– 08/29/2010

U.S. In Danger Of Losing AAA Credit Rating – Both Moody’s and S&P warned today that the United States is in danger of losing its stellar credit rating due to our fiscal problems: Two leading credit rating agencies on Thursday cautioned the U.S. on its credit rating, expressing concern over a deteriorating fiscal situation that they say needs correction. Moody’s Investors Service said in a report Thursday that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating. “We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase,” Standard & Poor’s Corp. on Thursday also didn’t rule out changing the outlook for its U.S. sovereign-debt rating because of the recent deterioration of the country’s fiscal situation. The U.S. currently has a triple-A rating with a stable outlook at both agencies.
 
 Banks repossess 1 million homes in 2010 – The bleakest year in foreclosure crisis has only just begun. Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and more will miss payments as they struggle with job losses and loans worth more than their home’s value, industry analysts forecast. "2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year by lenders. The outlook comes after banks repossessed more than 1 million homes in 2010, RealtyTrac said Thursday. That marked the highest annual tally of properties lost to foreclosure on records dating back to 2005.One in 45 U.S. households received a foreclosure filing last year, or a record high of 2.9 million homes. That’s up 1.67 percent from 2009.
 
Manufacturers See Weaker Dollar as ‘Slightly Positive’–  A 10% fall in the value of the U.S. dollar would help boost exports and profits at most manufacturers but also lead to higher prices for key raw materials like copper, zinc, nickel and crude oil, according to an industry group survey released Thursday. “The results suggest that a fall in the value of the dollar would have at least a slightly positive impact on overall manufacturing sector exports, but that exports from a sizeable proportion of companies would not be impacted,”
 
Poor US Debt Trajectory Could Mean Negative Outlook – The U.S.’s top triple-A rating could be put on negative outlook if a plan to stabilize and ultimately reverse the upward debt trajectory of the country doesn’t materialize, Moody’s Investors Service said Thursday.  "We have become increasingly clear about the fact that if there are not off-setting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," Sarah Carlson, senior analyst at Moody’s, told Dow Jones Newswires.

 

Florida 2012 Budget-Deficit Projection Grows to $3.6 Billion –  Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, the state Legislature’s chief economist said.  The $3.6 billion estimate is mostly due to higher projected expenses for Medicaid, the government health-care system for the poor, Amy Baker said today. The projected 2012 deficit, now about 14 percent of the anticipated general-fund budget, was $2.5 billion last September.  “The two big changes were to the general-revenue forecast and to the Medicaid program,”

Italy Sells Five-Year Debt at Highest Yield in Two Years, Demand Steady – Italy sold five-year bonds at the highest yield in two years as the European debt crisis boosted borrowing costs. The securities rose in the secondary market.  Italy sold 3 billion euros ($3.9 billion) of the securities at a yield of 3.67 percent, the Treasury said today. That was the highest for a benchmark 5-year bond at auction since January 2009 and more than the 3.24 percent the last time the debt was sold on Nov. 12. The Treasury also placed 3 billion euros of bonds due 2026 to yield 5.06 percent, more than the 4.81 percent at the previous auction.

JPMorgan’s Dimon Forecasts More Municipal Bankruptcies – JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he expects more U.S. municipalities to declare bankruptcy and urged caution when investing in the $2.9 trillion public-debt market. “There have been six or seven municipal bankruptcies already,” Dimon, 54, said yesterday at his company’s annual health-care conference in San Francisco. “I think unfortunately you will see more.” Cities including Detroit and Harrisburg, Pennsylvania, have raised the prospect of bankruptcy. Still, the number of filings has declined. Six entities sought protection under Chapter 9 of the U.S. bankruptcy code in 2010 compared with 10 in 2009.

US runs $79.9b December budget deficit – The U.S. government ran a budget deficit of nearly $80 billion in December, the Treasury Department said Wednesday, in a new report likely to add fuel to an intense debate over government spending. December’s $79.9 billion deficit marked the 27th consecutive month of red ink for the federal government. The report comes as newly empowered congressional Republicans are moving to rein in spending and as a showdown loomed over raising the U.S. debt ceiling. Federal outlays were $316.8 billion in December, while receipts were $236.8 billion, up 8 percent from a year ago on higher corporate and payroll tax receipts.

