Archives

October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008

National Debt Clock

Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.

News Provided by the Free-Market News Network

Wed 08.20.2008

Former IMF Economist Predicts "hopper" U.S. Bank Failure, Says Global Financial Crisis Set to Get Much Worse
The global financial crisis is set to get much worse, with a large U.S. bank failure likely in the next few months, former International Monetary Fund (IMF) Chief Economist Kenneth Rogoff has warned. Speaking at a conference in Singapore, Rogoff, now an economics professor at Harvard University, said that despite hopes that the U.S. economy had turned the corner, the reality is that "the worst is to come." And that includes the probable collapse of a "whopper" U.S. bank or investment bank, he said. "We’re not just going to see mid-sized banks go under in the next few months," said Rogoff, who held the IMF role between 2001 and 2004. "We're going to see a whopper, we’re going to see a [failure of a] big one - one of the big investment banks or big banks."

The Fannie and Freddie Trigger
The bailout clock is ticking for the mortgage giants.
What will it take for the government to step in finally and bail out Fannie Mae and Freddie Mac? The stock market has clearly indicated that a bailout is inevitable, as the share prices of the two mortgage giants continue to slide toward zero. On Tuesday, Freddie Mac had to pay an unusually rich premium to sell $3 billion of five-year notes. Dawn Kopecki of Bloomberg News reports that the test may be the ability of Fannie and Freddie to repay some $223 billion of bonds that come due by the end of next month. Fannie has about $120 billion of debt that matures through September 30, while Freddie has $103 billion, Bloomberg says.

Recession may topple US banks, ex-IMF economist says
Credit market turmoil has driven the US into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund. "The worst is yet to come in the US," Rogoff, a Harvard University professor of economics, said in an interview in Singapore. "The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job." The US housing slump has triggered about $US500 billion in credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest US securities firm. Bonds of regional banks such as National City Corp. and Keycorp are under pressure on expectations of more fallout. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance firms.

US bank 'to fail within months'
The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned. Kenneth Rogoff's comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised. Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods". "I would even go further to say 'the worst is to come'," he said. "We're not just going to see mid-sized banks go under in the next few months," said Mr Rogoff, who held the IMF role between 2001 and 2004. "We're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks."

Bernstein cuts outlook on U.S. investment banks
Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) may post a third-quarter loss and incur fresh write-downs of about $3 billion, according to Sanford C. Bernstein & Co analyst Brad Hintz, who also cut his earnings estimates for Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz). Weakening credit market conditions in the third quarter indicate that more write-downs and hedging failures will likely impact U.S. investment banks' performance for the period, the analyst said Wednesday. "We expect the quarter will again be characterized by mark-to-market valuation adjustments in mortgage-backed securities, commercial mortgage-backed securities and collateralized debt obligations holdings, as well as ineffective hedge performance," Hintz wrote in a note to clients.

Shoppers Across the Board Pulling Back in Weak Economy
From affluent shoppers at Saks to bargain-hunters at Target, from Home Depot to office-supplier Staples, consumers are pulling back, and that's hurting retailers and raising more concerns about how they'll do the rest of the year. The latest quarterly reports show more signs of financial stress on shoppers, as Target's customers stick to necessities and have trouble making their credit card payments. Saks says it's now seeing its high-end designer consumer cut back, whereas previously it was only the aspirational customers who were retrenching. And while falling gas prices in recent weeks should provide some relief to consumers, economists say that won't be enough to offset all the other economic problems out there, from a housing slump and a weakening job market to soaring food prices and tighter credit.

Long period of frugality needed for the U.S. economy
Looking for the foundations for the next bull market in U.S. stocks? Wait until you see consumers who save much more, have a lighter debt load and can actually sell their houses. In other words, bring a book: it may be a bit of a wait. The S&P 500 is down about 12 percent this year and is at levels seen in both 2001 and 1999, leaving many investors sitting on paltry gains or losses for the past decade. On top of that, the United States is arguably in recession, a state of affairs that won't be helped by the rapid deterioration of economies in Europe and Japan. Fair enough, you say, but that information is a heck of a lot less useful than telling us when we might expect an improvement. David Rosenberg, the U.S. economist at Merrill Lynch in New York, has three conditions he is looking for before he becomes more positive on U.S. stocks: a rise in the personal savings rate to about 8 percent; a decline in the number of houses on the market to about eight months of supply; and a big drop in the amount that debt payments sap from American household budgets

Gold Bulls 'Running for Cover' Signal Price Drop
Gold, down 21 percent from a record $1,033.90 an ounce in March, may be headed down after open interest in New York futures contracts for the precious metal plunged to the lowest level in 11 months. The CHART OF THE DAY shows open interest, or the total number of contracts yet to be closed, liquidated or delivered. This reached 365,611 on Aug. 12, down 26 percent from a four- month high on July 18 and the lowest since Sept. 10. Open interest on the Comex division of the New York Mercantile Exchange reached 593,953 on Jan. 15 -- the highest since at least 1994 -- before gold rallied another 15 percent to a record on March 17.

Mortgage application volume hits multiyear low
Mortgage applications drop to lowest level in more than 6 years, despite lower interest rates
Mortgage application volume fell last week to its lowest levels in more than six years, the Mortgage Bankers Association said Wednesday. The fall in application volume is the latest sign of a struggling housing market. On Tuesday, a Commerce Department report showed construction of homes and apartments fell in July to the lowest level in more than 17 years. And while fewer new homes are being built, fewer customers are also refinancing existing mortgages. A sharp drop in refinance volume in recent weeks has been the leading driver of declining application volume.

Lehman couldn't secure Korean Funds
Lehman Brothers Chief Executive Dick Fuld nearly struck a deal to raise almost $5 billion from South Korean wealth funds and institutions but the pact disintegrated, the New York Post said citing sources familiar with the matter. One source told the paper that Lehman was aiming to raise more capital than the Korean investor was willing to invest at the time. The precise terms of the deal could not be learned, the paper said. Lehman has more than $60 billion of mortgage and mortgage security exposure, where losses are creeping higher even on loans to the highest quality borrowers.

Slumping economy takes toll on US retailers
The slumping US economy is taking its toll on retailers from luxury chain Saks to discounter Target, and everything in between. Saks reported its largest loss in two years after cutting prices on women's designer clothing, while profit dropped for a fourth straight quarter at Target. Office-supplies retailer Staples said second-quarter net income probably dropped, and Home Depot, the biggest home improvement chain, posted its seventh sales decline since 2006. Retailer earnings may worsen with the further deterioration of the US economy, as consumers rein in spending to cope with rising unemployment and inflation. The world's largest economy may grow at an average 0.7% annual pace in the last two quarters of the year, half the rate of the first six months.

Jump in Wholesale Prices Shows That Inflation Remains High $$
Soaring U.S. producer prices, which last month rose at their sharpest rate in 27 years, show inflation is still running high even as the U.S. economy slows. Most Federal Reserve officials are betting inflation will moderate in the coming months as the economy cools and oil prices stabilize, but they are unlikely to act on that belief until they see evidence of sustained price stabilization. Many forecasters expect the U.S. central bank to keep its target for the federal-funds rate steady at 2% for the remainder of this year. But some policy makers remain uneasy about price increases spreading through the economy. Officials "must remain poised to act if slowing growth fails to contain inflationary pressures," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Tuesday. Mr. Fisher has voted against most of his colleagues on the Fed's rate-setting committee this year, pushing for rate increases during recent Fed policy meetings.

Lehman braces for pain
Lehman Brothers is considering selling at least a portion of its asset management unit, one of its best-performing assets, which should signal to investors that more write-downs or losses are looming. Investors are clearly bracing for more pain at Lehman: the fourth-largest investment bank's shares trade at less than half their book value, implying that the company's assets are likely to be marked down or sold at a loss. That in turn will likely force the bank to raise capital in some form, be it by issuing securities or selling valuable assets, analysts said.

Paulson Playing Chicken With Markets: Guess Who Will Win?
James Carville, Clinton strategist, said, I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter, but now I want to come back as the bond market. You can intimidate everybody. If a politico like Carville recognized the fixed income market as an irresistible force, you'd think a Wall Street pro like Henry Paulson would give it the respect it deserves. But peculiarly, he has been acting as if he can bluster his way through a mushrooming crisis of confidence in Fannie and Freddie.

