Sources in the defense establishment said Defense Minister Ehud Barak instructed the Israel Defense Forces to prepare for the operation over six months ago, even as Israel was beginning to negotiate a ceasefire agreement with Hamas. According to the sources, Barak maintained that although the lull would allow Hamas to prepare for a showdown with Israel, the Israeli army needed time to prepare, as well.
Therefore, it is certain that Israel"s massacre in Gaza is not related to any specific recent rocket attacks by Hamas.
So why did Israel choose this moment to attack Gaza?
Well, the Bush administration will be out in mere weeks. And while Obama has made nice with AIPAC and Israeli interests, Israel isn"t sure that he will be as acommodating as the current administration.
The Israeli decision to launch the attacks on Gaza was a political, not security, decision. Just a day or two before the airstrikes, it was Israel that rejected Hamas�s diplomatic initiative aimed at extending the six-month-long ceasefire that had frayed but largely stayed together since June, and that expired 26 December. Hamas officials, working through Egyptian mediators, had urged Israel to lift the siege of Gaza as the basis for continuing an extended ceasefire. Israel, including Foreign Minister Tsipi Livni, of the �centrist� (in the Israeli context) Kadima Party, rejected the proposal. Livni, who went to Egypt but refused to seriously consider the Hamas offer, is running in a tight race for prime minister; her top opponent is the further-right Benyamin Netanyahu of the officially hawkish Likud party, who has campaigned against Livni and the Kadima government for their alleged �soft� approach to the Palestinians. With elections looming in February, no candidate can afford to appear anything but super-militaristic.
Further, it is certain that the Israeli government was eager to move militarily while Bush was still in office. The Washington Post quoted a Bush administration official saying that Israel struck in Gaza �because they want it to be over before the next administration comes in. They can�t predict how the next administration will handle it. And this is not the way they want to start with the new administration.�
In May, 92,746 homes were in foreclosure, up 2% from April, and 28% higher than the foreclosure activity in May 2005.
Five states represented 48% of all foreclosures in the country. Those five states represent 31% of the nation�s total households.
For the sixth consecutive month, Texas had the highest foreclosure total (15.6% of total).
Florida was the second highest contributor of foreclosures in the country in May (9.6%), while California (9.4%), Illinois(6.9%) and Georgia (6.2%) rounded out the top five.
Starting in 2006 and accelerating into 2007, as much as $2.5 trillion worth of the fancy mortgages called "hybrids" are coming to the end of the free-lunch part of the deal.
Economists are still trying to put numbers on this reset factor, particularly when it comes to the riskiest home loans, referred to as "sub-prime."
"We don"t have enough data to know how big a problem this will be," said David Berson, chief economist at Fannie Mae, the nation"s largest mortgage packager.
Making matters worse, it is the the sub-prime lenders issuing the most adjustable-rate mortgages. With those who participate in the survey, 80 percent of their loans were ARMs compared to 55 percent in the broader market.
Surprisingly, there is little data that is publicly available on that subject. The best resource is a study conducted in the spring [Spring 2005] by Fannie Mae, a federally chartered corporation that buys mortgages after lenders have issued them. Fannie Mae looked at 2002-2004 loan data to determine what portion of the existing loan pool would be "adjusted," and when.
Fewer than 10 percent of the conventional conforming loans will reset in 2006-2007, but nearly two-thirds of sub-prime loans will. That is because a large portion of the sub-prime loans are two-year adjustables, says Berson, the Fannie Mae chief economist.
The rising foreclosure rate no doubt reflects some of those rate resets but it is going to become progressively worse as the year progresses. Also consider the fact that home prices are now starting to fall. Foreclosure that were avoidable in rising markets by selling one"s home can not be avoided as soon as someone is underwater.
The average rate on a 30-year, fixed-rate loan in May was 6.60 percent compared with 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the bankers association. Monthly payments will leap too, many beyond what homeowners can afford.
The average rate on a 30-year, fixed-rate loan in May was 6.60 percent compared with 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the bankers association. Monthly payments will leap too, many beyond what homeowners can afford.
Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com.
And delinquency rates appear to be rising as well. While delinquency rates fell for most types of loans from the fourth quarter of 2005 because of a stronger economy, delinquencies for both prime and subprime ARM loans increased year-over-year in the first quarter, according to statistics from the Mortgage Bankers Association.
But as the housing market slows, experts expect foreclosures to skyrocket in those areas that have experienced the highest appreciation rate � like California, Florida, Virginia and Washington, D.C.
"There is a direct correlation between foreclosure sales and market activity," said James Gaines, a research economist at The Real Estate Center at Texas A&M University. "If the rate of appreciation is not there, then there is an increase in foreclosure sales."
Gaines pointed out that although California"s default notices are rising by the thousands, actual foreclosure sales remain in the hundreds. Because of California"s still-active housing market, homeowners there can sell their properties before going into foreclosure.
On the flip side, in less active markets like Texas and Georgia, homeowners can"t find a buyer in time and are forced into foreclosure.
But as the housing cools in these once hot markets at the same time that ARMs reset, many homeowners may be unable to dump their properties before going into foreclosure, Gaines predicts.
The above article is the second one that I read today citing $1 trillion in rate resets by 2007. Both articles attributed the number to the Mortgage Bankers Association. I do not know where the $2.5 trillion cited by the Herald Tribune comes from. The difference between those numbers is huge but regardless we are already seeing the expected rise in foreclosures.
