STOCK MARKET WATCH, Monday February 4

[ozymandius]

Source: du

STOCK MARKET WATCH, Monday February 4, 2008

COUNTING THE DAYS
DAYS REMAINING IN THE * REGIME 352
DAYS SINCE DEMOCRACY DIED (12/12/00) 2570 DAYS
WHERE'S OSAMA BIN-LADEN? 2296 DAYS
DAYS SINCE ENRON COLLAPSE = 2257
Number of Enron Execs in handcuffs = 19
ENRON EXECS CONVICTED = 10
Enron execs conveniently deceased = 3
Other Arrests of Execs = 54

---

U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES-----------------------------S&P FUTURES

---

AT THE CLOSING BELL WHEN BUSH TOOK OFFICE on January 22, 2001
Dow - 10,578.24
Nasdaq - 2,757.91
S&P 500 - 1,342.90
Oil - $27.69/bbl
Gold - $266.70/oz.

AT THE CLOSING BELL ON February 1, 2008

Dow... 12,743.19 +92.83 (+0.73%)
Nasdaq... 2,413.36 +23.50 (+0.98%)
S&P 500... 1,395.42 +16.87 (+1.22%)
Gold future... 913.50 -14.50 (-1.59%)
30-Year Bond 4.32% -0.04 (-0.83%)
10-Yr Bond... 3.60% -0.04 (-1.07%)






GOLD, EURO, YEN, Loonie and Silver

---

PIEHOLE ALERT

Heads Up!
Preliminary info on appearances by Bush & Co. throughout the country. Details & links are added as they become available so check back. And if you know more, are organizing something, or would like to, contact [e-mail]

For information on protests and other actions Citizens For Legitimate Government

---

Read more: du

[ozymandius]

1. Market WrapUp: The Last Asset Bubble

BY BRIAN PRETTI

It's clear that in addition to reacting to equities, the credit markets themselves have been leading the Fed by the nose directionally in recent months. The drop in short term yields on the Treasury curve just begging the Fed to fall in line has been nothing short of astounding, but we need to remember that a good portion of this drop in short term yields has been related directly to credit market distress of the last half year or so. Distrust of asset-backed commercial paper, as an example, has resulted in a flooding of funds into short Treasuries as an alternative. General global financial market unease has again seen the US Treasury market play its self appointed role as safe haven. As you are well aware, there are more than a fair amount of institutional investors out there mandated to hold AAA rated paper. Now that supposedly AAA rated CDO's and SIV's are hitting the credit rating skids almost daily, we've got a lot of capital looking for anything retaining (at least for now) AAA status.

So we certainly need to realize that a lot of what is happening along the Treasury curve these days is not completely reflective of and driven by forward US domestic economic prospects solely, but rather reflects the theme/unintended consequence of systemic credit market deleveraging, along with the heightened attraction of capital preservation for many of those either in or formerly in a good bit of distress. I've long argued that in an environment of low nominal yields to start with, it's longer term consumer, corporate and mortgage rates that deserve attention when it comes to potential real world economic impact, not necessarily the Funds rate singularly. The Fed Funds rate is a nice symbol, but it does not make the world go around for consumers and businesses in their daily lives. Although this may sound like blasphemy to many in the investment community steeped in the tradition of historical interest rate and yield curve relationship rhythm, in a period of very low nominal yields, the job of the Fed Funds rate in terms of actually sparking true fundamental economic (and really credit cycle) reacceleration is much more difficult than would be the case when initiating a monetary easing cycle from the simplicity of higher nominal interest rate levels.
.....

We need to remember that the US remains dangerously dependent on a steady and growing diet of foreign capital. Of course up to this point the foreign community has been more than happy to oblige, given their recycling of trade related dollars. But as we look ahead, US consumption is slowing, hence less trade related dollars and potentially slowing import activity on a rate of change basis exclusive of energy. So as we witness these incredibly low nominal Treasury yields of the moment, yet another question comes to mind. For how long will yields in the 2% and low 3% range be attractive to foreign buyers? Has the foreign community looked at the numbers and started to ask the same questions I have in terms of just how much upside is left in Treasury bonds as investment vehicles from here? I’ll be the first to admit that the foreign community has not placed top priority on real or nominal rate of return when purchasing UST’s. But at current levels, in light of growing inflationary pressures both domestically and globally, as well as taking into consideration the continued weakness in the US dollar, the foreign community now has to look at Treasury investments ahead as being almost a guaranteed loser, at least on a real return basis. That means foreign buying of Treasuries from here on out is being driven by one thing and one thing only – mercantilist economics. From an investment standpoint, there’s nothing else there. Will this continue to be a meaningful rationale for purchase (mercantilist economics) during a period of rate of change slowing in US consumption? Of course, we're going to find out. Quick update below of a chart I’ve have shown you in prior discussions. It’s the longer-term history of foreign buying of UST’s. For a few years now the rate of change trend has been down.

http://www.financialsense.com/Market/wrapup.htm

[ozymandius]

2. Today's Report

10:00 AM Factory Orders Dec
Briefing Forecast 2.8%
Market Expects 2.0%
Prior 1.5%

http://biz.yahoo.com/c/ec/200806.html

[ozymandius]

3. Oil prices below $89 amid recession fear

SINGAPORE - Oil prices steadied Monday as traders weighed gains in global stock markets against worries of a possible U.S. recession that would stunt oil demand.

Asian stock markets climbed Monday on improved market sentiment after Wall Street rose last week. China's benchmark Shanghai Composite Index surged 8.1 percent, Hong Kong's Hang Seng index jumped 3.8 percent and Japan's Nikkei 225 index rose 2.7 percent.

Energy investors often view stocks as a proxy for economic growth, and in some recent sessions, movements in the oil market have closely followed that of global equities.

But Monday investors appeared to remain focused on weak economic data in the U.S. that pushed oil futures down nearly $3 a barrel at the end of last week.

Light, sweet crude for March delivery was flat at $88.96 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

http://news.yahoo.com/s/ap/oil_prices

[ozymandius]

4. More data on housing, spending this week

NEW YORK - The stock market has been on the upswing, but few investors are relaxing just yet. This week's data on housing, retailers and labor costs will give Wall Street an idea of whether the economy is weakening or inflation is accelerating — or both.

Wall Street had a case of the winter blues in January, and understandably. With banks reporting huge losses, uncertainty brewing about whether the economy is in recession, and Americans struggling to keep up with their debt payments, there was nowhere to go but down. The Standard & Poor's 500 index recorded its worst January since 1990.

But the stock market has bounced back — last week, the Dow Jones industrial average jumped 4.39 percent, the Standard & Poor's 500 index added 3.75 percent, and the Nasdaq composite index rose 4.87 percent.
.....

The markets are angling for more rate cuts to stoke the economy, but what could tie the Fed's hands is inflation. High food, energy and healthcare costs are a reason consumers — particularly homeowners with tough-to-pay mortgages — are cutting back on discretionary spending. Those high prices may also be the only reason readings on personal spending are in positive territory.

The Commerce Department's index last week for personal consumption expenditures, a gauge of inflation, rose 0.2 percent in December from November levels. This week, the Labor Department reports on productivity and labor costs; the market is expecting labor costs to decline, and could be disappointed if they end up being higher.

http://news.yahoo.com/s/ap/20080204/ap_on_bi_ge/wall_street_week_ahead

[ozymandius]

5. Employment drops in a pink slip blizzard

WASHINGTON - In a shower of pink slips, U.S. employers cut jobs last month for the first time in more than four years, the starkest signal yet that the economy is grinding to a halt if it hasn't already toppled into recession.

Conditions are deteriorating, according to the latest employment snapshot by the Labor Department, which showed nervous employers slicing payrolls by 17,000. The country hadn't seen such a nationwide job loss since 2003, when employers were still struggling to recover from the last previous recession.
.....

Job losses were widespread in January. Factories, construction companies, mortgage brokers and real-estate firms were among those eliminating jobs — casualties of the housing bust and credit crunch. The government cut jobs for the first time since last July.

All those cuts swamped job gains in education, health care, retailing and elsewhere.

http://news.yahoo.com/s/ap/20080202/ap_on_bi_go_ec_fi/economy

[ozymandius]

6. China bank sets aside subprime reserves

BEIJING - China's biggest bank, Industrial & Commercial Bank of China Ltd., has set aside reserves equal to 30 percent of its $1.2 billion in subprime holdings to cover possible losses, a state news agency reported Monday.

The report, if confirmed, would be the first indication that Chinese banks, which have so far avoided damage from the U.S. credit crisis, might face problems due to holdings of subprime mortgage securities.

ICBC chairman Jiang Jianqing disclosed the figures at a weekend meeting, the Xinhua News Agency said. Phone calls to ICBC's press and investor relations offices were not answered.

Chinese banks are believed to hold only modest amounts of subprime debt. But financial markets are watching them closely to see how they will be affected.

In January, investors sold Chinese bank shares after a news report that Bank of China, the country's No. 2 lender, might record a loss for 2007 due to subprime problems. Bank of China denied that but has yet to release details on the status of its subprime holdings.

http://news.yahoo.com/s/ap/20080204/ap_on_bi_ge/china_icbc_subprime_1

[ozymandius]

7. Wall St to open lower after last week's rally

LONDON (Reuters) - Wall Street is expected to open slightly lower on Monday after rallying on Friday after Microsoft Corp. (MSFT.O) bid for Internet media firm Yahoo Inc. (YHOO.O).

Microsoft's proposed $44.6 billion bid for Yahoo helped make last week Wall Street's best in almost five years, in spite of news that employers cut payrolls for the first time since 2003.

U.S. futures showed stocks would open between 0.1 and 0.3 percent lower and analysts also warned investors not to jump the gun.

http://news.yahoo.com/s/nm/20080204/bs_nm/markets_stocks_dc

[radfringe]

8. McCain has a book, and will have good advisors

blatherheads have designated mccain as the presumptive nominee... match-up polls of mccain vs clinton or mccain vs obama show mccain winning in the range of 1% to 1.1%

assuming the worse, and that the issue of the economy has moved to the forefront of concerns and the FY2009 bush budget will set deficit records, we might want to review mccain's voting record regarding the budget, program funding, earmarks etc.

it's a long read, but check out my post: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3168007&mesg_id=3168369

[AnneD]

30. Morning Marketeers....

:donut: and lurkers. I woke up this morning with a queasy feeling. The meds have kicked in, so I know it is not a cold. I am well into menopause, so I know it is not a pregnancy. On the way to work-while listening to the radio (NPR) I realized the cause of my nausea. It has been the realization of the inevitable-we will have a GOP president for the next four years. We have possible pitched out our strongest candidate and have begun to engage in a circular firing squad.

How does this effect the economy you ask?

Some of us remember the Keating Five and the S&L scandal. Try this primer site...

http://en.wikipedia.org/wiki/Keating_5


If we have another GOP president, we will have to exercise even more caution in our investments.

My only solace is that if the economy buckles, and we know it will-the GOP will receive the full wrath/blame of the American people. But by then, our debt hole would be deeper than it is now. I am to the point that I cannot reform from within my party and believe we may have to reform from without. I just can't believe it- TPTB have lost touch with reality and the middle of the road Dems. Our only hope to salvage the party is out west. Dem's have to fight tough battles out here and we win. It is not the Eastern formula of what a Dem is or what a liberal is-it is a whole different animal-much like what a western GOP is these days.

Happy Hunting and watch out for the bears..

[Hugin]

34. Morning AnneD...

:hangover:

For those out-of-the-loop, the Federal Government is currently experiencing the largest purge of
experienced workers in it's history. (Remember that 18,000 figure from Friday?) Everything... and
I do mean EVERYTHING will be privatized. Pay-for-play. The ignored Attorney Scandal was only the tiniest
tip of the iceberg.

Another 4 years of GOP control will cinch it... All of you bickering Dems out there need to realize,
this is it, if there is not only a Dem President elected, but, one who is wise to the Corporatization
of Government, this is how it will be for the rest of your lives. REST OF YOUR LIVES... and your children's
children's children will be paying for it and living under it.

The Corpratists have won.

I did enjoy Tom Petty at the Superbowl. :)

[AnneD]

45. I was being shallow....

I got a much needed hair cut...
But I made a new friend from Argentina via Italy:thumbsup:
At the rate things are going-we may need good friends and quick escape routes.

