Posted (Van Santos) in Politics on January-26-2010
I’ve held off on this post for roughly a week as I wanted to watch the political fallout take place before drawing any conclusions.
The very first conclusion one must draw is the election of Scott Brown was a fluke, a political outlier, and voting behavior will return to “normal” once the next round of elections take place.
Do I think that is the case? No, but we have to acknowledge that is possibility.
Was health care reform the driving factor in the Brown election?
While the data points to health care being the largest single issue in the election (56% of voters), Martha Coakley won this segment of the population by a 53% to 46% margin. It doesn’t seem to be a clear sign that voters put Brown into office because they oppose the proposed legislation, does it? Brown obtained his support in areas that are traditionally Republican strongholds – the Economy and National Security.
The administration apparently thinks the election of Scott Brown was due to economic reasons as there have been a number of significant actions taken on their part since last Tuesday. Viewing the November elections as a potential lost cause if things do not turn around, the administration took a knee jerk reaction and announced significant bank regulation and a freeze on discretionary spending. Unfortunately both actions will have little impact on the economy this year, and the bank regulation has the ability – if implemented incorrectly – to do more damage to the economy than inaction on behalf of the administration.
Why do I describe their action as “knee jerk”? I’m sorry to say but the horse is out of the barn, the barn is on fire and the well has run dry. The economic policy of the last 20 years has set the nation on the current path, and the sudden expansion of the US debt/monetary base over the last year have all but placed another economic collapse (and currency collapse) in the cards for the United States. Simply saying “well, let’s separate investment banks from retail banks” has no impact on the underlying problems.
If not health care, national security or economics, what was this election about?
Yes, these factors played into Scott Brown winning his seat but I believe this election was more about frustration with politicians in general, rather than a specific political agenda. Politicians have a nasty habit of saying what is important to them and ignoring the voices of those they serve and it appears voters have said “Enough”.
The people of Massachusetts have said listen to us, listen to our overall concerns, and they picked the candidate – regardless of party – who they felt would actually do so, as well as best represent their needs on a national stage.
This should act as a wakeup call to any other politician who thinks they have the ability to push their agent forward when the constituents they serve are saying otherwise.
Posted (Van Santos) in Business on November-26-2009
Dubai, the skyscraper building United Arab Emirates shangri-la has, essentially defaulted on their debt. The country asked creditors for a “standstill” on debt payments for the next 6 months as the country attempts to get a hold on their economic situation. If Dubai does not manage to pay their debt, renegotiate their terms or find a way to satisfy their creditors the country will trigger the biggest government default since Argentina’s collapse in 2001.
How did Dubai end up facing a collapse?
It starts with the roughly 80 Billion dollars Sheikh Mohammed Bin Rashid Al Maktoum, Dubai’s ruler, borrowed in an attempted to turn the Emirate into an economic and tourist mecca. Add in an economic collapse that triggered devaluation in real estate prices of close to 50%, as well as a massive cut in energy prices – yep, they still need profits from oil – and you have the perfect conditions for economic Armageddon.
And that is exactly what the country is facing, but how does this impact the rest of the world?
There is no question about it, the economic “recovery” that the U.S. and world governments are publicizing is thin and best, an all out fraud at worst. If Dubai does end up defaulting the banking system is going to face roughly 40 Billion dollars in liabilities. While the main exposure is within banks in the EU, such a large hit would constrict the credit market even more as banks and financial institutions will not want to continue risking exposure with lending practices.
For three months now I have consistently pointed out the economic risks the world faces. All one needs to do is put the pieces together, from bankruptcies of large US financial institutions to the defaulting of governments it is clear the world economy is very sick.
The world is not going to come to an end in some giant bang, no. What is happening, and will continue to take place, is the slow crumble of the economic system. Much like a frog in a pot of water that begins to boiling, people will not notice what is going on around them until it is too late. Look for more events to take place over the next several months and be prepared for a very hard mit to late 2010 is the economic conditions continue on their current path.
Dubai, the skyscraper building United Arab Emirates shangri-la has essentially defaulted on their debt. The country asked creditors for a “standstill” on debt payments for the next 6 months as the country attempts to get a hold on their economic situation. If Dubai does not manage to pay their debt, renegotiate their terms or find a way to satisfy their creditors the country will trigger the biggest government default since Argentina’s collapse in 2001.
How did Dubai end up facing a collapse?
