International Forecaster Weekly

Great Doubt For Benefits Of Stimiulus Package

FDIC Follies,more banks closing, other markets affect the market, ownership society comes to an end, housing programs were social engineering, readers digest chapter 11, Goldman Sachs execs acting like paraihs in public,

Bob Chapman | August 19, 2009

We had a bank go on Thursday and now we have a continuation of the Friday Night FDIC Financial Follies.

Federal and state regulators closed two small Arizona banks Friday evening, but depositors won't feel any pain.

Phoenix-based Community Bank of Arizona and Union Bank in Gilbert were shuttered, with deposits of both institutions purchased by Oklahoma-based MidFirst Bank.

Regulators also closed three other banks elsewhere around the country on Friday, raising the year-to-date total to 77.

Much to their dismay, Americans learned last year that they ‘owned’ Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too.  Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this ‘phenomenal growth.’ Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

This past week the Dow fell 0.5%, S&P 0.6%, the Russell 200 fell 1.5% and the Nasdaq 100 fell 0.4%. Banks rose 0.8%, as broker/dealers fell 2%. Cyclicals fell 1.6%; transports 1.2%; consumers 0.2%, as utilities gained 0.2%. High tech fell 0.4%; semis 1.3%; Internet 0.6% and biotechs 0.2%. Gold bullion lost $6.50 and the HUI gold index fell 2.4%.

Two year T-bill yields fell 24 bps to 0.96% and the 10’s fell 29 bps to 3.57%, as German bunds fell 19 bps to 3.31%.

Fed credit expanded $11.4 billion. Fed foreign holdings of Treasury and Agency debt rose $5.5 billion to a record $2.816 trillion. Custody holdings for central banks rose at a 19.3% rate ytd and yoy up 17.6%.

M2 narrow money supply fell $42 billion to $8.324 trillion, having expanded at a 2.6% rate ytd and 17.6% yoy.

Total money fund assets declined $12.8 billion to $3.594 trillion. The dollar fell 0.2% last week to 78.79.

Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.

We are in a five month bear market rally that has carried the Dow from 6600 to 8500, where we believed it would end, and on to almost 9400. This constitutes a 50% move in the Dow from mid-March and a 6.2% move for the year, while the economy experiences the worst economic and financial debacle since the “Great Depression.” This rally is quite similar to the rallies of 1930 and 1932 - so do not get fooled as investors did. This is the time to be selling if you are still in the market or have cash value life policies or annuities.

Recent data shows us there is if anything only a slight flattening to the downside. Retail sales continue to fall in spite of cash for clunkers as thousands of used car dealers go out of business because the clunkers are being destroyed rather than being resold. In fact, July sales fell the most since March. That is certainly not a green shoots event. Even consumer confidence fell to the lowest level since March.

July foreclosure figures were at a record 360,149, up 7% on June and up 32% yoy. In addition bankruptcies were up 34% yoy.

There was positive news out of Asia and Europe, as a flattening out seemed to be occurring there as well. Needless to say, a wide array of governmental and stock market pundits tell us the recession is over. This is the same group that told us that eight months after the fall, one year after the highs and 1-1/2 years after the credit crisis began that the recession was over. A crisis caused by banks and Wall Street, the result of which was they’re being bailed out by the Federal Reserve and our government.

Wholesale inventories have fallen and that is normal when consumers are buying less. Capacity utilization is still terrible even though vehicle production has increased abnormally. We do not for a second believe the doctored non-farm productivity figures, just as we cannot believe unemployment, CPI and PPI numbers. Incidentally, all countries are fudging their figures.

Household consumption will continue to fall as residential real estate inventory builds and prices recede another 20%. We are only leveling out because of massive reflation and those who believe in recovery will be sadly disappointed. Consumption is falling and any recovery will fizzle because we have shipped 75% of our manufacturing capability overseas under free trade, globalization, offshoring and outsourcing.

The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.

The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.

In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis. [More social engineering. As we have seen since WWII all efforts to create such housing have turned into slums and most had to be destroyed.]

One of the biggest banks in Florida has been shut down by regulators and its assets sold to a rival in a move that underlines the continued frailty of the American banking and property sectors.

Colonial Bank, which was based in Alabama but had flourished in the central Florida property boom, had $25 billion (£15 billion) in assets.

It is the largest American bank to fail since Washington Mutual collapsed at the height of the credit crunch last September, and the fifth-largest American bank failure ever, according to analysts.

Colonial was shut down on Friday by the Federal Deposit Insurance Corporation (FDIC), the government agency that provides a safety net for the customers when banks get into difficulties.

The FDIC said Colonial’s 346 branches, which are spread across five states, and most of its assets had been transferred to one of its rivals, BB&T. The switch will make BB&T, based in North Carolina, America’s eighth-biggest bank.

The FDIC revealed that it was expecting to take a hit of about $2.8 billion in making good Colonial’s losses. The agency has struck a deal that will see it share part of the losses if the loan books it has sold to BB&T turn bad.

Reader’s Digest Association Inc. said it will likely file for Chapter 11 bankruptcy protection under an agreement with a majority of its secured lenders to reduce debt by 75 percent to $550 million.

Senior secured lenders will exchange a “substantial portion” of $1.6 billion in debt for equity, the publisher said today in a statement. Some of them will provide a $150 million bankruptcy loan, debtor-in-possession financing, to ensure the company has enough liquidity during its reorganization.

