Financial Crisis

[flying]

Well Flying if you are waiting for unemployment to drop you are waiting for Godot.

Yes my eyes & ears tell me there is nothing at all to cheer here.

You know things are just so skewed ...... I mean like the UE numbers everything else is the same. Half the stores close in the malls & of course what little is left of shoppers have less choice. The remaining few store suddenly report a increase in spending/shoppers.

They will continue to prop things here it seems as I just heard they may extend the home buyer credit & expand it too. Not only first time buyers but now to include speculators in a sense. Anyone who didnt buy a house in the last 3 years...Also hey you want to buy a house that is more expensive than yours? Your in Pretty bad idea & obviously just something to show movement.

But......the correlation between the dollar & the market is extremely fast now isn't it?

Or has it always been so?

Yesterday they come out with their 3.5 GDP growth market jumps....Or was it the dollar fell?

Yet today market drops as dollar rises almost exactly in contrast to yesterday number wise.

So did the GDP rise mean squat to the markets?

Are there any actual people in the markets anymore or just machines?

Because this does not look like someone invested & scratching their head saying.....

Hmm dollar looking weak think I will sell. It is all so fast & mirror accurate lately it seems.

DOW is approaching -250 as I type this

[lannarebirth]

Hmm dollar looking weak think I will sell. It is all so fast & mirror accurate lately it seems.

As ever, it's all about the Dollar. Unwind, Rewind, maybe Unwind again?

[flying]

Well it has been coming for awhile now

My guess is BOA is next

CIT, Citi: Financial Winners & Losers

In the biggest company-specific news of the day, word spread that CIT(CIT Quote) would file for a prepackaged bankruptcy as early as Sunday. The bank had already reached a pact to amend the terms on its $3 billion loan from Goldman Sachs(GS Quote), which was supposed to receive a $1 billion payout if CIT filed for bankruptcy. The deal trims the loan to $2.13 billion; CIT will effectively give up the amount of the loan it hasn't already taken, and pay Goldman a termination penalty of $285 million.

[Abrak]

Abrak or anyone else with access to good charts, could you please post a US graph (last ten 15 years or so) of quarterly GDP pos and neg growth?

[flying]

As ever, it's all about the Dollar. Unwind, Rewind, maybe Unwind again?

Wish I had a history of watching as I would like to better understand it.

But has it always been this tight & dramatic?

[lannarebirth]

As ever, it's all about the Dollar. Unwind, Rewind, maybe Unwind again?

Wish I had a history of watching as I would like to better understand it.

But has it always been this tight & dramatic?

[flying]

Thanks that is pretty obvious a picture is worth a 1000 words

Edited October 30, 2009 by flying

[Abrak]

Thanks that is pretty obvious a picture is worth a 1000 words

Actually the inverse correlation between the dollar and the stock market is more unusual than usual. For instance gold is thought to be inversely correlated to the dollar and the market.

Usually the two are correlated to a degree. If you have an undervalued currency you attract foreign currency inflows which expand your domestic money supply leading to asset inflation as well as placing pressure on your currency to appreciate. Or the opposite can happen as in Latvia.

[flying]

Of the 3.5% growth 1.7% came from new car sales (cash for clunkers) which were back to a record low by September, 0.6% came from house build (while latest home starts were down) and 0.9% came from inventory build. By the time they have revised the quarterly growth number down by 30%, growth would actually have been negative without these factors.

Exactly & the funny thing is now we see reports such as these regarding the true cost of cash for clunkers..........

http://www.edmunds.com/help/about/press/159446/article.html

the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.

White house went nuts when they saw it & tried to discredit Edmunds.

But Edmunds has nothing to gain/lose by reporting ..

