Monthly Archives: January 2012
The credit rating companies have had a number of European countries on a credit watch for a while. And they made it pretty clear that what the leaders of the EU had cobbled together late last year didn’t answer the mail. So really, this should come as no surprise:
Standard & Poor’s has downgraded France’s credit rating, French TV reported Friday, while several other euro zone countries face the same fate later in the day, according to reports.
"The consequence (if France is downgraded) is that the EFSF cannot keep its triple-A rating," said Commerzbank chief economist Joerg Kraemer.
"That may irritate markets in the short term but wouldn’t be a big problem in a world where the U.S. and Japan also don’t have a triple-A rating anymore. Triple-A is a dying species," he said.
Wow, that’s wonderful, no? “Triple-A is a dying species?” Oh well, moving on…
Triple-A is a dying species because of the obscene spending of welfare-state politicians. We’re supposed to shrug and accept it per the Kraemer’s of the world. This is just an “irritation”, you see.
In reality it is much more than that:
John Wraith, Fixed Income Strategist at Bank of America Merrill Lynch told CNBC the confirmation of a mass downgrade would be another serious step in the crisis and would lead to a serious worsening of sentiment.
"To a large degree it’s widely anticipated," Wraith said. "However, we think the reality of it is going to have a knock-on, ongoing impact on these markets."
“It clearly deteriorates still further the credit worthiness of a lot of the European banks and just keeps that negative feedback loop between struggling banks and the sovereigns that may have to support them if things go from bad to worse in full force,” Wraith added.
A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries’ borrowing costs rise still further.
"It’s been priced in for several weeks, but the market had been lulled into complacency over the holidays, and the new year began with a bounce in risk appetite, thanks partly to a good Spanish auction," said Samarjit Shankar, Director Of Global Fx Strategy at BNY Mellon in Boston.
"But the Italian auction brought us back to earth and now we face the spectre of further downgrades."
Italy’s three-year debt costs fell below 5 percent on Friday but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.
As we’ve said for some time, the key to whether this works out or not lies in the bond markets. And this will make the bond markets very uneasy.
Oh, and just to add fuel to the fire. From Zero Hedge:
Last week, when we pointed out what was then a record $77 billion in Treasury sales from the Fed’s custody account, in addition to noting the patently obvious, namely that contrary to what one hears in the media, foreigners are offloading US paper hand over first, there was this little tidbit: "The question is what they are converting the USD into, and how much longer will the go on for: the last thing the US can afford is a wholesale dumping of its Treasurys. Because as the chart below vividly demonstrates, the traditional diagonal rise in foreign holdings of US paper has not only pleateaued, but it is in fact declining: a first in the history of the post-globalization world." Well as of today’s H.4.1 update, the outflow has increased by yet another $8 billion to a new all time record of $85 billion, in 6 consecutive weeks, which is also tied for the longest consecutive period of outflows from the Fed’s Custody account ever. This week’s sale brings the total notional of Treasurys in the Custody account to just $2.66 trillion (down from a record $2.75 trillion) and the same as April of last year. And since the sellers are countries who have traditionally constantly recycled their trade surplus into US paper, this is quite a distrubing development. So while the elephant in the room could have been ignored 4, 3 and 2 weeks ago, it is getting increasingly more difficult to do so at this point, especially with US bond auctions mysteriously pricing at record low yields month after month. But at least the mass dump in Treasurys explains the $100 swing higher in gold in the past month.
Click on over and check out the chart. Lots of questions to be answered for which, apparently, only a few are chasing answers.
While the media is dominated by political races and urinating Marines, this little drama is passing by almost unnoticed. But trust me, it’s effect, should everything collapse as it may, will be profoundly noticed.
Today’s economic statistical releases:
The US trade deficit widened sharply to $-47.8 billion on both rising oil imports and falling exports.
December export prices fell -0.5%, but were up 3.6% on a year-over-year basis. Import prices also fell -0.1% for the month, but were up 8.5% for the year.
Consumer sentiment continues to rise to 74.0 at mid-month January from 69.9 at the end of December.
Iran is supposedly being sternly warned that attempting to close the Straits of Hormuz will not be tolerated. The Iranians have put forward a bill in their Parliament which would require warships from any nation desiring to transit the Straits to get the permission of Iran first.
Of course, the Straits are considered by the rest of the world as “international waters” while the premise of the Iranians is they’re national waters subject to the control of Iran.
Most experts believe that this has been precipitated by sanctions imposed on Iran by much of the world, but especially the Western powers. Closing the Straits of Hormuz would be viewed by most of them as an act of war.
