Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens “Namatized”
by ilene - November 19th, 2010 6:49 am
Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens "Namatized"
Courtesy of Mish
Market participants are giddy today on the great news that Ireland will go deeper in debt in a foolish attempt to bail out the German and UK bondholders who were in turn foolish enough to lend ridiculous amounts of money to Irish banks in various real estate schemes.
The Irish government was of course foolish enough to guarantee all of this foolishness which means that Irish citizens many of whom were sucked into buying property at foolish prices are now on the hook to bail out the bondholders, rubbing salt into the wounds of Irish taxpayers, not all of whom were foolish enough to freely participate in the general foolishness.
Got that?
Here is a short video from the Wall Street Journal that explains why the bailout will not work.
Ireland Nears Bailout
Now let’s consider details of this foolishness in greater detail, starting with Crude Oil Rises From Four-Week Low as Ireland Nears Bailout
Crude oil increased from a four-week low as Ireland moved closer to a European Union-led financial bailout, strengthening the euro and boosting commodities.
Irish Central Bank Governor Patrick Honohan said in an interview with state broadcaster RTE today he expects the country to ask the EU and the International Monetary Fund for “tens of billions” of euros to rescue its banks.
Desirable Outcome
“If these talks were to result in a substantial contingency capital funding” pool that didn’t need to be drawn down, that “would be a very desirable outcome,” Finance Minister Brian Lenihan said in the Irish parliament in Dublin today. He said no agreement has yet been reached.
Fairy Tale Nonsense
Check out that fairy tale silliness from Finance Minister Brian Lenihan, then answer this question: What are the odds that a "substantial contingency capital funding” would not be drawn down?
If you answered zero percent you are a winner, which makes the Irish taxpayer a loser.
Allied Irish Bonds Have Face Value Bid of 45 Percent
Bloomberg reports Allied Irish Bonds Fall on Concern IMF ‘Bad Guy’ to Impose Loss.
Allied Irish Banks Plc’s 12.5 percent subordinated bonds due 2019 were quoted at a bid price of about 45 percent of face value, according to Jefferies International in London, down
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DiggWhat Could Trip Gold Up?
by ilene - November 18th, 2010 5:45 pm
What Could Trip Gold Up?
By David Galland, Managing Editor, The Casey Report
Can you visualize a possible scenario that could put a sudden end to the secular rise now underway in gold and silver?
In a recent conference call with the research team of The Casey Report, we once again collectively tried to imagine what situation… what scheme… what government manipulation… might finally put a stake through the heart of gold.
Setting the stage, I think it’s safe to assume that in order for the gold bull to decisively reverse direction, the following general conditions would have to be precedent in the economy:
- The financial crisis will have to have ended. Which is to say that…
- Unemployment would have to begin falling by significant numbers – with 300,000 jobs or more being added month after month, instead of being lost.
- The housing markets will be stabilizing. Foreclosure rates would have to fall to more normal levels (and not because banks are forced
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Professors Black and Wray Confirm that Bear Pledged the Same Mortgage to Multiple Buyers
by ilene - October 25th, 2010 3:20 pm
Professors Black and Wray Confirm that Bear Pledged the Same Mortgage to Multiple Buyers
Courtesy of Washington’s Blog
I have repeatedly pointed out that mortgages were pledged to multiple buyers at the same time. See this and this.
Today, in another must-read piece, economics professors William Black and L. Randall Wray confirm:
Several banks would go after the same homeowner, each claiming to hold the same mortgage (Bear sold the same mortgage over and over).
As USA Today pointed out in 2008, Bear was one of the big players in this area:
Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July.
***
Bear Stearns was linked to many other financial institutions, through the mortgage-backed securities it sponsored as well as through complex financial agreements called derivatives.
The Fed wasn’t so much concerned that 85-year-old Bear Stearns would go bankrupt, but rather that it would take other companies down with it, causing a financial meltdown.
Alot of toxic mortgages and mortgage related assets ended up on the taxpayer’s tab directly or indirectly.
For example, as Bloomberg noted in April 2009:
Maiden Lane I is a $25.7 billion portfolio of Bear Stearns securities related to commercial and residential mortgages. JPMorgan refused to buy them when it acquired Bear Stearns to avert the firm’s bankruptcy.
The Fed’s losses included writing down the value of commercial-mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said. Properties in California and Florida accounted for 45 percent of outstanding principal of the residential mortgages.
