Sunday, December 20, 2009

Leftovers from 12/19/2009 Show

On the show, while discussing the new CPI inflation numbers, I mentioned an article by the economist Robert Murphy, who is of the Austrian School of economics and would be expected to be talking about deflation, in which he talked about the growing inflation rate going forward just as I have been.  His paper actually predicted the November inflation announced in December as 1.7% and it was 1.84%.  He indicated correctly that inflation will continue to rise, perhaps sharply, because the year to year is starting with the end of the 4th Quarter 2008 when prices had fallen significantly.  He is projecting 2.7 for December inflation announced in January; I am saying it will be between 2.8 and 2.9%  His paper can be found here.

I mentioned that and other US media have been ignoring or calling Volcker's European speaking tour in which he calling for financial reform now and the end of "too big to fail" as ineffective and meaningless.  Simon Johnson of The Baseline Scenario and a former IMF economist thinks otherwise and has had two posts demonstrating the strength of Volcker's call for reform and the attention it has gotten.  In "Paul Volcker Picks up a Bat" he lays out the strength of Volcker's strategy to influence financial reform and in "Wake Up Gentlemen" he lists Volcker's reform points and the public platform he is using more and more.  We talked two weeks ago about his UK speech and here is his interview with Der Spiegel when he gave a Berlin speech.  Larry Summers has gone to excessive lengths to limit and marginalize and muzzle Paul Volcker.  Fortunately, when you limit the options of a man like Paul Volcker you get a man who has nothing to lose and acts.

The economist Nouriel Roubini has made a comparison of the current financial crisis and the the 1930's and found that the same optimism that pervades the media and market in 1937 before a double dip is very similar to what is happening now. I have made similar historical and data comparisons on more than one occasion.  I have been talking about the weak US dollar and the carry trade it has spawned, which the Fed denies  is happening, and Roubini has been talking about it also and sees at least six months more of carry trade.  Two weeks ago we talked about gold and how a savings account over the last thirty years would have had more appreciation than Gold.  It is a matter of when one bought gold and at what price.  It is one thing to have bought it at $250 or $400 and another if you bought it at $800 or higher.  Roubini has written about the flaws in gold investing and how gold may presently be in a bubble and posed to decline in "The Gold Bubble and the Gold Bugs".He ends by indicating that if investors really fear a global meltdown then they should be buying guns, ammunition, canned food, stocking water, and other commodities which can actually be used rather than buying gold.

There has also been two studies published  on whether gold is a safe haven from equities or bonds in developed and developing nations and the results were quite mixed and disparate.  What it comes down to is it is not just correlation but the price purchased and the holding period and the country.

Greece has had recent credit downgrades and the ECB has made it clear they will not bailout member states.  The new Greek government has made cuts in its budget to address its mounting deficit and made a difficult bond placement this last week.  There have been youth riots earlier this year which have abated but various demonstrations are continuing.  Greece will have to make more cuts and it is difficult to determine how social unrest this will create.  It is a country high on our two country watch lists in an older post.

The ECB has made it clear that banks in the 16 nation union, which have already written down 2/3rds of loan losses, may have to write down another 1/3rd in the amount of $267 billion for a total of $796 billion.  The ECB also made several comments about the uneven recovery throughout the economy and from country to country.

Fitch said the US high yield corporate bond default is declining and expects 2010 to decline to 6-7% (average is 4.7%) default.

Empire State Manufacturing index fell 21 points to 2.6; new orders fell 14 points to 2.2; shipments fell 7 points to 6.3; unfilled orders fell 18 points to 21.1, lowest in 9 months; prices paid up 9 points to 19.7 while prices received fell 6.6 to 9.2; employment fell 7 points to 5.3; average work week fell 11 points to 5.3.

Philly Fed manufacturing index up to 20.4 from 16.7; prices paid up 19 points to 33.8 while prices received down .3 to1.8; new orders down 8 to 6.5; employment up 7 to 6.3; inventory up 10 to7.4.

ECB made its final tender of 12 months funds to banks($141 billion).

Canadian inflation rate 1% (1/10th % last month).

British retail sales for November down .3 from October but up 3.1% vs year ago; UK prices up 1.9% in November.

US current foreign trade account deficit up 10.3% to $108 billion in Q3 vs Q2.

China industrial production up 19.2% in November; retail sales up 15.8%; consumer prices up but down .9% vs year ago; producer prices down 2.1% vs year ago.

UK banks are voting on whether to abolish checks and require all transactions be by plastic or on-line.

The 3rd largest container shipping company, CMA CGM SA, warned bondholders that bankruptcy is an option if they do not approve plan to allow new lenders first claim on assets --- they want to raise money but need the $570 million current bond holders to modify the bond terms.

Bank of Japan held its interest rate at 1/10th percent.

Mexico S&P rating cut to BBB.

Gross of Pimco has increased the funds cash holdings to the highest level since the Lehman collapse from <7%> to 7% and reduced government securities from 63% to 51%.

Greenspan (Mr. Asset Bubble) said this last week that the stock market rally has negated any need for another "stimulus".  As I have asked previously, how has the weak US dollar carry trade not created a US stock market asset bubble?

TCF Financial TARP warrant auction went at $3/share (expected $1.82-4.89) and netted $9.45 million for the US Treasury.

CapOne credit card charge offs rose to 9.6 from 9.11; Discover rose to 8.98 from 8.54.

Home buyers are less likely to buy foreclosed properties than 6 months ago citing hidden costs according to a Harris Interactive survey.

Moody's issued an analysis in which they indicated they expect long-term rates may increase more rapidly than expected; that Aaa rated governments will probably not have the luxury of waiting for recovery before implementing fiscal consolidation plans; and Brazil, India, Russia, and China are unlikely to replace large Aaa rated countries as anchors to the global financial system anytime soon.

The US House of Representatives passed a plug the hole "stimulus" to basically throw life preservers to the states in the amount of $155 billion with 48.3 for infrastructure projects that put people to work by April 2010, 27.5 highway, 8.46 transit systems, 23 to pay teachers and repair schools, 1.2 to pay 5500 police, and 23 for the state's share of health care for the poor.  The bill also would extend Cobra 3 months to 15 and extend expiring year end unemployment benefits 6 months.

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