short term countries like China and India will suffer because their economies are linked to the Western ones, he added.
The price of gold has risen as a consequence of money printing, not because of the metal's intrinsic value, von Greyerz said.
"Clearly, paper money has now lost its function as a store of value and medium of exchange. Gold [XAU=X 1226.95 -0.75 (-0.06%)] is just a stable medium of exchange that is reflecting the printing of money… when this trouble is over, we will have a reserve currency that will have gold as part of it," he said.
"Gold in itself has no value… gold reflects a stable value."
http://www.cnbc.com/id/38767004
Why does the Mint keep pumping out $1 coins when few are buying in?
By Michael Zielinski
Friday, August 20, 2010
How many $1 coins have you seen in circulation?
Since the Presidential $1 Coin Program launched in 2007, I have received just one during a commercial transaction. The cashier apologized profusely while passing me a tarnished coin bearing a likeness of John Quincy Adams. She told me she just wanted to get rid of it.
The Presidential $1 Coin Program is the federal government's latest attempt to create a circulating $1 coin. To give the series the best possible chance of success, the authorizing legislation provided numerous measures to increase awareness and remove barriers to circulation.
By and large these measures have failed, as Americans continue to embrace paper currency. Louise L. Roseman, director of the division of reserve bank operations and payment systems, told Congress last month that "transactional demand for $1 coins has not increased materially since the start of the Presidential $1 Coin Program and overall demand continues to come primarily from collectors."
Despite the lack of demand, the U.S. Mint has produced approximately 2 billion of the golden-colored $1 coins, with production continuing at about 500 million coins per year. This includes the four different $1 coins released each year featuring former presidents, plus one more annual design for the separate Native American $1 Coin Program.
As of May 31, the Federal Reserve Banks had nearly 1 billion $1 coins stockpiled in their inventory. The amount continues to grow with each $1 coin released and is expected to reach 2 billion by the end of the program.
The obvious question is: If there is little transactional demand for the coins and an enormous stockpile already exists, why does the Mint continue to produce the coins in such great quantities?
The answer has to do with a legislative requirement of the coin program that was intended to ensure an adequate supply for commerce. By law, the Board of Governors of the Federal Reserve System must ensure that each design of the presidential $1 coin series released is available to financial institutions during an introductory period. To meet this requirement, the reserve banks are compelled to order new $1 coins from the Mint four times per year. The Mint diligently produces these. Quantities of the new $1 coins ordered by the Federal Reserve and not requested by financial institutions, as well as quantities that are ordered and then redeposited, continually add to the reserve banks' inventory of $1 coins.
The legislation behind the separate Native American $1 Coin Program requires that these coins be produced in a quantity equal to at least 20 percent of all dollar coins for each year. Thus, production of this additional $1 coin series is based on the inflated demand for the other series.
The required production of Native American $1 coins created a different problem. Since the Federal Reserve was not required to order the coins, the Mint was stuck with them. Conveniently, the Mint created the Circulating $1 Coin Direct Ship Program, which allows individuals and businesses to order the coins at face value with no charge for shipping and handling.
Last year, the Mint distributed $121 million of the $1 coins through the direct-ship program. Unfortunately, a potentially significant portion of this amount may have been related to artificial demand created by people taking advantage of the program. Many people purchased the coins at face value with their credit cards, earning valuable rewards points, and then deposited the coins at their local bank, recovering the full cost. (The Mint has since worked to curb such abuses.) Once deposited, many of these $1 coins were probably returned to the reserve banks, since financial institutions would have little need to keep them on hand.
Meanwhile, the Mint has been generating substantial "profits" from the production and stockpiling of unnecessary $1 coins. Each time a manganese brass disc of metal gets stamped into a legal-tender dollar, the Mint earns seigniorage based on the difference between the costs of production and the face value. In the most recent fiscal year, seigniorage earned through the production of $1 coins was $318.7 million, accounting for 63.5 percent of the Mint's total seigniorage and net income. It's a strange overlap of legislative requirements and unintended consequences that created this unnecessary but "profitable" product of the U.S. government.
Consider that the next time you see a $1 coin in circulation, if it happens.
Michael Zielinski is editor of Coin Update, a Web site on coin collecting, and author of Mint News Blog.
http://www.washingtonpost.com/wp-dyn/content/article/2010/08/19/AR2010081905459.html?tid=nn_twitter
Egg Recall Expands: How To Tell Good From Bad
CBS Broadcasting Inc.
Aug 19, 2010 5:30 am US/Pacific
Carton Codes Deciphered: How to tell where your eggs came from
(CBS News) Hundreds of people have been sickened in a salmonella outbreak linked to eggs in three U.S. states and possibly more, and health officials on Wednesday dramatically expanded a recall to 380 million eggs.
The eggs in question came from the Wright County egg distributor in Iowa and have been distributed nationwide since May, reports CBS New medical correspondent Dr. Jennifer Ashton.
The key information for consumers to look for is the plant number, which is displayed at the side of the carton, Ashton said. The numbers to avoid are 1026, 1413 and 1946. (The numbers are preceded by the letter "P." See photo at left).
Ashton said that symptoms of salmonella, which is the most common bacterial food-borne illness in the country, range from fever to abdominal cramps to diarrhea. They usually present within 12 to 72 hours after exposure.
A lot of salmonella cases are underreported and most go away on their own. But if symptoms persist, Ashton advised seeing a doctor.
