Thursday, February 4, 2010

February 4 2010: Deep Blue Friday?

Detroit Publishing Co. When time matters not 1906
"The Beach, Atlantic City"

Ilargi: Stocks got hammered and gold got murdered. That’s how we might summarize the day. Then again, gold is down only 4.16% right now, whereas stock markets in Greece, Spain and other countries lost 5-6% or more. It all depends on where you stand, don't it?

So will this turn out to be the start of a more substantial leg down? It might well, but on the other hand it may take a while as well. Come down it must though, no doubts there, and once you stop listening to the "recovery" and "stabilize" chants and look at the numbers they're designed to hide, it is all too painfully obvious. There is no recovery, and there never was one. All there is are governments spending trillions of future tax revenues to paint over the worst of the damage, gloss on the lips of a pig that can’t wait to get back down into the mud.

The Bank of England this morning made clear that they are done -for now- with quantitative easing, and UK banks about off the bat shed 7-8% because of that, followed quickly by other major European banks. If governments and central banks in Washington, Brussels, Berlin and Tokyo do what London did, it's game, set and match. The QE cash has been the only lubricant the formerly rich economies have had for the past year, and if it’s no longer available, the investors who've eaten from that extra generous public trough will run away as fast as they can, because they know there's nothing else left that can generate a profit. Ironically, London left the main interest rate unchanged, which means the it can't possibly claim they have confidence in the "recovery".

The main media focus is still on the PIIGS, and Europe loves it. The Euro is nicely on its way to a level where European exports become a lot more competitive in world markets. Greek CDS spreads are high, sure, and so are Portugal's, but that only means Brussels and Berlin mean business in their game with capital markets. They think they can ultimately control the rules of the game. They may turn out to be right, but it's a very risky game they play. Betting against the PIIGS has become the wager du jour, and when that happens events can unfold so fast even the mighty may be left eating dust. And it’s dawning on many today that the bond markets run this planet down the line. With the record issuance announced all over the globe, not being run over by that steamroller should be high on all priority lists. Just you wait till interest rates starts going up and Bernanke and Trichet find their ray-guns don't work anymore.

The same motivation that drives Europe to play the game that drives the Euro down, has Washington issue one of the oddest statements I’ve seen in a long time. President Obama apparently wants to initiate a program aimed at doubling (!) US exports in the next 5 years. Boy, was I happy my cup of Joe was on the table, and not in my hand when I saw that. Look, everybody would like to raise their exports. What you can't sell in products, you have to borrow, after all, once you're so deep in the mire that debt needs to be issued as well as serviced in insane amounts.

But let's get real. Double your exports? Here’s the run down: "[..] a three-prong strategy to double exports by 2014: robust government advocacy for U.S. exporters in markets around the world, increased export financing and tough enforcement of trade agreements the United States has already signed to open foreign markets. Obama set the goal in his State of the Union speech last week of doubling U.S. exports to support 2 million American jobs [..]".

Most countries would be happy as clams just to raise their exports by 10%. Chinese and Japanese exports are down, what, 20% already? So how will the US manage a 100% raise by 2014? What are these people thinking? That they'll be out of here anyway when that time comes? What do they want to sell, guns or something? And who has the money to buy what they have to offer? Nobody has any money, except for maybe China (Jim Chanos thinks not, and neither do I), but you know what China intends to do? That's right, raise its exports! The US dollar would have to sink like a stone, that would make American products cheaper abroad, but that's the old beggar-thy-neighbor line that the US by no means has a monopoly or patent on.

But the best part, I'm sure you noticed, is Obama's claim that doubling US exports would "support 2 million American jobs". Get me a calculator, fast! Does that mean that out of a 180-plus-odd million workforce, only 2 million work in industries involved in export? I know, I know, that makes no sense, but Obama said it, not me. I'm just playing the piano here! As far as I can tell, it's all simply a sign of how twisted the tongues are getting these days. There are anywhere between 15 and 40 million unemployed Americans, and doubling exports would create a grand total of 2 million jobs? Better start mowing each other's lawns, guys. The president says you’re on your own.

Enough of that. Whither today's downpour? Apart form QE and the Mediterranean, there is one last big show on to close off this week. The hottest government numbers in a long time are due tomorrow morning. That's when the BLS will report on US unemployment. It'll be interesting, if not outright fun, to see how they've stashed the 824,000 job losses they "forgot" to mention from early 2008 to early 2009. There's another 990,000 of those coming your way since March 2009, that of course also can’t be found in any official number. Not that they intend to change the birth/death methodology. Apparently a 100,000 extra and unaccounted for lost jobs every month is not enough ground for such a change. It would only make the numbers look much worse, after all. But what kind of circus is this anyway? Can't we just recognize the gravity of the issue and try to something about it, instead of wasting all this time and money on fudging data?

If the BLS U3 unemployment rate comes in well above 10%, it's safe to assume Friday, February 5th, will be a hot day. If they’ve somehow brought it down well under 10%, we may see a significant upswing.

None of this changes anything about the fact that the downward pressure in the markets is increasing, and at a rapid clip. There is no game in town but public funds, and the BOE made a lot of folks very nervous the past day. The image is that of a herd of panicky wildebeests changing course erratically every few steps. Until they either tire or figure out they're corralled in with nowhere to run.

Today, February 4, may turn out to be an aberration, markets may regain some space. But it will be temporary, the pressure is here to stay now, there are default risks wherever you care to look (California?!). And so it all comes back to what we at the Automatic Earth have been saying all this time. A rising US dollar when trouble comes, gold not great in the short term, and a downturn on the horizon like you’ve never ever seen, let alone imagined.

For the immediate future, please be careful what you do with whatever it is you have. Don’t get caught under the wheels. Don’t try to be smarter than the market. Then again, Nassim Taleb says every human should short US Treasuries.

Most of all, don’t try to be like the people who raised Toronto home sales by 87% last year, lifting prices by 18%. Those people just bought themselves a one-way ticket to the slaughterhouse.

PS: You know what I personally think is a sign of the times? That Bank of America gets indicted for fraud both in New York and in Italy at the same time. There's more where that came from.

And of course, the world running out of arable soil in 60 years is a strong contender.

Ilargi: This site exists by the grace of your donations. It really is as simple as that. Visiting our advertisers is also a great idea, anything you can do to help make sure we can stay afloat, and grow to where we would like to be. We have a lot of plans and ideas, but they’re all on the shelf for now. Not to worry, they don't have time to gather dust.

Taleb Says 'Every Human' Should Short U.S. Treasuries
Nassim Nicholas Taleb, author of "The Black Swan," said "every single human being" should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration. It’s "a no brainer" to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. "Every single human being should have that trade." Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific.

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst recession since the Great Depression, according to data compiled by Bloomberg. President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the recovery from last year’s recession. Obama projects the U.S. budget deficit will rise to a record $1.6 trillion in the 2011 fiscal year. The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 3.68 percent at 8:22 a.m. in New York, according to BGCantor Market Data. In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.

Moody’s warns US of credit rating fears
Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit. In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was "clearly continuously upward".

Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product. "Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating," the rating agency added in an issuer note.

This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war. While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending. Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.

Moody’s, however, says this understates the overall US debt level. "Using the general government measure, including state and local governments as well as the federal government, which is used internationally, this ratio would be well over 100 per cent in 2020." The issue of sovereign risk dominated many discussions in the Davos World Economic Forum last week. While much attention focused on the fiscal crisis in Greece, considerable concern was also voiced about the outlook for countries such as the US and UK.

"Everyone has reason to be concerned about the US economy right now and the US dollar," said Tony Tan, deputy head of the Government of Singapore Investment group. "We still think that the US economy is the most diversified and resilient in the world, but it is going through a difficult time." At the heart of investor concerns is whether countries such as the US with its rising debt burdens has the political will, or the sense of consensus, to take decisive measures to cut debt.

Some investors at Davos suggested it might be helpful if the credit rating agencies were to step up their threats about a potential future downgrade in countries such as the US and UK, since it would force politicians to act – and turn the issue into an election topic. US treasury bonds were relatively steady on Wednesday with the yield on the 10-year note rising 3 basis points to 3.67 per cent.

Bank of England holds interest rate, pauses QE as economy emerges from recession
The Bank of England has paused its radical policy of injecting money into the economy after the UK emerged from its worst recession since the 1930s. The decision by the Bank of England's Monetary Policy Committee (MPC) not to extend its policy of injecting money into the economy, known as quantitative easing (QE), come as it left interest rates at a record low of 0.5pc.

The Bank started QE in the depths of the recession last March in an effort to ward off the threat of deflation and prevent the economy tipping into depression. Almost a year later, the Bank's main measure of inflation rests at 2.9pc and the economy has officially exited the downturn. The MPC, led by Governor Mervyn King, will have made the decision aware of its latest forecasts for growth and inflation, which will be released next week in its Inflation Report. "Near-zero interest rates, the existing £200bn QE package and the sharp fall in Sterling are already extremely expansionary," said Ian McCafferty, CBI Chief Economic Adviser. A gradual recovery should "lead to a small rise in interest rates around the middle of this year," he said.

The policy of QE has seen the Bank of England buy billions and billions of pounds of UK Government debt, or gilts, from banks and financial institutions in the hope they will then use the money to buy other assets in the economy. Exiting QE, means that a huge buyer of gilts has now left the market. In a statement, the MPC said that it "will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them." With the economy just crawling out of recession last quarter, the Bank's move on QE will draw criticism from business groups. David Kern, the chief economist at British Chambers of Commerce, said: "given the underlying weakness of the economy, emphasised by the recent disappointing GDP figures, it is premature to start reducing the QE stimulus. It is certainly much too early to contemplate any near-term interest rate increases."

Commerce Secretary says enforcement will help U.S. double exports
Tough enforcement of trade agreements will help the United States meet President Barack Obama's goal of doubling exports during the next five years, Commerce Secretary Gary Locke said on Thursday. "Increasing the export of American products and services to global markets can help revive the fortunes of U.S. companies, spur future economic growth and support jobs here at home," Locke said in an excerpt of a speech he was to give detailing Obama's National Export Initiative (NEI).

Locke outlined a three-prong strategy to double exports by 2014: robust government advocacy for U.S. exporters in markets around the world, increased export financing and tough enforcement of trade agreements the United States has already signed to open foreign markets. Obama set the goal in his State of the Union speech last week of doubling U.S. exports to support 2 million American jobs, picking up on an idea touted for months by the U.S. Chamber of Commerce, a leading business group. "This initiative will correct an economic blind spot that has allowed other countries to slowly chip away at the United States' international competitiveness," Locke said.

Although trade was badly hit by the global financial crisis in late 2008, U.S. exports of goods and services still finished the year at a record of about $1.83 trillion. Exports continued to fall in the first half of 2009 but have on been on the rise since. Final Commerce Department figures due out next week are expected to show total 2009 exports in the range of about $1.54 trillion. In the face of huge budget and trade deficits, the Obama administration hopes to shift the U.S. economy away from its heavy reliance on consumer demand and more toward investment and exports to propel growth. "While the U.S. is a major exporter, we are underperforming," Locke said in the excerpts given to reporters. "U.S. exports as a percentage of GDP are still well below nearly all of our major economic competitors."

Obama also is creating an Export Promotion Cabinet that includes top officials from the Departments of Commerce, State and Agriculture as well as the U.S. Trade Representative's office, the Small Business Administration and the Export-Import Bank of the United States, Locke said. Each of those agencies will be charged with developing a detailed plan over the next six months for boosting exports. "Prior to the NEI, export promotion may have been a 'some of the time' focus for many U.S. cabinet agencies and departments. The NEI makes it an 'all the time focus,'" Locke, the former Washington state governor, said. Democrats often accused former President George W. Bush of failing to enforce trade agreements the United States had signed, a charge his administration vigorously rejected.

During Obama's first year in office, the U.S. Trade Representative's office has filed few trade cases at the World Trade Organization but Locke said rigorous enforcement of U.S. trading rights would be a cornerstone of Obama's export plan. "Free trade only works in a system of rules where all parties live up to their obligations," Locke said. "The United States is committed to a rules-based trading system where the American people -- and the Congress -- can feel confident that when we sign an agreement that gives foreign countries the privilege of free and fair access to our domestic market, we are treated the same."

Obama also has directed the Exim Bank to boost export credit financing for small and medium-sized business from $4 billion to $6 billion over the next year, and his budget calls for $80 million in additional funding for the Commerce Department's International Trade Administration. The new resources will allow ITA to hire as many as 328 trade experts to serve as advocates for U.S. companies and to assist more than 23,000 clients to begin or grow their export sales in 2011, Locke said. The agency will focus particularly on increasing the number of small and medium-sized businesses exporting to more than one market by 50 percent over the next five years, he said.

TrimTabs CEO Biderman: I Think The Government Is Buying Up The Stock Market

Initial Jobless Claims in U.S. Unexpectedly Climbed
More Americans unexpectedly filed first-time claims for unemployment insurance last week, indicating companies lack confidence the economic recovery will be sustained. Initial jobless applications increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance was little changed and those receiving extended benefits increased.

An unemployment rate that’s projected to average 10 percent this year will likely weigh on consumer spending, preventing the biggest part of the economy from accelerating. Without additional gains in sales, companies will be forced to keep cutting costs, limiting staff in order to boost profits. "The pace of improvement has slowed significantly in the last two months," said Anna Piretti, a senior economist at BNP Paribas in New York. "This points to downside risk for consumption and the rest of the economy." Stock-index futures extended losses and Treasury yields fell after the report. The contract on the Standard & Poor’s 500 Index dropped 0.9 percent to 1,086.5 at 8:55 a.m. in New York. The yield on the 10-year Treasury note declined to 3.66 percent from 3.71 percent late yesterday.

Initial jobless claims were forecast to decline to 455,000 from a previously reported 470,000 the week before, according to the median estimate of 46 economists surveyed by Bloomberg News. Estimates ranged from 420,000 to 480,000. Worker productivity kept surging in the fourth quarter as companies squeezed more out of remaining staff to boost earnings, another report from the Labor Department also showed. A measure of employee output per hour rose at a 6.2 percent annual rate, capping a 2.9 percent gain for all of 2009 that was the biggest one-year increase since 2003. Labor costs dropped at a 4.4 percent pace last quarter and fell 0.9 percent for all of 2009, the biggest drop in seven years. The four-week moving average of claims increased to 468,750 from 457,000 the prior week.

Continuing claims were little changed at 4.6 million in the week ended Jan. 23. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments increased by about 242,000 to 5.86 million in the week ended Jan. 16. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Jan. 23, today’s report showed.

The figures raise concern the improvement in the labor market has stalled heading into tomorrow’s monthly employment report. The U.S. may have created 15,000 jobs in January, according to the median forecast of economists surveyed. It would mark the second payroll increase in the past three months. The unemployment rate probably held at 10 percent in January for a third straight month, close to the 26-year high of 10.1 percent reached in October, the economists forecast. A private report yesterday showed companies in the U.S. cut an estimated 22,000 jobs in January. The drop was the smallest in two years and followed a revised 61,000 decrease the prior month, according to data from ADP Employer Services.

Macy’s Inc., the second-biggest U.S. department-store chain, is eliminating 1,500 store-level positions effective March 6, two people familiar with the decision said last week. The Cincinnati-based retailer is firing department managers and merchandising team managers, said the people, who declined to be identified because the cuts haven’t been made public. Some stores are losing operations managers, and the remainder will be shared across multiple stores, the people said. In addition, full-time stock positions were cut, they said.

Other companies are adding to payrolls. General Electric Co. is hiring workers in energy, health care and rail transportation in part because global economic-stimulus policies have created demand, two executives said last week. GE is bidding to supply new passenger locomotives for Amtrak, and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs. "We will create jobs in the United States that could not have been created any other way," John Rice, chief executive officer of GE Technology Infrastructure, said in an interview with Bloomberg Television from Davos, Switzerland, last week. The loss of 7.2 million jobs since the recession began has been the worst in the post-World War II era.

Pimco Warns California Bond Yield May Revisit 2009 Peak as Deficits Climb
Kenneth Naehu, who invests $2.5 billion for Bel Air Investment Advisors in Los Angeles, sold California bonds late last year as he saw deficits mounting -- and says he’s not ready to buy back in yet. Naehu, 43, is among investors including Newport Beach, California-based Pacific Investment Management Co. and Thornburg Investment Management in Santa Fe, New Mexico, forecasting that the state’s yields -- which move inversely to prices -- may increase relative to other municipal bonds because of the financial strains. Pimco, the world’s biggest fixed-income manager, predicts the yield on 30-year debt may rise above 6 percent, the highest since last summer’s fiscal crisis.

California, the world’s eighth-largest economy, faces a $20 billion hole in the budget during the next 17 months. With its cash dwindling, the government may need to issue IOUs for the second straight year unless Governor Arnold Schwarzenegger and two-thirds of the Legislature can agree on a fix. Once the budget is balanced, the state is poised to sell billions of dollars of bonds after flooding the market with $36 billion in debt last year. "This is a political mess," said Naehu. "The state is not out of the woods. In fact, one could argue they are in even worse shape than they were before."

California’s credit default swaps, insurance contracts that are generally used to protect against default, have risen 97 percent since late October to $314,000 to protect an investment in $10 million of bonds. The state has $73 billion of general obligation debt outstanding, according to Treasurer Bill Lockyer, who has repeatedly dismissed any suggestion the state may not make required payments. A taxable California bond that matures in 2039 traded today for an average yield of 7.79 percent in blocks of more than $1 million, the highest since Dec. 28, according to Municipal Securities Rulemaking Board data. That opened a gap of 3.15 percentage points between California’s bond and 30-year Treasuries, according to Bloomberg data.

