Economic News November 30, 2009

Via [Wasserman]
Comment:
I don't really think anything matters anymore. People are just plain numb.

Consumer spending for the holiday season is expected to be down by 1% according to the National Retail Federation, Dubai World debt is defaulting and is abandoned by Dubai's government, and still the market headed up for part of today, anyway.

I encourage you to look at this CNBC slideshow, as I expect you'll be surprised at some of the nation's rankings in the list: The World's Biggest Debtor Nations.

There is more than usual in the "International" category today.

And, one last note is that I read the Chelsea Clinton engagement story thinking it was for my own interest. But, it is very much a finance story, as you will see. Don't miss it.

Now, it's time for a philosophical quote:

Whatever will happen, we can't avoid it. And whatever won't happen, we can't force it. Everything happens because it has to happen. ----Chao-Hsiu Chen

--Kalpa


THE LATEST:

Dubai World is abandoned by government

The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars. Today's comment, from Abdulrahman al-Saleh, the director general of Dubai’s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World’s $60 billion of liabilities. Deloitte, the accountancy firm, has been called in to restructure the giant business...

Business Activity in U.S. Unexpectedly Accelerated

Business activity in the U.S. unexpectedly accelerated in November as orders climbed, signaling the economic recovery will carry through into 2010. The Institute for Supply Management-Chicago Inc. said today its barometer rose to 56.1, the highest level since August 2008, from 54.2 the prior month. Readings above 50 signal expansion. Milwaukee and Texas also showed gains in manufacturing, other reports showed. Rising sales, spurred in part by government incentives, and growing demand from abroad have led to a drawdown in inventories that will boost production and sustain the recovery....

U.S. NEWS:

Fed moves to drain some money out of economy

The Federal Reserve is taking steps to fine-tune a strategy to reel in some of the unprecedented amount of money that's been pumped into the U.S. economy during the financial crisis. The Federal Reserve Bank of New York said Monday that investors and others shouldn't read anything about the timing of when the central bank will need to reverse course and start boosting interest rates and removing other supports to fend off inflation. The upcoming operations will involve so-called reverse repurchase agreements.

That's when the Fed sells securities from its portfolio with an agreement to buy them back later. Reverse repos are one of the tools the Fed can use to drain some of the money it has plowed into the economy to ease financial troubles. The operations will be "extremely small" and won't affect the Fed's key interest rate, officials said. They wouldn't say what the dollar amount for the operations would total....

Marathon joins Treasury program to buy toxic assets

The Treasury Department says an another large investment company has raised sufficient capital to join the government in buying toxic bank assets to help spur more normal lending. Marathon Asset Management, which was founded by Bruce Richards and Louis Hanover in 1998, raised the $500 million minimum to begin operations. With the addition of New York-based Marathon, the selected companies have raised $5.07 billion, which the Treasury Department has matched dollar for dollar, using resources from the $700 billion financial bailout program...

AIG sinks as analyst calls its reserves deficient

Shares of 80%-taxpayer-owned American International Group fell 12% in Monday trading after analysts at Bernstein Research said the company's reserves are deficient and slashed their price target for the stock. "It appears that AIG's loss reserves are significantly deficient again, much sooner that we would have forecast two years ago," the analysts said. The analysts reached their conclusion after a study of industry loss reserves.

The analysts said the data indicate AIG is about $11 billion light on reserves, with the vast majority of the deficiency, about $10 billion, concentrated in three long-tailed casualty lines: workers comp ($1.8 billion), general liability ($5.6 billion) and professional liability ($2.6 billion). "Because this result was so unexpected to us, we conducted numerous independent reasonableness checks on the AIG analysis. In each case, looking at paid/incurred ratios, implied real price adequacy, and empirical loss development factors, it appears at a minimum that AIG's results are worse than its other large peers, and directionally worse than its booked reserves," the report concluded....

Citigroup names Willem Buiter as chief economist

Citigroup Inc on Monday named Willem Buiter as the bank's new chief economist replacing Lewis Alexander, the bank said....Buiter is currently Professor of Political Economy at the London School of Economics and a widely published author on economic affairs in books, professional journals and the press, the bank said in a press release. Since 2005, he has been a consultant with Goldman Sachs advising clients on a global basis, according to Citi. Prior to that, he was chief economist for the European Bank for Reconstruction & Development between 2000 and 2005.

Tail Risk in Sovereign CDS

will the rise of sovereign credit default swaps drive pricing in government bond markets? The Dubai shock has highlighted disconnects between the two markets. The traditional flight-to-safety bid led U.S. Treasurys and U.K. gilts to rally sharply. But the nature of the shock – a reminder that governments have balance-sheet constraints – pushed up the cost of insuring even high-quality sovereigns against default. That suggests a tension is being created that must be resolved at some point....

Companies More Prone to Go 'Vertical'

...Mr. Ellison is among the executives reviving "vertical integration," a 100-year-old strategy in which a company controls materials, manufacturing and distribution...."The pendulum has shifted from disintegration to integration," says Harold Sirkin, global head of the Boston Consulting Group's operations practice. He attributes the change to volatile commodity prices, financial pressures at suppliers and quests for new revenue -- challenges exacerbated by the recession....The moves toward vertical integration are a departure from the past half-century, when companies increasingly specialized, shifting functions like manufacturing and procuring raw materials to others...

INTERNATIONAL NEWS:

Money supply and bank lending fall

Key measures of money supply and bank lending both fell in October, raising further questions about the effectiveness of the Bank of England’s £200bn programme to pump cash into the economy. Money supply as measured by M4 “broad” money excluding distortions from the financial sector fell 0.7 per cent in the month and by 5.3 per cent over the last three months annualised, figures from the Bank showed. Mervyn King, the governor of the Bank, has said that he would like to see the money supply growing at a similar pace to the 6-9 per cent rate it was before the financial crisis....

South African economy emerges from recession

South Africa has emerged from recession after its economy returned to growth between July and September. Africa's biggest economy grew by an annualised, seasonally adjusted rate of 0.9% during the quarter, compared with the previous three months...

India’s Economy Expands 7.9%; Fastest in Six Quarters

India’s economy expanded at the fastest pace in 1 1/2 years as manufacturing jumped, giving the central bank room to withdraw more stimulus measures....

Greece Aims to Sell Bond to Chinese Banks

The Greek government is trying to sell at least EUR25 billion ($16.7 billion) worth of bonds to Chinese banks as part of its efforts to refinance the country's massive public debt, a person familiar with the situation said Friday...

Venezuela closes four banks after Chavez warning

Venezuela on Monday shut down four private banks a day after socialist President Hugo Chavez warned he would not hesitate to nationalize any financial institutions failing to help national development. Anxious staff gathered outside branch offices of the four banks, whose doors stayed shut after Finance Minister Ali Rodriguez called an early-morning news conference to announce their closure due to internal irregularities. The banks account for just 6 percent of the South American nation's deposits, and were taken over by the government on Nov. 20 for violations of solvency regulations and unexplained capital increases. Their owner, a businessman with close ties to the government, is under arrest....

U.K. Bank Loan Write-Offs Hit Record Highs

Write-offs and other revaluations of sterling and foreign-currency loans by U.K. banks and building societies both marked record highs in the third quarter, underscoring the continuing challenges faced by financial institutions and the disincentives to extend more credit...

The Dubai Bubble by the Numbers

...Property Value Decline: Deutsche Bank estimates that Dubai’s property prices, both commercial and residential, have fallen 50% since August 2008, and could fall a further 15%-20% this year. Real estate and construction accounts for about 23% of Dubai’s gross domestic product, or the value of all goods and services produced....

On the Hook: Cross-border banking exposure for the United Arab Emirates as a whole was $123 billion at the end of June. Of that, European banks hold 72%, with the U.S. and Japan holding only 9% and 7% of the exposure, respectively, according to the Bank for International Settlements.

OTHER:

Clinton daughter Chelsea engaged to be married

Chelsea Clinton, the 29-year old daughter of former President Bill Clinton and Secretary of State Hillary Rodham Clinton, has become engaged to her longtime boyfriend, investment banker Marc Mezvinsky....Mezvinsky is a son of former Pennsylvania Rep. Marjorie Margolies-Mezvinsky and former Iowa Rep. Ed Mezvinsky, longtime friends of the Clintons. Ed Mezvinsky was released from federal prison last year after pleading guilty in 2002 to charges of bank and wire fraud...They now live in New York, where Mezvinsky works at Goldman Sachs and Clinton is attending graduate school at Columbia University's School of Public Health...

The best and brightest take a detour

...The influx of students with good test scores and multiple options for higher education is reshaping community colleges, a class of schools that, although open to all, have been stereotyped as a destination of last resort, sweeping up students with the least money and the weakest academic preparation. Enrollment in honors programs at community colleges seems to be growing faster than overall enrollment at the schools, which surged by about 10 percent this year in the Washington region, as students of various age groups and socioeconomic levels sought affordable higher education. "We've sometimes struggled to get sufficient enrollment in the honors seminars. Well, recently, we've been packing them," said Beverly Blois, dean of humanities at the Loudoun campus of Northern Virginia Community College. "More and more of what I call the best and brightest are turning to us."...

OPINION PICKS:

4 Years of Calling the GFC
by Steve Keen

...There are actually two ways to reduce your debt burden–by paying it down yourself, or by letting inflation do it for you. So to gauge the real impact of debt on an economy, you have to consider the after-inflation rate of interest–and when inflation is high, this can actually be negative. Conversely, when deflation strikes, the real rate can be higher–much higher–than the nominal rate. This is why Fisher called his theory “the Debt-Deflation Theory of Great Depression”–because debt on its own was nowhere near as dangerous as deflation. Considering the real debt servicing burden emphasises how much danger we are in now. The two big Depressions of the last one and a half centuries–the 1890s and the 1930s–had substantial deflation–with prices falling at up to 15 percent per annum in the 1890s, and over 10 percent per annum for two years during the Great Depression.

That meant that even a low nominal rate of interest was a huge real rate. Conversely, periods of high inflation in the post-WWII period have meant that even high nominal rates meant low–and in some cases negative–real interest rates (it was cheaper to borrow money now and pay it back later than it was to avoid debt). The effect of inflation drastically transforms the interest payment burden map–and it emphasises the dangers in the low inflation environment we are now in....All of the above points out how dangerous a situation we are in with inflation rates as low as they have been driven by globalisation and by Central Banks that have obsessed about the rate of consumer price inflation and ignored both asset price inflation and the debt levels that have driven it.

In Australia’s case, all it would take is a 6% change in the real interest rate to put us back in the same situation we were in during the 1890s–because debt today is about 65% higher than back then. In America’s case, a much larger jump of 11.5% is required to bring it back to the 1930s situation–but that’s before we take into account the impact of deflation on the debt ratio itself, since deflation actually increases the real debt burden as well as increasing real interest rates. That effect was drastic during the Great Depression: the US’s debt ratio rose from 175% to 235% even as debt fell from $162 billion to $125 billion.

If a similar effect applied this time and deflation drove private debt levels to 400% of GDP, it would only take a 6% rate of deflation to put America in the same position it was in in 1932. I hope this review establishes why the debt to GDP ratio is such an important indicator of financial fragility, and why as a consequence the GFC is far from over. Only one question remains: why do Central Banks ignore the debt to GDP ratio?...

The Jobs Imperative
by Paul Krugman

...So it’s time for an emergency jobs program. How is a jobs program different from a second stimulus? It’s a matter of priorities. The 2009 Obama stimulus bill was focused on restoring economic growth. It was, in effect, based on the belief that if you build G.D.P., the jobs will come. That strategy might have worked if the stimulus had been big enough — but it wasn’t. And as a matter of political reality, it’s hard to see how the administration could pass a second stimulus big enough to make up for the original shortfall....

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Weekend Economic News November 29, 2009

Photo is from the NYT "The Grand Canyon in Winter" slideshow

Comment:
Today, for the sake of beauty, I especially recommend the NYT slide show of the Grand Canyon in winter, linked above. Also, don't miss the "ClimateGate" article from TimesOnlineUK plus the 100 comments it has received, and the Niall Ferguson article, below.

I say that if the taboo subject of overpopulation could be addressed like the climate change subject has been, that would go far to address our environmental problems. In a nutshell, it's the global commerce of squandering natural resources for a "thinking man against nature theme", always. Not dealing with the subject of overpopulation kicks all of mankind's survival problems down the road with a not very happy ending, just as our economic crisis issues keep kicking the can down the road. C'est la vie.

Yes, I know, then we get into the issues of developed nations vs. developing nations. And, the U.S. as a developed nation, has been most guilty of wrong priorities of the other-than-overpopulation environmental issues, in large part because the almighty goal of economic gain always seems to be at odds with such environmental issues. That goal of economic gain gets representation in the form of wrong government policies, including our food, agriculture and transportation systems.

It all comes down to simplifying.

Live a simpler life.

And......Be the change you want to see in the world.----Ghandi

No one person can do it all, but each of us can do some.

--Kalpa

To follow are links in a different format today. I like to keep my regular readers guessing...

Unemployment insurance, despite rapid growth, reaches about only half the jobless (and replaces about half their income), making food stamps the only aid many people can get — the safety net’s safety net.----NYT

More Americans hit the stores during Black Friday and the rest of the holiday-shopping weekend, but they spent less, the National Retail Federation said Sunday. Its survey found that 195 million shoppers visited stores and Web sites, up from 172 million last year, but the average ticket was about $343, down from about $373 a year ago. For the weekend, the total spending figure is estimated at $41.2 billion.----MarketWatch

The United Arab Emirates' Central Bank has moved to calm fears of a bank run when markets and banks open on Monday by announcing a new funding facility for local and international lenders....Dubai and Abu Dhabi are two of the seven emirates that make up the U.A.E. The Central Bank is mainly backed by Abu Dhabi, the only oil-wealthy emirate of the federation.----WSJ

Under the guise of addressing the causes of a global financial crisis, the Obama administration's bill would have regulated credit counseling, educational courses on finance, financial-data processing, money transmission and custodial services, and dozens more small businesses that could not possibly cause a financial crisis. Even Chairmen Frank and Dodd balked at this overreach. Their bills exempt retailers if their financial activity is incidental to their other business. Still, many vestiges of this excess remain in the legislation that is now being pushed toward a vote. The lack of candor about credit default swaps, the effort to blame lack of regulation for the subprime crisis and the excessive reach of the proposed consumer protection agency are all of a piece. The administration seems to be using the specter of another financial crisis to bring more and more of the economy under Washington's control. With the help of large Democratic majorities in Congress, this train has had considerable momentum. But perhaps—with the disclosure about credit default swaps and the AIG crisis—the wheels are finally coming off.----PETER J. WALLISON

Poole says four problems must be solved: First, many firms have too little capital relative to the risks they run. Unfortunately, capital inadequacy is often revealed only after the fact. We need arrangements that force banks to hold more capital than might seem necessary. Second, banks need long-maturity capital that cannot run. Third, we need to rely more on market discipline to deny funds to banks deemed risky. Fourth, when a bank needs to be restructured, the bank, rather than the federal government, should manage the restructuring.

....Poole is basically in Sheila Bair’s camp about forcing creditors to face losses. Bair is a supporter of the Miller-Moore amendment to the financial reform bill, which would give FDIC the power to impose a haircut on secured creditors of a large financial firm that ends up in receivership. That’s a good idea and I hope it’s signed into law. But it’s still a reactive way to shrink big banks. What we need are pro-active solutions that force banks to shrink before they get into deep trouble.----Rolfe Winkler

Iran said on Sunday it was dramatically expanding its nuclear programme, in a move that raises the stakes in the international dispute over the programme and which could further inflame tensions in the Middle East. Tehran’s announcement of plans to build 10 new uranium enrichment plants is likely to exacerbate concerns that it could use its nuclear infrastructure for weapons purposes and comes after Iran was censured at the United Nations nuclear watchdog last week.----FT

if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift. Military experts talk as if the president's decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In reality, his indecision about the deficit could matter much more for the country's long-term national security. Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power.----Niall Ferguson

Several hundred million Chinese peasants have moved from the countryside to the cities over the last 30 years, in one of the largest, most rapid migrations in history. To help make this work, the Chinese government has subsidized its exporters by pegging the renminbi at an unnaturally low rate to the dollar. This has supported relatively high-paying export jobs; additional subsidies have included direct credit allocation and preferential treatment for coastal enterprises. These aren’t the recommended policies you would find in a basic economics text, but it’s hard to argue with success. Most important, it has given many more Chinese a stake in the future of their society. Those same subsidies, however, have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.----NYT

"The strategy now is to survive the next three years, operate as best you can," said Tim Ruffin, senior vice president at Colliers International commercial real estate in Reno. Nowhere does the landscape reflect recession more than in the ranks of the unemployed. From October 2008 to October 2009, Nevada's jobless rate spiked by 70 percent -- from 7.6 percent to 13 percent -- with similar trends in Washoe and surrounding counties. "It's pretty tough. So many people are unemployed who have never been or haven't been in so long, they don't know how to react," said Tom Fitzgerald, CEO of Nevadaworks, a workforce development administrative program in Reno. "Fear is prevalent now."----RGJ.com

Private equity firms buy undervalued or underappreciated companies, impose short-term improvements and sell them for a fast profit. Some of the companies they've bought include Hertz, La Quinta, Dunkin Donuts, and Toys R Us. Josh Kosman, a private equity expert, says that the way the firms have been able to buy these businesses — through leveraged buyouts — means the majority of the money for the buyout has come from loans that the firms dump on the company they're supposedly fixing. Now burdened with debt, many of those companies owned by private equity firms are in danger of defaulting. In a new book, Kosman writes that it's likely half of the 3,188 American companies bought by private equity firms between 2000 and 2008 could collapse. His book is called The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis.----NPR

Consider these statistics:
• The top ten health insurance companies made $8.2755 billion last year and they stand to make more when medical costs go up.
• The average annual premium for employer-sponsored health insurance is $13,375 for family coverage.
• Approximately 45,000 people die each year because they lack health insurance.

This is why we must ignore pressure from the health care lobby, now spending $1.4 million a day spinning its story in Capitol Hill offices (that’s chump change when you consider the top ten health insurance companies saw profits soar 426 percent between 2000 and 2007).----YahooNews

The number of people with diabetes in the United States is expected to double over the next 25 years, a new study predicts.----HealthDay

Mr Obama is in a hard place. Health care hangs over him, and if he is lucky he will lose a close vote in the Senate. The common wisdom that he can't afford to lose is exactly wrong—he can't afford to win with such a poor piece of legislation. He needs to get the issue behind him, vow to fight another day, and move on......The Obama bowing pictures are becoming iconic...because they express a growing political perception, and that is that there is something amateurish about this presidency, something too ad hoc and highly personalized about it, something . . . incompetent, at least in its first year.----Peggy Noonan

A recent poll showed that 41% accept as scientific fact that global warming is taking place and is largely man-made, while 32% believe the link is unproven and 15% said the world is not warming. This weekend many of Jones’s colleagues were standing by him. Tim Lenton, professor of earth system science at UEA, said: “We wouldn’t have anything like the understanding of climate change that we do were it not for the work of Phil Jones and his colleagues. They have spent decades putting together the historical temperature record and it is good work.” The problem is that, after the past week, both sceptics and the public will require even more convincing of that.----TimesOnlineUK

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500 Dollars Down for Fannie Houses

Comment:
There are over 72,000 houses eligible for sale for 500 dollars down through Fannie Mae in a program piloted last August, and announced Nov. 24th, named "First Look" Initiative. In fact, if HUD funds are used for the purchase, the deposit is waived altogether, plus the buyers can renegotiate following an appraisal, and will have 45 days to close, instead of the typical 30 days. Freddie and FHA will most likely be offering similar programs. (Fannie had 72,275 foreclosed single-family homes on its books as of Sept. 30, according to its third quarter results.) FNMA Acquisition Checklist (pdf)

Buyers must intend to live in the homes, or qualify for public housing funds to make the purchase. The purpose of the program is to encourage community stabilization by exclusively giving a potential owner occupant buyer the first fifteen days of the foreclosed home purchasing opportunity. Prior to this program, preference was given to the highest bidder, often a cash paying investor. Such investor owned properties sometimes become rented or owned just for the land value. To find an eligible property, go to www.homepath.com.

Just add this to the growing list of programs until you can no longer keep track of them - the 3% down programs, the 15% off programs, and the Fannie house rental "deed for lease" program. Fannie, with Freddie, own or guarantee nearly 31 million home loans worth about $5.5 trillion, or about half of all U.S. mortgages.

Congratulations, taxpayer. You have sponsored a new program to buy your failed and depreciated investment in your previously sponsored program. And, if this is a preview of Fed exit strategies, they're not looking very inflationary.

--Kalpa



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Net-Zero Energy Housing Community in Boulder

Comment:
A new subdivision in Boulder named "SpringLeaf" will be one of the first in the nation with a goal of being an annual net-zero-energy housing development, combining state-of-the-art green energy efficient building techniques with renewable energy systems.

Builders, architects, and planners involved have had a decade of experience in green building as well as very high end net-zero-energy construction which they will adapt now with a goal of affordability "for the masses".

According to this Daily Camera article, builders believe they can drive the cost down to below $200 a square foot for the other zero-energy homes, five of which will be single-family houses and six of which will be smaller, attached townhouses. They have come to conclude that simpler is better.

Choices in this development include:

• Solar grid-tied (10kw)
  
• oriented for passive solar
  
• Geothermal
• All-electric
• Sustainable building products
• Healthy Interiors
• FSC lumber www.fscus.org/
• Double-glazed low-E windows
• highly insulated walls and roofs
• heat recovery ventilation system
• Floor plans here
• location will encourage you to leave the car at home
• Development has 6 townhouses, 6 single-family houses, central pocket-park area
  
• PV panels on the guest carport and maintenance structure power the landscape irrigation and lighting systems and provide electricity for recharging hybrid cars
• No natural gas, no thermal water
  
• No heating, cooling, or electricity bills, hopefully
  
• George Watt Architecture and Silver Lining builders
  Contact Info
  Would that all of the wasted resources and rescue dollars in the home building industry, which have resulted in millions of now-empty houses across America, had gone towards the prioritization of energy-efficiency. Then those same empty houses would be more useful and desirable to own. I have to blame lax government and community building standards and requirements as part of the cause along with powerful corporate promotion of energy usage in this country. Also, to blame, has been the ad-driven consumerism mass mentality encouraging people to need warehouses for their too-much-stuff instead of planning for future realities.
  
  Too expensive? No. What we just did and wasted doing was too expensive.
  
  --Kalpa
  
  
  
  
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Agricultural Economic News November 27, 2009

Comment:
I have three topics of commentary today.

1) A few ag news highlights today would have to include:

• The Dubai default threat causing a retreat to the dollar with a decline in ag commodities
• Very discouraging articles and outlooks on biofuels prominently in the news this week
• Meat production in the U.S. is down about 3% from a year ago
• Midwest corn and soy harvest advanced this past week with better weather but there are propane shortages and very long truck lines at elevators (corn is 78% complete in Iowa now but other areas are not faring as well)
  
• Reminder that the USDA's projected farm income for 2009 is 35% lower
  

2) My Black Friday thoughts are:

You've no doubt seen the buy nothing day hype by now. Unless you're living in a self-sufficient commune, humanity doesn't function well without some kind of trade or commerce. And the holiday tradition of gift-giving is admirable, it just went the way of excesses. Time to reassess value systems and priorities.

Buy smart. Buy useful. Buy something of quality that lasts. Reward the good producer with your dollar choices. If you have a favorite store, this is your chance to patronize it. Buy local food products. Cook dinner or bake personal food gifts for friends. Buy quality gardening supplies for gifts. Buy something bike-related. I'll bet no one would complain about receiving a silver dollar or two for a gift, either. Buy something that helps conserve energy including down-filled anything. Buy local and made in the U.S.A.

But, if you can't afford to, then buy nothing.

3) This week I had a farmland price update article published on Seeking Alpha based upon Midwestern Federal Reserve Bank 3rd quarter reports. As usual, it received some comments saying ag land prices can only go up, especially since inflation is a guarantee. This was my response:

You obviously both believe inflation is where we're headed. I don't have a crystal ball, and am still worried about getting past working out of this deflation we're in. Our government will take on even more debt before this economic crisis is over. The reality is we have become a much less affluent nation. If farm programs and ethanol subsidies get scaled back, plus higher inevitable property taxes go up on ag land, and perhaps fossil fuel costs go up, you may see the ever squeezed farmer eek out less of a profit. And then, land will go down in value. The fact is there is a lot of overproduction of corn and soy in this country due to farm policy and the time may come that that policy changes. Then what happens to farmland prices? Times are too uncertain right now to make anything a "given". If, on the other hand, we are headed for inflation, right now could indeed, be a good time to buy ag land because interest rates are relatively low.

Have a great week!

--Kalpa


U.S. NEWS:

Commodities hit by dollar strength on Dubai default fear

Commodity markets took a hit on Friday as investors recoiled from risk and piled into dollars, with fear of a Dubai debt default serving as a sharp reminder of the turmoil created by the global financial crisis. Dubai has asked creditors of two of its flagship firms for a standstill on debt running into tens of billions of dollars as part of plans to restructure Dubai World, the conglomerate that spearheaded the emirate's growth.

Oil, gold, base metals and agricultural commodities all felt the backdraft as investors lightened exposure to assets perceived as higher risk on worries about global contagion, lifting the dollar against a basket of currencies....U.S. wheat, corn and soybean futures dropped more than 3 percent before moderating losses.

Wet corn causes propane shortage

Gov. Jim Doyle has declared a state of emergency to help alleviate a shortage of propane. Doug Caruso of the Wisconsin Farmers Union says the demand for the fuel is higher than normal because it’s needed to help dry a high-moisture corn crop. Doyle’s declaration will expand the hours that propane terminals are open during the next two weeks. Caruso says there have been long waits at terminal points where drivers get propane for delivery to drying facilities. The state of emergency also gives temporary relief to federal driving limits for truck drivers who carry propane....

Obama’s revolving door and agri-chemical giants

Candidate Barack Obama liked to assail “the special interests who dominate” Washington’s policymaking process, and the revolving door that corrupts government and enriches the well-connected. The Obamas also talk up farmers markets, the ideas of “slow food” and small agriculture — even planting a vegetable garden on the White House lawn. But the president has governed quite differently in the realm of agriculture, showing a pattern of favoritism towards industrial farming and agri-chemical giants such as Monsanto. And if more evidence was needed that Obama’s anti-­lobbyist, anti-revolving door rhetoric was mostly smoke, the president’s moves in agriculture provide it.

Most recently, Obama showed his agri-chemical colors with his nomination of Isi Siddiqui as the chief agricultural negotiator at the office of the U.S. Trade Representative. If confirmed, this would be Siddiqui’s second spin through the revolving door....In March, Obama tapped Mike Taylor to head his food safety working group, and since then, he appointed him as the top food safety advisor at the Department of Health and Human Services. Taylor has spun through the revolving door four times, including a stint as the top lobbyist for agri-chemical giant Monsanto...

US survey shows southern counties most obese

The first county-by-county survey of obesity reflects past studies that show the rate of obesity is highest in the Southeast and Appalachia. High rates of obesity and diabetes were reported in more than 80 percent of counties in the Appalachian region that includes Kentucky, Tennessee and West Virginia, according to the new research from the U.S. Centers for Disease Control and Prevention. The same problem was seen in about 75 percent of counties in Alabama, Mississippi, Louisiana, Georgia and South Carolina.

...The CDC also released Thursday county-specific data for diabetes — Type 2 is closely tied to obesity. Counties with the lowest rates of both obesity and diabetes were out west — Boulder County, Colo., Santa Fe County, N.M., and Summit County, Utah, were at the top of each list. Just under 13 percent of people in those counties were obese, and only about 4 percent reported diabetes, the CDC found...

Deere’s profit falls after 28 percent drop in sales

Deere and Co. lost $223 million in the fourth quarter, reflecting big charges and a 28 percent slump in sales as demand for tractors, combines and construction equipment sagged amid the global economic downturn. Deere is the biggest U.S. maker of farm equipment, and sluggish economic conditions in the United States and much of the rest of the world continue to drive down demand for its agricultural mainstays. Prices of major crops such as corn and soybeans show no sign of rebounding to anything like the highs of the past couple of years, when many farmers bought new equipment....

Grocers irked over non-organic Silk

Organic-food shoppers are making a rude discovery at their grocers' refrigerated display case. "White Wave Silk Vanilla Soymilk is no longer Organic," declares a hand-lettered sign at the two Sunflower Shoppes in Texas. Silk -- a Boulder-bred product that is now a brand under Dean Foods' Broomfield-based WhiteWave Foods -- has more than 70 percent of the market. Until this month, Sunflower routinely re-ordered it, thinking it was certified organic.

But its maker, Dallas-based Dean Foods, quietly removed the word "organic" from the familiar blue cartons Jan. 15 and switched to cheaper beans -- not genetically modified but likely grown with chemical fertilizer and possibly pesticide -- then called it "all natural" soy milk. Dean did not change the product's identifying bar code or package design, nor did it significantly alter the price -- moves that would have triggered scrutiny by store owners, some of whom now feel duped. A number of other Silk products were similarly changed from organic without a new bar code, Dean confirmed.

