PPIP? PPPlease

"It's pathetic that the real reporting has been left to a music magazine and some independent bloggers."
Matt Taibbi

Now, The BBB wasn't mentioned specifically, but I'm sure Matt had us in mind when interviewed post expose on GS in Rolling Stone entitled, "The Great American Bubble Machine." He basically blames GS for the creation and destruction of every bubble going back to the 30s and points to political influence all the way up to Obama. This story is becoming old news so I won't rehash more quotes, but interesting that GS was also involved in another big story this week, one of possible "secret formula" theft by a leaving employee.

"The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Mr. Facciponti said in the court, according to Bloomberg. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”


This is what GS' lawyer had to say concerning Sergey Aleynikov, who supposedly uploaded GS' proprietary formula for evaluating trades in microseconds to ensure huge profits. But doesn't this quote beg a simple question from the judge? If others could use this formula to manipulate the markets, isn't this what you are already doing, GS? Not much of a stretch I think, but it would be fascinating if someone else was able to use it to steer the market in the same way GS appears to in the last 20 minutes of daily trading. By the way, have we received an explanation as to why trading was extended 15 minutes durin a session last week ?


Now to the title. Remember when the bailout money was supposed to relieve the banks of all their toxic assets, then a week later it was decided no, that's no good, let's just give the money to the banks. Then remember this PPIP thing, where we were going to let private equity leverage loans at 10-1 with explicit caps on losses, to buy up to a trillion dollars in toxic assets and that this would save our financial system? Well, turns out PPIP isn't quite going that far. Try 4% of that original figure, $40 billion. $40 billion, does that help anything? Does anyone else feel like Geithner Paulsoned us with this doomsday scenario at taxpayer liability to go along with this BS?


Elizabeth Warren of the Congressional oversight committee reiterated today that banks are paying back warrants at 66% of face value and continue to push to pay even less. At least someone is pushing our interests, even if their advice goes unheeded.


And last, congratulations to Anon on his new baby boy!


http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine

http://www.nytimes.com/2009/07/07/business/07goldman.html

What's In a Number?

First off, happy 4th of July everyone! I hope that everyone has a happy and safe weekend.
We've seen plenty of figures over the last week. Let's review some of these numbers and try to put them in the context of reality.
1. Americans lost 467K jobs in June according to our government. This was over 100K more than economists' estimates, which had been revised up just during the week. Barack glibly announced that while this was a bad number, he had just met with a bunch of big energy dudes who are making tons of money and who will provide jobs going forward. I'm sure that's a big relief for the half million Americans who just lost work.
Keep in mind that number doesn't reflect seasonal layoffs in retail where college-age kids will have no chance of getting a job and much more importantly, the impending job losses from the Chrysler and GM bankruptcies on both the plant and dealership fronts.
2. Speaking of automakers, let's dig into the sales figures for our largest companies. Ford's mere 10.9% decline in sales (YOY it turns out) was trumpeted by the MSM as good news and a reflection of Ford's growing market share. As Eric Janszen points out in his most recent Itulip article, sales numbers (GM -33%, TM -31%, Chrysler, -42% Honda -30%, Nissan -23%) are even worse than they appear:


"Automakers also have been plying record incentives in the form of cash or special financing to press customer traffic into dealerships, making it more difficult to determine the long-term demand for vehicles. Edmunds called the month the most expensive June on record, with the average U.S. incentive at $2,930 per vehicle sold, up 20 percent from a year earlier. Edmunds expects incentives to fall as production cuts in recent months pare inventories. Ford’s profit margin is -12.66% and Operating Margin is -5.49%. Hard to imagine how increasing incentives by 20% will improve on that. Input costs, such as payroll, are not down 20%."

So, Ford is getting $87 back for every $100 in car they sell. Yeah, that sounds like good business.

3. 125%, 80K, 5 million. These numbers represent the possible new percentage underwater Fannie and Freddie will be able to refinance loans, the number of loans they've been able to refinance at 105%, and the total number of people who were supposed to be helped by this program, respectively. In other words, the program to date has been a total failure with a little more than 1% of supposedly eligible homes being able to refinance. Even at 125% underwater, given the ever-rising rates and demand for at least 20% down, most homeowners will continue to be out of luck on the refinancing front. Perhaps that is why mortgage applications fell 19% this week.
4. A "slight" glitch in home sales in San Diego will have to be adjusted for the month of May. The WSJ reports that sales YOY will be revised down modestly from 89% to 6%. Hmm. Not quite as good. This is typical both of local level realtors and the NAR, who continue to front-run overly optimistic housing data when the truth is, the number of foreclosures banks are not revealing is tremendous, and if revealed, would implode the Case-Shiller index.
5. 5%. That's the new minimum balance on JPM credit cards and Citi will also be raising its minimums on 15 million customers. So when you see Americans "saving" at the highest levels in 60 years, be forewarned that this is simply the CC companies slashing available credit to already drowning consumers. If you can barely pay 2%, 5% is gonna be rough. Expect delinquencies to rise rapidly over the remainder of the year.