On July 1, the day before the state issued IOUs, the difference widened to as much as 4.03 percentage points, according to data compiled by Bloomberg. Yields on tax-exempt California securities maturing in 30 years were unchanged at 5.76 percent today, 1.3 percentage points more than top-rated municipal paper. That’s close to the 1.32 percentage-point gap reached June 30. "It wouldn’t take too much to cause those spreads to widen out," said George Strickland, a managing director of Thornburg, which invests $4.5 billion in municipal bonds.

Debt payments are forecast to cost $6.2 billion during the 2011 fiscal year, about 7 percent of California’s revenue. The payments are the state’s second-highest obligation under the law after schools, according to the state’s bond documents. The state wants to sell $4 billion of bonds once lawmakers balance the budget for the current year ending in June, said Steve Coony, chief deputy for Lockyer, at last month’s meeting of the California Public Employee Retirement System’s governing board. The governor’s budget proposal estimates that $14 billion that may be sold in 2010. An additional $10 billion of notes may be needed to bridge a temporary revenue gap, $1.2 billion more than last year, according to Schwarzenegger’s finance office.

California’s financial stress may bolster demand for tax- exempt bonds sold by higher-rated issuers as buyers, such as mutual funds, look to diversify. Last week, Pasadena-based Southern California Public Power Authority, which finances electricity projects for about 2 million customers, closed its debt sale early as a rush of demand left it paying 4.54 percent on a 20-year security, about 1 percentage point less than the state. The revenue bonds are rated AA- by Standard & Poor’s and A1 by Moody’s Investors Service, the fourth and fifth highest of 10 investment grades, and backed by power-sales agreements with three city utilities. California’s general obligations are ranked Baa1 by Moody’s and A- by S&P, respectively three and four levels above high-yield, or junk, debt.

"The market has really been saturated in the last couple of years with state of California debt and the market also knows that they have to come with more issuance this year," said Peter Hayes, who oversees $115 billion of municipal bonds for BlackRock Inc., in an interview from Princeton, New Jersey. "Anytime you see a new name -- especially a name that has a decent credit rating of A or better -- I think it’s going to meet with pretty solid demand."

California Controller John Chiang said Jan. 22 that the state faces another potential "cash crisis" in July if lawmakers can’t reach a budget agreement before the fiscal year ends June 30. A similar shortage forced him to issue $2.6 billion of IOUs to taxpayers and vendors from July through September last year, precipitating credit-rating cuts. In July, Moody’s downgraded California’s credit rating to Baa1, three steps above non- investment grade and Fitch Ratings reduced its grade to BBB, two steps above junk. "People, if they are concerned about it going to junk --or just if there is a reasonable possibility of it -- there’s some selling that will occur because of that," said David Blair, municipal bond analyst at Pimco.

From February to July of last year, Schwarzenegger and the Legislature, led by Democrats, temporarily raised taxes, cut spending, and borrowed local government cash to close $60 billion of budget deficits. The July budget left the state $6.6 billion short in the year ending in June. Schwarzenegger on Jan. 8 called the Legislature into an emergency session to fix that imbalance. A $13.3 billion gap looms in next year’s budget. Schwarzenegger’s plea to Congress and President Barack Obama for aid isn’t likely to produce the $7 billion he sought, the state’s Legislative Analyst’s Office said. Democratic leaders, including Senate President Darrell Steinberg, criticized the spending cuts the governor proposed and said they would counter with their own plans.

Such political tussles weigh on California bonds, which tend to recover once uncertainty about the budget is settled, Bank of America Corp. analyst John Hallacy said. "It could look like a real buying opportunity," he said. California municipal securities lagged behind the municipal market during the first half of the last year, according to BofA Merrill Lynch indexes. In the third quarter, when the budget was passed, they returned 12.5 percent, compared with 8.1 percent for the overall municipal market. From October through December, they slid 3.7 percent, three times the decline of the overall market, as the state issued new debt.

Rafael Costas and Sheila Amoroso, co-heads of municipal bonds for San Mateo, California-based Franklin Templeton Investments, which holds about $65 billion in municipal debt, said in a Jan. 15 note to clients that they should focus on the income generated by investing in California securities and shouldn’t be concerned about the budget fight. "California does have problems and some hard decisions to make, but defaulting on its debt is not a viable option," Costas and Amoroso wrote. Even so, the negative news coming out of the state Capitol may lead the individual investors that Lockyer has relied on to buy much of the state’s debt to sell, Naehu said. As California sold more than $3.4 billion of bonds at the end of October, such buyers accounted for almost 72 percent of the orders.

"The market is dominated by individual investors right now," said Naehu. "Those investors have very little to go on and are subject to headline risk." Lyle Fitterer, who oversees municipal bond investments for Wells Capital Management in Menomonee Falls, Wisconsin, said he sold California securities held in the firm’s $14 billion national accounts in December. Like others, he was worried about the brewing political tumult. "That creates a whole lot of uncertainty," he said. "We don’t want to be exposed to that."

End of TALF Means Bond Spreads Five-Fold Wider
The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans. The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression.

"What we are seeing in the last couple of rounds are issuers in non-traditional asset classes and weaker issuers looking to fund as much as they can before the window closes," said James Grady, a managing director at Deutsche Asset Management in New York. The firm has $240 billion in assets under management, including asset-backed securities. Ally Bank, a Midvale, Utah-based unit of GMAC Inc., is selling $750 million in so-called floorplan securities backed by payments on loans that finance cars on lots. Nissan Motor Co., in Yokohama, Japan, issued $900 million of the debt last week. Sales total $3.35 billion this year, including deals being prepared, compared with $3.9 billion all of last year, according to Informa Global Markets in New York.

The bonds offer investors higher relative yields because the collateral is considered riskier. Ally Bank’s sale of AAA debt backed by floorplans may yield 1.75 percentage points more than swap rates, compared with a spread of 0.35 percentage point for top-rated auto-loan bonds, according to Bank of America Corp. data. Investors have a deadline of today for taking out loans through TALF this month. The program, which provides loans to investors buying the debt, began in March 2009 and expires March 31.

Elsewhere in credit markets, the yield spread on company bonds narrowed 1 basis point yesterday to 164 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed. The gap has widened from this year’s low of 160 basis points, or 1.6 percentage points, on Jan. 14. The average yield yesterday was 4.12 percent, up from the low this year of 4.06 percent on Jan. 11. The cost to protect North American company bonds from nonpayment fell yesterday for the third straight day, the longest stretch since the four days ended Jan. 6. Standard & Poor’s said the default rate on speculative-grade debt held steady last month at 10.7 percent. Kraft Foods Inc. plans to issue $9.5 billion of debt to pay for its acquisition of Cadbury Plc, according to a person familiar with the transaction.

Kraft intends to sell $1 billion of 3.25-year notes that may pay 137.5 basis points more than similar-maturity Treasuries, a person familiar with the transaction said. The rest of the debt may price at 185 basis points for $1.75 billion of 6-year notes, 185 basis points for $3.75 billion of 10-year debt and 200 basis points for 30-year bonds, said the person, who declined to be identified because terms aren’t set. A basis point is 0.01 percentage point. Warren Buffett’s Berkshire Hathaway Inc. plans to sell $8 billion of senior unsecured notes to finance part of its acquisition of railroad Burlington Northern Santa Fe Corp., the company said in a regulatory filing. The notes may be sold as soon as today, according to a person familiar with the offering.

TALF was started to jump-start the market for bonds tied to consumer and small-business loans after sales of the debt plummeted 42 percent in 2008, choking off funding to lenders, according to data compiled by Bloomberg. The program spurred $178 billion of securities sales, according to Bank of America. TALF provides low-cost Fed loans toward the purchase of top-rated securities. It allows buyers to boost returns with borrowed cash and provides issuers with lower funding costs. Companies selling debt through TALF this month include AmeriCredit Corp., the Fort Worth, Texas-based lender to car buyers with poor credit, and Ocwen Financial Corp., a West Palm Beach, Florida-based company that acquires and services troubled mortgages. Ocwen’s sale is backed by payments connected to delinquent home loans.

The program is becoming less useful as investors gain confidence in the economy and use more of their own cash to buy the debt. Yields on top-rated auto-loan securities relative to Treasuries have narrowed to 0.69 percentage point from 6.4 percentage points a year ago, Bank of America Merrill Lynch index data show. Companies including New York-based JPMorgan Chase & Co, Fairfield, Connecticut-based General Electric Co., New York- based Discover Financial Services and Dearborn, Michigan-based Ford Motor Co. sold debt backed by loans and leases outside the program during the past six months, Bloomberg data show.

In making the decision to end TALF and three more programs like it, the Fed said in a statement on Jan. 27 that the economy "has continued to strengthen," while "the pace of economic recovery is likely to be moderate for a time." The central bank also said it’s "prepared to modify these plans if necessary to support financial stability and economic growth." Other parts of the asset-backed debt market are also likely to make a comeback as investor sentiment improves. Sales of securities backed by U.S. home loans lacking government-backed guarantees, which stopped two years ago as subprime mortgage defaults surged, may resume this year, industry executives said at a conference this week.

"You’re going to see people come to market to some extent but it’s just going to be dipping the toe in the water," Bill Felts, a senior vice president at Citigroup Inc.’s mortgage unit, said at the American Securitization Forum conference in Washington. Sales of so-called non-agency bonds backed by new home loans peaked at almost $1.2 trillion in both 2005 and 2006 before freezing as the worst U.S. housing slump since the Great Depression sparked losses and curbed lending, according to the newsletter Inside MBS & ABS. In the credit-default swaps market, contracts on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, fell 0.5 basis point to 92 basis points.

A basis point on a credit-default swap protecting $10 million of debt from default for five years equals $1,000 a year. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to meet its debt agreements. A decline signals improvement in perceptions of credit quality. The default rate on speculative-grade debt was little changed at 10.7 percent last month, and may decline to 5 percent by December 2010, S&P said yesterday. During January, seven companies defaulted, compared with 14 at this time in 2009. "Credit metrics in the U.S. are showing the first indications of strengthening credit quality, as well as stronger lending conditions and signs of life among speculative-grade new issuance," wrote Diane Vazza, head of S&P’s Global Fixed Income Research Group.

Companies in the U.S. are marketing at least $6.7 billion of high-yield bonds following a record $16.4 billion in January, according to data compiled by Bloomberg. Speculative grade bonds are rated below Baa3 by Moody’s Investors Service and BBB- at S&P. Kraft is rated Baa2 by Moody’s and BBB by S&P. The Northfield, Illinois-based company may finish the sale of debt due in 3.25, 6, 10 and 30 years today, said a person familiar with the transaction who declined to be identified because terms aren’t set. Kraft plans to issue a minimum of $1 billion in each maturity, the person said. "It’s going to be a big deal, so the question is how robust the demand is going to be," said Jeff Given, a money manager who helps invest $19 billion in fixed-income assets at MFC Global Investment Management in Boston. "I expect it to go fairly well."

The 3.25-year notes may yield about 150 basis points more than Treasuries, while the 6- and 10-year debt may pay spreads of about 187.5 basis points, said the person. The spread on the 30-year bonds may be about 15 basis points wider than that of the 10-year notes. Kraft last sold bonds in December 2008, issuing $500 million of notes due in February 2014. The 6.75 percent notes were priced to yield 525 basis points more than Treasuries of similar maturity, Bloomberg data show. Those securities traded yesterday at 112.11 cents on the dollar to yield 110 basis points more than Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

In Europe, Portugal and Greece led a surge in the cost of insuring sovereign debt from default on concern the nations will struggle to cut their budget deficits. Portugal sold 300 million euros ($417 million) of 12-month bills yesterday after indicating it planned to issue 500 million. The securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction. Credit-default swaps on Portugal soared 29 basis points to a record 225, according to CMA DataVision prices at 9 a.m. in London. Contracts on Greece jumped 25.5 basis points to 423 and Spain increased 13.5 basis points to 166.5. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments including Portugal and Greece held near an all-time high of 93.5, CMA prices show. Spanish government agency Instituto de Credito Oficial increased the yield premium it paid on a 1 billion-euro bond sale to entice investors.

Madrid-based ICO, which lends to businesses, paid 65 basis points over the benchmark swap rate, according to data compiled by Bloomberg. That compares with a spread in the low 50-basis- point range offered Feb. 2, according to a banker with knowledge of the transaction who declined to be identified because the terms weren’t set. Snai SpA, Italy’s second-largest gaming and betting company, pulled a sale of high-yield bonds citing "market conditions" and a dispute with Bridgepoint Capital Ltd. Snai planned to raise 350 million euros selling bonds. Bridgepoint asked the company and Snai Servizi Srl, its parent, for 20 million euros in damages for its failure to accept an offer for its gaming activities.

Toronto existing home sales soar 87% in 'crazy' January
The deep-freeze of January is usually a signal for realtors to take a winter cruise or perhaps a vacation in the Caribbean. But not this year. The January real estate market started 2010 at full gallop, with sales up 87 per cent from a year ago, according to figures released Wednesday. There were 4,986 existing home sales in January, compared with 2,670 sales the year before when sales were at a low for 2009, according to a report by the Toronto Real Estate Board.

"We were hoping to get away somewhere warm, but the market has been crazy," said Alicia Pang, an agent with Sutton Group Heritage Realty. Pang said most listings seem to be receiving multiple offers. A Markham condominium she listed last week for $230,000 had attracted three offers in a matter of days. A lack of snow in January also likely contributed to more foot traffic at open houses, she figures. "There seems to be an overflow from last year of frustrated buyers who couldn't get homes, who are out buying at the start of the year," said Pang. "I guess it goes to show just how strong the housing market is."

The average price of a home rose 19 per cent to $409,058 in January, compared with $343,632 in the same month a year earlier. The first-time buyer market is the most active, with people looking for homes up to $400,000, Pang said. Placed in perspective, January's sales were slightly higher than the January average in the years preceding 2009, when the economy faced recession. Still, it was a historically strong month. "The Greater Toronto Area home market has rebounded well from the lows in sales experienced at the beginning of 2009," board president Tom Lebour said.

Upward price pressure is still an issue in the market because of the lack of product. Active listings were down by 41 per cent in January compared with a year ago. Analysts say they expect more listings to come on the market this year, but so far there has been little relief for wary buyers bidding on scarce product. "As soon as something comes out people jump on it," Pang said. "One problem is that older buyers don't want to sell because they would have to end up buying in the same market." Pang said one client looking for a home in Markham in the $800,000 range in recent months has been stumped by the dearth of listings. "I've only been able to show two eligible homes."

TREB warned that comparisons with last year will continue to be extreme in the first quarter of this year as "we continue to make comparisons to weak market conditions at the beginning of 2009." Jason Mercer, TREB's senior manager of market analysis, said sales and price growth are expected to slow in the second half of the year. Average prices increased by 4 per cent in 2009 compared with 2008. But some analysts feel that prices this year will end up about the same or slightly below last year's levels. Rising interest rates, a new Harmonized Sales Tax and more listings on the market are expected to cool things down.

Greece, Portugal Woes Intensify
The cost of insuring the debt of euro-zone members with large budget deficits against default rose Thursday, dashing hopes that the European Commission's qualified endorsement of Greece's budget plan would calm investor fears. Greece, Portugal and Spain were in focus, with their five-year sovereign credit default spreads moving sharply wider. Greece's five-year sovereign credit default swap spreads were recently at 4.14 percentage points, compared with Wednesday's closing level of 3.97 percentage points, according to to CMA DataVision. That means the annual cost of insuring €10 million of Greek government debt against default for five years had risen €7,000 to €414,000.

Portugal's five-year sovereign CDS spreads were at 2.09 basis points—their widest level ever—after closing Wednesday at 1.96 percentage points. Spain's sovereign CDS spreads widened to 0.12 percentage point to 1.64 percentage points. The moves followed news Wednesday that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only €300 million of treasury bills at an auction, compared with an indicative offer of €500 millon; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012. Spreads on a credit default swap index of developed European sovereign borrowers rose above 1.00 percentage point for the first time Thursday, driven by further weakness in Spain and Portugal.

The SovX Western Europe index, which lets investors buy or sell default insurance on a basket of 15 sovereigns, widened beyond 1.00 percentage point Thursday morning, compared with .925 percentage point late Wednesday. Gavan Nolan, vice president of credit research at index-owner Markit, said there was "panic buying" in the sovereign CDS market. The 10-year yield spread between Portuguese government bonds, or OTs, and German bunds widened briefly to 1.75 percentage point early Thursday, up from 1.43 percentage point at Wednesday's close, before retreating to 1.69 percentage point. The 1.75 percentage-point level is close to the highest closing level of 1.78 percentage point registered in March 2009. Portuguese spreads have more than doubled this year from .68 percentage point at end-2009.

Greek 10-year spreads over German bunds were relatively quiet Thursday at 3.55 percentage point versus 3.51 percentage point at Wednesday's close, but below the all-time high of 4.05 percentage point reached last week. Spanish 10-year spreads over bunds were at 0.94 percentage point versus 0.87 point point at Wednesday's close. Spanish and Portuguese stock markets fell sharply for the second consecutive day, with banks leading decliners on sovereign debt worries. At 0920 GMT, Spain's IBEX-35 index was down 2% at 10659.5, while Portugal's PSI-20 was down 3.2% at 7575.8. Meanwhile, stocks in Athens were down 2%. In the foreign exchange market, the euro hit a seven-month low against the dollar, dropping to $1.3831. CDS are tradable, over-the-counter derivatives that function like a default insurance contract for debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller.