It starts with the roughly $80 Billion Sheikh Mohammed Bin Rashid Al Maktoum, Dubai’s ruler, borrowed in an attempted to turn the Emirate into an economic and tourist mecca. Add in an economic collapse that triggered devaluation in real estate prices of close to 50%, as well as a massive cut in energy prices (yep, they still need profits from oil), and you have the perfect conditions for economic Armageddon.
And that is exactly what the country is facing, but how does this impact the rest of the world?
There is no question about it, the economic “recovery” that the U.S. and world governments are publicizing is thin at best, and an all out fraud at worst. If Dubai does end up defaulting the banking system is going to face roughly $40 Billion in liabilities. While the main exposure is within banks in the EU, such a large hit would constrict the credit market even more as banks and financial institutions will not want to continue risking exposure with lending practices.
For three months now I have consistently pointed out the economic risks the world faces. All one needs to do is put the pieces together, from bankruptcies of large US financial institutions to the defaulting of governments, it is clear the world economy is very sick.
The world is not going to come to an end in some giant bang, no. What is happening, and will continue to take place, is the slow crumble of the economic system. Much like a frog in a pot of water that begins to boiling, people will not notice what is going on around them until it is too late. Look for more events to take place over the next several months and be prepared for a very hard mid-to-late 2010 if the economic conditions continue on their current path.
Posted (Van Santos) in Business on November-9-2009
I had planned on posting an economic entry focusing on Capmark/CIT, Gold/Dollar and earnings; however, I need to hold off for one more day. It looks like something additional may have happened the last several hours that impacts one topic.
Posted (Van Santos) in Business on October-26-2009
One can make an argument as to why the market is way – WAY – overpriced. From stocks to commodities, prices are unjustified by current economic fundamentals. Frankly, it almost defies common sense.
Yes, some economists have stated that current market prices are unjustified. Not many, but a few. One such economist has been Nouriel Roubini, an initial voice of warning behind the financial crash.
Once again, he is back with a warning about the economy. The big focus of his concern seems to be on commodities.
Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.
There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.
It’s going to go crashing down, in an ugly way. That’s the basics of the argument.
It’s just a matter of time for a correction. The longer prices stay elevated, the more stress the overall economy will feel.
One can make an argument as to why the market is way – WAY – overpriced. From stocks to commodities, prices are unjustified by current economic fundamentals. Frankly, it almost defies common sense.
Yes, some economists have stated that current market prices are unjustified. Not many, but a few. One such economist has been Nouriel Roubini, an initial voice of warning behind the financial crash.
Once again, he is back with a warning about the economy. The big focus of his concern seems to be on commodities.
Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.
There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.
It’s going to go crashing down, in an ugly way. That’s the basics of the argument.
It’s just a matter of time for a correction. The longer prices stay elevated, the more stress the overall economy will feel.
I have no real easy way to begin this post, so I will be direct and to the point: The stress on the economy is worse now than it was last year at this point, and I fear the situation will become significantly worse in the very near future.
While I am not an economist, nor do I claim to have any economic knowledge others do not, looking at the data presented in the public domain really makes me to question what is going on in our economy – and – it makes me believe something isn’t right.
The media will point to improving economic numbers, but what is being reported as “improving” is less than encouraging. How about we look at what is improving by focusing on what is NOT improving.
Negative
Port traffic is down 15% YoY (less goods going in and out)
Hotel occupancy down 15% YoY
Auto Sales down to spring 2009 levels after cash for clunkers ended
With all seriousness I have to ask the obvious question – How can economists say that we are currently improving? Just about everything is point to poor economic performance.
Do you happen to remember the trigger for our recession / depression? It was the banking crisis that started in late 2007 and came to a head in 2008. Has that underlying, fundamental, issue been addressed?
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
…
Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.
“The question then is who is going to finance the U.S. government,” Stiglitz said.
The potential nail in the coffin is the U.S. debt. Remember the 12 Trillion number above? Yea, that. The Congressional Budget Office is well aware the debt is out of control and has waved the warning flag – the United States may be unable to service its debts.
If the ratio of debt to GDP continues to rise, lenders may become concerned about the financial solvency of the government and demand higher interest rates to compensate for the increasing riskiness of holding government debt. Eventually, if the debt-to-GDP ratio keeps increasing and the budget outlook does not improve, both foreign and domestic lenders may not provide enough funds for the government to meet its obligations. By then, whether the government resolves the fiscal crisis by printing money, raising taxes, cutting spending, or going into default, economic growth will be seriously disrupted.