[Hugin]

46. You? Shallow?

:rofl:

NEVER! :)

I've been pricing various Islands. ;) (Hard to find one with a reliable water supply, tho. Just ask
Amelia Earhart. :) )

[DemReadingDU]

50. Spouse and I were just reading that same wiki Keating link

Surely if McCain is the candidate, this scandal will come back to haunt him concerning taking depositors' funds from investing in residential real estate to investing in risky commercial real estate thus collapsing the Savings & Loans.

How ironic that soon after I read the Keating link, then I stumbled on another link about the background of how FDR setup the banks (commercial banks separate from investment companies), and separate Savings & Loan (Thrifts) for people to save and buy houses.

See my post #22 ...
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3168377#3168522


It seems like over the past few decades all the regulations put in place to safeguard our banks and investments, have been repealed. It is no wonder that our country is in an economic mess.

[Demeter]

54. You Took The Thoughts Out of My Mind

and the feeling in the stomach that I share.

Trying to convince my younger child to move to Canada--with boyfriend I have never met, if necessary.


We COULD get lucky, I suppose. But it would take an awful large dose of luck to pull it off.

[ozymandius]

9. Good morning Marketeers.

:donut: :donut: :donut:

It's time for me to greet my students. I hope today treats you well.

:hi:

[UpInArms]

10. dollar watch

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 75.434 Change -0.050 (-0.07%)

Dollar - Back From The Brink

http://www.dailyfx.com/story/topheadline/Dollar___Back_From_The_1202103683920.html

It could have been a lot worse. A 50bp cut from the Fed. A negative 17,000 NFP against expectations of 70,000 new jobs and yet the dollar held its own refusing to give way to the key 1.5000 level against the euro. The NFP and the GDP news earlier in the week were absolutely horrible clearly indicating that the US economy has ground to a halt and in turn practically ensuring that the Fed will have to cut rates another 50bp in March.
Yet for all the negative fundamentals the dollar ended the week only 150 points lower against the euro. Part of the reason for greenback’s strength was technical in nature. Currency traders aren’t worried only about the US economy but the UK economy as well, which has led many to sell cable along with the greenback. The weakness in cable on Friday, eventually pulled down the euro and Once EURUSD could not hold the 1.4900 level profit taking kicked in and the pair collapsed for rest of the day.

Nevertheless, the long term prognosis for the buck is dour. The economic standstill suggests that the Fed will have to continue easing rates for at very minimum through the first half of 2008 and as the interest rate differential expands further into euro’s favor the pair likely to make another run at the 1.5000 level.

The one ray of sunshine on the US economic calendar was the better performance in exports which helped pull the ISM Manufacturing above the 50 boom/bust level. The news may help boost the reading for Factory Orders and ISM services this week which could help the dollar recovery, but if the data misses to the downside, the last of the dollar bulls may throw in the towel and the greenback to could he headed to all time lows.



...more...

Why Did the Dollar Rally on Negative Non-Farm Payrolls

http://www.dailyfx.com/story/bio1/Why_Did_the_Dollar_Rally_1201905985170.html

Earlier this week, the Federal Reserve told the markets that the reason why they lowered interest rates by 50bp to 3 percent was because the labor market is weak. However, the severity of the problems with job growth was not clear until the release of this morning’s non-farm payrolls report. In the month of January, non-farm payrolls fell for the first time in 4 years. The 17k jobs that were lost, makes it difficult to argue that the US economy is not already in a recession and as a result, the Federal Reserve will need to continue to lower interest rates. Unless there is a strong rebound in job growth during the month of February, it is realistic to expect a back to back half point rate cut. Given the weakness of the non-farm payrolls numbers and the implications for where interest rates are headed next month, the US dollar should have sold off, but it didn’t. There are a number of reasons to explain this bizarre price action. First, another 50bp was already priced into the futures market and even though there was a knee jerk reaction across the financial markets, traders quickly realized that nothing has changed. Bond yields are only off slightly and rate cut expectations remain the same. We also have over 6 weeks before the next interest rate decision and surprisingly strong retail sales, consumer prices or February non-farm payrolls could easily change the Fed’s outlook on interest rates. Also, not all of the news released today was bad news. The unemployment rate declined to 4.9 percent from the psychologically crippling 5 percent level while manufacturing ISM rebounded strongly in the month of January. Prices paid also surged to the highest level in 18 months, reflecting growing inflationary pressures. On top of that the ECB announced that they will no longer be extending their dollar lending facility. According to IFR Markets, there has been speculation that some accounts have been borrowing the cheaper USD facility and using it to fund higher cost positions such as EUR and GBP. When the ECB put an end to that today, these accounts might have bought back dollars to repay their loans. In the week ahead, the US economic calendar is light with only factory orders, service sector ISM and pending home sales due for release. We continue to expect most of these numbers to be dollar negative.

...more...

[UpInArms]

11. Humana profit surges on low taxes, gain

http://news.yahoo.com/s/ap/20080204/ap_on_bi_ge/earns_humana?_ylt=AtbdAP7vQS.3BQp1Mu5FUA1v24cA

LOUISVILLE, Ky. - Managed care provider Humana Inc. said Monday its fourth-quarter earnings surged 57 percent due to a lower-than-expected income tax rate and a gain on the sale of a venture capital investment, and the company raised its profit outlook for 2008.

Net income climbed to $243.2 million, or $1.43 per share, from $155 million, or 92 cents per share, a year ago.

Revenue rose 12 percent to $6.34 billion from $5.66 billion, with total premium and administrative services fees up 12 percent year-over-year driven by higher average Medicare Advantage membership.

Analysts surveyed by Thomson Financial had expected profit of $1.32 per share on revenue of $6.22 billion.

The company said its quarterly benefits ratio, or benefit expenses as a percent of premium revenue, totaled 80.3 percent — 290 basis points lower than the 83.2 percent ratio in the 2006 period. Humana credited fewer expenses paid out in the government and commercial segments.

...more...

[UpInArms]

12. Layoff announcements jump 69% in January

http://www.marketwatch.com/news/story/layoff-announcements-jump-69-january/story.aspx?guid=%7BB61BAFB1%2DB4FB%2D44FC%2D96BD%2DC3F141CCA694%7D

WASHINGTON (MarketWatch) -- A fresh surge in financial-sector layoffs contributed to a 69% increase in corporate job-cut announcements in January, according to the latest tally compiled by outplacement firm Challenger Gray & Christmas released Monday.

U.S. corporations announced 74,986 job reductions last month, up from December's 44,416 and 19% higher compared with the previous January, Challenger Gray reported.

The financial sector cut 15,789 positions, accounting for more than a fifth of the documented job cuts for January.

Job cuts remain below levels seen in the 2001 recession, noted John Challenger, CEO of the firm that bears his name.

"If the economy dips into a full-blown recession, it will likely be caused by a drop in consumer spending and the effects of the high price of energy," Challenger said in a release. "In that case, we would expect to see job cutting in areas such as retail, consumer products, and transportation."

...more...

[DemReadingDU]

13. Big healthcare fraud trial in Columbus, Ohio

2/3/08 As fraud cases go, the National Century Financial Enterprises case ranks up there with Enron and WorldCom, prosecutors say.

Investors in the Dublin-based company lost more than $1.9 billion after the financing giant filed for bankruptcy in 2002. And at least 275 health-care companies collapsed, putting thousands out of work and affecting thousands of patients.

National Century's collapse never gained much attention outside business circles, largely because it was a privately held company. But some, such as large pension funds and the state of Arizona, lost millions.

"I always say it's the largest, most significant case you've never heard of," said Kathy Patrick, an Arizona attorney representing 30 clients who lost a total of $1.6 billion.
.
.
Ayers, Parrett and Poulsen founded National Century in 1991 to offer financing to small hospitals, clinics, nursing homes and other health-care providers.

National Century agreed to buy the providers' uncollected debt owed by patients, or accounts receivable, and give the providers cash to cover expenses. The smaller companies didn't have to wait for insurance reimbursement, and National Century kept a fee or percentage of what it collected.

To get cash to give the smaller companies, National Century sold bonds to investors -- including some big pension funds, which were among those hit hardest by National Century's collapse.

The pension fund for New York City police, firefighters and other workers began investing in National Century in 2000. The company's bonds were attractive because of their life span -- usually three years -- and high bond rating, said New York lawyer Steve Fineman.

But within two years, and only a year after the Sept. 11 terrorist attack, the New York City workers' fund lost $89 million.

lots more...
http://dispatch.com/live/content/local_news/stories/2008/02/03/poulsen.ART_ART_02-03-08_A1_PH97M78.html?sid=101

summary of people standing trial
http://www.dispatch.com/live/content/local_news/stories/2008/02/03/fraud.html

[Demeter]

24. Wow! Thanks for Finding This!

I wonder how they managed to keep the lid on so long--and why?

[DemReadingDU]

27. 'National Century' is a private company

not a publicly traded company like Enron. So news would be local. However, I live in SW Ohio, and I had not heard until yesterday when there was an article in my Sunday newspaper.

So it's not only the big public banks and investment companies who defrauded investors, but also smaller private companies too.

This should be an interesting trial to watch as this company took people's money that should have been invested in safe bonds and instead had their money put into very risky investments.

It really makes you wonder what is safe to invest nowadays.

[Demeter]

29. Fraud 101 Is a Required Course in Business School, I Think

and we are the Nigeria of Fraud.

[AnneD]

32. Private companies have ....

an easier go of defrauding cause they don't have so much scrutiny. I would have to know folks personally before I ever invested in a private company.

[TalkingDog]

14. A Wow(?) and a Uh-Oh.

Ran across this site last evening. Since I'm not a chart person their Wow makes no sense to me. But if you understand why they had that reaction, I'd love to hear the explanation.


http://www.traders-talk.com/mb2/index.php?showtopic=83692

It obviously has something to do with the configuration of numbers, movement and etc. looking very close to December's.....



and

this site on trend channel charts. Even I understand the potential here. It looks like an interesting week ahead.

http://stockcharts.com/c-sc/sc?s=$INDU&p=D&yr=1&mn=1&dy=10&i=p97089752544&a=77373705&r=646


My Favorite Master Artist: Karen Parker GhostWoman Studios

[Buttercup McToots]

15. I have been watching this thread and it scares me...

Don't know too much about what they are talking about
but it does not sound good...

Can any of you financial people explain?

http://www.tickerforum.org/cgi-ticker/akcs-www?post=27333

[Buttercup McToots]

16. Oh Boy...

Subject: Another
Message:
http://market-ticker.denninger.net/2008/02/special-week...

Sunday, February 3, 2008
Special Weekend Edition - ARE THE BANKS OUT OF RESERVES?

Let me preface this by saying that I'm not at all certain I understand what I'm looking at here correctly.

I've been fighting with this all weekend, and don't wish to alarm.

But perhaps "alarmed" is exactly what we should be right now.

Reference? Right here

Specifically:


Date total(2) non- required excess Monetary credit, total primary secondary seasonal borrowed(3) NSA(4) base(5) NSA------------------------------------------------------------------------------------------------------- 30p 41639 -8751 40179 1460 821298 50000 390 385 0 5








What are you looking at here?

This is the last line of the Fed's "Statistical Release" from January 31st. All figures are in millions. The link to their page is above.

The "Total" is the total amount of reserves in the Fed System (among all member banks), and is approximately $41.5 billion. The required reserves, based on the amount on deposit, is $40.2 billion (roughly.)

So far so good.

But notice that "non-borrowed" number - the negative 8751?

What does that mean?

Well, after much study and trying to get the numbers to all add up, the light went on.

Let's add up a few things for everyone.

The TAF credit, which is the amount that Fed Banks have borrowed in total through the TAF facility through January 30th, is 50 billion.

We also have other primary and seasonal borrowings, which are quite small (and normal) of $385 and $5 million, respectively.

Now let's get out our trusty calculator and add things up.

50000 + 390 (385 + 5) - 8751 = $41,639.

The books balance.

But do you notice anything about this bookkeeping?

Literally all of the banks' reserves, on balance, are in fact Fed Credit from the Federal Reserve!

WHERE IS YOUR MONEY THAT YOU DEPOSITED?

Now normally only 10% (or is it 5% now - it sure looks like it, when you look at the monetary base!) of what you deposit is "held back" in reserve. This is, in fact, the very foundation of a fractional reserve banking system, and whether you agree or disagree with that as a foundation, it is what it is and it is what it has been since The Federal Reserve was set up.

