Sunday, December 19, 2010

notes & comments on the week ending Dec 18th

after gaining the support of JPMorgan CEO jamie dimon, who stands to save $1,179,000 next year from the tax cut, the GOP-obama tax cut package i discussed last week easily passed the senate 81 to 19, and passed the house thursday night, with 148 congressmen voting against it...moody's immediately warned that it might hurt our triple A credit rating...i dont have a handle on how much pork was ultimately attached, but with the broad acceptance it was probably minimal; the real pork was in the 6700 earmark $1.3 trillion bipartisan omnibus spending bill, which was pulled from the senate floor friday when the anti-porkers were caught with their hooves in the fiscal cookie jar...since a budget compromise seems impossible, it appears another non-specific two month extension of the Oct 1 continuing resolution will be funding the government for the next two months, at which time we hit the debt ceiling, & things could get interesting...

the unemployment rations extension that's part of the tax bill is just an extension till next Dec 31 of the qualifying dates for the four tiers of rations that have been on & off all year...it doesnt do anything for those who have been unemployed since the depth of the recession, the so-called 99ers, or for those living in a state not eligible for all four tiers of rations...i've included a graph below (click to enlarge) that is illustrative of this problem...as you can see from that graph, the majority of the layoffs started occurring just under 99 weeks ago, and as those laid off then reach that 99 week threshold, they will be without any safety net...

treasury bond prices continued to erode this past week, and the benchmark ten year yield is now nearly a percent higher than before QE was initiated...30 year mortgages now average 5 1/8 plus a point, which means that a home buyer's monthly payment on a fixed 30 yr mortgage on the same principal would be 9% higher than in october...here's a set of charts tracking those benchmark interest rates...the spread between corporate junk bonds and treasuries is now the lowest since 2007, but yields on top-rated tax-exempt securities due in 30 years are climbing twice as fast as those on U.S. Treasuries, reaching the highest level in almost 16 months; part of this is due to the expiration of the build america bonds program from the original stimulus package...for states & municipalities, this means the cost of their borrowing now averages 19% higher than october... i dont usually follow weekly wiggles in the markets, but im mentioning the T-bonds market again because they're the best litmus test i have for the effectiveness of QE, and because theyre a barometer for how the tax cuts are being received by the funders of the US debt...ie, foreign purchases of long term US assets totaled $27.6 billion during the month, compared with net buying of $77.2 billion in september...there are some apologists now opining that the higher interest rates are a sign of recovery, but none of them said that was what was supposed to happen when QE was introduced... if high interest rates are a sign of recovery, life must be a real bowl of cherries in greece & ireland...one would think they would see their scheme is producing unintended consequences, but the FOMC statement was unchanged, so the Fed is clearly not planning to reverse itself...

there was some celebration because retail sales ex-gasoline have now hit a new nominal high; yet we have ten percent unemployment, 20% if you count those underemployed...one out of six have been unemployed in the last 18 months, and 17% are working in a lower paying job out of their field...so who could be pushing retail sales back up?  for the most part, it must be the same people who will be getting an average of $129,000 in tax cuts when the bush cuts are renewed...maybe if we all get lucky, they'll trickle down on the rest of us...

the financial crisis inquiry commission, a bipartisan investigation created by an act of congress in may 2009, took an orwellian turn & splintered into partisan disarray this week when the republican members walked out after their attempt to ban the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report was defeated 6-4...they will publish their own report blaming the entire financial crisis on barney frank, fannie mae, and poor subprime borrowers who lied on loan applications, thus precipitating the housing bubble in the US, canada, spain, ireland, australia and the rest of the world, and taking down the unfortunate banks who had  bundled those mortgages into tranches of otherwise AAA products, thus necessitating a multi-trillion dollar bailout...the banksters were just innocent victims, the crisis was all was the result of a socialist conspiracy against the banks...apparently as salve for the banksters wronged by this dirty commie plot, the incoming financial services committee chairman baucus of alabama assured them that it was now washington's job "to serve the banks", and the SEC, which needs to hire 800 new investigators to handle its prescribed job under finreg, apparently will not be funded for those extra hires...

china announced it would further limit supplies & raise export tariffs on certain rare earths starting next year, renewing worries about a supply crunch or the materials necessary for various energy technologies including wind turbines and electric vehicles; facing a diesel fuel shortage, the world's largest energy user boosted net imports of crude oil 26% in november from a month earlier, as china's refiners increased crude processing to a new record; oil prices had been under pressure because it was assumed china would tighten, but they rose when china reversed itself & decided to raise inflation targets instead; copper prices hit a new all time high, as it was revealed that one unidentified company holds at least 90% of the london metal exchange inventory (LME rules force metal lending at fixed rates, so shortages will not occur)

the UN climate summit concluded with an agreement to curb climate change, with $100 billion a year in aid promised to developing nations by 2020, it protects forests and outlined methods to verify cuts in fossil fuel emissions, although no new targets for curbing greenhouse gases were set...the kyoto protocol was not renewed & the agreement is not binding; but they will meet again next december in durban, s.africa to try to make some further progress..the results remind me of similar conferences in the 80s, when it was always decided that further study was needed and a meeting was set for the next year...NASA determined that the 2010 meteorological year, which ended november 30th, was the warmest on land & worldwide in their 130-year record, surpassing the record set in 2005...worldwide, november was 0.96˚C warmer than the benchmark 1951 to 1980 average ...& in case you're wondering why its been so cold recently, we're under the influence of a negative arctic oscillation, which dumps cold air into the eastern US and drives the warmer air northward; hudson bay was still 90% ice-free at the end of november & greenland has been 18°F above normal...i've been on this case a while, but i cant get too excited about climate change anymore...there are more immediate problems facing us than the environment, and i think the climate change story is already written and irreversible, and whoever's still around just have to deal with it when manhattan floods in 50 years...

there was a major summit of the 27 members of the EU on thursday, where they pledged to do whatever is required to defend the euro, but no details of what that whatever might be were forthcoming; the E-bond proposal was blocked my the northern countries, & despite calls by ECB president trichet for maximum flexibility, no increases in the EU’s €440bn rescue fund were announced; operating autonomously, just like our Fed, the ECB stepped up purchases of peripheral country bonds by nearly 50% this past week and planned to double its capital base in preparation for dealing with nearly €300 billion ($400B) in total refinancing that will be needed by spain next year; portugal worried that with the "avalanche" of debt to be issued next year, it might get shut out of the bond market...moody's downgraded irish debt five notches, and put spain on credit watch...just about the time that the general strike in spain was winding down & air & ground traffic there was being restored, greece was hit with its seventh general strike this year, shutting down factories, bus & truck transport and the athens airport...widespread firebombing & clashes with police broke out in the city...similar riots broke out in rome when the conservative prime minister survived a vote of confidence in the italian parliament, with 90 people, including 50 police, treated for injuries...as words are insufficient to describe the rioting, here's a link to videos of Riots in Athens and Rome

Unemployment, here come the 99ers

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This graph shows the change in payroll jobs each month. The peak job losses were in early 2009 - and 99 weeks is just under two years - so many of those people will be exhausting their benefits over the next few months. click graph to enlarge>>>>>>

 

 

 

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, mostly from the aforementioned GGO posts, contact me...

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