The Centers for Disease Control and Prevention is working with state health departments to investigate the illnesses. No deaths have been reported, said Dr. Christopher Braden, a CDC epidemiologist involved in the investigation.
Initially, 228 million eggs were recalled but that number was increased to the equivalent of nearly 32 million dozen-egg cartons.
Minnesota, a state with some of the best food-borne illness investigators in the country, has tied at least seven salmonella illnesses to the eggs.
Other states have seen a jump in reports of the type of salmonella. For example, California has reported 266 illnesses since June and believes many are related to the eggs. Colorado saw 28 cases in June and July, about four times the usual number. Spikes or clusters of suspicious cases have also been reported in Arizona, Nevada, Illinois, Texas and Wisconsin.
(© 2010 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
http://cbs5.com/consumer/egg.recall.salmonella.2.1869449.html
Double Dip? A Tipping Point May Be Near
By JEFF SOMMER
Published: August 14, 2010
LIKE a car spinning its wheels, the American economy hasn’t been getting much traction. Many financial indicators are issuing worrisome signals, millions of people are still out of work, and growth is slowing.
Will the economy pick up momentum or slip back into recession? Unfortunately, the answer is very much in doubt.
“We are at a very critical moment in the business cycle,” said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute, a private forecasting group with an excellent track record. After the economy began to recover last summer, in his estimation, “growth has definitely slowed.” But he said he wouldn’t have enough data until at least the fall to know “whether we’re dipping back into recession.”
Even the Federal Reserve chairman, Ben S. Bernanke, calls the current economic outlook “unusually uncertain.” And the financial markets have certainly noticed.
“The market is favoring investments thought to have no risk, like Treasuries, as opposed to assets with risk, like stocks — and that’s been becoming more and more pronounced,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco, the big bond manager.
In the bond market last week, safety-seeking investors bid up the prices of Treasury securities, driving down yields to extraordinarily low levels along a broad range of maturities — and extending the astonishing rally of long-term Treasury bonds, which continue to outperform the stock market and nearly every other asset class.
For the year, for example, long-term Treasuries have returned more than 15 percent, as gauged by the Barclays Capital U.S. 20+ Year Treasury Bond index. By comparison, the Standard & Poor’s 500-stock index has lost more than 2 percent, including dividends. And over the decade through July, long-term Treasuries outperformed the S.& P. 500 by more than 8.6 percentage points, annualized, according to Morningstar data.
The stock market was particularly shaky last week. On Wednesday, the Dow Jones industrial average dropped 265.42 points, or 2.5 percent, its biggest decline since June. For the week, the Dow lost more than 350 points, or 3.3 percent, closing at 10,303.15, while the S.& P. fell more than 42 points, or 3.8 percent, to 1,079.25.
This preference for bonds over stocks, which has emerged periodically since the financial crisis began in 2008, came into high relief after the Fed’s announcement on Tuesday that it would recycle the proceeds of its mortgage bond portfolio into Treasuries.
Considering the Fed balance sheet — now approximately $2.3 trillion, up from $900 billion before the financial crisis — the central bank’s latest move was modest. It will translate into $200 million to $400 million in purchases of Treasuries over 12 months, according to an estimate by Bank of America Merrill Lynch. But it was the direction the Fed was taking — its decision to maintain an expansive monetary policy through “quantitative easing,” rather than to begin monetary tightening — that was most striking.
“Ben Bernanke’s motto seems to be that he will do whatever it takes to avoid a depression and avert deflation,” said Edward Yardeni, president of Yardeni Research. “He has been very successful so far,” lowering interest rates along the yield curve and thereby stimulating the economy.
The Fed may need to go it alone over the next several months, several analysts said, because with midterm elections approaching, additional fiscal stimulus legislation may be too controversial.
Mr. Achuthan of the Economic Cycle institute said a weakening in the economy’s growth rate began to appear in the institute’s leading indicators early in the winter. “Now, that slowdown is baked in the cake, it’s already happening,” he said.
The Fed acknowledged as much last week. In a statement on Tuesday, its Open Market Committee said that the recovery pace had “slowed” and that growth “is likely to be more modest in the near term than had been anticipated.”
It’s too early to know whether the economy will tip into an actual decline, Mr. Achuthan said. The institute’s Weekly Leading Index ticked up again on Friday, after a steep plunge through late June. It’s possible that the Fed “will be able to use its influence” to engineer a soft landing and avert another, immediate recession, he said. In September or October, he said, there may be more clarity.
MR. GROSS of Pimco said the growing American trade deficit — it jumped to $49.9 billion in June, its highest level since October 2008, according to a report on Wednesday — is cutting into the G.D.P., “implying that second-quarter G.D.P. is going to be in the 1 to 2 percent range.” In turn, he said, “that implies that the momentum of the economy from the first to the second quarter was downhill, and therefore we think “it’s quite possible that we might actually be somewhere between zero and 1 percent — in other words, very close to a double-dip recession.”
He put the probability of a recession — and of an accompanying bout of deflation — at 25 to 35 percent.
Still, the economic signs are ambiguous. After falling in the spring, industrial commodity prices have risen, suggesting that there is still surging demand from manufacturers. Shipping indexes, which had declined, have ticked upward again over the last month. Mortgage rates are dropping. And thanks in large part to fierce cost-cutting, very low interest rates, and strong demand in developing countries, corporate profits have been strong.