Greece's Biggest Union Votes to Strike, Threatening Deficit-Reduction Plan
Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, showing that Prime Minister George Papandreou’s parliamentary majority may not be enough to implement his plan to cut the European Union’s largest deficit. GSEE, which represents about 2 million workers in the private sector, voted at a meeting in Athens today to walk out Feb. 24. The main public-employee union plans a Feb. 10 strike to protest spending cuts as Papandreou steps up budget cuts to persuade investors Greece won’t need a bailout. "It is still the beginning," Stathis Anestis, the GSEE spokesman, said on the telephone today. The slogan for the strike is "people come first, markets and profit second," he said. Anestis reiterated the union’s view that Papandreou’s government "succumbed" to the markets.

Greece’s plan to narrow the budget gap won European Commission backing yesterday after the government announced more measures to reduce the shortfall. Papandreou promised to increase fuel taxes and raise the retirement age, while retreating on a promise to raise wages faster than inflation, a pledge that helped him win elections in October. "The first part of the action plan is on its way and now has the EU’s approval," said Ioannis Sokos, a London-based interest-rate strategist at BNP Paribas SA. "What remains is the second part which has to do with the Government versus the Greek people. This is as tough as the first part."

The benchmark ASE stock index fell about 3 percent today. Bond rose after European Central Bank President Jean-Claude Trichet said he is confident that Greece can cut its budget deficit. The risk premium investors demand to buy Greek debt over comparable German 10-year bonds narrowed 3 basis points to 347 basis points. "We expect and we are confident that the Greek government will take all the decisions that will permit them to reach that goal" of cutting the deficit below the European Union’s limit, Trichet said at a press conference in Frankfurt. Papandreou, 57, has appealed twice this week for Greeks to accept "painful" measures, saying the country can’t afford strikes and blockades. The previous government of Kostas Karamanlis was plagued by labor protests after he tried to tighten pension rules and raise taxes to shore up the government’s finances.

The tax collectors struck to protest cuts in bonuses to the public sector. About 98 percent of the 14,000 collectors joined the protest, a POEDY-DOY union spokeswoman said. Also striking for 48 hours are customs workers and Finance Ministry employees, who blocked entry to the economy and finance ministries in central Athens today, the state-run Athens News Agency reported. "The majority of Greek society continues to support us because it knows these are necessary decisions and taken with a sense of justice," Finance Minister George Papaconstantinou told Greek Mega TV in an interview late yesterday. The plan endorsed by the European Union would slash the deficit of 12.7 percent of gross domestic product to within the EU’s 3 percent limit in 2012. Concern that Greece and other European nations may struggle to contain their deficits has pushed the euro down more than 7 percent since late November.

Joaquin Almunia, the EU’s monetary-affairs commissioner, was forced yesterday to reject suggestions International Monetary Fund aid would be needed. The euro nations "have taken the situation in hand," IMF Managing Director Dominique Strauss-Kahn said today on RTL radio in France. "We are there to help, if asked, but I understand that the euro nations want to handle the situation themselves." Greek unions have already tested Papandreou, who heads the socialist Pasok party. Dockworkers struck for several weeks in October to demand the government keep a promise to re-examine the handover of part of the port to Hong Kong-based Cosco Pacific Ltd. Farmers have been blocking roads and border posts for about two weeks to demand higher prices.

Support for the previous Karamanlis government was weakened by December 2008 riots sparked by the police shooting of a teenager. At the time, GSEE and ADEDY, the civil-service group representing about 600,000 state workers, rebuffed a call from the prime minister to cancel a planned general strike to prevent more clashes, adding to the pressure on Karamanlis. "Greece and the rest of the fiscally challenged periphery is still in for a bumpy ride, not least because the social and political opposition to austerity programs of this kind is likely to build from here," said Russell Jones, head of global fixed-income strategy at RBC Capital Markets in London.

ADEDY called its Feb. 10 strike to oppose plans by Papandreou to deepen spending cuts and to limit wage increases to those earning less than 2,000 euros ($2,782) and to trim bonuses for all state workers. Papapandreou widened the wage freeze to all public workers on Feb. 2. State pay increases provide a gauge for increases given to workers in the private sector. "Our worst expectations were confirmed," ADEDY Chairman Spyros Papaspyros said yesterday. "There is more to come."

Greece under EU protectorate as funds shift fire to Portugal
The European Commission has ordered Greece to slash public spending and spell out details of its austerity plan within "one month", invoking sweeping new EU Treaty powers to impose a radical shake-up of the Greek economy. Greece's labour federation immediately called a general strike for February 24, dashing hopes that Europe's provisional backing for Greek crisis policies would restore investor confidence. Joaquin Almunia, the EU economics commissioner, said tough measures were "extremely urgent" to prevent a further flight from Greek debt. "The huge imbalances from which the Greek economy is suffering are not sustainable in the long run. The fact of the matter is that markets are putting on pressure. This pressure cannot be ignored."

Mr Almunia said concerns have spread beyond Greece to other eurozone countries where public finances are spinning out of control, chiefly Spain and Portugal. "In these countries we have seen a constant loss of competitiveness ever since they joined the eurozone. The external financing needs are quite big," he said. Yields on 10-year Portuguese bonds jumped 21 basis points yesterday as funds switched their fire to the next "domino", questioning whether the government of Jose Socrates can deliver spending cuts without a parliamentary majority. "The lightning rod has been passed to Portugal: who is next – Spain?" asked Marc Chandler, from Brown Brothers Harriman.

George Papandreou, the Greek premier, has agreed to a rise in fuel taxes and a partial freeze in public wages to stop the country "falling off a cliff". Even this will not be enough to satisfy Brussels – itself under pressure from Germany and the European Central Bank. The EU's hard-line faction is afraid that fiscal discipline will break down altogether across "Club Med" nations unless Greece first suffers public flagellation. Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labour markets and private commerce – a step-change in the level of EU intrusion. The EU told Greece to "spell out the implementation calendar of (budget) measures within one month". Athens must be ready to "adopt additional measures if needed" and to submit quarterly updates.

To cap the humiliation, the EU is taking Greece to court over past falsification of budget figures. "This is the first time we have established such an intense and quasi-permanent system of monitoring," said Mr Almunia. The Greek Left said the measures reduce Greece to an economic protectorate. The gap between what EU demands and what ordinary Greeks seem willing to accept is so wide that it may prove extremely hard for Mr Papandreou carry the country. The top union bloc said the government had "succumbed to the will of the markets" but would now have to face the stronger will of the people.

Samir Patel, from the consultancy BH2, said austerity plans will "almost certainly send Greece into a deflationary spiral", and tip its banking system "into the Mediterranean Sea". Greece is being told to carry out IMF-style retrenchment without the IMF cure of devaluation. One banker described events as eerily similar to market confusion before the failure of Bear Stearns and Lehman Brothers in 2008, this time involving sovereign states rather than banks. It is assumed that Europe must in the end rescue Greece, but Germany is so far sticking to its "no bail-out" mantra and nobody knows for sure how the drama will end.

The legal and political structure is simply not ready to cope with an escalation of the crisis and the problems spreading to Spain, should that occur. Spain's budget deficit reached 11.4pc last year, and is on a worrying trajectory for a country that has lost so much intra-EMU competitiveness and cannot let the currency take the strain. Spanish bank BBVA shocked markets last week with a 94pc fall in profits, largely due to property losses. Spain's mortgage association said days later that the "real estate sector is bankrupt" and threatened the financial system. Spain's total public and private debt is over 300pc of GDP, much higher than Greek debt. With unemployment already above 4m – or 4.5m including regional jobless schemes – Madrid will not react well to the sort of austerity imposed on Athens. Fears that the slow fuse on Spain's political crisis may soon detonate a timebomb is creeping into the markets.

Italy Seizes $100 Million Bank of America, Dexia Assets In Derivatives Fraud Probe
Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.
Police are investigating losses on derivatives linked to the sale of 870 million euros of bonds sold by the regional government in 2003 and 2004, according to an e-mail from the prosecutor’s office in Bari today. The banks misled the municipality, located in the heel of Italy, on the economic advantages of the transaction and concealed their fees, the prosecutor said.

The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG in April and requested they stand trial for alleged fraud. Hearings started this month. "Italy, like other countries, is full of these examples," said Dario Loiacono, a banking lawyer in Milan who isn’t involved in the case. "It’s the result of the unavoidable asymmetry of information between the banks and the municipal borrowers."

Police are sequestering a further 30 million euros that the municipality was set to place in a fund managed by the banks on Feb. 6, the prosecutor said. The magistrate also asked that Charlotte, North Carolina-based Bank of America be stopped from doing business with Italian municipalities for two years. A hearing is slated for next month. A spokesman for Bank of America in London declined to comment. Dexia Crediop SpA doesn’t have derivatives contracts with the region, the Rome-based Dexia unit said in an e-mailed statement. An official for the bank declined further comment.

Merrill Lynch, bought by Bank of America in January 2009, managed the bond sales for Apulia in 2003 and 2004. The bank didn’t provide the municipality with appropriate information on the financing, said the prosecutor. Officials at the municipality didn’t speak English, and contracts weren’t translated into Italian. Merrill also recommended that Apulia seek advice from an international law firm, without disclosing that Merrill itself had a long-standing business relationship with the law firm, the prosecutor said.

Prosecutors allege that when the banks arranged swaps and created a fund that invests money the region set aside to repay the bonds in 2023, they misled the region about the economic advantages of the transaction. Banks skewed the swaps to their advantage to hide fees, the prosecutor said. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or weather. The seizure of Apulia’s semi-annual repayment of the bond will neither affect the interest payments bondholders receive nor will it affect the final repayment, the prosecutor said. Apulia is rated A1 by Moody’s Investors Service, four levels below the top investment grade.

Ken Lewis, Bank of America Sued by Cuomo for Fraud
Former Bank of America Corp. Chief Executive Officer Kenneth Lewis was sued by New York Attorney General Andrew Cuomo for defrauding investors and the government when buying Merrill Lynch & Co. The bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators. Cuomo also sued the bank’s former chief financial officer Joe Price and the bank itself for not disclosing about $16 billion in losses Merrill had incurred before it was bought by Bank of America in an effort to get the merger approved. Afterwards, Lewis demanded government bailout funds, Cuomo said.

"We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud," Cuomo said today at a press conference. "Bank of America and its officials defrauded the government and the taxpayers at a very difficult time." Cuomo is pursuing individuals at the bank while the U.S. Securities and Exchange Commission has declined to do so. The suit is being filed under the Martin Act, a New York securities law that permits both civil and criminal penalties. Cuomo said he coordinated efforts with the SEC. "Our case will bring individuals to justice and will make a point to people that this is a very serious matter," he said. "When you settle a case the way the SEC is settling today, the upside is you implement immediate regulatory reforms."

Bank of America, based in Charlotte, North Carolina, is required to take seven steps in the next three years to bolster corporate governance and internal controls. Neil Barofsky, special inspector general for the Troubled Asset Relief Program, also joined in the investigation. Bank of America was criticized by lawmakers and investors last year for allegedly leaving the public in the dark about Merrill Lynch’s mounting losses and potential bonus payments while seeking to complete the takeover. The uproar helped spur Lewis’s retirement last year. SEC and New York officials said that current bank CEO Brian Moynihan played no part in the alleged misstatements and cooperated with their investigation.

The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved after the acquisition in January 2009 to keep the deal from collapsing. The bank redeemed the shares in December. "We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit," the bank said in a statement. "In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves."

Cuomo said Bank of America scheduled a shareholder vote to approve its plan to buy Merrill on Dec. 5, 2008. However, by that date, Merrill incurred losses of more than $16 billion, Cuomo said. Bank of America’s management, including Lewis and Price, knew of the losses and that more were coming, Cuomo said. After the merger was approved, Lewis told federal regulators the bank couldn’t complete the deal without a taxpayer bailout because of accelerated losses from Merrill, Cuomo said. However, between the time the shareholders approved the deal and the time Lewis sought the bailout, Merrill’s losses only increased by $1.4 billion, Cuomo said.

"The conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them," Cuomo said in the lawsuit. "Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth." The suit, filed in New York state Supreme Court in Manhattan, seeks monetary relief and injunctions. David Markowitz, Cuomo’s special deputy attorney general for investor protection, said the suit came after 75 days of testimony and the review of more than a million documents. He said no monetary demand has yet been made yet.

The suit claims Bank of America received more than $20 billion in taxpayer aid as a result of their misleading efforts. Cuomo’s statement said the bank can’t explain why they didn’t disclose the losses to shareholders though the merger "would have threatened the bank’s very existence if there had been no taxpayer bailout." Cuomo also claims management failed to disclose to shareholders it was allowing Merrill to pay $3.57 billion in bonuses. Nor did the bank’s management tell the bank’s lawyers about the extent of Merrill’s losses before the shareholder vote. Cuomo’s suit also alleges the bank’s former general counsel, Timothy Mayopoulos, was fired after he confronted Price after the shareholder vote when he learned of Merrill’s losses. Cuomo says Mayopoulos was intentionally misled beforehand.

Colorado Springs cuts into services considered basic by many
This tax-averse city is about to learn what it looks and feels like when budget cuts slash services most Americans consider part of the urban fabric. More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled. The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.

Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that. Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero. City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends. The city won't pay for any street paving, relying instead on a regional authority that can meet only about 10 percent of the need.

"I guess we're going to find out what the tolerance level is for people," said businessman Chuck Fowler, who is helping lead a private task force brainstorming for city budget fixes. "It's a new day." Some residents are less sanguine, arguing that cuts to bus services, drug enforcement and treatment and job development are attacks on basic needs for the working class. "How are people supposed to live? We're not a 'Mayberry R.F.D.' anymore," said Addy Hansen, a criminal justice student who has spoken out about safety cuts. "We're the second-largest city, and growing, in Colorado. We're in trouble. We're in big trouble."

Colorado Springs' woes are more visceral versions of local and state cuts across the nation. Denver has cut salaries and human services workers, trimmed library hours and raised fees; Aurora shuttered four libraries; the state budget has seen round after round of wholesale cuts in education and personnel. The deep recession bit into Colorado Springs sales-tax collections, while pension and health care costs for city employees continued to soar. Sales-tax updates have become a regular exercise in flinching for Mayor Lionel Rivera. "Every month I open it up, and I look for a plus in front of the numbers instead of a minus," he said. The 2010 sales-tax forecast is almost $22 million less than 2007.

Voters in November said an emphatic no to a tripling of property tax that would have restored $27.6 million to the city's $212 million general fund budget. Fowler and many other residents say voters don't trust city government to wisely spend a general tax increase and don't believe the current cuts are the only way to balance a budget. But the 2010 spending choices are complete, and local residents and businesses are preparing for a slew of changes:
  • The steep parks and recreation cuts mean a radical reshifting of resources from more than 100 neighborhood parks to a few popular regional parks. The city cut watering drastically in 2009 but "got lucky" with weekly summer rains, said parks maintenance manager Kurt Schroeder. With even more watering cuts, "if we repeat the weather of 2008, we're at risk of losing every bit of turf we have in our neighborhood parks," Schroeder said. Six city greenhouses are shut down. The city spent $19.6 million on parks in 2007; this year it will spend $3.1 million. "If a playground burns down, I can't replace it," Schroeder said. Park fans' only hope is the possibility of a new ballot tax pledged to recreation spending that might win over skeptical voters.

  • Community center and pool closures have parents worried about day-care costs, idle teenagers and shut-in grandparents with nowhere to go. Hillside Community Center, on the southeastern edge of downtown Colorado Springs in a low- to moderate-income neighborhood, is scrambling to find private partners to stay open. Moms such as Kirsten Williams doubt they can replace Hillside's dedicated staff and preschool rates of $200 for six-week sessions. "It's affordable, the program is phenomenal, and the staff all grew up here," Williams said. "You can't re-create that kind of magic." Shutting down youth services is shortsighted, she argues. "You're going to pay now, or you're going to pay later. There's trouble if kids don't have things to do."

  • Though officials and citizens put public safety above all in the budget, police and firefighting still lost more than $5.5 million this year. Positions that will go empty range from a domestic violence specialist to a deputy chief to juvenile offender officers. Fire squad 108 loses three firefighters. Putting the helicopters up for sale and eliminating the officers and a mechanic banked $877,000.

  • Tourism outlets have attacked budget choices that hit them precisely as they're struggling to draw choosy visitors to the West. The city cut three economic-development positions, land-use planning, long-range strategic planning and zoning and neighborhood inspectors. It also repossessed a large portion of a dedicated lodgers and car rental tax rather than transfer it to the visitors' bureau. "It's going to hurt. If they don't at least market Colorado Springs, it doesn't get the people here," said Nancy Stovall, owner of Pine Creek Art Gallery on the tourism strip of Old Colorado City. Other states, such as New Mexico and Wyoming, will continue to market, and tourism losses will further erode city sales-tax revenue, merchants say.

  • Turning out the lights, literally, is one of the high-profile trims aggravating some residents. The city-run Colorado Springs Utilities will shut down 8,000 to 10,000 of more than 24,000 streetlights, to save $1.2 million in energy and bulb replacement. Hansen, the criminal-justice student, grows especially exasperated when recalling a scary incident a few years ago as she waited for a bus. She said a carload of drunken men approached her until the police helicopter that had been trailing them turned a spotlight on the men and chased them off. Now the helicopter is gone, and the streetlight she was waiting under is threatened as well. "I don't know a person in this city who doesn't think that's just the stupidest thing on the planet," Hansen said. "Colorado Springs leaders put patches on problems and hope that will handle it."

Community business leaders have jumped into the budget debate, some questioning city spending on what they see as "Ferrari"-level benefits for employees and high salaries in middle management. Broadmoor luxury resort chief executive Steve Bartolin wrote an open letter asking why the city spends $89,000 per employee, when his enterprise has a similar number of workers and spends only $24,000 on each. Businessman Fowler, saying he is now speaking for the task force Bartolin supports, said the city should study the Broadmoor's use of seasonal employees and realistic manager pay.

