How Biofuels Could Starve the PoorBy C. Ford Runge and Benjamin Senauer
From Foreign Affairs, May/June 2007
Summary: Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.
C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.
THE ETHANOL BUBBLE
In 1974, as the United States was reeling from the oil embargo imposed by the Organization of Petroleum Exporting Countries, Congress took the first of many legislative steps to promote ethanol made from corn as an alternative fuel. On April 18, 1977, amid mounting calls for energy independence, President Jimmy Carter donned his cardigan sweater and appeared on television to tell Americans that balancing energy demands with available domestic resources would be an effort the "moral equivalent of war." The gradual phaseout of lead in the 1970s and 1980s provided an additional boost to the fledgling ethanol industry. (Lead, a toxic substance, is a performance enhancer when added to gasoline, and it was partly replaced by ethanol.) A series of tax breaks and subsidies also helped. In spite of these measures, with each passing year the United States became more dependent on imported petroleum, and ethanol remained marginal at best.
Now, thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address, President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.
The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons.
The industry's growth has meant that a larger and larger share of corn production is being used to feed the huge mills that produce ethanol. According to some estimates, ethanol plants will burn up to half of U.S. domestic corn supplies within a few years. Ethanol demand will bring 2007 inventories of corn to their lowest levels since 1995 (a drought year), even though 2006 yielded the third-largest corn crop on record. Iowa may soon become a net corn importer.
The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world's total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.
This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -- which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.
THE OIL AND BIOFUEL ECONOMY
In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005. Although these payments will fall in 2006 and 2007 because of high corn prices, they may soon be dwarfed by the panoply of tax credits, grants, and government loans included in energy legislation passed in 2005 and in a pending farm bill designed to support ethanol producers. The federal government already grants ethanol blenders a tax allowance of 51 cents per gallon of ethanol they make, and many states pay out additional subsidies.
Consumption of ethanol in the United States was expected to reach over 6 billion gallons in 2006. (Consumption of biodiesel was expected to be about 250 million gallons.) In 2005, the U.S. government mandated the use of 7.5 billion gallons of biofuels per year by 2012; in early 2007, 37 governors proposed raising that figure to 12 billion gallons by 2010; and last January, President Bush raised it further, to 35 billion gallons by 2017. Six billion gallons of ethanol are needed every year to replace the fuel additive known as MTBE, which is being phased out due to its polluting effects on ground water.
The European Commission is using legislative measures and directives to promote biodiesel, produced mainly in Europe, made from rapeseeds and sunflower seeds. In 2005, the European Union produced 890 million gallons of biodiesel, over 80 percent of the world's total. The eu's Common Agricultural Policy also promotes the production of ethanol from a combination of sugar beets and wheat with direct and indirect subsidies. Brussels aims to have 5.75 percent of motor fuel consumed in the European Union come from biofuels by 2010 and 10 percent by 2020.
Brazil, which currently produces approximately the same amount of ethanol as the United States, derives almost all of it from sugar cane. Like the United States, Brazil began its quest for alternative energy in the mid-1970s. The government has offered incentives, set technical standards, and invested in supporting technologies and market promotion. It has mandated that all diesel contain two percent biodiesel by 2008 and five percent biodiesel by 2013. It has also required that the auto industry produce engines that can use biofuels and has developed wide-ranging industrial and land-use strategies to promote them. Other countries are also jumping on the biofuel bandwagon. In Southeast Asia, vast areas of tropical forest are being cleared and burned to plant oil palms destined for conversion to biodiesel.
This trend has strong momentum. Despite a recent decline, many experts expect the price of crude oil to remain high in the long term. Demand for petroleum continues to increase faster than supplies, and new sources of oil are often expensive to exploit or located in politically risky areas. According to the U.S. Energy Information Administration's latest projections, global energy consumption will rise by 71 percent between 2003 and 2030, with demand from developing countries, notably China and India, surpassing that from members of the Organization for Economic Cooperation and Development by 2015. The result will be sustained upward pressure on oil prices, which will allow ethanol and biodiesel producers to pay much higher premiums for corn and oilseeds than was conceivable just a few years ago. The higher oil prices go, the higher ethanol prices can go while remaining competitive -- and the more ethanol producers can pay for corn. If oil reaches $80 per barrel, ethanol producers could afford to pay well over $5 per bushel for corn.
With the price of raw materials at such highs, the biofuel craze would place significant stress on other parts of the agricultural sector. In fact, it already does. In the United States, the growth of the biofuel industry has triggered increases not only in the prices of corn, oilseeds, and other grains but also in the prices of seemingly unrelated crops and products. The use of land to grow corn to feed the ethanol maw is reducing the acreage devoted to other crops. Food processors who use crops such as peas and sweet corn have been forced to pay higher prices to keep their supplies secure -- costs that will eventually be passed on to consumers. Rising feed prices are also hitting the livestock and poultry industries. According to Vernon Eidman, a professor emeritus of agribusiness management at the University of Minnesota, higher feed costs have caused returns to fall sharply, especially in the poultry and swine sectors. If returns continue to drop, production will decline, and the prices for chicken, turkey, pork, milk, and eggs will rise. A number of Iowa's pork producers could go out of business in the next few years as they are forced to compete with ethanol plants for corn supplies.
Proponents of corn-based ethanol argue that acreage and yields can be increased to satisfy the rising demand for ethanol. But U.S. corn yields have been rising by a little less than two percent annually over the last ten years, and even a doubling of those gains could not meet current demand. As more acres are planted with corn, land will have to be pulled from other crops or environmentally fragile areas, such as those protected by the Department of Agriculture's Conservation Reserve Program.
In addition to these fundamental forces, speculative pressures have created what might be called a "biofuel mania": prices are rising because many buyers think they will. Hedge funds are making huge bets on corn and the bull market unleashed by ethanol. The biofuel mania is commandeering grain stocks with a disregard for the obvious consequences. It seems to unite powerful forces, including motorists' enthusiasm for large, fuel-inefficient vehicles and guilt over the ecological consequences of petroleum-based fuels. But even as ethanol has created opportunities for huge profits for agribusiness, speculators, and some farmers, it has upset the traditional flows of commodities and the patterns of trade and consumption both inside and outside of the agricultural sector.