What’s been lacking is broad consumer demand, a revival of the housing market and sufficient business confidence in large-scale hiring. And, of course, there are deep structural economic problems — the highest ratio of public debt to gross domestic product since World War II, for example — that will need to be dealt with over many years.
Nonetheless, if there is good news in the fall — if it becomes clear that the pace of recovery has begun to accelerate — there could easily be another burst of stock market exuberance, Mr. Achuthan said. “Interest rates are very low,” he said, “and if you were to combine that with economic growth, you’ve got a wonderful recipe for profits.”
In the meantime, Mr. Gross said, with the Fed funneling money into Treasuries, the improbable rally in the bond market may still have a way to go.
http://www.nytimes.com/2010/08/15/business/economy/15stra.html?src=busln
Banks Will Still Profit in this Faltering Economic Recovery
by Bob Chapman
August 18th, 2010
The objectives of Keynesian economics, keeping the profits of banks intact, treasury and fed want to keep gold down, reconsider the recovery, weapons sale to Saudi, and other failures in economic and fiscal judgement.
When government interferes with free markets they cease to work properly. Measures that interrupt and manipulate distort markets on a short to intermediate basis, but the final result is never in doubt. Things are altered but only little changed. What is serious about intervention is that it breaks the social and political contract between government and the people. This is the type of social engineering and pragmatism espoused by John Maynard Keynes, which brings us to where we are today. If Keynes were still alive he would witness the failure of the system, he was instrumental in creating it. Keynesianism is in part economic theory, but its real goal is the social-governmental manipulation of markets intended to concentrate government power in the hands of the corporate few producing corporatist fascism as the final economic and financial power under such a system and the final implementation, which ends in the brute force and the manipulation of laws for its completion, which is totalitarian government.http://en.wikipedia.org/wiki/Keynesian_economics
Keynesianism is part of the quest for power, commercial and political, which was attempted in Italy and Germany in the 1930s and 1940s. You might say this was the modern testing ground, financed and abetted by internationalists sources in London and New York. When these sources attempted to ensconce General Smedley Butler as the American president in the early 1930s, and he understood what they were up too, he ended his relationship with the crypto-fascist government, which at that time was in the process of being forced on the American public. Thus, this economic and financial theory of Keynes was part of the rise of corporatist fascism. His ideas and those of others were never able to capture the imagination and following of the American people, thus today it is being forced upon them. The theory is we know better what is good for the people than they do. This allows the elitists to control political power by controlling both major parties from behind the scenes. People do not want this kind of government and do not willingly embrace it. As a result it has to be forced upon them by using economics, politics or the distortion of the law. Thus, we see the pragmatic rise of Keynesianism as an integral part of the effort to bring about total dictatorial power on a scale only previously attempted during the reign of the Roman Empire. This fellow Americans is what is being done to you, your country and your culture.
Each passing day more and more observers come to the conclusion that there has not been and will not be a recovery in the sense that they believed there would. The proof is the actions the Fed has taken to use additional monetary easing and to continue zero interest rates. We forecasted such events some six weeks before they occurred and believe the Fed will have to inject some $5 trillion over the next two years just to keep the economy going sideways.
As Treasury Secretary Geithner assures us of recovery, Mr. Bernanke assures us that enough stimulus will be added to achieve that recovery. As this transpires the economy falters. We can promise you this all has little to do with the economy, which is an after thought and everything to do with keeping the profits of financial institutions in tact and growing. The stimulus is upon us.
Not only is the Fed going to purchase Treasury and Agency paper with the interest they have received from the CDOs and MBS they purchased from mostly financial institutions, but also they intend to sell that paper back to the sellers. The Fed refuses to tell us what they paid for this toxic garbage, so we will assume it was 70% of the face value. They will now sell these bonds back to the lenders for 25% of face value. The American taxpayer gets to pay the difference. The lenders make out like bandits and the Fed will have cleared its books of what was $1.8 trillion of assets at $1.35 trillion. Ostensibly, the Fed will use those funds to purchase Treasuries and Agencies.
In addition the banks are sitting on $1 trillion plus, which they borrowed from the Fed at zero interest rates and then lent back to the Fed at 2-1/2%. We believe that interest rate will either be reduced or eliminated. The banks can either return the funds or lend them. Under the fractional banking system that can be at any multiple. Lending nine times assets is considered normal. The banks presently are committed for an average of 40 times. Even at five times they can lend $5 trillion if they can find borrowers. A combination of purchases by the Fed and lending by the banks will furnish the required liquidity needed to keep the economy stable, albeit temporary, for the next two years. We believe this is the Fed’s plan, which we exposed a number of weeks ago, while most experts were sleeping. The insiders know and we watched what they were doing and in their greed they exposed the entire plan.
The flip side of the plan is that monetization causes inflation and in this case perhaps hyperinflation. That infusion of capital could keep the stock market at an unreasonably high level, as it is assisted as well by zero interest rates. The great danger is higher gold and silver prices, an indication of higher inflation and loss of purchasing power. That is why, over the past 15 years, the Treasury has manipulated and suppressed gold and silver prices, via the “President’s Working Group on Financial Markets.” The Treasury and the Fed do not want gold and silver prices higher because they reflect the destruction of buying power for US dollar users. This is the game being played and the inside players know they will have to face the music in two years. They will either have to repeat the performance or deflationary depression will take over and swallow the system. It should also be noted that the Treasury via Fannie Mae, Freddie Mac, Ginnie Mae and the FHA has been guaranteeing trillions of dollars in subprime loans, knowing full well that next year those loans have to be rewritten and rolled - as much as 50% could fail. That and the poor economy could bring 20 to 30 percent lower real estate prices over the next several years further depleting the wealth of Americans and causing more massive losses for taxpayers. Many of those packages of loans were also again sold to investors who will be taking losses. If you mix in the losses in commercial real estate you have quite a rancid kettle of fish. This does not present a very encouraging future.