But unless I'm reading this table incorrectly, there not only is no reserve of depositors money currently being held the banks are in aggregate nine billion in the hole with respect to what is supposed to be held - having replaced all of it, and then some, with the TAF Auction Credit!

So this leads one to an obvious - and disturbing - question:

Where did the reserve that was supposed to be held back from our deposited funds go, and where is it now? Oh, and why has the deterioration been so dramatic - going from basically all of your reserves being depositor money two months ago to now being less than "none"?

The follow-up to that question, by the way, is even more serious:

Exactly how far can "non-borrowed" reserves go into the hole and how, and when, will they no longer BE in the hole? Are fire-sale style asset sales in the offing - in the very near future - in order to rectify this little problem?

I don't have either answer, but I'd sure like to know what those answers are.


http://market-ticker.denninger.net/2008/02/special-week...


http://www.tickerforum.org/cgi-ticker/akcs-www?post=273...

Click here to go back to the main forums.

[Buttercup McToots]

17. ***

http://globaleconomicanalysis.blogspot.com/2008/01/bank-reserves-go-negative.html

[Buttercup McToots]

18. FED Changes really scary Fed Charts

Monday, February 4, 2008
Fed CHANGES Really Scary Fed Charts



It looks like the Fed took the TAF (Term Auction Facility) borrowing out of the data calculation, thus neatly removing $50 billion dollars from the picture. See my original post here: Really Scary Fed Charts, Why Bernanke Will Furiously Cut

The original chart I posted did not yet include the January TAF results as they were only released on January 29th. I posted the charts on January 30th. Therefore, the chart was short $30 billion… making the real spike down much larger.

Removing TAF borrowings results in a less ‘distressing’ picture. TAF auctions are ongoing. The next one is on February 11th. We won’t know the results until February 25th.

Notice the change in the definition of the data on http://research.stlouisfed.org/fred2/series/NFORBRES for 2007-12-01 has been changed in the notes to:

Observation Range: 1959-01-01 to 2007-12-01
Last Updated: 2008-02-01
Notes: Prior to 2003-01-01, the data are calculated as excess reserves minus total borrowings plus extended borrowings. From 2003-01-01 till 2007-11-01, the observations reflect excess reserves minus total borrowings plus secondary borrowings. From 2007-12-01, the definition changes to excess reserves minus discount window borrowings plus secondary borrowings.

TAF results to date:

Release Date: December 21, 2007

For release at 10:00 a.m. EST
On December 20, 2007, the Federal Reserve conducted an auction of $20 billion in 35-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 4.67 percent

Total propositions submitted: $57.664 billion
Total propositions accepted: $20.000 billion
Bid/cover ratio: 2.88

Number of bidders: 73

Release Date: January 29, 2008

For release at 10:00 a.m. EST
On January 28, 2008, the Federal Reserve conducted an auction of $30 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 3.123 percent

Total propositions submitted: $37.452 billion
Total propositions accepted: $30.000 billion
Bid/cover ratio: 1.25

Number of bidders: 52

The next TAF auction is on February 11th, 2008. The results will be announced on February 25th, 2008.

Term Auction Facility
Under the term auction facility (TAF), the Federal Reserve will auction term funds to depository institutions. All depository institutions that are eligible to borrow under the primary credit program will be eligible to participate in TAF auctions. All advances must be fully collateralized. Each TAF auction will be for a fixed amount, with the rate determined by the auction process (subject to a minimum bid rate). Bids will be submitted by phone through local Reserve Banks.

Everything you ever wanted to know about the TAF.

Money-Market Rates in Dollars Rise for First Time in a Week: “Money-market rates in dollars rose for the first time in a week.

The London interbank offered rate, or Libor, for overnight loans in dollars climbed 9 basis points to 3.24 percent today, its biggest one-day gain since Dec. 31, according to British Bankers' Association data. The three-month rate rose 5 basis points to 3.15 percent.”

Some stress is definitely creeping back into the system...

Posted by Ben Bittrolff at 8:18 AM 0 comments


Disclaimer
The Financial Ninja is a collection of my thoughts and opinions about current economic and market conditions. These are not buy and sell recommendations. Use your head and do your own research. This is a forum to stimulate discussion and debate.




http://benbittrolff.blogspot.com/

[Buttercup McToots]

20. Comptroller Of The Currency says US bank failures on the way

This is from Friday but I think it was overlooked:

http://www.ft.com/cms/s/0/db2badd6-d05c-....


Quote:
Deterioration of the commercial real-estate market will lead to rising losses and bank failures in the near future, a leading US banking regulator said on Thursday.

The remarks by John Dugan, the comptroller of the currency, reflect growing concern among regulators about the health of US banks, already struggling with the downturn in the domestic housing market.

[Roland99]

21. dun dun dun!!!

:scared:

[DemReadingDU]

23. It is scary out there

Hi Buttercup!

The more I read the scarier I get

:scared:

[Buttercup McToots]

25. Don't mean to scare you, but inform only...Read this...

talk about taking liquidity OUT of the system. This is huge news. Below is a letter I just sent to my family and friends. There is some good news out of this...


Dear Friends and Family,

This article below published in the LA Times is very important. A couple of months back I sent you an emailing warning of the potential of lenders locking up your home equity lines of credit so you will be unable to access the cash. Here we go...this is ugly. Again, if you are counting on your home equity line for emergencies, draw it now and put it somewhere safe before you lose it. Only a couple of banks are mentioned in this story, but they are all going to follow.

GOOD NEWS! The SECOND part of this story, which is yet to be told, is that likely you will get a call several months from now asking to pay off your home equity line. They should offer a nice reduction to your principal balance if you play hard ball with them. For example, if you owe $100k on a maxed out line, they may take $50k or even less!

They want these old vintage, riskier loans off of their books at any cost. They are worth nothing and are causing huge holes in banks balance sheets. Offering you 50 cents on the dollar to buy back your mortgage is profitable for them, as they could only get about 5 cents on the dollar if they sold your loan right now.

If you have a fixed rate home equity loan, things are different because you cannot draw any money out but I am willing to bet that within several months, they will offer a principal reduction on those as well.

Take care.


Trying to tap into home equity? We'll see

Countrywide and others tell thousands of homeowners that they can no longer borrow against their credit lines as the companies tighten standards.
By Kathy M. Kristof,, E. Scott Reckard and David Colker, Los Angeles Times Staff Writers

February 1, 2008

Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.

Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now "upside down" -- the total debt on the home exceeds the market value of the property.


Calabasas-based Countrywide, the nation's largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off.

The cutoffs are coming as a shock to some.

"We didn't deserve this," Thaleia Georgiades, a real estate agent in El Dorado, Calif., said Thursday, two days after she and her husband, a builder, learned that their Countrywide credit line had been frozen.

"When you are self-employed, that's the money you count on to bridge the gap during tough times. And this is a particularly tough time in both the building and housing industries," Georgiades said.

In Phoenix, Kristen McEntire said she received a letter from San Antonio-based USAA Federal Savings Bank about two months ago saying the credit limit on her home equity line had been slashed by $40,000 because the value of her home had declined.

"They froze everything but about $5," she said. "That's what I had left in the line of credit" after the bank's action.

A USAA spokesman said the bank had cut credit limits in "a small number of cases" because of lower home values.

McEntire, 33, who works for a mortgage broker, said she had been using the credit line to help make payments on another home that she owned and had rented out.

"I thought that if I only had to keep doing that for five or six months, I could make it up later," she said. Instead she found herself borrowing $12,000 on credit cards.

"I want to act responsibly, so I don't foreclose on either property," she said.

The moves to rescind credit lines are part of a pullback by lenders nationwide on home equity loans, which are often used to finance home improvements and consumer spending. Such loans, also known as second mortgages, were widely available until six months ago, when delinquencies and foreclosures began to soar.

Now, with new evidence of sinking home values, many lenders are requiring that homeowners maintain a much larger percentage of equity in their homes as a cushion against financial problems.

Pasadena-based mortgage lender IndyMac Bancorp last week sharply cut back on issuing new home equity lines as part of a move to focus on loans that can be sold immediately to investors. An IndyMac spokesman said he couldn't say whether the lender was looking at existing credit lines with an eye to suspending them.

Chase Home Lending, a unit of banking giant JPMorgan Chase & Co., one of the country's largest home equity lenders, is imposing new guidelines next week that will further restrict who can get a new credit line, the company said.

Through this week, Chase customers in California can tap as much as 90% of the equity in their homes. Starting Monday, however, that limit goes down to 85% in most of the state. In six counties, including three in Southern California -- Los Angeles, Orange and Imperial -- Chase won't let homeowners borrow more than 70% of the value of their homes. The bank wouldn't say how the six counties were chosen.

In Florida and Nevada, Chase's loan limits are going down Monday to 70% and 65%, respectively. The percentages will be even lower for people who don't have the best credit.

"Our goal is to always make sure that for both our sake and our customers' sake that our customers don't owe more than their equity," Chase spokesman Thomas Kelly said.

Chase is still assessing whether to rescind existing lines of credit, he said.

Falling home prices are also affecting how first mortgages are being made. Fannie Mae, the giant government-sponsored mortgage investor, has told lenders that in areas that experienced significant price declines, including much of Southern California, the company will require a lower maximum "loan to value" ratio on loans it buys.

As a result, on a highly promoted Bank of America Corp. loan for which borrowers pay no upfront fees, the maximum loan amount is being reduced in most of Southern California to 90% of a home's value, down from 95%, said Terry Francisco, a spokesman for the bank, which has agreed to acquire Countrywide. And on a program that gives mortgages to firefighters and police, the limit is falling to 95% from 100%.

Few lenders would extend credit totaling more than 80% of a home's value a decade ago, and the industry appears to be headed back in that direction, said Guy D. Cecala, publisher of Inside Mortgage Finance Publications in Bethesda, Md.

A home equity loan that puts the total debt on a home over that level can be especially risky for the lender. That's because if the property goes into foreclosure, Cecala said, "All the money goes to pay off the first mortgage holder."

In fact, in cases of foreclosure, home equity loans are being sold to adventurous investors for as little as 3% of the amount of the loan, said Paul Muolo, data editor for National Mortgage News.

Many lenders, including Citigroup Inc. and JPMorgan, reported lower fourth-quarter earnings because of losses on home equity credit lines.

San Francisco-based Wells Fargo & Co., which avoided many of the costly mistakes in mortgage securities and sub-prime loans that have plagued rivals, just added $1.4 billion to its provision for loan losses, mainly on home equity loans.

Wells Fargo executives "did not fully appreciate the severity of the residential real estate downturn and its impact on our home-equity portfolio," Mike Loughlin, chief credit officer at Wells, said in a statement this month. Representatives of Wells Fargo declined Thursday to talk about its problems with home equity loans.

Some small lenders also have been forced to change their policies in response to the downturn in home prices. Cityside Federal Credit Union in downtown Los Angeles, which has 6,482 members and $53 million in assets, has cut its maximum loan-to-value ratio to 90% from 100% and is rejecting many requests from members who had hoped to refinance mortgages at today's low rates.

"A lot of people are in that situation right now because they just kept refinancing and took out all the equity in their homes," said Teresa Becerra, a loan officer at Cityside. "They'll have a couple of mortgages they want to combine now. But we can do a computer appraisal right away, and what they're finding out is that the value just isn't there."

Cityside has had to cut off some home equity lines of credit as well as turn down borrowers seeking new loans because of the change, Becerra said. So far it has cut off credit only when customers brought up issues that caused the credit union to examine their circumstances.

"If they had home equity, and now they're upside down and it's brought to our attention, we'll definitely cut them off," she said. "But we're not doing a computer-generated study to find all those situations or anything like that."


http://www.tickerforum.org/cgi-ticker/akcs-www?post=27134

[Buttercup McToots]

26. Upcoming Flood Of News On Credit Cards Being Cancelled

A bunch of news stories are about to be published on HELOC's being slashed, and also that credit cards are being withdrawn from customers with low-ish credit scores -- and also, cards will probably be withdrawn from guys like me, who charge very little and pay the dang thing off every single weekend as a permanent habit. I literally pay the dang thing off every weekend as item #1 on my weekly list of shit to do.

Stay with me, here....

From the news:

"Credit checking agencies say banks are beginning to weed out customers with faultless borrowing histories because they can make little profit on them..."

