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Monday, December 7, 2009
Sunday, December 6, 2009
Michael Ware On Iraq Hearings: I Just See A Lot Of Oxygen Being Wasted Here
Speaking to CNN"s Wolf Blitzer on Tuesday, the cable news outlet"s Baghdad Bureau Chief Michael Ware expressed his disappointment with the way in which lawmakers were questioning General David Petraeus and Ambassador Ryan Crocker. Ware said that it seemed like the hearings were more about political grandstanding than solving the Iraq crisis. "I just see a lot of oxygen being wasted here," Ware said. He also took the members of the committees to task for their lack of knowledge about the Iraq situation. Watch the exchanges below:
Link Here
Link Here
Grim News For State Budgets
Reuters is reporting Recession creeps across U.S. Midwest states.
A housing hangover has been grim news for many state budgets.
More states worry about revenues
The Wall Street Journal is reporting States to Tighten Belts as Weakness Of Economy Cuts Into Tax Receipts.
Ohio Governor Ted Strickland proposes worker buyouts.
California is sweating a 10% across the board spending cutback. This is not the correct approach. My solution is outlined in Mish"s California Budget Proposal.
Sad State of Things In Ohio, Kentucky and New Jersey
Crain"s Cleveland is talking about the State of Things.
The Financial Times is reporting California and Florida feared to be in recession.
The San Francisco Chronicle is reporting California"s jobless rate up sharply.
States have only two choices here: Cut programs or raise taxes. Both choices will cause pain. But the pain can no longer be put off.
In Deflation American Style I warned "Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US, is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will."
Well here we are. It"s payback time for 8 years of of the most reckless spending the world has ever seen.
Unemployment is only beginning to rise. Think layoffs aren"t coming from retailers after this dismal Christmas Shopping season? Think again? Think layoffs aren"t coming when state budgets are cut? Think again. Think layoffs aren"t coming when this last ridiculous round of overexpanded commercial real estate is finished? Think again. Think Bush"s plan to jump start the economy with a $150 billion program will accomplish anything? Think again.
Here is the reality: Unemployment is going to soar and Fiscal "Stimulus" Is Doomed To Fail. California and other states will have to go back to the well again and again to trim budgets as state revenues from sales tax, property tax, and income tax fails to hit expected targets. Anyone who thinks this is inflationary, needs to think again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
While economists and others debate the prospects of a recession in the United States, employment data suggest recession has already arrived or is knocking on the door of a few Midwestern states. The latest state to hit the economic skids is Minnesota.Grim news for state budgets
"From our point of view, this looks like we are in a recession," said Minnesota State Economist Tom Stinson. He noted that the data were consistent with the standard definition of a recession in terms of duration and broad-based distribution of the job losses. "It"s not narrowly concentrated, but spread across the economy," he said.
Michigan is in a single-state recession, according to Dana Johnson, chief economist at Comerica Bank in Detroit, who added he expected 2008 to mark the fourth straight year of recession for the state with high jobless rates and job contraction.
The state"s December unemployment rate rose to 7.6 percent from 7.4 percent, the Michigan Department of Labor and Economic Growth reported Wednesday. The state"s December rate was the highest among the 50 states.
The average monthly jobless rate for Michigan was 7.2 percent in 2007, the highest annual rate since 1993. Manufacturing was the biggest chunk of the 78,000 jobs lost last year in Michigan, which last experienced annual job growth in 2000.
Now, recession may be closing in on Ohio as well. A Jan. 10 report by the state"s Office of Budget and Management said that December marked the third consecutive month in which initial jobless claims exceeded the level reported during the same period in a prior year.
"The last time that there were four consecutive months of initial increases in claims over the corresponding months in the prior year was at the start of the recession in 2000," the report said. "Initial claims data from the first week in January show no signs of slowing." Ohio"s unemployment rate shot up to 6 percent last month from 5.6 percent in November.
A housing hangover has been grim news for many state budgets.
Red ink was showing up in as many as 20 state ledgers as the year began, and if the country dips into a recession, the number of states projecting deficits would certainly grow. "Clearly, it�s a little more gloomy than it was once was," Raymond C. Scheppach, executive director of the National Governors Association, said.Revenue Worries
The stalled housing market is hurting states across the board, but it�s more severe for states such as Arizona, California, Nevada and Florida that rely heavily on real-estate taxes.
As 2007 ended, 19 states told the National Conference of State Legislatures that overall sales-tax collections were failing to keep pace with what forecasters had projected for early 2008, signaling that states may face budget shortfalls.