Record rise in foreclosures may be distorting housing data
As if the housing market wasn't scary enough, the record-setting surge in foreclosures could be distorting some of the closely watched housing data used to gauge the market's health. The foreclosure glut is making listings of homes for sale a less reliable indicator, because much of the distressed inventory might be left out. In addition, fire-sale prices for such properties may also be skewing volume figures. Some real-estate analysts say this may indicate that housing conditions are worse than they now look, dampening hopes that the troubled market could soon be bottoming out. The combination of weak housing sales, falling home values, tighter credit conditions and a slowing economy have left financially strapped homeowners in a tough spot - some borrowers have no choice but to foreclose if they can't find a buyer for their home or pay or refinance their loans.

Fannie's Perilous Pursuit of Subprime Loans
As It Tried to Increase Its Business, Company Gave Risks Short Shrift, Documents Show
In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board. Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business." A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document.

Deflating Mortgage Rates $$
Moves to Bolster Fannie, Freddie Could Lower Costs
There is no shortage of market indicators predicting the government will soon intervene to steady Fannie Mae and Freddie Mac. But there is one number in particular that could push the Treasury into doing something drastic: the cost of a 30-year mortgage. The rate on a standard 30-year mortgage is currently 6.52%, almost exactly the same as a year ago. And that rate has risen sharply since the end of March, despite all that has been done to shore up the housing market. That includes massive mortgage purchases by Fannie and Freddie, expressions of government support for both companies and the passage of new housing legislation.

Some Investors Say U.S. Bailout of Housing Giants Is Inevitable
Financial conditions are continuing to worsen at Fannie Mae and Freddie Mac, leading some investors to prepare for a government bailout of the housing giants even as the Treasury Department and the companies say such government intervention will not be necessary. Stock prices of both companies fell again on Tuesday, and some large overseas investors slowed their purchases of securities issued by the companies. Share prices at both Fannie and Freddie have plummeted by more than 24 percent in the last two days, and more than 85 percent since December. On Tuesday, Freddie Mac was forced to pay its steepest borrowing premium in 10 years. “The markets are acting like a bailout is inevitable,” said Sean Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm. Mr. Egan said he believed the federal government would need to help pump about $20 billion into each company, possibly through a government guarantee rather than through a direct injection of capital. “We believe Treasury is going to be forced to act within the next couple of weeks,” he added. “Probably some time after Labor Day, when investors are back from vacations so that the bailout has the biggest possible positive impact.”

US rates may rise before growth quickens, Fed banker says
Higher interest rates may be needed to bring down inflation even before growth and financial markets return to normal, Federal Reserve Bank of Richmond President Jeffrey Lacker said. "It is important to withdraw this monetary policy stimulus in a timely way,"Lacker said today in a Bloomberg Television interview. "That may require us to withdraw before we are certain all of the weakness is behind us and before we are completely certain that financial markets are as tranquil as we would like to see." US consumer prices rose at the fastest pace in 17 years, limiting the Fed's leeway to cut interest rates and revive faltering economic growth. Prices paid to US producers in July increased double the amount economists projected, a Labor Department report showed today. Central bank policy makers signaled two weeks ago that falling employment and persistent financial market turmoil would delay any increase in borrowing costs.

Monetary Policy in Uncertain Times
Speech by Richard W. Fisher - President and Chief Executive Officer
Federal Reserve Bank of Dallas
". . . . We are in the midst of a fierce correction from a prolonged period of indiscriminate behavior in the credit markets, a surfeit of home building, a global avalanche of cheap labor and correspondingly cheap imports, and other unsustainable financial and economic activity. If you were a yachtsman, you would say that we sailed the economy along in a following sea for a long time; now we are navigating force 10 seas. Everyone is battening down the hatches and reefing in their sails. Worldwide, creditors are tightening their standards and consumers and businesses are correcting their courses.
The correction in the housing market has yet to find its bottom. Credit markets remain tempestuous. The price of the Chinese and other emerging-country labor we came to rely upon to hold costs down is rising; the cost of imported goods, and of goods and services overall, is rising too, driven in part by demand from the newly rich consumers in those emerging countries. U.S. consumers are being hammered by declining real income, U.S. savers and investors are being squeezed by negative real interest rates and U.S. companies’ business margins are under pressure.
All these forces have conspired to constrain economic growth. My best guess is that our $14 trillion economy grew faster than the 1.9 percent annualized rate initially reported for the second quarter, thanks to exports and prudent inventory management. But I expect U.S. economic growth will decelerate to a snail’s pace, if not completely grind to a halt, in the second half of this year. Indeed, we may see the slowdown extend into 2009 as the excesses that drove the housing markets unwind before the economy can again gear up to cruising speed. Then, as 2009 unfolds, it is quite possible that the economy will resume a more normal growth trajectory.
Congress charged the Federal Reserve with creating the monetary conditions for sustainable, noninflationary employment growth. We are sorely aware of the present risk to job growth. At the same time, we have to be keenly aware of the consequences of our actions for inflation. We have a dual mandate—the operative words modifying growth are “sustainable” and “noninflationary”—and we are duty bound to deliver upon it. . ."

Greenback Slides On U.S. Turmoil
The dollar dropped for the second-straight day against a basket of currencies, while pressure intensified on Fannie and Freddie and economic data reported higher wholesale inflation in July. Comments from U.S. Treasury Secretary Henry Paulson couldn't keep the dollar from sliding, despite his optimism about appreciation of the Chinese currency. "To me, the biggest reason for China's currency to continue to appreciate is because that's key to opening up and reforming the economy," he said. Paulson added that the appreciation of China's currency against the dollar by more than 20% over the last three years has had "some impact" on the bilateral trade balance, but that the bigger factors affecting trade will be a market-driven currency regime in China.

Massachusetts asks Fidelity to buy back securities
Massachusetts' top securities regulator is asking Fidelity Investments to buy back auction rate securities it sold to customers. Secretary of State William Galvin told the Boston mutual fund company's chief executive, Edward Johnson III, by letter that he had "grave concern" about investors who have been unable to sell auction rate securities since the market dried up in February.

Cerberus gives executives time to fix Chrysler
When the economy soured and gas prices soared, no auto company seemed in a worse position than Chrysler.
The smallest of Detroit's Big Three, Chrysler — which also owns the Jeep and Dodge brands — is famous for its big V-8 Hemi engines and rugged sport utility vehicles, and was woefully short of the fuel-efficient cars that consumers wanted. As a result, its sales in the United States are down 23 percent this year, more than twice the industry average. And its market share, as high as 13 percent in 2007, fell below 9 percent last month. Adding to its difficulties, Chrysler is still recovering from a painful divorce a year ago from its German partner, Daimler, and is in the midst of a huge restructuring under its new owner, Cerberus Capital Management. With all Chrysler's problems, the industry has been rife with speculation about whether Cerberus would decide it had made an ill-timed bet and sell the company.

In Farm Country's Boom, Hints of a Bubble
The trucks rumble down the main drag of this farm town all day long, the ones heading east brimming with grains of No. 2 Yellow Corn, the ones going west filled with Sweet Bran, a cattle feed that looks like breakfast cereal and smells like warm beer. That eighteen-wheeled evidence of prosperity shows why the Plains states are a bright spot in the otherwise gloomy national economic picture. Here, the housing market is holding up just fine, the banks are making plenty of loans, and employers keep adding jobs. The good times in farm country show the difficulty facing policymakers grappling with the nation's economic distress, underscored yesterday by data indicating the steepest rise in monthly wholesale prices in 27 years and a 17 year low for new housing construction.

RECESSATION: THE WORST OF BOTH ECONOMIC DIRECTIONS
UNFORTUNATELY, it really is different this time. We got the bad news last Thursday that Wall Street was hoping to avoid: Inflation is out of control. And it shouldn't be because the economy is so weak that prices - by any traditional economic theory known to man - ought to be collapsing right now. You have probably noticed that gasoline has recently come down substantially in price. But that didn't count in the consumer inflation numbers that were released last week. Why? Because the government did some seasonal adjustments this past spring that made inflation look unreasonably good. And the way these stats work, it's now payback time. As I've been mentioning for several months now, inflation will continue to be elevated for the rest of the year because these seasonal adjustments are going to turn ugly.