These sort of actions will badly skew the FICO system. If a credit card company forcefully closes the accounts of customers with cards that they don't use, this will mess up the used/available credit ratio -- this ratio generally amounts to 33%-40% of your overall FICO score.

My sister told me this. She should know -- she's a Credit Examiner in New York City, she knows the formula and she has explained it to me.

I wanted to mention a few things that she insists will boost your score.

1. Always carry a balance. Always leave $1.00 on your card every month, instead of paying it off fully. This will get you the points (which will be accumulated over time) for "revolving" credit -- having a "revolving" balance is apparently worth (approx) 1 point per consecutive month, up to a certain point. Credit card companies LOVE "revolvers," which is their term for folks who carry a balance. The system counts $1.00 or more as a revolving balance, so, leave that $1.00 on your credit card bill each month and get some extra points on your FICO score.

2. Use your card a lot. You don't want to be the guy who rarely uses his card and then pays it all off all the time. The credit card company makes very little money on a customer like this -- in fact, they lose money on customers like this in many cases. I generally ring up $5-600 a week, and then pay it all off on the weekend, except for that final $1.00.

3. Call your credit card company on ask for a reduction in your interest rate. A lot of times, they'll just give you one right on the phone. I have done this twice (got a yes both times (yes, I owe my sister a beer)) and I'm gonna dang sure keep on doing it. It's free to ask; the worst is that they say no. So, call and ask.

The FICO score is a game to be rigged. It's just a formula that tries to capture behavior -- it's begging to be messed with.

I'll post this in Rumors, because the FICO formula is supposed to be a "secret" but thousands of folks in the business work with it every day and know it forwards and backwards and inside-out. It remains unpublished, though... so, we'll call it a rumor.

The point of this thread is for you to post your best FICO manipulating strategies.

Handling debt is just as important as handling assets.




http://www.tickerforum.org/cgi-ticker/akcs-www?post=27262

[Changenow]

48. If any kind of balance is left,

interest is assessed on new purchases. Isn't it?

If they want the economy to come to a screeching halt, this seems to be a perfect formula, stop the people who still have money from spending too.

[Demeter]

53. Nobody (in the last 8 years) Has Ever Claimed They Knew What They Were Doing

except W and Greenspan. I think that says it all.

[Demeter]

31. I Have to Laugh and Shake My Head in Disbelief

I live in a market-rate co-op in Ann Arbor, a cosy little scandal-ridden place that only recently started to get its financial house in order. Sort of.

The big project du jour is to convert to condos, since "co-ops are archaic, nobody here acts like it's a co-op, we want our property values to stop falling (in the state with the highest unemployment for the last 7 years?)", etc.

What these people really want is a pot of gold at the end of the rainbow.

Well, there isn't any rainbow, but they refuse to accept the change in the times and the economy. They are convinced that with such a large pile of horse manure, there's a pony around here somewhere!

So all these people, borderline middle class (or they would live somewhere more expensive, believe me), believe that they will 1) get mortgages 2) sell to greater, richer fools, 3) find someplace they can afford, after.

There's talk of "reverse mortgages" for the elderly (how much is that, given a market value of $80k? 3 years' worth?) There's talk of "home equity loans" for remodeling 30 year-old kitchens and baths (probably half of the shareholders are in negative equity states already). There's lots of talk--and damn few facts. I've been trying, desperately, as a member of the Board, to explain the flaws in their reasoning and facts, to no avail.

It's a fine place to live, and it's getting better with each improvement project. The location couldn't be better. It's just that there are no buyers because there are no jobs, and that's why these financial morons are wanting to cash out and sell, anyway.

I really appreciate this daily thread for the sanity, information and advice. Thanks for listening to my rant. I wish you could all be neighbors--we'd change the world!

[Warpy]

62. At last, dawn breaks over Marblehead!

It looks like lenders are starting to realize they're not going to see those huge profits that CDOs originally promised, that they're not going to be able to increase those ARMs as fast as they thought they could, and that stones yield precious little blood. They have found out that foreclosure means a blighted property that drags all adjacent property values down, meaning there are a lot more stones out there to try to bleed dry.

I'm not surprised that they're waking up. I knew such an awakening was inevitable. However, reducing the principal and/or reducing the interest rates will have a deep effect on the balance sheets of brokerages, banks, pension funds, and every other institution that believed what derivative jockeys at hedge funds were telling them about CDOs.

There's going to be a lot of belt tightening going on all over the place and this is far from over. However, the first signs that financial institutions are starting to recognize reality are there, and that gives me some hope that the catastrophe won't be a complete one.

[Roland99]

19. 9:43am - Weak opening but something tells me faeries will be present soon.

Dow 12,692.95 -50.24
Nasdaq 2,402.98 -10.38
S&P 500 1,388.26 -7.16
10 YR 3.65% 0.05
Oil $89.47 $0.51
Gold $907.10 $-6.40

[DemReadingDU]

22. some background info about FDR, housing, mortgages, banking

I found this written by Sara who occasionally posts at The Next Hurrah. She discusses commercial banking, investment banking, FHA, mortgages and how the three used to be separate entities, but now have all become merged into an ominous mess. I had forgotten (or maybe never really understood) the previous financial world. Quite an interesting read....

2/1/08 FDR, Some Cultural History, and the Sub-Prime Crisis
http://thenexthurrah.typepad.com/the_next_hurrah/2008/02/fdr-some-cultur.html

and additional info in her comments
http://thenexthurrah.typepad.com/the_next_hurrah/2008/02/fdr-some-cultur.html#comment-99611548

[Buttercup McToots]

58. Thanks Dem

That is a great article.
I love that site...
:hi:

[Warpy]

63. Wow, great article

I'd noticed the difference in and around Boston between 1920s construction of Queen Anne monstrosities and the 30s construction of modest 2 bedroom, one bath houses without servant's quarters and two story garage/carriage house facilities but never connected it to the changing rules of the FHA which allowed long mortgages without balloon payments. The parallel today to the overconstruction of McMansions and the dearth of starter housing for small families is striking, along with the reappearance of the balloon payment mortgage. Today the servant's quarters have been replaced by media rooms and game rooms, but the idea's the same.

Housing prices actually fell all during the 20s as people borrowed heavily to put money into the stock market. A lot of people had already left the balloon payment treadmill by the time the crash took place. If they'd cashed in their equity to a bigger fool, they generally got wiped out completely as they tried to keep up with the difference between the stock price and the amount of debt they'd incurred to keep up with it. They ended up in squalid, overcrowded tenements sharing kitchens and baths with a dozen other families, tenements that had once been the monstrosities poorly financed in the manner the article described. I saw that type of housing when I first moved to Boston in the 60s. It sucked, but it was a roof over the head of the marginal worker. Those places are all regentrified, but probably will become marginal housing again in the near future.

As for the increasingly incestuous dealings of the commercial bank, the FHA and the investment banking end of the business, the warning signs for that have been there all along. Deregulation only allows the thieves to return and set up legal shop, and that's exactly what has happened.

In any case, we are about to live in interesting times.

[DemReadingDU]

77. Deregulation has turned out badly

Our country needs a strong leader who can turn around our country. It's not going to be easy, but it needs to be done. No more band-aid this or cover up that. It doesn't hurt anyone to go back and re-read a bit of history to discover why the regulations were implemented to begin with. We can see what has happened when the regulations were repealed.

[Hugin]

28. ~10:45 ET: Queue up the "Chariots of Fire"

Comment pertains to the Comic Above...


Since this thing hasn't changed in 45 minutes, I can only assume everyone is gossiping about the Superbowl.

Index Last Change % change
• DJIA 12657.03 -86.16 -0.68%
• NASDAQ 2392.26 -21.10 -0.87%
• S&P 500 1383.87 -11.55 -0.83%

It was enjoyable... But, as usual my favorite part was the halftime performance...

This year's was especially great because it featured Tom Petty and The Heart-breakers. :D

[Roland99]

47. Maybe everyone's Waiting for Godot?

:)


The commercials largely sucked, though. Except Charlie Brown getting the coke and the "ugly Betty" type character with the Planters.

[TalkingDog]

56. Patriots fans are still in bed with cover over heads

*weeping*

The Giants fans are hungover from "celebrating". Everybody else is reading this thread.


Tellingly, the only commercial I saw was some talking child trading stock and throwing up...


(And just so you know...I had to look up the team names. Not a sports watcher)


My Favorite Master Artist: Karen Parker GhostWoman Studios

[Hugin]

61. ~14:00 ET: Flatline... Okay, I'm calling it...

Get this one on ice and prepare for transport...

Index Last Change % change
• DJIA 12660.60 -82.59 -0.65%
• NASDAQ 2392.33 -21.03 -0.87%
• S&P 500 1384.56 -10.86 -0.78%


Now, where was I?

Oh, yeah... All I know is I was rooting for the Giants...
as the underdogs.

How was I supposed to know they'd win? :rofl:

Have I mentioned how much I enjoyed Tom Petty and the Heartbreakers during the halftime? :D

[TalkingDog]

64. Well, in your honor, then: Tomorrow's theme song- Free Falling

She's a good girl, loves her mama
Loves Jesus and America too
She's a good girl, crazy bout Elvis
Loves horses and her boyfriend too

It's a long day living in Reseda
There's a freeway runnin' through the yard
And I'm a bad boy, cause I don't even miss her
I'm a bad boy for breakin her heart

And I'm free, free fallin'
Yeah I'm free, free fallin'

All the vampires walkin' through the valley
Move west down Ventura Boulevard
And all the bad boys are standing in the shadows
All the good girls are home with broken hearts

And I'm free, free fallin'
Yeah I'm free, free fallin'
Free fallin', now I'm free fallin', now I'm
Free fallin', now I'm free fallin', now I'm

I wanna glide down over Mulholland
I wanna write her name in the sky
Gonna free fall out into nothin'
Gonna leave this world for a while

And I'm free, free fallin'
Yeah I'm free, free fallin'




My Favorite Master Artist: Karen Parker GhostWoman Studios

[Hugin]

65. Right on!

:yourock:

"Runnin' Down a Dream" would be good too. :)

[Demeter]

33. report from Davos by Nobel Prize winner Joesph Stiglitz

Not surprisingly, the atmosphere at this year’s World Economic Forum was grim. Those who think that globalisation, technology, and the market economy will solve the world’s problems seemed subdued. Most chastened of all were the bankers.
Against the backdrop of the sub-prime crisis, the disasters at many financial institutions, and the weakening of the stock market, these “masters of the universe” seemed less omniscient than they did a short while ago.

And it was not just the bankers who were in the Davos doghouse this year, but also their regulators – the central bankers.

Anyone who goes to international conferences is used to hearing Americans lecture everyone else about transparency. There was still some of that at Davos. I heard the usual suspects – including a former treasury secretary who had been particularly vociferous in such admonishments during the East Asia crisis -– bang on about the need for transparency at sovereign wealth funds (though not at American or European hedge funds).

But this time, developing countries could not resist commenting on the hypocrisy of it all. There was even a touch of schadenfreude in the air about the problems the United States is having right now –- though it was moderated, of course, by worries about the downturn’s impact on their own economies.

Had America really told others to bring in American banks to teach them about how to run their business? Had America really boasted about its superior risk management systems, going so far as to develop a new regulatory system (called Basle II)? Basle II is dead –- at least until memories of the current disaster fade.

Bankers – and the rating agencies – believed in financial alchemy. They thought that financial innovations could somehow turn bad mortgages into good securities, meriting AAA ratings. But one lesson of modern finance theory is that, in well functioning financial markets, repackaging risks should not make much difference.

If we know the price of cream and the price of skim milk, we can figure out the price of milk with 1% cream, 2% cream, or 4% cream. There might be some money in repackaging, but not the billions that banks made by slicing and dicing sub-prime mortgages into packages whose value was much greater than their contents.

It seemed too good to be true -– and it was.

Worse, banks failed to understand the first principle of risk management: diversification only works when risks are not correlated, and macro-shocks (such as those that affect housing prices or borrowers’ ability to repay) affect the probability of default for all mortgages.

I argued at Davos that central bankers also got it wrong by misjudging the threat of a downturn and failing to provide sufficient regulation. They waited too long to take action. Because it normally takes a year or more for the full effects of monetary policy to be felt, central banks need to act preemptively, not reactively.

