Sunday, June 7, 2009

OT: Cliburn Won by Blind Japanese Pianist

Nobuyuki Tsujii from Japan, blind from birth, shared the first prize at Van Cliburn International Piano Competition (read the article in the Dallas Morning News here). I listened to his playing, and I'm afraid I share the same view as the Dallas Morning News reviewer. Well-played by a very good student of piano, that's that, no more.

I was going to post the video of his playing, but I can't bring myself up to the task. Instead, here's one of my favorite pianists: Ivo Pogorelich, playing Chopin Scherzo No. 3, Op. 39 in 1980 Chopin Competition:

It Will Be An Act Of War, Mr. President

According to New York Times article, the administration is considering a way to intercept North Korea's air and sea shipment suspected of carrying weapons or nuclear technology. It also wants to reverse President Bush's decision to remove North Korea from a list of states that sponsor terrorism (i.e. back to "Axis of Evil" for North Korea). According to the article:

U.S. Weighs Intercepting North Korea Shipments (6/7/09, New York Times)

"... The reference to interdictions — preferably at ports or airfields in countries like China, but possibly involving riskier confrontations on the high seas — was made by Secretary of State Hillary Rodham Clinton. She was the administration’s highest-ranking official to talk publicly about such a potentially provocative step as a response to North Korea’s second nuclear test, conducted two weeks ago."

With Middle East and Af-Pak having the Presidential czars placed on top of her (Dennis Ross and Richard Holbrooke, respectively), what's left for Mrs. Clinton that is of some importance seems to be North Korea. (Is it my imagination that Mrs. Clinton and her husband seem a little marginalized in the new administration? Mr. Clinton has been named a UN special envoy to Haiti, not the most prestigious or prominent position that the former President would have liked.)

So, it will possibly be another war, in addition to Iraq and Af-Pak:

"North Korea has repeatedly said it would regard any interdiction as an act of war, and officials in Washington have been trying to find ways to stop the shipments without a conflict. Late last week, James B. Steinberg, the deputy secretary of state, visited Beijing with a delegation of American officials, seeking ideas from China about sanctions, including financial pressure, that might force North Korea to change direction."

As mentioned in the previous post on North Korea, blockade is an act of war. Are you ready for three, simultaneous wars, Mr. President? And this one will inevitably involve the US's East Asian allies, with the heaviest blow probably to be suffered by South Korea.

China, Japan, and South Korea combined hold 46% of US Treasury securities held by foreigners. (Data: Treasury Department, as of March 2009)

Federal Reserve to Hire Lobbyist to Counter Skepticism

The Federal Reserve, whose chairman recently expressed concern over the growing federal deficit, intends to hire a lobbyist to counter skepticism on Capitol Hill over the Fed's ever-increasing influence.

The lobbyist the Fed plans to hire, Linda Robertson, did the lobbying for Enron. She also worked under three Treasury Secretaries - Lawrence Summers, Robert Rubin, and Lloyd Bentsen.

Fed Intends to Hire Lobbyist in Campaign to Buttress Its Image (6/5/09, Bloomberg)

"The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

"Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

"Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise."

This alone shows, to me, very eloquently, that the Federal Reserve is NOT PART OF THE GOVERNMENT but basically a private industry group, a cartel. The banking cartel wants to reassure the ever-skeptical and critical Congress that the increasing power of the Fed over the financial and economic system is a good thing, nothing to worry about. Audit the Fed? Oh don't worry and don't waste your time and resource, we know what we're doing...

After a disasterous performance by the Federal Reserve vice chairman Donald Kohn, the Fed should worry about the general public slowly but surely catching on. Here's a video clip of Mr. Kohn grilled by a Florida Democrat Alan Grayson over the Fed's balance sheet. (SO WHERE HAS THE MONEY GONE, Mr. Kohn?)

Saturday, June 6, 2009

China Wants To Buy IMF Bonds If Issued

First it was Japan, then Russia, and now China. They all want to loan money to IMF, International Monetary Fund. Japan already did back in February.

China explores buying $50bn in IMF bonds (6/5/09 Financial Times):

"China is “actively considering” buying up to $50bn of International Monetary Fund bonds, the country’s State Administration of Foreign Exchange has said."

"Friday’s statement by China said any investment would be made according to its usual criteria of “safety and reasonable returns”, but made no mention of Beijing’s wish for more power in IMF decision-making, in return for financial support.

"Safe, which controls almost $2,000bn of China’s foreign exchange reserves, added it was ready to help the IMF explore more ways to raise finance."

Russia ready to invest $10 bln in IMF bonds-Kudrin (5/27/09 Reuters, via Guardian UK):

"Russia is ready to invest up to $10 billion in bonds which may be issued by the International Monetary Fund (IMF), Finance Minister Alexei Kudrin said on Wednesday.

"The IMF has said it is considering issuing bonds on top of the funds it is receiving from some members, as well as through a Special Drawing Rights issue. The bond issue would be a first for the Washington-based global institution."

IMF Signs $100 Billion Borrowing Agreement With Japan (2/13/09 IMF announcement):

"Japan has provided the IMF with an additional $100 billion to bolster the Fund's lendable resources during the current global economic and financial crisis.

"Managing Director Dominique Strauss-Kahn and Shoichi Nakagawa, Minister of Finance of Japan, signed the terms of Japan's $100 billion commitment on February 13 under a borrowing agreement designed to temporarily supplement the Fund's financial resources.

"The initial period of the commitment by Japan is for one year, and may be extended by the IMF for up to a total of five years if warranted by the Fund's liquidity situation and its actual and prospective borrowing needs. Each drawing will carry interest at the interest rate on the IMF's Special Drawing Rights, which is currently 0.62 percent."

Japan's loan is almost as large as one-third of total IMF quotas, which stood at US$325 billion as of March 31, 2009. (Data: IMF)

All these three countries are said to want to have more say in IMF, as well as more influence in international economic and financial matters which have been dominated by the US.