The publisher of the pocket-sized magazine that claims the world’s largest readership went private in March 2007, in an agreement with an investor group led by Ripplewood Holdings LLC that saddled it with $1.6 billion in debt just before the advertising market slumped. The magazine’s ad sales slipped 7.2 percent to $121.2 million in the first half from a year earlier, according to Publishers Information Bureau data.

Manufacturing in the New York region grew in August for the first time in more than a year, reinforcing signs the worst recession since the 1930s is nearing an end.

The Federal Reserve Bank of New York’s general economic index climbed to 12.1, higher than forecast and the first expansion since April 2008, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.

The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. The Fed is “paying very close attention,” Chairman Ben S. Bernanke said in congressional testimony last month.

The U.S. recession is ending “right now,” said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc.v [From her lips to God’s ears. Last time she made such a prediction she was wrong for 5 years. What a loser.]

Six months after President Obama launched a $787 billion plan to right the nation's economy, a majority of Americans think the avalanche of new federal aid has cost too much and done too little to end the recession.

A USA TODAY/Gallup Poll found 57% of adults say the stimulus package is having no impact on the economy or making it worse. Even more —60% — doubt that the stimulus plan will help the economy in the years ahead, and only 18% say it has done anything to help improve their personal situation.

That skepticism underscores the challenge Obama faces in trying to convince the public that the stimulus has helped turn the economy around. It also could complicate the administration's plans to overhaul the nation's health care system.

"This is a wake-up call for the administration." says House Minority Whip Eric Cantor, R-Va. "People see the stimulus hasn't worked, and now you want to lay on over $1 trillion in a health care plan."

The administration declined to comment on the poll results.

China's $200 billion sovereign wealth fund, which lost big on its ill-timed 2007 Morgan Stanley and Blackstone bets, plans to invest up to $2 billion in U.S. mortgages as it eyes a property market rebound, two people with direct knowledge of the matter said Monday.

China Investment Corp plans to soon invest in U.S. taxpayer-subsidized investment funds that will acquire "toxic" mortgage-backed securities from the nation's banks. CIC believes these assets are a safer bet than buying into the U.S. Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF), the people with direct knowledge said.

CIC is in talks with nine U.S. Treasury-designated Public-Private Investment Plan managers, the sources said.

They include: AllianceBernstein Holding, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo, Gordon & Co LP with GE Capital Real Estate, a unit of General Electric Co; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; Trust Company of the West, a unit of Legg Mason; RLJ Western Asset Management LP, a venture formed by Legg's Western Asset Management unit; and Wellington Management Co LLP.

CIC is expected to decide this month which of the nine PPIP managers will handle its investments in mortgage-backed securities under the PPIP plan, the sources said.

A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.

Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.

There has been a decline in short interest -- borrowed shares sold but not yet repurchased -- which some analysts see as a warning. Some investors sell short to profit from price declines, and some say the recent rally has been supported by the reversing of short positions.

For brokerage Jefferies & Co., a significant increase in insider selling transactions as well as a decrease in short interest across most sectors of the S&P 500 demonstrates the weathering of the bear market rally.

Short interest fell in mid-July and firms with insider selling activity outnumber those with buying activity two to one, according to research firm

"Both of those (factors) lends to our general thesis" that the equity market rally is running on borrowed time, said Patrick Neal, head of U.S. equity strategy at Jefferies & Co.

CIT Group Inc., the commercial lender seeking to avert collapse, reported a wider-than-expected loss as more customers defaulted on loans.

The ninth consecutive quarterly net loss was $1.62 billion, or $4.30 a share, New York-based CIT said in a regulatory filing. Nine analysts had estimated a per-share loss of $1.53.

CIT Chief Executive Officer Jeffrey Peek is negotiating with bondholders and considering asset sales to stave off bankruptcy.

The lender, which provides financing to almost a million small- and mid-sized businesses, has lost more than $5 billion in the past nine quarters as bad debts soared and the company was cut off from the commercial-paper market, its traditional source of funding.

"I don't think there's any good news to come in terms of credit quality," said Sameer Gokhale, an analyst with KBW Inc.

Former Goldman Sachs computer programmer Sergey Aleynikov, who was charged last month with stealing sophisticated trading software, wants his criminal case dismissed.

At a hearing in Manhattan federal court on last week, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare "deferred prosecution" agreement.

Such deals are a form of probation in which prosecutors agree to dismiss criminal charges, provided a defendant doesn't break the law for as much as 18 months.

Laura Blankfein and her friend Susan Friedman, wife of another Goldman honcho, Richard Friedman, caused a huge scene at Super Saturday in the Hamptons last weekend when they arrived at the event before the noon start time and balked at waiting in line with the other ticket-holders.

“Their behavior was obnoxious. They were screaming,” said one witness. Blankfein said she wouldn’t wait with “people who spend less money than me.”


I can’t believe I didn’t see this before. Laura Blankfein going mental over having to wait on line at a charity dinner… this is like the most awesome thing ever.I can just imagine her the next morning, complaining to Lloyd while shining his head with Turtle Wax before he goes off to work.

Meanwhile this is more recent news, apparently:

Police in East Hampton, N.Y., arrested the wife of longtime Goldman Sachs hedge fund guru Ray Iwanowski for drunk driving, according to The New York Post.

Jane Iwanowski, 48, crashed her BMW into a tree in July. A police report stated an intoxicated Iwanowski “was unable to walk or stand,” when questioned while at a hospital.

Fun times in the fast lane!

Manhattan office sales came to a near standstill in the first half, with less than one-tenth the average number of transactions seen during the same period in the previous five years, CB Richard Ellis Group Inc. said.