Economy News, Continent Economy

GURUFOCUS: Warren Buffett of Berkshire Hathaway Just Fed Harley-Davidson Inc. Some Motor Oil

2009-12-20T07:21:00.000-08:00

According to today�s press release, Harley Davidson (HOG) issued $600 million senior unsecured notes to fund its wholly owned finance company, Harley-Davidson Finance Service (HDFS). The note will be repaid in 2014 and the annual interest is 15%. Warren Buffett�s company Berkshire Hathaway (BRK.A) (BRK.B) and Davis Selected Advisers, L.P. each snapped up $300 million.

Now, 15 percent per annum for a five-year note is a very high interest rate. This is how the CFO of the Harley Davidson, Thomas E. Bergmann, justified the move:

�This offering represents an important next step in executing our stated strategy for funding the lending activities of HDFS".

Impressive business talk, but it does not conceal the fact that one has to be in desperate need for the money to borrow under those terms.

The Borrowing Will Not Increase Profit

The borrowing probably won�t bring more earnings to the share holders in its life time of the next five years. What is the interest is Harley Davidson lending to its customers? 1% or 2%? So we are borrowing high and lending low. It doesn"t make sense to me.

According to GuruFocus data, HOG managed to make a little over 15% on its assets during boom years (2003-2007), but ROA has dropped to less than 10% at the end of 2008. 2009 will be another challenging year for the company. On January 23, 2009, the company announced that it saw for 2009 a reduction of 10-13% in motorcycle shipment and a shrinkage of gross margin to 30.5-31.5% from 34.5% in 2008. If the company couldn�t make more 15% on its assets (borrowed fund or equity), what is there left for share holders after paying the 15% in interest?

Harley Dividson Is Funding Its Own Sales

Instead, the loan has more to do with surviving in the current credit crunch. In the good old days, customers typically bought motorcycles from Harley Davidson Motor Cycle division; HDFS financed the purchases; HDFS turned around, securitized the loans and sold them to the Wall Street. Since 2008, �securitization� became a one of many dirty words and no one on Wall Street had much appetite for �securitized loans� of any kinds. As a result, in despite of declining revenue, HOG had to retain much more of the receivable on its balance sheet: its �Finance Receivable held for sale� more than tripled from $781 million at the end of 2007 to $2.4 billion at the end of 2008. In 2008, HOG resorted to short term borrowing and long term debt to fund this ballooned asset. Its short term liability increased from $1.9 billion to $2.6 billion; its debt increased from $980 million to $2.2 billion. The combine increase of $1.9 billion is compared to a total annual revenue of $5.6 billion, that is more than 33%.

Keeping more receivable on its balance sheet had its toll on HOG�s net income. In the final quarter of 2008, HDFS, its financing arm, had a $35.1 million write-down of retained securitization interests and a $28.4 million write-down to fair value of finance receivable held for sale. The $63 million write-down is significant compared to the quarterly net income of $77.8 million. The company wouldn�t retain so much receivable on its balance sheet if it had better choices.

Harley Dividson Has Been Credit Squeezed

It is worrisome to see its short term debt increase by $700 million. A typical loan for the motorcycles is for 5 to 7 years; apparently the company increased the short term borrowing in 2008 to financing the loans. Indeed, the company was squeezed to re-pay a $400 million mid-term note that matured in mid of December 2008. In the January 23, 2008 conference call, the company�s CFO Thomas E. Bergmann stated:

Turning to funding for HDFS, during last quarter"s conference call I explained specifically the options we had for repaying the $400 million of medium-terms notes that matured last December. Those options included accessing the unsecured debt capital market, utilizing our unsecured commercial paper program, and establishing an asset-backed commercial paper conduit facility.

We continued to access the commercial paper market throughout the quarter, including participation in the Fed"s CPSS program. By mid December it was clear that the unsecured term debt market was not accessible, so on December 12th we entered into a $500 million asset-backed commercial paper conduit facility. The funds generated from this facility were primarily used to repay the medium-term notes that matured in December.

In other words, the company borrowed short term to repay mid-term. Great band-aid corporate financing strategy.

How Long Can $600 Million Last

How long can the $600 million borrowed today from Warren Buffett�s Berkshire Hathaway and Davis Selected Advisers last? It looks like Harley needs to re-pay that $500 million asset-backed commercial paper mentioned above by March 31, 2009. Even if it can extend the terms for that loan, at the 2008 burning rate of $1.9 billion per year,, it won�t last for long unless the other options become available. In the fourth quarter conference call, CFO Thomas E. Bergmann stated:

To meet the remaining HDFS funding needs for 2009, we are pursuing three preferred paths. The first is for HDFS or Harley-Davidson, Inc., to access the unsecured debt capital market. We continue to carefully monitor these markets for opportunities.

The second preferred path is to seek to increase the $500 million asset-backed commercial paper conduit facility we entered into in December and extend the term beyond the March 31st maturity date. Expanding and extending this facility would supplement our existing unsecured commercial paper program.

And finally, we are working diligently to gain access to the asset-backed securitization market via the term asset-backed securities loan facility or TALF program. We are actively evaluating the program to further understand the details and learn how we may benefit from it. Retail motorcycle loans have been included as eligible assets in the program; however, exact details of the TALF program are not yet finalized. The general expectation is that the program will be clarified in the next few weeks.

Right now the TALF option seems to offer a more plausible mid-term solution. The Federal Reserve Board on November 25, 2008 announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). It is not fully functional yet, it remains to be seen how effective that might be.

Why Not Cut Dividend?

It is bewildering to try to rationalize the HOG management decision today: as near as December 9, 2008, Harley Davidson announced a quarterly dividend of $0.33 per share. That is $1.32 per year. With 232 million shares outstanding, the company is paying out a little over $300 million each year as dividend. Cut the dividend, don�t borrow from Warren Buffett at 15%! Berkshire Hathaway never paid a dividend, nor had it ever had to borrow at 15% interest.

Bad For Harley Davidson, Good For Bershire Hathaway

Apparenlty, HOG share holders considered it a great endorsement from Warren Buffett. HOG stock is up $1.87 (15.77%) today. Perhaps investors took it as a hint that it is Warren Buffett�s opinion that the company will survive the ecomonic crisis for at least another five years. Probably so, but much less profitably so. As a matter of fact, I think Warren Buffett just fed the thirsty Harley Davidson some motor oil. It tastes bad, it does not really stop the thirst. It is simply not a healthy drink.

On the other hand, the 15% interest on $300 million is a good return for Berkshire Hathaway�s share holders.

Go Berkshire Hathaway!

Filed Under: BRK-A, HOG, BRK-B,

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Billmon Gets It - Do You

2009-12-20T06:06:00.000-08:00

Buried deep in a Billmon Post last week was a critical chart and a few words of wisdom on why this is NOT a repeat of the inflation scene of the 70"s and 80"s. Most reading his post probably missed the key idea in a potpourri of other ideas. Let"s take a look.

Wages and Salaries

We would need to see a lot faster wage growth -- growth at or exceeding the current 3% core CPI rate -- before I would think about buying a piece of the inflation is coming back story.

And while those kind of wage gains are not impossible I definitely don"t see it right now. What we have, in other words, is almost pure cost-push inflation -- instead of the wage-price spiral that made the "70s such an interesting time to live through, financially speaking.

At some point, presumably when the extra disposable income derived from that last mortgage refi runs out, households are going to have to suck it in. Indeed it looks like it"s already started -- retail sales are weakening and the Amazon-sized river of imports flowing in from points east (or west, if you live in California) has actually slowed a bit.

Meanwhile, job growth has decelerated, jobless claims are creeping up and housing starts finally appear to be, well, stopping.

That indeed is the heart of the matter. I have been harping about this for what seems like ages. Everyone is in some sort of "Inflation Scare" AFTER 16 consecutive rate hikes. Does this make any sense? I suppose it does to those that are perpetually gloomy on the US$ or US treasuries who probably now feel vindicated by this blip up in treasury yields.

It all comes down to wages and housing and jobs. Without meaningful rises in employment and wages, the former above the birth rate plus the rate of immigration (both illegal and illegal), and the latter above the TRUE cost of living, inflation really does not have a chance. Yes at 1% we had sustainable inflation. An incredible housing boom was the result. The better question (looking ahead) is "What Now?"

Has Inflation Won Out?

I have been asked countless times what it would take for me to throw in my "deflation towel", oddly enough(or perhaps not) most of those questions have come in the last few months right on the verge of victory. Unlike Stephen Roach (a Morgan Stanley permabear who suddenly and without reason turned bullish about two weeks ago), I am not reversing course here.

Is that illogical? I think not. I have many times stated what will change my mind. It is really simple: "wage increases, job growth, and housing that does not bust". I see little reason to change course now. In fact, treasuries are probably a screaming buy.

Primer on Inflation

Most people screaming "inflation" do not know what it really is.
Those that think "Inflation = Price Increases" are sadly mistaken.
In fact that is one of the reasons why we see repetitive bubbles being blown by the Fed.

If you think inflation = price rises, I suggest reading the following:

One of the reasons for these repetitive bubbles is the Fed does not itself know what inflation is. They think they can micromanage the economy when all they are doing is chasing their tale due to the lagging effect of their actions.

At some point, and I think we are at that point right now, a sort of economic zugzwang is reached. I spoke about this in Red Queen Race. Here is the critical diagram.

In economic terms, there is no magic mirror.
Bernanke is trapped in "Wonderland" but unlike Alice has no way out.
Bernanke gets to choose between hyperinflation and deflation.
The moment he can not run fast enough, the US economy will implode.
If he runs too fast, the value of the US dollar as well as the Fed�s power will both come to a very abrupt stop.

Economic Checkmate

In effect Bernanke is in Zugzwang and he does not even know it.

Eventually Bernanke (like the Bank of Japan) will have to choose deflation. The reason is simple: hyperinflation will end the game, which in turn would eliminate the wealth of the Fed as well as all of their power.

I do not know if Billmon is an inflationist or a deflationist or either. Personally I think the latter (neither). What I do know is that without wage growth and with a housing bust, inflation is extremely unlikely to raise its head.

While everyone else is looking at the oil scare in the 70"s as the model, virtually no one is looking at Japan of the 90"s as the model. I am betting on the latter.

PS to Billmon:
Whatever graphic package you are using it seems worse than google software that I am using that only handles JPEG images as opposed to GIF images. I touched up the years on your chart as well as adding a trendline to show just how pathetic this recovery has been wage wise. But... beggars can"t be choosy. Nice article.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Cheney "Got In The President"s Face" Over Libby Pardon: "He Just Wouldn"t Give It Up"

2009-12-20T05:43:00.000-08:00

Treason is the word Georgies daddy used, isn"t it?In next week"s cover story, TIME magazine delves deep into the relationship between former President Bush and Vice-President Dick Cheney -- in particular, their falling-out over the pardon of Scooter Libby in the Valerie Plame leak.
Massimo Calabresi and Michael Weisskopf examine the "last hours ...in the mysterious and mostly opaque relationship at the center of a tumultuous period in American history," a press release from the magazine reads.
Cheney stretched the boundaries of his relationship with Bush in his relentless quest to get his ex-Chief of Staff pardoned:
Petitions for pardons are usually sent in writing to the White House counsel"s office or a specially designated attorney at the Department of Justice. In Libby"s case, Cheney simply carried the message directly to Bush, as he had with so many other issues in the past, pressing the President in one-on-one meetings or in larger settings. A White House veteran was struck by his "extraordinary level of attention" to the case. Cheney"s persistence became nearly as big an issue as the pardon itself. "Cheney really got in the President"s face," says a longtime Bush-family source. "He just wouldn"t give it up."
And there was a darker possibility. As a former Bush senior aide explains, "I"m sure the President and [chief of staff] Josh [Bolten] and Fred had a concern that somewhere, deep in there, there was a cover-up." It had been an article of faith among Cheney"s critics that the Vice President wanted a pardon for Libby because Libby had taken the fall for him in the Fitzgerald probe.
Bush and his lawyer ultimately agreed that Libby had lied under oath. Read the whole story.

Cheney Wanted To Use Military To Arrest Terror Suspects In U.S.

Bush-Era Debate: Using G.I.�s in U.S.

WASHINGTON � Top Bush administration officials in 2002 debated testing the Constitution by sending American troops into the suburbs of Buffalo to arrest a group of men suspected of plotting with Al Qaeda, according to former administration officials.
Some of the advisers to President George W. Bush, including Vice President Dick Cheney, argued that a president had the power to use the military on domestic soil to sweep up the terrorism suspects, who came to be known as the Lackawanna Six, and declare them enemy combatants.
Mr. Bush ultimately decided against the proposal to use military force.
A decision to dispatch troops into the streets to make arrests would be nearly unprecedented in American history, as both the Constitution and subsequent laws restrict the military from being used to conduct domestic raids and seize property.
The Fourth Amendment bans �unreasonable� searches and seizures without probable cause. And the Posse Comitatus Act of 1878 generally prohibits the military from acting in a law enforcement capacity.
In the discussions, Mr. Cheney and others cited an Oct. 23, 2001, memorandum from the Justice Department that, using a broad interpretation of presidential authority, argued that the domestic use of the military against Al Qaeda would be legal because it served a national security, rather than a law enforcement, purpose.
�The president has ample constitutional and statutory authority to deploy the military against international or foreign terrorists operating within the United States,� the memorandum said.

LinkHere

Senate GOP Set To Block Troop Funding Bill

2009-12-20T05:03:00.000-08:00

Republicans in the Senate may be walking into a political trap this week, in which their insistence on considering energy legislation leads them to block significant increases in funding for the troops in Iraq.
Going into this week, the Senate Republicans insisted that they would block all the legislative measures until an energy bill was first brought to the floor.
Democratic leadership, initially furious over the obstructionism, is now calling their bluff. Senate Majority Leader Harry Reid last night introduced a Department of Defense Authorization bill that would, among other things, include a 3.9 percent across-the-board pay raise for military personnel; major funding increases for research into traumatic brain injury treatment and troop suicide prevention efforts; $26 billion for the Defense Health Program, and $500 million for Mine Resistant Ambush Protected (MRAP) vehicles. A vote could come as early as tonight.
Should the GOP stick to its guns and filibuster the measure while insisting on an energy bill vote, they may effectively remove a talking point from the party"s playbook. Going into the November elections, it will be the Democrats who can argue that the other party stood in the way of funding for the troops.

McCain: McSame as Bush

LinkHere

PR NEWSWIRE: BYD Auto to Unveil First Production Plug-In Hybrid Vehicle

2009-12-20T03:07:00.000-08:00

DETROIT, Jan. 9 /PRNewswire/ -- BYD Auto Company, one of China"s top independent automobile manufacturers and a world leader in green technology, will host a press conference at 10:50 a.m., Monday, January 12, at the North American International Auto Show at Detroit"s Cobo Center.

BYD Auto will introduce several important new models that represent the company"s strategic vision of "green tech for tomorrow," including the e6 electric crossover vehicle and the F3DM sedan, the first production plug-in hybrid vehicle.

BYD executives will provide details about the company"s advanced Fe lithium-iron battery and its new Dual Mode (DM) plug-in hybrid system.

BYD Auto President Wang Chuanfu will be joined at the press conference by David Sokol, chairman of MidAmerican Energy Holdings. In September 2008, MidAmerican, a subsidiary of Warren Buffett"s Berkshire Hathaway, acquired a 10% stake in BYD Auto"s parent company, BYD Company Ltd.

About BYD Auto

BYD Auto Company, based in Shenzhen, China, is emerging as a leader in pure electric and plug-in hybrid gasoline-electric vehicles, as well as advanced battery technology. It is a subsidiary of BYD Company Ltd., the world"s second largest producer of rechargeable batteries and a supplier of IT components to Nokia, Motorola, Samsung and others. Information about BYD Auto is available at www.byd.com.

About MidAmerican Energy Holdings

MidAmerican Energy Holdings Company, based in Des Moines, Iowa, is a global provider of energy services. It is a subsidiary of Berkshire Hathaway. Through its energy-related business platforms, MidAmerican provides electric and natural gas service to more than 6.9 million customers worldwide. These business platforms are Pacific Power, Rocky Mountain Power and PacifiCorp Energy, which comprise PacifiCorp; MidAmerican Energy Company; CE Electric UK; Northern Natural Gas Company; Kern River Gas Transmission Company; and CalEnergy. Information about MidAmerican is available at www.midamerican.com.

SOURCE BYD Auto Company

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Right On, General Clark. Do Not Back Down.

2009-12-20T00:26:00.000-08:00

Boy, talk about your echo chamber in the media. Yesterday, General Wesley Clark went on CBS" Face the Nation, and repeated something he"s said many times before. If you missed it, here"s the full quote in context :

=======

Why?
This wasn"t a swift boating, or any low politics. General Clark called McCain a hero to millions for his sacrifice. And, that"s a pretty big statement coming from a man who, himself, left Vietnam on a stretcher. But, facts are facts:
� Senator McCain"s service and experience, both as a POW and as a Senator apparently hasn"t infused him with a dose of good judgment.
� Senator McCain"s experience hasn"t led him to realize that the war in Iraq and it"s continuance has empowered and emboldened Iran, and destabilized the region.
� Senator McCain"s experience hasn"t caused him to recognize that we"re losing ground in Afghanistan, and Osama bin Laden is still out there, plotting.
� Senator McCain"s experience didn"t lead him to support the 21st Century GI Bill -- he opposed it. It didn"t even make him feel the need to get back to Washington to vote on this -- one of the most important veterans" bills this Congress. He twice skipped votes on the GI Bill, to fundraise.
� Senator McCain"s experience didn"t help him empathize with troops are overstretched and overdeployed, when he voted against the bipartisan Webb-Hagel "Dwell Time Amendment," which would have given troops as much time at home as in the field.
Senator McCain is running on his experience, saying it makes him ready to lead right away. By doing so, he is asking people to look at what that experience taught him. By looking at Senator McCain"s positions and votes (or lack of them), it seems that experience has not given him the right judgment on important issues of our time. And, while we should all honor Senator McCain"s service, that doesn"t mean we should necessarily honor it by putting him in the White House to take up George W. Bush"s third term.
So, General Clark is 100 percent absolutely right, and he should not back down. I"d hope that some of the so-called progressives on television back him up on this, and not get intimidated by the media and McCain campaign press releases. These are important times, and deserve a blunt and honest debate.
In some circles, that"s just called "straight talk."
UPDATE: Since a lot of you are sending words of support on here for General Clark, we started a petition where you can sign to thank him, and tell him to keep it up. We will take the petition to General Clark, personally. Also, it"s important to sign, so we can show the media that we"ve got his back.
LinkHere

McCain �Truth Squad� headed by 2004 Swift Boat Liar

Jun 30, 2008 - 02:26 PM by Terri Buchman
The Huffington Post is reporting today that Sen. John McCain has hired Bud Day, from the 2004 group Swift Boat Veterans for Truth, to "truth squad" attacks on Sen. McCain"s service record.
LinkHere

Here McCain jokes about how unqualified he is

McCain Comedy Tour

and he"s even more unfunny than Bush. Slugbug

Inadequate Loan Loss Reserves At Numerous Minnesota Banks

2009-12-19T21:29:00.000-08:00

At Minnesota banks, bad loans are piling up much faster than the amount of money being set aside to cover them. The StarTribune takes a look at the problem in State"s banks below norm in reserves.

Despite repeated warnings of economic trouble ahead, banks in Minnesota have failed to keep pace with the rise in bad loans. Among those banks, the ratio of past-due and nonaccrual loans -- or loans for which payment is in doubt -- as a percentage of total loans rose 50 percent since 2006, while the reserves to total loans ratio remained virtually unchanged.

Many Wall Street analysts watch bank reserves more closely than bank profits, said analyst Crabtree in Minneapolis. "Earnings mean very little nowadays, because no one believes them," he said. "Reserve levels and capital ratios are by far more important."

As of the third quarter, the average coverage ratio for Minnesota banks fell to its lowest level in nearly two decades.

As of Sept. 30, the coverage ratio for Minnesota banks was 61 percent, which means that for every $1 in noncurrent loans the banks have set aside 61 cents to cover future losses, according to the FDIC. That"s down from 81 percent a year earlier. Nationwide, the coverage ratio stands at 85 percent -- nearly a third higher than Minnesota"s.

Nearly 40 of the state"s 400 banks have coverage ratios below 30 percent, a level that is less than half the state average. Among the larger ones are First Minnesota Bank of Minnetonka, with more than $370 million in assets, and Minnwest Bank Minnesota Valley in Redwood Falls with assets of $510 million.

One reason Minnesota banks are reserving less than peers in other parts of the country is that the state experienced a boom in bank startups earlier this decade. So, like Summit, many of these banks are still building reserves.

Another theory is that Minnesota has a larger number of small, community banks than other states. Those banks made fewer of the subprime mortgages that defaulted in the credit crisis, but did more of the commercial real estate loans that have only just started to turn sour, said several bank experts.

The Article is 4 pages long with two interesting graphics worth a good look. Here is one of the graphs.

Nearly 40 Minnesota banks have coverage ratios below 30 percent. They are at severe risk. Mainstreet Bank, one of Minnesota"s largest and oldest community banks received an FDIC order to change. Please see Hazardous Lending and Lax Collection Practices for more details.

Three More Banks Shut Down

On Friday, Three More U.S. Banks Were Shut by Regulators.

Three banks, two in California and one in Georgia, were seized by regulators, bringing this year�s tally of closings to nine as a recession and record foreclosures extend the biggest financial crisis in more than 70 years.

County Bank of Merced, California, with deposits of $1.3 billion and assets of $1.7 billion, was shut yesterday by the state�s Department of Financial Institutions, according to an e-mailed statement from the Federal Deposit Insurance Corp. Westamerica Bancorporation, holding company for Westamerica Bank, acquired all the assets and deposits.