In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate. Do the math. Someone on a three year ARM from 2003 or 2004 on 3.76 rate that adjusts for the first time in 2006-2007 is going to see their mortgage interest payments jump by 74%. For some, even a 20% hike is going to be a disaster.
May Home Sales Numbers were released today.
U.S. MAY NEW HOME SALES UP 4.6% TO 1.23 million VS 1.15 million EXPECTED U.S. NEW HOME SALES down 5.9% in past 12 months U.S. April NEW HOME SALES revised lower to 1.180 million Calculated Risk has a very nice set of charts on the above numbers.
One must use caution in interpreting the above sales data. The data does not include cancellations yet cancellations have been skyrocketing at many homebuilders lately. In addition we have been seeing housing inventory numbers go up month after month. More and more people �want out�. It simply is not possible at these prices. This will just add to price pressures down the line. For now, local economies are still being supported by all this construction activity but when it ends, the jobs will go with it. Add it all up and talk of a "soft landing" is pure nonsense. Let"s see where we land first, and then we can talk about how soft it was.
Mike Shedlock / Mish http://globaleconomicanalysis.blogspot.com/
The Great Attractor has such a massive gravitational pull, that it is pulling our entire galaxy and nearby galaxies towards it at the speed of 1,000,000 miles an hour (see this and this).
So don"t call me lazy . . . I"m moving at a million miles per hour.
And in other astrophysics news, scientists have just discovered a black hole as large as 18 billion suns. Indeed, scientists say that black holes may get even bigger:
So just how big can these bad boys get? Craig Wheeler of the University of Texas in Austin, US, says it depends only on how long a black hole has been around and how fast it has swallowed matter in order to grow. "There is no theoretical upper limit," he says.
As the financial crisis crimps demand for American goods and services, the workers who produce them are losing their jobs by the tens of thousands.
In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who�s Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines.
When October�s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.
�My view is that it will be near 8 or 8.5 percent by the end of next year,� said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.
Of course there is the reported headline number (6.1%) and what unemployment really is. If you add up the total unemployed, marginally attached workers, and those working part time for economic reasons, the number is already 11%.
Table A-12
Table A-12 is where one can find a better approximation of what the unemployment rate really is. For a discussion of Table A-12, please see Jobs Contract 9th Consecutive Month.
Let"s take a look
click on chart for sharper image
The headline unemployment is in the first circle. A better estimate as to how it really feels to the guy on the street is in the last line.
Unemployed And Happy
Let"s compare a picture from the New York Times article above with an image from the great depression.
"Rochelle and Dwight Stokes of Phenix City, Ala., have both lost their jobs recently."
They seem happy about it.
Now let"s take a look at a classic depression era image.
That"s what a depression would feel like.
I have seen that haunting image many times. Thanks to "Giles" for reminding me about it.
Newly obtained computer schematics provide further detail of how electronic voting data was routed during the 2004 election from Ohio�s Secretary of State�s office through a partisan Tennessee web hosting company.
A network security expert with high-level US government clearances, who is also a former McCain delegate, says the documents � server schematics which trace the architecture created for Ohio�s then-Republican Secretary of State and state election chief Kenneth Blackwell � raise troubling questions about the security of electronic voting and the integrity of the 2004 presidential election results.
The flow chart shows how voting information was transferred from Ohio to SmarTech Inc., a Chattanooga Tennessee IT company known for its close association with the Republican Party, before the 2004 election results were displayed online.
Information technology expert Stephen Spoonamore believes this architecture could have made possible a KingPin or "Man in the Middle" (MIM) attack -- a well-defined criminal methodology in which a computer is inserted into the network of a bank or credit card processor to intercept and modify transactions before they reach a central computer. In an affidavit filed in September, Spoonamore asserted that "any time all information is directed to a single computer for consolidation, it is possible� that single computer will exploit the information for some purpose. ... In the case of Ohio 2004, the only purpose I can conceive for sending all county vote tabulations to a GOP managed Man-in-the-Middle site in Chattanooga before sending the results onward to the Sec. of State, would be to hack the vote at the MIM."
Many people (including me) have pointed out that the crash in the U.S. has arguably been worse than during the first year of the Great Depression.
But the Great Depression was a global, not just a U.S. crash. So how does the last year compare to the 1929 depression on a world-wide basis?
Economics professors Barry Eichengreen and and Kevin H. O"Rourke have written a paper conclusively showing that the global crash has been worse in the last year than during the first year of the Great Depression.
Because a picture is worth a thousand words, you can quickly see what they"re talking about by looking at the following 4 graphs:
Figure 1. World Industrial Output, Now vs Then
Figure 2. World Stock Markets, Now vs Then
Figure 3. The Volume of World Trade, Now vs Then
Figure 6. Government Budget Surpluses, Now vs Then
(Note: In the last chart, the colors are reversed, and the blue line is from the 1920"s.)
Nassim Nicholas Taleb gave a presentation yesterday to the House Subcommittee on Investigations & Oversight on The Risks of Financial Modeling: VaR and the Economic Meltdown.
His presentation is good, and well worth reading in its entirety.
If you"re too busy to read it, Taleb"s Figure 1 gives a good executive summary:
OMAHA, Nebraska (Reuters) - Billionaire investor Warren Buffett, whose Berkshire Hathaway Inc will hold its annual shareholder meeting on Saturday in Omaha, Nebraska, is the world"s richest person, and perhaps America"s most-revered capitalist.