…
The systematic widening of budget shortfalls projected under CBO’s long-term scenarios has never been observed in U.S. history.
The government is basically telling use that the United States is on the path to bankruptcy, if it is not already there.
Just to recap – The underlying banking issue is not under control, the government debt is nearly unsustainable, and our economic numbers do not point to a turn for the positive.
From my perspective, the economic reality we live in points to the United States sitting on the brink of economic hardship unlike anything this nation has ever faced. As the US is the largest consumer economy in the world, the collapse would send shockwaves to every corner of the globe.
So, what could be the cause?
Since the banking system is basically bankrupt, and the FDIC is out of money, the collapse of a “too big to fail” bank could easily be the trigger… As could a massive decline in the price of the dollar… or other world government deciding they will no longer loan money to the U.S. Basically major market event that would stress the financial institution has the potential to be the trigger for the next leg down in this economic cycle.
Such an event could come at any time, and what scares me the most is my fear that the trigger may be sooner than later.
Anyone who even casually follows the financial market is well aware that today a horrific day in the Stock market. While the Economy (and stock market) experienced a large amount of pain over the last 6 months, today appeared to be even more painful for a number of reasons.
Despite massive restructuring efforts, despite the loans provided by the government, and despite everything the company has said previously, General Motors finally admitted what the rest of the world already knew – the end of the road is close for General Motors.
The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.
Having experience in the world of audit, this is the professional way of saying “Bankruptcy is going to happen”.
The major question that is on the minds of most is how this bankruptcy take place? Will the government act as the funding institution, propping up General Motors during the restructuring process, or will GM face a massive liquidation event pushing the into the pages of oblivion?
President Obama previously stated that he will not allow the American auto industry to fail, and Congress has already provided funding to GM and Chrysler, so what wouldn’t the Government act as the financier for a GM bankruptcy?
Maybe government officials would fear the backlash from the general public.
The world will not end when General Motors goes bankrupt, but it will be painful. Other companies will suffer the same fate as a result and the stock market will whipsaw with uncertainty but we will all survive. Politicians, however, may not survive the next round of elections if huge amounts of public funding are dedicated to propping up a company that has no hope of survival.
What does this say to you? The majority risk really falls within 6 institutions. Unfortunately, institutions 2 and 3 are suffering the most on this list.
This one is HUGE. A record number of mortgage holders, 5.4 million, are delinquent in with their monthly payments.
The Mortgage Bankers Association said Thursday the percentage of loans at least a month overdue or in foreclosure was up from 10% in the July-September quarter and up from about 8% a year earlier.
The scary part of this information, aside from the drastic rise, is the location(s) of the delinquent mortgages – Louisiana, New York, Georgia, Texas and Mississippi. The mortgage crisis is spreading beyond the borders of California, Florida, Arizona and Nevada. What was once a localized but highly publicized event is truly becoming a nationwide crisis.
I never thought the day would come where Citibank, once the largest bank in the world, dropped below the one dollar mark today. While this not “economic” news it is important none the less as the price is a psychological indicator – the stock market believes that Citibank will not survive the financial meltdown.
And what does tomorrow bring?
Pundits and market watchers expect Friday to be an extremely volatile day – at 7:30 AM the new Unemployment rate will be announced. Economists predict unemployment to come in at 7.9%. Lower and the market may celebrate. Higher and the day may see a sell off at the open.
No one knows what awaits for us tomorrow, but it sure will be fun to watch…
The person Treasury Secretary Timothy Geithner wanted as his chief deputy withdrew from consideration Thursday, dealing a setback to the understaffed agency as it struggles to address the worst financial crisis in decades.
Annette Nazareth, a former senior staffer and commissioner with the Securities and Exchange Commission, made “a personal decision” to withdraw from the process, according to a person familiar with her decision.
The decision followed more than a month of intense scrutiny of her taxes and multiple interviews. No tax problems or other issues arose during Nazareth’s vetting, said the person, who requested anonymity because Geithner’s choice of Nazareth was never announced officially.
So, did Congress find something in her past or did she simply get fed up of the inquisition?
Driving in today I heard that the latest GDP numbers for the 4th quarter and it turns out that the U.S. economy contracted 6.2% in the last three months of 2008. This ends up being significantly weaker than the 3.8% originally predicted at the beginning of the month.