Worse, the US Federal Reserve and its previous chairman, Alan Greenspan, may have helped create the problem, encouraging households to take on risky variable-rate mortgages by reassuring those who worried about a housing bubble that there was at most a little “froth” in the market.

Normally, a Davos audience would rally to the support of the central bankers. This time, a vote at the end of the session supported my view by a margin of three to one.
Even the plea of one of central banker that “no one could have predicted the problems” moved few in the audience -– perhaps because several people sitting there had, like me, explicitly warned about the impending problem in previous years.

The only thing we got wrong was how bad banks’ lending practices were, how non-transparent banks really were, and how inadequate their risk management systems were.

It was interesting to see the different cultural attitudes to the crisis on display. In Japan, the CEO of a major bank would have apologised to his employees and his country, and would have refused his pension and bonus so that those who suffered as a result of corporate failures could share the money. He would have resigned.

In America, the only questions are whether a board will force a CEO to leave and, if so, how big his severance package will be. When I asked one CEO whether there was any discussion of returning their bonuses, the response was not just no, but an aggressive defence of the bonus system.

This is the third US crisis in the past 20 years, after the Savings & Loan crisis of 1989 and the Enron/WorldCom crisis in 2002.

Deregulation has not worked. Unfettered markets may produce big bonuses for CEOs, but they do not lead, as if by an invisible hand, to societal well-being. Until we achieve a better balance between markets and government, the world will continue to pay a high price.

http://www.nakedcapitalism.com/2008/02/stiglitz-on-fallen-standing-of-us-high.html

[Hugin]

36. Very good.

Thanks for posting, Demeter.

[Demeter]

39. You're Welcome, Prag!

[specimenfred1984]

37. Best sentence in article:

"Worse, banks failed to understand the first principle of risk management: diversification only works when risks are not correlated..."

Problem is, the banks knew and are so corrupt they did it anyway. It's a systemic failure.

[Demeter]

35. The Naked Economist Shows His Privates In Public by Elaine Meinel

http://elainemeinelsupkis.typepad.com/money_matters/2008/02/the-naked-econo.html




The Naked Economist, Mr. Wheelan, Ph.Dumb, says really stupid things which doesn't shock me since he is a professor, after all, and I am a mere farmer. But his latest lies about the jobs we are losing have to be discussed. And another professor is angry about our banking collapse but being a professor and not a farmer, he thinks all we have to do is increase lending to fix our bankrupt banks. And the Washington Post runs a totally erroneous and misleading article about Japan. They don't connect anything to anything there! No mention of the huge FOREX reserves, for example. They want us to think the 'depression' in Japan is due to them being weak and poor. Not due to their own industrialists manipulating the domestic economy so they can take over the global economy!


Charles Wheelan, Ph.D. The Naked Economist


I have a naïve request for the balance of the presidential campaign: I don't want to hear any candidate say one more thing about "creating jobs" or "bringing back jobs" or doing anything with the word "jobs" in it.

That might seem strange at a time when the economy is teetering on the brink of recession, and has eclipsed Iraq as the No. 1 issue on many voters' minds.

Here's my reason: Other than during the depths of the Great Depression, the government doesn't "create jobs." (World War II created most of the jobs then anyway, and I'm not sure that's the direction we should go.) Instead, a sensible government should help to create a skilled workforce and a decent business climate. If it does that, the jobs will take care of themselves.


This man should be called Chuckles the Nude Clown. If we click on the story above, we can read the comments which are uncomplimentary, to say the least. I do believe people are getting fed up with the garbage the mainstream media pumps out. It is painfully obvious that auto factories did not move to the Deep South or Mexico due to superior schooling or well educated workers! Far from it. And since when have factories located themselves in high-education venues? The highly educated Chinese, for example, are not working in factories. Nor are university graduates who are Indian. Mexican ones don't do this, either nor do southerners in the US who get degrees from Duke University.


They go for cheap labor. This guy even pretends that we lack computer experts who can run the robots we see in factories today. This is plainly silly. The robot/computer industry is international and the location of factories are NOT near any major technical schools. They are where there is good transportation and cheap labor.


Next is his astonishing claim, our government doesn't create manufacturing jobs. 80% of our manufacturing base works in one way or another for the military which is why Eisenhower warned us about the 'military/industrial complex'! In the Great Depression, the government created jobs. All the major governments rushed out to create jobs building sidewalks, roads, bridges, parks, whatever they could. The biggest job growth category in the US for the last 7 years has been the government, especially with the stupid 'Homeland Security' and all the war material jobs for Iraq.




And that's just plain wrong. Remember, we decided that the star pediatric heart surgeon could find 10 jobs if he had to. And the unemployed guy in Flint couldn't find one. That's a skills problem, not a shortage of jobs.


Note how this guy confuses a profession with 'jobs.' Comparing blue collar to white collar. In particular, physicians are very much government-related jobs. If the government didn't pour in half a trillion dollars into medical care, the incomes and jobs of those doctors will be much smaller and a lot cheaper. And we will be seeing a very much higher death rate, too. The US has lost blue collar jobs steadily for the last 35 years ever since we allowed a flood of imports into the country.

[AnneD]

52. If they poured a fraction...

of the money that they allocate to medical school into Nursing Schools and Scholarships-we wouldn't have the shortages we have and the worse shortages yet to come. And who really spends the most time with the patients:eyes:

[Demeter]

38. Daily Reckoning for Feb 1

David Fuller is right. What we are really watching is the decline of the United States of America...its currency...its capital base...and its competitiveness in the world economy.

The feds can try to play out more lines of credit to strapped families, but what they are really doing is giving them more rope with which to hang themselves. The real problem is that American wages have not kept pace with inflation...which means, the average American is not as rich as he used to be. He can only pretend to be rich...by exchanging more of his leisure time for dollars...and by borrowing. Both of those “coping mechanisms,” as Robert Reich called them, are now exhausted. Now, he’s going to swing.

Over the last 30 years, Americans believed they were on top of the world. Everybody said so. And, logically, they should have been. It was post Reagan Revolution, with the most modern, most capitalistic economy in the world...with the latest technology, with the world’s best brains, with the top schools, and with Wall Street to “allocate capital” in the best possible way. If workers couldn’t get ahead in this economy, they couldn’t get ahead anywhere. At least, that was what people believed.

But capitalism is a jungle, we keep saying, not a zoo. It lets animals get fat, but only so they can be eaten by hungrier beasts.

To us here at The Daily Reckoning , it was fun listening to the conceits and pretensions of the zookeepers. At the end of the ’80s, they announced their triumph over communism, apparently unaware that their biggest potential rivals had just cut themselves loose from a ball and chain. It is not even 20 years later, and both Russia and China are already formidable competitors. China’s reserves of foreign currency, for example, are nearly 20 times those of the USA. And now, if the Red Giant decides to dump dollars, America’s economy will be hit by a major crisis...and possibly paralyzed.

Then, near the end of the ’90s, the dreamers thought they had found some magic formula. America no longer needs savings, said the pundits, because now our information technology allows us to create wealth using ‘virtual’ capital...brain capital. “They sweat; we think,” said one genius, as if the Chinese and Russians couldn’t think too. If this insight weren’t hilarious enough, Ed Yardeni went on to say that there was a whole new species of human – those who understood this important new truth...those who “got it.” Those who “didn’t get it,” were destined to be left in the dust, he said. We were happy to remain in the camp that was left behind.

Later, after the dotcoms blew up, another hallucination developed. One that sophisticated financial engineering, combined with enlightened macroeconomic management, had made market crashes and recessions obsolete. The geniuses went to work with computers, proving that those fancy derivative contracts (which they were selling) were completely foolproof. They were supposed to run into problems only once in a blue moon. “You’re talking about sigma 25 events,” they said, as if they had a clue. Scarcely three years later, the moon was blue.

It was all great fun. Watching the show, that is. And it’s not over.

Yesterday, the Dow rose more than 200 points. Richard Russell, the keeper of Dow Theory flame, says the stock market is no longer pointing to deflation...but to inflation.

Of course, the price of gold has been pointing to inflation for a long time. It rose again yesterday – up to nearly $930. In Europe, too, inflation is making headlines – it’s at a 14-year high. Many people in France, for example, think the euro (EUR) was a plot to increase prices; they want the franc back. Painted on the wall of a Paris building yesterday, we saw the citoyens’ complaint: “Euroshima” it said.

And consumer inflation in China, at nearly 7%, is said to be “China’s latest export.”

But we are not writing today about the war between inflation and deflation. Today, we’re focusing our attention on a bigger story.

*** The headlines rarely tell you much about what is really happening. They are like dispatches from the front. Inflation scored a victory in the oil market. Deflation advanced on the retail stocks. One company got killed. One trader blew himself up. A trendline broke through resistance.

Behind these news stories is the story so big that scarcely anyone notices it. The United States is losing ground. Its people are getting poorer. Why? Because now, it’s America that drags around the ball and chain.

How much do Russia and China owe the rest of the world? How big are their trade deficits? How many trillions have they promised their retirees? Their sick? Their former employees? How high are their taxes? How much do their people save?

On almost every score, the former communist hellholes have a huge advantage over their North American competitor. The Chinese save nearly 50% of their incomes; Americans save nothing. Russian tax rates are less than half those of the United States. Both have positive trade balances. Even in high tech, America has a negative trade balance with the rest of the world.

Like Europe, America is chained to an aging population and democracy. Both are bad for business. The baby boomers are beginning to retire. They’ve already been promised the sun and the moon... And, once they’re retired, they’re going to vote for the stars too.

That’s why Republican strategists are telling their candidates: No more tax cuts! The voters want to be sure there’s money available for them when they retire.

A little late for that. The government didn’t really set aside money in a ‘lock box,’ as Al Gore used to put it, for Americans’ retirement. It just took the money out of the general fund and put an I.O.U. in the retirement fund. Now, those I.O.U.s are coming due. And what politician is going to stand up to the biggest block of voters in the country and suggest that they be cut back?

And unlike Europe, America has low savings rates...a negative trade balance with the rest of the world, and few industries that can stand the challenge of competition. Germany is still making cars at a profit; the United States is not. France has its luxury products. Switzerland has its precision tools.

In addition to the social charges, there is the big, leaden ball of military expenses. The U.S. military budget is half of the entire world’s military spending, and represents 80% of the increase in world military spending since 2005. The whole point of having such a big military is to be able to push people around. But you have to make it pay. Empires traditionally demanded tribute from the peoples they conquered and/or protected. But the U.S. never got the hang of it. It maintains garrisons of troops all over the world – at its own expense. It thinks it is doing the world a favor; and it thinks it is rich enough to afford it.

The biggest U.S. outposts are in Afghanistan and Iraq, which aren’t even in the military budget. When the war in Iraq began, we estimated that it would end up costing a trillion dollars. And now that the numbers are coming in, we have to admit that we were wrong. Instead of $1 trillion, the Congressional Budget Office estimates that the war will cost $1.7 trillion; the National Bureau of Economic Research puts the tab at $2.2 trillion; and the Congressional Joint Economic Committee thinks it will come to $3.5 trillion.

A trillion here...a trillion there...pretty soon, you’re out of money.

But this is a story only the invisible man of the U.S. presidential election, Ron Paul, is willing to tell.

*** Who ever heard of a stock market without corrections? Don’t prices go up as well as down? And isn’t it normal from economies to take a breather every once in a while? Why the panic at a slight market pullback and first signs of a coming slump?

What is most astonishing about the situation is that there is so little astonishing about it. Bear markets and recessions – like the poor – will always be with us. It’s not the end of the world when they come...because they go, too. Why then the feds’ desperate attempts to avoid them? As we pointed out yesterday, the stock market was barely down 15% from its all-time high and already the Bernanke Fed was taking emergency measures. And hardly has a slowdown begun, and both the House and the Senate have rushed through proposals to send out checks. What kind of economics is this? What theory tells you that you should send out $1,000 checks as soon as GDP growth rates fall to 2%? And if $1,000 checks are supposed to make things better, why not send out $2,000 checks...and make them wonderful again?

As we point out above, the United States is in danger. But the danger cometh not from a bear market in stocks or a recession. Those things are normal, natural and inevitable. Even if you could prevent them by sending people money...you wouldn’t want to. You’d just be making the situation worse.

Americans’ problem is that they’ve spent too much, borrowed too much, and saved too little. That problem will not go away. It needs to be corrected.

