The Next Global Economy

Europe in termoil - end of euro means riots and chaos

2011-11-27T05:15:00.001-08:00

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible. Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time. “It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph. Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest. Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses. Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash. Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund. There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday. The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable. Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default. -Telegraph

Lehman 2.0 in the making - Coming default of Greece will trigger massive chain reaction

2011-06-20T07:40:00.000-07:00

Those who thought fall of Lehman brothers in 2008 will never repeat, think again, here is another far bigger financial disaster already in progress, Greece's default will not only fracture euro zone but its creditors will face greater consequences which will ultimately trigger global chain reaction in financial world. It may happen same time frame as 2008 like around September 2011. Another bailout will only make things worst as Sarkozy's hints of another bailout did little effect to the market which is already going negative for last six weeks, because entire global economy became a bottomless basket, yearly QE's has little or no effect, those bold headed economist can do nothing but watch, because economy has cancer and a Tylenol will not work. if America bailout Greece who will than bailout America which is already massively debted and facing default, china and other creditors urging America to reduce or eliminate all of its entitlements programs but one thing they seems to ignore that 42m Americans live on food stamp and once its gone these people have no choice but hit the street with massive protest like one we are seeing in Greece right now. also these 42m people may not have the power to buy from Walmart which alone causes 11% of total trade deficit between china and America. It is a loose loose situation everywhere. Rothschild's London school of Economics is nothing but a fancy institution which has no credibility to deal with current economic crisis, they failed, Harvard business school failed, Alan greenspan failed, Bernanke failed. Only solution is let the system run by itself let it go down it will reshape everything which will bring us out of this misery because economist know nothing but print money.

Demise of the Dollar continues - India / Iran to trade with own currency

2011-06-20T07:37:00.000-07:00

The six fastest growing economies have dumped the dollar as a trading vehicle. India just bought their oil in rupees, and everyone is dumping the dollar and our treasuries. Hong Kong is opening up their own metals exchange in order to get around the obvious manipulation of the metals in amongst paper traders on Wall Street . Commodity is fast evaporating and demand plummet almost 30% in only a few days time. nothing improved over the last two years since the 2008 economic meltdown. only getting worse, here few example:

Housing is collapsing still, and even further as we speak.
Commercial real estate is collapsing.
Student loans are larger than the housing bubble.
Trade deficits are widening.
State budgets are even further in the hole and bankrupt.
Muni bonds are tanking.
Social Security has officially gone into the red.
The National Debt has gotten larger.
More people are unemployed.
More of our industries have left the country.
The entire gulf fishing industry has been destroyed.
The Fed has become the largest buyer of stocks.
The Fed is still printing money.
The Fed has become the largest buyer of our treasuries.

This doesn't even touch on the derivatives market, which is a lie. More countries are leaving our currency by the day, and from now on when the Fed buys stocks, juices treasuries, or spends any more tax payer money on bailing out private corporations turning private debt into IRS enforced tax debt, well guess what, all that money isn't going to be spread out on a global scale to all the countries around the world holding the dollar, oh no, all the money printing is going to come out of your saving account, your grocery bill, your gas bill, and then you can pay it back with more taxes to cover all that debt! This charade is over!

Anyone still pretending that the debt is repayable is delusional. Every working person living in the United States would owe over a million dollars per person! It's so unbelievably over, and to watch any politician get up in front of the people of this country and pretend or make believe that everything is fine, or if we raise some stupid tax we'll be fine. All of these candidates that get up there pretending we can somehow recover at this point! It's so pathetic.

Another Great News From Forbes

Forbes Predicts U.S. Gold Standard Within 5 Years

Here is news from TheHindu

After having explored various options to make payments and having run out of them, India is understood to have decided to pay Iran for the crude oil supplied by it in rupee terms.

After discussions between the Finance Ministry and the Petroleum and Natural Gas Ministry, it has been decided that the Ministry will seek the note of the Union Cabinet to switch over to the rupee payment system for the Iranian crude, officials in the Petroleum Ministry said........

The official said the Reserve Bank of India, which, in December last year, discontinued a long-standing mechanism of payment through central banks, previously opposed payments for Iranian oil in rupee but has now relented. In February, India started making euro payments through an Iranian bank based in Germany. But that had to be stopped soon after Germany came under pressure from the United States to put an end to this practice.

The government also explored the option of Indian oil firms opening accounts in Dubai-based Noor Islamic Bank for direct transfer of money to Iran. But the UAE is also learnt to have refused to route payments.

India imports 12 million barrels of crude oil every month from Iran, which is the nation's second-largest supplier, after Saudi Arabia. The problem began after the RBI, on December 23, did away with the Asian Clearing Union (ACU) mechanism for paying for Iranian crude oil imports, which make up for 12 per cent of the nation's oil needs.

In February, it began clearing past dues for Iranian oil imports by making euro payments through the German-based Europisch-Iranische Handelsbank AG (EIH Bank). But EIH, which is owned by Iran, is a banned entity in the U.S., and Washington persuaded Germany to stop payments.

This has resulted in outstanding payment of $2.8 billion as on March-end towards Iran.

A looming disaster - Dollar is falling

2011-04-27T20:55:00.000-07:00

The Emerging Global Power Broker - BRICS to introduce their own currency

2011-04-16T01:38:00.000-07:00

Brazil , Russia , India, China and South Africa - the BRICS group of fastest growing economies - Thursday
signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other . The agreement , the first-of-its -kind, was signed at the 3 rd BRICS summit here attended by Indian Prime Minister Manmohan Singh, China 's Hu Jintao, Brazil ' s Dilma Rousseff , Russia's Dmitry Medvedev and South Africa's Jacob Zuma. "Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services," Manmohan Singh told reporters at a news conference with other BRICS leaders .

But the agreement is confined to credit and not trade. BRICS economies hold 40 percent of the world's currency reserves, the majority of which is still in US dollars. The BRICS summit is being held in the coastal city of Sanya in China's Hainan island.

The joint presser was held after the leaders held deliberations on the international situation , and financial,
development, climate and security issues.

End of Dollar just begin - IMF to replace US Dollar as reserve currency by SDR

2011-02-10T16:43:00.000-08:00

Hot off the press, boys and girls. The IMF wants to replace the U.S. dollar as their reserve currency because "the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy."

The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world's reserve currency.

The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs

While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.

Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some "technical hurdles" involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system.

"Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said.

The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.

It goes main stream - USA is Bankrupt Collapse is near - Lehman 2.0 is real

2010-08-11T22:41:00.000-07:00

Several mainstream media now advocating a near term Economic Collapse, Bloomberg yesterday published an article based on current market data saying USA is indeed bankrupt and we are heading towards economic misery in a scale never seen before,

Bloomberg

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Bloomberg - U.S. Is Bankrupt and We Don't Even Know It: Laurence Kotlikoff

Here is CNN REPORT

FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

1)The US dollar is battling for resuscitation after 9 consecutive down weeks -- down 9% since June.
2) US Treasury yields are making record lows on the short end of the curve, with 2-year yields striking 0.49%.
3) The yield spread (in this case the difference in return between 10-year and 2-year Treasury bills, which shows a long-term confidence when high) continues to collapse, down another 4 basis point day-over-day to 223 basis points.
4) The S&P 500 is down below its 200-day moving average (a common signpost for the health of a market or stock) of 1115.
5) US Volatility (VIX) is spiking from its recent stability.
6) In Japan, long time quantitative easing specialists found their markets closing down overnight by 2.7%, which makes them down 11.9% for the year to date.

CNN - Is this finally the economic collapse?

The Baltic Dry Index is tanking again - be prepared Lehman 2.0 is now reality

2010-07-16T14:51:00.000-07:00

The Baltic Dry Index (BDI) flashed serious warning signals ahead of the 2008 financial crisis. After dropping for its 35th-straight day yesterday (Thursday), what is this thinly followed index telling us now?

Back in May 2008, when global investors still expected economic growth to continue, a thinly followed index began to broadcast a “red-alert” warning to those few who were watching.

The index proceeded to drop by more than 90% in the next six months.

Had you been watching – and heeded its warning – this index would have saved you from the fallout of the biggest financial crisis since the Great Depression.

And here’s the thing. This index is updated five days a week and is readily available to anyone who wants to track it.

The index in question is called the “Baltic Dry Index,” or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days.

Is this another economic red alert, or merely a statistical red herring, like so many of the other economic reports that have appeared during the often-contradictory, whipsaw markets we’ve seen of late?

What is Baltic Dry index?

The Baltic Dry Index is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index tracks worldwide international shipping prices of various dry bulk cargoes.

The index provides investors and others with an idea of how much it will cost to move major raw materials by sea (in bulk, hence the name). Taking in 26 shipping routes measured on a time-charter and voyage basis, the BDI covers Handymax, Panamax, and Capesize dry bulk carriers shipping a plethora of commodities - including coal, iron ore, and grain.

If we look back at the BDI plunge that presaged the "Great Recession," we can see that outside events coincided with the index decline.
Crude oil peaked at an all-time high in a speculative frenzy in July 2008, and then reversed course. In September and October we witnessed the "big unwind," as Lehman Bros. Holdings Inc. (OTC: LEHMQ) collapsed, American International Group Inc. (NYSE: AIG) was torpedoed by its credit-default-swap (CDS) business, and mortgage giants Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FNM) imploded.

The index kept dropping as shipping companies parked their fleets. It let anyone who was following it know - in advance - that things were continuing to get worse.

When the index finally bottomed in December 2008, it established a bottom so low that it represented the ability to rent a 1,000-foot ore-class ship for less than the cost of the fuel it would burn if left to idle for a day. Ships that chartered for $48,000 back in May can now be had for $18,000 a day, a Lombard Street Research analyst told The Economist.

To the investors who watched this index, all of this was pretty obvious. Unfortunately, not many investors were watching.
And now the BDI is flashing "Red Alert" once again.

The Return-Trip Ticket
As important as it is to understand that a crash is imminent, I believe it's just as crucial to be ahead of the game by understanding when a rebound is at hand. The Baltic Dry Index performs that early warning system function just as well. It had fully bottomed three months before U.S. stocks ended their sell-off. By January 2009, in fact, the BDI had signaled to "informed investors" that it was time to start nibbling again. As a fund manager working to navigate the crash, I made sure that my shop relied on this index: Along with some other tools, the BDI provided us with insights about how the U.S. and global economies were behaving. It provided us with a panoramic view of what global manufacturers were doing with their raw ore reserves.
That brings us back to the present.

Back on the Tarmac
The BDI most recently topped out in May. As of yesterday (Thursday), it has already dropped 35 days in a row. That's significant. This string of "down days" is the longest in at least nine years, The Economist reported this week. During the crash of 2008, the index never fell 35 days in a row. Today, the BDI is again flashing serious warning signs that not everything is as it appears. It may be warning us about the start of a "double-dip" recession, or it may be telling us that something even worse is at hand.

Historically, the Baltic Dry Index has shown itself to be the EKG of future industrial demand. And, right now, the BDI is screaming "Danger, Will Robinson!" to any investor who will read it and heed it as a true leading indicator.

If the price of refined copper is called "Dr. Copper," for its ability to ascertain the health of the demand for growth in an economy, the BDI is the daily heartbeat for near-term future industrial demand. Combined, those two indicators can provide investors with a view of whether the world economy is growing or shrinking, based on the big picture of world demand for growth. Currently, the BDI is flashing serious warning signs to anyone who is looking at it.

The drop in the BDI index in 2008 was one of the most obvious signs of the real impact that the so-called "Great Recession" would have. From May 20, 2008 to Dec. 3, 2008, the BDI fell from its high of 11,793 to its low of 663 - a near-freefall of 94%.

Moves to Consider Now

Given the signals we're getting from the Baltic Dry Index, the question to ask is clear: Are you preparing your portfolio so it includes protection against a possible additional leg down in the market?

It may help to understand the specific moves you'd want to consider.
Remember, back in 2008 the BDI had dropped for nearly two months before crude oil hit that July record peak and then started to unwind.

We will want to keep an eye on other raw commodity prices for similar "topping" actions, as we watch for confirmation of weakness in our favorite natural resources.
When demand is dropping for raw bulk materials, and the inventory of refined products like copper is growing, we will know it is time to consider putting in a "short" play on some of our commodity futures via long-dated put options.
Action to Take: The odds of a double-dip recession escalate even as volume dries up during summer trading. Put tight stops on any speculative position that you would be uncomfortable holding through a "2008-like" financial event that could strike this fall. You want to have enough liquidity to be able to buy when the next "March-2009-like" market bottom occurs. It won't play out just like the last one, but there will be similarities. You will need the financial firepower - cash - to take advantage of such a great possible entry point. Be prepared.

THE U.S. DOLLAR IS DOOMED - Get ready for New reserve currency

2010-06-30T11:56:00.000-07:00

Russia buys another loads of gold
The most recent data on gold reserve holdings as presented by the World Gold Council, that Russia had purchased 27.6 tons of gold in the most recent reporting period, bringing its total to 668.6 tons. It appears Russia is only getting started. According to the latest IMF data, in the period between April and May, Russia added another 22.5 tons, bringing its May total to a fresh record of 703.1 tons. As BusinessWeek reports, Russia "has added gold every month since at least February."

IMF Website speaks of New World Currency
Finally, in principle, a new global currency issued by a global central bank, with robust governance and institutional features, could provide a nominal anchor and risk-free asset for the system independent of national currencies. This global central bank could also serve as a lender of last resort. But any such step requires considerably more debate on its merits, including on the need for a safety valve for the system given errors that might inevitably occur, as well as of its feasibility, given the very substantial multilateral effort required. I fear we are still very far from that level of global collaboration.

http://www.imf.org/external/np/speeches/2010/051110.htm

Miami and 30 more American cities going bankrupt

2010-05-28T01:41:00.000-07:00

24 Experts Warn Of Meltdown 2010 : Martial Law : Economic Collapse

2010-05-20T16:47:00.000-07:00

Bob Chapman
First 6 months of 2010, Americans will continue to live in the 'unreality'...the period between July and October is when the financial fireworks will begin. The Fed will act unilaterally for its own survival irrespective of any political implications ...(source is from insider at FED meetings). In the last quarter of the year we could even see Martial law, which is more likely for the first 6 months of 2011. The FDIC will collapse in September 2010. Commercial real estate is set to implode in 2010. Wall Street believes there is a 100% chance of crash in bond market, especially municipals sometime during 2010. The dollar will be devalued by the end of 2010.
Gerald Celente
Terrorist attacks and the "Crash of 2010". 40% devaluation at first = the greatest depression, worse than the Great Depression.
Igor Panarin
In the summer of 1998, based on classified data about the state of the U.S. economy and society supplied to him by fellow FAPSI analysts, Panarin forecast the probable disintegration of the USA into six parts in 2010 (at the end of June – start of July 2010, as he specified on 10 December 2000
Neithercorps
Have projected that the third and final stage of the economic collapse will begin sometime in 2010. Barring some kind of financial miracle, or the complete dissolution of the Federal Reserve, a snowballing implosion should become visible by the end of this year. The behavior of the Fed, along with that of the IMF seems to suggest that they are preparing for a focused collapse, peaking within weeks or months instead of years, and the most certain fall of the dollar.
Webbots
July and onward things get very strange. Revolution. Dollar dead by November 2010.
LEAP 20/20
2010 Outlook from a group of 25 European Economists with a 90% accuracy rating- We anticipate a sudden intensification of the crisis in the second half of 2010, caused by a double effect of a catching up of events which were temporarily « frozen » in the second half of 2009 and the impossibility of maintaining the palliative remedies of past years. There is a perfect (economic) storm coming within the global financial markets and inevitable pressure on interest rates in the U.S. The injection of zero-cost money into the Western banking system has failed to restart the economy. Despite zero-cost money, the system has stalled. It is slowly rolling over into the next big down wave, which in Elliott Wave terminology will be Super Cycle Wave Three, or in common language, "THE BIG ONE, WHERE WE ALL GO OVER THE FALLS TOGETHER."
Joseph Meyer
Forecasts on the economy. He sees the real estate market continuing to decline, and advised people to invest in precious metals and commodities, as well as keeping cash at home in a safe place in case of bank closures. The stock market, after peaking in March or April (around 10,850), will fall all the way down to somewhere between 2450 and 4125 during the next leg down.
Harry Dent (investor)
A very likely second crash by late 2010. The coming depression (starts around the summer of 2010). Dent sees the stock market--currently benefiting from upward momentum and peppier economic activity--headed for a very brief and pleasant run that could lift the Dow to the 10,700-11,500 range from its current level of about 10.090. But then, he sees the market running into a stone wall, which will be followed by a nasty stock market decline (starting in early March to late April) that could drive down the Dow later this year to 3,000-5,000, with his best guess about 3,800.
Harold Eatmon (1990)
I had a vision of the stock market soar and then crash. After the crash, many big business corporations and private parties bought up stocks because of the low cost to buy in. Then I saw the market begin to climb again in a short period of time. Then it crashed again bringing tremendous loss, ruin and devastation to all who bought in the first time. This is what I have labeled "Two Black Mondays" . The time period between the Two Black Mondays was very close together. I could not tell exactly how close. There are some tell tale signs indicating the season and the setting. I saw the season to be when *"the leaves fall to the ground"* then the first crash would occur."Like Joseph in Genesis, I believe America will have fat years of financial blessing. I also believe there are coming lean years of financial difficulty for America. [Note: while this doesn't give an exact date, this prophecy was dead on accurate- the markets crashed -777 points on MONDAY 9/29/08, roughly 1 week into the FALL (leaves fall to the ground.) The markets then rebounded OVER A SHORT PERIOD OF TIME (from April 2009 to October 2009 the markets rallied nearly 4000 points!) and everyone bought back in. According to this prophecy, the next huge crash will happen on a Monday. Eatmon even accurately predicted the coming 'fat years' and the now present 'lean years']
Larry Randolph
... there is yet a seven-fold shaking of greater magnitude coming that will produce enormous and perhaps catastrophic disruptions on economic, political, geophysical, atmospheric, and spiritual levels.
Weather Bill
Huge earthquake in America in September 2010. This EQ to come is going to start the swift downfall of America
Andrey Rasshivaev
At the very end of the year of 2007 I have received a revelation from God that the coming 2008 year was going to be the year of the beginning of outpouring of God's judgment upon this world...About half a year ago God has given me a further revelation. He reveled me that the crisis was just the very beginning. The world is going to face the total and complete economical and financial collapse in August-September of this new 2010 year.
Greg Evensen
Economic meltdown and possible martial law in the mid summer 2010.
Rick Wiles
Use the first 6 months of 2010 to prepare for the last 3 months of 2010. Purchase everything you need while you still can. Pay off your debts. Judgment is coming upon America (she will be shaken physically, financially, and spiritually)- not the end of the USA, only TEOTUSAAWKI- supply chain will be disrupted for years, admitted insolvency- handed over to allies for pennies on the dollar. POSSIBILITIES: (not prophecies) EMP attack, China Russia NK cyber attack, delayed Y2K bug.
Sadhu Sundar Selvaraj
Starvation and famine/financial problems will develop. Terrorist attacks. Banks close. Tsunami. 7 new diseases worse than swine flu.
Amos Scaggs
The ultra-rich will go broke. I don’t mean go bankrupt I mean go broke, no money. I saw ultra rich people working for food because they were broke. This will happen by mid-February 2011.
Jimmy "Doomsday"
DOW will fall below 7,000 before mid summer 2010- Dollar will rise above 95 on the dollar index before mid summer 2010- Gold will bottom out below $800 before mid summer 2010- Silver will bottom out below $10 before mid summer 2010- CA debt implosion will start its major downturn by mid summer and hit crisis mode before Q4 2010- Dollar index will plunge below 65 between Q3 and Q4 2010- Commercial real estate will hit crisis mode in Q4 2010- Over 35 states will be bailed out by end of Q4 2010 by the US tax payer End of Q4 2010 gold will hit $1,600 and silver jump to $35 an oz.
Unnamed Economist working for US Gov't (GLP)
What we have experienced the last two years is nothing to what we are going to experience this year. If you have a job now...you may not have it in three to six months. (by August 2010). Stock market will fall = great depression. Foreign investors stop financing debt = collapse. 6.2 million are about to lose their unemployment.
Lindsey Williams
Dollar devalued 30-50% by end of year. It will become very difficult for the average American to afford to buy even food. This was revealed to him through an Illuminati insider.
Richard Mogey
Current Research Director at the Foundation for the Study of Cycles- Because of a convergence of numerous cycles all at once, the stock market may go up for a little while, but will crash in 2010 and reach all-time lows late 2012. Mogey says that the 2008 crash was nothing compared to the coming crash. Gold may correct in 2009, but will go up in 2010 and peak in 2011. Silver will follow gold.
Robert Prechter
Founder of Elliott Wave International, implores retail investors stay away from the markets… for now. Prechter, who was bullish near the lows in March 2009, now says the stock market “is in a topping area.”predicting another crash in 2010 that will bring stocks below the 2009 low. His word to the wise, “be patient, don’t rush it” keep your money in cash and cash equivalents.
John P. Hussman, Ph.D.
In my estimation, there is still close to an 80% probability (Bayes' Rule) that a second market plunge and economic downturn will unfold during 2010.
Robin Landry (Market Expert)
I believe we are headed to new market highs between 10780-11241 over the next few months. The most likely time frame for the top is the April-May area. Remember the evidence IMHO still says we are in a bear market rally with a major decline to follow once this rally ends.
Alpha-Omega Report (Trends Forecast)
Going into 2010, the trends seemed to lead nowhere or towards oblivion. Geo-politically, the Middle East was and is trending towards some sort of military clash, most likely by mid-year, but perhaps sooner...At the moment, it seems 2010 is shaping up to be a year of absolute chaos. We see trends for war between Israel and her neighbors that will shake every facet of human activity...In the event of war, we see all other societal trends being thoroughly disrupted...Iran will most likely shut off the flow of oil from the Persian Gulf. This will have immense consequences for the world’s economy. Oil prices will skyrocket into the stratosphere and become so expensive that world’s economies will collapse..There are also trend indicators along economic lines that point to the potential for a total meltdown of the world’s financial system with major crisis points developing with the change of each quarter of the year. 2010 could be a meltdown year for the world’s economy, regardless of what goes on in the Middle East.
Eric deCarbonnel
There is no precedence for the panic and chaos that will occur in 2010. The global food supply/demand picture has NEVER been so out of balance. The 2010 food crisis will rearrange economic, financial, and political order of the world, and those who aren’t prepared will suffer terrible losses…As the dollar loses most of its value, America's savings will be wiped out. The US service economy will disintegrate as consumer spending in real terms (ie: gold or other stable currencies) drops like a rock, bringing unemployment to levels exceeding the great depression. Public health services/programs will be cut back, as individuals will have no savings/credit/income to pay for medical care. Value of most investments will be wiped out. The US debt markets will freeze again, this time permanently. There will be no buyers except at the most drastic of firesale prices, and inflation will wipe away value before credit markets have any chance at recovery. The panic in 2010 will see the majority of derivatives end up worthless. Since global derivatives markets operate on the assumption of the continued stable value of the dollar and short term US debt, using derivatives to bet against the dollar is NOT a good idea. The panic in 2010 will see the majority of derivatives end up worthless. The dollar's collapse will rob US consumers of all purchasing power, and any investment depend on US consumption will lose most of its value.
WALL STREET JOURNAL- (2/2010)
"You are witnessing a fundamental breakdown of the American dream, a systemic breakdown of our democracy and our capitalism, a breakdown driven by the blind insatiable greed of Wall Street: Dysfunctional government, insane markets, economy on the brink. Multiply that many times over and see a world in total disarray. Ignore it now, tomorrow will be too late."
Lyndon Larouch
The crisis is accelerating and will become worse week by week until the whole system grinds into a collapse, likely sometime this year. And when it does, it will be the greatest collapse since the fall of the Roman Empire.
Niño Becerra (Professor of Economics)
Predicted in July 2007 that what was going to happen was that by mid 2010 there is going to be a crisis only comparable to the one in 1929. From October 2009 to May 2010 people will begin to see things are not working out the way the government thought. In May of 2010, the crisis starts with all its force and continues and strengthens throughout 2011. He accurately predicted the current recession and market crash to the month.
Richard Russell (Market Expert)
(from 2/3/10) says the bear market rally is in the process of breaking up and panic is on the way. He sees a full correction of the entire rise from the 2002 low of 7,286 to the bull market high of 14,164.53 set on October 9, 2007. The halfway level of retracement was 10,725. The total retracement was to 6,547.05 on March 9, 2009. He now sees the Dow falling to 7,286 and if that level does not hold, “I see it sinking to its 1980-82 area low of Dow 1,000.” The current action is the worst he has ever seen. (Bob Chapman says for Russell to make such a startling statement is unusual because he never cries wolf and is almost never wrong)

1-In-10 Home owners Will Lose Their Home To The Bank

2010-05-20T11:22:00.000-07:00

New Observations is forecasting that a minimum of one in ten homes with a mortgage today will be lost to foreclosure in the next two years and that this loss represents a staggering five-million-unit addition to inventory-for-sale.
A record high 4.63% of mortgages were in foreclosure at the end of March The Mortgage Bankers Association reported Wednesday. Much worse, a mammoth 9.54% of mortgages are 90-days or more past due.
Given cure rates are slim-to-nothing-at-all beyond a 60-day delinquency, in practical terms, all of these seriously-delinquent homes will be lost through a sheriff’s auction, a short sale, a deed-in-lieu passing title from borrower to bank, or some other variant of distressed sale. Amherst Securities Group in a Sept. 2009 report said of the cure rate: “The cure rate on 60+ loans has decreased from 66% in early 2005 to 5% in Q2 2009.”
What is obvious and apparent from the cure-rate chart (see above-click for a clear view) is that borrowers who miss a payment are giving up quickly. After two payments are missed, the mortgage is a goner. It’s a new phenomena and adds a serious risk of falling prices for those who currently own homes.
If 50 million homes carry a mortgage, and with 10 percent lost to the bank in the next two years, five million units will be added to the current for-sale inventory. The five million bank-repo homes works out to about 10 months of sales at an average rate. Amherst estimated 7 million liquidations to the bank, but it was unclear over what period of time. The numbers will have even a more exaggerated impact if mortgage-payment performance continues to fall.
Current inventory is at eight months. The recent inventory high was 11 months in April 2008. Our figures already show current supply for-sale at 3.6 million units – which we have estimated is excessive by over 900,000 units (see chart “Units For Sale”-click for a clear view). In an average month 500,000 existing homes sell.
In another derogatory sign, purchase applications fell 27 percent to their lowest point since May 1997. A government-paid down-payment program ended April 30th.
The guesstimate that one-in-ten mortgage borrowers will lose their home is not a wild proclamation. It’s basic math based on the cure rate. What is wild is considering what will happen to real estate prices should mortgage failure gain greater momentum. Serious delinquencies are 30% greater today than a year ago.
A crash has the same irrational exuberance as a mania, except that greed is liberating and fear is terrifying. We have already lost 30 percent of house prices nationwide. There is simply no question that a radical loss in value may still lie ahead. Mortgage performance has gone down hill, and only a strong employment recovery can change the math

GREECE DOOM STILL ON! NO BAILOUT!!

2010-04-13T16:05:00.000-07:00

As of today It's not confirmed that Greece is bailed out. Not all EU leaders agreed to it yet. This could still be doom. EU leaders haven't yet agreed unanimously to offer Greece a bailout, according to a Wall Street Journal report that offered details about the potential plan. But ministers have made the terms of a potential deal public in an effort to reassure world financial markets, which have been unnerved by Greece's debt woes for months.

Oops... ALL LEADERS WILL HAVE TO AGREE TO IT, probably even PASS LAWS IN THEIR OWN COUNTRIES to allow it...
Here is MSM version of this news
http://www.nasdaq.com/

"This decision today was no decision on aid for Greece," Finance Minstry spokesman Michael Offer told Dow Jones Newswires. "But it was only about technical preconditions for aid by further specifying the decision of the heads of state and governments. We expect, we hope that Greece is now in a situation where it can continue to refinance itself on the capital markets, as previously."

Doom still on!

Double Dip Recession is looming, The evidence is piling up that all year we've been living in a dreamland

2009-11-19T07:23:00.000-08:00

After publicly doubting recovery all through the summer and early fall, the housing bears are definitely getting their moment, after two key numbers (mortgages and starts) came in particularly weak yesterday.

Today the WSJ adds some further evidence that the much-feared "double dip" is happening.
On Wednesday Pulte Homes Inc., the nation's largest home builder, warned investors of a grim outlook. "As we look out to 2010, we are expecting difficult conditions to continue," said chief executive Richard Dugas.

Meanwhile, more Americans who bought homes during the boom are falling into mortgage limbo. About 3.4% of U.S. households -- or about 1.9 million homeowners -- are 120 days or more overdue on their payments, but not yet in foreclosure, according to LPS Applied Analytics, a research firm in Denver. That is up from 1.5% a year earlier.
Many of these people are likely to lose their homes over the next few years. That means more bank-owned homes will hit a market already suffering from oversupply.
The housing-supply picture is tricky to read. The number of homes listed for sale was 3.63 million in September, down 15% from a year earlier, according to the National Association of Realtors. That is enough to last about eight months at the current rate of sales. Anything above about six months is considered a buyer's market, in which prices may come under downward pressure.

China reduced buying US Bonds, raising its own currency

2009-11-12T07:22:00.000-08:00

China has sent the clearest signal yet that it may be about to scale back lending to the United States. On Wednesday, the Chinese Central Bank indicated that it would consider allowing the dollar to fall against the yuan. The change in policy—at a time when America is running the largest deficits in world history—could have major ramifications for the U.S.

The People’s Bank of China’s most recent policy report contained some interesting new language. Instead of repeating the typical rhetoric about keeping the yuan “basically stable at a reasonable and balanced level,” it hinted at a move away from the dollar peg (the mechanism by which it keeps the exchange rate of the yuan stable to the dollar).

The new policy language said that the bank will “improve the yuan exchange-rate formation mechanism,” based upon principles of “initiative, controllability and gradualism.” Analysts are interpreting this to mean that China may be about to allow the dollar to fall against the yuan.

“I think the wording change … shows that it is an irresistible trend for China to resume yuan appreciation,” said Xing Ziqiang, an economist at Beijing-based China International Capital Corp.

One of the ways China intervenes to keep the yuan pegged to the U.S. dollar is by purchasing dollar assets—like U.S. treasuries—in international currency markets. This increased demand for dollar assets, along with the subsequent increased supply of yuan, helps prop up the value of the dollar against the Chinese currency. However, if this relationship is about to change, and China is going to allow the dollar to fall in relation to the yuan, it means that China’s central bank will probably have to reduce its purchases of dollar assets.

If China curtails its treasury purchases, America may find itself in a pickle. China is America’s most important creditor. Over the past decade, China has willingly lent money to the U.S. government (by purchasing treasuries), so that the yuan would be artificially pegged at a low rate to the dollar. China did this to give an advantage to its exporters and encourage U.S. businesses to relocate to China. The advantage for America was that both the government and consumers had an easy source of borrowed money, and interest rates were kept low. This allowed both the public and private sectors of the U.S. economy over the past few years to embark on what was probably the biggest spending binge in history.

However, the downside to this arrangement may now be about to be felt. American society is addicted to debt. China’s announcement that it will let the dollar fall against the yuan is a warning that Chinese money might not be quite so easy to get. For the U.S. government, it means that it may need to find an additional source of foreign lenders—not an easy task when you are already the world’s largest borrower and you are running world-record deficits.

The U.S. is auctioning off another $81 billion in treasuries this week. This total is lower than other recent auctions, but it is still gargantuan compared to pre-economic-crisis days. This auction may not fail, but the probability that one will fail someday soon just got a whole lot more likely.

And if an auction were to fail? Interest rates could soar. For an economy addicted to debt at all levels—federal, state, municipal, corporate, personal—higher interest rates could be a killer.