...Also, on-organic varieties are considerably cheaper. Soybeans that haven't been genetically modified cost $11 to $12.50 a bushel compared with $19 for organic beans, according to Ken Rose, editor of The Organic & Non-GMO Report. That works out to a savings for Dean of 34 percent to 42 percent.

Soy crazy: The US consumes tons of soy -- and it's not all good

Americans are in love with soy, but not in the soy milk sipping, tofu stir-frying way you might think. Soy is ubiquitous in our food supply. In 2008, 70 percent of the edible oil consumed in the U.S. was soy, according to soystats.com, funded by national and state soy trade associations, Canola lags way behind at 9 percent, and healthful olive oil doesn't even merit its own category. It's presumably lumped in with "other," which makes up 2 percent of the market.

If you haven't noticed bottles of soybean oil next to the canola and olive in the grocery aisle, that's because the stuff is starring in processed foods, salad dressings and margarine, acting under its own name -- soybean oil -- or masquerading with its extended family of soy meal and soy isolates under such names as lecithin, glycine max, hydrolyzed vegetable protein (HVP), mono-diglyceride, monosodium glutamate and tocopherol. The latter is the non trans-fat oil used in some natural baked goods to extend shelf life; soy oil also appears in supplements such as vitamin E and fish oil.

"Soy is so pervasive in our diet," says Robyn O'Brien, Boulder author of the "The Unhealthy Truth: How Our Food Is Making Us Sick and What We Can Do About It." She lists soy's many guises as an additive and shelf stabilizer and makes even a more stunning point -- it's also fed to poultry and livestock. Is soy healthful? So what's the big deal? Soy's good for you, right? Depends on whom you ask and what data you look at. Those seeking to avoid chemicals and genetically modified organisms (GMOs) should also take a look at how soy is grown and processed.

....O'Brien says the United States has taken a different approach to the food supply than have many other developed countries. "Governments around the world (conclude) if we don't have enough tests to know it is safe, we don't want to allow it into our food supply," she says. In the United States, the system is more innocent until proven guilty. "I think in part it's because we've deregulated the food system in a way that really benefits corporate interests and drives profitability," O'Brien says. "I think we've seen what happens in the financial world when the banking industry is deregulated. We've had such an incredible deregulation of the food system, we're starting to see the same toxic assets in the food supply.

Hog-Tied Farmers: As pork producers go under, farms face disaster as income from contracts drops

...After two years of losses, Clinton-based Coharie and three smaller North Carolina pork producers recently declared bankruptcy, causing scores of grain and hog farmers to lose once-stable contracts to raise hogs. Many hog farmers fear that other companies could go under or greatly reduce their contracts, further damaging the hog-dependent Eastern North Carolina economy.

The average cost of raising a hog is now $20 more than the hog is worth at sale, thanks to high grain prices and weak demand, said Don Butler, the president of the National Pork Producers Council, who works for Murphy-Brown, a Warsaw hog and turkey company....North Carolina has the second-largest hog industry in the country. The $2.2 billion in 2008 cash receipts was 22 percent of all cash receipts from farming in the state, according to the state's Agriculture Department. The industry's problems are complicated, with blame attributed to the net effect of high grain prices, less consumer demand for pork and the emergence this April of H1N1, also known as swine flu....

NY apple growers leaving more fruit on trees

...With the best of the crop off to market, growers say this year it's cheaper to leave leftovers on the trees than to pick and sell them for juice....One reason is an abundant crop, not only in New York but in neighboring Pennsylvania and nearby Michigan, which has produced more second-tier fruit than juice and applesauce makers need and driven down market prices. When labor and transportation costs are factored in, selling anything but the cream of the crop for the supermarket can become a losing proposition....The difference in prices is the biggest one-year swing some have ever seen.

Last year, growers hurt by severe hailstorms were getting an above-average 12-18 cents per pound for processing apples, those sold for sauce and slices. The price is about 5-8 cents this year. Juice apples, including drops, brought 7 or 8 cents a pound last year, compared with 3 or 4 cents this year, and there are so many of them that juicers aren't even buying drops, Kirby said...

Americans Toss Out 40 Percent of All Food

U.S. residents are wasting food like never before. While many Americans feast on turkey and all the fixings today, a new study finds food waste per person has shot up 50 percent since 1974. Some 1,400 calories worth of food is discarded per person each day, which adds up to 150 trillion calories a year.

The study finds that about 40 percent of all the food produced in the United States is tossed out. Meanwhile, while some have plenty of food to spare, a recent report by the Department of Agriculture finds the number of U.S. homes lacking "food security," meaning their eating habits were disrupted for lack of money, rose from 4.7 million in 2007 to 6.7 million last year. About 1 billion people worldwide don't have enough to eat, according to the World Food Program....

A Letter to AgWeek:
Farmers have lavish crop subsidies

Taxpayers have a right to know how Congress has lavished the American farmer with federal crop insurance premium subsidies totaling $5.410 billion for the 2009 crop, paying about 60 percent of the farmers’ premiums, while providing huge “administrative margins” and “underwriting gains” of $5.262 billion in crop year 2008 for their insurance company friends and agents. All to reward these titled “crop insurance companies,” which have transferred most of the risk to taxpayers and the financial gains to themselves, while ignoring the fact that farmers have enjoyed record crop prices and could pay their own premiums.

Today’s high crop prices and hidden political governance has driven USDA-insured crop income exposure from $44 billion in 2005 to $90 billion in 2008. Leaving taxpayers with the bill for insuring the 2008 crop at a stunning $9.233 billion, compared to $2.587 billion for the 2005 crop, all in a period of good farm yields and record farm income and farm net worth.

The “farmers premium subsidies” jumped from $2.337 billion in 2005 to insure 246 million acres to $5.696 billion in 2008 to insure 272 million acres. Crop insurance costs now run above $15 billion, which is as high or higher than the present traditional “direct crop subsidy payments” debated for two years in Congress, which both President Bush and President Obama called for cuts!

The House and Senate Ag Committees told taxpayers they had soundly budgeted the farm bill, where $22 billion is documented as the five-year cost of federal crop insurance for the 2008 Farm Act. Which means only $7 billion remains for the next three crops. What will Congress and the administration cut, is the question taxpayers deserve answers on today. All as 47 million Americans have no health insurance, while farmers have super federal insurance coverage for their crops!

BIOFUELS:

Whatever Happened to Those Ethanol Companies?

Sometimes it's nice to revisit your old hangouts and reminisce. Investors in first-generation corn ethanol producers, however, just wish they could revisit their money. The three publicly traded refiners we've been tracking over the past 18 months are moribund. Two—VeraSun Energy Corp. and Aventine Renewable Energy Holdings, Inc.—are bankrupt. The other, Pacific Ethanol, Inc., is solvent in name only; its four operating subsidiaries have all filed Chapter 11 petitions, while the holding company stares at the prospect of standing before the bankruptcy bench itself. So what happened?...

Atlanta biomass, ethanol producer files Chapter 11

Global Energy Holdings Inc. announced Wednesday it has filed for Chapter 11 bankruptcy protection in Delaware to restructure its operations as it moves away from ethanol production to biomass power. The Atlanta-based renewable energy producer said in a regulatory filing that the restructuring effort will allow it to remain in business as it sheds it legacy ethanol business and refocuses on “landfill gas-to-energy projects.” The Associated Press reported the firm estimated $28 million in assets, and liabilities of about $3.7 million....

U.S. Is Unlikely to Use All the Ethanol Congress Ordered

Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible. To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007. But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession. And that decline could well continue, as cars become more efficient under other recent government mandates....E85 does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars.

That means gasoline stations have little incentive to install pumps for E85. The fuel can be found in the Corn Belt but is not readily available elsewhere in the country. Gasoline was selling on average Thursday for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline...

Next-gen biofuels caught in financing Catch 22

In two short years, the hopes for next-generation biofuels have gone from bright to downright gloomy. production won't come close to that modest 100 million-gallon mandate next year, and the 250 million-gallon target for 2011 is a mirage as well. By 2012, when the mandate reaches 500 million gallons, some of the earliest plants may be just coming on line -- if the projects finally get started over the coming year. Developers are struggling to get the capital to start construction. The recession has played a big role in discouraging investors. Federal tax credits have little attraction to investors who have little income to be taxed in the first place.

But industry officials, who gathered in Washington last week for an annual cellulosic biofuels conference, also are pointing the finger at the federal government, complaining that the requirements for federal loan guarantees are impossible to meet. These next-generation biofuels plants will cost at least four to five times as much to build as a conventional corn ethanol plant. Two departments, Energy and Agriculture, offer loan guarantees for advanced biofuels, but neither is doing much business....

INTERNATIONAL NEWS:



Weak Dollar Hits Chile’s Export-Based Economy Hard

The value of the U.S. dollar hovered at 500 Chilean pesos this week, a 30 percent decline over the year that is creating tremendous worries for business leaders in Chile’s export-based economy. Most of Chile’s top export products – copper, forestry products, wine, salmon and fruit - are paid for in dollars because the U.S. has traditionally been the leading destination for the nation’s exports (although China has taken this honor in recent years, at least for mining exports). A weak or low-valued dollar means reduced profits for Chilean export businesses because most overhead is paid in the (now) high-valued peso. So when the value of the U.S. dollar dropped below 490 Chilean pesos on November 18, Chile’s fresh fruit exporters gave a collective cry of alarm...

Wake up call for Mr Pawar

As food inflation for the week touched 16% — the first time since 1998 — on Thursday, the UPA government, particularly food minister Sharad Pawar came under intesense attack in the Lok Sabha. Participating in the debate on spiralling prices, speaker after speaker laid the blame of faulty food management at Mr Pawar’s doorsteps. The issue brought together adversaries like the Left parties, the BJP, the Samajwadi Party, Bahujan Samaj Party and the Rashtriya Lok Dal.

Rajiv Ranjan Singh and Murli Manohar Joshi, who sponsored the motion, alleged that the government was “ignoring the farming community and deliberately not allowing the country to be self-sufficient” in food. Mr Joshi said the model of industrial agriculture and globalised trade on food were responsible for the hunger and indebtedness of farmers. “You are putting at stake our sovereignty by continuously making the country dependent on food import.Wake up, Mr Agriculture Minister. Be courageous and tell your government that your policies are wrong,” he said....

COMMODITIES:

Time to Prick the Ag Commodities Bubble

Crop prices are enjoying a nice run.
% Chg % Chg % Chg
1 Month 3 Month 12 Months
Wheat +13% +27% +1%
Corn -7% +10% +17%
Soybeans +3% -6% +26%

Source: Thomson Reuters

''Just like in any commodity market, there has been a lot of institutional money that's come into the [ag commodities] market,'' says Renatto Barbieri, portfolio manager at Galtere International Fund. ''And it's not focusing on fundamentals.'' The result has been a huge spike in the asset prices of several of these commodities -- although the various commodities themselves haven't moved in lockstep. Corn prices have risen 17% since Thanksgiving 2008, including a more than 10% rise since this year's Labor Day.

Soybeans have bulged nearly 26% since last Thanksgiving. And wheat has jumped 27% since the start of September 2009, having gained a whopping 13% in just the last month. From a fundamental standpoint, Gidel says, the commodities market is seeing its second consecutive bumper crop of wheat. There have been record or near-record harvests of other ag commodities, as well, including both corn and soybeans. At a time when products like wheat ought to be effectively on their knees, they've seen those dramatic price increases.

The culprit, of course, has been the weak dollar. ''The attitude has been that, since the dollar is going to be weak, and there's all kinds of extra dollars pumped into the economy, that'll create an inflation bubble,'' Gidel says...

Soybeans hot commodity

Soybeans are the hot commodity these days in the grain pits, with new recent highs this week putting the spotlight on the soybeans. Corn and wheat are struggling a little more as their export market is not very alive at all. But soybeans – ah, soybeans, – they have an export market that is red-hot right now. Export sales and shipments of 50 mb/week continue to rack up strong export demand for this commodity, with China leading the way buying 50-65% of these exports every week...

GMO's:

The Monopoly Named Monsanto

Monsanto is the largest seed company in the world. It controls 95 percent of the market for Bt and Ht cotton traits. In 2008, Monsanto had shares of up to 65 percent for traited corn and soybeans and about 45 percent for traited corn. During the late 1990s and through the 2000s, Monsanto acquired almost 40 companies “creating the horizontal and vertical integration that underlies the firm’s platforms in cotton, corn, and soybeans,” according to a whitepaper by American Antitrust Institute’s vice president and senior fellow, Diana Moss. Most of the acquisitions were seed companies.

The whitepaper cites a report by the Government Accounting Office (GAO), which noted that Monsanto’s U.S. patents for Roundup Ready soybean seeds give it power over the seed market. It also points out that during the years 2002 to 2009 there were almost 60 patent infringement and antitrust court cases in federal district and appeals court. Almost 55 percent involve Monsanto as the plaintiff, and 20 percent as the defendant. This amounts to three-quarters of all the cases. “The lack of competition and innovation in the marketplace has reduced farmers’ choices and enabled Monsanto to raise prices unencumbered,” said Keith Mudd from the Organization for Competitive Markets, after Monsanto decided to raise some GM maize seed prices by 35 percent.
...

Origin Agritech Doubles as China Approves Corn Seeds

Origin Agritech Ltd., China’s third- biggest seed producer, more than doubled in Nasdaq trading after the company won approval to sell the nation’s first genetically modified corn seed....

OTHER:

'Cull livestock to combat climate change'

A 30% reduction in livestock in high-producing countries is needed to meet climate change targets, says the document. The report calls on health ministers and professionals across the world to recognise the danger that climate change poses to health. A reduction in livestock numbers that led to reduced meat consumption would have positive effects on human health, it states...

Decoding the turkey's genetic gobbledygook

...Virginia Tech scientists announced this week that they have secured funding to complete the genetic map of Meleagris gallopavo, the domesticated turkey. The U.S. Department of Agriculture has awarded a two-year, $908,000 grant to Tech and the University of Minnesota to finish decoding the turkey, one of a few species to be mapped at the genetic level. Turkeys are the fourth-leading source of meat on dinner tables. Cows, chickens and pigs have been genetically catalogued...

After a 5-year effort, researchers have succeeded in mapping hogs' genetic code

An international research team that included Iowa State University professors announced this month that it had completed a five-year program to chart the genetic code of a pig. The map of the estimated 28,000 genes in a pig could enable breeders to better develop pigs that grow faster with less feed, are less prone to disease, have juicier and tastier meat, and even produce less manure. The pig now joins other genetically scoped-out species such as human beings (2001), cows and chickens (2004) and horses (2008)...

Whole Foods Invests in Mobile Slaughterhouses

This Thanksgiving, much attention has been paid to how your bird was raised, but how about the manner in which it was killed? The head meat buyer at Whole Foods, Theo Weening, made public the company’s effort to collaborate with both USDA and state regulatory agencies to develop certifiable mobile slaughterhouses for poultry. Before claiming a victory for the locavore movement, one has to ask, is this good news for family farmers?

First, understand that Whole Foods mobile units are a long way off. To begin with, the company must wade through USDA bureaucracy and has yet to identify an authority to approve a mobile poultry slaughter and processing facility. Whole Foods aims to overcome a barrier – the dearth of slaughterhouses – to a meet customer demand for local food products....

A Chicken Bus and Other Lovely Portents of the Future
by Gene Logsdon

Returning home from a new farmers’ market in Wooster, Ohio last Saturday (Nov. 21), I passed a scene in a farm field that might have said more about where farming is headed than any economist’s prediction I have seen lately. Out in a clover field stood a big yellow school bus full of chickens [not the one shown above]. Actually the chickens were mostly scampering in the pasture or running up and down the ramp that led into the bus. We all know about chicken tractors, but this is the first chicken bus I’ve seen. I didn’t have time to stop and check it out but I presume that when the henhouse needs to be moved to another spot in the field, or wherever, the farmer just drives it. The world’s first self-propelled chicken coop. If the motor is no longer running, one can hitch a tractor to it. Easier than pulling a coop on skids, I’d think...

Previous links:
If you wish to go back and read previous threads of Ag Econ news here are the links to the past 6 weeks.

November 20th

November 13th

November 6th

October 30th

October 23rd

October 16th







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Economic News November 27, 2009

Comment:
Happy Black Friday. I shy away from making predictions because they are a fool's game, but this holiday season shopping could be quite significant to the markets and will provide a window into the minds of the American consumer. Spending results will shed light on spending attitudes, though old habits die hard, judging by the mall I was in recently.

Many people are still out of touch or else in denial with the real state of the economy, debt load, bank balance sheets, and deleveraging which has gone on. Yet, many, many more are unemployed than last holiday season, which could impact the psychology of every spender who has so much as a second cousin who lost a job unexpectedly this past year or lost money selling a home.

In today's W-P, George Will writes of a book that proclaims what a waste of spending holiday shopping is, in "Scroogenomics: Why You Shouldn't Buy Presents for the Holidays", Princeton University Press, by Joel Waldfogel of the University of Pennsylvania's Wharton business school. In 2007, we spent $66 billion on holiday gifts. I say chalk another one up to successful advertising which has converted our mass psychology into obligated latest gizmo gift-givers.

And the stock market looks to be interesting this last day of the week, with the Dubai default threat.

I hope everyone had a great Turkey Day.

--Kalpa

Democrats work on multibillion-dollar jobs package

Troubled by the rising jobless rate, President Obama and the Democratic majority in Congress are assembling a new jobs package that would devote billions of dollars to projects meant to put people back on payrolls in 2010 and keep them working. Discussions over the scale of the bill are fluid, but lawmakers said the intent was to move swiftly and get a bill to Obama's desk as early as January. The renewed push to create jobs is driven by a recognition that the $787-billion stimulus program enacted in February is not a sufficient remedy for an unemployment rate that stands at 10.2%. Nearly 16 million people were unemployed as of October, and 3.49 million jobs have been lost since January, when Obama took office, according to the Bureau of Labor Statistics....

Lending Declines as Bank Jitters Persist

Troubled by the rising jobless rate, President Obama and the Democratic majority in Congress are assembling a new jobs package that would devote billions of dollars to projects meant to put people back on payrolls in 2010 and keep them working. Discussions over the scale of the bill are fluid, but lawmakers said the intent was to move swiftly and get a bill to Obama's desk as early as January.

The renewed push to create jobs is driven by a recognition that the $787-billion stimulus program enacted in February is not a sufficient remedy for an unemployment rate that stands at 10.2%. Nearly 16 million people were unemployed as of October, and 3.49 million jobs have been lost since January, when Obama took office, according to the Bureau of Labor Statistics....

Give us fiscal austerity, but not quite yet
By Martin Wolf

...Most of the change is structural: the levels of GDP and fiscal revenue will not return to the previous path....Among the things that should be done right now is to put prospective entitlement spending – on public sector pensions, for example – on a sustainable path. It is, in short, about putting in place a credible long-term tightening that responds to recovery automatically. Yet we also cannot escape from an “inconvenient truth”. Neither the UK nor the US is quite as wealthy as it once believed. There are losses to be shared, much of which will fall on public spending, taxation, or both. Once it becomes evident that neither of these countries can rise to the challenge, fiscal crises are inevitable. It would only be a question of when.

Durable goods orders fall unexpectedly

Orders for big-ticket factory goods fell unexpectedly in October as the economy struggles to get back to full health. The Commerce Department said Wednesday that orders for costly manufactured goods dropped 0.6 percent last month, following a 2 percent gain in September. It marked the first decline since August. But much of October's weakness came from an 18.4 percent drop in orders for goods related to defense....

No lending, no recovery

In an ominous sign for the recovery, bank loans are drying up faster than ever. Loan balances at commercial banks fell at the fastest clip in at least 25 years in the third quarter, the Federal Deposit Insurance Corp. said Tuesday. Outstanding loans have fallen every quarter since last fall, when the collapse of Lehman Brothers and other big financial firms turned a recession into a full-fledged financial crisis. But the third quarter decline was the sharpest yet, leaving banks' balance sheets 7% smaller than they were at this time a year ago. The falloff in bank lending is fueling worries that a taxpayer-financed economic recovery could run out of gas as borrowers scrounge for credit. The concern is particularly acute for the small businesses that account for much of U.S. job creation...

Housing Bottom? "Not Even Close," Barry Ritholtz Says

...We are "not even close" to a bottom in housing, says Ritholtz, who estimates national house prices remain 15-20% overvalued, based on the traditional metrics of: median income-to-median sales price, the cost of owning vs. renting, and housing stock as a percent of GDP. "Until we start seeing a healthy housing market that can stand on its own, without government props, without distressed properties selling 60% off peak levels - that's how you know the bottom is in," says the blogger and Bailout Nation author....

Idle Youth Raises "Lost Generation" Fear

...Only 44.3 percent of 16- to 24-year-olds - 16.7 million - had jobs in October. That's the lowest percentage since the government began keeping track in 1948. BusinessWeek magazine says "The Lost Generation" may be damaged long term....

Dubai’s Move on Debt Rattles Markets Worldwide

Global financial markets swooned Thursday, with London seeing its most precipitous drop in nearly nine months, a day after Dubai stunned investors with the news that it was asking banks to allow its main investment vehicle, Dubai World, to suspend its debt repayments for six months.

The announcement — the global high finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

Energy Push Spurs Shift in U.S. Science

The Obama administration's push to solve the nation's energy problems, a massive federal program that rivals the Manhattan Project, is spurring a once-in-a-generation shift in U.S. science. The government's multibillion-dollar push into energy research is reinvigorating 17 giant U.S.-funded research facilities, from the Oak Ridge National Laboratory here to the Lawrence Berkeley National Laboratory in California. After many years of flat budgets, these labs are ramping up to develop new electricity sources, trying to build more-efficient cars and addressing climate change....

Boulder County home values see first annual drop in 21 years

Boulder County home prices have depreciated on a year-over-year basis for the first time in more than 21 years, according to the latest data released Tuesday by the Federal Housing Finance Authority. Boulder County's Housing Price Index — a measure of price changes as calculated by the federal agency — saw a 0.56 percent decline in the third quarter of 2009 as compared to the third quarter of last year, according to the agency that oversees the secondary mortgage markets, Freddie Mac, Fannie Mae and the Federal Home Loan Banks.

Boulder County's recent drop was the first such four-quarter percentage change decline since the second quarter of 1988 when the index fell 1.03 percent. The government calculates the Housing Pricing Index. In Boulder and Broomfield counties, 276 single-family homes sold in October, up from 250 from the same month last year, according to a recent report by the Boulder Area Realtor Association. The median sales price of the 36 homes sold in Boulder was $533,500, down from the median sales price in October last year of $573,000 when 56 homes sold in Boulder....

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Dream Business: A Pie Shop

Comment:
From time to time, here, I try to feature articles which I think might be good business models during this difficult economic joblessness time period. Since it is Thanksgiving I'll make this pie shop idea my post for today, as the front page of yesterday's WSJ featured a lovely story about a more-than successful pie business.

Cupcakes are popular now, and I have gathered that more than a few people have jumped on that bankwagon bandwagon. (See this.) When you can't get a job, if you can start your own business without having to borrow too much money you're lucky. A successful idea is the key, next to hard work, dedication, and good organizational skills.

There is a pie shop on a lovely bike trail along the Root River in SE Minnesota, near Lanesboro, which I have been to twice. Each time I've been there I've thought what a perfect model it is - great pies available to tourists during the summer biking season. Bikes actually race to the shop like it's a life or death matter to be first in line. They have around 30 pie choices and no one ever wants their choice to be - horrors - gone. Would that every bike trail in the nation had one.

There. That's it. Steal my dream idea because it's not looking like I'm going to get around to doing it.

So, on to the story in the WSJ: Every Thanksgiving Turns Into a Pie Fight at Mommie Helen's.

COLTON, Calif. -- Last year, on the day before Thanksgiving, customers of Dorothy Pryor Rose's bakery who had been waiting in line for hours to buy her famous pies began shoving and shouting. So for today, Ms. Rose decided she wasn't going to take any chances. She hired a security guard to keep the peace, and set up a barrier system to keep people in line. The line was expected to start forming before dawn and take as long as three hours to get through. Although there is nothing she can do to prevent the occasional customer from scalping her treats in the parking lot -- a $12 pie can go for more than $20 -- she hopes her extra counter help will keep the line moving briskly.

The same sort of foodie rush is happening all over America. In Berkeley, Calif., many people wouldn't consider sitting down to the table without a pie from Fat Apple's. In New York, generations have ordered specialty turkeys from the Florence Meat Market in the West Village. In Washington, D.C., Cannon's Fish Market will likely sell 1,500 to 2,000 oysters today for serving on the half shell....Mommie Helen's expects to move a total of 5,000 pies in the two days leading up to Thanksgiving and on the morning of the day itself.

...Ms. Rose, who expects to take in $600,000 to $700,000 this year, says she regularly declines business because her facilities aren't adequate to accommodate the demand....With more resources, Ms. Rose says she could avoid scenes like the time last year when a man came in and offered her $100 for the last remaining pecan pie, which had been reserved by another customer. She thought it over for a split second before telling him: "Sold, take your pie."

Like I say, make my dream yours. Start out small, baking them in your home. Then, take advantage of the commercial real estate rents which are crashing. Find a good spot and start baking away.

And I still say every bike trail should have one.

--Kalpa






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Farmland Price Update 3rd Quarter '09

Third quarter farmland price survey results have been reported by the Seventh, Ninth, and Tenth Federal Reserve Districts. Price increases were reported in Iowa and Illinois, and irrigated land was up in the Ninth District. Otherwise, average prices trended downward for the quarter.

Seventh District:
The Chicago Federal Reserve's district includes the farm rich states of Illinois, Indiana, Iowa, Michigan, and Wisconsin. Farmland went up on average 2% for the quarter, but was down an average of 4% over the past 12 months.

By state for the quarter:

• Iowa up 4%
• Illinois up 2%
• Michigan up 1%
• Indiana down 1%
• Wisconsin down 1%

For the year:

• Iowa down 7%
• Illinois down 4%
• Wisconsin down 3%

Ninth District:
The Federal Reserve Bank of Minneapolis, for the states of Minnesota, Montana, North and South Dakota, northwestern Wisconsin, and upper Michigan reported:

"Nonirrigated farmland declined 6 percent in value, irrigated farmland prices were up 5 percent and ranchland value dropped by an average of 7 percent."

Over 50% surveyed reported lower income, especially hog and dairy farms, along with decreased spending and loan paybacks. There is concern over the fourth quarter and 2010 being break-even years at best.

Tenth District:
The Kansas City Federal Reserve's report includes the states of Nebraska, Wyoming, Colorado, Kansas, Oklahoma, northern New Mexico and western Missouri.

"For the region, farmland prices declined moderately. Compared with last year's third quarter peak, nonirrigated land values dipped 1.7 percent, irrigated land values were down 3 percent and ranchland values fell 4.2 percent."

This region reported the largest decrease in farmland prices for the quarter since 1987. Wyoming ranch-land prices fell 10% and Nebraska land across all three land categories fell 5%.

Survey results indicated an expected drop in livestock income of 10% and of crop income of 15% from a year ago in this region. Credit conditions were eroding, also.

Observations of Current Conditions:
Although this year's harvest was expected to be a near-record, there are areas of the Midwest that have only 50% of the corn and soy harvested in late November due to abnormal fall weather with high moisture conditions. A combination of low grain commodity prices, the high added costs of drying, and an incomplete harvest to date, make fourth quarter results look challenging. There is a concensus that in the near term farm cash flows will be distressed and rents are trending downwards.

Since the overall amount of land turning over during the third quarter was low, yet prices trended downward in most states, one might expect continued lower prices given a time period of increased land sales in the future, should that occur. While agricultural land is viewed as a safe investment and is being purchased by various investment vehicles, caution should be taken in expecting guaranteed price appreciations, in part due to the overproduction of some commodities in the U.S., and should government fiscal constraints curtail supporting corn ethanol programs which exist now.

Credit Conditions:
Credit conditions are deteriorating some in the way of agricultural loan paybacks. According to the recent USDA Amber Waves report:

...At the end of 2007, 50 percent of farm business debt was held by 15 percent of farmers, compared with 30 percent held by farmers at the end of 1986....The capital structure of U.S. farms has changed over the last two decades. Fewer farms have outstanding debts than in the past, but debt carried is concentrated among fewer and larger farms....If asset values or incomes falter, the burden of these declines will fall on fewer and larger producers and their creditors.

Outlook:
Ranchland has depreciated most in price due to lower livestock prices. There is less demand for recreational land and high priced development and speculative land acquisitions due to the economic conditions. Ethanol plants are experiencing closures and challenging cash flows and have been the recent driver of corn price support. Producers continue to experience decreased returns with steady input costs. Rural agricultural community conditions are stressed, resulting in decreased area retail spending and rural job losses.