Crop Prices Soar on Supply Warnings – Evidence of tightening global food supplies grew as the U.S. Agriculture Department cut its estimates for global harvests of key crops and raised some demand forecasts, adding to worries about rising food prices. Prices of corn and soybeans leapt 4% Wednesday and wheat gained 1%, continuing the broad rally in commodity prices that began in June. With yesterday’s gains, prices of corn futures contracts are now up 94% from their June lows; soybeans are up 51% and wheat is up 80%. The USDA’s revisions reflect the impact of dry weather in South America and floods in Australia, which have compounded supply constraints that first started to emerge in the middle of last year, when a drought in Russia ravaged that country’s wheat fields. The agency also cut estimates for U.S. harvests of corn and soybeans.

Fiscal Crises, Governance Failures Risk Disrupting Global Economy – Lax fiscal policies, volatile energy and food prices and growing pension liabilities have emerged as the most probable risks to disrupt the global economy and risk triggering sovereign debt defaults, the World Economic Forum said in a report Wednesday.  As European countries such as Greece, Ireland and Portugal are struggling with inflated debt levels, insurance and risk experts, who helped compile the report, warn that structural changes across the Western world are necessary to avoid a deepening of the financial crisis. Governance failures would otherwise risk hurting the world’s economy, they say.  "Current fiscal policies are unsustainable in most industrialized economies," "In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults." 

 US Foreclosure Filings May Jump 20% in 2011 as Crisis Peaks – The number of U.S. homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said.  “We will peak in foreclosures and probably bottom out in pricing, and that’s what we need to do in order to begin the recovery,” Rick Sharga, RealtyTrac’s senior vice president, said  “But it’s probably not going to feel good in the process.”  A record 2.87 million properties got notices of default, auction or repossession in 2010, a 2 percent gain from a year earlier, the Irvine, California-based data seller said today in a report. The number climbed even after a plunge in filings in the last part of the year — including a 26 percent drop in December — as lenders came under scrutiny for their practices.

 EU warns governments to do more to fight crisis – The European Union fired a warning shot Wednesday, telling governments they need to do more if they want to finally rid themselves of the financial crisis and get their economies growing again. The EU’s executive Commission urged states to boost the existing euro440 billion ($571 billion) bailout fund for countries that run into financial trouble, cut public spending, and roll back benefits to make their economies more competitive. After debt market turmoil caused Greece and Ireland to require bailouts, Portugal is now being engulfed despite a successful bond sale. The fear is the crisis will spread to larger nations and cost Europe years of economic growth. "In 2011, we need to get our act together. We need to break the vicious circle of unsustainable debt, disruption in the financial markets and low economic growth in some Member States,"

Pension pledges have left UK and US ‘insolvent’ – The world’s most advanced economies, including Britain and the US, would be insolvent if they accounted properly for the pension and health pledges made to their aging populations, an authoritative report has warned. More painful austerity measures, of higher taxes and further spending cuts, will be necessary in the years ahead "to cover the gap between expected future liabilities and expected future income", the World Economic Forum said in its Global Risks 2011 report. "Age-related liabilities dwarf short-term issues such as the cost of fiscal stimulus [in the recession]," the report added. It estimated that the undisclosed cost of age-related spending in the UK is roughly 3.5 times the size of the UK economy – or around £5 trillion. "Under a proper accounting framework, most advanced economies would be fiscally insolvent… In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults."
 

The Housing Slump Has Salem on a Witch Hunt Again –  The foreclosure crisis has helped resurrect an ancient tradition: the house cleansing. Buyers such as Mr. Barletta are turning to witches, psychics, priests and feng shui consultants, among others, to bless or exorcise dwellings. Sellers, too, are adopting the trend to help move a property stuck on the market. In recent months, foreclosure and other distressed sales have represented about a third of all home sales, according to the National Association of Realtors. With so many foreclosures riddling the market, some buyers find that a coat of paint is hardly enough to rid a house of its creepy quotient.

Belgium’s King to Tackle Political Deadlock as Debt Woes Mount – Belgium’s king will make a fresh bid to end the 211-day post-election deadlock that has left the country without a full-time government and fanned concern that Europe’s debt crisis will widen. Belgium’s 10-year borrowing costs jumped to an almost two-year high last week, prompting business leaders to demand an immediate coalition deal between feuding parties in the Dutch- speaking north and French-speaking south. “Financial markets will be merciless if the country doesn’t extricate itself from this unprecedented hell as soon as possible,”For the first time, investors view western European government bonds as riskier than emerging- market debt, the Markit iTraxx SovX Western Europe Index of credit-default swaps showed last week.

