STOCK MARKET WATCH, Tuesday July 28

[ozymandius]

Source: du

STOCK MARKET WATCH, Tuesday July 28, 2009



Bush Administration Officials Under Indictment = 2

Financial Sector Officials In Prison = 4

AT THE CLOSING BELL ON July 27, 2009



Dow... 9,108.51 +15.27 (+0.17%)

Nasdaq... 1,967.89 +1.93 (+0.10%)

S&P 500... 982.18 +2.92 (+0.30%)

Gold future... 956.30 +0.40 (+0.04%)

10-Yr Bond... 3.72 +0.06 (+1.67%)

30-Year Bond 4.62 +0.08 (+1.81%)

---

U.S. FUTURES & MARKETS INDICATORS

NASDAQ FUTURES..............................................S&P FUTURES

Market Conditions During Trading Hours

GOLD, EURO, YEN, Loonie and Silver

---

Handy Links - Market Data and News:

Economic Calendar    Marketwatch Data    Bloomberg Economic News    Yahoo! Finance

    Google Finance    LayoffDaily

Handy Links - Economic Blogs:

The Big Picture    Financial Sense    Calculated Risk    Naked Capitalism    Credit Writedowns

    Brad DeLong    Bonddad    Atrios    goldmansachs666

Handy Links - Government Issues:

LegitGov    Open Government    Earmark Database    USA spending.gov

Handy Links - Videos:

The Coming Collapse of the Middle Class    Charlie Rose talks with Roubini    Charlie Rose talks with Krugman

---

This thread contains opinions and observations. Individuals may post their experiences, inferences and opinions on this thread. However, it should not be construed as advice. It is unethical (and probably illegal) for financial recommendations to be given here.

Read more: du

[Karenina]

1. +1

:hide:

[ozymandius]

3. Ha! Thanks!

[ozymandius]

2. Market Observation

Mr. Bernanke's Report Card:
We Should All Be Holding Our Noses
BY ROB KIRBY

On Sunday, July 26, 2009, Federal Reserve Chairman Benjamin Bernanke participated in a town-hall styled meeting, moderated by public television's Jim Lehrer in Kansas City, Mo., where he was peppered with several questions about government decisions last year to rescue so-called "too big to fail companies" like insurance giant American International Group.

Mr. Bernanke responded,

"I had to hold my nose. ... I'm as disgusted as you are…”

“Nothing made me more frustrated, more angry, than having to intervene" when companies were "taking wild bets."

And,

It was a "perfect storm," he said, where housing, credit and financial problems converged into a major crisis the likes of which haven't been seen since the 1930s.

It would appear that Mr. Bernanke would have us all believe that he was ‘surprised’ at the outcome we have experienced in financial markets; after all, he did characterize the situation as a “perfect storm” – not exactly a garden variety occurrence.

The failure of Bear Stearns, AIG and the collapse of Lehman Brothers were ALL brought on by derivatives EXCESS. Will Mr. Bernanke be surprised when further losses are socialized?

.....

Under Mr. Bernanke’s supervision, U.S. banks and former investment banks were growing their derivatives positions (instruments that there is NO discernable end use for) to amounts which are MULTIPLES of U.S. GDP, and Mr. Bernanke is surprised that this became problematic?

Two of the biggest players in this cancerous growth in derivatives were none other than Goldman Sachs and J.P. Morgan Chase – BOTH institutions known to have deep ties to the Federal Reserve and the U.S. Treasury. As Chairman of the President's Council of Economic Advisers, from June 2005 to January 2006 at the White House, Mr. Bernanke worked elbow-to-elbow with former employees of Goldman Sachs (a prerequisite to work in the U.S. White House it seems). Are we to believe that he never spoke or ‘talked shop’ with these people?

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

[ozymandius]

4. Today's Reports

09:00 S&P/Case-Shiller Home Price Index May
Briefing.com NA
Consensus -17.90%
Prior -18.12%

10:00 Consumer Confidence Jul
Briefing.com 49.0
Consensus 49.0
Prior 49.3

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

[ozymandius]

5. Oil inches higher, adding to gains of 3-week rally

VIENNA – Oil prices inched higher Tuesday on anticipation that further positive economic news would extend a three-week rally.

Vienna's JBC Energy attributed the buoyancy of oil markets to "enthusiastically absorbed earning figures of selected companies.

....

Benchmark crude for September delivery was up 15 cents, fetching $68.53 a barrel by noon in European electronic trading on the New York Mercantile Exchange. On Monday, the contract rose 33 cents to settle at $68.38.

Oil has surged from $58.78 a barrel earlier this month as solid second-quarter company earnings bolstered investor optimism that the global economy is recovering.

....

In other Nymex trading, gasoline and heating oil for August delivery were up slightly at $1.93 and $1.80 a gallon. Natural gas for August delivery jumped by nearly 6 cents to $3.66 per 1,000 cubic feet.

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

[ozymandius]

17. BP Says ‘Little Evidence’ of Recovery After Net Falls

July 28 (Bloomberg) -- BP Plc, Europe’s biggest oil company, said profit fell 53 percent on lower energy prices and there is “little evidence” of a recovery in demand.

Second-quarter net income fell to $4.39 billion, or 23.16 cents a share, from $9.36 billion, or 49.23 cents, in the year- earlier period, London-based BP said today in a statement. Excluding one-time items and inventory changes, earnings beat analyst estimates.

Almost two years into a turnaround led by Chief Executive Officer Tony Hayward, BP said estimated cost cuts would exceed an earlier target as it increased production to more than 4 million barrels a day. The recovery will be “long and drawn out” as demand stabilizes following “significant falls’ in the first half, Hayward said.

....

U.S. oil futures averaged $59.79 a barrel in the second quarter, 52 percent lower than a year earlier, while gas futures slumped 67 percent. New York oil futures have rebounded 53 percent since the start of the year and traded at $68.44 today.

http://www.bloomberg.com/apps/news?pid=20601085&sid=azsEfIKOjFIw

[UpInArms]

24. (CFTC) Regulator report blames speculators for oil price swings

http://www.reuters.com/article/businessNews/idUSTRE56R0KE20090728?feedType=RSS&feedName=businessNews

(Reuters) - The U.S. Commodity Futures Trading Commission (CFTC) is planning to issue a report next month that suggests that wild swings in oil prices were significantly driven by speculators, the Wall Street Journal reported on its website on Tuesday.

A 2008 report by the main U.S. futures-market regulator that attributed oil-price swings primarily on supply and demand was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, told the paper in an interview on Monday.

The CFTC did not reveal preliminary figures from the report to the paper and declined to discuss the previous data.

Reuters attempts to contact the agency outside regular U.S. business hours were unsuccessful.

...more...

hey stupids (at the CFTC)! Remember Wendy Gramm????

http://www.citizen.org/cmep/energy_enviro_nuclear/electricity/Enron/articles.cfm?ID=7104

Blind Faith: How Deregulation and Enron's Influence Over Government Looted Billions from Americans

Sen. Gramm, White House Must Be Investigated for Role in Enron's Fraud of Consumers and Shareholders

December 2001

Public Citizen's

Critical Mass Energy & Environment Program

Summary of Findings

The combination of unregulated state wholesale electricity markets and federal deregulation of commodity exchanges has removed accountability and transparency from the energy sector, allowing corporations to manipulate price and supply of electricity and natural gas through the exercise of significant market power. California's recent energy crisis and Enron's bankruptcy would have been impossible under a regulated system.

Enron developed mutually beneficial relationships with federal regulators and lawmakers to support policies that significantly curtailed government oversight of their operations.

Enron's business model was built entirely on the premise that it could make more money speculating on electricity contracts than it could by actually producing electricity at a power plant. Central to Enron's strategy of turning electricity into a speculative commodity was removing government oversight of its trading practices and exploiting market deficiencies to allow it to manipulate prices and supply.

Dr. Wendy Gramm, in her capacity as chairwoman of the Commodity Futures Trading Commission (CFTC), exempted Enron's trading of futures contracts in response to a request for such an action by Enron in 1992. At the time, Enron was a significant source of campaign financing for Wendy Gramm's husband, U.S. Senator Phil Gramm.

Six days after she provided Enron the exemption it wanted, Wendy Gramm resigned her position at the CFTC. Five weeks after her resignation, Enron appointed her to its Board of Directors, where she served on the Board's Audit Committee. Her service on the Audit Committee made her responsible for verifying Enron's accounting procedures and other detailed financial information not available to outside analysts or shareholders.

