Economy News, Lake Economy

Neither man is terribly happy about being rejected by McCain-land,

2009-12-20T07:14:00.000-08:00

Brian Williams On The Late Show: "I"m A Maverick, And I May Not Answer The Questions Tonight"

Friday night on the Late Show, it was a meeting of the two most prominent media personalities spurned by the McCain campaign -- Brian Williams and David Letterman.
Neither man is terribly happy about being rejected by McCain-land, but they both manage to maintain their sense of humor.

LinkHere

AirTran Asks Employees To Take "Temporary" Pay Cut

2009-12-20T06:01:00.000-08:00

The deflation train picks up steam as AirTran Asks Employees To Take "Temporary" Pay Cuts.

On Wednesday, AirTran Holdings asked for temporary wage concessions from all of its employees, TradeTheNews reported. AirTran will ask all workers to accept pay cuts between 5% and 13%, and officers will take a 15% cut, effective in August, for six months.

AirTran has expended $450.0 million in wages in the past year, trimming costs through its workforce, as well as reevaluating its route structure to add capacity in markets where it sees demand and cutting capacity in markets that could not support scheduled routes.

And AirTran was not the only carrier to seek out salary sacrifices from its workforce.

In May, Japan Airlines JAL, Asia"s biggest airline by revenue, said it planned a 5% salary and benefit cut for most of its employees as a means to lowering annual personnel costs by $96.4 million (10.0 billion yen).

A Japan Airlines spokesperson, Atsushi Abe, said the airline was in talks with labor unions and aimed to implement the cuts beginning in October. The cuts will be part of its ongoing overhaul of cost structure to tackle soaring fuel prices and other pressure on its earnings.

Wage Pressures Are Negative

I keep laughing at talk of wage price spirals. Even the United Auto Workers" union has agreed to slash wages for new employees by 50%. Now the airlines are at it. More companies will follow suit. It should not be long before cities and states ask for and get wage concessions. Count on it.

Right now we have an accelerating Downward Spiral In Jobs, as Deflationary Hurricanes Hit The U.S. and U.K.

Amazingly people keep telling me this is a repeat of the 70"s and 80"s. Clearly it"s not.

Where"s the wage price spiral? Where is the ability of businesses to pass on costs? If AirTran could pass on costs why doesn"t it? Does anyone think GM"s announced price hikes will stick? Heck they have failed already with huge incentives.

In an 80"s flashback spirit, I have to ask "Where"s The Beef?"

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

Precipitous Drop In State Tax Collections

2009-12-20T05:50:00.000-08:00

The cutback in consumer spending is seriously impacting state budgets. Here are a few recent headlines.

New York: Sales-tax revenue in counties, state continues steep drop

October 9, 2009

ALBANY -- Sales-tax collections for counties and the state dropped 8.3 percent in the third quarter, a troubling sign for governments already struggling with higher costs and declining revenue.

The figures from July through September continue a precipitous drop in sales-tax revenue for governments and an indication that the economy is still struggling. It"s the fourth consecutive quarter of sales-tax declines for the state.

What"s also troubling, government officials said, is that they hoped the third quarter would have marked improvement, particularly because of the popularity of the federal Cash for Clunkers program and back-to-school retail sales.

The third-quarter drop, though, was pronounced in some counties compared to the same period last year. The lower sales-tax revenue has been a major factor in the state"s $3 billion mid-year budget gap, which Gov. David Paterson is trying to close with the Legislature.

Georgia: State Tax Collections Drop Sharply

October 9, 2009

ATLANTA (AP) Georgia tax collections dropped by about 16 percent in September over the same month last year, continuing a trend set in the first two months of the fiscal year, Gov. Sonny Perdue announced Thursday.

Net revenue collections for September were about $1.3 billion, compared to about $1.6 billion in September 2008. Three months into fiscal year 2010, revenues are down about 14 percent compared to the first three months of last fiscal year.

"There"s still some weakness in the economy, which results in lower tax collections, both in sales tax and income tax, and that"s really affecting us," said Perdue spokesman Bert Brantley.

But Brantley acknowledged that September"s revenue drop, which was as steep as the month before, can"t be explained away by lingering refund checks from the last fiscal year.

"There"s not as clear of a reason why" for the drop in September, he said.

The clear reason why is people are unemployed and broke.

Texas: State sales tax collections down for 8th month in a row

October 10, 2009

State sales tax collections fell 12.5 percent last month, the eighth drop in a row.

Comptroller Susan Combs said Friday that the trend is likely to continue through the end of the year.

At some point sales tax revenue will stop falling. However, the rebound that that states are expecting will not materialize.

Iowa: Tax collections forecast to drop 7.1 percent; steep budget cuts expected

October 7, 2009

Tax collections will run about 7.1 percent lower than predicted last spring, new projections show, which means steep cuts to state spending are in Iowa�s near future.

A three-member panel of experts called the Revenue Estimating Conference predicts state revenue this budget year will be $5.438 billion.

That�s $414.9 million less than predicted in March.

�It�s dire. It�s severe. It�s probably the worst I�ve seen,� said REC member Holly Lyons. The recession has shrunk state revenues across the country.

Today�s news is that plunging tax revenues have knocked the state budget severely out of balance, just three months into the budget year.

It may be "dire" and "severe" but it"s going to get more dire and more severe.

Wisconsin: Sales tax collections for Miller Park drop significantly.

Sales-tax collections for the Miller Park stadium [Milwaukee Brewer"s Baseball] district plummeted 29% in August compared with the same period last year and are now running 10.4% behind a year ago.

Since 1996, the 0.1% Miller Park stadium tax has been a steady performer, generating millions of dollars to pay off the construction and financing of the Milwaukee Brewers" ballpark. The tax is collected from vendors in Milwaukee, Racine, Waukesha, Washington and Ozaukee counties, sent to the state Department of Revenue for processing, and then distributed to the stadium district.

But the Great Recession has had a dramatic impact; only $1.96 million was distributed to the district in August, far below what had been forecast.

People have finally had enough of overpriced hot-dogs, snacks, and beer at baseball parks. Sounds like a good thing to me.

California: California Budget Is Already in the Red 10 Weeks After Passage.

October 10, 2009

California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

�The culprit here appears to be estimated quarterly personal income tax statements,� H.D. Palmer, the governor�s budget spokesman, said yesterday. �The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.�

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.

The odds this is a "one time event" are approximately zero.

Kentucky: State revenues plunge in first quarter

October 9, 2009

Receipts to the state General Fund dropped 9.8 percent in September, compared to September 2008, the Office of State Budget Director reported Friday.

�There"s some reason for hope that we"ll see it balance out later this fiscal year, but it"s a dim prospect for the next budget cycle,� said Rep. Rick Rand, the Bedford Democrat who is chairman of the House budget committee.

Sen. Bob Leeper, an independent from Paducah who is Rand�s counterpart in the Senate, said �the outlook is grim. But we"ve been preparing for it and preparing our constituents for a difficult time ahead.�

If revenue doesn"t meet expectations, spending must be cut or other adjustments will have to be made.

�Tax collections have been weak in the major sources of revenue that support the operations of government,� State Budget Director Mary Lassiter said in the report. �Sales and use taxes and income taxes comprise nearly 75 percent of our General Fund tax revenues and have been declining for an extended period of time.�

Reason for hope? Pray tell what reason for hope is there?

Indiana: Continuing plunge in revenue alarms Governor Daniels.

October 9, 2009

Indiana"s state tax collections are continuing to take a dive, prompting Gov. Mitch Daniels to warn Thursday that budget cuts that could include schools and employee layoffs might be needed soon.

Revenue for September was $166 million short of a May forecast that lawmakers and Daniels used to put together a new two-year budget that took effect July 1. Tax collections are down by $254 million for the first three months of this fiscal year � 8 percent less than forecast and 14 percent less than the state took in for the same period a year ago.

"Today is not a day to remove any option except we are not going to raise taxes on people who are strapped as it is," he said. "The job of keeping Indiana above water and solvent while other states are not are not getting any easier."

"It is now very clear that the methods that have been used here, and in other states for that matter, are simply out of date," Daniels said.

"My suspicion is a big part of the difference is that Americans, including Hoosiers, have shifted in their consumption patterns. They are saving more and spending less, and I believe that isn"t a very temporary phenomenon. I think that is going to continue."

Ding Ding Ding We Have A Winner

Give Daniels a cigar for multiple consecutive thoughts that make sense, an extreme rarity in politics at any level.

1) It is now very clear that the methods that have been used here, and in other states for that matter, are simply out of date.

2) Americans, including Hoosiers, have shifted in their consumption patterns. They are saving more and spending less.

3) This isn"t a very temporary phenomenon.

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

GM, Toyota, Honda, and Grocery Store Price Wars

2009-12-20T04:58:00.000-08:00

With inventories stacking up and nowhere to put production (See Unsold Car Images From Around The World), price wars on autos were only a matter of time. That time has arrived, and GM to cut prices to lure back US buyers.

General Motors is preparing a fresh barrage of discounts and other promotions to coax Americans into buying more cars after an upcoming US government decision on further financial aid to the Detroit motor industry.

The incentives will be designed to counter a slump in sales and GM�s market share, amid signs on both sides of the Atlantic that its financial woes are beginning to drive away customers.

GM�s share of US light vehicle sales sank to 18.3 per cent last month from 19.5 per cent in January and an average of 22.6 per cent in the final two months of 2008. The company�s viability plan is based on a 20 per cent share.

GM"s viability plan sounds much like its old plan: sell cars below cost to meet production goals.

Toyota May Cut Price of Prius Hybrid to Match Honda�s Insight

Unfortunately for GM, the competition is not exactly standing still as Toyota May Cut Price of Prius Hybrid to Match Honda�s Insight.

Toyota Motor Corp., the world�s largest automaker, may cut the price of its Prius gasoline- electric hybrid car in Japan to match Honda Motor Co.�s Insight.

Toyota spokesman Yuta Kaga declined to confirm or deny a Nikkei newspaper report today that said the starting price of the Prius will be cut to 1.89 million yen ($19,250) from 2.33 million yen. The Insight hybrid, which went on sale in Japan last month, starts at 1.89 million yen.

Toyota later this year plans to introduce a revamped Prius with higher mileage and more power than the current model and the Insight. Both automakers are betting on fuel-efficient models as governments worldwide tighten emission standards.

The Prius accounted for half of all gasoline-electric models sold in the U.S., the world�s biggest auto market, last year. The price reduction would apply to the current Prius model.

Let"s do the math.
2.33 - 1.89 = .44.
.44 � 2.33 = 18.9%

Thus, Toyota is rumored to cut the price of the Prius a whopping 18.9%! OK GM, Honda, Mazda, it"s your move.

Stores, food makers compete on retail prices

It"s not just auto manufactures competing on price. Please consider Stores, food makers compete on retail prices.

Retailers, who begrudgingly went along when food makers pushed up prices to recoup record-high costs, are flexing newfound muscle and demanding price cuts to match the recent steep retreat in ingredient costs.

Food makers are resisting, saying the uncertain economy and volatile costs make price cuts unwise. But retailers aren"t backing down.

Consumers � who responded to the higher prices by favoring grocers" in-house products over national brands and by shopping more at discounters � may end up with fewer choices all around.

"We don"t have to carry three brands," Costco Wholesale Corp."s Chief Financial Officer Richard Galanti told investors earlier this month. "We can choose between brands that are going to be more aggressive, that help us help our members."

Costco has been lowering its prices, Galanti said, and is prepared to sacrifice profit margins and cut national brands that won"t negotiate on pricing � if that"s what it takes to drive sales.

"We are not the only ones out there pressuring manufacturers," he said.

Steven Burd, president of grocery chain Safeway Inc., recently told investors that it has gotten some vendors to roll back their prices. Like many retailers, it is finding its new strength in its in-house brands, including Safeway Select, O organics and Primo Taglio deli products.

"We"re going to chew them up on corporate brands," Burd said of food makers that don"t lower prices. "And we"re just going to keep driving corporate brands."

Some 64 percent of shoppers in 2008 said they often or always buy a store brand rather than a national one, according to the Food Marketing Institute, an industry trade group. That"s up from 59 percent the prior year.

Kroger Co., owner of Ralphs, Fred Meyer, Food 4 Less and other chains in 31 states, saw sales of its in-house brands hit a record 27 percent of total sales in the most recent quarter.

Price wars: It"s a good thing. And for those wanting to buy a car, my advice remains to wait. This is just the start of inventory clearing price wars.

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

Olbermann: Fox host doesn"t bother to "hide his racism"

2009-12-20T02:22:00.000-08:00

America Taking the 2 Steps Which Lead to Bankruptcy

2009-12-20T00:40:00.000-08:00

Companies go bankrupt when they:

(1) Borrow more than they should; and
(2) Have to pay their creditors more and more interest to loan them money.

Borrowing Too Much

Everyone knows that the U.S. has borrowed too much. As of a year ago, the financial obligations of the U.S. were some $56 trillion dollars. That number has gone way up since then.

Higher and Higher Interest Rates

America is already paying more to borrow money.

An article from Barrons entitled "Is Uncle Sam"s Credit Line Running Out?" points out:

What happens if the requests begin to strain the credit line of the world"s most creditworthy borrower, the U.S. government itself? Unthinkable?

***

"Near-term pressures on Treasury finances are much more intense than we had thought," Goldman Sachs economists commented when the government announced its borrowing projections last week.
It may finally be catching up with Uncle Sam. That"s what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it.
***
The Treasury yield curve -- from two to 10 years, which is how the bond market tracks it -- has rarely been steeper.

In other words, buyers of U.S. treasury bonds are demanding a lot of interest to make long-term loans to Uncle Sam.

Barrons goes on to point out the credit default swaps tell the same story:

The steepening of the Treasury yield curve has been accompanied by an increase in the cost of insuring against default by the U.S. Treasury. It may come as a shock, but there are credit-default swaps on the U.S. government and they have become more expensive -- in tandem with an increase in the spread between two- and 10-year notes.

***

Charts of the yield curve and the spread on U.S. Treasury CDS paint a dramatic picture. Both the yield spread and the cost of insuring debt moved up sharply together starting in September. . . . Cutting through the technical jargon, the yield curve and the credit-default swaps market both indicate the markets are exacting a greater cost to lend to Uncle Sam. . . . All of which suggests America"s credit line has its limits.

Like every company which borrowed too much and then got destroyed by higher and higher borrowing costs, America is following the recipe for bankruptcy.

Of course, if a company makes something that people want, that will increase the chance that it will survive and avoid bankruptcy. America has abandoned its manufacturing base, and is selling "exotic financial products" which the world is starting to realize are nothing but snake oil.

SWI NEWS: Breaking ground at Gate"s foundation

2009-12-19T23:47:00.000-08:00

By Steve Jordon, MNS

07/21/2008

South Western Iowa News

Buffett is busy and won"t be among the 500 guests expected at Tuesday"s groundbreaking at the Bill & Melinda Gates Foundation"s new headquarters in downtown Seattle, his office said.

The foundation, due to be headed by Ashland, Neb., native Jeff Raikes starting Sept. 2, has ramped up its activities and employment, to about 550 employees, thanks in part to Buffett"s pledge to donate most of his wealth to the foundation over a period of years.

The design includes a visitor center and buildings with "sweeping, outward-reaching curves,"" the foundation said, plus extensive landscaping. The groundbreaking will mark the first office phase of the 15-year project.

A five-level parking garage, owned and operated by the Seattle Center, site of the city"s 1962 World"s Fair, opened recently near the city"s skyline signature Space Needle.

So far there"s no official cost estimate for the 12-acre campus and 1 million square feet of office space, built on a former city parking lot, although the land alone cost $50.4 million.

Links to past

A new jewelry line produced by a Berkshire company lets customers trace their gold and silver back to its origins to ensure "responsibly produced"" rings, pendants, bracelets, earrings and necklaces.

The new Love,Earth jewelry is by the Richline Group"s Aurafin brand, which Berkshire purchased in May 2007.

Mining and manufacturing practices in some countries have come under fire for human rights violations and pollution.
Aurafin, based in Fort Lauderdale, Fla., will sell Love,Earth jewelry at Wal-Mart and WalMart"s Sam"s Club warehouse stores.

Customers can go online, enter batch numbers from their jewelry and see maps of mine and manufacturing locations, plus information such as how a mine "manages its cyanide or waste dumps to ensure there are less adverse long-term impacts to ecosystems.""

Richline said Wal-Mart"s "environmental and social sourcing criteria"" match Aurafin"s corporate goals, which include "being responsible to ethical, social and environmental practices"" through the Council for Responsible Jewelry Practices.

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CNBC VIDEO: Buy Berkshire Hathaway? CNBC"s On-Air Debate

2009-12-19T22:57:00.000-08:00

Topics:Investment Strategy | Warren Buffett

Companies:Berkshire Hathaway Inc.

Should ordinary investors try to follow Warren Buffett by purchasing shares of Berkshire Hathaway stock?

Recently, CNBC"s Maria Bartiromo hosted a debate on Closing Bell between Thomas Russo of Gardner, Russo and Gardner and Hake Capital Management"s Mark Hake.

Hake says BRK is overvalued. Russo says buy Berkshire instead of trying to invest "alongside" Buffett by replicating his portfolio.

Here"s the video clip:

Current Berkshire stock prices:

Class A: [US;BRK.A 88140.0 --- UNCH (0) ]

Class B: [US;BRK.B 2860.02 --- UNCH (0) ]

Recommended Amazon Reading

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
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Europe is Obamaland: Senator"s Remarkable Popularity Transcends Borders

2009-12-19T21:34:00.000-08:00

Europe, and much of the world, awaits the coming of Obama, and a political dawn to sweep away the long night of the Bush era. Of course, it may only be a matter of time before Republicans start accusing Obama of being, `too French."

LinkHere

Under Proposed Bailout, Feds Could Speculate, Nationalize Any Company or Industry, Or Do Anything Else They Want Using Taxpayer Money

2009-12-19T20:55:00.000-08:00

The Fact Sheet from the U.S. Treasury states:

The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.

So Paulson, in consultation with Bernanke, could "deem it necessary" to "stabilize" the financial markets by buying boat loads of gold. Or by cornering the market in uranium or platinum.

Or they could decide that they needed to buy Microsoft and Google.

Just like Bush and Cheney have gotten us into oil wars and wars to protect Israel under the guise of being necessary to protect our national defense, Paulson and Bernanke could do anything they want by pretending it is for the stability of the financial markets, especially since no one could challenge their actions in court.

Audit the Fed Blocked by Senate Procedural Move

2009-12-19T19:10:00.000-08:00

In the House, Mr. Sunshine, Ron Paul Wins Support to Audit Fed Reserve.

The feisty congressman from Texas, whose insurgent "Ron Paul Revolution" presidential campaign rankled Republican leaders last year, now has the GOP House leadership on his side -- backing a measure that generated paltry support when he first introduced it 26 years ago.

Paul, as of Tuesday, has won 245 co-sponsors to a bill that would require a full-fledged audit of the Federal Reserve by the end of 2010.

The bill would call for the comptroller general in the Government Accountability Office to audit the Fed and report those findings to Congress. The GAO"s ability to conduct such audits now is severely restricted.

A slew of top Republicans are backing the bill, as are many Democrats.

"Ron Paul has the right idea on this," said Sen. Jim DeMint, R-S.C., who supports similar legislation in the Senate. "I"m just hoping we can get a clear audit. ... We need to know what they"re up to."

Unfortunately for Paul, the bill appears to be idling in the House Financial Services Committee, which is chaired by Barney Frank, D-Mass. The bill has been sitting there, gathering co-sponsors, since Paul introduced it in late February.

Calls to Frank"s office were not returned.

Paul acknowledged that his bill hasn"t advanced but said Frank has "promised" him he will deal with his bill and is willing to give it a hearing. Paul said it"s easily got the "momentum" to pass the full House.

A representative with the Federal Reserve could not be reached for comment. DeMint told FOX News last week that the measure would have a good chance of passing the Senate if supporters can push Paul"s to a vote, which he said would be successful, in the House.

"The whole process is unconstitutional. There is no legal authority to operate such a monetary system," Paul said in February, in a statement calling for Washington to "end the Fed."

DeMint amendment to audit the Federal Reserve blocked by Senate Leadership

Senator Jim DeMint (R-SC) is blocked by Senate Democrat Leadership from having a vote on his amendment to audit the Federal Reserve, based on a bill authored by Congressman Ron Paul (R-Texas) in the House, H.R. 1207, and Senator Bernie Sanders (D-Vermont) in the Senate, S. 604.

Speak Out - Audit the Fed, Then End It!

If you have not done so yet, please contact your legislative representatives and tell them you support a Fed audit. If you have already done so, then please do so again. Details how in Speak Out - Audit the Fed, Then End It!

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

1929 Revisited

2009-12-19T16:41:00.000-08:00

Many people asked for a transcript of Contrarian Debate: Janszen vs Mish the discussion between Eric Janszen and myself on housing, a possible recession, and the terminal state of the asset bubble cycle: inflation or deflation.

Others wondered why the "&*%@$!" format was streaming audio instead of MP3. I can not answer that question but I will pass that thought along to the person recording and we will attempt to have a different format next time if at all possible. Finally others questioned calling what took place a "debate". Well it was never intended to be a debate in the classic sense but rather a discussion of ideas and topics that each of us agreed to talk about in advance. Indeed there was far more agreement than disagreement.

In the discussion each of us presented a "What year is it?" scenario. Eric Janszen chose 1999 as outlined in Is it 1999 again? Yes and no. I chose 1929. I think it is fair to say we both agree that history rhymes but does not repeat, and those looking for "fireworks" as opposed to a discussion of ideas may have been disappointed.

There is no transcript available but following are my views on the parallels between now and 1929 and why this is not a repeat of the 70"s. Let"s discuss the 70"s first.

70�s Rerun

Similarities

War in Vietnam war then vs. the war in Iraq now
Rising oil and commodity prices

Differences

Rising Oil prices [demand side shock vs. supply side shock]
Spiraling wages then vs. declining wages now
Wage and price controls then
Consumer Debt levels � Significant ability to take on more debt in the 70"s
Housing down payments � 20% then 0% now
Two family incomes now vs. one family income then
The power of unions - then
Globalization & Global wage arbitrage - now
Outsourcing - now
Productivity improvements - The internet and other innovations - now
Declining credit standards - now
Downfall of communism
Long term interest rates under 5% - now
New creative financing ideas running rampant - now
Massive use of derivatives - now
China, India, and Emerging Markets

The differences noted above are staggering and Eric agreed.