Conclusion:
It is very possible that we are still near a peak in farmland prices during this time period of real estate deleveraging. Whether you agree, most likely depends upon your outlook on the deflation vs. inflation question. Macro fiscal constraints required by federal debt burden levels, falling tax revenues, and future social spending requirements may dictate reduced government discretionary spending across all sectors, including agricultural price supports, in a not too distant future. This should be taken into consideration in evaluating how much to spend for agricultural land purchased today.

This article appears on Seeking Alpha here.

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Economic News November 24, 2009

Via Clay Bennett
Comment:
How I met Twitter's CEO
For today's flight of ideas I'll choose the subject of tweeting. Some regular readers may have noticed my new sidebar twitter widget. This was not without resistance from me, as I've said you have to draw the line somewhere and I had planned to resist twitter and facebook. Some women I know spend very little time on the internet. Some just email. Some are into facebook. Obviously, I blog.

Blogging already takes more of my time than any sane person would spend, the biggest problem being that one never knows when to stop reading. And the technical aspects of blogging I have rather enjoyed, and have done with no outside help through trial and error, having never taken any type of computer class in my life. All information is available by googling whatever you need to know, if you are willing to spend some time if you want to blog. The number of blogs is doubling every six months.

Recently, I have enjoyed becoming part of a local media women's group here in Boulder, which includes other blogger women and many book writers, copy editors and the like. They told me I just had to do twitter. C'est la vie. So much for the line I had drawn.

Just a couple of comments about my early (one week's worth) of observations about twitter. I've picked 29 sources and special interests to follow so far. One pick, for example, Michael Pollan, tweets so often that I'm thinking of deleting him from my list as I can't keep up. (I seldom ever go to the link of a tweet.) Also, my town is really big on twittering, and since I'm in a trend setting town, this is a real positive indicator for twitter, and it is a positive for me, as I've wanted to get more of a local and regional following in what I'm doing and twitter is already helping with that.

Lastly, I have a rather interesting story to relate concerning one of the founders of twitter, Evan Williams, who grew up on a farm in Nebraska, not far from where I did. It just so happens that he dated my best friend's niece and we all lived in Lincoln, Nebraska at the same time. I had this friend's niece house sit for us in the later 90's and remember her boyfriend coming with her when I gave her the tour and "to do" list. This HAD to be Evan, since that was this gal's only boyfriend during this time period. I remember telling her that no boyfriends were allowed while house sitting but I have no idea whether she honored my request.

Evan, the farm boy from Nebraska, who I banned from my house, went on to found Blogger, which I use, and more recently, co-founded Twitter and is now its CEO, which I use! The friend's niece was on the "Today Show" this month promoting her new book! How's that for a story of a few lowly farm-children from Nebraska???

--Kalpa

P.S. I will be posting somewhat lightly the remainder of this week.


....Jobs...

Lloyds to cut another 800 jobs

THE LATEST:

Economic rebound not as strong

Economic growth was weaker in the third quarter than originally reported, according to government data released Tuesday. The gross domestic product, the broadest measure of the nation's economic activity, rose at an annual rate of 2.8% in the three months ending in September, according to the Commerce Department's first revision of the reading. The initial reading of the report a month ago came in with a 3.5% growth rate...

U.S. NEWS:

Banks earn $2.8B in 3Q; FDIC insurance fund is in the red

Stabilizing financial markets have not cured the banking industry, the Federal Deposit Insurance Corp. said Tuesday. Banks earned $2.8 billion in the third quarter, but loan balances plummeted and the fund that insures bank deposits was $8.2 billion in the red. Souring loans continued to hurt bank balance sheets, but they were buoyed by higher operating revenue and a revived market for securities, the FDIC said...

Bank watch list climbs to 552

Despite the frenetic pace of bank failures this year, more than 500 banks are still at risk of going under - the highest level in nearly 16 years. The Federal Deposit Insurance Corp. said Tuesday that the number of banks on its so-called problem list climbed to 552 during the the third quarter...

Banks Scramble as Debt Comes Due

Banks have spent the past year dealing with a mountain of bad assets. Now attention is turning to trillions of dollars of debt they have maturing over the next few years. Banks unable to maneuver around the challenge could be forced to refinance their debt at sharply higher costs. The situation was caused by banks engaging in cheap borrowing during the credit-market boom that began in the middle of the decade and lasted through 2007. As financial markets hit crisis mode, banks were propped up by government guarantees that enabled them to keep selling debt -- but with much shorter maturities. About $10 trillion of debt comes due by the end of 2015, including $7 trillion by 2012, according to Moody's Investors Service, which highlighted growing concerns about the banks' looming liabilities in a report this month.

...Rising borrowing costs for banks could spill into the broader economy at a time when consumer and corporate borrowers already are under stress. Banks could pass on the costs in the form of higher interest rates.

One in Four Borrowers Is Underwater

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery. Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif. These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American....(See Interactive Map at the Source)

Home Resales in West Post 10 Percent Annual Gain

Home sales rose 10 percent in the Western region of the country in October, driven largely by first-time homebuyers racing to qualify for a tax credit that had been set to expire at the end of this month, according to two reports released Monday....Nationally, sales rose 21 percent from October last year, without adjusting for seasonal factors, the National Association of Realtors said Monday. The median price fell 7 percent to $173,100. In the West, foreclosures and other financially distressed homes in the lower end of the price spectrum continued to account for many of the transactions in some parts of California, Arizona and Nevada.

...Steepest price drop: The median home sales price in Las Vegas tumbled almost 31 percent from a year ago to $125,000 as homebuyers continued to snap up discounted bank-owned properties....Sharpest price gain: Denver, where the median price posted an annual increase of nearly 10 percent to $201,700.

...Persistent trend: Financially distressed properties fetching multiple offers. Many buyers are facing off against other bidders, particularly for the homes selling below the median price. That's the case in Portland, where sales rose nearly 35 percent from October last year, said Ogden...

Dollar Slump Persisting as Top Analysts See No Bottom

The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away. Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 6.4 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said....

Home prices climb for 2nd straight quarter

Home prices rose for the second consecutive quarter but remained nearly 9% lower than a year earlier, according to a housing market report issued Tuesday. Prices nationwide rose 3.1% in the three months ended Sept. 30, according to the S&P/Case-Shiller Home Price Index, a closely watched gauge of housing market direction. That followed a similar 3.1% rise during the second quarter of the year....

AIG's Rescue Bedevils U.S.

Since becoming a ward of the state, giant insurer American International Group Inc. has had a powerful ally: the U.S. government. In the latest example, some federal officials are pressing the U.S. pay czar to ease up on compensation restrictions at AIG for 2010, arguing that the firm, and ultimately the taxpayer, would suffer if the curbs are too severe, according to people familiar with the matter.

The relationship between AIG and the government is proving to be a political headache for the Obama administration. Earlier this year, the Treasury and the Federal Reserve Bank of New York failed to stop controversial bonuses at the firm. Last fall, in an effort to staunch a cash bleed at AIG, they agreed to fully compensate big banks that bought AIG's insurance on risky assets.

...In March, AIG ignited a political firestorm when it paid $165 million in retention bonuses. Officials at the New York Fed had long been aware of the payments but didn't attempt to stop them, and only alerted Treasury a few days before the money was to go out the door. Mr. Geithner ultimately allowed the payments after concluding the government had no legal standing to block them.

Blacks hit hard by economy's punch

...Joblessness for 16-to-24-year-old black men has reached Great Depression proportions -- 34.5 percent in October, more than three times the rate for the general U.S. population....16-to-24-year-olds face heavier losses, with a 19.1 percent unemployment rate, about nine points higher than the national average for the general population. Their rate of employment in October was 44.9 percent, the lowest level in 61 years of record keeping, according to the Bureau of Labor Statistics...

Freddie Mac trying to minimize exposure from failed lender, regional bank

Freddie Mac, the government-backed mortgage finance giant, said Monday it's trying to minimize losses on more than $1 billion in assets at risk because of the summer collapse of mortgage lender Taylor, Bean & Whitaker and a regional bank with which it did business....Freddie Mac earlier this month posted a $5 billion loss for the third quarter, but said for the second time in a row that it didn't need any more federal aid. Freddie Mac and its rival, Fannie Mae of the District, have received $111 billion in aid since the government seized the firms in 2008...

Billions in stimulus cash for Illinois, but jobs harder to quantify

The first financial report detailing federal stimulus spending for Illinois is in, detailing more than $6.4 billion given to 6,100-plus recipients. The beneficiaries include major research universities and public housing, cities with worn-out roads and unincorporated towns seeking cleaner water...

INTERNATIONAL NEWS:

Strauss-Kahn Says Half of Bank Losses Are Undisclosed

International Monetary Fund Managing Director Dominique Strauss-Kahn said that about half of bank losses from the global financial crisis have yet to be revealed. “It is our view we are still in the situation where a lot of losses haven’t been disclosed,” Strauss-Kahn said during questions at the Confederation of British Industry’s conference in London today. “How much is a difficult assessment, but let’s say something which is close to half of it.”. Banking systems “remain undercapitalized” in many advanced economies with “far from normal” financial conditions, Strauss-Kahn said in a speech to the conference. The IMF said in September that banks may have $1.5 trillion in toxic debt remaining on their books, which may hurt credit markets and stifle the global economic recovery.

“Probably a little more has been disclosed in the U.S. and a little less in Europe, but it’s almost half and half,” Strauss-Kahn said. “So, we still have a long way to go.” The IMF cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion in September, citing improvements in credit markets and initial signs of economic growth. The IMF said then that U.S. banks have recognized about 60 percent of their expected losses, compared with 40 percent in both the euro area and in the U.K....

New fall in business investment fuels worry

Business investment continued to plummet between July and September, official data showed today, heightening concern about the sustainability of Britain's economic recovery. The total of money invested by businesses in their infrastructure dropped by 3 per cent in the third quarter, compared with the previous quarter, but fell by 21.7 per cent on an annual basis....

East Europe Proving Too Good as Debt Erodes 50% Gain

Eastern Europe, where currencies and equities combined to produce total dollar-denominated returns of about 50 percent this year, is showing signs of unraveling as the continent’s favorite investment because of runaway debts. Hungary’s forint is the second-worst performer in the past month of 26 emerging-market currencies, cutting its gain against the dollar since March 10 to 34 percent. Slovakia, Poland, Bulgaria and the Czech Republic are among seven countries showing the steepest increase in credit risk of 21 sovereign credit-default swaps tracked by Bloomberg...

World Economy Still Fragile, Dutch Central Bank Says

The global economy and financial system remain vulnerable and a sustainable recovery is a long way off, the Dutch central bank said. “The situation remains fragile, primarily because the balances and profitability of financial institutions remain under pressure from recession-related losses,” the Amsterdam- based central bank said in its bi-annual financial-stability report published on its Web site today...

OTHER:

Individuals Rushing to Bear-Market Funds From JPMorgan to Pimco

JPMorgan Chase & Co. and Pacific Investment Management Co. are inundated with money from individuals attempting to mimic the performance of hedge funds speculating that the stock-market rally is over. So-called bear-market and long-short mutual funds, designed to protect against falling stock prices, attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc. Asset managers have opened 19 long-short funds, the most in one year.

The funds’ rising popularity shows how skeptical small investors remain even after the Standard & Poor’s 500 Index recouped almost half the 57 percent loss incurred from October 2007 to the March 2009 low. Conventional mutual funds that only buy U.S. stocks posted $4.6 billion of redemptions in the first 10 months of the year, while bond funds added $280 billion. “Companies are capitalizing on the uncertainty in the market,” Nadia Papagiannis, an analyst with Chicago-based Morningstar, said in an interview. “There’s also a mystique that comes with hedge-fund investing.”

The best-seller among the funds is Hussman Strategic Growth, run by economist John Hussman of Ellicott City, Maryland. It drew $1.7 billion through September after limiting its loss last year to 9 percent, according to Morningstar, less than half the average of hedge funds....Pimco Chief Executive Officer Mohamed El-Erian has said the world is in a “new normal” of eroding U.S. dominance and slower economic growth rates. Since his return in January 2008, the firm has opened two funds reflecting those views: Global Multi-Asset Fund and Global Advantage Strategy Bond Fund...

Goodbye jobs, hello mom and dad, say young adults

Faced with limited job options, many young adults are turning to an old standby to weather the recession: moving back in with mom and dad. Nearly 1 in 7 parents with grown children say they had a "boomerang kid" move back home in the past year, according to a study released Tuesday by the Pew Research Center. In a turnabout in the rite of passage in which a college graduate finds a job and an apartment, many are returning to their parents' empty nests because of tight finances or as they pursue an advanced degree....

For the Hotel Industry, Recovery is a Long Way Off

...Hotel operators, who recall past cycles when booming growth came after business downturns “have to get over the idea that things are going to get back to the way they were,” said Lalia Rach, the dean of the hospitality program at the Tisch Center. She sees a number of hurdles once hotels start to recover, including improving person-to-person service, which has slipped as many hotels laid off staff and added extra work for those still on the job.

“They’ve cut so much labor that there is perhaps the question, ‘Do they really still have a customer service attitude?’ ” she said. “Do people still understand they’re in the hospitality industry?” While traveling last week, Ms. Rach said she made it a point to observe airline workers and found them dispirited, reflecting the deteriorating condition of the airline business. “Going through O’Hare, I was struck by the realization that the airlines just didn’t care, and the workers share that attitude. There used to be a smidgen of concern for customer service, but not any more. And that’s a concern I have for the hotel industry.”

...Bjorn Hanson, a clinical associate professor at the Tisch Center, said that average domestic hotel occupancy this year would be about 55 percent. Average national occupancy has dipped below 60 percent only twice before since the 1920s, he said, during the Great Depression, and in the aftermath of the 2001 terrorist attacks....For luxury hotels, the numbers are far worse...

TODAY's OPINION PICKS:

Latest Facts About The State Of The Housing Market
by Henry Blodget

From a current overview of the housing market by Ruth Simon and James Hagerty of the WSJ (linked above):

• 23% of U.S. homeowners with mortgages are underwater (importantly this is NOT 23% of homes). This is 10.7 million houses.
• 5.3 million U.S. households are at least 20% underwater, the First American report said. More than 520,000 of these (20%) have gotten notices of default
• Most U.S. homeowners still have some equity
• Nearly 24 million owner-occupied homes don't have any mortgage
• About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007
• The latest First American data aren't comparable to previous estimates because the company revised its methodology. Using the old methodology, the portion of underwater borrowers would have increased to 33.8%.
• * Homeowners in Nevada, Arizona, Florida and California are more deeply under water. In Nevada, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth.
• More than 40% of borrowers who took out a mortgage in 2006 are under water.
• * 11% of borrowers who took out mortgages in 2009 are underwater
• * 3.57 million houses were listed for sale nationwide at the end of October, down 3.7% from a September
• About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September
• 30% of underwater borrowers owe 110% or less of their home's value

Goldman's secret moral pathology
by Paul Farrell

In "The Battle for the Soul of Capitalism" Jack Bogle no longer sees Adam Smith's "invisible hand" driving "capitalism in a healthy, positive direction."
Today, his "Happy Conspiracy" of Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious "pathological mutation of capitalism" driven by the new "invisible hands" of this new "mutant capitalism," serving their selfish agenda in a war to totally control America's democracy and capitalism... Today we'll paraphrase news reports about 15 symptoms spreading "soul sickness" beyond the boundaries of this Goldman case study: These are the 15 signs of a moral pathology undermining not just banking but American democracy and capitalism.

1. Gross denial of any moral damage caused by their rampant greed
2. Narcissistic egomaniacs with secret 'God complexes'
3. Paranoid obsessives about secrecy, guilt and non-disclosure
4. Power-hungry need to control government using Trojan Horses
5. Borderline personalities who regularly ignore conflicts of interest
6. Pathological liars incapable of honesty even with own investors
7. Sole fiduciary duty to insiders, not investors, never the public
8. Moral issues are PR glitches, violations of 'don't get caught' rule
9. Charitable donations are tax and PR opportunities, not moral issues
10. When exposed in a massive fraud, feign humility, fake an apology
11. When bankruptcy threatens, bribe friends in 'Happy Conspiracy'
12. Engage co-conspirators to cover up, distract, do your dirty work
13. As money-hungry vultures they will prey on vulnerable Americans
14. Treat everyone not in the 'Happy Conspiracy' with tough love
15. Addicts consumed by money: 'Jesus would throw them out ...'

...Warning: Washington, Main Street, none of us has "clean hands." We're all in bed with the "Happy Conspiracy," touched by greed, turning a blind eye to Wall Street's rapidly metastasizing moral and spiritual pathology: So ask yourself, do you believe America's widespread "lack of a moral compass" will eventually trigger another, bigger market and economic meltdown, pushing America into the next "Great Depression II?"

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Review: "The Nature of Cities Documentary"

Comment:
Film Trailer HERE
This evening I saw a film screening of the one hour documentary, "The Nature of Cities," produced by Chuck Davis, a Boulder filmmaker and M.D., who started film production company Throughline Productions. The film aims at how to try to integrate nature into cities, using the U.S. and European examples from Copenhagen, Amsterdam, Paris, Austin, and San Diego. The GWL terrain car free urban eco area of Amersterdam was one example.

Living around natural surroundings also means not having to drive to find nature. The film had an emphasis upon a lesser role of car use in communities and housing, a larger role of bicycle use (filmed 70 mile bike corridor in Copenhagen), more urban gardens, and certainly more use of green plant life in the urban setting, both on rooftops and sides of buildings.

The film features Tim Beatley, University of Virginia professor of urban design with a goal beyond sustainability on to "biophilic," love of life or living systems, attached to nature, and making the quality of life better for human living. Dr. Stephen Kellert, a Yale forestry professor, is also in the film. Since Davis makes films on spirituality, as well, this was an underlying reason for his desire of integrating more green spaces into cities - an innate human spiritual need and overall improved mental health when around nature. The film contained a number of quotes, including some by James Howard Kunstler and Henry David Thoreau.

Since the filmmaker lives here in Boulder, it was rather surprising that he didn't use our city in the film. City planners from all over the world come here to study how we've achieved the extensive trail system and other smart design concepts throughout. Perhaps no other city in the U.S. has as much green belt in and around it.

Chuck Davis has an MFA film degree from the University of Southern California and Throughline productions, which produces films about sociological and spiritual aspects of society, has also produced the films: "Rising the Sparks", "Seasons of the Soul", and "Transforming Energy", a film which is used in schools to help teach about the end of the age of oil.

--Kalpa




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Economic News November 23, 2009

Via [Chip Bok]
Comment:
I so saw that coming. Bullard is advocating that the Fed delay its exit of the mbs (mortgage backed security) buying program which had been scheduled to end in March. So many, such as Meredith Whitney, have been distraught about what will happen when the Fed exits the program. Not to worry. They won't. If and when they do we'll either be in such trouble that it won't matter or we'll officially be on a road to recovery. And, if they did quit it, they could restart it on a dime. In a report done by Calculated Risk this past weekend, he calculates that the program is only reducing home mortgage rates by a half percent or less. I might add that, more significantly, the effects of the program include quantitative easing, as well as propping up house prices.

If you want some real insights into what is and will be happening in our economy, go to the source of the Bullard WSJ article and read each sentence carefully. This, I thought was a key sentence from his statements, The Fed would have “a hard time” raising rates in the face of worsening unemployment. But, “if inflation expectations start to get out of control, that could trump the unemployment rate,” he said. One principle is to not raise rates until several months following an uptick in unemployment. And how do you even measure unemployment upticks when the government gets involved in stimulus and expected jobs creation programs? That's not a problem now, but could be in the future. (I am also including Calculated Risk's overview of the statements over in the Opinion Pick thread.)

Chicago Fed's Evans, today, warns of deflation, as always, avoiding actual use of the word...Mr. Evans said that even once it starts moving down, the high level of unemployment suggests the economy will be burdened with a large amount of slack for many months, which will continue to subdue inflation.

The big story of today is again, the falling dollar. This, in part, was related to Bullard's comments discussed above. And relative to the rising price of gold and a falling dollar, the stock market is not really up and continues to rally on low volume. The dollar fell below the critical USDX 75 level, making markets, oil, and gold go up. The Fed can and will do whatever they want whenever they want. The value of the dollar? That's another story.

On another subject, that of health care, the most popular article circulating this weekend out of the WSJ was concerning the growing number of Americans (six million next year) seeking more affordable health care elsewhere. In this case Indians are setting up a heart surgery facility on the Cayman Islands. In spite of all of its problems, health care in America is one of the largest job providers and growth industries. Outsourcing due to uncurtailed expenses here would seem to be a natural sequence of events. This, in my opinion, is an important developing trend. People have been leaving the country for orthopedic surgeries for a number of years, already. Unfortunately, our useless congress is not addressing cost curtailment of health care in their so called health reform. The related article and video are below, under the OTHER category.

One final comment, as I read about the Japan airline pension article, below, proposing a 40% cut in payouts, I regret that there is so much denial going on in this country concerning a vision of future sameness. Our future has become forever changed because of this crisis. In my own town, the news this weekend was that our teacher's union refused, once again, an upwardly revised contract. They don't seem to realize the meaning of deflation and its reality in 2009. I still blame all of the spewed green shoot hype brainwashing for this unawareness of JQP.

These next two days will bring a lot of economic data reporting. Stay tuned...

--Kalpa


THE LATEST:

U.S. home sales at 2-1/2 year high

...The National Association of Realtors said on Monday sales of existing home sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units as buyers rushed to take advantage of a popular tax credit for first-time buyers that had been scheduled to end this month....

Falling Chicago Fed index bodes ill for U.S. recovery

The Federal Reserve Bank of Chicago said on Monday its gauge of the national economy fell further into negative territory in October, in a report that suggested the economic recovery could be in trouble...The Chicago Fed's report also said the amount of economic slack reflected in the three-month moving average "indicates low inflationary pressure from economic activity over the coming year."...
The 85 economic indicators that comprise the Chicago Fed's index are drawn from four categories: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories...

U.S. gold hits record $1,174/oz as dollar slides

U.S. gold futures hit record highs above $1,170 an ounce on Monday, gaining more than 2 percent, as the dollar weakened broadly on expectations that
U.S. interest rates would stay low for some time...

U.S. NEWS:

State tax revenues hard-hit by recession

State tax collections nationwide plummeted in the third quarter, and the forecast for the remainder of the year looks grim, a report released Monday shows. Tax revenue in 44 states fell by about 11% in the third quarter, compared to last year, according to the Nelson A. Rockefeller Institute of Government. State tax collections totaled $119.7 billion in the third quarter, compared to $134 billion from the same 44 states in the year-ago period, the institute said...


Source: Rockefeller Institute of Government

Fed’s Bullard: Asset Buying Efforts Should Remain Active

Federal Reserve Bank of St. Louis President James Bullard wants the Federal Reserve to continue to buy mortgage-backed securities beyond the current end-March 2010 cut-off date to give policy makers more flexibility as they seek to shepherd the economy toward recovery.

“I have advocated to keep the asset purchase program open but at a very low level, and wait and see what happens, and as information comes in about the economy we can adjust that program while the federal funds rate remains at zero,” Bullard told Dow Jones Newswires in an interview Sunday ahead of a conference in New York. He added “no decision has been made” about the program’s fate...

Wave of Debt Payments Facing U.S. Government

The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed...

Banks' Balancing Act

Despite all the efforts to make banks safer, one side of their balance sheets actually has gotten more dangerous. Financial firms always need to avoid becoming overreliant on shorter-term borrowings to fund loans. Such dependence can cause havoc when interest rates rise sharply or credit markets freeze up.

Yet Moody's Investors Service research shows that the average maturity of U.S. banks' wholesale debt has fallen to 3.8 years, from 5.8 years in 2006 and 7.8 years in 2002. These banks face $2 trillion of wholesale debt maturities through 2015, but about three-quarters of this amount comes due by the end of 2012. Regulators have stress-tested assets, but little has been done to reduce risks in bank liabilities, says Mike Mayo of Calyon Securities....

NYC food emergencies up nearly 21 percent

The number of people seeking emergency food assistance in New York City is up 20.9 percent over last year, but agencies were better able to meet that demand despite the shaky economy, according to a report released Monday by the New York City Coalition Against Hunger...

New York to Sell Bonds as $3.2 Billion Deficit Threatens Credit

New York seeks bank bids today for $351.3 million of bonds after Moody’s Investors Service said the state’s credit rating may fall if spending cuts aren’t part of plans to close a $3.2 billion budget deficit...

G.M. Is Taking Taxpayers for a Ride

General Motors raised more than a few eyebrows last week by announcing plans to repay what it describes as $6.7 billion in outstanding loans to taxpayers. So provocative was this announcement that it all but overshadowed the real news of the day: G.M. had lost $1.2 billion since exiting bankruptcy in July, and its fourth-quarter results were expected to be worse...

INTERNATIONAL NEWS:

JAL seeks 40 percent pension payout cut for survival

Japan Airlines Corp asked retirees and employees on Monday to accept an average 40 percent cut to their pension payouts and warned the struggling airline could face bankruptcy if an agreement could not be reached...

Institutional Investors Reject Quant Strategies

European institutional investors have turned their backs on quantitative strategies since the financial crisis, and most of the largest investors in the region favor a more qualitative approach, according to research published Monday. More than a third of European institutions said their interest in quantitative strategies had cooled since a year ago, in response to the latest annual European Equity Survey conducted by J.P. Morgan Asset Management....

As Recovery Spreads, Greece Is Bypassed

...The Greek economy started to slow down later than many of its peers, and it appears to be stuck in recession for longer. It was still contracting during the third quarter, putting it alongside the laggards of the region, like Spain....

Europe Manufacturing, Services Expansion Accelerates

Europe’s services and manufacturing industries expanded at the fastest pace in two years in November after a reviving global economy helped the euro region emerge from the worst recession in more than 60 years...

China Asks Its Banks to Slow Down

Chinese banking regulators are putting pressure on the country’s banks to raise more capital and temper their rapid growth in lending, in the clearest signs yet of official concern about the sustainability of the nation’s credit boom, senior Chinese bankers said Monday...

OTHER:

The Henry Ford of Heart Surgery

Hair tucked into a surgical cap, eyes hidden behind thick-framed magnifying glasses, Devi Shetty leans over the sawed open chest of an 11-year-old boy, using bright blue thread to sew an artificial aorta onto his stopped heart. As Dr. Shetty pulls the thread tight with scissors, an assistant reads aloud a proposed agreement for him to build a new hospital in the Cayman Islands that would primarily serve Americans in search of lower-cost medical care. The agreement is inked a few days later, pending approval of the Cayman parliament....

Unburied bodies tell the tale of Detroit — a city in despair

The abandoned corpses, in white body bags with number tags tied to each toe, lie one above the other on steel racks inside a giant freezer in Detroit’s central mortuary, like discarded shoes in the back of a wardrobe. Some have lain here for years, but in recent months the number of unclaimed bodies has reached a record high. For in this city that once symbolised the American Dream many cannot even afford to bury their dead....

Cycling: Bikes win back some city streets

On September 20, London’s transport authorities turned some city streets over to bicycles, providing a striking illustration of the range of means to convert pedalling into motion. Some participants in the event, similar to car-free festivals held in many cities worldwide, were reclining; others used suspension bikes that could have surmounted rocks; some were on pared-down machines with only a frame, handlebars, wheels, pedals and a chain.

The range of bike technology on offer has been a significant factor, many believe, in reviving cycling in many large cities – including New York, Amsterdam and Copenhagen, as well as London – even as it declines elsewhere in the developed world. Cyclists now have a dazzling choice of ways of controlling their machines, connecting themselves to the pedals and frame materials. There are bikes that hardly ever suffer punctures, whose brakes stop them quickly and safely and whose gears change easily and predictably....

Electric cars: Line-up is on the starting grid

A prototype of Renault’s first electric vehicle – the leading edge, it claims, of zero-emission driving – arrived in Britain in October in decidedly unprepossessing form. The French manufacturer is planning to launch four battery-powered vehicles by 2012, including a saloon car, a compact hatchback, and a quirky two-seater. For its UK electric premiere held in the grounds of the swanky Luton Hoo Hotel, north of London, however, Renault rolled out an electric version of the unsexiest of the four: its Kangoo van...

Bank crisis shows need to expect the very worst

Watson Wyatt said in its study, "Extreme Risks," that investors should prepare for everything from currency and banking crises to trade protectionism and even the end of capitalism.

...Its 15 extreme risks were ranked in order as of mid-year. They were economic depression, hyperinflation, excessive leverage, a currency crisis, a banking crisis, sovereign default, climate change, political crisis, insurance crisis, protectionism, disunity in Europe, the end of capitalism, the end of fiat money, war and a killer pandemic. Of its top risk, economic depression, the firm said that while the immediate threat appeared to have been reduced by government action, there was now little governments could do if demand dropped again....

Madoff Trustee Seeks $22 Million for 5 Months’ Work

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Economic Opinion Picks November 23, 2009

Comment:
I've chosen six articles and blog picks of great variety today.

1) This is a good read by Gary North, from source Market Oracle, on Government debt default, the subject of Rogoff and Reinhart's book which I keep covering here. If you have the time, please read the whole article as he covers his view of inflation and the role of a central bank in a fractional reserve economy.