* Buffett, 77, bought Berkshire, a struggling textile mill, in 1965. Berkshire"s market value is now roughly $200 billion. Berkshire owns more than 70 companies, including auto insurer Geico, reinsurer General Re, ice cream maker Dairy Queen, and utility MidAmerican Energy. It ended last year with $75 billion of stock investments in companies such as American Express Co, Coca-Cola Co, Procter & Gamble Co and Wells Fargo & Co.
* According to Berkshire"s latest proxy filing, as of February 29, 2008, Buffett owned 350,000 Class A shares of Berkshire, equal to 32.4 percent of shares outstanding, and 2,564,355 Class B shares, equal to 18.3 percent. He owned 28.1 percent of Berkshire in aggregate, and controlled 31.5 percent of the company"s voting power.
* Berkshire"s share price is high, trading most of this year around $130,000 to $140,000 for a Class "A" share, because there are few shares outstanding. Buffett does not believe in stock splits, and encourages long-term investing. Berkshire in 1996 introduced Class "B" shares valued at 1/30th of Class "A" shares. It has not declared a cash dividend since 1967.
* Buffett tells his shareholders that he thinks of them as "owner-partners" who will retain their part ownership in Berkshire indefinitely.
* Buffett has nearly all his net worth, estimated in March at $62 billion by Forbes magazine, invested in Berkshire. He has said every Berkshire share he owns will go to philanthropies after his death. In June 2006, he pledged 85 percent of his net worth to the Bill & Melinda Gates Foundation and four family charities.
* Despite being the world"s richest person, Buffett draws an annual salary of just $100,000 to run Berkshire.
* Buffett drinks five cans of Cherry Coke a day.
* Buffett has lived in the same house for a half-century, a 10-room, five-bedroom home on less than three-quarters of an acre in Omaha, near his office. The home was assessed at $710,000 last year.
* Buffett plays ukulele, and is a bridge partner of Bill Gates, the Microsoft Corp chairman and Berkshire director.
* Buffett"s investments and predictions don"t always work.
-- At last year"s annual meeting, he said subprime mortgage lending problems did not pose a "huge danger" to the U.S. economy, and that absent significant increases in unemployment and interest rates, "it"s unlikely that that factor triggers anything of a massive nature in the general economy."
-- In his shareholder letter, he called a $433 million all-stock purchase of Dexter Shoe in 1993, eight years before he folded the struggling company into another business, "the worst deal that I"ve made." He added: "I"ll make more mistakes in the future -- you can bet on that."
In Keynes And Friedman Were Both Wrong, I argued the two most widely-followed economists both misdiagnosed the fundamental problem which led to the Great Depression and both prescribed the wrong medicine for getting out of such a slump.
This essay will show that, in addition to being wrong on the economics, they were both cheerleaders for tyranny.
Naomi Klein documents in the Shock Doctrine that Milton Friedman advocated a kind of "disaster capitalism". Specifically, whenever a natural, economic, war-related, or other disaster strikes, the Friedmanites pounce and use the opportunity to quickly impose a brand of economic policy which benefits the elite at the cost of everyone else (by increasing unemployment, pushing the cost of essential goods through the roof, and otherwise increasing poverty), while people are still in shock and before they can react.
Publishers Weekly"s review of the Shock Doctrine puts it this way:
The neo-liberal economic policies�privatization, free trade, slashed social spending�that the Chicago School and the economist Milton Friedman have foisted on the world are catastrophic in two senses, argues this vigorous polemic. Because their results are disastrous�depressions, mass poverty, private corporations looting public wealth, by the author"s accounting�their means must be cataclysmic, dependent on political upheavals and natural disasters as coercive pretexts for free-market reforms the public would normally reject.
"At the most chaotic juncture in Iraq"" civil war, a new law is unveiled that will allow Shell and BP to claim the country"s vast oil reserves� Immediately following September 11, the Bush Administration quietly outsources the running of the "War on Terror" to Halliburton and Blackwater� After a tsunami wipes out the coasts of Southeast Asia, the pristine beaches are auctioned off to tourist resorts� New Orleans residents, scattered from Hurricane Katrina, discover that their public housing, hospitals and schools will never be re-opened." Klein not only kicks butt, she names names, notably economist Milton Friedman and his radical Chicago School of the 1950s and 60s which she notes "produced many of the leading neo-conservative and neo-liberal thinkers whose influence is still profound in Washington today."
Keynes himself viewed the Nazi efforts with favor. In his preface to the German edition of The General Theory, dated September 7, 1936, Keynes indicated that the ideas of his book could more readily be carried out under an authoritarian regime: "Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output under conditions of free competition and a large measure of laissez-faire."
Whether or not Keynes himself actually liked authoritarianism, he did not speak out against it. Rather, he helpfully told fascists that his system would do wonders for them.
The two most influential economists of the 20th century were both servants to those in power, be they neoliberal "disaster capitalists" or potential practitioners of Keynesian economics who just "happened to be" totalitarians. Put another way, economists who called for programs which benefited the majority of citizens and a government which respects individual liberties have been sidelined and marginalized, and ignored by government and academia.
It is time for a new economics. One which benefits the people and understands the centrality of their freedoms.