"I don't know if people are convinced that the water needed to be turned off in the parks, or the trash cans need to come out, or the lights need to go off," Fowler said. "I think we'll have a big turnover in City Council a year from April. Until we get a new group in there, people aren't really going to believe much of anything." Mayor and council are part-time jobs in Colorado Springs, points out Mayor Rivera, that pay $6,250 a year ($250 extra for the mayor). "We have jobs, we pay taxes, we use services, just like they do," Rivera said, acknowledging there is a "level of distrust" of public officials at many levels.

Rivera said he welcomes help from Bartolin, the private task force and any other source volunteering to rethink government. He is slightly encouraged, for now, that his monthly sales-tax reports are just ahead of budget predictions. Officials across the city know their phone lines will light up as parks go brown, trash gathers in the weeds, and streets and alleys go dark. "There's a lot of anger, a lot of frustration about how governments spend their money," Rivera said. "It's not unique to Colorado Springs."

Weak Prices Hit Food Makers, Sellers
Profits at Agricultural Processors, Supermarkets Stay Squeezed as Deflation Undercuts Sales

Deflation is great for consumers looking for bargains. It's not quite as pleasant for the merchants providing those bargains. Companies in the food business—particularly supermarkets and food distributors—are hoping to see some price appreciation after a year of wrestling its evil twin. Deflation puts sellers on a treadmill, forcing them to sell ever-more products at less price for the same revenue. It also saps profits, as the merchants must continually cut fixed costs, not an easy thing to do. The impact of persistent deflation will be clearer Thursday as Sara Lee Corp., food processor Bunge Ltd., Kellogg Co. and Burger King Holdings Inc. report earnings. Their view of any moderation in downward pricing and whether consumers have stopped trading down will bear close watching.

Archer Daniels Midland Co. on Tuesday posted lower fiscal second-quarter earnings due to lower selling prices and higher commodity prices, despite increased unit volumes. But it benefited from energy inflation, turning more corn output over to its large ethanol refining operations. Food distributor Sysco Corp. said Monday its fiscal second-quarter sales were crimped by deflation, mainly in dairy and beef products. Chief Operating Officer Ken Spitler said "deflation pressures appear to be moderating from the highs we saw earlier in the quarter," but have yet to reverse.

Sysco Chief Executive William DeLaney said "we're hoping to see a continuation of the moderation" and at some point "see some mild inflation, but it's hard to call as far as timing." He's not talking about energy. Oil futures have been bouncing back this week, pressing toward $80 a barrel. Mr. Spitler said he is "very concerned" about rising fuel prices "and how it plays out the rest of the year." Sugar is another concern. Companies that make and process sweeteners are getting squeezed by rising sugar prices, which hit a 29-year high Monday. ADM and British food processor Tate & Lyle PLC set sweetener contract prices early this year. But with sugar prices spiking, margins are coming under pressure. Tate & Lyle said margins at its U.S. corn-milling operations could fall 10% this year.

Meanwhile, a report on food retail last week from ratings agency Standard & Poor's paints a challenging picture for grocery stores as they navigate the downward pressure on prices. The firm expects sales growth during the next 12 months to bear the weight of continuing deflation "and retailers' willingness to offer low prices to customers in an effort to draw traffic to stores." Competitive pressures "will be intense through 2010," S&P said in its retail report. "Based on our expectations of rising deflationary food pricing pressures continuing in the first half of 2010, we look for traditional grocery chains on average to experience sluggish comparable-store sales growth for 2010," the report added.

Restaurants aren't expected to have much pricing power either. The U.S. Department of Agriculture last month trimmed its 2010 food inflation estimate to between 2.5% and 3.5%, from between 3% and 4%, mainly because it sees food prices at restaurants rising less than previously forecast. "In my 30-plus years in retail, I've never witnessed the intense level of price reductions and promotional activity now occurring," Supervalu Inc. Chief Executive Craig Herkert said last month. "My belief is that the recent industry trend toward lower pricing is here to stay."

Buffett Stripped of His Last AAA Rating as S&P Cuts Berkshire
Warren Buffett’sBerkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp. Berkshire, which is taking on debt to fund the $26 billion takeover, was cut to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal for Burlington Northern. "The railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity," the ratings firm said.

Buffett, 79, has called the railroad acquisition an "all- in wager" on the U.S. economy, and he’s borrowing $8 billion to complete the purchase. Omaha, Nebraska-based Berkshire lost its top credit grades at Fitch Ratings in March and at Moody’s Investors Service in April amid a slump in the firm’s manufacturing, retail and travel businesses. The ratings firms "are hedging their bets in the event of another economic downturn," said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. Buffett’s firm is "expanding in economically sensitive businesses, like the railroads," he said.

General Electric Co. and drugmaker Pfizer Inc. are among companies that lost their top credit grades from S&P in the past year. Berkshire, which Buffett built into a $170 billion company over four decades, was raised to AAA at S&P in 1989. Buffett, Berkshire’s chairman and chief executive officer, said in May that the loss of top credit grades from Fitch and Moody’s had "no economic impact" on Berkshire. "My pride may be wounded just a bit," he said in a Bloomberg Television interview.

Berkshire reported its first loss since 2001 in the first quarter of 2009 as Buffett’s stock bets soured. The firm returned to profit in the second and third quarters as equity indexes advanced. Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pretax profit plunge of more than half at Berkshire’s manufacturing, service and retailing units in the first nine months of 2009. Buffett, the second-richest American, positioned Berkshire to weather the contraction in the U.S. economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged, he drew on that hoard to finance Goldman Sachs Group Inc., GE, Swiss Reinsurance Co. and the Mars Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co.

Regulator to Block New Loan Products from Fannie, Freddie
Mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to introduce new loan products in the mortgage market while they are under the control of the U.S. government, the companies' federal regulator announced Tuesday in a letter to Congress. Since last summer, Fannie and Freddie had been allowed to submit new loan products for review through a process established by the companies' federal regulator, the Federal Housing Finance Agency. While no new products have been submitted yet, the regulator cited the companies' massive losses and looming challenges in making his decision to block future product submissions. "It's a standard regulatory approach to limit or restrict new business activity," said Edward DeMarco, the FHFA's acting director, in an interview Tuesday.

In a letter to senior lawmakers, Mr. DeMarco said he had "concluded that permitting the enterprises to engage in new products is inconsistent with the goals of conservatorship." He cited the "critical and substantial resource requirements" from the companies' current efforts to stem ballooning loan losses and the fact that the companies operate today "only with the support of taxpayers." The new rule won't apply to foreclosure prevention efforts, which are considered separate from new product offerings.

Mr. DeMarco also defended his decision to approve multimillion-dollar pay packages for the companies' top executives, a move that has drawn bipartisan criticism in recent weeks. He cited the need to retain top talent given the massive challenges and uncertain future facing both companies in approving the pay deals. "It is critical to retain existing staff, including many senior managers, and critical to attract new executive management" to fill vacancies, he wrote. "Any other approach puts at risk the management of more than $5 trillion in mortgage holdings and guarantees that are supported by taxpayers."

House Republicans last month introduced a measure that would replace the salaries of top executives with federal pay scales, which are capped at nearly $200,000. The chief executives of Fannie and Freddie are set to take home cash compensation and bonus pay worth $6 million for 2009, which the FHFA said is 40% below the compensation levels from 2007. Both companies have faced turnover in the executive ranks and Freddie Mac last year had to recruit new chief executive, financial and operating officers. "The challenge of doing this with the companies in conservatorship is immense," said Mr. DeMarco.

Summers’s role questioned as US economic policy shifts
As President Obama and his team have rolled out a fresh set of strategies to fix the economy, one item on the list - curbing the ability of big banks to gamble in the stock market - has been viewed by some as a repudiation of Lawrence H. Summers, the former Harvard president who is the White House’s chief economic adviser. Summers, who favored bank deregulation when he was secretary of the treasury for President Clinton, had counseled Obama for much of last year to take a less sweeping approach to overhauling bank rules. But that point of view publicly fell out of favor last month as the White House adopted a more red meat, populist tone after angry Massachusetts voters sent Republican Scott Brown to fill the US Senate seat that was held by the late Edward M. Kennedy.

Taking on big banks, the president said, "is a fight I’m ready to have.’’ This week, Paul Volcker, a chief White House adviser and former Federal Reserve chairman who favors pushing tighter restrictions on banks, appeared before a Senate committee to press the administration’s case. Despite the shift, Summers and White House officials insisted in interviews last week that Summers continues to play his powerful, behind-the-scenes role as key architect of the administration’s economic strategy. Summers said suggestions in the media that he disagreed with the president’s decision to get tougher on banks are false and that he supported major new steps to reduce financial risk-taking. Obama had privately sought advice on stronger action beginning in October, according to an administration official, and Summers was a full participant.

"The president gets advice from many different quarters and forms the best judgments he can. Certainly he doesn’t always take my advice,’’ Summers said before leaving Washington for the World Economic Forum in Davos, Switzerland. The bottom line, Summers said, is that he is a full-team player. "I support all of the president’s policies,’’ he stressed. As a White House official, Summers gets to avoid the public grillings in Congress that Treasury Secretary Timothy Geithner has been subjected to, over such explosive controversies as Wall Street bonuses and the banking and investment firm bailouts that began in 2008. But he nonetheless has been the subject of public criticism during his first year as captain of Obama’s economic team.

As Treasury secretary during the Clinton administration, he favored deregulatory moves - in particular, repealing the Glass-Steagall Act, which prevented banks from owning investment companies - that some believe helped stoke the financial crisis. He also has close ties to Wall Street, working at a New York hedge fund from 2006 to 2008 and earning speaking fees from major banks in the months before his White House appointment, including from banks that taxpayers bailed out. Summers "is the fundamental problem,’’ said a former federal bank regulator, William Black, now an associate professor of economics and law at the University of Missouri-Kansas City, citing Summers’s close ties to the banking industry and past support of deregulation.

When Obama announced last month that he was embracing the proposal to limit the size and investment activities of banks, an idea pushed by Volcker, the economic world was abuzz about whether Summers’s influence was on the wane. Summers declined to answer directly when asked whether Volcker was ascendant and he was descendant, saying, "I don’t comment on Washington up-down stories.’’ White House officials went to lengths in interviews to squelch any idea that Summers is losing influence in the aftermath of the adoption of the Volcker proposal. "There is no economic policy or international economic policy that Larry is not a part of,’’ Rahm Emanuel, White House chief of staff, said in an interview. "He is the president’s principal economic adviser.’’

That does not mean that Summers doesn’t fight for his view and that administration officials do not engage in internal policy disagreements. Emanuel said Summers and Geithner would sometimes remain at White House meetings until 9 p.m. on Sundays to discuss "shades’’ of differences in their views, although he would not provide specifics. Although Summers’s official title is chairman of the White House National Economic Council, the former Harvard president’s job is to speak as bluntly and privately as possible to Obama, a graduate of Harvard Law School. Summers often does the briefing with other top administration officials, but overall only a handful of people spend as much time with the president as Summers.

Asked whether he made mistakes during the Clinton administration by urging bank deregulation, Summers declined to respond directly. "Hindsight is 20/20,’’ Summers said. "It is very, very clear in current context that we need much, much stronger regulation and one of the crucial areas of regulation is derivatives. There are enough crucial issues facing us today. I’m not focused on debating past controversies. "What’s very clear is the need for stronger regulation today,’’ he said. "That’s something I have expressed forcefully in the years before I went into government.’’

Summers, who still maintains his home in Brookline, became president of Harvard in 2001 and left under pressure in 2006 amid controversy about his comment that innate gender differences could explain why fewer women succeed in math and science professions. During his leadership at Harvard, Summers continued a practice of aggressively investing the university’s cash, despite warnings from two heads of the endowment to take fewer risks with the funds. Two years after Summers left, Harvard lost $1.8 billion in cash as a result of the financial meltdown. After leaving Harvard, Summers went to work for a New York City hedge fund, D. E. Shaw & Co., which paid him about $5.2 million from 2006 to 2008.

In addition, he earned $2.7 million in speaking fees, mostly from financial firms, including several that received money under the government’s bank bailout, such as Citigroup and JP Morgan Chase. For example, he picked up $135,000 for speaking to Goldman Sachs on April 16, 2008, and $67,500 for speaking to Lehman Brothers on July 30, 2008, according to his financial disclosure report. The Lehman speech was given six weeks before the investment banking firm filed for bankruptcy.

In his interview with the Globe, Summers was asked what he would say to unemployed Americans who might have concerns about the way he collected so many large speaking fees from financial institutions just before joining the Obama administration to help shape economic policy. "I’d tell them that the president asked me to come help him and advise him as he took on enormous economic challenges,’’ Summers responded. "Because of the magnitude of the economic challenges, because of my enormous respect for the president and for others on the economic team, I gave up a very wide range of opportunities at the university and in the private sector to come work in government because I thought this was a crucial moment for our economy.’’

Speaking before Friday’s announcement that the economy grew at a better-than-expected rate of 5.7 percent during the fourth quarter of 2009, Summers said he understood that many people don’t believe the recession has ended, particularly because the unemployment rate has remained high. "Nobody can be satisfied with where the economy is right now, but I think the president and all of us on the economic team are relieved that the depression, which looked like a very real possibility a year ago, has not been realized,’’ Summers said. Still, asked to grade his first year in the administration, the former professor said, "It’s always incomplete.’’

20,000 Reasons Not to Hire Someone
by Jay Goltz

After my last post, some readers suggested that I was exaggerating the potential cost of paying unemployment insurance when you hire the wrong person. Fred from Florida wrote, "Payroll tax rates that fund unemployment insurance are affected by the company's history, but it's not a dollar for dollar payout." Actually, in Illinois, it's even worse. The unemployment insurance tax may be the most confusing and misunderstood tax there is. It is run by the states, and the rules can vary as much as the weather from one state to another.

Here's how it works in Illinois. The important point for business owners to know is that when the state pays out claims to a company's former employees, that company's unemployment tax rate goes up. For each business, the state calculates how many dollars have been paid in compensation over the previous three years and adds on about 48 percent through various calculations. The result is that in Illinois, you end up paying for incremental compensation claims at a rate of $1.48 for every dollar that a former employee collects.

If you lay off or fire someone without "cause," that person is eligible for unemployment compensation. "Cause" means that the employee violated a company policy, like coming in late or threatening a co-worker. "Cause" does not include doing a bad job, being very slow, or having a bad attitude. The formula used to calculate the unemployment benefits is still a mystery to me, but the payouts go from a minimum of $51 per week to a maximum of $531, depending on income level, the number of dependents and whether a spouse is working.

It used to be that a former employee would collect unemployment for 13 weeks. Now, it has been expanded to 26. I understand and agree with the concept of unemployment insurance. It can be a lifeline for people who have lost their jobs. It is the cost of doing business and of being responsible, especially to people who have held a job for years. I do question, however, the eligibility rules, at least in Illinois. In some states, an employee has to work 90 days to be eligible. In Illinois, it is 30 working days.

That makes it entirely possible that a business can be taxed more than $20,000 — $531 multiplied by 26 weeks multiplied by 1.48 — for someone who is employed by the business for as few as 30 days. But what if it were "only" $10,000? Does even that make sense for 30 days of employment? And, more important, how much incentive does this provide for businesses to risk hiring new people who may or may not work out?

One of the reasons this expense goes unnoticed by most business owners is that instead of getting a bill for $20,000, which would surely raise awareness, they might get a subtle half percent increase in their unemployment tax rate six to 18 months after the fact. It will stick for three years. The state will get its $20,000, albeit slowly.

I have recently learned that you can be charged with a claim even if you've employed someone for less than 30 days. We fired someone after three weeks because she was text-messaging her friends all day. After we told her twice that she had to work during the day and stop texting, she put her phone away. We then noticed she was leaving her desk drawer open and looking into it a lot. She was now texting out of the drawer.

We fired her, and we assumed that we had no exposure to having to pay unemployment. She filed anyway, and much to my surprise we had to have a hearing. We were told that because she had been eligible to collect unemployment when she accepted a job from us, she might again be eligible despite having worked for us only 21 days. Fortunately for us, we were deemed not responsible for paying the unemployment — but only because we had clear documentation and she did not dispute our facts. She was fired for cause.

As Congress, the Obama administration and the states consider ways to encourage hiring, they should look at incentives, but they should also consider the disincentives. I'm thinking about hiring an outside salesperson. There are many people looking for jobs who might be great at selling art and framing in the commercial interior market. But it takes at least two or three months to determine whether someone has the contacts and ability to be effective. That person will have just finished training after 30 days.

In today's economy, I have to consider the cost of a potentially expensive unemployment tax increase if I hire someone and it doesn't work out. If I knew I could get a chance to try out the person for, say, three months without "buying the farm," it would be a lot more tempting to make the hire. And extending the eligibility period wouldn't cost the government a cent.

As it is, someone who wants a chance to prove himself might not get it because I am hesitant to expose the company to another expensive claim. Do you know what the eligibility period is in your state and how the rate is calculated? From my experience, most business owners don't know. It is good to know.

Jay Goltz owns five small businesses in Chicago.

Britain facing food crisis as soil 'vanishes in 60 years'
British farming soil could run out within 60 years, leading to a catastrophic food crisis and drastically higher prices for consumers, scientists warn. Fertile soil is being lost faster than it can be replenished and will eventually lead to the "topsoil bank" becoming empty, an Australian conference heard. Chronic soil mismanagement and over farming causing erosion, climate change and increasing populations were to blame for the dramatic global decline in suitable farming soil, scientists said. An estimated 75 billion tonnes of soil is lost annually with more than 80 per cent of the world's farming land "moderately or severely eroded", the Carbon Farming conference heard.

