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Saturday, October 31, 2009

The Future of Banking


Financial Times:
Banking with Bird & Fortune [full 10 min video] via Calculate Risk

Monday, October 26, 2009

The Times They are a Change'n

Items of Interest:

James Howard Kunstler:
Marching Toward Zombieland --

The sense that Wall Street has pulled off a coup d'etat and taken over the machinery of the United States is the most powerful meme out there now, and its power is growing in magnitude every day among all classes of Americans...
----
The Mess That Greenspan Made:
More reasons to hate big banks --
numerous people who have been notified by Citibank in recent days that the interest rate on their credit cards is soaring to almost 30%...
----
Naked Capitalism:
Guest Post: Capitalism, Socialism or Fascism? -- Consider:
  • The government has given trillions in bailout or other emergency funds to private companies, but is largely refusing to disclose to either the media, the American people or even Congress where the money went
  • Congress has largely been bought and paid for, and two powerful congressmen have said that banks run Congress
  • The head of the Federal Reserve Bank of Kansas City, the former Vice President of the Dallas Federal Reserve, and two top IMF officials have all said that we have – or are in danger of having – oligarchy in the U.S.
  • Economist Dean Baker says that the real purpose of bank rescue plans was “A massive redistribution of wealth to the bank shareholders and their top executives”
  • The big banks killed any real chance for financial reform months ago
----
Tent cities growing:

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Bloomberg:
Marc Faber, publisher of the Gloom, Boom & Doom Report, talks with Bloomberg's Deirdre Bolton and Erik Schatzker about the performance of the dollar and U.S. economic outlook.

Faber also discusses the outlook for equities, the correlation between the dollar and the stock market and the fiscal position of the U.S. which he describes as a "complete disaster" and "Dollar Will Go To A Value Of Exactly Zero" ...

Tuesday, October 20, 2009

Rosy Scenarios

Items of Interest:

Wall Street Journal:
Employers Hold Off on Hiring -- Companies across the economy are holding off on hiring even as the profit outlook improves, amid economic uncertainty and their own success at raising productivity in rough waters.

Hiring always lags behind in economic recoveries, but the outlook this time is worse, many economists say. Most forecasters now expect a prolonged period of high unemployment, even though the government is expected to report next week that the economy grew in the third quarter, after four quarters of contraction. That is sure to frustrate the jobless and could be a problem for the Obama administration...

Even if the job market started spitting out jobs as fast as it did during the 1990s boom, adding 2.15 million private-sector jobs a year, the U.S. wouldn't get back to a 5% unemployment rate until late 2017...

----
CNN Money:
Foreclosures: 'Worst three months of all time' -- Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter - a sign the plague is still spreading.

Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

"They were the worst three months of all time," said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008...
----
Housing Wire:
2.7m Distressed Properties in Market Pipeline: RBS -- Recent months of “nascent” housing recovery remain overshadowed by the delinquency pipeline that threatens to put as many as 2.7m distressed sales on the market, according to weekly commentary on US economics by Royal Bank of Scotland (RBS) economists.

Single-family housing starts jumped 38% from February to July, while new home sales jumped by 28% from March to July and existing home sales rose 15% over the same time frame, RBS said. The heavy use of the first-time homebuyer tax credit in summer ahead of its November 30th deadline may have contributed to the rise in sales...
related:

John Mckinnon / WSJ: Home-Buyer Credit Is Focus of Inquiry --

The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break ...
----
ProPublica.org:
Four Banks in Govt’s ‘Healthy Bank’ Bailout Struggle to Survive -- The government has doled out billions to 687 banks over the past year through a program meant to bolster already “healthy” banks. But an increasing number of those are troubled. Four banks in particular are foundering, including one that has acknowledged its executives cooked its books...
----
Frank Rich / NY Times:
Goldman Can Spare You a Dime -- Even as we wait for Congress and its inquiry to produce results, the cultural toxins revealed by our economic crisis remain unaddressed by the leaders in the private and public sectors who might make a difference now. Blankfein may be giving $200 million to “education,” but Goldman is back to business as usual: making money by high-risk gambling, with all the advantages that the best connections, cheap loans from the Fed and high-speed trading algorithms can bring. As the Reuters columnist Rolfe Winkler wrote last week, “Main Street still owns much of the risk while Wall Street gets all of the profit.”