Following Wendy Gramm's appointment to Enron's board, the company became a significant source of personal income for the Gramms. Enron paid her between $915,000 and $1.85 million in salary, attendance fees, stock option sales and dividends from 1993 to 2001. The value of Wendy Gramm's Enron stock options swelled from no more than $15,000 in 1995 to as much as $500,000 by 2000.

Phil Gramm is the second largest recipient in Congress of Enron campaign contributions, receiving $97,350 since 1989.

Days before her attorneys informed Enron in December 1998 that Wendy Gramm's control of Enron stock might pose a conflict of interest with her husband's work, she sold $276,912 worth of Enron stock.

Enron spent $3.45 million in lobbying expenses in 1999 and 2000 to deregulate the trading of energy futures, among other issues.

In December 2000, Phil Gramm helped muscle a bill through Congress without a committee hearing that deregulated energy commodity trading. This act allowed Enron to operate an unregulated power auction -- EnronOnline -- that quickly gained control over a significant share of California's electricity and natural gas market.

Phil Gramm's legislation was in conflict with the explicit recommendations of the President's Working Group on Financial Markets, which is composed of representatives from the Department of Treasury, the Board of Governors of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working group expressly recommended against deregulating energy commodity trading because the traders would be in strong positions to manipulate prices and supply.

From June 2000 through December 2000 -- prior to the bill's passage -- California experienced significant price spikes but only one Stage 3 emergency (requiring "rolling blackouts"). After passage of Gramm's energy commodity deregulation bill in December 2000, Stage 3 emergencies increased from one to 38 until federal regulators helped end the crisis by imposing price controls in June 2001. Phil Gramm's legislation, for which Enron was the primary lobbyist, allowed Enron's unregulated energy trading subsidiary to manipulate supply in such a way as to threaten millions of California households and businesses with power outages for the sole purpose of increasing the company's profits.

Because of Enron's new, unregulated power auction, the company's "Wholesale Services" revenues quadrupled -- from $12 billion in the first quarter of 2000 to $48.4 billion in the first quarter of 2001. This remarkable revenue increase came on top of the record revenue gain that Enron posted from 1999 to 2000, when full-year "Wholesale Services" revenues increased from $35.5 billion to $93.3 billion -- a 163 percent increase.

Investigations by state and federal officials concluded that power generators and power marketers intentionally withheld electricity, creating artificial shortages in order to increase the cost of power.

Enron took advantage of lax oversight following deregulation and formed a complicated web of more than 2,800 subsidiaries -- more than 30 percent (874) of which were located in officially designated offshore tax and bank havens.

President Bush's presidential campaign received significant financial support from Enron ($1.14 million).

Upon assuming office in 2001, Bush promptly scrapped plans put into place by former President Bill Clinton to significantly limit the effectiveness of these countries as tax and bank regulation havens. This action came at the height of high West Coast energy prices, probably allowing Enron to siphon billions to its offshore accounts.

At the same time, the Bush administration and certain members of Congress waged a legislative and public relations campaign against the imposition of federal price controls in the Western electricity market. Such price controls remove the ability of companies exercising significant market share to price-gouge by effectively re-regulating the market. Bush's opposition to price controls unnecessarily extended the California energy crisis and cost the state billions of dollars.

When federal regulators finally imposed strict, round-the-clock price controls over the entire Western electricity market on June 19, 2001, companies operating power auctions (like Enron) no longer had the ability to charge excessive prices and no longer had incentive to manipulate supply.

While price controls clearly saved California, Enron suffered because it could no longer manipulate the market and price-gouge consumers. With no significant asset ownership to offset its losses, Enron's unregulated power auction quickly accumulated massive debts. At the same time, the curtailed revenue flow made it more difficult for executives and members of the Board to conceal the firm's accounting gimmicks. Amid the turmoil, CEO Jeff Skilling resigned in August. But shareholders and federal regulators did not learn of the severity of Enron's financial trouble until November 2001. At this time, Enron's top executives continued to receive significant bonuses.

Due to Wendy Gramm's position on Enron's Audit Committee, she had intimate knowledge of Enron's financial structure and had access to sensitive financial information not available to Wall Street analysts or average shareholders. It is therefore probable that she knew of Enron's possibly fraudulent practices for some time and that her husband would have known as well. Enron's 874 tax haven subsidiaries allowed Enron to funnel billions of dollars to offshore accounts.

The Gramms' close involvement with Enron's corporate and legislative activities, the Gramms' possible knowledge and/or connection to criminal misconduct relating to Enron's collapse, and the effects of Enron's layoffs and other economic impacts on Senator Gramm's constituents may have been the leading factor in Gramm's decision on September 4 not to seek re-election to the Senate in 2002.

[Roland99]

39. Uhh.....DUH!! morans. Oh, and get this!

Some wonk on CNBC said the reason oil prices were going down is because the dollar has been dropping and since oil is priced in dollars it makes it cheaper. And Bartirobot just nodded her head and agreed.

Uhhhh...if the dollar is dropping, it makes oil prices HIGHER as it's an IMPORT and a lower dollar means it costs us more to buy imports!


M O R A N S


Plus the speculators have been driving it up lately, too, like they did 2007-2008 (notice how it dropped like a rock when firms like Goldman, Lehman and Morgan Stanley were dumping their oil holdings?)

[stopthirdpartydebt]

40. How Wall Street investment banks manipulated oil prices to try to save their hides, screwing America

Crude
by Jed Morey

http://artvoice.com/issues/v7n40/crude

Or, How Wall Street investment banks manipulated oil prices to try to save their hides, screwing American consumers and the rest of the world and breaking the economy anyway

To John Mack, it must seem like just yesterday that he received a $40 million bonus as chairman and CEO of Morgan Stanley, the largest bonus ever given on Wall Street at the time. That was at the end of 2006, a lifetime ago in the financial world, and things are much different now. Continued fallout from the credit crisis has forced Morgan into a corner and its chairman against a wall. It could be worse. Mack could have run Merrill Lynch, Lehman Brothers, or Bear Stearns.

Luckily, Mack is an oil man, in every sense of the word. Under Mack, Morgan Stanley has amassed a formidable group of companies involved in every aspect of the petroleum business, from refineries to home heating oil.

By exploiting regulatory loopholes and throwing caution and conscience to the wind, Morgan Stanley, along with Goldman Sachs, has artificially thrust oil prices to record levels. Mack has thus far been able to navigate through a storm that has brought three of the biggest American investment banks to their knees. And the whole world picked up the tab.

They don’t call him “Mack the Knife” for nothing.

There will be blood

One of the greatest economic disasters in modern history is unfolding before our eyes, but the runup spans 16 years and three presidents and has left millions of starving and poverty-stricken people in its wake.

Economists and theorists have already named the economic period that is ending as of this writing: It was the era of cheap oil, a time when multinational companies thrived on the global market as never before. Things have changed now: Oil prices are high and the cost of doing business, in every industry, continues to rise. Oil may never be cheap again; answers and inconsistencies abound as to why.

Before 2000, there were a few givens that affected the cost of oil and energy in the world—mainly war, weather, supply, and demand. The latest Russian aggression in Georgia, hurricanes in the Gulf, and the spectacular display at the Beijing Olympics that placed China on the world stage would normally have put prices through the roof. If nothing else, China’s grand coming-out party exhibited the largesse of the Chinese economy and population. This alone should have caused a spike in oil prices. Instead, they fell from the summer’s earlier stunning highs.

This counterintuitive behavior in the market suggests some other significant determinant of oil prices at work, beyond traditional forces of supply and demand.

In stark opposition to the oil crisis of the 1970s, which left Washington in a state of panic and Americans lined up at the gas pumps, the seeds of the current condition may well have been planted not in the Middle East by the OPEC nations but right here at home, by the same lawmakers now scrambling to undo what they set in motion.

One of the central villains in the story has become an all-too-familiar symbol of corporate malfeasance. The ghosts of Enron, the defunct Texas-based energy company, and its now-deceased former president, Kenneth Lay, still haunt the market today. Most are familiar with how Enron preyed on financial loopholes in the marketplace to fabricate a phantom energy market and create false gains on its balance sheet throughout the 1990s. Enron’s grip on the energy market created spastic and turbulent movement in the marketplace, resulting in events like California’s rolling blackouts in 2000. By December 2001, when everything had unraveled, Enron was out of business, its accounting firm, Arthur Andersen, was no more, and Washington lawmakers issued a slew of promises to change the regulatory environment.