Sometimes It’s Just a Black Duck
by ilene - September 29th, 2010 5:16 pm
So if it looks like a duck, quacks like a duck, and walks like a duck, there’s a good chance it’s not a black swan no matter how much you’d like it to be one. – Ilene
Sometimes It’s Just a Black Duck
Courtesy of Joshua M. Brown, The Reformed Broker
Death Crosses, the Hindenburg Omen, the Black Swan of all Black Swans, the AIDS Doji, the Devil’s Ladder, the Europocalypse, the plagues of pestilence and locusts, the Tony Robbins Alert, the Hitler Harami formation, etc.
Here a Swan, there a Swan, everywhere a Black Swan.
Except 18 months since the bottom of the market and 13 months since the NBER-recognized economic trough, none of these "Prophecies have been fulfilled". Sleeping Beauty hasn’t pricked her finger on the spindle and that cabin in Upstate New York I stocked with guns and SpaghettiO’s lies empty still.
The trouble with the Recency Effect is that everyone all of a sudden thought they were Nassim Taleb, orinthological experts on the spotting of Black Swans. Every blip on the screen or blurb in the newspaper was fresh evidence of the next hundred years’ storm. Forget being fooled by randomness, people have become obsessed with randomness.
But as we’ve learned, not every aberration is a Black Swan in the making. Sometimes, it’s just an ordinary Black Duck. A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.
This is not to say that warning signs of future crises should be dismissed out of hand. In fact, my argument is the opposite; the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.
Iranian nukes and the Straight of Hormuz, Al-Quaeda’s next terrorism attempts, the Pension Fund Time Bomb, the Chinese Real Estate Bubble, the Treasury Bond Bubble, the disappearance of non-program trading volume in the stock market, hyper-inflation, hyper-deflation, the commercial real estate shoe-to-drop, the Municipal Bond Minefield, etc. All ugly problems, but all Black Swans?
Or just Black Ducks that will be unpleasant to deal with but dealt with regardless?
China: Proudly Demolishing Buildings Before Completed In Pursuit Of The Great Housing Bubble Perpetual Engine
by ilene - September 26th, 2010 7:30 pm
China: Proudly Demolishing Buildings Before Completed In Pursuit Of The Glorious Housing Bubble Perpetual Engine
Courtesy of Tyler Durden
Ever wonder how China can endlessly generate goal-seeked GDP of precisely 8.00001% year after year? Or how it can constantly find use for the massive and ever-larger surplus of warehoused commodities? Simple – never stop building. Which, apparently means blowing up empty building before they are even finished and rebuilding them. Rinse. Repeat. After all gotta keep all those construction workers from rioting, and all those USD reserves redirected into Brazilian and OZ commodities, now that China is not really buying US debt anymore. China Hush has some stunning pictures confirming that in its search of the great home bubble perpetual engine, the politbureau comrades may have stumbled onto the bricks and mortar equivalent of Shangri La.
More from China Hush on the "unnatural" death of Chinese buildings.
As one of the most architectural productive country, China aggregates 2 billion m2 of new building area every year, consuming about 40% of the world’s concrete and steel. However, on the flip side of the new building fever, there lie the rubbles and remains of other “older” buildings: people tear down four-star hotels to build five-star ones and bulldoze newly developed construction sites before they are even finished. Lots of young strong buildings are down, fulfilling their unnatural destiny in the roaring noise of blasting. (Source from ifeng.com and people.com.cn)
1. Vienna Wood Community in Hefei City died before born on Dec. 10th, 2005. The community covered about 20,000 m2 construction area with the main structure raised to 58.5 m high. The tens of millions yuan worth building was blasted as a whole when its 16th floor was still under progress. According to local government, the community punctuated the central divide of Hefei City, blocking the scenery between Huangshan Road and Dashushan Mountain. They couldn’t straighten Huangshan Road unless the community was out of the way.
2. The Bund Community in Wuhan, 4 years old, blasted on March 30th, 2002. “I give you the Yangtze River” the slogan of the community captured many people’s hearts, so did its view over the magnificent Yangtze River and Wuhan’s historic spot Yellow Crane Tower. It took only 4 years to build the community that was documented and verified by relative…
The Chances of a Double Dip
by ilene - September 18th, 2010 5:47 am
The Chances of a Double Dip
Courtesy of John Mauldin at Thoughts From The Frontline
I am on a plane (yet again) from Zurich to Mallorca, where I will meet with my European and South American partners, have some fun, and relax before heading to Denmark and London. With the mad rush to finish my book (more on that later) and a hectic schedule this week, I have not had time to write a letter. But never fear, I leave you in the best of hands. Dr. Gary Shilling graciously agreed to condense his September letter, where he looks at the risk of another recession in the US.