Some view the Fed’s intention to reinvest cash receipts from the CDO-MBS portfolio into Treasuries as no big deal. What the Fed does not tell you is what else they are doing. That is what counts and that is the difference. Can you recall your TARP commitment via AIG that was used to bail out banks, brokerage houses and foreign financial entities? That was a state secret until the Fed was forced to reveal what they had done. Some $112.5 billion went to foreign banks. Thus, the Fed cannot be counted on for any element of truthfulness.
There is no exit strategy and that now is very obvious, at least from a conventional viewpoint. If economists, analysts and strategists understood what this is all about their viewpoints would change dramatically. This crisis just didn’t happen – it was created. Eventually the people behind the curtain will pull the plug and those inside the matrix won’t know what hit them.
The $5 trillion the Fed intends to inject into the system over the next two years, or whatever is necessary, is the signal that tells you the plug is not ready to be pulled, at least not for now. They have to get their next war going first.
The Fed well knows that more and more liquidity is no solution. That has been proven over and over again in history. It has again been proven over the past three years.
We just witnessed another phony market rally based on inside information that the insiders used to best advantage. The elitists ran up the dollar again in another futile attempt to pad the dollar’s value before people realized that excess liquidity could only weaken the dollar. The gold and silver suppression team did its best to smother gold and silver, but was unsuccessful again. We have never seen so many economists, analysts and newsletter writers be so wrong. Being wrong must be a communicable disease.
Treasury paper is at record lows as investors scramble for perceived safety. The manipulation of gold, silver and commodities just gives opportunists the opportunity to buy cheaper. The dollar rally will soon end and gold and silver will move higher – even Goldman thinks so. The hearts of our monetary and fiscal systems are sick and only a purge will make them well again. The longer the inevitable is postponed the worse it is going to be.
Our purchased Congress has again put the fox in charge of the henhouse in the Wall Street Reform and Consumer Protection Act, which will be privately funded by the foxes and not by Congress. The legislation anoints the Federal Reserve as a financial potentate, a financial and monetary dictator that will effectively run America. The vagueness of the legislation is such that its powers are virtually unlimited. This is a far cry from Ron Paul’s legislation to audit and investigate the fed. It proves how powerful banking and Wall Street really is. Via campaign contributions and other artifices, they control most of our elected representatives. They even have a new agency to protect consumers, which is certainly ludicrous. While supposedly protecting consumers the Fed is creating trillions of dollars out of thin air that these same consumers are responsible for. Americans are as well responsible for the losses incurred by the FDIC. Before this depression is over Americans will be enslaved to debt, debt so overwhelming that it can never be paid, and will enslave Americans permanently.
The step that the Fed is engaged in now is a major continuation of quantitative easy, which will be followed by propaganda to make banks lend trillions of dollars and for American consumers and business to borrow to keep the economy running and to pile up more debt. We are skeptical that individuals and business will take the bait. Government programs are now being discussed to refinance toxic waste, known as CDOs and MBS. We explained earlier that the Fed wants to repackage MBS debt obtained from the same banks at $0.70 on the dollar and resell it to them for $0.30 on the dollar. The public pays the difference and the Fed frees up money on its balance sheets. This way on a fractional basis they can lend additional funds and along with bank lending create enough liquidity to keep the financial system from collapsing. The government, or should we say the taxpayer, is guarantying all this debt. All that is left is to get people to stop saving and to start piling up debt again. This is the thinking behind stimulus as opposed to austerity and higher taxation, as currently being practiced by Europe and England. The powers behind government in America are going for broke. If what they are doing doesn’t work, the US financial system goes down and the world financial system with it.
Thus far what the government has done hasn’t worked. If you take the probable growth of 1.3% to 2.4% in the second quarter and you subtract 1.7% from the stimulus, you come out with virtually no real growth. In fact, for the past year and a half there was little or no growth; perhaps minus growth. If the Fed doesn’t get stimulus into the system again quickly it will be too late. The downward spiral has already begun - shipments, new orders, wages and capacity utilization are already falling off a cliff. This problem is also affecting former very strong areas of the country.
Those who believe a recovery is on the way had best examine their premises. The Fed, Wall Street and banking intend to buy two more years. If they are successful inflation will elevate substantially and the only place to find safety will be in gold and silver related assets. A word to the wise should be sufficient.
Last week saw the Dow fall 3.3%, the S&P 3.8%, the Russell 2000 fell 6.3% and the Nasdaq 100 fell 4.4%. Transports fell 5.7%; cyclicals 5.6%; utilities 2.4%; high tech fell 5.9%; semis 8.2%; Internets 3.9% and biotechs 3.4%. Gold bullion gained $10.00, the HUI fell 1.3% and the USDX rose 3.1% to 82.92.