2) Mike, from Calculated Risk, has this brief analysis of Bullard's recent statements which were discussed on my news thread commentary today.

3) Robin Shulman, for the W-P, writes about the renters who suffer from the speculative repercussions of the CRE loan crisis.

4) This is a very interesting graph from MJ Perry's blog on world GDP changes. Look at what is happening!

5) Barry Ritholz, The Big Picture, just returned from Berlin, and these are his musings from the European's impressions of us. Very good and concise, which is what I like about Barry's writing.

6) Henry CK Liu, of FT, writes this about why the low dollar interest rates won't help our fiscal position until we regulate cross border dollar flow speculation.


--Kalpa


Government Debt Default, How (Not If) Will it Happen
by Gary North

[...]
HERE DOES IT ALL END?

If kick the can continues, fiat money will depreciate. People will take on new debt on the assumption that inflation will let them repay their debts with money of reduced purchasing power. When recession hits, they demand government action. This means more inflation.

Mises argued that when people catch on to the game, they will take evasive action. They will make plans in terms of rising prices. Other economists have agreed. But this led Mises to argue that the economic contraction would come if the supply of money were not increased at an ever-higher rate and unexpected rate. Inflation would become hyperinflation. He saw this take place in Austria a decade after The Theory of Money and Credit was published.

He was once asked if he had a hedge against inflation. He replied: "Age." There must be a default at some point. The question is: "Which kind?" If the central bank ceases to inflate, a recession begins. If the government or the central bank refuses to intervene, many banks go under. This shrinks the money supply. The recession becomes a depression. Bankruptcies and unemployment increase.

Tax revenues fall. The government cannot pay its debt and also meet all of its promises. It must choose:

1. Default on all of the debt
2. Default on part of the debt
3. Tell the central bank to inflate
4. Raise taxes and cut expenditures

Choice #3 starts the process over. The ultimate result: the destruction of the currency. This is default through inflation. It is nonetheless a default.

CONCLUSION

Decide which way of default is most likely. Then decide when. Then plan accordingly. Or you can do what the policy-makers do. Kick the can. Most people do. But then, one day, there is a day of reckoning. However, until then. . . ."We'll have fun, fun, fun till the market takes our T-bills away."

Fed's Bullard Backs Extension of MBS Purchases
by Calculated Risk

[...]
Here are a few excerpts:

KEY PROBLEM: TOO BIG TO FAIL

• The crisis showed that large financial institutions worldwide were “too big to fail.” (TBTF)
• Really, “too big to fail quickly.”
• If we let large financial firms fail suddenly, global panic ensues.
• Again, these firms are not necessarily banks.
• Reform efforts must focus on getting this intolerable situation under control.
• TBTF is very costly to the macroeconomy as well as unfair.
• We need laser-like focus on this problem.

ACTUAL PROPOSALS

• Proposals addressing TBTF:
• Systemic risk regulation: A council with the Fed having implementation responsibility.
• A resolution regime for large financial firms.
• Split up large firms.
• There are important global coordination issues.
• Difficulties in design suggests a “go slow” approach.
• The crisis will not soon be forgotten.

Renters becoming latest victims as foreclosure crisis widens
By Robin Shulman

A new wave of foreclosures stands to hurt people who may have never taken out a mortgage: renters. In cities such as New York, Chicago and Los Angeles, where many investors are carrying upside-down mortgages on large rental buildings, some tenants are watching their homes fall apart along with the financing.

Janeia Sandiford, a 24-year-old GED student in New York, has two young children and a deteriorating apartment. When a leak over Sandiford's bathroom and kitchen caused the ceiling to flake off and then cave in, nobody came to fix it for a year, she said. She lacked heat most of last winter, and she has duct-taped her loose-fitting windows in place to cut down on drafts....

GOOD GRAPH:
Share of World GDP 1969-2009


Back in the USSA
by Barry Ritholz

Ahhh, its good to be back in the USSA (United States Socialists of America), where profits are private but all the risks are socialized! I am settling back into my routine, but a few final thoughts from Berlin (my overview from the trip is here). The general impression I got in Europe was that the USA is a confusing and bizarre place. From afar, the various debates in the USSA — there’s trillions of dollars for banks, but no re-regulation; the more aggressive battle is over nationalized Health Care — are both perplexing and somewhat laughable to the Europeans.

The US remains a source of great interest. Popular culture, from music to TV to films is enormously influenced by what is generated in America. Obama is wildly popular over here — much more so than in the US. They seem to appreciate a US President who engages in diplomacy and interacts with various leaders. In case you were unaware, George W. Bush was not particularly liked worldwide.

There is sort of an interesting perspective, kinda “Hmmm, let’s see what sort of whacky trouble those Americans will get into next” attitude. On the one hand, the USA is still the wild west, a fast growing, grand experiment in economic freedoms. On that front, it is a shining example to the rest of the world. But it was allowed to go off the rails, with seemingly little repercussions to the various CEOs, politicos and bankers responsible. That is totally mystifying to people over there.

In European’s eyes, the US populace seems terribly uninformed about most political matters — and vote accordingly. Europeans seem to be able to debate an issue without the vitriol and rancor that accompanies the rabid partisanship in the US. (One German $1+ Billion dollar fund manager privately remarked that Rupert Murdoch would be prosecuted in much of Europe). The two party system of the US is thought to be utterly corrupt, and is a joke in Parliamentary countries. Europeans recognize the United States as a “Corporatocracy” — government for and by Corporations.

The Economy here isn’t all that bad, and people remain somewhat optimistic. Back to the usual banter a bit later . . .

US should regulate cross-border cash
By Henry CK Liu

In this season of debate on regulatory reform, an obvious area that has been crying out for reform seems to have been overlooked by government officials and market participants. Much of past and current global financial crises lies in the unrestricted cross-border flow of speculative funds and the ability of market participants to deploy cross-border speculative financial and regulatory arbitrage for risky profit at the expense of central banks and local market fundamentals.

The reason low dollar interest rates do not help the United States economy is because hot money will respond by flowing into China and other high interest rate economies to profit from carry trade and exchange rate arbitrage, leaving the US with a persistent credit crunch. The only way a low Fed funds rate will help the US economy is if the US regulates the cross-border flow of speculative funds, thus forcing the bailout and stimulus money to stay within US borders to create jobs locally. It is a simple measure that could be easily implemented by administrative order.

....Exchange rate considerations were not expected to dictate domestic monetary and fiscal policies, the chief function of which was to support domestic development and were regarded as the inviolable province of national sovereignty. Global financial crises will continue to occur until cross-border flows of speculative funds are regulated.

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Weekend Economic News November 22, 2009

source

Here are some interesting news items from these past few days....


....Jobs...

California gains jobs, but unemployment still rises to 12.5%
Colo. jobless rate dips to 6.9 percent in October
Fla. jobless rate climbs to 11.2 percent in Oct.
Unemployment rates rise in 29 states

THE LATEST:

Historic health care bill clears Senate hurdle

Invoking the memory of Edward M. Kennedy, Democrats united Saturday night to push historic health care legislation past a key Senate hurdle over the opposition of Republicans eager to inflict a punishing defeat on President Barack Obama. There was not a vote to spare. The 60-39 vote cleared the way for a bruising, full-scale debate beginning after Thanksgiving on the legislation, which is designed to extend coverage to roughly 31 million who lack it, crack down on insurance company practices that deny or dilute benefits and curtail the growth of spending on medical care nationally....

U.S. NEWS:

Small Florida bank fails, brings year tally to 124

The tally of U.S. bank failures reached 124 so far this year as regulators seized a small Florida bank on Friday. The Federal Deposit Insurance Corp said Commerce Bank of Southwest Florida, based in Fort Myers, Florida, was closed and that Central Bank of Stillwater, Minnesota, will assume all of the deposits. The FDIC did not give a reason for the failure, but small banks are collapsing almost every week, taken under by portfolios of deteriorating loans originated during the credit boom...

House Attacks Fed, Treasury

Political frustration over the rescue of Wall Street and high unemployment erupted in the House Thursday, with one committee threatening to impose tighter scrutiny on the Federal Reserve and another trading verbal insults with Treasury Secretary Timothy Geithner. The House Financial Services Committee voted, 43-26, to approve a measure sponsored by Texas Republican Ron Paul, vociferously opposed by the Fed, that would direct the congressional Government Accountability Office to expand its audits of the Fed to include decisions about interest rates and lending to individual banks. The Fed says the provision threatens its ability to make monetary policy without political interference...

An Education in Student Loans

Graduation day should have been a happy one for Tyrone Bailey. The first in his family of three children to earn anything beyond a high-school diploma, Bailey, 24, received a bachelor's in criminal studies from Westwood College in Torrance, Calif., two years ago. But even while the day's pomp and circumstance played out, his thoughts turned quickly to the tough job market and the $20,000 in loans he borrowed directly from his alma mater that were set to accrue a whopping 18 percent interest rate. Not long ago, low-interest student loans were as easy to come by as a pass to get out of gym class. But the economic downturn and ensuing credit crunch put an end to that...

Obama Calls for More U.S. Exports to Asia

U.S. President Barack Obama, fresh from his first presidential trip to Asia, called for the U.S. to increase exports to that region, saying even small gains would help put many unemployed Americans back on the job. "As we emerge from the worst recession in generations, there is nothing more important than to do everything we can to get our economy moving again and put Americans back to work, and I will go anywhere to pursue that goal," Mr. Obama said in his weekly radio address to the nation....

Budget crisis may be harder to solve this time

Leaders at the Capitol will have about six months to resolve the new $20.7 billion deficit, and some believe the job will be tougher than the $62 billion budget hole they plugged earlier this year. The difficulty is multilayered: Many of the easier cuts already have taken place; cutting too much in some areas would jeopardize federal money; federal stimulus money already has been spent; and many one-time solutions already have been used. The new jaw-dropping deficit - projected through June 2011 - was released last week by the nonpartisan Legislative Analyst's Office only four months after legislators closed a $24 billion budget gap....

In a Tough Market, Luxury Condos Are Going to Auction

Developers having trouble selling luxury condominiums the old-fashioned way are trying another tactic: auctions. It takes the longer period it would take to sell and condenses it down to a shorter time,” says Jim Corum, president of real estate auction company Real Estate Disposition Corporation. Many of the developments—in cities like Chicago and New York—began construction at the height of the real estate market, filling the buildings with every amenity possible, but were completed just as the housing crisis hit...

With F.H.A. Help, Easy Loans in Expensive Areas

In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston. Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary. “It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”...

Meet the Man Who Lives on Zero Dollars

Daniel Suelo lives in a cave. Unlike the average American—wallowing in credit-card debt, clinging to a mortgage, terrified of the next downsizing at the office—he isn't worried about the economic crisis. That's because he figured out that the best way to stay solvent is to never be solvent in the first place. Nine years ago, in the autumn of 2000, Suelo decided to stop using money. He just quit it, like a bad drug habit.

His dwelling, hidden high in a canyon lined with waterfalls, is an hour by foot from the desert town of Moab, Utah, where people who know him are of two minds: He's either a latter-day prophet or an irredeemable hobo. Suelo's blog, which he maintains free at the Moab Public Library, suggests that he's both. "When I lived with money, I was always lacking," he writes. "Money represents lack. Money represents things in the past (debt) and things in the future (credit), but money never represents what is present."...

Amid shrinking revenue, Boulder urges shoppers to 'buy local'

September marked the 13th month in a row that the city of Boulder posted declines in sales tax revenues. As of September, collections from retail sales are down 5.6 percent compared to the first nine months of 2008, according to the city's finance department. Combine that with the collections from the more volatile use tax category -- from areas such as construction projects and property purchases -- and the total revenue from sales and use taxes is down 0.92 percent from the same period last year. As Boulder and other local municipalities wade through yet another month of slower sales -- and less funds for city services, streets and parks -- the holiday shopping season approaches.

"We'll be watching closely," said Paul Nilles, finance director for the town of Superior, where sales tax revenues are down 2 percent through September compared to the same period last year. "We'll be cautiously optimistic." Seeing how key Christmas shopping is to area businesses, local cities are not only keeping a close eye on the health of holiday sales, but some also are stepping up efforts to urge residents to "buy local" to help pad city coffers...

In his gloomiest prediction yet, Marc Faber sees big financial bust leading to war

Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus. Speaking at a conference in Singapore on Wednesday, Faber said: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".

"I think eventually there will be a big bust and then the whole credit expansion will come to an end," Faber added. "Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus". In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war". "People ask me against whom? Well, they will invent an enemy," Faber said...

The Big Squander
by Paul Krugman

....And, as I said, these seemingly safe choices have now placed the economy in grave danger. For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

INTERNATIONAL NEWS:

In Britain, Visions of Japan’s Decade of Stagnation

Britain may finally be emerging from recession, but many analysts warn that it is a false dawn. In fact, they argue, the economy here is so ravaged by growing debts and ruined banks that it could well be following in the steps of Japan’s lost decade of the 1990s. The parallels are eerie: Like Japan, Britain enjoyed more than a decade of booming growth, fed by aggressive bank lending and real estate investments. Haunted by the comparison, policy makers have been extra aggressive in using fiscal and monetary levers in hope of preventing the stagnation and banking stasis that plagued Japan for so many years.

Some economic indicators over the last week have been positive: an uptick in retail sales, fewer jobs lost and an export revival. Yet analysts say they may well turn out to be teasers that cloak deeper, more structural flaws in the economy. In addition to rising debt, the tax base is collapsing and the crippled banking industry has yet to show it can generate profit by lending to companies...

OTHER:

Climate sceptics claim leaked emails are evidence of collusion among scientists

Hundreds of private emails and documents allegedly exchanged between some of the world's leading climate scientists during the past 13 years have been stolen by hackers and leaked online, it emerged today. The computer files were apparently accessed earlier this week from servers at the University of East Anglia's Climate Research Unit, a world-renowned centre focused on the study of natural and anthropogenic climate change.

Climate change sceptics who have studied the emails allege they provide "smoking gun" evidence that some of the climatologists colluded in manipulating data to support the widely held view that climate change is real, and is being largely caused by the actions of mankind. The veracity of the emails has not been confirmed and the scientists involved have declined to comment on the story, which broke on a blog called The Air Vent....

Geithner-Rep. Brady Head-to-Head
(If you haven't seen this, yet.)




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Agricultural Economic News November 20, 2009

Comment:
Isn't Mr. Tom, above, a beauty? Having grown up on a farm, my parents had a few turkeys just one year, and that was the year after I left home. My younger brother detested them because they'd get on top of his car and leave scratches.

As for fowl, both of my grandmothers raised free range ducks every year. One grandmother went a bit overboard with her duck raising, in fact, she always hatched too many and gave us the overflow. Each year, my mother told her that she'd take them this one last year but please don't give us any next year. And then, every next year, Grandmother happened to have an extra brood, once again. And so it went. As a child, I relished letting the day old smiling and peeping ducklings swim around in the sink. I just loved the farm animals that I was around while growing up, both wild and domestic. Oh, but I could tell you so many more duck and animal stories...



So, what this meant was that every holiday menu at my grandmother's house meant duck. No other meat was to be found. She had mostly mallards, and to this day there is no other meat that I would prefer about for a special meal. But, I no longer know a source of domestic mallard ducks. And if anyone has priced domestic duck in their local grocer, lately, I can promise you sticker shock. Hint: Small organic farm business tip here.

Sigh. Memories of the good old days and the good old fashioned unhealthy farm food that made the people where I'm from live to be 100 and marriages lasted 60 years.

I hope to do a lot of cooking in a few days as I've been the Thanksgiving cook in our family for fifteen years, now, give or take. Next to the food, it's the aroma of the food which fills the house that is so wonderful. Oh, yeah, and sweet potatoes are way better than yams, in my opinion....Have a good one, count your blessings, enjoy family and friends, and remember your local food bank this season!

Just for fun, today, here is a chocolate pecan pie recipe that is wonderful:

~~~~~
Cocoa Pecan Pie

1 c. sugar
1/3 c. cocoa
1/4 c. flour
1/2 t. salt
3 eggs, well beaten
3/4 c. dark corn syrup
3/4 c. half & half
1/4 c. melted butter
1 t. vanilla
1 c. pecan halves
9" unbaked pie shell

Combine the sugar, cocoa, flour and salt in a small bowl. Set aside. Combine the eggs, dark corn syrup, half-and-half, melted butter and vanilla in a large mixing bowl. Add the dry ingredients, stirring until smooth. Stir in pecan halves. Pour into pie shell. Bake at 325 degrees for 60-70 minutes or until center is firm to the touch. Cool.
~~~~~

--Kalpa


WEATHER AND WATER:

AGRICULTURE SECRETARY VILSACK ANNOUNCES $117.3 MILLION FOR RURAL WATER PROJECTS

Agriculture Secretary Tom Vilsack today announced the selection of $117.3 million in water and environmental project loans and grants that are being funded through the American Recovery and Reinvestment Act. "Recovery Act projects are helping rural communities of all sizes build a foundation for economic strength, future prosperity, and a healthy environment," said Vilsack. "The 31 water and wastewater projects we're announcing today are helping to achieve the Obama Administration's economic recovery goals to rebuild and revitalize the nation's infrastructure while creating or retaining jobs."...

Sand dams voted best solution in water crisis debate

An ancient water-saving technique thousands of years old that could save millions of people from drought last night won the ringing endorsement of an audience at the Geographical Society in London. Sand dams, which are constructed out of concrete barriers 1-5m high and backfilled with sand, were voted as the best idea from five different proposals. Each idea had a champion who argued how they would use the virtual prize of $1bn at the Earthwatch debate entitled From tsunami to drought to solve the world's water crisis.

When seasonal rains fall, water collects behind the dam. The sand acts like a sponge and filters the water and slows evaporation. Clean water can be drawn for up to several months after the rains have fallen through pipes underneath the dams or by digging a hole in the sand...

Drought Causes Blackouts in Ecuador

A lack of rain has caused severe power shortages leading to blackouts throughout the country of Ecuador. For up to eight hours per day, Ecuadorians have been dealing with power outages for two weeks now. The rationing is expected to continue until March or until rain comes to refill depleted reservoirs...

U.S. NEWS:

Survey suggests improving but weak Plains economy

Business appears to be slowly improving in rural areas of 11 Midwest and Plains states, but the economy there remains weak, according to a new survey of bankers. "The decline in farm income related to pullbacks in agricultural commodities from last year continues to weigh on the rural, agriculturally dependent economy," Creighton University economist Ernie Goss said. The Rural Mainstreet survey's overall economic index rose to 38.4 this month from 37.5 in October and 36.5 in September, but it remained in negative territory below 50.

...Goss said the uncertainty about income has made farmers and ranchers more cautious about land and equipment purchases. The survey's farmland price index improved to 45.6 in November from 43 in October....."Over the past 12 months, the region that we survey has lost almost 265,000 jobs. Recent surveys indicate that these job losses are likely to continue for the near term," Goss said....

Good Weather Helps Corn Harvest Progress in Some Areas

Favorable harvest conditions across the Midwest over the past two weeks allowed growers to make considerable harvest progress – even at night – bringing in more than a quarter of the crop since the beginning of November. However, they are still well behind the normal pace, the U.S. Department of Agriculture reports...

Pumpkin shortage could mean empty shelves after Thanksgiving

..On Tuesday, food giant Nestle, which controls about 85% of the pumpkin crop for canning, issued a rare apology and said that rain appeared to have destroyed what remained of a small harvest this year and that it expected to stop shipping the holiday staple by Thanksgiving. Supermarkets say supplies are tight, depending on the store...

Feds give record loans to Kansas farmers

The federal government has delivered a record-setting $148 million in loans to Kansas farmers during the 2009 fiscal year. The U.S. Department of Agriculture's Farm Service Agency in Kansas recently announced that the money went to about 1,300 family farmers...

Rural U.S. towns struggle as big employers shut down

...The brothers have cut down their staff to 12 from 60 and say they are in survival mode for the business their father started out of his garage in the 1960s. “We're hunkering down,” Pete said. “We've always been debt free, so we're hanging on. But we can't hold on forever.” What's going on in Baraga and the rest of the Upper Peninsula, or UP, mirrors the slow burn that the recession has made through hundreds of small rural U.S. towns. For such communities, the loss of a large local employer casts a long shadow. Tax revenue falls, hitting local services from schools and health care to police forces and firefighters....

Stink bug that's new to US munches nuisance kudzu, but also threatens bean crops in South

Researchers recently found an insect in north Georgia that has never before been reported in the Western Hemisphere — and its arrival could be both a blessing and a curse. Some might celebrate the arrival of the kudzu-munching bug, which could help control the invasive vine that drapes much of the South. However, the bug also feasts on valuable crops like soybeans and other legumes. As of Nov. 12, the insect was reported in nine north Georgia counties, mostly on homes and other buildings with nearby kudzu patches. Experts aren't sure yet how fast or wide the bug will spread or how damaging it might be to crops....

Amaizeing: Corn genome decoded

In recent years, scientists have decoded the DNA of humans and a menagerie of creatures but none with genes as complex as a stalk of corn, the latest genome to be unraveled. A team of scientists led by The Genome Center at Washington University School of Medicine in St. Louis published the completed corn genome in the Nov. 20 journal Science, an accomplishment that will speed efforts to develop better crop varieties to meet the world's growing demands for food, livestock feed and fuel.

Iowa State

"Seed companies and maize geneticists will pounce on this data to find their favorite genes," says senior author Richard K. Wilson, Ph.D., director of Washington University's Genome Center, who led the multi-institutional sequencing effort. "Now they'll know exactly where those genes are. Having the complete genome in hand will make it easier to breed new varieties of corn that produce higher yields or are more tolerant to extreme heat, drought, or other conditions."

Researchers ask: Are caged chickens miserable?
By MICHAEL J. CRUMB

Researchers are trying to answer that question through several studies that intend to take emotions out of an angry debate between animal welfare groups and producers. At issue are small cages, typically 24 inches wide by 25 1/2 inches deep, that can be shared by up to nine hens. About 96 percent of eggs sold in the United States come from hens who live in the so-called battery cages from the day they're born until their egg-laying days end 18 to 24 months later.

Public opinion appears to side with those who oppose the cages. Voters in California approved a proposition last year that bans cramped cages for hens. And Michigan's governor signed legislation last month requiring confined animals to have enough room to turn around and fully extend their limbs....

URBAN AGRICULTURE:

Community garden grows on college campus

For the past 30 years, Scottsdale resident Joe Lobue has tended to his vegetable garden at Scottsdale Community College. Lobue, 66, a retired maintenance employee with St. Daniel the Prophet Catholic Church in Scottsdale, grows Italian zucchini, fava beans, peas, onions, artichokes and eggplants. An old monkey bar serves as a support for the plastic he uses to protect his tomatoes...

Urban agriculture, the next cool thing

... As education officials told Dallas Morning News reporter Matt Peterson earlier this week, most of the ag-related jobs now and in the future are based in urban areas, not on the farm. "For that reason," said the Texas Education Agency's Ron Whitson, "I think these courses are very relevant to our young people."

Are the future farmers of America actually living in suburbia? Not quite. As educators point out, agriculture is a far more diverse industry than the growing and harvesting of crops and raising of farm animals. Even so, there's no denying that there's a rising tide of interest among urban young folks in agriculture. ...

Shoppers going green despite struggling economy

Despite the worst U.S. recession in decades, sales of organic and sustainable products have continued to grow, experts say, with shoppers willing to spend a few more dollars in a bid to become more green....

INTERNATIONAL NEWS:

Zimbabwe farmers a boon for Nigerian agriculture
By Hannington Osodo

When white Zimbabwean farmer Irvin Reid arrived in Nigeria almost five years ago, he was given a set of grid references in the remote bush and told to find water and build a new farm. His dairy farm now has 300 Jersey cows, some of among 800 imported from South Africa to start cattle farms in the region. It's a sharp contrast to things back in Zimbabwe, where campaigners say farmers face their worst year ever.

Reid was one of 13 white farmers invited with their families to Nigeria in 2005 after land seizures in Zimbabwe -- which President Robert Mugabe says are necessary to correct the legacy of colonialism -- stripped them of their livelihoods. Africa's most populous nation of more than 140 million people, Nigeria imports about $3 billion worth of food annually and has been trying to boost its self-sufficiency....

Dutch Cooperative Blurs Food Prejudices

...In a Europe where conservative attitudes to farming are entrenched and the hostility of consumers and ecologists to genetically modified crops is sometimes obsessive, Food Valley is different. Its entrepreneurs and scientists are trying to use all available techniques, including genetic modification, to improve agriculture around the world. Since its creation in 2004, Food Valley has set itself multiple missions: responding to the increasingly dire threats of famine in Africa and Asia; reducing agriculture’s reliance on chemical pesticides, and using genetic science to increase the nutritional value of farm products.

For example, Henk Schouten, of the Plant Research Institute of Wageningen University, is trying to use genetic engineering to fight scab disease, a major threat to apple trees. Mr. Schouten uses a technique called cisgenesis to implant scab resistance genes from wild apples into table fruit, short-cutting conventional plant breeding processes by decades or even hundreds of years....

Kenya harvest example on reversing food shortage

...Kenya's program could serve as a model for a radical change in aid policy — getting people to feed themselves. "When they wake up, there is somewhere they can go and work," Abiero said of his neighbors Friday as he sat at the edge of the four-acre paddy he's had since 1968. "Before they used to go to sleep hungry and did not know whether they will be able to get food the following day."...Small farmers in the developing world could feed themselves and their compatriots if only they had access to basic items like seeds, tools, irrigation systems as well as training and infrastructure such as storage facilities and roads from fields to markets, FAO says....

FARMLAND PRICES:

UN to regulate farmland grab deals

The United Nations has started drawing up a code of conduct to regulate overseas investment in farmland, but the voluntary rules will not be ready for at least a year. The code is the first attempt to control the growing trend of so-called “farmland grab” deals, which involve rich countries such as Saudi Arabia and South Korea investing in overseas farming to boost their own food security. The trend gained prominence after an attempt by South Korea’s Daewoo Logistics to secure a large chunk of land in Madagascar contributed to the collapse of the African country’s government....

Kilton Auction Brings In Over $10 Million (Illinois)

A sea of pick-up trucks flooded the parking lot of the Knights of Columbus Hall in Taylor Springs for part two of one of the biggest land auctions ever seen in Montgomery County. Almost 3,100 acres of land formerly owned by Kilton Farms were auctioned off on Tuesday, Nov. 17, fetching just over $10.1 million in the end. Approximately 250 registered bidders and a total estimated crowd of 500 people packed the KC Hall for the event.

Split into 41 tracts, the land was close to a 60-40 split of tillable ground and timber, resulting in a lower sale price than the previous Kilton auction in Springfield in January. In that auction, which was mostly tillable ground, the per acre price reached nearly $6,000 per acre, netting a little over $24 million for the 3,912 acres of farmland in Montgomery and Macoupin counties...

Cornbelt Update

Land values in the Chicago Federal Reserve Bank district rose 2% for the third quarter of 2009, based on a survey of local bankers. But currently, the price of “good” farmland is 4% less than it was at this time last year, and that makes the third successive quarter that land values were less than they were 12 months earlier. Land values in the northern 2/3 of IL dropped 4% from 2009 and IA land values are 7% less than they were in 2009.

Farmland prices will stabilize, 69% of bankers told the Chicago Fed, but 27% expect a decline, and most bankers believe farmers generally will back away from land purchases. The reason for the trend was a diminished earnings stream because of grain markets, lower net cash earnings, and high input costs that will reduce profitability.

BIOFUELS:

Oil company won’t sell E15

At least one oil company says it likely won’t sell E15 any time soon, even if the EPA raises the ethanol limit in gasoline from 10 percent to 15 percent. Leister, an official with Marathon Petroleum Co., says his company is worried motorists are going to claim E15 is damaging their cars. He says the adequate research needs to be done first to prove that the higher octane would be safe to use in the cars and trucks now on the road...

Ethanol industry complains to Gore

The ethanol industry is unhappy with Al Gore for disparaging ethanol in his new book, Our Choice. In the book, Gore criticizes the environmental impact of corn ethanol and says the fuel “has been a disappointment.” In a letter to Gore, the president of the Renewable Fuels Association, Bob Dinneen tells the former vice president that “many of your characterizations of today’s American ethanol industry are out of date or simply wrong.”...

Corn mold worries farmers, ethanol producers

Cool, wet fall weather that's caused mold to appear in some of Indiana's corn crop is now creating problems for livestock and ethanol producers. Mold, which is present in much of the Midwest this year, can produce toxins that can reduce livestock weight and value because some animals won't eat poor-quality grains...

FOOD INSECURITY:

Are Americans really 'food insecure'?
by Charles Lane

Many families are struggling in today’s economy, and this has hurt their food budgets. This week an Agriculture Department study showed that 16.4 million U.S. households containing 49.1 million people experienced “food insecurity” in 2008, up from 12.2 million households containing 36.2 million people in 2007. Fortunately, Congress has already addressed some of the problem with a significant food-stamp boost in the stimulus package adopted in February.