The following is the quotas of China, Russia, and select countries measured in IMF's SDR. The country's quota roughly translates to voting power (influence). For China and Russia to exert more power at IMF, they indeed need something extra. As of June 5, 2009, US$1 is SDR 0.645799. (Data: IMF)

  • China: 8,090 million SDR (3.72% of total quotas)
  • Russia: 5,945 million SDR (2.74%)
  • Japan: 13,312 million SDR (6.13%)
  • Saudi Arabia: 6,985 million SDR (3.21%)
  • France: 10738 millin SDR (4.94%)
  • UK: 10,738 million SDR (4.94%)
  • Germany: 13,008 million SDR (5.99%)
  • US: 37,149 million SDR (17.09%)
I personally think the move by China and Russia, even of Japan, is their effort to ditch at least some of the US dollar denominated foreign reserves they are stuck with: US Treasuries and agency bonds. All three countries have LOW gold reserves (see this wiki page on official gold reserve), their currencies just as "fiat" as the US dollar. Euro has some gold backings, toward which Russia seems to be shifting more. On the other hand, IMF HAS GOLD. 3,217 metric tons of it.

When IMF actually issue its notes or bonds, what will be the collateral? Its gold (if it is indeed IMF who owns it, not the members)? US Treasury Department issues Treasury securities with the government's words that they will be repaid; in other words, they are mortgaging the future tax revenues from the productive citizens and businesses of the US. IMF does not have such productive citizens. So..?

I suppose IMF can issue debt based on the potential future cash flow from the countries who will borrow from IMF. (Wait, isn't that concept what got us into trouble - Mortgage-Backed Securities?? Hmmm.. I don't see this ending well.)

Friday, June 5, 2009

Penkse To Buy Saturn from GM, Wants to Build in US

Now this is more to my liking. The first decent piece of news that I've heard about the sorry saga of bankrupted Chrysler and GM, where private entrepreneurship saves the day. Penske Automotive Group Inc. (stock symbol PAG), the second largest auto retailer in the United States, signed a memorandum of understanding with General Motors to acquire GM's Saturn brand.

According to this article Penske buying Saturn, dealerships; GM to build vehicles for 2 years (6/5/09 Detroit News),

"Penske has signed a memo of understanding to acquire Saturn and its dealer network and the due diligence period will take 60-90 days. The deal will preserve 13,000 jobs and could close in the late third quarter, Penske told reporters this morning. Terms of the deal were not disclosed.

"The deal includes the Saturn brand, the service and parts operation based in Spring Hill, Tenn., and a network of about 350 dealerships.

"Penske said GM will supply the Saturn Aura sedan and Vue and Outlook SUVs on a contract basis for at least two years, after which he envisions importing vehicles."

""Our ultimate goal is to have those vehicles built in the U.S.," he said."

Why Saturn?

Here's the announcement from the company. [emphasis is mine]

""We have agreed upon a framework that we believe will build momentum for the Saturn brand," said Penske Automotive Group Chairman Roger Penske. "Saturn has a passionate customer base and outstanding dealer network. For nearly 20 years Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths."

Mr. Penske and his company want to buy Saturn because Saturn focused on treating the customer right. How about that, coming from an American company?

"Saturn began selling cars in 1990 and has sold more than 4 million vehicles. More than 80 percent of those vehicles are still in operation, according to data from R.L. Polk. Saturn has regularly scored among the industry leaders for non-luxury brands in customer satisfaction surveys. Commenting on the proposed deal, Saturn general manager Jill Lajdziak said, "This is the combination of two iconic teams: Saturn and Penske. GM had the vision to create Saturn and has the desire to see it succeed in the future.""

Saturn's customers are happy because the car is built well and it lasts! What a concept. Saturn, at one point, even dethroned Lexus in J.D. Power and Associates 2002 Customer Service Index (CSI) Study. (By the way, the link goes to a blog set up by a Saturn enthusiast, called The front page pleads "Save Saturn. Sign the Petition to Help Save Saturn!")

Ms. Jill Lajdziak, Saturn's general manager, will be offered a role in a Penske's new company, according to the Detroit News article. She joined GM in 1980, and has been with Saturn since its inception.

GM indeed had the vision, when it founded Saturn Corporation in 1985 in response to ever-increasing competition from small cars made by Japanese and German auto makers. But the vision hasn't quite turned into a viable business at GM. Now that the administration is pushing for small, fuel-efficient car, GM has to sell Saturn.

Saturn has its own assembly plant in Spring Hill, Tennessee. Why wouldn't Mr. Penske simply by the whole operation and run it? He and Penske Automotive Group would know what kind of car the customer want. As the 2nd largest auto retailer, they would know GM and Saturn that no outsider (like Fiat, for example) could know. They could possibly clean up the manufacturing operation.

I'll refrain from being overly optimistic until the deal is done and more details known. I hope the Auto Task Force and Mr. Rattner the car czar (for cacophony of czars, see my post here) stay out of the deal. (Oh no...don't tell me this is the deal brokered by them... )

As I wrote several posts ago, Toyota is increasing production, both in the US and back in Japan. GM and Chrysler may have been bankrupted at the bottom of the market. Pity. And shame.

Unemployment Rate 9.4% - So Who's Hiring?

The news of the day so far is the unemployment rate in May, which jumped to 9.4%, the highest since August of 1983 when the rate was 9.5%.

Since I like seeing things in perspective, the first chart shows the unemployment rates since 1948, the oldest data I can get at Bureau of Labor Statistics. The current spike started in May 2008, when the rate jumped to 5.5% from April's 5.0%. At that time, analysts and economists attributed it to a flood of high school and college graduates looking for jobs. (Ah those were the days.) The highest national unemployment rate during the Great Depression was 24.9% in 1933. (Toledo, Ohio's rate is said to have hit 80% at one time.)

The rate hit 10.8% in November 1982, and that is the last spike higher than the current one. To find the spike as high as the current one before 1982, you have to go back to 1941.

So is anybody HIRING?

Look no further than your government. The second chart was constructed from the data available from St. Louis Federal Reserve on employment survey. Again, the longest data that I could get.