California is struggling to plug a projected $14 billion deficit for 2008-2009, while Florida is looking at a $2.5 billion estimated gap between spending and revenue. Other states facing shortfalls include Maine, Michigan, New York and Virginia.
�We�ve seen the peak in state balances,� said Corina Eckl, NCSL�s director of fiscal affairs, concluding that �state finances are in transition� and heading downward. States are worried about the amount of money coming in because they plan big-ticket programs in 2008. Health care, transportation and education rank as the top three priorities for states in the coming legislative year. Other looming costs are health care and pension benefits for retiring state workers, estimated to total $2.73 trillion over the next 30 years, and states are $731 billion short, according to the Pew Center on the States.
More states worry about revenues
The housing slump impacted revenue in 24 states this year and 18 say they are �concerned� about their revenue outlook, triple the number from last year, a new report released Dec. 10 shows.States Tighten Belts
The glum assessment from the National Conference of State Legislatures echoes similar concerns about state finances issued last week by the nation�s governors. The governors predicted as many as 20 states will have to patch holes in their budgets in 2008.
The stalled housing market is pinching state revenues in several ways. Arizona, Illinois and Maryland are among at least 13 states that blamed skimpier sales tax returns on the decline of the housing sector. A drop in home sales and prices mean states take a smaller cut in sales tax because most people who buy homes also purchase new appliances and carpeting and spend big money on home-improvements.
Minnesota, New Hampshire and New Jersey are among at least a dozen states that reported seeing declines in their real-estate transfer or recording taxes, according to the NCSL report.
Apart from the housing market, NCSL found that 19 states� overall sales tax collections are failing to keep pace with what forecasters had projected. And seven are reporting gaps in their budget: Arizona, California, Illinois, Maine, Nevada, New York and Virginia.
The Wall Street Journal is reporting States to Tighten Belts as Weakness Of Economy Cuts Into Tax Receipts.
Slower growth in tax revenues, the result of a weakening economy, are prompting governors from New Jersey to California to consider an array of belt-tightening measures to balance their budgets for this year and next.Ohio Wants To Downsize
Facing a severe revenue shortfall, Kentucky Gov. Steve Beshear has asked most state agencies to trim their spending by 3% in the current fiscal year, which ends June 30. New Jersey Gov. Jon Corzine has proposed raising tolls and freezing spending to reduce his state"s debt.
Ohio Governor Ted Strickland proposes worker buyouts.
Ohio officials consider closing institutions, making deep cuts to offset gloomy financial outlook. Gov. Ted Strickland has asked his agencies to look into offering employees early retirement incentives to save money in light of a potential recession and continued state budget problems.Schwarzenegger"s one size fits all budget reduction
Agencies were told Jan. 7 to begin looking at ways to trim their work force by offering to purchase additional years of service for long-term classified, primarily union, employees, allowing them to retire early. In the memo from J. Pari Sabety, Strickland"s director of the Office of Budget and Management, it appears the administration is contemplating closing some state institutions or laying off relatively large numbers in state departments.
California is sweating a 10% across the board spending cutback. This is not the correct approach. My solution is outlined in Mish"s California Budget Proposal.
Sad State of Things In Ohio, Kentucky and New Jersey
Crain"s Cleveland is talking about the State of Things.
Facing a severe revenue shortfall, Kentucky Gov. Steve Beshear �has asked most state agencies to trim their spending by 3% in the current fiscal year, which ends June 30,� according to the newspaper. �New Jersey Gov. Jon Corzine has proposed raising tolls and freezing spending to reduce his state"s debt. And California Gov. Arnold Schwarzenegger, in a bid to avert a deficit in the coming fiscal year, has proposed closing state parks, eliminating dental care for the poor and cutting $4 billion from the state education budget.�California and Florida in Recession
The Financial Times is reporting California and Florida feared to be in recession.
California and Florida, two of the most important states in the US, are either in recession or on the brink of it, many economists now believe.Unemployment Rises Sharply In California
The two states together account for nearly two-fifths of US gross domestic product. California alone would rank among the world"s top 10 economies, while Florida would rank in the top 20.
California and Florida, along with Nevada and Arizona, represent a new group of housing boom-turned-bust states that could experience regional recession even if the US as a whole escapes with a period of very weak growth.
Their plight is likely to be a big issue in the presidential primary campaign.