Citigroup Inc., which fell as much as 25 percent in New York trading today, is urging the Securities and Exchange Commission to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter.
The bank has also discussed with lawmakers its proposal to reinstitute the ban on bets that share prices will fall, said the person, who declined to be identified because the discussions weren"t public. Citigroup, down for eight of the past nine trading days, declined $1.22 to $5.18 on the New York Stock Exchange at 2:37 p.m.
Buffeted by four straight quarterly losses, New York-based Citigroup has raised about $75 billion since December by selling assets and equity stakes, including a $25 billion injection from the U.S. Treasury.
SEC spokesman John Nester declined to comment. Citigroup spokesman Michael Hanretta didn"t return a phone call seeking comment.
No One Wants To Comment
Since no one wants to comment, I will. It"s a sure sign of desperation when companies blame short sellers for company woes. Make no mistake about it, Citigroup is desperate.
Let"s look at a couple of charts.
Citigroup Weekly Waterfall
click on chart for sharper image
Citigroup 60 Minute Chart
click on chart for sharper image
Citigroup fell over 20% yesterday and at one point today was down over 30%, closing off $1.69 or 26%.
Citigroup is blaming shorts when the short interest is under 3%. That"s ridiculous. If Citigroup does not understand this, it is a sign of incompetence. If Citigroup does understand how ridiculous their claim looks (and is), that is additional support for the desperation thesis.
Note the dividend. Citigroup is paying a dividend when it is clearly in need of capital . Is that a sign of arrogance or incompetence? That Citigroup is in this mess in the first place is clearly sign of incompetence somewhere, at some point in time. Current management will attempt to place that blame on Chuck Price, but the culture of greed, arrogance, and excessive risk taking, permeated the entire financial industry.
Chuck Prince Citigroup CEO: �When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you�ve got to get up and dance. We�re still dancing".
I leave it to you to decide whether or not this is the "last dance".
It"s tough calling a top but I am going to try. I suggest the current trend is exhausted. My last "top call" was specially in regards to housing in the summer of 2005. Can lightning strike twice?
Citigroup"s $1.1 Trillion in Mysterious Shadow Assets
The question of off balance sheet SIVs (shadow assets) came up again on November 17th 2008 in Citigroup"s Town Hall Meeting.
Off Balance Sheet Holdings
Citigroup notes that the majority of $667 billion is unlikely to come on balance sheet yet presumes none of it will. I question the idea that Citi has no credit risk. Just how good are the counterparty guarantees for Citigroup to assume it has no risk on $667 billion? Also note that per an accounting rule change, Citigroup will be allowed to hide whatever risk there is, off the balance sheet and pretend that it does not exist at all. These risks need to be brought on the balance sheet and fully disclosed.
Citigroup would not be trading under $5 nor would it be down over 50% in two days if it was well capitalized as it claims. There is something wrong somewhere for the stock to be acting this way. Hiding behind accounting rule changes in this market is simply not going to work. Blaming short selling will not work either.
Looking ahead, foreclosures, credit card defaults, and bankruptcies are going to soar along with a soaring unemployment rate. Banks in general, and citigroup specifically, are woefully undercapitalized and unprepared for what is about to happen. One look at a chart of Citigroup should be proof enough.
The market seems to believe Citigroup is insolvent and so do I.
Typing from Ohare Airport where my flight is delayed I see the Fed Futures soaring on a new wrinkle in the the Fed"s willingness to do anything to keep the bubble alive. The report from Bloomberg is Treasuries Fall as Central Banks Seek to Ease Credit Concerns
Treasuries tumbled after the Federal Reserve said it will stem a surge in borrowing costs by adding cash to banks through auctions and providing $24 billion in currency swap lines to European central banks.
The Fed is coordinating the measures with the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank, the Fed said in a statement in Washington. The Fed will auction term funds to banks against a "wide variety of collateral." All "generally sound" institutions can participate, the Fed said in a statement.
The central banks are taking the steps after demand for cash sent borrowing costs climbing. The Fed"s previous attempts to ease the credit squeeze that began in August have failed to have lasting effects. One gauge watched by central bankers, the three-month dollar London Interbank Offered Rate, rose to 5.15 percent a week ago, the highest in almost two months.
"I am unwilling to give Bernanke any credit here because I suspect the only reason he is not cutting more aggressively here is to save his surprises for later and/or he simply does not understand the situation at hand.
He has already shown a propensity to surprise, with a discount rate cut during options expiry week.If credit markets continue to act poorly, there will be more surprise discount rate cuts and surprise rate cuts as well. Bernanke does not have "kind of stones" it will take to let the market play out by itself."
Well here we are one day later in yet another Bernanke surprise party.
I explained yesterday why the Fed might substantially lower the discount rates. Essentially, no bank wants to lend out its capital (because it can�t), so the Fed as a lender of last resort (which it really shouldn�t be and can�t) is the only entity willing to lend (the only entity willing to create credit out of thin air and devalue the dollar).
But all in all, there is a stigma attached to borrowing from the Fed through the discount window: the banks have to disclose it and it illustrates severe financial weakness to their shareholders and depositors. For example, one source of liquidity that banks and companies like Countrywide (CFC) have been using is the Federal Home Loan Bank system where they don�t really have to tell anyone. This has saved the banking system so far but is tapped out.