U.S. businesses face economic dilemma
Prices for goods purchased by American businesses surged more than expected in July and have jumped by nearly 10 percent over the last year — the sharpest increase since 1981. The data released on Tuesday by the Labor Department underscored how rising prices have seeped into much of the economy, led by higher costs for food and energy. Businesses have been absorbing some of the higher costs themselves while passing much of the increase to consumers, intensifying the strain on households just as joblessness expands and spending power shrinks. "There is virtually nothing that we have touched in the last six months that hasn't increased," said Gary O'Neal, a division manager at Central Plains Steel in Wichita, Kansas, which distributes steel to manufacturers of construction and farming equipment. "The prices have increased so rapidly and so high compared to historically where they've been. It's just been uncharted territory."

Fed's Lacker Says Rate Hike Should Come Sooner Rather than Later
Speaking in an interview with Bloomberg TV, Richmond Fed President Jeffrey Lacker (non-voter) said the Federal Reserve should not wait too long for a rate hike. The Richmond Fed President called inflation a "risky situation," and said that keeping inflation in check requires a tight monetary policy.

Higher Costs Taking a Toll on Business
Prices for goods purchased by American businesses surged more than expected in July and have jumped by nearly 10 percent over the last year — the sharpest increase since 1981. The data released on Tuesday by the Labor Department underscored how rising prices have seeped into much of the economy, led by higher costs for food and energy. Businesses have been absorbing some of the higher costs themselves while passing much of the increase to consumers, intensifying the strain on households just as joblessness expands and spending power shrinks. "There is virtually nothing that we have touched in the last six months that hasn't increased," said Gary O’Neal, a division manager at Central Plains Steel in Wichita, Kan., which distributes steel to manufacturers of construction and farming equipment. "The prices have increased so rapidly and so high compared to historically where they’ve been. It’s just been uncharted territory."

Hedge Fund Founder Ordered to Pay $300 Million
A federal court in Philadelphia has ordered the former president and founder of a hedge fund to pay nearly $300 million for defrauding clients. Federal prosecutors indicted Paul Eustace, president and founder of the Philadelphia Alternative Asset Management Company, in November on two criminal counts of commodities fraud. The government said Mr. Eustace stole $200 million from clients from 2001 through 2005. The government accused Mr. Eustace, of Ontario, Canada, of creating false account statements, raising management fees based on false profits and transferring clients’ money to himself.

Fed's Fisher Says FOMC Cannot Risk Credibility, Must Act if Inflation Continues
The Federal Reserve must be prepared to take action and curb inflation if slowing growth doesn't moderate prices as expected, said the most hawkish member of the FOMC on Tuesday. Dallas Fed President Richard Fisher (voter), who has dissented from keeping interest rates on hold at the last two FOMC meetings, said the Fed will put its credibility at risk if it fails to combat inflation. He said the Fed has fulfilled its mandate to promote growth by cutting rates rapidly and taking efforts to stabilize credit markets; and though GDP is expected slow to a "snail's pace" in the second half of 2008, rising inflation cannot be ignored.

Soft Freddie Mac 5-Year Auction Shows Credit Worries
U.S. government-backed mortgage finance company Freddie Mac caused ripples through the debt market on Tuesday after weak results in a $3 billion, 5-year note auction. The reference note sold for 113.0 basis points above the 5-year Treasury benchmark. Before the auction, the 5-year spread was 105 bps. On Monday, shares of Freddie Mac were under assault, falling 25% after Barron's magazine reported a growing likelihood the U.S. government will have to bail out the government-sponsored agencies because of an inability to raise capital. Last week, the 5-year Treasury-Agency spread was at 96 basis points. Analysts say there's no reason to question the implicit government guarantee carried by senior Freddie Mac debt.

Saudi's economic cities under pressure to deliver
JEDDAH, Saudi Arabia (Reuters) - An hour's drive north of Jeddah on the Red Sea coast, 8,000 workers toil under the relentless summer sun building what Saudi Arabia hopes will be the key to its social and economic future. If all goes to plan, the King Abdullah Economic City and three sister developments in Hail, Jizan and Medina will by at least 2020 be vibrant communities in a country with high unemployment and an over-reliance on oil.

U.S., Poland Sign Missile-Defense Deal $$
U.S. Secretary of State Condoleezza Rice and Polish Foreign Minister Radek Sikorski on Wednesday signed a deal that will put an American missile defense base in Poland. The formal signing comes six days after the two countries agreed to a deal that will see 10 U.S. interceptor missiles placed just 115 miles from Russia's westernmost frontier. The plan that has further strained Russian ties with the West already troubled by Moscow's conflict with Georgia, an ex-Soviet republic-turned-U.S. ally. Ms. Rice emphasized that the site isn't intended as a threat. "This is a system that is defensive and is not aimed at anyone," she said. "This is an agreement that will establish a missile defense site ... that will help us to deal with the new threats of the 21st century of a long-range missile threats from countries like Iran or from North Korea."

Russia Tightens Its Grip $$
Gains in Ossetia Look Permanent; NATO Calls for Withdrawal
The most lasting result of the Caucasus conflict is likely to be the territorial expansion of the pro-Russian statelet of South Ossetia, and maybe of Russia proper. This town in South Ossetia is overwhelmingly ethnic Georgian, and once stood firmly under Georgian government authority. Tuesday, the Georgian flag no longer flew atop the police station, a squat concrete block with three Russian-made armored personnel carriers parked in the courtyard. Instead, flapping in the wind were the white, red and yellow colors of the South Ossetian banner. Although Russia has promised to pull out of Georgian areas that it has occupied in recent days, this withdrawal -- if it occurs -- almost certainly won't include places like Akhalgori and surrounding villages, just an hour's drive from the Georgian capital, Tbilisi.

Iran satellite launch a failure, U.S. officials say
Iran's attempted satellite launch was a failure that fell far short of claimed successes, U.S. security officials said on Tuesday, but an analyst said the test still marked progress toward a potential weapon. "The attempted launch failed," a U.S. intelligence official told Reuters, speaking on condition of anonymity. "The vehicle failed shortly after liftoff and in no way reached its intended position," the official said. "It could be characterized as a dramatic failure." A U.S. defense official gave a similar characterization of the test as unsuccessful. But Charles Vick, a senior analyst for GlobalSecurity.org research group, said Iran appeared to have succeeded in igniting the second stage of its booster rocket and gained data that will help it perfect its launch system. The technology could also be used to develop a rocket capable of carrying nuclear weapons that could strike Europe or China, he said.

- - - - - - - - - - - - - - - -
Archived Page Link
- - - - - - - - - - - - - - - -

Tues 08.19.2008

Large U.S. bank collapse seen ahead
The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday. "The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference. "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004. "We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.

Fannie's Perilous Pursuit of Subprime Loans
As It Tried to Increase Its Business, Company Gave Risks Short Shrift, Documents Show
In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board. Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business." A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document. Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers.

Large U.S. Banks May Fail Amid Recession, Rogoff Says
Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund. "The worst is yet to come in the U.S.," Rogoff said in an interview in Singapore today. "The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job." The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.

Gold rebounds as investors go bargain buying
Gold prices rebounded Monday, pushing back above $800 an ounce as investors went bargain buying after the metal's massive sell-off last week. Silver also rose. In other commodities, crude oil fell below $113 a barrel as Tropical Storm Fay headed for Florida but stayed away from major oil installations in the Gulf of Mexico. After plunging below $800 on Friday for the first time since late last year, gold had a modest recovery as new buyers sought steep discounts from the metal's all-time highs above $1,000 an ounce reached earlier this year.

Time to Be Bullish on Gold?
The chairman of Cumberland Advisors predicts more bank failures, while Louise Yamada tells investors why now is the time to be bullish on gold. More Bank Failures Due. “I think the financial problem is halfway through the cycle, or something like that. There’s another shoe to drop ahead of us, and it could be more severe. The reason is that this time around, as financial firms need to raise capital, they’re going to have to pay a higher and higher price to get it -- some of them are not going to be able to get it. And so I don’t think we’ve seen the last of the bank failures…”

Wholesale prices rising at fastest pace since 1981
Wholesale inflation surged by 1.2 percent in July, more than double what had been expected
Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday. The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected. Core prices, which exclude food and energy, rose 0.7 percent. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.

Financial Crisis Could Get Much Worse, Experts Say
The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday. Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae and Freddie Mac. "I think the financial problem is halfway through the cycle," David Kotok, chairman and chief investment officer from Cumberland Advisors, told CNBC. "There's another shoe to drop ahead of us and it could be more severe.