The Orchestra Continues To Play As The Titanic Is Sinking

2009-11-02T14:56:00.000-08:00

In 1912 nobody could have fathomed that the RMS Titanic, a purported unsinkable luxury liner, could have met its demise in an iceberg. As the Olympic-class passenger vessel descended into the sub-zero waters, the orchestra remained calm as they continued playing.

Today, like the oblivious orchestra players, most Americans remain blissfully unaware of how emaciated our economy has become. We continue to live under the fallacy that the United States is still a superpower. Now burdened by stifling debt, stymied by an obsolete industrial infrastructure and invaded by economic predators, we have somehow developed the same blinders the orchestra possessed, prohibiting us from seeing our imminent demise as we sit idly by, playing.

Americans are overlooking the rapid sell-off of our best wealth-producing companies; over 16,613 U.S. companies have been siphoned off by foreigners since 1978 alone. Many of these enterprises took over 100 years to develop, and everyday foreign acquirers spend over $200 million scooping up U.S. companies and landmarks.

We have already lost a huge percentage of our producing capabilities and our wealth generating companies in the midst of the Great American sell-off. Within the past five years alone, the U.S. has most notably lost Anheuser-Busch to Belgian-based InBev for $52 billion; Alcon, the world leader in eye care was usurped by Swiss pharmaceutical maker Novartis’ for $39 billion and KeySpan Corp. was bought out by British energy distributor National Grid for $11.8 billion.

The U.S. is currently fighting and losing an economic war that is prohibiting us from producing enough to support ourselves. We are being forced to live on imports and debt.

In June 2009, our own government will stop publishing a key report tracking foreign direct investments (FDI) into the U.S., essentially burying the problematic fact that America is for sale. Through the discontinuation of the Bureau of Economic Analysis’ (BEA) “New Investment Series,” the U.S. government and the American public will no longer be able to distinguish between FDI used to acquire existing U.S. assets from FDI used to establish new U.S. businesses. With the U.S. hiding the foreign money trail, the American public will no longer have the ability to track the rapid sell-off of the America’s best companies to foreign interests.

The U.S. is indebted more than $9.4 trillion. With each passing minute, the debt grows by almost $1 million or $1.4 billion a day. The top-four foreign holders of U.S. debt are Japan, China, Britain and Saudi Arabia. Together, these four nations hold around $2.3 trillion of national debt; Japan holds $517.2 billion while China holds nearly $405.5 billion. These numbers speak for themselves. Independence will be lost forever unless America becomes a productive exporting nation, backed by a strong industrial and manufacturing base.

Our foreign competitors have acquired much of their burgeoning wealth through our “free trade” policies. These countries have become our bankers. Now we can only afford to maintain our standard of living through the good graces of Japan, China, Britain and Saudi Arabia. Our foreign servitude has allowed us to live under the façade that we are wealthy. But it should be obvious that our former paradise has become a fool’s paradise as we produce less each year and watch as our best companies are ripped from our grasps. We currently sit on a massive pile of debt and imports. Our past glory days are distant memories, as the orchestra continues to play.

Bye bye dollar, Saudis nail it

2009-10-28T22:04:00.000-07:00

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.

The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separatedfrom the global oil market this year.

The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer.

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.

The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon and Southern Green Canyon.

Argus said the change in policy reflected the “increased importance of the US Gulf coast sour crude market, in which both production and trading activity was rising sharply”.

Paul Horsnell, head of commodities research at Barclays Capital in London, said Saudi Arabia’s decision was likely to reflect a “wider discontent” from its customers in the US about WTI performance.

ExxonMobil, Marathon and Valero are among the US’s biggest buyers of Saudi crude oil.

Edward Morse, chief economist at LCM Commodities in New York, said: “It is a recognition by large players that WTI sometimes does not reflect the true value of crude oil in the waterborne market.”

Saudi Arabia has priced its oil using WTI since 1994.

The price was based on quotes from the physical market which were compiled by Platt’s, a unit of McGraw-Hill.

Oil companies then covered their exposure to WTI using the futures market on Nymex.

Bob Levin, managing director of market research at the CME Group-owned Nymex, said the exchange was ready to move with the market.

“We plan to introduce a cash-settled futures contract tracking the new Argus index,” he said.

Mike Vinciquerra, equity research analyst at BMO Capital Markets, said the new Argus index would not replace WTI. “It’s more a supplement,” he said

Not Peter Shiff, It is Karl Marx Right again

2009-10-21T08:05:00.000-07:00

Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.

Karl Marx, Das Kapital, 1867

The great October fall of the US dollar is turning into an avalanche. On Tuesday, the American currency lost nine kopeks in Russia and reached a new minimum mark this year - 29.5 rubles per dollar. Within six months (April through September) the dollar lost over 10 percent at the world foreign exchange trading, which marked the sharpest decline since 1991. Some experts believe that the American currency is close to collapse, which may lead to a new financial crisis.

The tendency of the US dollar devaluation has been observed for a few years, but the current rate of decline is unprecedented. Some jokesters even rushed to re-read the letters of Karl Marx to Friedrich Engels written during the US financial panic of 1857 discussing the collapse of America. It would have been funny if it wasn’t so serious.

The chief economist of HSBC Bank Stephen King believes that if the US officials fail to stop the fall of American currency, it may provoke another financial crisis. “A dollar collapse would be a disaster all round… It would leave the international monetary system short of stability and long of fear. It would unleash economic upheavals on a similar scale to those seen in the 1970,” King wrote for The Independent.

American officials don’t seem to be overly concerned since nothing is being done about it. The US hasn’t done anything to support the currency since 1955. But is a collapse inevitable? From the viewpoint of macroeconomic indicators, the US state of affairs is, indeed, scary: record budget deficit of $1.4 trillion, record state debt that now exceeds $11.9 trillion, high unemployment and weak currency. Huge inflows of capital into the economy that Obama is proud of haven’t yet shown results.

But on the other hand, weak currency may be good for the US.

“The economy is supported by industrial orders based on the current weak dollar and higher prices in the future. Key players in the market are ready to support their manufacturers by weakening the currency,” says Alexander Kuptsikevich, FxPro financial analyst.

If the state debt is growing, it means that the US continues to obtain loans.

“Market participants prefer to borrow money in dollars, and dollar loans are relatively affordable. They invest into more active instruments denominated in currencies of developing countries,’ explains Yevgeny Nadorshin, chief economist of Trust Investment Bank.

This causes growth of stock index. For example, Russian Trading System increased by 34 percent within two and a half months.

World center banks, who used to be trusted American partners, also turn their backs to dollar. They reduced investments into assets denominated in American currency. According to Barclays Capital , in April, May, and June, the banks invested 63% of their gains in euro or yen. If it continues, this may lead to further devaluation of dollar.

However, central banks of the countries that depend on export try not to let it happen. For example, last week a group of Asian central banks carried out unprecedented intervention in the financial markets by actively buying American currency. Bank of Russia was not a passive observer either. According to experts’ evaluations, the bank purchased over three billion dollars.

The good thing about it is that it helped Russian manufacturers to maintain competitiveness and bank reserves. The question is whether we would have to spend much more when investors change their minds and flee the Russian market changing their rubles into dollars. Last year we paid a high price for it.

“I’m not afraid that the events of the last year will repeat. The circumstances now are different. The world touched the bottom of the crisis and revival began, so there won’t be sharp moves,” says profile manager of Pilgrim Asset Management Olga Izyumova.

Yevgeniy Nadorshin agrees with her. He also thinks that dollar will continue weakening. But many experts think that as soon as the US announces the raise of interest rates, American currency will stop falling and even start growing. When is it going to happen?

Ben Bernanke, the Chairman of the United States Federal Reserve evades the answer. All he says is that this will happen when the US is sure of stable growth. On Tuesday investors discussed information obtained from the US official sources that the Federal Reserve will start raising interest rates no earlier than the second half of the next year.

Next Great Bubble is about to bust - NYC Commercial Real Estate

2009-10-14T07:45:00.000-07:00

This one's been in trouble for awhile, and now WSJ is reporting that the epic NYC apartment complex Stuyvesant Town is just months away from implosion.

The 56-building, 11,000 unit complex was acquired at the peak of the bubble for $5.4 billion by Tishman Speyer and BlackRock, with investors ranging from CALPERS (naturally) to the Church of England (not as obvious).

Here's the deal:

The property is now thought to be worth just $2.1 billion.
The buyers originally projected income would triple to $336 million in 2011, but right now it's only at $139 million.
They've got just $33 million cash on hand from its interest reserves to cover its debt, and a burn rate of $16 million.

So basically: they're screwed.

Meanwhile, this sad state of affairs explains why StuyTown is so eager to advertise on subways and magazines, in a desperate bid to gain tenants? Perhaps you want to help them out and live in converted public housing (which is what it is).

Global trade still in deep recession - Cargo Ships aren't moving anywhere

2009-09-14T11:14:00.000-07:00

Off the coast of Singapore is a collection of ships larger than the U.S. and English navies just sitting idle, waiting out the recession. It's a spectacular image, capturing our bruised global economy better than any we've see thus far.

The Daily Mail has pictures of the idled fleet, and the full story about the decline in the world's trade business.

At this time last year one of the massive cargo ships carrying 80,000 tons of cargo would cost $50,000 a day. Now it's just $5,500. To send a 40 foot steel container of goods from China to the UK cost $300,000 in the summer of 2008. Now it costs just $10,000. The world could have 25% of its ships sitting idle in the next two years.

While the President says the economy has been pulled from the brink, and economists say the recession has ended, these ships floating in Asian seas are big reminder that we're still far off from recovery.

Simon Parry of the Daily Mail: The tropical waters that lap the jungle shores of southern Malaysia could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an officer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can't immediately put my finger on.

Then I have it - his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don't even bother the lowest mark on its Plimsoll line. It's the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them. Continue>

China is playing game - Derivative issue may go wild

2009-09-04T14:20:00.000-07:00

There was a not insubstantial sell-off in commodity prices from light sweet crude to copper on Monday:

Much of it came down to a story put out by China’s Caijing magazine, which suggested the country’s state-owned Assets Supervision and Administration Commission (SASAC) might consider reneging on commodity derivative contracts that were now relatively deeply out of the money.

It said:

China’s state-owned enterprises may unilaterally terminate commodities contracts as they try to cut massive losses from financial derivatives, an industry source told Caijing on August 28. According to the source, China’s State-owned Assets Supervision and Administration Commission (SASAC) has sent notice to six foreign financial institutions informing them that several state-owned enterprise will reserve the right to default on commodities contracts signed with those institutions.

Keith Noyes, an official with the International Swaps and Derivatives Association, a trade organization, confirmed that he is aware of the matter, but provided no further comment. Foreign brokerages usually work through their Hong Kong operations to sign over-the-counter derivative hedging contracts, according to an investment banker whose firm is involved in the business. Hong Kong and Singapore usually serve as venues for arbitration over such transactions.

Most investment banks may “just swallow” any losses arising from canceled contracts, the executive said, adding that any losses are usually made up for with compensating trades. Investment banks “just earn less” from such transactions, he said. But any such move would be a major blow to investment banks which service massive commodities hedging operations for Chinese SOEs on the international market, said the executive.

Chinese SOEs have suffered massive losses from hedging contracts since the onset of the global financial crisis. SASAC and the National Auditing Office has been investigating derivatives positions trading since the beginning of the year. A source from a state-owned company told Caijing that most of China’s SOEs engaging in foreign exchange and international trade have participated in derivatives trading, involving capital topping 1 trillion yuan.

That reportedly also contributedto a 7 per cent sell-off in the Shanghai Composite on the day.

Now, considering China’s commodity purchases have helped support the global rebound to a large degree this year, there are some important implications not only for the six banks involved in outstanding contracts, but also for all current and prospective counterparties, to say nothing of the health of the global economy in general.

What’s more if the SASAC reneges there’s no telling what sort of precedent that would set for other Chinese companies.

This is not 10 years ago, after all. China has grown to become a critical trading partner for many western institutions, with many respective counterparties clearly under the impression that the days of contract “u-turns” were largely behind the country.

As for the losses themselves, it seems many in the market do believe the sums involved could be pretty substantial.

Could this, we wonder, be one of the reasons Chinese companies were so busy stocking up on cheap commodities in the first half of the year?

World buying Gold like crazy! death of the dollar begin

2009-09-03T11:59:00.000-07:00

Reports suggest that China's main sovereign wealth fund and other state entities are under pressure to invest in strategic Western assets as the country tries to offload its dollars for firmer-based wealth including gold and oil.

Several reports are coming out of China that there is pressure on state-controlled organisations - notably the country's main sovereign wealth fund, China Investment Corporation (CIC) to rapidly build investment in non-Chinese enterprises. While the CIC itself, with apparent access to some $300 billion in funds - and the possibility of more from the government - may be concentrating on hedge funds and other investment entities, there is another sector for Chinese state-owned companies looking at major investment in commodities. Indeed with the funds available as China seems to be dumping its US dollars in favour of more concrete assets, virtually no minerals sector is safe from Chinese participation.

While CIC was set up only two years ago, funded with $200 billion in initial capital, a report to the U.S. Congress noted that according to top Chinese officials, it was created to improve the rate of return on China's $1.5 trillion in foreign exchange reserves and to soak up some of the nation's excess financial liquidity. Depending on its performance with the initial allotment of $200 billion, the CIC might be allocated more of China's growing stock of foreign exchange reserves - and this has already proved to be the case.

Probably the most interesting of the recent reports of what is happening with Chinese sovereign wealth fund investment outside China has come from Paul Mylchreest's Thunder Road Report where an ex-U.S. intelligence service member is quoted. He reports that he has a friend who is in the Chinese Sovereign Wealth fund sector who says - hearsay I know and it wouldn't stand up in court - indicated that the wealth fund analysts were working all hours of the day and night trying to put investment deals together - particularly in the oil and precious metals sectors. The conclusion is that China recognises that the U.S. dollar is going to tank and it wants to convert as much of its trillions of dollars of holdings into strategic assets as possible before the collapse really takes hold.
The trouble is there is too much money available chasing too few assets - and too little time available - or such is the conclusion. As a result the Chinese government seems to be doing its utmost in trying to persuade the Chinese public to buy gold and silver by relaxing the restrictions - it's now easier to buy precious metals in China than in the U.S. - and by pushing gold and silver investment on state-owned television. If this continues the likelihood is that China will permanently overtake India as the world's biggest buyer of gold and silver, while the country's store of wealth will help shield it against further western economic collapse.
If this is indeed the case then it must be likely that the country is also building its own gold reserves - perhaps surreptitiously - through creative accounting by buying by a state entity, but not through the Central Bank itself where such sales would need to be reported. Positive for gold looking forward.
Returning to the Sovereign Wealth Funds angle though, CIC's chairman, Lou Jiwei, is reported by the WSJ as saying that investment in CIC's global portfolio for "one month this year equalled that of the whole of last year" and that given that the fund is expecting a positive return on its investments this year it may well ask the government for additional funding. Where it is going to place additional funding, who knows but there seems little doubt that China is using the western recession to buy up assets on the cheap and the funds available to do this are virtually unlimited by Western standards. But the Chinese won't buy up any old rubbish. They'll be looking for the crème de la crème.
Already CIC has bought 17% of Canada's last real remaining diversified miner - Teck Corporation - smartly buying when the latter was only just beginning to recover from last year's collapse and it has to be likely that more minerals-strategic investments are on the cards or being negotiated, either by CIC or other state organisations. Chinalco's ultimately thwarted move into Rio Tinto would have been another such instance and the Chinese investments and takeovers of Australian miners and promises of huge funding for minerals rich African countries are other examples.
Some reckon that China will be the world's second biggest economy, overtaking Japan, within the next couple of years and will overtake the U.S. by 2030. If it continues the way it is going and the U.S. continues the way it is going, this could happen much sooner. Communism, Chinese style, is winning the war of economic dominance and soon the world will no longer rely on the dollar as its reserve currency, but the renminbi!
In an interesting, but perhaps disturbing footnote to the Thunder Road Report mentioned above, Paul Mylchreest comments that in Latin America, where he has been living for 25 years, for the first time he can remember, locals are now preferring their own currency to U.S. dollars. He goes on to finish with this comment: "If a fellow with no education, a poor diet, and inadequate medical treatment living at 3,500 metres above sea level can figure out that the US dollar is undesirable as a store of wealth, how much longer do you think it can last as the world's reserve currency."
Your point to ponder for the day!

Congratulation - World just got New Currency!

2009-09-01T12:25:00.000-07:00

At First here is the link to convert your currency to new SDR

YET ANOTHER BIG MOMENT IN HISTORY. THE SDR(Special Drawing Rights at the IMF or International Monetary Fund) is being made convertable into other currencies and the IMF beefing up their ability to service this type of request. If the article is even close to being right, the IMF is looking to increase their ability to leverage by a factor of 15 or more.. Going from gold reserves of 33bln to 283bln is HUGE and should be shouted from the rooftops if true..

In a new article on kitco, analyst Paul Nathan cites a report in Bloomberg that the IMF and representatives from China, Russia and Brazil voted to make the SDR (special drawing right) convertable to any currency. The first reserve of SDR's was created out of nothing at that vote, and is now availble to act as a neutral medium to move international currencies through. Anyone with a large horde of cash can now move it around the world at will, as long as the IMF give the say so. As I see it, this act cocks the gun for a bullet of massive, nation destroying inflation. Here's what Nathan says...

Late on a Friday in August, when most people around the world were not looking, the international monetary system, in an unprecedented move, evolved. We were notified by the IMF of the following:

Aug. 28 (Bloomberg) -- The International Monetary Fund said it today pumped about $250 billion into foreign-exchange reserves worldwide, acting on an April call from leaders of the Group of 20 nations to boost global liquidity.

Countries will be able to convert the money, to come from so-called Special Drawing Rights, into hard currencies through “voluntary trading arrangements” with other members, the IMF said on its Web site today. The SDRs are the institution’s unit of account based on a basket of currencies.

The allocation, approved by the IMF’s board of governors earlier this month, will not increase the fund’s pool of money available for lending, the IMF said. “It will, however, provide members with an additional method to obtain hard currencies.”

Another smaller reserves allocation of about $33 billion will take place Sept. 9 and will be limited to members that joined the lender after 1981, such as countries from the former Soviet bloc, the IMF said.

About $110 billion of the total allocation will go to emerging-market and developing countries and $20 billion to low- income nations.

“A number of members with sufficiently strong external positions” have already said they are ready to set up or expand existing arrangements enabling the sale or purchase of SDR's, the IMF said. The lender typically acts as a broker and arranges transactions between parties at no cost. (End News Release)

What this means is that for the first time in history we have a world central bank capable of creating money out of thin air. No longer does the IMF need to borrow money with a vote of all members plus the consent of the US congress. It can simply create whatever amount of money it needs through the creation of SDRs. Not for itself, mind you, but for the world. The SDR has been around since 1967, but never as a convertible asset. That changed Friday, August 28th, 2009. The SDR has quietly mutated.

The decision was made August 7th, in an IMF vote. According to the IMF "global reserves will increase from just USD33bn to USD283bn or about 4% of global reserves excluding gold. In addition, the IMF will start issuing SDR notes later this year (China, Brazil and Russia will be the main buyers). These SDR notes can be counted as part of currency reserves and hence SDR assets could reach 5% of total reserve assets later in 2009 and possibly surpass GBP, JPY and CHF in importance as reserve assets." This is a foot in the door.

The prospect of this happening was covered in my article, The Making Of An International Monetary Crisis:

"The spectacle of billions of inconvertible dollars frozen in the vaults of central banks has brought on cries of condemnation over the dollar’s credibility as a reserve currency. The Policy Maker’s theory of a stable yet artificially ever-expanding reserve currency has failed.
The "solution" to the problem (if the Policy Maker remains consistent) will be to evolve the international monetary system from a system in which an ever-expanding reserve currency provided the world with credit and liquidity, to a system in which an ever-expanding reserve "asset" will fill that role. Like the dollar, this reserve "asset" will amount to circulating debt, i.e. something owed rather than something owned. It will be a non-market instrument, deriving its acceptability from government cooperation and decree, "immune from the laws of the free market and outside the reach of greedy speculators."

Where will this "asset" come from? Under the Bretton Woods system, dollar reserves were furnished by the U.S. central bank. Both the bank and the "asset" failed to provide sufficient stability. The next step is to create a world bank (a larger bank of last resort) controlled by an international organization (the IMF) with the power to create a new "asset," independent of any single government’s monetary policy.

As a supplement to gold and like the dollar before it, this "asset" should be a credit instrument. Unlike the dollar, it would have the backing of an entire world of central banks. The "asset" should be ever-expanding and should provide both liquidity and stability." That asset is the SDR and the potential became a reality this weekend. (For a further discussion of creating international reserves and the SDR, see my articles The Making Of An International Monetary Crisis and Bretton Woods 1944-1971, under "Other articles" by Paul Nathan).

As of this weekend, the world is 250 billion dollars "richer". No products were produced. No taxes were raised. Not even one cent was borrowed. The IMF simply created a bookkeeping entry on behalf of those countries it felt worthy of receiving additional reserves. The reserves, SDRs, are a claim to "hard currency". The hard currency will be provided by those with "sufficiently strong external positions”, in other words, surplus nations.

There is no reason for surplus nations to part with hard currency, save two, that I can think of: Altruism or Power. And in my opinion they are having a go at the latter. My read on this is that the surplus nations have just made an end run around the United States and the US Congress who have veto power over IMF decisions. Surplus nations can now provide “voluntary trading arrangements” with non-surplus (importing) nations with the IMF as "broker". This sounds like a mechanism for the surplus nations to provide buying power to importing nations at the expense of us all.

The ability to inflate has now been augmented. It has transcended national boundaries from national central banks to a world central bank. This "new" bank now has the power to create money. Inflation is no longer limited to one currency but will affect all paper currencies in the world. We now have the prospect of a synchronized international inflation. It's not enough that citizens throughout the world had to keep a keen eye on their nations central bank, now we all need to keep an eye on the IMF.

The "IMF's Board Of Governors", a group never elected to office, unknown to most, and accountable to no one, has now gained the power to create new claims on production without legal limits or oversight from any regulatory body. All it need do is vote for more SDRs.

Given the "announcement in the dead of night" tactics just employed, I suggest we all sharpen our eyesight. This development doesn't change the inflation outlook for the next month or even for the next year. But make no mistake -- the "powers that be" just took the fiat system and the inflation threat to a new level.

CNBC September Calling - Get ready for a bumpy ride

2009-09-01T11:18:00.000-07:00

The US recovery could be bumpy, but haven't we passed the point where credit markets threaten to completely freeze-up? Art Cashin of UBS trading appears to believe the worst is behind us.

"Now we've gotten back to basically pre-Lehman levels. The Lehman scare is out of the market."

So we're back to pre-Lehman, but markets are still below pre-Lehman. More ammo for those who believe stocks are too cheap relative to where we are today.

New Banking Strategy - Micro financing vs Too big to fail

2009-08-30T12:18:00.000-07:00

Despite the economic downturn, microfinance pioneer Grameen Bank continues to report nearly 100% payback rates for its loans to the very poor.

This bank, started by Nobel Prizer winner Muhammad Yunus, lends to people with zero credit, no collateral, and extremely low levels of income.

Aren't the poorest mass-defaulting due to recent economic hardship? Not at all.

AP: "We have now shown that the poorest of the poor can be creditworthy," he said in an interview with The Associated Press during a recent trip to Bangkok. "Our loan repayments are as high as ever."

One part of Grameen's success is that it involves many members of the same social group when approving and monitoring loans, increasing the social cost of default for the borrower. It also turns many borrowers into shareholders.

A group of five prospective borrowers from similar social and economic positions come together to determine an appropriate loan for each.The request then goes before a larger council of borrowers, who are also shareholders in the bank, and finally to the bank for approval."

Furthermore, the bank focuses on lending for productive assets, rather than for mere consumption or asset speculation. How amazingly obvious this bank's principles sound in retrospect.

Grameen also has been successful because it's grounded in what he calls "the real economy," rather than "fantasy economy" of ever-climbing asset prices. A loan for a goat, for example, produces tangible benefits that can support a family. "The closer you are to the real economy, the safer you are," he said.

While not everything could be scaled-up and applied to large traditional banks -- in doing so, you'd likely lose a lot of what makes this work -- the underlying concepts should be taken to heart.

Bailout Just failed - Peter Boettke

2009-08-28T15:59:00.000-07:00

The long run inflationary consequences of the bailouts of our financial system has sent us on a path of national ruin, famed economist Peter Boettke argues.

Despite the short term gains in the stock market and what looks like the start of an economic recovery, the cycle of debt, deficits and government expansion will be economically crippling, he says

From Boettke:

If what the bailout and shift in both the traditional role of the Fed and Treasury perform have done is unleash this cycle of deficits, debt and debasement rather than constrain it (as it obviously has done!), then we have sent our national economic policies on a path of ruin that may well set us back for decades…
Government activism isn't the cure for the crisis, it is the cause.

Boettke says the Fed’s quantitative easing is a mistake because it is preventing market adjustments guided by relative pricing. What’s more, the government’s actions were predicated on the idea that we were experiencing a liquidity crisis when what we were really going through a solvency crisis. And the ad-hoc way the policies were created led to "regime uncertainty" as markets tried to guess what the government would do.

Here's how Boettke puts it:

Basic data presented by the Minn Fed, as well as discussed by Bob Higgs as well as Jeff Miron, Casey Mulligan and John Cochrane on issues related to liquidity, regime uncertainty, unemplyment composition, problems of moral hazard, effectiveness of fiscal policy, etc. have all at various times seemed to call into question the entire policy rationale used by economists and government officials. I am willing to be convinced that these empirical points are indeed wrong, but I have not been presented with such counter-claims on the data. Instead of critical engagement of the contending positions, we often just get in the blogosphere the separate claims presented. And in the instances where "debate" has in fact been encouraged --- such as the discussion between Brad de Long and Luigi Zingales, I found Zingales the more convincing presentation of economic argument.

Bottom-line, I don't believe we have seen a crisis of confidence, but instead a crisis of insolvency compounded by regime uncertainty caused by government's activism. In other words, we didn't have a credit lock-up a year ago due to liquidity issues, we had a credit lock-up due to regime uncertainty brought on by government decisions on who to bailout and who not to bailout for their bad decisions. Resources needed to be reallocated guided by price adjustment to bring production plans into alignment with consumption demands. Bailouts prevent the needed adjustments.

So not only am I dubious that the monetary policy the Fed has engaged in over the past year has been productive, I am extremely dubious that its expanded role beyond monetary policy in the economy. In fact, the dangers for the economy are significant, and as even discussed recently on both Tyler and my blog, the lack of a credible exit strategy makes it even more troublesome (remember those long-run consequences).

US Postal service stop using dollar for its international transactions

2009-08-26T21:48:00.000-07:00

The U.S. Postal Service is valuing its international transactions no longer in the U.S. dollar but in the accepted "currency" of the International Monetary Fund, Special Drawing Rights (SDRs). China, Russia, Brazil and India are calling for a new world currency due to our rising debt and falling dollar. Russian President Dmitry Medvedev pulled the newly minted gold Euro-dollar (valued at $3,900) from his pocket at the G-8 summit in July declaring it the future world currency.
here is link to usps website explaining SDR
Have we, the people, considered what the consequences to our economy will be if we are no longer able to print money to pay our debts but instead have to buy the accepted world currency? Let's add $1.2 trillion in health care costs to our debt. Let's keep spending. That ought to take care of it. Wake up, America.

Here is yesterdays Reuters article summarizes the agenda for next month G-20 meeting in London where Russia as third largest reserve currency holder still chanting the need for Global single currency.

as per Reuters

China and Russia -- which hold, respectively, the worlds first and third biggest reserves -- have suggested that a new global currency could be based on the International Monetary Fund's Special Drawing Rights (SDRs).

IMF officials have said that in theory such a move could be possible, but it would take a long time. The SDRs are the IMF's unit of account, their value is based on a basket of currencies including the dollar, Japanese yen, British pound and euro.

Major emerging market economies, such as Russia, would like to see the SDR basket widened to include their national currencies and possibly other assets such as gold.

Canada's Looming Banking crisis - Bank of Montreal may be gone

2009-08-24T02:11:00.000-07:00

Dan Amos - who called the crash of Lehman and other giants beforehand - says that a major bank is lying about its ability to pay shareholder dividends, has been gaming its books, and is about to crash.

Amos doesn't say which bank he's talking about, but gives the following hint:

[It has] a 192 year old history and 37,000 employees . . .

A quick Google search reveals that this can only be the Bank of Montreal, also known as BMO Financial Group.

Stock Gum Shoe - a website devoted to guessing at the companies hinted at in stock tips - confirms that Amos was talking about Bank of Montreal.

This is newsworthy because the Canadian banks have widely been seen as the world's safest and most stable banks. Indeed, the Bank of Montreal was listed as the 33rd safest bank in the world by Global Finance.