They respond here.....

http://www.edmunds.com/help/about/press/159486/article.html

We will see what the govt tries to stimulate for Q4

Edited October 30, 2009 by flying

[flying]

NINE Banks today...So Far

I do believe that is a new record

FDIC must have gotten a infusion from BS Bernanke

http://www.fdic.gov/bank/individual/failed/banklist.html

http://www.sfgate.com/cgi-bin/article.cgi?.../f190314D06.DTL

(10-30) 19:46 PDT New York (AP) --

Regulators shut nine banks Friday, including Los Angeles-based California National, as the still-weak economy produces a stream of loan defaults.

The banks were units of privately held FBOP Corp., a Chicago-based bank holding company.

The Federal Deposit Insurance Corporation said U.S. Bank in Minneapolis agreed to assume the deposits and most of the assets of the banks.

The banks are mostly in the West and had combined assets of $19.4 billion at the end of September.

The closings boost the number of failed U.S. banks this year to 115. The nine banks closed Friday were the most the agency has shut in one day since the financial crisis began taking down banks last year. In 1989, at the height of the savings-and-loan crisis, the FDIC closed 534 banks, or about 10 a week.

Besides California National Bank, the banks involved in the latest round were Bank USA, NA, in Phoenix; San Diego National Bank; Pacific National Bank in San Francisco; Park National Bank in Chicago; Community Bank of Lemont in Illinois; North Houston Bank, Madisonville State Bank, and Citizens National Bank in Teague, all in Texas.

Deposits as of Sept. 30, totaled $15.4 billion. The nine banks had 153 offices, which will reopen as U.S. Bank branches Saturday.

FDIC spokesman David Barr said that because U.S. Bank assumed all the deposits, the plan will feel like a merger for customers.

"It's not a merger, but it walks like a merger and quacks like a merger," he said.

Failures have been especially concentrated in California, Georgia and Illinois. While the pounding from losses on home mortgages may be nearing an end, delinquencies on commercial real estate loans remain a hot spot of potential trouble, regulators say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks, especially, hold large concentrations of these loans.

WSJ

http://online.wsj.com/article/SB1256956162...=googlenews_wsj

Edited October 31, 2009 by flying

[Abrak]

So I was looking through consensus forecasts at Moody's and a few things struck me as a bit odd.

1) First of all they had consensus for Q3 at 3.2%, so 3.5% is not far off. Then I was surprised to see that growth for 4Q was 2.5% and 1q 2010 is just 1.1%. Surprised not because it is wrong but it is unusual. After a very steep decline that we have seen, you would normally see a sharp recovery. The only comparable post war period of recession in 1980 was followed by 4.5% growth and then about 5 quarters of 8% growth. In fact I think 1984 saw the record post war growth for the US economy at 7.2%. I am not saying they are wrong (actually quite the opposite) I would have thought those forecasts are about right but I am surprised they are consensus especially as the CBO/Fed see quite a sharp snap back. BTW these numbers are pretty dismal - of that 2.5% growth, 2.5% (namely all the growth) is expected to come from inventory restocking (P.S. dont really want to argue anymore with people who dont believe there is an inventory cycle.)

2) So again I am surprised but dont really disagree with the consensus forecast for 2010 of 1.9% GDP growth in the US. As I say 4Q is 2.5% because of a 2.5% contribution from inventories and 1Q 2010 is 1.1% because inventory build contributes only 0.7%. The remains of the growth for the years comes from 'general improvement' - you know the sort of thing you prey for. Actually I dont think it is totally unreasonable given 1) we have a new revised 'Obama clean' stimulus package and 2) some numbers like car sales are so abysmally low that your assumption has to be they increase.

3) There is one consensus number I find very 'odd', actually I would like to say 'totally inconsistent' but I am hardly in a position to particularly disagree with any consensus forecast. That figure is unemployment - the consensus forecast is that it will go from 10.1% from end 2009 to 10.2% by end 2010. To me it is almost impossible that it will be that low at the end of next year given the other forecasts. First of all, if you look at the scatter chart about 5 posts above you will see that growth below 2% has never resulted in a fall in unemployment. But much more importantly there is a lag indicator effect. The nearest thing the US has seen post war to a V shaped recovery was the early 1980s - even then it took over a year for post recession unemployment to reach end of recession unemployment - and the economy was growing 8% at the time.