Mortgage giants decline over renewed bailout fears
Shares of mortgage finance giants Fannie Mae and Freddie Mac tumbled Monday amid renewed fears that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies. The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages. The new government power, enacted by Congress after the companies' shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.

Investors Can’t Shake Mortgage Worries
Stocks fell sharply on an otherwise quiet Monday as jitters about the mortgage industry prevailed in low-volume trading, sending shares of Fannie Mae and Freddie Mac to 17-year lows. The Dow Jones industrial average fell 180 points and the broader Standard & Poor’s 500-stock index lost 1.5 percent, as shares of banks and financial services firms took a sharp hit. The biggest losers were Fannie Mae and Freddie Mac, the beleaguered mortgage giants, which have suffered from widespread concern over their ability to raise capital and continue to guarantee most of the nation’s mortgages.

Mortgage giants decline over renewed bailout fears
Shares of mortgage finance giants Fannie Mae and Freddie Mac tumbled Monday amid renewed fears that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies. The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages. The new government power, enacted by Congress after the companies' shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.

Fannie Mae, Freddie Mac Are Pounded $$
Two Stocks Plunge On Growing Fears Of a U.S. Bailout
Share prices of Fannie Mae and Freddie Mac plunged Monday amid growing fears that the two largest providers of funding for U.S. home mortgages won't be able to avoid a government bailout. In 4 p.m. trading on the New York Stock Exchange, Freddie shares were down 25% to $4.39. Fannie stock dropped 22% to $6.15. Both stocks are down more than 90% from a year ago. Many investors and analysts fear the two companies may not be able to raise more capital by selling shares, amid gloom over the huge losses they face on mortgage defaults. On Monday, some preferred shares previously issued by Fannie and Freddie were quoted at dividend yields of more than 16%, up from 14% Friday. With investors demanding such high yields, raising money through new preferred shares may be too expensive.

Freddie Mac plans $3bn debt issue
Freddie Mac was on Monday marketing a $3bn benchmark five-year debt issue even as renewed concerns about the future of the US government-sponsored entities (GSEs) sent ripples through the financial markets. Shares of Fannie Mae and Freddie Mac hit their lowest levels in nearly two decades on fears of a federal bail-out that would eliminate the common stock, as well as significantly reduce the value of preferred shares and subordinated debt. This scenario is not a new one, but a weekend story in Barron’s magazine rekindled investor worries over the relative value of the various parts of the capital structure should the federal government nationalise the GSEs.

FDIC Presses Bank Regulators To Use Warier Eye $$
Flagging Woes Now Will Bolster Insurer; The 'Camels' Rating
The deteriorating condition of commercial banks is intensifying a debate among government officials over how to respond, illustrating the likely difficulties facing regulators bracing for a wave of bank failures. In private meetings, Federal Deposit Insurance Corp. officials have pushed other agencies to more forcefully downgrade the confidential rating -- which is known only to regulators and bank management -- of troubled financial institutions, according to people familiar with the talks. If the FDIC gets its way, it could result in more public enforcement actions and could give the FDIC more muscle to either force the companies to improve their balance sheets or seek a sale. It could also make it more expensive for companies to raise capital, as scrutiny from investors would likely spike.

Bailout Rumors Slam Fannie, Freddie
Bailout rumors have Fannie and Freddie shareholders worried that those stocks are in a race to zero. On Monday, Fannie Mae and Freddie Mac plunged off a weekend report that posited that the government will indeed need to rescue the cash-starved firms and that equity holders will end up losing their shirts. Fannie fell 17.8%, or $1.41, to $6.50 and Freddie lost 16.6%, or 97 cents, to $4.88. Investors don't have much left to lose; both companies have lost more than 90.0% of their market value in the last year. Uncle Sam's paternal posturing in recent months had initially calmed investor anxieties. However, as the likelihood has lessened that the two will be able to raise enough capital to stay afloat on their own, Wall Street has begun to view the U.S. government as a dangerous rescuer instead of a benevolent savior.

Lehman May Put a Prized Unit on the Block
Lehman Brothers, the troubled investment bank, is considering the sale of all or part of its prized money management division to private equity firms to raise billions of dollars of capital and ease the pressure caused by losses related to real estate. The move would be the latest by a Wall Street firm forced to sell off high-end assets, following the recent sale by Merrill Lynch of its stake in Bloomberg L.P.and the sale by Citigroup last month of its large German consumer banking franchise. Lehman sent letters last week to a number of financial companies, including private equity firms like Kohlberg, Kravis & Roberts, J. C. Flowers, the Blackstone Group, the Carlyle Group and Apollo Management, to test interest in its money management division, according to several people briefed on its contents.

'Liar loans' threaten to prolong mortgage crisis
In the mortgage industry, they are called "liar loans" — mortgages approved without requiring proof of the borrower's income or assets. The worst of them earn the nickname "ninja loans," short for "no income, no job, and (no) assets." The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years. "Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona.

US Home Builder Sentiment Still at Record Low
U.S. home builder sentiment was stuck at a record low in August, as stringent lending and a flood of foreclosed homes dragged on the real estate market, according to data from the National Association of Home Builders released Monday. The NAHB/Wells Fargo Housing Market index held at 16 in August for a second straight month, the group said in a statement. The August figure matched the median forecast among analysts surveyed by Reuters. Readings below 50 mean more builders view market conditions as poor than favorable.

As Oil Giants Lose Influence, Supply Drops
Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand. Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies. And much of their production is in mature regions that are declining, like the North Sea. The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies.

U.S. Stocks Retreat on Inflation Concern, Housing Data, Losses
U.S. stocks tumbled for a second day after wholesale prices climbed twice as fast as economists projected, housing starts fell and concern grew that the nation's biggest financial firms will post more losses. American International Group Inc., the world's largest insurer, and Lehman Brothers Holdings Inc., the biggest mortgage- bond underwriter, retreated more than 3 percent after analysts warned of additional credit writedowns. D.R. Horton Inc. lost 1.1 percent as the government said builders broke ground on the fewest houses in 17 years last month. Staples Inc. retreated 7.4 percent after producer prices increased 1.2 percent in July and the retailer said profit decreased.

Car buyers' satisfaction with US brands stumbles
U.S. car buyers are growing less satisfied with their purchases from domestic automakers while their Asian and European competitors continue to improve, according to a recent survey. Consumer satisfaction with U.S. auto brands slipped as Lexus and BMW tied for first place, followed by Toyota and Honda, according to the University of Michigan's American Customer Satisfaction Index released Tuesday. General Motors Corp.'s Buick and Cadillac brands, and Ford Motor Co.'s Lincoln and Mercury lines, fell from their No. 2 perch at a time when U.S. companies are struggling to outshine their competitors and reverse their shrinking sales and market share. That's an unsettling sign for domestic automakers, said Claes Fornell, the University of Michigan business professor who heads the annual survey. Traditionally, U.S. brands improve their customer satisfaction scores each year, just not as much as their overseas counterparts. Now, the domestic companies' ratings are declining while their competitors' scores continue to climb.

The End of Credit Card Consumerism
A new frugality could remake the U.S. economy—and American life
When it comes to longevity, few royals can top America's King Consumer. For more than four decades, our shopaholic nation has shown an insatiable desire to spend until our credit cards melt. And throughout this era, consumer spending has, well, consumed a greater and greater share of our total economy. Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions—all enabled by decades of cheap credit.

Wake Up America - You're Sinking
America is in decline. Our standard of living is descending to reconnect with our means and more resemble Western Europe’s. We’ve been living on a borrowed standard of living ever since we started replacing organic growth with financial engineering, some 40 years ago.

Credit con game
Debt settlement outfit falsely promised relief as clients' woes grew; regulator acts
For thousands of people far behind on their credit card payments and other bills, Robert Lovinger's "Debt Meltdown Program" sounded awfully alluring. He offered to help them reduce the amount of their bills by as much as 60% and, in some instances, to free them of debt altogether within 30 months. About 2,000 people joined, and they often ended up paying thousands of dollars for the Long Island-based service—which was marketed under several names, including The Debt Elimination Center and Edge Solutions. What many customers got, in fact, was little or nothing. In some cases, Mr. Lovinger and his staff failed to contact creditors to settle customers' delinquent bills; in others, they drove people deeper into debt by refusing to accept settlement offers from lenders, even after clients asked them to do so.