So the Fed is considering a �new auction system�. Essentially, what the Fed is doing is taking the stigma away from the discount window--the Fed will lend directly to banks and the banks don�t have to tell anybody. Theoretically, the Fed could make these quiet loans for indefinite periods, thus giving banks more permanent capital (it�s really credit, but banks call it capital).
I have a feeling the Fed moved less yesterday than expected because foreign investors (foreign central banks) were crying foul. A bigger move would further deteriorate the dollar and thus their investments in the dollar. It would also hurt their exports. They are getting pretty tired of this game and trade pressures are building.
The Fed knows that higher stock prices are important to reflate since 90% of global liquidity is dependent on high asset prices as collateral. Thus they are desperate to finance banks� collateral values. How to do that? The only way is to lend directly to them.
The plan won�t work. Under the repo/fractional reserve system the debt can be hidden because it is spread out among many banks. Tthe Fed lending $10 billion (and thus their balance sheet rising by $10 billion) will turn into $500 billion as other banks lend that money out and only keep a fraction of it for themselves. This is not working. Under the �new� plan the Fed will lend directly to each bank. If they want to create $500 billion of new credit the Fed�s balance sheet will increase $500 billion.
This will be obvious to foreigners just like a big cut in the discount rate. This is why gold is up this morning in response to this �new� plan which is really just a hidden discount rate cut: if the Fed is willing to pervert its balance sheet to this extent the dollar will fall.
And gold (in dollars) will go up.
I agree with Mr. Practical that this plan will fail. And here I am a couple hours later now in Baltimore, and I see Washington Mutual (WM) down another 6% to a new 52 week low, Bank of America (BAC) is off 3.7%, Citigroup (C) is off another 5% and countrywide financial (CFC) is off 7%. The entire financial sector is getting hammered here in spite of the initial euphoria.
I do not know where stocks will close today or this month, but this plan does nothing to address capital impairment. The problem is not liquidity the problem is solvency. All the Fed is providing with this maneuver is liquidity. What is needed is capital. Every company above (and lots more too) are capital impaired. The Fed"s magic wand is simply out of magic.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click HereTo Scroll Thru My Recent Post List
Warren Buffett tells our Becky Quick, with a chuckle, that maybe he has "lost his touch" as some critics have suggested, after a 30 percent decline in Berkshire Hathaway stock over the past 12 months.
But, the way he sees it, Berkshire beat the stock market, as measured by the S&P 500 index, making it not such a bad year after all.
Berkshire"s book value, Buffett"s favored measure, fell 9.6 percent in 2008. The S&P"s decline was much greater: down 37.0 percent.
Here"s Becky"s report from this morning"s Squawk Box, including an extensive excerpt of her on-camera conversation with Buffett over the weekend:
Notably absent from the video is President Bush, who aside from addressing the convention via satellite Tuesday was largely unmentioned during the proceedings. The video did feature an image of Giuliani and former Defense Secretary Donald Rumsfeld at Ground Zero.
Television anchors and commentators were shocked by the brazen use of the attacks as political argument
=====
Republicans are fond of speaking of �Islamic terrorism� as a unified threat, and right-wing media have attempted to conflate links between Osama bin Laden, a Sunni Muslim, and the Shiite-controlled Iranian regime. As of last year, Iranian citizens overwhelmingly rejected bin Laden.
Perhaps we should cut them some slack, though. The party�s nominee has some trouble keeping the differences between Sunnis and Shiites straight.
During this long election season, one of the things that the candidates have had to confront are smear merchants, peddling the most vicious and hateful of innuendos. By any measure, it would appear that Barack Obama has had the worst of it this election season, but John McCain is no stranger to those sorts of attacks, either. Nor is he a stranger to those sorts of attackers, having hired them to work on his campaign. Along the way, the media has had a difficult time confronting these smears and debunking the debunkable. After all, isn"t simply restating the smear just, on one level ... one vastly stupid level ... just confirming the smear? Plus, don"t time-honored press traditions require reporters to treat crackpots who shout drooling epithets from America"s finest bus stations as the equivalent of experts with advanced degrees from leading universities? Well, Jim Rutenberg has hit upon a novel way of confronting the smear-traffickers: write a story and call them liars! It"s so crazy that it just might work! Of course, one still mourns how, in life, timing is everything: Until this month, the man who is widely credited with starting the cyberwhisper campaign that still dogs Mr. Obama was a secondary character in news reports, with deep explorations of his background largely confined to liberal blogs. But an appearance in a documentary-style program on the Fox News Channel watched by three million people last week thrust the man, Andy Martin, and his past into the foreground. The program allowed Mr. Martin to assert falsely and without challenge that Mr. Obama had once trained to overthrow the government. LinkHere
Specifically, inquiring minds are interested in my statement "It will pay to keep one eye on the credit markets to help ascertain long-term equity direction. In August of 2007 the corporate bond market cracked wide open. Although the S&P 500 made a new high in November, the corporate bond market didn"t. It was the mother of all warning calls that most missed."
Here are some charts that show what I mean.
S&P 500 vs. BAA Corporate Bonds vs. 10-Year Treasuries
click on chart for sharper image
The above charts shows that BAA corporate bond yields (one step above junk) were rising throughout 2008 and started soaring right before the stock market waterfall plunge. The 2009 rally started in March with the BAA yield dropping and the 10-year treasury yield rising.