Amos says that the Bank of Montreal won't be able to pay the promised $1.5 billion dividend scheduled later this year, which will precipitate a crash in BMO's stock by December.

washingtonsblog

Great American Sell off - Companies that aren't American anymore

2009-08-23T20:13:00.000-07:00

Between 01/01/08 and 07/24/09 total 615 companies sold to foregn entity, below list of few names

List Of American Companies Sold To Foreign Interests
--------------------------------------------------------------------------------

Millennium Pharmaceuticals Inc
Foreign Acquiror: Mahogany Acquisition Corp [Takeda Pharmaceutical Co Ltd]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $8,734,094,727
Date Acquired: 05/14/08
State of US Company: Massachusetts
US Company Business Description: Biopharma co
US Company Industry: Drugs

--------------------------------------------------------------------------------

Commerce Bancorp,New Jersey
Foreign Acquiror: Toronto-Dominion Bank
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $8,638,206,055
Date Acquired: 03/31/08
State of US Company: New Jersey
US Company Business Description: Coml bank
US Company Industry: Commercial Banks, Bank Holding Companies

--------------------------------------------------------------------------------

NAVTEQ Corp
Foreign Acquiror: Nokia Oyj
Foreign Acquiring Country:: Finland
US Dollar Amount of Acquisition: $7,953,590,820
Date Acquired: 07/10/08
State of US Company: Illinois
US Company Business Description: Dvlp digital mapping software
US Company Industry: Prepackaged Software

--------------------------------------------------------------------------------

MidCon Corp [Knight Holdco LLC]
Foreign Acquiror: Investor Group
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $6,575,000,000
Date Acquired: 02/18/08
State of US Company: Illinois
US Company Business Description: Pvd gas transmission svcs
US Company Industry: Electric, Gas, and Water Distribution

--------------------------------------------------------------------------------

Business Objects SA
Foreign Acquiror: SAP AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $5,510,991,211
Date Acquired: 01/15/08
State of US Company: California
US Company Business Description: Dvlp software
US Company Industry: Prepackaged Software

--------------------------------------------------------------------------------

Respironics Inc
Foreign Acquiror: Koninklijke Philips Electronic
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $5,349,126,953
Date Acquired: 03/14/08
State of US Company: Pennsylvania
US Company Business Description: Mnfr,whl med equip
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

Ventana Medical Systems Inc
Foreign Acquiror: Roche Holding AG
Foreign Acquiring Country:: Switzerland
US Dollar Amount of Acquisition: $3,665,414,062
Date Acquired: 02/19/08
State of US Company: Arizona
US Company Business Description: Mnfr,whl surgical,med equip
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

MGI PHARMA Inc
Foreign Acquiror: Jaguar Acquisition Corp [Eisai Co Ltd]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $3,557,320,068
Date Acquired: 01/25/08
State of US Company: Minnesota
US Company Business Description: Mnfr pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

Genlyte Group Inc
Foreign Acquiror: Philips Holding USA Inc [Koninklijke Philips Electronic]
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $2,810,249,023
Date Acquired: 01/28/08
State of US Company: Kentucky
US Company Business Description: Mnfr,whl lighting fixtures
US Company Industry: Electronic and Electrical Equipment

--------------------------------------------------------------------------------

Alcoa Inc-Packaging & Consumer [Alcoa Inc]
Foreign Acquiror: Rank Group Ltd
Foreign Acquiring Country:: New Zealand
US Dollar Amount of Acquisition: $2,700,000,000

UAP Holding Corp
Foreign Acquiror: Agrium Inc
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $2,624,266,113

--------------------------------------------------------------------------------

Molson Coors Brewing Co-US & [Molson Coors Brewing Co]
Foreign Acquiror: SABMiller PLC-US & Puerto Rico [SABMiller PLC]
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $2,600,000,000

--------------------------------------------------------------------------------

Combined Ins Co of America [Aon Corp]
Foreign Acquiror: ACE Ltd
Foreign Acquiring Country:: Bermuda
US Dollar Amount of Acquisition: $2,400,000,000

--------------------------------------------------------------------------------

SunCom Wireless Holdings Inc
Foreign Acquiror: T-Mobile USA Inc [Deutsche Telekom AG]
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $2,399,177,979

--------------------------------------------------------------------------------

Commerce Group Inc
Foreign Acquiror: Corporacion Mapfre SA
Foreign Acquiring Country:: Spain
US Dollar Amount of Acquisition: $2,316,628,906

--------------------------------------------------------------------------------

Adams Respiratory Therapeutics
Foreign Acquiror: Reckitt Benckiser PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $2,267,159,912

--------------------------------------------------------------------------------

Quanex Corp
Foreign Acquiror: Gerdau SA
Foreign Acquiring Country:: Brazil
US Dollar Amount of Acquisition: $1,749,206,055

--------------------------------------------------------------------------------

TimberStar-900,000 Acre Port [iStar Financial Inc]
Foreign Acquiror: Hancock Timber Resource Grp [Manulife Financial Corp]
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $1,710,000,000

--------------------------------------------------------------------------------

Alabama Natl BanCorp,AL
Foreign Acquiror: RBC Centura Banks Inc [Royal Bank of Canada]
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $1,641,642,944

--------------------------------------------------------------------------------

Metal Management Inc
Foreign Acquiror: Sims Group Ltd
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $1,514,666,992

TAP Pharmaceutical Products [Abbott Laboratories Inc]
Foreign Acquiror: Takeda Pharmaceutical Co Ltd
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $1,500,000,000

--------------------------------------------------------------------------------

Consolidated Edison-Gen Proj [Consolidated Edison Inc]
Foreign Acquiror: North American Energy Alliance [Allco Finance Group Ltd]
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $1,477,000,000

--------------------------------------------------------------------------------

Sempra Commodities [Sempra Energy Inc]
Foreign Acquiror: RBS
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $1,350,000,000

--------------------------------------------------------------------------------

Midland Co
Foreign Acquiror: Munich Re
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $1,324,656,006

--------------------------------------------------------------------------------

Intel Corp-NOR Assets [Intel Corp]
Foreign Acquiror: STMicroelectronics NV-Flash [STMicroelectronics NV]
Foreign Acquiring Country:: Switzerland
US Dollar Amount of Acquisition: $1,073,810,059

--------------------------------------------------------------------------------

General Chemical Industrial [Harbert Management Corp]
Foreign Acquiror: Tata Chemicals Ltd
Foreign Acquiring Country:: India
US Dollar Amount of Acquisition: $1,005,000,000

--------------------------------------------------------------------------------

American Stock Transfer
Foreign Acquiror: Pacific Equity Partners
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $1,000,000,000

--------------------------------------------------------------------------------

CitiStreet LLC [Citigroup Inc]
Foreign Acquiror: ING Groep NV
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $900,000,000

--------------------------------------------------------------------------------

Robertson's Ready Mix Ltd
Foreign Acquiror: MCC Development Corp [Mitsubishi Materials Corp]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $900,000,000

--------------------------------------------------------------------------------

Godiva Chocolatier Inc [Campbell Soup Co]
Foreign Acquiror: Yildiz Holding AS
Foreign Acquiring Country:: Turkey
US Dollar Amount of Acquisition: $850,000,000

Citigroup Inc-Loan Portfolio [Citigroup Inc]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $840,000,000

--------------------------------------------------------------------------------

American Express Bank Ltd [American Express Co]
Foreign Acquiror: Standard Chartered PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $823,000,000

--------------------------------------------------------------------------------

Grant PrideCo Inc-Tubular Buss [Grant PrideCo Inc]
Foreign Acquiror: Vallourec SA
Foreign Acquiring Country:: France
US Dollar Amount of Acquisition: $800,000,000
Date Acquired: 05/05/08
State of US Company: Texas
US Company Business Description: Mnfr,whl oil drilling mach
US Company Industry: Machinery

--------------------------------------------------------------------------------

Great Western Bancorp,Omaha,NE
Foreign Acquiror: National Australia Bank Ltd
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $798,000,000
Date Acquired: 06/04/08
State of US Company: Nebraska
US Company Business Description: Comml bk hldg co
US Company Industry: Commercial Banks, Bank Holding Companies

--------------------------------------------------------------------------------

Savvian LLC
Foreign Acquiror: GCA Holdings Corp [GCA Savvian Group Corp]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $780,000,000
Date Acquired: 03/03/08
State of US Company: California
US Company Business Description: Pvd invest advisory svcs
US Company Industry: Investment & Commodity Firms,Dealers,Exchanges

--------------------------------------------------------------------------------

El Paso Expl & Prodn Co- [El Paso Corp]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $752,000,000
Date Acquired: 03/25/08
State of US Company: Texas
US Company Business Description: Oil,gas expl,prodn
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

Boston Scientific-Surgery Bus [Boston Scientific Corp]
Foreign Acquiror: Getinge AB
Foreign Acquiring Country:: Sweden
US Dollar Amount of Acquisition: $750,000,000
Date Acquired: 01/07/08
State of US Company: Delaware
US Company Business Description: Mnfr,whl med devices
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

Sirtris Pharmaceuticals Inc
Foreign Acquiror: GlaxoSmithKline PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $715,583,984
Date Acquired: 06/02/08
State of US Company: Massachusetts
US Company Business Description: Biopharmaceutical co
US Company Industry: Drugs

--------------------------------------------------------------------------------

LS Power Grp-Power Plant,TX [LS Power Group]
Foreign Acquiror: Arcapita Inc [Arcapita Bank BSC]
Foreign Acquiring Country:: Bahrain
US Dollar Amount of Acquisition: $695,000,000
Date Acquired: 01/30/08
State of US Company: Texas
US Company Business Description: Electric utility
US Company Industry: Electric, Gas, and Water Distribution

--------------------------------------------------------------------------------

Lighthouse Investment Partners
Foreign Acquiror: HFA Holdings Ltd [Suncorp-Metway Ltd]
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $624,567,017
Date Acquired: 01/03/08
State of US Company: Colorado
US Company Business Description: RE invest firm
US Company Industry: Investment & Commodity Firms,Dealers,Exchanges

Developers Diversified Realty- [Developers Diversified Realty]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $603,000,000
Date Acquired: 05/15/08
State of US Company: Colorado
US Company Business Description: Own,op shopping centers
US Company Industry: Real Estate; Mortgage Bankers and Brokers

--------------------------------------------------------------------------------

Oglebay Norton Co
Foreign Acquiror: Carmeuse North America [LVI Holding Corp]
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $520,299,988
Date Acquired: 02/14/08
State of US Company: Ohio
US Company Business Description: Limestone mining co
US Company Industry: Mining

--------------------------------------------------------------------------------

Reliant Energy Inc-Channelview [Reliant Energy Inc]
Foreign Acquiror: GIM Channelview Cogeneration
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $500,000,000
Date Acquired: 07/09/08
State of US Company: Texas
US Company Business Description: Cogeneration facility
US Company Industry: Electric, Gas, and Water Distribution

--------------------------------------------------------------------------------

Excelerate Energy LLC
Foreign Acquiror: RWE AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $500,000,000
Date Acquired: 06/02/08
State of US Company: Texas
US Company Business Description: Pvd LNG distn svcs
US Company Industry: Electric, Gas, and Water Distribution

--------------------------------------------------------------------------------

American Home-Mtg Bus [American Home Mortgage Invest]
Foreign Acquiror: AH Mortgage Acquisition Co [Invesco PLC]
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $500,000,000
Date Acquired: 04/11/08
State of US Company: New York
US Company Business Description: Mortgage servicing business
US Company Industry: Real Estate; Mortgage Bankers and Brokers

--------------------------------------------------------------------------------

Little River Golf & Resort,NC
Foreign Acquiror: Oceanico Group
Foreign Acquiring Country:: Portugal
US Dollar Amount of Acquisition: $500,000,000
Date Acquired: 01/03/08
State of US Company: North Carolina
US Company Business Description: Own,op hotels
US Company Industry: Hotels and Casinos

--------------------------------------------------------------------------------

Sauer-Danfoss Inc
Foreign Acquiror: Danfoss A/S
Foreign Acquiring Country:: Denmark
US Dollar Amount of Acquisition: $493,046,997
Date Acquired: 07/11/08
State of US Company: Iowa
US Company Business Description: Mnfr fluid power pumps,motors
US Company Industry: Machinery

--------------------------------------------------------------------------------

Business Objects SA
Foreign Acquiror: SAP AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $487,924,011
Date Acquired: 01/29/08
State of US Company: California
US Company Business Description: Dvlp software
US Company Industry: Prepackaged Software

--------------------------------------------------------------------------------

Valero Energy Corp-Krotz [Valero Energy Corp]
Foreign Acquiror: Alon USA Energy Inc [Dor Alon Energy In Israel]
Foreign Acquiring Country:: Israel
US Dollar Amount of Acquisition: $433,000,000
Date Acquired: 07/07/08
State of US Company: Louisiana
US Company Business Description: Mnfr,whl petro prod
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

Visicu Inc
Foreign Acquiror: Koninklijke Philips Electronic
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $431,364,990
Date Acquired: 02/20/08
State of US Company: Maryland
US Company Business Description: Dvlp software
US Company Industry: Prepackaged Software

CollaGenex Pharmaceuticals Inc
Foreign Acquiror: Galderma Laboratories LP [Nestle SA]
Foreign Acquiring Country:: Switzerland
US Dollar Amount of Acquisition: $419,557,007
Date Acquired: 04/11/08
State of US Company: Pennsylvania
US Company Business Description: Mnfr pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

SPARTA Inc
Foreign Acquiror: Cobham PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $416,000,000
Date Acquired: 06/04/08
State of US Company: Alabama
US Company Business Description: Pvd engineering svcs
US Company Industry: Business Services

--------------------------------------------------------------------------------

Claymont Steel Holdings Inc
Foreign Acquiror: Evraz Group SA
Foreign Acquiring Country:: Russian Fed
US Dollar Amount of Acquisition: $413,510,986
Date Acquired: 01/16/08
State of US Company: Delaware
US Company Business Description: Mnfr,whl steel plate
US Company Industry: Metal and Metal Products

--------------------------------------------------------------------------------

CoGenesys Inc
Foreign Acquiror: Teva Pharma Inds Ltd
Foreign Acquiring Country:: Israel
US Dollar Amount of Acquisition: $400,000,000
Date Acquired: 02/21/08
State of US Company: Maryland
US Company Business Description: Mnfr pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

Fontainebleau Resorts LLC
Foreign Acquiror: Nakheel Co PJSC [United Arab Emirates]
Foreign Acquiring Country:: Utd Arab Em
US Dollar Amount of Acquisition: $375,000,000
Date Acquired: 04/09/08
State of US Company: Florida
US Company Business Description: Own,op beach resort,hotel
US Company Industry: Hotels and Casinos

--------------------------------------------------------------------------------

WCI Steel Inc
Foreign Acquiror: OAO SeverStal
Foreign Acquiring Country:: Russian Fed
US Dollar Amount of Acquisition: $369,825,012
Date Acquired: 07/07/08
State of US Company: Ohio
US Company Business Description: Mnfr custom steel prod
US Company Industry: Metal and Metal Products

--------------------------------------------------------------------------------

MTC Technologies Inc
Foreign Acquiror: BAE Systems Inc [BAE Systems PLC]
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $364,088,013
Date Acquired: 06/09/08
State of US Company: Ohio
US Company Business Description: Pvd sys engineering svcs
US Company Industry: Business Services

--------------------------------------------------------------------------------

Possis Medical Inc
Foreign Acquiror: Medrad Inc [Bayer AG]
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $359,351,013
Date Acquired: 04/02/08
State of US Company: Minnesota
US Company Business Description: Mnfr med devices
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

Bentley Pharmaceuticals Inc
Foreign Acquiror: Teva Pharma Inds Ltd
Foreign Acquiring Country:: Israel
US Dollar Amount of Acquisition: $352,058,990
Date Acquired: 07/22/08
State of US Company: New Hampshire
US Company Business Description: Mnfr,whl pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

Sterling Life Insurance Co [Aon Corp]
Foreign Acquiror: Munich Re
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $352,000,000
Date Acquired: 04/01/08
State of US Company: Washington
US Company Business Description: Pvd ins,medicare svcs
US Company Industry: Insurance

GMH Military Housing [GMH Communities Trust]
Foreign Acquiror: Balfour Beatty PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $350,500,000
Date Acquired: 04/30/08
State of US Company: Pennsylvania
US Company Business Description: Pvd housing svcs
US Company Industry: Construction Firms

--------------------------------------------------------------------------------

PlantCML [Golden Gate Capital]
Foreign Acquiror: EADS North America [EADS NV]
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $350,000,000
Date Acquired: 04/22/08
State of US Company: California
US Company Business Description: Pvd software dvlp svcs
US Company Industry: Prepackaged Software

--------------------------------------------------------------------------------

Analog Devices Inc-Cellular [Analog Devices Inc]
Foreign Acquiror: MediaTek Inc
Foreign Acquiring Country:: Taiwan
US Dollar Amount of Acquisition: $350,000,000
Date Acquired: 01/11/08
State of US Company: Massachusetts
US Company Business Description: Mnfr semiconductors
US Company Industry: Electronic and Electrical Equipment

--------------------------------------------------------------------------------

Bradley Pharmaceuticals Inc
Foreign Acquiror: Nycomed US Inc [Nycomed Intl Mgmt GmbH]
Foreign Acquiring Country:: Switzerland
US Dollar Amount of Acquisition: $349,420,990
Date Acquired: 02/21/08
State of US Company: New Jersey
US Company Business Description: Mnfr,whl pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

Genesis Microchip Inc
Foreign Acquiror: STMicroelectronics NV
Foreign Acquiring Country:: Switzerland
US Dollar Amount of Acquisition: $324,130,005
Date Acquired: 01/28/08
State of US Company: California
US Company Business Description: Mnfr,whl integrated circuits
US Company Industry: Electronic and Electrical Equipment

--------------------------------------------------------------------------------

Nonnis Food Co [Wind Point Partners]
Foreign Acquiror: Vivartia SA
Foreign Acquiring Country:: Greece
US Dollar Amount of Acquisition: $320,000,000
Date Acquired: 04/02/08
State of US Company: Oklahoma
US Company Business Description: Produce,ret biscuits
US Company Industry: Food and Kindred Products

--------------------------------------------------------------------------------

Strategic Energy LLC [Great Plains Energy Inc]
Foreign Acquiror: Direct Energy Marketing Ltd [Centrica PLC]
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $300,000,000
Date Acquired: 06/02/08
State of US Company: Pennsylvania
US Company Business Description: Whl,ret elec solutions
US Company Industry: Wholesale Trade-Durable Goods

--------------------------------------------------------------------------------

US Zinc Corp [TPG Capital LP]
Foreign Acquiror: Votorantim Metais Ltda [Grupo Votorantim]
Foreign Acquiring Country:: Brazil
US Dollar Amount of Acquisition: $295,000,000
Date Acquired: 01/11/08
State of US Company: Texas
US Company Business Description: Mnfr zinc oxide,dust
US Company Industry: Metal and Metal Products

--------------------------------------------------------------------------------

Business Objects SA
Foreign Acquiror: SAP AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $277,671,997
Date Acquired: 02/18/08
State of US Company: California
US Company Business Description: Dvlp software
US Company Industry: Prepackaged Software

--------------------------------------------------------------------------------

Air Products Polymers LP [Air Products & Chems Inc]
Foreign Acquiror: Wacker Chemie AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $265,000,000
Date Acquired: 02/01/08
State of US Company: Pennsylvania
US Company Business Description: Mnfr latex ploymers
US Company Industry: Chemicals and Allied Products

Gracenote Inc
Foreign Acquiror: Sony Corp of America [Sony Corp]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $260,000,000
Date Acquired: 06/02/08
State of US Company: California
US Company Business Description: Pvd embedded tech svcs
US Company Industry: Business Services

--------------------------------------------------------------------------------

PDL Biopharma Inc-Antibody [PDL Biopharma Inc]
Foreign Acquiror: Genmab AS
Foreign Acquiring Country:: Denmark
US Dollar Amount of Acquisition: $240,000,000
Date Acquired: 03/13/08
State of US Company: Minnesota
US Company Business Description: Mnfr pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

E-Z-EM Inc
Foreign Acquiror: Bracco Diagnostics Inc [Bracco SpA]
Foreign Acquiring Country:: Italy
US Dollar Amount of Acquisition: $230,507,996
Date Acquired: 04/01/08
State of US Company: New York
US Company Business Description: Mnfr med imaging prod
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

Davy Crockett Gas Co LLC
Foreign Acquiror: Emvelco Corp [Koninklijke KPN NV]
Foreign Acquiring Country:: Netherlands
US Dollar Amount of Acquisition: $225,000,000
Date Acquired: 05/01/08
State of US Company: Delaware
US Company Business Description: Oil,gas expl
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

NiSource Inc-Eenergy Plant [NiSource Inc]
Foreign Acquiror: BP Alternative Energy Ltd [BP PLC]
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $210,000,000
Date Acquired: 07/01/08
State of US Company: Indiana
US Company Business Description: Elec,gas,water utility
US Company Industry: Electric, Gas, and Water Distribution

--------------------------------------------------------------------------------

Datascope Corp-Patient Monitor [Datascope Corp]
Foreign Acquiror: Mindray Medical Intl Ltd
Foreign Acquiring Country:: China
US Dollar Amount of Acquisition: $209,000,000
Date Acquired: 05/15/08
State of US Company: New Jersey
US Company Business Description: Mnfr surgical,med instr
US Company Industry: Measuring, Medical, Photo Equipment; Clocks

--------------------------------------------------------------------------------

Blackstone Group LP-Hotels(4) [Blackstone Group LP]
Foreign Acquiror: Undisclosed Joint Venture [Harte Holdings]
Foreign Acquiring Country:: Ireland-Rep
US Dollar Amount of Acquisition: $207,800,003
Date Acquired: 02/06/08
State of US Company: Pennsylvania
US Company Business Description: Own,op hotels
US Company Industry: Hotels and Casinos

--------------------------------------------------------------------------------

PDL Biopharma Inc-IV Busulfex [PDL Biopharma Inc]
Foreign Acquiror: Otsuka Pharmaceutical Co Ltd
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $200,000,000
Date Acquired: 03/10/08
State of US Company: California
US Company Business Description: IV Busulfex asts
US Company Industry: Business Services

--------------------------------------------------------------------------------

Reveille Productions
Foreign Acquiror: Shine Group
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $200,000,000
Date Acquired: 02/14/08
State of US Company: California
US Company Business Description: Pvd tv,motion picture prodn
US Company Industry: Amusement and Recreation Services

--------------------------------------------------------------------------------

Cannondale Bicycle Corp [Pegasus Partners II LP]
Foreign Acquiror: Dorel Industries Inc
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $200,000,000
Date Acquired: 02/04/08
State of US Company: Connecticut
US Company Business Description: Mnfr bicycles,accessories
US Company Industry: Transportation Equipment

Ozaukee Bank,Cedarburg,WI
Foreign Acquiror: Bank of Montreal,Ontario,CA
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $198,360,001
Date Acquired: 03/03/08
State of US Company: Wisconsin
US Company Business Description: Coml bk
US Company Industry: Commercial Banks, Bank Holding Companies

--------------------------------------------------------------------------------

Entrada Oil Field [Callon Petroleum Co]
Foreign Acquiror: CIECO Energy (US) Ltd [ITOCHU Corp]
Foreign Acquiring Country:: Japan
US Dollar Amount of Acquisition: $195,000,000
Date Acquired: 04/08/08
State of US Company: Texas
US Company Business Description: Oil,gas field
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

GFI Oil & Gas Corp
Foreign Acquiror: Salamander Energy PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $186,938,995
Date Acquired: 03/17/08
State of US Company: Texas
US Company Business Description: Oil,gas expl,prodn
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

Denbury Resources Inc-Gas Asts [Denbury Resources Inc]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $180,000,000
Date Acquired: 02/21/08
State of US Company: Louisiana
US Company Business Description: Natural gas asts
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

Quadra Realty Trust Inc
Foreign Acquiror: Hypo Real Estate Capital Corp [Hypo Real Estate Holding AG]
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $178,912,003
Date Acquired: 03/13/08
State of US Company: New York
US Company Business Description: Re invest tr
US Company Industry: Investment & Commodity Firms,Dealers,Exchanges

--------------------------------------------------------------------------------

Ritz-Carlton Huntington Hotel
Foreign Acquiror: Great Eagle Holdings Ltd
Foreign Acquiring Country:: Hong Kong
US Dollar Amount of Acquisition: $170,000,000
Date Acquired: 01/08/08
State of US Company: California
US Company Business Description: Own,op hotel
US Company Industry: Hotels and Casinos

--------------------------------------------------------------------------------

AppTec Laboratory Services Inc
Foreign Acquiror: WuXi PharmaTech(Cayman)Inc
Foreign Acquiring Country:: China
US Dollar Amount of Acquisition: $162,699,997
Date Acquired: 01/31/08
State of US Company: Minnesota
US Company Business Description: Pvd lab testing svcs
US Company Industry: Health Services

--------------------------------------------------------------------------------

Alto Dairy Cooperative
Foreign Acquiror: Saputo Inc
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $160,000,000
Date Acquired: 04/01/08
State of US Company: Wisconsin
US Company Business Description: Produce,whl dairy prod
US Company Industry: Retail Trade-Food Stores

--------------------------------------------------------------------------------

Chesapeake Publishing-Asts(22) [Chesapeake Publishing Corp]
Foreign Acquiror: American Consolidated Media [Macquarie Media Group]
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $159,500,000
Date Acquired: 01/09/08
State of US Company: Maryland
US Company Business Description: Publishing asts
US Company Industry: Printing, Publishing, and Allied Services

--------------------------------------------------------------------------------

Adema Technologies Inc
Foreign Acquiror: Investor Group
Foreign Acquiring Country:: Taiwan
US Dollar Amount of Acquisition: $155,432,007
Date Acquired: 01/23/08
State of US Company: California
US Company Business Description: Mnfr ingots,wafers
US Company Industry: Electronic and Electrical Equipment

Univision Music Group [Umbrella Holdings LLC]
Foreign Acquiror: Universal Music Group [Vivendi SA]
Foreign Acquiring Country:: France
US Dollar Amount of Acquisition: $153,000,000
Date Acquired: 05/05/08
State of US Company: California
US Company Business Description: Pvd music recording svcs
US Company Industry: Business Services

--------------------------------------------------------------------------------

Tysons Dulles Plaza Office [Vornado Realty Trust]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $152,800,003
Date Acquired: 06/10/08
State of US Company: Virginia
US Company Business Description: Own,op office bldg
US Company Industry: Real Estate; Mortgage Bankers and Brokers

--------------------------------------------------------------------------------

Century Steel Inc
Foreign Acquiror: Pacific Coast Steel [Gerdau SA]
Foreign Acquiring Country:: Brazil
US Dollar Amount of Acquisition: $151,500,000
Date Acquired: 04/02/08
State of US Company: Nevada
US Company Business Description: Mnfr structural steel prod
US Company Industry: Metal and Metal Products

--------------------------------------------------------------------------------

American Radiology Svcs Inc [Advent International Corp]
Foreign Acquiror: CML HealthCare Income Fund
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $151,000,000
Date Acquired: 03/01/08
State of US Company: Maryland
US Company Business Description: Pvd diagnostic imaging svcs
US Company Industry: Health Services

--------------------------------------------------------------------------------

Compete Inc [Perficient Inc]
Foreign Acquiror: Taylor Nelson Sofres PLC
Foreign Acquiring Country:: United Kingdom
US Dollar Amount of Acquisition: $150,000,000
Date Acquired: 03/07/08
State of US Company: Massachusetts
US Company Business Description: Pvd online mktg svcs
US Company Industry: Business Services

--------------------------------------------------------------------------------

North Pointe Holdings Corp
Foreign Acquiror: QBE the Americas [QBE Insurance Group Ltd]
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $144,740,997
Date Acquired: 04/30/08
State of US Company: Michigan
US Company Business Description: Pvd ppty,casualty ins svcs
US Company Industry: Insurance

--------------------------------------------------------------------------------

Renovis Inc
Foreign Acquiror: Evotec AG
Foreign Acquiring Country:: Germany
US Dollar Amount of Acquisition: $141,445,999
Date Acquired: 05/02/08
State of US Company: California
US Company Business Description: Mnfr pharm
US Company Industry: Drugs

--------------------------------------------------------------------------------

Merchants,Mnfr Bancorp Inc,WI
Foreign Acquiror: Harris NA [Bank of Montreal,Ontario,CA]
Foreign Acquiring Country:: Canada
US Dollar Amount of Acquisition: $137,279,007
Date Acquired: 03/03/08
State of US Company: Wisconsin
US Company Business Description: Bk hldg co
US Company Industry: Commercial Banks, Bank Holding Companies

--------------------------------------------------------------------------------

Pacific Energy Resources-Asts [Pacific Energy Resources Ltd]
Foreign Acquiror: Undisclosed Acquiror
Foreign Acquiring Country:: Unknown
US Dollar Amount of Acquisition: $135,000,000
Date Acquired: 05/01/08
State of US Company: California
US Company Business Description: Oil,gas expl,prodn
US Company Industry: Oil and Gas; Petroleum Refining

--------------------------------------------------------------------------------

Liberty Travel Inc
Foreign Acquiror: Flight Centre Ltd
Foreign Acquiring Country:: Australia
US Dollar Amount of Acquisition: $135,000,000
Date Acquired: 02/01/08
State of US Company: New Jersey
US Company Business Description: Pvd travel agency svcs
US Company Industry: Transportation and Shipping (except air)

China aggressively reducing us debt - Sign of things to come

2009-08-22T22:26:00.000-07:00

The United States needs to borrow nearly $10 trillion over the next decade, including about $1.6 trillion this year.

Where's it going to come from?

This is critical question, because resistance on the part of creditors will drive up interest rates, clobbering the housing market and demolishing the value of whatever cash savings Americans have left. The other answer--our government lending the money to itself--will destroy the value of the dollar, and that wouldn't help too many people, either (except debtors--it would help debtors because they will be able to repay nominal debts with toilet-paper dollars.

For now, the money we're borrowing is coming from somewhere, thankfully. But it's not coming from China, which has funded our spending for most of the past decade. As you can see in the chart above from the NYT, China's absolute purchases of Treasury debt continued to rise through last year, but the percentage of our borrowing that China is funding is shrinking fast.

Here's Floyd Norris in the NYT:

China reduced its holdings of Treasury securities by $25 billion in June, the most China had ever sold in a month...

China and Hong Kong, which is reported separately but is combined under China in the accompanying graphic, together covered more than half of the increase in the amount of Treasuries sold to the public — that is, to buyers other than United States governme nt agencies like the Federal Reserve or Social Security — in 2006.

That share had fallen to 22 percent last year, when the government increased its public debt by a record $1.2 trillion. In the first half of 2009, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of Treasuries that were sold.

Another Sellout to Foreigner - Spanish bank acquires Guaranty bank

2009-08-22T00:45:00.000-07:00

BBVA, the Spanish bank, on Friday succeeded in its acquisition of Guaranty Financial, a struggling Texas bank with $13.5bn in assets, the Federal Deposit Insurance Corporation said.

The move makes Guaranty the 81st US bank to fail this year. BBVA agreed to buy $12bn of Guaranty’s assets, with the FDIC retaining the remaining $1.5bn. Spain’s second biggest bank will also assume Guaranty’s $12bn in deposits.

“BBVA Compass’s acquisition of all the deposits was the ‘least costly’ resolution for the FDIC’s deposit insurance fund compared to alternatives,” the FDIC said in a statement.

The Office of Thrift Supervision said on Friday that Guaranty bank was, “in an unsafe and unsound condition because of the deteriorating quality of its loan portfolio, critically deficient earnings, capital insolvency and strained liquidity position”.

The latest bank failure will cost the FDIC $3bn in insurance funds. Through the agreement, the FDIC and BBVA will share in the losses of a, $11bn pool of Guaranty’s assets.

People close to the matter said previously that Toronto Dominion and JPMorgan had also expressed interest in Guaranty, which garnered interest from other regional banks due to its presence in Texas. US Bancorp, the Minneapolis-based parent of US Bank, which has $266bn in assets, had been considered by people involved in the auction to be one of the other strong candidates.

BBVA had reason to be aggressive in attempting to buy banking assets in the southern US. The Spanish bank bought Compass Bancshares, which is based in Alabama, in 2007 for nearly $9.6bn and has since sought to expand its presence.

“Right now, it’s banking as usual,” Manolo Sánchez, BBVA Compass’ chief executive, told Guaranty customers on its website.

Guaranty had 103 branches in Texas and 59 in California. BBVA has 750 branches across seven states in the US and now has 421 in Texas.

Three smaller US banks also failed on Friday. Regulators shuttered Atlanta’s ebank; First Coweta, of Newman, Georgia; and CapitalSouth Bank in Alabama.

Guaranty’s fate has become intertwined in recent weeks with that of Colonial Bank, an Alabama-based bank that was forcibly closed last Friday and largely sold to BB&T, another regional bank, in an FDIC-backed deal.

California Saved - by God (JP Morgan)

2009-08-19T13:28:00.000-07:00

Remember when the US government had to bail out investment banks? Now a bank is bailing out the state of California.

California had been covering its budget shortfalls by issuing IOUs to pay for services, making it the first state to issue its own fiat currency since the Civil War. The program ran into trouble when banks announced they wouldn't keep cashing the IOUs.

Eventually California reached a budget deal and kicked the can down the road, but there's still the issue of the outstanding IOUs.

Yesterday JP Morgan agreed to lend California $1.5 billion to fund the program to redeem the IOUs. State controller John Chiang has announced the redemptions will begin on September 4th.

A plausible case can be made that this is an indirect bailout
by the US government of California. JP Morgan is deemed to big to fail, and can borrow from both the Fed and at reduced costs in the market because of its status. This makes it far easier for the bank to lend confidently to California. What's more, JP Morgan can assume that if California were to come close to defaulting on the loan, the US government would bail out California.

From the LA Times:

Just what JPMorgan will earn on the loan hasn't been determined, Dresslar said. The terms are still being worked out, he said. Lockyer will have to be able to make the case that the private placement of the debt with JPMorgan is as good as or better than any deal the state could get with other banks.

The risk to JPMorgan is virtually nil: The loan will be repaid by late September, when the state plans to sell $10.5 billion of so-called revenue anticipation notes, or RANs -- securities that will mature next spring. Individual investors are expected to flock to the RAN offering as a place to stash cash, because the notes should offer much more lucrative returns than money market funds and other short-term accounts paying next to nothing.

September / October - V, U , Q , GREENSHOOT, RECOVERY , All will be clear

2009-08-19T00:07:00.000-07:00

Stocks rebounded Tuesday after Monday's drop. Will the rally continue? Was yesterday a mere dip — or the first warning of the correction?