Two-year Treasury bills were 0.51%, 10-year notes fell 14 bps to 2.68% and the 10-year German bund fell 13 bps to 2.39%.
The Freddie Mac 30-year fixed rate mortgage fell 5 bps to 4.44%, the 15’s fell 3 bps to 3.92%, one-year ARMs fell 2 bps to 3.53% and 30-year fixed rate jumbos fell 8 bps to 5.37%.
Fed credit fell $142 billion, as Fed foreign holdings of Treasury debt jumped another $10.6 billion to a record $3.164 trillion. Custody holdings for foreign central banks have increased $209 billion YTD and 12.4% YOY.
M2, narrow, money supply rose $16.9 billion to $8.636 trillion. YTD they fell $475 billion, and YOY $771 billion, or 21.5%.
Total commercial paper rose $8.6 billion to $1.105 trillion. CP has declined $65 billion, or 9% annualized YTD, and is up $31 billion YOY.
At least a dozen major drug and device makers are under investigation by federal prosecutors and securities regulators in a broadening bribery inquiry into whether the companies made illegal payments to doctors and health officials in foreign countries.
In the United States, companies routinely hire doctors as consultants to market drugs and devices to their colleagues and other health professionals at medical conventions and small gatherings. Such consulting arrangements are generally legal in the United States.
But in much of the rest of the world, doctors are government employees. And even consulting arrangements that would be considered routine in the United States might violate the Foreign Corrupt Practices Act, particularly if the payments are outsize or the arrangements are not disclosed.
US brokerages want to weigh in on how much the Financial Industry Regulatory Authority pays its senior executives and urged the watchdog to hire outsiders to investigate its ties to convicted money manager Bernard Madoff.
Securities dealers backed say-on-pay after Finra’s 20 top managers received a combined $29.1 million in 2008, the industry-funded regulator said yesterday in a statement disclosing voting results from its annual meeting. The pay proposal and the demand that Finra conduct an independent study of Madoff are nonbinding, meaning they can be ignored by the board.
“The board of governors continually reviews Finra’s policies and practices in order to ensure they support its mission to protect investors and the integrity of our markets,’’ Finra said in the statement. “The board will carefully review each of the proxy proposals beginning at its next meeting.’’
Elton Johnson Jr., the president of Moreno Valley, Calif.- based Amerivet Securities Inc., submitted the proposals and campaigned for them after complaining that Finra’s executives are overpaid.
Of brokerages that cast ballots, more than 71 percent supported the provision that would give them an annual vote on the compensation of Finra’s five highest-paid executives. More than 68 percent supported the Madoff probe.
Finra, which is overseen by the Securities and Exchange Commission, gets its funding from the 5,000 brokerages it regulates.
The managers whose pay Johnson has questioned include SEC chairwoman Mary Schapiro, who received $3.26 million in 2008 while serving as Finra’s chief executive.
Another nonbinding proposal approved by Finra members was a mandate that the watchdog disclose investment transactions.
A proposed US weapons sale to Saudi Arabia of F-15 fighter jets also includes as many as 132 Apache attack helicopters and UH-60 Black Hawk helicopters that bring the total value of the package to around $60 billion, according to a government official familiar with the plan.
“Wall Street banks are creating the ‘next investment bubble’ by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen, managing director of Institutional Risk Analytics. Using the same ‘loophole’ that allowed over-the-counter sales of collateralized debt obligations and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates… ‘The only trouble is that the firms originating these ersatz securities, as with the case of auction-rate municipal securities, have no obligation to make markets in these OTC structured assets or even show clients a low-ball bid,’ Whalen wrote.”
The Pentagon and State Department about two weeks ago informally notified congressional committees that handle arms sales of the planned transaction, the official said.
“I think it would be the largest ever,’’ said William Hartung, director of the New York City-based New America Foundation’s Arms and Security Initiative.
“Other deals that used to be considered large,’’ like the $9 billion sale of 72 F-15s to the Saudis in 1992-93 or the kingdom’s $9 billion acquisition of AWACS surveillance aircraft in 1981, “aren’t even in the ballpark, even allowing for inflation,’’ Hartung said.
The package includes 84 F-15s at a cost of $30 billion and helicopter sales totalling about $30 billion that include spare parts, training simulators, long-term logistics support, and some munitions.
The Saudis would buy about 72 UH-60 Black Hawk helicopters and as many as 60 AH-64D Longbow Apaches, the official said. The Longbow is the Army’s premier antitank helicopter, capable of firing laser-guided or all-weather missiles. The Longbows are in addition to 12 that Congress in 2008 cleared Boeing to sell to the Saudis.
The proposal fits the Obama administration’s strategy of buttressing the defense capabilities of Middle East allies to counter Iran’s growing offensive missile might and suspected nuclear weapons program.
It would be part of the Gulf Security Dialogue started by the Bush administration. The Longbow Apache has been sold to Egypt, Israel, Greece, Kuwait, the United Arab Emirates, the Royal Netherlands Air Force, Singapore, and Taiwan.
The Pentagon intends to formally notify the Senate and House foreign affairs panels by mid-September, the official said.
A federal appeals court yesterday threw out a decision that had barred Congress from withholding funds from ACORN, the activist group ruined by scandal and financial woes.
The ruling by the US Court of Appeals for the Second Circuit in Manhattan reversed a decision by a district court judge in Brooklyn that found Congress had violated the group’s rights by punishing it without a trial.