20"s Rerun

Throughout the 1920s, the Fed deliberately and unwisely stimulated the stock market by keeping the �call rate,� that is, the interest rate on bank loans to the stock market, artificially low. � Margin rates were just lowered here and the FF rate which was lowered to 1% supported a big housing boom.
In the late 1920s, bank credit propelled a massive real estate boom in New York City, in Florida, and throughout the country. We now have the biggest housing bubble in history.
In the 1920�s there was a massive infusion of money (gold) from war torn Europe stimulating our economy. We currently have a massive stimulus of cheap money from Japan and China via and various carry trades and cheap credit supporting our economy.
In the 20�s we intervened in foreign exchange markets to enhance or stabilize Europe�s power to buy our exports. We currently are involved in disputes with China over currency issues attempting to get China to buy more of our goods.
There were massive productivity improvements in the 20�s along with the industrial revolution and assembly line processing. The 90�s � 2000�s productivity miracle was the internet. Huge boom periods on account of disruptive innovation. By contrast there was no such innovative disruptions in the 70�s.
In late 20�s credit was expanding at a rapid pace but there was no need for additional productive capacity. Today GDP is rapidly falling but credit is still rising. There is no pent up demand for homes, restaurants, retail stores, strip malls, autos, truck, etc, just as there was no need for additional assembly line production in 1929. Speculation replaced productive capacity just as it is today.
In 1929 leverage was extreme via stock margin. In 2006 credit derivatives leverage is extreme to the tune of 340 trillion dollars worth with no one really understand exactly what the counterparty risk is.
A few days before leaving office in March 1929, Coolidge called American prosperity �absolutely sound� and assured everyone that stocks were �cheap at current prices.� Based on the �Treasury Model� and unsustainable earnings growth due to financing activities, we are once again told time and time again that �the economy is sound� and stocks are cheap at current prices.
"Keynesian Folly", along with other massive government interventions managed to convert what would likely have been a short, sharp recession into a chronic, permanent, stagnation with an unprecedented high unemployment that only ended with World War II. Massive government interventions between 2002 and 2005 prevented a badly needed recession and instead created the biggest asset bubble in history.
In 1933 gold coins were confiscated � now we have a threat of nickels being confiscated.
At the time, the stock market of 1929 was the biggest asset bubbles in history. We have now vastly exceeded all previous credit bubbles.
The Smoot-Hawley Tariff was signed into law on June 17, 1930. There are renewed threats of tariffs in the U.S. Congress right now.

Oddly enough I found one more similarity just today. In More Cream for the Fat Cats I see that "Corporate profits are at their highest level since 1929."

The above 12 points were the similarities I mentioned in the discussion and Eric chimed in with an additional one: Buying goods on credit. Buying on credit first became widely practiced in the 20"s. It was done to "make things affordable". Now nearly everything is made affordable by stretching payments to lengths that certainly never would have been allowed in the 70"s but are commonplace today.

That is where we parted ways. While agreeing on the similarities Eric also cautioned there were parallels to 1937 and presented his "Ka-Poom Theory" which you can also see in Is it 1999 again? Yes and no. On the other hand I am sticking to a simple "It�s not different this time" approach and that all asset bubbles collapse in a deflationary credit bust. Previous credit busting deflationary collapses include Japan, the Great Depression, the railroad bust of the 1880"s, the South Sea Trading Bubble, the John Law Mississippi Bubble, and the Tulip Mania Bubble.

In an Interview with Paul Kasriel we had the following discussion on how inflation starts and ends.

Mish: How does inflation start and end?
Kasriel: Inflation starts with expansion of money and credit.
Inflation ends when the central bank is no longer able or willing to extend credit and/or when consumers and businesses are no longer willing to borrow because further expansion and /or speculation no longer makes any economic sense.

It is pure speculation now (corporate buybacks, leveraged buyouts, collapsing volatilities) along with foreign central bank asset buying that is driving stocks higher. None of it is getting into the average guy"s pocket and none of it has anything to do with the real economy. Meanwhile real wages are falling, home prices are collapsing, and if I am correct job growth is about ready to fall off the cliff in a second wave down of reduced corporate spending. That combination will increase foreclosures, defaults, and bankruptcies (the latter of which obviously destroys credit).

There is little central banks can do about it either, just as they could not do much when all of the other massive bubbles throughout history collapsed. Nonetheless, �Keynesian Folly" will likely be attempted once again. The last execution by Greenspan produced the housing bubble and with it jobs. If the next attempt does not put money into consumers pockets and have them spend it on increased consumption (as opposed to paying off debts), the party is over regardless of what year this is.

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

Will Obama"s Job Retraining Programs Save The Day?

2009-12-19T13:53:00.000-08:00

President Obama is mulling rental options for foreclosed homeowners. Furthermore Obama seeks job training for the unemployed, concedes unemployment is getting worse, says auto jobs are not coming back, yet magically assumes job retraining will save the day.

In short, Obamaitis is setting in. Please consider the following news stories.

Obama Says "Give It To Me"

On the burden of fixing the economy Obama Says "Give It To Me"

Conceding unemployment will get worse before it shrinks, President Barack Obama on Tuesday unveiled a $12 billion plan to help community colleges prepare millions of people for a new generation of jobs. Challenging critics, he said he welcomed the task of turning around the economy.

"The hard truth is that some of the jobs that have been lost in the auto industry and elsewhere won"t be coming back," Obama said. "They are the casualties of a changing economy."

To that end, he proposed an "American Graduation Initiative" to bolster the two-year community college field that serves millions of students as a launching point for careers or a step toward expanded higher education. The idea is to train people for jobs, such as those expected in the clean energy industry, when the economy turns around and begins to create jobs again instead of shedding them.

Under the plan, competitive grants would be offered to schools to try new programs or expand training and counseling.

The White House says the cost would be $12 billion over 10 years; Obama says it would be paid for by ending wasteful subsidies to banks and private lenders of student loans.

Meanwhile, former Federal Reserve Chairman Alan Greenspan told Republican senators on Tuesday at their private weekly luncheon at the Capitol that the government"s $1 trillion deficit was the single biggest hurdle to economic recovery.

Question of the Day

Why is that Greenspan is ignored on the few occasions where he makes any sense, yet people fawn all over him the vast majority of the time when he makes no sense at all?

Obama Mulls Rental Option For Homeowners

Inquiring minds are reading Obama mulls rental option for homeowners.

U.S. officials are weighing a plan to let borrowers who have fallen behind on mortgage payments avoid eviction by renting their home instead, sources familiar with the administration"s thinking said on Tuesday.

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes, but would continue to live in the property for several years, the sources told Reuters.

A U.S. Treasury spokeswoman said late on Tuesday that "we are constantly reviewing new ways to help struggling homeowners and stabilize the housing market. This is just one idea among many that has been considered, but no decisions are imminent on the matter."

Officials have been frustrated as red tape and rising interest rates have slowed a housing rescue plan announced in February that was meant to refinance the mortgages of 5 million borrowers and lower monthly payments for 4 million more.

Since one in five homeowners owe more than their property is worth, they have little cushion if they lose their job or face another crisis, said Jay Brinkmann, the chief economist for the Mortgage Bankers Association.

"Foreclosure is a double trigger -- does someone have a job and do they owe more than a home is worth?" Brinkmann asked.

Obama Says New Jobs Will Require Training

BusinessWeek is reporting Obama says new jobs will require greater training.

President Barack Obama says lost auto industry jobs in states such as Michigan will not come back and new jobs will require greater training and post-high school education to achieve a higher skilled work force.

Under Obama"s college initiative, schools could qualify for "challenge grants" so they"ll have money to try new programs, or expand training and counseling. Dropout rates would be addressed by designing programs to help students who want to earn an associate"s degree or transfer to a four-year institution do so.

Money would be spent to renovate outdated facilities or build new ones, and to develop online courses and make them freely available to students and others who want to use them.

The total federal cost is $12 billion over a decade. Of that, $9 billion would go toward challenge grants and addressing dropout rates. Half a billion, or $500 million, would go toward online education. The remaining $2.5 billion would be used to spark $10 billion in renovation and construction nationwide, said James Kvaal, an Obama economic policy adviser.

Federal Job-Training Programs Have Record Of Failure

Some of what Obama says sounds good on paper. However, inquiring minds are not satisfied with what sounds good. It has to feel good as well. The sad reality of the matter is Federal Job-Training Programs Have a Record of Failure.

The above study dates back to 2004, but little has changed except increasing competition for jobs. Here are a few snips.

The history of federally funded job-training programs strongly suggests that [the Workforce Investment Act] WIA will not substantially raise participants" incomes. Similar programs funded under the Job Training Partnership Act (JTPA) of 1982 were found to be largely ineffective.

Three types of JTPA activities were evaluated: classroom training, on-the-job training and job-search assistance, and "other services" tailored to participants on the basis of their age.

Over several decades, Congress has "reformed" federal job-training programs numerous times. Each of these reforms promised to fix federal job-training programs--to no effect.

According to Professor Gordon Lafer at the University of Oregon Labor Education and Research Center, "As successive generations of job training programs fail to produce the hoped-for results, policy makers have cycled through a stock repertoire of procedural fixes that promise to solve the problem."

For WIA, these procedural fixes fall under the mantra of "increased flexibility" and "One-Stop Career Centers." However, none of these fixes are likely to improve the effectiveness of job-training programs. Professor Lafer reasonably concludes that the "lesson of the National JTPA Study is that there is no managerial fix which can create dramatically more effective training programs."

The dismal failure of federal job-training programs should lead Congress to abolish WIA--along with other federal jobs-training programs.

Job Retraining Cannot Possibly Work

It should not take a genius to conclude job training cannot possibly work. There are so many qualified, experienced, out of work individuals that few if anyone would hire a GM welder retrained in JAVA programming for a programming position. Moreover, no one would hire a banker as a welder. Nonetheless, president Obama and colleges are both touting such retraining as a way to get a job.

Bear in mind, I am all in favor of education, but the idea that 40-50 year old assembly line workers, home builders, mortgage brokers, etc etc can be retrained and compete against those with 20 years experience and still out of a job is absurd.

President Obama is bright enough to understand this. Yet, instead of telling the truth, Obama is willing to waste billions of taxpayer dollars spreading false hope.

Under guise of political expediency, Obama simply cannot tell the truth to those out of a job. The sad truth is the situation is hopeless for many if not most of those who are over 40 and recently lost a high paying job.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GM Plans Pay Cuts For Salaried Workers

2009-12-19T12:25:00.000-08:00

Every week there are stories involving workers voluntarily, or involuntarily involved in pay cuts. Kicking this week off, General Motors Said to Plan Pay Cuts for Salaried Employees.

General Motors Corp., racing to meet U.S. conditions to keep $13.4 billion in government loans, will include pay cuts for salaried employees in a restructuring plan to be submitted Feb. 17, people familiar with the plan said.

The pay cuts will be in addition to firings of thousands of salaried workers required to cut expenses as the largest U.S.- based automaker tries to win concessions from bondholders, labor unions and dealers, the people said, who asked not to be identified because the plans haven�t been announced.

General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.

U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury�s Web site. The government has hired a law firm to help establish its place at the front of the line for repayment, two people involved in the work said last week.

If federal officials fail to get a consensual agreement to change their position regarding repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called �debtor in possession� or DIP loan, a lender status that gives the U.S. priority over other creditors, said Don Workman, a partner at Baker & Hostetler LLP.

�They are negotiating to see if they can reach an agreement,� said Workman, a bankruptcy lawyer based in Washington. �If not, they are saying �We are pretty darn sure that a bankruptcy judge will allow us�� to be first in line for repayment.

As it stands, the government loans fall below existing debt secured by most assets for Auburn Hills, Michigan-based Chrysler and Detroit-based GM. Prior lenders have first position on some assets. The government has first position on assets not already pledged.

Other Pay Cuts

Ohio Governor Asks For Across The Board Union Pay Cuts

FedEx (FDX), Timber giant Weyerhaeuser (WY), and Alcoa (AA) cut or froze wages. See 2009: Already Looking Bleak for details.

San Diego is asking for cuts in pay and wages. See Sharing The Pain In California for details.

On January 29, 2009 Arizona State Faculty Announced Face 12% Pay Cut by June 30.

Arizona"s public universities on Tuesday unveiled their offers to make cuts in their budgets this year, saying they would strip thousands of employees of weeks of pay and eliminate jobs and some programs. ...

[T]he proposal would require employees, including tenured professors, to take time off as unpaid leave. ... ASU"s portion of the proposed $100 million cut is $45.3 million. Much of it would come from employees, who could lose 12% percent of their remaining pay before July.

On February 6, 2009 Contemporary Media employees take pay cut

Employees at Contemporary Media Inc., publisher of The Memphis Flyer , Memphis magazine, Memphis Parent and Memphis Business Quarterly , have taken pay cuts of at least 4 percent, with some taking pay cuts as high as 8 percent.

The company�s 401(k) matching program was also suspended. The cuts will last at least until the end of June.

Those salary cuts span many industries. We have not seen broad based wages cuts like this since the great depression. Expect to see a lot more in the weeks ahead. This is deflation in action.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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David Brooks on failures of conservative movement

2009-12-19T09:30:00.000-08:00

Conservative columnist David Brooks envisions very tough times ahead for conservatives. On "Face the Nation" this morning, Brooks says the conservative movement has "no leaders," is in a "world of pain," and lacks a "coherent belief system." Watch a clip from the show (via ThinkProgress).

LinkHere

Jon Stewart Interviews Originator Of "Death Panel" Lies

2009-12-19T07:14:00.000-08:00

Betsy McCaughey Pt. 1

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Betsy McCaughey Pt. 1

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Daily Show
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Part 2

The Daily Show With Jon Stewart

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Exclusive - Betsy McCaughey Extended Interview Pt. 1

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Daily Show
Full Episodes

Political Humor

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Part 3

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Exclusive - Betsy McCaughey Extended Interview Pt. 2

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Death Panel Myth Creator Betsy Mccaughey Resigns

Source: Washington Independent
Betsy McCaughey � an outspoken proponent of the myth that Democrats� health care reform proposals will lead to the creation of �death panels,� as well as a former lieutenant governor of New York and adjunct fellow at the Hudson Institute � has stepped down from her position as a director of Cantel Medical Corp., which bills itself as a �leading provider of infection prevention and control products in the healthcare market.�
From a press release:
CANTEL MEDICAL CORP. (NYSE: CMN � News) announced that on August 20, 2009 it received a letter of resignation from Ms. Elizabeth McCaughey as a director of the Company. Ms. McCaughey, who had served as a director since 2005, stated that she was resigning to avoid any appearance of a conflict of interest during the national debate over healthcare reform.
McCaughey found herself the subject of widespread ridicule after an appearance on �The Daily Show� Thursday, during which host Jon Stewart aggressively challenged her positions on health care reform.
LinkHere

Hudson Institute "donors" list
Ag Processing Inc
American Crop Protection Association
American Cyanamid
Archer Daniels Midland
Cargill
Ciba-Geigy
ConAgra Foods
Conrad Black
CropLife International
DowElanco
DuPont
Eli Lilly and Company
Exxon Mobil
Fannie Mae
General Electric Fund
Heinz
IBM
Lilly Endowment
McDonald"s
Merck
Microsoft
Monsanto
National Agricultural Chemical Association
Nichols-Dezenhall Communications Management Group
Novartis
PayPal
PhRMA
PriceWaterhouseCoopers
Procter & Gamble
Sunkist Growers
Syngenta Crop Protection
United Agri Products
Westfield Corporation

BLOOMBERG: Dow Chemical to Sell Assets, Cut Jobs to Fund �Rich� Rohm Deal

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

By Jack Kaskey and Jef Feeley

March 10 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, will use asset sales, job cuts and new debt to try to maintain investment-grade credit ratings after paying what some investors are calling a �rich� price for Rohm & Haas Co.

Dow plans to raise about $4 billion from selling assets, including at least $1.5 billion from Rohm & Haas�s Morton Salt unit, Dow Chief Executive Officer Andrew Liveris said yesterday. The company will issue $4.3 billion of debt and cut costs by $400 million more than previously estimated, partly by eliminating an additional 3,500 jobs, mostly at Rohm & Haas, Liveris said.

Liveris sought new terms for the buyout after a joint venture with Kuwait collapsed, depriving Dow of $9 billion and prompting debt downgrades. Rohm & Haas investors will get $78 a share as originally agreed, and the two largest shareholders get equity that cuts Dow�s cash cost by as much as $3 billion and contributes to a 7.8 percent higher deal price of $16.5 billion.

�There are still concerns about the financial viability of Dow, and the fact they still agreed to pay $78 a share to the individual shareholders was a bit of a disappointment,� said Gene Pisasale, who helps manage $13 billion, including Dow shares, at PNC Capital in Baltimore. �That is a pretty rich price.�

Dow refused to complete the all-cash purchase as planned in January, saying the combined company wouldn�t be viable because of slumping chemical demand and increased debt. The companies reached the accord after the start of a trial in Georgetown, Delaware, was delayed for settlement talks.

Dow, based in Midland, Michigan, fell 45 cents, or 7.1 percent, to $5.88 in trading after the official close of the New York Stock Exchange. Philadelphia-based Rohm & Haas rose $3.42, or 4.6 percent, to $77.42.

�Favorable Resolution�

�This is a favorable resolution for Rohm & Haas because the shareholders are getting exactly what they were promised,� said Dmitry Silversteyn, an analyst at Longbow Research in Independence, Ohio.

Under the revised accord, which is set to close on April 1, Dow will pay a so-called ticking fee of $100 million a month from Jan. 10 to closing, contributing to the higher deal price, Chief Financial Officer Geoffery Merszei said yesterday.

The Haas family trusts and Paulson Co., the largest shareholders will exchange some of their stock for $2.5 billion in preferred Dow shares, and the Haas family may take an additional $500 million in equity at Dow�s discretion, the company said.

Interest payments on the preferred shares will reduce annual earnings by as much as 20 cents a share compared with debt financing, Merszei said.

Bridge Loan

Dow will need to draw only $9.5 billion of a $12.5 billion bridge loan to finance the deal because of the latest equity investments, Merszei said. In addition, Dow has a $3 billion equity investment from Warren Buffett�s Berkshire Hathaway Inc. and a $1 billion investment by the Kuwait Investment Authority.

By June, the issuance of long term debt will help cut the bridge loan to $4 billion, and asset sales will help Dow repay the entire amount within a year, Merszei said.

Standard & Poor�s said March 6 that Dow�s corporate credit and senior unsecured debt ratings of BBB, two levels above junk, may be lowered if the merger closed on the original terms or if the company was found liable for a large legal judgment.

Dow has six bidders for Morton Salt, the biggest U.S. salt producer, and the unit will be sold soon after the merger is complete, Liveris said. Selling stakes in a Dutch oil-refining business and in southeast Asia olefins ventures will raise about $1.5 billion, Liveris said. Other businesses worth about $1 billion will be sold, he said.

Job Cuts

Dow plans to save $1.3 billion by combining purchasing operations, sharing services and closing duplicate plants and research facilities, Liveris said. The latest job cuts bring the total at both companies to 10,000, he said. The combined company will spend $1.6 billion a year on research, among the biggest budgets in the industry, he said.

Acquiring Rohm & Haas was a key part of Liveris�s effort to transform Dow from a commodity producer into a maker of specialty products, such as material for electronics and paints, that command higher profit margins.

�This deal is strategic and it positions Dow for the future,� Liveris said. �We are back in control of our own destiny.�

Dow is pursuing more than $2.5 billion in restitution through arbitration from Kuwait�s Petroleum Industries Co. for backing out of an agreement to buy a 50 percent stake in the basic plastics unit, the world�s largest maker of polyethylene plastic. Dow isn�t aggressively pursuing damages against the nation in case it wants to restart the aborted K-Dow joint venture, he said.

Other state-owned petroleum companies also are interested in buying the plastics stake, Liveris said.

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Recommended Amazon Reading

The Four Filters Invention of Warren Buffett and Charlie Munger by Bud Labitan
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BLOOMBERG.COM: Buffett Says Economy `on Floor" After Cardiac Arrest

2009-12-19T02:56:00.000-08:00

By Erik Holm and Andrew Frye

Oct. 1 (Bloomberg) -- Billionaire Warren Buffett, the world"s preeminent stock picker, said the U.S. economy is ``flat on the floor"" after a cardiac arrest as companies struggle to secure funding and unemployment increases.

``In my adult lifetime I don"t think I"ve ever seen people as fearful, economically, as they are now,"" Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.""

The biggest housing slump since the Depression has spurred a wave of defaults and a yearlong contraction in global credit markets, squeezing companies" capacity for investment. Buffett"s Berkshire Hathaway Inc., based in Omaha, Nebraska, agreed in the past two weeks to buy $8 billion in preferred shares from General Electric Co. and Goldman Sachs Group Inc. to help the companies fund their businesses.

The credit freeze is ``sucking blood"" from the U.S. economy, Buffett said.

The bankruptcy of Lehman Brothers Holdings Inc. and Washington Mutual Inc., and the emergency sales of Merrill Lynch & Co. and Wachovia Corp. fueled fears about the vulnerability of firms that rely on capital markets for short-term funding.

Buffett is taking advantage of fragile stock markets, the lack of available credit and his own reputation as a picker of successful companies to extract outsized payments for Berkshire"s cash and endorsement. He has told shareholders that his strategy is to be ``greedy when others are fearful.""

`Seizing Opportunity"

``He"s seizing the opportunity,"" said Tom Kersting, an analyst for Edward Jones & Co in St. Louis. ``His philosophy is always to keep some powder dry. That allows him to take advantage of the current turmoil we"re in and take advantage when others can"t.""

For both Goldman and GE, Buffett"s endorsement comes with a cost. Both companies agreed to pay Berkshire a 10 percent dividend on his preferred shares, and each gave him warrants to buy their common stock at any point in the next five years at a price that"s a discount to where it"s currently trading.

Industrial production drops 1.1%, Motor vehicle output plunges 11.9%

2009-12-19T00:52:00.000-08:00

MarketWatch is reporting Industrial production drops 1.1% in August.

Led by a big drop in auto production, U.S. industrial output plunged 1.1% in August, the biggest drop since Hurricane Katrina three years ago, the Federal Reserve reported Monday.

The decline was much worse than the 0.3% decline expected by economists surveyed by MarketWatch. Output in the previous four months was also revised down by a total of half a percentage point.

Industrial production has now fallen 1.5% in the past year and 2% since its peak in January. Industrial production is one of four major indicators used to judge whether the economy is in a recession.

Capacity utilization -- a key gauge of inflationary pressures stemming from industrial bottlenecks -- dropped by a full percentage point to 78.7%, the lowest in nearly four years. Capacity utilization in manufacturing fell to 76.6%, about three percentage points below its long-run average and also the lowest in four years.

In August, total vehicle assemblies dropped to an 8.19 million annual rate, down 24% from the 2007 average. For light trucks, assemblies dropped 41% below last year"s average.

Statistical Release

Here is the Federal Reserve Industrial Production and Capacity Utilization Statistical Release.

On any other day motor vehicle output plunging 11.9% and industrial production tanking would be pretty grim news. Today, no one is talking about it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Polygamist sect gets millions from U.S. government

2009-12-18T23:47:00.000-08:00

FT. WORTH, Tex. _American taxpayers have unwittingly helped finance a polygamist sect that is now the focus of a massive child abuse investigation in West Texas, with a business tied to the group receiving a nearly $1 million loan from the federal government and $1.2 million in military contracts.
LinkHere
Faith based pedophilia.