*** “That guy they nabbed in the Societe Generale scandal. He’s just a fall guy,” explained a friend yesterday. “A sacrificial lamb. They made a deal with him to cover up the bank’s losses elsewhere. At least, that’s the rumor going around town. And it’s probably true. You can’t believe anything the banks say. ”

[Demeter]

40. BANANA REPUBLIC, WITHOUT THE BANANAS...OR THE REPUBLIC by Bill Bonner

DailyReckoning.com

The dollar is falling against almost everything...even against Iraq’s dinar.

Both Bernanke’s rate cuts and Bush’s ‘tax rebate’ plan have a fruity odor to them. The tax ‘rebates,’ for example, will not return any money to its rightful owners. The U.S. government can’t afford it. Instead, they’ll send out checks to 117 million people – including many who never paid any tax in the first place, encouraging people who have already spent too much to spend even more. Where will the money come from?

The Bernanke/Bush team isn’t saying. They’re so eager to avoid a serious correction that they are throwing caution to the wind – and the dollar too. Let it fly wheresoever it wouldst – as long as it goes down. Besides, who cares? Most of the world’s dollar reserves are held by foreigners. And foreigners don’t vote in U.S. primary elections. “It may be our dollar,” Treasury Secretary John Connelly once shrewdly observed, “but it’s your problem.”

But overseas dollar holders are beginning to notice the tropical flavor of U.S. finances. The dollar has lost 30% of its purchasing power during the last 7 years. Against gold, oil and other key commodities – and other major currencies – it is down much more. In many sunny places with shady finances, this must seem all-too familiar. The ‘banana republics’ did business this way themselves – running up huge debts to overseas lenders...selling off their capital assets to foreign savers...printing money by the boatload...and generally making themselves look ridiculous. Now, the kvetchers are labeling the United States as “the world’s largest banana republic.” One calls the dollar a “Bernanke peso.” Another says the United States is following “Zimbabwe economics.”

Here at The Daily Reckoning , we have been critical of the U.S. economy in the past. But today, we rise not to carp and criticize, but to defend it: The United States has little in common with a banana republic. It has no bananas. It is not a republic. And its weather is not as good.

That said, there are similarities. Real wages for men are lower today than they were 37 years ago. Robert Reich, former Secretary of Labor, writing in the Financial Times, explains that Americans were only able to increase their standards of living by putting their wives to work, putting in more hours on the job, and finally, going deeply into debt.

In the last seven years of the Bush administration, the federal debt increased by two-thirds while U.S. household debt doubled. Despite all this extra spending, median real incomes have continued to go down. Practically all new jobs have been created either by government, or in housing, health care, bars or restaurants. Jobs in manufacturing are now at levels not seen since just after WWII.

“This is the profile of a third world economy,” says former Under Secretary of the Treasury Paul Craig Roberts.

How does an economy like this keep going? It depends on the kindness of strangers and the stupidity of friends. Who but a fool or a friend would buy a U.S. 30-year treasury bond at a 4.28% yield? This number is only a few basis points from the number for annual increases in consumer prices. Which means, if all goes well, investors can expect to make a return of zero on their investment over the next 30 years. And if all this talk of Zimbabwe economics and banana republic finances turns out to be true, they can expect to suffer another round of losses – measured in the trillions. And why shouldn’t it be true? The American Empire is a bit like General Motors, says Martin Hutchinson. It has heavy fixed costs, an aging workforce, worn-out equipment, mammoth debts, and it is losing market share. At immense cost, America maintains its legions in more than 100 overseas garrisons. At home, the mobs call for bread. And every candidate for office – save the forgotten man, Dr. Ron Paul – offers more of it. “We cannot afford another year without decent wages because our leaders could not come together and get it done,” said Barack Obama in South Carolina.

GM, of course, cannot print money. But as Ben Bernanke himself put it, the United States, like Zimbabwe where inflation is running at 150,000%, “has a technology called the printing press.” What can you expect? We would modestly predict that those 30-year T-bonds, sometime between now and 2048 when they mature, will become worthless.

Maybe sooner rather than later. Because both friends and strangers are wising up. The Gulf Sates have the largest foreign currency reserves in the world. But at the end of November, Sultan Nasser al-Suweidi, governor of the central bank of the UAE told The Wall Street Journal , “the connection to the dollar has contributed much to our economy...in the past. Nevertheless, we come to a bifurcation...” Kuwait already switched away from the dollar; for its reserves it now uses a basket of currencies.

Meanwhile, China is said to have about 70% of its $1.53 trillion pile in U.S. dollars. Cheng Siwei, Vice President of the Popular National Congress: “In terms of the structure of our international reserves, we must take advantage of the appreciation of strong currencies in order to offset the depreciation of weak currencies.” ‘Sell the buck,’ he must have whispered to his broker.

And in even the formerly weak currency zone of Latin America – the home of the real ‘banana republics’ – the dollar is wilting. Central banks in Argentina, Peru and Colombia have had to intervene to hold up the greenback. According to Mario Bodersohn, in the Buenos Aires paper, La Nacion , there’s “no precedent for such an intense sell-off of a reserve currency.” Usually, it’s their own pesos, reals, colons, and australs that people are laughing at. Now, it’s the gringo notes that get the punch lines.

[Demeter]

41. "Buyers, not savers, caused America’s deficit"

http://feeds.feedburner.com/~r/NakedCapitalism/~3/227139976/buyers-not-savers-caused-americas.html

In a succinct and well argued Financial Times comment, Richard Duncan weighs in on the savings glut versus overspending (aka money glut) theories of global imbalances, and concludes it's the spending, stupid.

By way of background, let's review the two competing notions of the causes of global imbalances, which is shorthand for "nice central banks in China, Japan, and the Middle East fund our chronic current account deficit."

One is the savings glut story, in which parsimonious Chinese and Japanese force the US to consume to keep the world from falling into recession. This view is favored by the Fed, doubtless because this Keynesian version has the Fed as hapless victim. The other version, the money glut interpretation, holds that serial bubbles in the US have led to asset price distortion, excess liquidity, excessive borrowing by consumers, which in turn has led to excessive consumption, huge US trade deficits, which in turn produce huge trade surpluses in certain trading partners, who then inevitably have high domestic savings rates.

Note that these hypotheses are not mutually exclusive, but we lean towards the money glut as being the more significant contributor.

Why have this discussion at all? Isn't the current account deficit/capital account surplus an accounting issue?

Not really. Which version of the story you believe determines which policy remedies you will favor, so getting the diagnosis right matters, particularly since this situation (at this scale, anyhow) is simply not sustainable. For example, Thomas Palley has framed the argument somewhat differently and that in turn affects his prescription:

Developing countries need to grow, but in today’s globalization it is easier to acquire capacity and grow through FDI than it is to develop domestic mass consumption markets. Consequently, rather than facing a saving glut problem, the global economy faces a problem of market demand failure in developing countries.

The challenge is getting corporations to invest in developing countries, but for purposes of producing for local consumers. That requires expanding markets in developing countries, which means tackling income inequities and getting income into the right hands. That is an enormous organizational challenge that is off the radar because economists focus exclusively on saving and supply-side issues.

Thus for him, the saving glut part of the equation is due to misguided development policies that give too much priority to encouraging third world countries to export at the expense of cultivating domestic markets.

But the reason for focusing on the overconsumption side of the issue is that the problem simply isn't acknowledged in the US (indeed, note that this piece is running in the FT, not a US paper). Our policies are geared to preserving what George Bush described as the American way of life, no matter how much havoc it creates.

From the Financial Times:

It is clear from Alan Greenspan’s autobiography, The Age of Turbulence – chapter 18, “Current Accounts and Debt” – that the former Federal Reserve chairman misunderstood the causes and underestimated the consequences of the extraordinary growth in the US’s current account deficit. Today’s policymakers must see through his mistaken analysis and adopt policies to restore balance to the global economy.

According to Mr Greenspan, the deficit was caused by the high savings rate of countries with current account surpluses, combined with their inability to find sufficiently attractive domestic investment opportunities. High savings and unattractive investments at home, occurring at a time of declining “home bias” in investment, resulted in a massive increase in investments from those countries into US assets, we are told. In other words, high savings abroad resulted in increased consumption in the US.

Here is an alternative view. As globalisation made trade between high-wage and low-wage countries possible, consumers in the US began buying more products made in low-wage countries such as China because those products were cheaper. Meanwhile, people in low-wage countries continued to buy their own products for the same reason. Consequently, the US’s current account went from balance in 1991 to a deficit of $850bn in 2006.

At the same time, in order to prevent their own currencies from appreciating, the central banks of the surplus countries printed their currencies and bought (literally) thousands of billions of dollars to sustain their low-wage competitive advantage. Those central bank dollar reserves represented the bulk of the savings Mr Greenspan refers to in his chapter, although he makes no mention of the fact. Having “saved” so many dollars, central banks needed to invest them in US dollar assets to earn a return. This, rather than a decline in home bias, drove the surge of capital inflows required to finance the US’s soaring trade deficit.

In a nutshell, then, we have two competing theories of the causes of the US current account deficit and all the related imbalances created by it. Mr Greenspan’s explanation is that it is all the result of a savings glut and a decline in “home bias” in the surplus countries. The alternative explanation is that the US trade deficit has been caused by free trade with low-wage countries and financed by paper money creation by the central banks of the surplus countries. You decide which is more plausible.

Mr Greenspan contends that no real harm has been done by these imbalances. In fact, he believes that “in a market economy, rising debt goes hand in hand with progress”.

The truth is that the US current account deficit and the paper money creation that has financed much of it have fuelled an unsustainable economic bubble in the US and around the world that is precariously close to imploding.

Liquidity injections into the credit markets of well over $500bn by a range of central banks (in Europe, the US and the UK) have been required to stave off the complete systemic meltdown of the global financial sector. Meanwhile, the Fed has been panicked into an aggressive round of interest rate cuts, Fannie Mae and Freddie Mac, the US government-sponsored mortgage lenders, have expanded their balance sheets at an unprecedented pace and the US administration has been compelled to rush through a $150bn emergency fiscal stimulus package, all in the attempt to keep the US slump from dragging the world into a global recession.

Mr Greenspan has obviously confused cause and effect in claiming that a savings glut in the surplus countries caused the current account deficit. It is equally obvious that he has drastically underestimated the destabilising consequences of that deficit. In his words: “I would place the US current account far down the list” of imbalances to worry about. It is now clear just how great his misjudgment was.

The current account deficit must quickly be brought to the top of the list of things for our current policymakers to worry about – and to resolve. If this imbalance is permitted to grow, or even to persist at current levels, the outcome can only be new and greater credit-induced economic convulsions that will require ever larger government bailouts and ever-increasing government encroachment into the economic sphere.