But is “hunger” widespread in America these days? That is the misleading impression created by press coverage of the USDA study. Headlines in the New York Times print edition (“49 Million Americans report a lack of food”), USA Today (“1 in 6 went hungry in America in 2008”), and The Washington Post (“America’s economic pain brings hunger pangs”) made it sound as if famine stalks the land. The stories were salted with terms such as "alarming" and "dramatic." When you crack into the data, however, they don’t support this dire portrayal. The USDA report is based on a survey of 44,000 households....

COMMODITIES:

Futures:
Wheat 5.57
corn 3.93
soybeans 10.35
feeder cattle 92.32
pork bellies 88.5

OTHER:

Ground-breaking moments in global agriculture

Organized cultivation of food crops like wheat and barley began about 10,000 to 12,000 years ago in the Fertile Crescent, what is now the Middle East....

(Timeline of agricultural developments at the source)

Job prospects yield large crop of students in ag schools

Tristesse Jones will probably never drive a tractor or guide a combine through rows of soybeans at harvest time. There isn't a farm within miles of where she grew up on Chicago's west side, but she's set to graduate with a bachelor's degree in crop sciences from the University of Illinois' agriculture school next spring. "People ask me what is my major, and they say 'What is that? So you want to grow plants?"' Jones said. She is one of a growing number of students being drawn to ag schools around the country, not by ties to a farm but by science, the job prospects for those who are good at it and, for some, an interest in the environment...

Is Balsamic Vinegar Poisoning you?

Studies show concerning levels of lead, which can cause permanent brain damage when children are exposed, in certain vinegars, even high-end balsamic varieties...

Sweet Potatoes

Some vegetables really need to hire better PR people. The poor sweet potato suffers from being confused with the yam. No relation. And the potato. No relation. Sweet potatoes are high in fiber and good sources of Vitamins A & C. How many sweet foods can claim that?

Although they're available year round, they're in season in November and December, making them popular holiday foods. But did you ever think of growing your own sweet potatoes and having a few baby sweet potatoes to snack on in early fall? Or harvesting sweet potato greens all summer? Unfortunately sweet potatoes need a fairly long growing season and a good amount of space, but it's nice to try growing everything at least once, just to know what they're really supposed to taste like.

Previous links:
If you wish to go back and read previous threads of Ag Econ news here are the links to the past 6 weeks.

November 13th

November 6th

October 30th

October 23rd

October 16th

October 9th




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Economic Opinion Picks November 19, 2009

Comment:
Today, there are four chosen articles, plus a bonus link.

1) This is Bill Gross's December PIMCO newsletter. He says the little investor should consider buying utilities to beat the ZIRP rates. He's always an interesting, wise read.

2) Peter Solomon, for NYT's, writes a good article about where we are since TARP began with a theme of unintended consequences.

3) This is Evans-Pritchard's UK Telegraph doom article for the day, citing Société Générale's advice to clients of meltdown plans.

4) Tim Iacono writes on interest rates vs. jobless rates. Very pertinent. Don't expect rates to rise until jobless numbers stabilize, is what they say...

5) If you click on this W-P link, there are three graphs summarizing the hole we are in.

--Kalpa


Anything but .01%
by William Gross

...during the week surrounding the Lehman crisis in September of 2008, yours truly frantically called my wife Sue to empty our two local bank accounts into apparently safer Treasury bills. I was not the only PIMCO professional to do so. Preserving principal as opposed to making it grow was the priority of the day...0% yield is not a joke....f I was hoping to double my money, it would take approximately 6,932 years to get there.

...When viewed from 30,000 feet, there is even a systemic risk that new asset bubbles are in the formative stages – perhaps because of the .01%. Gold at $1,130 an ounce, global equity markets up 60-70% from their 2009 lows, a cascading dollar now 15% lower against a basket of global currencies just 12 months ago, oil at 80 bucks, mortgage rates at 4% thanks to a $1 trillion dollar credit card from the Fed; the list goes on...Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something. We will need another 12 months of 4-5% nominal GDP growth before Bernanke and company dare lift their heads out of the 0% foxhole – mini-bubbles or not. Instead, the heavy lifting or the charging of enemy lines in the case of this metaphor will likely be done by other central banks – already in Australia and Norway.

...The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until....OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? Damned if you do, damned if you don’t. Do you buy the investment grade bond market with its average yield of 3.75% (less than 3% after upfront fees and annual expenses at most run-of-the-mill bond funds)? Do you buy high yield bonds at 8% and assume the risk of default bullets whizzing at you? Or 2% yielding stocks that have already appreciated 65% from the recent bottom, which according to some estimates are now well above their long-term PE average on a cyclically adjusted basis?.

...OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? ...why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year yield less and at a higher tax rate to you the investor...

Unintended Consequences on Wall St.
by Peter Solomon

... What are the results that were unintended, and about which we legitimately lament? The banking system moved closer to an oligopoly, creating fewer powerful firms like Goldman Sachs and JPMorgan Chase. These firms took the government’s largesse and speculated for their own accounts, principally in trading activities. The commercial banks did not use the Fed window to increase their lending to smaller companies. They reduced risk and raised credit standards, prodded by Congress and regulators.

Goldman and Morgan Stanley, newly converted to bank holding companies, do not lend. They used the Fed’s capital and federal guarantees to buy higher-yielding securities, thus arbitraging the Fed. They did almost everything that one would expect of a profit-making business, even on Main Street.

...Wall Street was not always composed of publicly owned limited liability firms. Prior to 1970, Wall Street firms were private partnerships. Partners’ capital supported the firms’ operations. Compensation was a private matter among partners, generally tracking ownership. Extraordinary value added could be recognized....

Société Générale tells clients how to prepare for potential 'global collapse'
By Ambrose Evans-Pritchard

In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems. Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years. "As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010. Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade....

The jobless rate-interest rate conundrum
by Tim Iacono

Just about everywhere you look these days in the financial media, when the topic of discussion turns to the plunging U.S. dollar, you'll hear someone saying something like, "Unless the Fed raises interest rates, the dollar's got nowhere to go but down". And then someone invariably says, "But the central bank can't raise interest rates. Not with the unemployment rate at over ten percent!" What's a central banker to do?

A look at history with the help of the chart below sheds some light on the current jobless rate-interest rate conundrum and, as you might expect, things don't look good for Fed chief Ben Bernanke if he's at all concerned about the value of the nation's currency.
Obviously, this graphic is too chock full of information to be addressed as a whole so it will be broken down in detail below, however, it is interesting to note that the 55-year time span above with just these two curves - U3 unemployment and the Fed funds rates - has two very distinct features.

First, current short term interest rates of around 0.15 percent are without precedent and, based on all but the most optimistic forecasts for the labor market, the jobless rate will soon share that attribute. In fact, if you were to simply subtract today's Fed funds rate from the unemployment rate you'd get 10.1 percentage points, an all-time high. Prior to 2009, over a period of almost six decades, this measure had exceeded six percentage points during only four months, back in 1958 when unemployment was around 7 percent and the Fed funds rate was just under 1 percent.

Second, "jobless recoveries" are a relatively new development. It's clear to see that, as you move from left to right in the chart, the unemployment rate falls at a slower and slower pace during economic recoveries. When weighed against economic cycles that have grown longer and longer, part of what was once affectionately known as The Great Moderation, this may not have seemed like such a bad trade off, however, the Great Moderation is not likely to fare well in history books now that the jobless rate has risen so sharply over the last year with little hope of "full employment" returning in the U.S. anytime soon.

A look back at the historical relationship between jobless rates and interest rates will help to understand the difficulty ahead for the Federal Reserve in formulating monetary policy....

BONUS: GOOD GRAPHS (W-P):
Digging out of a deep hole




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Economic News November 19, 2009

source

Comment:
Everyone is confused about the current state of the economy. For CNBC, Jeff Cox writes Where Are Stocks, Economy Headed? Even Pros Disagree. I wrote on this a few days ago, and have revised the article which appears on Seeking Alpha today, This Muddy Economic Picture. I say it all comes down to policy and re-regulation and getting the right people into our economic positions of power in the next elections. It is a shame our government moves at such a snails pace in reaction to a crisis as large as this, but it does, if it moves at all. Besides that, a complacent and self-indulgent citizenry can't be bothered with the details of what goes on in the world of finance, telling themselves that it's too complex to understand anyway.

An ongoing concern now and into the future is whether there will be adequate demand for our government debt offerings. Today's news is that a short supply along with strong demand for new issuance of short term treasury bills is pushing yields into negative rates again. This certainly sheds some light on what some people are thinking in regards to the above paragraph, doesn't it? It's a flight to safety for the non-bubble blowers! At the same time, a growing chorus of advisers and worriers, such as Bill Gross in his December newsletter, don't tolerate ZIRP well and look for higher returns.

We are at a cross roads. Time will tell who is right.

--Kalpa


....Jobs...

Aetna to cut up to 3.5% of workforce
AOL offers buyouts to 2,500, a third of work force

THE LATEST:

Stronger dollar, weak economic data pummels stocks

...Analysts said the dollar was the biggest force behind Thursday's trading, as it has been in recent months. A stronger dollar makes commodities more expensive to foreign buyers, and companies that produce the commodities make less money from them...

New Jobless Claims Flat at 505,000

Initial claims for jobless benefits remained steady at 505,000 in the week ended Nov. 14. The previous week's level was revised to 505,000 from 502,000...

U.S. NEWS:

Geithner Rejects Call to Resign, Faults Republicans

Treasury Secretary Timothy Geithner defended the Obama administration’s economic record and dismissed a call for his resignation from the senior House Republican on the Joint Economic Committee. Geithner blamed the policies of the Republican party and President George W. Bush for the financial crisis that pushed the nation into the deepest recession since the 1930s. Republicans “gave this president an economy falling off the cliff,” Geithner told Representative Kevin Brady of Texas as the two men interrupted each other a hearing before the congressional panel today. “I can’t take responsibility for the legacy of crises you bequeathed the country.”...

Treasury Bill Demand Seen Pushing 3-Month Yield Negative

Demand for the three-month Treasury bill is ramping up as investors seeking protection toward end of the year stock up on the safest securities. At a time when Treasury bills are in short supply, the situation is driving the bond equivalent yield on the three-month T-bill down. Strategists said its yield is likely to fall into negative territory before the end of the year. When market participants buy Treasury bills at negative rates, they're essentially paying the government to keep their money safe. The three-month bond equivalent yield fell as low as 0.15% Thursday, according to TradeWeb...

The 'Real' Jobless Rate: 17.5% Of Workers Are Unemployed

As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed. According to the government's broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed...

Fear of Double Dip in Housing

...One measure of the role of housing in the economy earlier this decade: During the boom, residential investment peaked to make up 6.3% of gross domestic product. That number fell to 2.5% in the third quarter, according to Macroeconomic Advisers. The average U.S. home price nearly doubled between January 2000 and April 2006, according to the First American LoanPerformance index. Since then, the average has dropped about 30%. In most parts of the U.S., prices are still down from year-ago levels, but prices in some markets, including San Diego and Orange County, Calif., have leveled off, at least temporarily....

Interest due on U.S. debt: Close to $5 trillion

Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. More than half. In fact, $4.8 trillion...

Record number of mortgage loans are delinquent

Mortgage borrowers are still falling behind on their payments in record numbers, despite the many foreclosure prevention efforts initiated by the government and non-profits. In the third quarter, 9.64% of all mortgage loans were delinquent, according to a report released on Thursday by the Mortgage Bankers Association. That represents 4.5 million borrowers and is an increase from 9.24% in the prior three months...

A sector too tough to save

...Why is this sector so rescue-resistant? First, helping commercial-mortgage holders doesn't buy votes the way helping homeowners does. Second, look at where commercial real estate lies in the banking sector. In theory, the Troubled Asset Relief Program, or TARP, should have given banks the capital to absorb loan losses, including those on commercial real-estate debt. TARP injections, along with Fed-run stress tests, helped big banks with more than $100 billion in assets. But those lenders held only 29% of the $1.84 trillion of commercial real-estate debt on bank balance sheets in the second quarter, according to Foresight Analytics....

Claims Against Lehman May Hit $1 Trillion, Chief Says

Lehman Brothers Holdings‘ creditors filed $824 billion in bankruptcy claims against the collapsed investment bank, and the total may reach $1 trillion, Lehman chief executive Bryan Marsal said...

As pensions dried up, four firms paid top execs $49.5M

Top executives at four companies that jettisoned their employee pension plans received $49.5 million in retirement and severance benefits in the years before the companies filed for bankruptcy, while retirees saw their benefits cut by as much as two thirds, congressional investigators conclude in a report released Thursday. The Government Accountability Office (GAO) reports that pensions at the companies, United Airlines, US Airways, Polaroid and Reliance Insurance, were underfunded by more than $11 billion when the companies turned them over to a government-backed insurance fund. The report says executives at those four companies and six others that abandoned their pension plans took in a total of $350 million in pay and perks in the years leading up to the bankruptcies...

New-Issue CMBS Sees Strong Investor Interest

The Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) saw the sale of its first commercial mortgage bond this week. The $400 million in debt backed by 28 retail shopping centers was offered up by Developers Diversified Realty Corp. and underwritten by Goldman Sachs. According to Dow Jones Newswires, it was the first commercial mortgage bond deal in more than a year and sold at the price it was launched. Multiple media reports indicate that investor demand was strong for the new commercial offering....

INTERNATIONAL NEWS:

Record October rate for UK public sector borrowing

The UK's public sector net borrowing reached £11.42bn last month, official figures have shown...

OTHER:

Hiring Boom in Mortgage Restructuring

Mortgage restructuring for strapped homeowners has emerged as a rare growth area in the economy as companies in the field keep hiring. Four of the largest mortgages servicers -- Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. -- have collectively hired almost 17,000 people this year, mostly to work with financially ailing homeowners...

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Economic News November 18, 2009

source
Comment:
Ouch! That cartoon hurt!

I will touch briefly upon two subjects today.

The first topic is that of the exit strategy of the Fed from the mortgage backed securities acquisition program, which isn't even completed, yet, and I'd expect may be extended. Many smart people have asked what the strategy will be? Obviously, no one in the private sector will want these acquisitions unless the prices appreciate, or, in other words, inflation takes off. In the mean time, expect more of the government landlord rental program, as has begun with Fannie Mae. Something really doesn't feel right about this whole picture. I recently re-read the helicopter Ben speech in this excellent Credit Writedowns article which is a good reminder of Ben's goal here, at all costs. You might want to read it as well.

The second topic I want to mention today is that of inflated manufacturing reports in the U.S. They are misleadingly high because we import a huge percentage of the components necessary for production. The outsourcing of jobs story which we all knew could not be healthy for any economy is catching up with us. Every nation knows that it must have a market for produced products and goods in order to overcome currently high debt loads. Yet, too often, the U.S. manufacturer who wants to produce something concludes that it is more profitable to set up elsewhere. My pick of the day article for you to read on this subject is by Charles Hugh Smith here. This paints a very gloomy scenario. Protectionism, anyone? So, where will the growth come from?

Seize the remainder of your day.

--Kalpa



THE LATEST:

U.S. inflation edges up, housing starts fall sharply

Construction of new homes in the United States fell sharply last month, showing potential weakness in the economy's recovery, while consumer prices rose slightly more than expected. The Commerce Department said on Wednesday housing starts dropped 10.6 percent to a seasonally adjusted annual rate of 529,000 units, the lowest level since April and the percentage drop was the biggest since January...

U.S. NEWS:

Fed's Bullard Says Shrinking Reserves Key to Exit

..."The main challenge for monetary policy going forward will be how to adjust the asset purchase program without generating inflation while interest rates are near zero," Bullard said.

Medium-term inflation hinges on what the Fed will do with this program, he said...The Fed has committed to buy up to $1.725 trillion in longer-term mortgage-related and government securities by the end of March.

To Rise, Inflation Faces an Uphill Climb

...A weak labor market can keep inflation in check, even if commodity prices rise. Petroleum-related costs account for just 2.3% of U.S. production costs, according to an analysis by Capital Economics. Employee compensation, on the other hand, accounts for 30.3% of production costs. In fact, if rising commodity prices lead to more corporate cost cutting, then that will put more downward pressure on inflation. To the extent that already-cash-strapped consumers, facing 10% unemployment, cut back on other items to pay for higher food and energy prices, that will also hurt demand, and prices, for everything else.

Potential Dodd Challenger Calls for Geithner to Quit Over AIG

Former Republican congressman Rob Simmons, seeking a U.S. Senate seat from Connecticut, called on Treasury Secretary Timothy Geithner to resign over his role in the bailout of insurer American International Group Inc. Simmons, who is bidding to challenge Democratic incumbent Christopher Dodd in the 2010 election, cited a report issued Nov. 16 by the watchdog of the $700 billion Troubled Asset Relief Program that faulted the Federal Reserve Bank of New York for making “limited efforts” to protect taxpayer funds during last year’s rescue of AIG. Geithner was president of the bank at the time.

...The “policy decisions came with a cost -- they led directly to a negotiating strategy with the counterparties that even then-New York Fed President Geithner acknowledged had little likelihood of success,” the TARP special inspector general, Neil Barofsky, said in the report.

California faces a projected deficit of $21 billion

Reporting from Sacramento - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst. The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs....

Renting From Fannie Mae

Homeowners going through foreclosure can rent their houses through Fannie Mae rather than lose them entirely. The "deed for lease" program lets homeowners transfer their title to Fannie Mae and sign up for a one-year lease, then month-to-month extensions. Though this program is helping to keep people in their homes, is it helping the housing market, too? The number of foreclosures has been declining for the past three months, according to Realtytrac. There were 332,292 foreclosed properties in October, down 3% from September but up approximately 19% from last October...

Fannie, Freddie Woes Hurt Apartments

The deteriorating commercial real-estate market is hitting Fannie Mae and Freddie Mac, the housing-finance giants that were taken over by the government last year after billions of dollars in losses on residential real estate. The firms, which together have taken more than $110 billion in capital infusions from the Treasury, stepped up their lending for apartment buildings as the commercial real-estate market peaked, and they are now facing rapidly rising loan losses.

Fannie, which has been more active than Freddie, faces the biggest problems. Its serious delinquency rate, or loans that were 60 days or more past due, stood at 0.62% at the end of September, up from 0.16% a year ago. One troubling sign: one-quarter of the $180 billion of apartment-building loans on Fannie’s books were originated near the top of the market in 2007 and those loans account for nearly half of all its commercial-loan delinquencies...

OTHER:

Philadelphia Gives Homeowners a Way to Stay Put

...Under the rules adopted by Philadelphia’s primary civil court, no owner-occupied house may be foreclosed on and sold by the sheriff’s office before a “conciliation conference,” a face-to-face meeting between the homeowner and the lender aimed at striking a workable compromise. Every homeowner facing a default filing is furnished with counseling, and sometimes legal representation...

Forget $100 oil. $80 oil is a problem

...The U.S. economy remains weak and one in six Americans can't find enough work. Yet oil prices have risen steadily this year. A barrel of crude costs $79 and change, more than double its price at the end of 2008. This year's runup pales in comparison to the one that peaked last summer above $145 a barrel. Even so, some researchers warn we could once again be approaching the point at which rising energy costs will squeeze consumers. That could complicate recovery in an economy that, despite the tumult of the past two years, remains as consumer-driven as ever....

Tiny chip could diagnose disease

Researchers have demonstrated a tiny chip based on silicon that could be used to diagnose dozens of diseases. A tiny drop of blood is drawn through the chip, where disease markers are caught and show up under light...Now, scientists at IBM's research labs in Zurich have developed a cheap lab-on-a-chip that has the potential to diagnose dozens of diseases...

No Time to Read This? Read This

Are things you need to get done falling between the cracks? Does taking an entire day off seem impossible? Maybe you need a time-management system. Many readers seem to think they do, based on the email response to my recent column on the importance of taking time off...

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The Show Must Go On

THE SHOW MUST GO ON ---Three Dog Night
This song popped into my head today, and made me think that it may be a window into the mind of Ben Bernanke....Geithner....Obama... The title says it all about today's economy! And though I could probably use the song and the headline every single day, I have the perfect show to relate it to.

The show was this. I actually saw Tim Geithner on the TV news describing the administration's new task force to fight financial fraud by using tougher regulations with "proactive" enforcement. Now, I don't know about you, but when I look at Tim Geithner, I always think about how he came into office on charges of tax evasion, and arrogantly pronounced that these oversights were just careless mistakes and that it was unfortunate that they needed to spend so much time on these issues. Yet he went on to become confirmed to be in charge of our IRS. So, now, this insider is telling us to trust them with their new and improved fraud fighting task force. (Bush set one up in 2002 and we know how much good that one did.)

Ironically, on this same day that he made the fraud fighting task force announcement, headlines declared Geithner 'missed chances' to cut cost of AIG rescue because while he was in charge of the New York Fed, he agreed to pay out the full value of AIG contracts which cost taxpayers $27.1 billion to banks including Goldman and Merrill Lynch in a backdoor style bailout.

They don't give us much credit for intelligence, do they?

This truly is a circus show. And the show must go on!

--Kalpa



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Economic News November 17, 2009

Via Steve Breen

Comment:
Just the news, today. Apologies for so much!
---Kalpa


....more earnings reports...

GM Reports $1.15 Billion Loss, Plans Repayments
Home Depot 3rd-qtr earnings fall 8.9 percent
Sina's Profit Falls 11%, but Outlook Bright

THE LATEST:

Stocks zigzag on earnings data, rising dollar

Stocks mostly fell Tuesday as disappointing reports about retailers and manufacturing gave investors little incentive to keep buying after two weeks of big gains. A rebounding dollar also sapped investors' appetite for stocks....

Factory production dips; wholesale inflation muted

Factory production declined in October, signaling that consumers and businesses remain cautious in their spending and suggesting a sluggish economic recovery. At the same time, the weak economy is keeping inflation in check. Wholesale prices rose less than expected last month...

U.S. NEWS:

America's Newest Land Baron: FDIC

...The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted. In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo....

Mortgage delinquencies slow, but keep climbing in 3Q

The pace at which people fell behind on their mortgages slowed during the summer for a third consecutive quarter, but the delinquency rate hit another record, according to credit reporting agency TransUnion. For the three months ended Sept. 30, 6.25% of U.S. mortgage loans were 60 or more days past due, TransUnion says. That's up 58% from 3.96% a year ago. Being two months behind is considered a first step toward foreclosure, because it's so hard to catch up with payments at that point. The rate was up 7.6% from the second quarter...

TARP Can't Save Some Banks

U.S. regulators have seized or threatened at least 27 banks that received capital infusions from the Troubled Asset Relief Program, including some lenders that government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008. For example, Friday's three bank failures, increasing the 2009 total to 123, included a unit of Pacific Coast National Bancorp, a San Clemente, Calif., bank that sold $4.1 million of preferred shares to the Treasury Department in January. "There are going to be more losses," predicts Jeff Davis, a banking analyst at FTN Equity Capital Markets Corp. in Memphis, Tenn....

China, U.S. eye pact to help troubled banks: sources

Chinese and U.S. regulators are negotiating a pact aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the United States, bankers briefed on the plan said on Tuesday. Chinese bankers have complained that it's been difficult for them to set up branches or invest in banks in the world's leading economy, due partly to U.S. regulators' tough supervision and strict approval process for financial deals...

Treasurys Fall After Debt-Buying Binge

Treasury prices slipped Tuesday as market participants took some profits after Monday's government debt buying binge. Bond yields, which move inversely to prices, fell a little too far Monday, traders said, making shorter-term Treasurys look a bit too expensive. The two-year yield, which moves inversely to its price, fell to its lowest level since January on Monday, as low as 0.758%....

Nations boost demand for long-term U.S. assets

Foreign demand for long-term U.S. financial assets rose in September as China and other countries boosted their holdings of Treasury securities. Continued strong foreign demand for U.S. debt is critical to financing America's soaring budget deficits and keeping American interest rates low enough to support a recovery from the recession...

Wall Street Lost Fewer Jobs Than Forecast in Recovery

Wall Street is recovering faster than the national economy, with New York City’s four largest investment firms reaping profits of $22.6 billion through Sept. 30 after losing more than $40.3 billion last year, state Comptroller Thomas DiNapoli reported. The comptroller’s annual report on the city’s securities
industry also found that job cuts following the worst credit crunch since the Great Depression may not exceed 35,000. The total is about what Wall Street lost following the 2001 recession and terrorist attacks and less than the 47,000 officials predicted when preparing the city’s June financial plan. The six largest U.S. bank holding companies set aside $112 billion for compensation in the first nine months and bonus pools, including stock options, which may be higher than in 2008, DiNapoli said...

Fed reduces length of emergency loans

The Federal Reserve said Tuesday that it will reduce the length of loans banks can draw from its emergency lending program "in light of the continued improvement in financial conditions." The maximum loan duration will be cut to 28 days, from 90 days, starting on Jan. 14, the Fed said...

More Households Request Food Aid

The U.S. Agriculture Department said Monday the number of households that reported struggling to buy enough food in 2008 jumped 31% over the previous year. According to the USDA's annual poll, 17 million U.S. households reported some degree of food insecurity in 2008, up from 13 million households in 2007."It is time for America to get very serious about food security and hunger," said Agriculture Secretary Tom Vilsack, who is pressing Congress to expand such programs as food stamps and free school lunches that consume roughly 70% of his department's budget...

U.S. to aid some local mortgage programs

A Treasury Department program aimed at propping up local housing finance agencies will help inject $29 billion into these groups over the next year, according to government data scheduled to be released Tuesday. The program focuses on state and local housing finance agencies, which provide loans to low- and moderate-income borrowers and have struggled in the past year as investors shied away from buying their debt. Under the program, Treasury, along with mortgage financiers Fannie Mae and Freddie Mac, will buy bonds used by housing finance agencies to fund mortgages....

Geithner 'missed chances' to cut cost of AIG rescue

...The payments, including $5.6 billion to Goldman Sachs and $3.1 billion to Merrill Lynch, led to accusations that the Government had conducted a "backdoor bailout" of banks that had already received billions of dollars of state aid....n his report, Mr Barofsky recounted the seemingly feeble attempts made by Federal Reserve Bank of New York officials to convince the eight biggest counterparties to AIG's CDSs - Societe Generale, Goldman Sachs, Merrill Lynch, Deutsche Bank, UBS, Calyon, Barclays and Bank of America - to take a "haircut" on what they were owed by the insurer....Mr Barofsky questioned why the Federal Reserve Bank of New York and the US Federal Reserve were reluctant to pressure the banks into taking haircuts, given that the Government had already strong-armed many of the same group into accepting bailouts that they did not want...

Why Banks Aren’t Lending

The motivating idea behind the various U.S. bank rescue measures was to do whatever it would take to get bank loans to the private sector growing again. That mission remains distinctly unaccomplished...

Falling U.S. Dollar: It's Lack of Demand, Not Rising Supply, Pharo's Dow Says

...Dow notes the Fed is not tirelessly printing money and debasing the dollar as many think. The Fed balance sheet has remained relatively steady at about $2.1 trillion since October last year. But wasn't there a big spike leading up to that period and thus overhang? Standing by his thesis, Dow adds the shrinking dollar instead reflects a drop in money demand as the world deleverages and diversifies...

Small business loans: $10 billion evaporates

Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction. The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday...

The not-so-small small bank CRE problem

Thanks to Deutsche Bank’s fixed income team, we can now present the problem in pictorial form.

First though, a bit of comment from the FI analysts:

. . . Small regional banks have a disproportionate exposure to CRE . . . Moreover, unlike for residential real estate, the best assets have been securitized in CMBS, and banks tend to hold in their loan portfolio the riskiest assets. Also, the downturn in commercial real estate has started later than the downturn in residential real estate and as a result loss recognition to date is likely to be low. Finally, the CRE sector is more likely to be prone to a “Japan-type” resolution, i.e. one in which banks will delay loss recognition and possibly modify loans that are fundamentally insolvent.

Here’s the table:

And given that Deutsche’s securitisation team estimates losses of 11 to 16 per cent on that $1.8 trillion ($1,800bn) worth of CRE assets in the US banking system, the FI analysts see a likelihood that a large number of banks will end up undercapitalised...

U.S. Postal Service posts $3.8 billion loss

The U.S. Postal Service reported a $3.8 billion loss in the 2009 fiscal year, and plans to propose to Congress in 2010 that it drop Saturday delivery. The agency already reduced expenses by $6 billion during the year ended Sept. 30...

Obama Creates Task Force to Fight Financial Fraud

The Obama administration today announced a coordinated federal attack to combat financial fraud. President Barack Obama issued an executive order creating a task force drawing upon numerous government agencies to investigate and prosecute cases. The government-wide initiative, announced at a Justice Department news conference in Washington, replaces a corporate fraud task force created under President George W. Bush in 2002....

Southern California homes sales rise, prices firm

Home sales in Southern California in October rose 2.8 percent from September and year-earlier levels and the region's home prices last month showed "more signs of firming," real estate information service MDA DataQuick said in a report on Tuesday. Last month 22,132 new and resale houses and condominiums were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties...