This craze will create a different problem if oil prices decline because of, say, a slowdown in the global economy. With oil at $30 a barrel, producing ethanol would no longer be profitable unless corn sold for less than $2 a bushel, and that would spell a return to the bad old days of low prices for U.S. farmers. Undercapitalized ethanol plants would be at risk, and farmer-owned cooperatives would be especially vulnerable. Calls for subsidies, mandates, and tax breaks would become even more shrill than they are now: there would be clamoring for a massive bailout of an overinvested industry. At that point, the major investments that have been made in biofuels would start to look like a failed gamble. On the other hand, if oil prices hover around $55-$60, ethanol producers could pay from $3.65 to $4.54 for a bushel of corn and manage to make a normal 12 percent profit.
Whatever happens in the oil market, the drive for energy independence, which has been the basic justification for huge investments in and subsidies for ethanol production, has already made the industry dependent on high oil prices.
CORNUCOPIA
One root of the problem is that the biofuel industry has long been dominated not by market forces but by politics and the interests of a few large companies. Corn has become the prime raw material even though biofuels could be made efficiently from a variety of other sources, such as grasses and wood chips, if the government funded the necessary research and development. But in the United States, at least, corn and soybeans have been used as primary inputs for many years thanks in large part to the lobbying efforts of corn and soybean growers and Archer Daniels Midland Company (adm), the biggest ethanol producer in the U.S. market.
Since the late 1960s, adm positioned itself as the "supermarket to the world" and aimed to create value from bulk commodities by transforming them into processed products that command heftier prices. In the 1970s, adm started making ethanol and other products resulting from the wet-milling of corn, such as high fructose corn syrup. It quickly grew from a minor player in the feed market to a global powerhouse. By 1980, adm's ethanol production had reached 175 million gallons per year, and high fructose corn syrup had become a ubiquitous sweetening agent in processed foods. In 2006, adm was the largest producer of ethanol in the United States: it made more than 1.07 billion gallons, over four times more than its nearest rival, VeraSun Energy. In early 2006, it announced plans to increase its capital investment in ethanol from $700 million to $1.2 billion in 2008 and increase production by 47 percent, or close to 500 million gallons, by 2009.
Adm owes much of its growth to political connections, especially to key legislators who can earmark special subsidies for its products. Vice President Hubert Humphrey advanced many such measures when he served as a senator from Minnesota. Senator Bob Dole (R-Kans.) advocated tirelessly for the company during his long career. As the conservative critic James Bovard noted over a decade ago, nearly half of adm's profits have come from products that the U.S. government has either subsidized or protected.
Partly as a result of such government support, ethanol (and to a lesser extent biodiesel) is now a major fixture of the United States' agricultural and energy sectors. In addition to the federal government's 51-cents-per-gallon tax credit for ethanol, smaller producers get a 10-cents-per-gallon tax reduction on the first 15 million gallons they produce. There is also the "renewable fuel standard," a mandatory level of nonfossil fuel to be used in motor vehicles, which has set off a political bidding war. Despite already high government subsidies, Congress is considering lavishing more money on biofuels. Legislation related to the 2007 farm bill introduced by Representative Ron Kind (D-Wis.) calls for raising loan guarantees for ethanol producers from $200 million to $2 billion. Advocates of corn-based ethanol have rationalized subsidies by pointing out that greater ethanol demand pushes up corn prices and brings down subsidies to corn growers.
The ethanol industry has also become a theater of protectionism in U.S. trade policy. Unlike oil imports, which come into the country duty-free, most ethanol currently imported into the United States carries a 54-cents-per-gallon tariff, partly because cheaper ethanol from countries such as Brazil threatens U.S. producers. (Brazilian sugar cane can be converted to ethanol more efficiently than can U.S. corn.) The Caribbean Basin Initiative could undermine this protection: Brazilian ethanol can already be shipped duty-free to CBI countries, such as Costa Rica, El Salvador, or Jamaica, and the agreement allows it to go duty-free from there to the United States. But ethanol supporters in Congress are pushing for additional legislation to limit those imports. Such government measures shield the industry from competition despite the damaging repercussions for consumers.
STARVING THE HUNGRY
Biofuels may have even more devastating effects in the rest of the world, especially on the prices of basic foods. If oil prices remain high -- which is likely -- the people most vulnerable to the price hikes brought on by the biofuel boom will be those in countries that both suffer food deficits and import petroleum. The risk extends to a large part of the developing world: in 2005, according to the un Food and Agriculture Organization, most of the 82 low-income countries with food deficits were also net oil importers.
Even major oil exporters that use their petrodollars to purchase food imports, such as Mexico, cannot escape the consequences of the hikes in food prices. In late 2006, the price of tortilla flour in Mexico, which gets 80 percent of its corn imports from the United States, doubled thanks partly to a rise in U.S. corn prices from $2.80 to $4.20 a bushel over the previous several months. (Prices rose even though tortillas are made mainly from Mexican-grown white corn because industrial users of the imported yellow corn, which is used for animal feed and processed foods, started buying the cheaper white variety.) The price surge was exacerbated by speculation and hoarding. With about half of Mexico's 107 million people living in poverty and relying on tortillas as a main source of calories, the public outcry was fierce. In January 2007, Mexico's new president, Felipe Calderón, was forced to cap the prices of corn products.
The International Food Policy Research Institute, in Washington, D.C., has produced sobering estimates of the potential global impact of the rising demand for biofuels. Mark Rosegrant, an ifpri division director, and his colleagues project that given continued high oil prices, the rapid increase in global biofuel production will push global corn prices up by 20 percent by 2010 and 41 percent by 2020. The prices of oilseeds, including soybeans, rapeseeds, and sunflower seeds, are projected to rise by 26 percent by 2010 and 76 percent by 2020, and wheat prices by 11 percent by 2010 and 30 percent by 2020. In the poorest parts of sub-Saharan Africa, Asia, and Latin America, where cassava is a staple, its price is expected to increase by 33 percent by 2010 and 135 percent by 2020. The projected price increases may be mitigated if crop yields increase substantially or ethanol production based on other raw materials (such as trees and grasses) becomes commercially viable. But unless biofuel policies change significantly, neither development is likely.