If you take the last 2 recessions the result is far more dismal. First there was a recession at the end of 1990 (I doubt anyone noticed it much). It wasnt much of a recession - just 2 quarters - but it took 5 years for unemployment to get down to the level it was when the recession ended (and it increased 30% imbetween.) There was supposedly a recession in 2001 but it hardly registers. Growth was positive in both 2001 and 2002. But unemployment when the contraction stopped didnt fall below that level for 4 more years. So basically I reckon it would take about 6% GDP growth next year to meet the consensus forecast of unemployment.

And there is another reason to be bearish about unemployment. There is a basic rule of thumb in economics known as the Taylor rule. (It is one of those to breakeven for a hotel you need to take the cost per room divide by 1000 and achieve 60% occupancy rules.) It is incredibly simple which is why it is so appealing (a bit like Austrian economics) but it is fairly powerful. In fact if you look at the chart below, I think it shows that it would have done a better job of running interest rates than the Fed. The concept is that an economy has an inflation target say 2% and a maximum rate of GDP growth at full employment that does not create inflation NAIRU. The Taylor rule says that for each 1% you are away from your target inflation rate you need to adjust interest rates 1.5% and for each 1% you are away from your growth rate you need to adjust interest rates 0.5%.

So basically as inflation is seen below optimal levels as well as unemployment and growth - The Taylor rule would suggest that interest rates should be -2% now. Essentially it shows the size of the liquidity trap.

It also shows that a guy with a US$10 calculator might have dont a better job of setting the Fed Funds rate than Greenspan. Mind you all charts look pretty good in hindsight.

[flying]

2) So again I am surprised but dont really disagree with the consensus forecast for 2010 of 1.9% GDP growth in the US.

2) some numbers like car sales are so abysmally low that your assumption has to be they increase.

3) the consensus forecast is that it will go from 10.1% from end 2009 to 10.2% by end 2010. To me it is almost impossible that it will be that low at the end of next year given the other forecasts.

Good post....

But again when folks say sales cars or anything is so low they have to increase....

I would say remains to be seen. Sure folks will still buy what they cannot afford if they are crazy enough as shown by the cash for clunkers. But it remains to be seen how bad this will get.

I think the retail sales they all are hoping for this Christmas will be disappointing at best.

As for Unemployment well..........their numbers will show what they want them to show. They are in fact already so far detached from reality they may as well call it the UE lie ....like the CP Lie

I think R Paul has it right.....

Ron Paul: Be prepared for the worst

Friday, October 30, 2009

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.

[Abrak]

But again when folks say sales cars or anything is so low they have to increase....

No I really am serious flying. You sort of have to make ludicrous assumptions to assume car sales will stay at current levels.

Monthly sales are running at 945k or 10.4m a year. There are 290m cars on the road so at that sales rate it would take 27.9 years to replace the existing vehicle population. The average life of a car is about 18 years. You also have to bear in mind that the number of cars on the road has gone up (or stayed the same) every year in the last 2000 apart from 1. So for car sales not to go up you have to start making assumptions like the number of cars will fall significantly or that the life of a car will increase 50%.

I mean if you simply assumed the number of cars on the road is the same in 10 years (in fact car numbers have always increased by 10% over 10 years) and the average life of a vehicle is 20 years, you would still need car sales to average 14.5m (40% higher than now). So numbers really are that bad that to assume they wont go up is much, much more heroic than assuming they will.

[AlexLah]

The number of vehicles in the US.

In 2000 221,475 (221 Million).

in 2006: 244,166 (about 1.6% growth a year) All vehicles

Automobiles: In 2000: 133,621 In 2006: 135,400 (about 0.3% growth a year)

There are about 10.4 Million vehicle accidents a year. Of which 2.1 million are rollover so assumed they are total loss.

