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There is so much news today - all of it bad. And NOT ONE TINY BIT of it appears in our local media.
Central bank flight to Federal Reserve safety tops Lehman crisis
Central bank flight to Federal Reserve safety tops Lehman crisis
A key warning signal of global financial stress has shot above the extreme levels seen at the height of the Lehman crisis in 2008.
By Ambrose Evans-Pritchard
8:31PM BST 01 Sep 2011
Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks.
Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.
"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."
These dollar accounts are just over $100bn (£62bn) and are small beer compared to the vast sums invested in bonds as foreign reserve holdings. Yet they serve as stress indicator, reflecting the operating decisions of the world's top insiders.
For article GO HERE
White House Downgrades Its Economic Forecast
Septmber 1, 2011
WASHINGTON—The White House on Thursday downgraded its outlook for the economy, forecasting unemployment could average 9% in 2012 and growth could be slower than expected for several years.
Growth could slow to 1.6% in 2011, down from the 3.1% forecast in February, the administration said.
The revised outlook comes a week before President Barack Obama is set to propose a new plan aimed at jump-starting job growth and cutting the deficit. About 14 million Americans are out of work and the jobless rate stands at 9.1%, numbers that have the potential to dog Mr. Obama's re-election bid.
For article GO HERE
GOLDMAN: The World's Going To Hell In A Handbasket—Here's How To Cash In!
August 31, 2011
Goldman Sachs has published a semi-secret 54-page report for hedge-fund clients arguing that the world's going to hell and recommending ways to cash in.
The WSJ's Susan Pulliam and Liz Rappaport got their hands on a copy.
The report is not an official Goldman research report.
It's an unofficial Goldman research report—the kind you really want to read.
In the report, Goldman strategist Alan Brazil argues that:
• European banks need $1 trillion of capital (bailout)
• US small businesses are still sucking wind (and they're the ones that create jobs)
• China's growth is probably not sustainable
• Solving a debt problem (ours) with more debt doesn't work
He also recommends ways to "play" this debacle:
• Buy a six-month put option on the Euro versus the Swiss Franc, thus betting the Euro will drop against the Franc (the Franc being the currency that an official Goldman report recently referred to as the most overvalued in the world)
• Buy a five-year credit default swap on an index of European corporate debt—the iTraxx 9. This is a bet that some of these companies will default, and your insurance policy, the CDS, will pay off
Unfortunately, lest you think your knowledge of this semi-secret report will finally allow you to out-trade hedge funds, it won't. The hedge funds got the report on August 16th. As usual, you're the last to know.
For article GO HERE
Is It Time For The Financial World To Panic? 25 Reasons Why The Answer May Be Yes
August 31, 2011
Every now and then it is easy to forget that the one or two "better than expected" data points blasted by flashing headlines do nothing that merely mask what is an otherwise quite deplorable and deteriorating reality. For the disconnect between America and the rest of the world look no further than this chart showing the dramatic divergence between the DJIA, which has just gone positive for the year, and every other major global stock market. Yet for those who require a narrative to go with their numbers, here is The Economic Collapse with the latest of their traditionally comprehensive bulletins, this time summarizing the "25 signs that the financial world is about to hit the big red panic button."
From The Economic Collapse:
The following are 25 signs that the financial world is about to hit the big red panic button....
#1 According to a new study just released by Merrill Lynch, the U.S. economy has an 80% chance of going into another recession.
#2 Will Bank of America be the next Lehman Brothers? Shares of Bank of America have fallen more than 40% over the past couple of months. Even though Warren Buffet recently stepped in with 5 billion dollars, the reality is that the problems for Bank of America are far from over. In fact, one analyst is projecting that Bank of America is going to need to raise 40 or 50 billion dollars in new capital.
#3 European bank stocks have gotten absolutely hammered in recent weeks.
#4 So far, major international banks have announced layoffs of more than 60,000 workers, and more layoff announcements are expected this fall. A recent article in the New York Times detailed some of the carnage....
A new wave of layoffs is emblematic of this shift as nearly every major bank undertakes a cost-cutting initiative, some with names like Project Compass. UBS has announced 3,500 layoffs, 5 percent of its staff, and Citigroup is quietly cutting dozens of traders. Bank of America could cut as many as 10,000 jobs, or 3.5 percent of its work force. ABN Amro, Barclays, Bank of New York Mellon, Credit Suisse, Goldman Sachs, HSBC, Lloyds, State Street and Wells Fargo have in recent months all announced plans to cut jobs — tens of thousands all told.
#5 Credit markets are really drying up. Do you remember what happened in 2008 when that happened? Many are now warning that we are getting very close to a repeat of that.
#6 The Conference Board has announced that the U.S. Consumer Confidence Index fell from 59.2 in July to 44.5 in August. That is the lowest reading that we have seen since the last recession ended.
#7 The University of Michigan Consumer Sentiment Index has fallen by almost 20 points over the last three months. This index is now the lowest it has been in 30 years.
#8 The Philadelphia Fed's latest survey of regional manufacturing activity was absolutely nightmarish....