How the Housing Law Affects Reverse Mortgages
Most seniors should be cautious
The housing bill signed by President Bush on July 30 raises the amount seniors can borrow using federally backed reverse mortgages and lowers the cost of getting the cash. But aging experts say you should still be cautious before spending down your home equity. Here's how the new law affects reverse mortgages and what you still need to be wary of. Instant cash—with strings. A reverse mortgage is a loan against your home if you're generally age 62 and over that doesn't have to be paid back as long as you live in that house. Tapping home equity to finance your golden years is growing in popularity, with 107,367 reverse-mortgage loans made in fiscal year 2007, up from 6,600 loans in 2000, but they still account for only about 1 percent of older households, according to the AARP. After you pay a variety of fees on the loan, you can get a lump sum, monthly payments, a credit line, or a combination of these options based on the value of your house. If the home is sold, the loan must be repaid with the proceeds, and any equity that remains after that is distributed to the borrower.

Debate rages over free wireless spectrum
The debate over new unlicensed spectrum the Federal Communications Commission is considering opening up is heating up as Google ups the ante with a new lobbying Web site. Google on Monday launched the new site called FreetheAirWaves.com to provide consumers with a voice, the company's policy guru said during a press conference call. Google and other technology companies such as Intel, Microsoft and Motorola have been lobbying the FCC for months to open up what's known as "white space" spectrum for unlicensed use after the digital TV transition early next year. These slivers of spectrum that sit between TV channels as buffers to ensure that TV channels don't interfere with each could be used to provide broadband wireless services.

Renewable Power's Growth in Colorado Presages National Debate
When Colorado voters were deciding whether to require that 10 percent of the state's electricity come from renewable fuels, the state's largest utility fought the proposal, warning that any shift from coal and natural gas would be costly, uncertain and unwise. Then a funny thing happened. The ballot initiative passed, and Xcel Energy met the requirement eight years ahead of schedule. And at the government's urging, its executives quickly agreed to double the target, to 20 percent. In Colorado -- a state historically known for natural gas and fights over drilling -- wind and solar power are fast becoming prominent parts of the energy mix. Wind capacity has quadrupled in the past 18 months, according to Gov. Bill Ritter (D), and Xcel has become the largest provider of wind power in the nation.

Experts say U.S. is losing its ability to patrol Arctic waters
A growing array of American military leaders, Arctic experts and lawmakers say the United States is losing its ability to patrol and safeguard Arctic waters even as climate change and high energy prices have triggered a burst of shipping and oil and gas exploration. In the meantime, a resurgent Russia has been busy expanding its fleet of large oceangoing icebreakers to about 14. It launched a large conventional icebreaker in May and, last year, the world's largest icebreaker, named 50 Years of Victory, the newest of its seven nuclear-powered, pole-hardy ships. The U.S. National Academy of Sciences, the Coast Guard and others have warned over the last several years that the United States' two 30-year-old heavy icebreakers, the Polar Sea and Polar Star, and one smaller ice-breaking ship devoted mainly to science, the Healy, are grossly inadequate. Also, the Polar Star is out of service.

Bibles seized from Americans' luggage
Christian group was set to distribute 300
Chinese customs officials confiscated more than 300 Bibles on Sunday from four American Christians who arrived in a southwestern city with plans to distribute them, the group's leader said. Chinese customs officials confiscated more than 300 Bibles on Sunday from four American Christians who arrived in a southwestern city with plans to distribute them, the group's leader said. The group, based in Sheridan, Wyo., distributes Bibles and Christian teaching materials around the world to "strengthen the persecuted church," according to its Web site.

Washington's hypocrisy
The U.S. administration is trying to stick the label of "bad guy" on Russia for exceeding the peacekeeping mandate and using "disproportionate force" in the peace-enforcement operation in Georgia. Maybe our American friends have gone blind and deaf at the same time. Mikheil Saakashvili, the president of Georgia, is known as a tough nationalist who didn't hide his intentions of forcing Ossetians and Abkhazians to live in his country. We were hoping that the U.S. administration, which had displayed so much kindness and touching care for the Georgian leader, would be able to save him from the maniacal desire to deal with the small and disobedient peoples of the Caucasus.

Musharraf departure heightens uncertainty
Pakistan’s president Pervez Musharraf stepped down on Monday after nine years in power, dodging his opponents’ attempts to impeach him but deepening confusion over who will control the nuclear-armed state. Announcing on national television that he had decided to resign “in the interest of Pakistan”, Mr Musharraf said that, if he had decided to stay on, a political struggle could have dragged in the military. In an emotional broadcast just hours before parliament was due to consider formal impeachment proceedings, he said: “Even if a move to impeach me is defeated, the government’s relations with the president’s office will be ridden with friction.”

Iranian Satellite Launch ‘Quantum Leap in Capability,’ Israeli Expert Says
Iran’s weekend test launch of a rocket that is meant to carry a research satellite into orbit represents a “quantum-leap” in Iranian technological capabilities and shows that the U.S. is justified in its desire to put a defensive missile shield in Europe, an expert said here on Monday. Iranian television reported on Saturday that Iran had successfully test launched a rocket that it wants to use to carry a research satellite into orbit. Images of the nighttime launch of the two-stage Safir or Ambassador rocket were broadcast on Iranian state television. Experts agreed that the test-launch was not of itself threatening but signaled that Iran was making headway in technical advances in its missile program.

Tehran offers to help Muslim nations launch satellites
Iran is prepared to help Muslim countries launch satellites, an Iranian official said Monday, a day after Tehran declared that it had test-fired a new rocket capable of carrying a satellite into orbit. "I am announcing now that Iran is ready to launch satellites of friendly Islamic countries into space," Reza Taghipour, head of Iran's Aerospace Organization, said on state television. On Sunday, Iranian television showed images of a nighttime rocket launch and said a satellite had been sent into orbit. Iranian officials later said that only the rocket had been fired. Iran has made several recent claims of test-firing missiles that Western military analysts have said were inflated.

The Iran Scenarios
These days you can read as many different scenarios regarding the likelihood that Israel will attack Iran’s nuclear facilities as there are experts putting them forth. History, past and present, may have already written the script. In a recent interview with Der Spiegel; Israeli Prime Minister, Ehud Olmert asked, “Why do you need to enrich uranium if you don’t have the facilities that can make use of this uranium for civilian purposes?” Iran does have such plants, but both have been in various stages of construction and delay since 1992 and neither has ever produced a watt of electricity. The August edition of Energy Tribune takes on the question of an Israeli military action against Iranian facilities refining fissionable materials for the development of nuclear weapons. John Bolton, the former U.S. ambassador to the United Nations, is quoted saying that Israel has “a window” in which to conduct the strike. It would be between “the day after the November 4 U.S. election and closes with the swearing-in of George W. Bush’s successor on January 20, 2009.”

- - - - - - - - - - - - - - - -
Archived Page Link
- - - - - - - - - - - - - - - -

Mon 08.18.2008

Financial Crisis Is Expected To Bring More Big Shocks
The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday. Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae and Freddie Mac. "I think the financial problem is halfway through the cycle," David Kotok, chairman and chief investment officer from Cumberland Advisors, told CNBC. "There's another shoe to drop ahead of us and it could be more severe."

US banks scramble to refinance maturing debt
Battered US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push banks’ funding costs higher and curb their profitability, say bankers and analysts. The banks’ need to raise capital to offset mounting credit-related losses is forcing them to pay higher interest rates to entice investors. The rising funding costs are set to put pressure on earnings because, in many of their businesses, banks rely on the difference between borrowing and lending rates to make money. “It is difficult to see how banks will continue to repeat the heady profit growth of the past few years if they borrow at these levels,” said a Wall Street banker. Banks could also be forced to raise lending rates, exacerbating the credit crunch felt by many businesses and individuals and further depressing economic activity. Mohamed El-Erian, co-chief executive of Pimco, the asset management group, said: “If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.”

Bracing for Inflation
Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009.
The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices. The Consumer Price Index for all items shows the inflation rate averaged 2.6% a year from 1992 through 2007 but has doubled since January, reaching an annual rate of 5.6% in July (BusinessWeek.com, 8/14/08). By next year, the monthly figure could hit double digits, and the inflation rate for 2009 overall could triple 2007's 2.85%. I say this not only because I have looked at a broad range of statistics that point in this direction. I also run a private equity investment firm that owns companies in a number of industries -- including restaurants, the manufacture of gardening tools, oil and gas exploration services, and distribution of entertainment products such as books and videos -- that are already being forced to pass price increases on to the consumer.

