Wednesday, January 6, 2010

Jay Taylor: Turning Hard Times Into Good Times

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The Trend for 2010

Sometimes, our work just writes itself. Follow us through the next couple minutes…

First, U.S. public pension plans face unfunded liabilities of over $2 trillion, says Orin Kramer, chairman of New Jersey’s pension fund. Kramer is stealing the show in this morning’s FT with a new take on an old story. Sneaky accounting and laughably unrealistic expectations of future returns have led many econ-nerds, your editors included, to suggest pension funds are in a deep, dark hole… maybe as bad as a trillion bucks.

Well, Mr. Kramer, citing his own experience running Jersey’s fund, said today that it’s probably twice as bad. For every dollar the average public fund has promised, he says, it has only 60 cents on hand. In other words, 40% of people with public pensions technically have no money saved on their behalf.

We’ve rung this bell again and again , but hopefully, Mr. Kramer’s admission in this morning’s FT will elicit change — while there is still time. Of course, it probably won’t. Kramer is also a huge player for the Democratic Party. Thus, we suspect certain members of the Senate will reject any notion with his name at the top. Not to mention we’d love to see a campaign built around pension reform… in this land of ballot busting baby boomers, you’d get more votes on a Neo-Nazi ticket. (more)

Manhattan Apartment Prices Fall as Finance Jobs Lost

Manhattan apartment prices fell for a third consecutive quarter as Wall Street job losses drained demand and the decline in co-op and condominium values reached 21 percent since the market peak.

The median price slid 10 percent to $810,000 in the fourth quarter from a year earlier, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. The median price hit $1.03 million at the top of the market in 2008. The number of sales jumped 8.4 percent to 2,473 in the three months ended Dec. 31.

Values continued to fall across apartments of all sizes as New York City recorded 10 percent unemployment in November. Fallout from the recession and credit crisis that cost more than 184,000 finance jobs in the Americas is still hurting New York. The city lost 25,200 finance jobs in the 12 months ending Nov. 30, the state Labor Department said Dec. 17. (more)

U.S. Treasuries Post Worst Performance Among Sovereign Markets

Treasuries were the worst performing sovereign debt market in 2009 as the U.S. sold $2.1 trillion of notes and bonds to fund extraordinary efforts to bolster the economy and financial markets.

Investors in U.S. debt lost 3.5 percent on average through Dec. 30, according to Bank of America Merrill Lynch indexes, the biggest annual slide since at least 1978. The 10-year Treasury yield reached its highest level in six months yesterday before a Labor Department report next week forecast to show payrolls were unchanged in December after the U.S. economy lost jobs in every month since January 2008.

“The financial system has survived,” said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., one of 18 primary dealers that trade directly with the Federal Reserve. “Now the market has to deal with other issues like deficit spending, tremendous issuance, the weakness in the dollar. How significant is this recovery, and what happens when you take away some of the government stimulus.” (more)

Buyer announced for first-ever U.S. platinum ETF

ETF Securities said that a financial firm has bought 100,000 shares of its proposed first-ever U.S. platinum exchange-traded fund (ETF) and delivery is scheduled by the end of the week.

The initial purchaser was Susquehanna Capital Group, which is also the lead market maker, ETF Securities USA said in a filing with the U.S. Securities and Exchange Commission on Dec. 31.

The purchase took place Dec. 30 with delivery expected about Jan. 8, according to the filing. (more)

This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based. (more)

Looking Backward: Economics and the Cult of Yesterday

One reason that the nation has not made more progress toward an economic “recovery” is that the people in charge really don’t know what one would look like. The top economists in Washington don’t appear to have asked the obvious question, “Recovery of what—and for what?” Instead they have followed the old drill, tried to rekindle the old flame, and remained wedded to the old guideposts that leave them looking at yesterday and trying to see tomorrow.

Just recently, the president of France realized the stupidity. He has decided that his nation’s measures of economic health need to change to account for today’s challenges instead of yesterday’s. As Washington gears up to spend billions in more “stimulus,” it would help to ask exactly what it is trying to stimulate—and most importantly, exactly what would constitute success. (more)

Peter Schiff On Fast Money: Dollar Collapse By 70% In 2010?