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US Dollar Hits Historic Levels

January 21, 2009 by · Leave a Comment 

It is not often that we can see the US dollar hit a 23 year high against one currency and a 13 year low against another on the very same day.

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What’s Behind the Big Moves in Currencies?

January 21, 2009 by · Leave a Comment 

There has been a lot of volatility in the foreign exchange market this morning, driving currencies to historic levels:
GBP/USD – 23 Year Low
USD/JPY – 13 Year Low
NZD/USD – 6 Year Low
EUR/JPY – 6 Year Low
CAD/JPY – 13 Year Low
GBP/JPY – Record Low
NZD/JPY – 8 Year Low
The most significant moves have been in the British pound, […]

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Lightning, Earthquakes & Hurricanes

January 21, 2009 by · Leave a Comment 

By Jim Willie CB, Golden Jackass

USDOLLAR VULNERABILITY – SEVERE OVERNIGHT CORRECTION

The USDollar has been lifted by queer forces in the last few months. Redemptions of Credit Default Swaps are paid out in US$ terms, as large corporations fail and their asset backed bonds default. CDSwaps are insurance policy contracts. Also, the sale of speculative fund positions often results in debt liquidation, and repayment of heavy credit extended in US$ terms. Another force has been revealed. In the 4Q2008, fully $150 billion in foreign subsidiary assets, funds, and profits were brought home by US corporations, in order to repair the balance sheets and stem disaster. This has garnered little or no publicity. The repatriation flow is not to be expected to repeat each quarter, and is largely completed. The Powerz prefer to formulate false stories about Flight to Dollar Quality, or the US financial sector being the first to emerge from the credit crisis, or foreign financial structures being worse off than the US, or some total nonsense.

The USDollar DX index has more thoroughly filled the gap from 82.5 to 83.5 described in the last article. Watch the stochastix crossover signal, which might be a thinly disguised rebound near its end. The USDollar is a tired soldier here. Almost always a retest of the previous established high occurs, like the 88 registered in November. That is in progress, and probably has run its course. Little talk has come to how US firms have been harmed by rising export prices charged to foreign customers. That is a US$ negative factor. The fast deterioration of the USEconomy is an extremely negative US$ factor. Lastly, as cited over two years ago, the USEconomic trade deficit finally has come down, but mainly due to economic slowdown called recession, finally recognized. My description is of disintegration, since credit devices have been destroyed, borrowers have been rendered insolvent, banks are mostly insolvent, supply chains are locked down, and transportation systems are left idle. Most claims of imminent revival are utterly laughable.

The USTreasury Bond is offering extremely low yields to investors. The short-term Bills are offering near 0% yields in a travesty on wheels. With the US$ elevated from its Death Dance, lifted by powerful prevalent destruction, and the USTBond principal elevated from risk aversion and central bank consolidation into the valueless monolith of worthless debt eventually to suffer default, SOMETHING MUST GIVE FROM POWERFUL FORCES. Read more….

Swept Under the Rug

January 21, 2009 by · Leave a Comment 

In the first of a series of articles, which could easily become the-rest-of-my-life’s work, I will be examining high-profile lawsuits and indictments, such as—what’s happening with the federal lawsuit against Robert Rubin for insider trading—and others.

On December 4, 2008, the New York Post reported: “A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that’s now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.” However—and here’s the indictable offense, worldwide Ponzi scheme not likely being one—before Citi’s stock collapsed, Rubin and other top insiders cashed out of more than $150 million in “suspicious stock sales” according to the lawsuit filed on behalf of investors.

On December 11, 2008, this item was picked up by an online news service out of Phoenix, phxnews.com. The only other comment was mine for BlownMortgage.com: Growth Industry 2009: Criminal and Constitutional Law, on December 23, 2008. Not only did these three publications have the scoop, but apparently there was nothing left to be said.

And then . . . on January 9, 2009, Citi announced that Robert E. Rubin retired as Senior Counselor effective that day and he would not stand for re-election as Director. Mr. Rubin would continue to serve as a Director until his current term expires at Citi’s next Annual Meeting. Hadn’t he been on the short list for Treasury Secretary as well?

On that very same day, WSJ’s MarketWatch asked readers: “How will people remember the Robert Rubin era at Citigroup? Right now, the smart money is on “a nightmare.” For all of his supposed prowess in financial markets, the former Goldman Sachs Group Inc. banker and U.S. Treasury Secretary presided over an era of scandal and risk overload during his nine years as a director and consultant at Citigroup . . . which ended “after a humiliating 18 months that has seen Citi oust Weill-successor Charles Prince, take $83 billion in writedowns, raise $36 billion in investor cash, take $40 billion from taxpayers, and get the government to backstop more than $250 billion in risky assets on its balance sheet . . . and a 90% decline in stock price.” ***Keep in mind that this article was dated January 9th. Today is January 21st so the bailout numbers are higher and the stock price lower.***

Anyway, it sounds like they could be on to something.

