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Immaterial Growth – The other day I referenced this post by Andy Revkin on food prices, in which he quoted some correspondence of mine. Andy had asked whether resource constraints were consistent with continuing economic growth, and what that growth would look like. My off-the-cuff response was, The way I see it, by the way, is that it’s about shifting the mix away from tons of stuff to quality. You have a small electric vehicle (powered by solar-thermal) instead of an S.U.V., but it drives itself most of the time, and has a great built-in entertainment system. You live in an apartment or townhouse instead of a McMansion, but the brain-wave controlled kitchen turns out gourmet meals on demand. And if we do the GDP accounting right, this will show up as economic growth. The point here isn’t that GDP is the sole goal of human existence; it is, rather, that even GDP is a much less mechanical number than many people imagine, that it’s quite possible for measured real GDP to rise even if the physical volume of production doesn’t change much. Alan Greenspan used to give talks about how the GDP was getting lighter; despite the source, he had a point.
Hijack ‘suspects’ alive and well – Another of the men named by the FBI as a hijacker in the suicide attacks on Washington and New York has turned up alive and well.  The identities of four of the 19 suspects accused of having carried out the attacks are now in doubt.  Saudi Arabian pilot Waleed Al Shehri was one of five men that the FBI said had deliberately crashed American Airlines flight 11 into the World Trade Centre on 11 September.  His photograph was released, and has since appeared in newspapers and on television around the world. Now he is protesting his innocence from Casablanca, Morocco.  He told journalists there that he had nothing to do with the attacks on New York and Washington, and had been in Morocco when they happened. He has contacted both the Saudi and American authorities, according to Saudi press reports.
The Amazing Collapse Of The Working Teen- Despite the anemic pace of job creation, December saw a sizable decrease in the headline unemployment rate thanks to a decline in the workforce.  A lot of that discussion focused on folks going into early retirement or giving up the search for jobs, but there’s another factor, which is the disappearance of teens in the workforce. Mike O’Rourke of BTIG has a good breakdown of what this looks like: In examining the participation data, the most notable decrease in participation has been among Teens (Chart 2). Teen participation has been in a long term decline since it peaked at 59.3% in 1978. In January 2000 it was 52.3%. In December 2007 when the recession started, it was 41.3%. Today, it is 34.3%. As noted earlier, a lower participation rate usually helps push the unemployment rate lower. During this Recession, teen unemployment hit a record of 27.1% and currently stands at 25.4%. This is remarkably high considering the way the participation rate among teens has collapsed. If the participation level of teens today was the same as it was at the start of the Recession, or 41.4%, the Unemployment Rate among teens would be approximately 45%.

Spinning Unemployment Figures in a Collapsing Empire  The Bureau of Labor Statistics (BLS) reported Friday that the economy gained only 103,000 new jobs in December–not enough to keep up with population growth–but the rate of unemployment (U.3) fell from 9.8% to 9.4%. If you are confused by the report, you are among the many.   In truth, what fell was not the number of unemployed people but the number of unemployed people who are actively looking for work. Those who have become discouraged and have ceased looking for work are not considered to be in the work force and are not counted as unemployed in the U.3 measure. The unemployment rate fell because discouraged workers increased, not because employment rose.   When statistician John Williams (shadowstats.com) adds the long-term discouraged, the US unemployment rate as of December 2010 was 22.4%.  The question to ask yourself is: why does the media focus on the unemployment measure that does not count any discouraged workers?  The answer is that the U.3 measurement only counts 42% of the unemployed and makes the situation appear to be a lot better than it is. Where are the 103,000 new jobs?  As I have reported for years, the jobs are in non-tradable domestic services: waitresses and bar tenders, health care and social assistance (primarily ambulatory health care services), and retail and wholesale trade.

Stress Tests For Banks Will Be Kept Secret – Wall Street’s largest firms will undergo scrutiny by the Federal Reserve in the coming months, as they submit to a new round of "stress tests," designed to gauge their financial health, the Financial Times reports. Like the earlier set of tests, completed in 2009, these will attempt to determine whether financial companies are able to withstand another crisis. But while the results of the first tests were made public in an effort to reassure taxpayers and investors, the results of the new analysis — which will also test whether banks are able to increase the dividends they pay to shareholders — will be kept secret. For the 19 financial groups under review, this will be the first time since the financial crisis that they have had to be tested simultaneously, the New York Times noted. The banks — including Citigroup, Bank of America, Goldman Sachs, Wells Fargo and JPMorgan — have seen regulators limit their ability to pay dividends, in the wake of the historic $700 billion taxpayer bailout.