The Georgia Department of Banking and Finance closed McDonough-based FirstBank Financial Services Inc., which had $337 million in assets and $279 million in deposits as of Dec. 31, the FDIC said in a statement. The California Department of Financial Institutions shut Culver City-based Alliance Bank, with assets of $1.14 billion and $951 million in deposits.

Nine bank closings this year is a drop in the bucket for what is coming. And were it not for taxpayer bailouts of Citigroup (C) and Bank of America (BAC) they would already be under as well. For further discussion see Extreme Leverage In Reverse Portends Global Systemic Crash. In aggregate, the entire global banking system is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Currency Intervention And Other Conspiracies

2009-12-19T19:46:00.000-08:00

The US dollar rallied fast and furious last week. The dollar rally was the biggest in 8 years vs. the Euro. This immediately brought out calls of Dollar Intervention such as the one below. Note: the arrow and circle in deep blue were added by me.

click on chart for sharper image

The very large drop recently (the pale blue line) tells part of the story. Another part is told by the Treasury site itself - that recent data about the drop was delayed for almost three weeks before it was made public.

Another part is told by very recent data not being made public for the last two weeks running.

What the ESF did is simply sold about 10 billion Euros and bought dollars - plain and simple massive intervention that virtually everyone has missed or ignored or pretended doesn"t exist or whatever.

The raw facts are sitting there at U.S. International Reserve Position.

Assuming one buys the story, what stands out is 13 consecutive alleged interventions that all failed.

Mystery Solved

James Turk on GoldMoney is writing Mystery Solved.

On July 15th the US Dollar Index closed at 71.87, the lowest close since reaching its record low in April. However, rather than continue lower and fall off the edge of the cliff, the Dollar Index suddenly and mysteriously reversed course. It has now risen on 12 of the 17 trading days since reaching that low, and closed today at 74.55, a 5-month high. What caused this index to suddenly pull back from the brink and then reverse course to shoot higher over the past three weeks?

There has not been any news exceptionally favorable to the dollar. In fact, the banking problems in the United States continue to mount, while the federal government"s deficit continues to soar out of control. On July 28th Reuters reported that "The Bush administration on Monday plans to project the U.S. budget deficit will soar to a new record...because of the slowing economy and an economic stimulus plan approved this year."

So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. ...

For the record, I respect James Turk. However, there was plenty of news favorable to the dollar.

Oil was falling which would help the US balance of trade.
Container shipments into the US were weakening which would also suggest an improvement in the balance of trade.
Economic activity in Europe had started to crater.

Those are very significant items. I talked about them at length in Trichet Puts Spotlight on the Euro, Dollar.

The dollar rally continued on Friday and I posted some Thursday To Friday comparison charts on the Dollar Index, the Euro, and the British Pound in U.S. Dollar Rally Continues. Here are the charts of the dollar index.

$USD - US$ Index Daily (Thursday Evening)

Click on chart for sharper image

$USD - US$ Index Daily (Friday Evening)

Click on chart for sharper image

Marc Faber Weighs In

There is a very interesting Bloomberg video interview of Faber that I commented on in Marc Faber - Bullish On The US$, Bearish On Commodities.

I transcribed a portion of it. Here is the key snip:

Q: Is the Euro Doomed to keep falling?

A: Whenever global liquidity tightens relatively speaking, it is very US$ supportive. Obviously, there are always time lags between economic events until the the market perceives them. So as a result of weak demand in the US, lower imports, the demand for oil declines, and that led to a tightening of global liquidity which led to the strong dollar. Investors speak of weak oil price as being bullish but the point is that it signals the global economy is in recession already.

Can Currency Intervention Halt the U.S. Dollar�s Nosedive?

Now let"s address the question as to whether or not 10 billion Euros would be massive enough to do anything.

GATA the Gold Anti-Trust Action Committee is reporting on the currency intervention option and monetization of oil in its usual conspiracy-minded fashion:

The story below from the Associated Press, the largest news agency in the world, may be most notable for acknowledging the potential for government intervention in the currency markets -- market manipulation, really -- and for reporting the surmise of an expert in the energy business that oil has been monetized, replacing the U.S. dollar as the world currency, becoming the "new gold."

The one thing that made the most sense in the article mentioned was this paragraph. "It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day."

On July 2nd Peter Schiff stated Currency Intervention Won�t Halt the U.S. Dollar�s Nosedive

Intervention advocates must believe that if the European Central Bank (ECB) and a few other central banks joined the fray, that a better outcome would be achieved. However, any additional efforts to artificially prop up the ailing dollar will be equally ineffective.

Even if ECB intervention could slow the dollar�s descent, what possible reason would the Fed�s European counterpart have for doing so? The ECB is already concerned about inflation and is preparing to raise rates as a result.

Interestingly, Schiff claims intervention won"t work and the ECB is prepared to hike while others claim intervention was responsible for the rally even though intervention failed 13 consecutive times before there was a success .

A Look At Japan"s Intervention in 2003-2004

Japan was intervening in the currency market and you know they were doing it because they admitted it. Please consider this article from 2004 called The dollar and yen: why they matter.

Why is Japan intervening? Because it believes the yen needs to be held down to keep Japanese exports competitive.

The policy of intervention began in earnest in August last year, when the decline of the dollar gathered pace. In 2003, the Japanese government spent $100bn buying dollars in an attempt to hold down the value of the yen. In the first two months of this year, it spent another $100bn. And Japan�s parliament has authorised the spending of a further $360bn this year.

Note those numbers. Japan spent hundreds of billions in 2003 starting in August, attempting to prop up the dollar.

Japan halted its currency intervention in March of 2004 according to the International Herald Tribune article EU officials soften stance on yen"s weakness.

Yen vs. Japan"s Intervention 2003-2004

click on chart for sharper image

If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen.

So now we are supposed to believe the dollar rallied because of a so called "massive" one time 10 billion Euro trade when Japan produced negative results after spending $300 billion over the course of 7 months!?

The Primary Trend Cannot Be Suppressed

The primary trend in currencies cannot be suppressed and even a cyclical countertrend move cannot be suppressed. The same holds true for gold, silver, and even the equity markets. Sadly we see GATA and others arguing over every tick in gold and silver. The most frequently pointed out item is that there is an enormous cartel that is short silver, thereby suppressing the price.

No one ever bothers to mention that for every short there is a long. It would make nearly as much sense to say there is a massive conspiracy to force up the price of silver. And those doing this ridiculous whining better think through the implications of getting what they seem to be asking for.

Imagine what would happen if the futures trading commission decided to limit silver contracts to what could be delivered in a month"s time. I suggest it would not be pretty because the commercials would know what was coming and be prepared in advance. One nice lock limit down opening in silver would start the ball rolling for good.

It"s time to realize that gold and silver have rallied massively in 7 years. And if both can do that in the face of such massive intervention, the logical thing for gold and silver bulls might be to ask for more of it.

If and when the US dollar rally fails it will be because the rally was ready to fail. That might be a week from now, a month from now or even a year from now. No one knows. What we do know is intervention (or lack thereof) will not be a factor when it does happen.

There is one more point I want to mention about the US dollar. There is a secular shift underway in the US from consumption to saving. The word that best describes this is "frugality". An frugality is very dollar supportive.

And it was Professor Kevin Depew who coined the phrase It"s Cool to Be Frugal. I commented on frugality at great length in The Future Is Frugality.

Inquiring minds will certainly want to take a look.

Here"s the deal for dollar bears: The dollar rallied because it was damn good and ready to rally. Those with their eyes open spotted fundamental reasons in advance. Those who did not, blamed intervention.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The man who knows too much

2009-12-19T19:36:00.000-08:00

He exposed the My Lai massacre, revealed Nixon"s secret bombing of Cambodia and has hounded Bush and Cheney over the abuse of prisoners in Abu Ghraib... No wonder the Republicans describe Seymour Hersh as "the closest thing American journalism has to a terrorist". Rachel Cooke meets the most-feared investigative reporter in Washington

American investigative journalist Seymour Hersh. Photograph: Martha Camarillo
Every so often, a famous actor or producer will contact Seymour Hersh, wanting to make a movie about his most famous story: his single-handed uncovering, in 1969, of the My Lai massacre, in which an American platoon stormed a village in South Vietnam and, finding only its elderly, women and children, launched into a frenzy of shooting, stabbing and gang-raping. It won him a Pulitzer prize and hastened the end of the Vietnam war. Mostly, they come to see him in his office in downtown Washington, a two-room suite that he has occupied for the past 17 years. Do they like what they see? You bet they do, even if the movie has yet to be made. "Brad Pitt loved this place," says Hersh with a wolfish grin. "It totally fits the clich� of the grungy reporter"s den!" When last he renewed the lease, he tells me, he made it a condition of signing that the office would not be redecorated - the idea of moving all his stuff was too much. It"s not hard to see why. Slowly, I move my head through 180 degrees, trying not to panic at the sight of so much paper piled so precipitously. Before me are 8,000 legal notepads, or so it seems, each one filled with a Biro Cuneiform of scribbled telephone numbers. By the time I look at Hersh again - the full panorama takes a moment or two - he is silently examining the wall behind his desk, which is grey with grime, and striated as if a billy goat had sharpened its horns on it. LinkHere

Rail Traffic Down; Truck Traffic Down; Air Cargo Hoping For A Bottom

2009-12-19T17:07:00.000-08:00

Green shoots are not yet showing up in cargo statistics. Let"s take a look starting with AAR: Rail freight traffic down from a year ago.

Freight traffic on U.S. railroads during the week ended May 23 remained down in comparison with last year, although it did show an increase from the previous week this year, the Association of American Railroads reported today.

U.S. railroads originated 259,265 cars during the week, down 21.5 percent from the comparison week in 2008, but up 4.9 percent from the previous week this year. In comparison with last year, loadings were down 16.4 percent in the West and 28.0 percent in the East.

All 19 carload commodity groups were down from last year, with declines ranging from 4.8 percent for farm products other than grain to 59.7 percent for metallic ores.

Intermodal volume of 188,885 trailers or containers was off 19.1 percent from last year, with container volume down 14.2 percent and trailer traffic off 37.2 percent. Intermodal volume was up 0.2 percent from the previous week this year.

For the first 20 weeks of 2009, U.S. railroads reported cumulative volume of 5,295,843 carloads, down 19.3 percent from 2008; 3,720,454 trailers or containers, down 16.8 percent; and total volume of an estimated 562.0 billion ton-miles, down 18.2 percent.

Canadian railroads reported volume of 53,316 cars for the week, down 33.5 percent from last year, and 37,052 trailers or containers, down 18.9 percent. For the first 20 weeks of 2009, Canadian railroads reported cumulative volume of 1,193,070 carloads, down 23.4 percent from last year; and 810,785 trailers or containers, down 14.5 percent.

Mexican railroads reported originated volume of 13,102 cars, virtually the same as last year, and 5,188 trailers or containers, down 18.8 percent. Cumulative volume on Mexican railroads for the first 20 weeks of 2009 was reported as 219,541 carloads, down 12.3 percent from last year; and 95,217 trailers or containers, down 19.8 percent.

Combined North American rail volume for the first 20 weeks of 2009 on 14 reporting U.S., Canadian and Mexican railroads totaled 6,708,454 carloads, down 19.9 percent from last year, and 4,626,456 trailers and containers, down 16.4 percent from last year.

Rail Carloading Report

The Weekly Railfax Rail Carloading Report has the hollowing charts of interest.

Total Industry Charts, US, Canada, Mexico

Additional charts show numbers up from earlier in the year. However the charts also show a seasonal dip at the beginning of the year.

Is truck freight bottom close?

Fleet Owner is asking Is truck freight bottom close?

Freight tonnage fell again in April, according to numbers released by the American Trucking Assns. (ATA), indicating that trucking companies are still facing lean times.

The ATA said its seasonally adjusted for-hire truck tonnage index fell 2.2% in April, after plunging 4.5% percent in March. Compared with April 2008, tonnage contracted 13.2%, which was the worst year-over-year decrease of the current cycle and the largest drop in thirteen years, said Bob Costello, ATA chief economist.

�While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments,� he explained. �The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers.� Costello added that truck freight has yet to hit bottom and it could be a few more months before this occurs.

However, Eric Starks, president of research firm FTR Associates, pointed out that while the freight market might not have bottomed out as of yet, it�s very close to doing so. �We still think we�ll reach that bottom around the middle of summer,� he told FleetOwner.

The �million dollar question� from Stark�s perspective is how long the freight market will stay at the bottom. �Even once we reach the bottom, [trucking companies] are not out of the woods. We could sit with some very depressed freight levels for some time,� he cautioned.

Air cargo at a bottom?

The International Air Transport Association says air cargo market probably hit bottom.

A decline in the air cargo freight market following the international financial crisis seems to have hit bottom, the head of the International Air Transport Association said on Sunday. Air cargo, a key barometer of world trade, has slumped amid the global economic downturn and shortage of financing. Global air freight volumes in January saw a record 23 percent year-on-year dive.

"I would say, looking at the numbers, that it has hit bottom," the global association"s Director-General Giovanni Bisignani told Reuters.
Bisignani said the market had at least been stabilising at levels around 20 percent lower than a year ago.

"It"s not yet enough to say that the situation is picking up because this is also linked with the level of inventories of the manufacturers. So we have to wait at least another 3 or 4 months in order to see if we start moving."

Rebound Questionable

Shipping may have bottomed, but as long as the economy is losing 500,000 jobs a month and housing is still in a decline, any rebound will be anemic at best.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Corporation

2009-12-19T16:22:00.000-08:00

Video

This is an extraordinary film about the creation of the American corporation, its legal organizational model, its global economic dominance and its psychopathic tendencies, and its incredible ambition to influence every aspect of culture in its unrelenting pursuit of profit. LinkHere

Weiner Takes Lieberman On For "Audacity" Of Filibuster

2009-12-19T14:41:00.000-08:00

Rep. Anthony Weiner (D-N.Y.) took on Sen. Joe Lieberman (I-Conn.) on "Morning Joe" Monday, chastising the former Democrat for pledging to join a filibuster against health care reform if it contains a public option.

"It"s inconsistent with common sense to say I oppose something that will hold down costs for the taxpayers and residents of Connecticut," Weiner said. "The insurance industry is a powerful force in Washington and so is the status quo, but the audacity to saying, and I think he backed away from it, "I will not permit a vote on the concept?" Let"s let the majority decide this issue."

Weiner offered to debate the senator, saying "If you want to bring Lieberman here, I think that I can talk him into it." LinkHere

Visit msnbc.com for Breaking News, World News, and News about the Economy

�Holding him up in honor stimulates the worst impulses of human nature and makes a mockery of our nation"s values,"

2009-12-19T13:13:00.000-08:00

COUNTY NAACP JOINS PROTEST AGAINST �GLENN BECK DAY� IN MOUNT VERNON

Sky Valley Chronicle Washington State
(REGIONAL) -- The NAACP has now added its voice to the protest against Mount Vernon Mayor Bud Norris" controversial decision to present FOX news TV and radio talk show commentator Glenn Beck with a key to the city Saturday September 26 in a $25 dollar a ticket event called "Glenn Beck Day" in Mount Vernon.
The Snohomish County Chapter of the National Association for the Advancement of Colored People announced its protest Friday with president Janice R. Greene, saying �Holding him up in honor stimulates the worst impulses of human nature and makes a mockery of our nation"s values," highlighting Beck"s inflammatory July 28th remark that he believed President Obama to be a "racist."
The statement cost Beck over three-dozen national advertisers who ordered their commercials not run within his show.
Beck is also known for such on- air musings as pondering about the killing of filmmaker Michael Moore (who�s new movie is �Capitalism: A Love Story�) and poisoning House Speaker Nancy Pelosi as well as perpetuating the long discredited "death panel" false claim about proposed health-care reform. LinkHere

Do you ever get tired of Fox News" crops?

2009-12-19T10:19:00.000-08:00

Fox News Caught Repeatedly Cropping, Manipulating

Hey, kids! Do you ever get tired of Fox News" crops? I don"t mean the food they might be literally growing, in Glenn Beck"s Doom Room, in preparation for Imminent Socialist Panic. I"m talking about the way they manipulate video to make it look like people are just straight up saying the opposite thing they actually said. Well, it"s been bothering the media critics at Media Matters For America for some time, and they have, for a long time, been cataloging "examples of Fox News hosts and correspondents cropping comments by progressives and Democratic political figures in a manner that misrepresents them." A new mash-up video offers some side-by-side examples of what they"re talking about:

Fox Crops

REPORT: Time and again, Fox News doctors video to smear progressives

Media Matters 8 hours and 28 minutes ago
SUMMARY: Media Matters has documented numerous examples of Fox News hosts and correspondents cropping comments by progressives and Democratic political figures in a manner that misrepresents them.

by draftedin68

FOX NEWS...We Distort, You"re Deceived.

CNBC: Warren Buffett Tells CNBC He Wholeheartedly Supports Bailout Plan

2009-12-19T09:59:00.000-08:00

Companies:Berkshire Hathaway Inc.

The Bush administration"s controversial financial bailout proposal may be getting a heavy dose of criticism today from angry lawmakers on Capitol Hill, but Warren Buffett tells us he wholeheartedly supports the plan.

He told CNBC"s Becky Quick over the weekend, "It"s what I would do if I were there."

If opposition does continues to grow, Paulson might think about asking Buffett to come to Washington and do some lobbying, a task he might find more palatable than taking on responsibility for the whole thing!

Becky also notes that the SEC"s "no-short" rules may indeed have been responsible for that enormous last-second spike in Berkshire Hathaway"s stock price late Friday.

Current Berkshire stock prices:

Class A: [US;BRK.A 127650.0 -3350.00 (-2.56%) ]

Class B: [US;BRK.B 4260.0 -95.00 (-2.18%) ]

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Shareinvestorforum.com - Discuss this topic further

What is this "Iraq war" charge on my bill?

2009-12-19T07:21:00.000-08:00

What is this "Iraq war" charge on my bill? Part 2

Get this "Iraq war" charge off my bill!

Obama Introduces Supreme Court Nominee

2009-12-19T06:03:00.000-08:00

President Obama announced Tuesday morning that federal appeals court judge Sonia Sotomayor is his nominee for the Supreme Court vacancy.
Praising her as "an inspiring woman" in his introduction, Obama said she had more experience than anyone on the court and has earned the "respect of colleagues on the bench," the admiration of lawyers and "the adoration of her clerks." He highlighted the barriers she faced in making it to this position, including her diabetes.
"My heart today is bursting with gratitude," Sotomayor said when she took the podium. The judge gave a touching tribute to her mother, telling the audience, "I have often said that I am all I am because of her, and I am only half the woman she is." LinkHere

Visit msnbc.com for Breaking News, World News, and News about the Economy

GOP Senators All Repeat Same Line Questioning Sotomayor

GOP Frets Over Sotomayor"s "Personal Politics, Feelings, And Preferences"

Specter Wants to Prosecute Yoo and Other DOJ Lawyers for Memos

2009-12-19T05:59:00.000-08:00

Senator Arlen Specter is open to criminally prosecuting John Yoo and the other lawyers at the Department of Justice Office of Legal Counsel (OLC) for writing the memos justifying unconstitutional action:

Sen. Arlen Specter (R-PA) said he was opposed to any Truth Commission tasked with investigating Bush administration abuses, but that he could support criminal investigations into political appointees who authored the controversial OLC memos.
***
�I would not mind looking backward if there�s reason to do so. If we have evidence of torture � go after it. If there�s reason to believe that these Justice Department officials have knowingly given the president cover for practices they know not to be right or sound � go after them. Some of the [OLC] opinions are more than startling, they�re shocking. If [OLC counsel] did that knowingly�it sounds to me that it may fall within criminal conduct.

Specter said he supported the Justice Department pursuing an investigation into the writing of the memos.

Of course, Yoo and the other devil"s advocates at the OLC did commit illegal acts which warrant prosecution. Indeed, they are war crimes under U.S. and international law. See this, this, this, and this.

But as any lawyer will tell you, it is the client which decides what to do, and then the lawyer simply tries to find a way to justify it. In most cases, the lawyers aren"t the decision-makers, simply the lapdogs serving power. Clearly, Bush and Cheney decided on what they were going to do first, and then asked the OLC to provide cover for it.

Why just go after the devil"s advocate, and not the devils themselves?

Industrial Production Drops .6 Percent; Manufacturing Index Falls to Minus 25.8

2009-12-19T05:47:00.000-08:00

Bloomberg is reporting Industrial Production Falls on Autos.

Manufacturing in the U.S. slumped further in November as exports tumbled and automakers slashed their assembly rate to the lowest level in more than 18 years.

Industrial production fell 0.6 percent, the third drop in four months, the Federal Reserve said today in Washington. The New York Fed reported the weakest factory performance in its region this month since its survey began in 2001.

Today�s figures may intensify pressure on the Bush administration to prevent a collapse of General Motors Corp., the biggest American carmaker. As consumer demand slides with higher unemployment and a cut-off of credit, manufacturing is poised to keep contracting into 2009, economists said.

The slide in manufacturing has idled almost one quarter of U.S. industrial capacity. The utilization rate, which measures actual production as a share of the maximum potential, fell to 75.4 percent, compared with an average of 79.7 percent in the past five years.

The nationwide industrial output report showed factory output, which accounts for four-fifths of industrial production, decreased 1.4 percent. Production of metals, furniture and construction supplies all dropped. Aircraft production was one of the only manufacturing categories showing gains during the month, as work resumed at Boeing Co. following a strike.

Industrial Production And Capacity Utilization

Let"s take a look at the official release of Industrial Production And Capacity Utilization for November.

