Tuesday, March 2, 2010

HUMOR: A Bankers Progress

Perspective On A Long and Deep Real Estate Downturn

Many people I talk to and hear from are having a really hard time grasping how severe the real estate crisis is in America. Let me sum up how bad the problem is in one simple sentence. The real estate market (both residential and commercial) is the worst EVER! According to Yale Economics Professor Robert Shiller, the real estate boom a few years ago was the biggest in history! The bust we find ourselves in now will, also, be the biggest in history.

Take this comment I received from a USAWatchdog reader last week. He asked, “Are you preaching that I rent a house rather than get a mortgage? Because getting a mortgage puts me in debt for 30 years? No you wouldn’t say that because everyone knows that at least with a mortgage you are actually getting a house.” The latest housing figures released just last Friday from the National Association of Realtors report home sales are down 7.2 percent in January. In another report, prices are down an additional 10% in some regions of the country. Yes, with a mortgage you will get a house, but how much of your down payment will be there in 2 or 3 years? (more)

Greece Now, U.K. Next as Scots Ready for Pound Plunge

While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.” (more)

Bullish on Bullion

A recent study by GoldMoney.com, which enables online cross-border transactions using gold as a currency, found that from 2000 through 2009, gold rose an average 10.1% a year versus the Swiss franc (which turned in the best of the bad showings by the currencies studied) to 14.9% against the U.S. dollar (a middling performer) to 20.0% for the Sri Lankan rupee (the worst in show).

"Gold isn't going up, currencies are going down," says James Turk, GoldMoney.com's founder. "The purchasing power of gold remains basically unchanged against commodities. In contrast, the purchasing power of national currencies is being constantly eroded." (more)

Economist: U.S. Has $100 Trillion Entitlement Problem

The $1 trillion dollar states’ pension gap recently reported by the Pew Center is just the "tip of the iceberg,” according to Chilean economist José Piñera Echenique, best known as the architect of Chile's private pension system based on personal retirement accounts and the founder of The Center for Pension Reform.

“I am extremely worried about all the debts America has,” Piñera said.

“You have a $100 trillion problem,” which is the amount owed for hospital insurance, Medicare, drug benefits and Social Security, Piñera told Fox News.

“This is the real debt of America, which amounts to 700 percent of GDP… which will be paid by your children and grandchildren,” Piñera says, unless the U.S. government defaults on its obligations to American citizens or raises taxes. (more)

U.S. Doomsday Preview? Illinois Going Broke Now

Laurence Msall, president of watchdog group the Civic Federation,
says "doomsday is here for the state of Illinois," referring to the state’s $12.8 billion deficit.

"Illinois' fiscal crisis has been many years in the making," Msall says.

"It was caused by more than 30 years of pension underfunding and many years of spending unfettered by the state’s shrinking revenue resources," Msall told the Sun-Times.

Msall’s group is calling for an increase in personal income tax, advocating an intervention that includes significant budget cuts and the largest tax increase package in Illinois history.

The group says it would support a state income tax increase from 3 percent to 5 percent, and recommends the state tax retirees’ pension and Social Security checks be taxed for the first time at the same rate as workers’ paychecks. (more)

A Country of Serfs Ruled By Oligarchs

The media has headlined good economic news: fourth quarter GDP growth of 5.7 percent ("the recession is over"), Jan. retail sales up, productivity up in 4th quarter, the dollar is gaining strength. Is any of it true? What does it mean?

The 5.7 percent growth figure is a guesstimate made in advance of the release of the U.S. trade deficit statistic. It assumed that the U.S. trade deficit would show an improvement. When the trade deficit was released a few days later, it showed a deterioration, knocking the 5.7 percent growth figure down to 4.6 percent. Much of the remaining GDP growth consists of inventory accumulation.

More than a fourth of the reported gain in Jan. retail sales is due to higher gasoline and food prices. Questionable seasonal adjustments account for the rest. (more)

What Are Banks Doing with Their Depositors' Money?

There have been numerous reports about the sharp decline in bank lending since the beginning of the financial crisis. The Wall Street Journal, for example, on Wednesday reported in an article entitled “Lending Falls at Epic Pace” that last year’s decline in lending is the biggest since 1942. It also provided the following chart to clearly make its point. (more)

Stocks, Dollar Gain as Spending, AIG Deal Bolster Confidence

Stocks and the dollar rose as growth in U.S. consumer spending, a possible European rescue of Greece and American International Group Inc.’s $35.5 billion sale of an Asian unit bolstered confidence in the economic recovery.

The Standard & Poor’s 500 Index gained 1 percent to 1,115.71 at 4:12 p.m. in New York, erasing its loss for 2010. Europe’s Stoxx 600 Index rallied 1.2 percent. The Dollar Index climbed 0.5 percent to 80.73, near its highest level since June. Copper rose to a seven-week high after the earthquake in Chile, the biggest producer of the metal, while the nation’s benchmark stock index tumbled. Greek equities and bonds rallied.

U.S. personal spending grew 0.5 percent in January for a fourth consecutive increase, while another report showed American manufacturing expanded for a seventh month. AIG’s sale of a life-insurance unit to Prudential Plc is its largest since the company received a government bailout in 2008. In a separate deal, Merck KGaA agreed to buy Millipore Corp. for $6 billion. (more)

Chilean Stocks Post World’s Biggest Drop as Quake Closes Roads

Chile stocks fell the most in almost a month, the biggest drop among the world’s 50 largest markets, after an 8.8-magnitude earthquake killed hundreds, severed the nation’s main highway and damaged 1.5 million homes.

Empresa Nacional de Electricidad SA, the nation’s biggest power generator, and Lan Airlines SA, the country’s largest carrier, dropped following electricity outages and airport closures. Salfacorp SA, Chile’s biggest building company, jumped the most in five months on speculation it will benefit from increased business as the nation recovers.

The Ipsa Index dropped 1.2 percent to 3,782.04, the biggest decline since Feb. 5, following the country’s biggest earthquake since 1960. Chile’s peso pared a retreat of as much as 1 percent in Santiago, losing less than 0.1 percent to 524.70 per dollar, on speculation the government will repatriate overseas savings to fund reconstruction. (more)

Chart of the Day