Archive for 2009

What Happens to Citibank’s $8 Billion Loan to Dubai?

Courtesy of George Washington

On Friday, I provided some specifics about who had loaned Dubai money, and the potential fallout from Dubai’s debt crisis.

But I just found another interesting tidbit.

Specifically, 7 Days – one of the largest papers in Dubai – wrote in March:

The US public will be “outraged” by Citibank’s $8 billion loan to Dubai just six weeks after the bank was bailed out, US House of Representatives domestic policy subcommittee chair-man has said. Dennis Kucinich commented on the Dubai loan and other US banking investments as a congressional panel released a report that strongly questioned Citibank’s actions. The report, shown to 7DAYS, cites the Dubai loan as the largest of the “questionable transactions” by banks after the US government bailed them out. It notes that the loan to Dubai’s public sector came on December 14, just six weeks after the US government gave Citibank a $25 billion bail-out.

The report quotes Win Bischoof, then chairman of Citi, as saying the bank agreed to the Dubai loan because “we continue to place the Gulf region among our globally most significant markets”. The report also questions JP Morgan’s $1 billion investment in India and Bank of America’s $7 billion investment in China. “When the American people find that their tax dollars, which were supposed to be used to get us out of this financial crisis, are instead being used to ship jobs and investments overseas, there will be outrage,” Kucinich said. The report notes the loans were not illegal and that it is not known if they were directly funded by bail-out funds. A Citibank official was quoted at the time as saying the $8 billion came from the bank’s own funds and third party sources. The report was released as the committee prepares to question banking chiefs about their use of bail-out funds.

Will Citi be repaid in full on its $8 Billion loan, which apparently came out taxpayer bailout money?

Big hat tip to the anon who has posted this info all over.





The 38 Year Cycle in US Monetary History

The 38 Year Cycle in US Monetary History

Courtesy of Jesse’s Café Américain

We are not big believers in comprehensive cycle theory. The weakness of cycles is the same as all systems that seek to impose an external order on natural events and occurrences: one can always find something to fit in a less rigorously defined methodology. This applies from biblical prophecy codes based on the placement of words and letters, to cycle and wave theories with a wide range of alternatives.

This is the weakness of this cycle. There are numerous panics in the 19th century, for example, that are not accounted for in the 38 year cycle. Financial crises also tend to be multi-year events, with roots that precede the actual crisis by many years, and aftershocks that cause echo bubbles and panics.

What first brought this cycle to mind was the mention of a ’40 year cycle’ from the Great Depression to today by an acquaintance named ‘Rasputin’ on a financial chatboard. What we like about this, the longer cycle of 38 years and some others, is that they involve what people call ‘generational memory.’ People as a group essentially forget the lessons of the past, and human nature being what it is, events based on bad judgement and reckless behaviour seem to recur at these intervals.

If there was any ‘tell’ for the current crisis, it was the general overturning of the safeguards for the financial system that had been put in place in the aftermath of the financial panic of 1929 and the Great Depression that followed, culminating in the eventual overturn of Glass-Steagall and the ascendancy of extreme leverage using exotic, unregulated instruments.

This is why we call this a generational change. This is no slump, no recession. And it is far from over.

We are experiencing some major changes that are easily lost when one only looks at the day to day moves, listens to the description of events on the mainstream media, and of course, have a lack of memory, a knowledge of history, of things that have happened to their grandfathers and great grandfathers. The arrogant ignorance of so many still in place is a sure sign of greater chastisement to come, until the lessons of history are learned again, and the system is brought back into a sustainable balance.

2009

The story is still


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Japan Preparing To Launch Quantitative Easing; What Are Three Lost Decades Among Hyperdeflationary Friends

Courtesy of Tyler Durden

As if the newsflow from the last few days could get any more surreal, Dow Jones concludes the ticker with this stunner:

Japan Hirano: Expect BOJ Gov, PM To Discuss Quantitative Easing

TOKYO (Dow Jones)--Japan’s top government spokesman said he expects Prime Minister Yukio Hatoyama and Bank of Japan Gov. Masaaki Shirakawa to exchange opinions on the economy and to discuss the possibility of the central bank adopting a policy of quantitative easing, local media reported Monday.

The BOJ head and the prime minister will also talk about whether they share similar views on the economy, Nikkei News cited Chief Cabinet Secretary Hirofumi Hirano as saying at a press conference earlier in the day.