Devils in the details

During the final months of Bush 41’s White House in 1992, Wendy Lee Gramm, wife of Phil Gramm, who was then the Republican senator from Texas, was the head of the US Commodities Futures Trading Commission (CFTC). Wendy Gramm is an unabashed free-market advocate once described in 1999 by the Wall Street Journal as the “Margaret Thatcher of financial regulation.” She now sits as a distinguished senior scholar of the conservative think tank Mercatus Center at George Mason University in Virginia. Mercatus is a policy center on Capitol Hill that boasts board members such as Ed Meese—a central figure in the Iran-Contra scandal as attorney general under President Ronald Reagan—and Charles Koch, of Koch Industries, who has been investigated for stealing oil from federal property and tribal Indian lands, indicted for environmental crimes, and fined $30 million by the Environmental Protection Agency for numerous spills throughout the United States.

The CFTC oversees the commodities market and applies the regulations set forth under the 1936 Commodities Exchange Act (CEA), a measure enacted by Congress to prevent another collapse on the scale of the 1929 crash. One of Wendy Gramm’s final acts as chairwoman in January 1993 was to create an exemption that allowed Enron to trade energy futures contracts and essentially hide these trades from the CFTC itself. (An energy futures contract is an agreement to deliver energy commodities such as oil or natural gas at a set price in the future.)

Gramm left the CFTC, and five weeks after creating this exemption, she became a board member of Enron. In return for her work deregulating the market for Enron to exploit, she racked up millions as an Enron board member prior to the company’s collapse.

Wendy and Phil Gramm were just getting warmed up.

At the end of President Bill Clinton’s second term and the waning days of the 106th Congress, it was then-Senator Phil Gramm’s turn to dust off a bill, now commonly referred to as the “Enron loophole,” and attach it to an 11,000-page appropriations bill on December 15, 2000. The bill had previously died on the House floor, but Gramm resurrected it, found a new sponsor, became a co-sponsor, changed the bill number, and turned it into an amendment. That’s a lot of work for one little loophole. As a rider to a much larger bill, the Commodities Futures Modernization Act was no longer subject to the normal vetting process in Congress that a stand-alone bill would receive. Lawmakers, undoubtedly feeling the pressure of the holidays and lacking the time to review thoroughly the voluminous document, quickly approved the bill for the president’s signature.

On December 21, 2000, on a cold and blustery Washington evening, Clinton signed the bill with the Enron loophole rider. Gramm’s amendment deregulated all energy futures trading. For Lay and Enron, the rest is history. But it would take another six years, another President Bush, and a new Congress to open the floodgates of rampant speculation and really give it legs.

Phil Gramm, you might recall, was until recently Senator John McCain’s top economic adviser. You know, the one who called America “a nation of whiners.”

Commodities explained

The easiest way to think about commodities is that they are things—physical things that can be measured in size, quantity, or volume: fruit, oil, grains, metals, currency. All have unique characteristics and trade against one another on commodities exchanges throughout the world. For example, one barrel of oil might equal three bushels of corn, which may equal six bushels of wheat, and so on.

It is a complicated system and not for the faint of heart. Few traders on Wall Street have the acumen and desire to deal in this sector, an exchange that had been efficiently regulated by the CEA since 1936. Commodities traders were highly specialized in their fields and their discipline was so narrow that it was largely misunderstood. Michael Greenberger, an outspoken critic and former employee of the CFTC, described these as “backwater markets,” but ones that recently have become “as important to understand and regulate as the securities and debt markets are.”

An important aspect to the commodities market is that there has always been a ceiling to the transactions, and every investment made in the US, for example, must be overseen by the CFTC. This market cap and theoretical transparency kept the commodities market in relative obscurity against its much bigger counterparts, the stock market and the bond market.

But in January 2006, the CFTC, under President George W. Bush’s administration, upended the regulatory practices held in place since the 1930s and created a virtual frenzy by recognizing a new commodities exchange—ICE Futures—that had been formed in 2001, primarily by investment banks and oil companies.

On May 20 of this year, Michael Masters, the managing member of Masters Capital Management LLC, a hedge fund that invests in private equity, testified before the Senate’s Committee on Homeland Security and Governmental Affairs. His testimony is now widely quoted by the antispeculation critics who decry the lack of oversight created by the Enron loophole.

“Commodities futures markets are much smaller than the capital markets, so multibillion-dollar allocations to commodities markets will have a far greater impact on prices,” Masters stated.

Essentially, introducing investment banks and hedge funds that have deep pockets and no one looking over their shoulders has the singular ability to move the entire market. It’s like allowing professional athletes to compete in the Olympics. Masters called it “demand shock.”

Morgan Stanley and Goldman Sachs: the mechanics behind high oil prices

Two primary tools have restrained zealous speculators in the commodities markets since the CEA’s adoption: transparency and position limits. The transparency came from federally regulated markets like the New York Mercantile Exchange (NYMEX), which tracks and oversees the transactions of commodities. Position limits were enacted under the CEA to keep any one investor, or group of investors, from overwhelming the exchange and flooding it with money. The Enron loophole essentially permitted the trading of energy futures on over-the-counter markets, thereby allowing a new set of investors—hedge funds and investment banks—to trade energy futures. But the US exchanges still saw relatively little activity as compared to their European counterparts, where the oversight was far more lax. Because commodities trade in real time and US-based companies have the most money to invest, the investment banks and hedge funds were still slow to drive great sums of capital into the market. What they needed to really make this thing soar was the ability to invest serious capital within the United States, like their counterparts could on the London Exchange, for example.

In 2000, Goldman Sachs, Morgan Stanley, and British Petroleum became the primary founders of a little-known exchange based in Atlanta, known as the Intercontinental Exchange (ICE). A year later, it purchased the London-based International Petroleum Exchange (IPE), and was renamed ICE Futures. It was an acquisition that was fairly straightforward until 2006, when the CFTC—seemingly out of nowhere—officially recognized the ICE as a foreign-based exchange because it had purchased the IPE.

Even though the ICE is based in Atlanta, backed by US banks, and now traded publicly on the New York Stock Exchange, the CFTC somehow decided to treat it as if it were based in London and thereby no longer subject to federal trading regulations. Now the investment banks could trade every type of commodity, especially crude oil, without any spending limits or federal oversight. Greenberger calls it one of Wall Street’s “most successful ventures,” because the ICE was now “competitive to NYMEX.”

It was here that the wheels began to fall off the commodities market.

Mack’s Morgan

John Mack, the chairman and CEO of Morgan Stanley, has had an illustrious career, holding some of the most lucrative and prestigious positions on Wall Street.

Nicknamed “Mack the Knife” because of his hard-edged, no-nonsense approach and hardcore cost-cutting measures, Mack ran Morgan Stanley through the 1990s before accepting the job as co-CEO of Credit Suisse First Boston, a leading investment bank, in 2001. Mack left CSFB in 2004 to pursue options outside the large investment banking world but was wooed back to run Morgan Stanley in 2005. Upon his return, Mack’s Morgan Stanley went on an aggressive oil-buying spree—but not necessarily the kind you might expect.

On May 24, 2006, Morgan oil analyst Douglas Terreson announced that integrated oil equities were “15 percent undervalued,” and in a research report he wrote that “Independent refining and marketing remains the largest sector bet in the global model energy portfolio.” Soon after, on June 18, 2006, Morgan Stanley acquired TransMontaigne, Inc. and its subsidiaries—a half-billion dollar group of companies operating in the refined petroleum business.

How convenient: After their oil analyst decided that this portion of the industry was looking up, Morgan Stanley got into the oil business and bought a refining company. It must have taken more than 25 days to conceive and work out the TransMontaigne transaction. This had to have been a long-planned, well-thought-out takeover—one that worked for the great benefit of Morgan Stanley’s future oil plans.

This type of freewheeling environment, with little separation between the proprietary desks at the banks and their investment analysts, has been the subject of much scrutiny and concern of late.

“ a verifiable and hardened wall between analysts and the investment entities,” Greenberger says—it’s the only way to maintain integrity. But the CFTC was essentially dismantling that wall, right under everyone’s noses.

Morgan’s investments in the oil business continued aggressively into the far corners of the industry over the next year. In short order it closed the circle of the supply chain by acquiring Heidmar, a shipping company, and various stakes in foreign-based energy supply companies. It even snagged a contract from the US Department of Energy to store 750,000 barrels of home heating oil at its corporately owned terminal in New Haven, Connecticut. Morgan Stanley, which was at the time the largest trader in oil futures, was now a serious international oil company.