During the current recession, just about every employment category is heading south. The severest curve is registered by Goods Manufacturing, followed by Construction. Information, which is supposed to be the place for knowledge workers of the future, has been basically flat. A tiny bump after 2000 was quickly corrected by the dot-com bust.

The exceptions are Government and Education & Health Services. Probably some of the latter dovetail with the former. As you can see in the chart, E&H Services is set to overtake Goods Manufacturing. Leisure and Hospitality has also been strong until the beginning of this recession, although the rate of decline is less severe than others.

Car Czar, Cyber Czar, Pay Czar...Pay Czar??
Cacophony of Presidential Czars

Particularly since the new administration swept in, there has been a proliferation of "czars". (Here I thought czars were Russian Emperors. Senator John McCain clearly thought so too.)

We apparently have:

Cyberspace Czar (Melissa Hathaway, frontrunner)
Technology Czar (Vivek Kundra)
Drug Czar (Gil Kerlikowske )
Copyright Czar (I have no idea if anyone got appointed. Here's petitioning for one.)
Climate Czar (Carol Browner)
Car Czar (Steven Rattner)
Healthcare Czar (Nancy-Ann DeParle)
WMD Czar (Gary Samore)
Education Czar (Arne Duncan)
Economic Czar (Lawrence Summers)
Urban & Housing Czar (Adolfo Carrion Jr.)
Bailout Czar (Herb Allison)
Stimulus Accountability Czar (Earl Devaney)
U.S. Border Czar (Alan Bersin)
Regulatory Czar (Cas Sunstein)
Great Lakes Czar (Cameron Davis)
Middle East Czar (Dennis Ross)
Af-Pak Czar (Richard Holbrooke)
Bank Czar (American Bankers Association is currently fighting against it.)
Performance Czar (She had to withdraw because of some tax problem...)
Guantanamo closure Czar (Daniel Fried)

The latest? Pay Czar.

White House Set to Appoint a Pay Czar (6/5/09 Wall Street Journal):

"The Obama administration plans to appoint a "Special Master for Compensation" to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.

"The administration is expected to name Kenneth Feinberg, who oversaw the federal government's compensation fund for victims of the Sept. 11, 2001, terrorist attacks, to act as a pay czar for the Treasury Department, these people said."

The Pay Czar is going to make sure those pesky TARP recipients comply with the pay guidelines set out by the Treasury.

These "czars" are all appointed by the President and placed above Cabinet level agencies. They are not confirmed by Congress, nor answerable to Congress. Bloomberg News sees a potential not just for confusion but for a constitutional crisis (read the article here).

(Who's paying their salaries?)

So what's next? Credit Card Czar, Insurance Czar, Junk Food Czar, Organic Food Czar, Arts Czar (I've seen the petition for this)? If Great Lakes can have a czar, why not Yosemite? Monterrey Bay?

Is there any area of our private life left, without being watched by the Czars?

Thursday, June 4, 2009

Why Bernanke Was Upset: Federal Debt vs GDP

This blog is not about chart technical analysis (that's mostly for my other blog) but I make an exception once in a while when the chart in question concerns a macro economic picture. The US dollar long-term chart the other day was one, so were several charts of Treasury yields.

Here's another that I found on Yahoo Finance Teck Ticker (6/4/09): Bernanke Freaks Out About Obama's Spending and Debt Plans

The article and the accompanying video is about Ben Bernanke's testimony on Wednesday before the House Budget Committee, where the Fed chairman warned against ballooning federal deficit.

The page has a chart of Gross Federal Debt as percentage of GDP, and that's what caught my attention. It is a very bullish chart. Which means it is very, very ominous for the country.

The chart shows a cup and handle breakout with the target value of 100 (the vertical distance from the bottom of the cup to the right side of the cup). Besides, the flat-top formation from year 2010 onward is considered one of the most powerful, bullish formation; i.e. explosive growth from there.

The Fed chairman is right to be freaking out. After all, Federal Reserve is an independent entity, and he would want to protect his institution and its member banks from the destructive force of the federal deficit his institution is obliged to monetize.

30-Year Fixed Mortgage Rates Above 5 Percent

Mortgage rates above 5 pct for 1st time in 3 mos (6/4/09, AP):

"Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages rose to 5.29 percent this week, from an average of 4.91 percent a week earlier. It was the highest weekly average in nearly six months.

"Mortgage rates "caught up to the recent rise in long-term bond yields this week," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement."

The benchmark 10-year Treasury note has seen the yield go up from 3.21% on May 1 to 3.70% today, 15% increase (data: US Treasury).

30-year fixed rate jumbo loans are being offered between 6% and 7% for people with credit scores of 700 and above, according to

"While signs are building that the battered U.S. housing market is beginning to stabilize, higher rates could endanger any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

"Mortgage applications fell 35 percent last week from a week earlier, the Mortgage Bankers Association said Wednesday. Applications to refinance existing loans, which had made up about three quarters of mortgage applications earlier this spring, fell to about 60 percent of loan volume."

Remember the number of applications is NOT equal at all with the number of applications APPROVED.

This just in:
SEC charging ex-Countrywide CEO Mozilo with fraud (3:28PM EST, 6/4/09 AP).
Bank of America bought Countrywide in January 2008. The Senate Banking, Housing & Urban Affairs Committee Chairman Chris Dodd received a favorable loan from Countrywide as a F.O.A. (Friends Of Angelo Mozilo).

The stock market reaction has been no reaction.

Treasury Auction Schedule for Week of 6/8/09

Treasury Department will auction the following Treasury securities next week:

6/8/09 Monday

  • 13-week bill: $31 billion
  • 26-week bill: $31 billion
6/9/09 Tuesday

  • 3-year note: $35 billion
6/10/09 Wednesday

  • 9-year-11-month note: $19 billion
6/11/09 Thursday

  • 29-year 11-month bond: $11 billion
Week total: $127 billion

Putting it in perspective, Cuba's annual GDP (measured by PPP) is about $125 billion; Thailand's foreign currency reserve is about $120 billion. The last two times 30-year bond was auctioned (5/7, 3/12), the stock market went up on a weekly basis (up 4%, and up 8%, respectively).