Bernanke Tries to Define What Institutions Fed Could Let Fail
Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes. In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac. The lack of clearly defined limits may put the Fed's independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.

Freddie Mac debt sale weak, bailout concerns rise
Investors dumped the stocks of Fannie Mae and Freddie Mac on Monday after Barron's reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans. The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies' common stock. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses. Shares of the two providers of home mortgage funding fell more than 16 percent and some of their bonds sharply underperformed Treasuries. A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July. "The Barron's article overstated Freddie Mac's financial situation," Sharon McHale, a Freddie Mac spokeswoman, told Reuters. "We continue to be adequately capitalized."

Dollar surge will not stop America feeling the effects of a global crunch
Two alerts landed on my desk this weekend from the elite markets team at Goldman Sachs. One was entitled "The Dollar Has Bottomed!". Those betting on an imminent disintegration of American economic and political power may have to wait another cycle. Rival hegemons are falling like ninepins. The US dollar index hit an all-time low in March. It crept slowly upwards in the early summer before smashing through layers of resistance over the past month. The surge against sterling, the euro, the Swiss franc and the Australian dollar is one of the most spectacular currency shifts in half a century. "Something fundamental has changed," said the bank. Indeed. . . . . . . . .
So no, this painful ordeal is far from over. We are not witnessing a dollar rally so much as a collapse in European and commodity currencies. The race to the bottom has begun in earnest.

Dollar Falls Against Yen, Euro Before Housing, Inflation Data
The dollar fell from a seven-month high versus the yen before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay raising interest rates. The currency also retreated against the euro, snapping a three-day advance, after crude oil advanced. The British pound slid against the euro as an industry report showed U.K. home prices dropped the most since at least 2002. "The U.S. housing slump will take two or three years to bottom out," said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's biggest financial group by market value. "Hefty oil prices will keep buffeting the U.S., the world's largest energy consumer."

A Fabrication Bottleneck or Something More
The Internet is abuzz with reports that precious metal dealers have stopped selling coins and small bars because they have run out of inventory. For example, Franklin Sanders reports on goldprice.org that his inability to purchase product from his suppliers is something that he has never seen before in his "twenty-eight years of brokering silver and gold." On Friday afternoon, Kitco posted the following notice: "Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products." The rush out of fiat currency and into precious metals on this latest drop in prices is not just a North American phenomenon. The Times of India reports: "There is a shortage of the yellow metal in the bullion banks and traders." The bottom line is that it is difficult, if not impossible, to buy coins and small bars. Mints and refiners are back-ordered. Dealer shelves are bare. But the question is, why? Is it just a fabrication bottleneck, or is something else happening?

Morgan Stanley, Goldman Change Lending Systems
Morgan Stanley and Goldman Sachs are responding to the credit crisis with a system that uses the market's view of their own creditworthiness as a basis for lending decisions, the Financial Times reported. Wall Street's second-largest investment bank Morgan Stanley is essentially tying its promise to provide financing to hedge fund clients to the price of credit insurance on its own debt, it said. If the cost of the protection rises to a certain level, that would trigger a reduction in Morgan Stanley's commitments to hedge funds, the quoted people familiar with the situation as saying.

Subprime rescue hit by second mortgages
Efforts to avert foreclosures are being complicated by the large number of subprime borrowers who took out second mortgages so they could afford the downpayments on their homes, industry executives say. George W. Bush, the US president, signed a bill last month providing $300bn to help distressed homeowners refinance into cheaper mortgages backed by the Federal Housing Administration. In exchange for agreeing to a loss on the initial loan, primary lenders are guaranteed a minimum pay-out while the second mortgage would be wiped out. Second-mortgage providers are generally in a weaker position than primary lenders in a renegotiation because they hold what is known as a second lien – meaning they stand behind the primary lender in terms of their rights to seize the home.

An economic Cassandra whose predictions are coming true
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. As Roubini stepped down from the lectern after his talk, the moderator of the event said, "I think perhaps we will need a stiff drink after that." People laughed - and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market.
But Roubini was soon vindicated.

Breaking up big banks questioned as losses mount
America's biggest banks have suffered unprecedented losses from the ongoing credit crisis, and that's made some investors question whether the big financial conglomerates should be broken up in order to survive. Break-up advocates, who for months have been clamoring for Citigroup Inc. to be dismantled, got some validation of their viewpoint this past week. Europe's UBS AG - created through the combination of Swiss Bank Corp. and Union Bank of Switzerland in 1997 - on Wednesday laid the groundwork to tear up its business model after another quarter of steep losses. Though the UBS announcement was expected, it was nonetheless a departure from what executives promised during a wave of big bank deals that began in the late 1990s. The creators of global banks like Citigroup, JPMorgan Chase & Co., and HSBC Holdings PLC had promised customers and shareholders that a diverse set of businesses would shield them from economic volatility.

Foreign Investors Selling Freddie, Fannie Debt
While even moral hazard hawks generally agree that some sort of government intervention would be needed in the event of financial trouble at Fannie and Freddie, the most compelling reason was that the US, chronically dependent on foreign funding, would be ill advised to treat its money sources badly. Of the GSEs' $5.2 trillion in debt (their own corporate bonds plus MBS), $1.3 trillion is in the hands of foreign investors and central banks. The speed with which the powers that be cobbled together a support program was seen in some circles as an admission of the importance of reassuring our friendly overseas credit suppliers.

CFOs and CPAs Say U.S. Is in Recession, Predict Rough Year Ahead
When asked about specific policies that could help to stabilize the economy, a majority of finance executives say Congress and the Federal Reserve should refrain from pumping more cash into the economy. A majority of CFOs and senior executive accountants believe the U.S. economy is already in recession and will continue its slowdown for a third consecutive quarter, according to a survey conducted by the American Institute of Certified Public Accountants. To make matter worse, the executives doubt the economy will improve in the next 12 months. "Our members are still seeing increased pressure on profits from rising costs without the ability to raise prices," Chris McKittrick, the AICPA’s director of members, said in a statement released Thursday, August 14. "Expectations for revenue and hiring are trending downward." Mark Lang, a professor of accounting at the University of North Carolina's Kenan-Flagler Business School, which helped conduct the survey, added, "The fact that firms continue to reduce planned growth in capital investment, staff development and employment is particularly troubling since it suggests that the slowdown could have long-term implications."

Gold falls to below $800 an ounce
Gold fell to below $800 an ounce for the first time since December 2007 while aluminium prices hit their lowest in some six months. Copper also fell. The price of commodities has fallen on speculation that demand will slow amid a global slowdown. Another factor has been the stronger dollar, which has reached a half-year high against the euro. As economists see improved prospects for the US economy, the dollar becomes more attractive as an investment. And as the dollar becomes more attractive, particularly in times of crisis, gold has lost its lustre, as have other precious metals.

Commodity prices likely to rebound
Crashing commodity prices have once again given ammunition to skeptics who believe the boom of recent years was a blip, but that view underestimates the demand and economic growth in the emerging world. Corrections are inevitable in any uptrend and the natural resources sector is no exception, say investment managers who oversee funds in all asset markets, and who have no specific interest in talking up commodity prices in particular. The caveat is a global recession, but that is unlikely given forecasts of 8 percent to 10 percent growth this year in China, the world's fourth largest economy, despite the halt in much industrial activity during the Olympic Games.

A long year of lessons for the Federal Reserve
When U.S. Federal Reserve officials gathered for their annual conference in Jackson Hole, Wyoming, in August of last year, Bear Stearns shares were trading at well over $100. The Fed's benchmark interest rate was 5.25 percent, more than double where it stands now, and oil cost about $70 a barrel. Twelve months later, Bear Stearns is gone, as is about $400 billion from the balance sheets of banks worldwide. The legendary oilman T. Boone Pickens thinks the days of oil under $100 a barrel may be gone, too. Looking back at the 2007 conference in Jackson Hole provides some cringe-inducing moments. In his speech at the mountain resort, Ben Bernanke, the Federal Reserve chairman, declared that the central bank was ready to act to shield the economy from the credit crisis but would not save investors who had made bad choices. "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions," he said, words that now seem to ring hollow in light of the Fed's role in rescuing Bear Stearns from bankruptcy in March. Now, Bernanke is hoping the Fed will not have to act again.