The production of cassava-based ethanol may pose an especially grave threat to the food security of the world's poor. Cassava, a tropical potato-like tuber also known as manioc, provides one-third of the caloric needs of the population in sub-Saharan Africa and is the primary staple for over 200 million of Africa's poorest people. In many tropical countries, it is the food people turn to when they cannot afford anything else. It also serves as an important reserve when other crops fail because it can grow in poor soils and dry conditions and can be left in the ground to be harvested as needed.
Thanks to its high-starch content, cassava is also an excellent source of ethanol. As the technology for converting it to fuel improves, many countries -- including China, Nigeria, and Thailand -- are considering using more of the crop to that end. If peasant farmers in developing countries could become suppliers for the emerging industry, they would benefit from the increased income. But the history of industrial demand for agricultural crops in these countries suggests that large producers will be the main beneficiaries. The likely result of a boom in cassava-based ethanol production is that an increasing number of poor people will struggle even more to feed themselves.
Participants in the 1996 World Food Summit set out to cut the number of chronically hungry people in the world -- people who do not eat enough calories regularly to be healthy and active -- from 823 million in 1990 to about 400 million by 2015. The Millennium Development Goals established by the United Nations in 2000 vowed to halve the proportion of the world's chronically underfed population from 16 percent in 1990 to eight percent in 2015. Realistically, however, resorting to biofuels is likely to exacerbate world hunger. Several studies by economists at the World Bank and elsewhere suggest that caloric consumption among the world's poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent. When one staple becomes more expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative.
In a study of global food security we conducted in 2003, we projected that given the rates of economic and population growth, the number of hungry people throughout the world would decline by 23 percent, to about 625 million, by 2025, so long as agricultural productivity improved enough to keep the relative price of food constant. But if, all other things being equal, the prices of staple foods increased because of demand for biofuels, as the ifpri projections suggest they will, the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025 -- 600 million more than previously predicted.
The world's poorest people already spend 50 to 80 percent of their total household income on food. For the many among them who are landless laborers or rural subsistence farmers, large increases in the prices of staple foods will mean malnutrition and hunger. Some of them will tumble over the edge of subsistence into outright starvation, and many more will die from a multitude of hunger-related diseases.
THE GRASS IS GREENER
And for what? Limited environmental benefits at best. Although it is important to think of ways to develop renewable energy, one should also carefully examine the eager claims that biofuels are "green." Ethanol and biodiesel are often viewed as environmentally friendly because they are plant-based rather than petroleum-based. In fact, even if the entire corn crop in the United States were used to make ethanol, that fuel would replace only 12 percent of current U.S. gasoline use. Thinking of ethanol as a green alternative to fossil fuels reinforces the chimera of energy independence and of decoupling the interests of the United States from an increasingly troubled Middle East.
Should corn and soybeans be used as fuel crops at all? Soybeans and especially corn are row crops that contribute to soil erosion and water pollution and require large amounts of fertilizer, pesticides, and fuel to grow, harvest, and dry. They are the major cause of nitrogen runoff -- the harmful leakage of nitrogen from fields when it rains -- of the type that has created the so-called dead zone in the Gulf of Mexico, an ocean area the size of New Jersey that has so little oxygen it can barely support life. In the United States, corn and soybeans are typically planted in rotation, because soybeans add nitrogen to the soil, which corn needs to grow. But as corn increasingly displaces soybeans as a main source of ethanol, it will be cropped continuously, which will require major increases in nitrogen fertilizer and aggravate the nitrogen runoff problem.
Nor is corn-based ethanol very fuel efficient. Debates over the "net energy balance" of biofuels and gasoline -- the ratio between the energy they produce and the energy needed to produce them -- have raged for decades. For now, corn-based ethanol appears to be favored over gasoline, and biodiesel over petroleum diesel -- but not by much. Scientists at the Argonne National Laboratory and the National Renewable Energy Laboratory have calculated that the net energy ratio of gasoline is 0.81, a result that implies an input larger than the output. Corn-based ethanol has a ratio that ranges between 1.25 and 1.35, which is better than breaking even. Petroleum diesel has an energy ratio of 0.83, compared with that of biodiesel made from soybean oil, which ranges from 1.93 to 3.21. (Biodiesel produced from other fats and oils, such as restaurant grease, may be more energy efficient.)
Similar results emerge when biofuels are compared with gasoline using other indices of environmental impact, such as greenhouse gas emissions. The full cycle of the production and use of corn-based ethanol releases less greenhouse gases than does that of gasoline, but only by 12 to 26 percent. The production and use of biodiesel emits 41 to 78 percent less such gases than do the production and use of petroleum-based diesel fuels.
Another point of comparison is greenhouse gas emissions per mile driven, which takes account of relative fuel efficiency. Using gasoline blends with 10 percent corn-based ethanol instead of pure gasoline lowers emissions by 2 percent. If the blend is 85 percent ethanol (which only flexible-fuel vehicles can run on), greenhouse gas emissions fall further: by 23 percent if the ethanol is corn-based and by 64 percent if it is cellulose-based. Likewise, diesel containing 2 percent biodiesel emits 1.6 percent less greenhouse gases than does petroleum diesel, whereas blends with 20 percent biodiesel emit 16 percent less, and pure biodiesel (also for use only in special vehicles) emits 78 percent less. On the other hand, biodiesel can increase emissions of nitrogen oxide, which contributes to air pollution. In short, the "green" virtues of ethanol and biodiesel are modest when these fuels are made from corn and soybeans, which are energy-intensive, highly polluting row crops.
The benefits of biofuels are greater when plants other than corn or oils from sources other than soybeans are used. Ethanol made entirely from cellulose (which is found in trees, grasses, and other plants) has an energy ratio between 5 and 6 and emits 82 to 85 percent less greenhouse gases than does gasoline. As corn grows scarcer and more expensive, many are betting that the ethanol industry will increasingly turn to grasses, trees, and residues from field crops, such as wheat and rice straw and cornstalks. Grasses and trees can be grown on land poorly suited to food crops or in climates hostile to corn and soybeans. Recent breakthroughs in enzyme and gasification technologies have made it easier to break down cellulose in woody plants and straw. field experiments suggest that grassland perennials could become a promising source of biofuel in the future.