Sales of existing homes fell 36 per cent in California and 30 per cent in Florida in the year to November 2007, while median sale prices fell 12 per cent in California and 10 per cent in Florida.
Both states have large inventories of unsold homes. California"s high-cost property is particularly vulnerable to the continued dysfunction in the jumbo, or large-denomination, mortgage market.
Labour market data show that job creation stalled in both states from August onwards.
Ross DeVol, a member of the California Controller"s Council of Economic Advisers, told the Financial Times he believes California is now in recession. Mr DeVol said the strike by Hollywood screenwriters, now in its third month, was the "straw that broke the camel"s back".
Evidence for a recession in Florida is even stronger, with retail sales tax receipts - a proxy for consumer spending - down 5 per cent year on year in November.
The San Francisco Chronicle is reporting California"s jobless rate up sharply.
California"s employment market took a sharp turn for the worse in December, the strongest sign to date that the state"s economy might be falling into recession. The state"s unemployment rate catapulted to a seasonally adjusted 6.1 percent, half a percentage point higher than the November level, the California Employment Development Department reported Friday morning.Unpleasant Choices
"That"s a big jump," said former department Director Michael Bernick. In December 2006, the state jobless rate was 4.8 percent. The state unemployment rate last month was well above the 5 percent posted for the United States as a whole and tied for fifth highest in the nation, trailing only Michigan, Mississippi, South Carolina and Alaska.
States have only two choices here: Cut programs or raise taxes. Both choices will cause pain. But the pain can no longer be put off.
In Deflation American Style I warned "Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US, is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will."
Well here we are. It"s payback time for 8 years of of the most reckless spending the world has ever seen.
Unemployment is only beginning to rise. Think layoffs aren"t coming from retailers after this dismal Christmas Shopping season? Think again? Think layoffs aren"t coming when state budgets are cut? Think again. Think layoffs aren"t coming when this last ridiculous round of overexpanded commercial real estate is finished? Think again. Think Bush"s plan to jump start the economy with a $150 billion program will accomplish anything? Think again.
Here is the reality: Unemployment is going to soar and Fiscal "Stimulus" Is Doomed To Fail. California and other states will have to go back to the well again and again to trim budgets as state revenues from sales tax, property tax, and income tax fails to hit expected targets. Anyone who thinks this is inflationary, needs to think again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
CNBC: Warren Buffett Takes $300 Million Motorcycle Ride With Harley-Davidson, Revving Up the Stock
Topics:Economy (U.S.) | Warren Buffett
Companies:General Electric | Goldman Sachs Group Inc | Harley Davidson Inc | Berkshire Hathaway Inc.
Warren Buffett"s Berkshire Hathaway will invest $300 million in motorcycle-maker Harley-Davidson, getting a very impressive 15 percent annual interest rate for its money.
In a news release today, Tuesday, Harley-Davidson says Berkshire and Harley"s biggest shareholder, Davis Selected Advisers, L.P., have each committed to buying $300 million in senior unsecured notes, due in 2014.
 |
CNBC.com Warren Buffett poses on a motorcycle at the Burlington Hathaway annual meeting in May, 2008. Berkshire"s Geico subsidiary was promoting its motorcycle insurance. |
The money will be used to support Harley"s finance company and its "ongoing motorcycle lending activities." (If a buyer can"t get a loan, it"s harder to buy the bike.)
The deal is part of Harley"s three-pronged strategy to counter weak economic times: boost consumer demand by investing in the Harley brand, cut costs, and get additional funding for its finance arm.
Harley shares are up sharply today on the news, gaining over 14 percent to $13.56 in early afternoon trading. But the stock, with the very appropriate ticker of HOG, has been a big loser in the economic crisis, falling from a 52-week high of $48.05 on September 19.
Current price: [HOG 13.76 
 |
Berkshire doesn"t get any warrants to buy common stock in this deal, as far as we know. The 15 percent interest rate is well above the 10 percent Buffett got out of Goldman Sachs and General Electric last fall. Those were substantially larger investments, of course, in much bigger companies.
And while Buffett is getting well paid for taking on this risk, it does appear to be a vote of confidence in the ability of Harley, and its well-known brand, to survive the current economic downturn.
 |
Class A: [US;BRK.A 90140.0
Class B: [US;BRK.B 2966.87
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Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street by Janet M. Tavakoli
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The A******* voted for Georgie 100% of the time for 8 years, and now they want to show that they have balls, simply amazing
Reid called the bill"s collapse "a loss for the country," adding "I dread looking at Wall Street tomorrow. It"s not going to be a pleasant sight."