Things to watch out for:

  • Bid to cover ratio
  • Indirect Bidder participation on all of them

Latvia is in turmoil after the government failed to sell ANY bill at their Treasury auction (6/3/09 Telegraph UK, here).

Toyota Will Increase N.America Production, Says Market Bottoming

Now here's a "green shoot" I can give slightly more credence to.

Toyota Motors will increase production in North America over the next 3 month (6/4/09 Yomiuri News, Japan; the article is in Japanese)

"Toyota announced on June 3 that it will increase North American production by 65,000 units more than originally planned.

"Toyota has cut back its production since last summer, but now believes the market is bottoming out. It will increase output of Camry, Corolla, Siena, RAV4, Tacoma, and Tundra.

"Toyota's year-over-year monthly auto sales in North America has been decreasing by over 30%. Toyota's 7 US factories have reduced hours and introduced work-sharing scheme to cope with the declining sales.

"In Japanese market, Toyota already started to normalize production in May. "

Toyota's layoffs in North America was minimal despite the steep decline in sales. In addition to work-sharing, they also used the idle time to train idle workers on new skills, quality improvement, and maintenance. (Hear that, UAW?)

Now, if Toyota is right, Chrysler and GM driven to bankruptcy start to look like Gordon Brown selling gold at the gold market bottom, don't they?

Wednesday, June 3, 2009

GM and Chrysler on Capitol Hill

GM's Chief Executive Fritz Henderson and Chrysler's President Jim Press were hauled in front of the Senate Commerce Committee today to defend the closure of their dealerships. GM now says it will close nearly 1,600 dealerships in the next 18 months, and by the end of 2010 wants to reduce the number of dealerships from the current 6,300 to 3,800 or less (40% or more reduction). Chrysler wants to shut down 789 dealerships by June 9 (25% of total Chrysler dealerships, in 5 days) and wants to end up with 2,392 dealerships.

The chairman of the committee, Democratic Senator John Rockefeller of New York, said in his opening statement:

"I don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, no real notice and no real help, that is just plain wrong, you don't do that."

The dealers slated to be eliminated as well as chairman of the National Automobile Dealers Association were also at the hearing.

So what would be the solution to right this wrong? More government help?

Curiously absent from today's hearing were the Presidential Auto Task Force - members, official designees, or the staff (one of whose influential voice is a 31-year old ex-campaign aide) - who crafted these two bankruptcies. At least they were not at the table with the automaker CEOs and dealers, being grilled by the Senators. Both GM's Henderson and Chrysler's Press seemed to be doing their best to present the case on behalf of the Auto Task Force. Mr. Henderson seemed to have rehearsed better than Mr. Press, who at times seemed lost for words.

You can watch the entire 3-hour hearing yourself, here.

Some Senators in the Committee were grumbling that there had been hardly any Congressional oversight. According to a largely ignored piece of news ("Lawmakers Blast GM Restructuring:
Obama's Auto Task Force Is Accused Of Treating Investors, Dealers Unfairly
", 5/23/09 Washington Post), there was a last-ditch effort by some members of Congress (both Republican and Democrat) to take the role of restructuring back to Congress from the ad hoc Task Force set up by the President.

Belatedly, the Senate Banking Committee (chaired by Chris Dodd) said on Wednesday that it will hold a hearing on June 10 to examine the role of the Presidential Auto Task Force (see Reuters update). Better late than never. But will it be just a rubber-stamping and rolling-over exercise? Don't hold your breath, as the White House Press Secretary has already delineated the role of Congress (not much) in the matter of auto bailout (read it in my post here).

Only Criminals Use Honest Money

not some kind of fiat money like US dollar.

Only Criminals Use Honest Money (6/3/09, Ludwig von Mises Institute, Mises Daily) [emphasis is by me]

"Since money is banned in prisons, the historical use of cigarettes by prisoners as money avers that money requires alternative value (i.e., value apart from its use as money) and proves that our present system of fiat currency (and fractional-reserve banking) is eventually doomed.

"Prisoners exchange cigarettes for sex, drugs, gambling, and the killing of other inmates (all other recreational activities being provided free of charge by taxpayers). The cigarettes hold alternative value through their direct consumption (smoking).

"And what happens to the experiment when cigarettes are banned? Like a free market moving from a gold to a silver standard, prisoners switch to the next best good that possesses the qualities demanded of money: portability, durability, homogeneity, and divisibility.

"The article "Mackerel Economics in Prison Leads to Appreciation for Oily Fillets" published in the October 2, 2008 issue of The Wall Street Journal, revealed the new monetary system in prisons: cans of mackerel, or "mack" in prison nomenclature. Just as a various goods (e.g., gold, silver, copper, rice, salt, peppercorns, large stones, etc.) have long competed in the marketplace to be the standard of currency, so mack had to fend off books of stamps, PowerBars, and cans of tuna.

"Fiat money does not exist in prison. Prisoners do not dye sheets of paper green and attempt to circulate them as money. No inmate would accept this as money, not even if the penal equivalent of a Bretton Woods agreement existed between the toughest gangs.

"Why is it that criminals continue to use real money in their transactions? Because they have not been fooled otherwise. In The Case Against the Fed, Murray Rothbard detailed the process by which people have been fooled into thinking those green pieces of paper are a proper store of value (the key purpose of money). Once government changed the law to recognize monetary warehouse receipts (dollar bills) as a debtor relationship instead of that of a bailment (the temporary possession of another's property), fractional-reserve banking was born. Fractional-reserve banking is inherently fraudulent.

"In contrast, a penitentiary does not include a warehouse issuing receipts for cigarette packs or cans of mack.If they ever do, we know what will follow: fraud (the warehouse issuing notes in excess of deposits), then government-sanctioned fraud, then government-imposed fraud, and finally — The Big House Reserve (perhaps consisting of notes with the warden's picture and Latin phrases).

