November, Wednesday 16, 2011

DOW – 190 = 11905
SPX –20 = 1236
NAS – 46 = 2639
10 YR YLD - .03 = 2.02%
OIL + 2.38 = 101.75
GOLD – 18.90 = 1763.00
SILV - .87 = 33.80
PLAT – 21.00 = 1627.00

We have a bunch of stuff to cover, so I’ll try to be quick.

The Greek parliament gave a vote of confidence to the interim government of Lucas Papademos. This was an important step to getting a bailout for Greece. Greece’s economy shrank 5.2% in the third quarter. Greeks will have a nationwide protest tomorrow.

Spain's government admitted for the first time today it will miss its 2011 economic growth target. There is a confidence vote scheduled Sunday. It is widely expected that the government will lose the vote and get kicked out. Spain held a bond auction today; they had trouble finding buyers. Yields on one-year bonds now top 5.02%, which is more than the yield on 10-year bonds just 40 days ago.

Fitch Ratings said further contagion from Europe’s debt crisis will pose a risk to American banks.

Italy's 10-year bond yield stayed above the precious 7% line. Mario Monti formed a new Italian government without a single politician, drawing upon bankers, diplomats and business executives for a team to steer Italy away from financial disaster. Monti will serve as Italy's economy minister as well as its premier; he is calling for "sacrifices" from across the political spectrum to solve the economy's woes and get it growing again. Italy is giving us a possible glimpse of our own future. The experts, the technocrats can run things better than a democratically elected government. And the “sacrifices” Monti is calling for – do you think he is calling for sacrifice from the bankers, diplomats and business executives or from the people? This is the new model. Forget democracy – it’s messy.

You may or may not appreciate the Occupy Wall Street movement, but it is people – not technocrats.  “Occupy Wall Street” protesters lost a bid to overturn their eviction and the removal of tents and structures from a lower Manhattan park where they had been demonstrating 24 hours a day for eight weeks. Tomorrow the protesters will try to disrupt the New York Stock Exchange. You may or may not really care about your first amendment rights when they get chopped down in the name of safety and sanitation, but if the technocrats say you don’t have those rights anymore – I bet you’ll miss them. And if the technocrats come and start taking away constitutional rights that matter to you, you can get your like-minded friends together and you can protest …. Oh, wait,…never mind.

Budget talks in Congress were locked in stalemate as Democrats and Republicans showed no sign of moving toward a compromise on taxes and health care.

With a deadline less than a week away, members of the 12-member "super committee" tasked with finding $1.2 trillion in budget savings confronted the same barriers that have thwarted earlier efforts to rein in the growing national debt.

Both sides waited for the other to make a move as they hunkered down on opposite sides of the Capitol. The super committee faces a deadline of November 23, but any deal will have to be hammered out a few days before then to give budget analysts time to crunch the numbers. Negotiations are expected to go through the weekend. Failure to reach a deal would trigger $1.2 trillion in automatic spending cuts. And of course, if the Super Committee can’t get the job done, we may have to call in the technocrats.

In economic news: The Labor Department reports the consumer price index dropped by a seasonally adjusted 0.1% last month. The decline reduced the 12-month increase in consumer prices to 3.5% from 3.9% in September.

The core rate of inflation, meanwhile, rose 0.1% for the second straight month, but it marked the lowest back-to-back increases of 2011. The core rate has risen 2.1% over the past 12 months. The inflation numbers make it more difficult for the Federal Reserve to consider stimulus programs.

Energy prices fell 2.0% last month while food prices inched up 0.1%.That might change.

Crude oil prices broke through the $100-a-barrel mark for the first time since June.

The Federal Reserve reports the average value of farmland in several Midwestern and Western states grew 25 percent over the past year in the biggest one-year jump in at least three decades. The higher land prices will definitely make it harder for young people to get into farming; also, it will likely result in higher property taxes. Bottom line – it will cost more to be a farmer – that means that food will cost more.

The Pension Benefit Guaranty Corp. is the insurance program for company retirement plans; they’re reporting a record deficit of $26 billion for fiscal year 2011; they also report they had to take over 152 pension funds that were closed.

There are a lot of vacant homes in Phoenix but there are many more in Las Vegas. It’s a shame really; it’s almost criminal. You can’t have crime without opportunity and all those empty houses present an opportunity for criminal activity. Vacant Las Vegas homes are being used as indoor pot farms. Last year, authorities took down 153 indoor grow sites in Nevada and seized more than 13,000 plants, compared to 18 sites and 1,000 plants in 2005.

JPMorgan Chase and Goldman Sachs say they have sold protection on more than $5 trillion of global debt. They’re not providing much more in details. Goldman Sachs discloses only what it calls “funded” exposure to debt  tied to Greece, Italy, Ireland Portugal, and Spain - $4.16 billion before hedges and $2.46 billion after, as of Sept. 30. Those amounts exclude commitments or contingent payments, such as credit-default swaps.

JPMorgan said in its third-quarter filings that more than 98 percent of the credit-default swaps they’ve written on GIIPS debt is balanced by CDS contracts purchased on the same bonds. The bank said its net exposure was no more than $1.5 billion, with a portion coming from debt and equity securities. The company didn’t disclose gross numbers or how much of the $1.5 billion came from swaps, leaving investors wondering whether the notional value of CDS sold could be as high as $150 billion or as low as zero.

Here’s the problem. Let’s say you owe me one trillion dollars, and I owe Teresa one trillion dollars. My net exposure is zero – right? Not exactly. If you don’t pay me, I still owe Teresa. My exposure is still one trillion dollars. All it takes is one party not paying off – then what happens?

What happens then is we’re going to have to go to Las Vegas.

But really, the better question is how did they sell $5 trillion in derivatives? Did they just make up a number and say they were going to sell it? What have they been smoking?