So, per the New York Times, a secret channel has been opened with Iran’s top leader, Ayatollah Ali Khamenei, in which he has been informed the US would consider any such attempt to close the Straits as “a red line” that would provoke a response.
DoD has made the position publically official:
Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, said this past weekend that the United States would “take action and reopen the strait,” which could be accomplished only by military means, including minesweepers, warship escorts and potentially airstrikes. Defense Secretary Leon E. Panetta told troops in Texas on Thursday that the United States would not tolerate Iran’s closing of the strait.
So the line is drawn. The hand is closed into a fist with a warning. Bluff or promise? Will Iran test it to see?
Here’s why some think they won’t:
Blocking the route for the vast majority of Iran’s petroleum exports — and for its food and consumer imports — would amount to economic suicide.
“They would basically be taking a vow of poverty with themselves,” said Dennis B. Ross, who until last month was one of President Obama’s most influential advisers on Iran. “I don’t think they’re in such a mood of self sacrifice.”
Of course fanatics often don’t think or reason in rational terms, but Ross has a point.
Meanwhile, as the sanctions continue to bite, Iran’s president is finishing up a South American swing to shore up support (and resources one supposes) for his regime from the usual suspects – Chavez, Ortega and their band of merry socialists. China is also a player in all of this, although not a particularly enthusiastic one. Iran exports 450,000 barrels a day of oil, which is now not being bought by Europe or the US. So it sees an opportunity here to up its share of that total. John Foley thinks China will fudge on sanctions, at least partially. That, of course, could extend the drama.
And while all of this is going on, Iranian nuclear scientists are blowing up pointing to some sort of effort by some nation(s) or group to slow and frustrate what everyone believes is Iran’s push for nuclear weapons. That, by the way, may be part of the discussions in South America if you get my drift.
Don’t know if you noticed recently, but the Doomsday Clock has added a minute, the first since 2007 when it subtracted one. We’re no 4 figurative minutes from “Armageddon”. Iran certainly figures in the move.
So far, the “reset” is going just swimmingly, isn’t it?
If you wonder why there is this focus on the left on taxing the ‘rich’, part of it can be found here:
President Barack Obama asked Congress for another $1.2 trillion in government borrowing authority, the third and final request under an August deal with lawmakers that averted a U.S. default.
The president’s notification to congressional leaders yesterday starts a 15-day countdown for lawmakers to consider and vote on a joint resolution disapproving of the increase.
An “August” deal and we’re already on the “third and final request”? August for heaven sake. 5 months. Does that at all demonstrate how absolutely unconcerned this administration is with out-of-control spending? Does it help explain the class-warfare, anti-Wall Street, shift-the-blame campaign in which the President has been engaged?
We’ve already exceeded the national yearly GDP with our debt under Obama and now he’s going for more.
Well, except at DoD. There’s he’s slashing muscle and bone on the one hand while proposing a pay-hike for other federal employees on the other.
The debt ceiling increase is to meet commitments already made by the government. The Treasury Department has been relying on accounting maneuvers, similar to the ones employed during the year’s earlier dispute, to ensure that the previous $15.194 trillion limit wasn’t breached.
Since the budget law was approved, the debt limit has been raised twice, by a total of $900 billion. In the latest request, the limit would rise to $16.394 trillion, which the Treasury Department estimates will fund the government until late 2012.
We are so ill served by our current crop of politicians that it almost defies description. We’re past the generational theft of our grandchildren’s money and are working on that of our great-grandchildren.
This is simply inexcusable, yet like an alcoholic or drug addict it seems our politicians can’t help but do whatever is necessary to obtain their next fix of borrowed money. Meanwhile the credit rating for the country has been downgraded and is at risk for further downgrade. And the economic drag on the economy in general this sort of a debt load carries continues to increase.
You want a national tragedy … here it is. You want a national nightmare … its playing out right in front of you and there doesn’t seem like anyone is able to stop it.
But most rational people understand that at some point it has to stop … it has to come to an end. And when it does, this recession will look like child’s play, all thanks to the selfish short-sightedness of our political class. Oh, and yes, the gutless votes who keep rewarding this sort of behavior because it benefits them.
At the risk of sounding like some sort of extremist fanatic, the end is near. And it isn’t going to be a pretty end either.
Today’s economic statistical releases:
Initial Jobless claims have been declining for several weeks, but last week jumped 24,000 to 399,000. The first week of the year is always bad like that, though. Often, it’s the worst week of the year. I think the seasonal variations really confound the government’s ability to factor in the loss of temporary holiday jobs.