WASHINGTON � A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.
Senate Majority Leader Harry Reid said he was "terribly disappointed" about the demise of an emerging bipartisan deal to rescue Detroit"s Big Three.
He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers.
Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts _ but not until 2011.
Reid was working to set a swift test vote on the measure Thursday night, but it was just a formality. The bill was virtually certain to fail to reach the 60-vote threshold it would need to clear to advance.
Reid called the bill"s collapse "a loss for the country," adding "I dread looking at Wall Street tomorrow. It"s not going to be a pleasant sight."
Senate Majority Leader Harry Reid said he was "terribly disappointed" about the demise of an emerging bipartisan deal to rescue Detroit"s Big Three.
He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers.
Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts _ but not until 2011.
Reid was working to set a swift test vote on the measure Thursday night, but it was just a formality. The bill was virtually certain to fail to reach the 60-vote threshold it would need to clear to advance.
Reid called the bill"s collapse "a loss for the country," adding "I dread looking at Wall Street tomorrow. It"s not going to be a pleasant sight."
CNBC: Warren Buffett to CNBC: Rescue Bill Will Help, But Not "Panacea" for Economy
Topics:Recession | Economy (U.S.) | Banking | Mergers & Acquisitions | Warren Buffett
Sectors:Banks
Companies:Citigroup Inc | Wachovia Corp | Wells Fargo and Co | Berkshire Hathaway Inc.
 |
In a live telephone interview today (Friday) minutes after the House of Representatives passed the bailout bill, Warren Buffett told CNBC"s Becky Quick that the measure will help unfreeze the credit markets, but warned that it is not a "panacea" for the economy.
WBW POST: COMPLETE TRANSCRIPT OF
BUFFETT INTERVIEW
While the rescue package will provide some tools to deal with the financial crisis and prevent what could have been a far worse situation, Buffett predicted that it will be quite a while before the nation"s economic recession bottoms out.
He noted that the credit markets had been frozen and were getting worse by the day.
Buffett has made two big investments in recent days, anticipating that Congress would eventually "do the right thing" and pass a financial rescue plan.
On Wednesday, Buffett"s Berkshire bought $3 billion of General Electric [GE 21.57 
Last week, Berkshire made a similar $5 billion investment in Goldman Sachs [GS 128.00
Buffett"s Berkshire Hathaway holds a large stake in Wells Fargo[WFC 34.56
He told Becky that the Wachovia deal was indirectly spurred by a recent change in the tax laws. Buffett also praised Wells, saying no bank has done a better job for shareholders and depositors during the financial crisis.
|
He also revealed that he owns only two domestic stocks in his own personal account, Berkshire and Wells. After the live interview, he laughingly told Becky that no one had ever gotten that particular nugget out of him before.
Back in August, Buffett told Becky that Berkshire had been adding to its holdings in either American Express or Wells Fargo. Today, he solved that little mystery. It was Wells Fargo.
Current Berkshire stock prices:
Class A: [US;BRK.A 138500.0
Class B: [US;BRK.B 4650.0
Also on Everything Warren Buffett |
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The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
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Are banks a good buy?
The question of the day is "Are banks a good buy?"
The answer as well as the thought of the day comes from John Succo at Minyanville. Professor Succo talks about Deutsche Bank but the implication are much further reaching.Let"s tune in.
Succo:
Deutsche Bank (DB) is an important tell...
DB lost money in their capital markets division. Simply put, they lost money "trading." They are not alone.
Banks and dealers are having trouble making money the old fashioned way, so they are taking much more risk trading these days. I mentioned last week that while regional banks do not have near the ability to do this, large money center banks and dealers often increase their risk to make money just at the wrong time.
DB lost money doing it. Many other banks like JPM and BAC have so far been doing OK, trading (at least what they have admitted to for these banks can remark their loans and derivatives for a while to make things look good), but it does not mean they have not increased their risk.
While DB lost money this time, these other banks might next time.
Risks have increased significantly in owning bank stocks.
Mish:
What we do know (if indeed we know anything at all) is what Deutsche Bank is willing to admit.
Paper reporting is one thing, real profits are another. Unless and until disclosure rules are changed no one can really say for sure what is going on in the banking sector.
I suspect (but can not prove) that many US banks were essentially insolvent in 2001 in the wake of 911. Interest rates were not slashed to 1% to ward off "an unwelcome decrease in inflation" as Greenspan was touting but rather to bail out banks that were in hock to dotcom companies that were on the verge of blowing up.