New York Personal Income Tax Collections Fell 21% Last Year

New York state’s personal income tax collections, its largest source of revenue, fell $4.73 billion, or 21 percent, from a year earlier, according to a report issued today by Comptroller Thomas DiNapoli...

Weak companies raise risk for U.S. pension agency

Weakness in the auto and airline industries, as well as retail and service sectors, has more than tripled the potential risk to the U.S. pension insurance system. The Pension Benefit Guaranty Corporation (PBGC) on Friday said its potential exposure to future pension losses from financially weak companies had increased to about $168 billion in fiscal 2009 from $47 billion a year earlier....The agency, which insures pensions covering 44 million workers and retirees, said its annual deficit grew from $11.2 billion in fiscal 2008 to $22 billion in fiscal 2009....

S.F. home value drop, jobless drain city budget

San Francisco's lowered home values and high unemployment rates have created another unwelcome side effect: far less revenue coming into city coffers than expected. A report released Monday by the controller's office shows that property tax revenues will likely be $35 million less than anticipated in the 2009-10 fiscal year that began July 1. Payroll tax revenues will probably be $24.8 million less than expected, the report said....

CIT Group says 3Q loss widened to $1.07 billion

Commercial lender CIT Group Inc. says it lost $1.07 billion during the third quarter as its cash crunch worsened ahead of filing for bankruptcy protection earlier this month. One of the nation's largest lenders to small and mid-sized businesses, CIT Group filed for bankruptcy protection Nov. 1 as it was unable to get bondholder approval to reduce its mounting debt...

Ten Questions on the Volatile Housing Market

The U.S. housing market has been in a slump for the past four years. When will it ever end? In recent years, real estate has proven as jittery and unreliable as any other market. The average U.S. home price nearly doubled between January 2000 and April 2006, according to the First American LoanPerformance index. Since then, the average has fallen about 30%. The drop has been 53% in the Las Vegas metropolitan area and 39% in Miami, where about a quarter of all households with mortgages are behind on their payments or in foreclosure. The value of your home might be determined more by whether the neighbors keep their jobs than whether the house has ample light and closet space...

A Change at the Top of GMAC as It Negotiates for Another Government Bailout

GMAC Financial Services, the former lending arm of General Motors, replaced its chief executive on Monday as it negotiates for another round of bailout financing from the federal government...

INTERNATIONAL NEWS:

Eurozone posts unexpected surplus

The 16 countries that use the euro posted an unexpected trade surplus in September, official figures have shown...

GM says 10,000 jobs could go in European shake-up

U.S. carmaker General Motors could cut up to 10,000 jobs as part of its European restructuring plan and hopes to finalize the details within three weeks, a top executive said on Tuesday.

Nick Reilly, interim head of GM's European business, said the company must reduce its production across Europe by between 20 and 25 percent as part of the 3.3 billion euros ($4.9 billion) plan...

OTHER:

Cash is king for the holidays

...One in four consumers plan to pay with cash this holiday season, according to a new survey by the National Retail Federation. That's up 9.1% from a year ago...

Stimulus surprise: 15 million may owe IRS

An estimated 15.4 million tax filers may be getting paid more of the Making Work Pay credit than they should, according to a report from a Treasury Department inspector general publicly released Monday. And that means they either will get less of a refund than they expected, or will actually owe money to the IRS on their 2009 taxes....

The new flipping: short sales

Untold millions of dollars that banks could have recovered from the sale of distressed Florida homes have instead been pocketed as profits by a new breed of property flipper. These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say...

Recession intensifies GenX discontent at work

They're antsy and edgy, tired of waiting for promotion opportunities at work as their elders put off retirement. A good number of them are just waiting for the economy to pick up so they can hop to the next job, find something more fulfilling and get what they think they deserve. Oh, and they want work-life balance, too.

Sounds like Gen Y, the so-called "entitlement generation," right? Not necessarily, say people who track the generations. In these hard times, they're also hearing strong rumblings of discontent from Generation X. They're the 32- to 44-year-olds who are wedged between baby boomers and their children, often feeling like forgotten middle siblings — and increasingly restless at work as a result...

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A Smart Idea: Smart for Two Rent by the Minute Program

DaimlerChrysler Mercedes Smart ForTwo Hybrid Mini Car
Comment:
During this difficult time period for smart business ideas, this one looks like a winner. Daimler is offering its two person Smart car for rent at 35 cents per minute. They have already been doing this in Germany and they will begin it in Austin, TX first, with more cities in the U.S. to follow.

Car share programs are already popular, especially in a town such as the one I live in where there are quite a few people of driving age who only own a bicycle.

Reading of the details of this program, it looks like its set up to be extremely convenient and user friendly. Plus the chic car has that special appeal which will further promote participation in the program. It fits our times. More people will chose to live without a car and more families will go from two to one vehicle.

This is exactly the type of business model adaptation that we need to see right now, and its green, too! Now, would it be too much to hope for to have more cities prioritize smarter city planning to be pedestrian and bike friendly, as well?





For more, see these articles:
Renting a Smart car by the minute
Starting Car2Go - Smart Move for Daimler

--Kalpa


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Meredith Whitney on CNBC November 16, 2009

"You haven't seen this much credit contraction ever"
MEREDITH WHITNEY ON CNBC
(Eleven Minutes of Doom and Candidness)



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Why this Economic Picture is Becoming Muddier and Muddier

source

Good analysts continue to offer explanations of why the equity markets should not be up, bringing yet another day of an up market. There is an underlying nervousness and awareness that the actual state of our economy is not what the current illusion suggests. There are fault lines growing between believers and nonbelievers in a recovery, between inflationists and deflationists. A day of reckoning will be here sometime, but could interim mini-bubbles provide a stable period of instability that could last a couple of years?

Unfortunately, the derivative laden, credit driven, central bank determining global economy is immense and complex, allowing for many conflicting dynamics to occur at any given time. In this time of seemingly stable chaos we now have so many confusing policies, deflation trends, inflating mini-bubbles, and other dynamics going on, that statistics used in trying to generalize right now are at best inadequate and misleading.

Winners and losers are now determined by policy, not by logic or mathematics. Policy creates unintended consequences and muddied pictures. That, in turn, causes frustration in analysts and taxpayers, but is the intended, and dare I say successful, outcome of the Fed and policy makers.

Some of today's and tomorrow's chaotic subjects which make and will make statistical generalizations inadequate are:

• Central bank policies
• ZIRP creating mini-bubbles
• Low volume, high-trade equity markets
  
• The role of speculation in commodity markets
• Government fiscal policies which pick winners and losers
• Artificially high real estate prices due to policy
• The borrowing of future demand through housing and auto rebate programs
  
• GDP figures
• Money supply figures
• Lack of accounting transparency of banks
• Underlying explosive CDS's and other derivatives
  
• Increasing costs of servicing national debt
  
• Dollar carry trade effects on global asset prices
• Ongoing adjustment of currency valuations
• Shifting trade imbalances
• Growing importance of energy prices
  
• A changing and unpredictable consumer
  
• Ever decreasing trust in the system, morale hazard
  
• Hidden, unfunded costs of future entitlements and pension plans
  
• Unfair imbalances in access to credit for businesses
• Lending is becoming more risky, not less
  
• Private sector's re-balancing of essential vs. nonessential projects as related to worthy credit
• Variations in state balance sheets and taxes
• Regional variations in jobs and real estate values
  
• Personal situations - employed vs. unemployed
• Those in the FIRE economy vs. the rest
• Those with pension plans and those without
  
• Destruction used as a method to inflate asset values in cars, houses (expect increased role of this in the future)
• Global nature of the crisis
  

Keep in mind that if, in fact, we live in a world of deflating asset prices:

• Fed acquisition and backing of GSE's (government-sponsored enterprises) is quantitative easing.
  
• Forbearance of bank balance sheets and toxic assets combined with a policy of publicizing all losses will lead to quantitative easing of these toxins.
  
• Any programs which convert bad debt to fiat currency will eventually become the equivalent of quantitative easing (whether it be student loans, real estate, bad banks, worthless assets).
  

For a while, a game is played with taxpayers to convince them they've made a good involuntary investment in these assets that no one else wanted. They will surely gain in value and at the same time save our economy from a dreaded collapse. But as deflationary forces advance, these investments become more and more worthless.

There is not a decent market for these assets. The Fed won't easily unwind them. Unless a successfully manufactured inflation makes them start to look cheap at current prices. It's their only hope. These programs are debasing the dollar. These methods of problem-solving will continue until they can't by default.

Many have abhorred with fear that we will become like Japan, entering its second decade of deflation.