Lawrence Wilkerson: Congress Is "Spineless"

2009-12-18T21:56:00.000-08:00

Col. Lawrence Wilkerson, the former chief of staff to Secretary of State Colin Powell, was sharply critical of the CIA and the U.S. Congress in an appearance on CNN"s "American Morning" on Wednesday. LinkHere

Psychopaths always blame their victims

2009-12-18T19:33:00.000-08:00

Twelfth Bough

I�m sure you haven�t heard on TV news that the IDF killed a Palestinian family of four small children and their mother, among others, as they were getting ready to eat breakfast. I mean, if an Israeli family was killed we�d be hearing about it non-stop; but this was just a Palestinian mother and her four little children. Just some collateral damage� The IDF is looking into the incident, but has yet to obtain a full picture of what happened. Military sources noted that a group of gunmen was spotted shortly after 8 am near Givati forces operating in the area. An aircraft fired at them and hit them, while tanks fired shells towards the area. Translation: The IDF has yet to prepare an adequate excuse for the utter disregard of Palestinian lives. They need an excuse suitable for international consumption because, though they don�t care about these people who were killed, they know that some people will whine about it causing a slight inconvenience to Israeli public relations activities. So the IDF is "looking into the incident, but has yet to obtain a full picture of what happened�, which means they haven�t got the story down yet...

continua / continued

GM Leads the Way with a 53% Sales Plunge

2009-12-18T18:44:00.000-08:00

Congratulations of sorts go to GM for its industry leading sales effort. Please consider GM�s 53% U.S. Sales Decline Leads Industry�s February Plunge.

General Motors Corp., surviving with federal loans, said its February U.S. sales plummeted 53 percent as the recession pushed industrywide purchases toward the lowest in almost three decades.

Industry sales at last month�s levels make it more challenging for Detroit-based GM and Chrysler LLC to become profitable and pay back $17.4 billion in U.S. loans. President Barack Obama�s auto task force may approve as much as $21.6 billion more aid for the two automakers and support for the thousands of companies that supply car manufacturers with parts.

GM�s February sales of cars and light trucks fell to 126,170 from 268,737 a year earlier, the automaker said in a statement. That included declines of 69 percent for Hummer, 59 percent for Saab and 57 percent for Saturn, three units the company is seeking to shed.

At Ford, sales of cars and light trucks dropped to 99,050 from 192,178, according to a statement from the Dearborn, Michigan-based company. The sales were hurt by a 55 percent decline to 23,614 for its F-Series pickup trucks. Sales for the Volvo unit, which Ford wants to sell, were also down 55 percent.

Toyota reported a decline to 109,583 from 182,169. Sales for the Toyota City, Japan-based company were dragged down by declines of 60 percent for its Tundra large pickup and 51 percent for the Yaris small car.

Honda said deliveries fell to 71,575 from 115,397, and Nissan said its sales fell to 54,249 from 86,219.

Volkswagen AG said February sales for its namesake brand declined 18 percent to 13,660. Daimler AG said sales of its Mercedes-Benz and Smart vehicles fell 21 percent to 15,614. Bayersiche Motoren Werke AG�s U.S. sales were down 35 percent to 15,805.

Hyundai Motor Co., South Korea�s largest automaker, said it sold 30,621 vehicles last month, a 1.5 percent decline from a year earlier. In January, Seoul-based Hyundai was the sole major automaker to post a gain in U.S. sales.

Seeking To Shed Hummer, Saab, Saturn

What"s with this seeking to shed nonsense? Just do it. GM needs to halt operations on all three. The brands are worthless. In fact they are less than worthless. GM has never in history returned a profit on Saturn.

How does GM do it? Volume, Volume, Volume. Volume on Hummer, Saab, and Saturn needs to be zero.

For more on this month"s auto woes, please see Ford Sales Decline 48%, Toyota 32%, Honda 21%, Nissan 35%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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US Service Sector in Recession - Eurozone is Fading Fast

2009-12-18T17:58:00.000-08:00

If there was any doubt before, there should be no doubt now, the economy, led by the service sector is now in recession. The US service sector contracted in January.

The Institute for Supply Management reported that its index of service sector business activity declined to 44.6 in January from a revised reading of 54.4 in December. Economists surveyed by Thomson Financial/IFR had expected a slight slowdown but had still forecast growth, with a median estimate for the index of 53.

A reading above 50 indicates expansion, while below 50 indicates contraction. It was the first time the service sector reading has contracted since March 2003.

"This is an absolute collapse of this index," said Nigel Gault, chief U.S. economist at Global Insight.

ISM said only three service industries reported growth, while 14 showed contraction. The three growing segments � utilities, professional services and educational services � include more crucial needs such as doctor visits. Meanwhile, cutbacks in less-essential spending has dragged down such segments as arts and entertainment, fishing and hunting, and lodging and food services.

Two measures that fell were those for new orders and employment, which Nieves said were more forward-looking � so their drops could indicate trouble ahead. New orders fell to 43.5 while employment fell to 43.9.

ISM Table At A Glance

Click on chart for sharper image
Click here for the complete January 2008 Non-Manufacturing ISM Report On Business

EuroZone Fades

Reuters is reporting Services contract in US, fading fast in euro zone.

"An absolutely stunning ISM non-manufacturing number leaves the chart of the index looking like it has fallen off the edge of a cliff, and is heartwarming only for those who think the economy is already in a recession," said Alan Ruskin, strategist at RBS Greenwich.

"It seems clear that the economy has slowed in recent months: however, we will need to see much more in the way of supporting evidence before we believe that growth has slowed as much as this series suggests," said Drew Matus, economist at Lehman Brothers in New York.

My Comment: More supporting evidence is needed? The holiday shopping season was miserable. More importantly, Jobs Contracted in 2007 as Job Growth Revised Away. How much more supporting evidence does one need? Is Matus reporting from Pluto?

The data followed news earlier on Tuesday that euro zone services growth slowed to a near halt in January from an already weak early estimate, with services in three of the bloc"s four biggest economies -- Germany, Italy and Spain -- contracting.

Of the big four only France showed growth.

The RBS/NTC Euro zone Services Purchasing Managers Index fell a sharp 1.4 points to 50.6 in January from an earlier flash estimate of 52.0. That index is now dangerously close to the 50 mark that divides growth from contraction.

Those data marked a new four-and-a-half year low for services in the 15-member bloc and also came in well below the 52.0 consensus -- although by nowhere near a big a gap as the U.S. numbers.

"Euro zone growth is in trouble and the risk of recession at some stage should not be underplayed. Business confidence is sliding and consumer morale is being hit hard," said David Brown, chief European economist at Bear Stearns, before the U.S. ISM report was released.

Decoupling Theory Dead

The EuroZone Decoupling Theory is now officially dead. The only question now is how big the recession in Europe will be. The US is in recession and it is going to be nasty.

Professor Depew was talking about the ISM in point number 1 of Five Things: Everybody, Back Into the Woods! Back Into the Woods!

There was very little about this morning"s release of the Institute for Supply Management"s Non-Manufacturing Index that wasn"t a fiasco.

First, the report was released about an hour early "due to a possible breach of information." Second, the plunge in the index headline composite index number, from 53.9 to 44.6 stunned even the most grim-faced bears. Third, a recently announced change in the composition of the index mistakenly led a few "We"re Out of the Woods" optimists to conclude that perhaps the numbers aren"t" as bad as they seem. Well, everyone can run back into the woods, because they are as bad as they seem.

All that was revised was the weighted formula for the overall headline composite index number. The previous weighted formula was scrapped in favor of an equal-weighted formula because, according to the ISM, to more closely predict GDP. What does that gibberish mean?

There are four categories that make up the overall composite index reading. They are:

1) Business Activity Index
2) New Orders Index
3) Employment Index
4) Supplier Deliveries Index

In the old formula these were weighted unequally. Now, they are weighted equally at 25% each. So while the overall composite reading of 44.6 may not compare easily to the January weighted composite of 53.9, the measurements of the components themselves are unchanged, and the component index readings are most important.

Therefore, when one sees the Business Activity Index plunge from 54.4 to 41.9 or the New Orders Index decline from 53.9 to 43.5, the Employment Index slip from 51.8 to 43.9 and the Supplier Deliveries Index fall from 52.5 to 49, the weakness is apparent. remember, any reading below 50 signals contraction.

Bottom Line: Service industries make up more than three-quarters of the economy. This is a very weak report. Some of the internals are at 2001 levels reached during post-9/11 stress and ahead of the 2002 deflationary scare. Everyone out of the woods should now run back into the woods for cover.

Bernanke needs a Crash Course On Economics. The global economy is fading fast.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Steve Forbes On The Economy

2009-12-18T16:53:00.000-08:00

Here is Steve Forbes at Freedom Fest.

click here to play video

Forbes" Thoughts

The US economy will show real growth in the second half because of low inventories.
There is plenty of liquidity out there even though a lot of it is frozen.
The rest of the world is starting to get it right.
In terms of investments we are on the cusp of a real era of innovation.
Right now I would take a bundle or package of financial institutions and buy them.

This is a classic: "There is plenty of liquidity out there even though a lot of it is frozen."

My Thoughts

The US recession picks up steam in the second half.
The world economy is going to slow.
Inventories are going to skyrocket along with unemployment.
Financials are not going anywhere except for a possible dead cat bounce.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Assistant Principal Is First NYC Swine Flu Death

2009-12-18T15:30:00.000-08:00

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Potential Ballot Trouble In OH: Split Contests

2009-12-18T15:09:00.000-08:00

By Lawrence Norden � 10/01/08
By our count, at least twelve Ohio counties have split the presidential contest over two columns on their paper ballots for this November"s election. This "column split" often confuses voters and results in double voting in the presidential race�and an uncounted vote. Today the Brennan Center urged election officials and advocates in Ohio to make sure that voters are aware of the split, and to make sure they vote only once for president.
The twelve Ohio counties whose ballots spilt the presidential race over two columns are: Ashtabula, Athens, Auglaize, Champaign, Delaware, Lawrence, Logan, Madison, Ottawa, Seneca, Shelby, and Wyandot.
As a quick glance will show, it"s no surprise that many voters cast two votes for president when the contest is listed across two separate columns. The one on the right is from Auglaize County (click to see larger).
In July, the Brennan Center published Better Ballots, a study of ballot design flaws in the last several elections and their impact on those elections. The study showed that ballots that featured a single contest split into two columns, as seen in the illustration of Auglaize County"s ballot above, frequently confused voters. A split contest like this is often seen by voters as indicating two separate tasks (i.e., vote once in each box) and can lead to unintentional overvoting.
In 2002, in Kewaunee County, Wisconsin, for example, the ballot listed the candidates for the gubernatorial election in two columns. Nearly 12% of voters in the county did not have a vote counted in the race; this compares to only 1.1% of voters statewide. The low number of votes recorded in the gubernatorial election in Kewaunee County was undoubtedly because many voters believed the governor"s race was actually two races, and voted twice in that race�once for one of the candidates boxed in together in the first column, and once again for one of the candidates boxed in the second column. As a result, none of their votes for Governor counted.
The Brennan Center and the United States Election Assistance Commission have issued ballot design guidelines strongly recommending that a single contest be placed in a single column on a ballot. For the Ohio counties with split presidential columns, the Brennan Center urges election officials and advocates to make sure that voters are aware of the split, and to make sure voters vote only once for president.
Hundreds of thousands of voters have been disenfranchised in recent elections due to badly designed ballots and confusing voting instructions�particularly elderly, low-income and new voters.
To see the Brennan Center"s ballot design study, Better Ballots, and read more about how specific ballot design flaws continue to plague voters in 2008, visit the Brennan Centers" interactive demonstration here.
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MSNBC"s Rachel Maddow Show

2009-12-18T12:37:00.000-08:00

MOTLEY FOOL: Munger Goes Mental

2009-12-18T09:42:00.000-08:00

By Whitney Tilson

June 4, 2004

Berkshire Hathaway"s (NYSE: BRK.A) (NYSE: BRK.B) Warren Buffett and Charlie Munger are undoubtedly the greatest investment duo ever, so I think any sensible investor should try to learn as much as possible about these two men and how they achieved their success. In the case of Buffett, it"s not hard -- there are many books about him, he"s published lengthy annual letters for decades (you can read the last 27 of them for free on Berkshire"s website), and he gives speeches and makes public appearances regularly. But Munger is more private; there are only two books about him, he is a far less prolific writer, and rarely gives speeches.

Thus, my heart skipped a beat when a friend gave me a recording of a speech Munger gave to the economics department at the University of California, Santa Barbara last Oct. 3. It"s 85 minutes long and entitled, "Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs."

With that kind of title, it sounds like a real snoozer, eh? But it"s not. In this speech, Munger applies his famous mental models approach to critiquing how economics is taught and practiced, and I think the lessons he teaches are profound -- both for investors as well as anyone who seeks to be a better, clearer thinker.

I transcribed the speech for my own benefit, but after making such an effort (it took forever, as it"s 21 single-spaced pages), I thought that others might be interested in Munger"s wisdom, so I sent him a copy and asked if I could publish it. He asked me not to until he"d had a chance to review it and make some edits. He has now done so, so I"m delighted to share it with you: Click here to read it.

In this column, I will share some of the highlights of the speech.

Berkshire"s success
Munger started his speech by highlighting his credentials to talk about economics -- namely the extraordinary success of Berkshire Hathaway over the years he and Buffett have been running it (Buffett ran it for a few years before Munger joined him):

When Warren took over Berkshire, the market capitalization was about ten million dollars. And forty something years later, there are not many more shares outstanding now than there were then, and the market capitalization is about a hundred billion dollars, ten thousand for one. And since that has happened, year after year, in kind of a grind-ahead fashion, with very few failures, it eventually drew some attention, indicating that maybe Warren and I knew something useful in microeconomics.

Efficient market theory
Buffett and Munger have always heaped scorn upon the academics who cling to the efficient market theory, unable to distinguish between an obvious truth -- that the market is mostly efficient most of the time -- and obvious nonsense -- that the market is always perfectly efficient all of the time:

Berkshire"s whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form. And not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the capital asset pricing model, which we also paid no attention to. I think you"d have to believe in the tooth fairy to believe that you could easily outperform the market by seven-percentage points per annum just by investing in high volatility stocks. Yet.many people still believe it. But Berkshire never paid any attention to it.

Multidisciplinary education and "man with a hammer syndrome"
Over the years, Munger has always preached the importance of learning -- and then using -- all of the big disciplines, such as math, science, psychology, etc. To him, this just came naturally:

For some odd reason, I had an early and extreme multidisciplinary cast of mind. I couldn"t stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else"s discipline. So I just grabbed in all directions for the big ideas that would really work. Nobody taught me to do that; I was just born with that yen.

If one doesn"t embrace all multidisciplinary thinking, Munger argues, then one is likely to fall into the trap of:

"man with a hammer syndrome." And that"s taken from the folk saying: To the man with only a hammer, every problem looks pretty much like a nail. And that works marvelously to gum up all professions, and all departments of academia, and indeed most practical life. The only antidote for being an absolute klutz due to the presence of a man with a hammer syndrome is to have a full kit of tools. You don"t have just a hammer. You"ve got all the tools. And you"ve got to have one more trick. You"ve got to use those tools checklist-style, because you"ll miss a lot if you just hope that the right tool is going to pop up unaided whenever you need it.

Problems to solve
During his speech, to illustrate the types of questions his ways of thinking will help answer, Munger posed a number of problems to solve:

There"s an activity in America, with one-on-one contests, and a national championship. The same person won the championship on two occasions about 65 years apart. Name the activity.
You have studied supply and demand curves. You have learned that when you raise the price, ordinarily the volume you can sell goes down, and when you reduce the price, the volume you can sell goes up. Now tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price?
You own a small casino in Las Vegas. It has 50 standard slot machines. Identical in appearance, they"re identical in the function. They have exactly the same payout ratios. The things that cause the payouts are exactly the same. They occur in the same percentages. But there"s one machine in this group of slot machines that, no matter where you put it among the 50, in fairly short order, when you go to the machines at the end of the day, there will be 25% more winnings from this one machine than from any other machine. What is different about that heavy-winning machine?

For the answers to these questions, you"ll have to read the transcript.

Second- and third-order consequences and free trade
Munger gave a number of examples of how often people only look at immediate consequences of certain actions and fail to consider second- and third-order consequences. For example:

Everybody in economics understands that comparative advantage is a big deal, when one considers first-order advantages in trade from the Ricardo effect. But suppose you"ve got a very talented ethnic group, like the Chinese, and they"re very poor and backward, and you"re an advanced nation, and you create free trade with China, and it goes on for a long time.

Now let"s follow and second- and third-order consequences: You are more prosperous than you would have been if you hadn"t traded with China in terms of average well-being in the U.S., right? Ricardo proved it. But which nation is going to be growing faster in economic terms? It"s obviously China. They"re absorbing all the modern technology of the world through this great facilitator in free trade and, like the Asian Tigers have proved, they will get ahead fast. Look at Hong Kong. Look at Taiwan. Look at early Japan. So, you start in a place where you"ve got a weak nation of backward peasants, a billion and a quarter of them, and in the end they"re going to be a much bigger, stronger nation than you are, maybe even having more and better atomic bombs. Well, Ricardo did not prove that that"s a wonderful outcome for the former leading nation. He didn"t try to determine second-order and higher-order effects.

If you try and talk like this to an economics professor, and I"ve done this three times, they shrink in horror and offense because they don"t like this kind of talk. It really gums up this nice discipline of theirs, which is so much simpler when you ignore second- and third-order consequences.

Open-mindedness
How many people do you know who actively seek out opinions contrary to their own? Munger certainly does. For example, he said:

.take Paul Krugman and read his essays, you will be impressed by his fluency. I can"t stand his politics; I"m on the other side. [Krugman constantly bashes Republicans and the Bush administration on the Op Ed page of The New York Times.] But I love this man"s essays. I think Paul Krugman is one of the best essayists alive.

Destroying your own best-loved ideas
Munger believes that it"s absolutely critical not to "cling to failed ideas." You must become good, he argues, "at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift."

How important this is when it comes to investing! Not long ago, I publicly recommended a stock, yet a few weeks later, based on new information, I came to the conclusion that it was no longer a good idea. A natural tendency would have been to hold on to the stock and refuse to admit to my readers that I might have been mistaken. Making it even harder to sell was the fact that the stock had declined - why not wait until it rebounded to the price at which I had bought it, right? (This is a deadly error, as I"ve discussed in previous columns.) Fortunately, I did sell, refusing to "cling to failed ideas."

Chutzpah
I"ll conclude this column with a bit of classic Munger humor: While Buffett bends over backward to appear humble, Munger"s the opposite -- he jokes about his big ego. In his opening remarks, he said:

As I talk about strengths and weaknesses in academic economics, one interesting fact you are entitled to know is that I never took a course in economics. And with this striking lack of credentials, you may wonder why I have the chutzpah to be up here giving this talk. The answer is I have a black belt in chutzpah. I was born with it.

Contributor Whitney Tilson is a longtime guest columnist for The Motley Fool. He owned shares of Berkshire Hathaway at press time, though positions may change at any time. Under no circumstances does this information represent a recommendation to buy, sell, or hold any security.

Related Links

Berkshire Hathaway Annual Letter to Shareholders 2008 - Read the latest Berkshire Letter
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Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe
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We Not Only Have a Shadow Banking System, But also a Shadow Government

2009-12-18T09:24:00.000-08:00

Everyone is talking about "the shadow banking system".

But we"ve also got a shadow government, as shown by the following quotes from Rolling Stone:

No one knows who"s getting that money or exactly how much of it is disappearing through these new holes in the hull of America"s credit rating....

"They"re supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they"re being renewed. They just sort of quietly announce it."

[S]enator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn"t like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself � or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter....

In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went � only $1.2 trillion had vanished by then � Kohn gave Grayson a classic eye roll ....
Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets � in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" � a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded � Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively � paying real money for God knows what.

"Well, how much of them don"t have market values?" asked Grayson. "How much of them are worthless?"

"None are worthless," Kohn snapped.

"Then why don"t you mark them to market?" Grayson demanded.

"Well," Kohn sighed, "we are marking the ones to market that have market values."

In essence, the Fed was telling Congress to lay off and let the experts handle things. "It"s like buying a car in a used-car lot without opening the hood, and saying, "I think it"s fine,"" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, "Don"t worry about it. Trust me." It"ll probably get us out of the lot, but how much farther? None of us knows."

When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what"s happening in the Fed amounts to something truly revolutionary � a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension." ...
And the Fed isn"t the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn"t � particularly the first $350 billion given out under Bush appointee Hank Paulson.

The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded � and this isn"t a joke � by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.

"Do you believe that?" she says incredulously. "That"s not what we had in mind."

Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.

The GM Saga Continues

2009-12-18T07:14:00.000-08:00

GM was downgraded by Moody"s from Baa2 to Baa3 in an action that caused a temporary selloff in the S&P futures today. Mish readers will note that Baa3 is still one notch above junk as can be seen from this chart.

Since Lehman changed the rules on junk ratings to require two of three rating agencies to have junk status before it no longer hypes a company"s debt as investment grade, there was little immediate impact to today"s ratings change and the futures quickly recovered.

Is Lehman trying to protect their corporate bond business with that change?
Let"s take a look at what Credit Magazine has to say.

"In late January, reportedly after consultation with investors and amid considerable volatility surrounding General Motors bonds, Lehman Brothers joined the pack and added Fitch to its index criteria. it was the timing of the change to Lehman�s index rules that provoked debate. The new methodology assigns each security the middle rating of S&P, Moody�s and Fitch, implying that two out of the three agencies need to rate a security investment grade for the security to be eligible for Lehman Brothers� Investment-Grade Aggregate indices.

This was of immediate benefit to owners of bonds issued by General Motors, which had taken a week-long pounding in the secondary markets after poor financial results prompted S&P to announce a review of GM�s debt rating, which currently stands just one notch above junk. Under Lehman�s former rules, inclusion in the investment-grade index was calculated according to the lower of the two ratings. A downgrade to junk from S&P would have consigned General Motors to Lehman�s high-yield index, produced considerable forced selling from investment-grade-only portfolios and swamped high-yield investors with supply from America�s third-largest corporate debt issuer."

That action was a life line for GM and quite possibly a fraudulent one as well. This idea was previously suggested in my previous article MBIA , FNM, & GM . Even with today"s downgrade, there still needs to be two more downgrades before GM"s debt trades at the junk level it has more than deserved for quite some time.

In just the last month, the value of GM"s long term bonds have fallen 27%. That is a quite a huge hit for someone to be taking just so Lehman can keep making huge profits touting total garbage as "investment grade". Right before the fall, I had people telling me that brokers were calling them out of the blue pushing GM bonds. Coincidence? I doubt it.