Industrial production decreased 0.6 percent in November with declines widespread across industries. The drop in output in September was revised down, and the rebound in October was revised up, in large part because both the decrease due to the September hurricanes and the subsequent partial recovery in October were larger than previously reported.

The output of mines advanced 2.5 percent, primarily as a result of a further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico. Taken together, the rebounds after the strike and the hurricanes added almost 1 percentage point to the change in industrial production. The output of utilities rose 1.6 percent.

Among consumer durable goods, the decreases in production were broadly based: Automotive products dropped 2.6 percent; appliances, furniture, and carpeting fell 4.0 percent; home electronics moved down 1.7 percent; and miscellaneous goods declined 3.4 percent.

The output of business equipment rose 3.2 percent in November. The production of transit equipment jumped more than 40 percent after having plunged in September and October because of the strike in the commercial aircraft industry.

The only bright spots can be attributed to the end of the Boeing strike and a rebound in activity after hurricanes. Of course it is a fallacy to state there is any economic benefit derived from hurricanes or any other type of disaster.

Here are a couple of charts from the article.

Industrial production, capacity, and utilization

click on chart for sharper image

click on chart for sharper image

Durable goods, construction, and non-energy industrial materials are dropping sharply. Defense is going strong. Things might be a lot different under Obama given his stated desire to rebuild infrastructure and pull troops out of Iraq.

New York Manufacturing Index Falls to Minus 25.8

The Federal Reserve Bank of New York is reporting New York Manufacturing Index Falls to Minus 25.8

Manufacturing in New York contracted in December at the fastest pace on record as orders and shipments remained weak.

The Federal Reserve Bank of New York�s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Factories are scaling back production as consumers retrench in the face of a weaker job market and a recession that began a year ago. A deepening global credit crisis has hit overseas trading partners, undermining foreign demand for U.S. goods.

The New York Fed�s measure of new orders rose to minus 20.8 from minus 22.2 the prior month. A gauge of shipments increased to minus 8.8 from minus 13.9.

The report also showed inflation eased. The index of prices paid for raw materials decreased to minus 7.5 from 20.5 and the gauge of prices received dropped to minus 11.7, the lowest since July 2003, from 6.

A measure of employment rose to minus 23.4 from minus 28.9, the lowest reading since December 2001.

Prices paid are dropping and will continue to drop as year over year comparisons get easier. Deflation is here. Falling prices are a symptom of that deflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

FORBES.COM: Seven hours with Warren Buffett

2009-12-19T04:25:00.000-08:00

Robert Lenzner 05.03.08, 5:35 PM ET, Forbes.com

The Berkshire Hathaway annual meeting was a classic example of shareholder meeting as farce. Incredibly, the seven-hour session before a record crowd of 30,000 had barely a mention of the financial crisis impacting markets worldwide for a year.

There were more questions about the dams on Oregon"s Klamath River shutting off the salmon run for Indian tribes than the damming up of the credit markets.

The word "recession" was never mentioned. "Inflation" only once. No one asked about the $1.6 billion loss Berkshire took on a derivative position in the last quarter. Not a soul inquired about the decline in Berkshire"s earnings. Buffett"s brilliant call in buying Brazilian currency (the real) never got a nod, even though Standard & Poor"s raised that nation"s credit to investment grade last week.

Nor did anyone raise the provocative theme put forth in Buffett"s letter to shareholders (See "Croesus, Buffett: New Advice From On High") that investors should not expect to earn on their common stock positions the modest 5.3% rate of return earned during the whole of the 20th century. Were none of the 30,000 shareholders alert enough to take the opportunity to ask Buffett what rate of return they could expect? After all, many small investors count on their Berkshire holdings as an important stake and nest egg.

"Anyone who wants us to repeat the past should sell [his or her] stock," said the Oracle of Omaha, without any follow-up questions from alarmed shareholders. Be fairly warned.

This passivity cannot be due to Buffett"s willingness to appear on a certain cable network nine times and another one five times since October 2007. This was a chance blown to find out how Buffett and Munger weighed the risks in the world.

It was Buffett"s acerbic partner Charles Munger who finally exclaimed that "we are having convulsions that make Enron look like a tea party. We will have changes in regulation but they won"t work perfectly." No one asked Munger what changes he saw on the horizon. Later on the 84-year-old Los Angeles lawyer described the convulsion as "a huge dislocation that was very extreme but very brief. It"s interesting how brief these opportunities are."

Nevertheless, Berkshire was able to accumulate a $4 billion position in auction rate notes when that market froze up some weeks ago. It included the short-term debts of the nonprofit Los Angeles County Museum of Art at interest rates of 8% to 10%--triple the 3% to 4% the same notes sold for in January. Perhaps it was this opportunity that Munger chose to describe in his no-holds-barred style--"some idiot hedge fund bought municipal bonds on incredible margin. These things were disposed on a margin call," meaning that the fund had to sell because it didn"t have the capital to support its position.

After a lunch break, Buffett finally got in some licks at the regulator of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people )--Office of Federal Housing Enterprise Oversight--for allowing accounting irregularities to go on for some time. Buffett, who describes himself as "the chief risk officer" of Berkshire, also slammed the large commercial and investment banks as both too big to manage and too big to fail, according to the government. He reckoned that the failure of Bear Stearns (nyse: BSC - news - people ) would have caused the failure of "another investment bank or two going down in a day or two."

The panic would have been caused by financial institutions "trying to undo $14.5 trillion [worth of] derivatives contracts in just hours, not days or weeks. Hardly anyone caught Buffett"s words when he muttered that "to some extent it"s an evil culture." The evil culture he was talking about was Wall Street, the commercial and investment banks who had no idea that their risk models were utterly useless. "They didn"t have the faintest idea what risks were involved," he said.

As for politics, Buffett, a Democrat, said all three candidates are intelligent. But he scoffed at the way both Clinton and Obama "ask for an excess profits tax on Exxon"--but not on the farmers getting rich off the boom in commodity prices. Munger added that "while we don"t like inflation because it"s bad for our country, we"ll probably make more money over time because there is inflation."

On oil prices, Buffett predicted that production will level off and then start to decline, which will tend to put a floor under the price of oil. His politically incorrect partner Munger declared that "in the 1930s [when oil was first discovered in the Middle East] we should have taken the oil out of the Middle East and put it in the ground" in the U.S. "Eventually," Munger predicted, "we"ll have to use the sun for our power."

On a lighter note, the high point of the meeting was a cartoon film that had Munger being elected president on the Financially Independent ticket--and naming Buffett secretary of commerce, secretary of the Treasury and chairman of the Federal Reserve all at once. In a serious vein, Buffett later said his inclination would be to raise taxes on the super-rich (himself included, of course) and lower them on the middle class, a position shared by both of the Democratic candidates.

As for the stock market, Buffett, made it crystal clear that "Charlie and I haven"t the faintest idea where [it"s] going."

More from Croesus in Omaha Sunday. Stay tuned. If you have any questions for Warren, send them along in the comments below.

Visit Share Investor Blog

8 Year To Late Don"t You Think?

2009-12-19T02:43:00.000-08:00

Pope criticises US for ignoring diplomacy before Iraq war

Pope Benedict XVI made a veiled attack on the United States for failing to listen to the international community before starting the war in Iraq.
In a carefully-worded speech to the United Nations� General Assembly, the Pope underlined the need for diplomacy.
�Multilateral consensus continues to be in crisis because it is still subordinated to the decisions of a few, whereas the world�s problems call for interventions in the form of collective action,� he said, adding that international rules must be �binding�.
He continued: �There have been painful lessons for the US, the UN and other member states. I think in the end everybody�s concluded it�s best to work together with our allies and through the UN,� the Pope said.
Archbishop Celestino Migliore, the Vatican�s UN representative, said the Pope wanted to attack �the false notion that might makes right�.

LinkHere

Treasuries Massacred; Yield Curve Steepest On Record

2009-12-19T00:46:00.000-08:00

Bernanke cannot have his cake and eat it too. If the economy is recovering the yield curve should steepen. And steepen it has. The Yield Curve Is Steepest On Record.

The difference in yields between Treasury two and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve�s efforts to keep borrowing costs low.

The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003.

Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. Two-year notes have gained 0.2 percent.

Rising 10-year Treasury yields are pushing yields on mortgage bonds higher, prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates.

As mortgage rates rise, the expected average lives of mortgage bonds and mortgage-servicing contacts extend as potential refinancing drops, leaving holders with portfolios of longer-than-anticipated durations. Duration is a measure of bond price sensitivity to interest-rate change.

�The back-up is mostly related to convexity selling by mortgage investors,� said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG�s Private Wealth Management unit in New York. �This will be a test for the Fed.�

Yield Curve 1999 - Present

click on chart for sharper image

If the economy is recovering, the Fed should welcome this steepening. However, what if the yield curve is simply reacting at the thought of Bernanke monetizing Obama"s massive deficits and the various stimulus plans?

I doubt the economy is recovering but it is may be getting worse at a lesser rate. Moreover, if the curve flattens, it sure will not be because of intervention, it will be because the so-called recovery has stalled. Heaven help Bernanke if the economy worsens and the yield curve continues to steepen.

Regardless why the yield curve is steepening, Bernanke"s belief that he can control both the long and short end of the curve is seriously misguided. The fact is he cannot really control either, at least for long.

Twilight Zone Treasuries

Flashback April 23 2009: Twilight Zone Treasuries

The Fed said at its last meeting it intends to buy $300 billion in Treasury securities over six months in a bid to lower long-term borrowing costs and revive economic growth.

$TNX - 10 Year Treasury Note Yield

click on chart for sharper image

Professor Fil Zucchi on Minyanville had this succinct comment:

"Today the Federal Reserve printed $7 billion dollars and used it to buy an equivalent amount of 7 and 10 year Treasury bonds. As I publicly asked before, if Mr. Fed can"t rig the price of an asset by buying it with printed money, why should anyone else buy it?"

Those wishing to keep an eye on these price rigging attempts can follow the Federal Reserve Bank Permanent OMOs: Treasury link.

Bernanke"s Hubris

It is ridiculous for the Fed to think it can control the vast $trillion treasury market with pea shooting efforts at $7 billion a pea. However, as the charts above show, the Fed announcement hugely distorted the market in smaller timeframes.

As Prof. Zucchi says "If Mr. Fed can"t rig the price of an asset by buying it with printed money, why else should anyone else buy it?"

Other than the initial pop, the Fed"s silly attempt to game the system may have caused so much mistrust that it is putting upward pressure on yields.

Treasury Yields Where To From Here?

A couple of people wrote me today saying I have been wrong about treasuries.

Let"s backtrack for a moment to set the record straight for those who think I have been bullish on treasuries all year. Although the strength of the selloff this year has been surprising, I stepped aside in December.

Prior to that I was hugely bullish, more so than anyone I know.

Mish Treasury Calls

Sunday, January 20, 2008: Time To Short Treasuries?

Kass Says Sell Bonds Short.

Kass: The bond market is in a bubble that is reminiscent of (and quite possibly as extreme as) other bubbles during previous eras. From my perch, the only issue is the timing of this trade.

Mish: Timing is indeed everything and perhaps there is a temporary selloff. But the primary trend is for lower yields. Perhaps much lower yields. There is no bubble in bonds. Not yet.

...

Anyone who wants to short treasuries with impunity on this economic backdrop can be my guest. For the record, I have no grudge against Kass. He puts out a good column that I frequently agree with. However, I take the other side of this debate.

There is no bubble in treasuries if you look closely at the fundamental issues. Those who want to see how low treasury yields can get and stay there, need to look at Japan. Yields in the US are going to go far lower and stay lower longer than nearly everyone thinks.

Thursday, June 26, 2008: Is The Inflation Scare Over Yet?

Those focused on the CPI failed to see any chance of the Fed Fund"s Rate at 2.00 again. On the other hand, those focused on the destruction of credit from an Austrian economic perspective got this correct. That is just one reason why it makes more sense to watch the credit markets than the CPI. The second is the CPI is so distorted it is useless.

In my opinion, it is very likely new all time lows in the 10-year treasury yield and 30-year long bond are coming up.

Wednesday, November 19, 2008: Misguided Bets On The Yield Curve

Someone from one of the big brokerage houses emailed me last week saying the yield curve would steepen. My response was "Why should it?"

A bet on the yield curve to steepen is a bet the economy improves. Why should it? An even better question is "How low do 10 year and 30 yields go?" Certainly 3% or lower on the 10 year and even 30 year are in the realm of possibilities. That"s how nasty this recession is likely to get.

Tuesday, January 06, 2009: Reflections On 2008, Themes For 2009

It is quite possible the lows in treasury yields are in. Unlike 2008 where I was constantly beating the drums for lower yields, 2009 could be different. Here are the facts: 3 month and 6 month yields hit 0% and the 10 year came close to hitting 2%. Could there be lower yields still? Yes, quite easily. Is it worth playing for other than as a hedge or part of an overall investment strategy? No.

Thursday, March 26, 2009 Quantitative Easing Begins; "Operation Twist" Revisited

Appearance vs. Reality

Yields may drop. If they do it will not be because quantitative easing is working. If yields drop from here, in spite of the massive supply of treasuries stemming from Obama"s sky high budget, it will be because the economy is in worse shape than anyone thinks.

Those hoping for a second half economic recovery should be hoping yields rise, not sink.

"Operation Twist" failed. So will "Operation Twist Again" in one way or another, or perhaps multiple ways. For example there is no specific reason mortgage rates will drop even if [treasury] yields do. Default risk is simply too high.

Are Yields Going Up Or Down From Here?

Yes they are. I guarantee it. If you want to know which way short term, I do not know, nor does anyone else.

Monday, April 06, 2009: Fed"s Effort To Roll Snowball Uphill Is Failing

Bernanke thinks he can manipulate treasury yields by purchasing long dated treasuries. He can"t. The market is simply too big.

The Fed"s problem is that it cannot force rates where it wants no matter how many treasuries it buys, short of owning them all. If the Fed is buying treasuries at an unnatural price, supply will be unlimited.

Friday, May 15, 2009: Nonexistent "pre-recovery" in Manufacturing Suggests US Treasuries a Buy

Yield Curve as of 2009-05-15

Treasuries Are A Buy

I went cautious on treasuries in December, but it"s now time to become bullish again. Talk of "green shoots" and "pre-recoveries" is way overdone. Let"s come back to this chart in September and October. My bet is the yield curve will be flatter and yields on the high end (10 year and 30 year) will be lower than today.

In September and October we will see if I was right or wrong, but looking back I am quite pleased with 2008 calls culminating with taking the treasury chips off the table in December 2008 (via public blog comments) and officially posted January 6, 2009.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Suck Eggs McSame McBush, who is Presidential? Obama That"s Who

2009-12-18T22:20:00.000-08:00

Get a load of the excitement and smiles

Senator Obama With U.S. Troops in Kuwait

Senator Obama Opening Remarks in Kuwait

Obama Meets Afghan Leaders, Makes Stop in Kuwait

Now watch this drive...

McCain: 100 years in Iraq "would be fine with me"

McCain: Bringing Troops Home from Iraq "Not Too Important"

Confirmed: McCain pulls all ads.

2009-12-18T19:42:00.000-08:00

Source: MSNBC First Read

Virginia-based firm Smart Media, which conducts media buying around the country for the McCain campaign, sent out this urgent memo this afternoon addressed to "All National Managers."

RE: Suspend all McCain for President Advertising
"As you are aware, the John McCain for President Campaign has suspended all campaigning to address the current national financial crisis. Effective 5pm today, September 24th, 2008, all advertising for the McCain for President Campaign must cease. Please notify your stations immediately."
LinkHere

Palin Implicated By Witness in �Troopergate� Probe

2009-12-18T17:13:00.000-08:00

Source: The Public Record

An Alaska woman who owns a company that processes workers� compensation claims in the state has told an independent investigator that she was urged by the office of Gov. Sarah Palin to deny a benefits claim for Palin�s ex brother-in-law, a state trooper who was involved in an ugly divorce and child custody dispute with Palin�s sister, despite evidence that the claim appeared to be legitimate, according to state officials who were briefed about the conversation.

Murlene Wilkes, the proprietor of Harbor Adjusting Services in Anchorage, had originally denied there was any pressure by Gov. Palin�s office to deny state trooper Mike Wooten�s claim for workers compensation benefits.

But she changed her story when she was subpoenaed by Steven Branchflower, the former federal prosecutor who was appointed in July to probe allegations Gov. Palin, Republican presidential candidate John McCain�s running mate, abused her office by abruptly ousting Public Safety Commissioner Walt Monegan, state officials knowledgeable about her conversation with Branchflower said.

Monegan has said Gov. Palin pressured him, several of her aides, and her husband, Todd Palin, to fire Wooten. Branchflower�s investigation centers on whether Palin fired Monegan because he refused to fire Wooten.

LinkHere

Cuban government shunned, saying in a statement Monday that it cannot accept help from ``government that blockades them.""

2009-12-18T15:56:00.000-08:00

Cuba rejects U.S. supplies, asks for suspension of trade embargo

Source: Miami HeraldCuba rejects U.S. supplies, asks for suspension of trade embargoResponding to criticism, the U.S. offered $2 million in supplies. Cuban officials asked for a suspension of the trade embargo instead.

LinkHere

Bush, Cheney, Ashcroft, Powell, Tenet, Rice, and Yoo Have All Committed War Crimes Punishable by Life in Prison, Death Or Impeachment

2009-12-18T15:28:00.000-08:00

Anyone who violates the Geneva Convention by engaging in murder, torture, or inhuman treatment is guilty of a crime under U.S. law.

Specifically, the War Crimes Act of 1996, a federal statute set forth at 18 U.S.C. � 2441, makes it a federal crime for any U.S. national, whether military or civilian, to violate the Geneva Convention

The statute applies not only to those who carry out the acts, but also to those who ORDER IT, know about it, or fail to take steps to stop it. The statute applies to everyone, no matter how high and mighty.

Indeed, anyone who is a policy-maker who helps create, promote, or justify policies that violate the Geneva Convention is guilty under 18 U.S.C. � 2441. See this, this, this, and this.

What Does This Mean?

Well, according to the Associated Press, Cheney, Ashcroft, Powell, Tenet, and Rice all approved torture, and Bush knew about and approved what they were doing (see also this).

In addition, in addition to Ashcroft, other high-level Justice Department officials such as John Yoo approved of and justified torture.

All of these people are guilty of war crimes under 18 U.S.C. � 2441.

18 U.S.C. � 2441 has no statute of limitations, which means that a war crimes complaint can be filed at any time. The penalty may be life imprisonment or -- if a single prisoner dies due to torture -- death. Since the U.S. military has admitted that they have tortured some prisoners to death, that means that Bush, Cheney, Ashcroft, Powell, Tenet, Rice, and Yoo could all be sentenced to life in prison, or even death.

Additionally, violation of the war crimes act almost certainly constitutes a "high crime or misdemeanor" which would allow impeachment of such officials.

Indeed, many high-level officials in the U.S. and abroad have stated that those who crafted the torture policies are guilty of war crimes. For example, Colin Powell"s former chief of staff stated that Dick Cheney might be guilty of war crimes. And Former Malaysian premier Mahathir Mohammad is calling for an international tribunal to try western leaders for war crimes over the Iraq war.

And for those who question whether waterboarding is torture, see this, this, this, and this.

Indeed, waterboarding is not the only form of tortures which has been used by the U.S. recently.

Finally, Donald Rumsfeld appears to have also committed war crimes. For example, the general in charge of the notorious Abu Ghraib prison in Iraq stated this week that Secretary of Defense Donald Rumsfeld and other top administration officials ORDERED that inhuman treatment and torture be conducted as part of a deliberate strategy. This confirms what the Pullitzer prize-winning reporter who uncovered the Iraq prison torture scandal and the Mai Lai massacre in Vietnam previously wrote.

Alberto Gonzales probably also committed war crimes by promoting and covering up torture.

MCCAINS BAD JUDGEMENT

2009-12-18T12:38:00.000-08:00

After 9/11, no Bush plan on Osama?

Dems ease impact of health bill, big advance nears

2009-12-18T09:45:00.000-08:00

Source: AP
WASHINGTON � Fearing a backlash, Democrats smoothed the impact of sweeping health care legislation on working-class families Thursday night and steered President Barack Obama"s top domestic priority toward a crucial Senate advance. The most far-reaching overhaul in decades aims to protect millions who have unreliable coverage or none at all.
Republicans on the Senate Finance Committee attacked the bill as riddled with tax increases that violated Obama"s campaign promises, but failed to remove any of them.
After marathon public debate, agreement by the committee is all but certain for the legislation, although no final vote was expected until next week. That formality � Democrats hold a 13-10 majority on the panel � will clear the way for the full Senate to begin work on the measure at mid-month.
The legislation, like a companion bill under construction in the House, would bar insurance companies from denying coverage or charging higher premiums on the basis of pre-existing medical conditions. It also includes federal subsidies to make insurance available to millions who lack it, and it takes steps to slow the skyrocketing growth in health care costs nationwide.
snip
Senate Democrats coalesced behind two of their own that could alter the legislation in significant ways. Link Here

SandWalker1984

The harsh, cold facts & my conclusions regarding health care reform.