Congress cut off ACORN’s federal funding last year in response to allegations that the group engaged in voter registration fraud and embezzlement and violated the tax-exempt status of some of its affiliates by engaging in partisan political activities.
Fueling the outrage was a video of three employees allegedly advising a couple posing as a prostitute and her boyfriend to lie about her profession and launder her earnings.
ACORN responded with a lawsuit accusing Congress of abusing its power with what amounted to a “corporate death sentence.’’
The Appeals Court disagreed, citing a study finding that only 10 percent of ACORN’s funding was from federal sources.
“We doubt that the direct consequences of the appropriations laws temporarily precluding ACORN from federal funds were so disproportionately severe or so inappropriate as to constitute punishment,’’ the three-judge panel wrote.
The Center for Constitutional Rights, which argued on behalf of ACORN, said it might ask the Appeals Court to rehear the case. [For those of you who have forgotten this is Obama’s criminal goon squad.]
The bank that makes the most revenue trading stocks and bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak of loss-free days at the start of the year. Losses on Goldman Sachs’s trading desks exceeded $100 million on three days during the period that ended on June 30. Today’s filing also shows that the firm’s traders generated more than $100 million on 17 days during the quarter. Of the 65 days in the quarter, Goldman Sachs traders made money on 55 days, or 85% of the time.
More than half of the 100 biggest takeovers made during the last mergers-and-acquisitions boom have something in common: By one measure, they never should have happened. The stocks of 53 companies that made the biggest purchases from 2005 to 2008 lagged behind industry peers two years later, according to Bloomberg’s ranking group.
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Banks_Will_Still_Profit_in_this_Faltering_Economic_Recovery
Economic Weakness Accelerating
Comstock Partners, Inc.
August 19, 2010
It becomes clearer every day that the economy is headed for a renewed recession or a recovery so slow it will seem like one. Initial unemployment claims climbed to 500,000 last week for the first time since November while the Philadelphia Fed index dropped below the zero line for the first time since July 2009. This follows a pattern of generally softening economic data over the last two or three months.
As we have long expected, the economy is tracing out a trajectory typical of a balance sheet induced recession rather than the garden-variety inventory recessions typical of the period since the end of World War ll. In a balance sheet recession the dire effects of debt deleveraging overwhelm the efforts of the government to stimulate the economy as is happening now, and the economy undergoes a lengthy period of deflation, sub-par recoveries and frequent slowdowns as the U.S. experienced during the 1930s and Japan over the last 20 years.
While the massive stimulative measures undertaken by the Fed, Congress and the White House have succeeded in averting a financial collapse, they are being more than offset by the deleveraging now taking place. The effects of inventory replenishment are winding down without any other major drivers to sustain growth. Typically a new economic expansion is led by inventories, consumer spending, employment, housing and readily available credit. This time only inventories have performed their usual function, meaning that the economy has been acting on only one of five cylinders.
The Fed has already used all of its conventional weapons and will undoubtedly resort to untried unconventional measures with unknown outcomes and the possibility of unintended consequences. The most likely measures will probably be further large purchases of Treasury securities and mortgage bonds together with a ceiling on Treasury bond yields as outlined in Chairman Bernanke's famous 2002 speech that earned him the nickname "Helicopter Ben". This is commonly referred to quantitative easing or QE2. We doubt, however, that this will have any more effect than QE1 as it would be more than offset by debt deleveraging in the private sector.
We also believe that the market is currently too complacent about the global economy. China is attempting to prevent a bubble by engineering a soft landing that will at best result in a substantial slowing of imports, and at worst a full-fledged recession as often happens when governments aim for soft landings. Japan, too, is undergoing renewed economic weakness following two decades of deflation and minimal growth. Europe is going through a short period of temporary calm after the EU and the IMF threw a lifeline to the struggling southern tier. However, the authorities have failed to deal with the underlying structural debt problems that will continue to be a major problem while the austerity measures that that are being implemented will be a major drag on the various economies.
For example the German magazine, Der Spiegel points out that the austerity measures applauded by the EU are already having dire effects on the Greek economy. The Greek government has reduced its budget deficit by an astounding 39.7% and spending by 10%. This has had a drastic effect on income, consumption, employment and bankruptcies, leading to a "mixture of fear, hopelessness and anger". According to the article another wave of layoffs is likely in the fall and this could have "extreme social consequences." Such an outcome could come as a severe shock to a U.S. market that has factored in a quieter Europe.
In sum, we believe that the market is still discounting a continued U.S. recovery as well as a supportive global economy. In the current climate such hopes are likely to be disappointing and corporate earnings estimates for 2010 and 2011 will probably be revised down sharply. The market peaked in late April and is now trending down amid a lot of volatility.
http://www.comstockfunds.com/default.aspx?MenuItemID=29&&AspxAutoDetectCookieSupport=1
Western Economies Face Hyperinflation:
By: Antonia Oprita
Published: Thursday, 19 Aug 2010 | 8:09 AM ET
The decline of the Western economic model will bring about hyperinflation and decades of painful readjustment, Egon von Greyerz, founder of gold investment intermediary Goldswitzerland.com told CNBC Thursday.
Fear of inflation causes investors to take refuge in gold. However, another analyst told CNBC that buying gold now is as pointless as the rush to buy tulips was in the 1630s
From 1971, when President Richard Nixon's administration decided to take the dollar off the gold standard, economic growth in the Western world has been spurred by a massive increase in credit, according to von Greyerz.