I suspect there will be well deserved lawsuits against Lehman, S&P, Fitch, and/or Moody"s after all is said and done and GM"s long term debt ultimately proves to be worthless. Then again, we have already seen "bankruptcy reform" that will keep debtors in hock for something close to forever, so perhaps by the time GM"s debt implodes to total worthlessness, there will be some sort of "liability reform" protecting brokers from litigation as well.

Mish

Does John McCain have a "hidden agenda" to "kill the UN"?

2009-12-18T04:06:00.000-08:00

John McCain"s Secretive Plan to "Kill the UN"

Johann Hari, 08.20.2008
McCain has decided to build up an innocuous-sounding alternative called a "League of Democracies -- an alliance of countries the US labels democratic that can be used to legitimate US military actions.

Anthrax Suspect Was Involuntarily Committed to Psychiatric Hospital Shortly Before His Death

2009-12-18T04:00:00.000-08:00

Bruce E. Ivins, the anthrax researcher who supposedly committed suicide, and who the government is now trying to blame for the anthrax attacks, was involuntarily committed to 2 psychiatric hospitals shortly before his death.

Specifically, a month before his death, he was involuntarily committed to the Frederick Memorial Hospital and then transferred to Sheppard Pratt, another psychiatric facility.

Was Ivins crazy? Maybe.

Or maybe he was sent to a psych facility for the same reasons that the Soviet Union committed dissidents to psych hospitals. Maybe Ivins couldn"t stand it anymore, and was about to blow the whistle on the real anthrax killers, so they ginned up some claims that he was dangerous and had him hospitalized.

And maybe Ivins" suicide was as real as his and hers.

Frugality Trumps Quantitative Easing

2009-12-18T02:47:00.000-08:00

Once again, deflation has a firm grip on Japan. Symptoms include falling wages, rising unemployment, weakening consumer demand, and falling prices.

Please consider Japan Logs Record Wage Fall, Bonuses Sink.

Japanese wage earners" total cash earnings tumbled 7.1 percent in the year to June, the biggest annual drop on record, which could hurt consumer spending and add to deflationary pressure on the economy.

Weakening household demand for goods is playing an increasing part in pushing the world"s No. 2 economy deeper into deflation, with core consumer prices falling a record 1.7 percent in the
year to June.

The Bank of Japan is already forecasting two years of deflation, so price falls alone are unlikely to push it back into full-blown quantitative easing, which in Japan involved flooding the banking system with cash to meet a specific monetary target.

But weak wages, coupled with a rise in the jobless rate to a six-year high in June, may heighten uncertainty over the central bank"s forecast for a gradual economic recovery towards early next year, and put on hold any exit from its unconventional monetary policy steps.

"This puts downside pressure on prices, and deflation will worsen for the next one year. There is no way the central bank can move in this situation," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.

QE Checkmate

Earlier this decade Japan invoked a policy of Quantitative Easing to inject cash into the economy. It did not work as planned. However, Japan"s QE policies did unleash the mother of all carry trades as investors borrowed in Yen to invest in higher yielding currencies.

Now, with US interest rates at 0 to .25%, UK interest rates at .5%, and the ECB with Eurozone interest rates at 1%, borrowing Yen at 0% to invest in other currencies does not make a lot of sense. All Japan succeeded at was driving up national debt via ridiculous Keynesian spending programs.

Moreover, with rising unemployment, and massive government debt, Japan does not want its interest rates to rise (which they would should inflation take hold). Thus, it"s checkmate for Japan in regards to QE.

The UK and US are now embarking down that very same road but the result will be the same because Consumer Frugality Trumps Quantitative Easing.

Was the Fed Successful?

David asks:

Mish,

Love your blog, but I�d like to clarify one thing with you.

You often dismiss the notion that inflation is not a plausible scenario in the short / mid-term. You�re right to point out that house and other consumer goods are tanking, thus leading to deflation. But don�t you think the fact that prices don�t fall as much as they should � due to inflationist policies by the Fed � is, in itself, inflation?

Without the actions of the Fed prices of cars, houses, shares, commodities, etc would be lower. They�re not, which means we are currently experiencing inflation.

Don�t you think?

David

The Fed"s effort to increase money supply have indeed had short-term impacts (at great long-term costs). However, most of those changes are still of a second derivative nature. Note that in regards to consumer spending, bank lending, jobs, and housing prices, the situation is still worsening, albeit at at a decreasing pace.

Note that Obama has promised to save 3.5 million jobs. But even if he has (which no one believes), the economy is still shedding jobs and consumer prices are still falling, especially when one properly factors in housing. Please see What"s the Real CPI? for details.

It"s Not About Prices!

That aside, inflation is not about prices at all but rather the expansion and contraction of credit.

Falling prices do not constitute deflation. However, they are a likely but not mandatory symptom of it.

In a credit based economy, the key issue is expansion and contraction of credit. Credit is clearly contracting. And credit marked to market (which is what matters most) has dwarfed Central Bank expansion of money supply to counteract it.

Given that the Fed and the accounting board have suspended market to market accounting it is a guess as to whether credit marked to market is expanding or not. However, the latest reports still show a contraction in bank lending as well as tightening of lending standards.

And yes the Fed has pumped up money supply. But if money just sits there as excess reserves (and this is indeed what is happening) then it does not affect prices.

Short-Term, the Quantitative Easing efforts by the US, UK, and ECB have stabilized the markets. Long-term all the governments have done is pile on more debt that must be paid back (with interest), and that will act as a huge drag on the economy at a later time.

Note that US and European banks are still reluctant to lend because of massive overcapacity everywhere. Consumers are still reluctant to borrow. The savings rate is rising.

Chinese banks are a different story. China is a command economy and if the government says lend, Chinese banks lend. One must not confuse rising commodity prices on account of China or on account of inventory replenishment in the US and Europe as a sign of a sustainable, renewed credit boom by consumers or businesses.

Demand for Credit is Weak

Moreover, the $14 trillion effort by the Fed has not done a thing for jobs, nor will it. And without jobs, credit card writeoffs will soar along with foreclosures. Congressional policies like "cash for clunkers" merely pushes demand forward while adding to debt that must be repaid via higher taxes.

In the "Recoveryless Recovery" Bernanke will continue to be stymied by consumer and business frugality. Demand for credit is weak and so is bank willingness to extend it. Thus, inflation is not yet in the picture, and when it does arrive, it will be far less than most expect.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Army: Enemy fire caused copter collision in Iraq (last month)

2009-12-18T02:25:00.000-08:00

Source: AP
FORT DRUM, N.Y. � The military now says enemy fire caused two U.S. Army helicopters to collide in Iraq last month, killing four American pilots.

The Defense Department initially had said the crashes of the two aircraft Jan. 26 near Kirkuk didn"t appear to have been caused by an attack. But on Thursday, the Army said that evidence revealed that the Kiowa Warrior helicopters had collided while trying to evade enemy fire.

"The two OH-58D helicopters were engaged and struck by hostile fire while conducting a reconnaissance mission," Fort Drum spokeswoman Julie Cupernall said Friday.

The investigation continues, Cupernall said. A Sunni nationalist group had claimed responsibility for the helicopter attack in a posting on an extremist Web site.
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Dumb Ass so called leader of the Thugs Party

2009-12-18T01:07:00.000-08:00

McConnell: �Who wants to hang out with guys like Paul Krugman�when you can be with Rush Limbaugh!� �

This morning at CPAC, Senate Minority Leader Mitch McConnell paid homage to hate radio host Rush Limbaugh, saying that he epitomized how fun Republicans are:

I mean, let�s be honest. Who wants to hang out with guys like Paul Krugman and Robert Reich, when you can be with Rush Limbaugh!

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Tom DeLay Channels Limbaugh: I Want Obama To Fail

BUSINESSWEEK: Buffett in Omaha-Words of caution for his true believers

2009-12-18T00:10:00.000-08:00

BUSINESS WEEK ONLINE
May 5, 1998

Edited by Douglas Harbrecht

"Hello, I"m Warren Buffett, and welcome to Berkshire Hathaway"s annual shareholder meeting."

With that characteristically modest introduction, the legendary chairman of Berkshire Hathaway was greeted with a rousing ovation by 11,000 shareholders at Aksarben (Nebraska spelled backwards) Coliseum in Omaha on May 4. Buffett fielded questions for nearly six hours, with a small break for lunch.

Buffett was accompanied on the stage by longtime partner Charlie Munger, who periodically offered dry, humorous comments but more often left it at "I have nothing further to add."

In the past decade, Berkshire stock has had an average annual return of 31.6%, vs. 17.8% for the Standard & Poor"s 500-stock index. So far this year, the stock is up some 50%, outpacing both the broader market and most of the large-cap stocks such as Coca-Cola, Gillette, and Walt Disney -- which make up a large part of Buffett"s investment portfolio.

You can chalk up Berkshire"s performance to the Buffett premium. The thousands of people who flocked to Omaha aren"t just shareholders -- they"re true believers. Paul and Melinda Hendricks have been A shareholders since the mid-"80s. This is the second annual meeting they"ve attended, and they say their investment has meant more than just great returns. "We get a lot out of this," says Mr. Hendricks. "You meet great people."

Indeed, the event had more the feel of a fraternity gathering than of a shareholder meeting. Many of the people who attended were new recruits, owners of the so-called baby Berkshires, or "B" shares, which were issued in early 1996 at a price of $1,000. Their investment has more than doubled so far. Though their shares and the overall market have risen to dizzying heights in the past two years, none of these investors seems worried about high prices.

But Buffett sure was worried. "People have unrealistic expectations," he said. "They"re coming into the market everyday because they feel they"ve missed the boat." While Buffett regularly suggests that investors lower their expectations in his annual chairman"s letters, his notes of caution have been more frequent and emphatic this year. "Our idea of tough times is now," Buffett told the crowd.

Finding good investments for his $46 billion investment portfolio is getting harder all the time. Last year he spent more than $5 billion on uncharacteristic investments in zero-coupon bonds and silver bullion. Asked whether he felt that the high returns on equity of U.S. corporations were sustainable, Buffett replied: "We wouldn"t base our actions on the idea that they are." Added Munger: "We won"t have many more 17%-18% annual returns. We can almost guarantee that."

But the caution fell on deaf ears at the shareholders" meeting. People were happy just to be in the presence of the Wizard of Omaha.

Here are some of the comments offered by Buffett at the shareholders" meeting:

Share buybacks: "I approve of them for great companies like Coca-Cola. There are very few times in Coke"s history when it wouldn"t have been smart to buy back shares" says Buffett. "I don"t think that"s true for many companies, though."

"Coke is probably the best large business in the world."

On buying back Berkshire shares (Buffett has never done it): "We"ve missed the boat at various times in regard to buying back shares." He has no plans to buy any back at their current price of about $70,000 per A share.

On technology: "I don"t want to play a game where I feel other guys have an advantage. I would rather swing at easy pitches." Those easy pitches have been companies like Coca-Cola, Gillette, and Walt Disney.

On evaluating technology stocks: "If I were a business-school professor, as a final exam, I"d give the class an Internet company and ask them how much it"s worth. Anyone who answered, I"d flunk."

On low-price stocks of Japanese multinationals: "We stay away from companies with low returns on equity. ROEs on Japanese equities are low."

On the market: "If stocks were cheaper, we"d be buying more of what we already own. We want things we can understand. That means good businesses run by people we"re comfortable with."

On the game of bridge: "I play about 10 hours a week. I don"t think it"s hurt Berkshire Hathaway yet. If the market drops, I"ll spend less time playing."

On the purchase of 130 million ounces of silver in the second half of last year: "It will have about as much impact on Berkshire Hathaway as Warren"s bridge," joked Munger. "It shows the human personality at work -- a very peculiar personality."

On Berkshire"s National Indemnity reinsurance business (industry prices have dropped substantially in the past two years): "We"ll do far less catastrophe business in the next few years."

On spending to finance political campaigns: "I think the arms race in campaign spending by businesses has just begun. Political influence has been an underpriced product, and prices are going to go up. [Campaign finance reform] legislation is needed."

On how/when to sell stocks: "Buy things you never want to sell. If we need money for something, we"ll trim some holdings. But the thing to do with great businesses is to hold on for dear life," says Buffett.

"Sell when you find something immensely better," added Munger.

By Andrew Osterland in Omaha, Neb.

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NIGHTLY BUSINESS REPORT: The Gospel According to Warren

2009-12-17T23:16:00.000-08:00

posted by Susie Gharib, Anchor at 4:22 PM on 05/04/09

Warren Buffett calls his Berkshire Hathaway annual meeting "Woodstock for Capitalists." Every year thousands of faithful Berkshire shareholders make the pilgrimage to Omaha for a free-spirited celebration of wealth. But I felt this year the mood was more like Sunday School than Woodstock with the Oracle of Omaha in his pulpit preaching the Buffett catechism to shareholders.

Buffett had reason to be preachy. Shareholders came to the meeting feeling bruised and less rich. Their Berkshire shares tumbled more than 30 percent since they gathered here last May. More than once, Buffett reminded shareholders that "stocks go up and down; there were three times before when Berkshire shares went down more than 50 percent; this country will do wonderfully over time, it always has; the government is doing the right things;" and on and on. Even the usually pessimistic Charlie Munger, who is 85 years old and Buffett"s long-time business partner, delivered an upbeat message. "As I move close to the edge of death, I find myself getting more cheerful about the economic future," he told the crowd. (I also blogged about interviewing Munger.)

The format for the meeting was more serious too. The Berkshire meeting has long been a bit of a free-for-all, with Buffett and Munger fielding questions from anyone who took the microphones on the floor. In past years, some people used the opportunity to ask Buffett about baseball, religion and his favorite foods. But this year"s event was orderly. The early morning rush to line up at the microphones was replaced by a lottery and shareholders were also asked to email their questions to three reporters -- Carol Loomis from Fortune magazine, Andrew Ross Sorkin of the New York Times and CNBC"s Becky Quick. The reporters were instructed by Buffett to screen the questions and to pose the ones that relate to Berkshire. Half the questions were asked by the reporters, the rest came from shareholders at the microphone.

Almost everyone I talked to liked the new arrangement. Shareholders told me they thought the questions were "terrific," the meeting was "more intellectual than usual" and some said they came away "overjoyed" and "optimistic." I noticed many people taking notes as Buffett and Munger answered questions during the five-and-a-half hour Q&A. The next day Buffett told me the new format worked "way better" and it"s the "new standard" for the meeting. In fact he"s invited the three journalists to return next year, and he says they"ve accepted.

Here"s video of my brief interview of Buffet. (You"ll need Flash installed to watch.)

I was disappointed with one aspect of the meeting. The Berkshire Hathaway movie was a big letdown. Every year, the meeting kicks off with an hour-long Saturday Night Live type show featuring Buffett and Munger as his sidekick. The satire includes funny cartoons and skits with Buffett hamming it up with celebrities like basketball star LeBron James and soap opera actress Susan Lucci. But not this year. The movie opened instead with an animated cartoon about how the company didn"t feel it was appropriate to do spoofs this year because of the financial crisis. So, the one hour was filled with a string of Geico commercials with the Gecko and the Caveman, interspersed with comedy routines from past years and several interviews with shareholders from last year"s meeting. It was boring.

And then, totally out of context, there was a clip from an old C-SPAN video from the 1990?s of Buffet testifying before Congress about the illegal trading activities of Salomon Brothers. As you may remember, Buffett was tapped interim chairman of the investment firm after a bond scandal led to the downfall of Salomon"s CEO John Gutfreund. In the video, Buffett tells lawmakers that if Salomon employees "lose a shred of reputation for the firm, I will be ruthless." So what was the point of that I ask a reporter sitting next to me. We guess that Buffett wanted to tell Wall Street that it needs to take responsibility for the financial mess it created. Just another subtle message from the Warren Buffett Gospel.

The finale of the marathon meeting was sort of odd: a surprise marriage proposal. The last question of the day came from Buffett"s great-nephew. He proposed to his "best friend," Mimi. She said yes. Shareholders clapped. It was a perfect, upbeat ending to a long day. And I"m sure Warren Buffett couldn"t have been happier.

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Auto Sales Plunge Near 30 Year Lows

2009-12-17T20:43:00.000-08:00

Bloomberg is reporting Chrysler U.S. Sales Fall 48% as Toyota, Ford Trail Estimates.

Chrysler LLC�s U.S. sales plunged 48 percent in April as the automaker slid toward bankruptcy, helping drag Toyota Motor Corp., Ford Motor Co. and Nissan Motor Co. to declines that exceeded analysts� estimates.

General Motors Corp.�s 34 percent drop and Honda Motor Co.�s 25 percent decrease were smaller than projections. Ford slumped 32 percent, Toyota tumbled 42 percent and Nissan decreased 38 percent. Chrysler also fared worse than estimates.

GM projected a annual U.S. sales rate of 9.6 million vehicles, less than the average estimate of 9.9 million vehicles among 7 analysts surveyed by Bloomberg before today�s results. The March rate also was 9.9 million, after a 9.1 million rate in February that was the lowest since 1981. Sales totaled 13.2 million in 2008, and averaged 16.8 million this decade through 2007.

Automakers� spending on incentives averaged $3,031 for each vehicle, a 29 percent increase from a year earlier, according to automotive researcher Edmunds.com of Santa Monica, California. Still, that was down from the record of $3,165 in March.

Ford Overtakes Toyota

The Wall Street Journal is reporting Auto Sales Remain in a Rut; Ford Overtakes Toyota.

Ford Motor Co. reported a 32% drop in U.S. vehicle sales for April, but the healthiest of Detroit"s auto makers outsold Toyota Motor Co. for the first time in at least a year.

The Japanese auto maker"s U.S. sales fell 42%. General Motors Corp. said its sales fell 33% last month, however the auto maker noted that shipments were up significantly from March.

"We see that stabilization, along with the firming up of our fleet business and improvement in Silverado and Sierra sales, as an encouraging sign," said Mark LaNeve, GM"s Nirth American sales chief.

GM sold 172,150 vehicles in the U.S. in April, down from 257,638 a year earlier. Its car sales fell 41%, while sales of light trucks � which include sport utility vehicles, vans and pickups � fell 27%.

Ford said in April it sold 133,979 light vehicles in the U.S., down from 195,665 a year earlier, but the company said it is gaining market share.

Ford, Lincoln and Mercury car sales dropped 31% despite record sales of its Fusion sedan. Sport-utility vehicles continued to tumble, falling 61% in April. Sales of pickups and vans dropped 36%.

Toyota sold 126,540 vehicles in the U.S., as both car and light-truck sales fell more than 40%.

Also Friday, Honda Motor Co. said its U.S. sales fell 25% to 101,029. Nissan Motor Co. reported a 38% drop to 47,190 vehicles, while Daimler AG"s sales fell 31% to 15,910. Other auto makers will release their monthly results later in the day.

30-year lows

Reuters is reporting Auto sales plunge to near 30-year lows.

U.S. auto sales in April were on the road to plunging to their lowest levels in nearly 30 years according to sales reports released on Friday, the day after Chrysler LLC filed for bankruptcy.

Japan"s Toyota Motor Corp posted the largest sales drop at 42 percent among major automakers in the U.S. market, followed by Nissan Motor Co Ltd at 38 percent.

Sales at U.S. automaker Ford Motor Co slid almost 32 percent last month, while sales General Motors Corp, which like Chrysler has been operating under federal supervision, fell 34 percent.

Honda Motor Co"s sales were off 25 percent.

U.S. auto sales typically account for as much as one-fifth of all retail sales in the country and represent one of the first indicators of consumer demand every month. Both GM and Chrysler have announced plant shutdowns to slash bloated vehicle inventories.

Inventory Overhang

With a huge glut of inventory, GM set its second-quarter production forecast at 390,000 vehicles, down 53% from a year ago. GM has little choice but shut down its production lines for up to 11 weeks this summer. See Idled GM factories to affect more than workers for more details.

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

Auto Sales Plunge To Lowest Level Since 1982

2009-12-17T18:10:00.000-08:00

MarketWatch is reporting Automakers post steep sales declines. Here are some of the highlights from the report.

Ford, Lincoln and Mercury combined car sales fell 31.5% to 37,272 units. Ford truck sales slumped 29% to 81,546 units with sales of the flagship F-Series pickup down 18.6% to 37,911. Volvo sales tumbled 46.5% to 4,404 vehicles. Ford said it"s considering the sale of its lone remaining European brand as part of its revival.
GM took an even harder hit with its 41.3% drop to 153,404 vehicles from 261,273 a year ago. Chevrolet was the best of the worst in terms of brands, but still turned in a 36.9% decline to 95,756 vehicles. Hummer sales dropped 63.9% to 1,454 vehicles from a year ago.
Leading all decliners, Chrysler reported a 47% plunge in November U.S. sales to 85,260 vehicles from 161,088 a year ago. Chrysler"s car sales slumped 59% to 20,475 units while truck sales slid 42% to 64,785.
Toyota, the second-biggest car seller in the U.S. behind GM, said its U.S. November sales fell 33.9% to 130,307 vehicles from 197,189 a year ago. Sales of the Prius, Toyota"s one-time hot-selling hybrid, dropped 48.3% to 8,660 vehicles from 16,737 last year as gas prices fell hard from record highs.
Honda reported a sales decline of 31.6% to 76,233 vehicles from 111,431 a year ago. Honda brand sales slid 30.6% to 68,345 units while Acura division sales tumbled 38.9% to 7,888.
Nissan turned in a 42.2% fall to 46,605 cars and trucks from 80,683 a year ago. Nissan branded vehicle sales dropped 44.4% to 38,974 units, and luxury Infiniti branded vehicles slid 28% to 7,631 units from last year.

While CEO Rick Wagoner prepared to face Congress later this week, GM sales analyst Mike DiGiovanni made his own plea for federal stimulus in a conference call following the report.

"Our industry is in a much more severe situation than the rest of the economy," he said. "It"s in an unsustainable position and it"s unsustainable for all manufacturers. We cannot continue to operate at these levels or the entire industry"s going to go down."

It is quite apparent that Mike DiGiovanni is admitting an enormous overcapacity problem and GM has no idea how to fix it. This is all the more reason for Congress to turn down GM"s request for aid. The reality going forward is that fewer cars are going to be sold and GM calling the position "unsustainable" has no idea what to do about it or how to survive on fewer sales.

U.S. Automakers, UAW to �Genuflect� to Split Congress

Bloomberg is reporting U.S. Automakers, UAW to �Genuflect� to Split Congress

General Motors Corp., Ford Motor Co. and Chrysler LLC, running out of money to operate, must convince a divided Congress that their plans to shrink are severe enough to ensure repayment of $25 billion in proposed U.S. loans.

GM Chief Executive Officer Rick Wagoner will cut debt, shuffle U.S. brands and offer to work for $1 a year, while Ford will emphasize speeding a shift to cars from trucks, people familiar with the matter said. The United Auto Workers called an emergency meeting tomorrow to consider concessions making it less expensive to eliminate jobs, people familiar with that session said.

