Sunday, February 22, 2009
Quote...
Soros sees no bottom for world financial "collapse"
Sat Feb 21, 4:19 pm ET
NEW YORK (Reuters) – Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.
Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.
"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.
(Reporting by Pedro Nicolaci da Costa and Juan Lagorio; Editing by Gary Hill)
Saturday, February 21, 2009
The Euro, Fundamentally will not work
"It seems to me that Europe, especially with the addition of more countries, is becoming ever-more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe's internal contradictions will tear it apart."
Friday, February 20, 2009
"Volcker- "Even the experts don't quite know what's going on."
By EILEEN AJ CONNELLY, AP Business Writer Eileen Aj Connelly, Ap Business Writer
NEW YORK – "Even the experts don't quite know what's going on."
Speaking to a number of those experts Friday, Paul Volcker, a top economic adviser to President Barack Obama, cited not only the lack of understanding of the global financial meltdown but the "shocking" speed with which it had spread across the world.
"One year ago, we would have said things were tough in the United States, but the rest of the world was holding up," Volcker told a conference featuring Nobel laureates, economists and investors at Columbia University in New York. "The rest of the world has not held up."
In fact, the 81-year-old former chairman of the Federal Reserve said, "I don't remember any time, maybe even the Great Depression, when things went down quite so fast."
He noted that industrial production is falling in countries across the globe faster than in the U.S., one result of the decline caused by the breakdown of unbridled financial markets that operated on a global scale.
"It's broken down in the face of almost all expectation and prediction," he noted.
Volcker didn't offer specifics on how long he thinks the recession will last or what will help start a recovery. But he predicted there will be some lasting lessons from the experience.
"I don't believe it will be forgotten ... and we will revert to the kind of financial system we had before the crisis," he said.
While he assured his audience of his confidence that capitalism will survive, Volcker said stronger regulations are needed to protect the world economy from such future shocks.
And he said he is concerned about the amount of power central banks, treasuries and regulatory agencies have acquired while trying to contain the meltdown.
"It is evident in the United States, and not just in the United States, the central bank is taking on a role that is way beyond what a central bank should be taking," he said.
Volcker stressed the importance of international cooperation in creating a new regulatory framework, particularly for major banks that operate across national boundaries — the reverse of what's happened in recent years.
"The more international agreement we have on where we want to get to, the better off we'll be," Volcker said.
And while major banks should be more tightly controlled and less able to make the sort of risky bets that led to their current debacle, Volcker said there should also be more oversight of some kind for hedge funds, equity funds and the remaining investment banks.
He scoffed at the notion that those entities must be free to innovate — stating that financial "innovations" like asset backed securities and credit default swaps have brought few benefits. The most important "innovation" in banking for most people in the last 20 or 30 years, he maintained, is the automatic teller machine.
Change is Coming!
************
We were told what would be happening!
Thursday, February 19, 2009
The Solution?? This this what we want?
This is not free markets. This is Central Planning, and we all know how well that works!
The fix to this financial / economic problem, is not with govt bail outs or spending. This problem was caused by something else. That issue needs to be resolved.
The solution to this problem is not easy nor pretty.
But that is what is what people want and politicans promise.
The solution that the Central Planners are promoting will only make the problem deeper and longer. Eg ...the 1930's
That all said...I think Canada is better managed than most of the Western World, however, Canada will be hurting during this down turn, since it is resource based economy.
Wednesday, February 18, 2009
Obmaba....has already done more by....
$263,000 per worker....now that is Stimulus!
What is Fascism?
Quote....The real destroyer of
Sunday, February 15, 2009
Saturday, February 14, 2009
Update: yes, the Paulson Plan was just theft
Opening of “The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks” (30 September 2008):
“Buy this because it is extraordinarily cheap. The owner must sell right now because…
This is the opening line of a thousand confidence games. Stories told by well-dressed, smooth-talking grifters. Like many of those sent out to sell the Paulson Plan (which is not dead, as Congress will certainly reconsider some form of it later this week).
The government can buy financial assets from the world’s leading financial firms at prices so low that substantial profits are likely.
Read those words. Confidence tricks require marks, people who believe preposterous statements about promised gains if stated authoritatively and backed with a slick story.
