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Archive for May 3rd, 2010
China May ‘Crash’ in Next 9 to 12 Months, Faber Says
May 3rd, 2010 | 
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China May ‘Crash’ in Next 9 to 12 Months, Faber Says
By Shiyin Chen and Haslinda Amin
May 3 (Bloomberg) — Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.
The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.
“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”
An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today.
Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.
Chanos, Rogoff
Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.
China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.
The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.
The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.
Stocks ‘Fully Priced’
The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent.
The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.
BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.
Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.
Local Governments
Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.
Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.
Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
GDP Deflator at a Five Decades Low While Income Inequality Is at Record Highs
GDP Deflator at a Five Decades Low While Income Inequality Is at Record Highs
From this chart sent out this morning by David Rosenberg, we can see that the GDP deflator is at a five decades low.
I tend to believe that the modifications to the inflation measures, including the deflator, that have accumulated by the federal bureaucracy over the past ten years are greatly understating the actual inflation in the economy.
There are very positive benefits for the government to do this. The lower the deflator, the better and higher the real GDP figures will appear. And a low measure of official inflation reduces increases in payments in Social Security and other programs with Cost of Living Adjustments (COLA), including official debt payments on the bonds and the TIPS.
Gold gives the lie to this, which is why it is so hated by financial engineers and statists.
On the other hand, the inequality of income distribution in the US is at level not seen since the 1920′s.
There is some good reason to think that government tax and fiscal policies, as well as the monopolistic makeup and subsidized growth of the Banking sector facilitates this wealth transfer and concentration, which has a highly negative impact on real economic growth.
There will be a change, and the trends will be reversed. How they are reversed and what changes will accompany those reversals are very much open to debate, and divergent historical examples. But these changes almost invariably involve a shift from individualism to statism.
“Those who make peaceful evolution impossible make violent revolution inevitable.”
John F. Kennedy
Change will come if the system remains as unsustainable as it is now. And what gives me a somewhat pessimistic view is that people never seem to learn the lessons of history.
A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons
A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons
“Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu’ il a été proprement fait.”
(The secret of great returns which are difficult to explain is a crime that has not yet been discovered because it has been carefully executed.”
Honoré de Balzac, Pere Goriot
There is quite a bit of spin surrounding the Goldman Sachs deal. The best debunking of the spin around the nature and quality of the SEC’s case was written by Barry Ritholz.
One of the best summaries of what the deal actually encompassed is excerpted below by Rolling Stone journalist Matt Taibbi.
“Here’s the Cliffs Notes version of the scandal: Back in 2007, Harvard-educated hedge-fund whiz John Paulson (no relation to then-Treasury secretary and former Goldman chief Hank Paulson) smartly decided the housing boom was a mirage. So he asked Goldman to put together a multibillion-dollar basket of crappy subprime investments that he could bet against. The bank gladly complied, taking a $15 million fee to do the deal and letting Paulson choose some of the toxic mortgages in the portfolio, which would come to be called Abacus.
What Paulson jammed into Abacus was mortgages lent to borrowers with low credit ratings, and mortgages from states like Florida, Arizona, Nevada and California that had recently seen wild home-price spikes. In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.
Where Goldman broke the rules, according to the SEC, was in failing to disclose to its customers – in particular a German bank called IKB and a Dutch bank called ABN-AMRO – the full nature of Paulson’s involvement with the deal. Neither investor knew that the portfolio they were buying into had essentially been put together by a financial arsonist who was rooting for it all to blow up.
Goldman even kept its own collateral manager – a well-known and respectable company called ACA – in the dark. The bank hired the firm to approve the bad mortgages being selected by Paulson, but never bothered to tell ACA that Paulson was actually betting against the deal. ACA thought Paulson was long, when actually he was short. That led to the awful comedy of ACA staffers holding meeting after meeting with Goldman and Paulson, and continually coming away confused as to why their supposedly canny financial partners kept kicking any decent mortgage out of the deal. In one ACA internal e-mail, the company wonders aloud why Paulson excluded mortgages issued by Wells Fargo – a bank that traditionally created high-quality mortgages. “Did [they] give a reason why they kicked out all the Wells deals?” the quizzical e-mail reads.”