The US debt increased from $9 trillion in 1971 to $59 trillion currently, while nominal gross domestic produce rose only from $1.1 trillion to $14.5 trillion in the same period, according to a research paper written by von Greyerz.
"The wealth that has been created in the last 40 years is not due to good times. The good times were created by credit creation," he said.
In 2008 and 2009, after the beginning of the world financial crisis, governments worldwide issued or guaranteed a total of about $20 trillion, von Greyerz estimated.
This gave a temporary boost to stock markets but "none of the problems in the banking systems have been solved, the toxic assets are still there, derivatives are still there," he said.
This burst determined by cash injections "had no effect on ordinary people," as 8 million became unemployed in the US and government deficits went up all over the world, von Greyerz added.
But central banks are going to keep resorting to printing money, causing hyperinflation, because the alternative will be a deflationary collapse in which debts owed to banks will not be paid, he said.
"It's simple. Just take this current year. Sovereign states worldwide need to issue around $5 trillion debt to finance deficits… where's that money going to come from?" he said.
"Clearly, as I see it, the long trends are now a structural decline of the West which will last a long time, and the East will be the coming economy," von Greyerz said.
- Watch the full interview with Egon von Greyerz above.
However, in the short term countries like China and India will suffer because their economies are linked to the Western ones, he added.
The price of gold has risen as a consequence of money printing, not because of the metal's intrinsic value, von Greyerz said.
"Clearly, paper money has now lost its function as a store of value and medium of exchange. Gold [XAU=X 1230.65 0.55 (+0.04%) ] is just a stable medium of exchange that is reflecting the printing of money… when this trouble is over, we will have a reserve currency that will have gold as part of it," he said.
"Gold in itself has no value… gold reflects a stable value."
http://www.cnbc.com/id/38767004
US Prepares For Gold Standard
By Bix Weir
Posted Wednesday, 18 August 2010 |
I have often written about the US Treasury and US Mint's very strange behavior when it comes to their part in continuing "business as usual" for the fiat monetary system. Although many have chalked up the Mint's rationing of Gold and Silver American Eagle coins to normal behavior of inept government employees and government bureaucracy, I have a much different take on the subject. I believe they are trying to DELAY and LIMIT the American Eagle program until such time as the US is ready to go back on a gold and silver standard.
To understand this objective it helps to go back to a very important moment in our monetary past...
It was March of 1982 when Reagan's Gold Commission released their final report on the "Role of Gold in the Domestic and International Monetary Systems". Although the Commission's recommendation was "no change necessary at the moment" the report was surprisingly frank about what the future might hold. The full report can be found here:
Gold Commission Report
What I found most interesting is the report's conclusion on page 21 which I explored in this article:
Gold Standard Implementation Update
http://www.roadtoroota.com/public/117.cfm
It is clear to me that from as far back as 1982 the US Government was aware of the potential (or even the likelihood) of a need to return to a Gold Standard. In 1985, Congress even went so far as to begin the re-implementation of Gold and Silver coins into our population by authorizing the "Bullion Coin Act of 1985". This act was following through with the recommendation of the Gold Commission's "Minority Report" written by our friend Ron Paul and Lewis Lehrman:
http://mises.org/books/caseforgold.pdf
Recently the BBC ran an article pointing out that the US Mint is HOARDING over $1.1B of the new $1 coins and nobody can figure out why...
http://www.bbc.co.uk/news/world-us-canada-10783019
Is it only a coincidence that the US Treasury is also delaying the introduction of the new $100 bills until Feb 2011 when they've been in production for over 2 years? My take on the new US $100 bill can be found here and the implications are staggering if I am correct:
Hidden Meaning in the New $100 Bill
http://www.roadtoroota.com/public/261.cfm
So let's add up all the information we know about the strange behavior coming out of the US monetary authorities...
1) All US Bills have been redesigned EXCEPT the US $1 Bill with all the Illuminati references on the back.
2) The US Mint is hoarding the new $1 coins to the tune of over 1 BILLION coins.
3) The New US $100 Bill is being held back and stockpiled even though it is the most counterfeited bill in the world.
4) The new US $100 Bill is full of references to gold and overthrowing our government when they gets out of hand.
5) The NEW SF Mint project was scheduled for opening in 2008 but has been delayed even though many say it's ready to go ( http://www.themintproject.org/our_bold_plan/index.html .
6) The rationing of gold and silver US Eagles is completely illegal and yet the US Mint continues to ration ( http://www.roadtoroota.com/public/330.cfm )
These unique oddities in the behavior of our monetary authorities can ONLY be understood by knowing that they are PREPARING for some event that they KNOW is coming very soon. I believe the total and complete destruction of our fiat monetary system is that event. Many mainstream monetary commentators predict that the end of fiat money is inevitable but it will take another 5-10 years to transpire. From my work on the Road to Roota Letters this transition will not take place in a matter of decades... but a matter of MONTHS!
We are on the brink of something the majority of people in the world are not prepared for. The complete elimination of fiat money and a return to a gold standard. The US Treasury and the US Mint are walking the same fine line that the CFTC is walking as they try to slowly introduce position limits on gold and silver COMEX contracts. Nobody wants to ROCK THE BOAT and get blamed for the crash but all are preparing for the END of fiat money.
It's only a matter of time.