Art Cashin, director of floor operations at UBS Financial Services, offered CNBC his stock-market insights.

Cashin noted Monday's multiple events, calling it a "90 percent down day" in which "the Vix exploded to the upside."

"I said last week that the market was ahead of reality," Cashin reiterated.

"I still have my warning signals up," he said. "There are things gathering around here that are kind of esoteric."

He pointed to "the market going into Ramadan on the 22nd" — referring to the month-long Muslim fasting discipline.

"We could see perhaps historic trading over the next eight weeks or so."

---------------------------------------------------------
FUNG CRASH WINDOW IS OPEN

This is a serious warning of a total capitulation of the U.S. markets, and world markets in the time frame given. The beginning of this crash could actually start happening today...Remember a crash isn't just an event...it's a process......and that process is similar to erosion.....
The Aug. 16th (Sunday) would mean that the Asian markets would begin the process....(however this is only a guess) The time frame is full open all the way to October 30th......I'm not saying Aug. 16th will be the day....what I'm say is that Aug. 16th could be the beginning....we will see.

One dot is information that I've received from GGG. Here it is.

Gold lease rates have gone negative

Ninety day lease rates have gone negative this week. First time ever! You will get paid to hold Gold. Something like a car dealer paying you to lease a car. The asset value is sure to drop. This does not portend any inflation but DEFLATION to follow. Hold on to CASH!
GGG

I'll add to GGG's warning by saying, buy essentials with your cash.......since nothing is really made in this country anymore, those essentials may be hard to find in the near future.

http://www.kitco.com/lease.chart.html

This means, that for the time being that, deflation, not inflation, will be in the cards. While we've always maintained that when the dollar is devalued (which could come late in August or September) many good will become more expensive because of our lack of buying power.

We know that the FED's printing presses are grinding out money 24/7...and that eventually, our currency will be worthless. That being said, you have a window in which to prepare. That window is now....and maybe the next two weeks.....although exact predictions are practically impossible to make.

-----------------------------------------
Reclamation Reconstruction, Monitoring, Education

Dollar to be weaken and may loose reserve currency status

2009-08-18T23:36:00.000-07:00

Aug. 19 (Bloomberg) -- Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.

The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

The Dollar Index, which tracks the greenback against a basket of currencies, touched 78.823 today, the lowest this week. It has fallen 12 percent from this year’s high in March as U.S. authorities pledged $12.8 trillion to combat the recession. China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.

“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote.

The U.S. government boosted spending and the Federal Reserve bought bonds to revive credit markets that seized up after financial companies posted $1.6 trillion in writedowns and losses, raising concern there is an oversupply of greenbacks.

Asian Rally

The currency was little changed today at $1.4140 per euro as of 10:27 a.m. in Tokyo. The Dollar Index is down about 3 percent this year, after a 6 percent gain in 2008.

Asian currencies stand to benefit as the region’s economy grows and the dollar’s allure fades, said Rajeev de Mello, Singapore-based head of Asian investments at Western Asset Management Co., which oversees $473.4 billion.

“We are positive on the Asian currencies against the dollar and think they will continue to rally,” de Mello said in an interview. “I do think the diversification of reserves is something that’s important and I think we’ll see some from China into other currencies and this will benefit as well Asian currencies and other emerging currencies.”

Sample Coin

China’s central bank renewed its call for a new global currency in June and said the International Monetary Fund should manage more of members’ foreign-exchange reserves. Russian President Dmitry Medvedev last month illustrated his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations.

Mewbourne joins investor Jim Rogers, who said last year that he was shifting all his assets out of dollars and buying Chinese yuan because the Fed eroded the value of the U.S. currency. The dollar is losing its status as the world’s reserve currency, said Rogers, who is the author of books on investing including “Hot Commodities.”

Sovereign Funds

Bill Gross, who runs the $169 billion Pimco Total Return Fund, is also warning the U.S. currency will fall.

Holders of dollars should diversify before central banks and sovereign wealth funds do the same because of concern government budget deficits will deepen, Gross said in June.

Gross’ fund has returned 12 percent in the past year, outperforming 95 percent of its peers, according to data compiled by Bloomberg.

The U.S. budget deficit reached a record $1.27 trillion for the first 10 months of the fiscal year and broke a monthly high for July, the government said Aug. 12.

Still, there is no viable immediate alternative to the U.S. dollar for now as the euro region lacks a political union while Japan’s economic weakness makes it impossible to consider the yen for such a role, Pimco’s Mewbourne wrote. The currencies of emerging states such as China can’t play a reserve role as long as they are subject to capital controls, which restrict international traders to using non-deliverable forwards, he wrote.

Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.

A dire warning - Stock will go way down the march low

2009-08-17T13:01:00.000-07:00

Britain's Uber-bear is growling again. After predicting a torrid "relief rally" over the early summer, Bob Janjuah at Royal Bank of Scotland is advising clients to take profits in global equity and commodity markets and prepare for another storm as winter nears.

"We are now in the middle of a parabolic spike up," he said in his latest confidential note to clients.

"I expect this risk rally to continue into – and maybe through – a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September 'tipping zone', driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets."

The key indicators to watch are business spending on equipment (Capex), incomes, jobs, and profits. Only a "surge higher" in these gauges can justify current asset prices. Results that are merely "less bad" will not suffice.

He expects global stock markets to test their March lows, and probably worse. The slide could last three months. "A move to new lows is highly likely," he said.

Mr Janjuah, RBS's chief credit strategist, has a loyal following in the City. He was one of the very few analysts to speak out early about the dangerous excesses of the credit bubble. He then made waves in the summer of 2008 by issuing a global crash alert, giving warning that a "very nasty period is soon to be upon us" as – indeed it was. Lehman Brothers and AIG imploded weeks later.

This time he expects the S&P 500 index of US equities to reach the "mid 500s", almost halving from current levels near 1000. Such a fall would take London's FTSE 100 to around 2,500. The iTraxx Crossover index measuring spreads on low-grade European debt will double to 1250.

Mr Janjuah advises investors to seek safety in 10-year German bonds in late August or early September.

While media headlines have played up the short-term bounce of corporate earnings, Mr Janjuah said this is a statistical illusion. Profits were in reality down 20pc in the second quarter from the year before. They cannot rise much as the West slowly purges debt and adjusts to record over-capacity. "Investors are again being sucked back into the game where 'markets make opinions', where 'excess liquidity' is the driving investment rationale.

"The last two Augusts proved to be pivotal turning points: August 2007 being the proverbial 'head-fake' when everyone wanted to believe that policy-makers had seen off the credit disaster at the pass, and August 2008 being the calm before the utter collapse of Sept/Oct/Nov… 3rd time lucky anyone?"

The elephant in the room is the spiralling public debt as private losses are shifted on to the taxpayer, especially in Britain and America. "Ask yourself this: who bails out Government after they have bailed out everyone?"

Mr Janjuah said governments might put off the day of reckoning into the middle of next year if they resort to another shot of stimulus, but that would store yet further problems. "If what I fear plays out then I will have to concede that the lunatics who ran the asylum pretty much into the ground last year are back in control."

Over at Morgan Stanley, equity guru Teun Draaisma thinks we are through the worst. "We were on course for a Great Depression in February, but Armageddon was avoided. Governments did not repeat the policy errors of the 1930s."

"We have seen the lows of this crisis. This is a genuine rebound rally, and it has been short by historical standards so far," he said.

Mr Draaisma, who called the top of the bull market almost to the day in mid-2007, has crunched the worldwide data on 19 major stock market crashes over the last century. They show that the typical rebound rally (as opposed to bear trap rallies, when markets later plunge to new lows) lasts 17 months and stocks rise 71pc. The 1993 rally in the US was 170pc over 13 months. Finland's rally in 1994 was 295pc. Hong Kong rallied 159pc in 2000. This rebound is only five months old. The key indexes have risen 49pc in the US and 42pc in Europe. Mr Draaisma advises clients to stay in the stocks for now, but stick to telecom companies, utilities, and oil.

Yet he too expects a nasty correction once this rally falters. The usual trigger at this stage of the cycle is when central bankers start to make hawkish noises, typically a couple of months before the first turn of the screw (normally a rate rise, but in this case an end to "quantitative easing". "As long as policy-makers are talking about how fragile the recovery is, equities are unlikely to go down much."

This moment can be hard to judge. There has already been rumbling from some governors at the US Federal Reserve and from the European Central Bank's Jean-Claude Trichet. Markets are pricing in rates rises by early next year.

The pattern after major financial bust-ups is that the rebound rally gives way to another fall of 25pc or so, lasting a year, followed by five years of hard slog as stocks bounce up and down in a trading range, going nowhere. Mr Draaisma suggests taking a close look at the chart of Japan's Nikkei index from 1991 to 1999. Gains were zero.

We are in uncharted waters, however. Monetary and fiscal stimulus has been unprecedented. Russell Napier at Hong Kong brokers CLSA says a powerful bull market is already taking shape as the American giant reawakens. Perma-bears will be left behind. He said: "It is dangerous to be in cash."

When the finest minds in the business disagree so starkly, the rest of us can only shake our heads in confusion.

source Telegraph UK

Crisis - The City Of Chicago Will Be Closed Monday

2009-08-16T11:27:00.000-07:00

The Chicago Sun Times reports that budget woes will mean many city services just won't open tomorrow:

If you planned to check out a library book, visit a city clinic or have your garbage picked up on Monday, you're out of luck.

The City of Chicago will basically be closed for business on Aug. 17, a reduced-service day in which most city employees are off without pay, according to a release from the Office of Budget and Management. City Hall, public libraries, health clinics and most city offices will be closed.

Emergency service providers including police, firefighters and paramedics will be working at full strength, but most services not directly related to public safety, including street sweeping, will not be provided, the release said.

That also includes garbage pickup. Residents who receive regular collection on Mondays should expect trash to be picked up the following day, the release said. Some other customers may experience a one-day delay as collectors catch up.

As part of the 2009 budget, three reduced-service days were planned for 2009, days which are unpaid for all affected employees -- the Friday after Thanksgiving; Christmas Eve; and New Year's Eve. The City Council recently approved moving the reduced-service day planned for New Year's Eve to Monday.

The 2009 budget anticipates saving $8.3 million due to the reduced-service days.

While lots of people wonder if the recession may spur more financial responsibility in household spending habits, there's not enough talk about the possibility of more government financial responsibility. Lots of things we don't need--like free public libraries stuffed with books people could buy for themselves or don't want to read anyway--may have to be cut back. The ability to shut down services for a day--and deprive city workers of pay--shows that we may have the political will to actually make the cuts.

Congress Women - We Have A Real Problem Coming...

2009-08-15T02:00:00.000-07:00

The banks are still insolvent.

That little tweak to mark-to-market
accounting a couple of months ago has allowed us
all to plunge into deep denial.

Now that the banks are allowed to lie about
what their toxic assets are worth, they'll never
sell them (because if they did they would have
to write them down).

The smaller banks are undercapitalized and will have to
raise another $12-$14 billion. And so on...

Those are the basic messages from Elizabeth
Warren, head of the Congressional Oversight Panel.
Warren's 10 minutes on Morning Joe (via Zero Hedge) are worth watching.

Visit msnbc.com for Breaking News, World News, and News about the Economy

High Frequency Trading - A New added Scum on Wall street

2009-08-14T10:51:00.000-07:00

Goldman Sachs Group Inc. (NYSE: GS) disclosed recently that it had 46 “$100 million trading days” in the second quarter of 2009. That was a record number, even for one of the biggest players on Wall Street.

When the U.S. economy is facing collapse and merger and acquisition volume is way down, it seems odd that investment banks like Goldman had record quarters.

Well, here’s the secret: They’ve found a new way to skim more of the cream off the top of U.S. economic activity. It’s called “High-Frequency Trading” (HFT).

High-frequency trading uses the speed of supercomputers to trade faster than a human trader ever could. Human owners of the supercomputers program them to take advantage of information milliseconds faster than other computers, and whole seconds faster than ordinary human traders. This is not a minor development; HFTs now represent about 70% of the trading volume in the U.S. equity market.

HFT computer servers are able to beat other computers because they are located at the exchanges. They take crucial advantage of the finite speed of light and switching systems to front-run the market. They also gain information on orders and market movements more quickly than the market as a whole. They operate not only on the New York Stock Exchange (NYSE), but also on the electronic trading exchanges such as the NYSE hybrid market.

According to a paper “Toxic equity trading order flow on Wall Street” by the brokerage Themis Trading LLC, there are a number of different types of HFT. Liquidity rebate traders take advantage of volume rebates of about 0.25 cents per share offered by exchanges to brokers who post orders, providing liquidity to the market. When they spot a large order they fill parts of it, then re-offer the shares at the same price, collecting the exchange fee for providing liquidity to the market.

Predatory algorithmic traders take advantage of the institutional computers that chop up large orders into many small ones. They make the institutional trader that wants to buy bid up the price of shares by fooling its computer, placing small buy orders that they withdraw. Eventually the “predatory algo” shorts the stock at the higher price it has reached, making the institution pay up for its shares.

Automated market makers “ping” stocks to identify large reserve book orders by issuing an order very quickly, then withdrawing it. By doing this, they obtain information on a large buyer’s limits. They use this to buy shares elsewhere and on-sell them to the institution.

Program traders buy large numbers of stocks at the same time to fool institutional computers into triggering large orders. By doing this, they trigger sharp market moves.

Finally, flash traders expose an order to only one exchange. They execute it only if it can be carried out on that exchange without going through the “best price” procedure intended to give sellers on all exchanges a chance at best price execution. The Securities and Exchange Commission (SEC) has now promised to ban this technique, and flash trading on the Nasdaq will stop on September 1.

This toxic trading has caused volume to explode, especially in NYSE listed stocks. The number of quote changes has also exploded and short-term volatility has shot up. NYSE specialists now account for only around 25% of trading volume, instead of 80% as in the past.

The bottom line for us ordinary market participants is that insiders are using computers to game the system, extracting billions of dollars from the rest of the market. While it is illegal to trade on insider knowledge about company financials, these people are trading on insider knowledge about market order flow. That’s how Goldman Sachs and the other biggest houses make so much from trading. By doing so they are rent-seeking, not providing value to the market.

There are two ways to stop this: Ideally, the SEC will employ both. First, they can introduce a rule that all orders must be exposed for a full second. That will reduce the volume of HFT, but still doesn’t truly protect non-computerized outsiders.

The second, and better, solution is to introduce a small “Tobin tax” on all share transactions. It could be tiny; maybe 0.1 cents per share. (The SEC would also need to ban “exchange rebates” to traders.) Such a tax would make the worst HFT types unprofitable without imposing significant costs on retail investors. It would also provide funds to help run the vast apparatus of regulation and control that seems to be necessary to run a modern financial system.

Goldman Sachs, and other financial institutions of its ilk, have imposed huge costs on the U.S. public with their “too big to fail” status. Now they are adding to the problem by scooping out money from the stock market through HFT. It’s about time the government imposed some taxes to stop the worst of these scams and recover the public some of its money.

‘The World Is in Trouble’: Deutsche Bank Chief Economist

2009-08-13T12:20:00.000-07:00

dollar isn't looking good

The global economy still faces turmoil as government try to figure out how to move out of fiscal rescue packages, which could lead to another two downturns, Deutsche Bank Chief Economist Norbert Walter said Thursday.

In addition, nervousness on the part of major dollar holders could pressure the greenback and lead to a very worrying 2010, Walter said.

Norbert said recently in research notes “the world is in trouble.”

“I believe that the rescue packages brought on have been so costly for so many governments that the exit from this fiscal policy will be very painful, very painful indeed,” he said. “Some of us are already talking about a W-shaped recovery. I’d probably talk about a triple-U-shaped recovery because there are so many stumbling blocks here to get out of this.”

“There are a few countries that have not dismissed people, they had a dramatic drop in their sales but they kept on people because they believed the recession would be very shallow,” Walter said. “They now have to fire people. That will increase unemployment and they therefore, of course, may be endangering retail sales in some countries.”

If Australia hikes rates in September or October, markets “will certainly shiver” and cause zig-zagging at the bottom of the recession, Walter said.

And while the White House struggles with issues like health care and puts a fiscal policy exit strategy on the back burner, there are big concerns of about the direction of the U.S. dollar.

“I’m deeply worried about the worries of those investors who have invested a lot, really a lot into the dollar” like the Chinese, Japanese, Arabs and Russians, he said.

“If they have second thoughts about the quality of this currency then the dollar is bound to weaken” which means higher long-term interest rates for a country where government debt is approaching 100 percent of gross domestic product, he said.

If that happens, “2010 could be a worrisome year for all of us,” he said.

Bob Prechter "Quite Sure" Next Wave Down Will Be Bigger and March Lows Will Break

2009-08-12T13:12:00.000-07:00

In late February, Robert Prechter of Elliott Wave International said "cover your shorts," and predicted a sharp rally that would take the S&P into the 1000 to 1100 range.
With that prediction having come to pass, Prechter is now saying investors should "step aside" from long positions, and speculators should "start looking at the short side."

"The big question is whether the rally is over," Prechter says, suggesting "countertrend moves can be tricky" to predict. But the veteran market watcher is "quite sure the next wave down is going to be larger than what we've already experienced," and take major averages well below their March 2009 lows.

Yes, the late 2007-early 2009 market debacle was just a warm-up to what Prechter believes will be the bear market's main attraction. In this regard, he says the current cycle will echo past post-bubble periods such as America in the 1930s and England in the 1720s, after the bursting of the South Sea bubble.

The 2000 market peak market a "major trend change" for the market from a very long-term cycle perspective, and the downside is going to continue to be painful well into the next decade, Prechter says. "The extreme overvaluation, the manic buying and bubbles in the late 1990s [and] mid-2000s are for the history books - they're very large," he says. "The bear market is going to have balance that out with some sort of significant retrenchment."

You Fools Don't Understand That We're Doomed

2009-08-12T12:25:00.000-07:00

The Black Swan Author Nassim Taleb rant CNBC this morning. In sum:

We're all in denial
We're replacing private debt with public debt.
We're not dealing with the cancer in our banking system.
We're not making the structural changes we need to make.
We're not being aggressive enough about restructuring debt (debt for equity swaps).
Bernanke is a wimpy Greenspan sycophant
Obama's rewarding the fools who got us here (Summers, Bernanke, Geithner)
The banksters are taking over again
He's pretty much right, by the way.

Also at one point Taleb did chide Roubini for being too friendly to the Fed chairman.

"My friend Nouriel has a weakness," Taleb said. "He likes Ben Bernanke too much."

An Unemployment ticking bomb is about to blow everything away

2009-08-08T03:09:00.000-07:00

A primary bulwark against foreclosures and destitution is about to give way. Almost 500,000 Americans will exhaust their unemployment insurance benefits by September. That includes 354,000 for that month alone. The economic consequences will be severe. Social unrest is inevitable.

Unemployment insurance is the only thing keeping many Americans in their homes and off the street. But time is running out. The National Employment Law Project, a national advocacy group, released a study last weekend that should ring warning bells. Over 140,000 people in America have collected the maximum unemployment benefit available under the law—despite the fact that Congress extended payouts for an additional 33 weeks. Currently, people can draw payments for up to 79 weeks in 24 states. Other states offer help for between 46 and 72 weeks.

These first 140,000 will not be alone for long. According to the study, a gushing stream of workers will lose their aid as the year progresses, but the stream will become a torrent leaving 1.5 million jobless Americans who have exhausted their insurance by December.

Congress is under growing pressure to extend benefits again. The number of payout weeks is already triple the norm, and is the most since the program began. Rumors are circulating that Congress will try to borrow another $70 billion from foreigners to extend the program another 13 weeks for states suffering unemployment above 9 percent. Nationally, the official jobless rate is 9.6 percent.

“If more help is not on the way, by September a huge wave of workers will start running out of their critical extended benefits, and many will have nothing left to get by on even as work keeps getting harder to find,” says Maurice Emsellen, a policy director of the Employment Law Project.

Rep. Jim McDermott, a Democrat from Washington, says lining up support for more benefits won’t be a problem once politicians start getting calls from desperate constituents.

Stories of people facing the loss of their homes are emerging. Raymond Crouse of Columbus, who operated heavy machinery, has had no work since 2007. Since the construction industry went into free fall, Mr. Crouse has collected $190 per week in benefits, which has allowed him and his wife to hang on to the house they bought 15 years ago. But with the benefits ending next month, he fears they will not be able to keep up.

In Ohio, Cathy Nixon has barely worked since June 2007. Her benefits of $313 per week also run out in September. Already fighting foreclosure, she says that will probably be the end. The New York Times reports several other similar stories.

And employment conditions probably won’t improve any time soon.

Byron King, writing for the Whiskey and Gunpowder economic newsletter last week, noted that “the Fed made a shocking prediction. It forecasted that the U.S. economy would add no net new jobs over the next five years!”

“No net new jobs?” asked King. “That ought to scare you. The Census Bureau predicts that the U.S. population will grow over five years. But the numbers of new jobs will remain static. That is, for every job gain there will be a loss.”

If this forecast is true, then for the next five years, thousands of students will graduate into jobless lines; meanwhile, older workers will postpone retirement. In July, an additional 371,000 jobs were lost, according to the most recently released adp Employer Services report.

This employment catastrophe is a formula for trouble at both local and national levels. Once the safety nets expire, a deluge of social discontent could be on the way.

Why Another Stock Market Collapse Could Be Imminent

2009-08-08T01:37:00.001-07:00

A lot of commentators have begun heralding a new bull market in stocks. Day after day, I hear that March was THE bottom, that the next bull market has begun, and that anyone betting on another collapse is a moron.

These claims are not only wrong, they are completely misleading and should be depicted for what they are: nonsensical hype from sources with conflicted interests - folks whose jobs and income stem largely from people remaining bullish.

More often than not, these are the same guys who claimed that Bear Stearns marked the end of the Financial Crisis (how’d that work out?) and that the Federal Reserve can pump our way back into a bull market (how’s that working out?).

The reason this is entirely wrong is because this recession is not your average run of the mill excess inventory recession: the kind of economic contraction we’ve experienced post-WWII.

No, this is a DE-flationary debt collapse, a bursting of a 30-year credit bubble that papered over enormous drops in real incomes, standards of living, and financial stability. The private sector hit a point of total debt saturation in 2007

This recession so far has been the first taste of DE-flation the US has experienced since the ‘30s. Comparing it to every other post-WWII recession is like comparing apples and oranges. A debt bubble cannot be re-flated by issuing more debt. A second-grader can understand this. I don’t know why guys with PhDs, alleged experts, and the like don’t get it.

For 30 years, our economy grew by borrowing from the future. I mean that the US’s economic growth was funded largely by the use of credit: borrowings that would be paid back down the road.

In simple terms, the economy grew based on imaginary, not REAL demand. We pulled forward future sales of cars, TVs, homes, and the like. By using credit, we bought things NOW, that we would have normally bought LATER. This pulled future sales, future corporate earnings, future incomes, and future economic growth to the NOW through the ‘70s, ‘80s, and ‘90s.

So instead of having a safe, annual rate of consumer spending growth (say 4-5%), we saw double digit rates of growth: for example, between 1980 and 1990, credit card spending increased more than five-fold while average household credit card balances quadrupled. That’s NOT normal.

This led to the single largest debt bubble in history ($49 trillion in private sector debt and $50+ trillion in public sector debt). And a debt bubble can continue until you can no longer meet debt payments. The private sector hit its “debt wall” in 2007. The public sector continues to grow its debts, creating an even larger bubble that will have even worse consequences.

Now, as you know, there are only two ways of dealing with a debt problem:

1) Paying it off

2) Defaulting.

The US consumer has begun both. From February to May of this year we paid off $45 billion in credit card debt. Consumer credit contracted $3.3 billion in May, the fourth consecutive monthly decline (this makes our current credit contraction the longest running since 1991).

And we’re just getting started…

Total consumer debt at the bubble’s peak was $2.57 trillion (the other $46 trillion was corporate). So the fact we’ve paid off about $50 billion of this means Joe America has a LOT more (98%) debt to pay back and default on before he’s finished de-leveraging his balance sheet.

Folks, we’ve got a long, LONG ways to go before this crisis and Crash are over. Anyone who’s telling you the bear market is over either isn’t looking at the data or is basing their analysis on “a gut feeling” or some other nonsense. They’re all going to get destroyed this fall.

Above, we detailed the difference between this current economic contraction, and your usual run of the mill plain vanilla recessions. We also went over the MASSIVE consumer credit contraction that needs to occur before American households have finished de-leveraging.

Now, we’re detailing why stocks will crash this coming fall. As you know, the media is rife with folks calling the end of the recession and the beginning of a new bull market. It’s clear to me that this is a load of nonsense. I’ll show you why.

Because a lot of the alleged “analysis” that is backing up the bulls’ claims of a new bull market comes from technical analysis and charts, I’m presenting the below chart from David Rosenberg of Gluskin Shef. It charts today’s bear market over that of 1929-1932.

As you can see, today’s bear market is mirroring that of the ‘30s almost to perfection. Indeed, the correlation between the two charts is an incredible 0.8, meaning it’s 4/5ths perfect. In finance, you’re lucky if you get a correlation above 0.6. (gold and the dollar are only 0.28 inversely correlated). A 0.8 correlation is virtually unheard of. But that’s exactly how closely today’s market is mirroring that of the ‘30s.

I can’t take full credit for this insight. Ron Coby, an investment manager at Coby Lamson in Oregon, first started pointing out the similarities between this market and that of 1929 back in February ’09. No one wanted to listen to him then.

They’re listening now.

Coby notes that from October 29, 1929 until November 13, 1929, the stock market collapsed 49% (2008's was 52%). Ron points out that the market then staged a 155-day rally of 50%. Today’s rally (starting in March ’09) has lasted 150 days and the market is up an average of 50% (average of Nasdaq, DJIA, and S&P 500).

Unfortunately for the bulls today, the 1929 market then rolled over and collapsed another 70%. “Bottom callers” INCLUDING legends like Jesse Livermore, Benjamin Graham and others bought ALL THE WAY DOWN, losing entire fortunes.

Ok, so the charts for today and 1929 are identical, what about the earnings? After all, profits are ultimately what drive the stock market: you buy based on expected future earnings of the companies.

Earnings today are even lower than they were in the ‘30s during the Great Depression. They’ve fallen 98% from their peak in 2007. Adjusted for inflation, stocks have NEVER been this unprofitable in the last 80 years.

The US was already in a recession in 2008. And 2Q09 profits are actually down 31% even from THAT. Indeed, based on ACTUAL posted earnings, the S&P 500 is trading at a P/E of 700 today. Even if you go by operating earnings the multiple is still 24: hardly cheap.

Looking over this, I can’t see where any claims of a “bull market” are coming from. The people who are saying today is a new bull market probably went long Tech Stocks in 2001, Housing in 2006, and Financials in 2008.

In light of the rampant bullishness, the parabolic rally in the S&P 500, the horrific earnings, and the similarity between today’s rally and that of 1929, I believe the likelihood of another Crash (like 2008) is quite high. In fact, I would not be surprised to see stocks collapse within the next eight weeks.

Murdoch to charge for all online content

2009-08-05T22:40:00.000-07:00

Rupert Murdoch has vowed to charge for all the online content of his newspapers and television news channels, going well beyond his prediction in May that the company would test pay models on one of its stronger papers within the year.

The comments by News Corp’s chairman came as he predicted a “high single digit” rebound in the group’s operating profits next year. The worst of the media sector slump might be behind the company, he said, as he reported “some good signs of life” in advertising.

Newspaper and television revenues would be down “very low double digits” next year, but growth in cable properties such as Fox News would leave advertising revenues flat and total revenue up 4 per cent.

News Corp put the seal on a brutal fiscal year with a fourth- quarter net loss of $203m (£119m), dragged down by $680m in impairment and restructuring charges at Fox Interactive Media, whose MySpace social networking site cut more than 700 jobs in the period.

The latest writedown to boom-era acquisitions masked a 30 per cent fall in quarterly adjusted operating profit to $948m, in line with lowered projections, and adjusted earnings of 19 cents per share, narrowly ahead of Wall Street forecasts of 18 cents.

However, they resulted in a $3.4bn net loss for the full year, down from net income of $5.4bn a year earlier, reflecting $8.9bn in impairment charges.

The sweeping decision by the owner of titles including The News of the World and The Australian to abandon the practice of giving away news in exchange for attracting a large audience for advertisers could embolden other publishers warily examining paid content models.

“We intend to charge for all our news websites,” Mr Murdoch said.

“If we’re successful, we’ll be followed by all media,” he added, predicting “significant revenues” from charging for differentiated news online.

He warned that “the big competition will be coming from the BBC,” which offers online news for free, but said: “Our policy is to win.”

Mr Murdoch said News Corp was highly unlikely to develop its own electronic reader, but took aim at Amazon’s Kindle device by praising the rival Sony Reader.

He insisted that News Corp would retain a direct relationship with its subscribers to its content via e-readers, information that Amazon has refused to hand over.

Chase Carey, who recently returned to News Corp as chief operating officer, said the online charging policy would extend to cable networks such as Fox News.

However, he criticised TV Everywhere, the cable industry strategy championed by Time Warner to offer shows online to paying subscribers, as a “defensive” response and said News Corp aimed instead to develop “offensive” models.

Declines in revenue and profit across television and newspaper assets offset strong gains from cable networks businesses in the quarter, in which News Corp’s cash pile grew to $6.5bn.

California Closing Court Houses

2009-08-05T21:44:00.000-07:00

This is public Notice from County of San Bernardino

Link to file

The seven terrors of the world

2009-08-03T01:49:00.000-07:00

The world is facing a series of interlinked crises which threatens billions of people and could cause the collapse of civilisation, according to an international report out this week.

Climate pollution, food shortages, diseases, wars, disasters, crime and the recession are all conspiring to ravage the globe and threaten the future of humanity, it warns. Democracy, human rights and press freedom are also suffering.

The report, called 2009 State Of The Future, has been compiled by the Millennium Project, an international think-tank based in Washington DC, and involved 2700 experts from 30 countries.

"Half the world appears vulnerable to social instability and violence," the report says. "This is due to rising unemployment and decreasing food, water and energy supplies, coupled with the disruptions caused by global warming and mass migrations."

The project has been backed by organisations including United Nations agencies, the Rockefeller Foundation, private companies and governments. It provides "invaluable insights into the future for the United Nations, its member states, and civil society," according to the UN Secretary-General, Ban Ki-moon.

The report's bleakest warning is on the dangers of the climate chaos being caused by pollution. It also highlights the 15 wars taking place in the world. It further predicts there could be three billion people without access to adequate water by 2025.

"About half the people in the world are at risk of several endemic diseases," it says. These include HIV/Aids, swine flu, drug-resistant superbugs and a string of new infections.

The global income from the proceeds of international crime is reckoned to be around $3 trillion.

"Democracy and freedom have declined for the third year in a row, and press freedoms declined for the seventh year in a row," the report says. The global recession was caused by "too many greedy and deceitful decisions", it argues, but there were now some signs that humanity was growing out of its "selfish, self-centred adolescence".

1: Environment
The most serious danger is the pollution that is affecting the climate, the report says. Every day the world's oceans absorb 30 million tonnes of carbon dioxide, increasing their acidity.

The number of dead zones - areas like La Jolla off the coast of San Diego, which have too little oxygen to support life - has doubled every decade since the 1960s.

The oceans are warming about 50% faster than the Intergovernmental Panel on Climate Change reported in 2007, while the amount of ice flowing out of Greenland last summer was nearly three times more than the previous year. Summer ice in the Arctic could disappear by 2030, the report warns.

"Over 36 million hectares of primary forest are lost every year," it says. "Human consumption is 30% larger than nature's capacity to regenerate, and demand on the planet has more than doubled over the past 45 years."

The strains these changes will put on the world include floods, droughts and storms.