A falling BAA-10YR spread is a measure of increased willingness for market participants to take on risk as the following chart shows.
click on chart for sharper image
The above charts courtesy of Chris Puplava. Annotations by me. Rising BAA to 10-year treasury yield spreads starting August 2007 was a big warning sign.
Not many have access to a Bloomberg terminal that produced those charts but here is something that everyone can easily watch.
HYG - High Yield Bond Fund vs. S&P 500 SPY
click on chart for sharper image
HYG - High Yield Bond Fund vs. S&P 500 SPY
Here is a closeup detail for 2009.
click on chart for sharper image
Junk Bond Default Rate Worst Since Great Depression
The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July as the worst recession since the 1930s left more companies unable to pay off debt, Standard & Poor"s data showed on Thursday.
The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.
Default rates have surged from less than 1 percent in 2007 as an economic downturn squeezed corporate revenues and a global credit crunch dried up funding. A 13.9 percent default rate would be the highest since the Great Depression of the 1930s, when it hit 15.9 percent.
Eighteen companies defaulted in August, bringing the year-to-date total to 147. "Credit metrics in the U.S. show continued deterioration of credit quality and restricted lending conditions," S&P said.
Inquiring minds have been asking "With Junk bonds defaults so miserable, why is the stock market rallying?"
The answer is falling yield spreads indicate an increased appetite for risk, thus debt deals are getting financed. That combination is very supportive of equity prices.
Treasury Yield Curve
click on chart for sharper image
The above chart is one more measure of risk I am following. A widening yield curve is a sign of a strengthening economy, inflation fears (warranted or not), and/or proxy for risk appetite. The lines are closing marks. Intraday, the 10-Year yield ($TNX) spiked above 4. It is now sitting at 3.34, reflecting 66 basis points of curve flattening. Yields on $TYX (the 30 year long bond), and $FVX (five-year treasuries), have come in as well.
The corporate debt market is still in control, but we now have a warning sign from treasuries yields about the strength of the so-called recovery. This rally is extremely long in the tooth, but the fact still remains: as long as corporate bonds hold up, huge equity selloffs are unlikely.
There are clearly 5 waves up with powerful divergences at the top. Notice in particular the volume. There was very heavy selling for weeks at the top while the index went sideways. Sentiment was extremely strong although the index barely surpassed the high from a year earlier. If liquidity dries up this chart can get ugly in a hurry.
Here is the Internet Index - $DOT
This chart has not yet broken down. It led the Nasdaq advance from the lows and never looked back. Then again the index fell from 1250+ to 60+ so it was more than a bit oversold. Many companies in this index went under. Fundamentally you are looking at the survivors. That said, they are very richly priced after this advance and we have seen 5 clear waves up. Odds do not seem to favor being long here.
Here is the S&P 600 Small Cap Index - $SML
One can easily see 5 waves traced out. We are also flirting with the trendline. Odds would seem to favor a significant correction here. A bounce can be expected off the 200MA near 300. If that produces a H&S top rather than taking out the high, we could see a significant drop. After 5 clear waves up the odds for a breakdown vs a breakout seem high given the MACD and CCI divergences.
Here is the Semiconductor Index - $SOX
This is one ugly chart and one ugly index. Notice only 3 waves were traced out on this advance from the lows. A potential 4th wave was negated when the wave 1 up was crossed on what presumably was a wave 4 down. Oops Not Allowed. In Ewave terms this makes the entire move off the 2002 lows a corrective advance. This is the weakest of the charts we have looked at today.
Fundamentally there is support for this view based on declining DRAM prices, channel stuffing and lower prices on PCs, falling demand on cell phones, and new factories planned or coming online in China. Seldom do the leaders of the previous bubble lead the advance of the next one. The SOX has clearly lagged and should continue to lag.
There are many charts and many sectors that look similar to the preceeding charts.
On a fundamental basis we are in the worst possible environment for stocks: 1) Rising interest rates 2) A slowing economy 3) Difficult year over year earnings growth comparisons
Although housing is still robust, refis have dried up to a mere 20% of the peak levels just over a year ago. That is not supportive of increased consumer spending. All in all, fundamentally and technically the odds do not favor being long. Odds are this bull move is over. I look for a very significant correction in stocks this year.
DETROIT, Jan 11 (Reuters) - China"s BYD Co (1211.HK) is open to licensing its low-cost ferrous-iron electric car battery and has had interest from Japanese, European and U.S. carmakers, its chairman said on Sunday.
"We would consider it, and many have shown interest in cooperating in the field," Wang Chuan-Fu, chairman of the Hong Kong-listed battery maker, told Reuters in an interview on the sidelines of the Detroit auto show.
"Right now we"re just limited by resources."
BYD Auto, set up in 2003 by the BYD Group, has used its expertise in batteries to develop rechargeable electric vehicles that it expects to eventually compete with General Motors Corp"s (GM.N) and Toyota Motor Corp"s (7203.T) proposed plug-in hybrids.
BYD gained international fame in September thanks to a surprise endorsement by billionaire investor Warren Buffett, whose Berkshire Hathaway Inc (BRKa.N), through unit MidAmerican Energy, agreed to buy a 10 percent stake in BYD for $230 million.
The Chinese automaker is aiming to launch a plug-in hybrid model, the F6DM, and the E6 all-electric car, in the United States and Europe in 2011.