Before we can have any meaningful reform of the health care industry (and it has become too big of a business), we must face the harsh, cold facts of what we are up against.
PROFITS - the focus of these companies is PROFITS, not people and not health care. What kind of profits? Huge, excessive profits, achieved by rationing health care.
HEALTH INSURANCE COMPANY PROFITS IN 2007:
1. UnitedHealth Group�$ 4.654 BILLION. UnitedHealth Group owns Oxford, PacifiCare, IBA, AmeriChoice, Evercare, Ovations, MAMSI and Ingenix, a healthcare data company
2. WellPoint�$ 3.345 BILLION. Wellpoint owns BLUES across the US, including Anthem Blue Cross Blue Shield, Blue Cross Blue Shield of Georgia, Blue Cross Blue Shield of Wisconsin, Empire HealthChoice Assurance, Healthy Alliance, and many others
3. Aetna Inc.�$ 1.831 BILLION
4. CIGNA Corp�$ 1.115 BILLION
5. Humana Inc.�$ 834 million
6. Coventry Health Care�$626 million. Coventry owns Altius, Carelink, Group Health Plan, HealthAmerica, OmniCare, WellPath, others
7. Health Net�$ 194 million
****************
EXCESSIVE SALARIES AND COMPENSATION - the CEO"s that run these corporations are compensated well for denying and rationing YOUR health care. How much do they make?
(from dailykos.com)
2008 Salaries & Compensation - the top 10 in Health Care
Ron Williams - Aetna
Total Compensation: $24,300,112
Details: Williams earned $24,300,112 in total compensation for 2008, with more than half of that ($13,537,365) coming from option awards. He also received an additional $6,456,630 in stock awards to go along with his base salary of $1,091,764.
Personal use of a corporate aircraft and vehicle, as well as financial planning and 401(k) company matches added up to $101,487 for Williams.
H. Edward Hanway - CIGNA
Total Compensation: $12,236,740
Details: Hanway took a significant pay cut from 2007 to 2008, due mainly to a drop off of more than $11 million in his non-equity incentive plan compensation. Still, his base salary of $1,142,885 surpasses that of Aetna"s Williams, and is supplemented by just over $3.6 million in option awards, and just over $820,000 in non-qualified deferred compensation earnings.
Also, nearly $21,800 in "other compensation" included the use of a company car with a driver, in-office meals, and emergency assistance services relating to medical exams.
Angela Braly - WellPoint
Total Compensation: $9,844,212
Details: Braly, like Williams, earned more money in 2008 ($9,844,212) than in 2007 (9,094,271), increasing her option rewards by nearly $1.5 million, and also receiving a $200,000-plus bump in base salary, from $922,269 to $1,135,538. Braly"s stock awards dropped from $2,160,159 to $1,750,015 because, according to the SEC, "performance-based restricted stock units awarded in 2008 were cancelled because our ROE target for 2008 was not met."
Braly"s "other compensation" comprised use of a private jet for her and her family on business trips, just under $10,000 for legal services relating to her employment agreement and cash credits.
Dale Wolf - Coventry Health Care
Total Compensation: $9,047,469
Details: Wolf is the only CEO on this list who is no longer employed with his associated health plan; he retired from his position on Jan. 30 of this year after serving in that role since Jan. 1, 2005, and was replaced by former CEO Allen Wise.
Wolf, whose total compensation dipped quite a bit from 2007 ($14,869,823) to 2008 ($9,047,469), was pleased with the direction the company was headed in at the time of his departure.
"I am proud of what a talented group of people have accomplished over the past 13 years of my association with the company," Wolf said, "and I am confident that the fundamentals which are in place today will carry the company forward to continued success."
Wolf carried a base salary of $965,000 in 2008, and earned just over $1.9 million in stock awards. His "other compensation," which amounted to $486,447, included transportation on the company"s airplane, a company match retirement savings plan and a company match 401(k) plan.
Michael Neidorff - Centene
Total Compensation: $8,774,483
Details: Neidorff, who"s base salary remained at $1 million, received increases in both his bonus ($1.25 million, up from $1 million) and his stock awards ($4.7 million, from $3.98 million) in 2008. According to the SEC, "Neidorff"s agreement was amended twice in the past twelve months; (1) to eliminate the non-compete and non-solicitation requirements if there was a �hostile change in control" as defined in his agreement and (2) to add language to the agreement to make it compliant with Internal Revenue Section 409A."
Neidorff"s "other compensation" of just over $418,000 comprised of use of the company airplane "for all travel," life insurance benefits, security services, and tax preparation services, among other things.
James Carlson - AMERIGROUP
Total Compensation: $5,292,546
Details: Despite a lawsuit regarding Medicaid fraud that cost the Illinois plan $225 million, Carlson himself earned roughly $2 million more than he did in 2007. All aspects of his compensation increased in 2008, from his base salary (up from $608,000 to just over $761,000) to his non-equity incentive plan compensation (up to about $2.8 million from $1.98 million a year ago). Carlson"s bonus also grew quite a bit, going from $225,000 in 2007 to $520,312 in 2008; much of that amount was based on long term incentive program goals being met.
Carlson"s "other compensation," which nearly tripled (going from about $7,000 to just over $20,000), included his employer 401(k) contribution, life insurance premiums, an executive health screening, flight services and a medical insurance stipend.
Michael McCallister - Humana
Total Compensation: $4,764,309
Details: Despite its pick ups of two smaller health plans (OSF Health Plans of Peoria, IL and Cos/Cariten Healthcare of Knoxville, TN), Humana"s McCallister earned roughly $5.5 million less in 2008 than in 2007. While his base salary ($1,017,308), option awards ($3,078,897) and "other compensation" ($668,104) all increased, his non-equity incentive plan compensation and his nonqualified deferred compensation earnings totaled zero dollars. The latter represents a discontinuation of the Officers" Target Retirement Plan, according to the SEC.
McCallister"s "other compensation" included personal use of the company aircraft for him, and sometimes his family; company contributions to the Supplemental Executive Retirement & Savings Plan and the Humana Retirement & Savings Plan; a once-a-year physical, financial planning assistance, and more.
Jay Gellert - Health Net
Total Compensation: $4,425,355
Details: Gellert, whose company is considering selling off divisions in at least four states, earned nearly $740,000 in additional compensation for 2008. His overall base salary increased to a little more than $1.2 million from about $1.18 million in 2007, and his stock awards also rose (from about $1.4 million to more than $1.8 million).
Gellert"s "other compensation," which totaled $131,526, included, but were not limited to, a $53,000 housing allowance, a corporate car and tax reimbursements of nearly $41,000.
Richard Barasch - Universal American
Total Compensation: $3,503,702
Details: After taking a pay cut from 2006 to 2007, Barasch more than doubled his total compensation for 2008, jumping up from $1,564,293 in 2007. Barasch"s base salary jumped up to $857,851 from $798,340 in 2007; his stock and option awards also increased, as did his "other compensation," which reflected a car allowance, relocation benefits and a matching contribution to his 401(k).
Also of note for Barasch was the fact that his non-equity incentive plan compensation earnings totaled $1,195,147; in 2007, he did not receive any money in 2007 for such compensation, but took home $1.1 million in 2006.
Stephen Hemsley - UnitedHealth Group
Total Compensation: $3,241,042
Details: An $895 million class-action lawsuit over stock-option back dating aside, Hemsley still manages to make the cut for this list at No. 10. The UHG CEO"s base salary was $1.3 million in 2008, to go along with a non-equity incentive plan compensation worth just over $1.8 million and "other compensation" amounting to slightly more than $119,000.
Hemsley"s other compensation was a combination of the company matching his contributions under the 401(k) plan and the company matching contributions under his executive savings plan. According to the SEC, "in May 2006, the amount of Hemsley"s supplemental retirement benefit was frozen based on his current age and average base salary and converted into a lump sum of $10,703,229." Because of this, "there was no increase in the benefit payable to Mr. Hemsley under his supplemental retirement benefit" in 2008.
***********
I"ve reached the following conclusions regarding Congress & health care reform:
(1) The profits are too large, the pay scales too excessive for the health care industry to willingly allow meaningful reform that benefits us, the people.
(2) Many, if not most, members of Congress, along with Obama, are recipients of large donations from these health industry corporations. Donations they do not wish to see stopped or given to opponents in the next election cycle.
(3) Therefore, Congress is attempting to make the so called health care reform into token reform to try to appease us, the voters, while in reality they are planning the biggest giveaway (500 billion dollars or more, according to Jay Rockefeller) to that industry ever. They also plan to mandate we purchase private, overpriced and under delivering insurance from this industry to keep their donations rolling in.
(4) No meaningful regulation of the health care industry will take place as long as the industry is calling the shots with Congress. Most of the Baucus bill was written by lobbyists from WellPoint.
Unless some more Democrats suddenly get religion regarding true health care reform, it is better to defeat the Democrats and this sham legislation. It is better to defeat it now rather than hand the health care industry more customers, more money, more power so they can buy even more members of Congress.
NO legislation is better than bad legislation.
Better to end this battle now and fight again later than to surrender our well being to these mega, profit generating, out of control machines.
No wonder the Republicans have been sitting this one out - do the math, it"s far more advantageous politically for them to let the Democrats hang themselves on this corporate giveaway of a bill.

Who is Putting "Intense Pressure" on Bush and Congress to Pass the Bailout?

2009-12-18T08:49:00.000-08:00

An article in CNBC states, "The U.S. Congress and the Bush administration were under intense pressure on Saturday to negotiate a $700 billion rescue".

Who is putting intense pressure on both the White House and Congress to pass the bailout?

Not the American people, who overwhelmingly oppose the bailout.

Not American economists, former treasury secretaries, chairmen of the FDIC, or the Congressional Budget Office, who all say that the bailout won"t work, and will actually harm the economy.

So who is putting the intense pressure on our government?

Maybe its just America"s financial elite.

But consider that many financial analysts say that the real reason that the government bailed out Freddie and Fannie is because China demanded it. And there were rumors last week that China instructed its banks to stop lending to U.S. banks. The U.S. owes trillions of dollars to China which, along with Japan, Saudi Arabia, and other creditor nations, is keeping America afloat. If they pulled the plug, the U.S. would instantly default on its obligations. See this.

They say that economics and finance are now global. Perhaps corruption, blackmail and tyranny are also.

AP Accuses Obama Artist Shepard Fairey Of Copyright Infringement

2009-12-18T07:21:00.000-08:00

NEW YORK � On buttons, posters and Web sites, the image was everywhere during last year"s presidential campaign: a pensive Barack Obama looking upward, as if to the future, splashed in a Warholesque red, white and blue and underlined with the caption HOPE.
Designed by Shepard Fairey, a Los-Angeles based street artist, the image has led to sales of hundreds of thousands of posters and stickers, and has become so much in demand that copies signed by Fairey have been purchased for thousands of dollars on eBay.
The image, Fairey has acknowledged, is based on an Associated Press photograph, taken in April 2006 by Mannie Garcia on assignment for the AP at the National Press Club in Washington.
The AP says it owns the copyright, and wants credit and compensation. Fairey disagrees.
"The Associated Press has determined that the photograph used in the poster is an AP photo and that its use required permission," the AP"s director of media relations, Paul Colford, said in a statement. "AP safeguards its assets and looks at these events on a case-by-case basis. We have reached out to Mr. Fairey"s attorney and are in discussions. We hope for an amicable solution."
"We believe fair use protects Shepard"s right to do what he did here," says Fairey"s lawyer, Anthony Falzone, executive director of the Fair Use Project at Stanford University and a lecturer at the Stanford Law School. "It wouldn"t be appropriate to comment beyond that at this time because we are in discussions about this with the AP."
LinkHere

CNBC: Warren Buffett"s Editor: Some "Terrifically Worried" Shareholders Coming to Meeting

2009-12-18T06:07:00.000-08:00

Published: Friday, 1 May 2009 | 12:50 PM ET

By: Alex Crippen
Executive Producer

Warren Buffett"s "editor" tells CNBC some of the shareholders coming to Berkshire Hathaway"s annual meeting tomorrow remain "terrifically worried" about the economy and their Berkshire shares.

Fortune Magazine"s Senior Editor-at-Large Carol Loomis has helped Buffett edit the Berkshire Hathaway annual report and letter to shareholders for many years.

She is also one of three journalists (the other two are CNBC"s Becky Quick and Andrew Ross Sorkin of the New York Times) who will be selecting e-mailed questions for Buffett and Charlie Munger at tomorrow"s marathon Q-and-A session before shareholders.

This morning, she appeared live from Omaha with CNBC"s Becky Quick on Squawk Box.

BECKY: Thirty-five thousand people are expected to come to the shareholders meeting this year. That"s about a ten percent increase from what they"ve seen in previous years. Does it surprise you or is this a time people are looking for answers?

LOOMIS: No, I really think they"re looking for answers. They"re hoping that Warren and Charlie are going to deliver them, and I"m sure that they will. They get comfort from being in a crowd of other people similarly situated...

OBAMA WARNS OF "LOST DECADE"

2009-12-18T05:46:00.000-08:00

Failure To Act On Stimulus "Could Turn A Crisis Into A Catastrophe"... HuffPost"s Sam Stein Asks Obama About Leahy Proposal To Investigate Bush Officials... President"s Response: "Nobody Is Above The Law"... Read Full Transcript

Hell!!!!!and I thought the last eight years were bad, God Help us all

2009-12-18T03:38:00.000-08:00

The Many Faces Of John McCain At Wednesday Night"s Debate

Largest Home Price Drop on Record

2009-12-18T01:44:00.000-08:00

Housing is Local (Except when it"s National).
The NAR is reporting a record slump in home prices.

Fourth-quarter report from National Association of Realtors shows largest price drop on record as markets with price declines now outpace those with gains.

Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter a year earlier, according to the report from the National Association of Realtors (NAR). That"s the biggest year-over-year drop on record and follows a 1.0 percent year-over-year decline in the third quarter.

In addition, 73 metropolitan areas reported a decline in the fourth quarter, compared to a year earlier. That outpaced the 71 that saw a gain. It was both a record number and percentage of markets showing a decline in the group"s quarterly report. Five markets saw prices unchanged.

The most recent median prices are down even more: 3.4 percent since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the past six months, with eight reporting double-digit declines.

But the weakness in prices wasn"t restricted to those kinds of markets. Springfield, Illinois, reported a 16.2 percent drop in the fourth quarter compared to the third quarter, the biggest decline during that time frame, along with a 10.4 percent decline compared to a year earlier.

Still, the trade group statement said it believed that the worst was over for the drop in prices.

"Examination of data within the quarter shows home prices stabilizing toward the end," said a statement from David Lereah, the NAR"s chief economist. "When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices."

Here is a chart of nationwide prices.

Click here for the latest home prices in 149 markets tracked for the fourth quarter of 2006.

"Examination of data within the quarter shows home prices stabilizing toward the end," said a statement from David Lereah, the NAR"s chief economist. "When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices."

David Lereah is a paid cheerleader. On that basis I expect to see David Lereah cheerleading regardless of what the facts are. As for me, I will take the other side of the bet: I expect to see an economy heading into recession, with increasing foreclosures, more distress auctions, more bankruptcies, and weakening prices. One of us will be right and one of us wrong. I will say in advance that at some point there will be a fake rally of sorts, from what level I do not know but my inclinations are that such a rally will occur after a deeper slump than this one. The foreclosure party has really just started.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

1. Corrupt Banking System - Cartels Robbing the Public

2009-12-17T23:39:00.000-08:00

2. Corrupt Banking System - How Money is Created (2/5)

3. Corrupt Banking System - Money is Debt (3/5)

4. Corrupt Banking System - Monetary Reform (4/5)

Added5. Corrupt Banking System - Warning About the NWO (5/5)

City of Houston is Bankrupt (So are California, Oregon, and Pension Plans in General)

2009-12-17T22:44:00.000-08:00

Houston, we have a problem. We are bankrupt.

That is the finding of Bob Lemer, CPA, Retired Partner at Ernst & Young; Aubrey M. Farb, CPA, Retired Partner at Grant Thornton; and Tom Roberts, CPA, Retired Partner at Fitts Roberts.

Cover Letter

October 22, 2009
Name, Title and Address [see list below]
Subject: Finances of the City of Houston
Dear : [see list below]

Enclosed is our partial analysis of the very serious financial situation at the City of Houston. We would be derelict if we failed to share this financial analysis with you. This financial heads up will assist you in meeting your fiduciary responsibilities to Houston voters, taxpayers, readers, viewers or investors---as the case may be.

We feel a public discussion of the City�s financial situation is necessary and firmly believe that addressing the City�s financial condition is in the best interest of the Houston economy and Houston taxpayers. We believe the sooner the City of Houston addresses the financial shortfall the better.

Please bear in mind that the Houston City elections are on November 3, 2009, with early voting having commenced on October 19, 2009. Recent history has shown a large portion of voting occurs during early voting.

We trust that the attached article is of significant assistance to you.
We may be reached at boblemer@sbcglobal.net.

The above was sent to:

City of Houston---Incumbent Mayor, City Controller, and City Council Members
City of Houston�Non-Incumbent City Candidates
Greater Houston Partnership---Board Members
Houston Chronicle---Editorial Board Members
Houston TV Stations---CEOs
Houston Business Journal---Editor
Houston Community Newspapers-Editor
Houston Press-Editor
Municipal Bond Rating Agencies---CEOs
Wall Street Journal---Editor
Barron�s-Editor
Investor�s Business Daily-Editor
USA Today-Editor
Texas Monthly---Executive Editor
Deloitte & Touche LLP---Houston and New York

Executive Summary

City of Houston
Disturbing Financial Facts---October 2009
By: Bob Lemer, Aubrey M. Farb and Tom Roberts

The City of Houston is financially broke and it appears that the mayor who takes office in January 2010 may have to captain the City through bankruptcy procedures.
The City�s unrestricted assets were $1.2 billion short of the already recorded
corresponding liabilities these assets were needed to pay as of fiscal year end June 30, 2008,according to the City�s latest publicly available audited Comprehensive Annual Financial Report (CAFR). The $1.2 billion shortfall was a result of operating losses totaling $1.5 billion for fiscal years 2004-2008, applying the full accrual basis of accounting used in the private sector.

Apparently the City has no idea as to what has transpired financially since June 30, 2008 or will transpire this fiscal year ending June 30, 2010, on the full accrual basis of accounting. But even on the modified accrual basis of accounting (essentially cash basis) followed by the City and all other municipalities, the $236.8 million fund balance in the City�s general fund as of July 1, 2009 (the beginning of this current fiscal year) would not exist except for the City having deposited the proceeds of pension obligation bonds into the City�s general fund instead of depositing them in their legally required immediate destination, the pension plans� bank accounts.

The City is in this dangerous financial position because its total spending since fiscal year 2003 has greatly outstripped its total revenues in that period. And the rate of growth in the City�s total revenues since 2003 has, in turn, greatly outstripped the City�s rate of growth in population plus inflation.

Thus the City�s problems are a result of greatly overspending and not a result of
insufficient revenues. All of this occurred before the current severe recession. Now the City has the added burden of the recession.

The City is in a real financial dilemma, because now its two principal sources of general fund revenues are in trouble---sales taxes and property taxes. Sales tax revenues already are dropping significantly and property tax revenues will commence dropping at an even more rapid rate after the next annual appraisal and assessment process. And the City will have to go to the voters for any contemplated rate increases in either the sales tax rate or the portion of the property tax rate allocable to operations.

It appears to us that there may be no viable alternative to bankruptcy proceedings and thereby positioning the City to regain control over its overspending, through addressing structural spending problems such as overstaffing and overly generous employee benefits.

Pension Plans and Government Salaries To Blame

According to the report, pension plans and government salaries are at the heart of the matter. Here are a few select details.

Detailed Findings and Observations

1. The City incurred operating losses (�Change In Net Assets�) totaling approximately $1.5 billion for the five fiscal years ended 6/30/08--- per the latest (fiscal year 2008) publicly available audited Comprehensive Annual Financial Report (CAFR), page 199:

In Thousands
a. (312,790)
b. (531,465)
c. (131,893)
d. (221,452)
e. (281,556)
TOTAL (1,479,156) ---or--- $1.5 BILLION

2. The City�s deficiency in unrestricted assets [�Unrestricted (deficit)�] was $1.2 BILLION ($1,174,429 thousands) at June 30, 2008--- per 2008 CAFR, page 15. In other words, the City�s unrestricted assets were approximately $1.2 billion less than the already recorded liabilities that they will be required to satisfy.

3. The $1.2 billion deficiency in unrestricted assets as of June 30, 2008 (which was created essentially during fiscal years 2004-2008-see item 1) was basically financed, per page 15 of the 2008 CAFR, by:
(a) the $347,728,000 collateralized note payable to the municipal employees�
pension trust;
(b) the $643,413,000 combined accrued liabilities to the employees� pension
trusts (municipal-$285,462,000, police officers�-$318,567,000, and firefighters�-$39,384,000);
(c) the $219,755,000 pension obligation bonds payable;
(d) the $272,941,000 accrued liability for other post employment benefits-----less, per pages 17 and 74 of the 2003 CAFR,
(d) the $54,395,000 net accrued liabilities to the employees� pension trusts at June 30, 2003 (municipal-$92,386,000, police officers�-$19,221,000, and firefighters�-asset of $57,212,000).

4. Thus, as of June 30, 2008, the City�s elected officials essentially had transferred financial ownership of the City from the taxpayers to the City�s employees, about 43.7% of who do not live in the City, according to documentation we have received from the City�s human resources department. Very troubling, 63.3% of first responders (police officers and firefighters) do not live in the City, versus just 30.0% of civilian employees, according to the City�s human resources department.

5. The City�s deficiency in unrestricted assets is so severe that in their yet to be completed audit for fiscal year 2009 the City�s independent auditors apparently will have to address the audit reporting issue as to whether the City was a �going concern� as of June 30, 2009.

6. Apparently the City has no idea yet as to what its operating loss (�change in net assets�) was for the fiscal year just ended June 30, 2009 or what its deficiency in unrestricted assets was at June 30, 2009, and has no idea as to what is in store fiscally for fiscal year 2010. That is because the City does not keep its books on the full accrual basis of accounting (fully accruing its assets and liabilities) but once a year, via the audited Comprehensive Annual Financial Report (CAFR). And the CAFR cannot be completed until the (nearly always very substantial) annual audit adjustments are booked.

....