"This important report puts climate change up there with the major economic, social and political challenges that the human race faces," said Dr Richard Dixon, director of WWF Scotland. "Whether you are worried about food security, the threat of war or mass migration, climate change is going to make things worse."

The Millennium Project report argues that combating climate change requires a 10-year programme by the US and China equivalent to the Apollo moon mission launched in 1961.

Other environmental problems are highlighted, including toxic waste dumping. About 70% of the world's 50 million tonnes of annual electronic waste is dumped in developing countries in Asia and Africa, much of it illegally.

A quarter of all fish stocks are over-harvested, the report says, and 80% cannot withstand increased fishing.

2: Food and water
A global food crisis may be "inevitable", the report warns, because of an obscure fungus called Ug99 which causes stem rust on plants. It is threatening to wipe out more than 80% of the world's wheat crops, and it could take up to 12 years to develop resistant strains of wheat.

Food prices rose by 52% between 2007 and 2008, while the cost of fertiliser has nearly doubled in the past year. Meanwhile, 30%-40% of food production is lost in many poor countries because of a lack of adequate storage facilities.

Nearly a billion people are undernourished and hungry, while 700 million face water scarcity - this could hit three billion by 2025, the report warns. The world's population is expected to grow from the current 6.8 billion to 9.2 billion by 2050 - and could reach 11 billion.

"Christian Aid's partners in developing countries are already reporting that water is hard to find," said Claire Aston, acting head of Christian Aid Scotland. "The idea that three billion people will be in this position as a result of climate change by 2030 is a frightening prospect."

Water shortages are also being worsened by the growing global consumption of meat. The report predicts demand for meat may rise by 50% by 2025 and double by 2050.

3: Disease
About 17 million people - nine million of them young children - are killed by infectious diseases every year, according to the report.

Half of the world's population is at risk from endemic diseases, with TB, malaria and HIV/Aids together causing more than 300 million illnesses and five million deaths a year.

The number of people living with HIV/Aids is estimated at between 30 million and 36 million, two-thirds in sub-Saharan Africa.

The dangers from other diseases seem to be getting worse, too. Over the past 40 years, 39 infectious diseases have been discovered, and in the last five years more than 1100 epidemics have been verified. There are up to 20 new strains of "superbugs", such as MRSA, that are difficult to counter, while three-quarters of emerging pathogens have the ability to jump species.

Old diseases such as cholera, yellow fever, plague, dengue fever, haemorrhagic fever and diphtheria are re-emerging, not to mention new strains, like the H1N1 swine flu virus.

"Massive urbanisation, increased encroachment on animal territory, and concentrated livestock production could trigger new pandemics," the report cautions.

"Climate change is altering insect and disease patterns. Other problems may come from synthetic biology laboratories."

4: Wars and disasters
More than two billion people have been affected by the world's 35 wars and 2500 natural disasters over the last nine years, the report says. By mid-2009, there were 15 conflicts raging around the globe - one more than in 2008. Four wars were taking place in Africa, four in Asia, four in the Middle East, two in the Americas and one, against terrorism, internationally.

"A pending unknown is whether Iran and North Korea will trigger a nuclear arms race," the report says. "Another more distant spectre, but possibly even a greater threat, is that of single individuals acting alone to create and deploy weapons of mass destruction."

The Iraq war has left behind an environmental catastrophe of 25 million land mines, hazardous waste, polluted water and depleted uranium contamination. "It will take centuries to restore the natural environment of Iraq," said the country's environment minister, Nermeen Othman.

The number and intensity of natural disasters is increasing, the report says. In 2008 there were a total of 354 disasters with an estimated 214 million victims, 80% of them in Asia.

Increasing climate chaos could exacerbate the damage wrought by natural disasters and see the number of people suffering grow to 375 million a year by 2015 and 660 million by 2030. Economic losses could reach $340 billion a year.

"The world has moved from a global threat once called the cold war, to what now should be considered the warming war," said Afelee Pita, the UN ambassador from Tuvalu, a small, low-lying island in the Pacific Ocean.

The report also reveals the world recently escaped a potentially planet-ending event.

"In March 2009 an asteroid missed Earth by 77,000 kilometres," it says. "If it had hit Earth, it would have wiped out all life on 800 square kilometres. No-one knew it was coming."

5: Crime
Organised crime is very big business, according to the Millennium Project report, with an income of $3 trillion a year. That's twice as much as all the world's military budgets combined. This includes more than $1 trillion paid in bribes to corrupt officials, and maybe another $1 trillion from cybercrime thefts. Counter feiting and piracy could bring in at least $300bn, the global drug trade $321bn, human trafficking $44bn and illegal weapons sales $10bn.

"Governments can be understood as a series of decision points, with some people in those points vulnerable to very large bribes," the report says. "Decisions could be bought and sold like heroin, making democracy an illusion."

Shockingly, there are reckoned to be between 14 million and 27 million people still being held in slavery, the vast majority of them in Asia. This is more than at the peak of the African slave trade.

The report argues that the world is beginning to wake up to the "enormity of the threat of transnational organised crime". The UN Office on Drugs and Crime has called on all states to develop a coherent strategy, but efforts are still piecemeal.

The 2009 G8 meeting of justice and home affairs ministers explored anti-crime strategies, and in June the US launched the International Organised Crime Intelligence and Operations Centre.

"Meanwhile, transnational organised crime continues to expand in the absence of a comprehensive, integrated global counter-strategy," observes the report.

6: Human rights
Freedom and democracy are waning, the report reveals. They have declined for the third year in a row, with press freedoms worsening for the seventh year in a row.

In 2008, democracy declined in 34 countries, and only improved in 14. Just 17% of the world's population lives in 70 countries with a free press, while 42% lives in 64 countries with no free press.

According to the Economist Intelligence Unit, 14.4% of humanity enjoys full democracy, while 35% live under authoritarian regimes. "Democratic forces will have to work harder to make sure that the short-term reversals do not stop the longer-term trend of democratisation," the report says.

Women account for more than 40% of the world's workforce but earn less than 25% of the wages and own only 1% of the assets, it found.

"Many countries still have laws and cultures that deny women basic human rights," the report states. "Gender equity is essential for the development of a healthy society and is one of the most effective ways to address all the other global challenges."

The human rights organisation Amnesty International warns that the recession is having a "devastating impact" on the world's poor, driving more and more people into poverty, unemployment and homelessness.

"The recession is also leading to repression of people who are desperate," said Amnesty's Scottish programme director, John Watson. "It is creating new tensions between governments and vulnerable people."

7: Science and technology
The Millennium Report warns that, due to the staggering rate of technological advances, politicians and the public need a "global collective intelligence system" to track the effects of such rapid changes. Contingency plans need to be prepared by governments in case the speed of development has a "highly negative impact" on the human race.

Although advances in science and technology are increasing the chances of major breakthroughs in medicine, computing and biotechnology, these breakthroughs come with a health warning as we are unsure what the flipside may be. Some experts speculate that civilisation is heading for a "singularity", the report says. This would mean that "technological change is so fast and significant that we today are incapable of conceiving what life might be like beyond the year 2025".

The electronics company IBM has promised a computer capable of performing 20,000 trillion calculations per second by 2011 - just like Hal, above, from 2001: A Space Odyssey - roughly equivalent to the speed of the human brain.

On the upside, the boom in power generated by wind turbines and other renewable sources has been unprecedented. For the first time in 2008 the majority of the increase in electricity production in the US and the European Union came from renewable sources.

"Mobile phones, the internet, international trade, language translation and jet planes are giving birth to an interdependent humanity that can create and implement global strategies to improve the prospects for humanity."

China moves to internationalise its currency

2009-08-02T20:29:00.000-07:00

China is rapidly accelerating its efforts to internationalise its currency with a series of manoeuvres that could see the renminbi soar to become one of the top three traded monetary units in the world.

By 2012, say analysts in Shanghai, as much as $2 trillion (£1.69 trillion) worth of trade flows may be settled using the “redback” as China stretches its commercial tentacles throughout the commodity-producing world and the emerging economies of Asia, Latin America and the Middle East.

The radical change in attitude may arise from a desire to protect China from the “dollar trap” — the problem that emerges when exporting countries are effectively forced to shovel large chunks of their reserves into the US treasury and suffer the consequences in times of high volatility.

The rising financial power of the renminbi may also prove to be the salvation of Hong Kong in its intensifying rivalry with Shanghai for international relevance.

The former British colony, say economists at Barclays Capital, may be able to secure its status as a premier global financial hub by rebranding itself as China’s offshore renminbi banking centre. Renminbi internationalisation is essential if Hong Kong “is to have any long-term hope of being like London or New York,” according to the bank.

Political analysts believe full international currency status for the renminbi could take some time to become politically acceptable to the full spectrum of views within the Communist Party, warning that there would be significant policy hurdles surrounding the perceived loss of currency control.

However, China’s soaring economic growth and global financial turmoil could be pushing the process ahead faster than the market expects. Recent measures, including currency swap agreements with several central banks and the allowing of renminbi-denominated crossborder trade, have significantly changed the environment, HSBC said in a research note.

If, as some predict, China overtakes Japan to become the world’s second biggest economy next year, the pressure for the renminbi to internationalise will mount faster. Wensheng Peng, chief China economist at Barclays Capital, believes that market turmoil and the Wall Street crisis has changed the terms of a debate on the renminbi that has been brewing for years.

“The global financial crisis, and along with it increased concern from the Chinese perspective on the reliance of the global monetary system on the US dollar has brought to the fore the importance of increasing the use of the renminbi in international trade and finance,” he said.

A consensus among policymakers has grown from the grudging acceptance that one of the fundamental reasons the country has fallen into the dollar trap is that China’s currency is not international and the global crisis has made the dollar less predictable.

Others believe that raw economic growth makes the globalisation of the renminbi inevitable. “If the history of sterling and the dollar’s ascendancies as international currencies are any guide, said Hongbin Qu, HSBC’s chief China economist, the internationalisation of the renminbi is “long overdue” because of China’s rising economic power relative to the limited use of the renminbi overseas.

Most significant are the policy gambits in the past few months as the global financial crisis has given motive and opportunity for Beijing to test out renminbi internationalisation. China has signed bilateral currency swap agreements with Korea, Malaysia, Indonesia, Belarus and Argentina worth 650 billion renminbi (£57 billion). Last month, China selected five mainland cities — accounting for 45 per cent of the country’s foreign trade — that can trade with Hong Kong and Macau in renminbi. The programme, said Mr Qu, could be rolled out to cover all of China’s trade with Asia except Japan.

Oh My America!

2009-08-02T02:23:00.000-07:00

I still recall my father saying go America where man meet his destiny, dream come reality and be closer to God.

today after 30 years I found myself sitting in a barren land only negativity, hatred and downfall. what happened to this country? once giver of the world became bagger to the world, each day goes by she is loosing her strength and commitment.

this is the country gave birth the cultures world needed most, people came here and flourished, Edison's invention did not took place in Europe but here he lid the world.

Elvis is not the answer but the beginner, rhythm of rock-n-roll, blues, jazz by which world once dance now de-generated rap music became the cultural tool to divide society and promote hate and violence.

Hollywood is no more and helpless to find a place to dump the academy award other than Slum dog millionaire.
A continuously degrading film industry once we proud of.

Greed of men here sky-rocketing, economy collapsing but we still hear the voice of optimist saying recession is over, yes it is over because depression just started, Q2 GDP shows slow decline but it is merely the result of mega governmental expenditure but private sectors still going downward. Recent resignation of three BofA executives is a sign of things to come in the Banking world.

We all know something is coming but what we don't know yet, what ever it is it may be the beginning of a new era, a new economy, a new world powered by its very people.

US China - War of Words again for printing money

2009-07-31T01:24:00.000-07:00

WASHINGTON (AP) - The United States and China are striking a conciliatory tone in their public comments during economic talks, although that hasn't stopped China from posing some pointed questions behind closed doors about such issues as America's soaring budget deficit.

The Obama administration has questions it wants answered as well in such areas as China's long reliance on massive trade surpluses with the United States to bolster its domestic economy.

Both sides are expected to wrap up two days of high-level talks Tuesday with a joint communique that will lay out a work plan that both sides will tackle in upcoming meetings.

Officials from both nations played down the prospects for any breakthroughs this week on the major issues that separate the two nations, including America's massive trade deficit with China. Critics have blamed the trade deficit over the years for the loss of millions of U.S. manufacturing jobs.

President Barack Obama opened Monday's discussions by declaring that the United States sought a new era of "cooperation, not confrontation" with China and that management of the U.S.-China relationship would be a major factor in defining the history of the 21st century.

Obama dispatched his top economic officials - Treasury Secretary Timothy Geithner, National Economic Council Director Lawrence Summers, White House budget director Peter Orszag and Federal Reserve Chairman Ben Bernanke - to try to reassure China that the U.S. will not let deficits or inflation jeopardize the value of Chinese investments.

U.S. briefers said the president's team told the Chinese that the United States was committed to making sure the economic and monetary stimulus being used to fight the recession did not fuel inflation.

U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. They said Bernanke discussed the Fed's exit strategy from the central bank's current period of extraordinary monetary easing, emphasizing that the Fed was being careful to guard against future inflation.

The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments. Chinese officials said those concerns were raised during Monday's talks.

"We sincerely hope the U.S. fiscal deficit will be reduced, year after year," Assistant Finance Minister Zhu Guangyao told reporters after the Monday talks had ended.

"The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets," Zhu said, speaking through an interpreter.

The discussions on America's deficits and China's role in financing them highlighted the growing economic importance of China, now the world's third largest economy.

The discussions in Washington represent the continuation of talks begun by the Bush administration. While the initial talks focused on economic issues, Obama wanted the agenda expanded to include foreign policy issues such as America's drive to get China's support for more international pressure to curb North Korea's nuclear ambitions.

Geithner and Secretary of State Hillary Rodham Clinton were leading the U.S. team. The Chinese delegation was led by Chinese State Councilor Dai Bingguo and Vice Premier Wang Qishan.

David Loevinger, Treasury's senior coordinator for China affairs, said Orszag and Summers both stressed the commitment of the administration to attacking the U.S. deficits.

"There were serious questions about what the economic outlook is and ... our plans for withdrawing stimulus," Loevinger told reporters.

Geithner traveled to Beijing last month to assure Chinese officials that federal budget deficits, which have ballooned because of government efforts to deal with the recession and stabilize the financial system, would be reined in once those crises have passed.

Many private economists have said the Chinese are right to worry about a U.S. budget deficit that is projected to hit $1.85 trillion this year, four times the previous record.

What causes recent market rally - High frequency trading

2009-07-30T23:41:00.000-07:00

Abandoned USDollar & Paradigm Shift

2009-07-27T23:56:00.000-07:00

A paradigm shift is underway, unrecognized inside the US kettle. Its water level is falling and its temperature is rising, even as fewer foreign born cooks stir its contents. The US banking and political leaders errantly pursue a path toward a return to normalcy, when all pathways have been washed out by powerful storms that to do abate and will worsen. Several key developments point to a new global order taking shape, as the Chinese actively work to plant global seeds that result in the Yuan currency serving more of a role in global trade. They will eventually de-throne the USDollar from its primal perch. The USDollar will be used less in global trade. The US$-based assets are being diversified. These developments are gaining traction, power, and publicity. The foreign creditors continue to protect their core US$-denominated reserves, while clearly undermining the US$ on the margin, as alternatives are chosen. To date, the alternative choice is hard assets, commodity supplies, and properties from the resource camp. The paradigm shift will change the face of the United States permanently, but to date few recognize the changing landscape.

CORRECT TIPOFF TO DOLLAR DUMP

Last week, a tipoff came that turned out to be true, shared in last week’s article. A contact source passed word that on Sunday night, Asia would sell the USDollar down in a big way. Four to five large parties were involved. Seemingly small moves in the FOREX cause tremendous disruption, since entire continental economies are involved with price shifts. The US$ index did fall markedly, in a moderate quantum leap down. It fell from the mid-79s to the upper 78s, big in the currency world. The principal agent pushing the buck down was the Euro, which enjoyed a major 120 basis point upleg that has held all this week. The Euro now approaches the 143 level. So the tipoff was true. We await the follow-through, like from short covering by Euro traders who were wrong on bets. If the Euro can push past 143 (it is now 142+), then clear sailing to the 155 mark will be enabled, without any notable resistance. The USDollar index would fall enough to capture global attention. Maybe they would proclaim the advent of a Currency Crisis.

EURO IS THE KEY, ON EDGE OF BIG UPLEG

The Competing Currency War is to reach a fever pitch. The USDollar weakness will force other currency custodians to wreck their own in response, so as to avoid the further damage from a rise. A sequence of currency structural changes seems evident in three stages, a currency crisis in three stages, shared in the July Gold & Currency Report posted this week. It involves the Euro and what are more commonly called Commodity Currencies. Gold & silver (along with platinum) will be primary beneficiaries of the deepening crisis. It is called a Credit Crisis nowadays. A better description is a Bank Crisis. In time, it will be called a Currency Crisis as money will be doubted for quality and reliability.

The Euro currency is ready to challenge the 160 highs again. It is reluctant beneficiary to a crumbling USDollar. The custodians of the Euro want a stable currency, not a too strong currency. They will not have their wish. As the USDollar suffers the shameful global rejection, the Euro benefits. What is good for selling EuroBond debt is also bad for European export industries. A rising Euro keeps down economic costs across the continent, a vital buffer. However, the engine of Europe is Germany, whose export trade struggles and will feel greater stress as the Euro rises further. The reversal pattern dictates a target of 160, thus a challenge of 2008 highs. The base from last winter at 126 was a reaction low. The impulse high at 143 must be overcome, but all signs point to surpassing it. Hue and cry will come from Europe when the runup occurs. After 143 is overcome, a sudden scary fast move will come to 155, almost a 10% move with no resistance. In the currency realm, that is VERY DISRUPTIVE. The move will drag the US$ DX index down to 73-74 range, with blood on the FOREX floor.

IMAGE IS IMPORTANT

The USDollar is suffering from an image problem, tied to the harsh reality of lingering insolvency, growing federal indebtedness, continued syndicate control, and deep fraud. Back in the late 19th century, cartoons made national news and forged imprints on the national psyche, in ways that editorials could not. Images were lasting, painful, and resulting in change. The Tammany Hall cartoons made history for over a century to follow. Here is a beautt!! The entire world notices the circus acts under the USGovt and Wall Street tents. Goldman Sachs sits in position as parasitic octopus, public serpent, sponsored vampire, take your pick on the description. The Wall Street syndicate openly denies the people, the states, and almost all but the largest businesses. The TARP episode makes the point clear, as does the more recent denial of CIT for federal rescue, despite funding loans for 950 thousand businesses. That is not systemically vital in the eyes of FDIC and Govt Sachs. Thanks to Tabtoon for a great cartoon. Methinks homeowners deserve a spot with joined arms to the taxpayers under the fat cat Wall Street bandits, supporting their corpulence. Also, underwater homes should be meshed with the market boat. This is an ugly image.

FORKED TONGUE USED TO US DEADBEATS

The Chinese pay lipservice to support the USDollar, or forked tongue. They tell what US officials want to hear, when they need to hear them, where it is required. Recent evidence is almost laughable. Their words go counter to all their initiatives (outlined here in Hat Trick Letter articles) in the last few months. This has become a game played in the open arenas. When in Rome, leading to the G-8 Meeting, the Deputy Foreign Minister He Yafei told reporters that China does not support the idea of creating a supra-national reserve currency and expects the USDollar to remain the main reserve currency for “many years to come.” He must have giggled under his breath. He minimized Chinese concerns as only ‘natural’ in holding vast US$-denominated assets. He actually said that China appreciates the USGovt efforts to maintain the stability of the USDollar. Meanwhile, back at the office, Beijing bankers continue with global Yuan swap facilities to enable trade outside the US$ sphere. They have made important reforms to install the Yuan as the basis for their domestic banking system. They have agreed to pan-Asian regional development and security funds, also based in the Yuan currency. If truth be known, the Chinese Govt is working overtime to unload their USTreasury Bonds and USAgency Mortgage Bonds, spending them in Africa, Latin America, Asia, Australia, the Middle East, even Europe.

The Chinese leaders seem intent to mislead the US fraud kings, talking in two directions, so as to confuse the reckless custodian to the global reserve currency. They plan to wrest greater control, all in due time. The very same Deputy Foreign Minister He Yafei told a group of visiting business executives in China, with no equivocation, that “The financial crisis has fully exposed some shortcomings in the international currency system. China is not seeking discussions but wants a diversified reserve currency.” The Peoples Bank of China renewed shortly thereafter its call for the creation of a supra-sovereign reserve currency (the IMF concept defined as a basket of currencies) to lessen the USDollar’s sole reserve status. Big changes are coming, like grand tectonic shifts in the global financial mantle.

The chairman of China Development Bank said this week that Chinese outbound investment would accelerate, where focus should go to developing economies rich in resources. Chen Yuan said, “Everyone is saying we should go to the western markets to scoop up [underpriced assets]. I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.” They are not fools, and wish to gather in no more trashy paper assets peddled by the US crowd. A bad reputation is solidifying. Premier Wen Jiabao elaborated in clear terms on a new Global Shopping Spree strategy. He said, “We should hasten the implementation of our ‘Going Out’ strategy and combine the utilization of foreign exchange reserves with the ‘Going Out’ of our enterprises.” He strives for Chinese companies to increase the share of global exports. The ‘Going Out’ strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state owned conglomerates such as PetroChina, Chinalco, China Telecom, and Bank of China. Qu Hongbin is chief China economist at HSBC. He said, “This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets.” Chinese outbound non-financial direct investment rose to $40.7 billion in 2008 from a paltry $143 million in 2002, a rise of 285-fold!!

Saudis are also worried about USTreasury Bonds. They have begun to withdraw assets, even as empty assurances are given. Recent data from the Monetary Agency, their central bank, reveal the recent withdrawal of $50 billion in Saudi assets after a significant 2008 buildup. “The Saudi government is very worried about the deteriorating value of the dollar and the mounting debts of the US in the medium and long-term,” said a Saudi economist. The Saudi Govt has ignored British and US pressure to give added funding to the IMF. They wish to avoid the IMF snake pit, preferring a home stimulus that might eventually spill over into the global economy. They posted its biggest budget ever this year, and further pledged to invest $400 billion in the coming five years on its infrastructure and petroleum industry, a tremendous commitment. The entire Persian Gulf region has been hit hard, as growth forecasts for the Gulf states have declined sharply, credit has dried up, and scores of major firms face survival challenges. Last week, Geithner met leaders in Abu Dhabi, the capital of the United Arab Emirates and clear financial center of the Arab world. Abu Dhabi is center and home to several sovereign wealth funds with billions in US$-based investments. Sultan Nasser al-Suweidi, the governor of the UAE central bank, mentioned that Geithner reiterated reassurance of the USDollar during a pandering session. It is very unclear if al-Suweidi regards the US bank fraud kings with any credibility. Last month Geithner visited Beijing leaders and made a fool of himself. The USGovt remains desperate to keep secure its longstanding creditor support.

India joins the revolt against the USDollar, as diversification is urged. India joins China and Russia in the call for a supra-national currency based upon the I.M.F. proposal. Suresh Tendulkar is an economic adviser to Indian Prime Minister Manmohan Singh. The advisor has urged the Indian Govt to diversify its $264.6 billion foreign exchange reserves, and to hold fewer US$-based assets. The majority of Indian national reserves are held in US$ denomination. Tendulkar wants formal discussion on US$ reliance taken up in international talks, even emphasizing the need to go beyond the traditional G-8 inner sanctum. He said, “They [G-8] can meet if they want to. The G-20 has a wider role, and has representation of the countries that are likely to lead the recovery process.” Ouch! A quiet sting to the bankrupt G-8 nations, which themselves are dependent upon the emerging economies for valuable credit supply. The G-20 nations are flexing their muscles, while the G-8 nations are inventorying their flu viruses with the help of pharmaceutical firms.

PARADIGM SHIFT WIDENS THE RIFT

The (hardly empty) rhetoric reveals the underlying power shift to emerging markets from the developed nations that are responsible for the financial crisis. Bank power is shifting east. THIS IS A MAJOR POINT IN THE PARADIGM SHIFT UNDERWAY. The old game is over. The new accountable system is being constructed outside the US-UK shadows of control, with an intolerance for future criminal abuse. The Paradigm Shift continues. With it comes clear movement in the financial structure underpinning away from the USDollar and toward hard assets.

More complicated trade platforms are being constructed right now, behind the scenes, with little or no publicity or exposure. The primary parties involved are Germany, Russia, China, and Brazil. They will integrate buyer and seller with attendant systems, like a matchmaker busybody who believes this young man and that young woman should meet. One consultant working directly on such systems wrote, “Once the meltdown occurs, the evolving system will not require reserve currencies any longer, since 95% of all transactions will be barter and/or sophisticated counter trade via a new exchange platform that is being designed and will be up an running in early 2010. This new exchange will pretty much eliminate banks from being the bottleneck in conducting trade locally, regionally, nationally, and internationally. Welcome to a very different new world order.” The process will take time, but seems to be born soon from crisis bathwater. It is not installing new devices for speculation, but actual construction of platforms in progress unbeknownst to US media networks. The new system will enable trade from region to region in time, designed to cut out entirely the profligate ‘deadbeat’ nations that might include the United States. They essentially ride like a grand armada of parasites on the back of global trade in vessels US$ bearing a brand, extracting blood like a global tax. Trade in the new system will NOT be built atop bonds that are easily the object of fraud.

TRADE SETTLEMENT OUTSIDE THE USDOLLAR

The Chinese must hurry to establish the Yuan currency in global trade more broadly and deeply, so as to increase its recorded volume before 2010. They intend to win a higher weight in the new Intl Monetary Fund basket calculus set for revision next year. The Chinese Govt and bankers have a project, a goal, and a deadline. They wish to pursue a path to establish the Yuan as a global reserve currency, the third alongside the USDollar and the Euro. Their chosen path in execution is to enable the Yuan to be used on a broader basis in global commerce. During the year 2010, the Intl Monetary Fund will recalibrate the Special Drawing Rights, and reset the weights for the basket pseudo-currency according to actual global trade. So Beijing has an objective to lift the Yuan usage globaly, thus enabling more reserve status. To do so, sufficient Yuan currency must be available. So far they are using a two-part strategy. First, they issue large tranches of Yuan swaps within installed facilities (cited before many times) in nations overseas. Second, they permit Hong Kong banks to issue loans intended to further trade (also cited before), a project already underway with the support of the Peoples Bank of China. The Yuan loan program has 440 firms in Shanghai and Guangdong with current participation. They are making genuine progress. The pieces of the puzzle are coming together, and investors must detect the pattern toward a goal.

China must manage the appreciation of the Yuan in response to higher demand, a task made easier by supply mini-floods. To be sure, less US$ demand will be seen in international trade contract settlement as a result, A KEY UNDERMINE TO THE USDOLLAR. China cannot supplant the USDollar from the top down within banking circles. So they will do so from the grassroots in contract trade settlement, the bottom up. In time, the US$ fortress will be pretty, shiny, and full of cheesy fake marble, but it will wash away to the sea. In time even OPEC will accept Yuan for oil payments, a forecast made two years ago.

China & Brazil make further progress to sidestep the USDollar in trade, as China establishes its global swap facility for trade with other nations. Given China’s primary role in global trade, and the sour sentiment by exporters, the USDollar will gradually lose status for international settlements. Their bilateral trade pact announced is coming to fruition, as platforms are being built. The development has been blessed from the high priests at the Bank For Intl Settlements, something the US-UK bankers must be very bothered to observe. At the BIS offices in Basel Switzerland, China’s central bank governor Zhou Xiaochuan and Brazil’s Central Bank president Henrique Meirelles heralded progress of the bilateral deal at the meeting. Zhou revealed plans to directly use of Yuan currency with Brazil instead of the global swap facility. Brazil needs more integrated development. The largest nation in South America (population 190 million) needs capital formation, needs development of delivery systems for transportation, and especially needs the enormous exploration & production facilities constructed for the gigantic Tumi oil & gas project. Watch China gobble up the majority of the Tumi energy output, and cut out the Americans, whose relations have not been cultivated with Latin America. US leaders are too pre-occupied with oil in Iraq and heroin in Afghanistan, the other strategic commodities.

The Yuan currency swap venture will continue for China. The Peoples Bank of China has arranged six bilateral currency swaps in large volume. They currently total 650 billion Yuan (=US$95 billion) since December with Malaysia, Argentina, Hong Kong, and several European nations. The facility acts like an Import-Export Bank. Under the arrangements, a counter-party center can lend the Yuan provided by the PBOC to domestic commercial entities toward pay for imports. Chinese exporters are thus paid in their own currency, eliminating exchange rate risks and reducing the cost of fund transfers. Thus the bypass of the US$ in settlements.

PLAYING THE I.M.F. ANGLE

China plays the I.M.F. & Western bankers like a fiddle, lining up a grand gold purchase off-market. The real story is the opposite of the official story of an IMF gold dump. China continues to threaten the establishment, forcing a reaction, even exploiting political leverage. China, by announcing its increased gold reserves from 600 to 1054 tonnes, has indirectly given open cannon warning to the USTreasurys in order to obtain a mountain of IMF gold as booty. Itself low on funds, the Intl Monetary Fund finally approved the transfer of $13 billion in gold bullion in exchange for various crappy paper owned by China, probably USTreasurys and USAgency Mortgage Bonds. Choosing the lower labor intensive route, using the global banker windows, China will acquire 400 more tonnes of gold. Refusal would have meant purchase of gold in the open market, an option still open to them. The IMF will hold more USTBond confetti and less gold. One must wonder if no more gigantic gold sales can be designed from large vaulted supplies. The last large available quantity has been jacked.

SECRECY & THE INSIDER TRADE

Bank holiday plan execution must be kept as surprise, since reactive preparations undermine the impact of the vast theft planned, both overt (from devaluations) and hidden (from stolen accounts). Those who wait to take action lose all opportunity to benefit, and will surely lose significantly. The major central banks are very likely accumulating gold bullion on a net basis. Surely the Chinese, Russians, and Arabs are. If a planned US bank system shutdown occurs, its powerful effect would be muted by publicity of an unfolding, hence reducing insider profit potential. The pristine pure-bred Ruling Elite would be forced to share benefits with unwashed unworthy Plebeians. People would remove deposits from banks likely to be gobbled by Wall Street zombies, as withdrawals could later be limited. People would transfer money out of the USDollar and into the Euro or Gold or Oil, before a grand US$ devaluation occurs. Next comes the threat of capital controls, limiting currency transfers across the border. The insider trade of the century will likely remain within the domain of the big bankers and other predators who have succeeded in looting the wealth of the nation. If word of the plan spreads, then people can prepare and take defensive action. No opportunity will be afforded those who wait until the news breaks. They will be subjected to different price structure on assets, perhaps a big quantum change, with the US$ lower, competing currencies higher, gold higher, and all commodities priced in US$ terms higher, led by crude oil and industrial metals. Pay little attention to formal denials, and those by the intellectual servant harlots. They have offered little truth or fair warning of crisis in the last several years. Prepare!!

DUE TO EMERGING NEW ECONOMY 25 THINGS ABOUT TO BECOME EXTINCT IN AMERICA

2009-07-24T11:31:00.000-07:00
Many of us can remember “candy stores” and dial-up internet,
even if we do not want to tell others. I found this information found below fascinating. For those of you in the classroom, Ask your students to predict what will also be disappearing from the landscape.

For those of you in foreign lands, is the same thing happening in the country where you live?

Can they predict: What will replace the newspaper, etc.? How will schools change?

25. U.S. Post Office
They are pricing themselves out of existence. With e-mail, and
and online services they are a relic of the past. (refer to #9)
Packages are also sent faster and cheaper with UPS.