"Incredibly, it is those outside of prison who are truly institutionalized. "

Here's a "news" clip from Onion News Network:

June 3 Stock Market Snap Shot

So nothing has fundamentally changed (at least in the US, not sure about other countries, like Latvia, for example) from yesterday, but the stock market seems to have entered that phase again where "bad news is treated as bad, not-so-bad news is treated as bad, good news is treated as bad". Not that the news today is necessarily bad; it is mixed.

  • The ADP Employment Report said job losses during May totaled 532,000, which is close to what was expected and down from the previous month.
  • The ISM Services Index for May came in at 44.0, which was largely in-line with the consensus forecast, and up slightly from the previous reading.
  • Factory orders for April increased 0.7%, which is slightly below the 0.9% increase that was expected, but up from March.
The numbers are either in-line or close to it, and they all show improvement from the previous month/reading. But the "good" part is being ignored today, and the focus is back to the "bad" - not quite as expected.

Unexpected rise in oil inventories is putting the pressure on oil price and the stocks of oil companies, but again, there are many days when a lower oil price is cheered by the market.

Since this market seems nothing but psychology for quite some time, what's weighing on the market today may be found on Capitol Hill.

Ben Bernanke, the Fed chairman, just finished his testimony in front of the House Budget Committee, in which he urged the Congress and the Obama admin to start adressing the record budget deficit before it begins to affect investor confidence. (But he saw nothing wrong with the Fed's monetization, a.k.a printing money, disagreeing with the German Chancellor Angela Merkel.) He also said the recovery will be slow. His prepared statement is here, and the video of his testimony is here.

There are more to come from Capitol Hill. At 2:00 pm EST, the House Financial Services Subcommittee on Capital Markets will have a hearing on the present and future prospect of Fannie Mae and Freddie Mac. At 2:30pm, the Senate Commerce Committee will conduct a hearing on Chrysler/GM dealership closure. Both should be interesting.

At 1: 46 pm EST, Dow is down 134 points (1.53%) to 8,607, Nasdaq is down 19 points (1.60%) to 1,807, S&P 500 is down 20 points (2.18%) to 924. They are slamming the gold (down $16 to $964), crude oil is down $2.85 to $65.70.

FYI, stocks going up today on my stock watching panel (scattered far between), other than short ETFs, are TLT (long-term Treasury ETF), AAPL (Apple), BIDU (Baidu), IBB (biotech ETF), UUP (US dollar ETF), MCD (MacDonald), WMT (Wall-Mart ), SBUX (Starbucks), V (Visa), MW (Men's Warehouse), APL (Atlas Pipeline). If you see a pattern in here, please let me know.

German Chancellor Angela Merkel Critical of Central Banks

Germany Blasts 'Powers of the Fed' (6/3/09 Wall Street Journal)

Her criticism seems to have come from nowhere, according to the article, but what she says is common sense to many fiscal conservatives and non-Keynesian economists.

"German Chancellor Angela Merkel, in a rare public rebuke of central banks, suggested the European Central Bank and its counterparts in the U.S. and Britain have gone too far in fighting the financial crisis and may be laying the groundwork for another financial blowup.

""I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line," Ms. Merkel said in a speech in Berlin. "We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years' time.""

She almost sounds like Peter Schiff.

"The public criticism is unusual -- and not only because German politicians rarely talk harshly about central banks in public. When politicians around the world do criticize their central banks, they almost always gripe that they are too tightfisted."

Instead, the German Chancellor is complaining they are doing TOO MUCH to the point of harming the economy.

Her criticism of central bankers' intervention in the economy is interesting to me. Although she was born in Hamburg (West Germany), her family moved to East Germany soon after her birth. She grew up in East Germany, under the Communist system. Then the Berlin Wall fell and suddenly it was one Germany. I would expect her to be more in favor of centralized power, or at least more at home.

You could say that it is nothing but domestic politics; the Chancellor is simply defending herself against her party's conservative critics. Probably it is. But it could also be that Germany is getting fed up with being in Euro, as their once-strong national currency (Deutsche Mark, anyone remember?) has been replaced with Euro, an artificial currency that are imposed on stronger countries (e.g. Germany) and weaker countries (e.g. Spain) as if they are more or less on the same footing. Germans may perceive Euro (and EU) and their role in it as "subsidizing" the weak countries at the expense of their own country.

It is also possible that the Chancellor and her fellow Germans remember what happens when the central bank starts printing money in large quantities (this from Ludwig von Mises Institutie site).

May 09 Auto Sale Up Because Of Discount

and not efficiency. (Is that a surprise to anyone?)

Discounts, not efficiency, drive US auto sales up (6/2/09 AP):

"Americans bought more cars in May than in any other month this year, drawn by fire sale prices that pushed General Motors and Chrysler's sales above expectations despite their forays into bankruptcy protection. Overall sales were still 34 percent lower than a year ago.

"But low gas prices encouraged the sale of bigger gas guzzlers while small cars stacked up on dealer lots. That could be a problem for the Obama administration, if the demand for more fuel-efficient vehicles drops just as it is forcing the U.S. auto industry to produce more of them.

""The great migration away from fuel efficiency is once again under way," said Mike Jackson, chairman and chief executive of AutoNation Inc., the nation's largest automotive retailer. "The price of gasoline determines the type of vehicles consumers buy. Period.""

Period? Does Mr. Jackson, who is a proponent of taxing more on gas so that the gas price remains constant at $4, really thinks consumers only respond to the price of gasoline in their buying decisions?

How about less money to spend? Far less? Combine that with huge discounts, fire-sale prices from those Chrysler dealers? According to this article U.S. auto sales drop, but rays of stability seen (6/2/09 Reuters):

"Terminating dealers have sold or redistributed all but about 3,000 of the 42,000 vehicles they had and are expected to complete the process this week, Chrysler said."

"Rays of stability" that the Reuter's article seems to be seeing is the fact that May sales was higher than April sales.

By the way, Toyota's new Prius is selling very well in Japan, but not because it is more fuel efficient. It's because it is priced 12% cheaper than the previous model, it is bigger, and fuel efficiency increased by 10%. Better spec at cheaper price. (Do you think Government Motors can do that?) Toyota is also engaged in a price war with Honda's Insight.