�Our expectation is that they go and duly genuflect and appear to be repentant,� said Eric Noble, president of Car Lab, an Orange, California-based consulting firm for automakers including GM, Chrysler and Toyota Motor Corp.

Republican Senators Bob Corker of Tennessee and Richard Shelby of Alabama suggested that the automakers needed deeper restructuring, fewer dealerships and more competitive labor costs or they would end up in trouble again.

James Clyburn, a South Carolina Democrat and House majority whip, said the CEOs of all three companies should be required to step down as a condition of the loans, according to his spokeswoman, Kristie Greco.

Old way of doing business just won"t fly

Yahoo Finance is reporting US automakers ground jets for trip to Washington

If the Detroit Three automakers have learned anything since their last trip to Washington, it"s that the old way of doing business just won"t fly.

So the decision by auto executives to travel in hybrid cars rather than corporate jets is just the start to overhauling their image as the industry pleads its case for $25 billion in federal loans. The CEOs of General Motors, Ford and Chrysler are making the roughly 525-mile trek from Detroit to Washington in hopes of securing loans to help them through the recession and the worst sales downturn in 25 years. Hearings are scheduled for Thursday and Friday.

Democratic Rep. Gary Ackerman of New York, a member of the House Financial Services Committee, said last month that it was "a delicious irony" to see the executives arrive on private jets "with tin cups in their hands."

In response, the automakers said top executives needed to fly on corporate planes for security reasons. They also pointed out that taking commercial flights risked delays or cancellations, a chance the executives would not want to take when scheduled to testify in front of Congress.

In an effort to curb bad publicity, Ford Motor Corp. and General Motors Corp. said their CEOs would take the wheel for at least part of the roughly nine-hour trip.

Ford also announced Tuesday that it will sell its five corporate jets, and GM said it would close its corporate jet operations on Jan. 1 and try to sell the remainder of the lease time on its seven aircraft.

From one extreme to another. Driving over 500 miles to genuflect does not make a lot of sense. Is there any middle ground for this crew, like taking a regular flight that arrives a couple hours early?

GMAC Puts Individuals After Institutions in Bond Plan

If Congress is looking for something to stew on they can look at GMAC Puts Individuals After Institutions in Bond Plan.

GMAC LLC, the financing unit of General Motors Corp., is placing individual investors who loaned the company $14.6 billion behind institutions should the company file for bankruptcy.

Holders of so-called SmartNotes, which GMAC sold to individuals since 1996, aren�t included in the company�s $38 billion plan to exchange securities for new, discounted debt and preferred shares or cash, said Gina Proia, a spokeswoman for the Detroit-based company. SmartNotes investors �would be subordinated to the new notes, but they�re not being asked to take a principal discount,� she said.

SmartNotes show how perilous the bond market can be for private investors in times of financial stress. Individuals continued buying the debt as recently as last year, even as the world�s biggest carmaker reported losses. GMAC lost $7.9 billion over the past five quarters, and October was its worst month for sales since 1945. Moody�s Investors Service cut the company�s credit rating to C on Nov. 20, the lowest ranking.

Retail holders �could get virtually nothing if the company files for bankruptcy,� said Kathleen Shanley, an analyst at Chicago research firm Gimme Credit LLC, who recommends investors sell GMAC debt. �If the exchange goes through, they would be subordinate. That would not be a good position to be in.�

GMAC issued $25 billion of SmartNotes in $1,000 denominations during the past decade, using the proceeds to help pay for day-to-day operations. The notes, introduced by Chicago- based LaSalle Bank, allow individuals to be paid interest on an annual, semi-annual, quarterly or monthly basis. They include a �survivor�s option,� permitting spouses to sell the bonds back to the issuer if the owner dies.

The offer to swap unsecured notes held by institutions is part of GMAC�s plan to convert into a bank to gain access to the Treasury�s $700 billion rescue fund. The exchange is the second in five months for the company and its Residential Capital LLC mortgage unit, which have reported losses since mid-2007.

GMAC is seeking access to federal funds as a recession grips the U.S. economy. The government has provided more than $8.5 trillion in financing to unlock credit markets after almost $1 trillion in writedowns and credit losses at the world�s biggest banks and financial institutions.

If the debt swap isn�t completed by year-end, there is a �significant risk� GMAC will default, the company said in a Nov. 20 regulatory filing. Private equity firm Cerberus Capital Management LP in New York bought 51 percent of GMAC in November 2006. GM, also based in Detroit, owns the rest.

Making GMAC a bank is of course ludicrous but who knows anymore what the Fed is likely to do.

Ford sees at least breakeven in 2011

In what has to be the joke of the day, Ford sees at least breakeven in 2011.

Ford Motor Co said on Tuesday it expects overall and North American automotive business pretax results to break even or be profitable in 2011.
* Says submits business plan to Congress
* Says plans electric vehicles
* Says will sell its corporate aircraft as part of overall cash improvement
plan
* Says asking for access to up to $9 billion of bridge financing
* Says does not anticipate a liquidity crisis next year, barring a bankruptcy
of one of its domestic rivals
* Says hopes to complete its transformation without accessing government loan
* Says company plans call for investment of about $14 billion in the US on
advanced technologies and products for fuel efficiency over next seven years

Ford To Break Even in 2009

Flashback May 22, 2008: Ford To Break Even in 2009

Ford said Thursday it likely will not hit its target to be profitable in 2009, but will just break even, due to the deteriorating economy, soaring gas, steel and other commodity prices and a dramatically shifting consumer preference toward fuel-efficient cars and crossovers from more lucrative trucks and SUVs.

Ford CEO Alan Mulally in a statement issued by Ford Thursday morning. "Overall, we expect to be about break-even companywide in 2009 -- with continued strong results in Europe and South America."

Ford To Be Profitable in 2009

Flashback November 8, 2007 Despite $380 million loss, Ford is optimistic

Ford said it was on track to meet its goal of being profitable in North America and in all of its automotive operations by 2009.

Ford To Be Profitable in 2008

Flashback Jun 22, 2006 Ford on track to be profitable in 2008

Ford Motor Co. said it was on track to meet its goal of making its North American auto business profitable by 2008 and remained committed to that target.

Mark Fields, Ford"s president of the Americas, announced the company"s upcoming vehicle line-up and a push to offer more fuel-efficient vehicles.

Forgive me for not believing a damn thing Ford says.

Automakers Need $25 Billion

Flashback November 19, 2008 Automakers seek $25 billion bailout deal

Detroit"s Big Three automakers pleaded with Congress on Tuesday for a $25 billion lifeline to save the once-proud titans of U.S. industry, warning of a national economic catastrophe should they collapse.

Millions of layoffs would follow their demise, they said, as damaging effects rippled across an already-faltering economy.

But the new rescue plan appeared stalled on Capitol Hill, opposed by the Bush administration and Republicans in Congress who don"t want to dip into the Treasury Department"s $700 billion financial bailout program to come up with the $25 billion in loans.

"Our industry ... needs a bridge to span the financial chasm that has opened up before us," General Motors Corp. CEO Rick Wagoner told the Senate Banking Committee. He blamed the industry"s predicament not on failures by management but on the deepening global financial crisis.

Wait A Minute, I Mean $34 Billion

Had Congress given the automakers $25 billion on November 19, exactly two weeks later the automakers would have needed another $9 billion. Please consider Big Three Seek $34 Billion Aid.

Detroit"s Big Three auto makers presented turnaround plans to Congress on Tuesday that indicate both General Motors Corp. and Chrysler LLC could collapse by the end of the month unless they get billions of dollars in emergency government loans.

As part of a renewed bid for a bailout, GM said it needs an immediate injection of $4 billion to stay afloat until the end of the year, a fact it hadn"t before disclosed. In total, the company said it needs $18 billion in loans -- $6 billion more than it said it would need just two weeks ago.

Chrysler"s 14-page summary of its presentation to Congress requests $7 billion, and it said it needs the funds by Dec. 31. Chrysler also wants $6 billion from a Department of Energy program aimed at promoting fuel-efficient vehicles.

Ford Motor Co. seeks a $9 billion line of credit from the government, though it adds it may not need to tap it. In addition, Ford wants $5 billion from the Energy Department program.

Both companies have said they don"t see bankruptcy as a viable option for any auto maker. They believe customers would stop buying cars and the company would be forced to liquidate.

But bankers and other financial experts are telling lawmakers that bankruptcy is the best option for creating smaller but viable U.S. car companies.

"I think GM is eminently re-organizable," said Durc Savini, managing director at Miller Buckfire & Co., a New York investment banking firm that advised on the bankruptcies at auto suppliers Dana Corp. and Dura Automotive Inc. He said he recently talked with staff members for three House and Senate members to discuss a bankruptcy at one or all of the Detroit makers.

In a conference call with reporters, GM President Frederick "Fritz" Henderson said bankruptcy is not a viable option and the company is focusing solely on securing help from Washington. "There is not a Plan B," he said.

Here"s the deal: GM is begging for taxpayer handouts, going to the negotiating table with no contingency plans needing $6 billion more ($4 billion of it immediately) than it did just two weeks ago. GM management is pathetic. It deserves to go under. And the first order of business under any restructuring should be to get rid of GM"s management team, lock, stock, and barrel, starting with CEO Rick Wagoner.

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

E*Trade"s Questionable Receivables

2009-12-17T15:35:00.000-08:00

Citigroup has come up with possible $5 billion in writedowns on E*Trade which would more that wipe out E*Trades equity.

With that in mind let"s look at E*Trade"s 10-Q filed on November 9 and see if we can come up with enough problem areas to reach $5 billion.

Credit Ratings On Asset Backed Securities

click on chart for crisper display

Easily $1.26 billion in asset backed securities is of dubious value. There is also a noticeable distinction right now between AAA and AA. No breakdown is available on that grouping. $1.77 Billion in asset backed securities is rated AA or higher.

E*Trade Loan Receivables

click on chart for crisper display

Loan to Value and FICO analysis

click on chart for crisper display

FICO Scores from myFICO

The above APRs are for 30 year fixed as of 2007-11-12 and are provided to give a practical idea of differences between FICO scores as to credit quality.

Portfolio Vintage

click on chart for crisper display

E*Trade ramped up loans at the worst possible time, right as housing peaked and for another year after. Thus I question the loan to value numbers listed earlier.

A 5-10% devaluation of those assets (losses would be far bigger in a forced sale), is certainly within the realm of likely.

Miscellaneous 10-Q Facts and Figures

E*Trade has a credit default swap (�CDS�) on $4.0 billion of our first lien residential real estate loan portfolio. The CDS provides protection for losses in excess of 10 basis points, but not to exceed approximately 75 basis points.
E*Trade no longer originates recreational vehicle, marine and auto loans.
Senior debt ratings are Ba2 (positive outlook) by Moody�s Investor Service(1), BB- (stable) by Standard & Poor�s.
As of September 30, 2007, sub-prime real estate loans represented less than one-fifth of one percent of E*Trade"s total real estate loan portfolio and E*Trade held no option ARM loans.
E*Trade"s home equity loan portfolio is primarily second lien loans on residential real estate properties.

In E*Trade Heads For Bankruptcy? I questioned E*Trade"s ability to survive. The market clearly agrees.

E*trade shares plunges 58.7% November 12, from $8.59 to $3.55
E*trade shares are down 84.2% on the year

Likewise Forbes is wondering E*Trade Going Out Of Business?

Is it going from bad to Chapter 11 for E*Trade Financial?

The company said the rapid devaluation of mortgage-related securities, has reduced the value of its $3.0 billion asset-backed securities portfolio.

"Management believes the additional deterioration observed since September 30 will likely result in write downs that exceed the previous expectations," the company said. "Actual securities-related losses will depend on future market developments, including the potential for future downgrades by rating agencies."

My comment: The latest 10-Q shows the asset backed securities value at $3.058 billion. What it"s really worth no one knows but a 33% haircut certainly would not be surprising given $448 million is rated BBB or below and that tranche could be close to worthless.

Anything but AAA is being marked down heavily and that adds at least another $814 million in questionable assets. E*Trade does not distinguish between AAA and AA but the difference could be significant. Even AAA assets are being marked down considerably.

Given the great uncertainty in the credit markets, E*Trade"s management said it will no longer provide earnings expectations for the rest of the year.

My comment: Smart move. E*Trade is not going to have any earnings and the value of asset backed securities is likely to be a moving target to the downside.

The gloomy announcement comes roughly two months after the firm said it would exit its troubled wholesale mortgage business.

My comment: When?

According to Bhatia [a Citigroup analyst] , there is a high risk that the company will lose its high-end clients, who have accounts with more than $100,000 (the investment limit that is insured by the government"s Federal Deposit Insurance Corporation). These accounts represent $15 billion, and make up 50% of deposits or roughly 25% of E*Trade"s funding.

The mass exodus of clients, could force the company to sell-offs assets. The liquidation could total $5 billion in losses, "more than wiping out tangible equity," Bhatia said. He predicted a 15% chance of bankruptcy.

My comment: It"s easy to predict a mass exodus of accounts. Who would want to stay? A loss of 25% funding on top of even $2 billion in writedowns would likely do the company in. A 15% chance seem way too low to me.

Economic Zugzwang Yet Again

Clearly E*Trade is caught in the vise of Economic Zugzwang (whatever action they take loses).

For example: exiting the business would be a violation of the Don"t Ask, Don"t Sell policy and result in an unwanted mark to market of asset prices. On the other hand, not exiting could bleed E*Trade to death over time. Quite simply, there are no winning moves for E*Trade.

I am still shaking my head wondering why a trading platform company got so heavily involved in mortgages and home equity loans in the first place.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Five Most Recent Posts

Torture Is Not a Partisan Issue . . . George Washington - Who Was Neither a Democrat or Republican - Forbid All Torture

2009-12-17T13:08:00.000-08:00

Those trying to make torture into a partisan issue should look to the founding father of our country: George Washington.

Washington was president before political parties even existed.

As Scott Horton wrote in 2007:

�Should any American soldier be so base and infamous as to injure any [prisoner]. . . I do most earnestly enjoin you to bring him to such severe and exemplary punishment as the enormity of the crime may require. Should it extend to death itself, it will not be disproportional to its guilt at such a time and in such a cause� for by such conduct they bring shame, disgrace and ruin to themselves and their country.� - George Washington, charge to the Northern Expeditionary Force, Sept. 14, 1775...
After the battle [of Trenton, New Jersey on December 26, 1776.], the Continentals were preparing to run some of the British Empire�s German mercenaries through what they called the �gauntlet.� General Washington discovered this and intervened. As ... explained in the Huffington Post, Washington then issued an order to his troops regarding prisoners of war:

��Treat them with humanity, and let them have no reason to complain of our copying the brutal example of the British Army in their treatment of our unfortunate brethren who have fallen into their hands,� he wrote. In all respects the prisoners were to be treated no worse than American soldiers; and in some respects, better. Through this approach, Washington sought to shame his British adversaries, and to demonstrate the moral superiority of the American cause.�

In the worst of times � when foreign troops literally occupied American soil, torturing and murdering American patriots � and few believed that the cause of the revolution could ultimately win against the might of the British Empire, the first Commander in Chief of the U.S.A. set the precedent that this society is to lead even our enemies by �benignant sympathy of [our] example.� To win the war against the occupying army of Redcoats, the American revolutionaries needed right on their side.

And it worked. Many of the German Hessians in fact joined the revolutionaries in their fight against the English and stayed here in America to be free when the war was won.

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U.S. Taxpayers Are Paying to Bail Out FOREIGN Speculators

2009-12-17T10:24:00.000-08:00

We all know that the Fed is trying to stick the American taxpayers with trillions of dollars in debt (direct or through inflation) to bail out the Wall Street robber barons.

But did you know that they are also trying to get you to bail out foreign gamblers?

An article in the Telegraph states:

"The Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can"t access America"s frozen credit markets"

"Another" $125 billion? How much has the Fed already given to foreign banks?

Why are American taxpayers who are already drowning in debt due to U.S. gamblers also being asked to also bail out foreign speculators?

This isn"t a pro-America anti-everyone-else post. If I lived in England, or Canada or Japan, I would resent being asked to bail out America, too.

Investment Advice | 2-9-09

2009-12-17T10:00:00.000-08:00

Here"s a round up of what investment advisors are saying today:

Marc Faber is bullish on Asian stocks for a near-term bounce:

"A 30% rebound? So the tactic or strategy here if you want to be invested in asian equities, I mean, with the yields that high it seems like a good time to get in and hold stocks, specially the ones that pay you and pay you well to hold them.

MARC FABER: Yes, sure. Actually I said that asian markets are better valued than the US markets and I also pointed out that now you are paid to wait here in Asia. I don`t think there is an huge downside risk, I think there is upside potential.

Don`t forget that from the November 20 low, even the S&P 500 Index managed to rally 27% between November 23 and January 6 and many shares like mining companies, you take Newmont Mining, it was a 21 dollars and it went to 45, DryShips was at 3 and went to 15, you will have huge volatility in this environment of ultra low interest rates.

It doesn`t mean that the global economy will heal anytime soon specially given the government interventions that will in my opinion prolong the crisis and not solve it at all.

What would be the catalyst for that 30% upside you mentioned?

MARC FABER: First of all we have fallen dramatically and markets have become oversold, in particular we have to talk about commodities because that is probably the most oversold market of any, but secondly the global economy fell of a cliff between September and January of this year, in the last 4 months and the news is universally very bad.

But don`t forget when the news were very good in 2007 the market peaked out, so on bad news you can reach a temporary bottom and also I believe we have this tremendous downside momentum in the global economy, in other words we fell of a cliff and the news will remain bad but maybe not as bad as in the last 4 months and then the goldilocks crowd that is always around us and will never give up, no matter what, they will say �now, see, the global economy is improving so lets buy�.

I am not a great believer that there is going to be a great economic improvement but I believe that market participants that are always bullish because they have been conditioned to be always bullish over the last 25 years, they will push markets up.

Jim Rogers likes Brazil:
"What is happening now is good for the fundamentals of raw materials so, all those countries that produce stuff , like Brazil that is a reasonably well managed country now, are going to do much better than the others.". And see this.

If you hear of any investment advice which you think is good, please post a comment. This roundup may be updated periodically, so keep checking back.

I am not commenting on who - if anyone - I think is right and who I think is wrong, but only summarizing what some of the top advisors are saying. In addition, you should check the links to make sure that the information contained herein is accurate, and to read any price or timing recommendations (concerning when to buy, sell, or short) of the advisors.

I am not an investment advisor and this should not be taken as investment advice.

Total Bailout Bill = $900 Billion

2009-12-17T09:28:00.000-08:00

After AIG rescue, Fed may find more at its door

All of the profits have been privatized. Now the US taxpayer is responsible for all the losses.

From Reuters:

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday"s $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.
Think about that for a minute. $900 billion dollars, racked-up before your very eyes. This at a time when the federal government is already bleeding money. Note the following numbers from the Bureau of Public Debt:

09/30/2007 $9,007,653,372,262.48
09/30/2006 $8,506,973,899,215.23
09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/30/2001 $5,807,463,412,200.06
09/30/2000 $5,674,178,209,886.86

Currently the total outstanding debt = $9,634,090,464,815.55

And now, thanks the the geniuses in charge of the US government, we"ve got the following bills to add:
- $200 billion for Fannie Mae [FNM 0.42 -0.061 (-12.68%) ] and Freddie Mac [FRE 0.26 --- UNCH (0) ]. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.

- $300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.

- $4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.

- $85 billion loan for AIG [AIG 2.06 -1.69 (-45.07%) ], which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.

- At least $87 billion in repayments to JPMorgan Chase [JPM 38.12 -2.62 (-6.43%) ] for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers [LEH 0.11 -0.19 (-62.37%) ]. U.S. Treasury Secretary Henry Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.

- $29 billion in financing for JPMorgan Chase"s government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.

- At least $200 billion of currently outstanding loans to banks issued through the Fed"s Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.

LinkHere

Skepticism of Palin Growing, Poll Finds

2009-12-17T07:14:00.000-08:00

Source: Washington Post
With the vice presidential candidates set to square off today in their only scheduled debate, public assessments of Sarah Palin"s readiness have plummeted, and she may now be a drag on the Republican ticket among key voter groups, according to a new Washington Post-ABC News poll.
-----
But it is the experience question that may prove her highest hurdle, particularly when paired with widespread public concern about McCain"s age. About half of all voters said they were uncomfortable with the idea of McCain taking office at age 72, and 85 percent of those voters said Palin does not have the requisite experience to be president.

The 60 percent who now see Palin as insufficiently experienced to step into the presidency is steeply higher than in a Post-ABC poll after her nomination early last month. Democrats and Republicans alike are now more apt to doubt her qualifications, but the biggest shift has come among independents.
-----
In the new Post-ABC poll, majorities of conservatives and Republicans maintain that Palin has the necessary experience to step in as president, though those numbers are also down somewhat from early last month.

But a third of independent voters now indicate they are less likely to support McCain because of Palin, compared with 20 percent who said so in an ABC poll a month ago. Palin now repels more independents than she attracts to McCain. The share of independent women less apt to support McCain because of the Palin pick has more than doubled to 34 percent, while the percentage more inclined to support him is down eight points.

White Catholics, another important group of swing voters, also are now more likely to say that Palin dampens their support for McCain.
LinkHere

Vets critical of Palin"s national guard leadership

Source: Seattle Post-Intelligencer
A veterans advocacy group released its preliminary findings Wednesday on the state of the Alaska National Guard, a report that in parts was critical of Gov. Sarah Palin.

The report released by Veterans For America said that under Palin, the Republican Vice Presidential nominee, it found that "the post-deployment needs of Alaska National Guard members and their families remain largely unmet."

The group spent a week in Alaska assessing the condition of the Guard there, and said it found deficiencies in basic services and needs for returning veterans and their families, including access to health care.

VFA"s report concluded that the state was not doing enough to ensure the proper transition of its Guard members after returning from deployments to Iraq.