24. Yellow Pages
This year will be pivotal for the global Yellow Pages industry.
Much like newspapers, print Yellow Pages will continue to bleed
dollars to their various digital counterparts, from Internet
Yellow Pages (IYPs), to local search engines and combination
search/listing services like Reach Local and Yodel Factors like20an
acceleration of the print ‘fade rate’ and the looming recession
will contribute to the onslaught. One research firm predicts the
falloff in usage of newspapers and print Yellow Pages could even
reach 10% this year — much higher than the 2%-3% fade rate seen
in past years.

23. Classified Ads
The Internet has made so many things obsolete that newspaper
classified ads might sound like just another trivial item on a
long list. But this is one of those harbingers of the future that
could signal the end of civilization, as we know it. The argument
is that if newspaper classifieds are replaced by free online
listings at sites like Craigslist.org and Google Base, then
newspapers are not far behind them.

22. Movie Rental Stores
While Netflix is looking up at the moment, Blockbuster keeps
closing store locations by the hundreds. It still has about 6,000
left across the world, but those keep dwindling and the stock is
down considerably in 2008, especially since the company gave up a
quest of Circuit City. Movie Gallery, which owned the Hollywood
Video brand, closed up shop earlier this year. Countless small
video chains and mom-and-pop stores have given up the ghost
already.

21. Dial-up Internet Access
Dial-up connections have fallen from 40% in 2001 to 10% in 2008.
The combination of an infrastructure to accommodate affordable
high speed Internet connections and the disappearing home phone
have all but pounded the final nail in the coffin of dial-up
Internet access.

20. Phone Landlines
According to a survey from the National Center for Health
Statistics, at the end of 2007, nearly one in six homes was
cell-only and, of those homes that had landlines, one in eight
only received calls on their cells.

19. Chesapeake Bay Blue Crabs
Maryland’s icon, the blue crab, has been fading away in Chesapeake
Bay. Last year Maryland saw the lowest harvest (22 million pounds)
since 1945. Just four decades ago the bay produced 96 million
pounds. The population is down 70% since 1990, when they first did
a formal count. There are only about 120 million crabs in the bay
and they think they need 200 million for a sustainable population.
Over-fishing, pollution, invasive species and global warming get
the blame.

18. VCRs
For the better part of three decades, the VCR was a best-seller
and staple in every American household until being completely
decimated by the DVD, and now the Digital Video Recorder (DVR). In
fact, the only remnants of the VHS age at your local Wal-Mart or
Radio Shack are blank VHS tapes these days. Pre-recorded VHS tapes
are largely gone and VHS decks are practically nowhere to be
found. They served us so well.

17. Ash Trees
In the late 1990s, a pretty, iridescent green species of beetle,
now known as the emerald ash borer, hitched a ride to North
America with ash wood products imported from eastern Asia. In less
than a decade, its larvae have killed millions of trees in the
Midwest, and continue to spread. They’ve killed more than 30
million ash trees in southeastern Michigan alone, with tens of
millions more lost in Ohio and Indiana. More than 7.5 billion ash
trees are currently at risk.

16. Ham Radio
Amateur radio operators enjoy personal (and often worldwide)
wireless communications with each other and are able to support
their communities with emergency and disaster communications if
necessary, while increasing their personal knowledge of
electronics and radio theory. However, proliferation of the
Internet and its popularity among youth has caused the decline of
amateur radio. In the past five years alone, the number of people
holding active ham radio licenses has dropped by 50,000, even
though Morse Code is no longer a requirement.

15. The Swimming Hole
Thanks to our litigious society, swimming holes are becoming a
thing of the past. ‘20/20′ reports that swimming hole owners, like
Robert Every in High Falls, NY, are shutting them down out of
worry that if someone gets hurt they’ll sue. And that’s exactly
what happened in Seattle. The city of Bellingham was sued by Katie
Hofstetter who was paralyzed in a fall at a popular swimming hole
in Whatcom Falls Park. As injuries occur and lawsuits follow,
expect more swimming holes to post ‘Keep out!’ signs.

14. Answering Machines
The increasing disappearance of answering machines is directly
tied to No 20 our list — the decline of landlines. According to
USA Today, the number of homes that only use cell phones jumped
159% between 2004 and 2007. It has been particularly bad in New
York; since 2000, landline usage has dropped 55%. It’s logical
that as cell phones rise, many of them replacing traditional
landlines, that there will be fewer answering machines.

13. Cameras That Use Film
It doesn’t require a statistician to prove the rapid disappearance
of the film camera in America. Just look to companies like Nikon,
the professional’s choice for quality camera equipment. In 2006,
it announced that it would stop making film cameras, pointing to
the shrinking market — only 3% of its sales in 2005, compared to
75% of sales from digital cameras and equipment.

12. Incandescent Bulbs
Before a few years ago, the standard 60-watt (or, yikes, 100-watt)
bulb was the mainstay of every U.S. home. With the green movement
and all-things-sustainable-energy crowd, the Compact Fluorescent
Lightbulb (CFL) is largely replacing the older, Edison-era
incandescent bulb. The EPA reports that 2007 sales for Energy Star
CFLs nearly doubled from 2006, and these sales accounted for
approximately 20 percent of the U.S. light bulb market. And
according to USA Today, a new energy bill plans to phase out
incandescent bulbs in the next four to 12 years.

11. Stand-Alone Bowling Alleys
BowlingBalls. US claims there are still 60 million Americans who
bowl at least once a year, but many are not bowling in stand-alone
bowling alleys. Today most new bowling alleys are part of
facilities for all types or recreation including laser tag,
go-karts, bumper cars, video game arcades, climbing walls and glow
miniature golf. Bowling lanes also have been added to many
non-traditional venues such as adult communities, hotels and
resorts, and gambling casinos.

10. The Milkman
According to the U.S. Department of Agriculture, in 1950, over
half of the milk delivered was to the home in quart bottles, by
1963, it was about a third and by 2001, it represented only 0.4%
percent. Nowadays most milk is sold through supermarkets in gallon
jugs. The steady decline in home-delivered milk is blamed, of
course, on the rise of the supermarket, better home refrigeration
and longer-lasting milk. Although some milkmen still make the
rounds in pockets of the U.S., 0A they are certainly a dying breed.

9. Hand-Written Letters
In 2006, the Radicati Group estimated that, worldwide, 183 billion
e-mails were sent each day. Two million each second. By November
of 2007, an estimated 3.3 billion Earthlings owned cell phones,
and 80% of the world’s population had access to cell phone
coverage. In 2004, half-a-trillion text messages were sent, and
the number has no doubt increased exponentially since then. So
where amongst this gorge of gabble is there room for the elegant,
polite hand-written letter?

8. Wild Horses
It is estimated that 100 years ago, as many as two million horses
were roaming free within the United States. In 2001, National
Geographic News estimated that the wild horse population had
decreased to about 50,000 head. Currently, the National Wild Horse
and Burro Advisory board states that there are 32,000 free roaming
horses in ten Western states, with half of them residing in
Nevada. The Bureau of Land Management is seeking to reduce the
total number of free range horses to 27,000, possibly by selective
euthanasia.

7. Personal Checks
According to an American Bankers Assoc. report, a net 23% of
consumers plan to decrease their use of checks over the next two
years, while a net 14% plan to increase their use of PIN debit.
Bill payment remains the last stronghold of paper-based
payments — for the time being. Checks continue to be the most
commonly used bill payment method, with 71% of consumers paying at
least one recurring bill per month by writing a check. However,
a bill-by-bill basis, checks account for only 49% of consumers’
recurring bill payments (down from 72% in 2001 and 60% in 2003).

6. Drive-in Theaters
During the peak in 1958, there were more than 4,000 drive-in
theaters in this country, but in 2007 only 405 drive-ins were
still operating. Exactly zero new drive-ins have been built since
2005. Only one reopened in 2005 and five reopened in 2006, so
there isn’t much of a movement toward reviving the closed ones.

5. Mumps & Measles
Despite what’s been in the news lately, the measles and mumps
actually, truly are disappearing from the United States. In 1964,
212,000 cases of mumps were reported in the U.S. By 1983, this
figure had dropped to 3,000, thanks to a vigorous vaccination
program. Prior to the introduction of the measles vaccine,
approximately half a million cases of measles were reported in the
U.S. annually, resulting in 450 deaths. In 2005, only 66 cases
were recorded.

4. Honey Bees
Perhaps nothing on our list of disappearing America is so dire;
plummeting so enormously; and so necessary to the survival of our
food supply as the honey bee. Very scary. ‘Colony Collapse
Disorder,’ or CCD, has spread throughout the U.S. and Europe over
the past few years, wiping out 50% to 90% of the colonies of many
beekeepers — and along with it, their livelihood.

3. News Magazines and TV News
While the TV evening newscasts haven’t gone anywhere over the last
several decades, their audiences have. In 1984, in a story about
the diminishing returns of the evening news, the New York Times
reported that all three network evening-news programs combined had
only 40.9 million viewers. Fast forward to 2008, and what they have today is half that.

2. Analog TV
According to the Consumer Electronics Association, 85% of homes in the U.S. get their television programming through cable or satellite providers. For the remaining 15% — or 13 million individuals –
who are using rabbit ears or a large outdoor antenna to get their local stations,
change is in the air. If you are one of these people you’ll need to get a new TV or a converter box in order to get the new stations which will only be broadcast in digital.

1. The Family Farm
Since the 1930s, the number of family farms has been declining
rapidly. According to the USDA, 5.3 million farms dotted the
nation in 1950, but this number had declined to 2.1 million by the 2003 farm census
(data from the 2007 census hasn’t yet been published).
Ninety-one percent of the U.S. FARMS are small Family Farms.

Commercial Real Estate - A looming crisis just around the corner

2009-07-23T22:55:00.000-07:00
Jeff DeBoer, CEO of The Real Estate Roundtable, on the looming crisis that awaits commercial real estate.

World Prepares to Dump the Dollar

2009-07-23T02:25:00.001-07:00
What do China, India, Brazil, Russia, France and Germany have in common? These countries most often can’t agree on anything. But they are united in one strange—and ominous—way. They blame the United States for wrecking the global economy. And they think the dollar is the wrecking ball.

One rock-solid, foundational belief underpins almost all economic theory in America: faith in the dollar’s unassailable status as the world’s reserve currency. Foreigners hold so many dollars that they can’t afford to stop buying them, the theory goes. Therefore the dollar’s status as the world’s reserve currency is sound. But the dollar is now coming under a concentrated attack. Are American economists about to get schooled?

Angela Merkel summed up the dollar-skeptic viewpoint last year. “Excessively cheap money in the U.S. was a driver of today’s crisis,” she told the German parliament. And America’s solution—even more cheap money—was just setting the world up for another crisis, she said. It was just a matter of time.

The irony is that America is completely blind to the catastrophe heading its way. As the economic crisis unfolded at the end of last year, investors made a mad rush out of global stock markets and into other assets. The biggest beneficiary of the panic was the one market large enough and liquid enough to handle the trillions of dollars being moved: the U.S. dollar market. This caused the dollar to surge in value.

America grossly misdiagnosed the demand for dollars as a vote of confidence in the U.S. economic system. In fact, it was primarily a case of investors looking for a place they could quickly and easily get their money in—and out.

Now that the initial panic has subsided, the dollar’s international purchasing power has resumed its former downward trajectory. Since the post-crisis high in March, the dollar has fallen by a portfolio-shredding 10 percent.

America’s foreign creditors are again questioning the wisdom of holding so many U.S. dollars. And they’re looking for a way out.

“Leaders from Brazil, Russia, India and China are demanding a greater stake in the management of the global economy and challenging the dollar as the primary denomination for world reserves,” reported Bloomberg about the recent G-8 summit.

But is dumping the dollar just wishful thinking on the part of these nations? Or is there some tangible alternative? Well, how about this: Some think they’ve already minted a dollar-killer.

Russia’s president is pushing to remove the dollar and reinstate some version of a gold standard. Dmitry Medvedev unveiled a newly minted gold bullion coin that he said was a true “symbol of unity,” and “our desire to solve such issues.” It was a test sample of a new supranational currency referred to as the United Future World Currency. Samples were issued to each of the world leaders attending the G-8 summit.

“We are discussing the creation or, to be more correct, the appearance of new reserve currencies,” said Medvedev.

What is even more surprising is that the dollar assaults have come not only from perennial U.S. antagonists but also from its more democratic allies. At the G-8 summit, French President Nicolas Sarkozy called for a complete revamp of the global currency system, saying that the dollar’s supremacy is outdated. “[W]e’ve still got the Bretton Woods system of 1945,” Sarkozy stated on July 9. “Frankly, 60 years afterwards, we’ve got to ask: Shouldn’t a politically multipolar world correspond to an economically multi-currency world?”

Bretton Woods was the historic conference that laid the foundation for a postwar global economy centered on the dollar. “Even if it’s a difficult topic,” Sarkozy said, “There has to be a debate.” “Debate” about Bretton Woods is flowery code for an attack on the dollar.

India too seems to be moving into the anti-dollar camp. Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, is urging the government to diversify its foreign-exchange reserves and hold fewer dollars. India holds over $250 billion worth.
But the next blow to the dollar may come as a complete surprise to Washington policymakers. Since World War ii, Japan has been a stalwart dollar supporter and a close collaborator with Federal Reserve monetary policy. That may be about to end. For only the second time in 54 years, the opposition in Japan is close to taking over the government. Japan’s economy, like those of the rest of the world, is in severe contraction, and disgruntled voters are upsetting the balance of power and pushing for radical reforms.

Back in May, Masaharu Nakagawa, the chief finance spokesman for the opposition, told the bbc that he was worried about the future value of the dollar. He said that if his party were elected in the upcoming national elections, Japan would refuse to purchase any more U.S. treasuries unless they were denominated in Japanese yen instead of dollars.

Such a decision could break the U.S. dollar bond market.

Japan is America’s second-most important creditor nation—lending the U.S. billions of dollars each year. If Japan won’t lend unless America pays it back in yen, then China and other major lenders may quickly follow suit. This would eliminate America’s ability to use inflation to cheat on its debt payments. America’s debt burden would soar, interest rates would jump, and national default—Argentina-style—could be staring America in the face within months instead of years.

“America is making a terrible mistake which will result in the greatest fall in all of mankind’s history!” Tim Thompson wrote for the Trumpet in 2000. “As soon as America is no longer a safe place for foreign money, that money will be gone. And once the foreign money is gone, it will leave us with a mountain of debt that we cannot repay.”

What Japan is proposing could be the first steps of a great exodus from the U.S. bond market and consequently the end of the dollar as the world’s reserve currency.

America’s leaders seem blind to the looming dollar revolt. Global economies are in crisis. Unemployment rolls are soaring. People want answers and solutions. The jobless will demand action, and culpable politicians will look for scapegoats and distractions. The first step, blaming the U.S. and its currency for the global recession, has already begun.

A new global currency—and leveraging it to knock the U.S. down—will be the solution.

The highly trained economic theorists who keep telling us that foreigners can’t afford to stop supporting the U.S. are about to get reeducated at Reality U.

Dollar Finally Breaking Down

2009-07-21T15:13:00.000-07:00
WARNING: This is not a recommendation to buy, sell or hold any financial instrument.

After several weeks of sideways slop, the USDX is finally falling over. While it still needs to clear a couple of lows to the downside to really build some momentum, I thought I’d provide a big picture look at the challenges ahead for dollar shorts and gold longs.

In summary: If the dollar takes this leg down, don’t get too happy just yet. While there’s some decent money to be made between here and the low 70s, I’d get really flat around 71 on the USDX. The nightmare scenario is that gold closes in on $1032, but doesn’t clear it, and then USDX somehow bounces around 71. Strong pivots off these levels would be an “oh shit” moment for gold longs (double top) and dollar bears (double bottom).

I’m not saying that gold is going to double top and that the dollar is going to double bottom, but that’s a very possible scenario for gold longs and dollar shorts. The Them must keep gold under $1032 and the USDX above 70.792. Those are probably “THE” technical support and resistance levels of a generation. Those silly numbers mark out the lines between condition yellow and condition red in the international economic system. The people who run the show will do anything to keep those numbers intact. Nothing—and I mean nothing—will of off the table if USDX gets down around 71 again.

As usual, I won’t be selling even one gram of gold. However, I might consider buying some puts on GLD as a hedge if we approach the event horizon of $1032/70.792.

I’ll start monitoring the data very closely if we get near “THE” numbers. I can tell you now, the thing to look for will be divergence patterns on indicators such as slow stochastic, RSI and MACD in the daily and longer intraday periods. Perhaps, either gold or the dollar will lead the way through the corresponding critical level, giving us a hint as to what the other is going to.

The next few months are going to be extremely interesting.

Link

Europe on the Brink - Green shoot - Recovery - yada yada yada

2009-07-20T12:03:00.000-07:00

We have avoided Armageddon, at least for now. The cost to the US taxpayer
has been a few trillion. Some in the media are loudly announcing the end of
the recession. But we are not out of the woods yet. There are a few more bumps
in the road. Actually, some of them are quite steep hills. As big as the subprime
problem? Maybe.

When asked a few weeks ago what was my biggest short-term concern, I quickly
replied, "European banks have the potential to create significant risk for
the entire worldwide system." This week we will glance "over the pond" to see
what gives me cause for concern. Then we briefly look at a few of the bumps
I mentioned, which are likely to stretch out any recovery, and maybe even dip
us back into recession.

But first, a quick announcement. We are making dramatic changes to my free
Accredited Investor E-Letter and service, and will have a new web site and
much improved content in a month or so. But in the meantime, I have just finished
a new letter; and if you sign up at the current site, you will of course get
all the new services and benefits when we make the changes, as well as this
new letter. Basically, this service is for accredited investors (net worth
of $1.5 million or more) who are interested in learning more about and investing
in alternative funds like hedge funds, commodity funds, and so on. You will
get a call from one of my worldwide partners (Altegris Investments in the US,
Absolute Return Partners in Europe, Nicola Asset Management in Canada, Plexus
Asset Management in Africa, and Fynn Capital in Latin America) and gain access
to a lot of information and an easy way to preview what I think is a great
line-up of quality funds and managers. You can go to http://www.accreditedinvestor.ws/ and
sign up today. Don't procrastinate!
And for those of you in the US who are on your way to becoming accredited investors (but not there yet), my friends at CMG have a platform of alternative managers that can be tailored to your specific needs. You really owe it to yourself to see the managers on their platform. The link to their form is http://www.cmgfunds.net/public/mauldin_questionnaire.asp.
And now, let's jump into the letter.
Europe on the Brink
Globalization is a two-edged sword. On balance, it has brought prosperity to those who have embraced it, with rising lifestyles, better health, longer lives, and more. The more we need each other, the less likely it is that we'll
shoot each other. Shooting your customers is not a good business strategy.
And while the growth has not been even or smooth, only a Luddite would want
to return to the early 1800s or 1900s, or even 1975.

The other edge of that sword? We are connected in so very many ways, far more than most of the world suspected. Who thought that insane lending policies
at US mortgage banks would bring the world financial system to its knees, increasing
unemployment and leading to a global recession? World trade is down 20% or
more. US railroad shipments are down more than 20% year-over-year. Chinese
(and Asian) factories have seen their orders drop, as US consumers have gone
on strike. The US trade deficit was just $25 billion last month; and while
our exports are still dropping, our imports are dropping more. Oil is becoming
a bigger and bigger share of imports, and that does not come from Asian exporters.

The US is far and away the country with the largest gross domestic product
(GDP). California would be the 7th largest country, but few think of California
in such terms. For this letter, at least, I would like to think of Europe as
a whole rather than as 27 countries. From that perspective, Europe is as economically
important to the world as the US. What happens in Europe makes a difference
in the US.

Last week we looked at the precarious position of Japan, the second largest
economy (or third if you think of Europe as a whole). It was a sobering letter.
When you realize the extent to which Japan has funded Asian expansion, what
is happening there cannot be good for the world.

But Europe's banks have been much more aggressive in funding emerging-market
expansion than US or Japanese banks. Western European banks have lent $4.5
trillion to various emerging-market countries, businesses, and consumers. Many
Eastern European businesses borrowed in low-interest-rate euros. New homeowners
in Hungary and the rest of Eastern Europe borrowed in Swiss francs and euros,
and as their currencies have collapsed they now find they owe more on their
homes than they're worth.

And here's the problem. Europe's banking system is in far worse shape than
the US system. The losses may be bigger, and their capital to meet those losses
is certainly less. Let's look at some charts. Remove sharp objects or pour
another adult beverage.

As I noted last week, one of the real benefits of writing this letter is that
I get to see a lot of really interesting information from readers and meet
with very savvy investment professionals. I recently had the privilege of sitting
with a team of analysts from Hayman Capital here in Dallas. Hayman runs a global
macro hedge fund, so they spend a lot of time thinking about how all the different
aspects of the global markets fit together. This week we again look at some
of their analysis. There was a lot of work (as in months) done here; and Kyle
Bass, the founder of the firm, graciously allowed me to share some of it with
you (and kudos to Wes Swank, who pulled this together). The graphs are theirs,
and my discussion about them is certainly informed by our meeting; but I am
using the material as a launching point, so they are not responsible for my
conclusions and interpretations.

And Then There Was Leverage
In the first few years of the G.W. Bush administration, the banking authorities
decided it would be OK to allow five banks to increase their leverage from
12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch,
JPMorgan, and Goldman Sachs. How did that work out, just five years later?
Three are gone and two survived with large dollops of taxpayer money.
(Sidebar: Is it really any surprise that Goldman and JPMorgan are making record
profits on the underwriting and trading side of the business? Hell, if I could
eliminate 50% of my competition, my profits would grow too! JPMorgan's consumer
credit, credit card, and other business groups are losing money big-time.)

Thirty times leverage means that if you lose 3.3%, you wipe out all your capital.
And we watched as banks too big to fail were bailed out with taxpayer dollars.
Slowly, banks are buying time, writing down assets. Remember, this month is
the second anniversary of the onset of the credit crisis. I wrote back then
that the strategy would be to stretch this out as long as possible. Time heals
a lot of bad debts, especially at a 0% Fed Funds rate.
Banks that are reporting so far this quarter seem to be saying that the write-offs
will start to level off in about two quarters, although banking expert Chris
Whalen says that the level may stay higher than we think for longer than we
think. There are a lot of assets to write off, and they are just now getting
to the commercial real estate problems. This is going to take time. (For an
interesting interview on CNBC with Maine fishing buddy Chris Whalen, click
here: http://www.ritholtz.com/blog/2009/07/christopher-whalen-banking/.)

The point, before we get to Europe, is that here there was a central bank
and a government that not only could step in but was willing to. I know former
Treasury Secretary Paulson had his critics, but I am not one of them. Did he
do some things that in hindsight he might like to take a "mulligan" on? Sure.
But he dealt with the problems in the best manner he could. The time to have
taken action was when we were making liar and no-doc loans and calling then
AAA, or allowing banks to go to 30:1 leverage. Paulson had to deal with eggs
that were already broken. That the system did not crater is to his credit.
Securitizing what he and everyone else should have known would be garbage while
he was head of Goldman Sachs is not to his credit. But I digress.
I am going to give you four charts showing the leverage of banks in the US,
the United Kingdom, the Eurozone, and Switzerland. The bottom, blue portion
is assets to common and preferred stock; the red is assets to common equity,
which can include good will; and the purple is assets to tangible common equity.

Tangible common equity is all the rage, and that is what the recent "stress
tests" measured, as opposed to tier 1 capital, which includes preferred stock
(which would basically be the blue portion.) TCE only includes common shares.
Now, let's start with the US. These graphs show leverage. The average leverage
of tier 1 capital of the five largest banks is in the range of 12:1, and is
actually down from ten years ago. (By the way, a very good and simple explanation
of all this can be found at http://baselinescenario.com/2009/02/24/tangible-common-equity-for-beginners/.)

While the TCE has obviously been rising and taking total leverage to rather
lofty levels in the mid-40s, banks are raising capital, and over time leverage
will come back down. It helps if you can borrow money at almost nothing and
lend it out at much higher rates. Now, let's turn to the United Kingdom. This
is uglier.

Regulators in the UK allowed 20:1 leverage on a regular basis. It is now almost
40: and with TCE is around 55. The assets of UK banks are about five times
as large as UK GDP. By comparison, for the US the ratio is barely 2:1.
Think about that for a second. The UK has banking assets which are five times
as large as the annual domestic output of the country. They also had a housing
bubble. They have their own bailouts to deal with, which are massive and will
potentially get much larger. But at least they have a central bank and government
that can try to fix the problems.
But as the commercial says, "But wait, there's more!" Let's look at the
Eurozone.

Leverage is now 35:1 and with TCE is almost 55. How did 35:1 work out for
the US? Given the massive credit problems that Eurozone banks have with emerging
markets (plus Spain's housing bubble, which is every bit as bad as that of
the US), will this not end up in wailing and weeping?

Too Big To Save

And here's the real issue. They have no Paulson and Bernanke. Now some of
my Austrian-economist friends will say, "Good, they should all be allowed to
die;" but that is a very cavalier attitude when you start talking about actually
increasing the unemployment rate to something like 20%. I agree that management
should be changed (as well as the regulators: 35:1 to 1 - really? What were
they thinking?) and shareholders wiped out, but I do not want the system to
collapse. And this is a global risk, not just localized to Ireland or Spain
or Austria. Sure, the pain might be worse in the local region, but we will
all feel it.

The European Central Bank, at least as of now, cannot step in and start saving
individual banks. How do you save a Spanish bank and not an Austrian bank?
Austria's banks have made large loans to Eastern Europe, in euros and Swiss
francs, and are going to have large losses, far more than 3%, which would wipe
out their capital. But bank assets in Austria are 4 times GDP. What we have
are banks that are too big to save for relatively small Austria. And for Italy,
Spain, Greece, et al. More on this below. For now, let's turn our eyes to Switzerland.

Those Wild and Crazy Swiss

We think of Switzerland as a stodgy, by-the-numbers, clockwork type of banking
country. I have done business with Swiss private bankers, and they are conservative.
But somewhere, somehow, UBS and Credit Suisse ran up a little leverage. Before
the crisis, they were over 40:1. And now they're nearly at a nosebleed-high
70!

As an aside, I was in Switzerland about two years ago, meeting with some very
well-known Swiss, let's call them dignitaries. In a very off-the-record conversation,
they told me UBS was technically bankrupt. As it turns out, there were a lot
of banks around the world that were technically bankrupt.
Now, the next graph underscores the problem of "too big to save." Let's say
the US will eventually pump $1 trillion into the banking system (in taxpayer
losses). That is about 7% of US GDP. We may not like it, but it doesn't stop
the game. US bank assets are only twice US GDP. Switzerland and Ireland are
over 7 times, the UK is over 5, and the Eurozone is at 4 times. And so it goes.

Eurozone banks are already reeling from losses from US subprime-related problems.
They are now getting ready to deal with even deeper losses from their own lending
portfolios. If the losses were just 5% of the portfolio (an optimistic assumption),
it would be 20% of Eurozone GDP. But each country is responsible for its own
banks. While it is thought Germany will be able to handle its problems, the
prognostication for Austria and Italy is not so sanguine. Italy is already
running a massive deficit, and has no central bank to monetize its debt. The
same goes for Portugal, Spain, Greece, and Ireland. 5% loan losses in Ireland
would be 40% of GDP, the equivalent for my fellow US citizens of about $5 trillion.
Where does Europe find a few trillion dollars?

I was writing in late 2006 that the subprime lending market would end in tears.
And I think the European banking crisis that is on the horizon has the potential
to be every bit as big a problem as subprime loans. The world depended on Europeans
banks for much of the lending that allowed for growth and development. Like
their counterparts in the US, they are going to have to reduce their loan portfolios.
Deleveraging is not fun.

It takes time to build up a banking infrastructure that can raise the capital
necessary to make and process loans. A lot of time. Europe is a big customer
of the US and Asia. Their businesses are going to be hit hard by the lack of
capital, which is of course no good for employment, etc. We are all connected.
What happens in Rome no longer stays in Rome.
Let me reprint a graph from last week. Burn it into your mind. The world is
going to need to find $5 trillion to finance government debt issuance. And
we need to fund private business and consumer debt. Where is all this money
going to come from? "If you lend me $5 trillion today, I will gladly repay
you Tuesday."

A Positive Third Quarter?

Those who are calling for the end of the recession are shouting that the third
quarter may be positive in terms of GDP. And that is possible. But only for
statistical and not for fundamental reasons. For instance, lower imports are
a net positive for GDP. But lower imports mean a weaker economy. Government
spending adds to GDP. Normally, if the government spends too much, then we
get inflation, which is subtracted from nominal GDP to give us real (after-inflation)
GDP. But inflation is low and getting lower, so there is not going to be much
to subtract from nominal GDP. Are government spending and massive deficits
a sign of fundamental strength?

It is quite usual for there to be a positive quarter in the middle of a recession.
Watch the fundamentals: industrial production, unemployment, capacity utilization,
tax receipts, etc. When those turn up, or at least level off, the recession
is over. Then we get to the long recovery.

Quick point. As I have noted, unemployment is at 9.5% and going to 11% and
hopefully no higher. Average hours worked per week is at an all-time low. The
number of people working part-time but wanting full-time work is another 7%!
And that part-time number is rising very rapidly.
When the recovery actually does begin to manifest itself, and it eventually
will as we find the New Normal, what do you think employers are going to do?
Hire new workers? Or give their current employees more hours? The latter, of
course. This is going to be a long, slow, painful, jobless recovery. Unemployment
is going to remain stubbornly high.

And this Congress wants to raise taxes on small business. 75% of the "rich" are
small businesses. How do you expand your business in California or New York,
where taxes will be over 60% by the time you add in local taxes? We will talk
about this next week; but as a preview, from an economic viewpoint, massively
raising taxes in the middle of a recession is about as dumb as you can get.
But it looks like we are headed there. Green shoots, my foot.

New York and Maine

I'll head to Maine in early August with youngest son Trey to fish with my
friends and talk economics. Meanwhile, # 2 daughter Melissa will soon have
to have her gall bladder removed. Amanda gets married next month. Two more
grandchildren (in addition to the one I had last month) in the next five months.
Watching #2 son struggle with a budding family, and getting fewer hours as
even the health-care business slows down. UPS is giving #1 son fewer hours
than he needs. Life is always interesting with seven kids.

I can remember really struggling as a young entrepreneur in my 20s and 30s.
There were many nights I couldn't sleep as I worried about payroll or a bill
coming due. No one gave me a course in basic business. I had to learn it "on-the-job," as they say. It wasn't always pretty. It was a struggle starting out in the '70s, but you got up every morning and did your best. It was not easy. And now, I
watch my kids do the same thing. It is a struggle for them, too. It is a reminder
how just lucky I am. I truly feel I am one of the most blessed of men.
Have a great week, and remember that the world will not come to an end. It
is important to find the good in life and enjoy it, even in the midst of the
fight. Somehow, we will all figure out how to Muddle Through together.
Link

US Postal service about to issue IOU

2009-07-19T19:50:00.000-07:00
Excerpt: "Its top executives are now saying that the USPS will default on a $5.4 billion payment to prefund future retiree health benefits on September 30, 2009. And its government affairs representatives are now telling Congressional staff that the Postal Service may not be able to make payroll in October and will be forced to issue IOUs instead."

(APWU removed the letter from their website, but here is the saved copy.)

Download from Federal Times

Dr Marc Faber expect total market collapse soon

2009-07-19T14:19:00.000-07:00
after saying CNBC host get him off quickly, weird

Swiss Banks Running Out of Gold Storage Space As Nations Seek Safe Harbor Against Hyperinflation

2009-07-18T11:08:00.000-07:00
Another indicator for emergence of new economy as run on the dollar continue.

In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions. Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment – and in gold in particular, and in the necessary secure storage space in which to hold it..

One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold. The Zurich Kantonal bank put this down to the success of its gold ETF.