For now, however, the costs of harvesting, transporting, and converting such plant matters are high, which means that cellulose-based ethanol is not yet commercially viable when compared with the economies of scale of current corn-based production. One ethanol-plant manager in the Midwest has calculated that fueling an ethanol plant with switchgrass, a much-discussed alternative, would require delivering a semitrailer truckload of the grass every six minutes, 24 hours a day. The logistical difficulties and the costs of converting cellulose into fuel, combined with the subsidies and politics currently favoring the use of corn and soybeans, make it unrealistic to expect cellulose-based ethanol to become a solution within the next decade. Until it is, relying more on sugar cane to produce ethanol in tropical countries would be more efficient than using corn and would not involve using a staple food.
The future can be brighter if the right steps are taken now. Limiting U.S. dependence on fossil fuels requires a comprehensive energy-conservation program. Rather than promoting more mandates, tax breaks, and subsidies for biofuels, the U.S. government should make a major commitment to substantially increasing energy efficiency in vehicles, homes, and factories; promoting alternative sources of energy, such as solar and wind power; and investing in research to improve agricultural productivity and raise the efficiency of fuels derived from cellulose. Washington's fixation on corn-based ethanol has distorted the national agenda and diverted its attention from developing a broad and balanced strategy. In March, the U.S. Energy Department announced that it would invest up to $385 million in six biorefineries designed to convert cellulose into ethanol. That is a promising step in the right direction.
Saturday, April 07, 2007
Wednesday, April 04, 2007
Sunday, April 01, 2007
TITANIC
http://money.cnn.com/2007/03/30/news/economy/china_trade/index.htm Well, is this just for show? with NO real bite to it? They hold a $$trillion hammer over our head.
Now maybe I'm DAFT? but how does TRADE TARRIFS benefit anyone? (many think tarrifs helped create 1st depression) in my case? It IS the same stupid?? US companies of whom are BUYING all this crap, some US companies like DMI and MARTIN NO longer have much in way of factories and import almost ALL of what they sell under their name. A TARRIF will not help them nor me? because these same US companies have NO interest in investing in plant and equipment to build these things.....when someone else can do it for them CHEAPER. And the quality of some of it is EXCEPTIONAL. Now raising tarrifs would make ALL of these goods and MOST of what we buy much higher fueling inflation!
I WOULD LOVE to buy AMERICAN and do when I can, but they don't seem interested in making what we need. INTC is building a $2.5 B plant in China, the unwinding of the Ponzi scheme FED recklessness that has created the shitpile we are getting stormed under cannot end well. While we print money to pay for the ongoing war of which I guess wont find its way into any published budget....wouldnt it be nice to have that extra $100 B or so?
AT some point (next election?) something has to give....taxes must go up, how else can we hope to pay for the $70 Trillion IOU? I Just thought of something sickening.....JUST the INTEREST on our debt must be a mind blower....and a huge SUCK to any REAL economy.
Sub prime is TIP of iceberg, it seems to me not many have been scared.....or even know the Titanic has been hit....
Duratek
Now maybe I'm DAFT? but how does TRADE TARRIFS benefit anyone? (many think tarrifs helped create 1st depression) in my case? It IS the same stupid?? US companies of whom are BUYING all this crap, some US companies like DMI and MARTIN NO longer have much in way of factories and import almost ALL of what they sell under their name. A TARRIF will not help them nor me? because these same US companies have NO interest in investing in plant and equipment to build these things.....when someone else can do it for them CHEAPER. And the quality of some of it is EXCEPTIONAL. Now raising tarrifs would make ALL of these goods and MOST of what we buy much higher fueling inflation!
I WOULD LOVE to buy AMERICAN and do when I can, but they don't seem interested in making what we need. INTC is building a $2.5 B plant in China, the unwinding of the Ponzi scheme FED recklessness that has created the shitpile we are getting stormed under cannot end well. While we print money to pay for the ongoing war of which I guess wont find its way into any published budget....wouldnt it be nice to have that extra $100 B or so?
AT some point (next election?) something has to give....taxes must go up, how else can we hope to pay for the $70 Trillion IOU? I Just thought of something sickening.....JUST the INTEREST on our debt must be a mind blower....and a huge SUCK to any REAL economy.
Sub prime is TIP of iceberg, it seems to me not many have been scared.....or even know the Titanic has been hit....
Duratek
Saturday, March 31, 2007
RUNNING OUT OF GAS
The Central Bank under Greenspan lowered interest rates from a high of 6.50% in 2001 to an historic low of 1.00% by 2003. Similarly the Bank Of England only lowered their rate to 3.5% to accomplish same end, which was to revive consumer spending.
We know it worked.We also know that worlwide inflation has ticked up regardless of whatthe feckless gov data shows, in the real world we experience inflation, and eroding of the ability of the dollar's purchasing power.
The value of the dollar in the world markets has sunk from a high near 120 to where it is now near 83. It had a bounce from IMPORTANT support at 80, ran to 90 ish and has since resumed its downtrend and has been hovering near current support. Should that support give way and we then break 80, the descent could accelerate rapidly.
A dollar that loses all support will have DIRE consequencess. All those FOREIGN investors, mainly ASIA that buy our Bonds (DEBT), CHina holds a TRILLION $$$ now, with Japan near that amount......as the $$ falls so does thevalue of thier enormous holdings.
A cascading fall of the US $$$ would most likely mean rising interest rates at home, so to attract the same money, as it loses value we will have to offer higher rates to keep attracting it. Of course that would CHOKE OFF our economy,and destroy those who hold bonds with much lower yields. The stock market could crash, and there would be nothing the Fed Reserve could do.
Already businesses are trimming workers as costs to retain workers has been rising, pressure on profits picking up. The run of double digit earnings gains are OVER for most S and P 500 companies, the main thrust of the recent Bull Market. Earnings had hit record performance for years running, that would not last forever.
My conclusion is not that the stock market will collapse next week or even next month, and maybe not this year, but it is clear to me, that the SWEET SPOT is gone, comparisons will be tough, we have seen the best and any additional gains from here will be sporadic, and in this man's opinion not worth the risk.
History says year after mid-term elections is one of the best times to be invested, that losses are RARE, and few and far between and minimal at worst. History repeats until it doesn't. The market is DOWN for the year so far, we are approaching the end of the BEST 6 months and beginning of the worst 6 months.