Then, on January 13, 2009, David Weidner wrote a piece about Rubin for MarketWatch pointing out that during Rubin’s time as Treasury Secretary, he and then Fed Chairman Alan Greenspan “oversaw the most sweeping deregulation movement in the history of Wall Street, the pinnacle of which was the elimination of Depression-era laws that made it illegal for a company to have both commercial banking and investment banking on a large scale.” This allowed the merger of Citicorp with Travelers insurance in 1998. Only a year later, Rubin left the Treasury and became Director and Senior Counselor of Citigroup. “There, he made $150 million (not including stock options) and, depending on whose account you believe, was either a tireless worker or a once-a-month visitor to the corporate headquarters.” Weidner sums up with “Robert Rubin is out at Citigroup Inc., and it only cost about $300 billion in committed taxpayer money.” ***Worldwide Ponzi scheme strikes me as tireless worker, but then Weidner doesn’t seem to know about the federal suit.***

One more try. Googled the story again today; you’d think by now someone must be on to it. And there it was, on January 16, 2009, an article on Bloomberg by Michael Lewis, author of Liar’s Poker. ***Now you’re talking, he’s the insider’s whistle blower.*** No, it turns out Rubin has published his memoirs and Lewis wrote a book review. In a very poorly written piece, Lewis says, Rubin is “an acute and decent man . . . and . . . the world’s a better place for having him in it.”

***If you say so.***

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Robert Rubin Insider Trading

January 21, 2009 by · Leave a Comment 

In the first of a series of articles, which could easily become the-rest-of-my-life’s work, I will be examining high-profile lawsuits and indictments, such as—what’s happening with the federal lawsuit against Robert Rubin for insider trading—and others.

On December 4, 2008, the New York Post reported: “A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that’s now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.” However—and here’s the indictable offense, worldwide Ponzi scheme not likely being one—before Citi’s stock collapsed, Rubin and other top insiders cashed out of more than $150 million in “suspicious stock sales” according to the lawsuit filed on behalf of investors.

On December 11, 2008, this item was picked up by an online news service out of Phoenix, phxnews.com. The only other comment was mine for BlownMortgage.com: Growth Industry 2009: Criminal and Constitutional Law, on December 23, 2008. Not only did these three publications have the scoop, but apparently there was nothing left to be said.

And then . . . on January 9, 2009, Citi announced that Robert E. Rubin retired as Senior Counselor effective that day and he would not stand for re-election as Director. Mr. Rubin would continue to serve as a Director until his current term expires at Citi’s next Annual Meeting. Hadn’t he been on the short list for Treasury Secretary as well?

On that very same day, WSJ’s MarketWatch asked readers: “How will people remember the Robert Rubin era at Citigroup? Right now, the smart money is on “a nightmare.” For all of his supposed prowess in financial markets, the former Goldman Sachs Group Inc. banker and U.S. Treasury Secretary presided over an era of scandal and risk overload during his nine years as a director and consultant at Citigroup . . . which ended “after a humiliating 18 months that has seen Citi oust Weill-successor Charles Prince, take $83 billion in writedowns, raise $36 billion in investor cash, take $40 billion from taxpayers, and get the government to backstop more than $250 billion in risky assets on its balance sheet . . . and a 90% decline in stock price.” ***Keep in mind that this article was dated January 9th. Today is January 21st so the bailout numbers are higher and the stock price lower.***

Anyway, it sounds like they could be on to something.

Then, on January 13, 2009, David Weidner wrote a piece about Rubin for MarketWatch pointing out that during Rubin’s time as Treasury Secretary, he and then Fed Chairman Alan Greenspan “oversaw the most sweeping deregulation movement in the history of Wall Street, the pinnacle of which was the elimination of Depression-era laws that made it illegal for a company to have both commercial banking and investment banking on a large scale.” This allowed the merger of Citicorp with Travelers insurance in 1998. Only a year later, Rubin left the Treasury and became Director and Senior Counselor of Citigroup. “There, he made $150 million (not including stock options) and, depending on whose account you believe, was either a tireless worker or a once-a-month visitor to the corporate headquarters.” Weidner sums up with “Robert Rubin is out at Citigroup Inc., and it only cost about $300 billion in committed taxpayer money.” ***Worldwide Ponzi scheme strikes me as tireless worker, but then Weidner doesn’t seem to know about the federal suit.***

One more try. Googled the story again today; you’d think by now someone must be on to it. And there it was, on January 16, 2009, an article on Bloomberg by Michael Lewis, author of Liar’s Poker. ***Now you’re talking, he’s the insider’s whistle blower.*** No, it turns out Rubin has published his memoirs and Lewis wrote a book review. In a very poorly written piece, Lewis says, Rubin is “an acute and decent man . . . and . . . the world’s a better place for having him in it.”