* “The Paulson Plan Will Make Money For Taxpayers“, Andy Kessler, Op-ed in the Wall Street Journal, 25 September 2008
* “Bailout May Be Granddaddy of All Carry Trades“, John M. Berry, Bloomberg, 26 September 2008
* “Taxpayers can still benefit from a bail-out“, Lawrence Summers, op-ed in the Financial Times, 28 September 2008
Now the Congressional Oversight Panel tells us the tab after the first few months of the “THEFT TART (Troubled Assets Relief Program): $78 billion. Don’t worry, the money was not lost. It’s just moved from your pockets to those of people with great political influence.
Only fools expected any other outcome. And the meter is still running, with the losses mounting day by day. To read the unpleasnat details see “Congressional Oversight Panel Releases Third Monthly Oversight Report: Valuing Treasury Acquisitions“, 6 Feburary 2009 — Excerpt:
The report acknowledges that Treasury may have had valid policy reasons for making these transactions, and that it is possible that the value of the investments may eventually be worth more than the amount Treasury paid—or they may be worth much less. The report does not take a position on whether Treasury pursued the correct strategy, instead focusing on the contrast between the quantitative results of the study and the statements made by Secretary Paulson last year.
Last fall, Treasury sold the American public on the TARP program by claiming that it would help banks while protecting taxpayers. Secretary Paulson described the transactions as ‘at or near par’—that the value the assets Treasury received was roughly equal to the money being spent. But that didn’t happen. Treasury got less than it spent.” said Elizabeth Warren, the Chair of the Oversight Panel. “Treasury should have leveled with the American people about the purpose of the program. It’s time to explain what’s happened so that we can have a good, old-fashioned debate about whether this is the smartest way to spend our money.
********************
Paulson ripped us off... he was good at it..but wait, the lesson still has not been learned.
How long will taxpayers allow govt / congress to move funds from the people to give more to big business and special interest groups?
Time for a Reality Check
By John Mauldin
It is not just the US that is in recession. The world is slowing down, and rapidly. This week we quickly survey the rest of the world, and then come back to the US. We follow up with the implications for corporate earnings worldwide, and specifically address my speculations about earnings forecasts for 2009.
World Trade Is Falling Off a Cliff
Let's start with some charts from my friend Simon Hunt, out of London. The following chart shows World Merchandise Export Values and World Industrial Production falling off a cliff. This is the worst such period since the end of World War II. And as the data we will examine next indicates, it is likely to get worse. Simon notes that consumer spending is about 60% of world GDP, and it is not just in the US that spending is slowing down. Consumers all over the developed world are in shock, as assets such as stocks and houses, real estate, and commodities fall in value. Unemployment is rising.
We think that almost 2,000,000 lost jobs in the last three months in the US is a catastrophe. China lost a reported 20,000,000 jobs in the last quarter, and migrant workers came back to the cities after Chinese New Year to find factories and jobs simply gone. Unemployment is rising rapidly in Europe, as the demand for goods has clearly been falling since last October.
This means that inventories are too high, not just in the US but in factories all over the world, and that production is slowing down. Look at the recent US trade deficit. Many market analysts rejoiced that it dropped to a six-year low, just below $40 billion. But the internal numbers were not as positive. Exports are dropping faster than imports, as seen below. "After growing in every quarter during the last three years, real goods exports fell 34.9% at an annual rate, the worst performance in more than three decades." (www.dismal.com) And a falling deficit means that US consumers have to save more to balance out less foreign buying of US debt. There is no free lunch.
Let's look at a little bit of insider economics trivia. The US government first estimated that GDP last quarter was a negative 3.8%. I wrote when that number first came out that it would be revised downward.
When the government makes its initial forecast of GDP one month following the end of a quarter, it has to estimate what exports and imports were for the last month of the quarter. There is simply no data. For the 4th quarter of 2008, they estimated that the trade deficit would be about $34.5 billion, in line with what most economists thought. As it turns out, each $1 billion represents about 0.1% of GDP. So being off about $5 billion from the actual total of $40 billion subtracts another 0.5% of GDP from the previous estimate of -3.8%, taking it to a -4.3%.