Not only this is the worst GDP drop in 25 years, but the magnitude of the revision is truly astounding. When one looks at the unemployment numbers and the large waves of layoffs in the last two months, Q1/2009 could easily be on par – if not worse than – Q4/2008.
Economic Musings – International
Two days ago I commented that people need to look beyond our boarders for additional indicators of the economic climate. I specifically singled out Japan and Germany. Both countries saw significant contraction in recent months, but what about other countries?
By now it should be clear that this is a world wide recession and no country is safe.
Don’t understand the credit crisis? Watch this.
I know a number of people who do not fully understand the credit crisis and how the economies of the world ended up where they are today. Here is an outstanding cartoon that manages to explain a rather complicated situation in a very simple, yet effective method.
This is a must watch!
Civil unrest and government falter in other areas of the world…
It’s the weekend and I need a break – time to get away from the stresses of work, the world, and life in general.
I’ll be having dinner with my Parents on Sunday, which will be enjoyable, and I expect to watch The Curious Case of Benjamin Button as well.
There will be no cooking, exotic or otherwise… though I do have a few new things I want to try. One specifically is the Paprika Chicken Roast over @ ReTorte! Wandering Coyote really has some good food selections.
Finally, my review of The Prodigy’s Invaders Must Die will come this evening…
What does this information say thus far? Well, the S & P crash of 2008 was larger than the DOW crash of 1929. It look as if a short term bottom was established as the S & P is up more than 10% from it’s low, but is the selling and downward pressure over? Looking at the VIX, it sure looks like things have really calmed down…
Frankly, I wouldn’t be throwing money into the market just yet.
Important to note: The 51% drop in the S & P does not mean we are in a Depression
I see the impact of economic conditions every day – people out of work, making hard decisions from one day to the next due to income related concerns – but this is nothing compared to about 30 years go, let alone the great depression.
It’s really scary how much can change in about 18 days. Really scary. During the time that has passed the following information became public.
Housing starts were significantly less than expected
The survival of GM, Ford, Chrysler and Citibank have all come into question (Granted, the big three have been in question for some time but their losses became massive in the last three months)
The use of funds in the TARP switched from buying bad assets to purchasing stakes in banks providing no floor for bad mortgages
Interest Rates are expected to go to 0 by mid January
All of these events point to more potential danger.
What bothers me, aside from how quickly things are changing in the economy, is how this downturn reflects the great depression. No, I am not talking about the Great depression that started in 1929 but the “Real” great depression (also known as the Long Depression) that started with the Panic of 1873.
In the Great Depression of 1929, economies of the world suffered huge drop in output and massive rise in unemployment all while deflation began to set in. The root of the great depression can be traced to a number of things but a hyper stimulated economy, bank and political policies, plus the rise of income taxes are the overriding factors in causing events to unfold.
Sure, the U.S. (and the world) has seen a booming economy for some time, as well as poor bank and political decisions but the Long Depression of 1873 started with, of all things, mortgages.
In the 1870s, much like the last several years, mortgages were quite easy to obtain and as a result a building boom took place. The value of property seemed to skyrocket and borrowers took on significantly more credit than they could afford. Once the economies of the world realized that fundamental economic forecasts were overly optimistic a sudden market correction started to take place.
Financial institutions started to collapse under the weight of bad mortgage debt, banks started to hold back credit, and interbank lending rates (what is called the TED today) skyrocketed. The waves of the financial collapse caused small factories to shut their doors, unemployment rising to almost 25%, riots taking place in all major cities, and people roaming the nation looking for work.
Understand, I am simply drawing parallels here, I am not implying that this is our future. I am not on some fatalistic kick that says the nations of the world are set to replay the past but the comparison of the current economic climate is scary with you look at what took place in 1873.
Assuming the actions take by economic powers worldwide hold off another depression, the environment is now set for deflation followed by massive inflation. While I don’t expect another great depression today, I think we will witness something the US has not seen in roughly 80 years – a falling standard of living and a declining middle class
Simply put, no one knows what is going to happen next.
Posted (Van Santos) in Business on September-30-2008
The Consumer Confidence Index, or the optimism of the U.S. economy, is now at 59.8, up from 58.5 (August). That was a small, unexpected, rise for the month of September as economists were expecting a rating of roughly 55%.
The information was gathered before the political mess known as the financial bailout took place so any fear the consumer / general public is experiencing is not yet reflected in the data.
If Fear, uncertainty and doubt (FUD for you sales and techie types) is still in the market over the next few weeks, expect this number to fall – along with spending.