17. For example, Exhibit B demonstrates how it was possible for the City to actually show an audited surplus of $19,891,000 from operations in the general fund (which is the focus of the annual budget and the MFOR) for fiscal year 2008 when, in reality, the City had an audited Citywide operations deficit of $281,556,000 for fiscal year 2008.

18. Exhibit B is difficult to comprehend for a person not trained in governmental accounting, even for a CPA. But the two most significant reasons for the difference between the $19,891,000 general fund surplus from 2008 operations and the $281,556,000 deficit from 2008 Citywide operations are: (a) the ever-growing accrued liabilities to employees for pension plans and other post retirement benefits; and (b) the commenced practice of financing current pension plan expenses with backend loaded pension obligation long-term bonds.

19. Once one understands Exhibit B, or at least items 18(a) and 18(b), it becomes obvious that the City�s fiscal 2010 general fund budget is an illusion, for two reasons. First, it is calculated on the modified accrual basis of accounting (essentially cash basis) and therefore ignores the ever-growing and enormous accrued liabilities for employee pensions and other post retirement benefits. Secondly, it is dependent upon continued payment of some of the pension expenses with issuance of long-term backend loaded pension obligation bonds.

23. At June 30, 2008 (date of the City�s last audited financial statements), the City�s total Citywide debt per capita of $5,338 was over twice the $2,528 debt per capita of the now bankrupt State of California.

Inquiring minds may wish to download the entire Lemer/Farb/Roberts assessment of City of Houston Finances document from Scribd.

I agree with the findings of Bob Lemer, Aubrey M. Farb, and Tom Roberts. Any attempts to balance this on the backs of taxpayers is not viable. Houston should declare bankruptcy and seek to null and void the contracts of city workers including police and fireman.

California Is Bankrupt Too

Interesting, I note in point 23 that the authors of this report have concluded California is bankrupt. Of course I agree with that assessment as well. Unfortunately there is no provisions for states to declare bankruptcy.

What About Oregon?

Inquiring minds are reading Climbing PERS expenses face Oregon pension board, agency budget writers.

The cost of Oregon"s Public Employees Retirement System is about to skyrocket to budget-busting levels.

As a result of PERS" $17 billion investment loss in 2008, every state agency, municipality and school district that participates in the system is staring at an average 50 percent increase in the base rates PERS charges to fund their employees" retirement benefits in 2011 and 2012.

That"s not a doomsday scenario. Unless the pension fund"s board changes its rate-setting rules, or its investment portfolio generates a 26 percent return in 2009, these rate increases are guaranteed. What does that mean to you? Fewer teachers, cops and firefighters. Less of every service that government provides. Higher fees and taxes. Perhaps all of the above.

The base rate that public agencies pay to support employees" retirement benefits could double in the next five years, according to the PERS actuary, Mercer Inc. If rates reach that level, the retirement system will gobble one quarter of every tax dollar that goes into a public agency to support payrolls.

Oregon isn"t alone.

Public pensions nationwide are in crisis mode, and state Treasurer Ben Westlund points out that Oregon"s pension system is still better funded than most. PERS officials also note that a major recovery in the stock market could alleviate, or even eliminate, the pain. Indeed, the system"s investment portfolio has already bounced back 14 percent this year.

But here"s the rub: Even if the pension system"s investments return an average 10.5 percent annually for the next three years - their historical average - PERS rates will still increase to 21 percent of payroll in July 2013, according to Mercer"s modeling.

If, in a slower growth scenario, investment returns are closer to their 10-year average of 4.5 percent, all bets are off. PERS" executive director, Paul Cleary, recently told the citizens board that oversees investment of the $50 billion pension fund that if 4.5 percent is the new normal, "our business model doesn"t work."

Pension System Busted Country Wide

It is highly likely that nearly every pension plan in the country is busted. The solution is for every city and municipality in a predicament to "pull a Vallejo" and declare bankruptcy. Please see Judge Rules Vallejo Can Void Union Contracts for details.

Deficiencies cannot be met on the backs of taxpayers. Enough is enough. It"s time to end every massively underfunded public defined benefit plan in the country, by force if necessary (bankruptcy), unless unions agree to major concessions that would make the plans viable without raising taxes one cent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Headlines | 3-19-09

2009-12-17T21:40:00.000-08:00

Pop investment guru Suze Orman says build up as much emergency cash as possible

Analyst: �Technically, The U.S. Is Already Bankrupt Because It Has A Debt That Is Almost Four Times The Size Of Its Economy�

Chart - Top Recipients of TARP Bailout Money

Top Constitutional Law Expert Larry Tribe: 90% AIG Tax Is Constitutional

The List of Who Got Lobbying $ From AIG

Colin Powell�s former chief of staff: Cheney is "evil," his fearmongering is "assisting" al Qaeda.

Ex-Bush Admin Official: Many at Gitmo are Innocent

BLOOMBERG: Goldman Sachs Raising $5 Billion to Repay U.S., Shed Pay Limits

2009-12-17T21:38:00.000-08:00

By Christine Harper

April 14 (Bloomberg) -- Goldman Sachs Group Inc., buoyed by profit that exceeded the most optimistic Wall Street estimates and a 54 percent jump in its stock price, plans to raise $5 billion to repay federal rescue funds and shed government limits on executive pay.

Chief Executive Officer Lloyd Blankfein, eager to redeem the $10 billion his New York-based bank received in October, announced the fundraising plan yesterday as the company reported a $1.81 billion profit in the first quarter. The bank earned $3.39 a share, more than double the $1.64 average of 16 analysts surveyed by Bloomberg News.

�They�ll do better now in terms of what it costs to raise money than they can for the rest of the year,� said Christopher Whalen, a managing director at Torrance, California-based Institutional Risk Analytics. �I don�t think the rest of this year will be good.�

Goldman Sachs was the most profitable Wall Street firm before converting to a bank last year and posting its first quarterly loss since the company went public in 1999. The bank also said yesterday that it lost $780 million, or $2.15 a share, in the month of December, before the start of its new fiscal year.

The bank said it will use proceeds from the common stock offering plus �additional resources� to pay back the funds it got from the Troubled Asset Relief Program. Andrew Williams, a spokesman for the Treasury Department, declined to comment on Goldman Sachs�s announcement.

�Eye of Storm�

U.S. regulators are unlikely to object to the repayment. The government favors letting banks return money if they fare well on stress tests completed by the end of this month and can get private capital, according to people familiar with the matter.

�They can raise capital now; clearly the stock is strong,� said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors, which has about $13.3 billion under management. �This is like the eye of the storm passing.�

The firm�s business model depends on its ability to attract top traders and bankers with promises of lucrative bonuses, a Wall Street pay model that is now under attack by politicians incensed at multimillion-dollar payouts to executives in an industry blamed for causing the economic crisis. The government imposed limits on executive compensation at banks such as Goldman Sachs that accepted more than $500 million in TARP funds.

Before last year, Goldman Sachs set two consecutive Wall Street pay records. Even last year, 953 of the bank�s employees made more than $1 million, the Wall Street Journal reported, citing unidentified people familiar with the matter. Lucas van Praag, a spokesman at Goldman Sachs, declined to comment.

Compensation Costs Rise

This year, the bank set aside $4.71 billion for compensation and benefits, 18 percent more than during the first quarter a year earlier. The expense totaled 50 percent of revenue, up from 48 percent in last year�s first quarter, even as the firm�s workforce shrank 12 percent to 27,989.

If Goldman Sachs returns the TARP money, it may pressure other banks to follow suit or risk appearing dependent on the government, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Goldman Sachs �market perform.�

The better-than-expected earnings will also make it difficult for competitors that are scheduled to report their own results this week or next week, said Sorrentino.

�This makes life much more difficult for everyone else out there,� he said. �To merely beat your numbers now will be viewed as, �What�s wrong?��

Goldman Sachs Results

Book value per share rose to $98.82 at the end of March compared with $98.68 in November, and return on equity, a gauge of how effectively the firm invests earnings, was 14.3 percent in the first quarter, Goldman Sachs said.

First-quarter revenue was $9.43 billion. The highlight was Goldman�s fixed-income, currencies and commodities business, known as FICC, in which trading revenue was a record $6.56 billion, 34 percent higher than its previous high, as client- driven income outweighed an $800 million loss on commercial mortgage loans, excluding hedges.

Goldman Sachs benefited as the gap between what banks pay to buy fixed-income securities and the price at which they sell, the so-called bid-ask spread, almost doubled to 19 basis points in six months, according to data compiled by Bloomberg.

�FICC operated in a generally favorable environment characterized by client-driven activity, particularly in more liquid products, and high levels of volatility,� the bank said in a statement. �Illiquid assets generally continued to decline in value.�

Fewer Rivals

The loss of competitors including Lehman Brothers Holdings Inc. and Bear Stearns Cos. meant Goldman Sachs attracted more trading business, said Huntington�s Sorrentino.

�A lot has to do with the fact that they really narrowed the playing field,� he said. �All that business has to be flowing through to someone.�

Because trading revenue is so hard to predict, �the market�s going to value asset management and investment banking and retail brokerage higher than it�s going to value trading,� said Bernstein�s Hintz. �As an analyst you have to ask yourself, �Is this sustainable?��

Every other business unit had lower revenue compared with the first quarter of 2008 or reported a loss.

Equity trading revenue was $2.0 billion as slower activity outside the U.S. meant the firm generated fewer trading commissions than a year ago.

Investment Banking

Investment banking revenue of $823 million compared with $1.17 billion in the first quarter of 2008, reflecting a decline in leveraged finance activity and fewer mergers and share offerings.

Asset management fees slumped 28 percent to $949 million as assets under management fell 3.3 percent. Securities services, which include the firm�s prime brokerage unit, made $503 million, 30 percent less than the first quarter of 2008.

Goldman Sachs had a $1.41 billion net loss from principal investments, including a $151 million loss from the firm�s investment in Industrial and Commercial Bank of China Ltd.

Total assets on the balance sheet rose 5 percent from the end of November to $925 billion as of March 27. Of that, about $59 billion qualified as �Level 3� assets, which are the hardest to value, down from $66 billion at the end of November.

Goldman Sachs raised $5.75 billion by selling shares at $123 apiece in September in an offering that started after the company announced that Warren Buffett�s Berkshire Hathaway Inc. bought $5 billion in preferred stock.

A month later, Goldman Sachs was among nine financial institutions that shared $125 billion in the first payments from the Treasury�s $700 billion bailout program.

Foreclosures on my Mind

2009-12-17T19:51:00.000-08:00

According to RealtyTrac Inc. the Dallas-Fort Worth area has the dubious distinction of leading the nation in foreclosures with one foreclosure for every 319 households. This is more than 5.5 times the national average.

Following are the top five foreclosure states according to this article :

1. Texas 9,672
2. Florida 9,506
3. New York 3,024
4. Arizona 2,386
5. Pennsylvania 1,790

According to the West Virginia Gazette, West Virginia foreclosures are at a 40 year high. Here is an interesting snip from the article: A West Virginia bill passed in the Legislature this year requires high schools to start teaching students the basics of personal finance, initiating them into the mundane world of balancing checkbooks, paying off loans and sweating out investments. Just seven other states have such a requirement.

These courses have long been offered as high school electives in West Virginia, but now they�ll be covered in the core curriculum, mandatory for graduation starting with the class of 2008.

That�s not a semester too soon, if you ask Treasurer John Perdue, a longtime proponent of such legislation. "Too many kids are graduating from high school who don�t know how to balance a checkbook," Perdue said. "And sometimes the credit card companies are getting to them while they�re still in high school."

Meanwhile
check out the volume of transactions in three California counties: San Mateo -18.7%, Santa Clara -11.7%, Santa Cruz -23.8%. Will volume lead price down? I think so.

According to foreclosures.com Speculators are cashing out of Las Vegas Housing Market. "Investors represented over 25% of home sales in 2004," said Foreclosures.com president Alexis McGee. "Foreclosures averaged just 607 per month for the first quarter of 2005. Now speculators have cut down on buying and are cashing out." Falling prices and rising foreclosures will follow in this writer"s opinion.

Foreclosures.com is also reporting that although California Foreclosure Activity Remains Low, Pressure is Mounting.

This quote sums up my feelings on the precarious situation in California precisely. Alexis McGee, president of foreclosures.com said "We can"t say when defaults will increase. We just see it coming."

Mike Shedlock /Mish
http://globaleconomicanalysis.blogspot.com/

Snap! Crackle! Pop!

2009-12-17T19:32:00.000-08:00

When Kellogg"s Rice Krispies are toasted the cooked and dried rice "berries" expand their size (puff) to many times their normal size.

Since the weight of the rice berry and its material mass remains nearly the same, the rice material is stretched to form very thin walls of the Rice Krispies structure.

This is much like a very thin glass crystal. When subjected to a change in heat, a severe "stress" is set up and the thin wall fractures - creating a Snap, Crackle and Pop!

This happens in the cereal bowl when cold milk (i.e. heat stress) is poured in the Rice Krispies and presto SNAP! CRACKLE! POP! The sounds are made by the uneven absorption of milk by the cereal bubbles.

It seems the market as of late is much like a bowl of Rice Krispies.

When subjected to a change in sentiment, severe "stress" situation are set up. Distinct SNAP! CRACKLE! POP! sounds are made by the uneven absorption of decreasing liquidity in various market bubbles. Let"s take a look at a few examples.

Snap!

A loud Snap! was heard when the $NDX broke both the trendline and the 200 day moving average.

The Homebuilder index snapped its trendline on a weekly basis and as you can easily see has plenty of room to fall.

Investors (using the word loosely) have been pouring into various emerging market ETFs without paying any attention to how technically stretched those charts were. TRF, the Templeton Russia ETF is one such example. In spite of a 20% snapback in a mere three days, the fund is still 21% above NAV. There are many such examples of technical damage done to charts over the last couple weeks or so, some just since last Wednesday. Is this another chance to buy or is it the start of something more significant? That of course is million dollar question.

Crackle!

The crackling sounds you are hearing can be depicted by rising foreclosures as well as the National Association of Homebuilders Housing Index. It dropped below 50% for the first time since 911. Two of the last three times it plunged like this a recession followed. There was a plunge but no recession in 1995.

MarketWatch is reporting Builders" confidence falls to 11-year low.

Contractors have negative outlook on market for first time since late 2001

The NAHB/Wells Fargo housing market index, a builders" sentiment gauge, fell six points in May from a revised 51 to 45, the lowest level since June 1995, the industry group said. The index shows more builders say the market is "poor" than say it"s "good."

Despite the sharp decline, builders are still more optimistic about sales over the next six months than they are of current sales.

In May, builders" assessment of current single-family home sales fell to 50 from 55. The assessment of future sales dropped to 54 from 59. The assessment of traffic of prospective buyers dropped to 32 from 39. All three subindexes were at their lowest levels since mid-1995.

Expectations for sales in the next six months decreased during in May by five points to 54, the NAHB said. The traffic of prospective buyers fell the most sharply, dropping seven points to 32.

Traffic down, future expectations up. Sounds like denial to me.

The Atlanta Journal is reporting Home foreclosures soar, with Georgia leading the way.

Georgia leads the country in the rate of foreclosure, RealtyTrac said. The number of Georgia homes in some stage of foreclosure has more than doubled since the end of 2005. Currently, there is one foreclosure for every 127 households � almost 25,000 homes statewide � RealtyTrac reported.

Rick Sharga, vice president of marketing for RealtyTrac, said recent mergers and layoffs in some of metro Atlanta"s largest employers help explain the sharp rise in foreclosures. Unemployment and foreclosure rates are closely linked, Sharga said.

"That could be a factor in a place like Georgia where you"ve had a lot of churn," Sharga said.

The Consumer Credit Counseling Service of metro Atlanta, which works with foreclosed homeowners like Steedley, reported a 20 percent increase in first-quarter 2006 referrals for housing finance problems compared with the first quarter of 2005.

CCCS President Suzanne Boas said Georgia"s short foreclosure process, which bypasses the court system, contributes to the state"s high rate because it attracts aggressive lenders willing to make loans to marginal candidates. Once a property enters foreclosure, it can be sold at public auction within 37 days.

"Our state is very attractive to lenders, and part of that is our non-judicial foreclosure process," Boas said. "There have been a number of incredibly aggressive products [loans] marketed to consumers over the past five to eight years. Now we"re starting to see the fallout of that aggressive marketing."

The Coloradoan is reporting a sharp increase in foreclosures.

Colorado saw the second highest foreclosure ratios in the first three months of the year, a time in which nationally, foreclosures increased 38 percent over the previous quarter.

"The sharp increase in foreclosures in the first quarter continues a steady upward trend that we"ve seen since the beginning of the year last year," said James Saccacio, CEO of RealtyTrac.

Over-zealous homebuilding is adding supply at a rate too quick for the current market to absorb. More than one-fifth of the Larimer County households that entered foreclosure in March was a brand new home.

The supply of homes for sale on the market is another factor. Fifty percent of the homes on the market in the region are vacant, including about 20 percent which are brand new homes.

More than 13,000 Colorado households entered foreclosure proceedings during the first quarter this year, at the second-worst rate in the nation after Georgia.

WTVM is reporting forclosures in Columbus are rising

Experts say foreclosures in Columbus are up 25 percent from last year. The culprit -- rising mortgage rates. Something a lot of homeowners didn"t budget for.

"I don"t think people really read the fine print about what was going to happen to their payment when the interest rates went up,"says Daniels.

The Crackle! sound you hear is that of people buckling under the weight of a mortgage they never really could afford in the first place.

Greedy lenders made it easy for people to buy houses but difficult for people to hang on to them. This sound is only going to get louder as it spreads to states where housing prices still have not yet taken a significant tumble.

Pop!

The Pop!Pop!Pop! sound you hear is from bubble areas like Florida where speculators want out so bad they are willing to walk away from $80,000 deposits.

The National Post (Canada) is asking Housing boom a bust?

South Florida was once so hot speculators flocked to buy and flip properties. Now the market has cooled so much they"re walking away from US$80,000 deposits

"This is the first cycle that you could actually instantaneously crystallize the rise in the notional price of a home and use it for current consumption," says David Rosenberg, chief North American economist for Merrill Lynch & Co.

"The mortgage market today is bigger than the government bond market; housing is valued at double the level of household equities on the household balance sheet," he says. "Never before has housing come to permeate the economic and social fabric to the extent that it does today. So that"s why, if you ask me, what the No. 1 risk is to the U.S. economy: It is going to be what the house-price landscape is, what happens to house prices."

In Miami-Dade County alone, there are 25,000 condos under construction and another 25,000 that have already got their financing and are likely to go forward, says Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield, Fla. In addition, 50,000 more have been announced.

In the whole period from 1995 to 2004, only 9,079 units were built in Miami Dade.

The Merrill Lynch study found non-traditional mortgage products accounted for 60% of loans last year in California, the hottest market in the United States.

"That"s really bizarre," says Mr. Shaffer at Prestige Mortgage. "When you think about it, you should be fixing at historically low rates."

Many flippers are now walking away from their deposits or trying to wiggle out of their contracts, using shoddy workmanship as a loophole. Mr. Morgan says he now has 43 investors who are walking away from deposits of US$35,000 to US$80,000.

"Never before has housing come to permeate the economic and social fabric to the extent that it does today. So that"s why, if you ask me, what the No. 1 risk is to the U.S. economy: It is going to be what the house-price landscape is, what happens to house prices."

In Miami-Dade McCabe is reporting a potential 100,000 more condos coming online with 25,000 of them already started. No matter how you look at it, that is a bubble and it is popping now. The size of the mortgage bubble is both enormous and obvious. Well at least it should be obvious by the sounds being made.

Denial or Deaf?

Please consider Bottom"s up? Maybe.

Some estimates predict a fifth of the nation�s 77 million baby boomers will buy homes in Florida in the next decade.

�Southwest Florida is still a very solid market,� said Timmerman, based in Naples. �We�ve got a lot of people with money who still like it here.�

That�s not much consolation to impatient sellers like Kasey Reavis, who now finds herself competing with thousands of other sellers in a flooded market that�s seen sales slow to a crawl.

A single mom who works for a property management company, Reavis hopes to use the money she makes off her Golden Gate house to move to a more affordable area in Georgia. She�s got her eye on a town with a good school district.

�I�m lucky if I have $30 left at the end of the week,� Reavis said.

But leaving requires a buyer.

Her three-bedroom, two-bath house with a new roof and new tile on a corner lot is listed for $299,900 � a price that was hard to find in last year�s market that saw agents fielding multiple offers for properties as soon as they hit the market. Reavis paid $150,000 in 2003.

After almost a month on the market, Reavis� agent hadn�t shown it to a single potential buyer.

It�s a lament from agents all over town these days: Where are the buyers? It�s a buyers� market, but many buyers still don�t know it.

�A lot of people have some very inflated numbers,� said Rob Dowling, a Naples agent with the John R. Wood real estate firm. �They�re saying �Gosh, if I can get all that money, I will move.��

"It"s a buyer"s market but buyer"s don"t know it yet." Yeah right. It makes as much sense to say it"s a sellers market but sellers don"t know how to price their units to sell. Rising inventories and falling sales both show that the housing bubble has a lot more popping to do.

Mish addendum: This was written two days ago and first used today by WhiskeyAndGunpowder. The index charts above will reflect that, and now look worse, a louder "Snap!" if you would.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Million Baby Crawl

2009-12-17T16:58:00.000-08:00

I was asked to post this and - because I"ve got kids myself - will do so as a public service announcement.

For more information, click here.

Print this post

ECB"s $500 Billion Loan Won"t Help Solvency Problems

2009-12-17T15:01:00.000-08:00

The cost to borrow in euros through the end of the year plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock.

The amount banks charge each other for two-week loans in euros dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had soared 83 basis points in the past two weeks as banks anticipated a squeeze on credit through year-end.