Fed Bid to Limit Rescission Rights Sparks Consumer Outrage – The Federal Reserve is moving ahead with plans to change the right-of-rescission rule as part of the Truth in Lending Act (TILA) despite intense outcry from consumer advocates, civil rights groups,  and top members of the Senate Banking Committee. Revised TILA will require borrowers to repay a mortgage in full before a loan is rescinded. Consumer groups say the measure is designed to prevent homeowners from using the right-of-rescission protection as a defense against improper foreclosure.
The Fed’s proposal is designed to ward off frivolous lawsuits that will delay foreclosures and have an adverse impact on economic recovery by ensuring “a clearer and more equitable process for resolving rescission claims” that closely mirrors present court requirements. The central bank wants to lift what it views as undue compliance burdens and litigation risk for creditors.


France Says Concerned By Surging Global Food Prices (Reuters) – France is worried by sharp rises in global food prices, Agriculture Minister Bruno Le Maire said on Tuesday as he called again for stricter regulation to avoid speculation on commodities leading to sharp market swings. "This is a cause for concern and I think it is urgent to get concrete answers and efficient tools" to avoid market swings, Le Maire told a news conference. European milling wheat futures almost doubled in 2010 after a series of weather events including a severe drought in Russia and floods in Australia slashed global supply. Le Maire called again for tighter regulation on commodity trading. "The fact that wheat prices rise to 140-150 euros from 110-120 euros because there is less production is just the way the market works and this is not an issue," he said. "What we do find problematic on the other hand is that based on this reality a certain number of people come and speculate and push wheat prices to more than 200 euros ($259 per tonne)."

Wildlife Wednesday – The Portu-Goose! – The investors jacking up the markets at 6am this morning understand very little about the relevance of Portugal’s sale of $1.62Bn in bonds. While the auction was a "success" with longer bonds going off at 6.7% that’s WITH intervention by China and Japan on an auction amount that either one of them could have tipped the cab driver on the ride over from the airport and not missed it. This is like going to your rich uncle for a used car loan because the bank wants 12% and your uncle says "sure I will help you out but you will owe me big time and I will make my brother’s life miserable because I have to give his kid money and I’ll never let him forget it" and then he hands you a contract to pay him back at 11.5%. Actually, Portugal didn’t even get that much of a "family discount," The last bond auction of 2010 went off at 6.8% and the fear was that the rates would go over 7% but let’s not do cartwheels over 6.7%. :

A surplus, but for oil and China – EARLIER this week we learned that China’s trade surplus fell sharply in November, to just $13.1 billion. A look at the latest American data would indicate that trade between the two big economies didn’t have that much to do with the tumbling Chinese surplus. America’s trade deficit fell just a tiny bit in the month of November, from $38.4 billion to $38.3 billion. Both exports and imports rose a bit, but exports rose more, and a slight increase in America’s goods deficit was offset by a bigger rise in the services surplus. That goods deficit now stands at $51 billion, and it overwhelmingly represents two factors. The first is trade with China. America’s deficit in goods trade with China rose slightly in November, as growth in imports from China barely outpaced growth in exports to China (which hit another all-time high). Of the $51 billion monthly deficit, about $26 billion of that is attributable to China. Another big chunk, about $20 billion, represents America’s petroleum deficit.
 
Don’t Worry; They’ll Just Change the Rules To anyone paying the slightest bit of attention, these remain very uncertain and trying times. On one side of the intellectual divide are the folks who are counting on deflationary forces overwhelming the normal credit-operated machinery of modern life, resulting in an implosion of economic activity. On the other side are those counting on hyperinflation as the most likely outcome of the grand printing experiment currently being conducted across the globe with its epicenter located within the United States. In the middle of the intellectual divide are people like me, who are leaning slightly towards one view or the other. Some are expecting an imminent recovery (whatever that means), some a long, slow grind downwards, and others a rapid, if not chaotic, plunge into new and unwelcome territory of one sort or another. There are no right or wrong views here. All sides are on equally firm intellectual standing. However, I want to let you know why it is that I lean towards the inflationary line a bit (okay, a lot, by some people’s standards) and why I think that a wide-scale, final fiscal collapse is in the cards.
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