December retail sales were worse than expected. Sales were up 0.1% over last month and, ex-autos, actually declined -0.2%. Ex-autos and Gas, sales were flat. Retail sales for October and November were also revised downwards. On a year-on-year basis, however, sales were up 6.5%, and up 6% ex-autos. So today’s report is a disappointment, but not a disaster.
The Bloomberg Consumer Comfort Index was -44.7 last week, up from -44.8 the prior week. That’s the highest reading since July.
Business inventories and sales both rose 0.3% in November, keeping the stock-to-sales ratio unchanged for a 5th straight month.
There’s a tempest in a tea pot brewing right now that I’m not sure I understand.
The U.S. Department of Homeland Security’s command center routinely monitors dozens of popular websites, including Facebook, Twitter, Hulu, WikiLeaks and news and gossip sites including the Huffington Post and Drudge Report, according to a government document.
A "privacy compliance review" issued by DHS last November says that since at least June 2010, its national operations center has been operating a "Social Networking/Media Capability" which involves regular monitoring of "publicly available online forums, blogs, public websites and message boards."
The purpose of the monitoring, says the government document, is to "collect information used in providing situational awareness and establishing a common operating picture."
The document adds, using more plain language, that such monitoring is designed to help DHS and its numerous agencies, which include the U.S. Secret Service and Federal Emergency Management Agency, to manage government responses to such events as the 2010 earthquake and aftermath in Haiti and security and border control related to the 2010 Winter Olympics in Vancouver, British Columbia.
Let’s see … a department that has the job of “homeland security” monitoring open source internet venues to collect information in order to maintain situational awareness.
Wow. For some reason I’m underwhelmed. My goodness, haven’t we seen shots of various command centers over the years with split video screens showing Fox, CNN and MSNBC? They’re good sources of immediate information that help those engaged in all sorts of rather benign activity (disaster relief?) keep abreast of breaking news.
Why all the hyperventilating over something that is and has been fairly routine for all sorts of agencies over the years?
Look, everyone here knows I’m not a fan of big intrusive government, but what would you do here, ban the department from gathering information and intelligence from sites that are open to everyone else? Should we also ban them from “monitoring” the NY Times and Washington Post.
Oh, and by the way, this isn’t news. As the Reuters story claims, this has been going on since June of 2010. And guess who broke the story then? The Volokh Conspiracy. As Stewart Baker points out:
The story is that people at DHS are, gasp, browsing the Internet. As I said then, there’s no scandal, other than the electrons wasted by DHS agonizing over the privacy implications of browsing public Internet sources to find out what’s happening in the world.
And if it was a nonstory in February of 2010, what does that make it in January of 2012?
Actually, it’s a lesson — that both the mainstream media and the blogosphere are doggedly overreporting anything that could be deemed a privacy violation by government, especially DHS. If you only followed these things casually, you’d be sure that DHS was constantly violating Americans’ rights, and reports like this would be a key bit of evidence. But when you give the “story” a little scrutiny, all you find is an agency that needs to know what’s happening in an emergency and that is looking at public social media sites for information, just like the rest of us. There’s no privacy issue there at all, despite the heavy breathing and the headlines.
Or perhaps before crying wolf, one ought to take a breath and get into the details of the story. There are plenty of things to concern one’s self with other than this non-story.
U.S. officials told the New York Times that they’re “looking closely” at Shabab’s use of Twitter and their options for legal and other responses. Separately, Sen. Joe Lieberman (@JoeLieberman), Chair of the Homeland Security Committee, called on Twitter to shut down the Taliban’s accounts.
Other Western governments have also turned against Twitter. British Prime Minister David Cameron (@Number10gov), for example, raised the prospect of banning Twitter during social disturbances, following its use by rioters in the U.K., and Mexican prosecutors have accused Twitter users of terrorism for spreading false rumors that have led to real-life violence.
An Israeli legal advocacy group, Shurat HaDin Israel Law Center, has separately threatened Twitter with legal action for hosting the Shabab and Hezbollah accounts. Who will win in court is unclear: It’s a First Amendment versus providing services for terrorists toss-up.
US Representatives Darrel Issa (R-CA) and Carolyn Maloney (D-NY) introduced a bill into the House of Representatives in mid-December that would roll back the National Institutes of Health Public Access Policy, which mandates that any published research that was funded by the federal science agency be submitted to the publically accessible digital archive PubMed Central upon acceptance for publication in journals. The bill, H.R. 3699, would also make it illegal for other federal agencies to adopt similar open-access policies.
The legislation, referred to as the Research Works Act, is being applauded by the Association of American Publishers, a book publishing industry trade organization that claims the NIH policy and others like it undercut the scientific publishing business, which seldom receives federal funds. “At a time when job retention, US exports, scholarly excellence, scientific integrity, and digital copyright protection are all priorities, the Research Works Act ensures the sustainability of this industry,” said Tom Allen, president and CEO of the Association of American Publishers in a statement.