The idea of investing in the real economy — the one that might create jobs for Americans — remains outrĂ© in this culture. Credit to small businesses remains tight. The holy capitalist grail is still the speculative buying and selling of companies and the concoction of ever more esoteric financial “instruments.” The tragic tale of Simmons Bedding recently told in The Times is a role model. This successful 133-year-old manufacturing enterprise was flipped seven times in two decades by private equity firms. Investors made more than $750 million in profits even as the pile-up of debt pushed Simmons into bankruptcy, costing a quarter of its loyal workers their jobs so far...
----
Calvin Trillin / NY Times:
Wall Street Smarts -- “IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar...

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

“But weren’t there smart guys on Wall Street in the first place?” I asked...
----
Technology Review:
Natural Gas Changes the Energy Map -- Vast amounts of the clean-burning fossil fuel have been discovered in shale deposits, setting off a gas rush. But how it will affect our energy use is still uncertain.

This formation is the edge of vast deposits of black shale that stretch under tens of millions of acres below western New York, much of western and northern Pennsylvania, and parts of Ohio, West Virginia, Maryland, and Kentucky. The oldest and deepest layer is called the Marcellus shale, and if geologists like Lash are correct, it holds enough natural gas to help change the way the United States uses energy for decades to come.

Experts now believe that the country has far more natural gas at its disposal than anyone thought three or four years ago. The revised estimates are largely due to advanced drilling techniques that make it economically feasible to extract the fuel from shale ...

Thursday, October 15, 2009

New FHA Rules will Flush Condo Values

Items of Interest:

Arizona Republic:
Experts: Plummeting prices have rendered condos nearly worthless -- New federal loan-guarantee rules imposed to fend off future government losses from plummeting condominium prices have rendered condos utterly worthless, Valley real-estate experts said.

The Federal Housing Administration rules, which took effect Oct. 1, prohibit any new FHA-backed loans on condo units in projects that include more than 25 percent commercial space.

In addition, no single investor - including the developer - may own more than 10 percent of the units in a particular project. That particular restriction alone creates a catch-22 from which condo builders most likely cannot escape, said mortgage originator Jill Hoogendyk of Wallick & Volk in Glendale.

Another rule that has sellers and brokers scratching their heads prohibits FHA loans in condo developments that aren't "primarily residential," which could be taken to mean the FHA won't guarantee loans in future mixed-use projects.

"I'm predicting that what we'll see is whole condominium complexes sitting empty," Hoogendyk said...

discussion:
Mish's Economic Analysis: FHA Rules Render Condos Utterly Worthless
SquareFeet: New FHA Rules Make Life Tough For Condo Sellers
RealtyTrac: New FHA Rules Doom Condo Values

Monday, October 12, 2009

What part of the cycle are we in?

Items of Interest:

Zero Hedge:
Goldman Increases Ten Year Deficit Estimate To $10.5 From $9 Trillion, Sees Output Gap At 10% -- A comprehensive analysis by Goldman Sachs of the long-term US economic forecast discloses some rather unexpected pessimistic observations.

Last week the US Treasury closed the books on fiscal year (FY) 2009, a year that will go down as a gamechanger in modern US budget history. According to estimates by the Congressional Budget Office (CBO), the Treasury will report next week that the FY 2009 deficit was just over $1.4 trillion (trn). This is more than triple the FY 2008 shortfall and, at 9.9% of GDP, by far the largest relative to the size of the economy since World War II. Both revenues and outlays reached extremes not seen in more than 50 years (15% and 25% of GDP, respectively)...
----
The Big Picture:
Getting Better ?