Further, the government makes estimates about inventories which also affect GDP. When final numbers on real inventories come in, it will also add to the negative GDP estimate. Expect GDP to be in the range of a negative 5% for the 4th quarter, and the current quarter is likely to be almost as weak.
In the US, the leading economic indicators (LEI) continued to decline, but the leading indicators in the rest of the world were often much worse. (The chart below is again from Simon Hunt.) These are results from the OECD's analysis of the leading economic indicators for a variety of countries. Notice in particular how poorly Russia and China are doing! Also remember that the LEI is about how the economy is expected to be doing in six months, not what is going on right now. This argues that there is no real global turnaround in the picture before the end of the third quarter, at the earliest.
China has seen its year-over-year exports drop by 17.5% and imports by 43%. These are not signs of a healthy economy. That being said, China is massively increasing bank loans and other stimulus-type spending to try and offset the effects of the global downturn. But putting 20 million people back to work in a short time is a daunting task.
Japanese GDP was down by 9% (!) last quarter. Many of the largest corporations are seeing exports drop by 20-30% and are engaged in massive layoffs, larger proportionally than in the US. The euro area economy dropped by 6% in the 4th quarter, led by an 8.2% contraction in Germany (JP Morgan). I could go on and on, but the news is the same. The global economy is in a deep and worsening recession.
European Bank Losses Dwarf Those in the US
In a few paragraphs I am going to put up a chart from Nouriel Roubini's RGE Monitor on the size of US bank losses, and in a few pages I'll comment on the Geithner "plan" for rescuing US banks. We have indeed dug ourselves a very deep hole here in the US.
But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable amount would push the cost of government borrowing to much higher levels than we see today.
As my kids would say, "Really, Dad, you think so?" Europe is somewhat larger than the US, so think what my gold-bug friends would say if the US decided to borrow $25 trillion to bail out US banks. The dollar would be crucified! The euro is going to get a lot weaker if bank problems are even half of what the report says they are. The British pound sterling is already off almost 30% and, depending on what the real damage is to their banking system, it could get worse.
Waterfield reports, "National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors -- particularly those who lend money to European governments -- have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
"The Commission figure is significant because of the role EU officials will play in devising rules to evaluate 'toxic' bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries."
Part of the problem is that European banks were far more highly leveraged than US banks. Some banks were reportedly leveraged 50:1. And they lent money to Eastern European projects and businesses which are now facing severe financial strain and plummeting local currencies.
Let that number rattle around in your head for a moment: $25 trillion. Even $5 trillion would be daunting. But the problem is that Europe does not have a central bank that can step in and selectively save banks from one country without taking on all euro zone member-country banks. Yet, as noted above, some countries may not have the wherewithal to save their own banks. It is reported that some Austrian banks are hoping that Germany will step in and help them. Given Germany's problems, they may have a long wait.
Now, let's look at what Nouriel Roubini (www.RGEmonitor.com and professor at NYU) estimates for US banks losses. He puts the figure at some $1.7-1.8 trillion out of a total of about $3 trillion (I think) in total financial system losses. And Nouriel's base assumptions are not all that bearish, given what we know: a 5% GDP contraction and 9% unemployment, with housing prices down another 20%. All those estimates are quite plausible.
And a quick promotional plug: my next recorded "Conversation" will be with Nouriel and his staff in a few weeks. See the link at the end of the letter to make sure you get your copy.
Geithner: "You Can't Handle the Truth"
The critics were quick to pan Treasury Secretary Tim Geithner's bank bailout plan as being weak on details. Which was true. There wasn't much substance in his speech. But let me offer a contrarian view. Geithner and the team around him may not be entirely tone deaf. They are very smart people and are surely in contact with major Wall Street figures, and would know that the lack of detail would disappoint.
Pretty much everyone knows the scene from A Few Good Men, where Jack Nicholson tells Tom Cruise, "You can't handle the truth!" (www.youtube.com/watch?v=8hGvQtumNAY)
What if the number that the Treasury and the Fed are looking at is a lot more than the remaining $350 billion in the TARP program? As in another $1 trillion more, or even the $1.5 trillion that Roubini says may be out there (and other independent analysts, like David Rosenberg of Merrill, say there may be another $2 trillion in losses). Can you imagine what the market reaction would have been if they had announced that this week? The Dow down 400 points would have seemed like a Sunday walk in the park. Congress would be screaming, and the chances for the stimulus package to pass would have materially diminished.