[TrogL]

42. Loonie Watch

Highlights

Current:



30-day and 90-day vs.greenback:



30-day vs. Euro, Yen, UK Pound and Swiss Franc




Currency Comparison: http://members.shaw.ca/trogl/looniewatch.html

Detailed analysis: http://quotes.ino.com/exchanges/?r=CME_CD

Up-to-the-minute graph: http://quotes.ino.com/chart/?s=CME_CD.Y%24%24&v=s&w=5&t=l&a=1

Historical values http://www.x-rates.com/d/USD/CAD/data30.html

2007-12-24 Monday, December 24 1.01307 USD
2007-12-25 Tuesday, December 25 1.01307 USD
2007-12-26 Wednesday, December 26 1.01688 USD
2007-12-27 Thursday, December 27 1.01958 USD
2007-12-28 Friday, December 28 1.02208 USD
2007-12-31 Monday, December 31 1.01204 USD
2008-01-01 Tuesday, January 1 1.01204 USD
2008-01-02 Wednesday, January 2 1.00786 USD
2008-01-03 Thursday, January 3 1.00959 USD
2008-01-04 Friday, January 4 1.0012 USD
2008-01-07 Monday, January 7 0.995025 USD
2008-01-08 Tuesday, January 8 1.0015 USD
2008-01-09 Wednesday, January 9 0.991768 USD
2008-01-10 Thursday, January 10 0.986291 USD
2008-01-11 Friday, January 11 0.980584 USD
2008-01-14 Monday, January 14 0.979432 USD
2008-01-15 Tuesday, January 15 0.983574 USD
2008-01-16 Wednesday, January 16 0.976753 USD
2008-01-17 Thursday, January 17 0.971817 USD
2008-01-18 Friday, January 18 0.97144 USD
2008-01-21 Monday, January 21 0.97144 USD
2008-01-22 Tuesday, January 22 0.9758 USD
2008-01-23 Wednesday, January 23 0.972573 USD
2008-01-24 Thursday, January 24 0.99295 USD
2008-01-25 Friday, January 25 0.995619 USD
2008-01-28 Monday, January 28 0.995818 USD
2008-01-29 Tuesday, January 29 1.0022 USD
2008-01-30 Wednesday, January 30 1.00644 USD
2008-01-31 Thursday, January 31 0.998203 USD
2008-02-01 Friday, February 1 1.00614 USD


Current values

http://quotes.ino.com/exchanges/?r=CME_CD)

Market            Open   High    Low   Last  Change    Pct 
CD.Y$$     Cash 0.9998 1.0051 0.9998 1.0048 -0.0017 -0.17% 
CD.H08 Mar 2008 1.0002 1.0061 1.0002 1.0061 +0.0006 +0.06% 
CD.M08 Jun 2008 1.0030 1.0030        1.0037 +0.0106 +1.05% 
CD.U08 Sep 2008 0.9785 0.9785 0.9780 1.0016 +0.0105 +1.04% 
CD.Z08 Dec 2008 0.9750 0.9750 0.9750 0.9999 +0.0107 +1.06% 
CD.H09 Mar 2009 0.9810 0.9825        0.9980 +0.0103 +1.02% 
CD.M09 Jun 2009 0.9995 0.9995        0.9961 +0.0099 +0.98% 

Other combinations: (http://quotes.ino.com/exchanges/?c=currencies)

Market              Open    High     Low    Last   Change     Pct 
AUSTRALIAN $/CANADIAN $ (NYBOT:AS)
AS.H08 Mar 2008   0.8834                  0.8952  -0.0004  -0.05%  
AUSTRALIAN $/US$ (NYBOT:AU)
AU.H08 Mar 2008           0.89995 0.89995 0.89995 +0.00885 +1.01%  
CANADIAN $/JAPANESE YEN (NYBOT:HY)
HY.H08 Mar 2008   107.000 107.000 107.000 107.000 +0.275   +0.25%  
EURO/AUSTRALIAN $ (NYBOT:RA)
RA.H08 Mar 2008   1.6642  1.6642  1.6642  1.6431  -0.0232  -1.39%  
EURO/BRITISH POUND (NYBOT:GB)
GB.H08 Mar 2008   0.7514  0.7514  0.7514  0.7514  -0.0020  -0.27%  
EURO/CANADIAN $ (NYBOT:EP)
EP.H08 Mar 2008  1.4870  1.4870  1.4870  1.4706   -0.0216  -1.50%  
EURO/JAPANESE YEN (NYBOT:EJ)
EJ.H08 Mar 2008  157.880 157.890 157.480 157.480  +0.535   +0.33%   
EURO/US$ (SMALL) (NYBOT:EO)
EO.H08 Mar 2008  1.48040 1.48040 1.48040 1.47835  -0.00630 -0.43%  

Blather (from http://quotes.ino.com/exchanges/?r=CME_CD)

The March Canadian Dollar was lower overnight as it consolidates some of last Friday's rally. Stochastics and the RSI are overbought and are turning bearish hinting that a short-term top might be in or is near. If March extends the rally off January's low, the reaction high crossing at 101.67 is the next upside target. Closes below the 20-day moving average crossing at 98.86 would confirm that a short-term top has been posted. First resistance is last Wednesday's high crossing at 101.20. Second resistance is reaction high crossing at 101.67. First support is the 10-day moving average crossing at 99.32. Second support is the 20-day moving average crossing at 98.86.


Analysis

It may have been lower overnight, but it's already broken through par and climbing steadily. It's also up against all major markets.

Alberta may be in election mode sometime today. There are concerns that the Stelmach government has no plan for dealing with oilpatch windfalls.

On a side note, my house insurance policy just showed up. I'm covered for the value of my house two years ago. Today its price has doubled. Do I up my insurance to the new level or coast out the bubble?

[TrogL]

76. Alberta Throne speech is in 10 minutes

We'll know if the Writ drops soon after.

[Demeter]

43. Merrill Makes Springfield, MA Whole on CDOs Gone Bad

http://feeds.feedburner.com/~r/NakedCapitalism/~3/227084304/merrill-makes-springfield-ma-whole-on.html



Merrill Lynch has been under investigation by the Massachusetts state attorney general's office over the sales of CDOs to Springfield that had fallen in price by 91%. The issue was that Springfield had made clear that its investment policies were conservative and these instruments were clearly inappropriate. There was further fuel for the fire in that the Merrill office responsible for the sale, in Quincy, MA, was also being investigated by the state of Maine.

Merrill decided to reimburse Springfield for its losses and costs rather than suffer continued embarrassment, particularly when it stood good odds of losing were it to fight. From the Wall Street Journal:


Merrill Lynch & Co. has bought back, from Springfield, Mass., complex debt securities that rapidly collapsed in value during the credit crisis.

The securities, known as collateralized debt obligations, were repurchased at the same price of $13.9 million that Merrill initially sold them to the city last spring. These CDOs, which are pools of debt that included subprime mortgages, are worth only $1.2 million, according to a recent Merrill account statement for Springfield.

Merrill also agreed to pay outside legal fees incurred by the Springfield Finance Control Board, which overseas the city's finances.

"The City of Springfield and the Springfield Financial Control Board have said that neither body approved the purchases of these investments," said Mark Herr, a Merrill spokesman. "After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city. As a result, we are making the city whole and we have taken appropriate steps internally to ensure this conduct is not repeated."

The Massachusetts Attorney General's Office said it continues to investigate the sale. "We are still reviewing this matter to determine if additional action by our office is necessary," said Melissa Sherman, a spokeswoman....

"Springfield deserved to get the money back, and Merrill has acknowledged that," said Richard Rosenweig, a partner at Goulston & Storrs, attorneys for the Springfield Finance Control Board

[Robbien]

73. I wonder how many more municipalities were duped by this scheme

and are right now lining up their legal teams for a go at Merrill.

This CDO package offered by Merrill was a big pile of steaming poop from day one. Being able to sell it to anyone had to involve deceptive selling practices.

[Demeter]

44. ARE CONSUMERS DRIVING US INTO RECESSION? by Lew Rockwell

DailyReckoning.com

With recession looming or already here, the time has arrived for finding scapegoats. Expect a long list of these. Here is the target of the day: tightfisted consumers. A decline in personal consumption, writes the New York Times , “would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.”

This recalls Bush’s advice after 9-11, when he assumed the mantle of the nation’s personal financial planner. He told everyone to go out and spend money so the economy could avoid recession. Even then, there was confusion about whether he was right or wrong. Some sensible voices pointed out that economic expansion is based not on spending but on capital expansion rooted in savings. That is to say, the only path to future prosperity is delaying current consumption in favor of future investment.

One only needs to think of the household budget here to see the point. If you are planning for the future for your family, what is the wisest course? Does one go into debt as much as possible, buy the largest house and the biggest car, throw lavish parties, hand out all existing liquid funds to friends and strangers? Based on the view that consumption is the way to avoid economic problems, this would indeed be the right course.

But this also defies everything we know about family finance. The path to a secure prosperity is delaying consumption. One should spend as little as possible and save as much as possible for the future, and let that money be used in the service of investments that yield a solid rate of return. Those who have chosen a different path now see the folly: they are being burned in the soft housing market, for example.

The lesson is also true for the nation at large, because the logic doesn’t magically change when moving from the family budget to the national stage. Just because something involves “macroeconomics” doesn’t mean that we should throw out all good sense. But that is precisely what people have done with regard to the economy, since J.M. Keynes somehow convinced the world that up is down and left is right.

In a recession or a crisis, the right approach for individuals is to save. So too for the national economy. A looming recession will prompt a pullback in consumer spending as a rational response to the perception of economic troubles. This action does not cause the economy to fall into recession any more than more spending can save it from recession. The downturn is a fact that cannot be avoided. We don’t blame umbrellas for floods, and, in the same way, we shouldn’t blame tightfisted consumers for recessions.

There is no question that this is what is happening. American Express reports that the rate of spending by its cardholders fell 4% in December. Surveys of consumer satisfaction with the economy report a 15-year low. Retailers report that December was a “blood bath” (NYT ’s words) for them, with sales growing at the slowest rate in seven years. Market watchers are mostly concerned that high-income buyers are bailing out.

Again, it is critical to keep cause and effect in mind. The pullback on spending is not going to cause a recession. If we think about the long term, this is not a dangerous trend but a hopeful one. The more people pull back and save, the more the foundation is laid for a recovery after the current correction takes its course.

To see that requires that we take a long view. Government, however, seems constitutionally incapable of seeing the long term, much less doing the right thing to prepare for it. Making matters worse, this is that dreaded event called an election year. Prettying things up to make the economy palatable to voters is priority number one.

What does this mean? More monetary expansion. More government spending. We can fully expect the Bush administration to resort to its old program of sending checks out to every American family with the proviso that the money has to be spent, not saved.

No doubt that many people would be thrilled by this. But look beneath the surface. Government has no money to spend on anything that it doesn’t extract from the pockets of you and me and the whole American public. This is easy enough to see concerning taxes. It is not so easy to see when the government runs up debt that is guaranteed by the printing presses.

The monetary issue can be understood by analogy to orange juice. The more water you add, the less substance it has. If you keep adding, eventually you come to the point when you can no longer tell that it was ever orange. This is the same with money. If you print enough — literally or electronically through the credit markets — it will continue to lose value. If money grew on trees, it would be about as valuable as autumn leaves.

So long as we have a central bank, government will be tempted to take the easy path of easy money. There do not need to be any secret phone calls from the White House to the Fed. The culture of policymaking itself is capable of broadcasting the right signals to all important players.

In any case, it is a myth that the Fed makes policy independent of political pressure. It is subject to the screams and hollers for looser credit in the same way that bureaucracies are responsive to demands for more regulation.

Yes, government can increase consumption, but by doing so it does nothing to care for the long term. The long-term health of a nation is not different from that of a household budget. Tough times require cutbacks and a beefing up of savings.

So let’s not demonize the consuming public for doing what it should be doing. It’s a good rule of thumb that when the government tells you to spend money, you should close your wallet.

[Roland99]

49. *that* came from Lew Rockwell?

wow.

[DemReadingDU]

51. here is a link

1/15/08 Are Consumers Driving Us into Recession? by Lew Rockwell
http://www.lewrockwell.com/rockwell/consumer-recession.html

[Roland99]

57. The pure free-marketers at least realize the dangers inherent in the system.

[Demeter]

59. The Question Is Always: Whose Ox Is Getting Gored?

[Roland99]

81. It's time to start teaching a Personal Finance class in Elementary, Middle and 2 in High School

Teach our kids to save, invest, maintain their credit. But, most important, to stop coveting and buying and consuming.

[DemReadingDU]

82. So much is due to peer pressure

When my kids were younger, I would get them the basics. If they desired anything more, it was up to them to earn the money. Some things weren't as important when they had to pay.

:P

[ozymandius]

84. I *enthusiastically* support this notion.

Too many of my students are into so much bling. Good shoes are important. That's money well spent. But bling is such a waste.

I get compliments from students on my clothes. Someday I may tell them that my pants cost five bucks and the shirt cost three at the thrift store.

[ozymandius]

85. I wonder why this showed up as a poll?

[Roland99]

86. Stayed tuned for more info. I thought of this a couple yrs ago pitched to a teacher of my daughter.

I have more detailed info...I'll post a thread in GD in a couple days and link it here.

[Demeter]

55. Everyone's Holding Breath And Fire for SuperTuesday

Don't want to move today--when tomorrow and Weds are likely to be much worse.

And then, there's those cables sabotagedin the Middle East--doesn't look like that reality check has registered--yet.

[Dawggie]

60. I follow tech stocks and it has been one strange day today.

I'm watching a volatile stock that has been hanging in within a penny on NASDAQ for the last two hours. I have never seen that before.

[citizen snips]

66. Bush Unveils $3.1 Trillion Spending Plan

WASHINGTON (AP) -- President Bush sent the nation's first-ever $3 trillion budget proposal to Congress on Monday, contending that the spending blueprint will fulfill his chief responsibility to keep America safe.