So does that mean about 7-8 Million vehicles are shredded each year in the US when looking at new car sales assuming they include all type of vehicles?

I am confused about this data.

Edited October 31, 2009 by AlexLah

[Abrak]

The number of vehicles in the US.

In 2000 221,475 (221 Million).

in 2006: 244,166 (about 1.6% growth a year) All vehicles

Automobiles: In 2000: 133,621 In 2006: 135,400 (about 0.3% growth a year)

There are about 10.4 Million vehicle accidents a year. Of which 2.1 million are rollover so assumed they are total loss.

So does that mean about 7-8 Million vehicles are shredded each year in the US when looking at new car sales assuming they include all type of vehicles?

I am confused about this data.

First of all I am sure your data on vehicles 244m is more accurate than mine 290m which came from memory.

Anyway as you can see the population of vehicles even in 2006 was increasing by 10% or more over a decade.

So here is some data on the UK.

http://www.wasteonline.org.uk/resources/In...ets/vehicle.htm

Just use your imagination for the US. In the UK, 30m registered vehicles, average life 13.5 years, 2m new cars sold, 2m cars scrapped or in an accident and scrapped. The reason that 30m divided by 2 is 15 years would be because of the total growth in population of cars.

So we take the US and your figure 244m and an average life of 20 years and we find 12.2m being scrapped each year (as you can probably tell from the UK figure 20 years probably translates into 18 years given the growth in car population). However even this figure is wildly optimistic vs the UK. So basically at least 10m cars are shredded each year on top of the 2m write-offs from accidents. The actual figure is probably closer to 13m given vehicle sales and the growth in the number of vehicles which averaged 3m a year.

So just to replace the existing fleet of cars you need an absolute minimum of 12.2m vehicle sales a year.

[Abrak]

I like this chart that shows the quarterly growth of the US economy after the two worst post war recessions....

Now compare that to consensus forecasts for the next 2 quarters - 2.5% in 4Q and 1.1% in 1Q 2010. The point being that noone is actually forecasting a proper recovery.

[AlexLah]

Correct Abrak, but I will dive in the numbers a bit more. (Want to see population growth, birth death rate and some other stuff).

Thanks to Kan Win I can post some piccies again, here we go....

How about this one, haaaaa haaaa haaaaaa!!!!

I warned with ziz......

And just to keep track...

About the Three Zero Seven clue...

So next week will be interesting, muhaaahaaaahaaaaaaaaaaaa

[Abrak]

Correct Abrak, but I will dive in the numbers a bit more. (Want to see population growth, birth death rate and some other stuff).

Thanks to Kan Win I can post some piccies again, here we go....

How about this one, haaaaa haaaa haaaaaa!!!!

I warned with ziz......

And just to keep track...

About the Three Zero Seven clue...

So next week will be interesting, muhaaahaaaahaaaaaaaaaaaa

Yo be honest Alexjah I am totally confused about what you are trying to achieve.

You asked if I would post the SAAR of quarterly GDP numbers over 20 years which I did and then you post exactly the same chart with bars instead of a line which rather made the whole exercise of me posting a chart you already had rather redundant. I mean if you have the chart and you believe it has some meaning why not post it? Although both charts are absolutely identical I will readily admit that yours looks prettier because of the different colors and choice of bars.

And no I have absolutely no interest in seeing growth of the working population, birth/death rates etc which always understate unemployment for two reasons 1) they are clearly spelled out on the BLS website and 2) I have already written a post about how the assumptions of birth/death rates distorts the unemployment figures so while I am fairly accused of repeating myself I seriously dont need someone to repeat myself for me.