A University of Sydney study, presented to the conference, found soil is being lost in China 57 times faster than it can be replaced through natural processes. In Europe that figure is 17 times, in America 10 times while five times as much soil is being lost in Australia. Soil is also a valuable store of carbon and can release the greenhouse gas if it is ploughed or dug up. The conference heard world soil, including European and British soils, could vanish within about 60 years if drastic action was not taken. This will lead to a global food crisis, chronic food shortages and higher prices, the conference heard.

Despite better than average farming practices, European soil might last for 100 years if no further damage occurs worldwide, scientists said. In reality, however, increased land pressures aimed at compensating global production losses would likely mean it will run out faster, they added. Last September the government launched new plans to protect the nation's soil which included farmers being asked to use less fertiliser. Britain imports about 40 per cent of all its food it consumes, a figure that has steadily risen over the past few years. Almost £32 billion of food was imported into the UK in 2008 up from more than £27.7 billion the year before.

John Crawford, professor of Sustainable Agriculture at the University of Sydney, who presented the study, said it was unknown how long soil will last. "It could be as little as 60 years and that is a scary figure because it is not obvious that we have time to reverse decline and still meet future demands for food," he said. "It is not an exaggeration to say that soil is the most precious resource we have got, and... (we) are not up to the task of securing it for our children never mind our grand children." Prof Crawford, the former chair of the UK Biotechnology and Biological Sciences Research Council’s Agri-Food Committee, said restoring soil required several factors.

These factors include minimum ploughing, improved management and "resting" soil by covering crops which helps replace carbon in soil. It can however, take decades to significantly increase the amount of useful carbon in soil, which helps make it fertile. While organic farming could be part of the answer, he said there was "no clear evidence that we can feed the current population using organic approaches, never mind meeting demands in time". Latest forecasts predict the world's population will grow from 6.8 billion to more than 9 billion by 2050, placing even further pressure on food production and farming. The world last year faced a cereal crisis as wheat stocks dropped to a 30-year low after demand for wheat and rice outstripped supply for the past six out of the previous seven years. This resulted in grain prices rocketing, which sparked civil unrest in many countries.


VK said...

I would like to add that the debt ceiling was officially raised today by 1.9 Trillion dollars. That's a nice 14,000 dollars per worker. So cough up taxpayers!! And incase you're feeling left out in Europe, don't worry you're coughing up $15,000 or so this year.

@ Ilargi

Size of US labour force is 131 Million not 180 million, though 80 Million working age adults are not in the labour force.(Apparently they don't need to eat or drink either, watching Avatar is good enough to survive on)

But we'll know more tomorrow after the steeeenking statistics are released.

@ Board

Remember the market has peaked and now we are in a primary downward trend and we should all do the hula when DOW goes below the March lows and the Kumbaya when we reach DOW 2,000 in November or so,this with a few Dos Equis and no Miller Light and a few Rum and cokes for Ilargi and Stoneleigh.

(I command you that you are not to remember this comment if we go above DOW 10,760, I repeat...)

ps - I wonder what Orlov makes of this whole 5 year plan? Sounds like Mao's great leap forward or Stalin's 5 year plans for moving Mother Russia ahead.

Ruben said...

@ el Gall yesterday

"It seems the US dollar is the slowest snail in the race to reach the Schwarzschild radius."

It would seem to me the Schwarznegger Radius is more pertinent...

Edward Lowe said...

Double exports in 5 years. Checked the St. Louis Fred. Real Exports in 2009 were at $1.47 Trillion. That is double the amount for about 1994 ... so that's a doubling in 15 years. So, um Mr. President... You expect 300% greater growth in the next 5 years than in the 1994-2009 period?

Jeezus ... who is advising that idiot!

btraven said...

@ Edward Lowe: Perhaps that should be, "What idiot is advising that snake-oil-salesman?" LOL

btraven said...

In all seriousness, I'm contemplating taking all my money out of my IRAs and defined-benefit pension (when I worked for one of the 50 states) - holding cash until gold & silver finish this current decent, and then load up. I will also buy an acre or two of farmable land as we move further into the depression.


VK said...

Jeezus ... who is advising that idiot!

Tim Geithner, Larry Summers, Robert Rubin and Ben Bernanke.

'Nuff said!

knothead said...

VK you obviously are distracted insomuch as markets. And I doubt this will published beyond the TAE burning reform of digi speak/ books burning.

el gallinazo said...

Major Asian equities markets open 2-3% off.

In an interview, Barry Ritholtz refers to Timmy Twolips as "a dead man walking." Chatter on the Street has it that the feathers are in place in his new nest nestled in the tentacles of the Great Vampire Squid. Never let it be said that the Squid doesn't talk care of its baby vampires.

John said...

BTraven, get more than 1-2 acres and be sure you have good water on the place. John

VK said...

Hey! Has the marginal productivity of music been declining since the mid 70's?

Check out the top 10 songs of all time according to Rolling Stone in 2004.

Top 10 songs

"Like a Rolling Stone", Bob Dylan
"Satisfaction", The Rolling Stones
"Imagine", John Lennon
"What's Going On?", Marvin Gaye
"Respect", Aretha Franklin
"Good Vibrations", The Beach Boys
"Johnny B. Goode", Chuck Berry
"Hey Jude", The Beatles
"Smells Like Teen Spirit", Nirvana
"What'd I Say", Ray Charles

Of the 10 above songs, 9 are pre mid 75 and only 1 is from 1991.

Not one recent song made it (well uptil 2004 anyway)

And of the top 10 albums none were released before 1980!

You know what this means? Music has been experiencing catabolic collapse since the 80's! LOL.

Anyway just listening to Hotel California, now that's a good tune there!

Greenpa said...

ok, guys, dumb question alert. I just can't stand it anymore. These two statements seem wildly incompatible-

"Initial jobless applications increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week,"

and, from CNN: " Employers are expected to have added 15,000 jobs to their payrolls after cutting 85,000 in the previous month..."

How the hell does 480,000 per week mesh with 85,000 per month?

I've been seeing these two statements for months now, and kept thinking "sooner or later, one of these business articles will surely explain this..."

Nope. I've even gone so far as to google. Got nothing comprehensible.

Please- put me out of my misery.

Shamba said...

@btraven wrote .."
In all seriousness, I'm contemplating taking all my money out of my IRAs and defined-benefit pension (when I worked for one of the 50 states)...."

I took my two relatively small IRAs out last summer, they were in some mutual funds and I wasn't quite able to make that move before the fall of 2008. I told myself, "Look, they told you so, they told you to get them out!"

Talk about conflicted! But I just couldn't make that decision even if I believed very much in the fact that the market was going to crash. oh, well, I did wait some for the market to come up from the lows last March and then last June I just rolled them over into my credit union as CDs.

I have some very small deferred comp which I think I'm sending for as well even if it costs me to get it. I suspect it will shrink more than my taxes due on it if I leave it in too long.

Just to let you know, sme of us have thought you r way, too.

peace to all,Shamba

Stoneleigh said...

Gravity (from yesterday),

If the dollar would suffer devaluation by reissuance, what would become of the large volume of physical notes in external circulation, used in many countries in parallel with national currency?

This is an important point. If there were to be a US dollar reissuance, physical US dollars held outside the country would become worthless. This is one reason I suggest you hold whatever passes for cash wherever you live, rather than trying to hold international currencies, even if they will appreciate for a while. Currency risk can kill you if you make a mis-step, and conversion may not always be possible.

Shamba said...


I have felt the same way you have about these unemployment numbers and nothing seems to explain them at all!

That brings up a question of my own since last year:

It has seemed to me that since January 2009 we've had around 500,000 initial claims every week. why doesn't that translate into 2,000,000 lost jobs every months?

I'd say it's all Greek to me but I'd be much better at learning Greek than this stuff!

peace to all,


Stoneleigh said...

El G (from yesterday),

Believe me I would love to visit Central America. After all, I've seen the photos you sent and it looks like paradise on Earth.

I'll have to see what turns out to be do-able down the line. Hope springs eternal though ;)

VK said...

@ Greenpa

The initial jobless claims are those people filing for state benefits that have well, initially lost their jobs!

The BLS payroll survey from where we get our favourite fudged figure of the month, is a national survey of those who've lost their jobs.

Now that wasn't very clear was it? :)

Now every month the US is losing millions of jobs. Every month it also gains millions of jobs.

Payroll Survey = 4 x (Initial Jobless claims - Initial Jobs!) - People not in labour force.

Well sort of, it's more complicated then that. I'm just simplifying what I think I know.

So for eg, 480,000 x 4 and a bit is close to 2 million jobs. So if the payroll figure shows an 85,000 job cut then the math for that month was

85k = 2Mn jobs lost - 1Mn ppl out of labor force due to bad conditions but who won't be counted as unemployed - 900k jobs created.

Now those people who've dropped out of the labour force are part of the reason that continuing claims and Extended claims are so darn high! These people contrary to popular belief on CNBC need to eat and drink food!

I hope that puts you out of your misery.

el gallinazo said...

If voting could change anything.... it would be illegal.
-Noam Chomsky

Stoneleigh said...

Bluebird and others,

I would certainly consider trips to Ohio, Kansas and Minnesota. I was in Minnesota for a business meeting before Christmas and I fancy seeing it in summer :)

We'll see what kind of arrangements work down the line. My job and I are parting company at the end of April. I'm not sure yet what I'll end up doing to earn a crust and what schedule it'll involve. The general plan is to do some consultancy, write a book and travel around doing talks. That should give me a fair amount of flexibility, but there's still too much uncertainty to make specific plans too far in advance.

I need to set up a scheduling system so I don't end up dropping too many of the balls I'm trying to juggle (which being the absent-minded-professor type I am prone to do).

$$$Dollar$$$ said...

Stoneleigh any interest in the DC Metro area?

Norcal said...

Stoneleigh, What about a trip to the San Francisco Bay Area? It's lovely this time of year!

Stoneleigh said...

I'll add Maryland/Virginia and San Fransico to my list of potential trips. I'll have to start keeping a diary to keep all the details straight. I can see I'm going to be busy this year :)

I'll let people know what seems to be do-able once I have a bit more certainty.

It would be a good idea to email our contact address so I have a record of your requests. Otherwise I might forget and not be able to find the original request. Specific TAE comments are hard to find later.

In fact, tomorrow I'll set up an extra email address just for such requests so I can be sure to keep track of everything. It's bedtime now though (past midnight).

el gallinazo said...

Despite Naom Chomsky's observation, voting can be fun. So here is your chance to vote for:

The Dynamite Prize in Economics.

The nominating committee has chosen ten nominees who did most to drop the GFC bomb on the global economy, via their naive and utterly unrealistic theories of economics. You can vote for three.

My vote went to Milton Friedman, Larry Summers, and Alan Greenspan. (Fortunately, Bernanke didn't make the initial cut or I would have been in a quandary). But there are seven additional idiots to vote for. Get more information from Steve Keen's web site at:

Phlogiston Água de Beber said...

@el g

RE: Turbo Tim and Vampire Love.

There is the little business of him not only knowing where the bodies are buried, but must also be presumed to have signed copies of the execution orders stashed in a safe location. ;)

Starcade said...

Speaking as someone who used to be in the lower classes of SF, I'd be VERY CAREFUL about SF, especially if what I've been hearing lately is actually coming to pass.

Phlogiston Água de Beber said...

RE: Stoneleigh in Minnesota.

I don't know if there are any other Iowans that hang out here, but this old Iowa boy would like another shot at meeting the Oracle of Ontario. Doesn't seem like it would make much sense for her to come here, and you Minnesotans did strike first. :)

If by some chance, her appearance could be staged at some place not too far from the border, I'd sure try to come up. Maybe you would even consider southwestern Wisconsin. I bet Stoneleigh might like to see Prairie du Chein.

If this suggestion would be comfortably received in Paul Bunyon Country, I think I might even be up for subscribing a sizable part of her expenses. What do you say neighbors?

Unknown said...
This comment has been removed by the author.
team10tim said...


It's not catabolic collapse. It's just very difficult to improve on perfection and as we all know:

Rock music attained perfection in 1974, it's a scientifically proven fact. -Homer Simpson

umaperegrina said...

I'm also from Iowa (NW, close to Minnesota border) and would love to attend a Stoneleigh event in the area.

carpe diem said...


I was at school here in the late 60's. Definitely the best 2 years of my life. I dreamed for 40 years to live here visiting often - usually in the summers for the breathtaking summer hiking in the alps.
I looked for a place for about 8 years. Nothing was quite right and usually way over my price range. Two years ago I found 'the' place. After 40 years the dream did come true. Best decision I ever made. If you live simply, life is actually affordable (contrary to popular thinking). Peaceful, crime free,
low/no stress. Hope it lasts!!

scandia said...

@ carpe diem, I am going to pass on your story to my son. He has held the dream for only 25 years! Living simply unfortunately is not his style. He likes Zurich and skiing at St. Moritz!

el gallinazo said...

Tero said...
Why is everyone watching the stock markets?

Presumably you asked this question with the implied proposition that the equities market are not a meaningful indicator of the health of the world economies. And this is true. But the collapse of the world equities market are politically and psychological important. The suckers market has been the hat peg upon which the political leaders have claimed the recovery / green shoot mythos. The end of the last vestiges of this subterfuge will result in seismic political activity.

Additionally, the last pockets of wealth of the former middle classes lie in their 401-k's, IRA's and their managed pension funds which are about to get eaten by the squids. Eventually, most of the money market funds will fail, as they started to do during the Lehman collapse.

Ir will mark the end of the final vestiges of popular economic stupidity such as the current Canadian housing boom.

It will mark the end of the Great Recession and the start of the Second Great Depression.

zander said...

@ tero...
Why is everyone watching the stock markets?

Being proved right is such fun.;)

Stoneleigh, you must've read my mind I was going to pose the Q. that I have now decided to withdraw what I have from fraudulant establishment of choice and was wondering if it would be a good idea to transfer this capital to USD as it is sure to appreciate against the £ near term and eventually I might buy gold certificates from the UK company (forget the name)as per the advice in conquer the crash, do'you reckon I should just hold onto my UK fiat then? I will of course deal with the safe storage of said funds in a way only a scotsman could, I.E. if I die unexpectedly it should be found around 3416 by a future race who have developed the technology to bury miles into the earths core :)

VK, sorry to piss on your parade pal, but Cheryl (remember 12,500 s&p cheryl??) called the top almost to the day at circa DJI 10,700, that was SOME call, gotta give it to her.

Just for the record I've also cashed in my pension fund, and I do genuinely feel sorry for the poor folks in the UK who have naively put their faith in some sort of future financial security which simply ain't gonna be there, and they just will not listen when you try to explain this..... truly brainwashed by a system sucking the very lifeblood from them, poor sods.
noon here in UK, markets all down heavily in morning, regained some ground at the mo. DJI looks like opening around 9950 IMO. would be grateful if someone would tell me what time the unemployment figure is out in UK time, just so I can get comfortable like.


el gallinazo said...


Paper gold is the last place I would try to store wealth. It appears that the private paper gold companies have started their own little fractional reserve scam, particularly in London. The only gold which will have any value shortly will be that which can be put on the balance.

Stoneleigh said...


USD should be alright for a while, but those outside the US are taking an additional substantial risk in holding it. If people want to do so anyway, because there is a substantial upside in the shorter term, I would make sure you get in early and out early, like with all market moves.

You need to hold your cash on hand cushion in your own currency though, because that's what you can use for transactions in your local economy. If you have more than makes sense to hang on to locally you could try gilts in the UK. Never buy paper gold, as those claims will not be worth anything. There are vastly more paper gold claims than there is real gold available. Physical gold has its good points, but its' a double-edged sword, as we discussed here before.

Stoneleigh said...

I'm going to have to work on my US geography, so I can plan a sensible number of trips and get close to as many interested people as possible in a reasonable amount of time :)

Stoneleigh said...


To me, markets are a sensitive indicator of social mood (optimism vs pessimism, greed vs fear). Where the financial markets lead, the real economy follows, with a variable time lag depending on the strength of the move.

IMO we are in the early stages of a decline that will be one for the record books. Markets don't crash right out of the gate, so to speak. Momentum to the downside takes time to build, so what we're seeing now is nothing compared to what's to come. Getting back down to the March 2009 low should take a fraction of the time the rally took to get us up to where we recently were.

In the real economy, we are already seeing states and municipalities in the US hitting the wall, and whole countries in Europe are heading rapidly towards the same solid obstacle. There is going to be a great deal of unrest in many places, and that will spread as financial contagion spreads, because the fear that drives financial contagion is very 'catching'.

scandia said...

@ Stoneleigh...I am wondering about your personal security as you depart on speaking engagements thereby revealing your identity.
Also wondering if Ilargi might be able to make it to Ottawa. Not so far from where you live?

el gallinazo said...


Thanks for the CNBC/Biderman video interview. I felt that the high point of the interview was when Biderman pondered where the after hours uptick was coming from, and he got slapped down by the presenter as a conspiracy theorist. If one has an IQ above 75 and uses it to look at strange data and evidence, one automatically becomes a "conspiracy theorist." Just another tool of the ruling classes, who, of course, are feverishly conspiring to part everyone else from their last vestiges of wealth. Nothing to see here folks - move on.


If the Fed reissues currency, invalidating the old FR notes, it will have an interesting effect on Panama and Ecuador, countries which are using the dollar as their own currency.

zander said...