Here's the summary of May 09 sales for major auto companies:

  • GM: -30% year over year (i.e. compared to May 2008)
  • Chrysler: -47%
  • Ford: -24%
  • Toyota: -41%
  • Honda: -42%
  • Nissan: -33%

Tuesday, June 2, 2009

Dear Timmy...

(Update 10:40pm PST) Found this article @
Fed Said to Raise Requirements for Banks to Repay TARP Funds (6/3/09)

?? I thought TARP was administered by Treasury Department. As far as I know, Treasury Department and Federal Reserve are still two different, separate entities.

But if Federal Reserve was telling the banks to raise more capital than previously required by the stress test LAST WEEK, that explains the weakness/underperformance in financial stocks that started last week.

The US Treasury Secretary sure doesn't get much respect.

He was laughed at in China, and a top Wall Street banker wrote him a letter that says:

“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us. We hope you enjoyed the experience as much as we did.” - Jamie Dimon, CEO of J.P.Morgan Chase.

Mr. Dimon read the letter yesterday before the Annual NYU International Hospitality Industry Investment Conference in New York, according to various news source (here's one).

(I wonder if J.P.Morgan Chase will be barred from returning TARP by the Secretary whose feelings may have been injured...)

Call for Darling's Resignation Growing

Despite the snide comment from the White House Press Secretary, the British news media keeps digging up more dirt on their grabby politicians. It has now reached a higher place...

MPs' expenses: Alistair Darling billed us for two homes at the same time (5/31/09 Telegraph UK)

Now the Chancellor of Exchequer Alistair Darling (what a name) is in danger of losing his job over claiming expenses for two residences at the same time.

Though the monetary damage that this Chancellor of Exchequer may have caused to the British government is nothing compared to what his predecessor and current boss did, he will probably end up losing his post along with so many MPs from all parties. British taxpayers are pissed, and whoever is leaking the information to the press seems to have endless supply of information.

GM Incentive Package We'll All Get to Pay

GM reveals incentive package as it tries to shed workers

US taxpayers will be paying for it eventually.

  • $20,000 cash and a $25,000 car voucher to production workers who decide to retire with their benefits;
  • For skilled-trades workers, $45,000 cash with the same car voucher.

If the worker is not eligible to retire yet, he/she can still get one of these, with severing all ties to GM (i.e. no benefits):

  • Employees with less than 10 years could get $45,000 cash and $25,000 car voucher;
  • Those with at least 10 years but less than 20, $80,000 cash and the same car voucher;
  • Those with 20 years or more, $115,000 cash and the car voucher.

If the worker is close to retirement (28-29 years at GM), GM will provide:

  • A bridge to retirement, with the company providing a monthly gross wage of $2,850 or $2,900 until qualifying for retirement.
(Is it too late to join the company, in order to quit with $45,000 and put the car voucher on eBay auction?)

In the meantime, GM is selling the Hummer brand to a Chinese company that makes heavy construction equipment and industrial materials (plastics, resins). This will be the Chinese company's first forey into automobile manufacturing. Good luck with that. And good luck with the Hummer dealers who will get to sell this Chinese-made Hummer, and even better luck for the customers who will buy it.

Tuesday June 2 Treasury Auction Results

Tuesday's auction results are as follows:

4-week bill: $35 billion

  • Primary Dealer: $16.88 billion
  • Direct Bidder: $3.19 billion
  • Indirect Bidder (foreign): $14.63 billion
  • Bid to cover ratio: 3.34
  • Indirect Bidder percentage: 42%
52-week bill: $26 billion
  • Primary Dealer: $13.64 billion
  • Direct Bidder: $1.73 billion
  • Indirect Bidder (foreign): $10.48 billion
  • Bid to cover ratio: 3.60
  • Indirect Bidder percentage: 40%
The trend continues from yesterday: foreign bidders like shorter end of Treasuries.

10-Year Anniversary of Gordon Brown's Gold Sale

Gordon Brown, before he became prime minister, was the Chancellor of Exchequer. One fine day in May 1999, he decided that Great Britain needed to rid herself of some gold.

Between July 1999 and March 2002 the British Government sold 395 tonnes of gold, almost 60% of the UK's gold reserves, at a near-bottom price: average price of $280 (£186) per ounce. Mr. Brown then put the proceeds into Euro, US dollar, and Japanese yen.

The Gordon Brown Gold Rally Indicator flashes buy signal
(4/20/09, Michael J. Kosares,

The article has a nice chart showing how Gordon Brown insisting that IMF should sell gold can be used as an indicator for a fresh bull-run on gold. The article is very much worth reading, too.

It has a link to IMF's Q&A site about gold sale. There you can find that the IMF gold is priced at $88 per ounce on their balance sheet as of February 2008, that 2,814 metric tons of gold out of total 3,217 tons can be restituted (returned) to the member countries at about $56 per ounce.

I'm trying to find WHY (these days that's my theme) Gordon Brown decided to sell that much gold. So far, I can't find any (that's another theme). Here's Times London's article from 2 years ago. They think it might have been to prop up Euro.

Goldfinger Brown’s £2 billion blunder in the bullion market
(4/15/07, Times Online)

"GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.

"Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day."

Just like that.

And he did it by auction. According to one gold trader quoted in the article,

“The joke in the market was that Gordon had guaranteed he would get the worst price,” said the former gold dealer Dominic Hall. “The world and his grandmother shorted the market...."

10 years later, gold is approaching $1,000 for the 4th time in 2 years. It is trading at $982 per ounce today.

(And who bought that Gordon Brown's gold, cheap, at those auctions?)

Monday June 1 Treasury Auction Results

Results of Monday's Treasury bill auctions:

91-day (13-week) bill: $31 billion

  • Primary Dealer: $12.13 billion
  • Direct Bidder: $1.55 billion
  • Indirect Bidder (foreign): $15.88 billion
  • Bid to cover ratio: 3.57
  • Indirect bidder percentage: 51%
182-day (26-week) bill: $31 billion
  • Primary Dealer: $13.99 billion
  • Direct Bidder: $1.49 billion
  • Indirect Bidder (foreign): $14.29 billion
  • Bid to cover ratio: 3.14
  • Indirect Bidder percentage: 46%

Significantly high foreign bidder percentage for both auctions for short-term Treasuries. No wonder yield curve is steep (see posts.)