[midas]

What a complete bloody farce

Obama creates 640,329 jobs at a cost of $323,739.83 per job

http://us.ft.com/ftgateway/superpage.ft?ne...020091546344851

[midas]

WOW flying 9 closures this week

http://www.fdic.gov/

[flying]

WOW flying 9 closures this week

http://www.fdic.gov/

I know see post 4540 above

Edited November 1, 2009 by flying

[AlexLah]

Sorry Abrak, I was a bit enthusiastic that I can post piccies again.

[12DrinkMore]

What a complete bloody farce

Obama creates 640,329 jobs at a cost of $323,739.83 per job

http://us.ft.com/ftgateway/superpage.ft?ne...020091546344851

You are not reading the words correctly.

"These reports are strong confirmation that…we are on-track to create and save 3.5m jobs through the Recovery Act by the end of next year," said Joe Biden, vice president.

Now, Joe is not saying that total employment will go up by 3.5 million by the end of next year. Even if unemployment goes up by another 2,000,000; as long as he can "show" that it could have been a lot worse, in fact by 3,500,000; then he can say that the stimulus worked, because all those jobs have been "saved". And doubtless he has a few good spin merchants who can come up with a few more lines to "prove" exactly this.

And back across the lake, things are looking better, as Blair could be out of the race for Europresident.

http://www.guardian.co.uk/politics/2009/no...st-ditch-eu-bid

Check out the reply from a "furious Brown"

The strongest attack on Blair's candidacy was delivered in Brussels by the German head of the Socialist group in the European parliament, Martin Schulz. He rounded on Brown on Thursday, saying that Blair had been a grave disappointment as prime minister because he had failed to take the UK into the euro, or the Schengen open borders agreement, and had split Europe over Iraq.

A furious Brown responded by telling those gathered, including Spain's Socialist prime minister, José Luis Rodríguez Zapatero, and Austria's chancellor, Werner Faymann, that they risked "permanent irrelevance" if they rejected Blair and appointed a lesser known figure.

The utter cheek of this deluded monster, the only politician that qualifies for "permanent irrelevance" is Brown himself, once the Brits have managed to oust him from his current position. The grave danger is that his continued policies to create a "false dawn of recovery" before the next election could cause permanent destruction to the UK economy.

But I have always respected Merkel and am confident she will make the right decision. It's a pity she doesn't seem in the running for the position.

[Abrak]

.

"These reports are strong confirmation that…we are on-track to create and save 3.5m jobs through the Recovery Act by the end of next year," said Joe Biden, vice president

Now, Joe is not saying that total employment will go up by 3.5 million by the end of next year. Even if unemployment goes up by another 2,000,000; as long as he can "show" that it could have been a lot worse, in fact by 3,500,000; then he can say that the stimulus worked, because all those jobs have been "saved". And doubtless he has a few good spin merchants who can come up with a few more lines to "prove" exactly this..

Yes he isnt actually saying anything - unemployment could easily rise and he can still claim to have saved 3m jobs. But we can set him some fair parameters. At this stage of the cycle you would expect at least another 1.5m more unemployed (taking into account births/deaths). So if this time next year unemployment is below 9% then I think he should be given credit for saving 3m jobs (and he will have achieved something that hasnt been done in my lifetime.) (I reserve the right to change that view if all that happens is that the 'unemployed' are reclassified as 'government sponsored non-menial workers'.)

[Abrak]

In case you failed to catch it in our previous articles this year, we thought we’d state it outright for our readers this month: the United States Government is on a trajectory to default on their obligations. In its current fnancial condition, it will not be able to fund its forecasted budget defcits and unfunded Social Security and Medicare promises on top of its current debt obligations.

In the Federal Reserve Bank of St. Louis’ Review from July/August 2006, Lawrence Kotlikoff stated that “partial-equilibrium analysis strongly suggests that the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds.”

From 2004 to 2009, US unfunded obligations increased by an average of almost 50% over this six year period under both calculation methods, while US government revenue increased by only 12%. No company or government can increase its liabilities by more than four times the rate of its revenue and stay solvent for an extended period of time.