***If you say so.***

Read more….

Builder Confidence Hits New Low; NAHB Urges Buyer Stimulus

January 21, 2009 by · Leave a Comment 

Home builder confidence across the U.S. slumped to a new record low of 8, according to a monthly survey released Wednesday by the National Association of Home Builders. The housing market index, measuring builder perceptions of current single-family home sales and sales expectations for the next six months, is based on a scale of 100 […]

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BofA Needs $80 Billion in Fresh Capital: Analyst

January 21, 2009 by · Leave a Comment 

Friedman, Billings, Ramsey analyst Paul Miller made waves Tuesday by suggesting that Bank of America Corp. (BAC: 6.45 +26.47%) needs more than $80 billion in new common equity capital, thanks to a ballooning balance sheet of assets tied to its acquisitions of Countrywide Financial and Merrill Lynch. Miller suggested that BofA would also need to […]

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Geithner Testifies: Calls for Tougher Bailout Terms

January 21, 2009 by · Leave a Comment 

President Obama’s Treasury Secretary-designate Tim Geithner called for aggressive action in tackling the economic downturn during his testimony before the Senate Finance Committee at his confirmation hearing Wednesday morning.
“Senators, the ultimate costs of this crisis will be greater, if we don not act with sufficient strength now,” Geithner’s testimony read. “In a crisis of this […]

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Endgame 3: The End of (Paying) Work

January 21, 2009 by · Leave a Comment 

The endgame isn’t limited to the global financial meltdown or the complete repudiation of existing debt, policies and financial structures; it includes the end of an entire consumer-based, resource-profligate paradigm of work.

Various analysts have estimated the U.S. economy will shed about 2 millions jobs in 2009. Given that as of December 2008 there were over 137 million jobs, that doesn’t sound all that horrific. Here are the numbers from the Bureau of Labor Statistics:

Nonfarm employment……. 137,331
Goods-producing (1)…….. 21,351
Construction ……… 7,141
Manufacturing ……. 13,423
Service-providing (1)…… 115,980
Retail trade (2)……. 15,259
Professional and
business services ….. 17,849
Education and health
services ………. 18,975
Leisure and
hospitality ……. 13,627
Government ………. 22,504

Setting aside the estimate of 2 million jobs lost, let’s look at each category and make a rough back-of-the-envelope estimate for how much paying work each category might support in, say, 18 to 24 months.

Construction. While bridges being repaired will certainly support heavy-construction employment, the far larger categories of residential building and remodeling and commercial construction (office towers, malls, warehouses, etc.) are completely overbuilt for years to come. So let’s guesstimate that there will be 50% less demand for construction and a job loss of 3.5 million in this category.

Manufacturing. Unfortunately, a tremendous amount of manufacturing is dependent on construction (glass, appliances, steel, etc.) and transportation (rubber, steel, components, semiconductors, etc.) both of which are in freefalls. Exports are falling as fast as imports. Let’s be charitable and only carve off 3.5 million jobs here, leaving 10 million intact.

Retail. Does anyone doubt that fully 1/3 of all retail outlets are now surplus?

We’re talking about fulltime positions here; so cutting hours from everyone on the floor may actually save jobs (i.e. hours cut will not show up in the above statistics) but the equivalent fulltime positions (that is, 40 hours of paid work a week) may well have vanished.

Let’s guesstimate that 5 million retail positions will no longer be supported by sales/profits.

Professional and Business Services. Legal and accounting services will suffer as businesses fold. Businesses will decide they need fewer contract workers, fewer consultants, fewrer financial services and fewer software upgrades. Let’s guesstimate that 2.5 million jobs will eventually be lost in this category.

Education and Health Services. These have been the growth industries, along with financial services, during the bogus “prosperity” of the past eight years. Once millions of jobs are shed, then millions of dollars of health insurance are no longer paid by employers, which means healthcare providers will get squeezed along with every other category.

Here is California, college enrollments are being capped as deficits soar; the inevitable next step is to leave jobs unfilled as people retire–one way or another, a reduction in total education employment. Let’s guesstimate 1 million of these jobs get cut–perhaps not by layoffs but by retiring workers not being replaced.