Want to get your britches in a bunch, there are two stories that should help wad them up. Censoring Twitter (and that’s precisely where all of that is headed) and making opaque research which you, the taxpayer has funded to help a crony profit? Now both of those are worthy of condemnation and outrage.
I don’t understand the glee with which the left has greeted this story:
Warren Buffett is ready to call Republicans’ tax bluff. Last fall, Senator Mitch McConnell said that if Buffett were feeling “guilty” about paying too little in taxes, he should “send in a check.” The jab was in response to Buffett’s August 2011 New York Times op-ed, which made hay of the fact that our tax system is so unbalanced, Buffett (worth about $45 billion) pays a lower tax rate than his secretary. Senator John Thune promptly introduced the “Buffett Rule Act,” an option on tax forms that would allow the rich to donate more in taxes to help pay down the national debt. It was, as Buffett told me for this week’s TIME cover story, “a tax policy only a Republican could come up with.”
Still, he’s willing to take them up on it. “It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that [the deficit] can’t be solved by voluntary contributions,” he says with a chuckle. So Buffett has pledged to match 1 for 1 all such voluntary contributions made by Republican members of Congress. “And I’ll even go 3 for 1 for McConnell,” he says.
What “bluff”? I don’t recall any of the Republicans in question complaining they paid too little in taxes, do you?
Instead it was about Buffet claiming he paid to little in taxes and his further claim that he was willing to pay more. What Republicans then promptly suggested is that he do so and even provided him an address to where he could send his voluntary contribution. They also insisted that taxes were high enough for all and that Buffett should speak for himself.
Now, at least as I see it, he’s trying to wiggle out of it by citing some sort of non-existent bluff which requires payment by Republicans before he is willing to pay.
Man up Warren Buffet … You made the claim and were provided with a solution. This has nothing to do with others paying as well, this is your baby.
Put up or shut up about paying more in taxes. You’ve become more than tiresome.
What if you passed a law that required the use of alternative fuels from particular sources to be blended with petroleum based fuels to help “break our dependence” on petroleum from “unfriendly countries” (and cut greenhouse gases). And what if, a few years later, new and abundant sources of domestic oil and gas were found, plus even more from secure allies like Canada?
Wouldn’t it makes sense to reconsider the original legislation in light of the new finds.
Oh, and one more thing … what if one of the alternative fuels mandated to be mixed with gasoline hadn’t yet materialized commercially? Would you exempt refiners or fine them?
Common sense says you exempt them. The EPA has, instead, chosen to fine them.
When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law.
But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist.
Somehow that appears to be considered the fault of the refiners. And the EPA is requiring the fines be levied and paid.
Any guess as to who will end up paying those fines?
The 2007 law requires three types of bio fuels be mixed: “car and truck fuel made from cellulose, diesel fuel made from biomass and fuel made from biological materials but with a 50 percent reduction in greenhouse gases” according to the NY Times.
But cellulosic fuel is commercially unavailable. There simply is none to be had.
Michael J. McAdams, executive director of the Advanced Biofuels Association, said the state of the technology for turning biological material like wood chips or nonfood plants straight into hydrocarbons — instead of relying on conversion by nature over millions of years, which is how crude oil originates — was advancing but was not yet ready for commercial introduction.
Of the technologies that are being tried out, he added, “There are some that are closer to the beaker and some that are closer to the barrel.”
But the requirement – and the fines – remain.
Meanwhile, time has marched on and guess what?
Mr. Drevna of the refiners association argued that in contrast to 2007, when Congress passed the law, “all of a sudden we’re starting to find tremendous resources of our own, oil and natural gas, here in the United States, because of fracking,” referring to a drilling process that involves injecting chemicals and water into underground rock to release gas and oil.
What is more, the industry expects the 1,700-mile Keystone Pipeline, which would run from oil sands deposits in Canada to the Gulf Coast, to provide more fuel for refineries, he said.
But the EPA is unmoved by that or the fact that cellulosic fuel is unavailable:
But Cathy Milbourn, an E.P.A. spokeswoman, said that her agency still believed that the 8.65-million-gallon quota for cellulosic ethanol for 2012 was “reasonably attainable.” By setting a quota, she added, “we avoid a situation where real cellulosic biofuel production exceeds the mandated volume,” which would weaken demand.
Hmmm … expert: “We’re closer to the beaker than the barrel”. Bureaucrat: “Even though the product is not commercially available, we still believe the mandate for this year is reasonably attainable.”