Matt Taibbi, The Feds Vs. Goldman
This is fraud, pure and simple. Goldman did not stand by and allow ACA to make its picks. Goldman and Paulson aggressively influenced the selection process, vetoing the good mortgages, and manipulating ACA, setting them up to be the fall guy in what is clearly a premeditated fraud.
The final defense being offered, after the smokescreens and misstatements of what happened have been pulled away, is that there can be no fraud when you are selling to a ‘qualified investor’ and making a market.
Goldman was not making a market. They were actively creating inherently dangerous products, and then recommending and selling them to their customers, qualified investors or not. It was fraud, and Goldman is a disreputable firm, that has been shown to engage in fraud across many markets and countries and venues. This particular scam with ACA is small change compared to the setting up of AIG, and the foul bailout ripped from the public with the collusion of the NY Fed.
Anyone who looked at their trading results, many standard deviations out of the norm, would have to know that there was some sort of fraud and market manipulation involved. It is the Bernie Madoff syndrome; the professionals all knew he was cheating somehow, but were more than willing to go along with it and turn a blind eye while it was to their advantage. And Goldman had the politicians in their pocket, and so they were powerful, not to be crossed. Almost as powerfully connected as the Fed’s house bank, J. P. Morgan.
Warren Buffet and Charlie Munger have come out recently in defense of Goldman, attempting to paint this fraud as the work of a single rogue trader. That of course is a part of the spin, the carefully thought out and premeditated fraud which had ACA and then Fabrice Tourree as the designated scapegoats.
Warren holds quite a bit of Goldman Sachs stock. And all he and Charlie have shown is that once you strip away the trappings and the masks, the ornamentation and the legend, what you are left with is someone who is willing to lie down with pigs when the money is right. So the question is not what kind of man Warren Buffet is, but rather, what is his price.
When the tide goes out, we indeed see who is naked, and who is not. And it is not a pretty picture.
“Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu’ il a été proprement fait.”
(The secret of great returns which are difficult to explain is a crime that has not yet been discovered because it has been carefully executed.”
Honoré de Balzac, Pere Goriot
There is quite a bit of spin surrounding the Goldman Sachs deal. The best debunking of the spin around the nature and quality of the SEC’s case was written by Barry Ritholz.
One of the best summaries of what the deal actually encompassed is excerpted below by Rolling Stone journalist Matt Taibbi.
“Here’s the Cliffs Notes version of the scandal: Back in 2007, Harvard-educated hedge-fund whiz John Paulson (no relation to then-Treasury secretary and former Goldman chief Hank Paulson) smartly decided the housing boom was a mirage. So he asked Goldman to put together a multibillion-dollar basket of crappy subprime investments that he could bet against. The bank gladly complied, taking a $15 million fee to do the deal and letting Paulson choose some of the toxic mortgages in the portfolio, which would come to be called Abacus.
What Paulson jammed into Abacus was mortgages lent to borrowers with low credit ratings, and mortgages from states like Florida, Arizona, Nevada and California that had recently seen wild home-price spikes. In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.
Where Goldman broke the rules, according to the SEC, was in failing to disclose to its customers – in particular a German bank called IKB and a Dutch bank called ABN-AMRO – the full nature of Paulson’s involvement with the deal. Neither investor knew that the portfolio they were buying into had essentially been put together by a financial arsonist who was rooting for it all to blow up.
Goldman even kept its own collateral manager – a well-known and respectable company called ACA – in the dark. The bank hired the firm to approve the bad mortgages being selected by Paulson, but never bothered to tell ACA that Paulson was actually betting against the deal. ACA thought Paulson was long, when actually he was short. That led to the awful comedy of ACA staffers holding meeting after meeting with Goldman and Paulson, and continually coming away confused as to why their supposedly canny financial partners kept kicking any decent mortgage out of the deal. In one ACA internal e-mail, the company wonders aloud why Paulson excluded mortgages issued by Wells Fargo – a bank that traditionally created high-quality mortgages. “Did [they] give a reason why they kicked out all the Wells deals?” the quizzical e-mail reads.”