Rising wages will burst China’s bubble- Who has survived the global credit crisis in the best shape?. The snap verdict that China is the big winner and the US and rest of the old Group of Seven big losers is already looking questionable. True, China has continued to register turbo-charged growth while many of the debt-laden economies of the west have struggled. No surprise, then, that a tsunami of financial capital has surged eastwards, or that European politicians are scrabbling for trade deals, despite China’s extraordinarily aggressive posture over the Nobel peace prize and other diplomatic issues. The financial markets, however, have taken a rather different view. The Shanghai market is at less than half its all-time high, significantly underperforming the other three members of the Bric group.  The message is clear. The China story that has been sold so skilfully all over the world is simply another version of the “new era” thinking that has characterised every investment mania from the South Sea bubble to the dotcom frenzy.

Italy ‘Unfairly Punished’ as EU Debt Crisis Proxy Italy, whose 10-year bond yields are near their highest in two years, may be a safer investment than its peers as the nation’s banks dodge the woes plaguing lenders in the euro region’s most indebted nations. "Italian bonds are unfairly punished," . "It doesn’t have the same structural problems that other peripheral countries have, and yet they are sold off because they are seen as a proxy to those bonds. From that perspective, their yields are attractive." Italy, which has the euro region’s second-largest debt burden, has fared better than its neighbors since Greece’s near- default last year drove up borrowing costs. Unlike Spain and Ireland, Italy’s economic growth wasn’t fueled by a housing and borrowing boom, and its banks haven’t had government bailouts. The country’s 10-year bonds yield 4.8 percent, after jumping by a percentage point in the past three months. Investors lost 0.7 percent, including reinvested interest, on Italian debt last year. That beat Greek securities, which lost 20 percent, as well as the bonds of Portugal, Ireland and Spain.

$2.6 Billion to Cover Bad Loans: It’s a Start Bank investors cheered the announcement last week that Bank of America would pay $2.6 billion to buy back mortgages it had improperly sold during the housing bubble to Fannie Mae and Freddie Mac, the beleaguered mortgage finance giants. It seemed a sweet deal for the bank, whose Countrywide Home Loans unit had peddled tens of billions of dollars in risky loans to the taxpayer-owned companies. While it is unfortunate that the Bank of America deal won’t recoup much for taxpayers, the resolution could have one important benefit. It might just open the door to a much-needed reckoning of the liabilities created by questionable mortgage practices at the nation’s largest banks. These institutions have not yet made a full and realistic accounting of their liabilities.  It seems clear, after all, that Bank of America will not be the only institution forced to buy back billions of dollars’ worth of loans because it did not meet the lending standards promised to buyers. Costs associated with foreclosure improprieties that have come to light in courts across the country — robosigners, forged legal documents — are also likely to be substantial.

AAR: Rail Traffic increases in December – From the Association of American Railroads: AAR Reports December 2010 Rail Traffic. The AAR reports carload traffic in December 2010 was up 9.4% compared to December 2009, and traffic is also above December 2008. Intermodal traffic (using intermodal or shipping containers) is up 13.3% over December 2009 and up over December 2008. Total carloads for the year were 14.8 million, up 7.3% over the 13.8 million in 2009. Total intermodal volume in 2010 was 11.3 million trailers and containers, up 14.2% over 2009’s 9.9 million units. The 7.3% increase in carloads and 14.2% increase in intermodal volume in 2010 over 2009 might be the largest annual percentage increases in history; they’re definitely the largest since 1988, the earliest year for which we have comparable data.This graph shows U.S. average weekly rail carloads (NSA). Traffic increased in 16 of 19 major commodity categories year-over-year.


Hear the one about the £250,000 fish? –  A bluefin tuna fetched a record 32.49m yen (£254,000) today at the first auction of the year at Tsukiji market in Tokyo, but the fish’s growing popularity across Asia has raised fears it will soon be fished into commercial extinction.  The 342kg tuna easily beat the previous record, set exactly 10 years ago when a 202kg fish fetched 20.2m yen.  Market officials are accustomed to seeing prices rise during the new year auction at Tsukiji, the world’s biggest fish market, but today’s winning bid was unexpected.  The joint bid reflects the growing popularity of bluefin tuna in other parts of Asia, particularly China, and adds to concerns that surging demand means its days could be numbered.