The report centered on the post-deployment status of returning veterans, in particular the difficulty for rural Guard members in gaining access to medical services.
LinkHere

BRIC Nations Meet, Call For Monetary Diversity

2009-12-17T01:30:00.000-08:00

YEKATERINBURG, Russia � The leaders of four major emerging economies _ Russia, China, Brazil and India _ apparently failed Tuesday to reach consensus on reducing the dominance of the U.S. dollar despite growing calls for an alternative global reserve currency.
The four, seeking a greater role in global financial institutions, held the first summit of the so-called BRIC grouping after two days of meetings of the Shanghai Cooperation Organization, another group that Russia has sought to use to reassert its role on the global stage.
Moscow tried to mount a new challenge to the U.S. dollar as the world"s reserve currency and Russian President Dmitry Medvedev pushed his call for more global reserve currencies.
"No currency system can be successful if we have financial instruments denominated in just one currency," Medvedev said. "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies."
He said that new ones will take long time to emerge, but that "The main reserve currency, the dollar, has failed to serve its purpose."
Later, Medvedev and the other BRIC leaders issued a statement that called for a more diversified international monetary system and a greater role for their four nations in making major global financial decisions.
A reformed financial and economic architecture should be based on a "democratic and transparent decision-making and implementation process at the international financial organizations," the statement said.
Notably, however, the statement made no explicit criticism of the dollar, and contained no reference to developing new reserve currencies.
The cautious wording appeared to reflect China"s concerns that any anti-dollar statements could erode the value of its currency reserves.
Analysts said the BRIC proposals were premature and could exacerbate the global crisis.
The BRIC statement does not pose any real threat to the dollar, said Brian Dolan, chief currency strategist at Forex, since it "did not propose any concrete steps toward diversifying away from the dollar," LinkHere

Credit Card Charges Reveal Madoff Firm Was Family"s Piggy Bank

2009-12-17T00:04:00.000-08:00

NEW YORK � The credit card bill is a 30-page study in conspicuous consumption.
A quick scan shows a restaurant charge of more than $2,800, $2,000 in spending at a Parisian boutique and $441 at a gourmet bagel shop. There was $8,400 for one night at a hotel in Santa Monica and another $5,000 at the Montauk Yacht Club. The total amount due: more than $100,000.
Eye-popping numbers aside, the American Express statement from January 2008 has taken on broader meaning because of the notorious name on the corporate account: Bernard L. Madoff.
And the vast majority of the charges aren"t even his; they belong to his family and associates.
The bill is among a pile of exhibits filed recently in a Manhattan bankruptcy court by Irving Picard, the court-appointed trustee who is dissecting Madoff"s massive Ponzi scheme. Lawyers for the trustee claim in accompanying court papers that the credit card statement and other records prove Madoff"s family used his clients" money to pay for homes, travel, fancy meals and other personal expenses. LinkHere

The Wisdom of Richard Fisher

2009-12-16T22:13:00.000-08:00

Back on June 13 in Stupid Comments by the FED, we took a look at (and blasted) some comments made by Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, and a new member of the FOMC.

Here is a short recap:

Where would the world be if Americans did not live out their proclivity to consume everything that looks good, feels good, sounds good, tastes good?
We provide a service for the rest of the world. If we were running a current account surplus or trade surplus, what would happen to economic growth worldwide and what would be the economic consequences? So I think we are doing our duty there.

Those quotes will likely go down in history as some of the dumbest things a FED governor have ever said. This guy is really quite amazing, and he is seriously challenging $Ben "Helicopter Drop" Bernanke for all time stupid FED comments.

Back in June Fisher was talking Baseball when he made these comments:

"I think we"ve room to tighten a little bit further but the U.S. central bank is in the eighth inning of its tightening cycle and entering the ninth, and usually final, inning this month."

Fisher was yapping again today, October 4th, and given that the baseball playoffs recently started I was hoping for some hot baseball tips. Specifically I wanted to know his opinion on the Chicago White Sox vs. the St. Louis Cardinals. From what I have seen, his opinions on baseball can not possibly be any worse than his economic thoughts as a FED governor.

Given that we were in the 8th inning in June and have had two more rate hikes since then, it seems clear to me we are now in "extra innings". Surely something exciting as extra innings should deserve some kind of comment but alas none came. I was distraught when Fisher could not muster up a single comment about what inning we are in.

Instead of baseball, Fisher was yapping about football. "I traveled to College Station this weekend to watch the Aggies eke out an overtime victory against the Baylor Bears. Before watching those two teams from storied Texas universities go at it hammer and tongs, I spent a couple of hours with the Aggie Corps of Cadets. After the game, I heard that the Texas Longhorns had walloped Missouri.".

Those comments came when Fisher spoke before The Greater Dallas Chamber Economic Forum. He also offered A Perspective on the Economic Outlook. Let"s tune in to his economic outlook:

From an economic standpoint, Katrina and Rita have left their marks on Texas. Some state firms lost inventories. Others lost customers that were in the supply chain for the impacted area. The state budget has also taken a hit. A total of 265,000 evacuees fled to Texas, and many have no home to return to. More than 45,000 evacuee students have enrolled in Texas public schools�about 1 percent of total Texas enrollment. Another 10,000 to 15,000 students may be in the pipeline. The fiscal burden for evacuees in public schools could be $335 million to $432 million, assuming the evacuees remain in Texas for the entire school year.

Other negatives for Texans include increases in the costs of doing business. Rebuilding efforts will push up prices for construction materials. Many industries are likely to encounter higher fuel, freight, utility and transport costs�a heavy burden for those sectors, like airlines, already facing hardships. Consumers will have to pay more for winter heating bills and possibly gas at the pump, so they may have less to spend at retail stores and restaurants.

Yet, even with these drags on the economy, it appears that the hurricanes� net effect will be slightly positive for Texas.

Obviously Fisher is yet another proponent of the "Broken Window Fallacy". If two hurricanes were good for Texas, three must be better. Right? Perhaps Fisher believes the real problem with Rita was that it did not break enough windows. For those not familiar with the concept, I highly recommend reading the Parable of the broken window.

At this point I must issue a staunch warning to my friend and fellow Daily Reckoning writer, the Mogambo Guru. Mogambo, if per chance you are tuned in I have a duty to tell you to have a stiff drink (or three) before reading any further. I would hate to be responsible for causing some kind of Mogambo Consternation.

With that warning, Fisher went on to say:

The Federal Reserve has staunchly resisted monetizing deficits for more than a quarter century, and I feel strongly that it can ill afford to monetize them today.
I will never vote to monetize fiscal profligacy. And while I never speak for my colleagues, it is my distinct impression that none of them will do so either.
When it comes to accommodating inflation, central bankers everywhere have become, to quote my late, great father-in-law, Jim Collins, "tighter than a new pair of shoes".

The FED has staunchly resisted monetizing deficits for more than a quarter century?! The FED has been "tighter than a new pair of shoes"?! Is that tightness what brought about a parabolic increase in money supply and 1% interest rates? Is this clown serious?

Fisher did make two comments that are totally 100% believable:

Five years ago, Chairman Greenspan told his colleagues at the FOMC that Information Age technology had begun rewriting the operations manual for the economy. "We really do not know how this systems works," he said. "It�s clearly new. The old models just are not working."
I believe the same can be said of globalization today: We really do not understand how globalization works.

Finally, I leave you with these Fisher comments:

No government anywhere in the world can go on taxing and spending as if it is still operating in yesterday�s economy. If the United States is to remain an economic colossus, its fiscal authorities, like its central bankers, will have to become paragons of prudence and restraint, implementing policies that will put the nation in a position to bolster, not hamper, its competitive edge.
The FOMC has taken note of the fiscal situation, as shown by this pre-Katrina passage from the released minutes of the Aug. 9 meeting: �Few signs were evident that greater fiscal discipline in the budget process would emerge any time soon.�
Business is risky enough without the additional uncertainty created when a nation�s unit of account�in plain language, its money is undermined.

Truer words were never spoken but unfortunately the evidence is clear that Fisher has no idea what he even said. Our money right now is undetermined, backed by nothing and printed at will. Congressional spending is running amok and the purchasing power of the US dollar is based only on the faith of those willing to accept it.

It is clear to me that Fisher was arguing for a return to the gold standard.
Unfortunately he doesn"t have the slightest clue about what he was really saying.

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

VIDEO: Alice Schroeder on The Snowball: Warren Buffett and the Business of Life

2009-12-16T21:41:00.000-08:00

Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life talks about the Biography that she has written about the great investor.

Liberal groups launch town hall counteroffensive

2009-12-16T20:31:00.000-08:00

Source: CNN
WASHINGTON (CNN) � Liberal groups are sending supporters detailed instructions on strategies to counter what they call organized disruptions of congressional town halls � events that have become new front lines in the fight over health-care reform.
Conservative groups critical of Democrats� overhaul proposals headed into the August recess with their own battle plans for the events, sending out information such as links to search engines; lists that relayed the locations of upcoming town halls; confrontational questions to ask members of Congress; and chants and slogans to use in and around the venues.
The increasingly tense face-offs have grabbed headlines, and national Democrats have spent the week highlighting reports of everything from rowdy crowds to physical assaults and death threats directed at lawmakers who are current or prospective backers of the president�s plan.
Over the past few days, groups including Health Care for America Now; the AFL-CIO, which is describing the town halls as the �principal battleground� in the health-care fight; and Organizing for America, the president�s campaign arm at the Democratic National Committee, have sent supporters logistical tips for dealing with any hostile conservative presence at the town halls, and for organizing lobbying efforts to neutralize their impact. LinkHere

Juiced Earnings And Fanciful Figures

2009-12-16T18:54:00.000-08:00

It took 6 years for pension plans to recover from the last recession. Now, heading into an "L" shaped Recession that rates to be far worse than the wimpy recession of 2001, Pensions face funding rerun.

Liability-driven investing, which insulates pension plans from market and interest rate volatility, has been an often discussed yet infrequently implemented strategy for the vast majority of corporate pension plan sponsors. But fresh off of a quarter that wiped out nearly a full year�s worth of gains for some of the largest corporate pensions, many of these plan sponsors are expected to stop talking and start doing something about employing LDI to bolster the faltering funded status of their pension plans.

It has taken most corporations years to recover from the one-two punch of drastic declines in the equity markets and falling interest rates that drove pensions into the red earlier this decade. But finally, at the end of 2007, the majority of large corporate pension plans managed to post a pension surplus for the first time since 2001, according to data from actuarial firm Milliman Associates. The 100 largest corporate sponsors�from General Motors and its $117 billion pension plan to Ingersoll-Rand�s $2.5 billion plan�collectively improved their funded status last year by $85 billion, going from a roughly $15 billion combined deficit at the end of 2006 to a $70 billion surplus at the end of �07.

Sweet. But short: Most of their gains evaporated in the first three months of this year.

This solution, Mr. Morgan and many other pension experts contend, will now increasingly come in the form of LDI approaches, which generally invest a pension plan�s assets specifically to meet its expected pension obligations (as opposed to exceeding an investment benchmark). LDI strategies can vary widely�plan sponsors can invest pension assets in long-duration fixed-income vehicles, for example, or they can use derivatives such as interest rate swaps in their portfolio, and both would qualify as LDI. Ultimately, these types of strategies are designed to make pension plans less vulnerable to swings in equity markets and interest rates, produce more consistent and predictable investment returns, and lower the risk of underfunding.

Because LDI strategies are designed to reduce the risk in a pension plan�s portfolio and produce more predictable returns, it also lowers the likelihood that corporations will be forced to make unexpected contributions to their pension plans. �If you can eliminate the peaks and valleys, then you�re always going to be in a better position to manage your budget and anticipate cash contributions,� said John Ehrhardt, principal and consulting actuary at Milliman.

Juiced Earnings And Fanciful Figures

In his latest annual report Warren Buffett talks about How Public Companies Juice Earnings.

For the 363 companies in the S&P that have pension plans, assumptions in 2006 averaged 8%. Let�s look at the chances of that being achieved.

The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.

This means that the remaining 72% of assets � which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments � must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.

How realistic is this expectation? Let�s revisit some data I mentioned two years ago: During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually.

Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow � recently below 13,000 � would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.

It�s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?

No Free Lunch

There is no free lunch for pension plans. The problem with pension plans is expected rates of return are simply too high. The risk free yield on 5 year treasuries is under 3%. Even as little as 6 months ago one could have locked in 5%. But that is not enough when assumptions are 8%.

Yet we are now told by Paul Morgan, senior consultant and director of capital markets at Evaluation Associates, that the solution is "Liability-driven investing".

This is of course complete nonsense, and it should not take a genius to figure it out. By what miracle can LDI return 8% a year if the long term average is 5%?

Morgan is also touting interest rates swaps and other derivatives as LDI as if those never blow up. Morgan might be advised to take a look at Jefferson County Death Spiral Swaps and a possible bankruptcy of Jefferson County Alabama. If it happens it would be the largest municipal bond bankruptcy in history.

What"s going to happen, and perhaps it is happening right now with this "bottom is in" rally, is corporations are going to shift out of treasuries into equities, swaps, commodities, and God knows what else hoping to make 8% returns. When the market heads south again, they are going to regret it big time. It rather hard to make 8% out of 5% but it"s even harder to make 8% out of negative 20% should the stock market head south in a major way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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PRESS REGISTER: Vanity Fair will close Jackson, Monroeville factories in August

2009-12-16T18:17:00.000-08:00

Saturday, May 23, 2009

By JEFF AMY

Business Reporter

Fruit of the Loom Inc. has set Aug. 21 as the closing date for its Vanity Fair Brands dye plant in Monroeville and its knitting plant in Jackson, the company said.

The company had announced plans a year ago to close its last manufacturing operations in southwest Alabama sometime before the end of 2009. At the time, it said it was getting out of fabric manufacturing because of increased global competition.

John Shivel, a Fruit of the Loom executive based at company headquarters in Bowling Green, Ky., said the closing date was based on "operational requirements." The company filed notice with the state earlier this week.

The Monroeville plant has 141 employees, down from 180 a year ago. The Jackson plant has 69 employees, down from 90.

Vanity Fair will continue to operate a distribution center in Monroeville, which it expanded after the closing of a warehouse in Mission, Texas. Shivel said he didn"t know if any workers at the dye and knitting plants would be able to find jobs there. The Monroeville distribution center has about 500 employees, according to local officials.

Fruit of the Loom is a unit of Berkshire Hathaway Inc., the Nebraska conglomerate led by billionaire investor Warren Buffett. Original owner VF Corp. sold its intimate apparel business to Fruit of the Loom in 2007 for $350 million.

Vanity Fair began manufacturing in Jackson and Monroeville in 1937. The company was long a cornerstone employer in Monroeville, helping the city grow to its current population of about 6,400.

Wiley Blankenship, executive director of Coastal Gateway Economic Development Authority, said his multi-county group, along with local leaders, was trying to help the area diversify its economy away from its traditional reliance on wood products and textile and apparel makers.

Southwest Alabama"s inland counties, particularly Clarke, Conecuh and Monroe, have been hard hit by layoffs in the current recession. All three rank among the state"s 13 worst counties for unemployment rates. "We"ve got to focus on where the future jobs are and try to figure out how we are going to employ the people who are going to be laid off," Blankenship said.

Workers laid off because of foreign competition are typically eligible for retraining money and enhanced government assistance.

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Get out the Brooms

2009-12-16T17:33:00.000-08:00

A very long overdue sweeping change is about to happen.
Be prepared for it.

Democracy Corps did a voter poll of 1200 Likely Voters in 50 Republican-held Competitive Districts. This was a NAMED candidate poll in REPUBLICAN swing districts, not a generic ballot national survey.

Click here for complete Results Analysis. Some snips follow. Remember you are looking at results in REPUBLICAN swing districts only.

This survey, unlike any other public survey, asks the congressional vote using the actual names of each candidate, meaning this survey fully reflects any advantages for incumbency. We also ask the generic ballot for a read of overall partisan sentiment, but named vote is more likely to tell us what happens.

Iraq

Despite the increased titters about Senator Kerry, there is every reason to believe that this week has further contributed to making this election a referendum on Iraq. First, it keeps Bush on center-stage, and he is not popular in these Republican-held districts (45 percent strongly disapprove and only 24 percent strongly approve). It is hard to have a base strategy without a base. Second, the president is telling the American people to vote next Tuesday on who you trust on Iraq. And third, it has crowded out any other issue, including national security and terrorism and the economy and taxes.

The trends on Iraq promise disaster for the Republicans, as we can see in the results below:

The president�s approval on Iraq is only 39 percent in these Republican districts, unchanged from last week, with no evidence of growing confidence as they define the election on Iraq.

Most important is the new majority of 53 percent in the two polls over the last week for reducing troop levels, with only 43 percent for staying the course for stability � a break with years of being evenly divided. That 10-point margin for reduced troop is greater than the margin in the congressional vote � suggesting this debate helps Democrats in these Republican districts.

Engagement and Turnout
This election is on Iraq, not national security.
One-in-five Bush voters are not voting Republican and the trend of this week is moving in the opposite direction.
85 percent of those voting Democratic say they are �absolutely certain� to vote, compared to 83 percent of Republicans.
68 percent of Democratic voters score �10� very interested in the election, compared to 54 percent of Republican voters.
66 percent of Democratic voters say they are �more enthusiastic� than usual, compared to 49 percent of those voting Republican
The Vote

The vote is trending Democratic in this last week, and importantly, Democrats have moved into a clear lead in tier one races in the last few days and now have a 3-point lead in the least competitive tier. The incumbent Republicans are only polling at 40 percent in tier one and 46 percent on average in tier three, a difficult place to be for an incumbent.

With five days to go to the election, these Republican-held seats, already in jeopardy before this week, are moving to the Democrats. Virtually all the underlying trends on significant indicators have made it more likely this is a wave election that we see only once in a decade.

With 1994 as our backdrop, we see this Republican battleground deeply upset about the direction of the country and the Republican Congress and increasingly prepared to vote for a sweeping change in Washington.

That poll is for Congressional Elections.

Rasmussen Reports is writing about the Senate Balance of Power

November 3, 2006

On the final Friday of Election 2006, Democrats take the lead for the first time in the race for control of the U.S. Senate. Today, Rasmussen Reports is switching two states (New Jersey and Montana from �Toss-Up� to �Leans Democrat�). We now rate 49 Senate seats as Democrat or Leans Democrat, 48 seats as Republican or Leans Republican and three as Toss-Ups. We polled in each of the Toss-Up States (Tennessee, Missouri and Virginia) on Thursday night and this may lead to further shifts in the Senate Balance of Power ratings.

Given the analysis by Democracy Corps in swing republican districts the odds of the Democrats winning all leaners has to be very high, just based on overall sentiment alone. If Rasmussen is correct the odds of Republicans holding the senate comes down to Tennessee, Missouri, and Virginia.

Tennessee
October 27, 2006
The latest Rasmussen Reports poll of the Tennessee race for U.S. Senate shows Mayor Bob Corker leading Democratic Congressman Harold Ford 47% to 46%. With "leaners" added, Corker leads 49% to 47%.

Missouri
October 27, 2006
In the contest of inches that has marked the Missouri Senate race from the start, the most recent Rasmussen Reports election survey shows incumbent Republican U.S. Sen. Jim Talent leading Claire McCaskill 48% to 46%.

When leaners are added into the equation, Talent still leads McCaskill by two (50% to 48%). This is the first time that either candidate has reached the magic 50% level of voter support.

Virginia
October 27, 2006
In Virginia"s fierce U.S. Senate campaign, Republican Senator George Allen"s once double-digit lead over Democrat James Webb has virtually vanished. Allen now leads 49% to 48%�with leaners added, 50% to 48%.

Nancy Pelosi

Unless this election is stolen we are going to have a new speaker of the house. Get used to hearing her name. That name is Nancy Pelosi. The Washington Post is reporting Pelosi Calls for a Fast Pullout.

House Minority Leader Nancy Pelosi"s embrace Wednesday of a rapid withdrawal from Iraq highlighted the Democratic Party"s fissures on war policy, putting the House"s top Democrat at odds with her second in command while upsetting a consensus developing in the Senate.

For months now, Democratic leaders have grown increasingly aggressive in their critiques of President Bush"s policies in Iraq but have been largely content to keep their own war strategies vague or under wraps. That ended Wednesday when Pelosi (D-Calif.) aggressively endorsed a proposal by Rep. John P. Murtha (D-Pa.) to pull U.S. troops out of Iraq as soon as possible, leaving only a much smaller rapid-reaction force in the region.

All I can say is "Bring It On!".
We have wasted a half trillion dollars in Iraq (that the government admits to), and probably half that again (if not more)buried elsewhere.

The way to do it is easy. Cut funding for the war to zero. Give Bush a choice: face impeachment or bring the troops home now. It"s high time to take back our country from those trying to wreck it. It remains to be seen if this election will be stolen or not, but the House at least is a safe bet. I am encouraged by the Democracy Corps polls that clearly shows even Republicans are sick of Bush, his policies, and the War in Iraq.

I am hoping for a clean sweep everywhere but we may have to settle for a massive sweep in the house elections alone. If you live in Tennessee, Missouri, or Virginia, please vote!

My broom is ready. It"s time for a sweeping change.

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

FOX BUSINESS VIDEO: Liz Claman Interview - Warren Buffett on Unemployment

2009-12-16T14:35:00.000-08:00

Warren Buffett with Liz Claman, Fox Business Interview.

Buffett on unemployment, insurance caps and Government red tape.

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ASSOC PRESS: Berkshire shareholders eager to hear from Buffett

2009-12-16T12:46:00.000-08:00

Associated Press - May 2, 2009 9:25 AM ET

OMAHA, Neb. (AP) - Roughly 35,000 people have filled an Omaha arena to listen to billionaires Warren Buffett and Charlie Munger dispense advice.

The economy and the state of Berkshire Hathaway Inc., which had its worst year in 2008, are on the minds of many shareholders. But mostly, shareholders seem eager to hear from their company"s top two executives.

Retired shareholder Paul Gallmeyer drove down from the Chicago area for the meeting. He says there aren"t any specific questions he wants to hear Buffett and Munger address.

Gallmeyer says he"s not especially worried about who will replace the 78-year-old Buffett. He says all of Berkshire"s more than 60 subsidiaries have people running them who will keep the company going after Buffett is gone.

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ACT NOW OR "WE MAY BE UNABLE TO REVERSE" IT

2009-12-16T12:23:00.000-08:00

Obama Back In Campaign Mode: In Elkhart, Indiana Today... Some Congress Members Also On Trip... Obama Will Hold White House Press Conference Tonight... Going To Florida On Tuesday... Read More From The Elkhart Paper...

CNBC: Value of Warren Buffett"s Annual Gift to Gates Foundation Falls Along With Berkshire"s Stock

2009-12-16T09:43:00.000-08:00

Published: Thursday, 2 Jul 2009 | 3:44 PM ET

By: Alex Crippen

Executive Producer

Seth Wenig / AP

Bill and Melinda Gates pose for photographs with Warren Buffett at a 2006 news conference announcing his intention to give millions of shares to the Gates Foundation.

Warren Buffett"s annual gift of Berkshire Hathaway stock to the Bill and Melinda Gates Foundation is worth $1.25 billion this year, a drop of over 30 percent from last year"s $1.8 billion.

Under the multi-year schedule set up in 2006 to donate a total of 10 million Class B shares, Buffett donates a slightly smaller number of shares each year. (Eventually he will have given away almost all of his vast personal fortune.)

But the big factor in the lower value of this year"s gift is a 26.9 percent plunge for Berkshire"s Class B stock price over the past twelve months.

