-- Posted Wednesday, 14 July 2010 | | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 37 page issue, please see subscription information below.
US MARKETS
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The oft-quoted American sports slogan, “Winning isn’t everything. It’s the only thing!” could well be attributed to the economic importance of firm formation in creating jobs. A relatively new dataset from the U.S. government called Business Dynamics Statistics (BDS) confirms that startups aren’t everything when it comes to job growth. They’re the only thing.
Put simply, this paper shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977.
That's the finding of an 18-month study conducted by Minnesota Majority, a conservative watchdog group, which found that at least 341 convicted felons in largely Democratic Minneapolis-St. Paul voted illegally in the 2008 Senate race between Franken, a Democrat, and his Republican opponent, then- incumbent Sen. Norm Coleman.
The final recount vote in the race, determined six months after Election Day, showed Franken beat Coleman by 312 votes.
In a private meeting with White House officials this weekend, Democratic governors voiced deep anxiety about the Obama administration’s suit against Arizona’s new immigration law, worrying that it could cost a vulnerable Democratic Party in the fall elections.
We have contended for many years that unemployment was a leading economic indictor, but no one agreed with us. PIMCO’s Mohamed el-Erian thinks unemployment is now a leading indictor, because the Fed and other policy markers use those numbers to influence their policies. Our only question is are they using bogus government numbers or real numbers based on those of 1980, before all the changes were made to deceive everyone as to just how bad things really are?
$2.3 trillion and 17 months later saw GDP improve for a year and as the stimulus and the injection of Fed funds waned, the US economy was brought back to reality. The key as to why the stimulus didn’t continue was the lack of job creation and real unemployment of 22-3/8%. The recovery was only a phase in a deteriorating still inflationary depression. As we have said before there are two choices: the Fed either creates $5 trillion to carry the economy over the future 2-1/2 years, or we immediately descend into deflationary depression. The ultimate result, which is in the process of beginning, forces the economy to return to where it began, and that will become manifest in the second half of the year. The actions taken over the past year will leave the economy in a weaker position, which means it will need even greater assistance to keep from collapsing. There is simply no way to support individual and sovereign debt. Individuals will continue to liquidate debt and fall into bankruptcy, as unsustainable public debt will grow. Americans have started down a steep slope and unfortunately there is no turning back until the system is purged and all the malinvestment is eliminated. The private sector, small and medium sized companies, cannot create jobs and expand as long as banks continue to cut loan issuance by 25%. These are the enterprises that create 70% of the jobs. Increasing taxes is the last thing government should do. Spending cannot increase and the economy cannot grow. This is a self-defeating process. Individuals have cut debt. Government has increased debt, which is the socialist answer. For every increased tax dollar the economy falls by $2 to $3 dollars, hardly a worthwhile exchange. This approach points out that government is more interested in control than recovery. The end of tax breaks means individuals will lose buying power of about $2 trillion if the taxes in the medical reform act are included.
A combination of U.S. stock market declines and lower interest rates in June resulted in the lowest-funded status for the typical U.S. corporate pension plan since February 2009, according to monthly statistics published by BNY Mellon Asset Management.
The funded status in June declined 6.0 percentage points to 74.0 percent. Through the end of June, the funded status of the typical U.S. corporate plan is down 9.5 percentage points for the year.
The falling stock markets resulted in a decline of 2.3 percent in assets at the typical U.S. corporate plan, while liabilities sharply increased in June, rising 5.6 percent, as reported by the BNY Mellon Pension Summary Report for June 2010. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
"Investors' fears sent U.S. stocks down 5.7 percent in June, which followed the 7.9 percent fall in May," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "The second quarter decline of 11.3 percent in U.S. stocks was the worst quarterly performance since the fourth quarter of 2008."
The June rally in Treasuries led to a 39-basis-point drop in the Aa corporate discount rate to 5.34 percent, the lowest point since June 2005, according to BNY Mellon Asset Management.