Matt Taibbi, The Feds Vs. Goldman
This is fraud, pure and simple. Goldman did not stand by and allow ACA to make its picks. Goldman and Paulson aggressively influenced the selection process, vetoing the good mortgages, and manipulating ACA, setting them up to be the fall guy in what is clearly a premeditated fraud.
The final defense being offered, after the smokescreens and misstatements of what happened have been pulled away, is that there can be no fraud when you are selling to a ‘qualified investor’ and making a market.
Goldman was not making a market. They were actively creating inherently dangerous products, and then recommending and selling them to their customers, qualified investors or not. It was fraud, and Goldman is a disreputable firm, that has been shown to engage in fraud across many markets and countries and venues. This particular scam with ACA is small change compared to the setting up of AIG, and the foul bailout ripped from the public with the collusion of the NY Fed.
Anyone who looked at their trading results, many standard deviations out of the norm, would have to know that there was some sort of fraud and market manipulation involved. It is the Bernie Madoff syndrome; the professionals all knew he was cheating somehow, but were more than willing to go along with it and turn a blind eye while it was to their advantage. And Goldman had the politicians in their pocket, and so they were powerful, not to be crossed. Almost as powerfully connected as the Fed’s house bank, J. P. Morgan.
Warren Buffet and Charlie Munger have come out recently in defense of Goldman, attempting to paint this fraud as the work of a single rogue trader. That of course is a part of the spin, the carefully thought out and premeditated fraud which had ACA and then Fabrice Tourree as the designated scapegoats.
Warren holds quite a bit of Goldman Sachs stock. And all he and Charlie have shown is that once you strip away the trappings and the masks, the ornamentation and the legend, what you are left with is someone who is willing to lie down with pigs when the money is right. So the question is not what kind of man Warren Buffet is, but rather, what is his price.
When the tide goes out, we indeed see who is naked, and who is not. And it is not a pretty picture.
Posted in Corruption, Economic Crisis, Economy, Financial System, Fraud, Goldman Sachs, Money | 
Comments Closed
Why We Need Fed Transparency
Posted by Karl Denninger
Let’s face the now-documented facts:
The Fed knew about the housing bubble, and both Alan Greenspan and BEN BERNANKE intentionally suppressed any public discussion of same by The Fed.
This isn’t conjecture any longer, and we can no longer believe that there was any sort of mistake involved here, nor a difference of opinion.
As disclosed from the Fed Minutes (the real ones, transcripts, not the abbreviated cheat sheets) and as now written about on Huffington Post, we have a problem here with credibility – and intentional misdirection:
“We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand,” Greenspan said, according to the transcripts of a March 2004 meeting.
You mean an argument that you felt was vital to your continued asset-appreciation bubble Alan? One that could only be maintained by intentionally misleading the public by suppressing dissent within The Fed, lest it leak out into the public discourse and people form their own opinions?
At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that “a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties–selling them quickly at higher prices.”
Ah, that wasn’t part of the minutes or public discussion, was it? Oh no. We couldn’t have that.
“Reports from some contacts suggested that speculative forces might be boosting housing demand in some parts of the country, with concomitant effects on prices, suggesting the possibility that house prices might be moving into the high end of the range that could be consistent with fundamentals,” reads the minutes, which were released to the public several weeks after the meeting.
That was a lie. Read the above. Buyers freely admitting they had no intention of occupying the units and were only flipping them – wasn’t speculation and it wasn’t a “might.” It was a fact.
In point of fact I can speak to this personally, as a former close associate of mine who is in the Real Estate business tried to get me involved in flipping pre-sale condos. I declined, recognizing after a bit of analysis that this was a huge game of musical chairs in which someone would wind up without a seat, and (correctly) perceiving that it might be me.
Had these transcripts been released contemporary with the events, we might have avoided the worst parts of the housing bubble.
Had they been released before Bernanke’s confirmation, he would have had to answer for what is clear intentional misdirection and misleading of The American Public.
What was the reason to not audit The Fed and force them to act in the sunlight again?
Is it so they can screw the American Public out of another $3+ trillion in wealth and cause another 8 million Americans to lose their jobs?
I think so.