El g and Stonleigh,

The new updated CTC recommends a company that stores physical gold as you purchase it, not paper gold, I would never own paper anything
Sorry but could you direct me to the primer on the probs of physical gold,
I do have more money than sense and yet I'm still skint, so that says a lot about my intellect.
Maybe you are right and I'll just hold onto physical cash, It's a relatively small amount and may be gone by the time this situation cures ,if ever,
Never done investment before and am maybe out of my depth. I'm a hand to mouth sort of geezer.


Anonymous said...

On January 3, 2010 the New York Times reported that 6 million Americans were living on nothing with no reported income, other than food stamp subsidies.

I would like to add the following piece, On American Privilege.

How to survive on $3,000 a year or less in the US

Ever wonder what it would be like to live on $8.00 a day? There is an interesting website, According to their Facts and Statistics on Poverty, more than 4/5ths of the world's human beings survive on $10 a day or less. Half of them survive on under $2.50 per day.

For the past year, I have been trying to understand what it would mean for an average American to live with an annual income cap of $3,000 without any government assistance or subsidy. I have determined it means sacrificing almost all of your basic needs and all of the privileges of modern American life.


According to the United States Food and Drug Administration's calculations, the average monthly cost of food at the lowest level of income 'Thrifty Plan' for anyone over the age of 18 years old in the US as of June, 2008 is $146.90 per month or $1,762 a year. The lowest cost on the 'Liberal Plan' is 275.30 or $3,303 per year. This means that if you are extremely thrifty, you will be able to eat all year but it will take up over half of your resources to do so. If you are liberal, you will go without food at least some time during the course of the year.

According to (Rhode Island), the average price to rent a two-bedroom apartment in 2003 in the state of Rhode Island was $1,032 per month, or $12,276 per year. Well, that is certainly out of the question. Let's look at low-cost options in Portland, Oregon from 2007 (see chart generator at: Dave Dugdale at Home Rental Blog)

Even the lowest listing in 2007 for a studio apartment in Portland, Oregon comes in at $7,320 per year. This is over twice your annual budget.


Anonymous said...

Health Care
MSNBC reports in February of 2009, the average cost of health care per person in the US is $8,000 per year. This figure reflects a rise of average per person health care costs of 22% from the previous year. Their report states that government experts predict these costs to reach $13,100 per person per year by 2018 and reflect 1/5th of the domestic economy. This means that current costs are almost three times your annual resources now and could reach between four and fives times your resources in the coming decade. No health care in this budget.

According to, the lowest costs for higher education for two-year colleges strictly for tuition and fees averaged about $2,544 per year during 2009-2010 and account for 31% of all full-time students. This number reflects a 7.3% increase from the previous year. According to our budget, you could theoretically afford to spend almost all of your budget this year and the next, but by 2013 it would be out of your reach forever.


Most Americans enjoy additional privileges beyond the most fundamental ones examined above. Heating, transportation - especially new clothing, dental care, funeral care, private ownership of vehicles, access to information via public libraries, newspapers and the internet, electricity, plumbing, sanitation, telephone. television, emergency services and even entertainment completely unaffordable to those people living on $3,000 a year.

Ilargi said...

BLS report is out (

In January, the number of unemployed persons decreased to 14.8 million, and the unemployment rate fell by 0.3 percentage point to 9.7 percent.

Interesting number, that much is certain.


Stoneleigh said...


Ilargi is in Holland right now, and will soon be in France, so he definitely won't be at the Ottawa talk. I don't know about plans for the rest of the year.

If the rest of the US is as welcoming as the pacific northwest, I'll be perfectly happy traveling around. I had a fantastic time on my last trip and met so many wonderful people.

Unknown said...
This comment has been removed by the author.
Ilargi said...

As for the BLS number and the market reaction to it, this is a nice tidbit:

Yesterday's market rout sent the Volatility Index (VIX) up 20.7% in a single day. Trading the Odds shows how, historically, a 20%+ VIX move has signaled that the market is short-term oversold.

Since 1990, buying right after a 20%+ VIX surge has made money over the following five trading days, as shown below. So prepare for the bounce:

Trading the Odds: Interesting to note that since 1991 (32 occurrences) the SPY never lost more than -0.51% on the close of the then following session (the exception of the rule was the year 1990), and closed higher on 27 out of 37 occurrences (thereof higher on the last 10 occurrences) on the then following session. With a historical Profit Factor of 5.13 and Distribution of Returns at 70% (the median trade shows a significantly higher rate of return / positive magnitude of change than the median trade (=50%) within the at-any-time distribution of returns), odds are heavily lopsided in favor of a positive outcome (means a higher close) on Friday’s session.


Stoneleigh said...

I have set up a new email address for travel requests and arrangements. It's StoneleighTravels(at)gmail(dot)com. That way I can keep all my travel plans in one place.

Stoneleigh said...


I guess there's a bit of fear in my thinking. I've never liked the idea that something like that could influence me but that's just the reality of it.

That just means that you're human like the rest of us ;)

Weaseldog said...

It;'s ironic that the Houses of Fraud aka Rating Agencies are pretending now to be taking the high road.

Who has the power to publically downgrade the players that played key roles in making this crisis happen?

Weaseldog said...

John said... "BTraven, get more than 1-2 acres and be sure you have good water on the place." - John

As you get older, you might want to rent out land to sharecroppers....

VK said...

Freaking weird! Non seasonally adjusted U6 is at 18% and U3 at 10.6%, that's a huge divergence between the seasonal and non seasonal figures

Weaseldog said...

Tero said... "Why is everyone watching the stock markets?"

The stock markets represent the only measure of success that politicians understand and care about.

We could have 95% unemployment, plague, famine and children dying in the streets, and so long as the markets are up, the politicians would be bragging about what a good job they are doing and vote themselves more raises.

With the markets down, even they can see that we have a problem. Actually, that;s the only way that they can recognize that we have problems.

When you're a High Priest of Mammon, nothing else matters.

VK said...

Seasonally adjusted, the number of unemployed people fell to about 14.8 Million people while Non seasonally adjusted the number of people unemployed rose to 16.15 Million people.

So they seasonally adjusted 1.3 Million people out of the way ;)

Also the divergence between U3 adjusted and non adjusted is at a record 0.9%! Which is HUGE.

Once again we are so lucky to have such wonderful creative geniuses at the BLS who make the world a better place.

scandia said...

Market below 10,000 this morning. Let's see what happens at 2 P.M...

Stoneleigh said...


A Golden Double-Edged Sword

Greenpa said...

A little bit from the Polka Dot Gallows- good day for it, I think- Who says our governments are not right on the ball looking out for us!?

One of the better efforts at public welfare, to be sure.

VK- alas, my misery continues. I appreciate the effort, though. But I still cannot reconcile the one statistic, which indicates we are losing around 2 million jobs a month (which seems kind of impossible, doesn't it?) vs the other bald statement that we are losing a paltry 80,00 or so.

Is somebody claiming they're hiring the difference every month? Don't think so! That would be 3.2 million new hires a month- and I sure don't see it.

Anybody else? Something smells here to me, statistically.

el gallinazo said...

"Once again we are so lucky to have such wonderful creative geniuses at the BLS who make the world a better place."

Paying attention to these f*ckers just encourages them. Even Da Boyz don't take them seriously. It's just for the pension fund manager cretins. (My apologies to the the thyroidly challenged).

Weaseldog said...

The DOW is down 57 points as I write this.

Before the markets opened this morning, I wondered allowed if this would trigger a panic sell off.

My wife asked, "Who'd be selling? Do you know anyone with something left to sell?"

I admit, she had me there.

Phlogiston Água de Beber said...


The Pac NW folks are probably colonists from the planet Nice. :)
Speaking as one of the well travelled elders here, I want to assure you that Usanistan is filled with pretty nice people. Just a little too stupid and optomistic sometimes. There I go being redundant again. About the only place I think you might be treated badly would be at the airport. :)

All Hail the TSA!


It feels so much better knowing I'm not the only Iowa doomer. Too bad we're in opposite corners of the state. Now if we can only get those nice people up North to meet us half-way, so to speak, I may even forgive them for having sat on top of us all these years. :)


I believe you have watered without cause on my Grandson's parade. Tops are for stockholders. VK has called the beginning of a plunge and so far, inspite of fresh lipstick on the pig this morning, he is looking pretty good.

But, then he always looks good. :)

Weaseldog said...

Seasonal adjustments make sense.

Isn't the this the time of the year when folks begin migrating, for their seasonal job hunting vacations? Kind of like the great wildebeest migrations in Africa?

Thank goodness we're saved again by the spin meisters!

"Weekends are meaningless when you're unemployed." Stuart McCormick

Phlogiston Água de Beber said...


Yes, All Hail the BLS!

As we know people will pay hard-earned money to see a Magic Show. We are sooo unbelievably lucky that an agency of the Usanistani Government regularly puts one on for free. OK, not exactly free. There is that little taxation thing.

Seasonal adjustment is another one of their imaginative uses of imaginary numbers. If you are unemployed, you ARE unemployed. The BLS just thinks it's OK as long as they can attribute it to climate, holidays, etc.

Statisticians, don't leave home without running over one. :)

Stoneleigh said...

Carry trades will kill you when the trade turns against you. People have been taking currency risk in yen for years (ie eastern European mortgages in yen), and more recently in USD. That's a bet on a currency continuing to fall, and a high risk bet to boot as it depends on received wisdom as to the relative value of currencies. It works for a while, but it can turn on a dime, and then you're stuffed.

The dollar is rallying. Anyone who bought into the USD carry trade and didn't get out will be nursing losses. Whenever something is effectively being aggressively shorted and it turns up nonetheless, there will be a short squeeze, and that will drive relative values further against those who had bet on a fall, and will do so very quickly.

As with all market moves, the only people who make money on a trade are those who get in early and get out early. If you wait to move until you hear it as received wisdom, it is far too late. Buying into a dying trend at that point is volunteering to be an empty bag holder.

el gallinazo said...

G-7 meeting this weekend at Iqaluit

I originally thought that this was from the Onion. Look up Iqaluit on Wikipedia. Pay special attention to the economy section.

Wonder how they are going to deal with crowd control?

Nelson said...

"Trading the Odds: Interesting to note that since 1991 (32 occurrences) the SPY never lost more than -0.51% on the close of the then following session..., odds are heavily lopsided in favor of a positive outcome (means a higher close) on Friday’s session."

Oh, this is wonderful stuff! He says, "I flipped a coin and 27 out of 37 times it came up heads, so next time the odds are heavily lopsided in favor of a 'heads' outcome!"

What part of the word "stochastic" does he not get?

Who was it who said, "Forex is picking up nickels in front of a steamroller."

btraven said...

@ VK

Thanks for the seasonally vs non-seasonally adjusted unemployment numbers.

Very interesting.

Not surprising given TPTB are essentially perception managers. ;-)

@ everyone who provided input into my plan to extract my money...

Thank you.

Suggestions for locales to buy land are welcome.

I took a 10K road trip a couple of years ago. I resonated with Iowa, but perhaps that was influenced by my favorite musical, "The Music Man." ;-)

I currently live in the Pacific NW, but it is really gloomy here most of the year, and RE is too expensive.

Nelson said...

apparently you're not the only one sensing cognitive dissonance around the jobs numbers:

from the Yahoo! Tech Ticker,
"Don't Be Fooled By Lower Unemployment Rate, Job Losses Continue to Mount"

"Looking at the report, one might logically ask: If jobs growth was minimal (or non-existent) and the labor force grew -- meaning more people are officially being counted as looking for work -- how did the unemployment rate fall?

'The payroll data and the unemployment rate come from two separate surveys, which explains some of the divergence in the data,' writes Diane Swonk, chief economist at Mesirow Financial, attempting to explain this conundrum. 'The drop in the unemployment rate was particularly surprising, as it was predicated on households reporting an increase in employment. This could be capturing the self-employed doing slightly better than they had been, but it is still puzzling.'"

Summarizing Diane's Wonk: "divergence" - "conundrum" - "surprising" - "puzzling"

There - feel better?

carpe diem said...

Hi Scandia,

Do pass on the story. Dreams do come true.
I'm a taoist/buddhist at heart though despite having the means to indulge a bit. To me less has always been more (I'm not talking about those struggling to survive)....I do live near a posh ski resort but it ain't my scene. I'm just a bit of a minimalist and find living simply helps to keep my mind and enviroment clear. The wine still continues to flow though and I do enjoy my cross country skiing! Zurich is nice if you like cities. Came in second this year for best city to live in in the world. Personally I prefer Geneva (came in third!) but maybe thats because I speak French. Sounds like your son is a bit younger then I am. I used to swing from the chandeliers too (metaphorically speaking) but have discovered contemplating my navel and other ponderings far more interesting at this point in my life!


Unknown said...

El g,

Apparently some European staffers and ministers have complained, anon of course, about the G7 location, too. It's a pretty ridiculous location, but our gov't is pretty ridiculous. Tiny town, isolated on an arctic island. Word has it around here that the gov't is trying to push the Inuit seal hunt aspect on the euro members to combat the growing clamor for a euro ban on seal meat, but everyone, euro and canadian, already know that the Inuit seal hunt and the commercial maritime seal hunt are two different things. It's all just a show, and a stupid show at that, and everyone knows it, so... score another one for an inept, ham-fisted gov't.

el gallinazo said...

Re Ilargi and Nelson,

Not enough data presented to the commentariat to support the conclusion made. No link to the source of that data. No data on the positive / negative days' break down allowing one to see if the positive side is statistically meaningful, usually defined as a probability of chance of less than 5% in the science world. A valid conclusion from the data presented would be that no day after the volatility index broke +20% was followed by a precipitous decline in the index.

We will have to await the closing bell today on this one.

Weaseldog said...

I assumed the summit was in such a place, to discourage protesters and to cut costs.

The scale of protection needed for these summits, makes them very expensive for the government.

The costs during the previous periods of infinite eternal bubble growth were no big deal. But now local governments are scraping pennies.

They should probably think about having the next on in Antarctica or on the moon.

scrofulous said...

Denninger says:

"Extend and Pretend" may have been made legal but that doesn't make you solvent - it just means that the government made legal what formerly was called accounting fraud, and the inescapable reality is that eventually the cash flow will get you anyway.

How and when will that reduced cash flow get them? I would wonder that, if as long as other means are available to look profitable such as trading, then it could be a quite long time?

carpe diem said...

Just watched the evening news over here. The news reporters seem as mystified about the jobs report and what they were saying sounded to me like a lot of gobbly gook. They were equally confused about the stock market. I only know I have a headache at this point. When somebody figures out what is going on please advise. The abridged version would help. Can't take much more in.


Hombre said...

El Galileo 10:38 - It's not illegal yet... just irrelevant!

Unknown said...


The choice of Inuvik for the G7/8/whatever meeting may have a lot to do with avoiding protesters, but I seriously doubt cost was an issue. For one, the cost of travelling to Inuvik isn't small in itself, even simply for Canadian ministers and a minimal staff. But secondly, this is a gov't that spent a reported $38 million merely *advertising* their economic stimulus plan over the last year. I just don't think the cost of a summit like this would be much of a concern.

Weaseldog said...

aargh! said... "How and when will that reduced cash flow get them? I would wonder that, if as long as other means are available to look profitable such as trading, then it could be a quite long time?"

It seems like so long as our functioning economy consists of the banks, the Fed and the US Gov, trading money between each other, I think this could go on a long time.

They just need to be careful not to let any money out into the physical economy.

And this is the problem with the stock market. It's a hole in the boat. they have to make sure that the inflow doesn't overwhelm the bilge pumps.

If this slide continues into next week, they may have to put a stop on certain types of stock sales. Likely holds on 401k disbursements and the like, will be the public path they'll choose first.

On super secret side, they may have already gotten the big financial firms to put a hold on selling for now.

Has anyone sold any positions in the last two days and spoken to a live broker about it? If so, what are they saying?

Hombre said...

StoneLady - Don't you dare come to Indiana... we would sit around singing "If You Could Read My Mind" and you would not want to leave--which would so very much disappoint all the others here!

Weaseldog said...

carpe diem said... "Just watched the evening news over here. The news reporters seem as mystified about the jobs report and what they were saying sounded to me like a lot of gobbly gook."

It sounds like gobbly gook, because most of the time, that's all it is.

When economists speak in a language that you don't understand, it's usually intentional. It makes them sound like intellectuals and locks you out of the conversation. But if you carefully dissect what they are saying, you'll find that there is no content.

The abridged version of what is going on is simple. The bankers keep taking dumps in the living room. The reporters cover the poop with press copy, instead using scoops. It's getting hard to find a place to step without it getting on your shoes. Now the reporters are having trouble explaining away the smell.

And still they can't tell us the truth.

Weaseldog said...

rumor said... "Weaseldog,

The choice of Inuvik for the G7/8/whatever meeting may have a lot to do with avoiding protesters, but I seriously doubt cost was an issue."

Security for the Summit in Japan in 2008, ran at $561 million.

Stoneleigh said...

Coy Ote,

Don't you dare come to Indiana... we would sit around singing "If You Could Read My Mind" and you would not want to leave--which would so very much disappoint all the others here!

LOL - that sounds very tempting ;)

Rototillerman (a very talented singer songwriter in his own right) can tell you how much I like combining visits with folk music :)

Bukko Boomeranger said...

I'll confess to the fact that I've spent the past three or four days eagerly awaiting the "job loss" numbers to see if they would cop to Ilargi's prediction of 824,000 jobs gone. This would be a bit of proof about whether his basis for prognostication was valid, or is he just extrapolating from an invalid position?

So what do I see today? "Job losses only 20,000 in January, unemployment rate falls to 9.7%" I've been watching MSNBC, CNN and Bloomberg out of the corner of my eye while scrolling through the New York Times. I do this not because I BELIEVE those sopurces, but so I can see what's being put before the viewing/reading public. And there's nothing OVERT about massive job losses/numbers downgrades

So does the official story negate Ilargi's prediction? I see these curious paragraphs buried halfway down the NYT jobs story:

The Labor Department revised past data to show that the economy comprised 1.36 million fewer jobs in December than previously thought. The revisions showed the economy lost 150,000 jobs in December — far more than the 85,000 initially reported.