The website reports another Swiss investment banker despairing “We have the need to store more gold for our clients but are finding it difficult to find secure storage facilities”. Gold storage makes high demands on security which is what is making the gold holding task more difficult. Few banks will divulge exactly where their gold is stored for security reasons.

Another banker reported that his bank still had space but that it is beginning to run out.

Some of the problems are being handled by improving the storage systems in existing space. As one banker commented “A 12.5 kilo gold bar only occupies about the same amount of space as a tetrapak of milk”.

While the big U.S. based ETF, the SPDR Gold Trust has recently seen a relatively small decline in its gold holdings with some investors seeking better returns in the markets, the ever-cautious Swiss seem to be seeing continuing growth in locally managed ETFs. A recent report noted that Swiss Bank, Julius Baer, for example, was still seeing a 3.3% growth in its gold ETF in the current week. And even though the Swiss Central Bank has been selling gold via the Central Bank Gold Agreement, it still holds 38% of its foreign exchange reserves in the yellow metal.

Currency Crisis - The Yuan to go Global and Soon! Gold will Rise

2009-07-17T16:25:00.001-07:00
Suddenly the pressure from China to change the world’s monetary order is pressing. At the G-8 meeting, China asked for the forum to debate proposals for a new global reserve currency! They were largely ignored! China’s rising presence in the global economy [$2 trillion reserves now] and the threatening weakness of the dollar is prompting China to act in this way and with speed. Not only the Chinese but the French, Finance Minister and Central Bank President called for greater currency stability and a system to avoid piling up currency reserves as we see with the dollar. It is clear that more and more countries are objecting to the debasement of the U.S. dollar through trade deficits and quantitative easing.

In March, the People’s Bank of China Governor, Zhou Xiaochuan's proposed that the Special Drawing Right, a synthetic currency, [but one aimed at being a basket of the world’s most traded currencies] be used as an international reserve currency that's delinked from sovereign nations. The People's Bank of China reiterated this idea in its 2008 review. It said that, “the IMF should expand the functions of its unit of account, Special Drawing Rights”. The new reserve currency should be managed by the I.M.F., as well as for closer international supervision and scrutiny of “overly loose” U.S. financial and monetary policies. Any opposition to these proposals brings much uncertainty to the globe’s monetary system, a climate in which gold will rise strongly. Right now central bankers across the world are renewing the gold debate, should they hold more gold in the light of the dangers to the global monetary system?

Previous Chinese proposals on this subject were not welcomed at either the I.M.F. or in member nations of the Organization for Economic Cooperation and Development. Because the G-8 did not entertain the Chinese proposal and it essentially reaffirmed the US dollar’s status as a reserve currency, China is likely to act unilaterally on the matter, much to the detriment of stability in currency markets and future cooperation in global monetary reform. The boldness of these moves implies a sense of urgency by the Chinese. We believe that action will be seen on this front soon and suddenly.

The possibility of a sudden dollar devaluation prior to the end of 2009 will only make the Chinese act more forcefully a large positive for gold!

The Path to a Global Reserve Currency

The Yuan looks as though it will be fast tracked from a protected national currency to an international reserve currency with the first sprint to be completed in 2010. The pace will be dictated by two factors, firstly the pace at which the Chinese dictates and secondly by the I.M.F. schedule for the review of the composition of the S.D.R. in 2010. By that time the Yuan must have a heavy presence in international markets in at least Trade flows.

For the Yuan to move in large amounts, eventually as capital, it must be well used internationally and in such volumes that a large capital amounts can move through the currency markets without disturbing the Yuan exchange rate. This means that the Yuan must be readily available in large amounts in all the international markets that China wants to see the Yuan traded in. What does this imply?

China must release huge amounts of the Yuan into international markets between now and 2010. This would require following a similar route to the one taken by the U.S. dollar from 1971 onwards, which led to the dollar being the most sought after international currency. With the U.S. in control of the security of the biggest oil producing area in the world the lands surrounding the Persian Gulf they ensured that oil was priced in the U.S. dollar. This forced it into the coffers of every nation on earth. While China does not have the same leverage, it does sell the cheapest and most sought after manufactured goods everywhere. As Chinese expertise grows, their goods will take a larger and larger path into international markets. Until the rest of the world earns as little as Chinese workers do, the “China advantage” will assist in this growing international presence. The threat to the dollar is huge, because eventually in almost every transaction where the Yuan will be used, it will replace the U.S. dollar.

This will leave a growing amount of the U.S. dollar with nowhere to go but home. If this happens, forget rising interest rates, even in the face of inflation?

But will they price Chinese goods in the Yuan and change their pricing from the U.S. dollar? Yes, tentative steps are already being taken in this regard:

Currency Swaps: China has issued large tranches of Yuan “Swaps” to a few countries, including South America. This allows them to pay for Chinese goods in the Yuan, while China can add foreign currencies such as the Reis to their foreign exchange reserves. Like a movie being tested in a country town, the next step will be to go global.

Loans to foreign banks in Yuan: The main exit point for goods from China is via Hong Kong. Such loans are now being issued to Honk Kong Banks, where they can be closely monitored from China. Likewise these are trial runs to remove teething problems.

China uses Yuan through Hong Kong - for Trade only [at present].

Foreign banks will be able to buy or borrow Yuan from Chinese mainland lenders for the first time to settle trade in Hong Kong and Macau under a pilot scheme set up by the P.B.O.C. This is a prime step in the international use of the Yuan. The People's Bank of China, fill permit foreign banks to settle imports and exports in Yuan in Hong Kong and Macau and will allow them to buy Chinese currency from mainland banks within certain limits. The rules make clear that China will be checking to ensure that banks and companies do not try to use the pilot program to get round the country's capital controls. Exporters will be allowed to keep their Yuan earnings outside China. Chinese banks will also be allowed gradually to extend trade finance in Yuan to overseas companies, the PBOC said. The program will initially be piloted by about 440 firms in Shanghai and the southern province of Guangdong.

Chinese export firms involved in the trial will continue to qualify for export tax refunds.

Yes, this will increase the pressure on the Yuan to appreciate, but as we said above, China wants the Yuan to be an international currency by 2010 so it must push a huge quantity of them into foreign markets. This can be made to counter an excessive appreciation if enough Yuan are created. Additionally, we can be sure that in selling/loaning/swapping the Yuan, China will move to desist from accumulating more U.S. dollars than is required for U.S. trade. It will sell the Yuan for the currencies of its Trade partners across the world. This will stabilize or lower the Yuan exchange rate against these currencies, while placing some downward pressure on the U.S. dollar as its global reserve currency role wanes.

Eventually we expect even O.P.E.C. to accept Yuan in payment of oil!

The downward pressure on the dollar is inevitable and we believe such a depreciation has been accepted by the Chinese. The moves to resurrect the S.D.R. are part of this acceptance and an attempt to avoid the dollar’s depreciation. There will simply be far more U.S. dollars internationally than are needed, so the only way to avoid suffering from the dollar’s fall is to diversify, via the S.D.R. into other currencies. If China can replace the U.S. dollar with newly composed S.D.R.’s they can protect the buying power of their huge [$1.95 trillion] reserves, at least to some extent!

What will the U.S. do in the face of this? Will it act defensively ahead of this? Is a devaluation of the U.S. dollar about to happen? What will be the impact on the gold market and price? Will governments do something about gold ownership? We appear to be just ahead of major global currency market moves?

New Economy - Mythical or real one

2009-07-16T11:04:00.001-07:00
Can The Economy Recover?
Paul Craig Roberts

There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical "New Economy."

The "New Economy" was based on services. Its artificial life was fed by the Federal Reserve's artificially low interest rates, which produced a real estate bubble, and by "free market" financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.

The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans' wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.

And now suddenly Americans can't borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America's consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.

Meanwhile the US government's budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America's expensive war of aggression in Afghanistan and initiated a new war in Pakistan.

There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.

The US government's budget is 50% in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street's financial gangsterism, the world needs its own money and hasn't $2 trillion annually to lend to Washington.

As dollars are printed, the growing supply adds to the pressure on the dollar's role as reserve currency. Already America's largest creditor, China, is admonishing Washington to protect China's investment in US debt and lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring gold and stocks of raw materials and energy.

The price of one ounce gold coins is $1,000 despite efforts of the US government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of "the world's only superpower" is at hand?

And what will happen to America's ability to import not only oil, but also the manufactured goods on which it is import-dependent?

When the over-supplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer.

Nothing in Presidents Bush and Obama's economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a "bloody fortune" with US aid.

It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing - General Motors and Chrysler - that were bailed out. It was the Wall Street Banks.

According to Bloomberg.com, Goldman Sachs' current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.

This should tell even the most dimwitted patriot who "their" government represents.

The worst of the economic crisis has not yet hit. I don't mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their mortgage payments. Commercial real estate loans were also securitized and turned into derivatives.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government's bills and from the dollar's loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.

Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.

Nothing in Obama's economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama's policy, like Bush's before him, is keyed to the enrichment of Goldman Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money." Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.

Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.

Washington's Dilemma: This Isn't a Recession, It's a Collapse

2009-07-16T01:37:00.000-07:00
Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don’t force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot. Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.

In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance. Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.

The internal composition of the US economic and financial system when it hit 2007/8 was very different than in previous recessions, even the severe recession of 1980/82. It’s this internal composition that’s now determinative, to the outcome. The sawdust of debt, and the monetization of assets rather than the production of goods, continually came to define the internal composition of the system. The economy cannot, therefore, express the same kind of resilience it has done so often, since WW2.

This is the core problem of this collapse and why the prospect for recovery is dim. Americans can’t actually rebuild the savings that the banking system needs to escape from the current mess. Individually, Americans are trapped by debt and cannot spend. In The Seigniorage Curse, I explain that one of the primary mechanisms for the hollowing out of the American economy over many years was the dollar advantage, which at first was earned. And then, came to be un-earned. By the time the US reached the 21st century, our primary manufactured product was debt, and dollars. Is it any wonder that once that system collapsed, that we quickly gave up 100% of the phantom job growth that had been sitting on top of the debt bubble? The current level of employment in the United States has now returned to the levels of June 2000. Enough said.

Washington apparently has a fresh dilemma on its hands, just inside of 6 months after the new administration came to power. Clearly the economic team, even though they were given almost 18 months to study the nature of the current crisis (starting in the Summer of 2007), incorrectly judged this recession to be of the post-war variety. Is that any surprise?

Nothing in the public record since the year 2000 indicates that Larry Summers, Ben Bernanke, or Tim Geithner understood that we had been building a skyscraper of private sector debt in textbook blow-off style, since the deflation scare of 2001. Now, two years after FED repair operations began on the broken credit system, and over 3 years since US real estate topped in price, major portions of the country are staring at further home price declines in most major markets. Indeed, it appears that the same macro cycle of the last two Autumns is about to repeat, with more waves of foreclosure, more withdrawals from savings and investment to pay for living expenses, and the attendant bailouts of financial institutions that comes around each time.

Washington can’t really take a pass on this situation. If the federal government decides it can wait while “the states rebuild their balance sheets and clean up their payrolls” (as in past recessions) they’ll be waiting forever. None of that is underway.

It’s no surprise therefore that the country is already being prepped for a second stimulus. Sure, Washington would like to act tough and tell the States to clean up their act. This is the moral hectoring version of Ben Bernanke saying in 2006 he doubts US real estate will ever decline year over year, or Treasury Secty Paulson saying that the front-end of the crisis was just a problem contained to sub-prime. We’ve seen this script before. If California issuing IOUs in a state where banks refuse to accept them doesn’t get the message across, nothing will. We are on the front end, not the back end, of a crisis within the States.

Unless Washington prints up dollars and bails out the States, of what use is Washington? Exactly what services can Washington provide, if California is let go? Left on its own, there would no doubt come an initial hooray from rubber-neckers and I-Told-You-So-ers. A newly broken relationship between Washington and the states might also quicken the pulse of anti-federalists, who feel we are long overdue for a tip in the balance of power. Perhaps it would all work out well. For the best, even?

In Washington today the annual budget deficit crossed the one trillion mark. In Sacramento, there is a 26 billion dollar shotgun hole in their budget. (One hopes that CALPERS is marking to market, because if they’re not, that would be a new liability for Sacramento to deal with). Meanwhile, Autumn approaches and whole range of rather nasty choices looms over the school system. Imagine living in a prime area of California and watching your house decline by 40%, your household income knocked for an initial 30%, and the after-school programs and town services get cut. Now throw some fees and tax hikes on top of that mess. For the coup de grace, imagine California voters sitting down each night to another wave of bailouts from Washington to financial corporations. Under those circumstances it seems quite unlikely Washington can say no, to the States.

New Economy - Paid Internet - Yes it is coming

2009-07-14T22:36:00.000-07:00
The days of the free Internet will draw to a close over the next five years, according to the chairman and chief executive of IAC, the interactive services company which operates a collection of more than 30 Internet sites which produce $1.5 billion a year in revenue.

The only missing link, according to Barry Diller, who cut his teeth building up over-the-air and cable TV networks: a good billing system, akin to Amazon’s “one-click” button or the Apple iPhone’s slick downloading of paid applications.

“I absolutely believe the Internet is passing from its free days into a paid system. Inevitably, I promise you, it will be paid,” Diller said in a keynote discussion opening up the Advertising 2.0 conference held at his company’s futuristic glass building alongside the Hudson River in Manhattan. “Not every single thing, but anything of value. “

The fact that content and services on the Internet so far have been largely supplied for no charge is “an accident of historical moment that will be corrected,” he said, in an era of “creative chaos” that will span the next three to five years.

So far, news, content and service suppliers were “afraid of not being dinosaurs and slapped everything up on the Internet for free,’’ he said, in an interchange with BusinessWeek media columnist Jon Fine.

But, that will be change. The New York Times, for instance, likely will have to go beyond the “pay wall” in order to cover the cost of its worldwide reporting corps, even if it means having 1, 2 or 3 million paid subscribers, instead of 20 million unique visitors a month. And people will pay – if it is quality they’re buying.

“People have paid for content,’’ he said. “They always have.”

IAC’s Match.com, a dating service, already charges subscription fees. IAC also operates Ask.com, the search service, UrbanSpoon, one of those iPhone apps, Citysearch, a local information service, and The Daily Beast, a content site headed by former New Yorker editor Tina Brown.

Inevitably, Diller said, the “base model” of the Internet will be paid, at the end of the chaos. The forms will include not just subscriptions and individual one-time purchases, but rapid-fire micropayments and other mechanisms.

The early examples: Amazon’s “one-click” system, where a customer enters billing address and credit card information in advance. Then, a button on the screen for a shopping cart is pressed once and the purchase or purchases associated with that cart are confirmed, billed, paid for and delivered.

Similarly, with the App Store for Apple’s iPhone handheld computing and communication devices, “the real trick and key is the billing system and the way of doing it is absolutely a blink,’’ he said.

The right billing system, broadly applied, would remove “one of the greatest bars of buying anything” which “is the steps it takes” to complete a purchase.

The entire Internet, in effect, would become an app – or content – store.

“That little thing – that in fact that you scroll it, you do it, it comes, everything else is taken care of, is the answer to what’s going to happen on the Internet, when in fact, you get the applicability of that broadly across the Internet,” Diller said. “It’s absolutely going to happen.”

And given the movement of ad and subscription revenue to the Internet, “people who manufacture that content will have no alternative,” he said.

The biggest disruptor? When broadband pipes to the Internet are connected to large screens in living rooms around the world and users are interacting with its increasingly video-based content with a remote control.

At that point, television, radio and prior media founded on scarcity, like limited spectrum whose use is overseen by governments, “will be run over by this much more open, much much less controlled (medium) that is not based on scarcity, but based on unbelievable plenty,” Diller said

Countries are in mass currency diversification - Running out of dollar

2009-07-12T19:00:00.000-07:00
Russia, Brazil Plan to Buy $20 Billion IMF Bonds
June 10 (Bloomberg) -- Russia and Brazil, seeking to reduce their dependence on the dollar, announced plans to buy $20 billion of bonds from the International Monetary Fund and diversify foreign-currency reserves.

Russia’s central bank said it may cut investments in U.S. Treasuries, currently valued at as much as $140 billion, a week after China said it may reduce reliance on the dollar and American bonds. Brazil’s Finance Minister Guido Mantega said his country will purchase $10 billion of debt sold by the IMF, China will buy $50 billion and India may announce similar funding.

Treasury yields climbed this year and the dollar fell in part on concern that foreign central banks would reduce holdings of U.S. financial assets just as America sells a record amount of debt to finance a growing budget deficit and pull the economy from the deepest recession since the 1930s. Treasuries fell today, six days before officials from the so-called BRIC nations meet in Yekaterinburg, Russia, where they plan to discuss the status of the dollar as the world’s reserve currency.

“The bigger picture is people are worried there are too many Treasuries, and that no one is even making a pretense of getting the fiscal deficit under control,” said Francis Beddington, co-founder of Insparo Asset Management, which oversees about $140 million in London.

The U.S. budget deficit is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion, the Congressional Budget Office says.

Rising Yields

The yield on the benchmark 10-year Treasury note rose to the highest level since October, climbing as high as 3.99 percent. It increased eight basis points, or 0.08 percentage point, to 3.94 percent as of 4:17 p.m. in New York, according to BGCantor Market Data.

Bond investors drove up the yield, which helps to set rates on everything from mortgages to corporate bonds, from the record low of 2.035 percent in December. The rate is still below the average of 6.49 percent over the past 25 years, and may stay below 4 percent through at least the first quarter of 2010, the median estimate of 57 economists surveyed by Bloomberg shows.

The spread between 2- and 10-year Treasuries, which reached a record 2.81 percentage points this month, averaged 0.69 percentage points during the fiscal year 2001. During the four- year period of government budget surpluses from 1998 through 2001, the spread averaged 0.22 percentage points.

Record Sales

Treasury Secretary Timothy Geithner said in Beijing on June 2 there will be enough demand for record sales of U.S. debt. He met with Chinese officials after Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan proposed a new global currency to reduce reliance on the dollar.

The IMF’s board may consider in late June or July a proposal for the Washington-based lender to issue bonds, the fund’s spokeswoman Conny Lotze said today. The IMF probably will sell the bonds only to member states and central banks.

The debt will pay a yield similar to U.S. Treasuries and will be denominated in the fund’s basket of currencies, known as Special Drawing Rights, Mantega said at a press conference in Brasilia. The IMF calculates the value of SDRs daily, with 44 percent weighted towards the dollar, 34 percent to the euro and the remainder split between the yen and the pound, according to its Web site.

Brazil’s central bank will decide which assets to sell from its reserve portfolio to free up the funds needed to purchase the IMF securities, Mantega said. Brazil’s reserves totaled $204.6 billion as of June 8, according to data compiled by Bloomberg.

“This is an investment that Brazil is doing with part of its reserves and making available financing so that the IMF may help emerging countries, especially developing countries which face today a shortage of capital because of the global financial crisis,” Mantega said.

‘Window of Opportunity’

Alexei Ulyukayev, first deputy chairman of Bank Rossii, said today Russia will cut the share of U.S. Treasuries “because a window of opportunity for working with other instruments is opening,” according to Interfax news wire. Russia may also place more of the reserves in deposits with foreign banks, he said. The remarks were confirmed by a Bank Rossii official who declined to be named, citing bank policy.

Russia’s reserves totaled $401.1 billion as of May 25, Bloomberg data show. Adarsh Kishore, India’s representative at the IMF, wasn’t available to take phone calls and didn’t respond to an e-mail message seeking comments.

The IMF, which has rescued economies from Pakistan to Iceland in the past year, has never issued bonds and is seeking more cash to finance loans and aid to member countries during the worst economic slump in the fund’s 64-year history. IMF securities would give countries a different way to contribute to the fund and, unlike traditional bonds, would pay an interest rate pegged to SDRs.

‘Signal’

Plans by Brazil, Russia, India and China, the world’s biggest emerging economies, to buy IMF debt isn’t “a dramatic reallocation of resources,” said Joydeep Mukherji, a sovereign risk analyst at Standard & Poor’s in New York. “‘It’s a signal that instead of needing help it’s providing funding. It’s a sign of political support for the IMF. It’s a statement to the world and their own people, a signal that the world has changed.”

Today’s announcements reiterate comments made earlier by the governments that they are interested in buying IMF debt. China is “actively” considering buying as much as $50 billion of the IMF bonds, the State Administration of Foreign Exchange said last week. Finance Minister Alexei Kudrin said on May 26 Russia will buy $10 billion of IMF bonds from the reserves.

‘Smoothly’

Maxim Oreshkin, head of research at OAO Rosbank in Moscow, said the shift into IMF debt won’t happen immediately.

“The central bank has never stood out for making fast moves with its reserves,” Oreshkin said. “If it changes certain groups it will happen smoothly.” Investing in the IMF may bring “political dividends” for Russia as it “raises the role of Russia in the IMF,” Oreshkin said.

Still, Brazil, Russia, India and China, the world’s biggest emerging economies, increased foreign reserves by more than $60 billion last month to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show. Russia added the most foreign exchange since July.

Dollar’s Future

President Dmitry Medvedev questioned the U.S. dollar’s future as a global reserve currency last week and said that using a mix of regional currencies would make the world economy more stable. He renewed his call for consideration of a supranational currency to challenge the dollar.

Brazil’s decision to buy IMF debt isn’t aimed at weakening the dollar versus the Brazilian real, Mantega said.

“For us, there is no interest in weakening the dollar, because when the dollar weakens the real gets stronger and when the real get stronger the exchange rate trips our exports up a bit,” he said. “What we really want is that other currencies are also behind international transactions.”

The Brazilian real is up 19 percent against the dollar the past three months while the ruble has gained 13 percent.

Here is another news from japan

DPJ’s Nakagawa Says Japan Should Consider Diversifying Reserves

July 13 (Bloomberg) -- Japan should consider diversifying its foreign reserves away from the dollar and buying International Monetary Fund bonds, the top finance official in the opposition party said.

“In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,” Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan, said in an interview in Tokyo on July 9. “Many countries are starting to diversify their reserves.”

The DPJ overtook Prime Minister Taro Aso’s Liberal Democratic Party to become the biggest party in Tokyo’s city assembly in elections yesterday, less than two months before national polls must be called. Nakagawa’s views contrast with those of the LDP, which favors buying U.S. government debt.

Finance Minister Kaoru Yosano last month said his trust in Treasuries was “unshakable.” Japanese investors are the biggest foreign holders of Treasuries after China with $685.9 billion of the securities in April, according to the U.S. Treasury Department.

“The current reality of Japan’s foreign-currency reserves is that their heavy weighting toward dollar assets means any fall in the dollar’s value leads to valuation losses,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The DPJ is opposed to a foreign-currency reserve policy that is so wholly skewed to the dollar.”

China’s Reserves

Japan holds $1.02 trillion in foreign reserves, also the world’s largest after China’s. Losses on the holdings stood at about 21 trillion yen ($227 billion) at the end of May, according to the Finance Ministry’s estimate.

China, India, Brazil, Mexico and South Africa last week challenged the U.S. dollar as the primary denomination of world reserves. In China, whose foreign-exchange reserves probably topped $2 trillion for the first time in the three months to June 30, Premier Wen Jiabao this year said he was concerned that his nation’s dollar assets may decline as the U.S. sells record amounts of debt to fund stimulus spending.

Nakagawa said Japan should consider purchases of new bonds issued by the IMF that will pay an interest rate pegged to the fund’s basket of currencies -- the dollar, euro, yen and pound -- and known as Special Drawing Rights. The dollar is the principal component of SDRs. The IMF said this month it would issue bonds to its 186 members for the first time.

‘Sway the Dollar’

“We should start considering that as an option,” Nakagawa said. “I am not saying we should do it right away. If everyone starts doing it all of sudden, it may sway the dollar.” He didn’t say Japan should sell any of its dollar holdings.

Nakagawa, 59, said Japan’s government should ask the U.S. to sell debt denominated in yen, so-called samurai bonds, as a way to diversify reserves and promote the globalization of the yen. Japan should also aim to strengthen the Chiang Mai Initiative, an Asia-wide foreign-reserve pool, and seek the creation of an Asian Monetary Fund, he said.

Nakagawa said intervening in the currency market to smooth abrupt and volatile moves is an option, though Japan shouldn’t artificially push the yen up or down to achieve a prescribed level.

“If the yen were to appreciate or depreciate very steeply and the market becomes volatile, direct government intervention might be understandable,” Nakagawa said. “Intervention shouldn’t be used to strengthen or weaken it to a certain level.”

Yen’s Gains

The yen has strengthened against all 16 of the world’s major currencies in the past year. A stronger yen hurts Japanese exporters by making their products less competitive. It also lowers import costs for companies and consumers.

Japan hasn’t intervened since 2004, when the central bank, under government instructions, spent a record 14.8 trillion yen to weaken the nation’s currency.

Nakagawa indicated that his party wouldn’t exert pressure on the Bank of Japan to keep interest rates low when policy makers try to raise borrowing costs.

“We wouldn’t put much pressure on the bank,” Nakagawa said. Japan’s central bank cut its overnight lending rate to 0.1 percent in December.

The DPJ won 54 of the 127 seats in the Tokyo assembly, a net gain of 20, while the LDP won 38, down 10. The LDP’s coalition partner, New Komeito, won 23 seats.

Aso may dissolve the lower house as early as tomorrow, the Yomiuri newspaper reported, without saying where it got the information. A total of 23 percent of voters said they would choose the LDP in the national election, less than the 41 percent who favor the DPJ, according to a Yomiuri poll published July 10.

The LDP has governed for all but 10 months since 1955. The DPJ already controls the upper house.

CIT preparing for possible bankruptcy filing - report

2009-07-11T00:05:00.000-07:00
(Reuters) - CIT Group Inc (CIT.N), a commercial U.S. lender struggling to finance its business, is preparing for a possible bankruptcy filing after so far failing to gain access to a key U.S. government lending program, the Wall Street Journal said, citing people familiar with the matter.
The company has retained the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, which has a prominent bankruptcy practice, to prepare for a possible filing, the people told the paper.

CIT could not be immediately reached for comment by Reuters.

The company's shares fell as much as 39.2 percent on Friday after reports that the Federal Deposit Insurance Corp will reject the New York-based company's effort to join its Temporary Liquidity Guarantee Program because CIT's credit quality is worsening.

CIT said on Friday it is in active talks with the U.S. government to gain access to the lending program.

New Proposed Global Currency - Pic

2009-07-10T10:57:00.000-07:00

July 10 (Bloomberg) -- Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

“Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”

The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

California credit rating cut close to junk

2009-07-07T03:00:00.000-07:00
California’s debt rating was slashed by Fitch Ratings to triple B – two notches above junk – after the state was forced to issue IOUs for certain payments while it frantically tries to agree a budget.

Further downgrades are possible, Fitch said, if legislators and Arnold Schwarzenegger, governor, do not end a stalemate over how to close a $26bn budget gap. “This underscores the urgency to solve our entire deficit,” Mr Schwarzenegger said.

By issuing the IOUs for what is considered non-priority payments, including vendor bills and tax refunds, the state is taking steps to ensure debt service on California’s nearly $70bn in general obligations bonds, Douglas Offerman, an analyst at Fitch, said.

“Right now we do not have any concern about the payment of debt service,” he said.

Bond obligations have priority over other payments in California, except funds for education.

“The options are now finite in terms of managing cash flow in a way that covers the state’s obligations, and obviously, IOU recipients are already being asked to front the state resources,” Mr Offerman added.

The use of IOUs for non-priority payments would offset cash shortfalls into September 2009, as currently projected, Fitch said. But by the end of October the projected cash deficit expands to $16bn, beyond non-priority spending of $10.6bn, excluding tax refunds. The rating, which is four notches below that by Fitch for any other state, is Fitch’s second cut for California in the past few weeks. At the previous single A minus, California already had Fitch’s lowest rating. It is rated at single A level by Moody’s Investors Service and Standard & Poor’s.

Tom Dresslar, spokesman for California state treasurer Bill Lockyer, said: “It is hardly surprising; nevertheless, it is always disappointing, especially for a state that is already at the bottom of the ladder when it comes to credit ratings.”

He added: “The folks who will pay the price are tax-papers when we go to market to sell infrastructure bonds. It will cost taxpayers more money to build their schools, roads, levies, affordable housing.”

California bonds began weakening late in the day. Long-term debt has been yielding just over 6 per cent, about a full percentage point more than other state bonds.

“It could set up a more difficult day for prices [today] if the state does not produce good news in a hurry,” said Matt Fabian, managing director at Municipal Market Advisors.

California is the most populous state in the US and the largest issuer of state debt. It was rated triple B in 2003 and 2004 when the state also faced a budget deficit

link

Goldman Theft Is What Happens When You Don't Pay Traders Enough

2009-07-07T02:20:00.000-07:00
The Reuters reporter who first broke the story of the Goldman guy accused of stealing code was on CNBC this afternoon. You probably know the story by now, but what jumped out at us was the final point he made: that this could be the logical result of what happens when you don't pay traders enough! Seriously, he says that with around 30 seconds left, and not surprisingly Michelle Caruso Cabrera loves the point.

You got that? Repeal payment restrictions, or traders are gonna screw you over.

Grand theft on Wall street - Goldman Sachs looses control

2009-07-07T02:15:00.000-07:00
Goldman Sachs Group Inc. may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said.

Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software. Teza Technologies LLC, a Chicago-based firm co-founded by a former Citadel Investment Group LLC trader, said it suspended Aleynikov, who started there on July 2.

At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft poses a risk to U.S. markets. Aleynikov transferred the code, which is worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated.

“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,” Facciponti said, according to a recording of the hearing made public yesterday. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”

‘Preposterous’

The prosecutor added, “Once it is out there, anybody will be able to use this, and their market share will be adversely affected.”

The proprietary code lets the firm do “sophisticated, high- speed and high-volume trades on various stock and commodities markets,” prosecutors said in court papers. The trades generate “many millions of dollars” each year.

Defense attorney Sabrina Shroff said in court that the government’s allegations are “preposterous.” The firm was aware that Aleynikov, who is the father of three young girls, was downloading programs to his personal computer to do work at home and that he hasn’t disseminated the code, the lawyer said.

“If Goldman Sachs cannot possibly protect this kind of proprietary information that the government wants you to think is worth the entire United States market, one has to question how they plan to accommodate every other breach,” she said.

Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment.

$750,000 Bail

U.S. Magistrate Judge Mark Fox ordered Aleynikov, who earned $400,000 a year, to be held by on $750,000 bail, after prosecutors claimed he posed a threat to the community. Aleynikov planned to earn three times his salary by joining a startup company and engaging in high-volume automated trading, prosecutors said. Aleynikov posted bail yesterday and was released.

Aleynikov didn’t speak at the hearing, except to say that he understood the conditions of his bail.

Teza, co-founded by former Citadel trader Misha Malyshev, said in an e-mailed statement that it first learned of the allegations on July 5 and suspended Aleynikov without pay following an investigation.

The firm “was not aware of the alleged misconduct” and offered to cooperate with the government, according to the statement.

Reverse Engineering

“Someone stealing that code is basically stealing the way that Goldman Sachs makes money in the equity marketplace,” said Larry Tabb, founder of TABB Group, a financial-market research and advisory firm. “The more sophisticated market makers -- and Goldman is one of them -- spend significant amounts of money developing software that’s extremely fast and can analyze different execution strategies so they can be the first one to make a decision.”

Someone could use the code “to implement the same strategies and maybe on certain stocks they can be faster and, in effect, take away money that would normally be Goldman’s,” Tabb said in a phone interview. “The second thing that they can do is actually analyze the code so that they know what Goldman’s going to do before Goldman does it and kind of reverse engineer Goldman’s strategies and make money basically at the expense of Goldman.”

‘Wake-Up Call’

Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission, said proprietary electronic data poses significant risks for all financial institutions.

“This is a wake-up call to all financial institutions to review their security systems, not just with respect to trading codes, but with respect to all proprietary information,” said Pitt, now chief executive officer of Kalorama Partners LLC in Washington.