Leisure and hospitality. The sad fact is nobody needs to take a cruise or a vacation; both are the acme of discretionary expenditures. I would be shocked if the U.S. economy didn’t shed 3.5 million jobs in this category.

Government. Local government (cities, counties, states and agencies) has added 12% more employees in the past eight years of bogus debt-based “prosperity,” and the freefall in tax revenues means those 12% of “new” government jobs will vanish–and that’s the best-case scenario. Let’s guess that a total of 2.5 million jobs will disappear as tax revenues plummet and then keep plummeting.

The total: 21.5 million jobs–10 times the MSM-approved estimate of 2 million jobs lost. Very few have the stomach to consider the reality that perhaps 20+ million jobs are no longer supportable by private industry revenues and profits and the tax revenues which depend on those profits and jobs. 21.5 million jobs lost works out to about 15.6% unemployment–a full 10% lower than the 25% unemployment rate reached in the Great Depression.

In other words, 21 million jobs lost is actually an optimistic guesstimate compared to what could transpire in the years ahead–a gradual evaporation of 30-35 million jobs. If Federal fiscal stimulis funds a couple million jobs–more likely retaining jobs in heavy construction and manufacturing that would otherwise be lost rather than adding jobs–then the total job loss might not be as severe until the “extra” Federal spending ends.

Just off the top of my head, here are industries which are sure to be hard-hit: media, advertising, cruise ships (many if not most will be mothballed), professional sports (how many people will be able to afford $45 tickets for lousy seats plus $10 for parking and $25 for a few beers and hotdogs?), spas, auto detailing, non-profits, pricey venues like museums which depend on wealthy donors (far fewer of those suddenly)–the list is long indeed.

Even worse, the deeper issue–the End of Work in a resource-profligate and consumer-based economy–isn’t even being addressed yet.

Knowledgeable reader Matt S. who first recommended the seminal demographic study The Fourth Turning recently recommended The End of Work by Jeremy Rifkin.

Rifkin’s primary point is that the “full employment” of the bubble eras (dot-com asset bubble followed by credit-housing bubble) was a temporary aberration from the underlying trend caused solely by unsustainable credit-based (borrow and spend) consumerism. The longterm trend is this: productivity is raised by the replacement of human labor (jobs) with automation/machines/software.

As productivity rises, the number of jobs decreases.

This reality has long been visible in manufacturing. The reality of competitive global forces lead to factories of robots assembling robot-assembled components with a few hundred humans to maintain the machines. There are already auto factories like this in Japan. The entire world’s auto industry will continue shedding workers even if the number of units produced increases.

Rifkin points to the U.S. steel industry as another example. Since 1981, the industry has boosted production by about a third while reducing the number of jobs from 384,000 to 74,000.

Many observers believe the answer is to pay all of us $25/hour for service work so we can all afford the high-priced services provided by each other. In other words, I prepare you a $5 coffee (plus $2 tax) and then spend my earnings on a haircut, downloading a song off iTunes, going to a club and buying a high-priced drink, playing golf, etc. etc.

While this is certainly appealing–a high-wage service economy which is entirely self-supporting– the nations which most resemble this model (Japan, France, Germany and Scandanavia) all depend on exports and a trade surplus, and all live with a structurally high unemployment.

In other words, their prosperity is still based on the old-fashioned model: make and sell more than than you buy/consume from others.

The only nation which has run massive structural trade deficits during “prosperity” is the U.S., and now the painful reality is revealed: that deficit-borrow-spend model has essentially bankrupted the nation.

Here is how the U.S. has gotten away with it: we have arbitraged our currency, in essence creating a “surplus” of chimerical value via the U.S. dollar.

One way to think about this is: we have traded dollars for goods valued at X (in other currencies, in gold, whatever metric you want) and paid for them with currency worth X-$700 billion: the dollar. This is how we have been able to sustain trade deficits which have broken every other profligate nation’s economy throughout recorded history.

Since the rest of the world depends entirely on the export/trade surplus model, they really have no choice: either accept the dollar arbitrage (in effect ceding $700 billion in excess value every year to the dollar) or face the end of the export/surplus model.

Since nobody’s come up with a sustainable alternative to the export/surplus model, then the entire world accepted the dollar arbitrage: sell to the American consumer, pocket a surplus to support one’s economy, and accept the dollar arbitrage.

The U.S. has “exported” two things in exchange for trillions of dollars of oil and other real goods: inflation via a depreciation of its own currency, and “financial instruments” based on the dollar arbitrage. It continues to be a wonderful scam: we print/create with fractional lending as much paper money as we want (X), and everyone continues to accept it as an IOU worth X when in fact it is worth X-Y (with Y being the U.S. trade deficit).