On Tuesday, there will be auctions for 4-week bill and 52-week bill.

Monday, June 1, 2009

Who Gave the Authority To Auto Task Force?

Judge Gonzalez approved the sale of Chrysler's assets to Fiat before Fiat could change its mind. GM is now in bankruptcy court. Many of their dealers will have to shut down, and no one has yet started counting the number of jobs that will be lost in the upstream, i.e. parts and material suppliers to the auto companies and subcontractors. All for 3-month work by the Auto Task Force, one of whose staff members was prominently featured in New York Times yesterday (31-year old ex-campaign aide).

I am still asking the same question to myself: Who authorized this Auto Task Force?

I searched for any Congressional bill authorizing the Task Force. I searched for an executive order authorizing the Task Force. A Congressional bill authorizing the President to form the Task Force. Any law, or binding instruction for the auto companies that they follow the direction given by the Auto Task Force. I haven't found any.

The Auto Industry Financing and Restructuring Act of 2008 (HR7321), which would have given the "car czar" extensive power, was killed in the Senate in December 2008.

So I have to conclude that the "authority" was assumed by the President and the Task Force by default, because no one else claimed it. They took it, and the Congress basically rolled over and became a bank to dispense money as requested.

And I found this from the White House Press Office web page (5/27/09 Press Briefings), so that you can judge it for yourself what the administration's thinking is: [emphasis is mine, and my musings in italic]

Q Robert, on autos -- not in the negotiating realm at all, but last week 36 members of the House wrote a letter to the President saying: We're a little concerned that the task force is making decisions that the legislative body also ought to have some role in. They talk about what happened to Chrysler -- this is members of a union who voted to make some sacrifices, yet they found out after the Chrysler deal that their jobs had been terminated. The implications for Chrysler dealerships they say are affecting their constituents.

Can you talk broadly about what it is about the task force that gives it so much legitimate power that members of Congress now wonder if the legislative branch also ought to have a more direct voice and legislative role in as the future of the auto industry is being debated and decided here at the White House.

[Valid question to me. Please read on to see if Mr. Gibbs answers the question. (Hint: He doesn't)]

MR. GIBBS: Well, let's first of all, just for some context, Major, understand that decisions on plant closings and decisions on dealerships are not made by the auto task force or by its members or people that work in the White House. These are decisions that are made by companies about what it is they believe is the best path toward renewed viability for their company. And understand that in the case of Chrysler I think 75 percent of the auto dealers remained open; that encompasses about 87 percent of annual auto sales.

I would say this to any member of Congress and to any member of the public: If it weren’t for the task force on autos, and if it weren’t for the President's intervention, a hundred percent of those dealerships would be gone, a hundred percent of those plants would be closed, and Roger would have just asked me about the liquidation assets of Chrysler, rather than whether or not we're making progress with General Motors.

[100%, Mr. Gibbs?]

So, look, Congress certainly is involved in auto decisions obviously as it relates to setting fuel mileage standards that the President worked on last week, as well as proposals to create tax incentives to trade in older cars that aren’t doing as well on fuel mileage, to both increase auto sales and reduce our dependence on foreign oil. But I think the vast majority of members I think are appreciative of the efforts of the task force each and every day in order to keep as much as we possibly can in a viable auto industry here in America.

[Now finally. Congress's role in anything auto is to set the mileage standards and tax incentive proposals, according to the White House.]

Q And those lawmakers who would agree with your initial point that the White House has not made decisions on dealerships or union contracts being terminated or kept, they would also point out that the viability standard is set by the task force and decisions flow from that viability standard set here at the White House. Therefore, the White House does have an enormous say, some might say an inordinate say, in things affecting their constituents. And your response to that would be?

MR. GIBBS: Well, I would say that we have a major role to play, and I think we are playing it in a way that is preserving and protecting as many jobs as possible, protecting as many communities as possible, and hopefully restructuring -- working to restructure an auto industry that has fallen on vastly hard times, and that we're doing all that we can to move that in a different direction.

[Yes, jobs in GM Europe have been certainly saved. And China's, too.]

Treasury Yield Ratio Looks Like A Breakout

It is not just the stock market that's enjoying an upside breakout. So are the yields on longer-end Treasuries. Today the yield curve further steepened, with yields on 3-month bill and 6-month bill going down and yields on 2-year, 5-year, 10-year, 30-year all going up.

One of the oft-mentioned indicator of the yield curve steepening is the spread between 2-year note yield and 10-year note yield. This is the chart that plots the ratio (=[10-year note yield]/[2-year note yield]). The higher the ratio, the wider the spread.

As you can see, it seems to be having its own breakout from either "cup and high handle" formation or "base on base" formation. Either way, it is a bullish formation for the ratio, not so bullish for the rest of the market, bond or equity.

Only 2 years ago, you can see on the chart that the ratio was barely 1, indicating the 10-year note yield was THE SAME OR LESS than the 2-year yield. (The yield curve was flat. See post.)

North Korea Could Opt For Land Assault

Remember North Korea? Kind of forgotten in an euphoric stock market and GM bankruptcy, but according to this article they may be plotting a land war.

North Korea could opt for devastating land assault
(5/29/09, AP via

"North Korea's nuclear threats are grabbing the world's attention. But if the North were to strike South Korea today, it would probably first try to savage Seoul with the men and missiles of its huge conventional army.

"The attack might well begin with artillery and missiles capable of hitting South Korea's capital with little or no warning. North Korea's vast cadre of commandos could try to infiltrate and cause chaos while the South tried to respond."

The scary thing is that Seoul is only 32 miles away from the DMZ (demilitarized zone).

"Complicating the defensive calculations of the South and its American allies is the immutable fact that Seoul, with a population of about 10 million, lies about 35 miles south of the DMZ—within easy range of much of the North's artillery."