I look forward at the beginning of each month to getting Gary’s latest letter. I often print it out and walk away from my desk to spend some quality time reading his thoughts. He is one of my "must-read" analysts. I always learn something quite useful and insightful. I am grateful that he has let me share this with you.
If you are interested in getting his letter, his website is down being redesigned, but you can write for more information at insight@agaryshilling.com. If you want to subscribe (for $275), you can call 888-346-7444. Tell them that you read about it in Thoughts from the Frontline, and you will get an extra one month on your subscription. And now, let turn to Gary.
The Chances of a Double Dip
By Gary Shilling
Investor attitudes have reversed abruptly in recent months. As late as last March, most translated the year-long robust rise in stocks, foreign currencies, commodities and the weakness in Treasury bonds that had commenced a year earlier into robust economic growth – the "V" recovery.
As a result, investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. They also saw the housing sector’s evidence of stabilization giving way to revival, and strong export growth also propelling the economy. Capital spending, led by high tech, was another area of strength, many believed.
Not So Fast
But a funny, or not so funny, thing happened on the way to super-charged, capacity-straining growth. In April, investors began to realize that the eurozone
Fed Z1: From Bad To Getting Worse
by ilene - September 18th, 2010 4:38 am
Fed Z1: From Bad To Getting Worse
Courtesy of Karl Denninger at The Market Ticker
There’s a lot of mind-numbing figures and facts in here, but a few things stick out like a sore thumb.
Let’s first start with the graphs, which I have updated.
Hmmm….. there’s a bit of a hook in there at the back end. Where’s that coming from?
Oh, that’s not so good. Business credit is going up again a bit, and of course The Federal Government is pumping new credit like mad – but is no longer simply trying to compensate for de-leveraging, they’re exceeding that.
This is decidedly negative – in fact, it has the potential to lead to an economic death-spiral if the government doesn’t cut this crap out in time.
Some of the other nasties in here are truly stunning. One of them is the ugly on Households – they lost a net $1.5 trillion in one quarter on their net wealth.
The 900lb Gorilla in the room is found in real estate. While we don’t have current numbers on that and won’t (the update is primarily equities) the ugly on the housing side is breathtaking. From a peak in 2005 of $13.1 trillion in equity in residential real estate, that value has now diminished by approximately half to $6.67 trillion!
Yet outstanding household debt has in fact increased from $11.7 trillion to $13.5 trillion today.
Folks, those who claim that we have "de-levered" are lying.
Not only has the consumer not de-levered but business is actually gearing up – putting the lie to any claim that they have "record cash." Well, yes, but they also have record debt, and instead of decreasing leverage levels they’re adding to them.
In short don’t believe the BS about "de-leveraging has occurred and we’re in good shape." We most certainly have not de-levered, we most certainly are not in good shape, and the Federal borrowing is what, for the time being, has prevented reality from sticking it’s head under the corner of the tent.
This cannot and will not continue on an indefinite basis.
Inflation in China Escalates – Miracle Expansion or Bubble to Burst?
by ilene - September 13th, 2010 1:34 am
Inflation in China Escalates – Miracle Expansion or Bubble to Burst?
Courtesy of Mish
The New York Times reports Inflation in China Is Rising at a Fast Pace
From street markets to corporate offices, consumers and executives alike in China are trying to cope with rising prices. The National Bureau of Statistics announced on Saturday that consumer prices in China were 3.5 percent higher compared with a year earlier, the largest increase in nearly two years.
To make matters worse, inflation over the short term also seems to be accelerating. A seasonally adjusted comparison of August prices to July prices showed that inflation was running at an annualized pace closer to 4.8 percent.
Prices are rising in China for reasons that many Americans or Europeans might envy. The economy is growing, stores are full and banks are lending lots of money, according to other statistics released by the government on Saturday.
Compared with August of last year, industrial production rose 13.9 percent last month, retail sales increased 18.4 percent, bank lending climbed 18.6 percent and fixed-asset investment surged 24 percent.
All four categories rose slightly more than economists had expected, in the latest sign of the Chinese economy’s strength even as recoveries seem to be flagging elsewhere.
But salaries for recent college graduates, at $300 to $500 a month in coastal areas, have actually declined in the last few years, even before adjusting for inflation. A rapid expansion of universities over the last decade has resulted in more young men and women with undergraduate degrees than companies are ready to hire, except at lower pay.