Questions, questions, questions: Does that mean the Yen will be the carry currency of choice once again? And if so, will the dollar shorts promptly bail as they flee for the traditionally shorted Japanese currency? Will Japan now pay investors to borrow and short its currency? Is Richard Koo, well, Koo-Koo? Just how thin is the thin white line between deflation and dementia-induced hyperdeflation (and here we were thinking only the Chairman was able to come up with such brilliance)? Will Japan issue exclusively dollar denominated debt as this action does nothing to moderate the trade deficit as the world forgets what foreign trade is all about? And will the US return the favor and start raising 30 Year denominated in Yen? Does anybody even give a rat’s ass anymore?





Senator Sanders: “Ben Bernanke Is Part Of The Problem”

Courtesy of Tyler Durden

Ben Bernanke’s low-road approach of taking the Fed’s “noble mission” of bailing out Wall Street at any and all costs directly to the people seems to have come at curiously opportune time, a mere week ahead of his December 3 Senate Banking Committee hearing for his second 4 year term nomination. It also seems to have backfired as some people in high standing seem less than enthused by the oodles of human lactic acid kindness that suddenly overflow from each and every floor (yes, even the 3rd sub-basement which houses the 10 consistently overheating druckmachinen) of the Marriner S. Eccles building.

One such among them is Senator Bernie Sanders who earlier said on ABC’s “This Week” that Bernanke will be renominated over his dead body (metaphorically speaking):

“No, I absolutely will not vote for Mr. Bernanke. He is part of the problem. He’s the smartest guy in the world, why didn’t he do anything to prevent us from sinking into this disaster that Wall Street caused and which he was a part of? No, I will not vote for Bernanke to stay on as chairman.”

And even as the dollar moves increasingly underwater and is now even more “collateralized” by worthless and completely unwanted (except by the Fed) MBS and Agency securities, less and less people buy Bernanke’s strong dollar Kool Aid: it was not enough for Bernanke to launch the greatest bail out in history using the Mutual Assured Destruction threat as the “end of the world as we know it” event that would occur if Goldman Sachs shareholders were to get wiped out. No, now he has to destroy the US middle class to ensure that Wall Street has one more, maybe two years, of good bonuses, before the main show of commingled feces and precariously balanced cards can collapse with impunity.

As senators consider how much money their Wall Street backers will stuff in their Christmas lobby stockings, we present a modest proposal of 15 or so questions that those in Washington with even half a conscience should ask the Chairman before making sure that nothing ever changes and we are set on a catastrophic bubble collapse of even more epic proportions.

Questions courtesy of The Cunning Realist:

1. The TARP Inspector General recently disclosed…
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Best Buy, Krugman and the Carry Trade

Courtesy of Bruce Krasting

I looked at the Best Buy (BBY) Black Friday ads and compared them to last year’s. The prices were about the same. One thing I thought was worth noting. Look how they stretched the interest free financing period:

 

 

 The folks at BBY know their business and they are good marketers. They understand that American consumers who see a chance to “borrow at no cost” just can’t resist. For BBY to double the term of interest free financing to three years is just an effort to increase top line sales. I am sure that it will work.

 

BBY has a $17 b market cap and a good balance sheet so it can take advantage of the near zero cost money that is around today. For them to provide their customers with this free financing means a cost of 2% of sales. Given their gross margins, that is an easy price to pay.

 

This is an example of the “Carry Trade”. We normally think of this in purely financial transactions. The Aussie Dollar carry trade is an example that comes to mind. However, the BBY example is just as much of a carry trade as anything one might do with the Australian dollar and the derivatives market.

 

When the cost and availability of debt capital are such that one can borrow money and simultaneously invest it and be assured an economic gain, then the conditions for a Carry Trade have been met. Of course we have not gotten to the point of alchemy, but we are getting close.

 

On ABC’s “This Week” show there were some interesting thoughts from Paul Krugman. He remarked:


“The cost of the deficit is only 1.2% real rate of interest at the Federal level.”

 

This is economic speak. What Mr. Krugman was saying is that the Government can borrow long term at 3.2% and inflation is 2% so the real cost of debt is only 1.2%.

 In response, George Will made the point:

 

 

 

“In ten years the interest cost of servicing the debt will go to $700 billion per year!”

 

Mr. Krugman responded:

 

In ten years GDP will be $20 trillion, debt service would
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Yard Sale: Tuesday, Dubai Municipal Building (Free Coffee!)

Courtesy of Marla Singer

Returning briefly to the “Nothing to see here, please disperse…” theme, it seems that Dubai World is destined to throw some Sharpie-adorned, brown-cardboard placards up on the city’s light fixtures and other signage to announce the pending garage sale.  Debt Wire brings us the news:

Dubai World, the Dubai government owned firm, may resort to selling some assets or stakes in affiliates to repay dues, reported Mubasher. The report quoted unspecified sources as quoted by a newswire as saying that such assets and affiliate companies are as follows:

  • DP World, a stake of 2.7% from Std Chartered, which was bought by Dubai World in 2006 for USD 1 billion
  • MGM Mirage, the casino operator.
  • Barneys, the U.S. luxury retailer
  • Perella Weinberg Partners LP
  • Cirque du Soleil
  • Turnberry golf course
  • Queen Elizabeth 2
  • Atlantis The Palm
  • London Stock Exchange
  • Emirates Airline
  • Dubai Aluminum Company Limited
  • HSBC Bank
  • Deutsche Bank AG
  • Sony Corp
  • EADS
  • Alliance Medical Limited, and;
  • Emaar Properties

 

The Queen Elizabeth II Rusts Slowly In The Company Of A Crane Freighter.

 

Certainly the news will be cause for celebration by the Brits, who were beyond outraged (though no so much that it kept Cunard from pocketing $100 million or so of Dubai’s money) to learn that the vessel which only saw real re-purposing once (and then in the noble cause of carrying members of the Fifth Infantry Brigade to the Falklands so they could kill Argentines) was first to be turned into a floating hotel and then, after the envisioned guests failed to materialize, dismantled for (gulp) parts.

Bidders will likely be lining up, and not just for Dubai’s assets.  China, for example, might find much to like in the ripples of Dubai’s distress:

Dubai’s debt crisis could be China’s opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

 

[...]

 

Wu Nianlu, a professor at the central bank’s graduate school, expressed concern about the safety of China’s non-bond holdings.  “Strictly speaking, almost half of our country’s foreign exchange reserve is not stable in value and is of high risk,” Wu was quoted as saying by the same paper. (Emphasis ours).


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Consumers Cherry Pick Black Friday Sales

Consumers Cherry Pick Black Friday Sales

Courtesy of Michael Panzner at Financial Armageddon

Nrfblackfriday 
The good news, according to the National Retail Federation, is that 195 million U.S. shoppers visited stores and websites this past weekend, an impressive 13% jump over last year.

The bad news: average spending fell nearly 8% to $343.31 per person, the lowest level in four years, while overall sales were up only 0.5% versus last year’s total.

In sum, it looks like a lot more people came out to cherry pick the biggest bargains — but not much else. That doesn’t seem to be a particularly encouraging sign, especially for retailers’ margins.

Brown shoots, anyone?

 


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Decline of the City (and) State

Courtesy of Marla Singer

The problem with the Greeks was ultimately their love of conflict.  If anything could be said of the fall of the city-state generally it would be that more than a hundred years of effectively unending warfare (rainy season, fighting season, rainy season, fighting season, lather, rinse, repeat) finally exhausted the resources of the dominant political unit of the time.  Sort of troubling in this vein is the connection (and therefore the related failure) of “direct democracy” to the identity and existence of the city-state.  Direct democracy was lovely, after all, and philosophically easy to envisage, that is until, in the wake of a crumbling Alexandrian Empire, it collapsed under its own increasing weight (or the increasing weight of military spending).  What was left of the polis, the central, individualistic notion that the Citizen was of great particular import, was rather directly absorbed into cosmopolis, and the importance of managerial infrastructure to keep the aqueducts clean.  After all, direct democracy (and the mob rule that accompanies it) had killed Socrates, hadn’t it?  That Plato dedicates The Republic partly to the import of the Philosopher King years later might have been predictable.  In the spirit of this background, enter San Diego, a year ago last week:

Lame duck City Attorney Michael Aguirre will ask the City Council during a closed-door hearing today to consider hiring legal counsel to explore taking San Diego into bankruptcy.

Aguirre said Chapter 9 bankruptcy protection would allow for the reorganization of the San Diego City Employees’ Retirement System, which faces mounting investment losses amid the national financial crisis.

Actuary Joseph Esuchanko told city lawmakers last week that as of Oct. 31, SDCERS had $3.78 billion in assets, compared to $6.56 billion in commitments to retirees over the coming decades.

If the actuary is correct, the shortfall in San Diego’s pension fund has grown to $2.78 billion, up from $1.2 billion in 2007.

“We need someone to help us,” Aguirre said.1

No, Michael.  Actually, you don’t.

While we give you full marks for bravery (obviously it required a lame duck official with no thought of re-election or re-appointment to deliver the hard news that San Diego is a bit of burnt fiscal toast) what you (and most…
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Dubai’s Spruce Goose Island Ventures

Dubai’s Spruce Goose Island Ventures

Courtesy of Adam Sharp at Bearish News

Dubai’s man-made islands are stunning technological achievements. But they may end up being the poster-children for this era’s reckless real estate ventures. These projects are turning out to play a big role in the ongoing debt crisis in Dubai.

Here’s “The World” island project:

dubai-world-islands

And here’s one of the three palm tree islands, where you can see construction underway:

dubai-palm-island

I remember being struck by the scale of the project while watching a Discovery Channel documentary. What a cool concept. Unfortunately, it looks like reality is catching up to this pipe dream.

Recent revelations show that the islands’ parent company, Nakheel PJSC, is in trouble. Their attempt to delay debt payments sparked a global selloff on 11/27. Fears of a debt crisis in Dubai spreading to other emerging markets (EM) roiled stocks.

Investors collectively paused the day after Thanksgiving, “Wait a sec… I thought emerging markets were going to be the engine driving us out of this mess… Now their bubbles are popping? Uhhh-Ohhh.”

Bloomberg provides a detailed example of island building gone-wrong:

Samsung C&T Corp., builder of the world’s tallest tower in Dubai, said it stopped work on a $350 million bridge in the city after a unit of Dubai World halted payments.

Construction of the half-finished bridge, to the man-made Palm Jebel Ali island, was suspended earlier this month after Nakheel PJSC made no payments for about two months, Cho Keun Ho, a spokesman for the Seoul-based builder, said today. Calls to Nakheel’s spokeswoman Anna McGovern went unanswered.

Not all emerging markets have the same debt issues Dubai does, of course. But there are tons of risky investments lurking out there, and they’re not just in EM (hint – many are hidden off US bank’s balance sheets).

Some are speculating that Dubai’s debt problems will be a catalyst, sparking major selloffs worldwide, particularly in EM. If so, I would think those countries with stronger balance sheets, like China, will fare better than those with high debt loads. That said, I am considering reducing my personal EM holdings, but haven’t done so yet.


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NYT: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps

NYT: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps

food stampsCourtesy of Trader Mark at Fund My Mutual Fund

The topic of what is happening with hunger is nothing new to regular readers of FMMF; we’ve been harping on it for over 2 years as mirage like stories of the "strength" of the US economy, based on government reports (2007, early 2008) and measures such as GDP dominate our ideas of how to measure prosperity.   But judging from the "comments" section in the web version of this weekend’s story in the New York Times, a lot of Americans are getting their first education on what is truly happening under the surface.  I assume many foreign readers must also be shocked as they read about the dirty underbelly of the world’s "richest"* country.
*excluding debt.

When I began the blog in summer 2007, 1 in 11 Americans were on food stamps.  In just a few years that had jumped to 1 in 9.  [Jun 8, 2009: 1 in 9 Americans on Food Stamps]  Now, the New York Times report says the figure has unfortunately hit new thresholds….increasing to 1 in 8 Americans, including 1 in 4 children.  Let us be clear, there is certainly fraud in the system, and people taking advantage of the largesse of the government – that cannot be disputed and if there is one place to increase government spending, it is auditing of these type of programs..  But there is no way that rate of increase happens due to just fraud… it’s an indictment of the hollowing out of our economy and the increasing bifurcation of the economic fortunes in the country.   Not everyone can be a business owner or investment banker – jobs that used to fulfill the needs of the "middle" of America are disappearing and no one asks the questions of why.  Meanwhile, the cost of living remains high, in fact our central bank is trying to increase it by the minute rather than letting the market decrease them (AS IS NEEDED), while wage have been pressured for over a decade.  The house ATM filled the gap for many in the middle part of the decade but people are now out of options…

We’ve warned / predicted in 2007 this was going to be a long term trend, but frankly even I am shocked…
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Zero Hedge

Americans' Economic Hope Has Collapsed

Courtesy of ZeroHedge. View original post here.

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 - a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.

...



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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...



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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?

 

Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?

...



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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via ValueWalk.com

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped

CCN...



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ValueWalk

D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...



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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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