The report also featured a new way in which the government estimates the population, which is used to calculate the unemployment rate. That prompted some economists to dismiss the drop in joblessness as a statistical quirk.

“The message is, you can’t believe what they tell you,” said Joshua Shapiro, chief United States economist at MFR Inc. in New York. “Everyone goes crazy over today’s number, but history has been rewritten. Things are not comparable from month to month.”

Reading between the lines, that says 1.36 million jobs disappeared, which is even MORE than Ilargi predicted! This Shapiro person that the NYT quoted is saying "The official story is a lie; they're changing how they cook the numbers." (Hellooooo, MiniTruth!)

So Ilargi, I have to say that these subtle numbers validate your prediction, except you were too optimistic. Only, the truth is IGNORED. The spin is in, and no one wants to challenge it. Except paranoid conspiracy theorist econobloggers...

snuffy said...

I am sure eventually they will get the propaganda right...meaning they will have all the numbers make some kind of sense for those who pay attention,but it may be past that point now.
It keeps looking kind of like our own "sorcerers apprentices"of the financial world have set in motion things they have no control over...or less than they think they do.Things that have carried their water...but now may be drowning the house...

I am noticing all the signals that spring is near here .Sprouts of this and that are poking up out of the dark earth...the weather has slightly moderated...and I see a mountain of work outside that,as I am semi-employed,will keep my attention focused...3 acres is enough to keep a person eternally busy.I have been noticing that keeping busy helps keep my mind focused on whats going on..

We are at the stage now where I expect to see crisis developing soon.All the instabilities our gentle hosts have pointed out the last few months,are looking to me as they are gathering themselves for a crescendo... like when you watch/play on the ocean here on the Oregon coast.You think you have the tempo of the waves in head,as you scramble up and down the rocky beach cliffs...but if you are not very,very careful,a sneaker will give you a full bath...or if you have made a bad judgment,kill you.Every year a few here forget how dangerous the coast is,to their sorrow.

I need to be productive,as mrs snuffy would say..later


Anonymous said...

el gallinazo said...

Ahimsa said...
... Do you think Blackwater will murder and detain dissidents in detention centers?

Do bears defecate in the woods?

There is ample proof that they are targeting American citizens overseas for assassination, and evidence that they are doing so in the 50 states. Relying on Obama to stop this is like going to ToysRUs for your body armor.
February 3, 2010 12:46 PM

I know, I know ... Black bears frequently visit our yard to raid bird feeders. :)

BTW, Jeremy Scahill's works on Blackwater are very insightful.

jal said...

In Canada ... People were hired and the unemployment rate went down.

In the US ... People were laid off and the unemployment rate went down.

It makes sense to me. I'm a Canuck!

Anonymous said...

scandia said... @ 8:32 AM

@ Stoneleigh...I am wondering about your personal security as you depart on speaking engagements thereby revealing your identity.

Stoneleigh, I share Scandia's concern. Please be vigilant!

zander said...

It's quickly becoming deep RED friday.
ALL markets tanking


zander said...

The first criminal charges have been brought re the westminster expenses scandal,
Yeah, they'll probably walk, but it is a mark of the gravity of the situation that our rancid poltical system has come to this, I think the UK is heading for worse trouble than anyone can imagine, I see the downward spiral sarting in earnest now.


Ilargi said...


Don't mix up the data here, it's all plenty bad enough as is. The 824,000 number was never supposed to show up in today's January 2010 stats, neither in the BLS report nor in any prediction you seem to think I've made but don't quote.

The 824,000 number was a statement, not a prediction, from the BLS, which announced a few months ago that it would deal with this on February 5. The number refers to jobs "overcounted" from April 2008 to March 2009 (give or take a month). They were added today, but to the numbers of those specific months (the ones nobody has a reason to look at).

In other words, the BLS corrects it past mistakes, not its present ones. And since they they vow to stick with the idiotic birth/death model, which adds well over 100,000 non-existent "jobs" every month presently (990,000 over the past 9 months, to be precise), future mistakes won't be corrected either.

el gallinazo said...


Wait until your housing boom blows up. Half the Canucks will smother from the bubblegum clogging their breathing orifices.

Phlogiston Água de Beber said...

btraven said...

Suggestions for locales to buy land are welcome.

I took a 10K road trip a couple of years ago. I resonated with Iowa, but perhaps that was influenced by my favorite musical, "The Music Man." ;-)

We Iowans are rather used to being dissed, so resonance is quite unexpected and a pleasure to hear about. Of course, the Music Man writers may have, ahem, exaggerated a tiny bit. :)

If you do consider our fair state, be aware that weatherwise I-80 forms some kind of strange boundary. The winter weather on the north side tends to be substantially more wintry than down here on the south side.

Farm land around here is pretty pricey in the opinion of local farmers. An acreage will usually be substantially higher per acre.

I do know of a nice modern A-frame on a few acres for sale. I don't know the price, but I should be able to find out. It's wooded, basically park-like, with a northern exposure. Not really very suitable for extensive gardening. There is a creek, but it doesn't always flow.

It is next-door to one of my nephews. If you treated him right, I'm confident he would plow your driveway for you, as he now does for the present owner. He would probably even share some of his garden veggies. My other nephew and his wife raise dairy-breed steers and sell packaged beef or whole, sides or quarters butchered to your specifications by a locker plant. They are acquainted with farmers that raise pigs the old-fashioned way and others that can supply fresh eggs.

A 4x4 vehicle wouldn't be a bad thing to own, but not absolutely essential. We are culturally backward, but the University of Iowa is only an hour away. Don't know if this would be considered an advantage, but there would be one other doomer in town. :)

Phlogiston Água de Beber said...

scandia and Ahimsa,

Stoneleigh's cover was blown by those nice broadcasters on Salt Spring Island. Perhaps, you didn't get to listen. Frankly, her life is now an open secret.

What I'm curious about is who do you suppose will be interested in harming her? I can assure you that if you have MiB in mind, they can have identified her and locked in the GPS coordinates for every place she hangs out, any time they felt like it.

We may not be able to defeat 3rd world peasants, but tracking down internet users is a piece of cake. Wish to know how certain I am? One morning when I arrived at my desk in the IT department of, our manager called out to us that he just had a call from The Secret Service. They demanded to know the IP address of a user that had said something threatening about President Clinton, in one of our chat rooms. How they knew about it and whether we were legally obligated to tell them that IP address were not questions that were asked.

scandia said...

Just reading on BBC that BAE Systems given $280 million in criminal charges for bribery etc...So-o-o , now that corporations are persons, why didn't anyone get jail time?
Who has been bribed to handle the criminal charges? Money still talks.
Conrad Black must be chomping at the bit in his cell for lesser misdemeanors!

Anonymous said...

Weaseldog said yesterday @ 11:54 AM

My argument is that you and I are not personally responsible for the choices made Dick Cheney or John Wayne Gacy.

Ilargi says that this position is indefensible. That when we reach the gates of heaven and we're judged by St Peter, then I'll have to answer for the sins that Dick Cheney and John Wayne Gacy have committed. Because we as we humans all share the same guilt.

It seems to me, that according to this view, nobody is going to get past St Peter, if he judges each of us according to all the worst sins that have been committed by others.

I did not interpret Ilargi's words as suggesting that we are damned as a species because of the evil acts of others. I simply interpreted his words as saying that we as Usacos do bear some degree of responsibility (more than the < 50% you suggested, if I remember correctly) because a Cheney, for example, would never have been in power if enough of us did not support what he stood for. Remember Cheney's saying that "the American lifestyle is not negotiable"? Well, most "Americans" feel the same way.

I think you were quick at "defending" or claiming the innocence of fellow "Americans." Indeed, some Usacos "do not know what they do" and they will be forgiven by St. Peter (to use the metaphor), but according to my experience the vast majority of fellow Usacos are aware of their complicity with the system and arrogantly defend the materialistic lifestyle, etc. that the US Empire stands for and that puts or allows a Cheney to be in power. In fact, most Usacos consciously choose to continue their ways despite their awareness and are hostile to fellow Usacos whose simpler lifestyles and views do not conform with or support the system.

Weaseldog said...

I. M. Nobody, how were they able to verify over the phone, that it was the Secret Service, and not a hacker pretending to be the Secret Service??

Phlogiston Água de Beber said...


They're not only too big to fail, they're also too big to jail. :-(

I swear Denninger is going to blow a gasket over that, one of these days.

Zaphod said...

Funny how the US markets shift significantly after the EU markets close.

Is there a huge amount of money sloshing from the US to Asian to EU markets on a daily basis, such that closing out positions and opening others drives a shift?

jal said...

el gallinazo said...

Wait until your housing boom blows up. Half the Canucks will smother from the bubblegum clogging their breathing orifices.
It's going to take a lot longer that most expect.
When interest rates go up, (June), people will lock in their mortgages for 5 years.
Rise in unemployment will be the biggest factor that will reduce real estate prices..

Bukko Boomeranger said...

Thanks for the explanation, Ilargi. I'm still trying to make sense of the relationship between the jobs numbers in the "household survey" vs. "birth-death" model.

I'll have to re-read that boilerplate bit on it that Mish includes with each post about the monthly unemployment stats. I read it once long ago and have skipped over since, but "reinforcement" (i.e. re-reading stuff I thought I knew, to make sure I REALLY know it) never hurts.

I suppose the best way to look at these numbers is not as any sort of "truth" but in a "meta" way. What stats are being touted in the official propaganda organs, and what does that say about the narrative that is being fed to the sheeple? That's why it's interesting to see the attention paid to "only 20,000 jobs lost last month" vs. the admission that 150,000 jobs disappeared in December, correcting the 85,000 losses that were confessed then.

150,000 seems to have entered the memory hole; 20,000 is the number of the day. You have ALWAYS been unemployed in Eastasia...

scandia said...

@ Jal, re those employment figures for Canada...I heard that there were 10,000 jobs created- ALL part-time. That won't keep up mortgage payments. The full time employed figure did not change.

Weaseldog said...

Ahsima said, "I did not interpret Ilargi's words as suggesting that we are damned as a species because of the evil acts of others."

I thought Ilargi was quite clear that he believes that we are individually responsible for what other people do. When I argued this was not a reasonable position, Ilargi called my argument, indefensible.

I understand the view that the nation is guilty as a whole. But Ilargi was clear in the Nuremburg example, that this wasn't what he meant. He was talking about how each one us, is completely guilty of these crimes. We are each as individuals, guilty of mass murder and war crimes.

The Iraq war is your fault according to this view. Even if you opposed it. You killed all of those people. It's your fault and you should be tried and executed for it.

If you believe that you're only 75% responsible for the war, then that's still hundreds of thousands of deaths.

I understand the allure in wallowing in guilt over this. Our christian heritage certainly swim in guilt. But sometimes the victim is at fault for the crime.

Will said...

It's been an interesting day on the US stock market. This is how the NYT reported it...

"Market Summary

At 4:00 PM ET: The major stock indexes were stronger today with both large- and small-cap names getting a boost. The S.&P. 500 index finished higher by 0.32%, while the small-cap S.&P. 600 was up 0.37%. However, the advance was concentrated to those stocks exerting the greatest influence on their index; advance-decline numbers on the NYSE show that most stocks were actually lower today..."

Weaseldog said...

But sometimes the victim is *NOT* at fault for the crime.

btraven said...

@ I. M. Nobody

Thanks for the info re Iowa.

I'm contemplating another long road trip (March/April), but this one will be specifically for looking for an inexpensive place to buy - in addition to visiting friends and family. I'll definitely meander through Iowa.

Weaseldog said...

Ahimsa if you don't like my arguments, blame Ilargi.

It's his fault I turned out to be such a snot. :)

Ric said...

Ahimisa says, I think you were quick at "defending" or claiming the innocence of fellow "Americans."

FWIW, my view on this is if we don't know that the worst of humanity is in ourselves, then we don't know ourselves. Where it gets interesting is what happens after that.

Phlogiston Água de Beber said...


I was not even involved in searching the logs as the chat servers were run by a different group of admins. I'm not even sure if they found it, but I assume they did. The incoming call could have been anybody, but it required a return call to give the information. Then, of course, they would have to look up the ISP for that user and get the identity from them. I have no doubt whatsoever that the Canuckistani government would muscle her ISP to give up Stoneleigh in a heartbeat.

These pseudonyms aren't hiding us from the governments. Though many people think so. We're hiding from each other.
True story from the Pearly Gates.

When Mother Theresa passed on, she was enthusiatically greeted at the Gate by God himself. He announced how much he had looked forward to her arrival and ushered inside to a little cottage that would be her home.

Then he asked if she would like some lunch, to which she replied that she was a little hungry. God disappeared and came back very shortly with sandwiches and a cold salad. That evening he reappeared and served her a similar meal. The next day was more of the same.

Theresa was a very pious woman, but she began to wonder about why Heaven wasn't quite as she had been taught to expect. She then wondered if Hell was as the Holy Fathers had said it was. She asked God during the next meal if he could tell her what Hell was like.

God said, well you can see for yourself, from that balcony over there. She finished her sandwich and shuffled over to take a look. She was astonished to see an enormous dining hall, filled with long benches and a horde of people stuffing themselves from heaping platters of every kind of food.

She turned to God and asked, "why are the people in Hell being served such a sumptuous feast when all we ever seem to have are sandwiches?" God quietly replied, "well Mother Theresa, it really doesn't make sense to cook for just two."

carpe diem said...


many thanks for your eloquent reply. makes far more sense now!!


Alpha Beta Soup said...

Stoneleigh -

Have these visits been recorded? If not, could future visits be recorded and posted online? I regret that I missed the Seattle event, I was moving that weekend and forgot to print the address before I was w/o internet.

Thank you for all you do,

aka AlphaBeta soup

woodsy_gardener said...

"However, the advance was concentrated to those stocks exerting the greatest influence on their index; advance-decline numbers on the NYSE show that most stocks were actually lower today..."

Verrrry interessting, but not funny!

el gallinazo said...

aargh! said...
'Denninger says:

"Extend and Pretend" may have been made legal but that doesn't make you solvent - it just means that the government made legal what formerly was called accounting fraud, and the inescapable reality is that eventually the cash flow will get you anyway.

How and when will that reduced cash flow get them? I would wonder that, if as long as other means are available to look profitable such as trading, then it could be a quite long time?"

Fraudulent accounting and marking to fantasy are not enough to keep a Ponzi solvent. There comes a time when they just have to pay the light bill. Poor Enron was ahead of its time. Even though its CEO, Kenny Boy, was a Pioneer and bosom buddy of the Chimp-In-Chief, they didn't have all their ducks in a row. Namely, they didn't get the Fed to buy their toxic waste and Treasury to guarantee $300B in bonds and loans like Citi. So since the fall of Enron the kleptocracy has figured out how to convert their toxic waste into our toxic waste, But we are now facing sovereign default scares. Moody is threatening to pull Treasury's AAA rating. Other than having the second coming of Jesus underwriting the toxic waste, I think we are at the end of the line. Like a junkie on January 1, the UK has sworn off QE, and the Fed claims they are winding down. But hey, I am a recovering nicotine addict, so I know how addicts think. They won't stop until the dislocation.

And who is Biderman's, Durden's, and Denniger's unknown "buyer" who is keeping Wall Street's equity propped up long after Stoneleigh's natural herd instinct has faded? Who can print enough money and lose enough money with impunity to buy these index futures? Well, it ain't your local pizzeria.

It's the same people who are spending trillions to try to keep housing artificially high and interest rates artificially low. But with housing, they can BS the sheeple into thinking they are acting in their interest. They gotta keep the magnets under the Wall Street wheel hidden or the suckers will pull their chips and go back to betting on hounds.

scrofulous said...

Toyota President Apologizes for Global Recalls.

So whatever happened to good old seppuku, but then I guess that would mean he wouldn't be collecting no bonus.

Weaseldog said...

I will be making no more arguments about guilt or responsibility on this blog, unless there is a substantial change in the arguments.

I have made a posting on my blog about this. Folks are welcome to argue it endlessly there.

el gallinazo said...

My last comment on the guilt thing from the former post:

We all fit on a spectrum. On the one hand we have the war and economic criminals murdering and impoverishing the populace, the beasts doing the work of........ hmmm...... Mammon. In the middle you have the "good Germans," who are just trying to get along by going along and averting their gaze from the mayhem. And on the other extreme, you have the moral and courageous nailed to a cross wondering why their God has forsaken them.

Is the blood guilt of all these actors equal with the exception of the guilt free crucified? Let him without sin make that calculation.

Anonymous said...

"Americans Are Learning Medicine the Cuban Way"


Cuba began educating American medical students after members of the Congressional Black Caucus met with Fidel Castro in 2000. Congressman Bennie Thompson of Mississippi told Castro about areas in his district that suffer from extreme doctor shortages. The Cuban president responded by promising scholarships for 500 Americans to attend medical school in Cuba, under the umbrella of the Latin America School of Medicine. To qualify, the students would have to show aptitude and a commitment to work in underserved communities in the United States. Since then, 34 have graduated, and more than 160 are currently enrolled.

The Bay Area, it turns out, is something of a hub for the Cuba school of thought, where Cuba-trained students, unencumbered by the massive debt that plagues grads from US medical schools, have the luxury to do the kind of medicine that Cuba instructs — family medicine. The island's medical schools focus on nutrition and other preventative approaches. Cuba also is well known for its focus on the "social determinants of health."