Speculation takes center stage

The Masters testimony brought speculation into the light and sent shockwaves through the halls of Congress. Masters was able to simplify the exchange and put the issues in a context that lawmakers could grasp. One of the telling examples he gave was that “Index speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.”

This belies the claims made by investment banks that demand from China and India was solely responsible for the increase in oil futures prices. However, there are some theorists who still vehemently deny that this is the case.

James Howard Kunstler, author of The Long Emergency and creator of the popular blog Clusterfuck Nation, believes that the effect from the speculative market is “basically witch-hunt stuff.” A peak oil theorist, Kunstler, on the phone from his home in Saratoga Springs, says he believes that the root of the problem lies in our global dependence upon a commodity that is quite simply disappearing.

American scientist M. King Hubbert predicted in the 1950s that American oil production would peak by the early 1970s. His predictive model was the basis for peak oil theory, which, when applied to the global market, indicates that the world may hit peak oil production within the next 20 years or sooner. Kunstler says that “the biggest thing that’s going on right now is the oil export problem or crisis.

“What that means,” he adds, “is the countries that we depend on for imported oil are less and less able to send it out and they’re using more of their own oil even as they’re in depletion. Two of the biggest cases of this are Mexico and Venezuela.”

While America imports the vast majority of its oil from Mexico, Venezuela, and Canada—not the Middle East—and there is evidence to support the peak oil predictions in some of these areas, it seems to speak more to the long-term crisis that mature and developing countries face. But it doesn’t fully explain away why oil prices would increase exponentially during the summer months and then decline shortly thereafter.

“Instead of oil going up,” Greenberger says, “oil is going down. Has India and China dramatically cut back? Nothing has changed and, in fact, the supply-demand factor has probably gotten worse because of Russia’s aggression the severe weather, but oil is sinking, sinking, sinking. How can that possibly be?”

So if oil prices could be so easily manipulated, why didn’t it happen more severely and immediately when restrictions were lifted in 2006? While oil prices did indeed climb between the time the ICE was created in Atlanta and the regulations were lifted in January of 2006, they didn’t skyrocket until late in 2007.

Enter Douglas Terreson.

The Terreson timeline

Terreson, the Morgan Stanley analyst who said that independent refining and marketing companies were undervalued, was the bank’s chief oil analyst. The award-winning, nationally recognized Terreson had fielded questions in relation to oil prices and futures since the mid 1990s. On March 14 of this year, he said that oil would settle in at around $95 per barrel for the remainder of 2008. Moreover, Terreson also concluded that oil would retreat to around $83 per barrel for 2009.

That would be Terreson’s last forecast for Morgan Stanley.

Two short months later, Dow Jones Newswires reported that Terreson had been ousted in a round of layoffs. Two weeks after that, Richard Berner, Morgan Stanley co-head of global economics and chief US economist, issued a statement saying that crude oil could easily reach $150 a barrel. This prediction set off a round of speculative fervor never before seen in the market. Goldman Sachs immediately followed suit by forecasting oil to roar beyond $150, saying it could hit $200 a barrel in the near future. Oil prices were off to the races, with the investment banks in full lobbying mode while pointing the finger at China and India.

On September 19, 2007, Morgan Stanley’s stock price was $67 and oil was at $78. This was the day that Morgan Stanley began to trickle out the bad news. The worse the news coming out of the investment banks, the higher oil prices would climb. By the time Morgan announced that Terreson was gone, Morgan’s stock was at $41 and oil was at $134.

In retrospect, the turning point appears to be Morgan’s $150 forecast by Berner. It fueled the apprehension of the media and Wall Street alike. Americans were quick to do the math and knew that the spike would mean $5 per gallon at the pump. Maybe more. Suddenly everyone recalled the 1970s, and new terms such as “stay-cation” were on everyone’s lips.

So, where did this $150 number come from? Who better to answer that question than Richard Berner, the man behind the prediction?

Unfortunately, a spokesperson for Morgan Stanley tells the press that Richard Berner “doesn’t do interviews on oil stuff.” In fact, “he doesn’t deal in oil” at all, says his assistant matter-of-factly. That’s because for more than a decade this had been the exclusive domain of Terreson.

A month after the report that Terreson had been laid off, Morgan Stanley issued a statement claiming that Terreson voluntarily had left his position at Morgan for the promise of higher pay from a hedge fund.

Not so, according to a Morgan Stanley employee familiar with the circumstances surrounding Terreson’s departure, who asked not to be identified in this story. Taken aback by the confusion surrounding Terreson’s reason for leaving, he says, “I knew they had a rightsizing, but he said he was retiring. He was getting ready to head off into the sunset.”

Morgan Stanley no longer has a spokesperson for oil. Nor are they willing to comment on the decision to forecast crude oil futures at $150 per barrel by someone who “doesn’t deal in oil.” Terreson, once an integral part of the Houston community and a rising star in the financial sector, seems to have disappeared from the city altogether. His home phone has been disconnected. His former co-workers are unsure of his whereabouts. And almost no one from the firm at which he spent years as a superstar in his field wants to discuss why.

When the press finally reached Terreson at his present residence in Alabama, he simply said, “I’m retired. I’m not with Morgan anymore and can’t talk about any of this.” When asked for a brief comment on current oil prices, Terreson responded, “I don’t feel comfortable talking about it,” and hung up the phone.

The smell coming our way

Still, the question persists: If the market conditions surrounding the price of crude oil futures remained unchanged, why were the analysts at the world’s largest banks determined to drive up the price of oil at a historic pace?

Was it merely dumb luck that this rampant speculation occurred at a time when the major investment banks were reporting record losses and write-downs due to the sub-prime mortgage meltdown? It is Greenberger’s assertion that “a lot of people were very upset that they were in a sense humping their own product—not only their physical holdings but their future holdings.” What he’s referring to is the fact that Morgan Stanley doesn’t just trade oil futures; it’s also very much in the business of oil. This fact is “unseemly,” according to Greenberger and other observers of the financial markets.

One such observer is Gary Aguirre, a former staff lawyer and investigator for the Securities and Exchange Commission (SEC), who has testified several times in front of Congress and is considered a leading authority on financial markets.

“The way it ran up had all the earmarks of manipulation,” says Aguirre from his office in San Diego. “It looked like somebody was playing a game. I don’t know what the game was or how they did it but that was…the smell drifting my way.”

As far as Morgan Stanley and Mack are concerned, Aguirre knows firsthand just how powerful the Wall Street tycoon is.

In 2005, Aguirre headed an investigation into an insider trading claim involving Mack and a hedge fund named Pequot Capital Management. Mack’s involvement came during the period between his tenure at Credit Suisse First Boston and his return as chairman of Morgan Stanley. There were allegations of insider trading on the part of Mack by the SEC, but just when the investigation seemed to be gaining momentum, Aguirre was told to back off by his bosses at the SEC. After a glowing review from his superior, Aguirre went on vacation. When he returned, he got a pink slip, not a raise.

Aguirre insists that his own experience is merely part of a larger and much scarier problem running rampant on Wall Street.

“What we have are the markets highly leveraged, highly speculative and without any regulation, effectively, of the abuses,” he explains. “In short, it’s not much different than it was just before the crash in 1929.” This sentiment is echoed throughout Wall Street and the Beltway as the news from Wall Street grows more desperate with each piece of bad press about the economy.

The cozy relationship between oil companies and the US government is nothing new to people like Aguirre who are familiar with the system. Aguirre explains the “you scratch my back” culture in monetary terms by saying, “These people are sponsored by the industry. Paulson’s straight out of Goldman. We have the fox guarding the henhouse.” (He’s referring to US Treasury Secretary Henry Paulson, who was chairman of Goldman Sachs until June 2006.)

This was certainly true for Wendy Gramm, leaving the CFTC for the Enron board, and for her husband, who received nearly $100,000 in financial contributions from Enron while in office.

“These Enron traders were highly sought after,” says Greenberger. “Enron showed in its dying days how you could make a lot of money trading unregulated energy futures products.”

The fallout

By jacking up oil prices, these banks may have temporarily staved off the collapse of our financial system. Skyrocketing oil prices have also highlighted our complete dependence and addiction to oil and brought the debate to the surface in the upcoming presidential election. For better or for worse, people are talking about oil, and not in favorable terms.