"These are strong-arm tactics intended to show the market they"re seriously committed to breaking the deadlock," said Marc Ostwald, a fixed-income strategist at Insinger De Beaufort SA in London. "The ECB is helping to bankroll banks out of a problem that they themselves created."

The Bank of England held the first of two special operations today, offering 10 billion pounds ($20 billion) of three-month cash. The cost of borrowing pounds for three months dropped 4 basis points to 6.39 percent, the fourth straight decline. That"s still 89 basis points higher than the central bank"s benchmark interest rate.

Minyan Peter had this to say:

"$500 billion is an enormous amount of money. To put it into perspective, $500 bln is 5% of total US banking system assets. My eyes are on LIBOR. If $500 bln doesn"t move the rate...

Furthermore, everyone should remember that the $500 bln is funding just through year end. Come January this will need to be refinanced or rolled over."

Big Yawn In US

So while there was a whopping reaction in Europe, there was a big yawn in the US and UK. Curve watchers anonymous offers this chart to consider.

US LIBOR as of December 18

click on chart for sharper image

A casual look shows LIBOR to be 40 basis points lower than it was a year ago. But that is not what everyone should be watching. The important factor is where LIBOR is in relation to the Fed Funds Rate. In this case it is a whopping 70 basis points higher than it was a year ago. A normal spread would be closer to 10 basis points.

LIBOR was sitting at 5.25 right before the last rate cut by the Fed so it merely dropped with the cut plus another 5 basis points. It has not budged today.

Yield Curve as of December 18

click on chart for a sharper image

US Banks Continue To Hoard Cash

Impact of the ECB"s move on the US yield curve was negligible. The short end of the curve actually rose a couple of basis points. Banks in the US are continuing to hoard cash. Who can blame them? The Bloomberg article above offers a possible explanation:

"U.S. corporate defaults probably will quadruple next year after the number of companies that lost their investment-grade credit ratings rose at the fastest pace since 2003, according to Moody"s Investors Service."

Note that 10-year rates are sitting at 4.10.
Say what you want but that is anything but an "inflation concern".

Headed For The Front Page

Corporate defaults are not front page news yet.
Commercial real estate woes are not front page news yet.
Credit card issues are not front page news yet.
Rapidly rising unemployment is not front page news yet.

The key word in all for point above is "yet". News about housing, subprime lending, SIVs, and other related stories are what dominate the headlines now. However, second, third, and fourth waves of the economic tsunami are coming. Right now, most of those stories have not hit the front page yet, certainly not day after day. They will.

If this $500 billion "emergency funding" was just a year-end phenomenon, that would be one thing. But this is not a liquidity issue this a solvency issue and a growing solvency issue as well. See Missing the Boat on Monetary Easing for more on this topic.

You can"t cure drug addicts by giving them more drugs nor can you cure insolvent credit junkies by dramatically increasing the size of the loans. I suspect the "emergency" is going to last a lot longer than the ECB thinks.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Save the fetus, forget the child!!!!

2009-12-17T12:05:00.000-08:00

Palin On Stimulus Funds: Thanks, But No Thanks...(Actually Thanks)

Alaska Gov. Sarah Palin faced�bipartisan criticism�and an�angry protest�back home after deciding to reject federal stimulus funds. That might be why her Lieutenant Governor is now saying she�didn"t decide anything.

Lt. Gov. Sean Parnell showed up to deliver Palin"s message - that she"s not necessarily "rejecting" the money, but wants a public debate on how it"s spent and whether it would cost the state in the long run.
Among the questions: Is the governor"s team trying to have it both ways - saying "no" to the money while leaving the door open to spending it?

Gordon Brown, Alistair Darling, Mervyn King Urge Banks To Lend

2009-12-17T09:35:00.000-08:00

Complete silliness reigns in the UK as Prime Minister Brown, Chancellor Darling, and BOE Governor Mervyn King Urge Banks To lend.

U.K. house prices dropped to the lowest level in almost three years in November as banks starved the property market of credit, Hometrack Ltd. said.

The average cost of a home in England and Wales fell 8.1 percent in the past 12 months to 161,400 pounds ($248,000), the lowest since January 2006, the London-based property researcher said in a statement today. Values declined 1.1 percent on the month, compared with a 1.3 percent drop in October.

Prime Minister Gordon Brown urged banks to free up credit last week as political pressure mounts for him to implement measures to force them to lend. The Bank of England will cut the benchmark interest rate this week to 2 percent, the lowest since 1951, as policy makers combat the recession and the housing market slump, economists say.

Chancellor of the Exchequer Alistair Darling pledged last week to do �whatever is necessary� to get banks lending again. Bank of England Governor Mervyn King refused to rule out nationalizing financial institutions to revive credit.

With home prices plunging and unemployment rising the last thing banks should do is go on a lending spree. Forcing banks to lend will force them to incur more losses. It is as simple as that. The Chancellor, Prime Minister, and Governor have all lost their minds.

Elsewhere, the Bank of Japan is on the verge of fiscal insanity as well.

Public Broadcaster NKH says Bank of Japan to Hold Emergency Policy Meeting to encourage banks to lend.

The Bank of Japan, the country"s central bank, will hold an emergency policy meeting this week, NHK reported, without saying where it obtained the information.

The bank will discuss creating a system to lend money to commercial banks and to encourage them to provide financing to businesses, public broadcaster NHK said.

Banks are in trouble because of excessive lending yet everyone seems to think the cure for excessive risk taking and poor lending practices is excessive risk taking and pool lending practices.

UK "closer" to adopting the euro

The BBC is reporting UK "closer" to adopting the euro

The UK is "closer than ever before" to joining the euro, according to the president of the European Commission, Jose Manuel Barroso.

Speaking on a French radio show, he said British politicians were considering the move because of the effects of the global credit crunch.

"I"m not going to break the confidentiality of certain conversations, but some British politicians have already told me, "If we had the euro, we would have been better off". "

"I know that the majority in Britain are still opposed, but there is a period of consideration under way and the people who matter in Britain are currently thinking about it", he said.

The value of sterling compared with other currencies has fallen during the credit crunch, and the UK government has had to spend massively in recent months to try to support the economy.

China�s November Manufacturing Contracts by Record

Bloomberg is reporting China�s November Manufacturing Contracts by Record.

China�s manufacturing contracted by the most on record and export orders slumped as a slowdown in the world�s fourth-biggest economy deepened.

The Purchasing Managers� Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e- mailed statement. Export orders, output and new orders all contracted by the most since the survey began in 2005.

China�s export orders declined to 29 in November from 41.4 in October, the survey showed. A reading above 50 reflects an expansion, below 50 a contraction. The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7.

Weaker demand for Chinese goods and a slump in construction are undermining growth. China last month announced a $586 billion stimulus package and the biggest interest-rate cut in 11 years to revive the economy and counter the risk of spiraling unemployment and social unrest.

With stimulus running rampant, and monetary mistakes everywhere one looks, those looking for a complete collapse in the US dollar are unlikely to see it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Kraft Posts Better-Than-Expected Results

2009-12-17T07:21:00.000-08:00

Topics:Consumers | Stock Market | Earnings

Sectors:Food and Beverage

Companies:Kellogg Co | Kraft Foods Inc.

Reuters | 29 Oct 2008 | 09:47 AM ET

Kraft Foods and Kellogg posted better-than-expected third-quarter profits on Wednesday as price increases and new products helped lift sales in a weak economy.

Kraft also stood by its forecasts for 2008 earnings before one-time items as well as for 2009 net income, while Kellogg said its profit this year should hit the high end of its previous targeted range.

Both Kraft, the largest North American food maker, and Kellogg, the world"s largest cereal company, have taken steps to cut costs and put more money into advertising. Both have also bolstered new product development to attract consumers even as rising commodity costs pushed them to raise prices.

Commodities like wheat and energy have become less expensive in recent months, but food companies may not see a big benefit until next year, in part because they lock in their costs months ahead.

Kraft, which makes Oreo cookies, Tang breakfast drink and Oscar Mayer hot dogs, reported a profit of 45 cents a share before one-time items, a penny above what analysts polled by Reuters Estimates had expected.

The company hiked prices on products, leading to a 0.9 percent drop in volume.

However, that key result was still better than the company had expected.

Analysts are watching to see how much consumers cut back on buying branded products in the face of rising food prices and a slumping economy.

Kraft sales rose 19.4 percent to $10.46 billion. Organic sales, which exclude the impact of currency, acquisitions and divestitures, rose 7.1 percent due to higher pricing.

Over the past several years, Kraft has closed factories, cut jobs and divested brands to focus on areas like cookies and crackers, pizza and healthier foods.

Shares of Kraft [KFT 29.35 0.47 (+1.63%) ] rose 1.8 percent to $29.39 in premarket trading from Tuesday"s closing price of $28.88 on the New York Stock Exchange, while Kellogg stock [K 51.38 0.70 (+1.38%) ] was not active.

(The newest addition to the Dow reports better than expected earnings. Watch the accompanying video for more...)

Kellogg, the maker of Rice Krispies and Eggo waffles, said net income rose to 89 cents a share from 76 cents a year earlier. The results were far better than the 80 cents analysts had forecast.

Sales rose 9 percent to $3.29 billion. Excluding the impact of currency and acquisitions, the increase was 7 percent.

Kellogg said it expected full-year profit to come in at the high end of its prior forecast of $2.95 to $3 a share, compared with analysts" expectations of $3.

For 2009, the company said it was confident earnings per share would increase at a high single-digit percentage rate, excluding the impact of currency fluctuations.

Warren Buffett is the single biggest shareholder in Kraft.

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Case Shiller March 2009 Analysis

2009-12-17T06:19:00.000-08:00

Inquiring minds are considering the Case Shiller Home Price Release for March 2009.

New York, March 31, 2009 � Data through January 2009, released today by Standard & Poor�s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 13 of the 20 metro areas showing record rates of annual decline, and 14 reporting declines in excess of 10% versus January 2008.

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Home Price Indices. Following the lead of the 14 metro areas described above, the 10-City and 20-City Composites also set new records, with annual declines of 19.4% and 19.0%, respectively.

The chart above shows the index levels for the 10-City Composite and 20-City Composite Home Price Indices. As of January 2009, average home prices across the United States are at similar levels to what they were in late 2003. From the peak in the second quarter of 2006, the 10-City Composite is down 30.2% and the 20-City Composite is down 29.1%.

Please see the original article for more commentary and tables on the data.

Case-Shiller Declines Since Peak

The following charts were produced by my friend "TC" who has been monitoring Case-Shiller Data. Although individual cities topped at varying times, the top-10 and top-20 city composites peaked in a June-July 2006 timeframe.

Case-Shiller Declines Since Peak Current Data

click on chart for sharper image

Case-Shiller Declines Since Peak Futures Data

click on chart for sharper image

"TC" writes:

The Jan 2009 Case-Shiller data continues to accelerate to the downside at a record pace. The 10 and 20 city index show declines from their peak at 30% and the bubble cities (along with Detroit) all have declines of 40% or more with Phoenix having the largest percentage drop of nearly 50%. Additionally, all 20 cities tracked by Case-Shiller have now experienced price declines in excess of 10%. I want to once again remind your readers that the Case-Shiller data uses a Repeated Sales Methodology (RSM) which provides the most accurate housing data available. Additionally, there are two newer columns titled "Price Level" which show both the last time prices were at the current level and what price level prices are projected to decline to based upon the CME Futures market.

When one looks more closing at the current "Price Level" data you can see that cities such as San Francisco have likely already experienced the bulk of their price decline as prices have already returned to those of 8 1/2 years ago (Oct 2000). However, cities in the Pacific Northwest (Seattle & Portland) have only seen prices return to mid-2005 levels and likely have significant price declines in their future.

Lastly, I"ve added another chart titled "Negative Quarters" which shows many quarters each city has seen price declines (for example Phoenix and New York Metro have seen price declines for 11 of the last 11 quarters).

Thanks "TC"

Unemployment is soaring in 2009 and so will foreclosures, credit card writeoffs, and bankruptcies. That will add to the inventory problems.

As much as housing prices have declined, take another look at the second chart in the news release above. Imagine where prices will be if they fall back to 2001 levels or worse yet 2000 levels. Moreover, why shouldn"t prices fall back that far? Finally, how many are prepared for it, if indeed that were that to happen?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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They Want Mama To Make It All Better

2009-12-17T04:03:00.000-08:00

Inquiring minds are listening to Rep. Marcy Kaptur D-Ohio 9th District Toledo. It is one of the best rants you will ever hear in your life.

Please Play It. I promise you will not be disappointed.

Click Here To Play They Want Mama To Make It All Better

Here is a partial transcript:

Taxpayers did not get their fair share of the upside, but they are getting all of the downside and a huge IOU. While Wall Street is made whole, the folks on Main Street are getting the bill. What has mama given us here? Are Mr. Bernanke and Mr. Paulson giving them any bet on the upside? They"re not even helping them on the downside.

I feel sorry for our country, I feel sorry for this Congress, that we can"t do a better job of standing up for the people today. Where"s the Federal Reserve, Where"s the Treasury?

Why do they only help the rich people? What about the rest of the people who have to work for a living?

Wake Up America. Wake Up America. Contact your member of Congress.

Contact Your Member Of Congress

Thank you Marcy, we are doing just that.

Ongoing Campaigns

Please act on ALL of the following.

Every Fax Counts! Do your share!

Fate May Rest With Shelby

U.S. Government: The World"s Largest Homeowner

Another Mad Rush To Judgment

Senator Sanders" Petition Against Paulson

I gave an incorrect fax number for Sanders in Senator Sanders" Petition Against Paulson

If You Tried Before, Please Click The link And Try Again. Every Fax Counts!

You can use www.faxzero.com to send a fax from your computer for free.

I went with MetroFax. 1000 pages at a very cheap price. Sign up today and fax to your heart"s content.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Russia Overtakes Saudi Arabia As World"s Biggest Oil Producer

2009-12-17T02:04:00.000-08:00

Russia has now surpassed Saudi Arabia as the world"s biggest oil producer.

This is obviously important both economically and geopolitically. America"s close ally in the Middle East has now been surpassed by the former US enemy, one of the BRIC countries.

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McCain"s Mansions: The Houses That Greed Built

2009-12-17T00:28:00.000-08:00

"ELITIST", Who The Hell Is The Elitist?

Wake Up America

Most working families today do not have homes that have anywhere near 10 rooms. John McCain has 10 houses. Many working people in America have to work two and three jobs to provide for their families and pay their car loans. John McCain hops on a private jet. Is it any wonder why McCain champions a George Bush agenda of cutting taxes for corporations and the wealthy, helping oil companies turn record profits, and leaving working families to fend for themselves? McCain"s velvet world leaves him utterly unprepared to make the tough choices we need to restore the middle class and ensure that everyone in America has quality, affordable health insurance.
-Andy Stern, President, Service Employees International Union (SEIU)John McCain is soaring to new heights of hypocrisy on his wife"s personal jet. He flies around the country bent on duping the public into believing he"s "one of them," a regular guy who can empathize with Americans facing an overwhelming economic crush. What"s more, he disparages those who oppose his ridiculous policy proposals as "elitist." But who"s the real elitist?
The REAL McCain is a multimillionaire who owns ten luxurious homes. The REAL McCain backs President Bush"s tax cuts for big corporations. The REAL McCain empathizes only with the interests of our nation"s wealthy minority, not its money-strapped majority. But far too many are buying into McCain"s deceit because the corporate press won"t present the whole picture, so we created this video to educate the public about the REAL McCain.

McCain"s Mansions

LinkHere

Inside Edition shows McCain"s former swanky estate

"ELITIST", Who The Hell Is The Elitist?

Wake Up America

LinkHere

Biden Says �Who Cares� What Cheney Says

2009-12-16T22:05:00.000-08:00

Source: New York Times
PRAGUE � Vice President Joseph R. Biden Jr. had a blunt response Friday to the latest broadsides from former Vice President Dick Cheney: �Who cares?�

In the latest exchange between old and new administrations, Mr. Biden rebuffed his predecessor�s criticism about President Obama�s handling of Afghanistan as �absolutely wrong.� And Mr. Biden rejected the last review of the war conducted by the White House under former President George W. Bush and Mr. Cheney as �irrelevant.� LinkHere

Cheney undeterred by failure, shame

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Why Is Dick Cheney Helping Obama?

Why is Dick Cheney helping Barack Obama? I know they"re cousins -- eighth cousins, to be precise -- but for a guy who seems to detest the president and everything he stands for concerning national security, Cheney is inexplicably providing political aid and comfort to Obama.

On Wednesday night, Cheney received the not-so-coveted Keeper of the Flame award from the Center for Security Policy, a rather hawkish group run by Frank Gaffney, who was one of the loudest cheerleaders for the Iraq war. Accepting the honor, Cheney delivered a 25-minute speech and once again accused Obama of committing strategic blunders and undermining the credibility of the United States. Most notably, Cheney slammed the president for "dithering" on Afghanistan, saying that Obama "seems afraid to make a decision, and unable to provide his commander on the ground with the troops he needs to complete his mission."

Coming from Cheney, this was ridiculous. It is no news flash that the Bush-Cheney White House neglected the Afghanistan effort for years. In fact, as I wrote in 2006, the Bush administration didn"t even have a senior-level official solely responsible for policies and actions in Afghanistan. The mid-level White House aide handling Afghanistan at the time had another portfolio: the Iraq war.

In his speech, Cheney insisted that his White House had not dropped the ball: "In the fall of 2008, fully aware of the need to meet new challenges being posed by the Taliban, we dug into every aspect of Afghanistan policy, assembling a team that repeatedly went into the country, reviewing options and recommendations." Talk about dithering. That review occurred seven years after the war began. (U.S. involvement in World War II lasted only four years.)
LinkHere

Seymour Hersh: Military Is Waging War Against The White House

In addition to the wars in Iraq and Afghanistan, the United States military is also fighting a war against the Obama administration at the White House, Seymour Hersh said in a little-noted speech at Duke University on October 13. The military is "in a war against the White House -- and they feel they have Obama boxed in," he said.

Hersh, a Pulitzer-prize winning investigative journalist who exposed the My Lai massacre in Vietnam and the Abu Ghraib scandal in Iraq, sees an undercurrent of racism in the Pentagon"s dealings with the White House. "They think he"s weak and the wrong color. Yes, there"s racism in the Pentagon. We may not like to think that, but it"s true and we all know it."

As Neil Offen writes in the Durham Herald Sun:

"A lot of people in the Pentagon would like to see him get into trouble," he said. By leaking information that the commanding officer in Afghanistan, Gen. Stanley McChrystal, says the war would be lost without an additional 40,000 American troops, top brass have put Obama in a no-win situation, Hersh contended.

"If he gives them the extra troops they"re asking for, he loses politically," Hersh said. "And if he doesn"t give them the troops, he also loses politically."

Hersh considers the worsening situation in Afghanistan and Pakistan as the principal test of the Obama presidency, which will require the cooperation of the top military brass. Obama must face up to the military, Hersh said. "He"s either going to let the Pentagon run him or he has to run the Pentagon." If he doesn"t, according to Hersh, "this stuff is going to be the ruin of his presidency." LinkHere

Obama Still Does Not Know His Place

2009-12-16T21:16:00.000-08:00

That Obama is actually able to listen to facts, absorb them and analyze them should be a good thing. We assume that those skills came in handy throughout his life, not least at Harvard, where he graduated near top of his law school class. This, of course, now makes him an elitist, as he would not be expected by the old DC guard to possess any such competence (charisma perhaps, analytical ability no.) Both McCain (894th out of 899 at Annapolis) and George W. Bush revel in their under-achieving school days, as if this made these scions of hyper-privilege any closer to real people. This tactic clearly succeeded well enough for Bush to be elected president twice, and McCain to be nominated once. But there is a sense that American voters may not be taken in again and that they may actually enjoy as president someone who isn"t an inbred moron or a senile fratboy.

LinkHere

Obama Stood Out As Law Professor

The New York Times" Jodi Kantor has written a lengthy profile of Barack Obama"s time teaching at the University of Chicago:
The young law professor stood apart in too many ways to count. At a school where economic analysis was all the rage, he taught rights, race and gender. Other junior faculty dreamed of tenured positions; he turned them down. While most colleagues published by the pound, he never completed a single work of legal scholarship.
At a formal institution, Barack Obama was a loose presence, joking with students about their romantic prospects, using first names, referring to case law one moment and "The Godfather" the next. He was also an enigmatic one, often leaving fellow faculty members guessing about his precise views.
The Times has also compiled a large set of Obama"s old class materials here. Here"s a preview from a class reading packet:

"OUTRAGEOUS, SHAMEFUL, THE HEIGHT OF IRRESPONSIBILITY"

2009-12-16T18:35:00.000-08:00

Obama Slams Wall Street For Taking Billions In Bonuses

Show some restraint, and show some discipline, and show some sense of responsibility."

President Barack Obama responded Thursday to a front page story in the New York Times which reported that Wall Street handed out $18.4 billion in bonuses for the year, calling the payments "outrageous"
From the AP:
President Barack Obama issued a withering critique Thursday of Wall Street corporate behavior, calling it "the height of irresponsibility" for employees to be paid more than $18 billion in bonuses last year while their crumbling financial sector received a bailout from taxpayers. "It is shameful," Obama said from the Oval Office. "And part of what we"re going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility."
The president"s comments, made with new Treasury Secretary Timothy Geithner at his side, came in swift response to a report that employees of the New York financial world garnered an estimated $18.4 billion in bonuses last year. The figure, from the New York state comptroller, drew prominent news coverage.

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WALL STREET JOURNAL: For Buffett, It Was a Very Bad Year

2009-12-16T16:58:00.000-08:00

By SCOTT PATTERSON

March 2 2009

The man considered by many to be the greatest investor of all time just had his worst year ever.