I don't think we know the real extent of what it is going to cost to shore up the banking system. But the consensus among the financial leadership is that we have to fix the credit system no matter what the costs, or risk a repeat of the Great Depression. That is the essence of what Irving Fisher taught us some 75 years ago, when faced with a deflationary debt crisis.
Time for a Reality Check
Reality check: The "stimulus" that President Obama will sign Monday is a band-aid. If Irving Fisher, who by some accounts was our finest American economist, was right, such a stimulus is useful in that it helps those who are unemployed and replaces some lost consumer spending; but the real work that must be done is to get the credit system flowing again. I don't have the space to go into that economic debate tonight, but it is at the core of the problem. It is Keynes vs. Fisher, von Mises vs. Friedman. It is, as Lacy Hunt says, "The Grand Experiment." After 70 years, we are going to see who is right. My money is on Fisher. It is not an experiment that is going to be fun to live through; but when we have the next debt deflation in 70 years or so, our grandchildren may know what to do.
We will see another stimulus package, probably by the end of the year. This time it will hopefully provide real stimulus. Much of the current version is simply an increase in federal spending that will be hard to rein in. And please, I am not being partisan. That is the analysis of many of Obama's advisors. And it goes back to the debate I mentioned. Keynes would argue that it is in fact stimulus. The other three economists would have differing views. And like I said, in a few years we are going to know who was right.
But the heavy lifting is going to be done by the Fed. Watch their balance sheet expand. And watch Treasury and the FDIC come back and ask for massive amounts of money to take over very large insolvent banks. Stay tuned.
Earnings Will Get Even Worse
Last week I said that 2009 as-reported earnings estimates for the S&P 500 would be dropping. 2008 earnings had dropped to $29.57 as I wrote the letter. They are now down to $28.60. One of my favorite analysts is David Rosenberg of Merrill Lynch. His forecast for reported earnings for 2009 is now down to $28. That puts the P/E for the S&P 500 at 30.
He also projects "operating" earnings to be $55 for 2010. And, as he writes today:
"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."
That is a 20% drop from today's close of 829. That is not what you will hear from "sell-side" managers who want you to invest in their mutual funds and long-only management programs.
I noted the problem with the rest of the world earlier. 40% of the earnings for the S&P 500 are from outside the US. It is hard to see how those earnings are not going to be deeply affected. Let me reiterate my continued warning: this is not a market you want to buy and hold from today's level. This is just far too precarious an economic and earnings environment.
Given the probable ongoing bad news from financial and consumer stocks, plus the depressing news on bank losses coming down the road, why take the risk?
John Mauldin
John@frontlinethoughts.com
Copyright 2009 John Mauldin. All Rights Reserved
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
Best Trading and Investing Advise
Get a clear grasp of how to become a professional trader
in about 2 minutes! No books to read, no studying. See
video link below and we will follow it up with a brief
discussion in the trading room:
VIDEO: http://www.puretick.com/video/success
**********************
This is the Best Trading and Investing advise
Simple.....how did I ever miss it?
David Ignatius: The Death of 'Rational Man'
From the Washington Post:
What allowed some people to see the financial crash coming while so many others missed its gathering force? I put that question recently to Nouriel Roubini, who has come to be known as "Dr. Doom" because of his insistent warnings starting in 2006 that we were heading into a global firestorm.
Friday, February 13, 2009
US Govt Paper...What is it Worth?
“Either one of two things will happen. If the government funds its deficits honestly -- by borrowing from willing lenders -- this huge extra demand for credit will force up yields... thereby lowering bond prices. Or if the government resorts to “monetizing the debt” -- that is, funding its debt with printing press money -- investors will flee bonds, in fear of higher inflation.
“Either way, it will be bad news for bond prices.”