----
Reuters:
U.S. states suffer "unbelievable" revenue shortages -- The U.S. economy may be creeping toward recovery after the worst slowdown since the Great Depression, but many states see no end in sight to their diving tax revenues.

Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers...
----
Kevin Depew / Minyanville.com:
Five Things: The Credit Cycle Begins Again -- So how will this cycle end? Exactly like the last one: in tears, perhaps even worse if the cycle of risk-seeking behavior doesn't penetrate the consumer, as I believe it won't. While that could be wrong -- we'll see -- the bottom line is this cycle will continue to play out over a period of time. Because the consumer will be less of a participant this time, the duration of this credit bull market may be shorter than some credit market watchers expect. But the end result will, again, be exactly the same...
related:
Mr. Practical:
The Credit Cycle Is Not Over
----
Nick Paumgarten / New Yorker Magazine:
The Secret Cycle -- Is the financier Martin Armstrong a con man, a crank, or a genius?

[...] I was told, time and again, that some of the biggest investors out there view even the wackier cycle theories with respect, and factor cycles into their allocations. This may say less about the viability of cycle theory than it does about the chimerical folly of market divination—which may be why such investors are loath to discuss it. “You don’t talk to people about it, because they don’t understand," one trader told me. “It’s not something you can share openly with colleagues. It’s not accepted.”

“I’ve studied cycles for years,” Dimitri Chalvatsiotis, a London-based trader at a global hedge fund, told me. “It’s part of the methodology. It’s an overlay that defines the way I look at the world. These cycles govern the planet. That’s where you start. Some people believe news drives markets. I don’t.”

“The way I think about cycles in general is that they provide a great approach to offsetting human biases,” Laeeth Isharc, a hedge-fund manager in London and previously a trader at the giant investment firms D. E. Shaw and Citadel, said. “We tend to think that the future will be like the last few years, only more so. Cycles are a good way of reminding oneself that there is mean reversion.” ...
----
David Goldman / Asia Times / Inner Workings:
Gold Arithmetic: Why the Gold Price Has No Ceiling -- What’s the price of the last ticket on last train out of Paris on the night the Germans march in? Whoever is carrying the most cash will get it, and that will be the price. Robert Merton, the great finance theorist, showed that in a multi-time-period model, investors hedge against the prospective change in the investment opportunity set. If sufficient hedges are not available the price of such hedges can be arbitrarily high. As I have tried to show in several recent articles, most recently this Sept. 15 essay at Asia Times, gold is a hedge against the collapse of America’s central role in world affairs.

What is the correct price? Central banks alone own about 4.8 million tons of gold. The world produces about 2,200 tons. Suppose that central banks wished to increase their gold holdings by 1 percent. That’s 48,000 tons or so, or more than 20 times annual mining production. What’s the price elasicity on that sort of thing? How badly do you need that ticket out of Paris?
related:
AsiaTimes:
Gold a hedge and no more - yet

Safe Haven:
Gold and Saving -- It is very likely that two ultra-long-term trends reversed direction over the past two years, the first being the expansion of private-sector credit in the US and the second being the contraction of the US savings rate. The trend reversals are, of course, inter-related, in that the new trends towards less debt and more savings are being driven by economic hardship in the present and the revelation that the economic future will not be as rosy as previously thought....

Friday, October 2, 2009

How bad will unemployment get? How bad is it now?

Items of Interest:

Bloomberg:
U.S. Job Losses May Be Even Larger, Model Breaks Down -- The U.S. economic slump earlier this year was so severe it short-circuited the government’s model for calculating payrolls, raising the risk that today’s jobs report may be too optimistic.

About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991...

discussion:
Tyler Durden / Zero Hedge:
BLS Discloses It Has Overrepresented Payroll Data By 824,000 Or 15% -- A part of today's BLS (Bureau of Labor Statistics) announcement that has not received much attention is the BLS' own disclosure that it "may" have lost an additional 824,000 jobs in LTM period ended March 2009, in addition to the already disclosed 4.8 million job losses...