I only hope that we will be so lucky.

~~~~~~~~~~~~~~~~~~~

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Economic Opinion Picks November 16, 2009

Bruce Beattie

Comment:
There are ten picks today.

It is yet another day of an up stock market as I read article after article of warnings and nervousness concerning the actual state of our economy vs. the current illusory state of our economy, and of why the market should not be up.

1) Paul Krugman, NYT's, is getting increasingly worried and vocal about deflation. This is good.

2) Ambrose Evan Pritchard, UK Telegraph, writes also of deflation and China's role in the global economy. This is well worth reading in its entirety.

3) Surowiecki, for the New Yorker, writes about how a debt-encouraging tax policy influences entire economies and how it cannot easily be reverted, once in place.

4) From the W-P, the FHA and more on loose lending and where this will end up.

5) Waldman, Interfluidity blog, writes about regulatory short-comings and why they always have been and always will be that way.

6) Peter Schiff writes on an important insight on jobs losses vs. production reports. Don't miss this from Market Oracle.

7) This is on China, the US currency, jobs, debt, and more, from Yves Smith on RGE Monitor.

8) Robert Samuelson, W-P, writes why health care costs will only go up under Obamacare.

9) Ed Harrision, Credit Writedowns, writes about Roubini's latest gloom on unemployment.

10) Charles Hugh Smith, on Seeking Alpha, writes why the equity market should crash.


--Kalpa


The madness of the inflation hawks
by Paul Krugman

Wow. Matthew Yglesias catches David Ignatius worrying that the Fed may not have enough political support in its efforts to raise interest rates and fight inflation. As Matt correctly notes, this is a remote issue — unemployment is high, inflation is low, and the Fed has no business raising rates any time soon.

This really can’t be overemphasized. I like to use Glenn Rudebusch’s estimate of the Taylor Rule — a rule relating interest rates to unemployment and inflation — that appears to track past Fed behavior. The chart below shows the rate predicted by the rule versus the actual rate on 3-month T-bills (I’m using that rather than the target Fed funds rate for trivial computational convenience).:

Federal Reserve of San Franciso, Federal Reserve of St. Louis

The Fed has been up against the zero lower bound since the beginning of 2009, roughly when unemployment rose above 11 percent; right now the Taylor rule says that the Fed funds rate should be minus 6.7%.

So why should the Fed even be thinking about raising rates any time soon? We’re not likely to see 7% unemployment for years — and by the time we do, inflation will probably be even lower than it is now. I’d add that the Fed really should be raising its inflation target, meaning an even longer pause before it raises rates.

Monetary tightening shouldn’t be on the agenda for a long, long time.

China has now become the biggest risk to the world economy
by Ambrose Evans Pritchard

"The inherent problems of the international economic system have not been fully addressed," said China's president Hu Jintao. Indeed not. China is still exporting overcapacity to the rest of us on a grand scale, with deflationary consequences.

While some fret about liquidity-driven inflation, Justin Lin, World Bank chief economist, said the greater danger is that record levels of idle plant almost everywhere will feed a downward spiral of job cuts and corporate busts. "I'm more worried about deflation," he said.

...The world economy is still skating on thin ice. The West is sated with debt, the East with plant. The crisis has been contained (or masked) by zero rates and a fiscal blast, trashing sovereign balance sheets. But the core problem remains. The Anglo-sphere and Club Med are tightening belts, yet Asia is not adding enough demand to compensate. It is adding supply.

My view is that markets are still in denial about the structural wreckage of the credit bubble. There are two more boils to lance: China's investment bubble; and Europe's banking cover-up. I fear that only then can we clear the rubble and, very slowly, start a fresh cycle.

The Debt Economy
by James Surowiecki

...If the benefits are illusory, the costs are all too real. Economies work best, generally speaking, when people are making decisions based on economic fundamentals, not on tax considerations. So, as much as possible, the tax system should be neutral between debt and equity, and between housing and other investments. It’s not, and, worse still, as we’ve seen in the past couple of years, debt magnifies risk: if companies or individuals rely on large amounts of leverage, it’s much easier for bad decisions to lead to insolvency, with significant ripple effects in the wider economy.

A debt-ridden economy is inherently more fragile and more volatile. This doesn’t mean that the tax system caused the financial crisis; after all, the tax breaks have been around for a long time, and the crisis is new. But, as a recent I.M.F. study found, tax distortions likely made the total amount of debt that people and companies took on much bigger. And that made the bursting of the housing bubble especially damaging. So encouraging people to take on debt qualifies as a genuinely bad idea.

...The clearest hurdle to these changes may be political, but the bigger hurdle is, in a way, psychological: because tax breaks on debt have been around so long, we can hardly imagine what it would be like if we changed them, and we tend to underestimate their influence in shaping our behavior. Subsidizing debt seems harmless simply because we’ve always done it. But the fact that you’ve had a bad habit for a long time doesn’t make it less dangerous.

The FHA's nose dive
by W-P

...The problem here is that the government is taking taxpayers on such a death-defying ride in the first place. Like Fannie Mae and Freddie Mac, the FHA represented a huge federal gamble on the politically popular cause of homeownership. Now that Washington has lost that bet, it is doubling down, in a bid to prop up home prices just enough to prevent a wider collapse of the economy...

Certainly it's odd that the FHA is helping people get houses with very little equity even as rental vacancies are running at an all-time high of 11.1 percent. But the broader lesson is that federal subsidies have made the entire economy dangerously dependent on single-family housing. The sooner Congress and the president go to work on a long-term fix for that fundamental problem, the better.

Discretion and financial regulation
by S R Waldman

...The theory of "prompt corrective action" was and is very sensible. It's pretty clear that the social costs increase and the likelihood of an equitable resolution to problems decreases the longer banks are permitted to downplay weakness, the more regulatory forbearance banks are granted, or the more public capital banks are given. (An "equitable resolution", in this context, means giving the shaft to bank managers, shareholders, and unsecured creditors to minimize costs to taxpayers and to sharpen the incentives of bank stakeholders to invest well. "Regulatory forbearance" and "public capital injection" are redundant: Under current banking practice, regulatory forbearance is economically equivalent to an uncompensated injection of public capital, like TARP but without the messy politics and with no upside for taxpayers. Make sure you understand why.)

...As you read through the roughly 1400 pages of currently proposed regulatory reform, ask yourself what, if anything, would interfere with the (uncontroversial and long-understood) dynamic that I've described. Giving regulators more power doesn't help, when regulators have repeatedly failed to use the powers they had. Putting more bank-like institutions and activities under a regulatory umbrella seems sensible, as does eliminating opportunities for firms to choose among several regulators and shop for the most permissive. But even our most vigilant and competent regulator (hi FDIC!) was totally snowed by this and the previous two banking crises.

...If we don't change the structure of the financial industry, there's no reason to think that next time around regulators won't use the proposed resolution authority to do exactly what they opted to do this time. They won't even need to go to Congress for a new TARP, as Frank's proposal gives the executive branch carte blanche to provide financial firms unlimited guarantees and support...

U.S. Job Losses Demystified
by Peter Schiff

...An article in this week's New York Times by veteran writer Louis Uchitelle confirmed a fact that I have been alleging for years. Uchitelle pointed out that foreign outsourcing of component manufacturing has led to consistent overstatement of U.S. GDP and productivity. The connection goes a long way to explain why we keep losing jobs even as GDP is apparently expanding.

As our economy becomes less competitive due to higher taxes, burdensome and uncertain regulations, and capital flight, more manufacturing and services will be outsourced to foreign firms. However, the flaw in GDP calculation allows the output of those foreign workers to be included in our domestic tally. Since we count the output but not the worker responsible for it, government statisticians attribute the gains to rising labor productivity. To them, it looks like companies are producing more goods with fewer workers.

The reality is that we are producing less with fewer workers. The added “productivity” comes from higher unemployment and larger trade deficits. This is a toxic formula that will have lethal economic consequences....

China Lambastes Dollar “Carry Trade,” Diverting Attention from Its Currency Manipulation
by Yves Smith

...Now even though China is correct in accusing the US of stoking a global carry trade, they are not exactly free of blame either. China’s past and continued currency pegs helped enable US reckless borrowing.

And despite the many complaints of readers yesterday on a post on government deficits, let me point out one ugly fact. The main argument was “we need to cut our debt levels.” Guess what, sports fans. That will not, cannot happen across the economy unless we run trade (more accurately, current account) surpluses. Do you think this has a snowball’s chance in hell of happening if China keeps its currency pegged at favorable rates to the dollar? So China’s fulminating, even if narrowly correct, serves to distract attention from its own culpability in this mess.

And low dollar interest rates pose a particular problem for China. Its dollar purchases had been, and may still be, running at levels so high as to make it impossible to sterilize the purchases. The net effect is that they wind up importing our loose money policy to the degree that they cannot fully sterilize the dollar purchases they make to suppress the value of their currency. Some recent reports (admittedly anecdotal) suggest inflation in China is running at 15%, which is the upper limits of what the population will tolerate. So the Fed’s policy is of even more immediate interest to China...

Obamacare: Buy now, pay later
by Robert Samuelson

There is an air of absurdity to what is mistakenly called "health-care reform." Everyone knows that the United States faces massive governmental budget deficits as far as calculators can project, driven heavily by an aging population and uncontrolled health costs. As we recover slowly from a devastating recession, it's widely agreed that, though deficits should not be cut abruptly (lest the economy resume its slump), a prudent society would embark on long-term policies to control health costs, reduce government spending and curb massive future deficits. The administration estimates these at $9 trillion from 2010 to 2019. The president and all his top economic advisers proclaim the same cautionary message.

So what do they do? Just the opposite. Their far-reaching overhaul of the health-care system -- which Congress is halfway toward enacting -- would almost certainly make matters worse. It would create new, open-ended medical entitlements that threaten higher deficits and would do little to suppress surging health costs. The disconnect between what President Obama says and what he's doing is so glaring that most people could not abide it. The president, his advisers and allies have no trouble. But reconciling blatantly contradictory objectives requires them to engage in willful self-deception, public dishonesty, or both...

Roubini: For unemployment "the worst is yet to come"
by Edward Harrison

Nouriel Roubini, writing in the New York Daily News , said on Sunday that “unemployed Americans should hunker down for more job losses” given the likelihood of a job less recovery. This was as gloomy a piece as I have seen from Roubini in the past few months. He has clearly become more downbeat about the long-term picture for the U.S. economy.

The article begins:

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%…

…we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

...

Why the Stock Market Should Crash
by Charles Hugh Smith

I'm not saying the stock market will crash, only that if it had any relation to the real U.S. economy that it should crash, and soon.

The current politics of experience is so warped by misleading statistics and orchestrated propaganda that it feels strange to state the obvious and find it is "that which cannot be spoken" -- the credit-dependent, consumer-dependent U.S. economy is going down, and going down hard, and the trillions of dollars borrowed and spent by the U.S. government and Federal Reserve to crank up a recovery have failed completely, utterly and totally.

...We are walking through the desert, kept alive by the sugar-water drip of Federal stimulus, guarantees and subsidies. The "so near, yet so far" mirage of "recovery" has been propping up the stock market for nine months, and when a slight breeze blows away the thermal illusion, then the market will crash back to the March lows, or perhaps even lower. That crash will simply reflect the state of the real economy.

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Weekend Economic News Links November 15, 2009

source
Here are a few links for the weekend...

Comment:

I'll just report that the restaurants in this town recently seem to be overflowing. Last weekend there was a two hour wait at the first three places we went to until we finally found a spot with no wait. This weekend, the same. Three places we checked out were filled to capacity.

A relative reports from the Midwest that there are an above average number of new homes beginning construction in their small town and recent farmland sales are setting near all time records in price per acre. They see no evidence of a recession.

Go figure. That's just my two cents for today. Tomorrow, I'll blow with the wind in different direction.

--Kalpa


U.S. trade gap widens even as weak dollar aids exports

A weaker dollar may boost the nation's economy by increasing exports and narrowing the trade gap -- but that won't happen anytime soon. Instead, the nation's trade deficit rose in September by the largest percentage in a decade as U.S. exports grew for the fifth straight month, but imports rose faster, a government report showed Friday...

Bank failure toll reaches 123

Two Florida banks and one in California failed Friday night, bring the 2009 national tally to 123. Regulators closed Century Bank, Federal Savings Bank in Sarasota, Fla., Orion Bank in Naples, Fla., and Pacific Coast National Bank in San Clemente, Calif...

China rounds on U.S. rates as global economic risk

Ultra-low interest rates in the United States are fuelling speculation in overseas asset markets and threatening the global economic recovery, a senior Chinese official said on Sunday. In unusually blunt criticism of U.S. monetary policy on the day that President Barack Obama arrives in China for a visit, Chinese banking regulator Liu Mingkang said the Federal Reserve's pledge to hold down borrowing costs and the weak dollar had emerged as a "new systemic risk."...

Home Builders (You Heard That Right) Get a Gift

ON Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April. But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate...

State Finance Directors Warn of More Trouble Ahead

Michigan and California are likely to face a fresh round of budget woes when federal stimulus funds used as a fiscal crutch dry up, finance directors for the states said Friday. Short-term budget gaps have battered states as revenues plummeted during the recession. Aided by about $250 billion in funds from the stimulus package expected through the end of next year, states managed to close the gaps this year....

Small-business loan program still bogged in paperwork and hesitance

Despite Gov. Bill Ritter's attempt to ignite banks' interest in a stimulus-funded loan program for small businesses, the emergency aid is still lagging and businesses are still suffering. Some gains have been made, government records show. By October, Colorado banks had issued 39 loans worth $1.2 million through the America's Recovery Capital program, lifting the state from the bottom of the pack nationally toward the middle.

Nineteen states have made fewer loans than Colorado. And the number of banks in the state embracing the program has swelled to 16 from just a handful last summer. But state officials and businesses leaders are still flustered, saying the Small Business Administration needs to consider overhauling the program, given banks' reluctance to participate and complaints about cumbersome paperwork....

Western Slope horse shot, left to die

As investigators on the Western Slope look for the person who shot a horse in the head and left the animal to die, horse-rescue groups say equine abandonment is on the rise because of the sour economy....

CDC's swine flu toll: 4,000 dead, 22 million ill

Estimates of deaths caused by the swine flu have grown to nearly 4,000 since April, roughly quadrupling previous estimates...Most cases still don't require a doctor's care. Swine flu has sickened about 22 million Americans since April and killed about 540 children...

Blizzard Renews Storm Over China Making Snow

...This week's storm follows an unusually early snowfall that blanketed Beijing on Nov. 1. Government media attributed the intensity of that storm to the Beijing Weather Modification Office, which is responsible for cloud-seeding operations in the capital, whose downtown area is surrounded by farmland. The state-run Xinhua news agency quoted a top official at the office saying it had created 16 million metric tons of additional snow. "We won't miss any opportunity [for] artificial precipitation since Beijing is suffering from the lingering drought," the official, Zhang Qiang, was quoted as saying. The government's role in that storm angered some people....

Alleged 9/11 Plotters Face Trial

Khalid Sheikh Mohammed, the alleged mastermind of the Sept. 11, 2001, attacks, will be tried at a federal courthouse in lower Manhattan, just blocks from the former World Trade Center site, in the ultimate test of the Obama administration's strategy of trying terrorist suspects in U.S. civilian courts...Friday's announcement sets up what may be the trial of the decade, with the world's eyes fixed on lower Manhattan as the U.S. government lays out for the first time in a public courtroom how it thinks Mr. Mohammad plotted the deaths of nearly 3,000 people....

The State of the American Economy in One Chart

The chart below shows that interest rates have been decreasing by approximately 0.5% every 2 years. Put simply, As the price of debt becomes cheaper more is created and then spent, and that effectively is the economy....In 1981 the 30 year bond which is a good approximation for mortgage rates, was yielding 14% today it yields 4%....

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Falling Dollar and Growing Trade Deficit

The biggest story in the past 24 hours is that of the increasing trade deficit and the falling dollar. The trade deficit had its biggest one month increase in sixteen years in September.

A key interview is this, from the transcript of the Nightly Business Report link following:

SUSIE GHARIB: Our trade deficit is getting bigger, much bigger. The latest numbers from the Commerce Department today show the U.S. trade deficit expanded more than 18 percent in September. That's the biggest one-month increase in 10 years. Now even though American businesses increased exports, imports, especially oil imports, rose even more. Economist David Wyss says the trade gap is a threat to the economic recovery.

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S: The major risk is that we get into a downward spiral that the trade deficit will put downward pressure on the dollar. That could cause foreign investors to try to pull out of U.S. assets sending interest rates higher and further slowing economic growth in the United States.

Here are two good summaries of the story for you:

1) From the Nov. 13 PBS's Nightly Business Report, watch minutes 1:30 to 5:00 11/13/09-Trade Deficit Grows & The Dollar Shrinks. Or, if you prefer, the transcript here.

2) And from Nov. 14 WSJ, Sinking Dollar Aids Exports, but Trade Gap Grows

... The 5.8% increase from August was the largest one-month percentage gain in 16 years, and helped push the trade deficit to $36.5 billion in September from $30.8 billion the month before. "The widening deficit is a warning that as U.S. domestic demand increases, imports will bounce more than exports," said Nigel Gault, chief U.S. economist at consulting firm IHS Global Insight. "That means that the trade deficit will keep widening, and that trade will be a drag on growth."

...Even so, "the dollar may need to decline further," said Mr. Pandl, to spur exports enough to help narrow the trade gap and boost U.S. economic growth.

This is a delicate balancing act. Winners and losers and unintended consequences emerge every step of the way.

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The Eliica Electric Car

Eliica stands for Electric Lithium-Ion Car.
Peak electric car, anyone???
Made in Japan.
It has eight wheels.
It goes 0 to 60 in 4 seconds.
Price +/- $400,000, 2/3 cost is batteries.
Company Website: link.
Worsleyschool.net link.
Wikipedia link.







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Agricultural Economic News November 13, 2009

Via Steve Breen
Comment:
The only given in agricultural commodity markets right now is perhaps unpredictability and volatility.

This feels like an interim time period of what I referred to yesterday as stable instability wrought with mini-bubbles. There are many who fear the falling dollar and think that commodities and farmland are the only place to be. Agricultural commodity ETF's are being touted. Jim Rogers still says farmland is the best investment out there.

I see a disconnect in this just like there is now a disconnect in the equity markets from reality. Small numbers of traders at low volumes make for complete irrationality. Agricultural commodities have in general, moved lower for a year at alarming rates along with other deflationary trends. The UK Farmer's Weekly review (below) expresses a fear that higher input costs will make European farmers unable to make a profit. This has been my worry here in the U.S. for some time. The global deflating economies determine prices, not the number of people in the world who have to eat. Yes, food will be the last budgetary item remaining on any shopper's list, but that doesn't guarantee that the farmer will be adequately reimbursed.

A counterargument for strength in Ag commodities would be that investor liquidity could create mini-bubbles in agricultural commodity and farmland speculation, just as has happened in the equity markets. See this comment from Roy Smith of Agriculture Online:

Even the corn market has failed to succumb to the huge crop that is out there. Word has it that the strength of the grain markets is due in large part to outside money coming into the commodities. If speculators want to be long the grains, that is fine with me as long as they play by the rules.

In conclusion, caution is prudent. Speculation, deflationary forces, inflationary bubbles, farm credit costs, weather and energy price volatility make this a game for gamblers. Those who are so sure that these investments are givens must also realize that nothing is predictable or a sure thing right now.

--Kalpa


WATER AND WEATHER:

Farmers scramble to finish harvest from hell

...The clock is ticking on farmers like the Pierce brothers all across the Midwest as they scramble to bring in the largest U.S. soybean crop on record and the second-largest corn crop before winter arrives. Late-maturing crops and persistent rain throughout October halted fieldwork, making this the slowest start for the U.S. harvest since the 1970s. The delays -- and questions about crop quality -- have kept Chicago Board of Trade grain markets on the boil.

..The United States produces 40 percent of the global corn crop and 35 percent of all soybeans, and is the leading exporter of both commodities. In a normal year, farmers would be nearly finished harvesting the two primary crops, which help feed people across the globe, from Europe to Asia to Africa. By November 1, U.S. farmers had brought in only half the soybean crop and one-quarter of the corn, well below the five-year averages of 87 percent and 71 percent, respectively.

...Because high-moisture grain cannot be stored or processed properly, many farmers will pay to have their crops dried at grain elevators -- cutting into their profits and further slowing the harvest. "In some cases, depending on the yield, the drying charges alone are running $100 to $150 an acre, which is more than what some of the (land) rents are," Ron Pierce said...

Like cloud lifted, drought eases

...The nationwide multiyear drought, which was at its worst in 2002 and continued until last year, is over. Across the West, formerly parched pastures, dry streams and low reservoirs have been replaced with soggy fields and flooded grasslands. The USA is now in the least amount of drought since monitoring began 10 years ago, said climatologist Brian Fuchs of the National Drought Mitigation Center....

Water plan goes easy on ag users, critics say

Cities across the state must slash water consumption by about 20 percent over the next decade under newly passed legislation aimed at reworking the aging policies and plumbing that determine water flow to 38 million Californians. But the California agriculture industry, which consumes an estimated three-quarters of the water used in the state, won't have to change its practices much under the new rules. And that vexes many involved in the political wrangling over water in a state where global warming, population growth and crumbling infrastructure are forcing wrenching changes in the way natural resources are divvied up....

U.S. NEWS:

Cost of Thanksgiving food down this year

The cost of a traditional Thanksgiving turkey dinner is down $1.70 this year compared with last year, the American Farm Bureau Federation says....

Federal Reserve says Midwest farm economy weakens

The Federal Reserve Bank of Kansas City says lower income contributed to a weaker farm economy during the third quarter in some Midwest and Western states. The Fed's survey of banks in the 10th district says falling crop prices and weak demand for meat contributed to lower income....Across the district farmland values remained steady from the second quarter to the third quarter, but compared to a year ago, farmland values were down 2 percent to 4 percent.

Farmers flock to low-interest USDA loans

...demand is skyrocketing for low-interest operating, farm ownership and emergency loans from USDA's Farm Service Agency (FSA)....the requests almost doubled from the prior year. Direct Operating loan obligations were about $629 million in fiscal 2008, compared to $1.2 billion in fiscal 2009.

..."This cycle of promoting the expansion of corporate livestock production with taxpayer money, then bailing out the industry because of overproduction with taxpayer money is an irresponsible practice and must come to an end," said Rhonda Perry, a Howard County, Mo., livestock and grain farmer and program director of the Missouri Rural Crisis Center. "You can't justify loans for new operations and more livestock when the current hog farmers are barely treading water or are going out of business altogether."

...For now, USDA seems to be ignoring the calls for targeting credit to only certain types of farming and ranching operations. A spokesperson for USDA said the agency “has concerns about actions that would restrict credit,” especially during these tough economic times. “Any proposed action that would restrict credit availability will be reviewed carefully to determine whether making changes of this nature would be prudent."

USDA still expecting record Nebraska corn crop

...The U.S. Department of Agriculture says that, based on Nov. 1 conditions, the corn crop should hit 1.58 billion bushels -- 14 percent higher than last year's 1.39 billion bushels....

AGRICULTURE SECRETARY VILSACK ANNOUNCES $13.4 MILLION IN COMMUNITY CONNECT BROADBAND GRANTS

Agriculture Secretary Tom Vilsack today announced the selection of 22 projects in 10 states to receive $13.4 million in broadband community connect grant funds. "The Obama Administration recognizes that modern technology is critical to the expansion of business, education, and health care services in rural areas and the competitiveness of the nation's small towns and rural communities," Vilsack said...

Welcome to the Clone Farm

To the untrained eye, Pollard Farms looks much like any other cattle ranch. Similar looking cows are huddled in similar looking pens. But some of the cattle here don't just resemble each other. They are literally identical -- clear down to their genes. Of the 400-some cattle in Barry Pollard's herd of mostly Black Angus cattle there are 22 clones, genetic copies of some of the most productive livestock the world has ever known. Pollard, a neurosurgeon and owner of Pollard Farms, says such breeding technology is at the forefront of a new era in animal agriculture...

USDA announces big apple purchases

It’s apple shopping time at the U.S. Department of Agriculture. Agriculture Secretary Tom Vilsack, in Kansas City, Mo., on Veterans Day, said the agency plans to soon purchase $18.6 million in apples and apple products. The apple industry has been urging the USDA to make apple purchases a priority for the past year, said Nancy Foster, president of the U.S. Apple Association, Vienna, Va...

Afghans tour Colo. farms to pick up agriculture tips

Dr. Noor checks out a goat herd Wednesday at the Weaver 4 Ranch as part of a U.S. government effort to create profitable agricultural opportunities for Afghan farmers in the hope of weaning them off the poppy trade that helps finance the Taliban insurgency. (RJ Sangosti, The Denver Post)

If the United States really wants to stabilize Afghanistan, say six Afghans visiting Colorado farms, then it should focus more on building agricultural options beyond the illicit drug trade for the war-torn nation's mostly agrarian people. "If we keep people busy in agriculture, that will be good for security," said Abdul, a veterinarian from northern Afghanistan...

Texas expected to harvest 4.9 million cotton bales

Statewide, Texas cotton producers overcame dry conditions and are expected to harvest 10 percent more of the fluffy fiber than last year. Estimates released earlier this week by the U.S. Department of Agriculture show that the nation's leading cotton-growing state will produce 4.9 million bales, up from the 4.4 million bales in 2008. If realized, Texas producers will account for 39 percent of the nation's harvest. U.S. producers are forecast to harvest 12.5 million bales, the smallest crop in 20 years...

USDA Rural Development invested over $130.9 million in rural Vermont during FY 2009

Rhonda Shippee, Acting State Director for USDA Rural Development in Vermont is pleased to announce the investment of over $130.9 million in rural Vermont during Fiscal Year 2009. “With over 46 programs supporting infrastructure, broadband, homeownership, home preservation, business development, energy conservation and renewable energy, Rural Development’s traditional funding along with Recovery Act dollars, we are pleased to share how these investments will be used in Vermont.” said Shippee...

FDA approves camelina as cattle feed supplement

Camelina companies say federal officials have approved the use of meal from the biofuels crop as a 10 percent supplement in cattle feed — a development that could boost the prospects for Montana's fledgling camelina industry....

URBAN AGRICULTURE:

How grafting can turn a fruit tree into an orchard

Although it might sound like something an unscrupulous politician would engage in, grafting is the art of growing different varieties on a single host plant. Instead of having a dozen different fruit trees, you can, with some planning and research, have a dozen different fruits growing on a single tree...

Chickens come home to roost in backyards around the USA

...A trend in backyard chicken farming is taking hold as urbanites, eager to scoop up flavorful organic eggs, discover how easy it is to get started. A simple coop, a pen and a little feed are such a low entry bar that people are flocking to try their hand at keeping chickens in a tough economy.

About 150 communities have launched Meetup.com networks of hobbyist chicken farmers in the past two years, says Andy Schneider, host of Backyard Poultry With the Chicken Whisperer on blogspot radio. "It's not that complicated" to raise chickens, says Dave Belanger, publisher of Backyard Poultry magazine, which has seen subscriptions climb 42%, from 62,000 to 88,000, in the past year. "It's hard to mess it up."...

INTERNATIONAL NEWS:

Argentina Wheat Harvest to Plunge on Drought, Locust

Wheat output in Argentina’s biggest producing region will plunge 70 percent in the current harvest because of dry weather and locust swarms, an analyst at a local cereals exchange said....

Bumper wheat crop in Victoria goes against the grain

Generous winter rains, coupled with relatively mild temperatures through September and last month, have local graingrowers confident of a bumper harvest after more than a decade of drought-induced heartbreak....The national wheat crop is forecast to be an above-average 22.8 million tonnes "with some potential for upward revisions if the harvest remains broadly trouble-free", the report says.

....But the news isn't all good for the country's farmers. Some grain prices have halved in the past year. "They are quoting about $140 a tonne for malt barley ex-farm, and this time last year we were looking at $300. That is impacting dramatically on the overall profit," Mr Weidemann said. "We may have been financially better off with some of poorer yields we had, because the prices were so much better." ABARE is forecasting a $6.4 billion wheat crop. Last year's crop, though smaller, earned $7.1bn thanks to higher prices.

Kenya among food crisis nations, UN

Kenya is among 31 countries in crisis requiring external assistance, because of lack of resources to deal with critical food security problems, the UN has said. The Food and Agriculture Organisation (FAO) said Kenya is facing an exceptional shortfall in aggregate food production or supplies as a result of crop failure, adverse weather and lingering effects of the post-election violence of 2008...

Farmer's Weekly News Review (European) 3.5 minutes:


El Salvador facing food shortage

About 10,000 people in El Salvador are in need of food aid after devastating floods washed away crops. Three days of national mourning are being held following the deaths of at least 140 people in the floods...

COMMODITIES:

Wheat +3.75 cents = $5.355 a bushel
corn -2 cents = $3.885 a bushel
soybeans +5 cents = $9.95 a bushel
oats unchanged = $2.69 a bushel
December live cattle +27 cent = 83.12 cents a pound

Agricultural Exports

Agricultural prices fell for the third time in the past four months in October, declining 1.0 percent after recording a 3.0 percent decrease in September. Falling prices for soybeans and wheat, down 7.5 percent and 6.1 percent, respectively, continued to drive agricultural prices lower. In contrast, a 9.2 percent rise in corn prices partially offset those declines. The price index for overall agricultural prices decreased 10.0 percent for the year ended in October.

Jim Rogers: Invest in agri commodities, not in gold

...Jim Rogers had a war of words with economist Nouriel Roubini last week on the price of gold. While Rogers holds to his belief that gold price will fly higher, he is not keen to invest in gold at this high price. Instead, Rogers loves to invest in agri commodities in countries like China. And in agri commodities like maize, coffee, soybeans etc....

Food price volatility has become permanent

Volatility in food and agricultural commodities prices has become a permanent feature of global markets due to speculative trading, the chairman of the world's biggest food group, Nestle, said. Food prices spiked in 2008 due to a rally in agricultural commodities, triggering riots in poor countries and panic buying in rich nations. Prices have fallen back since than but have remained volatile and are hovering well above 2006 levels...

USDA To Help Pork Producers

The U.S. Department of Agriculture will acquire $50 million in pork products from America's pork producers to aid the struggling industry.The purchase was announced today by Agriculture Secretary Tom Vilsack.Domestic hog farmers have suffered from a drop in international demand since the outbreak of H1N1... originally called swine flu.The pork products purchased by the USDA will be donated to school lunch programs and other federal nutrition programs.The USDA is also buying tart cherries, plums and apples in a bid to help those struggling industries.

Rising Food Prices

...the question is whether the food can be grown in the developing world where the hungry can actually get it, at prices they can afford. Poverty and difficult growing conditions plague the places that need new production most, namely sub-Saharan Africa and South Asia. While agricultural commodities, unlike precious and industrial metals, have not been stellar performers this year, supply constraints and inflationary expectations [probably] will change this picture. Investors looking to make a play on food prices through ETFs have two primary options: the PowerShares DB Agriculture Fund (NYSEArca: DBA) and the iPath Dow Jones-UBS Agriculture Subindex Total Return ETN (NYSEArca: JJA)...

FARMLAND PRICES:

Land values stable despite signs ag credit crunch is coming

..."Despite weaker farm incomes and credit conditions, district farmland values held steady in the third quarter, remaining below year-ago levels," the Kansas City-based economist said this week in a Fed report detailing the results of a survey of the district's ag lenders. "Since falling in the fourth quarter of 2008, District farmland values overall appear to have reached a plateau."...Don't forget about interest rates, warns another farmer. History has shown land values are subject to where interest rates go, says Farm Business Talk member GoredHusker, and that's the key variable to watch moving forward.

Where to invest in farmland

...For anybody brave enough to invest in the Ukraine where you can't buy land, but purchase the right to lease it, it can now be acquired from practically nothing to £124/ha. Last year, before the collapse of Lehman's, international funds were paying up to $1,000/ha (£620) to acquire those lease rights. Unfortunately, many of them were short-term speculators and never intended to farm the land or didn't have the capital to do so. Now, they're forced sellers. People don't realise that land acquisition only accounts for about 35% of the cash required to farm in the Ukraine, explains Mr Oliver.

...South America has also had a lot of interest from investors again, because large acreages are available cheaply. As an investment target, Brazil has the edge over Argentina because it's more politically and economically stable. Much of Argentina's best cropping land is also already quite fully priced....

Is Africa selling out its farmers?

For centuries, farmers like Berhanu Gudina have eked out a living in Ethiopia's central lowlands, tending tiny plots of maize, wheat or barley amid the vastness of the lush green plains. Now, they find themselves working cheek by jowl with high-tech commercial farms stretching over thousands of hectares tilled by state-of-the-art tractors – and owned and operated by foreigners....

FOOD SECURITY:

World food prices to stay high, spikes possible

... International cereals prices have dropped 30 percent on average so far this season from the same period last year, but wheat and maize prices spiked in October, FAO said in its latest report on crop prospects and food situation released this month. Wheat prices rose in October after falling for four consecutive months, driven higher by a weakening US dollar and rises in maize prices. However, wheat export prices have dropped 56 percent from their peaks in March 2008. Maize prices rose sharply in October as bad weather hindered harvesting in the United States, but they were still 40 percent below peaks seen in June 2008....

Why is the number of hungry people rising?

...The number of hungry people rose by roughly 100 million in 2009, due to the combined effect of the global financial crisis and a spike in the price of basic food commodities like wheat and rice in 2007-08. The food price rises were due to multiple factors -- including droughts, high energy prices and market speculation -- and sparked riots, trade restrictions and hoarding. It also led richer food importers to buy farmland abroad, in an attempt to secure future food supplies...The financial crisis compounded this by reducing aid flows, foreign investments and global remittances that migrant workers send back home to help their families...

Food self-sufficiency ‘is a nonsense’

The drive towards self-sufficiency in response to last year’s food crisis will fail, a top executive at Cargill has warned, adding that the idea that countries “can be self-sufficient in every single food is a nonsense”.

The warning by the world’s largest trader of agricultural commodities comes ahead of the UN World Summit on Food Security in Rome, the first since 2002. The summit was prompted by the surge in the price of staples such as rice and wheat, which last year hit record highs, sparking food riots in countries from Bangladesh to Haiti. The drive towards self-sufficiency in response to last year’s food crisis will fail, a top executive at Cargill has warned, adding that the idea that countries “can be self-sufficient in every single food is a nonsense”.

The warning by the world’s largest trader of agricultural commodities comes ahead of the UN World Summit on Food Security in Rome, the first since 2002. The summit was prompted by the surge in the price of staples such as rice and wheat, which last year hit record highs, sparking food riots in countries from Bangladesh to Haiti....

World Hunger

According to Jacques Diouf, the director-general of a U.N. food agency, that's how often a child dies of hunger. That's equal to 600 children an hour, or 14,400 each day. Next week, the Food and Agriculture Organization will host a summit in Rome to address the "enormous tragedy" of world hunger, which Diouf described Wednesday as "not only a moral outrage and an economic absurdity, but also it presents a serious threat to our collective peace and security." Recalling the food riots of 2007 and 2008 in 22 countries, Diouf said: "Remember, hungry people are also rightly angry people."

BIOFUELS:

Venture capitalists not interested in ethanol

According to a report recently completed by Lux Research, venture capitalists’ (VCs) interest in funding cellulosic ethanol projects has already passed its peak. Furthermore, the results of the report, titled “Funding Exits for Biofuels and Biomaterials Investors,” show that VC investment in corn ethanol is essentially over...

$900K in grants offered for ethanol, biofuel switch

There's $900,000 in matching grants waiting for Arizona businesses and local governments that want to start using ethanol or biodiesel fuels in their vehicle fleets, a little-known and relatively small part of the American Recovery and Reinvestment Act...

Study seeks steady supply for Mich. ethanol plant

Researchers from Michigan State and Michigan Technological universities are seeking to ensure a steady and sustainable supply of material for the state's first wood-based ethanol plant...

Low-Emission Transportation Needs Assist From Policymakers

Several low-emission technologies have the potential to transform the transportation sector within five years if policymakers and regulators can help clear hurdles to commercial markets, according to a new report. The report, released Tuesday by the consulting firm Accenture, identifies 12 technologies -- including algae-based biofuels, next-generation internal combustion engines and electrification -- that it considers most likely to quickly transform the fuels sector....Among the most promising technologies, Accenture says, algae-based biofuels will be the most difficult and will take the longest to bring to commercial scale...

GMO'S:

Monsanto Facing ‘Distrust’ as It Seeks to Stop DuPont

Monsanto Co., reeling from its first market-share losses to DuPont Co. in a decade, may be losing the confidence of some investors based on early results from the new modified seeds it’s counting on to beat competitors.

DuPont, the second-biggest seed maker, grabbed U.S. sales from Monsanto this year, showing its larger rival that farmers won’t always pay for the most advanced seeds. Monsanto aims to regain market share with corn that contains eight genetic changes and the first update of its herbicide-resistant soybeans in 13 years.

Monsanto Chief Executive Officer Hugh Grant is counting on the new soy and corn varieties to add $1 billion to profit by 2012. A survey of growers early in the harvest now under way indicates the seeds aren’t meeting yield expectations, contributing to an 11 percent decline in Monsanto’s shares the week the results were circulated....

OTHER:

Small cattle make big impression

Karl Falster and his wife Nancy own Falster Farm and Cattle, where they raise organic Miniature and standard Herefords, seven miles South of Winnsboro, in Wood County...Falster said the Miniature Herefords has been successful because they can be profitable, while still requiring less maintenance than a modern, or standard-sized, cow...

Female farmers find goats a good, but busy choice

Goats are small, compact animals that serve a dual purpose -- they produce milk and can be used for meat. Goats are easier to handle than some bigger animals, making them a popular choice for some female farmers....

For farmers, small is beautiful

Deeply Rooted: Unconventional Farmers in the Age of Agribusiness
Lisa M. Hamilton
309 pages, hardcover: $25.
Counterpoint, 2009.

....Hamilton depicts a world where farmers can be sued for saving their own seed, where dairies have ballooned to 10,000 cows, where a rancher gets only about 90 cents from a $7 steak. Yet she leaves the reader feeling hopeful. The small farmers she comes to know are "the faithful, the ones who believe, despite everything society shows them, that what they are doing is worth it — that it is vital." It would behoove the rest of us, Hamilton implies, to remember that.

Agritechnica 2009, the world's largest indoor machinery show in Hanover, Germany


Here We Grow (whole foods video)


Previous links:
If you wish to go back and read previous threads of Ag Econ news here are the links to the past 6 weeks.

November 6th

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October 2nd



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Boulder Museum of Contemporary Art and Its Urban Chicken Exhibit

Comment:
The Boulder Museum of Contemporary Art is currently exhibiting a novel chicken coop exhibit. You cannot say it's not art because it is, and it's unexpectedly delightful. Many talented people were involved in the construction, planning, in depth study and design of this project. Students from the University of Colorado's Environmental Design team under the guidance of CU Professor Richard Saxon from the Art and Art History Department, created the “Chicken Shack Village” photo spread and three of the five chicken coops in the exhibit.

One design for some lucky chickens is a strawbale house and another collects rainwater from its roof. All looked like a whole lot of fun to live in, if you are a chicken, or maybe, a kid. Rob Pyatt, College of Architecture and Planning, led his "design and build" class to construct a metal industrial strength model, also on display, to market for homeowners.

The art museum, and thus, this project is located adjacent to where the Boulder Farmer's Market is held and viewing is(was) free on market days.

Related Link:
UrbanHens-Building Community One Hen at a Time - boulder colorado

If every U.S. citizen ate just one meal a week (any meal) composed of locally and organically raised meats and produce, we would reduce our country’s oil consumption by over 1.1 million barrels of oil every week. Small changes in buying habits can make big differences. Becoming a less energy-dependent nation may just need to start with a good breakfast.