************
US House on Leave
Not one to miss out on the fun, Speaker Pelosi will leave for Rome tonight, presumably after the stimulus bill is passed. She’ll meet the Pope there and most of the Italian government, discuss Italy’s involvement in our efforts in the Middle East (say what?) and receive an award from an Italian legislative group. That’s great, really.
****************
Its really ghood to see US Congress members get a break / rest after all their hard work spending taxpayers money.
US Govt - Tilt - US $ will fall, US Govt Bankrupt
“The things they’re doing are not only unproductive, they’re the exact opposite of what should be done. The country got into this mess by living beyond its means for more than a generation. That’s the message from the debt that’s burdening so many individuals; debt is proof that you’re living above your means. The solution is for people to significantly reduce their standard of living for a while and start building capital. That’s what saving is about, producing more than you consume. The government creating funny money -- money out of nothing -- doesn’t fix anything. All it does is prolong the problem and make it worse by destroying the currency.
“Over several generations, huge distortions and misallocations of capital have been cranked into the economy, inviting levels of consumption that are unsustainable. In fact, Americans refer to themselves as consumers. That’s degrading and ridiculous. You should be first and foremost a producer, and a consumer only as a consequence.
“In any event, the government is going to destroy the currency, which will be a mega-disaster. And they’re making the depression worse by holding interest rates at artificially low levels, which discourages savings -- the exact opposite of what’s needed. They’re trying to prop up a bankrupt system. And at this point, it’s not just economically bankrupt, but morally and intellectually bankrupt. What they should be doing is recognize that they’re bankrupt and then start rebuilding. But they’re not, so it’s going to be a disaster.”
Common-sense Canada finds favour
Common-sense Canada finds favour
Prominent U.S. pundit praises banks, tax system, immigration
Canada's unsexy virtues -- a prudent banking system and fiscal responsibility in government -- are lavishly praised in the latest Newsweek magazine.
Aboot time, too!
And our dullest national trait -- common sense -- is singled out by influential Newsweek editor and columnist Fareed Zakaria as "the genius of the Canadians."
Such praise from a prominent American has us blushing right down to our sensible shoes. It's enough to make you celebrate with a bag of parsnip-flavoured chips, even though Hockey Night In Canada isn't on tonight.
Mr. Zakaria claims that Canada is in good shape to withstand the recession because it did not follow the U.S. and Europe, which loosened regulations on their financial industries over the past 15 years.
"Canadian banks are typically leveraged at 18 to 1 -- compared with U.S. banks at 26 to 1, and European banks at a frightening 61 to 1," he writes in a column.
"Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize."
Canada has been protected from the worst of this crisis because its housing prices have not fluctuated as wildly as those in the United States, he points out. "Home prices are down 25 per cent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. Ah, but you've heard American politicians wax eloquent on the need for these expensive programs -- interest deductibility alone costs the federal government $100 billion a year -- because they allow the average Joe to fulfil the American Dream of owning a home. Sixty-eight per cent of Americans own their own homes. And the rate of Canadian homeownership? It's 68.4 per cent."
Mr. Zakaria goes on to suggest that Canada is well positioned to take advantage of the global downturn.
"Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors," he gushes. "Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th."
Remember how Mom and Dad talked so much about responsibility? Canada has that going for it, too, says Mr. Zakaria.
"Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America's by far (accounting for 9.7 per cent of GDP, versus 15.2 per cent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; 'healthy life expectancy' is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America's largest car-producing region."
Mr. Zakaria also says the U.S. has "a brain-dead immigration system," compared with Canada's far-sighted immigration policy. While the U.S. kicks out thousands of talented grad students who want to stay and work in that country, Canada welcomes these talented migrants through its Skilled Worker Visa program.
"So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada -- where most of them will work, innovate and pay taxes for the rest of their lives."
Clearly, President Barack Obama should pay close attention when he visits Canada next week.
"If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet -- OK, sometimes boring -- neighbour to the north," concludes Mr. Zakaria.
We haven't felt this special since Robin Williams sang Blame Canada on the Oscars.
********************
It is Common sense Principles and Values that help prevent making stupid risky decision.
It is common sense policies (taxes and spending) the builds an economy.
I do not think the US Congress has yet figured it out...they continue spending without regard.