The Cuban experience also may provide important lessons for our current health-care crisis. With a fifth of our per capita GDP, Cuba has health statistics comparable to those of industrialized nations. In the shabby, eroding, and commodity-deprived neighborhoods of Old Havana, Cubans also enjoy a better doctor-patient ratio than Americans: 59 doctors per 10,000 people compared to 26 for us.

Cuban life expectancy also matches that of the United States, its infant mortality rate is lower, and the island's HIV/AIDS transmission is among the lowest worldwide. Cuba's aggressive health-care delivery system also costs much less — around $200 per capita annually, compared to our $7,000. And it provides timely and primary care for every citizen — near universal accessibility. To the Cuban government, health care is a right.

Will said...


Indeed. I was thinking that maybe, just maybe, the NYT was trying to tell us something. They can't say the index is being manipulated, but they can say the buying-support was concentrated there.

I think it is significant that the NYT is beginning to segregate market performance from index performance.

zander said...

hi weaseldog

I totally opposed the war in Iraq with every breath in my body, and still do, all the same it turns out I'm capable of buying petrol from my local station to fill up the work van, pouring money into the coffers of an oil conglomerate I KNOW will have profited from the vile crime that was commited there by the UK invasion, seems I'm not as totally opposed to the war as I thought I was or I would have no part in anything that could be remotely related to any advantage gained over the suffering of the peolple I wanted to defend, I'm afraid that makes me guilty, but I don't feel too badly about the guilt, which makes me even less opposed than I thought,- hope I'm making sense here, probably not,-
But Ilargi's analysis stands, we know that unless we completely abandon every aspect of our privileged lifestyle (sneakers included) that depends upon the sacrifice of others we are indeed problem and not solution, ergo complicit and guilty.


Submit your advice said...

zander's comment was posted at pretty much the precise moment of the turnaround.

Always, when thinking, think, "why am I thinking this?"

Why on the 4th of March, 1999 did the Economist magazine have a cover article titled "Drowning in Oil" at the precise beginning of a rally that would see the price of oil increase by 14x?

FWIW IMO rally on Monday, then Tue = "Tea break is over, back on your heads."

jal said...

Here is something that Karl has been advocating.

Former clients of Ponzi schemer Earl Jones seek permission to sue RBC

The claim alleges if the Royal Bank had kept closer tabs, Jones would not have been successful in perpetrating his almost 30-year scheme.
RBC has not filed a statement of defence, but the bank said in a statement that it, too, was a victim of Jones.
"We were deceived by Mr. Jones, just as his clients were," the bank said in a statement.
"Until 2009, there was nothing to signal that Mr. Jones was anything other than a legitimate and successful businessman. Mr. Jones used his long-standing reputation in the community to take advantage of both clients and companies."

el gallinazo said...

Michael Hudson is an economic advisor to the government of Latvia and spends quite a bit of time there. He reports that life expectancy under the Soviet utopia was 60, but it has since dropped to 50 after having joined the EU utopia. They reportedly export 10 years per capita to the Swedish banks.

Phlogiston Água de Beber said...


If I can help in some way when you are ready to sniff around Iowa, post something here.

umaperegrina said...

@ btraven
Certainly don't be afraid of Iowa...or Nebraska or South Dakota (although if you go too far west average rainfall starts dropping.

I have found that if you make an effort to join the local community, you are usually welcomed with open arms. Ok, you don't have the wide selection of entertainment to choose from, but who's going to be able to afford that anyway. You'll find (semi)kindred spirits and you'll cook the meals yourself and maybe engage in some intelligent conversation.

I should add that if you find yourself in my neck of the woods (NW Iowa, close to the Okoboji Lakes area), there's access to some fine restaurants and plenty of kulture - theatre, museums, pool halls, bowling alleys.

For example, just went to an opera production of The Barber of Seville...and on Sunday we're going to hear Billie James (the Amazing Aussie) sing some big band tunes while chowing down on a meal of grass-fed buffalo stew (that would be us, not Billie) at the local Swan Lake Winery.

Anyway...if you do come this way, I'd be happy to show you around.

Phlogiston Água de Beber said...


Sitting here at the top of the page, idly rereading your first post and realized that you ask an awful lot of us. I mean coughing up a taxpayer is even harder than a hairball. :)

Chaos said...

@ Weaseldog,

I find this to be quite an interesting debate. My perspective on this is that nations (and regions, cities, and other geographical entities) exhibit characteristics which we might call "character." The nature of that character is revealed in the entities' actions or physical artifacts, e.g., Portland's public transportation system is a cultural artifact, as much as the 6 story highway interchanges we have in my area. Hence, the US public is totally and completely responsible for electing (use whatever parenthesis you like) George Bush, and for whatever consequences flowed from that. So, I think I have to side with Ilargi on this one.

btraven said...

@ I.M. Nobody
@ umaperigrina

Thanks for the Iowan hospitality. I'll try to connect,as I out that way - April-ish is my current plan. There's some chance I'll land in CA "permanently" for a job, but I'm not holding my breath.

Be well.

AllGood4All said...

Regarding the anticipated loss of fertile soil, here are three areas of help that need more widespread consideration and action:

1. The safe composting of human waste into fertilizer = "humanure" ( , to replenish the soil. This is instead of treating it and then throwing it away into the sea. Can be done on a family scale with a composting toilet, or on a municpal scale, see:

2. Using crushed rock (abundant and cheap) to remineralize depleted soil. See for example:,%20Mineral%20Fines%20and%20Compost.pdf

3. And research has shown the small scale organic agriculture CAN, and indeed MUST, feed the world's population. See: and:

Tristram said...

I am not usually one to defend Obama, who is incompetent and a fool. But not everything he says is necessarily wrong. Blind squirrel and nut thing. Announcing a plan to double US exports in four years was exactly the right thing to say.

The background is: "free" trade which the USA has embraced is a joke and a scandal, because trade is not free under the current regime, but closely managed by most of our trading partners; and the severe imbalance that has resulted has been devastating to the US economy and people.

The USA has an urgent policy need to simply chuck the whole WTO format out the window and start over with a concept of "balanced" trade: we will engage in zero-tariff trading with any other country that agrees to a balanced trade regime. Neo-mercantilists need not apply. The balance does not need to be exact in the case of poor countries with a legitimate need to accumulate some reserves, but it needs to be much closer to balance than at present.

The net effect might be more that US imports fall than exports rise, combined with a partial re-industrializing of the USA. But for Obama to state his opening bid in terms of rising exports instead of falling imports is a reasonable and politic thing to do. American voters are not the only audience listening to Obama.

Unknown said...
This comment has been removed by the author.
zander said...

@ submit your advice

I know, it happens time and time again, I never learn, I'd be living on the streets if I'd tried my hand in the markets, thank god I'm too miserable. Fascinated by them all the same.

"when thinking, think, "why am I thinking this?", that statement taxes you. :)


bosuncookie said...

@ VK and I.M.Nobody...

Taxpayer hairball, indeed!

"Let's eat Grandma!" or, "Let's eat, Grandma!"

Punctuation saves lives.

Unknown said...

I question the portion of this edition of TAE in reference to eroding condition of farmland. In Va. there is a farmer who was farming some of the original Jamestown cropland. He has won many national corn yield contests on this soil. Unfortunately , the land was sold as a housing developement. Here in Va., we have moved past no-tll farming to never-till. Use of cover crops on winterfallow acres is now a norm because of some Chesapeake Bay funding from state and federal funding. Even when funding limits have caps put on individuals participation , many continue to plant additional acres because we find our soils organic levels are rising which in turn helps in retaining rainfall while at same time reduces erosion. Va. Tech should have additional info if you are curious.

el gallinazo said...


The debating point is not that the Usaco electorate, for example, deserves all or most of the blame for the actions resulting from electing Bush, or subsequently, Bushlite. Most of us here in this debate agree that that is true. The position that Ilargi put forward, as far as I can fathom it in his essay, is that every individual within that electorate has incurred equal and total guilt for not somehow preventing it. Not only do I view this position as counterproductive, but I also view it, on its face, as absurd.

I am also reaching the conclusion that guilt is, for the most part, counterproductive. There is some evidence though, that hauling the worst of the monsters before the Hague and tossing their sorry asses into a cell for the rest of their sorry lives, does give some additional reflection to the rest of the world's political criminals. Much of the CIA operational units, for example, were worried under Bush that they may have been tried later on for their criminal acts, and if Obama had a set bigger than a fruit fly, they would have been.

Anonymous said...


You continue with your sophistic reasoning. No, I won't continue the debate. Ilargi made a very significant point, which even progressive (whatever it means nowadays) "Americans" tend to deny.


"Individuals have international duties which transcend the national obligations of obedience. Therefore (individual citizens) have the duty to violate domestic laws to prevent crimes against peace and humanity from occurring." ~ Nuremberg War Crime Tribunal; 1950

el gallinazo said...

I just listened, slightly belatedly, to an interview that Amy Goodman had this Wednesday, on her Democracy Now! show. It was headlined as:

“In the Realm of Hungry Ghosts”: Dr. Gabor Maté, Physician at Vancouver Safe-Injection Site, on the Biological and Socio-Economic Roots of Addiction and ADD

Dr. Maté is one of the most brilliant and articulate polymaths that it has been my luck to hear in quite a while. In this respect, he reminds me a lot of Stoneleigh. I can't recommend this segment highly enough. It is about 18 minutes long and begins at minute 40:50 into the segment. If you have an adequate connection (which I do not), you can also watch it in streaming video. If not, you can choose the mp3 audio format

el gallinazo said...

Tyler Durden of Zero Hedge, jumped into the immediate public records, and discovered that it was JPMC who reversed the downward plunge of the USA indices at 3:10 PM yesterday. (Note that the times in the charts are in Pacific Standard).

For the smoking gun, showing how this honorable member of the PPT fulfilled its patriotic duty see:

For you sports fans, UBS must be given an assist on this score.

jal said...

Lessons that I learned

1. There are no excuse for not learning how to take care of my hard earned savings
2. I am the only one that can be trusted.
3. I cannot trust the reliability of the knowledge that I have acquired. “isms” are blindspots
4. Advisors and institutions have different objectives that will eventually be to my detriment.
5. The bigger the institution, the less they care about my needs/wants/objectives
6. Joining together, ( one stick versus many stick), does not make me stronger. It makes the institution stronger
7. When the economy is going well, I will get the crumbs.
8. When the economy is going bad, I will be the last to be informed and capable of minimizing my losses.
9. The stock market is a bad place to keep your savings.
10. Experts and forecasters cannot help me. They only help themselves.
11. The only way to get ahead of inflation is by getting income/revenue increases that are greater that the “cost of living”
12. All “growth models” are flawed
13. Individuals and institutions can have only a a brief time in the sunshine before becoming irrelevant
14. Learning is a process that causes changes in thinking and actions. Few people want to learn something new.
15. Everyone says,”Nobody want to hear what I have to say.”
16. Everyone is saying, “Listen to me.”

ps Only one bank failure
"1st American State Bank of Minnesota"

Ruben said...

@ El Gall,

Another famous doctor working on addiction in Vancouver is Bruce Alexander. He wrote a report for the Canadian Centre for Policy Alternatives several years ago which I find very relevant to sustainability.

Greenpa said...

My comment, re: guilt.

As a natural Zen Master-

A sharp, painful, smack upside the head, for all.


scandia said...

@ El G...Thank-you so much for the Democracy Now video with Dr. Mate. Shed some light of understanding on my own Unwanted/Abandonment meme. Very helpful.

el gallinazo said...

Ahimsa said...

You continue with your sophistic reasoning. No, I won't continue the debate. Ilargi made a very significant point, which even progressive (whatever it means nowadays) "Americans" tend to deny.


"Individuals have international duties which transcend the national obligations of obedience. Therefore (individual citizens) have the duty to violate domestic laws to prevent crimes against peace and humanity from occurring." ~ Nuremberg War Crime Tribunal; 1950"

Well, there are two types of reasoning - reasoning which we agree with and sophist reasoning. To continue Weaseldog's sophist reasoning, what felonies and misdemeanors have you been indicted for vis-a-vis your stance against national Usaco crimes, and how do you feel that these actions have affected your share of the total blood guilt of being an American citizen?

I am not trying to be snotty. I am just trying to bring this debate down to its nuts and bolts.

Unknown said...
This comment has been removed by the author.
ogardener said...

Blogger D said...

Regarding the anticipated loss of fertile soil, here are three areas of help that need more widespread consideration and action:

I think your three points are well advised.


el gallinazo said...

I have to recommend also segment 2 and 3 of yesterday's Mad Max On the Edge, interviewing Catherine A. Fitts. Someone must have let the cat out of its cage since it almost had Max's tongue, and he actually let someone, who knows more than he does, say something.

in particular, listen to what she has to say about MMF's. If the DOTreas restricts the rate of withdrawal, then the insolvent FDIC doesn't have to renege on its apparent promises.

Phlogiston Água de Beber said...


The debate between Ilargi and Weaseldog has not interested me, but what you posted at Weaseldog did stir some interest.

You accused him of sophistry, bemoaned the state of progressives and closed with a quote from the Tribunal. For some reason, I finally started to get interested in the subject. Unlike the brilliant and highly educated Faux News personality Gretchen Carlson, who Jon Stewart exposed a few weeks ago, I really do have to look up even fairly common and simple things sometimes. In this case it was sophism.

I found this statement near the end of the wikipedia entry on sophism.

Sophists had great impact on the early development of law, as the sophists were the first lawyers in the world. Their status as lawyers was a result of their extremely developed argumentation skills.

In light of that claim, I wonder if it might not behoove everyone to reflect on a simple question.

Is it possible that the Nuremburg Tribunal was just a bunch of sophisticated lawyers seizing an opportunity to put a lot of really shiny polish on their resumes, with no possibility of a downside. There was never any chance that the top Nazi's would not swing.

IMHO, if it was really meant to apply to everyone and everywhere, it would apply today to us and it certainly does not. I believe we have actually threatened to drop the 101st Airborne on The Hague, if any of our criminals should end up there.

So, here goes my little contribution to the art of sophistry. As far as I can tell, Weaseldog has every right not to feel guilty about actions by people he can't control and Ilargi has all that legal precedent to claim that he should.

By doG, I hate lawyers!

Zaphod said...

Legal and right are not the same thing. Blame and responsibility are not the same, either.

Today we play interminable blame games, and legalism is rampant.

As I age I see more my individual responsibility in the world at large, but worry less about blame.

IMHO, given an obviously blessed life as a US-born white middle-class individual, I have had much given, and so much is required.

What does that mean? Check how you stand on, then search your own souls and see.

Do you strive to climb up another rung? Do you hoard what you have and hunker down? Do you use your means to help others? Do you simply endeavor to use less? Or do you simply wring your hands and do nothing at all?

Norcal said...

Stoneleigh's visit to SF Bay Area. Someone mentioned the crime level in parts of SF and he/she is right. However, my notion was for Stoneleigh to come into the SF BAY AREA, not necessarily SF itself. There are many safe cities here, for example, San Jose, Cupertino, Sunnyvale, Saratoga etc all have very low crime rates. She can fly into the San Jose airport and choose a South Bay City, all much safer than San Francisco.

Ilargi said...

New post up.

There but for the grace of God


K.M. said...

Regarding the UK Guardian arable land article:
"The world last year faced a cereal crisis as wheat stocks dropped to a 30-year low after demand for wheat and rice outstripped supply for the past six out of the previous seven years."

That statement is rather misleading because it was China drawing down their cereal stocks which skewed the global stocks-to use ratio during the past decade (see David Dawe 2009 FAO report)
Global wheat stocks quickly rebounded in 2008 and 2009 (after a low in 2007) and right now US wheat producers can't even compete on the global market as the dollar strengthens and Russia and the Ukraine's wheat output increases. Our US breadbasket is currently devoting one-third of its corn crop to a corn destroying price support program instead of growing actual food, albeit at the expense of abusing our best natural resource - rich Midwestern topsoil.
Right now, incidentally, global grain stocks are at eight year highs and production continues to set record highs.
World grain commodities share the dynamics of global oil production, that is price is determined by global economic health and ability to pay for the product. That will be the biggest surprise going forward, just as oil prices have been a surprise to many (not those here at this sight, of course).

From the recent FAO report:
Based on the latest estimates of cereal production in 2009 and the anticipated utilization in 2009/10, world cereal stocks by the close of seasons ending in 2010 is forecast to reach 509 million tonnes, the highest level since 2002. This forecast is around 4 million tonnes higher than in the previous season mostly on account of a continuing increase in wheat stocks. At the current forecast level, the ratio of world cereal stocks to utilization, an important indicator for global food security, is expected to approach 23 percent, nearly unchanged from the previous season's level and slightly higher than its 5-year average.

Finally, there is no arguing about the arable land/topsoil issues, however sixty years from now the human populations may not be as currently projected and the world's soils can start replenishing themselves....

Gravity said...

Why do some people believe higher energy or food prices will inevitably cause inflation?
Why do other people believe higher energy or food prices are predominantly caused by inflation?

Certainly there are mechanisms by which higher energy prices could be deflationary instead, and this could also happen with food and other essentials.

Under certain conditions, higher prices in these things should act as pure deflationary pressure, effectively shrinking money supply and progressively draining currency from other circulations, maybe if most available energy or food were consistently imported by means of a foreign currency interaction at a particularly unfavorable exchange rate.

Its strange to see these monetarily misconstrued energy, food and wage interflations while all measurable quantities of consumable purchasing pressure are rapidly declining.

ben said...

thyroidly challenged here, el g, though not congenitally.

stoneleigh confirmed in portland that i should stock-up on pills.

so i know how many to buy, starcade, how long, on average, should i expect to live? i take it you've given up on resveratrol.