When Terreson’s oil price forecast was less than what Richard Berner believed it should be, his career at Morgan Stanley ended abruptly. When Berner predicted $150 oil, the entire world market responded to this claim. Did Terreson tire of shilling for Morgan and decide to retire at the tender age of 46? Or was he unceremoniously axed after refusing to alter his forecast on oil prices? Was he part of the game all along and paid handsomely to ride off into the sunset, as one co-worker said?

Regardless of the reasons behind Terreson’s departure, there is still the question of motive: Why drive oil prices beyond practical limits?

Let’s say for a moment that you run Morgan Stanley. Over the past few years you made a couple of bad deals. Okay, so it was more than a couple, but not as many as your friends at Bear Stearns and Lehman Brothers. Thankfully, you have remarkable control over the price of oil—just by forecasting it. Heck, you don’t even have to “deal in oil” or do interviews “on oil stuff,” you just have to pick a number and watch the market try to hit it. Not to mention you also own companies that operate refineries. You control shipping routes. The government has handed you a contract to store 750,000 barrels of home heating oil for the Northeast United States. You founded and are still an owner in a public exchange that handles energy trades that no one can really see. Win. Win. Win.

It was all legal. The federal government, beginning with Wendy and Phil Gramm, cleared the way for tremendous systematic abuse in the financial markets to fatten the Gramm family bank account with blood money—Wendy Gramm’s multimillion-dollar take as an Enron board member and Phil Gramm raking in more than $335,000 in campaign contributions from the securities and investment industries.

Instead of being punished for these now well-documented actions, Wendy Gramm is still influencing Capitol Hill at the Mercatus Center and Phil Gramm has been advising McCain, the man who might be our next president.

People are beginning to contemplate peak oil and imagine that, while the world may have flattened out for a while, it’s getting a whole lot rounder again. Kunstler proclaims, “Globalism was a product of a certain time and place and special circumstances, namely, a period of very cheap oil and relative peace between the great powers.” It’s what he calls the “end of the happy motoring era.”

The “demand shock” that Masters speaks of also created a hunger shock that reverberated around the globe. It’s awfully easy to manipulate the markets when you control so many pieces of the puzzle. Perhaps the analysts and speculators were acting to save their own banks in the short run, lest they wind up like Bear Stearns or Lehman Brothers. But does saving a bank and focusing our daily discussions on renewable technology really excuse thrusting millions of people into poverty and pushing price increases on the global food markets?

Congress has the ability to seize control of these markets even before the upcoming presidential election. The new president will decide whether and where we drill or not, but that decision has nothing to do with restoring the oversight and stability that existed in the commodities arena from 1936 until 2006. If it weren’t for federal oversight and regulation, Morgan Stanley—which was created in 1935 from the ashes of the 1929 crash—wouldn’t even exist. But history is readily forgotten, or ignored, by greedy corporate raiders who are destined to repeat it.

This story was originally published by Long Island Press and made available through the Association of Alternative Newsweeklies.

[Demeter]

43. Wow! Thanks for Posting This!

I finally got to read it through. Excellent investigative report AND historical summary of how we got where we are today.

This is why I come to SMW. Thank you again!

[ozymandius]

6. Derivatives bill to clamp down on speculation (CDS)

WASHINGTON (Reuters) – Congress will consider steps to curb speculation in the $39 trillion credit default swaps market and could prohibit investors from speculating on a borrower's credit quality, according to a U.S. House of Representatives Committee document obtained by Reuters.

Congress and the Obama administration have been pushing for oversight of the market since insurer American International Group Inc's near-collapse because of its exposure to credit default swaps. The swaps are used to insure against debt defaults and speculate on a borrower's credit quality.

The House Agriculture and Financial Services committees will consider two options to curb speculation including a ban on so-called naked credit default swaps -- swaps for which a trader or investor does not hold the underlying asset being insured, such as a bond.

The other option would require derivative dealers and investment advisers that manage in excess of $100 million to report their short interests in credit default swap contracts to the appropriate regulator, according to the document.

http://news.yahoo.com/s/nm/20090727/bs_nm/us_congress_derivatives

[Demeter]

7. Really?

Maybe there's hope for this nation yet. Nobody else has outright banned them, to my knowledge.

[ozymandius]

11. Who knows? Maybe the next generation of economic populists will get this done.

But I will not hold my breath. I have seen too often the scenario in which policy wonks just leave the dysfunction in the system because the dysfunction has become comfortable.

[InkAddict]

25. This sounds all well and good, but...

how does this slow GS's split-second rip-offs. Option 1 - Does this preclude those folks from meeting up in the "dark pools" hidden in the grottos of the Market?

Option #2 - Report when? real-time, anually, quarterly. What happens if they get to re-state their transactions as in, oops, I forgot to mention...

[Dr.Phool]

8. Good morning all! Anybody catch the Yes Men on HBO last night?

"The Yes Men Fix The World". It was a riot. It showed film of all their best spoofs.

When they did the Dow Chemical-Bophal hoax, Dow's stock dropped $2 billion in 3 minutes. BBC and other media attacked them for giving the people of Bophal false hope of a settlement, but when they interviewed the doctors there and the victims, they were happy that someone brought the issue back into the public eye.

If you get a chance, catch it.

[ozymandius]

9. Sounds extremely entertaining.

But, no, I did not see it. Maybe if there is a webcast of the thing then I will stand a better chance of watching it.

[Dr.Phool]

13. It's probably out on DVD, or will be soon.

On the anniversary of Katrina, at a rebuilding conference in New Orleans, they posed as HUD officials, and were even introduced to the crowd by Nagin and Blanco. They shocked the crowd by telling them that they decided not to tear down the undamaged public housing after all, and move everyone back in. CNN was pissed.

[ozymandius]

Oooh. That's good!

I missed the bit about CNN. I'll bet they were pissed. That kind of stunt will cause mass confusion in a newsroom.

[Festivito]

10. Debt: 07/24/2009 11,606,528,598,129.77 (UP 1,007,518,287.64) (Debt down, FICA up.)

(Debt goes down, while FICA side goes up.)

= Held by the Public + Intragovernmental(FICA)
= 7,264,839,437,750.68 + 4,341,689,160,379.09
DOWN 124,358,216.07 + UP 1,131,876,503.71

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 307-Million person America.
If every American, man, woman and child puts in $3.26 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.77, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 12 seconds we net gain a another American, so at the end of the workday of the report, there should be 306,940,742 people in America.
http://www.census.gov/population/www/popclockus.html ON 05/25/2009 01:14 -> 306,504,012
Currently, each of these Americans owe $37,813.58.
A family of three owes $113,440.74. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 23 reports in the last 30 days.
The average for the last 23 reports is 10,472,854,707.54.
The average for the last 30 days would be 8,029,188,609.11.

There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 128 reports in 185 days of Obama's part of FY2009 averaging -0.24B$ per report, -0.05B$/day so far.
There were 203 reports in 297 days of FY2009 averaging 7.79B$ per report, 5.33B$/day.

PROJECTION:
There are 1,276 days remaining in this Obama 1st term.
By that time the debt could be between 13.4 and 21.9T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
07/24/2009 11,606,528,598,129.77 BHO (UP 979,651,549,216.69 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,581,803,701,217.30 so far this fiscal year.

LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
07/06/2009 +029,989,200,037.82 ------------********** Mon
07/07/2009 +000,215,166,015.48 ------------********
07/08/2009 +000,621,025,720.38 ------------********
07/09/2009 +010,396,425,012.59 ------------**********
07/10/2009 -000,364,273,300.28 ---
07/13/2009 -000,000,617,291.42 ------ Mon
07/14/2009 +000,244,233,965.61 ------------********
07/15/2009 +057,721,794,648.52 ------------**********
07/16/2009 +016,136,405,834.08 ------------**********
07/17/2009 +000,062,427,388.38 ------------*******
07/20/2009 +000,171,809,229.69 ------------******** Mon
07/21/2009 -000,321,987,025.18 ---
07/22/2009 +000,261,059,305.61 ------------********
07/23/2009 +010,040,233,982.08 ------------**********
07/24/2009 -000,124,358,216.07 ---

125,048,545,307.29 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008.
US borrowed $1,941,896,794,870.70 in last 309 days.
That's 1,942B$ in 309 days.
More than any year ever, including last year, and it's 191% of that highest year ever only in 309 days.
And it is over 100% of ANY dismal Bush, for any dismal Bush-year, ONLY IN 309 DAYS NOT 365.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3987849&mesg_id=3988025

[ozymandius]

12. BofA planning to cut 10 percent of branches: report

(Reuters) – Bank of America Corp (BAC.N) is planning to reduce its 6,100-branch network by about 10 percent, the Wall Street Journal cited the bank's chief executive Kenneth Lewis as telling investors.