CASH OUT HOME EQUITY LOANS when the price of housing was rising at RECORD Paces was a NO BRAINER (so to speak), I could borrow $100K at LOW rates on a $450K house, because a year later the same house would be worth at least $550K or more, or perhaps when I borrowed, the house I purchsed for $300K was already worth $600K so I had TONS of APPRECIATION to borrow from.
Now what did the average person do with their LOOT? CONSUMED!!!!!!!! $100's of BILLIONS of $$$$ taken out as EQUITY and spent like drunken sailors.
For the most part NO DEBTS were PAID OFF, NO 30 yr mortgages were REDUCED to 15 year mortgages, and NO SAVINGS were had. We are still at a negative savings rate not seen since.....(I must say it) last DEPRESSION.
AT ZERO savings, NOW and heading into retirement, most of the 80 million or so BABY BOOMERS are ill prepared to meet their needs, so is this country with $40 TRILLION or so of UNFUNDED liabilities like Medicare and SS.
WILL many of these BOOMER be FORCED to LIQUIDATE ASSETS, like their 401K's stocks etc to meet their needs and consumption desires?
WHAT do we have NOW to make up for the near $1 TRILLION dollars poured into economy from these CASH OUT refi's, and HELOC'S????? AS NOW home property value at BEST has stopped RISING at worst is falling.
WE have near RECORD unsold inventory of over 8 months of homes, more being built, MANY MORE not on the market because of lack of interest, as soon as it perks up, they will flood the market.
MANY of the default properties, the banks are so far UNWILLING to take a massive hit, so when they realize there is no other way, prices could fall dramatically. I mean who wants to sell or admit the house they bought for $600K with NO MONEY DOWN is now worth lets say $550K.....certainly there is NO room to TAKE OUT ANY EQUITY!!!!!!!!
THis EQUITY LEECHING has been about the SOLE provider for this economy, WHAT WILL TAKE ITS PLACE????? GOV SPENDING? You know Bush's war has pumped BILLIONS into economy VIA the WAR MACHINE.
How has the economy been dealing with OIL prices holding ABOVE $60??? and ETHANOL production (subsidised by OUR TAX DOLLARS)putting pressure on CORN PRICES????
Inflation, even though reduced by GOV manipulation of the data, is "uncomfortably high" and defending the dollar with stable or rising interest rates puts the FED in a no win scenario.
WOULD falling interest rates revive the economy? maybe not this time......
Business has not collapsed, the economy is managing to muddle through so far, so we must be on the watch for a rising unemployment trend.
I will be monitoring the weekly employment figures for such a trend, with other eye the value of our currency. Stay tuned, this is getting interesting.
Duratek
We know it worked.We also know that worlwide inflation has ticked up regardless of whatthe feckless gov data shows, in the real world we experience inflation, and eroding of the ability of the dollar's purchasing power.
The value of the dollar in the world markets has sunk from a high near 120 to where it is now near 83. It had a bounce from IMPORTANT support at 80, ran to 90 ish and has since resumed its downtrend and has been hovering near current support. Should that support give way and we then break 80, the descent could accelerate rapidly.
A dollar that loses all support will have DIRE consequencess. All those FOREIGN investors, mainly ASIA that buy our Bonds (DEBT), CHina holds a TRILLION $$$ now, with Japan near that amount......as the $$ falls so does thevalue of thier enormous holdings.
A cascading fall of the US $$$ would most likely mean rising interest rates at home, so to attract the same money, as it loses value we will have to offer higher rates to keep attracting it. Of course that would CHOKE OFF our economy,and destroy those who hold bonds with much lower yields. The stock market could crash, and there would be nothing the Fed Reserve could do.
Already businesses are trimming workers as costs to retain workers has been rising, pressure on profits picking up. The run of double digit earnings gains are OVER for most S and P 500 companies, the main thrust of the recent Bull Market. Earnings had hit record performance for years running, that would not last forever.
My conclusion is not that the stock market will collapse next week or even next month, and maybe not this year, but it is clear to me, that the SWEET SPOT is gone, comparisons will be tough, we have seen the best and any additional gains from here will be sporadic, and in this man's opinion not worth the risk.
History says year after mid-term elections is one of the best times to be invested, that losses are RARE, and few and far between and minimal at worst. History repeats until it doesn't. The market is DOWN for the year so far, we are approaching the end of the BEST 6 months and beginning of the worst 6 months.
CASH OUT HOME EQUITY LOANS when the price of housing was rising at RECORD Paces was a NO BRAINER (so to speak), I could borrow $100K at LOW rates on a $450K house, because a year later the same house would be worth at least $550K or more, or perhaps when I borrowed, the house I purchsed for $300K was already worth $600K so I had TONS of APPRECIATION to borrow from.
Now what did the average person do with their LOOT? CONSUMED!!!!!!!! $100's of BILLIONS of $$$$ taken out as EQUITY and spent like drunken sailors.
For the most part NO DEBTS were PAID OFF, NO 30 yr mortgages were REDUCED to 15 year mortgages, and NO SAVINGS were had. We are still at a negative savings rate not seen since.....(I must say it) last DEPRESSION.
AT ZERO savings, NOW and heading into retirement, most of the 80 million or so BABY BOOMERS are ill prepared to meet their needs, so is this country with $40 TRILLION or so of UNFUNDED liabilities like Medicare and SS.
WILL many of these BOOMER be FORCED to LIQUIDATE ASSETS, like their 401K's stocks etc to meet their needs and consumption desires?
WHAT do we have NOW to make up for the near $1 TRILLION dollars poured into economy from these CASH OUT refi's, and HELOC'S????? AS NOW home property value at BEST has stopped RISING at worst is falling.
WE have near RECORD unsold inventory of over 8 months of homes, more being built, MANY MORE not on the market because of lack of interest, as soon as it perks up, they will flood the market.
MANY of the default properties, the banks are so far UNWILLING to take a massive hit, so when they realize there is no other way, prices could fall dramatically. I mean who wants to sell or admit the house they bought for $600K with NO MONEY DOWN is now worth lets say $550K.....certainly there is NO room to TAKE OUT ANY EQUITY!!!!!!!!