Mrs. Fields Will Seek Bankruptcy Protection $$
Mrs. Fields Famous Brands LLC, which serves up fresh-baked cookies and TCBY frozen yogurt at more than 1,200 franchises across the country, is planning to file for Chapter 11 bankruptcy protection, according to a regulatory filing. The company was trying to negotiate a restructuring agreement with its senior noteholders, but warned in June that it might have to seek protection from creditors if it couldn't complete the deal out of court. In the Securities and Exchange Commission filing, Mrs. Fields indicated it would file a prepackaged bankruptcy reorganization plan with the U.S. Bankruptcy Court in Wilmington, Del. Michael R. Ward, Mrs. Fields's interim co-chief executive, confirmed the company's plans Friday.

Wachovia to Buy Back Auction-Rate Securities
Wachovia Corp. is buying back as much as $8.8 billion in illiquid auction-rate securities, but the decision should have minimal impact on the Charlotte, N.C., bank as it works its way through more-serious headaches relating to the U.S. mortgage rout, analysts said Friday. Under an agreement between the nation's fourth-largest bank by assets, the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and the Missouri secretary of state, Wachovia Securities LLC and Wachovia Capital Markets LLC will buy back $5.7 billion in auction-rate securities by Nov. 28, according to the SEC. The two units will buy an additional $3.1 billion of the securities by next June, the SEC said. A person close to the New York attorney general said the buyback numbers are estimates and that Mr. Cuomo's office expects the bank to purchase $6.4 billion in November and a further $2.1 billion in June. Wachovia, which neither admitted nor denied wrongdoing, also will pay $50 million in civil penalties.

Fed's Evans Said U.S. Economy Faces Three-Front Battle
The downside risks to growth have recently risen and the economy is expected to be "extremely sluggish" in 2008, according to one Fed official on Friday. Chicago Fed President Charles Evans (non-voter) said the U.S. economy faces a triple-front threat as growth risks are on the rise, inflation is "unsettlingly high" and financial markets remain in turmoil amidst depressed housing and auto markets. "Although real activity is weak, we also are simultaneously experiencing bad news on the inflation front in the form of higher energy and commodity prices. This creates the challenge of facilitating the economy's return toward more favorable growth rates without igniting greater inflationary pressures," he said in Bloomington, Illinois. "The financial turmoil and subsequent tightening of credit conditions add another dimension of difficulty to the problem," he added. Evans said the confluence of these threats have "added layers of complexity to the management of monetary policy," making the decision-making process more complicated than usual.

Top Federal Reserve Officials Predict Weak Second Half; Warn Growth May Not Return Until 2010
Two top U.S. Federal Reserve officials on Friday predicted a weak second half for the U.S. economy, warning that strong U.S. growth may not return until 2010. Atlanta Federal Reserve Bank President Dennis P. Lockhart and Chicago Fed Bank President Charles L. Evans both said the U.S. central bank is in no hurry to start raising rates while the American economy is sputtering badly because of an ongoing global financial crisis, a sagging housing market and inflationary pressures caused by a yearlong run-up in food-and-energy prices. Indeed, Lockhart even said he wouldn’t rule out actually cutting interest rates if economic circumstances warranted – a remarkable admission at a time when the economic crisis is juxtaposed over rising inflationary pressures, and when most Fed-watchers expect the central bank’s next move to be an increase in interest rates, Reuters reported. A reduction in interest rates would jump-start U.S. growth.

Jobless rate at 13-year high
Florida's jobless rate spiked to a 13-year high in July, and unemployment in Palm Beach, Martin and St. Lucie counties rose sharply. Florida's seasonally adjusted unemployment rate was 6.1 percent last month, the Florida Agency for Workforce Innovation said Friday. That's the highest since January 1995, when unemployment stood at 6.5 percent. The number of jobless in Florida has nearly doubled in the past two years. In July 2006, 330,000 people were out of work, a number that rose to 604,000 last month. The pain was especially severe in St. Lucie County, which had the third-highest unemployment rate among the state's 67 counties. "It's tough," said Richard Stetson, vice president of the Workforce Development Board of the Treasure Coast. "St. Lucie County has not diversified as well as it wants to, so a lot of the community is still based on residential. With the slowdown in construction, that trickles down."

U.S. Mass Layoffs Rise to Highest Levels Since 2003
U.S. mass layoffs actions, involving 50 or more employees from a single firm, came in at a seasonally adjusted 1,534 reading in the second quarter of 2008, a 113 increase from the previous year-over-year result, the U.S. Bureau of Labor Statistics reported Friday. According to the preliminary statistics, the Bureau of Labor reports that 299,866 workers lost their jobs in the last 31 days. Both layoff events and separations reached their highest levels in the second quarter since 2003.

Ford to Take a Step To Shore Up Finances $$
Ford Motor Co. will sell as much as $500 million of its shares to buy back debt from its credit arm, a move designed to help shore up its finances after a $2.1 billion write-down attributed to declining resale values of trucks and sport-utility vehicles. The debt-for-equity exchange revealed one step, albeit small, that Ford is taking to improve its overall balance sheet after making a loss of $8.7 billion in its second quarter -- a high for the auto maker. Essentially, the company will sell the stock to buy down debt due before the year 2012 taken on by Ford Motor Credit Co., a wholly owned subsidiary. Ford Credit had a pretax loss of $334 million in the second quarter, compared with a profit of $105 million a year ago. Analysts generally viewed the development as a positive but incremental measure, saying that the stock sale wouldn't have a substantial effect on the company's liquidity position. By buying back its debt at a discount, the auto maker could, however, make a small profit.

Mitsubishi Is Said to Be Close to Deal for California Bank
Mitsubishi UFJ Financial Group, one of Japan’s largest banks, is near a deal to buy the remaining part of UnionBanCal Corporation that it does not already own for about $3.5 billion, people involved in the deal said. The transaction values UnionBanCal, which owns Union Bank of California, one of the 25 largest banks in the United States, at about $10.5 billion. Mitsubishi is trying to expand beyond its relatively stagnant home market as Japanese companies seek to broaden their presence abroad and take advantage of a weaker dollar.

Dreading winter's bitter bill
Heating costs are expected to climb this winter putting additional pressure on Americans already hurt by high gasoline and food prices.
Home heating bills are expected to soar this winter and Americans, already struggling with high gas and food prices, are bracing for more financial hardship. On average, consumers are expected to pay $1,182 to heat their homes this year, up 20% from last year, according to recent estimates from the Energy Information Administration (EIA). But the outlook for the Northeast, where 8 million households depend on heating oil, is even more worrisome. Homeowners in the region are expected to spend an average of $2,725 on heating oil this winter. The looming spike in heating costs could pose an even more serious threat to household budgets than the high price of gas, according to Tancred Lidderdale, a senior EIA economist. "When gas prices go up consumers have options," he said. They can drive less or use public transportation. But when it comes to home heating, "households have fewer options."

Credit crunch 'still worsening'
The global credit crunch shows no signs of abating, according to the International Monetary Fund (IMF). In its latest global financial stability report, the IMF says that falling house prices and slowing economic growth are hitting credit. It warns that banks are under renewed stress, and further cutbacks in bank lending could deepen the slowdown. The IMF also says that emerging markets like China may also suffer more pain in the future from the credit crunch.

Inflation Gets Right Down to the Real Nitty-Gritty
Even dirt isn't dirt-cheap anymore. At your local garden center, the cheapest dirt, which often goes by the name of "premium topsoil," may cost $4.99 for a 40-pound bag, about a buck more than a year or two ago. Then there's the gourmet dirt -- the scientifically exquisite potting mixtures, soil enhancers and soil amendments, crafted from special ingredients such as peat moss, bark fines (partially composted pine bark), perlite, coconut husks, and/or "spent mushroom substrate." You can buy a bag of "Bumper Crop," for example, for $14.99 at Johnson's Florist and Garden Center in the District, up two bucks from 18 months ago. Dirt and its upmarket cousins offer a glimpse of how rising energy prices have caused inflation in the grittier corners of the consumer culture. Products that are cheap, heavy and bulky, such as bags of soil, are particularly vulnerable to rising freight costs.