Next (uncomfortable) question: You’ve read the recent Fed Statements and “minutes”, right? Have you bought stocks, or stayed in the market, in whole or in part as a consequence of what you read? Now ask yourself: were you lied to again this time around?
Posted in Banks, Corruption, Economic Crisis, Economy, Federal Reserve, Financial System, Fraud, Government, Housing Bubble |
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Regulatory Capture Defined: Sheila Bair (FDIC)
Regulatory Capture Defined: Sheila Bair
Posted by Karl Denninger
WASHINGTON—Federal Deposit Insurance Corp. Chairman Sheila Bair has urged lawmakers to scrap a controversial Senate plan that would force banks to spin off their derivatives businesses, saying it could destabilize banks and drive risk into unregulated parts of the financial sector.
How could this “destabilize” large banks?
Let’s remember that the now-common credit-default swap was invented after the Exxon-Valdez oil spill in 1989. JP Morgan wrote a line of credit to Exxon, and then created the world’s first “modern” credit default swap to protect itself against a possible default on that credit line.
Ms. Bair’s FDIC has had every opportunity to regulate whatever risk exists out of the system. Indeed, the stellar performance of her FDIC is demonstrated every week when we see 20, 30, 40 or even 50% overvaluations exposed by bank failures where the FDIC steps in to take over the firm.
At this point we find that there are alleged $100 million in assets (loans and paper), and $100 million in liabilities (deposits), but magically there is a $40 million loss to the deposit insurance fund!
How is this possible? Simple: The alleged $100 million in “assets” are really only worth $60 million, and yet nobody goes to jail for lying about asset values, nor has the FDIC come in and closed the institution before it went $40 million into the hole!
Banks with access to federal backstops, including The Fed window and FDIC insurance, should not be issuing or trading derivatives. The reason for this is simple – if they do, they don’t care if they make good loans or terrible, guaranteed-to-blow-up loans, as they can make plenty of money writing loans they know will and intend to blow up!
“Banks are not perfect, but we do believe that insured banks as a whole performed better during this crisis because they are subject to higher capital requirements in both the amount and quality of capital,” she wrote.
Baloney.
What’s in the off-balance sheet box over at Wells Fargo Sheila? What’s it worth?
If you closed Wells tomorrow, how much would the deposit insurance fund lose?
I’m willing to bet the answer would be “far more than we have – or have access to through Treasury.”
That’s the problem.
It is time for Ms. Bair to resign.
Posted in Banks, Corruption, Economic Crisis, FDIC, Federal Deposit Insurance Corporation, Financial System, regulatory capture, Sheila Bair |
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Greek Dog Squeeze Now Accepted At ECB
Greek Dog Squeeze Now Accepted At ECB
Posted by Karl Denninger
May 3 (Bloomberg) — The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market.
For the uninitiated this means that the ECB will accept DEFAULTED Greek debt instruments, should it come to that.
More bluntly, if Papandreou’s dog drops a deuce in a box and he presents it to the ECB claiming that it’s worth $10 billion, the ECB will in fact issue $10 billion in real, honest-to-God Euros against that box – no matter how badly it smells.
That prompted Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt, to say today’s announcement “leaves a sour taste with regards to the ECB’s long-term credibility.”
The ECB has no credibility to lose at this point as it has now documented that the Euro is worth nothing at all as a currency, since it may be debased at will by Greece through the offering of worthless debt instruments into the ECB’s clearing and margining system.
The Euro is now free to descend toward zero, targeting in the intermediate term my Par price-point .vs. the dollar, and likely headed for well below that.
Congratulations Europe, you have now demonstrated that your central bank is and has been issuing dog turds disguised as Euro bank notes.
If Germany has an ounce of sense they will withdraw from the Euro and return to the Deutche Mark post-haste.
Posted in Banks, Debt, ECB, Economic Crisis, Economy, EU, Euro, Europe, European Central Bank, Financial System, Government, Greece |
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proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
PDF PowerPoint Congressional Patriots Federal Reserve Balance Sheet Paulson's Lies Bernanke's Lies FedUpUSA Archive Mathematics of Failure Media Kit Door Hanger Corruption Flier Bank Flier Made In America A list of products and services made right here in the USA. Choosing to buy American made products preserves and creates American jobs.