Yet there is nothing on the horizon for commercially available cellulosic ethanol in 2012:
One possible early source is the energy company Poet, a large producer of ethanol from corn kernels. The company is doing early work now on a site in Emmetsburg, Iowa, that is supposed to produce up to 25 million gallons a year of fuel alcohol beginning in 2013 from corn cobs.
And Mascoma, a company partly owned by General Motors, announced last month that it would get up to $80 million from the Energy Department to help build a plant in Kinross, Mich., that is supposed to make fuel alcohol from wood waste. Valero Energy, the oil company, and the State of Michigan are also providing funds.
Yet other cellulosic fuel efforts have faltered. A year ago, after it was offered more than $150 million in government grants, Range Fuels closed a commercial factory in Soperton, Ga., where pine chips were to be turned into fuel alcohols, because it ran into technological problems.
Yes that’s right folks, Government Motors is sucking up $80 mil in taxpayer dollars for a startup on a product that experts say isn’t ready for prime time and, as demonstrated by the Georgia plant, still has technical problems which apparently prohibit the commercial production of the desired alternate fuel (after it sucked up $150 mil of tax payer money).
This is ideological agenda driven madness abetted by bureaucratic stupidity. However, no one has ever claimed bureaucracies deal in reality. They’re fall back for such absurdities is process. Fining companies for not using a product that isn’t available but mandated simply underlines how decidedly absurd they can be. The EPA is on a mission. It has been directed to push that agenda by whatever means necessary.
Meanwhile the changes that should be reflected in the new reality – more abundant domestic and safe oil and gas, are being roundly ignored and their exploitation mostly hindered. And you, Mr. and Mrs. Taxpayer, are being fined and looted to push this absurd agenda.
Today’s economic statistical releases:
The MBA reports Mortgage applications are on the rebound after 3 weeks of sharp declines. Purchase applications rose 8.1% and refinance applications rose 3.3% last week. The composite index rose 4.5%.
We’re waiting, at the moment, for the release of the Fed’s Beige Book report on the economy, due out at 2PM EST.
As expected, and as polls indicated would happen, Mitt Romney won the New Hampshire primary. And he did more than win, he pretty much cruised to victory. Second place went to Ron Paul, which, actually, shouldn’t be particularly surprising. New Hampshire is a libertarian leaning state. He should have done well there. Jon Huntsman took third, which is mildly surprising, after the showing Rick Santorum made in Iowa.
And yes, the big loser was Santorum who was pretty much rejected as a candidate by New Hampshire primary voters, negating his Iowa showing. Apparently his time as Republican flavor of the week may be passing. As for Newt and Rick Perry … well as Ron Paul said, “drop out.” Gingrich and Santorum polled 9% while Perry got an anemic 1% in the Granite State.
All of the bottom 3 candidates think that the upcoming South Carolina primary will resuscitate their campaigns feeling their messages will get a better reception there than in New Hampshire. Frankly, I think Perry is fooling himself. He hasn’t done well in either Iowa or New Hampshire and he’s not polling well in South Carolina.
PPP has it broken down as Romney 30, Santorum 19, Gingrich 23, Paul 9, Perry 5, Huntsman 4. Rasmussen has it Romney 27, Santorum 24, Gingrich 18, Paul 11, Perry 5, Huntsman 2 .
If those numbers hold, and there’s no reason to think they won’t, it may be Paul who is looking for the exit poll after SC. I doubt he’ll do well in Florida. Huntsman is done and probably the next to leave, and if Perry shows as dismally as the polls show, he’ll be out before Florida’s January 31 primary.
Santorum is looking for a boost for him from what MSNBC calls the “socially conservative and evangelical Christian voters in the Palmetto State”. If he’s able to pull Rasmussen’s numbers then he’ll stay for a while. If he ends up second with a PPP spread, he’s pretty much done whether he’ll admit it or not. He’s not going to pull good numbers in Florida.
So, like it or not, Romney appears headed toward the nomination at this time. Watch for Gingrich to remain to the bitter end and be much more destructive to the GOP’s chances than the Obama campaign ever will be. Obama, after all, has to run on his poor record which means the campaign has to be careful about what issues they raise and what they don’t want raised. Gingrich is the Attila the Hun of politics, with no such limits and no qualms about pulling out all the stops even if his effort is doomed. As I said once before, it was only a matter of time until “bad Newt” showed up, and he’s here.
Meanwhile in New Hampshire, Barack Obama only managed 82% of the total Democratic vote. 10% went to write-ins and 1% of the total vote went to Vermin Supreme, the guy who claims to be a satirist and wears a rubber boot as headgear.