Sorry to be so pessimistic heading into our holiday weekend, but the only thing I feel sanguine about right now is having a few days off! Enjoy your 4th.


http://itulip.com/forums/showthread.php?t=10620

http://online.wsj.com/article/SB124638992043975185.html

China Gold and Brokedown Budgets

While gold has fallen off of its recent high of almost $1K, it did rebound almost $30 in the last few trading days of the week. Perhaps it had something to do with this:

"Li Lianzhong, who is head of economics at the party's policy research office, said the U.S. dollar is poised for a fall, making gold and land better investments for China's $1.95 trillion in foreign exchange reserves, the report said. It quoted Li as saying Beijing should also focus on buying up energy and natural resources."


While the report was made by Marketwatch, The Economic Populist adds, "Now Mr. Liangzhong isn't just your average aparatchik in the Communist Party apparatus. He's the head of the party's economic think tank, and according to many like Jim Rogers, he has a lot of clout."


Foreign fears over our impending inflation and currency devaluation are certainly growing. The hard part is figuring out how and when a treasury dump will occur, spurring even more inflation.


Continuing on a theme from the most recent blog, most state budgets are up for vote next week for the impending fiscal year. Problem. Most states have a serious shortfall. Bigger problem. States can't run budget deficits. Huge problem. California already played its one-trick pony of no income tax refunds. CNN Money reports:


"In some states, the leaders aren't even talking. Pennsylvania's governor and Senate Republicans, who have to close a $3.2 billion gap for the current year, are not negotiating on their budgets. The governor's $28.4 billion budget seeks to raise the personal income tax rate by half-a-percentage point and draining the commonwealth's $750 million rainy day fund. Senate Republicans' $27.3 billion plan looks to cut spending on areas such as education and community revitalization."


So what does a state do when it's out of money? The choices aren't great. "Sometimes, however, the government faces a shutdown. When Tennessee officials failed to pass a budget on time in 2002, classes stopped at public universities, drivers licenses were not issued and road construction ceased. Pennsylvania's Rendell has already said state workers would have to stay on the job without being paid if the budget isn't approved. Services will start to be affected if the budget standoff continues beyond its typical week's delay."


And California? Ugggh. "Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said. "The state's $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit freefall."


Here in Florida, we have a unique summertime opportunity for the entire state to crash. As my Dad was kind enough to point out, the CAT, or catastrophe fund, is underfunded by $19 billion. Let's all hope for a mild hurricane season.

http://www.flains.org/content/view/2655/38/

http://money.cnn.com/2009/06/24/news/economy/Clock_ticking_on_state_budgets/index.htm

http://www.economicpopulist.org/content/china-fed-no-more-treasuries-we-want-land

Philadelphia Freedom

"At the moment he could not see clearly enough ahead to know one way or the other. Something to save us, he thought; something to doom us. It-the equation of everything-could go either way."

Philip K. Dick, A Maze of Death

Sorry for the prolonged absence, just got back from a much needed mini-vacation to the City of Brotherly Love where my brothers and in-laws live. A quick trip to Atlantic City revealed the slowly dying carcass of a town that will lose doubly bad as it ramped up at the worst time in an effort to compete with Vegas. Soon to be passed (slots are already in place in Philly) legislation in both Pennsylvania and Delaware legalizing gambling is going to spell continued doom for AC. Free room comps during the week are common and even the Borgata (that buffet was good!) is offering $99 rooms during the summer. I entered my first Hold Em' tournament with my older brother and we both did reasonably well, finishing in the top 25 out of 104 players.

The quote above from Dick kind of sums up where we are. Treading in much murkier water than the government would have you believe, the markets are kind of floundering. Despite a 200-point plunge on Monday, the market is shooting up today even though continuing jobless claims are a grim reminder of how bad the real economy is (Sorry, Markman, have no idea why you thought they'd decrease by 40K and if the June number comes in at only 275K losses, than you must actually be working for the government).

Moody's says credit card charge-offs are now officially over 10%. In case you haven't seen the news lately, California is bankrupt. And I can't imagine that they're the only state bleeding money (I know Florida is, we have no revenue, no tourism, and no construction). It should be interesting to see what the government is forced to do when California is unable to cut spending any further......


Bankrate.com says 30-year mortgages are now up to 5.8%. New home sales slipped and shockingly, builders like Lennar continue to lose money. But don't take my word for it. "While there are buyers in the market, they lack confidence, and they're worried about their own jobs and the economy in general," said Douglas Yearley, regional president at luxury builder Toll Brothers Inc. "We're also in a vicious cycle when it comes to capital," Yearley said. "Banks have tightened their lending standards, which is limiting the number of buyers that are eligible for financing. This decreases the demand for homes, which causes home prices to further plummet."



http://www.marketwatch.com/story/builders-brace-for-more-foreclosures-arm-resets

Fed Overhaul

"Hey, Timmy, Benji here."
"BB, what can I do for ya!"
"Timmy, I officially need your approval to write blank checks for the big boys in emergency situations. So what do ya say to half a tril' in ABC money?"
"No problem, Benny boy, I've got a big pile of rubber stamped permission slips right here."