Buffett"s Annual Stock Gifts to Gates Foundation

	Number of Shares	Share Price At Time of Gift	Total Value	Pct. Change
2006	500,000	$3043	$1,521,500,000
2007	475,000	$3714	$1,764,150,000	+15.9%
2008	451,250	$3999	$1,804,548,750	+2.3%
2009	428,688	$2924	$1,253,482,250	-30.5%

An SEC filing this afternoon (Thursday) details this year"s donation on July 1 of 428,688 shares to the Gates Foundation, along with 42,869 shares to the Susan Thompson Buffett Foundation, and 15,000 shares to each of the Sherwood Foundation, the Howard G. Buffett Foundation and the NoVo Foundation.

Current Berkshire stock prices:

Class A: [US;BRK.A 89384.0 -1106.00 (-1.22%) ]

Class B: [US;BRK.B 2892.97 -31.03 (-1.06%) ]

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IRAQ: "Handed Over" to a Government Called Sadr

2009-12-16T08:02:00.000-08:00

Ali al-Fadhily and Dahr Jamail*
Despite the huge media campaign led by U.S. officials and a complicit corporate-controlled media to convince the world of U.S. success in Iraq, emerging facts on the ground show massive failure. The date March 25 of this year will be remembered as the day of truth through five years of occupation. "Mehdi army militias controlled all Shia and mixed parts of Baghdad in no time," a Baghdad police colonel, speaking on condition of anonymity, told IPS. "Iraqi army and police forces as well as Badr and Dawa militias suddenly disappeared from the streets, leaving their armoured vehicles for Mehdi militiamen to drive around in joyful convoys that toured many parts of Baghdad before taking them to their stronghold of Sadr City in the east of Baghdad."....
continua / continued

Countrywide Bets the Farm

2009-12-16T07:45:00.000-08:00

The Associated Press is reporting Countrywide Taps Credit Line for Cash.

Countrywide Financial Corp., the nation"s largest mortgage lender, said Thursday it had borrowed $11.5 billion from a group of 40 banks to fund loans in a move that shows just how deep the lending crisis has become.

"Countrywide has taken decisive steps which we believe will address the challenges arising in this environment and enable the company to meet its funding needs and continue growing its franchise," Countrywide President and Chief Operating Officer David Sambol said in a statement.

The move to beef up its portfolio of conforming loans could erode Countrywide"s earnings prospects, because such loans "suffer thin margins barely covering overhead costs," Goldman Sachs analyst James Fotheringham said in a research note Thursday.

"Credit costs are set to increase even further than we had anticipated as riskier loans are added to an already troubled portfolio," he wrote.

By adjusting its product mix to originate Fannie and Freddie-approved loans almost exclusively, Countrywide will be cutting out most subprime, alt-A and jumbo loan products.

On Wednesday, Merrill Lynch & Co. downgraded Countrywide to "Sell," just days after calling it a "Buy," attributing the change to the rapid deterioration of the credit market.

Friedman, Billings, Ramsey Group Inc. said Thursday a continued liquidity crunch for more than three months could send Countrywide into bankruptcy.

Credit rating agency Moody"s Investors Service downgraded Countrywide"s senior debt rating to "Baa3" from "A3," citing Countrywide"s funding problems.

A ratings downgrade essentially makes it more expensive for a company to borrow money. Countrywide could be further downgraded if it continues to face liquidity problems, Moody"s said in a statement.

The new rating is Moody"s lowest investment-grade mark. Any downgrade would take Countrywide into "junk" status, which would keep many large institutional investors from owning its debt.

Key Ideas

Countrywide tapped 11.5 billion of its credit line in one shot. Is there more than a little fear that its credit line might be reduced if it waited?
What Countrywide does with that cash will determine whether the company lives or dies.
One more debt downgrade by Moody"s will cause a massive unwind of all of Countrywide"s investment grade debt. That would further pressure share prices at the very least. Will that (or did that already) affect how Moody"s rated that debt?
Countrywide"s exiting Alt-A and Jumbo mortgages will further impact the mortgage market. It is already very difficult (expensive) for anyone to get anything but a conforming loan with a significant down payment. This move by Countrywide will compound these already very significant problems.

The LaTimes is reporting Credit crunch imperils lender.

On Wednesday, the company was said to be having trouble borrowing money on a short-term basis, securities analysts discussed the possibility of a Countrywide bankruptcy and the firm"s stock price tumbled 13%, bringing its loss for the year to 50%.

"If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break," said Merrill Lynch analyst Kenneth Bruce, who warned investors to sell their Countrywide stock, saying the company could go bankrupt if the worsening liquidity crunch gets bad enough.

A bankruptcy filing by the lender would make life uncertain at best for its 61,500 employees, about 15,000 of whom work in Calabasas and elsewhere in Southern California.

An insolvent Countrywide could also do more damage to the country"s already weakened housing market, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication based in Bethesda, Md.

"It would be a huge shock to the U.S. housing system and the mortgage system as perceived around the world -- and make an already bad situation terrible," Cecala said.

The turmoil could spook depositors at Countrywide Bank, an Alexandria, Va.-based savings and loan that has grown dramatically since Countrywide Financial bought it in 2000. Nearly 40% of the bank"s $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website.

In 2003, old-fashioned 30-year loans with fixed interest rates and substantial down payments made up about two-thirds of Countrywide"s loans, said mortgage executive Bill Dallas, whose Agoura Hills-based sub-prime lender Ownit Mortgage shut down early this year.

By last year, only one-third of Countrywide"s loans were of the traditional type, with the rest spread among the more exotic loan variety, Dallas said. He said Mozilo, who had often been quick to criticize rivals for being overly aggressive, had found himself immersed in the same businesses as his competitors.

"Every section of the business that has failed, they"re in there big time," Dallas said.

At the height of the boom in 2004 and 2005, it wasn"t uncommon for a typical Countrywide loan officer to sell 20 sub-prime loans a week. "It was a feeding frenzy," said one former Countrywide employee who said he joined the company in 2004 and, after six weeks of training, made $6,000 to $8,000 a month. As fast as loans could be signed, they could be sold to investors, according to the former employee, who declined to be identified.

For starters, anyone that has any money at at Countrywide Bank better be getting while there"s still something to get. And it"s obvious that Countywide"s CEO has blown it big time from every perspective but one: How much he has personally cashed out. (More on that in a moment).

The interesting thing is a mere 1.04% of its loans are in foreclosure as the chart on the lefty shows.

That"s what overleverage in the face of a credit crunch can do to you. In desperation Countrywide has now resorted to betting the farm that it can get things straightened out. And if it can"t, creditors can kiss that $11.5 billion credit line goodbye.

And judging from current pricing on subprime junk, Countrywide is going to have a mighty tough time of rebalancing its portfolio solely by reducing risk on new loans.

The chart on the right shows why: Countrywide was as much caught up in bubble financing as many of the now 120+ mortgage lenders that have gone bust according to Mortgage Lending Implode O Meter. Countrywide may simply run out of time when foreclosures start soaring in the face of ARM resets later this year and next.

Kevin Depew was talking about Countrywide today in his daily dose of "Five Things". Today"s was one of the best ever. Lets take a peek at points #1 and #3 but you are missing out if you don"t read the entire piece.

1. Countrywide Empties Out on Widowmaker

The news trickling out on Countrywide Financial (CFC) is a big deal. Remember, this is the biggest mortgage lender in the country.
So, how bad is it?
Think of it like this. It"s late December. Snowing. Aqueduct racetrack. The last race is in four minutes, you"re down $287 and seven beers. But you"re not finished yet. There"s still one race left, the last race, the one they call The Widowmaker. Few losers ever survive The Widowmaker. But there it is, calling to you, asking for one last wager, one final grasp. Ah, but there"s a slight snag, a hitch in your giddyup so to speak. The only paper in your pocket is a losing exacta ticket from the last race that came in backwards. We"re talking the only paper in your pocket. You sold your unlimited subway card after the 5th race, plunged full-bore on a filthy hot dog, a beer and a 9-1 shot that finished next-to-last. You are Countrywide.
Who are you gonna turn to now?
If you"re Countrywide you"re gonna tap your entire $11.5 billion bank credit line.
As Christopher Wolfe, managing director at Fitch Ratings told Bloomberg, "When a company draws on its bank lines, it just basically gives off the impression that it has run out of options."
"Typically these bank lines are there but not really meant to be used."
Meanwhile, Angelo Mozilo, chief executive officer of Countrywide, recently exercised options for 46,000 shares in the company and then sold those shares for $1,306,400, according to Thomson Financial.
Mozilo owns 1,378,390 shares of company stock (497,297 held directly and 881,097 indirectly).
Over the last two years, in addition to the current filing, Mozilo has been awarded stock four times totaling 787,694 shares, and has exercised options 270 times totaling 14,553,538 shares and has sold shares 268 times (14,550,928 shares for $536,348,378).
3. Everybody Out of the Poole!

Meanwhile, back in the fake world, St. Louis Federal Reserve president Bill Poole said the subprime mortgage rout doesn"t threaten U.S. economic growth, and only a "calamity" would justify an interest-rate cut now, according to Bloomberg.
And, as if on queue, Moody"s just moments ago warned that the "global credit rout" may cause a major calamity.
Hedge funds face potential losses on collateralized debt obligations, securities packaging other assets, Chris Mahoney, vice chairman of Moody"s said on a conference call today, according to Bloomberg.
"A possible consequence of the repricing of risk assets would be the failure and disorderly liquidation of a hedge fund or other institution of sufficient size as to disrupt markets, as Long-Term Capital Management threatened to do in 1998," Mahoney said.

Flashback August 2: Countrywide made this statement - It is important to note that the Company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper.

Flashback August 9: Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company"s financial condition, the Calabasas, Calif., lender said in a regulatory filing.

In between, those dates it just so happens that CEO Angelo R. Mozilo managed to unload 92,000 shares at a price of $28.74 for a total payout of $1,292,600 above his option price of $14.69. I talked about that cashout in "Unprecedented Disruptions" at Countrywide.

But that is mere child"s play compared to the grand total of $536,348,378 as Kevin Depew reported. Is this a great country or what? Where else can you make a half billion dollars running a company into the ground?

Now think about that paragraph again. It goes a long way towards explaining why things are not as good as the bulls claim.

Wealth is simply far too concentrated at the top end, while debt is concentrated everywhere else. One cannot average up the two and say "on balance things are OK". On balance things are not OK especially for those millions facing foreclosure. And things are going to get worse (lots worse) when the unemployment rate starts soaring.

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

Huge Deficit Stuns Cincinnati; California Faces Cash Crisis

2009-12-16T07:14:00.000-08:00

The economy is taking its toll on cities and the situation is going to get worse. Please consider Huge deficit stuns Cincinnati officials.

A struggling economy and a forecast of income tax revenues that was far off the mark has Cincinnati City Council staring at a $40 million budget deficit through 2010 - sparking talk of layoffs and cuts in service in the year to come.

Council"s finance committee received a report from the city"s finance department Monday saying the city was already $7.7 million behind its revenue forecast by the end of April. And, if the trend continues, the city could face a deficit of about $40 million through next year.

"Hell would have to freeze over for us to get out of this," said Council member Leslie Ghiz. "There will be layoffs. There will be cuts. And it will be painful."

For the short term, City Manager Milton Dohoney has called for a five percent cut in 2009 spending from all city departments; and ordered department heads to submit plans to him by the end of the week on how they will do that.

But some council members - who will ultimately decide what is cut and what is not - are balking at the suggestion that police and fire services take a five percent cut.

"As far as I am concerned, we"re not even going to talk about cuts to police and fire," Ghiz said. "The cuts will have to come from somewhere else."

The city administration had expected to collect nearly $82.6 million in income taxes through April, but the actual receipts were about $76.5 million. Admission tax revenue - the money the city gets from the sale of tickets to entertainment and sporting events - is down as well; and the city took a $1.3 million hit when the state of Ohio reduced the amount of money municipalities get from the state"s Local Government Fund.

Council member Chris Bortz said he never believed the forecasts of an increase in income tax revenues and said the current budget shortfall is "the result of out-of-control spending by this council. It has to stop, now."

Cincinnati needs to face reality. Without the article saying so, it is relatively safe to assume that pension promises to city workers is a portion of the problem. The rest of the problem is runaway spending by the city council. Yes, there needs to be layoffs, and services need to be privatized or better yet eliminated.

Tax Increases Not The Answer

One thing that California shows us on Tuesday is taxpayers are in no mood for increased taxes to cover the shortfalls as noted in Hooray For California, Propositions 1A-1E Go Down In Flames.

Tough choices now await California. I proposed the following:

M1 - Cut legislative pay by 20%
M2 - Legalize Marijuana
M3 - Free all the prisoners on minor drug offenses
M4 - Privatize services starting with the prison system
M5 - Eliminate defined benefit pension plans for all new state employees

And that is just a small down payment for what is needed, not just in California, but nationwide.

Cash Crisis In California

California delayed addressing is problems in February by postponing refund checks. No such delay tactics are available now as California Confronts New Cash Crisis.

California may run out of cash by July, the second time this year the most-populous U.S. state confronts a fiscal crisis.

Voters yesterday added $6 billion to a budget deficit when they defeated five measures backed by Governor Arnold Schwarzenegger, a Republican, and the Democrat-led Legislature. The governor said lawmakers will be forced to cut deeper into spending on everything from schools to jails as the state prepares to borrow record sums from investors.

The rejected package was intended to shore up the finances of a government that the governor and state treasurer say has $21 billion less than needed to pay its bills over the next 13 months.

�The voters have spoken and they are telling us that government should do the best it can with the money it has,� said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. �We will immediately and responsibly get to work to balance the budget.�

Fights over California�s annual spending plan may occur because it takes a two-thirds vote to pass one.

�I respect the will of the people who are frustrated with the dysfunction in our budget system,� Schwarzenegger said in a statement from Washington, where he had previously scheduled meetings with Obama administration officials.

According to the state Legislative Analyst�s Office, the state may run through its cash as soon as July. That would force the state controller to shut off some payments, as he did in February, unless California can raise money from Wall Street. The Legislative Analyst�s Office estimates the state may need to borrow as much as $23 billion of one or two-year notes, absent further spending cuts.

California would have little trouble raising money from investors, said John Flahive, who oversees more than $20 billion in municipal debt at BNY Mellon Wealth Management in Boston. However, he estimated that the state may pay as much as 3 percent on the notes, more than three times what it would pay if it might sell into money market funds.

Borrowing More Money Is Idiotic

California and many cities face the same structural defects: Overpromises on pensions, union wages, and bloated budgets. Floating bonds does not address any of these structural difficulties, nor would Federal handouts.

It is time for legislators to fix the problems, not postpone them only to watch them sprout like dandelions. The day of reckoning for decades of wasteful spending practices has arrived for California. Other cities and states will follow.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Had to Re Post, I just watched it again.

2009-12-16T05:33:00.000-08:00

Sarah Palin And Republican Hypocrisy

REUTERS INDIA: Wells Fargo announces $6 billion common stock offering

2009-12-16T05:26:00.000-08:00

By Jonathan Stempel and Phil Wahba

NEW YORK (Reuters) - Wells Fargo & Co, the fourth-largest U.S. bank, announced on Thursday a $6 billion common stock offering, as the bank faces regulatory stress tests to determine whether it needs to strengthen its capital.

The stock issue will be priced on Friday morning at between $20.50 and $22, said a source familiar with the situation who was not authorized to speak publicly.

While the issue would be between 11.1 and 17.2 percent below Thursday"s closing price of $24.76, it would be above Wells Fargo"s stock price for most of this year.

The results of government "stress tests" of the ability that the 19 largest U.S. banks can weather a deep recession will be released on Thursday at 5 p.m. EDT (2100 GMT).

The Wall Street Journal reported Wells Fargo could need to shore up its capital by up to $15 billion.

The San Francisco-based bank -- in which Warren Buffett"s Berkshire Hathaway Inc is the largest shareholder -- took $25 billion of capital from the government"s Troubled Asset Relief Program last fall.

While Wells Fargo said when it accepted the TARP money that it did not need the funds, its capital ratios are now lower than those of many rivals.

On December 31, Wells Fargo bought Wachovia Corp for $12.5 billion, and immediately wrote down $37.2 billion of riskier Wachovia loans.

Wells Fargo"s Tier-1 capital ratio, including the $25 billion, ended March at 8.28 percent, above the 6 percent regulatory minimum but below the double-digit ratios that many rivals maintained.

Its ratio of tangible common equity to tangible assets was 3.28 percent; many analysts prefer to see 5 percent.

J.P. Morgan Securities Inc and Wachovia Securities are joint bookrunning managers for the offering.

Wells Fargo shares fell 3.6 percent to $23.87 in after-hours trading. The stock ended down 7.75 percent on Thursday on the New York Stock Exchange, and is down 16 percent this year.

(Reporting by Jonathan Stempel, Phil Wahba, and Juan Lagorio; Editing by Bernard Orr)

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Citigroup Posts Loss on Credit-Card Securitizations

2009-12-16T04:30:00.000-08:00

In what is likely to be the shape of things to come across the board, Citigroup Posts Loss on Credit-Card Securitizations.

Aug. 4 (Bloomberg) -- Citigroup Inc. reported its first loss since at least 2005 on credit-card securitizations, signaling that risks may be growing in a business that generated $3.5 billion of revenue in the past three years.

The biggest U.S. credit-card lender lost $176 million in the second quarter packaging card loans into securities, the company said in an Aug. 1 regulatory filing. The New York-based bank completed fewer deals and was forced to mark down its own $9 billion stockpile of the debt instruments and other stakes the company amassed while selling them to investors.

Banks and other card issuers "are predicting higher net charge-off rates across the credit-card industry," said Meghan Crowe, a Fitch Ratings analyst who tracks credit-card issuers including American Express Co., Capital One Financial Corp. and Advanta Corp. "Things have been worse than anticipated."

Banks" interests in securitized credit-card loans are vulnerable partly because of the way the deals are packaged, according to Fitch"s Crowe. Security holders typically are granted senior interests, meaning they stand first in line to get repaid if loan losses climb or the instruments default. Banks often retain the junior interests, meaning they"re first to absorb the losses.

"These guys hold the lower pieces," Crowe said, declining to comment on Citigroup specifically.

Citigroup"s Capitalization

Citigroup claims to be "well capitalized". The claim is nonsense if you consider its $1 trillion off balance sheet arrangements and its marked to fantasy level 3 assets.

I just listened to a Bloomberg Audio/Video on Citigroup with Mark Sunshine.

Here is a transcript of a couple of pertinent points in an interview that took place shortly after earnings.

Mark Sunshine: "Citigroup"s tangible equity ratio is 2% if you re-consolidate its off balance sheet assets. That is catastrophically low. The other thing that was interesting with the Citigroup release was the securities and banking revenue was down 94%. Somehow they managed to bury in the release, that the fee income and a bunch of other components that was the old Salomon Smith Barney has fallen off the side of a cliff."

For more on Citigroup"s off balance sheet holdings, please see Citigroup"s $1.1 Trillion in Mysterious Shadow Assets.

There is no way Citigroup can afford to bring those assets on its balance sheet. Miraculously, the FASB just postponed a rule change that was just about to go into effect that would have forced Citigroup to do so. Citigroup statements suggest it may have even had advance warning that the rule change was about to be postponed. For more on this topic, please see Not Practical To Tell The Truth.

Citigroup got the delay it wanted. Now what? Now you can add credit card losses to the long list of problems facing Citigroup. Will those off balance sheet assets be worth more a year from now than today? Hardly. Will the situation with credit cards be any better a year from today? Hardly. And as the Fed the SEC, and others continually allow banks to delay addressing the problems they are facing, those problems keep growing in size.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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NY TIMES BLOG: A Back to Basics Weekend With Warren Buffett

2009-12-16T04:06:00.000-08:00

By ANDREW ROSS SORKIN

Published: May 4, 2009

Omaha

Nati Harnik/Associated Press

Warren Buffett met with questions, and some anger.

�If you have a 150 I.Q., sell 30 points to someone else. You need to be smart, but not a genius.�

So said Warren Buffett, the world�s most famous value investor, at Berkshire Hathaway�s annual meeting here on Saturday, a regular pilgrimage for some 35,000 shareholders that many call Woodstock for capitalists. This year there wasn�t as much free-flowing love, given what a difficult year it�s been for capitalists, Mr. Buffett included.

But shareholders still hung on every word from the 78-year-old investor�s lips. Between sips of Cherry Coke and bites of peanut brittle, he served up some wisdom that might have saved a lot of heartache (not to mention jobs and untold financial losses) had investors heeded it over the last decade: keep it simple.

During the boom, the country became too enamored with the idea that the best and brightest could predict the future; too dependent on complicated financial models developed by quant jocks; and too reactive to every uptick or slight drop in the market. It still may be today.

�If you need to use a computer or a calculator to make the calculation, you shouldn�t buy it,� he said. Given that the stress tests for the banking system � developed with complex spreadsheets and using sophisticated formulas predicting the next two years� worth of earnings and write-downs � are being released this week, it was timely advice. (He still likes his investment in Wells Fargo, by the way, and suggests it has enough capital already. Though, it�s worth noting, he seemed less optimistic about the economy than officials in Washington.)

Charlie Munger, Mr. Buffett�s 85-year-old business partner, added his two cents: �Some of the worst business decisions I�ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn�t. They teach that in business schools because, well, they�ve got to do something.�

I had traveled to Omaha to sit on stage, along with two other journalists, to pepper Mr. Buffett and Mr. Munger with questions � some quite tough � for more than five hours. Shareholders had sent in thousands of them by e-mail before I left. Even while I was on stage, they kept arriving, stuffing my BlackBerry.

Some questions I received showed flashes of real anger. Mr. Buffett, who had earned the nickname �the Oracle of Omaha� for his long-term performance, had let some of these shareholders down, they said. This past year was his worst ever. Like everyone else, he missed the credit crisis and subprime debacle.

Not surprisingly, however, his fan club is still strong, dismissing his bad year as part of the �markets go up and markets go down� inevitability of value investing. Even so, Mr. Buffett himself acknowledged, �I didn�t cover myself in glory� in 2008.

Others, though, wanted to know why Mr. Buffett was still invested in Moody�s, whose credibility took a huge hit in the bust along with other credit rating agencies after it doled out Triple-A ratings the way McDonald�s sells hamburgers (a shareholder�s analogy, not mine). There were plenty of questions about Mr. Buffett�s succession plan (or lack thereof, to the dismay of many investors). And if it was not about Mr. Buffett�s successor, it was about his reinsurance guru, Ajit Jain, who runs Berkshire�s wildly profitable reinsurance business. �The Titanic-like ending of A.I.G., after Greenberg left, has me spooked,� wrote Ben Knoll, in reference to Maurice Greenberg, A.I.G.�s former chief. He wanted to know who was next in line to take over a job that requires assessing risk.

Mr. Buffett sometimes meandered, but he did not skirt the questions. It �would be impossible� to replace Mr. Jain, he said, saying that �we won�t find a substitute for him.� He suggested that if Mr. Jain were ever to leave, Berkshire didn�t have anyone it would allow to write the same size insurance policies. Most C.E.O.�s I know would have said they had a succession plan even if they didn�t.