Wang said initial sales would include fleet sales to corporations, utilities and municipal governments.
BYD launched the F3 "Dual-Mode", or F3DM model, last month, expecting to sell 50 units to the Shenzhen municipal government and China Construction Bank.
The F3DM, which has a small gasoline engine as a backup power source, is available in 14 Chinese cities at 149,800 yuan ($22,000). BYD plans to expand sales to the mass market in the second half of this year.
BYD is also scheduled to launch the E6 -- its first all-electric car -- in China in the second half of this year.
Both the plug-in hybrid and E6 run on ferrous-iron batteries, which Wang said were safer, more durable and less than half the cost of lithium-ion batteries, which most major automakers are planning to use in their electric vehicles.
The E6, however, requires about 600 kg (1,323 lb) of battery packs, or roughly twice the weight required by the battery in Nissan Motor Co"s (7201.T) prototype electric car.
BUFFETT STAMP
While BYD"s vehicles have yet to be proven for long-term durability or safety, Wang said he aimed to sell BYD"s cars in the United States mostly on the innovative battery and dual-mode hybrid technology rather than on price alone.
Wang also said Buffett"s investment could help speed up BYD"s entry into the United States, where he expected the certification process to take one to two years.
"They could help us in building facilities for charging stations," he said.
Wang said he would be open to MidAmerican Energy"s increasing its stake in the automaker from the current 10 percent.
He said BYD was discussing electric car projects with various governments, including that of Israel, as well as regional authorities in China.
"The Chinese government has been supportive in initiating incentives on detailed levels, at both the federal and regional levels," he said. (Editing by Phil Berlowitz)
By: Ari Wednesday October 15, 2008 7:02 am Nearly a quarter of John McCain�s �Clean Election and Voter Fraud Committee,� chaired by Warren Rudman and John Danforth, have been involved in GOP voter suppression efforts or unfounded partisan claims of voter fraud. Of the 21 members of the committee, five have been engaging in these shady efforts
Tom Davis on Voter Suppression: CSPAN 10/10/08
It�s no surprise that Republicans engage in voter fraud. Watch what happened last week when �Clean Election and Voter Fraud Committee,� member Tom Davis tells an audience of reporters at the National Press Club last week that Republicans don�t suppress votes. The reaction? They laughed! A lot! In addition to Davis, who has a history of openly discussing subtle voter suppression techniques, the committee includes Cameron Quinn, who was a director of the Republican voter suppression front group, the American Center for Voting Rights. California Secretary of State Bill Jones, who has long fought for ways to make it more difficult for people to vote. Susan Molinari who cried wolf about voter fraud in 2004 and 2006, only to find her allegations proven false. Larry D. Thompson ho hired Bradley Schlozman to work in the Justice Department where he approved Tom Delay�s redistricting plan, GA�s modern �Jim Crow Law� and pursued politicized indictments against ACORN in MO. Details below the fold. Tom Davis Just last week Davis admitted to engaging in subtle voter suppression techniques 10/10/08: LinkHere
WASHINGTON � A federal judge on Thursday ordered the release of five Algerians held at Guantanamo Bay, Cuba, and the continued detention of a sixth in a major blow to the Bush administration"s strategy to keep terror suspects locked up without charges. In the first case of its kind, U.S. District Judge Richard J. Leon said the government"s evidence linking the five Algerians to al-Qaida was not credible as it came from a single, unidentified source. Therefore, he said, the five could not be held indefinitely as enemy combatants, and should be released immediately. "To allow enemy combatancy to rest on so thin a reed would be inconsistent with the court"s obligation," Leon told the crowded courtroom. As a result, he said, "The court must and will grant the petitioners and order their release." As for the sixth Algerian, Belkacem Bensayah, Leon said there was enough reason to believe he was close to an al-Qaida operative and had sought to help others travel to Afghanistan to join the terrorists" fight against the United States and its allies. One of the men to be released is Lakhdar Boumediene, whose landmark Supreme Court case last summer gave the Guantanamo detainees the right to challenge their imprisonment. The Algerians" attorneys said they would appeal Bensayah"s detention but hugged each other and colleagues in congratulations after Leon"s ruling. "It"s a relief," said attorney Robert C. Kirsch. LinkHere
Obama"s 30-minute primetime infomercial was seen by 33.6 million viewers across seven networks -- including CBS, NBC, Fox, Univision, MSNBC, BET and TV One. That"s 70% more people than watched the conclusion of the World Series last night on Fox (19.8 million). Clearly, Obama vs. McCain is more compelling to viewers this week than Phillies vs. Rays. Nielsen estimates that roughly 71% of viewers were white, 17% of viewers were black and 15% were Hispanic.* Read the whole story here.
Oct. 21 (Bloomberg) -- NRG Energy Inc., Calpine Corp. and Mirant Corp., U.S. power producers involved in failed takeover attempts in the past three years, are under increasing pressure to accept buyouts because of the credit freeze.
``There"s been a sea change in access to capital in this industry,"" said Hugh Wynne, a utility analyst at Sanford C. Bernstein & Co. in New York.
Exelon Corp., the biggest U.S. utility company by market value, offered this week to buy NRG for $6.2 billion in stock in a bet that its superior creditworthiness will allow for refinancing of NRG"s $8 billion in debt at lower costs. The credit crunch prompted Constellation Energy Group Inc., the largest U.S. power marketer, to accept a $4.7 billion cash offer last month from Warren Buffett"s MidAmerican Energy Holdings Co.