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a slightly positive reading of 3.2 in July to -30.7 in August. The index is now at its lowest level since March 2009
#9 According to Bloomberg, since World War II almost every time that the year over year change in real GDP has fallen below 2% the U.S. economy has fallen into a recession....
Since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy.
#10 Economic sentiment is falling in Europe as well. The following is from a recent Reuters article....
A monthly European Commission survey showed economic sentiment in the 17 countries using the euro, a good indication of future economic activity, fell to 98.3 in August from a revised 103 in July with optimism declining in all sectors.
#11 The yield on 2 year Greek bonds is now an astronomical 42.47%.
#12 As I wrote about recently, the European Central Bank has stepped into the marketplace and is buying up huge amounts of sovereign debt from troubled nations such as Greece, Portugal, Spain and Italy. As a result, the ECB is also massively overleveraged at this point.
#13 Most of the major banks in Europe are also leveraged to the hilt and have tremendous exposure to European sovereign debt.
#14 Political wrangling in Europe is threatening to unravel the Greek bailout package. In a recent article, Satyajit Das described what has been going on behind the scenes in the EU....
The sticking point is a demand for collateral for the second bailout package. Finland demanded and got Euro 500 million in cash as security against their Euro 1,400 million share of the second bailout package. Hearing of the ill-advised side deal between Greece and Finland, Austria, the Netherlands and Slovakia also are now demanding collateral, arguing that their banks were less exposed to Greece than their counterparts in Germany and France entitling them to special treatment. At least, one German parliamentarian has also asked the logical question, why Germany is not receiving similar collateral.
#15 German Chancellor Angela Merkel is trying to hold the Greek bailout deal together, but a wave of anti-bailout "hysteria" is sweeping Germany, and now according to Ambrose Evans-Pritchard it looks like Merkel may not have enough votes to approve the latest bailout package....
German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel's own coalition plan to vote against the package, including twelve of the 44 members of Bavaria's Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.
#16 Polish finance minister Jacek Rostowski is warning that the status quo in Europe will lead to "collapse". According to Rostowski, if the EU does not choose the path of much deeper economic integration the eurozone simply is not going to survive much longer....
"The choice is: much deeper macroeconomic integration in the eurozone or its collapse. There is no third way."
#17 German voters are against the introduction of "Eurobonds" by about a 5 to 1 margin, so deeper economic integration in Europe does not look real promising at this point.
#18 If something goes wrong with the Greek bailout, Greece is financially doomed. Just consider the following excerpt from a recent article by Puru Saxena....
In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP. In other words, if debt pardoning does not occur, nearly a quarter of Greece’s economic output will be gobbled up by interest repayments!
#19 The global banking system has a total of 2 trillion dollars of exposure to Greek, Irish, Portuguese, Spanish and Italian debt. Considering how much the global banking system is leveraged, this amount of exposure could end up wiping out a lot of major financial institutions.
#20 The head of the IMF, Christine Largarde, recently warned that European banks are in need of "urgent recapitalization".
#21 Once the European crisis unravels, things could move very rapidly downhill. In a recent article, John Mauldin put it this way....
It is only a matter of time until Europe has a true crisis, which will happen faster – BANG! – than any of us can now imagine. Think Lehman on steroids. The U.S. gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the U.S. is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
#22 The U.S. housing market is still a complete and total mess. According to a recently released report, U.S. home prices fell 5.9% in the second quarter compared to a year earlier. That was the biggest decline that we have seen since 2009. But even with lower prices very few people are buying. According to the National Association of Realtors, sales of previously owned homes dropped 3.5 percent during July. That was the third decline in the last four months. Sales of previously owned homes are even lagging behind last year's pathetic pace.
#23 According to John Lohman, the decline in U.S. economic data over the past three months has been absolutely unprecedented.
#24 Morgan Stanley now says that the U.S. and Europe are "hovering dangerously close to a recession" and that there is a good chance we could enter one at some point in the next 6 to 12 months.
#25 Minneapolis Fed President Narayana Kocherlakota says that he is so alarmed about the state of the economy that he may drop his opposition to more monetary easing. Could more quantitative easing by the Federal Reserve soon be on the way?
And the conclusion which is, as usual, spot on:
Things have not looked this bad for global financial markets since 2008. Unless someone rides in on a white horse with trillions of dollars (or euros) of easy credit, it looks like we are headed for a massive credit crunch.
What we witnessed back in 2008 was absolutely horrifying. Very few people want to see a repeat of that. But as things in the U.S. and Europe continue to unravel, it appears increasingly likely that the next wave of the financial crisis could hit us sooner rather than later.
None of the fundamental problems that caused the crisis of 2008 have been fixed. The world financial system is still one gigantic mountain of debt, leverage and risk.
Authorities around the globe will certainly do all they can to keep things stable, but in the end it is inevitable that the house of cards is going to come crashing down.
Let us hope for the best, but let us also prepare for the worst.
Markets take fright at grim eurozone data
1 September, 2011
Debt crisis: live
Rolling coverage of the rollercoaster in financial markets as the eurozone and US come under increasing pressure to deal with high debt level and stave off another recession.