To the question about Moody�s, he said the company �eagerly sought stupid assumptions that enabled them to do clever mathematics.� As to why he didn�t exert his influence, he said: �I don�t think I�ve ever made a call to Moody�s. We don�t tell Burlington Northern what safety procedures to put in or AmEx who they should lend to. When we own stock, we are not there to try and change people.�

When asked why the conglomerate structure seemed to work so well for him, he remarkably � and surprisingly, to me � explained the structure is efficient and comes in handy around April 15. �We�ve got this ability in terms of moving money around into various opportunities� without tax consequences, he said, describing how he can invest the profits from one business into another without being taxed.

Most of what Mr. Buffett said was basic and obvious � and was roundly ignored during the period leading up to this mess. �Leverage is what causes people real trouble in this world,� Mr. Buffett said. �You don�t want to be in a position where someone can pull the rug out from under you or, emotionally, where you pull it out from under yourself.�

Not that Mr. Buffett doesn�t have a rug or two of his own. For a man who preaches the virtues of simplicity in all things investing, he is wrapped up in a lot of complicated investments, namely the very same derivatives that he has called �weapons of mass destruction.� On Saturday, he acknowledged that he had futures and options contracts on stock indexes and foreign currencies, but added that, in and of themselves, �derivatives aren�t evil.�

Insurance, by the way, is not exactly simple, either. There is a crystal-ball aspect to the industry, papered over with spreadsheets of probability calculations.

On Sunday morning, the day after the meeting, I attended a private brunch for the company�s directors and managers. It was a star-studded affair (for financial types): Bill Gates, Don Graham of The Washington Post, Charlie Rose, Steve Wynn, Mr. Jain and even a movie star, Glenn Close.

It had been a long weekend. Everyone was heading to the airport. One C.E.O. told me, �If I can just hold on and try to think like Warren for a couple of days when I get home every year after this weekend, it�s a success.�

I shook Mr. Buffett�s hand goodbye and tried to remember his words from the day before: �There is so much that�s false and nutty in modern investing practice and modern investment banking,� he said. �If you just reduced the nonsense, that�s a goal you should reasonably hope for.�

Recommended Amazon Reading

MoveOn Ad Uses "My Friends" Tic On McCain Lobbyists

2009-12-16T03:31:00.000-08:00

A new MoveOn ad posits who John McCain is really talking about when he says "my friends" -- his favorite lobbyists. Watch:

My Friends

LinkHere

Former High-Ranking Intelligence Officer: Cheney Responsible for 9/11

2009-12-16T03:27:00.000-08:00

David Steele is a former 20-year Marine Corps infantry and intelligence officer, the second-ranking civilian in U.S. Marine Corps Intelligence, and former CIA clandestine services case officer.

Steele has previously written that "9/11 was at a minimum allowed to happen as a pretext for war".

This month, Steele went further, writing:

Pakistan briefed Cheney [about the plans for the terrorist attacks ahead of time] �nations also got wind of this and warned the CIA. We also had two walk-ins to the FBI, one in Orlando, one in Newark, that were dismissed by the FBI because the names were all virgins and not in the FBI data base�the arrogance of stupid bureaucracy.

Cheney saw an opportunity for what Bush called his trifecta, and gave it to him by giving the go-ahead to ISI and Al Qaeda, and ordering up a terrorism exercise that allowed him to send all relevant close-in air defense strip alert craft away from the target areas, and to disable the NORTHCOM normal response to flight path diversion.

While the details might be open to debate, many other very high-level intelligence officers have said the "official" explanation for 9/11 makes no sense. And see this and this.

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24/7 WALL ST: Buffett & Berkshire Hathaway Earnings Watch

2009-12-16T03:26:00.000-08:00

After the close of trading on Friday, we"ll get to see earnings out of Wall Street"s favorite idol as Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) reports earnings.

The first thing we ant to advise readers about is that there are very few estimates on Wall Street out of analysts, so the actual numbers are generally thought of as a hint or a nod rather than a formal bar. Guidance is also not formally given so traders have to listen to the inferences made for internal projections.

The three estimates out of First Call show $1370.00 (rounded) as the EPS target and we only have one revenue target.

What is interesting about the report this time around is that the stock has had a dismal performance compared to years of the past. Its 52-week trading range is $109,800.00 to $151,650.00. With a $114,000-ish level today, you can see it has been dead money. In fact, if you bought and have just held without any profit taking, then this has actually been a dead money stock for over 18 months. Even when we said Barron"s was being too critical, it turns out we should have been just as critical.

Unfortunately, we won"t get to see the Berkshire Hathaway holdings for another week or so. But here is a full link list of the most recent data on Buffett"s portfolio public stock holdings.

What will be interesting to see here inside the invidual holdings are the stances on Kraft Foods Inc. (NYSE: KFT) and on Anheuser-Busch Companies Inc. (NYSE: BUD). There have been highly unusual options trading activity in Kraft options with August expirations and some chatting that his 9% stake may be added to or at least was part of the logic behind that unusual trading. The other issue is whether or not he will still hold Anheuser-Busch Companies since the stock is so close to the buyout price from InBev.

Regardless of the actions and regardless of the final holdings, Berkshire Hathaway has started changing its face. At some point the company will have a new face man besides Warren Buffett. He"s also been financing mega-deals of late and has been doing more deals reminiscent of private equity investing than true public company buyouts.

As insurance and reinsurance has been such a large portion of the company, the trend in storms will matter in Q2 and Q3 more than other quarters. We won"t make any predictions on that front. Stay tuned.

Here was a 360-degree review of Berkshire Hathaway we gave going into the annual meeting.

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The Lesser of Two "EVILS" is Still "EVIL"

2009-12-16T02:17:00.000-08:00

Truth Be Told

POW/MIA Families Alleged McCain Assault: Senate Ethics Committee Failed to Investigate read more . . .

The Measure of The Man:

Why John McCain doesn�t measure up: Anyone who has had an adversarial relationship with John McCain will tell you that there are few with less self-control than the senator from Arizona read more �.

Politicizing the Congressional Medal of Honor

- Col. Bud Day, his Medal of Honor and the McCain campaign"s abuse of our nation"s highest award for valor. read more . . .

Vietnamese tell international press that POW McCain was "singled out for softer treatment"

A former Vietnamese Communist Party official is claiming Sen. John McCain was "quickly singled out for softer treatment" as a POW because "he was the son of an American admiral. Phung Van Chung, 70, who was a Communist Party official at the time McCain was captured said "top" Vietnamese leaders wanted to use McCain "for negotiations." Chung also said McCain is refusing "to acknowledge" the heroism of Mai Van On, a Vietnamese peasant who the Vietnamese say swam out during the bombing raid and rescued McCain from drowning. McCain"s refusal to publicly recognize Mai Van On for saving "his life" has some in the media speculating that McCain is afraid that to do so would "fuel other, more damaging allegations that McCain exaggerated elements of his PoW ordeal in Hoa Lo prison. Click here for the full story . .

LinkHere

kirkmuse said::

POW/MIA THE MCCAIN FACTOR

View all the videos, especially the 1992 Senate hearings.

Mad Dash For Cash

2009-12-16T00:57:00.000-08:00

There was a mad dash for cash on Friday and certainly no one should have been surprised by it.

In Countrywide Bets the Farm I noted that "Nearly 40% of the bank"s $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."

My response was "Anyone that has any money at Countrywide Bank better be getting while there"s still something to get."

And I am not the only one thinking that as Merrill Lynch analyst Kenneth Bruce warned investors "to sell their Countrywide stock, saying the company could go bankrupt if the worsening liquidity crunch gets bad enough."

Sure enough there was a mad dash for cash at Countrywide. Picking up the story was the LA Times with A rush to pull out cash.

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren"t alarmed by the volume of withdrawals from the bank.

At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early "90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

Bill Ashmore drove his Porsche Cayenne to Countrywide"s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

"It"s because of the fear of the bankruptcy," said Ashmore, president of Irvine"s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

"It"s got my wife totally freaked out," he said. "I just don"t want to deal with it. I don"t care about losing 90 days" interest, I don"t care if it"s FDIC-insured -- I just want it out."

In a statement, the bank said: "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion."

The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

Federal regulators said they weren"t alarmed?

That"s simply too hard to believe in light of panic action by the Fed cutting the discount rate an unexpected 50 basis points moments before futures options expiration on Friday. See Futures Fireworks and Moral Hazards for additional commentary.

What about Countrywide"s statement "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion."

Hmmm.

Is that the same Countrywide that said on August 2: "It is important to note that the Company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper."

Is that the same Countrywide that said on August 9: "Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company"s financial condition, the Calabasas, Calif., lender said in a regulatory filing."

Is that the same Countrywide that tapped $11.5 billion in credit lines in one fell swoop late last week?

Why yes it is.

Well capitalized banks should not be tapping $11.5 billion in credit lines out of fear those credit lines may be shut off later.

And stating that Countrywide is "still highly rated by debt-rating firms" is sure stretching things given that Countrywide"s debt rating was cut to "Baa3" and retained on negative watch by Moody"s.

"The downgrade of Countrywide"s ratings reflects significant diminution in the company"s liquidity and debt market access due to the stresses being experienced in a wide array of single-family mortgage markets -- stresses that have caused Countrywide to fully draw its committed back-up bank lines," Moody"s said.

Baa3 is one notch above junk.

Does Countrywide have any credibility left? Of course not. But the CEO of countrywide is filthy rich. In between, August 2 and August 9 CEO Angelo R. Mozilo managed to unload 92,000 shares at a price of $28.74 for a total payout of $1,292,600 above his option price of $14.69. See "Unprecedented Disruptions" at Countrywide for more information.

But that is nothing compared to the grand total cashout of $536,348,378 by Mozilo (see Countrywide Bets the Farm) .

Where else but the USA can you make a half billion dollars running a company into the ground?

Well, the Fed apologists got what they wanted Friday: another temporary bailout as the Fed slashed the discount rate by 50 basis points right before options expiry. But we"re not going to bottom as long as the Fed interferes in the market. With Bernanke at the helm, this could be a very long wait.

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

The two incidents come less than a week after a five-year-old boy died after shooting himself in the head.

2009-12-15T23:28:00.000-08:00

In the US, the right to bear arms is enshrined in the Second Amendment of the US Constitution. There are thought to be more than 200 million firearms in private hands.
Two US toddlers shot in 24 hours

Two young children have been shot by their siblings in the space of 24 hours in the United States.
In Las Vegas, a two-year-old girl was in a critical condition after being shot by her four-year-old brother at their home, police said.
In South Carolina, a four-year-old boy was shot in the stomach by his three-year-old brother after the little boy found a gun.
The injured boy was expected to make a full recovery, police said.
The incident in Las Vegas happened on Thursday night after the girl"s brother found a loaded 9mm handgun inside their home.
It went off while he was holding it, hitting his sister in her torso.
According to police, the father was home at the time and the gun appears to have been improperly secured. LinkHere

US pastor opens church to guns

Gun-toting parishioners attended Pastor Ken Pagano"s service in Kentucky
A pastor in the US state of Kentucky told his flock to bring handguns to church in what he said was an effort to promote safe gun ownership.
Pastor Ken Pagano told parishioners to bring their unloaded guns to New Bethel Church in Louisville for a service celebrating the right to bear arms.
He said he acted after church members voiced fears the Obama administration could tighten gun control laws.

Fate May Rest With Shelby

2009-12-15T23:21:00.000-08:00

CNBC is reporting Fate of Bailout May Rest With Republican Sen. Shelby.

Many members of the U.S. Senate blasted the Bush administration"s Wall Street bailout plan Tuesday, but no senator has come forward so far with an explicit pledge to kill the $700 billion proposal.

The rules of the Senate, unlike the House, give individual lawmakers substantial power to delay or halt legislation, but three Senate aides said there were no clear signs yet of that power being exercised.

As the Senate Banking Committee held a hearing on the plan put forward by the Treasury Department, aides said much would depend on Alabama Sen. Richard Shelby, the committee"s top Republican, who was sharply critical at the hearing.

The outlook for Treasury"s plan would dim greatly if Shelby were to move to block the bill that is expected to emerge soon from congressional debate over the plan, the aides said.

Other senators, including Republicans Jim Bunning of Kentucky and Jim DeMint of South Carolina, have expressed strong concerns.

But the aides said these lawmakers also have stopped short of warning they would work to block the bill.

Another Fax Needed

Fax Title "Senator Shelby, Block This Bill"

Senator Shelby

You are correct when you say the crisis was created by "sloppy underwriting and reckless disregard for the risks they were creating, taking, or passing on to others."

Most importantly you are correct when you state "There are no credible assurances that this plan will work. We could very well spend $700 billion and not resolve the crisis."

Senator, the odds of failure are 100%. The Paulson plan will not create any jobs or help homeowners pay their bills. Instead it diverts $700 billion of taxpayer funds to failed banks that took excessive risks. The sheer size of the bailout will cause interest rates to rise, further adding to taxpayer woes.

Robbing taxpayers to pay failed banks cannot possibly work!

Printing money and giving it away cannot work either. If it did work, Zimbabwe would be the most prosperous nation in the world.

Senator Shelby, our prayers are with you that you have the courage to stand up for what you know you must do: Block This Bill.

I ask that you approach fellow Senators Jim Bunning, Chuck Grassley, and Jim DeMint in hope that one or more will have the courage to join you to in preventing what is still a preventable disaster.

Your Name
Your Phone Number

Fax For Bunning, Grassley, DeMint, Ensign, Reid

Dear Senator

Earlier today I asked Senator Richard Shelby to have the courage to stand alone, if necessary, block the Paulson proposal.

Senator Shelby is correct when he states "There are no credible assurances that this plan will work. We could very well spend $700 billion and not resolve the crisis."

Senator, the odds of failure are 100%. The Paulson plan will not create any jobs or help homeowners pay their bills. Instead it diverts $700 billion of taxpayer funds to failed banks that took excessive risks. The sheer size of the bailout will cause interest rates to rise, further adding to taxpayer woes.

Robbing taxpayers to pay failed banks cannot possibly work!

Printing money and giving it away cannot work either. If it did work, Zimbabwe would be the most prosperous nation in the world.

Senator, our prayers are with you that you have the courage to stand up with Senator Shelby and do what you know you must do: Block This Bill.

Your Name
Your Phone Number

Sen. Richard Shelby (R) 202-224-3416 or 202-224-5137 (both seem to work, I fax both)
Sen. John Ensign (R) 202-228-2193
Jim DeMint (R) 202-228-5143
Sen. Jim Bunning (R) 202-228-1373
Sen. Chuck Grassley (R) 202-224-6020
Sen. Harry Reid (D) 202-224-7327

The Odds Of Success Improve With Every Fax!
Your Fax Counts.
This is a critical Juncture, please act now.

Pass this email to 10 others and have them do the same.

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

ASSOC PRESS: InBev says Anheuser Busch takeover is finalized

2009-12-15T22:49:00.000-08:00

By The Associated Press | 18 Nov 2008 | 11:40 AM ET

BRUSSELS, Belgium - InBev SA formed the world"s largest brewer Tuesday when it finalized its $52 billion (euro41 billion) takeover of Anheuser-Busch Cos. Inc.

The new company, named Anheuser-Busch InBev, will be headed by InBev CEO Carlos Brito and will be headquartered at Leuven, Belgium.

InBev promises to keep Anheuser-Busch"s St. Louis base as the company"s North American headquarters but the takeover ends 150 years of family rule at Anheuser-Busch. Anheuser-Busch President and CEO August A. Busch IV joins the new company"s board as a non-executive director.

Anheuser-Busch shares stopped trading Monday and will now be swapped for $70 each in cash.

The Belgian-Brazilian takeover of Anheuser-Busch comes after a bitter takeover battle turned sweeter with a higher offer in July, despite protests in St. Louis that saw politicians criticize the deal and Web sites call for Bud to be saved from "the waffle guys."

Anheuser-Busch provides half of America"s beer but it has not managed to expand around the world as fast as InBev � a Belgian-Brazilian hybrid that owns hundreds of local brands but few real stars.

InBev has promised to keep all 12 North American breweries open as long as the company faces no new U.S. taxes. Anheuser-Busch already plans to shed 1,185 positions � mostly by offering early retirement and not filling vacancies.

The company did not mention a dispute with Mexico"s largest brewer Grupo Modelo � which was 50-percent owned by Anheuser-Busch. Grupo Modelo filed a notice of arbitration against Anheuser-Busch last month, saying the takeover violated their investment agreement and its right of consent to enter into a partnership with InBev.

Taking over Anheuser-Busch gives InBev a jewel of a brand in Budweiser � the world"s top selling beer � which it promises to sell more widely by pushing into emerging economies in Asia, Latin America and eastern Europe. It will sell a fifth of all beer in both Russia and China.

This will help generate growth as beer sales decline in North America and Europe where drinkers are cutting back and turning to wine and other drinks.

The new company leapfrogs SABMiller as top brewer and becomes one of the world"s top five consumer goods companies.

Brito said the combination had created "a stronger, more competitive global company with a leading international brand portfolio and distribution network, and great potential for growth all over the world."

InBev said it now had all the regulatory clearances it needed for the deal.

China approved the takeover on Tuesday but barred the company from increasing existing stakes in Chinese brewers. It said it was necessary to prevent Anheuser-Busch InBev becoming a monopoly in the country.

This curbs future growth in the world"s most populous nation. It caps Anheuser-Busch"s 27-percent stake in Tsingtao Beer Ltd. and InBev"s 28.5 percent holding in Zhujiang Beer Ltd. They will also be prohibited from linking up with two leading Chinese breweries, Huarun Snow Beer Ltd. and Beijing Yanjing Beer Ltd.

The U.S. Department of Justice cleared the deal last week after InBev agreed to sell Labatt USA, which sells the Canadian beer in the U.S. It will hold on to Labatt in Canada. InBev did not say who would buy the American unit.

U.S. antitrust officials had worried that beer prices would increase in upstate New York because � with Budweiser and Labatt Blue � the two companies would supply most of the beer in the region.

InBev has borrowed $45 billion to pay for the deal and secured $9.8 billion in equity bridge financing that it had planned to replace with a share issue in October.

But rocky financial markets forced it to postpone issuing new shares and it says it can keep the bridge financing in place for up to six months after it closes the deal and issue shares early next year.

InBev says the company is well positioned to cope with a slowing global economy because costs for key ingredients such as grain malt for brewing beer and aluminum for beer cans will fall even as sales stall.

InBev is renowned for shaving costs since it was formed in a 2004 merger between Belgium"s Interbrew and Brazil-based AmBev.

Beer industry analysts Plato Logic says beer sales will slow significantly to expand just 3 percent next year as economies around the world shrink or stagnate.

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Break Up the Giant, Insolvent Banks Using America"s 100-Year Old Anti-Trust Laws

2009-12-15T21:10:00.000-08:00

I have previously pointed out that we can (and should) break up the giant, insolvent banks under a number of different laws.

Indeed, the government could break up the �systemically dangerous institutions� under 100-year old antitrust laws.

The Sherman Act

The two primary U.S. antitrust laws are the Sherman and the Clayton Acts. I"ll give a very brief overview of the two acts.

The Sherman Act (15 U.S.C. Sections 1-7) - enacted in 1890 - makes trusts and cartels illegal.

Section 1 of the Sherman Act is basically violated if there is:

An agreement
which unreasonably restrains competition
and which affects interstate commerce.

Section 2 of the Sherman Act is basically violated if there is:

The possession of monopoly power in the relevant market and
the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

The Clayton Act

The Clayton Act (15 U.S.C. Sections 12-27 and 29 U.S.C. Sections 52-53) - passed in 1914 - makes it illegal to use price discrimination, exclusive dealings, "tying", mergers and acquisitions which substantially lessen competition, or to perform certain other anti-competitive acts.

Have the Giant Banks Violated the Anti-Trust Laws?

The big banks have gotten bigger and bigger.

Noted economist Mark Zandi says we have an oligopoly of banks, and that "the oligopoly has tightened". Oligopolies and cartels are closely interrelated, in that cartels (e.g. agreements to fix prices) arise when there is an oligopoly (i.e. when a few firms control a market).

Indeed, William K. Black - senior regulator during the S&L crisis, professor of Economics and Law, and an expert on white collar financial crime - says that banks intentionally grew themselves by using fraudulent loan practices. As I explained last month:

Black explained that fraud by a financial company usually involves the company:
1) Growing like crazy
2) Making loans to people who are uncreditworthy, because they�ll agree they�ll pay you more, and that�s how you grow rapidly. You can grow really fast if you loan to people who can�t you pay you back
and
3) The use of extreme leverage.
This combination guarantees stratospheric initial profits during the expansion phase of the bubble.

But it guarantees a catastrophic subsequent failure when the bubble loses steam.

And collectively - if a lot of companies are playing this game - it produces extraordinary losses (more than all other forms of property crime combined), and a crash.

In other words, the companies intentionally make loans to people who will not be able to repay them, because - during an expanding bubble phase - they"ll make huge sums of money. The top executives of these companies will make massive salaries and bonuses during the bubble (enough to live like kings even even if the companies go belly up after the bubble phase).

As the New York Times noted in May:

President Obama"s top antitrust official this week plans to restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.

Fortune pointed out in February that the only reason that smaller banks haven"t been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation"s smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under...
As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

In other words, the "tightened oligopoly" described by Zandi has precluded small and mid-size banks from competing with the too-big-to-fails.

In addition, Nobel prize winning economist Joseph Stiglitz noted this week that giants like Goldman are using their size to manipulate the market:

"The main problem that Goldman raises is a question of size: "too big to fail." In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information."

Further, he says, "That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that"s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you"re going to trade on behalf of others, if you"re going to be a commercial bank, you can"t engage in certain kinds of risk-taking behavior."

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets - making up more than 70% of stock trades - but which also let the program trading giants take a sneak peak at what the real (aka �human�) traders are buying and selling, and then trade on the insider information. See this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).

Goldman also admitted that its proprietary trading program can "manipulate the markets in unfair ways".

And JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country"s derivatives risk, and 96% of the exposure to credit derivatives.

Federal investigators are currently looking into whether illegal, collusive actions took place with regards to derivatives by the giant banks and others (mainly in regard to credit default swaps).

The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government"s blessings.

Indeed, good lawyers could prove numerous antitrust violations by the giant, insolvent banks.

As one of the world"s leading economic historians - Niall Ferguson - recently wrote:

What"s needed is a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are "too big to fail."

As Former chief IMF economist Simon Johnson wrote in June:

[People are] thinking about the wrong Roosevelt (FDR). In order to get to the point where you can reform like FDR, you first have to break the political power of the big banks, and that requires substantially reducing their economic power - the moment calls more for Teddy Roosevelt-type trustbusting...

Update: Robert Reich has also suggested using antitrust the laws to break up the too big to fails.

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