So the charade continues. With promises about limits on leverage and new oversight on too big too fail companies, Obama intends to appease us, unemployed and 40% less wealthy. Notice the CEOS and managers responsible for these huge debacles will not be replaced and that there was no mention of caps on pay. Ultimately, Obama's plan would leave even more power in the hands of the Fed, enabling the oligarchs to consolidate power even further.

The day after my last post, we did see 2 consecutive markets with greater than 1% moves, fortunately to the downside. As new data rolls in, the persistent optimism over the slightest economic improvements seems to have waned as the reality of slightly better than horrible still isn't that good.

S&P downgraded 23 banks yesterday on a reality check and GS' chief economist thinks we're due for a pullback. Really? Wonder if GS has already placed their bets?

Martin Weiss pointed out in his article this week that the economy is in horrific shape, even with govt. stimulus which will only delay the death throes:

"The first quarter brought the greatest credit collapse of all time. Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!"

So where exactly will the spending and new business come from? Combine this with steep YOY declines in container data shipping into our largest port at Long Beach, and watch the green shoots wither come Q3.

http://www.moneyandmarkets.com/new-hard-evidence-of-continuing-debt-collapse-34202

1%

In case you hadn't noticed, this market is going nowhere, literally. We've had over a week's worth of trading in which the Dow moved less than 1%, the longest streak in quite some time. During those days, the market had been up or down more than 100 points several times, only to see the last 15 minutes of the day sap or improve gains dramatically (electronic trading/hedge funds? yep.). Even with futures pointing to triple-digit moves, by the end of the day, we've been left with no answers. Here are some things from the past week that I think still need answers.

1. 30-year treasuries keep rising and mortgages hit 5.59% this week (without points, much higher). What happens when we go above 6% and the current and shadow inventory crush home prices again?
2. Is TARP a scam to build reserves in banks so they can buy treasuries at discounted rates (can they buy $1.5 trillion though)?
3. Lewis vs. Bernanke in battle of perjury. Ohio Rep. Dennis Kucinich already stated he thought Lewis perjured himself this week before Congress. But how will Bernanke and Paulson refute the email evidence when it's their turn to testify?
4. Will the G-8 minions succumb to more U.S. pressure to ignore huge holes in their banks' balance sheets, or will they heed Germany's hyper-inflation warning stemming from the U.S. printing press?
5. And, on an unrelated note, can someone explain to me why Boston's Dustin Pedroia and David Ortiz have combined to hit 5 HR this year in almost half a season? Oh wait, I think I got it....

Blood In, Blood Out

Also known as "Bound By Honor," this is a fantastic epic depicting the struggles of a Chicano family in East L.A. torn apart by violence, drugs, and prison/gang ties. The movie stars a young Benjamin Bratt, but features a star cast who mostly play serious criminals like Delroy Lindo, Ving Rhames, and even Billy Bob. Of course, you can't have a prison movie without the ever present Danny Trejo (a real ex-con) there to shiv somebody if needed.

In reference to our current economic catastrophe, the "bloodmoney" we've pumped in has temporarily functioned as life support for our banks, but may be quickly pumped out due to the massive debt/GDP ratio we're establishing.

First, oil cracked $71 today and with summer driving season here, don't expect a collapse yet. Second, and maybe a much more ominous sign, Russia declared that they will dump U.S. treasuries for IMF bonds, a mere $10 billion worth. A drop in the bucket for now, but if China and Japan follow suit, we will be left holding an even larger toxic bag. Finally, mortgage applications continue to plummet at an accelerated pace. With 30-year rates rising to the mid 5% range, and let's be honest, nobody is actually getting a mortgage at that rate without paying points, and let's be honest, nobody can afford to pay points, so the average is actually sitting closer to 6%.

So again I ask, rising mortgage rates despite massive government intervention, a sharp rise in commodity prices, specifically oil, and fears over our inability to sell more debt to foreign countries being realized, doesn't this seem like last year?

Any chance Elizabeth Warren gets her way and we re-stress test the banks with the criteria on the table this time for all to see? Probably not, but would be nice. Also, should be interesting to see Obama's plan for corporate governance next week. Will this include further breach of current contract law as we've seen with the Chrysler sale where preferred bondholders just got screwed out of their turn? Any of the lawyers out there care to comment on this?

http://www.marketwatch.com/story/russia-to-reduce-us-treasury-holdings-reports

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZb6bu33Whng