Some might even think that banks are insolvent now based on poor real estate loans. I do not think that is the case (yet), but it could easily come to that.
In addition, the banking sector has been a prime target for a whole slew of hedge funds and mutual funds touting "income strategies" by selling puts and calls. There is nothing "income" related by this practice at all. What the practice does do however, is lower volatility to the point that more and more leverage (risk) has to be taken just to hit the same profit levels.
The strategy works until it doesn"t. When it fails it will likely fail in a spectacular fashion. Does anyone remember Long Term Capital Management? What LTCM did was actually peanuts compared to the risks being taken today.
The banking sector is probably one of the most overrated sectors in the S&P 500. Yet because of herding factors (It"s going up so hedge funds and mutual funds "must own it"), the funds will keeps plowing into it until it breaks. Is this anyway to run a business? Can everyone get out at once?
No one can predict the timing of a "credit event".
But I do know three things:
http://globaleconomicanalysis.blogspot.com/
The answer as well as the thought of the day comes from John Succo at Minyanville. Professor Succo talks about Deutsche Bank but the implication are much further reaching.Let"s tune in.
Succo:
Deutsche Bank (DB) is an important tell...
DB lost money in their capital markets division. Simply put, they lost money "trading." They are not alone.
Banks and dealers are having trouble making money the old fashioned way, so they are taking much more risk trading these days. I mentioned last week that while regional banks do not have near the ability to do this, large money center banks and dealers often increase their risk to make money just at the wrong time.
DB lost money doing it. Many other banks like JPM and BAC have so far been doing OK, trading (at least what they have admitted to for these banks can remark their loans and derivatives for a while to make things look good), but it does not mean they have not increased their risk.
While DB lost money this time, these other banks might next time.
Risks have increased significantly in owning bank stocks.
Mish:
What we do know (if indeed we know anything at all) is what Deutsche Bank is willing to admit.
Deutsche Bank on Tuesday reported a 29% rise in second-quarter net profit, but losses from the bank"s proprietary equity trading unit took the shine off a strong performance from its debt sales and trading team.What we do NOT know is what Deutsche Bank, Citycorp, JP Morgan and others are not willing to admit. Banks do not have to mark to market derivative or trading losses quarter to quarter. Ultimately that is one of the things that got Fannie Mae and Freddie Mac in trouble.
The division"s results were helped by a 46% rise in revenue from debt sales and trading to 2.4 billion euros.
"But there was a substantial swing in equity proprietary trading," Anthony Di Iorio, chief financial officer, told an analyst conference. Iorio said the proprietary trading unit, which uses the bank"s own money to play the stock market, recorded a loss of almost 100 million euros in the quarter, compared to a roughly 400 million euro profit in the first quarter of the year.
"The proprietary trading unit takes on risks, if you do that you have to expect there will be at times positives and at times negatives," said Iorio.
"The markets were not very favorable, but we managed and hedged the positions as best we could," he added.
Paper reporting is one thing, real profits are another. Unless and until disclosure rules are changed no one can really say for sure what is going on in the banking sector.
I suspect (but can not prove) that many US banks were essentially insolvent in 2001 in the wake of 911. Interest rates were not slashed to 1% to ward off "an unwelcome decrease in inflation" as Greenspan was touting but rather to bail out banks that were in hock to dotcom companies that were on the verge of blowing up.
Some might even think that banks are insolvent now based on poor real estate loans. I do not think that is the case (yet), but it could easily come to that.
In addition, the banking sector has been a prime target for a whole slew of hedge funds and mutual funds touting "income strategies" by selling puts and calls. There is nothing "income" related by this practice at all. What the practice does do however, is lower volatility to the point that more and more leverage (risk) has to be taken just to hit the same profit levels.
The strategy works until it doesn"t. When it fails it will likely fail in a spectacular fashion. Does anyone remember Long Term Capital Management? What LTCM did was actually peanuts compared to the risks being taken today.
The banking sector is probably one of the most overrated sectors in the S&P 500. Yet because of herding factors (It"s going up so hedge funds and mutual funds "must own it"), the funds will keeps plowing into it until it breaks. Is this anyway to run a business? Can everyone get out at once?
No one can predict the timing of a "credit event".
But I do know three things:
- The likelihood of a "Credit Event" increases every day
- Banking exposure to real estate loans has never been higher
- Risk to bank stocks has not been greater since 911
http://globaleconomicanalysis.blogspot.com/
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