The ‘Ponzi scheme’ of ‘artificial prosperity’ – The Obama administration’s $78 billion cut to US defense spending is a mere "pin-prick" to a behemoth military-industrial complex that must drastically shrink for the good of the republic, a former Reagan administration budget director recently told Raw Story. "It amounts to a failed opportunity to recognize that we are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment," David Stockman said in an exclusive interview. "The Cold War is long over," he continued. "The wars of occupation are almost over and were complete failures — Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security." Short of that, he suggested, the United States has "reached the point of no return" with its artificial creation of wealth, and will eventually face a sharp economic decline. Stockman last fall criticized the extension of the Bush tax cuts while the federal government continued to borrow money abroad to pay for its public welfare and warfare programs. His solution to deficit spending — a huge across-the-board tax increase — is contrary to the current anti-tax ideology shared among tea party activists as well as fiscal conservatives in the Republican Party.

Why It Could Be Very Hard for Banks to Avoid Ibanez Mortgage Catastrophes – Although it’s only been a couple of days since the Massachusetts Supreme Court handed down its ruling in the "Ibanez" case, analysts are already announcing that it won’t be as big of a deal as it might seem. I don’t share their confidence.
 Recall that in a decision released Friday, the highest court in Massachusetts declared that Wells Fargo and US Bancorp wrongfully foreclosed on two properties whose mortgages were unarguably in default. The court held that Well Fargo and US Bancorp had failed to show that the mortgages had been assigned to them at the time of the foreclosure. In the Ibanez case—actually, it was two mortgage cases decided at once—the banks could not show that they were entitled to foreclose because in the case of each of the mortgages, there were holes in the chain of title that the banks could not—or did not—close. Basically, if your bank is foreclosing on your home in Massachusetts, you should be contacting a lawyer and planning to contest the bank’s right to foreclose right now.  The effect of this case is unlikely to be limited to Massachusetts. Other states will apply their own laws, of course. But the Massachusetts Supreme Court is regarded as one of the the best courts in the US, which means that this decision will be taken as what lawyers call "persuasive precedent" in other states.

Implications of the Ibanez Case Ruling – The Too Big To Fail banks have been waiting with trepidation for a ruling from the Supreme Judicial Court of the State of Massachusetts on the case titled US Bank National Association (as trustee) vs. Antonio Ibanez. They were right to be fearful. The state supreme court has ruled against the banks and upheld a lower court order that nullified foreclosures by US Bancorp and Wells Fargo, on the grounds that neither bank had the legal right under Massachusetts law to foreclose. Today’s ruling has far-reaching consequences for the banks and the housing market in general, as it throws into serious question the legal soundness of millions of mortgages in the US if, as expected, courts in other states come to similar conclusions as the Supreme Judicial Court of Massachusetts. The Ibanez case tied together two separate but similar foreclosure actions in Massachusetts.  Both foreclosures took place on the same day, the banks having previously published their intention to foreclose in a local newspaper as required by law. The banks then purchased the properties at prices described by the court as significantly below market value.

CoreLogic: House Prices declined 1.6% in November – Notes: CoreLogic reports the year-over-year change.  From CoreLogic: CoreLogic® Home Price Index Shows Decline for Fourth Straight Month  CoreLogic … released its November Home Price Index (HPI) which shows that home prices in the U.S. declined for the fourth month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 5.07 percent in November 2010 compared to November 2009 and declined by 3.35 percent in October 2010 compared to October 2009. Excluding distressed sales, year-over-year prices declined by 2.21 percent in November 2010 compared to November 2009 and declined by 2.24 in October 2010 compared to October 2009. … This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index is down 5.07% over the last year, and off 30.9% from the peak.  The index is only 1.2% above the low set in March 2009, and I expect to see a new post-bubble low for this index – possibly as early as next month or maybe in early 2011.

Christopher Whalen: Massachusetts Mortgage Decision Could Kill Top Banks  – The bank stress tests are back and you’ll sure be hearing the phrase "Too Big To Fail" uttered over and over again. The purpose of this test is to allow the 19 big banks to raise their dividends or repurchase stock. In order to get the approval they must submit their new capital plans to the Federal Reserve by this Friday. It will be a big banking week with concerns about Portugal and on Friday, JP Morgan is set to report is earnings. I decided to speak with Christopher Whalen, Senior Vice President and Managing Director of Institutional Risk Analytics.
LL: Stress tests will be back on the big 19 banks before they can return capital back to shareholders. Which ones do you think will be the first ones to be able to do this?
CW: Depends on degree of regulatory capture. None of the top eight bank holding companies should be able to change dividends this year if we have regulators worthy of the description. Bank of America, Wells Fargo, JPMorgan, US Bancorp still have issues to address with mortgage servicing/securitization mess.
LL: Any concerns of banks failing this test?
CW: No. These tests are not meant to be failed

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