The plans were discussed at a meeting in Charlotte, North Carolina last Thursday, the paper said, citing people familiar with the matter.

The Journal's sources added that Liam McGee, president of Bank of America's consumer and small-business bank, also said branch closures are planned, cautioning that it would be premature to specify how many locations could be closed.

http://news.yahoo.com/s/nm/20090728/bs_nm/us_bankofamerica_branches_1

[ozymandius]

14. World markets steady as rally runs out of steam

LONDON – World stock markets mostly traded in a narrow range Tuesday after a mixed batch of corporate earnings and as investors became increasingly reluctant to extend a two-week rally.

In Europe, Germany's DAX was down 3.15 points, or 0.1 percent, at 5,248.40 while France's CAC-40 rose 9.12 points, or 0.3 percent, at 3,381.48. The FTSE 100 index of leading British shares was down 7.89 points, or 0.2 percent, 4,578.24. If the FTSE closes higher then it will be its 12th straight day of gains — a new record for the index.

Earlier in Asia, most markets closed higher, though Tokyo's Nikkei 225 stock average fell a minuscule 1.4 points to 10,087.26. Hong Kong's Hang Seng outperformed its regional counterparts, closing up 372.92 points, or 1.8 percent, at 20,624.54.

....

Deutsche Bank AG fell over 7 percent, making it the biggest faller on Germany's DAX, after it booked big credit loan losses despite a 67 percent rise in second quarter net profit. But EADS NV topped France's CAC-40 — rising by over 5 percent — after it said it still plans to deliver as many Airbus planes as last year alongside a 76 percent increase in second quarter net profit.

....

Wall Street was poised to open lower later. Dow futures were down 10 points, or 0.1 percent, at 9,060 while the broader Standard & Poor's 500 futures fell 1.8 points, or 0.2 percent, to 978.10.

http://news.yahoo.com/s/ap/20090728/ap_on_bi_ge/world_markets

[girl gone mad]

15. Corporate insiders more bearish than at any time in nearly two years

ANNANDALE, Va. (MarketWatch) -- Corporate insiders have recently been selling their companies' shares at a greater pace than at any time since the top of the bull market in the fall of 2007.

Does that mean you should immediately start lightening your equity exposure?

It depends on whom you ask.

But, first, the data.

Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.

One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.

I don't need to remind you that the 2002-2007 bull market topped out that month...

http://www.marketwatch.com/story/insiders-have-quickened-the-pace-of-their-selling-2009-07-28?siteid=rss&rss=1

[ozymandius]

16. Similar reports have been trickling out over the past year.

These reports focus mainly on the amount of insider stock that is being sold by the wheelbarrow-full. It appears the pace has stayed aggressive for a year now. Caveat emptor.

[ozymandius]

18. Which Are the Credible Industry Trade Groups?

On Sunday, I mentioned the Association of American Railroads “Rail Time Indicators.” It was not showing any green shoots.

That post, plus yesterday’s rant on the NAR (More NAR Nonsense), led to a friend at Columbia University asking the following question: “Which of these associations are credible versus those that are NAR-like?”

The best way to determine that is to look at the data they release, juxtaposed against any quotes from their spokesman/economist. Are they spinning, sugarcoating or otherwise “prettying up” the news release? Once you get through that review, take a closer look at their disclosed methodologies. Are they defendable approaches that produce negative as well s positive outcomes? Or are they biased, and unlikely to ever say a bad word about their respective industry or economic sectors?

My favorite example of worthless data comes from the NAR — specifically, their Housing Affordability Index. During the entire housing boom and credit bubble, they NAR HAI showed only one single month when houses were considered “less than affordable.” That is simply a pathetic joke making that index worthless.

Other trade groups seem less biased and more reliable. The AAR seems like a legitimate group. As another example, let’s also take a look at the American Trucking Associations’ data. Specifically, the monthly advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index, released late yesterday afternoon. Following May’s 3.2% jump (seasonally adjusted of course) it fell 2.4% in June. This dropped the index to 99.8 (2000=100). The change in tonnage hauled by fleets before any seasonal adjustment was up 5.2% in June from May. Compare this with June 2008, when tonnage fell 13.6%. So far, the June 08 contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2 percent drop in April.

http://www.ritholtz.com/blog/2009/07/which-are-the-credible-industry-trade-groups/

[ozymandius]

22. Truck Tonnage Index Declined 2.4 Percent in June

This found at Calculated Risk.

From the American Trucking Association: ATA Truck Tonnage Index Fell 2.4 Percent in June:

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.4 percent in June. In May, SA tonnage jumped 3.2 percent. June’s decrease, which lowered the SA index to 99.8 (2000=100), wasn’t large enough to completely offset the robust gain in the previous month. ...

Compared with June 2008, tonnage fell 13.6 percent, which surpassed May’s 11 percent year-over-year drop. June’s contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2 percent drop in April.

ATA Chief Economist Bob Costello said truck tonnage is likely to be choppy in the months ahead. “While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently,” Costello said. “The consumer is still facing too many headwinds, including employment losses, tight credit, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term.” He also noted that inventories, relative to sales, are still too high in much of the supply chain, especially in the manufacturing and wholesale industries. “As a result, this is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession. Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”

More at link...

[ozymandius]

19. This quote has stunning portent.

Awesome:

“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”

-Mark M Hanson

http://www.ritholtz.com/blog/2009/07/real-estate-quote-of-the-day/

[ozymandius]

20. Distressing Gap: Ratio of Existing to New Home Sales

For graphs based on the new home sales report this morning, please see: New Home Sales increase in June, Highest since November 2008

Last week the National Association of Realtors (NAR) reported that distressed properties accounted 31 percent of sales in June. Distressed sales include REO sales (foreclosure resales) and short sales, and based on the 4.89 million existing home sales (SAAR) that puts distressed sales at about a 1.5 million annual rate in June.

All this distressed sales activity has created a gap between new and existing sales as shown in the following graph that I've jokingly labeled the "Distressing" gap.

This is an update including June new and existing home sales data.

http://www.calculatedriskblog.com/2009/07/distressing-gap-ratio-of-existing-to.html

---

Also bear in mind that the warmer, late spring and summer months constitute the prime home selling season.

[ret5hd]

34. What about new home + used home sales?

[Po_d Mainiac]

21. this goes with todays toon

Last night's episode "pbs Make them laugh" featured several minutes of footage of two of my own heroes: satirical songwriter Tom Lehrer and Mad Magazine song parodist (and obituary writer) Frank Jacobs.

BLUE CROSS
A bad experience with a medical coverage program.

Sung to the tune of: "Blue Skies"

Blue Cross
Had me agree
To a new Blue Cross
Policy!

Blue Cross
Said I would be
Happy that Blue Cross
Covered me!

Then I took a fall,
Leg in a splint;
They said that I
Should read the fine print!

When a very high
Fever I ran,
They told me I
Took out the wrong plan!

That's Blue Cross!
There seems to be
Plenty for Blue Cross!
None for me!

[UpInArms]

23. dollar watch

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

Last trade 78.612 Change -0.018 (-0.02%)

Dollar Reaches Year Low As Global Outlook Brightens, Will Central Banks Look To Tighten As Growth Returns?

http://www.dailyfx.com/story/dailyfx_reports/daily_brief/daily1248776305584.html

The Euro rose to test 1.4300 as European equity markets rose to an eight month high and the MSCI world index looking to gain for a 12th day. The single currency has maintained a strong correlation to risk appetite and as long as the relationship holds it should rise in tandem with the stock indexes. However, we have seen the Euro weaken against the Yen which could be a sign that risk appetite is waning. A light economic calendar saw the French business survey for overall demand rise to -43 from -58 as expectations for future demand saw a significant improvement. Italian consumer confidence also improved to 107.5 from 105.4.