THis EQUITY LEECHING has been about the SOLE provider for this economy, WHAT WILL TAKE ITS PLACE????? GOV SPENDING? You know Bush's war has pumped BILLIONS into economy VIA the WAR MACHINE.
How has the economy been dealing with OIL prices holding ABOVE $60??? and ETHANOL production (subsidised by OUR TAX DOLLARS)putting pressure on CORN PRICES????
Inflation, even though reduced by GOV manipulation of the data, is "uncomfortably high" and defending the dollar with stable or rising interest rates puts the FED in a no win scenario.
WOULD falling interest rates revive the economy? maybe not this time......
Business has not collapsed, the economy is managing to muddle through so far, so we must be on the watch for a rising unemployment trend.
I will be monitoring the weekly employment figures for such a trend, with other eye the value of our currency. Stay tuned, this is getting interesting.
Duratek
Thursday, March 29, 2007
STEPHEN ROACH
Global
Asian Decoupling Unlikely
March 26, 2007
By Stephen S. Roach | New York
As the US economy slows, most believe that Asia’s growth machine will fill the void. Don’t count on it. Policy makers in China and India are shifting toward restraint, tilting growth risks in the region’s fastest-growing economies to the downside. Nor is an externally-dependent Japanese economy likely to provide much compensation. To the extent the case for global decoupling is dependent on an Asian offset, prepare to be disappointed.After years of doubt, convictions are deep that both China and India will stay the course of hyper-growth. There has been talk for years about the coming Chinese slowdown, but so far the downshift has failed to materialize. The 10.7% increase in Chinese GDP in 2007 was the fastest since 1995, when the size of the economy was less than one-third what it is today. Moreover, with India now showing impressive improvement in its macro foundations of growth – especially saving, infrastructure, and foreign direct investment – there is good reason to believe that there may be considerable staying power to the recent acceleration in economic growth that averaged 9% during the 2005-06 interval.
Incoming data give little reason to doubt the staying power of the Asian growth machine. Chinese industrial output growth has reaccelerated to an 18.5% y-o-y pace over the January-February period – up from the sub-15% comparison in the final period of 2006 and only a shade slower than the 19.5% gains recorded last June. While India’s industrial production growth is certainly not as brisk as China’s, the 10% y-o-y comparison in early 2007 remains well above the 7¼% pace that was evident in late 2005 and early 2006. Needless to say, if China and India stay their present course, the global economy would barely skip a beat in the face of a US slowdown. Collectively, China and India account for about 21% of world GDP, as measured by the IMF’s purchasing power parity framework – essentially equal to the 20% share the statisticians assign to the United States. Add in the recent acceleration in the Japanese economy – a 5.5% annualized increase in the final quarter of CY2006 for an economy that accounts for another 6% of PPP-based world GDP – and there is good reason to believe that the impact of America’s downshift could well be neutralized by the ongoing vigor of the Asian growth machine.
The Asian offset, in conjunction with a modest cyclical uplift in a long sluggish European economy, is the essence of the case for global decoupling – a world economy that has finally weaned itself from the great American growth engine. A key presumption of that conclusion is that Asia can stay its present course. There are two flaws in that argument, in my view – the first being that internal pressures are now building in Asia’s fastest-growing economies that could be sowing the seeds for slower growth ahead. In particular, both the Chinese and Indian economies are now displaying worrisome signs of overheating. In China, the symptoms have manifested themselves in the form of imbalances in the mix of the real economy, widening disparities in the income distribution, and a large and growing current-account surplus – to say nothing of the negative externalities of environmental degradation and excess resource consumption. In India, the overheating has surfaced in the form of a cyclical resurgence of inflation, with the CPI running at a 6.8% y-o-y rate in early 2007 – a sharp acceleration from the 3.8% pace of 2002-05.
In recent weeks, I have met with senior policy makers in both China and India. It is clear to me that in both cases the authorities are in the process of shifting their policy arsenals toward meaningful restraint. In China, the direction comes from the top in the form of growing concerns expressed by Premier Wen Jiabao about a Chinese economy that he has explicitly characterized as “unstable, unbalanced, uncoordinated, and unsustainable” (see my 19 March dispatch of the same name). Since those words were first uttered at the end of the National People’s Congress on 15 March, Chinese authorities have been quick to respond. There was a monetary tightening the very next day and the securities industry regulators have issued new rules that prevent companies from purchasing equities with proceeds from share sales. The former move is aimed at cooling off an overheated investment sector while the latter move is addressed at dealing with a frothy domestic stock market that increased by 100% in the six months ending in late February. I am more convinced than ever that Beijing is now deadly serious in attempting to regain control over its rapidly growing economy in an effort to shift the focus from the quantity to the quality of growth. This is good news for China but could be disappointing for the decoupling camp that expects rapid Chinese economic growth to remain resistant to any downside pressures.
India is similarly positioned. The Reserve Bank of India does not take overheating and cyclical inflationary pressures lightly. I was actually in Mumbai the day the RBI tightened monetary policy last month (13 February), and it was clear to me in my discussions at the central bank that it meant business. The RBI’s official statement following that action said it all: “(A) determined and co-ordinated effort by all to contain inflation without unduly impacting the growth momentum is not only an economic necessity but also a moral compulsion.” Our Indian economics team underscores the risk of another monetary tightening prior to the 24 April policy meeting. At the same time, the government’s annual budget contained measures that would cut tariffs on food and other price-sensitive manufactured products. Indian authorities are fixated on a mounting cyclical inflation problem and appear more than willing to take a haircut on economic growth to achieve such an objective. Our current economic forecast reflects just such an outcome – a downshift to 6.9% GDP growth in 2008 following average gains of 8.7% over the 2005-07 period.
There is a second factor at work that is also likely to challenge the view that hyper growth is here to stay in Asia – the region’s persistent reliance on external demand as a major driver of economic growth. This is less a story for India, with its relatively small trade sector, and more a story for the rest of Asia. China is at the top of the external vulnerability chain. Its export sector, which rose to nearly 37% of GDP in 2006, surged at a 41% y-o-y rate in the first two months of 2007. Moreover – and this is an absolutely critical point in the decoupling debate – the United States is China’s largest export market, accounting for 21% of RMB-based exports. As the US economy now slows, the biggest piece of China’s export dynamic is at risk. So, too, are the large external sectors of China’s pan-Asian supply chain – especially Taiwan, Korea, and even Japan. Lacking in self-sustaining support from private consumption, the Asian growth dynamic remains highly vulnerable to an external shock. That’s yet another important reason to be very suspicious of the case for global decoupling.