US inflation fastest since 1991
US prices rose by 5.6% in the year to July, the fastest inflation rate for more than 17 years, figures show. The rate of inflation was much greater than economists had predicted, driven higher by the 30% increase in energy prices during the period. Food costs were 6% higher than a year earlier, the figures showed. The price rises are squeezing consumers further. Inflation-adjusted average weekly earnings fell by 3.1% in July compared with a year earlier.

Hershey to raise prices 11 percent
The Hershey Co. said Friday it is raising prices on its products by an average of 11 percent as the nation's largest candymaker tries to stem the impact of soaring commodities costs, and trimmed its projections for 2008 and 2009. The price increase was the second already this year for the candy company known for its Hershey's chocolate bars, bite-sized Kisses and Reese's peanut butter cups. The immediate increase was necessary to offset "significant increases" in the cost of raw materials such as sugar, cocoa and peanuts - up as much as 45 percent since the start of the year - as well as the growing cost of fuel, utilities and transportation, Hershey said. "Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey's President and Chief Executive David J. West said in a statement.

Weak rules cripple appraiser oversight
As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal - the real estate appraisal - was undermined from within. After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals. But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud. And despite ample evidence appraisers are pressured into inflating home values - sometimes to prices in support of loans that are more than buyers can afford - the federal regulators charged with protecting consumers have thus far made a conscious choice not to act. "The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year. "It's amazing that the system ever worked at all."

The Quintessential Inflation - The Great Weimar Inflation - Germany the Early Twenties
Much has been spoken about it, but few really appreciate key points, motives and reasoning. It seems that it was just excessive money, but in reality it was a constant shortage! The critical role of the velocity of money is also not understood in these situations, today. It was portrayed and possibly constructed as a financial accident, but linking the scene to that day's politics shows another picture! In understanding today's environment and the prospects for "Stagflation" and the battle to export "Deflation", understanding the Weimar Republic's hyperinflation is one of the critical lessons for Investors today.

Qwest, unions keep talking; workers remain on job
DENVER (AP) -- Qwest Communications International Inc. and members of its largest union were working on scheduling time Sunday to sit down for further negotiations after a labor contract expired. The talks come a little more than a week before the start of the Democratic National Convention in Denver, where Qwest is providing phone and Internet services. Qwest also is providing service to the Republican National Convention that begins Sept. 1 in St. Paul, Minn. Workers represented by the Communications Workers of America had voted to authorize a strike if needed, but CWA organizing coordinator Al Kogler said no strike had been called when the contract expired after 11:59 p.m. Saturday.

In Most Areas, Home Values Keep Sliding
The latest housing numbers from Zillow, the real estate research firm, are littered with minus signs. The data show that it may be a while yet before the housing downturn changes direction. Zillow found that nearly 24 percent of homes sold during the past 12 months sold at a loss. (That includes foreclosures.) And of those who bought homes in the last five years, 29 percent now have negative equity. Here’s another big negative: the median home value in the United States fell nearly 10 percent in the second quarter, compared with the same period the previous year. That is the biggest percentage decline since Zillow began collecting data 12 years ago. Out of 165 metropolitan areas surveyed by Zillow, 85 percent are in a declining-value zone.

Inflated appraisal nearly cost family its home
After 25 years as a doorman on Manhattan's Upper East Side, Carl Petrone was ready to retire from the cold winters and his daily commute. Petrone and his wife, Marie, wanted a home someplace warm, and found it in North Carolina - a red-brick tri-level on a quiet, tree-lined street. It was bigger than their tiny place in New York and came with the right price. The home was appraised at $114,500. The real estate agents dropped the price by $6,000 to make the sale. "We thought it was a steal," Marie Petrone remembers. It was a steal - a steal from the Petrones. As the couple would discover, they were the unwitting victims of an unscrupulous appraiser and - as uncovered by a six-month Associated Press investigation - a poorly designed system unable to keep up with such dishonesty.

Illusions About Inflation
THERE is widespread concern that high inflation — running at a 5.6 percent annual rate in the 12 months through July — could hurt the stock market. But this investor worry may be yet another example of money illusion: the confusion of nominal prices with their inflation-adjusted equivalent. The notion that inflation is bad for stocks appears to make a good deal of sense. What’s more, there is reason to believe that this perception — mistaken though it may be — has sometimes driven down stock prices. With inflation at 6 percent, for example, a dollar of profit that a company will earn a year from now is worth only 94 cents in today’s dollars. But if inflation were just 1 percent, as it was in early 2002, that dollar earned a year from now would be worth 99 cents today. Such differences add up, especially as investors consider a company’s earning power over many years.

China Blocks World Recession
Global financial turmoil that has caused Japan and major economies in Europe to shrink will bring more pain but probably not a global recession because of the emerging star power of countries like China. Economists generally define global recession as growth in world gross domestic product that runs below a long-term trend as estimated by the International Monetary Fund. In other words, the global economy does not have to contract to be in a recession. Whether a global recession is in the offing is important because it highlights the difference between a slowdown within a broader growth cycle and something more protracted and serious. China will almost certainly get hit by cooling global demand, but after five years of double-digit growth the world's fastest growing major economy and other developing nations should contribute enough to global growth over the next few years to prevent a dip into recession territory, economists and money managers said.

U.S. pushes to expand Arctic icebreaker fleet
A growing array of American military leaders, Arctic experts and lawmakers say the United States is losing its ability to patrol and safeguard Arctic waters even as climate change and high energy prices have triggered a burst of shipping and oil and gas exploration in the thawing region. In the meantime, a resurgent Russia has been busy expanding its fleet of large ocean-going icebreakers to about 14, launching a large conventional icebreaker in May and, last year, the world's largest icebreaker, named 50 Years of Victory, the newest of its seven nuclear-powered, pole-hardy ships. The U.S. National Academy of Sciences, the Coast Guard and others have warned over the last several years that the United States' two 30-year-old heavy icebreakers, the Polar Sea and Polar Star, and one smaller ice-breaking ship devoted mainly to science, the Healy, are grossly inadequate. Also, the Polar Star is out of service. And this spring, the leaders of the Pentagon's Pacific Command, Northern Command and Transportation Command strongly recommended in a letter that the Joint Chiefs of Staff endorse a fresh push by the Coast Guard to increase the United States' ability to gain access to and control its Arctic waters.

U.S. May Ease Police Spy Rules
More Federal Intelligence Changes Planned
The Justice Department has proposed a new domestic spying measure that would make it easier for state and local police to collect intelligence about Americans, share the sensitive data with federal agencies and retain it for at least 10 years. The proposed changes would revise the federal government's rules for police intelligence-gathering for the first time since 1993 and would apply to any of the nation's 18,000 state and local police agencies that receive roughly $1.6 billion each year in federal grants. Quietly unveiled late last month, the proposal is part of a flurry of domestic intelligence changes issued and planned by the Bush administration in its waning months. They include a recent executive order that guides the reorganization of federal spy agencies and a pending Justice Department overhaul of FBI procedures for gathering intelligence and investigating terrorism cases within U.S. borders. Taken together, critics in Congress and elsewhere say, the moves are intended to lock in policies for Bush's successor and to enshrine controversial post-Sept. 11 approaches that some say have fed the greatest expansion of executive authority since the Watergate era.

Iran launches satellite carrier
Iran says it has successfully launched a rocket capable of carrying its first domestically built satellite. Officials said only the rocket had been fired, correcting state media reports that the communications satellite itself had been sent into orbit. Tehran has pursued a space programme for years, despite international concern over its nuclear plans. In February it sent a probe into space as part of preparations for the launch of the satellite. Long-held ambition Footage aired on Irinn (Islamic Republic of Iran News Network) showed the launch of the Safir rocket in darkness. The presenter said that the satellite launch was a trial which was successful. State and military officials confirmed the launch had taken place. President Mahmoud Ahmadinejad was at the event, said one report.

Washington and Poland just moved the World closer to War
The signing on August 14 of an agreement between the governments of the United States and Poland to deploy on Polish soil US ‘interceptor missiles’ is the most dangerous move towards nuclear war the world has seen since the 1962 Cuba Missile crisis. Far from a defensive move to protect European NATO states from a Russian nuclear attack, as military strategists have pointed out, the US missiles in Poland pose a total existential threat to the future existence of the Russian nation. The Russian Government has repeated

Previous Posts

Archives