May the Road you choose be the Right Road.
http://news.goldseek.com/GoldSeek/1282111440.php
Americans eating through beef, pork surpluses
Blog post by Dan Piller
dpiller@desmoine.gannett.com
August 18, 2010
Americans are gorging themselves on pork and beef this summer, reducing total red meat supplies in storage by 22 percent, according to the U.S. Department of Agriculture’s Cold Storage Report.
Pork supplies were down in June 8 percent from May and 29 percent from previous year. Among pork products, ribs were down 25 percent from last year and pork bellies (where bacon comes from) were down 54 percent.
Hams are in better supply during what is their summer off-season, down just 3 percent from last year.
Beef supplies are down 16 percent from a year ago.
The report reflects rising demand and also a thinning of the cattle and hog herds by about 3 percent nationwide in response to low prices during the last three years. Retail prices for beef and pork have risen modestly this summer, although not as much as the wholesale reductions, according to latest USDA figures.
Only chicken seems to be in larger supply this year than last, up 2 percent from June, 2009.
Cattle and hog prices continue to reflect the tighter supplies. Live cattle for October delivery opened up 55 cents per hundredweight Wednesday to $96.50 on the Chicago Board of Trade. That price is almost $15 per hundredweight more than cattle brought a year ago.
Live hogs for October delivery opened up $1.50 per hundredweight in Chicago this morning to $77. A year ago hog prices were headed for a decade-low of $46 per hundredweight.
Americans are gorging themselves on pork and beef this summer, reducing total red meat supplies in storage by 22 percent, according to the U.S. Department of Agriculture’s Cold Storage Report.
Pork supplies were down in June 8 percent from May and 29 percent from previous year. Among pork products, ribs were down 25 percent from last year and pork bellies (where bacon comes from) were down 54 percent.
Hams are in better supply during what is their summer off-season, down just 3 percent from last year.
Beef supplies are down 16 percent from a year ago.
The report reflects rising demand and also a thinning of the cattle and hog herds by about 3 percent nationwide in response to low prices during the last three years. Retail prices for beef and pork have risen modestly this summer, although not as much as the wholesale reductions, according to latest USDA figures.
Only chicken seems to be in larger supply this year than last, up 2 percent from June, 2009.
Cattle and hog prices continue to reflect the tighter supplies. Live cattle for October delivery opened up 55 cents per hundredweight Wednesday to $96.50 on the Chicago Board of Trade. That price is almost $15 per hundredweight more than cattle brought a year ago.
Live hogs for October delivery opened up $1.50 per hundredweight in Chicago this morning to $77. A year ago hog prices were headed for a decade-low of $46 per hundredweight.
http://blogs.desmoinesregister.com/dmr/index.php/2010/08/18/americans-eating-through-beef-pork-surpluses/
Americans eating through beef, pork surpluses
Blog post by Dan Piller
dpiller@desmoine.gannett.com
August 18, 2010
Americans are gorging themselves on pork and beef this summer, reducing total red meat supplies in storage by 22 percent, according to the U.S. Department of Agriculture’s Cold Storage Report.
Pork supplies were down in June 8 percent from May and 29 percent from previous year. Among pork products, ribs were down 25 percent from last year and pork bellies (where bacon comes from) were down 54 percent.
Hams are in better supply during what is their summer off-season, down just 3 percent from last year.
Beef supplies are down 16 percent from a year ago.
The report reflects rising demand and also a thinning of the cattle and hog herds by about 3 percent nationwide in response to low prices during the last three years. Retail prices for beef and pork have risen modestly this summer, although not as much as the wholesale reductions, according to latest USDA figures.
Only chicken seems to be in larger supply this year than last, up 2 percent from June, 2009.
Cattle and hog prices continue to reflect the tighter supplies. Live cattle for October delivery opened up 55 cents per hundredweight Wednesday to $96.50 on the Chicago Board of Trade. That price is almost $15 per hundredweight more than cattle brought a year ago.
Live hogs for October delivery opened up $1.50 per hundredweight in Chicago this morning to $77. A year ago hog prices were headed for a decade-low of $46 per hundredweight.
Americans are gorging themselves on pork and beef this summer, reducing total red meat supplies in storage by 22 percent, according to the U.S. Department of Agriculture’s Cold Storage Report.
Pork supplies were down in June 8 percent from May and 29 percent from previous year. Among pork products, ribs were down 25 percent from last year and pork bellies (where bacon comes from) were down 54 percent.
Hams are in better supply during what is their summer off-season, down just 3 percent from last year.
Beef supplies are down 16 percent from a year ago.
The report reflects rising demand and also a thinning of the cattle and hog herds by about 3 percent nationwide in response to low prices during the last three years. Retail prices for beef and pork have risen modestly this summer, although not as much as the wholesale reductions, according to latest USDA figures.
Only chicken seems to be in larger supply this year than last, up 2 percent from June, 2009.
Cattle and hog prices continue to reflect the tighter supplies. Live cattle for October delivery opened up 55 cents per hundredweight Wednesday to $96.50 on the Chicago Board of Trade. That price is almost $15 per hundredweight more than cattle brought a year ago.
Live hogs for October delivery opened up $1.50 per hundredweight in Chicago this morning to $77. A year ago hog prices were headed for a decade-low of $46 per hundredweight.
http://blogs.desmoinesregister.com/dmr/index.php/2010/08/18/americans-eating-through-beef-pork-surpluses/