Like dead men walking, the US government is merely biding its time until the moment of truth. Unlike Fannie Mae, General Motors or Citigroup, however, there is noone left to grant a reprieve.

The above was from article I just read (unable to limk to the full thing)

Now the reasons the debt is so high is because they have used GAAP accounting which includes future liabilities (of course a normal accounting would). So it includes social security and medicare commitments. Note that obligations are increasing at a rate of 50% of GDP oer annum. Now the reason the Government does not include them on its balance sheet is because they say they dont have to pay them (they can simply cancel medicare). Now, tainted a little bit by my experience in Thailand, when someone argues they dont have a liability because they are not liable, your chances that the liability will ever be paid are very slim indeed.

Edited November 1, 2009 by Abrak

[flying]

The above was from article I just read (unable to limk to the full thing)

Yes it was the article I linked back on the 27th

http://www.thaivisa.com/forum/Financial-Cr...38#entry3102838

Here you go

And the full article......

http://www.sprott.com/Docs/MarketsataGlance/MAAG_10_2009.pdf

Edited November 1, 2009 by flying

[teletiger]

Here's what happened in the US in October, in graphs. (lots of old friends updated)

October Economic Summary in Graphs:

http://www.calculatedriskblog.com/

(scroll down 1 page)

Regards.

[teletiger]

Is your bank on here?

http://cr4re.com/PBLOct3009.html

Click on the "cease and desist" orders. They seem to have missed at least 19 other banks.

Regards.

[flying]

Here's what happened in the US in October, in graphs. (lots of old friends updated)

Grim Sunday Morning Reading

This one has gotten quite a bit worse since last time we saw it

and yet it is probably still being modest....

[Abrak]

Now I will tell you a country that does seem to be experiencing a V shaped economic recovery and that is Thailand.

I certainly hadnt noticed. The key point is that the bank of Thailand always releases year on year figures while for instance the US takes qoq figures and annualizes it. So if 3Q was yoy based it would have shown something like a 2.3% contraction rather than 3.5% rise. So the figures coming out of the BOT which are all yoy dont sound too good.

However if you look quarter on quarter things look very different. For instance q2 was 2.3% ahead of q1 which on an annualized basis is growth of 9%. They reported a yoy contraction of 4.9%. Manufacturing production rose (40% of the economy) rose 6.6% qoq an annualized rate of 25%.

But when you come to 3q the numbers start getting spectacular. Car sales were 21% month on month in September and are now up over 50% from their lows in February. Personal consumption on an annualized qoq basis is growing at over 10%. Exports were 18% higher 3Q on 2Q which on an annualized basis is about 80%. (Actually you do need to be careful using February because it doesnt have enough days.) Industrial production was up 8.2% MOM in September. Rather less impressively it was only up 3.5% QOQ or an annualized 13% but remember there was a big jump in 2Q.

So when the 3Q GDP number comes out at say a 1% contraction yoy bear in mind that the annualized qoq growth will have been about 19%. (I keep having to check these fitgures because they dont sound right but exports in September were up 40% on 6 months ago.)

What is going on is that Thailand suffered massively last year and most of this because 1) it is very exposed to the destocking cycle and 2) the government was desperately incompetent in spending its budget. And whose bright idea was anyway to generate about the biggest current account surplus in the world and have about the smallest budget deficit. Now it has the restocking cycle kicking in plus a major consumer boom.

And also playing the year on year game starts to work in your favour after a while. 1Q 2010 will probably be up 9%. Incidentally during the recession Thailand on actually had 2 quarters of decline qoq.

Also restocking is restocking it contributed 0.7% to US growth in 3Q, will boost it 2.5% in 4Q and 0.7% in 1Q 2010. In other words there is a lot of bounce in these figures and much of say the production growth may prove short term. A year from now production maybe no higher than it is now.