But the results released Saturday for Warren Buffett"s company, Berkshire Hathaway Inc., also demonstrate how recently, and over time, the investor has positioned his far-flung empire to weather the financial storm.

Associated Press

Warren Buffett

Mr. Buffett, in his annual letter, read closely by shareholders and nonshareholders alike, reported Berkshire in 2008 lost 9.6% in book value per share, a common metric Berkshire uses to track performance. That marks the biggest decline since Mr. Buffett took over in 1965, when it was a family-run East Coast textile maker.

Mr. Buffett conceded he "did some dumb things." Among them: scooping up shares of oil giant ConocoPhillips when oil prices were near a high and investing $244 million in a pair of Irish banks that hit trouble, resulting in an 89% loss.

Berkshire shares fell nearly as much as the rest of the market last year, indicating that investors are worried about the company"s ability to keep growing. In 2008, Berkshire"s Class A stock fell 32%. This year, the shares are down nearly 19%, slightly better than the Dow Jones Industrial Average.

Yet many analysts were pleased that the decline in book value per share wasn"t steeper. And Mr. Buffett"s results also show he has made moves that have paid off and should continue to do so even if economic woes persist, as he predicts.

He limited his exposure to complex and potentially costly derivatives in his reinsurance unit, General Re Corp. He has $24.3 billion in cash that can be used to find bargains in a distressed market. And he"s made several investments in preferred stock of firms such as Goldman Sachs Group Inc. that pay out steady income of 10% or more.

"He"s done a great job to prepare for this," said Paul Howard, an analyst at Langen McAlenney, a Hartford, Conn., research group, who rates Berkshire a "buy." "He"s got good businesses that are generating a lot of cash, and he"s going to continue to put that money to work."

Berkshire"s substantial insurance holdings haven"t needed to take the massive write-downs on toxic subprime securities that have plagued much of the financial industry in the past two years. One reason is Mr. Buffett"s longstanding dislike of complex derivatives, which he famously called "financial weapons of mass destruction" in his 2002 shareholder letter and which he railed on again in his latest letter. He pushed General Re, the large reinsurance company Berkshire acquired in 1998, to disentangle itself from a vast web of derivatives -- financial instruments tied to the value of other securities, such as stocks or bonds -- over the course of five years, winding down its book of 23,218 derivatives contracts at a loss of about $400 million, he said in the letter. The losses may have been far more substantial if General Re had held onto to the contracts, Mr. Howard said.

"Upon leaving, our feelings about the business mirrored a line in a country song: "I liked you better before I got to know you so well,"" Mr. Buffett wrote, referring to General Re"s derivatives book.

Separately, Berkshire took a loss of $5.1 billion in the fourth quarter on several derivatives contracts entered into in recent years. The contracts, essentially insurance policies against long-term declines in U.S. and foreign stocks, expire in 15 or 20 years. Berkshire will have to pay out if the indexes are below where they stood when the deals were struck. The derivatives, whose current estimated value has to be reflected on Berkshire"s books, are one reason the company reported a grim fourth quarter on Saturday -- its fifth year-over-year quarterly decline.

The $117 million quarterly gain it eked out in the quarter marked a 96% drop from last year"s $2.95 billion in fourth-quarter net income.

Beyond commenting on Berkshire, Mr. Buffett shared his views on the broader economy and financial systems. He doesn"t expect the economy to improve soon but did expect better times, eventually.

"Our country has faced far worse travails in the past," he said. "Without fail, however, we"ve overcome them." He declined to draw a correlation between stocks and economics, saying that while he was certain the economy would be "in shambles for 2009," that "does not tell us whether the stock market will rise or fall." He credited the government for stepping in with massive assistance last year, saying the intervention was "essential" to avoiding a total breakdown. But he cautioned there could be "unwelcome aftereffects," such as inflation.

He contended the "investment world has gone from underpricing risk to overpricing it," which he said is reflected by investor appetite for Treasury bonds. Future historians will comment on the Internet bubble of the 1990s and the housing bubble of the early 2000s, he said, but "the U.S. Treasury-bond bubble of late 2008 may be regarded as almost equally extraordinary."

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Top Secret Musings And Other Economic Insanity

2009-12-16T15:56:00.000-08:00

Interesting stories are stacking up again so it"s time for some economic potpourri starting with secret dealings by the Fed.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast �a stigma� on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg sued Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It sued Nov. 7.

In response to Bloomberg�s request, the Fed said the U.S. is facing �an unprecedented crisis� in which �loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.�

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

In plain English: Bernanke Lied.

Japan clears cash hand-out bill

Japan"s parliament has passed legislation to give a cash hand-out to every resident in attempt to boost the recession-hit economy. Most people will get at least 12,000 yen ($121; �86) under the $20bn plan.

China Considering New Stimulus Measures

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a 4 trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world�s third-biggest economy.

Wen will announce �a new stimulus package� in his annual address to the nation�s legislature tomorrow, former statistics bureau head Li Deshui told reporters in Beijing today. He didn�t say whether spending would increase or give further details.

�The existing stimulus package may not be adequate considering the total collapse of global trade,� said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. �There should be more spending, especially on the social side to cushion unemployment. This is quite urgent.�

Doting On Animals In Hard Times

When markets drip tears and For Rent signs appear over products in shops that were once For Sale, people still spend almost as much resources, time and energy as ever on a completely wasteful economic category: pets.

I once did some consulting for the chairman"s office of A&P and assumed that surely, in tough times, poor people would choose the generic cat food rather than Hill"s Science Diet Culinary Creations cat food. But I was wrong. Consumers would rather buy plain-label generic creamed corn or tomato soup for themselves than subject their four-footed treasures to what they fear will be second-rate grub.

Ellen DeGeneres promotes her Halo line, with "holistic foods for pets" total well-being. Highest quality meats, grain and fresh vegetables." She could be joined by the producers of Haute Canine, the Natural Gourmet Dog Snack and Dandy Doggy Bowser Brittle (with rain-forest nuts).

Of course there are countless miserable stories of pets abandoned in foreclosed homes, left off from cars in parks and simply ignored once a summer vacation is over. The story is not wholly pretty and contains abundant cruelty, exploitation and heartlessness.

Nevertheless, for a sense of proportion about broad economic forces, go to a supermarket and watch the purchasers of pet food. Observe elemental mammalian life at work, for it has been around for an endlessly long time and will be present in the future.

Brown Will Urge World to �Seize Moment,� Unite on Stimulus Plan

U.K. Prime Minister Gordon Brown will use a speech to both houses of the U.S. Congress today to urge countries to �seize the moment� following President Barack Obama�s election and agree on new global financial regulations.

�Now, more than ever, the rest of the world wants to work with you,� Brown, the fifth British prime minister to address Congress, will say, according to extracts of his speech released in advance. �Never before have I seen a world so willing to come together. Never before has that been more needed. And never before have the benefits of cooperation been so far-reaching.�

Never before has there been so much meaningless political sap.

Australian Economy Grinds To A Halt

THE global recession has caught up with Australia"s economy, forcing the first fall in output in eight years and making the Rudd Government revise lower the budget forecasts it made only four weeks ago.

Wayne Swan said the downturn made it unlikely the economy would achieve the optimistic 1 per cent growth this year forecast by Treasury just four weeks ago.

The Treasurer said it was likely that revenue would also fall short of the latest forecast, which was itself a $115 billion downward revision from budget. This will push the deficit out from Treasury"s estimate of $22.5 billion.

However, Mr Swan defended the Government"s actions in launching its first economic stimulus package last October, in the face of criticism from the Opposition that it was spending too much, too soon.

"There is absolutely no doubt that things in this country would have been far worse had the Government not acted when we did with the economic security strategy announced last October," he said.

"If we pull together, if we keep doing whatever is necessary, we can come out of this stronger than ever," he said.

Swan needs to get together with Brown, Obama, and Bernanke to sing Kumbaya.

Hawaii: Teachers union unit files for bankruptcy

The union that represents Hawaii"s public schoolteachers says the activities and finances of a subsidiary corporation had been ``grossly mismanaged.""

Member Benefits Corp., which filed for bankruptcy Monday, has been shut down. It had managed the Hawaii State Teachers Association"s Voluntary Employees Benefits Association.

The HSTA decided to dissolve the corporation last year after determining the for-profit subsidiary didn"t fit within the union"s mission.

The union has told it members the mismanagement was discovered by an outside team of attorneys and accountants that was brought in as part of the process of closing the corporation.

Bernanke grilled on latest $30B bailout of AIG

Irritated lawmakers grilled Federal Reserve Chairman Ben Bernanke Tuesday over the latest bailout of American International Group, even as the Fed chief warned that an economic recovery hinges on the government"s success in stabilizing shaky financial markets and their major players.

"I share your concern, I share your anger," Bernanke told the Senate Budget Committee. "It"s a terrible situation, but we"re not doing this to bail out AIG or their shareholders. We"re doing this to protect our financial system and to avoid a much more severe crisis in our global economy."

Bernanke defended the government"s repeated rescue attempts on AIG, saying "the failure of major financial firms in a financial crisis can be disastrous for the economy."

Sen. Ron Wyden, D-Ore., and others said the identities of banks and other so-called counterparties that do business with AIG and other bailed-out institutions should be made public. Those companies also should have to make some concessions, he added.

"They ought to ... have some kind of consequence," Wyden said. "The American people are in the dark on this issue, and I think it"s time for some sunlight. I think that the public really wants to know why are these people so important."

Sunlight is illegal. Bernanke wants us in the dark. It"s Top Secret.

Pressure to reveal major AIG counterparties grows

Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn"t have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.

By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company"s third-quarter regulatory filing.

"AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won"t the Fed disclose who those are?" Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.

Bernanke said the counterparties made "legal, legitimate, financial transactions" with AIG and presumed at the time that the contracts would remain private. "That is a consideration we have to take into account," he added.

Sen. Mark Warner, D-Va., suggested that AIG"s counterparties should have to take a "haircut," rather than be made whole, because some of them probably didn"t do enough due diligence on whether the insurer was financially strong enough to be selling such protection.

"In effect, what we"re saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn"t do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior," he said.

"I"m as unhappy as you are about that, senator," Bernanke replied. "I just don"t know what to do about it."

There are many problems with the handling of AIG but it all starts with the initial decision to do something as opposed to nothing. Government has no business bailing out anyone and the decision is made all the more galling by making everything a secret.

Note that the Fed is picking winners and losers. There are other creditors of AIG who might have a better claim on its assets than who the Fed is picking. Remember that the Fed promised transparency. Instead, we have gotten noting but lies and secrecy from Bernanke, Paulson, and Geithner every step of the way.

Words cannot begin to express my disgust of the lies and secret shenanigans of the Fed and Treasury.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Wa-Mu Accounting Playbook

2009-12-16T12:57:00.000-08:00

Check out the first quarter 2007 Washington Mutual Financial Statement. Some of the accounting appears to be from the March 2000 dotcom playbook as we shall soon see.

Washington Mutual, Inc. reported first quarter 2007 net income of $784 million, or $0.86 per diluted share, compared with net income of $985 million, or $0.98 per diluted share, in the first quarter of 2006, a period that included an $85 million after tax partial settlement related to Home Savings goodwill litigation.

Financial Summary

Nonperforming Assets Soar

Nonperforming assets went from .59% in the quarter ending March 2006 to .80% in December 2006 to 1.02% in March 2007. Meanwhile the provision for loan losses decreased from $344 million in December 2006 to $234 million in March 2007.

The above chart looks smoother than it really is because 2001-2005 is in years while 2006 on is in quarters. Let"s see if we can fix that.

Asset Growth Shrinks

Card Services Credit Losses Rise

Net credit losses on card services jumped from 5.84% in the 4th Quarter of 2006 to 6.31% in the 1st quarter of of 2007 while the provision for loan losses dropped by $100 million.

Negative Amortization Earnings Soar

Wa-Mu Statement Summary

Nonperforming assets as a percentage of total assets was 1.02 percent at the end of the first quarter up from 80 basis points at year end
Net charge-offs for the quarter of $183 million were up $47 million from the fourth quarter
Non-card provision for loan losses was $128 million up from $69 million in the prior quarter
The further softening of the housing market and rising NPAs in the first quarter caused Wa-Mu to conclude that guidance for credit provisioning should be increased
Net credit losses on card services jumped to 6.31% in the 1st quarter of 2007 from 5.84% in the 4th Quarter of 2006
Capitalized interest recognized in earnings that resulted from negative amortization within the Option ARM portfolio totaled $361 million, $333 million and $194 million for the three months ended March 31, 2007, December 31, 2006 and March 31, 2006.

So...... Wa-Mu "expects both NPAs and charge-offs to increase" and right in the face of rising credit card losses boosted earnings by lowering loan loss provisions by $110 million. In addition, a rise in negative amortizations added $361 million in questionable profit to their earnings. The former amounts to approximately 12 cents per share and the latter approximately 40 cents per share. In other words, 52 cents out of the reported 86 cents is quite suspect.

Managed Earnings

Q: Why might Wa-Mu have wanted to pull this stunt?
A: They needed every bit of it to beat analysts" expectations by 2 cents.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Jobs Contract 11th Straight Month; Unemployment Rate Hits 6.7%

2009-12-16T10:56:00.000-08:00

Before taking a look at the monthly jobs data, let"s take a look at Initial Unemployment Insurance Claims from The US Department of Labor.

Seasonally Adjusted

In the week ending Nov. 29, the advance figure for seasonally adjusted initial claims was 509,000, a decrease of 21,000 from the previous week"s revised figure of 530,000. The 4-week moving average was 524,500, an increase of 6,250 from the previous week"s revised average of 518,250.

Unadjusted

The advance number of actual initial claims under state programs, unadjusted, totaled 529,941 in the week ending Nov. 29, a decrease of 78,974 from the previous week. There were 462,902 initial claims in the comparable week in 2007.

Jobs Decline 11th Consecutive Month

This morning, the Bureau of Labor Statistics (BLS) released the November Employment Report. Jobs were negative for a 11th straight month. My target of 6% or higher stated unemployment by the end of the year, made in December 2007 when the unemployment rate was 4.8% was reached three months ago. At the time I made that call it seemed radical. I was way optimistic. In December I also predicted a jobs disaster every month this year. That prediction is now 11 for 11.

Here is a synopsis of the BLS report.

Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.

November"s drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November.

Nonfarm Payroll employment has shrunk to mid-2006 levels.

Establishment Data

click on chart for sharper image

Highlights

533,00 jobs were lost in total
82,000 construction jobs were lost
85,000 manufacturing jobs were lost
370,000 service providing jobs were lost
91,000 retail trade jobs were lost
136,000 professional and business services jobs were lost
52,000 education and health services jobs were added
76,000 leisure and hospitality jobs were lost
7,000 government jobs were added

A total of 163000 goods producing jobs were lost (higher paying jobs), and for the fifth time this year service sector jobs were lost. Government, the last place one wants to see jobs, added 7,000 jobs or the service sector would have contracted more. The rate of change in government jobs is declining sharply, a welcome event, and it will be interesting to watch this category headed forward under Obama.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Birth/Death Model In Outer Space

Once again was an extremely weak jobs report. And once again the Birth/Death Model assumptions are absurd. The birth/death adjustments have been in deep outer space every month this year except for January and July.

click on chart for sharper image

For a change this month the Birth Death numbers are approaching our solar system from a hiatus in deep outer space. The BLS has construction jobs contracting for the first time since January and leisure and hospitality jobs declining for the third consecutive month.

A quick check on the Mortgage Lender Implode-O-Meter shows that 306 Major US lending operations have imploded. This number appears to be topping. However, even if fewer lenders are going under, there is still decreasing activity in the sector and many small 1-5 person shops that have to be throwing in the towel. Those small 1-5 person businesses are not properly accounted for in the Birth-Death Model in my estimation.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

The important point in this mess is that both the job data and employment data are much worse than appears at first glance (and the first glance looked horrid).

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let"s take a look

click on chart for sharper image

The official unemployment rate is 6.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 12.5%. Note that it was 8.4% a year ago. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further. And as noted earlier, my 6% target by the end of the year for the official number was reached in August.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse. Expect to see the official unemployment rate hit 9% in 2009.

Given that unemployment is a lagging indicator, it is likely to continue rising in 2010 of course Obama may have different ideas with his job stimulus packages that he will sign within days of being inaugurated.

Small Businesses Have Largest Decline In Seven Years

The ADP Small Business report found that small businesses lost 79,000 jobs in November, the largest decline in more than seven years, and Challenger reports that Mass Layoffs Double from a year ago. See Prepare For Depression Level Unemployment for details.

Economic data continues to suggest the Credit Crunch Has Reached Critical Mass and is picking up steam. There is no driver for jobs, nor will the misguided $700+ billion bailout plan of Paulson provide any. Hopefully Paulson will not ask for the second installment ($350 billion) of that plan. It will waste resources that can be better utilized elsewhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Carter Denied Security During Israel Visit

2009-12-16T10:13:00.000-08:00

Source: Reuters
Israel"s secret service has declined to assist U.S. agents guarding former U.S. President Jimmy Carter during a visit.Monday, April 14, 2008

JERUSALEM (Reuters) - Israel"s secret service has declined to assist U.S. agents guarding former U.S. President Jimmy Carter during a visit in which Israeli leaders have shunned him, U.S. sources close to the matter said on Monday.
Carter angered the Israeli government with plans to meet Hamas"s top leader, Khaled Meshaal, in Syria, and for describing Israeli policy in the occupied Palestinian territories as "a system of apartheid" in a 2006 book.
The Nobel Peace Prize winner, who brokered Israel"s first peace treaty with an Arab neighbor, Egypt, signed in 1979, met Israel"s largely ceremonial president, Shimon Peres, on Sunday but was shunned by the political leadership, including Prime Minister Ehud Olmert.
Another source described the snub as an "unprecedented" breach between the Israeli Shin Bet and the U.S. Secret Service, which protects all current and former U.S. presidents, as well as Israeli leaders when they visit the United States.

LinkHere

First lady honors abolitionist Sojourner Truth

2009-12-16T08:39:00.000-08:00

SOJOURNER TRUTH honored in DC.

"If the first woman God ever made was strong enough to turn the world upside down all alone, these women together ought to be able to turn it back, and get it right side up again!" said Sojourner Truth, the former slave-turned-abolitionist who was also an early crusader for women"s rights.And though she spoke those words in an 1851 speech at the Women"s Rights Convention in Akron, Ohio, Truth (born Isabella Baumfree) could very well have been describing the ladies who gathered at the Capitol in Washington, DC to unveil a bronze bust in her honor.

WASHINGTON (AP) � First lady Michelle Obama on Tuesday reflected on her own family"s rise from slavery to the White House as she helped to unveil a statue of abolitionist Sojourner Truth � the first black woman to be so honored at the Capitol.
"I hope that Sojourner Truth would be proud to see me, a descendant of slaves, serving as the first lady of the United States of America," Mrs. Obama said to loud applause at a ceremony at the Capitol Visitor Center.
An early crusader for women"s right to vote and for an end to slavery, Truth met presidents Abraham Lincoln in 1864 and Ulysses S. Grant in 1870, and delivered her signature "Ain"t I a Woman?" speech at a women"s rights convention in Akron, Ohio, in 1851. Truth, a former slave, tried to vote on two occasions, but was turned away both times. She died in November 1883 at her home in Battle Creek, Mich.
Lawmakers, students and actress Cicely Tyson were among those who gathered at the visitor"s center to celebrate Truth"s legacy and watch Mrs. Obama, Secretary of State Hillary Rodham Clinton, House Speaker Nancy Pelosi and others unveil the bronze bust of Truth.
"We"re here because of barriers she challenged and fought to tear down, and paths she helped to forge and trod alone," Clinton said to an audience made up mostly of women.
Artist Artis Lane created the bust, which was paid for with private money. LinkHere

Wages and Salaries Fell 4.7%, Most On Record

2009-12-16T07:59:00.000-08:00

Inquiring minds are reading American Incomes Head Down, Threatening Recovery in Spending.

�Consumers have started to change their behavior and they are going to save more,� said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. �You have pressure on wages, you have employment still declining.�

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released yesterday. The Obama administration�s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression.

Personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, yesterday�s Commerce report showed. Excluding the effects of the stimulus plan, June incomes would have dropped 0.1 percent after no change in May, according to the report. In May, one-time additional payments to Social Security recipients boosted incomes 1.3 percent.

One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.

Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year�s first quarter, according to figures from the Fed.

�Households are going to have to do an awful lot of rebuilding of their wealth,� Phelps, a professor at Columbia University in New York, said this week in an interview on Bloomberg Television. �Even if that rebuilding goes on at a pretty good clip, it will take 12 or 15 years for households to get to the wealth level that they had several years ago. Consumer demand is going to take a long time to rebuild to normal levels.�

As for unemployment, I think we see 10% by September or October at the latest. Right now I am sticking with my forecast of 9.8% by August.

In regards to balance sheet repair, 15 years has ominous implications for jobs and the stock market.

In regards to rebuilding wealth, "never" may be a better estimate than 12-15 years for boomers now retiring. Those boomers need to draw down savings during retirement while stock market gains will likely be hard to come by.

Of course most of that "wealth" was all imaginary in the first place, especially in regards to home prices.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Recovery plan "that is equal to the task ahead."

2009-12-16T07:21:00.000-08:00

Obama: "Economy To Get Worse Before It Gets Better"

First Priority Will Be "Shovel-Ready Projects"

Obama"s Meet The Press Interview: Discusses Economy, Auto Bailout, Iran, Foreign Policy

"The days of just pork coming out of Congress as a strategy those days are over," he added.

LinkHere

House mistakenly auctioned by bank

2009-12-16T03:48:00.000-08:00

Woman and family booted without warning, belongings bashed, tossed in street.