The $3.1 trillion proposed budget projects sizable increases in national security but forces the rest of government to pinch pennies. It seeks $196 billion in savings over five years in the government's giant health care programs -- Medicare and Medicaid.

But even with those restraints, the budget projects the deficits will soar to near-record levels of $410 billion this year and $407 billion in 2009, driven higher in part by efforts to revive the sagging economy with a $145 billion stimulus package.

Bush called the document, which protects his signature tax cuts, "a good, solid budget" But Democrats, and even a top Republican, attacked the plan for using budgetary gimmicks to claim the budget can return to balance in 2012, three years after Bush leaves office.

more...
http://biz.yahoo.com/ap/080204/bush_budget.html

[wordpix]

78. After reading this part, I just about puked---luckily King Gorge is a lame dick, I mean duck

The Pentagon would receive a $36 billion, 8 percent boost for the 2009 budget year beginning Oct. 1, even as programs aimed at the poor would be cut back or eliminated. Half of domestic Cabinet departments would see their budgets cut outright.

[Roland99]

87. What point is being poor if you're not.... safe?

;)

[citizen snips]

67. Fed Survey: Banks Tightening Credit

WASHINGTON (AP) -- Many U.S. banks have made it harder for creditworthy borrowers to get a mortgage, according to a Federal Reserve survey released Monday that underscored the spread of a painful credit crunch.

"About 55 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages," the Fed survey said. That was up from about 40 percent in a previous survey released in November.

Problems first cropped up in the market for risky "subprime" mortgages made to people with tarnished credit or low incomes and have been spreading to more creditworthy borrowers. Foreclosures have hit record highs.

About 60 percent of domestic banks responding to the survey indicated that they had tightened their lending standards for approving applications for revolving home equity lines of credit over the past three months, the Fed said.

more...
http://biz.yahoo.com/ap/080204/fed_bank_survey.html

[citizen snips]

68. Sector Snap: Investment Banks

NEW YORK (AP) -- Punk Ziegel & Co. analyst Dick Bove upgraded most of the major Wall Street investment banks over the weekend, saying the banks' judgments of how much value their portfolios have lost are probably excessive.

Bove upgraded Bear Stearns Cos., Goldman Sachs Group Inc., and Merrill Lynch & Co. to "Market Perform" from "Sell." He upgraded Lehman Brothers Holdings Inc. all the way to "Buy" from "Sell."

A number of factors have brightened the outlook for investment banking in the last few weeks, Bove said. Interest rates have crept down, lenders in certain troubled markets have begun to lend again, foreclosures appear to have topped out and the stock market has rallied.

Aside from the Federal Reserve cutting the federal funds rate target, Bove said other types of interest rates have eased downward as lenders grow more comfortable handing out money.

more...
http://biz.yahoo.com/ap/080204/investment_banks_sector_snap.html?.v=1

[citizen snips]

69. Google Faces Uphill Fight With Microsoft

WASHINGTON (AP) -- Google's effort to raise antitrust concerns about Microsoft's $42 billion bid for Yahoo has several flaws, analysts said.

For starters, regulators pay more attention to the views of customers and consumers than to those of competitors when reviewing consolidation, antitrust attorneys said. On its specific arguments against the acquisition, Google also may not have made the strongest case possible, these attorneys said.

The biggest hurdle when one rival complains about another is that "the regulators suspect the deal might be good for competition," Stephen Houck, a former antitrust enforcer in New York state, said Monday.

"Google has to tread very carefully, lest it have a negative impact," said Houck, who is counsel for a group of states, led by California, that pushed to extend court oversight of Microsoft's landmark 2002 antitrust settlement. A judge recently extended that oversight until November 2009.

Google's top lawyer, David Drummond, said in an online posting on Sunday that Microsoft's proposed acquisition of Yahoo would give the combined company "an overwhelming share of instant messaging and Web e-mail accounts."

more...
http://biz.yahoo.com/ap/080204/microsoft_yahoo_antitrust.html?.v=5

[citizen snips]

70. Metals Prices at a Glance

NEW YORK (AP) -- The following are key metals settlement prices Monday, compared with late Friday, on the New York Mercantile Exchange:

April gold $909.40, down $4.10 an ounce

March silver $16.780, down 9 cents an ounce

March copper $3.2985, up 2.55 cents a pound

[citizen snips]

71. Sector Snap: Credit Card Lenders

NEW YORK (AP) -- A UBS Investment Research analyst cut his rating on credit card lenders on Monday, saying a recession will put more people out of work and many will not be able to pay their bills.

UBS Investment Research analyst Eric E. Wasserstrom, in keeping with UBS' outlook for a recession in the first half of the year, cut his rating on American Express Co., Capital One Financial Corp. and Discover Financial Services LLC to "Sell." He previously rated American Express a "Buy," and Capital One and Discover at "Neutral."

With the economy shrinking, Wasserstrom expects the unemployment rate to tick up. The job market is the most important pillar for credit quality, he said. With more people out of work, credit card lenders will report more bad debt on their books, he said.

Wasserstrom slashed his price target on American Express to $45 from $67. The stock closed Friday at $49.60, and in afternoon trading Monday lost $1.80, or 3.6 percent to $47.80.

more...
http://biz.yahoo.com/ap/080204/credit_card_lenders_sector_snap.html?.v=1

[citizen snips]

72. Virgin Mobile Shares Tumble

NEW YORK (AP) -- Shares of Virgin Mobile USA Inc., the U.S. wireless unit of Richard Branson's Virgin Group, tumbled Monday after the company reported fourth-quarter subscriber figures below analysts' and its own prior expectations.

The company, which offers prepaid wireless services and focuses on the youth market, said it added 210,000 net subscribers during the quarter. Thomas Weisel Partners analyst James D. Breen had expected 375,000 customers, and said Virgin Mobile's numbers reflect "a very difficult and volatile prepaid wireless market."

Last November, Virgin Mobile raised its outlook for net subscriber additions to between 350,000 and 400,000 for the fourth quarter -- about 50,000 higher than its prior expectations.

On Monday, the company cited its decision not to participate in rivals' "aggressive handset pricing" for the weak subscriber numbers. Breen, who rates the stock "Overweight," said the numbers should come as no surprise, given rival Leap Wireless International Inc.'s better-than-expected subscriber figures for the fourth quarter.

more...
http://biz.yahoo.com/ap/080204/virgin_mobile_mover.html?.v=2

[citizen snips]

74. Sector Snap: Biotechnology

NEW YORK (AP) -- Biotechnology stocks could be among the bright spots in what is shaping up to be an economically weak 2008, as drug development programs and demand for new therapies support the shares, analysts said Monday.

Several Wall Street analysts said the sector's larger companies, such as Genentech Inc. and Celgene Corp., could remain defensive stocks as broad economic concerns keep the market volatile. However, several smaller companies also stand to gain from a mix of cutting-edge development programs that could produce the next round of blockbuster drugs.

"We remain bullish on biotech overall and view large caps as increasingly defensive," wrote JPMorgan analyst Geoffrey Meacham in a note to investors. "This is driven by minimal political risk, stable growth for the industry's key products and ample sector catalysts."

He said the American Stock Exchange's biotech index, which tracks movement for bellwether stocks in the sector, is down 3.3 percent year-to-date, compared with a 5 percent drop for the Standard & Poor's 500 index and a 9 percent decline for the Nasdaq.

more...
http://biz.yahoo.com/ap/080204/biotechnology_sector_snap.html?.v=1

[citizen snips]

75. American Traffic Up Slightly in January

FORT WORTH, Texas (AP) -- AMR Corp.'s American Airlines, the nation's largest airline, on Monday said its overall traffic inched upward in January, though the number of U.S. passengers declined.

Total traffic, measured as revenue passenger miles, or miles flown by paying passengers, rose 0.2 percent to 10.92 billion amid rising international demand, especially from Latin America. Domestic traffic fell 2.2 percent to 6.85 billion revenue passenger miles, American said.

American has been trying to manage lighter demand by reducing overall capacity. A key measure of capacity, available seat miles, fell 1.5 percent to 14.3 billion available seat miles last month. Domestic capacity fell 3.6 percent to 8.9 billion available seat miles.

Occupancy improved to 76.6 percent from 75.3 percent a year earlier. American said it boarded 7.7 million passengers in January, a decline of 0.2 percent from the same month a year ago.

more...
http://biz.yahoo.com/ap/080204/american_airlines_traffic.html?.v=1

[citizen snips]

79. Nasdaq 100 Leaders, Laggards: RYAAY YHOO

NEW YORK (AP) -- Shares of Ryanair Holdings PLC helped pull down the Nasdaq 100 index Monday, after the discount Irish airline posted a flat third-quarter profit and warned of high fuel costs, one of the largest expenses for an airline.

Ryanair Holdings declined $2.75, or 8.3 percent, to $30.47.

The index, which includes 100 of the largest nonfinancial securities listed on the Nasdaq Stock Market, lost 26.47 points, or 1.4 percent, to 1,828.80. The broader Nasdaq composite fell 30.51 points, or 1.3 percent, to 2,382.85.

Shares of United Airlines parent UAL Corp. declined $2.25, or 6.2 percent, to $38.58. The Chicago-based company will start charging most passengers $25 for checking a second piece of luggage.

more...
http://biz.yahoo.com/ap/080204/nasdaq_100_laggards.html?.v=1

[citizen snips]

80. DJIA Leaders & Laggards: GM MRK

NEW YORK (AP) -- Shares of General Motors Corp. recorded the largest loss on the Dow Jones industrial average Monday and sent the index to a lower finish.

The index gave up 108.03 points to 12,635.16, following last week's gains.

General Motors declined $1.38, or 4.8 percent, to $27.59. On Friday, GM finished higher on news that its U.S. auto sales rose 2.1 percent in January, helped by strong sales of its GMC and Saturn brands.

JPMorgan Chase & Co. lost $2.07, or 4.3 percent, to $46.18.

more...
http://biz.yahoo.com/ap/080204/djia_laggards.html?.v=1

[ozymandius]

83. closing numbers and blather

Dow 12,635.16 Down 108.03 (0.85%)
Nasdaq 2,382.85 Down 30.51 (1.26%)
S&P 500 1,380.82 Down 14.60 (1.05%)
10-Yr Bond 3.643% Up 0.043
NYSE Volume 3,496,891,750
Nasdaq Volume 2,146,952,500

4:45 pm : After the huge gains recorded last week, the stock market was expected to take a breather header. On Monday it lived up to those expectations, as each of the major indices recorded a loss.

The selling activity was fairly broad-based and was led by the financial and retail groups-- two of the best-performing areas last week.

UBS helped ignite the selling activity when it slapped a Sell rating on consumer finance companies Discover Financial Services (DFS 16.34, -1.62), Capital One (COF 52.65, -4.32) and American Express (AXP 47.66, -1.94) on concerns about a consumer-led recession. In a related move, Merrill Lynch also cut Wells Fargo (WFC 31.39, -2.26) and Wachovia (WB 35.53, -3.23) to Sell, which added to the negative action in the financial stocks.

Continued weakness in big-cap technology issues also weighed heavily on the broader market. Google (GOOG 495.43, -20.47), which kissed $700 in December, fell below $500 on Monday amid continued concerns about its recent earnings disappointment and the competitive threat posed by a Microsoft-Yahoo! alliance. Goldman Sachs also took the stock off its Conviction Buy List.

The Wall Street Journal, incidentally, reported Monday that Google offered Yahoo! its help in fending off Microsoft if it so desired.

Another notable laggard in the tech sector was Cisco (CSCO 23.82, -1.12), which got hit on cautious analyst commentary regarding its near-term earnings prospects.

The Factory Orders report for December was the lone economic release on Monday. Although the reported 2.3% increase was a bit shy of the consensus estimate of 2.5%, it marked an acceleration from the 1.7% growth rate reported for November. Moreover, it provided an indication that there still isn't much evidence of a recession in manufacturing.

Despite the decent economic news, buyers simply didn't show much conviction in Monday's action. The indices closed near their lows for the session on lighter volume at the NYSE than has been seen recently. That point speaks to the idea that the losses Monday were indeed driven more by a profit-taking inclination than anything else. DJ30 -108.03 NASDAQ -30.51 SP500 -14.60 NASDAQ Dec/Adv/Vol 1607/1205/2.15 bln NYSE Dec/Adv/Vol 1872/1276/1.31 bln