And as in many countries, retirees are among the most vulnerable to inflation. Ms. Lam said her own mother lived on a pension of just $150 a month.
Rising wages are putting pressure on companies to increase their prices. Mr. Dong, the sales manager at the Ningbo Deye Domestic Electrical Appliance Technology Company, said the company had to raise wages by 10 percent a year, while raw material costs were also climbing.
“It is impossible to transfer our cost increases entirely to our customers, because if we do so, they will all run away,” he said. “We are currently doing a study of our assembly line work processes to see where we can achieve greater efficiency.”
But as the powerful growth in fixed-asset investment last month showed, Chinese
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Should You Buy a House Now?
by ilene - September 8th, 2010 10:26 pm
Should You Buy a House Now?
By David Galland, Managing Editor, The Casey Report
Recently, we have had a number of queries about real estate. And no wonder. For starters, real estate prices have come down. Plus, in an environment with next to zero interest rates, the idea of possibly picking up some income-producing property on the cheap holds a certain appeal to some. Then there’s the fact that real estate is very much a “tangible” – and so should hold up reasonably well, should the fiat currency system come undone, as we expect it will before this crisis is over.
The following, from reader and correspondent Ross, considers the issue of home buying from an interesting angle.
My wife and I have been considering buying/building a house for a while now. After long months of searching, we have had to ask ourselves about the "value" of a home. I say this because my parents in 1972 purchased a 2, 000 sq/ft home for $20,000. That was almost exactly what my father made per year at his job at the time of purchase. Is this ratio one to consider as a prudent homebuyer not trying to live beyond his means? I make about $150,000 a year and can’t imagine purchasing a house here in Pittsburgh for that price and being happy with that purchase.
My parents sold their home in 2001 for $180,000, which is obviously 9 times what they paid for it. We are looking at homes in the low 300s to purchase, and I can’t imagine the sales price in 30 years being 9 times that price, which would be $2.7 million! So do you see my line of thinking?
Could hyperinflation cause the price to "appreciate" that same way over time? Is inflation what caused my parents home to return 9 times what they paid for it? The reason I wrote to you regarding this topic is that I thought maybe there was a future missive buried in this line of thinking. Maybe not, but if you have time I would love to hear your thoughts on home purchasing at this time.
In response, I have to point out the obvious, that all real estate markets are local. Simply, unless it’s a mobile home, you can’t pick your home up and move. So, for example, you could offer me a house in…
Paul Farrell Expects No Recovery Until The End Of Obama’s Second Term… IF He Gets Reelected
by ilene - August 31st, 2010 10:33 am
Paul Farrell Expects No Recovery Until The End Of Obama’s Second Term… IF He Gets Reelected
Courtesy of Tyler Durden
Paul Farrell’s take on Jeremy Grantham’s recent essay Seven Lean Years (previously posted on Zero Hedge) is amusing in that his conclusion is that should Obama get reelected, his entire tenure will have been occupied by fixing the problems of a 30 year credit bubble, and if anything end up with the worst rating of all time, as the citizens’ anger is focused on him as the one source of all evil. "Add seven years to the handoff from Bush to Obama in early 2009 and you get no recovery till 2016. Get it? No recovery till the end of Obama’s second term, assuming he’s reelected — a big if." Also, Farrell pisses all over the recent catastrophic Geithner NYT oped essay, which praised the imminent recovery which merely turned out to be the grand entrance into the double dip: "In his recent newsletter, "Seven Lean Years Revisited," Grantham tells us why expecting a summer of recovery was unrealistic, why America must prepare for a long recovery. Grantham details 10 reasons: "The negatives that are likely to hamper the global developed economy." Sorry, but this recovery will take till 2016."
For those who have not had a chance to read the original Grantham writings, here is Farrell’s attempt to convince you that Grantham is spot on:
But should you believe Grantham? Yes. First: Like Joseph, Grantham’s earlier forecasts were dead on. About two years before Wall Street’s 2008 meltdown Grantham saw: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before."
Second: The Motley Fools’ Matt Argersinger went back to the dot-com crash of 2000: Grantham "looked out 10 years and predicted the S&P 500 would underperform cash." Bull’s-eye: The S&P 500 peaked at 11,722; it’s now around 10,000. Factor in inflation: Wall Street’s lost 20% of your retirement since 2000. Yes, Wall Street’s a big loser.
Third: What’s ahead for the seven lean years? Wall Street will keep losing. Argersinger: "Grantham predicts below-average economic growth, anemic corporate-profit margins, and other
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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