"This came out of nowhere," Ramirez said. "The bank took the house from right under my feet."
The man who bought the house told Ramirez he paid $87,000 for it, which shocked Ramirez, who bought the house for $260,000.
What"s worse is her husband, daughter and grand children were also kicked out by Homestead and Miami-Dade police officers, said Martha Taylor, who witnessed the unexpected eviction.
"I have never seen anything like it," Taylor said. "They literally threw all her stuff on the front lawn. I didn"t sleep that night and it wasn"t even my house."
Ramirez and her family had three hours to get out of the house, police ordered. They had to stash their belongings at multiple locations and shacked up with a friend for the night as cops chained the doors of their home. With Taylor"s help, Ramirez appeared before a judge two days later to explain what happened.
"I had all my stuff scattered everywhere," she said. "They did this in front all my neighbors. It was so embarassing."
A mistake in the Miami-Dade Clerk"s Office appears to be behind the mishap, which landed Ramirez homeless for more than 24 hours.
The sale was eventually reversed by a Miami-Dade judge, allowing Ramirez to return to her old digs. Ramirez said she wants to sue for the damage to her furniture.
Ramirez has lived in the house for three years and recently refinanced the home with the bank.
"This shouldn"t be happening, you know, because we did the right thing," she said. "We went step by step. LinkHere

Hell Freezes Over

2009-12-16T01:45:00.000-08:00

The United States did not invade Iraq to "stop the violence".

2009-12-15T22:48:00.000-08:00

The surge was created to disguise what was really taking place on the ground; ethnic cleansing on a massive scale. Defeated in Iraq?

By Mike Whitney
30/07/08 "ICH" -- - The United States did not invade Iraq to "stop the violence". That was never the goal. So, it"s foolish to say that the surge achieved its objective. It hasn"t. Nor has the surge "created the space for a political solution"; another meaningless slogan regurgitated endlessly by the Bush troupe. The political agenda in Iraq has failed utterly. We know that because the Shiite-led government has asked the US to leave "as soon as possible" and for the Bush administration to set a "timetable for withdrawal". Not a "time horizon" as the administration-spinmiesters like to say; a Timetable, which means a fixed time when the United States must leave. So, if the Iraqi government has asked the US to leave; where is the "political solution" the surge was supposed to create? There isn"t one. The mission has failed; it"s as plain as day. This is not an arguable point.
What the surge really proves is that ethnic cleansing works. Baghdad was a city of roughly 65% Sunnis. Now it is nearly 75% Shiites. Most of the million or so Iraqis who have been killed in the conflict, and most of the 4 million who are either internally displaced or have become refugees, are probably Sunnis. This is an important point and one that Americans should understand. The surge was created to disguise what was really taking place on the ground; ethnic cleansing on a massive scale. No one disputes this. The Sunnis have been effectively purged from the capital. That"s not a "political solution". It is a war crime.
More important, the United States military has helped the Shiites win their war against the Sunnis. The Shiites control Baghdad now; the Sunnis will never get it back. That is why they are moving on to the next phase of their strategy, which is to demand that the foreign troops leave. So, at least in one respect the surge has worked; it has helped the Shiites and their allies in Tehran win the war. Bush has helped to strengthen Ahmadinejad. Was that the objective?
LinkHere

PoliticsMark Penn On Obama"s "3 A.M." Crisis... NYT Exposes Obama Slanderer

2009-12-15T21:01:00.000-08:00

One-time Hillary Clinton chief strategist Mark Penn acknowledged -- sort of -- that Barack Obama had passed the infamous 3 A.M. test that Penn and his aides had artificially created as a criteria to be elected president.

Appearing at the Time Warner Summit conference on the 2008 election, Penn proclaimed that the state of the presidential race had broken down along the lines of which candidate voters assumed was best able to handle that late-night crisis moment.
"McCain really faltered in terms of answering the call, being contradictory and he blew a lot of electoral points that had been building up to that," he said. "The dynamic of this election is about who will be able to handle the economic crisis. They have looked to the response so far and voters have said this is the type of crisis that Obama can handle," and they don"t see that with the McCain campaign.
The remark represents a full-circle moment of sorts for Penn, who throughout the Democratic primary was highly critical of Obama"s experience and ability. The famous 3 A.M. ad that he engineered before the Ohio and Texas primary -- which questioned which candidate could handle a unexpected terrorism scare -- was, Penn said, the most discussed spot of the cycle.
Moreover, since the Democratic primary ended Penn has remained hostile towards Obama. On Monday he did not offer anything that could be interpreted as a measure of endorsement or support. But he did seem bullish on the Illinois Democrat"s chances (at this point, who isn"t)?
Penn had harsh words to say about Gov. Sarah Palin, who he said had wilted under press criticism.
"I don"t think you will see her in politics again unless she goes back and gets the experience that she doesn"t have right now," he said.
In addition, he admonished the media for -- among many things -- being too easy on John McCain.
"No one has really gone back on McCain and gone through the Keating Five and whether or not it is fair or unfair," he said, "which will be particularly relevant considering we have a banking crisis. And yet the background stories on that, whether favorable or unfavorable, have been zero."

LinkHere

MOTLEY FOOL: Warren Buffett & Charlie Munger answer Questions at 1999 shareholders meeting

2009-12-15T19:25:00.000-08:00

by Yi-Hsin Chang (TMF Puck)

On Monday, May 3, 1999 Berkshire Hathaway (NYSE: BRK.A) Chairman Warren Buffett and Vice Chairman Charlie Munger spent five solid hours answering questions from shareholders who had come near and far to attend the company"s annual meeting in Omaha, Nebraska. The meeting started at 9:30 a.m., and the official business, the re-election of the members of the board of directors, took all of 10 minutes. For the rest of the time, not counting a 45-minute lunch break, Buffett and Munger spent five hours entertaining around 60 questions from the audience. The meeting adjourned at 3:30 p.m.

During the meeting, Buffett and Munger sat on stage eating See"s chocolates and other goodies. Warren drank a signature Cherry Coke straight from the can and even managed to have a Dairy Queen Dilly Bar without dripping ice cream on himself. The two gentlemen were witty, relaxed, and comfortable in the spotlight, patiently addressing each question that was asked. It came across that they really enjoyed the opportunity to talk to their shareholders. Even the reticent Munger offered several great quips, some very direct and scathingly funny.

Here"s what Buffett and Munger had to say:

On the U.S. Stock Market...

Buffett: "We have no idea if the market will go up today, next week, next month or next year." He said that he and Munger don"t look at the market as a whole but instead at individual businesses, though at current valuations they"re having trouble finding companies in their universe they both like at cheap prices.

On the Internet"s Impact on Retail...

Buffett said the Internet will have a huge impact on the retail industry. He added that anytime they buy a business, they try to look ahead and evaluate the threat of e-commerce. He doesn"t think that e-commerce threatens furniture retailing (i.e. Nebraska Furniture Mart) but said that the Internet will benefit Borsheim"s, which is relaunching its website for online ordering later this month. Among jewelers, Borsheim"s and Tiffany & Co. (NYSE: TIF) stand to benefit from the Internet because they are brands consumers trust and would be willing to buy online. Buffett also pointed out that the Internet affects real estate dedicated to retailing.

On Alice Schroeder"s Report on Berkshire...

Paine Webber analyst Alice Schroeder recently wrote a report on Berkshire, which Buffett called the first comprehensive analyst report on the company. While refusing to comment on Schroeder"s valuation of Berkshire, Buffett called her a first-class, serious analyst. Buffett added that the new analyst coverage reflects no change in attitude toward the company"s stock price. He is still concerned mainly with building intrinsic value.

On Coca-Cola...

Buffett said that it"s hard to think of a much more solid business than Coca-Cola (NYSE: KO), adding that the soft-drink maker benefits from increased prosperity around the world. It also has "marvelous share of mind" and ubiquity of good feeling.

Munger said they don"t pay much attention to short-term "noise" and instead focus on the big picture, the 10- to 15-year outlook. "We think that Coke is fine."

On Change and Technology...

Buffett said Berkshire views change as more of a threat than an opportunity and will pass on acquiring businesses that are going to change. For example, Coke hasn"t really changed in more than 50 years. This philosophy may mean missing out on a lot of very big winners, but then again "we wouldn"t know how to pick "em."

Buffett said he doesn"t see the software world as clearly as the soft-drink world, and he doesn"t think Microsoft (Nasdaq: MSFT) will have a superior position to Coke. As he began eating his Dairy Queen Dilly Bar right there on stage, Buffett added: "The Dilly Bar is more certain in 10 years than any software."

Munger added that Berkshire businesses are less likely to be made obsolete by technology than many other businesses.

On Berkshire Class A vs. Class B Shares...

Citing a memo he wrote a few months back on Berkshire"s two classes of stock, Buffett explained that Class B shares can never trade for anything but a fraction more than 1/30 of a Class A share because then people would buy Class A shares and convert them to 30 Class B shares. But Class B shares can sell for less than 1/30 of a Class A share, since Class B shares can"t be converted to Class A shares. In Buffett"s opinion, if the discount is more than 2%, then the B shares offer a better value than the A shares. But if B shares aren"t at a discount, anyone wanting to buy at least 30 B shares should buy A instead.

On Acquisitions...

Buffett said he prefers to acquire whole businesses or at least chunks of businesses, instead of just "nibbling" at companies. Munger said that Berkshire will continue to do whole acquisitions as well as large, partial investments in businesses.

On Accounting Principles...

Munger: "The accounting in America is corrupt."

Buffett explained that many companies liberally use accounting charges to smooth out or inflate earnings. However, he declined to name specific culprits, saying that he prefers "criticizing by practices and praising by name."

Buffett said that in accounting for options, companies should figure out the average issuance per year and calculate how much could"ve been made if the options had been sold as warrants. That number then should be shown as a cost to shareholders. By not doing so, companies are hiding compensation expense in the form of options (as discussed in a current Fool on the Hill series by TMF Gump).

As for goodwill, Buffett said he would treat all acquisitions as purchases, not as pooling of interests. He would set up economic goodwill and lay it out on the balance sheet. The amount should not be amortized, he said.

On the Year 2000 Problem...

Buffett said that he has a general feeling that in the part of the world we have to worry about, it won"t be a big deal. He said he"s less worried about it than he was a year ago.

On the S&P 500...

Munger predicted that Berkshire will be added to the Standard & Poor"s 500 "someday." Buffett said such a move would cause an artificial spike in Berkshire"s stock price, as index funds add the stock to their holdings. He added that Berkshire is the most significant company currently not in the index. To avoid the artificial spike in share price, a company could sell stock concurrently with the S&P 500 addition. However, this is not something Berkshire wants to do, he said.

On Flight Safety and Executive Jet...

Buffett said Flight Safety, with its flight simulators, is a capital-intensive business, and that return on equity (ROE) is not going to move up or down much. Executive Jet is still early in its development, so the company will be investing more in the business. However, because customers end up owning the planes, this is not a capital-intensive business.

On Foreign Investing...

Buffett said Berkshire rules out emerging markets that simply aren"t big enough to have companies that meet Berkshire"s requirement of at least $50 million in pre-tax earnings. But as long as they understand the business and the accounting system it uses, and the price represents good value, Berkshire wouldn"t hesitate to invest overseas -- though Buffett pointed out that 53% of the value of the world"s markets are actually right here in the U.S.

On Pharmaceutical Companies...

Buffett said they "blew it" in 1993, when drug companies were being threatened by proposals to reform the country"s healthcare system, and missed opportunities to buy good businesses at cheap prices. While he sees pharmaceutical companies as good businesses as a group, Berkshire is not about to buy any of them at present prices.

On Inheriting Money...

Buffett, who has always said he won"t leave money to his children, explained that he believes in meritocracy and not having people start way ahead of other people in life. He would rather see talent be the determinant than the "divine right of the womb."

In contrast, Munger said he was "more willing to let society take future generations down."

On Recommended Books...

Munger, famous for the reading lists he gives shareholders, recommended Robert Hagstrom"s The Warren Buffett Portfolio; Ron Chernow"s Titan: The Life of John D. Rockefeller, Sr.; and David Landes" The Wealth and Poverty of Nations.

Buffett suggested friend and Washington Post Chairman Katherine Graham"s autobiography Personal History and John Bogle"s Common Sense on Mutual Funds.

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SEEKING ALPHA: Buffett"s New Moats: NRG Energy, Nalco

2009-12-15T16:58:00.000-08:00

After teaming up with Charlie Munger, Warren Buffett often talked about the importance of an economic moat for companies that he would consider investing in. Just as a moat around a medieval castle kept the castle safe from intruders, an economic moat around a company keeps it safe from competitors and other profit-draining forces.

During the credit boom, some said Warren Buffett had lost his search for economic moats. However, after the promoter of Berkshire Hathaway (BRK.A) clinched a sizeable investment in Goldman Sachs (GS) in 2008, Wall Street"s strongest name then, investors knew what the master had been waiting for. Having clinched several successful deals last year in the financial sector in the midst of a subprime catastrophe that saw the demise of Lehman Brothers Inc., Buffett�s Berkshire now seems to be keen to shift its asset allocation to more sustainable businesses.

Although Berkshire Hathaway, which disclosed its December 2008 holdings this week, is not worried about its portfolio size shrinking by 25% in the fourth quarter of 2008, it certainly is adapting to changes. Little wonder then that the firm has reduced its exposure to ratings agency Moody"s (MCO) by 25% and instead bought shares in a diversified electric generation company NRG Energy (NRG) and a water treatment company Nalco Holding (NLC).

While the former is a Fortune 500 company with approximately 24,000 megawatts (MW) of power generation capacity, the latter is a global integrated water treatment solution provider. It is certainly not difficult to figure out what kind of �moats� the legendry investor is looking for in such uncertain times.

UK Jewish MP: Israel acting like Nazis in Gaza

2009-12-15T16:01:00.000-08:00

Gerald Kaufman, the veteran Labour MP, yesterday compared the actions of Israeli troops in Gaza to the Nazis who forced his family to flee Poland.
During a Commons debate on the fighting in Gaza, he urged the government to impose an arms embargo on Israel.
Sir Gerald, who was brought up as an orthodox Jew and Zionist, said: "My grandmother was ill in bed when the Nazis came to her home town a German soldier shot her dead in her bed.
"My grandmother did not die to provide cover for Israeli soldiers murdering Palestinian grandmothers in Gaza. The present Israeli government ruthlessly and cynically exploits the continuing guilt from gentiles over the slaughter of Jews in the Holocaust as justification for their murder of Palestinians."
He said the claim that many of the Palestinian victims were militants "was the reply of the Nazi" and added: "I suppose the Jews fighting for their lives in the Warsaw ghetto could have been dismissed as militants."
He accused the Israeli government of seeking "conquest" and added: "
They are not simply war criminals, they are fools."

This is a video response to George Galloway "The West has DOUBLE STANDARDS when it comes to Israel"

LinkHere

Gaza doctor"s tragedy caught on Israeli TV - 17 Jan 09

Who and what is Hamas?
Eric Margolis: Hamas is more of a threat to corrupt Arab regimes than to Israel

THAI INDIAN NEWS: Wall Street crisis similar to Pearl Harbour: Buffett

2009-12-15T15:34:00.000-08:00

September 25th, 2008 - 4:39 pm ICT by ANI Billionaire investor Warren Buffett has described the current Wall Street meltdown as an economic Pearl Harbour, requiring immediate action of lawmakers.

Amid growing rancour over the terms of a 700 billion dollar bailout for the American financial system, Buffett said the panic of last week would �look like Nirvana� if the legislation is not passed.

According to the Independent, his comments came a day after he paid five billion dollars (2.7 billion pounds) for a stake in Goldman Sachs, the banking giant, in what he described as a bet that politicians would indeed act to repair.

Federal Reserve Chairman Ben Bernanke, on the second day of testimony in front of skeptical lawmakers in Capitol Hill, pleaded with them not to attach punishing conditions on the participation in the bailout, which allows the Treasury to buy toxic mortgage assets that are clogging up bank balance sheets.

One Congressman questioned whether the bailout is necessary, since Buffett��s purchase suggested that confidence is returning.

Meanwhile, the Democrats are also pushing for the government to take equity stakes in companies that receive assistance, and some have suggested that the 700 billion dollar should be released in increments.

Since the downturn in the housing market, the value of trillions of dollars of mortgage-related derivatives has collapsed, and their ultimate value now rests on where house prices settle and how widespread the foreclosures become.

The latest data on the sale of existing homes shows 10.7 per cent fewer transactions in August than a year ago, at an average price down of 9.5 per cent.

Bernanke, in his testimony to the Joint Economic Committee of Congress, highlighted the bleakest outlook yet of the US economy and warned that it could get even worse if the bailout is not successful. (ANI)

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Paulson, Bernanke, Bush vs. Mervyn King

2009-12-15T13:20:00.000-08:00

Let"s review transparency and honesty by the Fed, the Treasury, and President Bush vs. Mervyn King and the Bank of England.

Paulson & Bush on the Strong Dollar and the US Economy

Paulson backs strong U.S. dollar, confident on economy

Paulson repeated on Thursday that a strong dollar was "very much" in America"s interest and said the U.S. economy"s underlying vigor will eventually show up in the currency"s value.
"We have a strong-dollar policy and it"s important for the world to know that," Bush said, speaking on the same day that Paulson left for his five-day tour of Africa.

Strong Dollar Policy in Practice.

Talk about the strong dollar.
Talk more about the strong dollar.
Talk still more about the strong dollar even if that means traveling to Africa to find someone who will listen politely.
Blow $trillions we do not have and cannot afford in Iraq. Blow $trillions more on all sorts of unwarranted government programs.
Cut interest rates to weaken the dollar and promote exports.
Demand China float the Renminbi so the Renminbi will rise and the dollar will sink.
Look the other way and say nothing about the carry trade in the Yen.

Bernanke"s Fake Transparency

Bernanke"s Embrace of Forecasting Ends Greenspan "Decoder" Era

Bernanke said yesterday that Fed officials will add a third year to their forecasts and double the frequency to once a quarter. The reports will give investors and companies more details on why interest rates were adjusted and offer a map for where they are likely to go.
Bernanke and other Fed officials have repeatedly underscored their confidence the economy will accelerate by mid-2008 after a lull this quarter.
Bernanke framed transparency as critical to the central bank"s "democratic legitimacy" with the public.
Bernanke praised the "diversity of views" among the 12 district-bank presidents and seven Fed governors, who discuss rate decisions at FOMC meetings. He said the range of opinions "serves to limit the risk that a single viewpoint or analytical framework might become unduly dominant," a frequent criticism of Greenspan"s chairmanship.

Bernanke vs. Greenspan

By trading Greenspan for Bernanke we received someone who can speak understandable but disingenuous English for someone who spoke unintelligible gibberish.
We also received someone who wants to set inflation targets but doesn"t have the faintest idea what inflation is.

Bernanke"s recent statements that the economic situation is balanced and the underlying economy solid can easily be refuted by the Fed"s recent actions. See What"s Really On the Fed"s Mind? for more on this topic.

Does anyone ever recall Bernanke, Paulson, Bush, or for that matter any Fed governor actually giving a genuine warning about possible economic malaise? Compare and contrast all of the above with the following.

Mervyn King Bank of England Governor

Bank"s grim warning over UK economy

The governor of the Bank of England issued a stark warning yesterday of a looming economic slowdown as he signalled that the next year will be the toughest for Britain in a decade.
Mervyn King said the period ahead would be marked by slower growth, rising inflation, a weakening housing market and a falling pound.
He expressed surprise that global stock markets had so-far shrugged off evidence of the slowdown.
The governor stressed that even the two quarter-point cuts in interest rates pencilled in to the Bank"s forecasts would not spare consumers from a painful period of belt-tightening next year - and that the risk was that the UK economy would be even weaker than Threadneedle Street currently expects.
King stressed that the period of financial market turmoil that led to the run on Northern Rock was far from over and would be intensified by a tumble in share prices.
"With house price inflation easing and commercial property prices falling, residential and commercial property investment are likely to moderate, possibly quite sharply.
King also warned that the pound would need to fall in order to boost exports and to close the UK"s �7bn a month trade deficit in goods

Now that"s candor and true transparency. In the UK, rate cuts are "penciled in" while the Fed disingenuously calls the risks balanced. In the UK there is talk of falling commercial real estate prices. In the U.S. the Fed knows commercial real estate is staring over the abyss but no one talks about it. While King says financial turmoil is "far from over", the Fed"s Poole says "the market is healing".

Bernanke framed transparency as critical to the central bank"s "democratic legitimacy" with the public. On that score I hope he is right. Because if he is, the entire world should easily be able to see the Fed has no legitimacy of any kind, democratic or otherwise.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Five Most Recent Posts

Obama Economy Speech: Major Address At Georgetown University

2009-12-15T11:50:00.000-08:00

Obama said the rules governing the financial system must be brought into the Digital Age and that the economy must be transformed from one less dependent on a risk-obsessed financial sector and more on clean energy, good education and health care costs brought under control.
"We cannot rebuild this economy on the same pile of sand," he said, invoking a Biblical reference to Jesus" Sermon on the Mount. "We must build our house upon a rock. We must lay a new foundation for growth and prosperity a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad."
Obama also said the problem is exacerbated by politicians with an outsized interest in scoring points and an impatient media.
"When a crisis hits," he said, "there"s all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died away and the media coverage has moved on, instead of confronting the major challenges that will shape our future in a sustained and focused way."
"This can"t be one of those times," Obama said. LinkHere

Visit msnbc.com for Breaking News, World News, and News about the Economy

Economy News, Continent Economy

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MCCAINS BAD JUDGEMENT

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Paulson, Bernanke, Bush vs. Mervyn King

Obama Economy Speech: Major Address At Georgetown University