----Steven L. Hopp, “Animal, Vegetable, Miracle” by Barbara Kingsolver

The museum display included live chickens on exhibit the opening weekend. While I viewed the exhibit, the chickens were there, in and out and all around the houses in my imagination. And if anyone reading knows how many beautiful chicken breeds there are, that is truly an artful subject.

--Kalpa


The idea that humans with urban lifestyles can raise chickens locally in a healthy way is far more beautiful than any object that could be physically created.
---- Jeffrey Troutman, senior in environmental design

Economic News November 12, 2009

link
Comment:
Don't ask me why, as it is no secret to my regular readers that I am a doom queen, but today I felt that there was more optimism in the news, or perhaps my mood was such that I focused more upon the positive. Granted, the bad stuff has been swept under the rug and remains. It's not going away and must be dealt with. But can it be dealt with in a controlled fashion of gradual reduction through improved governing until it's no longer a systemic risk to our nations? Are we set for a few years of unstable stability as we zig zag up and down along a new flatter growth model, mini-bubbles and all that? With an acceptance of a lower standard of living which may increase our domestic product of happiness?

Everything becomes very difficult to anticipate and interpret when the Fed and the government owns, controls, and intervenes at the level in which they are now intertwined into our former economy's free enterprise model. Plus, we have learned by now that they will do anything beyond what we might have imagined in order to prop up the financial industry and they will continue to do so. They are picking winners and losers in the process, along with the more appropriate winners and losers which are being determined through the adaptation and ingenuity already emerging from the private sector.

Little examples emerging would be the beginning of competition of the production of low cost cars. Tata was first, now Nissan Renault is trying to upstage their success. Does this not make sense? We drive one person to a car and sign our lives away when we purchase one? The second example I'll use can be found in the wonderful WSJ article below, inspiring a restoration of faith in innovation of the creative and adaptive 20-something year-old students in this nation, who are now choosing to make things with their hands, go into mechanical engineering in higher numbers, and share "hackerspaces". This is being referred to as the Industrial Revolution No. 2.

Though at a snail's pace in response to the gravity of the crisis, perhaps even government is beginning to turn around and address the problems that created our crisis. Disclaimer: Please don't think this means that I like or endorse anything out of Washington as of yet. Thank goodness for negative polls spawning some actions, which have partially made up for the unbelievable citizen apathy I harp upon daily. Political corruption created our problems, now the pendulum needs to swing back to solve them.

That said, please write 3-10 page bills, Washington, not 1,200 page ones! We know what you're up to!

--Kalpa


.... earnings report...

Bulgari third-quarter profit slips 70%

....Jobs...

Applied Materials to slash 1,500 jobs

THE LATEST:

Jobless claims lowest since January

The number of Americans filing first-time claims for unemployment insurance fell last week to their lowest level this year, the government said Thursday. There were 502,000 initial job claims filed in the week ended Nov. 7, down from an upwardly revised 514,000 the previous week...

Stocks Fall Into the Red

Stocks moved to their lowest point of the session near midday Thursday as crude oil futures extended their declines, pulling the energy sector down further, while the dollar continued to climb...

FDIC Orders Banks to Prepay $45 Billion to Rebuild Deposit Fund

U.S. lenders will prepay three years of premiums to replenish the government’s deposit insurance fund drained by the fastest pace of bank failures in 17 years, the Federal Deposit Insurance Corp. decided today...

Mortgage Rates Fall This Week; 30-Year Fixed at 4.91%-Freddie

...Treasury yields, which hit multi-decade lows earlier this year, have been bobbing up and down recently after they retraced from a big rebound in the summer. Mortgage rates tend to follow the yields...

U.S. NEWS:

Wall Street Faces ‘Live Ammo’ as Congress Aims to Unravel Banks

Seven Wall Street lobbyists trooped to Capitol Hill on Nov. 9, hoping to convince Representative Paul Kanjorski’s staff that his plan to dismantle large financial firms was a bad idea. They walked out with a sobering conclusion, according to the accounts of two attendees who requested anonymity because the meeting was private. Not only was Kanjorski serious, he planned to offer the legislation as early as next week -- and it just might pass.

...Senator Bernie Sanders, a Vermont independent, would give Treasury Secretary Timothy Geithner 90 days to come up with a list of banks, hedge funds and insurance companies deemed “too big to fail.” Geithner would have one year to break them up. The proposals are a turnaround from 10 years ago, when Clinton signed the Gramm-Leach-Bliley Act. It gave rise to financial conglomerates active in retail banking, insurance, stock brokerage and proprietary trading.

Since then, the largest U.S. financial firms have more than tripled in size. In 1999, the five largest firms -- Citigroup, Bank of America, Chase Manhattan Corp., Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co. -- held $2.5 trillion in assets. As of Sept. 30, Bank of America, JPMorgan, Citigroup, Wells Fargo & Co. and Goldman Sachs Group Inc., now the five largest financial companies, held $8.3 trillion in assets....

Cash cushion shrivels - U.S. housing agency

The Federal Housing Administration's reserve fund has dropped to .53%, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall, according to its annual independent audit, released Thursday. The fund covers losses on the mortgages the agency insures....Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores. As a result, demand for FHA loans has exploded. FHA loans now account for 23% of the market, up from 2% in 2006...

Uncle Sam sitting on a goldmine

Gold is soaring to record high prices, and guess who has the biggest stash? The U.S. government. The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world...

Fannie, Freddie Warn on More Losses

Fannie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies. Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year...

U.S. Foreclosure Filings Surpass 300,000 for 8th Straight Month

U.S. foreclosure filings surpassed 300,000 for an eighth straight month as unemployment made it tougher for homeowners to pay their bills, RealtyTrac Inc. said. A total of 332,292 properties received a default or auction notice or were seized by banks in October, up 19 percent from a year earlier, Irvine, California-based RealtyTrac said today...

Fed’s Lockhart Says Commercial Real Estate May Weaken Recovery

...Defaults on commercial real estate loans totaled $110 billion, or 6 percent of all such loans, in the second quarter. Banks worldwide have recorded more than $1.6 trillion in losses and writedowns since the start of 2007, data compiled by Bloomberg show...

Commercial Real Estate ‘Crisis’ Looming for U.S.

...Property prices have fallen by 30 percent to 50 percent from their peaks, Zisler estimated yesterday in a report. The plunge has wiped out the equity in most real-estate deals that relied on debt financing since 2005, he wrote. Zisler, whose firm focuses on real-estate investment, estimated that building owners will default on $500 billion to $750 billion of mortgage debt. This equals as much as 54 percent of the $1.4 trillion in loans that will come due in four years, by his count. “Much of the debt is likely worth about 50 percent of par, or less,” the report said. Many banks will end up insolvent as they reduce the value of their holdings, he wrote, adding that regional and community lenders are especially vulnerable....

U.S. freight index declined in September

After three consecutive months of sequential growth, freight traffic in the U.S. declined 0.5% in September from August, the Bureau of Transportation Statistics said Thursday...

INTERNATIONAL NEWS:

Ireland's Deflation Accelerates In October

The year-on-year fall in Irish consumer prices accelerated in October to 6.6 percent, the steepest annual drop since 1933, with economists seeing signs of a prolonged deflation into 2010. With prices dropping on a year-on-year basis since January, some economists have warned of a prolonged downward spiral in an already deep recession, yet most see it as helpful to restore competitiveness in the former 'Celtic Tiger' economy...

Northern Ireland enduring 'worst ever' slowdown

A report on the economy indicates that Northern Ireland is in the midst of its worst ever slowdown. The report, by accountants Ernst and Young, claims the all-island economy will shrink by 7% this year....

World Bank chief economist warns China of deflation, overcapacity

..."People think investment would cause inflation, but I'm more worried about deflation," he said. "A major challenge faced by the Chinese and global economy is the risk of excess capacity. If the problem isn't eliminated, it may cause deflation. More jobs may be lost and corporate bankruptcies surge as spending and investments slide, compounding the crisis."...

Surprise rise in Australian jobs

Australia's economy created more jobs than expected in October, with 24,500 more people finding employment. It is the second monthly gain in a row and has led analysts to speculate that interest rates will be increased in December to 3.75% from 3.5%....

People in debt 'go without food'

Almost half of people seeking advice on debt from Citizens Advice Scotland have gone without food or fuel to pay what they owe, the organisation has said. It published seven reports which it said illustrated the "miserable realities" of life for people in debt...

Japan Credit-Default Swaps Seen Unraveling on Aiful’s Bad Debts

Private talks to restructure the debt of Japanese consumer lender Aiful Corp. are threatening to erode confidence in the nation’s growing $887 billion market for derivatives that lenders use to protect themselves from losses...

Paris Youths Squat in Mansion to Protest Record Unemployment

A group of French students and workers, protesting against record youth unemployment and a lack of state help, are squatting at a mansion on one of Paris’s oldest and most fashionable squares, the Place des Vosges...

As Shipping Slows, Banks and Carriers Fear Loan Defaults

... in Europe, where banks hold over $350 billion of increasingly dubious shipping industry loans, the inability of Eastwind, which is based in New York,to handle its debt of more than $300 million set off an anxiety attack on lending desks across the Continent. The collapse of Eastwind Maritime, analysts say, while small, could well be a harbinger of more carrier failures to come...

IMF economists review reserve currency alternatives

Policymakers should consider ways of shifting from a dollar-centric global monetary system to one with a wider range of reserve assets and some form of insurance that would reduce reserve accumulation, IMF economists say...

Taiwan Billionaires Send Cash Home as Currency Climbs

The biggest inflow of capital to Taiwan in four years is prompting investors to bet that the central bank will give up efforts to keep the world’s second- worst performing major currency from strengthening...

Taiwan, The 'Alternative China' (4.5 minutes):


OTHER:

US indicts hackers accused of $9m ATM theft

US and Estonian officials say they have identified the ringleaders of one of the most advanced criminal hacking rings operating today, apprehending an Estonian accused of helping orchestrate a $9m theft. “This investigation has broken the back of one of the most sophisticated computer hacking rings in the world,” said acting US attorney Sally Quillian Yates in Atlanta, where the RBS unit is based and the charges were filed. She credited “unprecedented co-operation from various law enforcement agencies worldwide” that began with Estonian authorities’ response to suspicious ATM withdrawals there....

Ad Pages Drop For Magazines Of Conde Nast

Condé Nast’s ad-page numbers are in for its 2009 issues, helping shed light on why the company made sharp cuts this fall. The company’s ad pages at monthly magazines have declined by almost a third since last year, with the company losing 8,359 ad pages this year, according to estimates it released Wednesday...

Returning Workers Face Steep Pay Cuts

Nearly a year after losing his job at a Vermont plywood maker, 40-year-old Robert Hudson is back at work. Here is the catch: His paycheck is half that of his old job -- and the same as when he was 18 years old...

Tinkering Makes Comeback Amid Crisis

...Engineering schools across the country report students are showing an enthusiasm for hands-on work that hasn't been seen in years. Workshops for people to share tools and ideas -- called "hackerspaces" -- are popping up all over the country; there are 124 hackerspaces in the U.S., according to a member-run group that keeps track, up from a handful at the start of last year..."We've had this merging of DIY [do it yourself] with technology," says Bre Pettis, co-founder of NYC Resistor, one of the first hackerspaces, in Brooklyn. "I'm calling it Industrial Revolution 2."...

Unretired: Retirees are Back, Looking for Work

... In April, before the worst of the market downturn, a survey conducted by the seniors group AARP found that 17% of responding retirees over 50 were considering or already going back to work. These aren't just the spendthrifts or sloppy planners you would expect to run into trouble in retirement. Interviews with 35 of The Unretired show that many are people who did everything they were supposed to do—working for decades and regularly socking money away...

Wal-Mart: Sales environment still 'difficult'

Wal-Mart Stores reported a third-quarter profit Thursday that beat analysts' estimates while its store sales fell in the period amid a "difficult" selling environment...

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Economic News Links November 11, 2009

source
Here are just a few relevant headlines for today's reading.


Former Bear Stearns executives acquitted of lying to investors

The government's most prominent criminal case against Wall Street executives accused of wrongdoing in the financial crisis collapsed Tuesday as a jury found two former Bear Stearns hedge-fund managers not guilty of charges they lied to investors when their investments in subprime mortgages turned sour. The acquittal of former Bear Stearns executives Ralph Cioffi and Matthew Tannin dealt a blow to the government's efforts to hold financial executives criminally responsible for the crisis.....

10 states face financial peril

The same economic pressures that pushed California to the brink of insolvency are wreaking havoc on other states, a new report has found. And how state officials deal with their fiscal problems could reverberate across the United States, according to the Pew Center on the States' analysis released Wednesday. The 10 most troubled states are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. Other states -- including Colorado, Georgia, Kentucky, New York and Hawaii -- were not far behind....

California forced to pay 4% yield in bond sale

California stumbled badly in its latest venture into the municipal bond market -- a sign that investors are overloaded with the state's debt. Borrowing $1.9 billion on Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors. As recently as Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.

The boost in the yield demanded by investors reflects the "saturation" of the market with California debt over the last seven weeks, said George Strickland, a bond fund manager at Thornburg Investment Management in Santa Fe, N.M. Since Sept. 23 the state has sold more than $21 billion in short- and long-term debt for budget-related reasons and to fund infrastructure projects....

Federal Reserve opposed as big bank savior by odd allies

An unusual alliance of conservatives and liberals is pushing to break up or downsize banks deemed "too big to fail," rather than create a new regulatory regime led by the Federal Reserve to try to keep them from getting into trouble again. Public anger toward bailouts and the central bank's role in rescuing big institutions like American International Group Inc. and Bank of America Corp. are fueling growing opposition to the Fed-led oversight plan advocated by the Treasury Department and House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat. In Europe, regulators are moving to break up megabanks like ING Group, KBC and Lloyds that became government wards after last year's global financial meltdown. An increasing number of legislators, political activists and financial specialists in the U.S. want to move in the same direction for troubled institutions such as Citigroup and Bank of America.....

Blankfein Defends Goldman Sachs Against Breakup Advocates

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said his bank, the nation’s fifth largest, is easier to manage than its bigger rivals, defending the company against regulators and lawmakers who want to break up the top U.S. lenders. “Our business is very complex, and I won’t deny that, but it’s far, far simpler than most of the competitors,” Blankfein, 55, said today at a conference in New York sponsored by Bank of America Corp. “I wonder myself how some of these things get managed.”...

FHA moves to boost condo market

Last week, the FHA, the federal agency that insures low-down-payment home loans for private lenders, said it was relaxing its building underwriting guidelines as a way of helping the struggling sector ride out the downturn. The move could help boost sales in condos by making more FHA mortgages available to borrowers. ``The best way to bring back some level of security is to get new buyers into those vacant units.

You can't do that until new homeowners have access to financing,'' said Meg Burns, director of the FHA's single-family program development. The new rules -- which are temporary -- come after more than a year of more stringent standards from lenders, who, after suffering major losses on condos, began vetting and disqualifying condominium projects for purchase loans, regardless of whether home buyers qualified....

The more demand you steal from the future, the less future demand there is for you to steal.
----Dallas Fed President Richard Fisher


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Economic Opinion Picks November 11, 2009

Nick Anderson

Comment:
Today's five picks are...
1) Economic Populist blog does a wonderful summary of the short term debt burdens of the world, our nation, commercial real estate and the implosion hazards thereof. There are some nice related graphs at the blog's site. This is a very importantsubject.

2) Ritholz, of the Big Picture, writes of the fall-off in tax receipts, especially at the local and state levels. Graphs at source.

3) The WSJ writes about Fannie Mae losses. Do taxpayers care? Where are their voices? Let your congressman get to know you!

4) The WSJ quotes Lockhart, here, and he expresses what concerns him going forward.

5) Hamilton, at Econbrower, writes about oil prices and that relationship to the economy.

--Kalpa


Rolling risk in America's debtoconomy
Economic Populist

Moody's released a report that would be headlines in the financial news media of any country that wasn't in bed with Wall Street.

The average maturities of new debt issuance by Moody’s-rated banks around the world fell from 7.2 years to 4.7 years over the last five years — the shortest average maturity on record.

So how much is that in raw numbers? Banks will face $7 Trillion in maturing debt before the end of 2012, and $10 Trillion by the end of 2015. Those are staggering numbers, but it doesn't end there.

When a bank's portfolio is full of short-term maturities, it makes it more vulnerable to panics, crashes, and liquidity squeezes. If the debt maturity issues of today were true in the summer of 2008, the bailout would have been much sooner and much larger. When the debt matures it is likely that the banks will be looking to exchange the short-term debt for longer maturities, but that will come at a cost.

funding costs would increase from the mere fact of moving out on the yield curve, with the risk of funding costs being pushed up further by the rising tide of benchmark rates.

Which brings us back to the simple question of how easily the banks will be able to find enough investors to roll over the enormous amounts of debt saturating the system. Even Moody's is skeptical.

Investors have returned to the market in 2009, providing significant amounts of funds, but this should not be confused with a return to a normal operating environment. We believe that the “thawing” of debt and equity markets was largely driven by calculated, opportunistic risk-taking in the context of the extraordinary support provided by government programs and very low short-term interest rates. We would therefore not describe the investor resurrection as a return to strong financial fundamentals in the markets.
In fact, we expect that credit-related losses to continue to cause damage to banks’ financials. In our view, losses are still on a rising trend, mainly because of the delay that exists between the end of a recession and a fall-off in provisions and actual charge-offs.

Of course a lot of money has been printed by the central banks of the world recently, so its likely that the banks can scrounge up $7 Trillion in the next three years. The problem is that the banks aren't the only ones that will need to be rolling over maturing debt. About 40% of the $7 Trillion of marketable treasury securities matures in the next 12 months. That's $3 Trillion of treasury debt by the end of 2010.

In fact, with the coupon calendar currently in place, the average maturity of issuance now exceeds the average maturity of marketable debt outstanding. This suggests that the decline in the average maturity of debt outstanding that that we have witnessed over the past seven years – from a high of approximately 70 months in 2000 to a low of approximately 50 months earlier this year should be arrested and begin to slowly lengthen going forward.

— “Report to the Secretary of the Treasury“, Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association, 5 August 2009

In the space of two years, the portion of America's debt that matures within a year has jumped from 30% to 40%. Consider the possible problems.

Considers two scenarios if the US has a currency crisis, a solvency crisis, or some other financial stroke.

(1) We’ve borrowed $14T, one year’s national income, but financed it all with 30 year bonds. The interest bill would be large, at 6% equivalent to roughly 1/3 of the Federal government’s revenue. But only 3% must be rolled over every year. In a crisis we might lose the ability to borrow (painful), but the debt remains manageable. Also increases in interest rates affect us slowly, as the 3% of the debt rolls over annually.

(2) We’ve borrowed $14T financed with 1 year bonds. The interest bill would be far less, but any crisis threatens the government’s solvency: bankruptcy, hyperinflation, and revolution would be our choices. Also, a rise in rates immediately increases the interest cost. Even if we manage to roll the debt in a crisis, the rise in rates alone might prove catastrophic.

With an average maturity of only 49 months, and almost half due in the next year, we are far too close to the second scenario.

Yet another area of the economy that will need to roll over massive amounts of debt in the coming few years is commercial real estate.
Unlike the residential real estate industry, with its 15 to 30 year mortgages, the $6.5 Trillion commercial real estate market typically involves five to seven year mortgages. Fitch estimates that losses on commercial real estate will dramatically rise next year.

There have already been attempts to roll over some European loans due for refinancing, with one investor summarising the position in an increasingly used phrase, “a rolling loan gathers no loss”.

All told we are looking the American economy is looking at rolling over about $15 Trillion in debt in the next three years, more than the present GDP of America. That doesn't include any new borrowing from the federal government, state and local governments, and private sector.
It makes one wonder exactly where all this credit is going to come from, and when America becomes classified as a deadbeat?

State & Local Taxes Plummet
by Barry Ritholz

Via the Rockefeller Institute of Government, an independent research firm focusing on state and local governments, we get some nasty data and fugly charts.

The overview paints a picture of state and local governments in economic distress:

• State tax collections for the second quarter of 2009 showed a record drop of 16.6%, the second consecutive quarter in which revenues fell more sharply than during any previous time on record.

• Forty-nine states saw total tax revenue fall during the quarter,
with 36 states reporting double-digit declines. Both those numbers were up from the first quarter of this year.

• For the year ending in June 2009, the period corresponding to most states’ fiscal years, total state tax collections declined by $63 billion or 8.2% from the previous year. That loss is also a record, and is roughly twice the amount states gained during the year in fiscal relief from the federal stimulus package.

• Preliminary figures for July and August for 36 early-reporting states show continued deterioration, with overall tax collections dropping 8%. Early indications of September income tax payments provide further evidence of more troubling news for states during the third quarter of 2009.

• Local tax revenue declined by 2.8% in nominal terms and 4.2% in real terms, marking the first such decline since 2003.

This data is to be expected in a deep and protracted recession. Job loss and retail sales slowdown directly reduces tax revenue.

The Fannie Mae Dice Roll Continues

...Through this program, taxpayers are directly subsidizing homeowners who borrowed more than they could afford, or more than their house is now worth, or both. The government is doing this under the cover of losses at Fannie and Freddie because Congress and the White House know these programs are both expensive and unpopular with the poor saps still paying their mortgages on time.

The dynamic duo's delinquency rates also continue to climb, even on modified loans and on mortgages on which Fan and Fred have chosen to forbear from demanding repayment. The $400 billion that Congress has appropriated to keep Fan and Fred afloat, in other words, has quietly morphed from emergency aid into a $400 billion housing subsidy program. On current trends this will all be spent before President Obama is up for re-election, and, judging by the results so far, taxpayers will have little to show for it.

Having ruined the U.S. mortgage market, Fan and Fred have become the tools for its continued nationalization and a never-ending bailout of mortgage borrowers. This is one reason we advised former Treasury Secretary Hank Paulson to put the companies into receivership and leave them in run-off mode when he had the chance.

Instead, Mr. Paulson placed them in conservatorship and sent them out to lend more and more. In the past year, they have all but erased the private mortgage market, at great cost to both the taxpayer and the integrity of the private financial system. They will roll snake-eyes for taxpayers for years to come....

Lockhart Says Banks Haven’t Recovered, ‘Far From It’
WSJ

...Despite marked improvements in financial markets from a year ago and improved flow of private capital to banks in recent months, the banking system has not fully recovered — far from it. Bank credit losses are still climbing, and many banks are still capital constrained. It almost goes without saying that recovery of the banking system is crucial to the recovery of the overall economy…

While the [commercial real estate] problem is serious for parts of the banking industry, I don’t believe it poses a broad risk to the financial system. Compared with residential real estate, the size of the [commercial real estate] debt market is smaller, and the exposure is more concentrated in smaller banks.

However, I am concerned about the potential impact of CRE on the broader economy. Unlike residential real estate, there is not the same direct linkage from CRE to household wealth — and therefore consumption — caused by erosion of home equity. However, there could be an impact resulting from small banks’ impaired ability to support the small business sector — a sector I expect will be critically important to job creation…...

Will rising oil prices derail the recovery?
by James Hamilton

...What do these estimates imply looking forward, with oil prices now back up to $80 a barrel? The relation used to produce the figure above assumes that there is a threshold effect before the next oil price shock would begin to do its damage. According to that relation, oil has to get back above $130 before it would matter again for GDP growth. On the other hand, the original research on which that relation is based acknowledged that there's really not a very compelling basis in the data for choosing among various plausible nonlinear possibilities. The other approaches surveyed in my Brookings study assume a simple linear relation, according to which the recent resurgence in oil prices would already begin to exert a drag on spending.

Another magnitude that I think is important to watch is the share of the budget of an average U.S. consumer that is devoted to energy purchases. This had fallen considerably in the 1990s, making it easier for many consumers to largely ignore modest energy price fluctuations. When this share rises above 6%, it seems to become a more significant factor. The consumer energy expenditure share peaked last summer at 6.8%, but collapsing energy prices subsequently brought it back down to 4.7%. The resurgence in oil prices this summer had pushed that share back up to 5.4% in September....

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Which Nation Would Default First?

source

Comment:

In this article, Martin Hutchinson, for the Financial Times, speculates upon which major nation would be most likely to default on its debt first. It is timely and interesting. I've been touching upon this subject here recently, having covered Rogoff and Reinhart's This Time is Different numerous times. And it doesn't seem to matter whether an economist is in the inflationist's or deflationist's camp, each camp has respectable proponents who conclude that sovereign defaults are likely going forward.

Since I brought up the possibility of Japan defaulting just yesterday in my commentary, I have excerpted the part that he wrote about Japan. He concludes that Japan and Britain have similar chances of default, yet, if both were to default, Japan would be first.

Also, if Germany had not acquired the Eastern German integration expenses, it would look extremely strong right now.

Also, note that smaller nations such as Ireland, Spain, and others are not considered in this article, even though they, too, would have repercussions.

The determining factors will depend upon future political choices not yet known, as I see the potential for trillions more to be thrown at this crisis in the U.S. before this is over. Hutchinson gives the U.S. some perhaps, undeserved benefit of the doubt about future policy choices as compared to Britain. I'm not seeing a lot of evidence of this, as yet, partially due to citizen apathy and uninvolvement, insider government economic leadership, and in-control lobbyists. Policy going forward is what will determine whether Hutchinson's current estimates prove correct, or not.

The Article:
Which big country will default first?
By Martin Hutchinson

Of the world's six largest economies, three have budget and public debt positions that if allowed to fester will push those nations into bankruptcy (the seventh largest, Italy, also has a budget and debt position that is highly vulnerable, but its problems appear chronic rather than acute).

Given the proclivities of modern politicians for delaying pain and avoiding problems, it is likely that festering is just what those positions will do. So which major country, the United States, Japan or Britain, will default first on its foreign debt?

He sees China's economy failing, but not defaulting:

....China has huge amounts of hidden debt in its banking system, which could well collapse, but its direct public debt is small, as is its budget deficit, so it is unlikely to enter formal default.

Now, the part on Japan:

...Japan has already had its change of government, throwing out the faction of the Liberal Democrat Party (LDP) that regarded politics as the art of creating pointless infrastructure. Unfortunately, the Japanese electorate, faced in August with a no-good-choices problem similar to that of US voters last year and British voters next spring, replaced a long-serving overspending government with another committed to a different set of spending priorities rather than to ending the spending itself. The Democratic Party of Japan (DPJ) has cut back sharply on the infrastructure "stimulus" but is showing signs of replacing it with social spending. It is also committed to economically dozy policies such as reversing postal privatization, organized with such great political effort by prime minister Junichiro Koizumi in 2005.

Japan does however have a couple of advantages that may enable it to avoid default. First, its public debt carries very low interest rates, mostly below 2% per annum, and is owned almost entirely by its own citizens. What's more, state-owned entities such as the now un-privatized Postal Bank lend vast amounts of money to the government, acting as conduits to the less efficient bits of the public sector in the same way as do China's state-owned banks. This is appallingly bad for the efficiency of the economy and for living standards, but it postpones default and makes it less likely.

Second, it's not inevitable that the LDP's wasteful infrastructure spending will simply be replaced by wasteful social spending. Finance Minister Hirohisa Fujii is reputed to be a budgetary hard-liner. Further, at least part of the DPJ's spending will take the form of handouts to families with children. That may increase domestic consumption compared with exports and thereby better balance the Japanese economy, increasing its growth potential marginally. Nevertheless, since Japan's public debt is currently around 200% of GDP, Japan is much closer to the default precipice than either the US or Britain. Thus, while the better structure of Japan's economy and its debt make Japan's probability of default lower than Britain's, it's likely that if both countries defaulted, Japan would do so first....

His conclusion is:

We have not experienced a debt default by a major economy since the 1930s. That three such defaults are currently conceivable indicates both the severity of the current downturn and the wrong-headedness of the policies taken to address it. If it happens, a major sovereign debt default of this kind will cause the seizure of global capital markets, prolonging downturn for a decade or more. We'd all better hope the urge for fiscal responsibility hits London, Washington and Tokyo pretty damn soon.

The entire article is well worth your time.

--Kalpa




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Economic News November 10, 2009

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Comment:

As I read that Deutsche Bank analysts are now predicting the next crisis to begin in year 2012 (thinking ahead beyond the usual prediction of the shape of a recovery), I have to think we have two economies right now and that is what makes interpreting current conditions so difficult. No. 1, of course, is the banking and finance world, which includes those who are benefiting from this unexpected market rally. No. 2, is the real world of everyone else struggling to work each day, or job hunt each day, and pay monthly bills and taxes which are funneled back into No. 1. State, local and regional economies are included in No. 2.

And, I concur with Deutsche Bank, we are all sick and bored to tears with predictions of the shape of the recovery translated into capital letters of our alphabet, but there is one in the news today worth mentioning, and that from Janet Yellen. If I were to describe it, it would look something like an "L" with a gradual upward tilt of the base.

As in today's WSJ article below, from time to time there are rumblings in the news where someone questions Japan's ability to continue to finance its debt at the continuously low rates that it is accustomed to. Since I constantly wonder what the triggering event could be to cause global economic instability, or worse, melt-down, this seems a reasonable possibility. If Japan's debt servicing rates were to go up significantly, and it defaulted, what would be the fall-out?

I can't help but notice Senator Dodd's crescendo of bank reform ideas building up prior to his challenging re-election attempt. I only hope voter's memories aren't too short term here. Not that I trust any of his motives behind the headlines.

And while gathering the job layoff headlines today, it was easy to play the kindergarten exercise of "which headline does not belong with the rest?" 1,200 people are being hired at JP Morgan as loan officers!

Geithner announced today that 650,000 loans have now been modified in the foreclosure rescue plan. Now, what made me laugh here, is that the "640,000 jobs were saved" headline, out the end of October, from this administration, got a lot of criticism as being a fictional number. See any similarities? How about a little diverse numerical creativity, Tim?

Don't blame yourself if you find yourself confused these days. How's this for an example? These two headlines were both up on BBC news site today regarding UK home prices:
More house price falls forecast
House prices 'to keep on rising'

That's enough for my scattered thoughts and ramblings to further confuse you for this day.

--Kalpa


....more earnings reports...

Barclays profit down 54% as bank resumes dividend

....Jobs...

J.P. Morgan Chase to hire 1,200 loan officers
Lloyds announces 5,000 job cuts
Ericsson to axe 700 jobs from UK facility
Sprint Plans to Cut Up to 2,500 Workers
Electronic Arts to slash 1,500 jobs and buy Playfish

The Job Market in Charts

THE LATEST:

US Stocks Drifting Lower On Weak Materials, Financials

U.S. stocks traded slightly lower at mid-day Tuesday, pausing after a four-day rally, with the materials and financial sectors retreating after pacing stocks higher Monday. The Dow Jones Industrial Average was down 15 points in recent trading at 10211, while the Standard & Poor's 500 slipped 4 to 1089 on declines for materials and financials. Materials were weighed down by a decline in metals prices, while fellow commodity oil also dropped....

Median home prices fell nationwide in third quarter

A real estate group says home prices fell in eight out of every 10 U.S. cities in the third quarter of this year, as heavily discounted distressed sales made up 30% of all deals. But home sales continued their climb, with quarterly sales outpacing the second quarter and the previous year's figures, the National Association of Realtors said Tuesday. The median sales prices of existing homes declined in 123 out of 153 metropolitan areas compared with the same period a year ago. Prices rose in the other 30 cities. The national median price clocked in at $177,900, or 11% below the third quarter last year....

U.S. NEWS:

Fed's Yellen: Economy Beset By 'Substantial Slack'

... "The more significant threat to price stability over the next several years stems from enormous slack in the economy that is pushing inflation lower," Yellen said. She described inflation expectations as "well anchored" and reflective of public confidence in the Fed's commitment to keeping prices pressures contained. Yellen warned "with slack likely to persist for years and wages barely rising, it seems probable that core inflation will move even lower over the next few years."

....That said, the recovery "is likely to be gradual and remain vulnerable to shocks," Yellen said. She referred to what the recovery's course might look like when plotted on a graph. What she expects is akin to an economy that loses ground sharply, with only a slow recovery that struggles to cover what was lost: "If I were to describe it, it would look something like an "L" with a gradual upward tilt of the base.

....There are big challenges before the economy. "With such enormous reservoirs of slack in the form of high unemployment and idle productive capacity, we need a strong rebound to put unemployed people back to work and get underutilized factories, offices and stores humming again," Yellen said....

Obama home rescue: 650,000 get help

Some 650,000 troubled borrowers have been put into trial loan modifications under the president's foreclosure rescue plan, the Treasury Department said Tuesday. That number represents 20% of eligible homeowners at least 60 days behind in their payments, according to the Treasury report. This is up from 16% a month earlier...

FHA's reserve fund hits 7-year low

The Federal Housing Administration, which has played a crucial role supporting American home buyers after the collapse of the mortgage market, has burned through a huge cash reserve in less than a decade and could soon wind up with what amounts to an automatic taxpayer bailout if the agency's fortunes don't improve, according to a review of FHA finances.....About 24 percent of FHA loans were in default in 2007 and 20 percent in 2008, according to the agency. The agency's reserves kept tumbling.

....This year's audit was scheduled to be released on Wednesday but FHA abruptly delayed it, citing problems with financial-stress tests it had requested that went "above and beyond" what the audit typically entails. Agency officials declined to detail the nature of these problems....

Job seekers outnumber openings by more than six to one

15.7 million people are out of work. The nation's unemployment rate rose above 10% for the first time since 1983 in October. And with fewer openings available, prospects for the unemployed are looking grim. Job seekers now outnumber openings by more than six to one, the greatest discrepancy since the labor department began tracking job openings. Job openings: There were fewer than 2.5 million job openings in September, down 35% from a year ago, according to the latest Job Openings and Labor Turnover survey from the Bureau of Labor Statistics....

Housing market still faces a big glut

...About one in seven housing units was vacant in the third quarter, according to the Census Department. That's the highest reading since the government began collecting such data in 1965. Part of the glut comes from a rash of foreclosures as strapped borrowers fall behind on their mortgages. But rental apartments are emptying out at a record clip as well, as a spike in the jobless rate and a decade of subpar wage growth have sent many Americans back home to live with Mom and Dad. "There's just too many houses out there for the population we have," said Brian Peterson, an economist at Indiana University who focuses on housing. "The market's going to take a couple years to clear."...

In N.C., damage not easily mended

The expansion of global trade may enrich the United States, as economists say, but it has overwhelmed this manufacturing area beside the Blue Ridge Mountains. The region has lost more of its jobs to international competition than just about anywhere else in the nation, according to federal trade-assistance statistics, as textile mills have closed, furniture factories have dwindled and even the fiber-optic plants have undergone mass layoffs. The unemployment rate is one of the highest in the nation -- about 15 percent....

Benefits Requests Jump

A U.S. program that pays generous benefits to jobless people displaced by global trade has been swamped with applications in recent months, leaving thousands of potential beneficiaries in limbo. About 3,000 applications representing hundreds of thousands of workers have flooded into the government since May, when the Trade Adjustment Assistance Program was expanded...

Growth Driven by U.S. Factories as Spending Slows, Survey Shows

Economic growth in the U.S. will be stronger over coming quarters than previously anticipated as manufacturing, business spending and exports pick up while consumers cool off, a monthly economists’ survey indicated. ...“It’s definitely not the consumer who’s going to drive economic growth,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “Businesses are initially going to be very cautious about hiring so consumer spending will be anemic.

In its early stages, it won’t feel like much of a recovery.” Economists surveyed also boosted their gross domestic product forecasts for next year and 2011 as $2 trillion in global government stimulus spurs sales and companies invest in new equipment. Elevated joblessness will prevent Federal Reserve policy makers from raising the interest rate target until their meeting in August 2010 at the earliest.....

Hedge Funds to Top $2 Trillion in 2010?

The hedge fund industry may streak past its $2 trillion record high by the end of next year, as improved returns have lured investors back, Barry Bausano, Deutsche Bank’s global co-head of prime finance, predicted....

2010 Will Be Buyers' Market for Commercial Real Estate

The ideal time to invest in commercial real estate is 2010 – that’s when commercial property prices will hit bottom, according to a recently published survey of industry experts, including investors, developers, lenders, brokers, and consultants....

Dodd Bill Would Strip Banks’ Power Over Fed Directors

...The Fed boards would still be required to have three directors each representing commercial banks in each region. The difference is that the directors would be chosen by the Board of Governors in Washington instead of by the commercial banks themselves....

INTERNATIONAL NEWS:

Land of the Rising CDS

Canary in the coal mine? The cost of insuring Japanese government bonds against default has doubled to 75 basis points in the past three months, as markets fret about debt issuance. Credit risk is assuming ever greater stature in government bond markets previously blithely assumed to be risk free. Japan's debt problem is becoming urgent. It is grappling with issues that other governments such as the U.S. and U.K. will face, but is much further down the road already. Its debt-to-gross domestic product ratio is set to rise to a staggering 227% in 2010, the International Monetary Fund forecasts, making it particularly exposed to any rise in market interest rates.

Japan's aging population is a crucial concern, driving a shift from saving, much of which went into JGBs, to consuming. An older population also requires higher social security spending -- which all combines to upset the balance that has provided an extremely stable investor base so far for JGBs. Debt affordability is key. Japan has been able to sustain stratospheric debt levels thanks to low yields....

Rare Earths Shortages May Hurt Tech Firms

...A sign on the edge of the heap lists the 71 substances it contains: iron, of course, as well as 17 metals with hard-to-pronounce names like yttrium, dysprosium and neodymium, the so-called rare earth metals. These metals, used to manufacture high-tech products like lasers and solar panels, are coveted and expensive. Nowhere on earth are larger amounts produced than at Bayan Obo. About 40 percent of world production comes from these mines, and the People's Republic satisfies a total of 97 percent of global demand.

In other words, China controls the world market. It's a situation that has been the source of many a headache for Ulrich Grillo. Grillo runs a zinc and sulfur processing company in the western German city of Duisburg, and he also heads the commodities policy committee at the Federation of German Industries (BDI). He notes with growing concern how German companies are becoming increasingly dependent on Chinese sources of raw materials, putting themselves literally at the mercy of the Chinese. What happens, Grillo asks, if China decides to block access?...

Renault-Nissan to Release World’s Cheapest Car

The battle for the world’s cheapest car is heating up. The top executive of Renault and Nissan said here Tuesday that his companies would begin selling a small car in India in 2012 that would cost less than any other car sold in the country — and thus the world. The car, which will be made by the Indian scooter and rickshaw company Bajaj Auto, is Renault Nissan’s answer to the Tata Nano, which India’s largest auto company started selling this year for as little as $2,500....

Merkel Says Brunt of Crisis Will Hit Germany in 2010

Chancellor Angela Merkel said Tuesday that Germany's main bailout fund could be "adjusted," pledging to combat the effects of the economic crisis that she warned will get worse before it gets better. In her first major policy sp