Decoupling and global rebalancing go hand in hand. A decoupled world is very much a rebalanced world – and vice versa. Recent trends admittedly lend some support to the decoupling thesis – especially a booming Asia economy but also a seemingly remarkable cyclical revival in Europe. The European upsurge is a welcome development, but perspective is key. At most, it will add 0.2 to 0.3 percentage point to our baseline case for world economic growth. Asia, especially China and India, is a very different story. This is a much larger segment of the global economy and is growing at rates that are three times as fast as those in the developed world. An Asian economy that only barely widens its growth multiple relative to the rest of the world could well drive global decoupling on its own.
That’s unlikely to be the case, in my view. Not only does Asia remain vulnerable to a US-centric external shock, but the region’s two most powerful growth stories – China and India – are now both very focused on matters of internal sustainability. The Premier of China has put his reputation on the line in attempting to bring an unstable, unbalanced, uncoordinated, and unsustainable Chinese economy under control. The Indian government is equally focused on an anti-inflationary policy tightening. Looking backward, both of these economies have been on an exceptionally strong growth path that – if left to its own devices – could play an increasingly important role in powering a decoupled world. Looking forward, however, it’s likely to be a very different story. With growth prospects in China and India tipping to the downside at the same time the US economy is slowing, the global economy is likely to be a good deal weaker than the decoupling crowd would lead you to believe.
Asian Decoupling Unlikely
March 26, 2007
By Stephen S. Roach | New York
As the US economy slows, most believe that Asia’s growth machine will fill the void. Don’t count on it. Policy makers in China and India are shifting toward restraint, tilting growth risks in the region’s fastest-growing economies to the downside. Nor is an externally-dependent Japanese economy likely to provide much compensation. To the extent the case for global decoupling is dependent on an Asian offset, prepare to be disappointed.After years of doubt, convictions are deep that both China and India will stay the course of hyper-growth. There has been talk for years about the coming Chinese slowdown, but so far the downshift has failed to materialize. The 10.7% increase in Chinese GDP in 2007 was the fastest since 1995, when the size of the economy was less than one-third what it is today. Moreover, with India now showing impressive improvement in its macro foundations of growth – especially saving, infrastructure, and foreign direct investment – there is good reason to believe that there may be considerable staying power to the recent acceleration in economic growth that averaged 9% during the 2005-06 interval.
Incoming data give little reason to doubt the staying power of the Asian growth machine. Chinese industrial output growth has reaccelerated to an 18.5% y-o-y pace over the January-February period – up from the sub-15% comparison in the final period of 2006 and only a shade slower than the 19.5% gains recorded last June. While India’s industrial production growth is certainly not as brisk as China’s, the 10% y-o-y comparison in early 2007 remains well above the 7¼% pace that was evident in late 2005 and early 2006. Needless to say, if China and India stay their present course, the global economy would barely skip a beat in the face of a US slowdown. Collectively, China and India account for about 21% of world GDP, as measured by the IMF’s purchasing power parity framework – essentially equal to the 20% share the statisticians assign to the United States. Add in the recent acceleration in the Japanese economy – a 5.5% annualized increase in the final quarter of CY2006 for an economy that accounts for another 6% of PPP-based world GDP – and there is good reason to believe that the impact of America’s downshift could well be neutralized by the ongoing vigor of the Asian growth machine.
The Asian offset, in conjunction with a modest cyclical uplift in a long sluggish European economy, is the essence of the case for global decoupling – a world economy that has finally weaned itself from the great American growth engine. A key presumption of that conclusion is that Asia can stay its present course. There are two flaws in that argument, in my view – the first being that internal pressures are now building in Asia’s fastest-growing economies that could be sowing the seeds for slower growth ahead. In particular, both the Chinese and Indian economies are now displaying worrisome signs of overheating. In China, the symptoms have manifested themselves in the form of imbalances in the mix of the real economy, widening disparities in the income distribution, and a large and growing current-account surplus – to say nothing of the negative externalities of environmental degradation and excess resource consumption. In India, the overheating has surfaced in the form of a cyclical resurgence of inflation, with the CPI running at a 6.8% y-o-y rate in early 2007 – a sharp acceleration from the 3.8% pace of 2002-05.
In recent weeks, I have met with senior policy makers in both China and India. It is clear to me that in both cases the authorities are in the process of shifting their policy arsenals toward meaningful restraint. In China, the direction comes from the top in the form of growing concerns expressed by Premier Wen Jiabao about a Chinese economy that he has explicitly characterized as “unstable, unbalanced, uncoordinated, and unsustainable” (see my 19 March dispatch of the same name). Since those words were first uttered at the end of the National People’s Congress on 15 March, Chinese authorities have been quick to respond. There was a monetary tightening the very next day and the securities industry regulators have issued new rules that prevent companies from purchasing equities with proceeds from share sales. The former move is aimed at cooling off an overheated investment sector while the latter move is addressed at dealing with a frothy domestic stock market that increased by 100% in the six months ending in late February. I am more convinced than ever that Beijing is now deadly serious in attempting to regain control over its rapidly growing economy in an effort to shift the focus from the quantity to the quality of growth. This is good news for China but could be disappointing for the decoupling camp that expects rapid Chinese economic growth to remain resistant to any downside pressures.
India is similarly positioned. The Reserve Bank of India does not take overheating and cyclical inflationary pressures lightly. I was actually in Mumbai the day the RBI tightened monetary policy last month (13 February), and it was clear to me in my discussions at the central bank that it meant business. The RBI’s official statement following that action said it all: “(A) determined and co-ordinated effort by all to contain inflation without unduly impacting the growth momentum is not only an economic necessity but also a moral compulsion.” Our Indian economics team underscores the risk of another monetary tightening prior to the 24 April policy meeting. At the same time, the government’s annual budget contained measures that would cut tariffs on food and other price-sensitive manufactured products. Indian authorities are fixated on a mounting cyclical inflation problem and appear more than willing to take a haircut on economic growth to achieve such an objective. Our current economic forecast reflects just such an outcome – a downshift to 6.9% GDP growth in 2008 following average gains of 8.7% over the 2005-07 period.