Can this model of global prosperity continue essentially forever? It’s hard to see how, but to date it has proven extremely durable because nobody has a Plan B. So it might last for years to come–as long as the dollar arbitrage doesn’t become too onerous. At what point does it become too burdensome? Nobody knows.

The Dollar Crisis: Causes, Consequences, Cures argues that this arbitrage/deficit is indeed unsustainable.

When the scam breaks down, then the export/surplus model will break down, and global unemployment will skyrocket. There is a lot being written now about the “race to the bottom” in currencies, in which every nation/trading bloc is trying to devalue their currency faster than their rivals in order to support their exports. What makes this so laughable is the one currency which is rising is–drum roll, please–the U.S. dollar. Why?

Because every other nation/trading bloc is still pursuing the export/surplus model: sell more than you buy. That requires they not only accept the dollar arbitrage, they must actively support it. Many observers are astounded by the dollar’s strength: this profligate nation’s currency should be plummeting like a stone, yet instead it rises!

Once you understand the global dollar arbitrage–we buy your goods to support your export/surplus model, and you accept a dollar intrinsically worth less than the the goods sold, and everyone walks away happy–then this seeming impossibility makes sense.

Were the dollar to fall, as many expect, from 86 on the DXY (dollar index) to say 45, then the global export/surplus model of everyone selling their surplus production to the U.S. will no long work. Since there is no Plan B, then it’s in everyone’s interest to keep the game going. It’s a lot less painful to accept a “hidden” loss via dollar arbitrage than it is to face structural unemployment and civil unrest if the export model breaks down.

We also read how China is going to transition to a domestic economy, but a study of history finds virtually no examples of such a model. Wealth and thus prosperity has always been created by trade, and it precisely the point at which China turned away from global trade in the 16th century that its long decline began.

I recently toured a 40-acre biodynamic vineyard in Sonoma County, California. Biodynamic is basically one step beyond organic: not only are no pesticides or chemical fertilizers used, virtually no outside inputs are used: the land supports itself, as it were, by careful shepharding of insects, mulching, a few animals which graze off the grass/ground cover, etc.

Yes, the vineyard has machinery which operates on oil: there is certainly an enormous energy input from outside the system. But other than the cost of shipping the product (wine) to market and transporting visitors to the site, most of the work is manual labor.

This model employs about a dozen people year-round. Most of the work is hard physical labor: pruning vines, spreading mulch, etc. This work cannot be entirely mechanized, and software can do little to add value/productivity. But then the question becomes: what is the tradable value of the resulting product? If the wine sells for $30+ a bottle, then the vineyard is a viable model in our high-cost economy. But if the tradable value of the product declines to say $10 a bottle, then the wages generated by the enterprise must likewise fall.

Rifkin is an optimist, as he sees the possibility of a new model in which “paying work” is replaced by “work” in a high-tech hydrogen-based economy.

While we work toward that goal–or some alternative vision, if you prefer–then we better be ready to fund food stamps and unemployment benefits for 20 million people without paying jobs, and find something productive for them to do–for idle hands eventually find employment with the Devil.

What’s for dinner at your house? has been updated with four new recipes.

New chapter in Operation SERF: Chris Sullins’ “Strategic Action Thriller” is fiction, and contains graphic combat scenes.
Operation SERF, Part 7

My “little book of big ideas,” Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99. New Kindle edition available for only $4. Weblogs & New Media: Marketing in Crisis (This version is downloaded electronically to Amazon’s Kindle reader device.)

Thank you, Jonathan H. ($25) for your exceedingly generous donation to this site. I am greatly honored by your support and readership.

Thank you, Eugenio M. ($45) for your steadfast encouragment and multiple generous contributions to this site. I am greatly honored by your support and readership.

Go to my main site at www.oftwominds.com/blog.html for the full posts and archives.

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How Low Can Oil Go?

January 21, 2009 by · Leave a Comment 

by Sean Brodrick, HoweStreet

Just a year ago, many people, including me, were bracing for much higher oil prices, and making some good money on energy trades, too. Now, we are seven months into the steepest decline the oil market has ever seen!

Are we near a bottom?

A lot of smart analysts think so …

I get e-mails from people I respect pointing out that the cost of oil is now below the marginal cost of new deepwater oil wells and many Canadian oil sands projects. And all those fancy-pants ideas for getting oil from shale? With oil under $70, you can forget those expensive projects.

Surely, the logic goes, we are going to see a leveling of supply and demand very soon.

Read more….

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