Military experts believe North Korea doesn't have a chance of winning. But that's beside the point. First, South Korea's capital will be reduced to rubbles way before North Korea surrenders (if ever). Second, North Korea, I think, may want to lose. Civilian casualties usually means very little to a dictator.

If the US does the naval blockade, as it threatens to do under the Proliferation Security Initiative, it is an act of war, to which North Korea could respond. I repeat: Blockade is an act of war.

According to San Francisco Chronicle article, North Korea has said the following:

""The U.S.-led PSI is now inching close to an extreme phase where a war may break out any moment," said the Korean Central News Agency, blasting South Korea for what it called "blindly yielding to its master as it is steeped in sycophancy and submission to the marrow of its bones.""

And this from Singapore's Strait Times:
Long-range missile readied (6/2/09):

"NORTH Korea appears to have transported a long-range missile to a base in the west of the country in preparation for a possible launch, US defense officials said on Monday.

"The presumed ballistic missile was moved to a newly built base in Dongchang-ri on the northwestern coast, two defense officials, who spoke on condition of anonymity, told reporters."

Dongchang-ri is near the Chinese border.

"Any launch would likely be weeks away given North Korea's technical capacity, one of the officials said. 'It'll take a while for North Korea to put anything together,' he said."

I hope he is right.

Chinese Students Laughed at Geithner's Comment

This doesn't sound good. I heard it first on the BBC radio that students at Beijing University laughed when Geithner told them the investments in US dollar-denominated assets are safe.

Chinese students laugh at Geithner's assurances
(GATA, Monday 6/1/09):

"BEIJING -- U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

""Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

"His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

"The Beijing-based Global Times greeted Geithner by publishing a survey of Chinese economists who called big holdings of U.S. debt "risky.""

The yields on 10-year Treasury note and 30-year Treasury bond gapped up this morning, and now almost back to the last week's high. Treasury Department will be auctioning 10-year note and 30-year bond next week.

I only hope Geithner, who speaks Mandarin and Japanese, said something in Mandarin, and ended up saying some funny joke that provoked the laughs.

GM Bankruptcy and Plant Closures

General Motors is now Government Motors, as many say. GM filed for bankruptcy as expected, and as part of restructuring it plans to close 9 more plants and idle 3 plants in the US. The story is everywhere, and here's one of them. Here's the announcement from "New GM".

This is just as expected; all GM has done since the CEO was changed from Rick Wagoner to Fritz Henderson is to prepare for bankruptcy under the "guidance" from the Presidential Auto Task Force.

So how many plants does GM have in the US? As the number was not readily available in the news, I went to the GM website, found the information about GM's plants, and counted the number.

There are still 41 GM plants in the US. The one in Massena, New York was closed already on May 1. Here's the list of plants and number of employees (as GM lists them) affected:

  • Wilmington, DE: 1875
  • Indianapolis, IN: 819
  • Flint North, MI: 1012
  • Livonia, MI: 164
  • Orion, MI: 3800 (idle)
  • Pontiac, MI (stamping): 1481 (idle)
  • Pontiac, MI (truck): 1362
  • Ypsilanti Township (Willow Run), MI: 1285
  • Parma, OH: 2120
  • Mansfield, OH: 1754
  • Spring Hill, TX: 3425 (idle)
  • Fredericksburg, VA: 102
  • (Grand Rapids, MI plant previously slated to close. About 800 employees)

12,931 jobs will be eliminated, 6,268 made idle. Total number of jobs affected: 19,199.

According to GM's 10-Q for the 1st quarter of 2009, GM employs 112,000 people in North America, and 235,000 worldwide. The total jobs affected amount to 17% of all GM North American employees.

I don't know whether the number is considered large or not enough. This could be simply a first wave of plant closures. Job losses at GM's dealers that are being forced to close will be definitely bigger.

The stock market is cheering the "less bad" news, as usual these days: ISM manufacturing number contracted less than feared, April consumer spending dropped less than expected. I think the market is also cheering GM's bankruptcy, that there will be no more uncertainty; thinking here must be "it cannot go any worse, can it?"

As of 9:38 am Pacific Standard Time, Dow is up 219 points (2.5%) to 8,719, S&P500 up 25 points (2.7%) to 944, and Nasdaq up 55 points (3.1%) to 1829. GM's stock is up 13 cents (18%) to 88 cents. (Common is going to be worthless. So what's the deal here?)

By the way, according to the above New GM's announcement, it is a DIP (Debtor In Possession) financing from the government. Why then didn't the Congress have extensive hearing over GM's restructuring? They did, before they gave the DIP financing to Chrysler back in 1979.

Guest Post: Open Message To The President

This post is by Kliguy38, a fellow SKF blogger. You can read his daily musings at (I also have a link to his blog on my "SKFers Blog List" section on the right-hand column.)


As an active small investor in the stock market I was surprised when you issued a public invitation to invest in the stock market in March stating that it was a good time to buy stocks......Having invested in the stock market for over 28 years I had never remembered a President making such an irregular recommendation in a stock market. After observing the market movements over the past 4 weeks it has become increasingly more suspicious that a direct order from the highest office with the backing of the United States Treasury and the Federal reserve along with major Investment Banks and the Presidents Working Group have conspired to manipulate the markets. I recognize the importance of our country having confidence in a good rising stock market..but this will create an eventual backlash and unleash the LAW of UNINTENDED CONSEQUENCES....this will crush liquidity in this market. I also recognize that the real players behind this understand this (ie goldman sachs) and will profit mightilly. They surely believe they have a chance to manipulate the volatility to bring all players back into the market including the short players. I pose the question ....What if the converse occurs..and you permanently destroy your investor liquidity......and I believe that at this juncture that may have already .....realizing the importance of our markets success these actions may have actually created its ultimate dramatic collapse....It is apparent to this investor that this market is corrupt and the financial system it represents. Fortunately I can adjust, but many will elect to not play the game. That will result in the end game of any PONZI sir ..I hope our country survives this and I hope the promised transparency and punishment of the large bank people that put us here in this dillemna does transpire......but....