Bullish comments from RBA Governor Stevens has underlined the broader bullish sentiment and raised the outlook for the global economy. The central bank leader talked about taking a step toward global tightening and looking to anchor inflation as signs continue to point toward a recovery. Meanwhile, the Center for Economic Policy is proclaiming that the economic contraction has bottomed out in the first quarter for the euro region. If expansion is around the corner for the Euro-Zone then we should expect the ECB to one of the first central banks to look to tighten policy as they adhere to their price stability mandate. Indeed, we have seen market expectations for interest rates rise to 47.6 from 31.41over the past week according to Credit Suisse overnight index swaps. Therefore, we may continue to see Euro support with the EUR/USD looking to take out the 6/3 high of 1.4340 on its way to a test of 1.4500.

The Pound has started to consolidate earlier gains against the dollar, but has seen a sharp drop versus the Yen as we have started to see equity markets pare their gains. We may be seeing profit taking as valuations start to exceed justifiable levels, which could keep the sterling stuck in its current range. The CBI distributive trades reading rose less than expected to -15 versus -9 which could be a sign that last month’s strong retail sales figures could be unsustainable. The GBPUSD has spent the past week anchored in between 1.6300 and 1.6600 and a prudent investor may look to employ appropriate strategies. The economic docket is light this week with Wednesday’s credit reports possessing the only market moving potential which furthers the case for limited pound volatility.

The dollar index fell to its lowest level on the year overnight but with several pairs at the top of their ranges we are starting to see support build fro the greenback. The economic calendar will present significant event risk today with consumer confidence, Richmond Fed manufacturing and the S&P Case Shiller home price report due to cross the wires. U.S. sentiment is forecasted to fall for a second month to 49.0 from 49.3 as mounting job losses has weighed on optimism. However, the recent surge in equity markets could go a long way toward brightening consumer’s outlook as they start to see their 401K statements get healthier. Additionally, home prices are beginning to stabilize which should also ease concerns for Americans which saw record losses in the values of their homes. Manufacturing in the Richmond area is expected to improve to 8 from 6 but after we saw a considerable decline in the Dallas region, a similar set back could be in store. If current ranges hold then the greenback may look to erase earlier losses, but the outlook for the global economy continues to build and could lead to a breakout in favor of riskier currencies.

...more...

EUR/USD: Trading the U.S. Durable Goods Report

http://www.dailyfx.com/story/trading_reports/trading_news_reports/EUR_USD__Trading_the_U_S__Durable_1248781949462.html

Demands for U.S. durable goods are expected to fall for the first time in three-months, with economists forecasting a 0.6% drop in June, and fears of a protracted downturn could drag on the exchange rate as investors weigh the outlook for a sustainable recovery.

Trading the News: US Durable Goods Orders

What’s Expected

Time of release: 07/29/2009 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD

Expected: -0.6%
Previous: 1.8%

Effects of US Durable Goods Orders on EURUSD for the past 2 months



May 2009 US Durable Goods Orders

U.S. durable goods orders unexpectedly rose 1.8% for the second consecutive month in May, led by a jump in commercial aircrafts, and the rebound in demands suggests the economic downturn may be nearing an end as policymakers take extraordinary steps to jump-start the ailing economy. The breakdown of the report showed shipments tumbled 2.1% from April, with unfilled orders falling 0.3% during the same period, while inventories contracted for the fifth consecutive month in May. However, the rise in the personal saving rate paired with the slump in the credit market may lead businesses to scale back on production and employment throughout the second-half of the year in an effort to weather the downturn global trade, and economic activity may remain subdued over the remainder of the year as households face a weakening labor market paired with fears of a protracted downturn.



...more...

[DemReadingDU]

26. Lost Value of Equities in U.S. State and Local Government Pension Plans: Now $1 Trillion

7/27/09 Lost Value of Equities in U.S. State and Local Government Pension Plans: Now $1 Trillion

In the U.S., the pension plans of state and local governments have a large portion of their assets in equities. Due to this high exposure to equities, the plans suffered severe losses as the markets fell hard until March this year.

The average asset allocation of the typical U.S. Define Benefit (DB) plan has 60% in equities, 30% in fixed income and 10% in other assets.

“Public pension plans of U.S. State and local authorities also suffered severe losses due to high equity exposure and substantial leverage. The financial crisis has reduced the value of equities in State and local authorities’ DB plans by about US$1 trillion. These changes will become evident over time because State and local authority plans smooth both gains and losses by averaging the market value of assets over a five year period. However, they will be large as public plans in the United States have on average 60 percent of assets in equities. In addition, they leveraged themselves to fund liabilities. In general, state and local plans had an average funding ratio of 87 percent in 2007 which, by October 2008 would have declined to 65 percent if assets were valued at market values (Munnell et al. (2008) (the impact of smoothing is shown in Figure 13). In the optimistic scenario that assets level return to the 2007 values, funding ratios are projected to increase to 75 percent in 2013. Under the pessimistic scenario that asset values remain at the level of end 2008, funding ratios are expected to further decrease to 59 percent. In both scenarios, liabilities are assumed to grow at 5.7 percent per year.”



http://seekingalpha.com/article/151488-lost-value-of-equities-in-u-s-state-and-local-government-pension-plans-now-1-trillion


This paper was referenced in the above posting...

July 2009 How the Financial Crisis Affects Pensions and Insurance and Why the Impacts Matter
Gregorio Impavido and Ian Tower

Abstract
This paper discusses the key sources of vulnerabilities for pension plans and insurance companies in light of the global financial crisis of 2008. It also discusses how these institutional investors transit shocks to the rest of the financial sector and economy. The crisis has re-ignited the policy debate on key issues such as: 1) the need for countercyclical funding and solvency rules; 2) the tradeoffs implied in marked based valuation rules; 3) the need to protect contributors towards retirement from excessive market volatility; 4) the need to strengthen group supervision for large complex financial institutions including insurance and pensions; and 5) the need to revisit the resolution and crisis management framework for insurance and pensions.
http://topforeignstocks.com/wp/wp-content/uploads/2009/07/wp09151.pdf

[DemReadingDU]

27. It's PRIME TIME: Stage 2 of the U.S. Collapse

7/26/09 It's PRIME TIME: Stage 2 of the U.S. Collapse

To listen to our political leaders, the mainstream media and financial bubblevision t.v. programs, you would think that the financial crisis has stabilized and the housing market is bottoming. But if you un-spin the data fed to us by the Government and the media, the facts show that the financial system is on the precipice of another very large crisis. As the housing market collapse spreads into the prime-rated mortgage sector, a veritable avalanche of foreclosed middle to high-end homes will flood the market, triggering a much larger credit and economic crisis than what was experienced during the past 18 months.

The onset of the financial crisis in this country last year was largely precipitated by the inevitable bursting of the housing and mortgage bubble. In what was an unregulated multi-trillion dollar Ponzi scheme, the price of houses rose to unsustainably insane valuation levels, fueled by the reckless and tragic use of no-holds-barred mortgage financing. This "Stage 1" of the financial collapse was triggered by an escalation in defaults and foreclosures primarily in the subprime and Alt-A mortgage sectors. The associated collateral damage from this reverberated into the implosion $100's of billions of off-balance-sheet assets and derivatives, many of which were fraudulently rated by the rating agencies and recklessly pumped into investors by Wall Street. This took the Dow from 14,000 to 6,440 and was addressed by the Government/Fed with as much as $24 trillion in direct monetary injections and financial guarantees. During this Stage 1 we saw the Government takeover of Fannie Mae, Freddie Mac, the de facto Government takeover of AIG, the collapse of Bear Stearns, Lehman, Merrill Lynch, Countrywide, Washington Mutual, Wachovia; the U.S. auto industry, among many any other corporate failures and smaller regional bank collapses (64 smaller bank failures this year as of 7/24/09).

Stage 2 of the financial collapse of the U.S. is being triggered by the accelerating rates of default/foreclosure in the prime-rated mortgage market, as well as the collapse of commercial real estate. I am going to focus on the residential mortgage component, as it is three times as large as the commercial real estate mortgage market. Whereas the subprime and Alt-A mortgage markets are roughly $1.5 trillion combined, the prime-rate mortgage market is in excess of $10 trillion, depending on your source of data. For purposes of my analysis, I am using data presented by Mark Hanson of Field Check Group in his "7-19 Mortgage Default Crisis - Brutal Past Two-Months" article

more...
http://truthingold.blogspot.com/2009/07/its-prime-time-stage-2-of-us-collapse.html


7-19 Mortgage Default Crisis – Brutal Past Two-Months
http://www.fieldcheckgroup.com/2009/07/19/7-19-mortgage-default-crisis-brutal-past-two-months/

[ozymandius]

28. I just hooked up the new Mac.

This is great. My old Dell with Linux is going to an acquaintance whose computer was just fried with a power surge. Good riddance. I hope he has more fun than I did with the old beast in its last, most recent days.