All this simply means is that once the full extent of the collapsing employment picture is revealed on February 5 next year, the market will explode to record highs: after all the worse the economic news are, the better for the stock market...
-----
Mike Mish Shedlock / Minyanville:
Prepare for Huge Downward Revision in Job Numbers -- Once again, today's job numbers show Collectively, Economists Are a Perpetually Optimistic Lot. Payrolls were expected to drop 175,000, the median of 84 estimates in a Bloomberg News survey of economists. Forecasts ranged from decreases of 260,000 to 100,000.

Jobs losses this month totaled 263,000, worse than even the most pessimistic economist projection.

Actually, economists missed by another 13,000 because revisions subtracted 13,000 from payroll figures previously reported for August and July...

the BLS is going to revise the number by 824,000 . . . that's an extra 68,666 jobs per month the BLS was off between March 2008 and March 2009 . . .

Mish's Global Economic Trend Analysis:
Jobs Contract 21th Straight Month; Unemployment Rate Hits 9.8%
----
John Williams / shadowstats.com:
Commentaries --
BLS Revision Nightmare: March 2009 Payrolls Overstated by 824,000
Birth-Death Model Falsely Boosting Jobs Reporting in Recession Environment
Monthly Jobs Loss of 263,000 (Payroll Survey) versus Monthly Employment Decline of 710,000 (Household Survey)
September Unemployment Rates: U.3 = 9.8%, U.6 = 17.0%, SGS (Shadow Gov't Statistics) = 21.4%
related:
Wikipedia:
United States Bureau of Labor Statistics -- The Bureau of Labor Statistics measures employment and unemployment (of those over 15 years of age) using two different labor force surveys[32] conducted by the United States Census Bureau (within the United States Department of Commerce) and/or the Bureau of Labor Statistics (within the United States Department of Labor) that gather employment statistics monthly. The Current Population Survey (CPS), or "Household Survey", conducts a survey based on a sample of 60,000 households. This Survey measures the unemployment rate based on the ILO definition. The data are also used to calculate 5 alternate measures of unemployment as a percentage of the labor force based on different definitions noted as U1 through U6:
  • U1: Percentage of labor force unemployed 15 weeks or longer.
  • U2: Percentage of labor force who lost jobs or completed temporary work.
  • U3: Official unemployment rate per ILO (International Labour Organization) definition.
  • U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
  • U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
  • U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons.
----
CNBC:
US Unemployment May Hit 15% in 2010: Strategist -- Unemployment can go as high as 12 to 15 percent in the United States next year, as the economic situation will get worse and more banks will go bankrupt, Nicu Harajchi, CEO at N1 Asset Management, told CNBC Friday...
----
The Big Picture:
The Mother of All Jobless Recoveries? -- You can see why the Rutgers study showing a full jobs recovery not taking place until 2017 is very possible...
----
update:
The Big Picture:
The More You Dig Into the Numbers, the Worse They Get -- Barron’s Alan Abelson calls the September employment report “An absolute horror.” ...

“As Doug Kass, our hedge-fund-manager friend, who was a whiz at arithmetic when he was 10 years old and still can do his sums, totes it up, there are 2.2 million of these marginally attached souls, who would like to work but haven’t been able to land a job and aren’t receiving benefits. Add in some 9.2 million involuntary part-timers and the aforementioned 15.1 million formally unemployed, and the jobless total swells to over 26 million.

A compassionate portfolio manager (if there is such an animal), Doug tries to fathom in flesh-and-blood terms what those dry-as-dust dry statistics mean. And what he envisions are 26 million people not going to malls for extras, or taking the kids to the movies, hunting the cheapest victuals they can find at the supermarket and who are denying themselves the pleasures of travel, eating out, upgrading to Windows 7 or buying iPhone apps...
related:
Alan Abelson / Barron's: Downright Scary
----
Famous last words:
"At this juncture...the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained." — Ben Bernanke, March 28, 2007.

"From a technical perspective, the recession is very likely over at this point." — Ben Bernanke, the Brookings Institution, September 15, 2009.

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia