November, Thursday 10, 2011

DOW + 112 = 11893
SPX + 10 =1239
NAS + 3 = 2625

10 YR YLD +.10 = 2.06
GOLD – 10.60 = 1759.00
SILV -.01 = 34.13
PLAT – 6.00 = 1625.00

Lucas Papademos will lead a new unity government in Greece; he is a former vice president of the Eruopean Central Bank. He will certainly try to push through the Grand Bailout Plan proposed in Brussels last week. This is the plan that requires massive austerity, job cuts, spending cuts, and privatization of Greek national assets to try to pay down Greek debt over the next 50 years or so. The Greek people won’t get to vote on this.

Silvio Berlusconi, Italy’s longest-serving Prime Minister, offered to resign as soon as Parliament passes an austerity package. Silvio’s resignation probably won’t be enough to prevent a death spiral for Italy’s $2.6 trillion in sovereign debt. Yields on 10-year Italian bonds topped 7% yesterday, a level seen as the tipping point where the cost to service the debt is greater than the ability to repay. The 7% level proved the tipping point for Ireland and Greece. Italy’s economy is bigger and slightly different, but it probably can’t survive the 7% tipping point.

LCH.Clearnet, is a London-based clearing house, LCH raised the deposit it demands for processing the trades of Italian securities. The deposit protects LCH in case a deal fails and it gets stuck holding Italian bonds. For Italy, the LCH change “highlights the deterioration of its credit quality.”

When Silvio finally leaves office, a new government will have days to try to enact structural reforms that Italians haven’t been able to implement in the last 10 years. Good luck with that. Without the reforms, Italy has undoubtedly hit the point of no return. The front-runner to replace Berlusconi is Mario Monti, a former European Commissioner. The Italian people won’t get to vote on the reforms.

Yesterday, German Chancellor Angela Merkel talked about the possibility of a “new Europe’ – the idea that maybe there would be some countries that were too weak to stay in the Euro zone. Today, merkel says: "We only have one goal, that is to bring about a stabilization of the euro zone in its current form."

Yesterday, the European Central bank said they would not act as a lender of last resort to prop up Greece or Italy or other weak countries, but the ECB has bought more than 180 billion euros of peripheral euro zone bonds and traders said it was active in the market again today. Bond-buying will force the ECB to print money. But the inflationary concerns are down the road.

Today, ECB bond buying helped lift the markets. Is it enough to solve the problem? Nope. The Euro Commission today revised their growth forecasts for the entire Eurozone down to 1.5% for this year and just 0.5% growth next year. The forecast calls for the Greek economy to contract by 2.8%; Portugal is even worse- expect a 3% contraction. Greece has the highest levels of debt at 162% of GDP. The next highest level of debt ratio in the euro zone is Italy’s at 120% of GDP.

Federal Reserve Chairman Ben Bernanke went to Fort Bliss Texas, out near El Paso for a town hall style meeting. The soldiers asked how the problems with European debt might affect the U.S. economy. Bernanke answered:  "Although the Fed would obviously do all that we could to maintain stability and to keep monetary policy as easy as necessary to try to minimize the damage, I don't think we would be able to escape the consequences of a blow-up in Europe."

Bernanke acknowledged that times are tough: "it doesn't feel like the recession ever ended. The unemployment rate remains painfully high, and more than two-fifths of the unemployed have been out of work for longer than six months, by far the highest ratio since World War II.”

Then he put the blame on Congress: "the Federal Reserve was never intended to shoulder the entire burden of promoting economic prosperity. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector."

And then Bernanke talked about financial education programs available to our armed forces, saying: "soldiers who had taken the course were more likely to make smart financial choices.” Nobody asked if the Fed would bailout soldiers who make bad financial decisions, like the banks got bailed out? The soldiers were smarter than that.

Why did Bernanke choose to hold only his second town hall at a military base? South Texas is not known as a Fed-friendly environment. Maybe he just wanted reassurance that the guys with the weapons have his back.., you know, just in case an occupying force were to…, I don’t know, try to occupy the Fed.

Hundreds of anti-Wall Street demonstrators marched through downtown Los Angeles' financial district Wednesday, ending their march at a Bank of America branch, where several dozen protesters put up tents in the lobby and on a brick plaza outside. You can’t tell it here in Phoenix, but the Occupy Wall Street movement continues to grow. It shows no signs of folding up the tents.

Is there a relationship between Occupy Wall Street and the problems in Europe? The Greek panic—and fears of a euro collapse and another financial contagion—has a great deal to do with secret derivatives deals orchestrated by big American banks. As a result, the euro crisis is casting, yet again, a harsh light on efforts by Wall Street lobbyists to avoid transparency in derivatives trading. That’s one of the things that Occupy Wall Street apparently doesn’t like.

The banksters intrigue dates back to the '90s, when countries such as Greece and Italy, with chronic fiscal deficits, were eager to join the EMU but couldn't match the standards of budget discipline imposed by the Mastricht Treaty. A number of publications have exposed the ways in which Goldman and other firms helped Greece, and countries such as Italy and Spain, disguise their true indebtedness using swaps and other complex instruments that make government borrowing appear to be something else, like a currency trade or asset sale. Of course there are big profits in complex deals.

Typically these deals, while ostensibly helpful, only make the customers poorer in the end and the financial crises that result from them more frequent and more severe. Athens sold off everything from airport landing fees to lottery revenues to Wall Street and then took on impossible debt at exorbitant rates. Its fiscal deficits are still there—only now, because of the extra interest, they're larger.

"Behind each great historical phenomenon lies a financial secret."

Birmingham is the largest City in Alabama and it is located in Jefferson County, and Jefferson County has just become the biggest municipal bankruptcy in U.S. history. A tentative deal reached with creditors in September to settle $3.1 billion in debt had been widely expected to avert bankruptcy. But the deal fell apart because creditors' refused to meet the terms of previously agreed economic concessions. There is an old trick to catch a monkey. You put an apple in a jar and bury the jar. The monkey can reach in and grasp the apple, but the neck of the jar is too small to allow the removal of the apple, the monkey gets its hand stuck in the jar; it could un-stick its hand just by releasing the apple, but the monkey is too stupid, too fixated on holding onto the apple. The hunter can just walk up and grab the monkey.

JPMorgan is Jefferson county’s largest creditor.

Early last year, 75 percent of America’s unemployed were receiving checks. The figure is now 48 percent -- a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America's 14 million unemployed have had no job for a year or more. Congress is expected to decide by year's end whether to continue providing emergency unemployment benefits for up to 99 weeks in the hardest-hit states. If the emergency benefits expire, the proportion of the unemployed receiving aid would fall further.

A whopping 28.6 percent of homeowners with mortgages owe more on their loans than their homes could sell for, according to quarterly data released Tuesday by Zillow, a real estate website. That’s up from 26.8 percent in the second quarter. Home values declined only 0.2 percent from the second quarter but were down 4.4 percent year over year. The rising percentage of homes with “negative equity” or “underwater” status is due largely to how long the foreclosure sale process takes rather than home value fluctuations.

Foreclosure sales are moving so slowly in half the states that at the current pace, it will take more than eight years on average to clear the 2.1 million homes in foreclosure or with seriously delinquent mortgages.

I always thought it was strange that banks can keep track of my bank account, down to the penny; they can track every purchase; whether it’s a cup of coffee in Phoenix or a donut in Denmark or a deposit in Duluth, but when it comes to loan modifications – they can’t seem to keep track of the most basic documents.