"Pension plans experienced pressure from both the asset and liability side in June, and there doesn't appear to be a quick fix on the horizon," said Austin. Poor asset returns and dropping interest rates are prompting both corporate and public sector plans to consider more active approaches to managing their funding strategies. Interest in Liability-Driven Investing (LDI) strategies remains high, with many sponsors adding objectives such as deadlines to reach specific target funding levels.
Goldman Sachs is being accused in a lawsuit by Liberty Mutual Insurance of misleading investors in 2007 when it sold Fannie Mae preferred shares while betting against the US mortgage market.
Goldman misrepresented Fannie Mae’s health when it underwrote the offerings, in which the insurer invested $62.5 million, according to a complaint filed Thursday in federal court in Boston. The investment bank said the offering was to raise surplus capital when it was actually needed to help Fannie Mae sustain its business, said Boston-based Liberty Mutual, which accused Goldman of securities fraud.
“As a knowledgeable and sophisticated investor in the US real estate financial markets, and with access to Fannie Mae’s financial records, Goldman knew or recklessly disregarded the actual status of Fannie Mae’s capital structure,’’ Liberty Mutual said in the complaint. The mortgage guarantor was seized by the US government in 2008.
A spokesman for Goldman said the suit was without merit would be contested.
Goldman has come under fire for its underwriting and investments as mortgage markets collapsed. The Securities and Exchange Commission sued Goldman in April, claiming it sold a collateralized debt obligation without disclosing that a hedge fund helped pick underlying securities and bet against the vehicles. Goldman has denied wrongdoing.
Anadarko Petroleum Corp. says it won’t help BP pay for the worst oil spill in US history.
The Houston company, which owns 25 percent of BP’s blown-out well in the Gulf of Mexico, said yesterday that it has refused to send the $272 million contribution BP requested in June.
The company believes it should be excused from payments because of BP’s reckless handling of the failed deepwater operation.
“Multiple proceedings and independent investigations are under way into BP’s actions and decisions on the rig,’’ spokesman John Christiansen said in a statement. “Although we have notified BP that we are withholding reimbursement to BP at this time, we remain committed to working with BP in good faith.’’
BP says it is disappointed and will evaluate its options.
“They have failed to live up to their obligations,’’ BP spokesman Mark Salt said in a statement. He said BP was notified of Anadarko’s decision on Wednesday.
Another minority owner, Mitsui Oil Exploration Co., has not responded to BP’s request to help pay for the spill.
Regulators shut four banks with $1.13 billion in combined assets, sending the number of U.S. failures this year to 90.
Home National Bank of Blackwell, Oklahoma, was the largest bank to be seized, with $644.5 million of assets, according to statements on the Federal Deposit Insurance Corp.’s website. The closures cost the FDIC deposit-insurance fund $159.9 million.
Georgia, Illinois and Florida are among the states hardest hit by the banking crisis. More than 27 lenders have failed in each of those states since the beginning of 2009, according to the FDIC. Three banks each in Maryland and New York have been closed this year.
“The remaining shakeout will be geographically concentrated and much more restricted to smaller institutions,” said Steve Reider, president of Bancography, a consulting firm based in Birmingham, Alabama. “I continue to think that geography is destiny.”
In an interview yesterday, FDIC Chairman Sheila Bair reiterated the agency’s forecast that 2010 will be the peak year for bank failures after more than 230 closures since 2009 pushed the agency’s deposit insurance fund into a deficit for the first time since the 1990s. Bair spoke in an interview for Bloomberg Television’s “Political Capital with Al Hunt.”
The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31, an increase from 702 banks with $402.8 billion at the end of the fourth quarter, the agency said in its quarterly banking report.
Two-thirds of U.S. states saw budget deficits widen this year as tax revenue fell to 2005 levels while demand for services grew. BMO Capital Markets analyst Justin Hoogendoorn said. The growing budget pressure underscores the ‘lagging nature’ of municipal finance, said Hoogendoorn, managing director with BMO’s fixed-income group. ‘States will need to continue to trim expenses and raise taxes,’ Hoogendoorn said… ‘We remain comfortable that states will ultimately take appropriate action.
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