[Dr.Phool]

29. Let us know how you like it.

I'd like to get a Mac. But, whenever this one goes kaput, I just go buy the parts and fix it.

Lightning fried my motherboard a couple of months ago, and the only thing I could salvage was the HD. So, I built another system, and added another HD to run Linux on, but I can't find the drivers for my motherboard and graphics, and it's a minor pain to get it running. I'll keep trying.

[ozymandius]

32. It runs like a dream.

I have just finished reconstituting the SMW bookmarks and a few other personal pages. Right now - I've just put it through its paces with audio and video playback. Works great!

I also had trouble finding the right drivers for my audio and video cards on the Linux PC. The slowness of the video playback just looked like a symptom of the component's age. Nonetheless, it was just time to upgrade to a new machine.

[hamerfan]

37. Congrats, Ozy!

On the new Mac arriving to you safe and sound this time. In no time you will be an OS X pro. Lots of good stuff there.
hamerfan

[ozymandius]

42. Thank you.

I use Macs at work/school. I am constantly amazed at the robust nature of this machine and its architecture. It's Unix based, like Linux and does not have so many hang-ups like Windows.

As an added bonus, I've discovered many Mac freeware sites.

[FarCenter]

30. House price declines from peak -- Case Shiller Seasonally Adjusted

% drop     City
 -7%    TX-Dallas
-11%    CO-Denver
-11%    NC-Charlotte
-17%    OH-Cleveland
-18%    MA-Boston
-21%    OR-Portland
-21%    NY-New York
-22%    GA-Atlanta
-22%    WA-Seattle
-26%    IL-Chicago
-33%    DC-Washington
-36%    MN-Minneapolis
-41%    FL-Tampa
-41%    CA-Los Angeles
-42%    CA-San Diego
-45%    MI-Detroit
-45%    CA-San Francisco
-48%    FL-Miami
-53%    NV-Las Vegas
-54%    AZ-Phoenix

Note that major metro areas such as Philadelphia, Baltimore, Cincinnati, St Louis, Kansas City, Houston, San Antonio are not included in Case Shiller. The major declines are in states with "non-recourse" mortgages, where the mortgage is secured only by the specific property and the homeowner is not personally responsible for the mortgage debt.

[Hugin]

38. Could you please expand on your description of 'non-recourse' mortgages?

I was unaware of such a thing. (and I'm kind of Google lazy today)

Why are the major price declines in states where those types of mortgages prevail?

[FarCenter]

44. Non-recourse mortgage

With a non-recourse mortgage, the lender can only seize the mortgaged property if the borrower defaults on the mortgage. The lender cannot garnish waged, take other real property, or force the borrower into bankruptcy in order to be made whole in case the property is worth less than the balance of the mortgage.

This accounts for the high number of "walk aways" in the non-recourse mortgage states. Once the price of the house declines significantly below the balance of the mortgage the borrower can move out and mail the keys to the lender -- "jingle mail".

See also http://en.wikipedia.org/wiki/Nonrecourse_debt

See also http://www.helocbasics.com/list-of-non-recourse-mortgage-states-and-anti-deficiency-statutes/ for a list of non-recourse mortgage states.

Having a second mortgage or a HELOC on the property complicates matters, but it is generally in the interest of the HELOC lender to take the initiative to force the borrower into bankruptcy before the first mortgage lender forecloses.

[InkAddict]

31. Win Bischoff to become Lloyds chairman from September 15

http://economictimes.indiatimes.com/International-Business/Win-Bischoff-to-be-Lloyds-chairman/articleshow/4830354.cms
28 Jul 2009, 1700 hrs IST, PTI


His appointment comes in the wake of Lloyds Banking Group chairman Victor Blank's decision to step down. Bischoff would take up the position from September 15, the company said in a statement on Monday.

Bischoff would take home an annual fee of 7,00,000 pounds and would not be eligible for any of Lloyd's incentive arrangements.

One of the worst hit by the financial meltdown, Lloyds has been extended billions of pounds by the UK government, which now has more than 40 per cent stake in the banking group.

[KoKo]

33. "Dear Ben" ---10 Congresscritters ask Bernanke to explain Goldman-Sachs Privileges

Hat Tip to Robert Oak of "Economic Populist" for this:

A Dear Ben Letter

It seems a few in Congress are really wondering why Goldman Sachs is being enabled to gamble with taxpayer money and how it is they were given exemption to the normal rules to limit risks of bank holding companies. Will Congress get a Dear John Letter in response?


--------------


Ben Bernanke
Chairman
Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551

Dear Chairman Bernanke:

In the fall, Goldman Sachs secured access to government funding by converting from an investment bank into an ordinary bank. Despite this shift, the CFO of the company, David Viniar, said last week that the company is continuing to operate as if it were still a high-risk investment bank: “Our model really never changed,” he noted in a quote to Bloomberg. “We’ve said very consistently that our business model remained the same.”



This statement seems accurate. Earlier this year, the Federal Reserve granted a temporary exemption to Goldman Sachs from standard bank holding company Market Risk Rules, allowing the company to continue operating as if it were an investment bank. The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big. In its most recent quarter, Goldman Sachs earned high profits of $2.7 billion on revenues of $13.76 billion, with 78 percent of this revenue derived from high-risk trading and principal investments. It paid out much of this revenue in compensation, setting aside a record $772,858 for each employee at an annualized rate. The company’s own measurement of risk, its Value-at-Risk model, recently showed potential trading losses at $245 million a day, up from $184 million last May.

Despite its exemption from bank holding company regulations, Goldman Sachs has access to taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market. The only difference between Goldman Sachs today and Goldman Sachs last year is that today, the company is officially gambling with government money. This is the very definition of “heads we win, tails the taxpayers lose.”

It is worth noting that there sometimes might be good reasons to grant temporary regulatory exemptions, considering that companies cannot instantly change their business model. Still, given Goldman Sachs’s last quarter results and public statements that it is not changing its business model, we are worried that the company is using its regulatory freedom to evade capital requirements and take outsized risks with taxpayers on the hook for losses.

With this in mind, our questions are as follows:


1) In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company. Please justify this statement.

2) If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?

3) What is the difference in exposure to the taxpayer between these two regulatory regimes?

4) What is the difference in total risk to the portfolio between these two regulatory regimes?

5) Goldman Sachs stated that “As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders’ equity (common shareholders’ equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings.” As a percentage of capital, that’s a lot of long-term unsecured debt. Is any of this coming from the Government? In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly?

6) Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk. What is your overall view of Taleb’s argument, and of the utility of Value-at-Risk models as regulatory tools?

As we work through legislative conversations regardling systemic risk, these questions are taking on increased significance. We appreciate your time and the efforts you are making to explain the actions of the Federal Reserve to Congress, and to taxpayers.



Sincerely,

The signers are: Alan Grayson, Ron Paul, Walter Jones, Brad Miller, Dan Lipinski, Elijah Cummings, Tom Perriello, Maxine Waters, Jackie Speier, and Maurice Hinchey.

http://www.economicpopulist.org/content/dear-ben-letter

[Ghost Dog]

36. Excellent letter. Very good background and questions.

Expect continued spin but no real answers, of course.

[Demeter]

35. Dilbert Explains Modern Business Investment Practices

http://dilbert.com/dyn_file/str_strip/62564/gif/strip.print/

[Demeter]

41. Well, That Was NOT a Happy Market

Looks more like the verge of a nervous breakdown.

I am thoroughly enjoying my "vacation" from daily paper delivery. This was the first Monday in years that I wasn't totalled by the weekend route, and could actually do some housework, which is badly needed around here, I'll be first to admit.

The experience was rocky for the "new" paper. It could have been worse. It will get better.

I wrestled with my dryer exhaust ductwork today. I am going gunning for the architect, who cheated by putting a door too close to the dryer so that the ducting couldn't be done right. He's 80+ and still committing architecture, so it's time to put him out of my misery....I swear that he never had to lift a finger doing practical home chores, for nothing else could explain why there's no place to store a broom or a vacuum cleaner, or any other number of practical issues neglected or missing in this 60's era townhouse turned condo...

Have a good evening, folks! It's time for the Budget and Finance committee 50 year plan.....