Goldman appeared to have taken some steps to prevent the theft of its code, Pitt said. “The real question is whether, in light of this outrageous conduct on the part of one of its employees, it should have taken more steps,” Pitt said.

Aleynikov spent four hours with a Federal Bureau of Investigation agent after his July 3 arrest, Shroff said. He told the agent that he’d done nothing wrong, authorized prosecutors to seize his personal computers, and said he hadn’t known the server he was using was in Germany, she said.

32 Megabits

Only 32 of 1,024 megabits of the software code was transferred, Shroff said.

“It is not disseminated,” she said of the code.

Facciponti said at the hearing that Aleynikov could disseminate the code “in 10 minutes” using a cell phone. Once the government obtains access to the German server, prosecutors will see if Aleynikov transferred other confidential data as well, he said. It’s logical to conclude that Aleynikov planned to use the code at his new company, the prosecutor said.

“This is the most substantial theft that the bank can remember ever happening to it, in the sense the entire platform has been taken from it,” Facciponti said. “There has been no breaches anywhere on this magnitude at the bank.”

Aleynikov worked at Goldman from 2007 until June, the government said in the complaint. He was part of a team of workers responsible for improving the computer platform. His alleged transfer of computer codes ran from June 1 to June 5, according to prosecutors.

Moscow, Rutgers

Aleynikov studied applied mathematics at the Moscow Institute of Transportation Engineering before transferring to Rutgers University, where he received a bachelor’s degree in computer science in 1993 and a master’s of science degree, specializing in medical image processing and neural networks, in 1996, according to his profile on the social-networking site LinkedIn.

Before joining Goldman Sachs, he worked for about eight years at IDT Corp., the U.S. vendor of prepaid calling cards, where he led the team responsible for developing routing systems, according to the profile.

His profile on LinkedIn describes him as a vice president in equity strategy at Goldman Sachs and includes two recommendations from colleagues at the firm.

Goldman Profit

Goldman was the world’s biggest and most profitable securities firm until it converted to a bank in September following the bankruptcy of smaller rival Lehman Brothers Holdings Inc. Goldman earned $2.3 billion last year, down from a record $11.6 billion in 2007, as market turmoil caused it to report a fourth-quarter loss, its first in a decade as a public company.

Goldman’s equities business generated $2 billion of revenue in the first three months of 2009, down 20 percent from the first quarter of 2008, the company reported in April. Second-quarter results are due to be reported next week.

Link to Bloomberg

VATICAN CITY -- Pope Benedict XVI called Tuesday for a new world financial order guided by ethics and the search for the common good, denouncing the p

2009-07-07T00:13:00.000-07:00
VATICAN CITY -- Pope Benedict XVI called Tuesday for a new world financial order guided by ethics and the search for the common good, denouncing the profit-at-all-cost mentality blamed for bringing about the global financial meltdown.

In the third encyclical of his pontificate, Benedict pressed for reform of the United Nations and international economic and financial institutions to give poorer countries more of a say in international policy.

"There is urgent need (for) a true world political authority" that can manage the global economy, guarantee the environment is protected, ensure world peace and bring about food security for the poor, he wrote.

The document "Charity in Truth," was in the works for two years, and its publication was repeatedly delayed to incorporate the fallout from the crisis. It was released a day before leaders of the Group of Eight industrialized nations meet to coordinate efforts to deal with the global meltdown, signaling a clear Vatican bid to prod leaders for a financially responsible future and what it considers a more socially just society.

"The economy needs ethics in order to function correctly -- not any ethics, but an ethics which is people centered," Benedict wrote.

The German-born Benedict, 82, has spoken out frequently about the impact of the crisis on the poor, particularly in Africa, which he visited earlier this year. But the 144-page encyclical, one of the most authoritative documents a pope can issue, marked a new level of church teaching by linking the Vatican's long-standing social doctrine on caring for the poor with current events.

While acknowledging that the globalized economy has "lifted billions of people out of misery," Benedict accused the unbridled growth of recent years of causing unprecedented problems as well, citing mass migration flows, environmental degradation and a complete loss of trust in the world market.

He urged wealthier countries to increase development aid to poor countries to help eliminate world hunger, saying peace and security depended on it. He specified that aid should go to agricultural development to improve infrastructure, irrigation systems, transport and sharing of agricultural technology.

At the same time, he demanded that industrialized nations reduce their energy consumption, both to better care for the environment and to let the poorer have access to energy resources.

"One of the greatest challenges facing the economy is to achieve the most efficient use -- not abuse -- of natural resources, based on a realization that the notion of 'efficiency' is not value-free," he wrote.

Benedict said that the drive to outsource work to the cheapest bidder had endangered the rights of workers, and he demanded that workers be allowed to organize in unions to protect their rights and guarantee steady, decent employment.

Benedict called for a whole new financial order -- "a profoundly new way of understanding business enterprise" -- that respects the dignity of workers and looks out for the common good by prioritizing ethics and social responsibility over dividend returns.

The Rev. Drew Christiansen, editor of the Jesuit monthly America and a leading social ethicist, said he was most intrigued by the pope's call for a new sector of society to work alongside government, market and civil society: for-profit entities that work for the common good, which Christiansen suggested could include "fair trade" product makers and micro-finance institutions.

"I am not sure these enterprises yet constitute a sector of economic life," Christiansen wrote on his blog. "But they are harbingers of a different, conscientious kind of economics that would not repeat the mistakes of the last 30 years."

Kirk Hanson, a business ethics professor at Santa Clara University, said that while the encyclical went into some detail about the rights of workers and the duties of the state in protecting those rights, there was precious little about how an actual CEO leader should go about business.

"It's almost as if the church has so little trust in business leaders that it speaks to the political leaders urging regulation and the consumers urging voting with their buying power," said Hanson, who chaired hearings leading up to a similar U.S. Catholic bishops' statement on capitalism and social justice in the 1980s.

Benedict has written two previous encyclicals in his four years as pope: "God is Love" in 2006 and "Saved by Hope" in 2007.

The pope's focus on world finance raised questions about the state of the Vatican's own books.

The Vatican was implicated in the 1980s collapse of Banco Ambrosiano, in which the Vatican's bank was the major shareholder, and it agreed to pay $250 million to Ambrosiano's creditors, while denying any wrongdoing.

At the start of the meltdown in October, a top Vatican bank official assured that its deposits were safe and had no liquidity problems, saying the bank had stayed away from derivatives, the financial instruments blamed in part for the crisis.

Other officials have said 80 percent of the Vatican's investments are in low-yield government bonds and 20 percent in stocks and that the Vatican does not invest in companies that produce arms or contraceptives.

The Vatican in its annual financial statement issued Saturday said it ran a deficit in 2008 for the second straight year, posting a euro900,000 ($1.28 million) loss, compared with a loss of euro9.06 million a year earlier.

New Reserve Currency - is now talk of the Globe

2009-07-05T16:44:00.000-07:00

India Joins Russia, China in Questioning U.S. Dollar Dominance

2009-07-05T03:41:00.000-07:00
Now India feeling the pain of the dollar and want some emergency plan.

July 4 (Bloomberg) -- Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

“The major part of Indian reserves is in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday in Aix-en-Provence, France, where he was attending an economic conference.

Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representatives to the summit.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing yesterday, highlighting China’s concerns about a global financial system dominated by the dollar.

Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

Russian Proposals

Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

“We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow yesterday.

Singh adviser Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings. “That’s why I’m telling them to do this,” he said.

He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.

“The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.”

Emerging-Market Dependence

For all the complaints about the dollar, emerging markets such as India remain dependent on the currency of the U.S., the world’s largest economy and a $2.5 trillion export market. The IMF said June 30 that the share of dollars in global foreign- exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.

Tendulkar said that the matter needs to be taken up in international talks, and that it emphasizes the need for those talks to go beyond the traditional G-8.

“They can meet if they want to,” he said. “The G-20 has a wider role, has representation of the countries that are likely to lead the recovery process.”

link

China calls for World Currency

2009-06-26T14:16:00.000-07:00
China argues to replace US dollar

China's central bank has reiterated its call for a new reserve currency to replace the US dollar.

The report from the People's Bank of China (PBOC) said a "super-sovereign" currency should take its place.

Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.

The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.

"An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis," the Chinese central bank said.

The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.

SDRs

Mr Zhou caused a stir earlier this year when he said the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR), which was created as a unit of account by the IMF in 1969.
CURRENCY RESERVES
# Foreign currency held by a government or a central bank
# Used to pay foreign debt obligations or influence exchange rates
# The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency
# Smaller amounts are held in euros, pounds and yen

The PBOC said in the report that not only should the world adopt the SDR, but that the IMF should be entrusted with managing a portion of its member countries' foreign currency reserves.

"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the PBOC report said.

It also issued some veiled criticism of the US policies, saying that one of the major issues was that it was difficult to balance the needs of domestic politics with the requirements of being the world's reserve currency.

"The economic development model of debt-based consumption is most difficult to sustain," the PBOC said.

Russian President Dmitry Medvedev recently joined Mr Zhou in saying it was time to consider an alternative benchmark currency for international debt.

But Russian finance minister Alexei Kudrin then said "it's too early to speak of an alternative".

Cashless society by 2012, says Visa chief

2009-06-24T13:33:00.000-07:00
Paying for goods with notes and coins could be consigned to history within five years, according to the chief executive of Visa Europe.

Peter Ayliffe said that, by 2012, using credit and debit cards should be cheaper and more convenient than cash.

Some retailers could soon start surcharging customers if they choose to buy products with cash, because of the greater cost of processing these payments, he warned.

Visa Europe briefed the British Retail Consortium last month on new "contactless" cards that can be waved in front of a scanner to make small payments.

However, the consortium dismissed this vision and claimed that card processing fees, which regulators are investigating, are still too high.

One member of the consurtium said that the estimated "interchange" fee charged to retailers amounts to some 4p for each transaction.

Nick Mourant, treasurer at Tesco, said: "There is a duopoly between Mastercard and Visa in the UK. Their setting of fees is anti-competitive."

Russia and China sign 100-billion-dollar deal of the century

2009-06-21T16:05:00.001-07:00
Russia and China sign 100-billion-dollar deal of the century

A new deal between Russia and China in the sum of about $100 billion became the largest deal that has ever been signed between the two countries, Russian President Dmitry Medvedev said as a result of the meeting with his Chinese counterpart Hu Jintao.

The two presidents signed a large package of documents, including those in the oil and gas industry, in Moscow.

“It became possible owing to the use of the mechanism that we invented with the leader of the People’s Republic of China a year ago,” Medvedev said.

Dmitry Medvedev and Hu Jintao conducted negotiations about the shipments of Russia’s natural gas to China. The presidents signed the Memorandum About Mutual Understanding on the Cooperation in the Field of Natural Gas.”

It is an open secret that China suffers from the shortage of natural gas. The talks between the two countries about the deliveries of Russian gas to China last for several years already. Moscow was not satisfied with the conditions, which Beijing proposed for cooperation: the prices in question are a lot lower than those, which Russia has with its gas contracts in Europe.

If China is willing to purchase large quantities of Russian gas, it will be necessary to build a new gas pipeline. A senior official of Russia’s gas monopolist, Gazprom, said that it did not go about the deliveries of natural gas to China in 2011. The two countries still negotiate the prices.

Russia currently runs the Eastern Gas Program in the Far East and in Siberia. The program was developed with an intention to supply oil and gas to the Asian-Pacific region, including China , RIA Novosti news agency reports.

Russia and China are working on a possibility to use rubles and yuans in their mutual settlements, Vice Prime Minister of the Russian government, Igor Sechin said.

Is this the death of the dollar?

2009-06-21T14:44:00.000-07:00
After two smugglers were stopped last week with what at first appeared to be $134bn in US state bonds, the tension and paranoia surrounding the fate of the dollar hit a new high.

Border guards in Chiasso see plenty of smugglers and plenty of false-bottomed suitcases, but no one in the town, which straddles the Italian-Swiss frontier, had ever seen anything like this. Trussed up in front of the police in the train station were two Japanese men, and beside them a suitcase with a booty unlike any other. Concealed at the bottom of the bag were some rather incredible sheets of paper. The documents were apparently dollar-denominated US government bonds with a face value of a staggering $134bn (£81bn).

How on earth did these two men, who at first refused to identify themselves, come to be there, trying to ride the train into Switzerland carrying bonds worth more than the gross domestic product of Singapore? If the bonds were genuine, the pair would have been America's fourth-biggest creditor, ahead of the UK and just behind Russia. No sooner had the story leaked out from the Italian lakes region last week than it sparked a panoply of conspiracy tales. But one resounded more than any other: that the men were agents of the Japanese finance ministry, in the country for the G8 meeting, making a surreptitious journey into Switzerland to sell off one small chunk of the massive mountain of US bonds stacked up in the Japanese Treasury vaults.

In the event, late last week American officials confirmed that the notes were forgeries. The men, it appeared, were nothing more than ambitious scamsters. But many remain unconvinced. And whether fake or otherwise, the story underlines one important point about the world economy at the moment: that the tension and paranoia surrounding the fate of the US dollar has hit a new high. It went to the heart of the big question: will the central bankers in Japan, China and elsewhere continue to support the greenback even in the wake of the worst financial crisis in modern history, or will they abandon it as America's economic hegemony dissipates?

Dollar obituaries are nothing new. The currency has been presumed dead more times than Shane Macgowan. But like the lead singer of The Pogues, the greenback has somehow withstood repeated knocks and scrapes over the years and lived on, battered, bruised and a couple of teeth the lighter, to fight another day. In the 1970s and 1980s there were plenty predicting its demise, although at that point the main challenger was the Japanese yen. And in the years preceding this crisis, economists and investors including Peter Schiff and George Soros were lining up to declare the dollar's demise as the world's reserve currency. In the late 1990s, the creation of the euro gave dollar sceptics another stick to beat the currency with, and no doubt the European currency has claimed some of the prominence in its first decade.

Now, following the collapse of the global financial system, those warnings have become louder still, and ever more difficult to dismiss – because this time around there are threatening noises coming from those who actually have the power to do something about it. First came a paper from Zhou Xiaochuan, the governor of the People's Bank of China (PBoC), a couple of months ago, positing the idea of introducing the special drawing right (SDR) – a kind of internal currency at the International Monetary Fund (IMF) – as an international reserve currency. These calls were then repeated, with more force, by the Russian president, Dmitry Medvedev, who last week declared that the world needed new reserve currencies in addition to the dollar.

And this time around, the dollar is most certainly suffering. Since 2002 its trade-weighted strength – calculated against a basket of other currencies – has fallen by more than a quarter, from 112 to 81 points. In the same period, the proportion of dollars held by reserve managers in leading central banks has also taken a dive. According to figures from the IMF, confirmed holdings of dollars in government vaults, from Beijing and Tokyo to London and Paris, fell from 71pc of reserves to 64.5pc between 2002 and 2008.

However, detecting what is really happening in the world of foreign exchange reserves is notoriously closer to an art than a science. For instance, figures from April seemed to suggest a fall in China's holdings of US Treasuries – something 'dollapocalypticists' pounced on at the time. But according to Brad Setser of the Council on Foreign Relations, the country was merely rejigging its Treasury portfolio rather than liquidating parts of it. In such an opaque world it is little wonder the conspiracy theories over those two Japanese smugglers show little sign of dissipating.

Nonetheless, for US Treasury Secretary Tim Geithner, who has inherited his predecessors' role as dollar wallah-in-chief, the currency's travails have made it all the more difficult for him to repeat the mantra that he "believes in a strong dollar" while keeping a straight face. Indeed, when he tried to insist at a university lecture in Beijing earlier this month that "Chinese financial assets are very safe," it drew floods of laughter from the audience.

He wasn't playing for laughs, but the irony of the situation is plain to see. If there were a textbook list of actions one could take to weaken a currency, the US (alongside most other developed nations) would be following it to the letter. It has cut interest rates to a whisker above zero; it has engaged in quantitative easing, pumping cash directly into the economy; it has committed to spending trillions of dollars on a fiscal stimulus package designed to pull the country out of recession; it has pledged tacitly to support its stricken banks so that no major institution is allowed to collapse. In any normal circumstances, actions like these would hammer a currency.

According to Stephen Jen of BlueGold Capital Management: "People are having second thoughts not simply because they don't like the dollar, but they are having second thoughts about whether US assets are obviously the strongest assets to own."

Like everything else, the currency's fate depends on how well the US authorities manage the crisis. The US is balanced on a knife-edge between possible Japan-style deflation as the weight of all its debts bear down on it and potential inflation as the force of all its powerful stimulus measures take root. No one knows for sure which way it will fall, but neither would be particularly good for the currency, and by extension for those who hold much in the way of dollar assets.

And China and all other major central banks which have trillions of dollars in their vaults, face something of a dilemma. Any fall in the greenback will cause the value of their investments to slide. Even if they wanted to exit, there seems no easy way of doing so without provoking some serious self-harm. Indeed, according to Olivier Accominotti, a PhD economist at Paris's Sciences Po university, the situation is not unlike that faced by France in the 1920s, as it sought to reduce its massive sterling reserves. The Bank of France found itself in a "sterling trap" in which it "could not continue selling pounds without precipitating a sterling collapse and a huge exchange loss for itself".

Neil Mellor, of Bank of New York Mellon, said: "We've got a situation where Geithner is smiling and has no choice but to stress the credibility and stability of the US financial and economic system, while the creditors [such as the Chinese] smile back and say they believe him, while at the same time giving hand signals to their reserve managers to get rid of these things."

Rather like the brinksmanship on display throughout the Cold War, it is a dilemma which applies itself to game theory. Both sides know that the dollar is set to weaken, but both could be set to suffer if they both allowed it to collapse at the same time. "If you are the Chinese it is in your interest to play the game – you've got a lot of dollars at stake – but in the long run you surely want to reduce your holdings and diversify them at the margins," says Mellor.

Still, with every passing week, the conjunction of different warning signals for the US currency seems to evolve and intensify. Recently, the alarm bell ringing most loudly has been the increase in yields on US Treasuries – a sign, some fear, of acute nervousness among institutional investors about the sheer scale of the cash the Obama administration is planning to borrow in coming years. The Federal Reserve's meeting next week is likely to be watched attentively by everyone with a stake in the game, as the central bank indicates whether it is planning to plough more dollars of newly-created cash into the economy.

But while the debate fixates on the greenback, the issues at heart here go far deeper. The dollar's fate is intertwined with that of the global economy. America is on the brink of losing its economic superpower status, which it will have to share with China at least, if not others, in the coming years. Holding such a position confers important responsibilities, none of which is more symbolic than providing the world's reserve currency – the currency against which all major commodities are denominated, and the de facto international unit of exchange in trade and finance.

It was a position enjoyed by UK sterling during the first waves of globalisation in the Victorian era and the final decades of the British Empire. Eventually, around the time of the Second World War, the dollar inherited the mantle. At first this was something enshrined in the Bretton Woods agreement of 1944, which fixed world currencies to the dollar, but although that system broke down in the 1960s and 1970s, it has remained the de facto currency of choice.

In a globalised world, with trade being carried out between hundreds of different nations by thousands of different companies, having an international standard makes sense: it enables traders to exchange goods more quickly and efficiently than they would have done otherwise. It may be invisible to us, but the vast majority of foreign exchange transactions – particularly those between smaller nations – involve the dollar. Exchange your sterling for Thai baht and you're actually swapping pounds for dollars for baht, whatever the exchange booth says. Even the much-vaunted exchange arrangements by the Brazilian and Chinese are designed not to disrupt these foundations, but merely to smooth things over for importers and exporters.

But a by-product of the dollar's dominance has been the skewing of the world's monetary system. By dint of having this blessed position, the US has been able to finance ever-larger current account and fiscal deficits, with both the government and the public borrowing from overseas, at cheap rates of interest. It has been able to sell US Treasuries at interest rates that other countries can only dream of because of this position as reserve currency. It has had a captive consumer – both because its government bonds are something of a safe haven and because those wishing to peg their currencies against the dollar and enhance their trade flows have little choice but to buy US Treasuries.

And this mutated international monetary system that has evolved since the 1960s is largely responsible for the crisis into which the world has tipped. Because it was able to borrow off other countries at such low rates without enduring the market punishment – in other words higher interest rates – America was able to build up massive current account deficits which poured a record amount of debt throughout its economy, which manifested itself in the financial crisis.

Indeed, as Mervyn King said in a speech earlier this year: "At the heart of the crisis was the problem identified but not solved at Bretton Woods – the need to impose symmetric obligations on countries that run persistent current account surpluses and not just on countries that run deficits. From that failure stemmed a chain of events, no one of which alone appeared to threaten stability, but which taken together led to the worst financial crisis any of us can recall."

When the PBoC's Zhou referred to the SDRs he was not merely questioning the dollar's pre-eminence. He was indicating something far more radical – that China supports plans for a new Bretton Woods-style agreement to manage the flows of cash around the world. At that seminal conference in 1944, John Maynard Keynes's original idea, which was watered down by Harry Dexter White of the US Treasury, was for an international reserve currency, Bancor, fixed against a basket of 30 currencies, and that countries would be penalised if their current accounts swung too far into surplus or deficit. It is an idea which is now being dusted off from history books by officials in finance ministries around the world, including in China.

Such a radical shake-up would cause earthquakes in the currency markets, a prospect which perhaps makes it unlikely. So in the absence of such a deal, how is the dollar's role likely to evolve in the coming years? The short answer is that no one should expect it to lose its reserve currency status any time soon. It took around half a century for Britain to cede this position to the US, even after being overtaken in true economic might.

One possibility is that the SDR may be used increasingly as a means of denominating assets in accounts, but this is something which would take place gradually, over a course of some years. But even if that is a bridge towards a multi-polar world, in which other currencies vie with the dollar for influence, it will take some time – perhaps 30 years or more, according to Stephen Jen. "People should look at history," he said, referring to sterling's pre-eminence in the first part of the 20th century. "There's a real incumbency advantage."

Jim O'Neill, chief economist at Goldman Sachs, sees the next few years as something of a "vacuum period".

"The BRIC countries [Brazil, Russia, India and China] are becoming so much more important, while the G7, including the US declines, which raises issues about the degree of dominance of the dollar. The problem is that the currencies of the BRICS are the ones that matter, but they won't let you export or use their currencies.

"Until we see another five years' of evidence over whether China is a more consumer-driven economy, becoming bigger and bigger, and whether the euro can have a successful second decade, the dollar looks set to remain dominant."

China has made some hints about loosening its hold over the yuan in recent months, but these are only early manoeuvres. A second step would be to allow the yuan to become a part of the SDR – whose own value is determined by those of a basket of currencies including the dollar, pound and euro. As Jen adds, there are certain prerequisites any contender to the crown of world reserve currency needs in its pocket.

"We have to ask this question: is Russia going to provide asset market that will be as liquid, reliable property rights, the rule of law, currency convertibility and so on? Will we see the same from the likes of China? Their task is very daunting."

Referring to the forged Treasury bonds picked up on the Japanese smugglers on the Swiss border, he adds: "There is a message here: we haven't heard much about anyone counterfeiting roubles. That is probably telling you something."

LINK

BRICs to Buy Each Other's Bonds Instead of Dollar

2009-06-17T11:52:00.000-07:00
June 16 (Bloomberg) -- Brazil, Russia, India and China are considering buying each other’s bonds and swapping currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s top economic adviser said.

The leaders of the so-called BRIC countries will discuss measures to promote regional currencies when they meet later today, Arkady Dvorkovich told reporters in the Ural Mountains city of Yekaterinburg before the first BRIC summit.

“There will be talk about increasing the share of mutual trade in national currencies, possibly placing part of reserves in the financial instruments of partner countries,” Dvorkovich said.

Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg as he seeks to lessen the world economy’s dependence on the U.S. dollar. Medvedev will hold talks later today with Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva.

Medvedev and Hu earlier today attended a summit of the Shanghai Cooperation Organization, which also includes the four former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.

Currency System

“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency,” Medvedev said. “Today this is the case and the currency is the dollar.”

The meetings “show a very strong desire of developing countries to play a bigger role in world finance, especially given the growing insecurity related to the current crisis,” said Masha Lipman, a political analyst at the Carnegie Center in Moscow, in an interview with Bloomberg Television today.

Russian Finance Minister Alexei Kudrin said on June 13 that the dollar’s “fundamental indicators” are “fine” and that he was confident in the currency’s strength. A week earlier, Medvedev said the dollar isn’t in “a spectacular position” and questioned its future as a global reserve currency.

Dvorkovich said the positions of Medvedev and Kudrin aren’t contradictory and that the Russian government is united on its dollar policy.

“In the long term, it is beneficial for all and all agree that the world needs a few strong currencies,” Dvorkovich said. “It cannot happen quickly.”

Russia challenges dollar, China offers loans

2009-06-16T02:34:00.001-07:00
YEKATERINBURG, Russia (AP) -- China and Russia sought greater international clout at a summit Tuesday, with China promising a $10 billion loan to Central Asian countries, while Russia challenged the dominance of the U.S. dollar as a global reserve currency.

Russia also gave a prominent platform to Iranian President Mahmoud Ahmadinejad amid massive protests in Iran over his bitterly disputed re-election and questions in the West about the vote.

Chinese leader Hu Jintao said China will extend a $10 billion loan to a regional group that also includes Russia and four Central Asian states.

The move adds muscle to China's role in the Shanghai Cooperation Organization, a six-nation group Russia and China use to counter the Western influence in resource-rich, strategically placed Central Asia. The other members of the organization Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

The leaders of Afghanistan, Iran, India and Pakistan were also at the table, underscoring Russia and China's reach for regional clout and global influence.

Hu said the loan is intended to shore up the struggling economies of its members amid the global financial crisis.

Meanwhile, President Dmitry Medvedev pushed his call for new global reserve currencies to complement the dollar at the summit.

"No currency system can be successful if we have financial instruments denominated in just one currency," Medvedev said. "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies."

After wrapping up the two-day Shanghai Cooperation Organization meetings, Medvedev was to host later Tuesday the first full-fledged summit of emerging economies Brazil, Russia, India and China, collectively called BRIC.

Medvedev's economic adviser Arkady Dvorkovich said Russia may put part of its currency reserves in bonds issued by Brazil, China and India. He told a briefing that Russia could make the move if the other three BRIC members reciprocate as part of efforts to diversify financial instruments.

Dvorkovich also proposed revising the way the International Monetary Fund's obligations are valued. He said the ruble, the yuan and gold should be part of a revised basket of currencies to form the valuation of the IMF's special drawing rights, or SDRs.

Dvorkovich denied any rift on the global currency issue with Russian Finance Minister Alexei Kudrin, who this week helped the dollar rebound in global markets by saying over the weekend that the dollar's status as the world's main reserve currency wasn't likely to change soon.

Dvorkovich said that the emergence of new reserve currencies would be a gradual process reflecting shifts in the global economy. "It can't happen fast, new reserve currencies emerge as economies of the countries issuing them gain strength," he said.

"Least of all now we need shocks at the currency markets," he said. "Any additional shocks are bad during the crisis. No one wants to bring the dollar down."

He added, however, that the creation of new reserve currencies should help distribute global wealth more fairly and also encourage economic leaders to pursue a more balanced economic policy.

The talk about the new global currency has been prompted by concerns in China and Russia that soaring U.S. budget deficits could spur inflation and weaken the dollar, debasing the value of their holdings.

"If we have more reserve currencies, we will be able to insist and even demand a more responsible approach by countries which issued the global currencies," Dvorkovich said. "Those who issue reserve currencies today don't always take the interests of the global economy into account."

Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the International Monetary Fund to diversify their dollar-heavy currency reserves.

China is Washington's biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt.

The Treasury Department on Monday said that foreigners, including China and Japan, the two biggest buyers of U.S. government debt, cut their Treasury holdings in April.

Russia's Deputy Foreign Minister Sergei Ryabkov said that the BRIC summit was "not an attempt to compete with anyone."

While BRIC members share a desire to play a bigger role in creating a new global financial order and counterbalancing the West and Japan, their often contradictory interests would make forging a common policy a difficult task.

China and India have sizable labor resources, while Russia and Brazil are rich in natural resources. China is a major consumer of natural resources, unlike Russia and Brazil, which are top producers. While China wants lower oil prices, Russia and Brazil would seek higher oil prices.

Chinese leader Hu Jintao says China will extend a $10 billion loan to a regional group that also includes Russia and four Central Asian states.

The move adds muscle to China's role in the Shanghai Cooperation Organization, which it dominates along with Russia.

Hu spoke at a summit of the grouping in Russia. He said the loan is intended to shore up the struggling economies of its members amid the global financial crisis.

The Shanghai group includes impoverished Tajikistan. Kyrgyzstan, which borders China, also is poor and has few lucrative resources.

Washington is unable to call all the shots

2009-06-16T01:58:00.000-07:00
Washington is unable to call all the shots
By Michael Hudson

Challenging the American empire will be the focus of meetings in Yekaterinburg, Russia, today and tomorrow for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other leaders of the six-nation Shanghai Co-operation Organisation. The alliance comprises Russia, China, Kazakhstan, Tajiki-stan, Kyrgyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia.

The attendees (who will be joined on Tuesday by Brazil for trade discussions) have assured American diplomats that dismantling the US financial and military hegemony is not their aim. They simply want to discuss mutual aid - but in a way that has no role for the US or for the dollar as a vehicle for trade among these countries.

The meeting is an opportunity for China, Russia and India to "build an increasingly multipolar world order", as Mr Medvedev put it in a St Petersburg speech this month. What he meant was this: we have reached our limit in subsidising the US military encirclement of Eurasia while also allowing the US to appropriate our exports, companies and real estate in exchange for paper money of questionable worth.

An "artificially maintained unipolar system", Mr Medvedev said, was based on "one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks".

Keen observers of America, if not effective managers of their own economies, these countries argue that the root of the global financial crisis is that the US makes too little and spends too much. Especially upsetting is US military expenditure - such as military aid to Georgia or the presence in the oil-rich Middle East and central Asia - using money that foreign central banks recycle.

Overconsumption by US citizens, US buy-outs of foreign companies and dollars the Pentagon spends abroad all end up in foreign central banks. These governments face a hard choice: either recycle the dollars back to America by buying US Treasury bonds or let the "free market" force up their currencies relative to the dollar - thereby pricing their exports out of world markets, creating domestic unemployment and business failures. US-style free markets hook them into a system that forces them to accept unlimited dollars. Now they want out.

This means creating an alternative. Rather than making merely "cosmetic changes as some countries and perhaps the international financial organisations themselves might want", Mr Medvedev concluded his St Petersburg speech: "What we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries, will not dominate."

For starters, the six countries intend to trade in their own currencies so as to get the benefit of mutual credit, rather than give it to the US. In recent months China has struck bilateral deals with Brazil and Malaysia to trade in renminbi rather than the dollar, sterling or euros.

Many foreigners see the US as a lawless nation. How else to characterise a country that holds out a set of laws for others - on war, debt repayment and the treatment of prisoners - but ignores them itself?

The US is the world's largest debtor, yet has avoided the pain of "structural adjustments" imposed on other debtor nations. US interest rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programmes that the "Washington consensus" has forced on other countries via the International Monetary Fund and other vehicles. The US tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors.

It is no mystery to other countries how the US remains above the law. Foreigners see a financial system backed by American aircraft carriers and military bases encircling the globe. The IMF, World Bank, World Trade Organisation and other Washington surrogates are seen as vestiges of a lost American empire no longer able to rule by economic strength, left only with military domination.

The countries that are gathering today are convinced that this hegemony cannot continue without adequate revenues and are attempting to hasten the bankruptcy of the US financial-military world order. If China, Russia and their allies have their way, the US will no longer live off the savings of others, nor have the money for unlimited military spending.

US officials wanted to attend Yekaterinburg as observers. They were told no. It is a word that Americans will hear much more in the future.

The writer is professor of economics at the University of Missouri
Link