The bids surfaced after Princeton, New Jersey-based NRG lost half of its market value in two months and Constellation"s share price was halved in a week. Just two years ago, Baltimore-based Constellation had a deal, which was later dropped because of state opposition, to be acquired by FPL Group Inc. for $12.4 billion. NRG rejected a $7.86 billion takeover offer from Atlanta-based Mirant in 2006.
The power producers may be forced to consider mergers with larger companies, because as in the case of Constellation, the credit crisis may erode their ability to support energy contracts, Wynne said. Houston-based Reliant Energy Inc., owner of power plants in eight U.S. states, lost more than half its market value in September, then hired Morgan Stanley and Goldman, Sachs & Co. to review strategic options.
Debt Reliance
``You had a lot of Reliants, companies that made extensive use of short-term debt for working capital,"" Wynne said. ``Now that looks, perhaps, imprudent.""
Reliant made a $350 million preferred stock deal that allows it to pursue strategic alternatives, including a possible sale, after losing a credit agreement with Merrill Lynch & Co. that backed its energy purchases and sales. The preferred stock was part of $1 billion in financing that will cost about 3.5 times as much as the Merrill arrangement, according to Carl Blake, an analyst at Gimme Credit in New York.
Utility owners such as MidAmerican and Chicago-based Exelon previously had to compete with banks and investment funds to acquire more generating capacity. Buyers led by KKR & Co. bought the biggest Texas power producer, the former TXU Corp., in a record leveraged buyout last year.
EDF Won"t Bid
Electricite de France SA, Constellation"s largest shareholder, said this month that after talking to KKR, it couldn"t challenge the Buffett bid.
``The debt market is prohibitively expensive,"" said Greg Phelps, who helps manage $2.8 billon at MFC Global Investment Management in Boston.
That may leave the field open to cash-rich utility owners like Exelon, whose stock has gained value as an acquisition currency because it has fallen less than shares of independent, or merchant, power producers such as NRG.
``Many of the larger utilities have significantly strengthened their balance sheets in the past five years, and that gives them flexibility,"" said Barry Abramson, who helps manage about $30 billion at Gamco Investors in Rye, New York. ``They can issue stock as their currency.""
NRG"s owners would get 0.485 share of Exelon for each of their shares, valuing the company at $26.43 a share, Exelon said in an Oct. 19 statement. NRG traded above $39 as recently as Aug. 28.
`Consolidation Needed"
NRG yesterday urged shareholders not to take any action on Exelon"s proposal, saying it"s reviewing the offer.
``This is the right time for consolidation and consolidation is needed,"" Exelon Chief Operating Officer Christopher M. Crane said yesterday in a telephone interview. ``Others should be looking, if they aren"t already.""
Exelon Chief Executive Officer John Rowe, 63, said he met with NRG"s CEO, David Crane, 49, on Sept. 30 to discuss a possible merger. ``In view of the general state of the turbulence of the markets, we were not close enough to negotiate an agreement,"" Rowe said yesterday on a conference call.
Rowe said NRG became an attractive target after its stock plunged. Exelon"s offer represented a 37 percent premium over NRG"s Oct. 17 closing price.
`Opportunistic Buyers"
``You have deep-pocketed, opportunistic buyers who can take advantage of distressed situations,"" Phelps said. ``But there"s only one Warren Buffett and only one Exelon.""
NRG should reject the Exelon offer, said Gordon Howald, an analyst at Calyon Securities USA Inc. in New York who rates the company"s shares ``buy"" and owns none. NRG"s power plants alone are worth $63 a share, more than double Exelon"s offer, based on transactions over the past two years, he said.
``If they accept it as it is, I"d view that as a pretty bad indictment of how bad companies believe this credit crisis is,"" Howald said.
The ratio of shares Exelon offered in its bid is fair based on current and historic stock prices for the companies, Rowe said on yesterday"s conference call. Exelon ``will do what it takes to consummate this deal,"" Rowe added, turning aside questions on whether he would offer a higher price or appeal directly to shareholders should the original bid be rebuffed.
Calpine Rejected NRG
NRG was spurned in May on an $11 billion, unsolicited offer for Calpine. Houston-based Calpine jumped 18 percent to $12.45 yesterday in New York Stock Exchange composite trading, increasing its market valuation to almost $5.3 billion.
NRG surged 29 percent to $25 after the offer. Reliant advanced 17 percent to $6.06, and Atlanta-based Mirant climbed 13 percent to $18.70. Houston-based power producer Dynegy Inc. rose 12 percent to $3.63, and AES Corp. of Arlington, Virginia gained 21 percent to $9.89. Exelon rose 9 cents to $54.59.
Mirant, NRG and Calpine all reorganized under bankruptcy protection after the collapse of Enron Corp. in December 2001 led to more onerous credit requirements for energy trading and a U.S. power glut dragged down prices.
Mirant on Sept. 22 suspended share buybacks to assure adequate funding of two plant projects in California, adding that it had ``no liquidity issues."" The stock fell 8.3 percent the day of the announcement.
Calpine announced after trading closed Oct. 1 it had borrowed $725 million from its $1 billion master credit agreement as a ``proactive financial decision to preserve our liquidity by increasing our cash position."" The stock fell 14 percent the next day.