• Goldman Sachs faces fine over 'misconduct' at former unit
• BCC slashes UK growth forecast for third time in nine months
• UK manufacturing falls at fastest rate in more than two years
• Brazil cuts interest rates by 0.5pc
• Euro manufacturing falls to 49 from 49.7, still contracting
• Chinese export orders fell from 50.4 to 48.3 in August
For coverage GO HERE
IMF and Euro Zone Clash Over Estimates
1 Septemmber, 2011
International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt.
The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading.
For article GO HERE
Illinois Loses Most Jobs in Nation Following Tax Hikes
September 1, 2011
Thanks to Illinois governor Pat Quinn and the Illinois legislature Illinois Loses Most Jobs in the Nation
“In a trend that continues to worsen, more Illinoisans found themselves unemployed in the month of July.
Illinois lost more jobs during the month of July than any other state in the nation, according to the most recent Bureau of Labor Statistics report. After losing 7,200 jobs in June, Illinois lost an additional 24,900 non-farm payroll jobs in July. The report also said Illinois’s unemployment rate climbed to 9.5 percent. This marks the third consecutive month of increases in the unemployment rate.
Illinois started to create jobs as the national economy began to recover. But just when Illinois’s economy seemed to be turning around, lawmakers passed record tax increases in January of this year. Since then, Illinois’s employment numbers have done nothing but decline.”
For article GO HERE
Sarkozy: Iranian Nuclear Bid Could Provoke Attack
31 August, 2011
PARIS - France's President Nicolas Sarkozy warned on Aug. 30 that Iran's alleged attempts to build long-range missiles and nuclear weapons could lead unnamed countries to launch a pre-emptive attack.
"Its military nuclear and ballistic ambitions constitute a growing threat that may lead to a preventive attack against Iranian sites that would provoke a major crisis that France wants to avoid at all costs," he said.
Sarkozy did not say which country might launch such a strike, but it has been reported that Israel - perhaps with U.S. support - has considered bombing Iranian nuclear sites if it believes Tehran is close to building a weapon.
The "unnamed" country could only be Israel.
The "unnamed" country could only be Israel.
For article GO HERE
Hurricane Irene’s Toxic Aftermath
Hurricane Irene—the storm that flooded states along the East Coast, dumping 20 inches of rain on communities in Virginia and North Carolina and devastating Vermont—has left more than property damage in its wake. The storm has given rise to increased health problems that are likely to worsen, particularly for residents of water-damaged homes. Asthma and allergy sufferers are already feeling the impacts of the airborne mold spores set aloft by strong winds and carried into homes via open windows, window fans or air conditioning units.
Those spores act as serious triggers, particularly when combined with high pollen and ragweed counts. In an article by Dr. Clifford W. Bassett, medical director of Allergy and Asthma Care of New York, he recommends keeping windows closed, air conditioner and furnace filters clean and setting the air conditioner on “do not recirculate” mode to limit mold spore exposure
For article GO HERE
The Middle Kingdom meets the Middle East
August 31, 2011
China's effort to secure energy resources in the Middle East is going into overdrive as its dependence on the region's oil increases.
But the Chinese are concerned that their efforts to capitalize on waning U.S. power in the region and six months of unremitting political turmoil could be undermined by the hostility between Iran and Saudi Arabia, mortal enemies and two of China's biggest energy suppliers.
Energy is China's main priority because Beijing has to fuel its ever-expanding economy.
For article GO HERE
Expanding Desert, Falling Water Tables, and Toxic Pollutants Are Driving People From Their Homes
As environmental stresses mount, we can expect to see a growing number of environmental refugees.
For article GO HERE
Belarus Hyperinflation Update: Food Runs Out As Friendly Foreigners Take Advantage Of The "Favorable" Exchange Rate Arb
...We learn what happens to an imploding economy which happens to be surrounded by friendly neighbors who just happen to find themselves in a massive arbitrage courtesy of a currency that is losing multiples of its value on a monthly if not daily basis.
Per Bloomberg:
"Belarus’s supermarkets are running out of meat as Russians take advantage of a currency crisis that a devaluation and the world’s highest borrowing costs have failed to stem.
“All meat has gone to Russia,” Alexander Andreyevich, an 82-year-old former tractor-plant worker, said Aug. 25 in Minsk, the capital. “My relatives near the Russian border called me a few days ago and said the shops are empty."..."Private stall owners simply go and buy meat from state- owned vendors and sell it a couple of steps away for a hefty profit,"Deputy Agriculture and Food Minister Vasily Pavlovsky told reporters in Minsk Aug. 24.
The government banned individuals in June from taking basic consumer goods such as home appliances, food and gasoline out of the country. Russians, buoyed by the removal of border checkpoints July 1 as part of a customs union, have circumvented the restrictions."
Funny- if the locals had preserved their purchasing power by holding their money in gold, they would not find themselves in a position where those who still have a stable fiat exchange rate (for the time being) can literally steal products from under their noses for a paltry sum as sellers scramble to converts products into some currency before it is devalued even more tomorrow.
For article GO HERE
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