There is a second factor at work that is also likely to challenge the view that hyper growth is here to stay in Asia – the region’s persistent reliance on external demand as a major driver of economic growth. This is less a story for India, with its relatively small trade sector, and more a story for the rest of Asia. China is at the top of the external vulnerability chain. Its export sector, which rose to nearly 37% of GDP in 2006, surged at a 41% y-o-y rate in the first two months of 2007. Moreover – and this is an absolutely critical point in the decoupling debate – the United States is China’s largest export market, accounting for 21% of RMB-based exports. As the US economy now slows, the biggest piece of China’s export dynamic is at risk. So, too, are the large external sectors of China’s pan-Asian supply chain – especially Taiwan, Korea, and even Japan. Lacking in self-sustaining support from private consumption, the Asian growth dynamic remains highly vulnerable to an external shock. That’s yet another important reason to be very suspicious of the case for global decoupling.
Decoupling and global rebalancing go hand in hand. A decoupled world is very much a rebalanced world – and vice versa. Recent trends admittedly lend some support to the decoupling thesis – especially a booming Asia economy but also a seemingly remarkable cyclical revival in Europe. The European upsurge is a welcome development, but perspective is key. At most, it will add 0.2 to 0.3 percentage point to our baseline case for world economic growth. Asia, especially China and India, is a very different story. This is a much larger segment of the global economy and is growing at rates that are three times as fast as those in the developed world. An Asian economy that only barely widens its growth multiple relative to the rest of the world could well drive global decoupling on its own.
That’s unlikely to be the case, in my view. Not only does Asia remain vulnerable to a US-centric external shock, but the region’s two most powerful growth stories – China and India – are now both very focused on matters of internal sustainability. The Premier of China has put his reputation on the line in attempting to bring an unstable, unbalanced, uncoordinated, and unsustainable Chinese economy under control. The Indian government is equally focused on an anti-inflationary policy tightening. Looking backward, both of these economies have been on an exceptionally strong growth path that – if left to its own devices – could play an increasingly important role in powering a decoupled world. Looking forward, however, it’s likely to be a very different story. With growth prospects in China and India tipping to the downside at the same time the US economy is slowing, the global economy is likely to be a good deal weaker than the decoupling crowd would lead you to believe.
Tuesday, March 27, 2007
THE HAVE NOTS
Subprime losses lead to drop in home ownership
Despite the mortgage industry's claims to the contrary, an advocacy group says that subprime foreclosures will leave 1 million fewer homeowners.
By Les Christie, CNNMoney.com staff writer
March 27 2007: 4:28 PM EDT
NEW YORK (CNNMoney.com) -- About 2.4 million holders of subprime mortgage loans made between 1998 and 2006 will lose their properties to foreclosure, according to a report from the Center for Responsible Lending, a non-profit policy and advocacy organization for home owners.
Worse, that will result in a net home ownership loss of one million households.
CRL's analysisrebutted the mortgage industry's claims that the increase in subprime loans has opened up home ownership for millions of low income buyers. Instead, CRL contends, relatively little subprime lending is used for first-time home buying.
Testifying before the House Finance Committee today, CRL's president, Michael Calhoun, said the primary reason for the jump in foreclosures is "the abandonment of underwriting standards."
The report criticized both lax underwriting - noting in particular a disregard for the ability of borrower's ability to repay loans - as well as dangerous loan vehicles, such as "exploding ARMs," which have low rates for the first two or three years before resetting at much higher rates.
CRL contends that few subprime loans went to first time buyers, a notion that was seconded by Emory Rushton, chief national bank examiner for the Office of Comptroller of the Currency, in his testimony before the Finance Committee. He pointed out that Mortgage Bank Association figures revealed only 11 percent of subprime loans went to first-time buyers last year.
CRL says the record going back to 1998 is even worse; only 9 percent of subprime loans went to first-time buyers in the nine years through 2006.
The bulk of these loans actually went to refinance existing mortgages, incurring additional fees. And many of these refinancings involved cash back deals which increased the size of the original mortgages. When all was said and done, borrowers owed more on their homes after refinancing.
Because of the lower teaser rates, however, the new loans were affordable - at first. But when they reset at the higher, fully indexed rates, many borrowers could no longer make their payments.
Often that forced home owners to refinance yet again, extracting even more equity from their house. Since home prices kept rising, there was home value to draw on.
But now that prices are stagnant, even falling in some areas, many owners find themselves tapped out or even underwater, owing more on the mortgage than the house is worth and unable to make their monthly mortgage payment.
Borrowers in this kind of a bind are likely to find themselves in foreclosure, and that's what's going to lead to the decline in home ownership that CRL is predicting.
Monday, March 19, 2007
Sunday, March 18, 2007
KRAKATOA THEORY
OK OK, we have all the implications of the SUBPRIME TIME BOMB and ALL the trickle down potentials (Some laid out by normally sedate John Mauldin Mr Muddle Thru)
SO it is ultimate demise time right? time to get short right? End of bull right?
But we have the CONTRARIAN PUT/CALL RATIO at levels normally indicating some kind of bottom? some near historic readings of pessimism?
But let's say I live on an Island, with a VOLCANO named KRAKATOA....and I see it is spitting out plumes of fire and smoke and I FEEL the ground SHAKING.....is this a case I need to WAIT to see the MOLTEN LAVA FLOWING down its side, it's TOP blown off to run for cover?
It is a known fact once I see LAVA flowing it HAS ERUPTED......WHO WOULDN'T thnk so?
If I am ON TITANIC AFTER it hits the iceburg, what are my chances on BETTING (PUTS) the f'er will sink?
Has the market erupted? has it HIT the TITANIC...is it SO OBVIOUS that buying PUTS is the right thing to do? Given MANY other ways we can guage complacency (lemmings sitting tight)
SO it is ultimate demise time right? time to get short right? End of bull right?
But we have the CONTRARIAN PUT/CALL RATIO at levels normally indicating some kind of bottom? some near historic readings of pessimism?
But let's say I live on an Island, with a VOLCANO named KRAKATOA....and I see it is spitting out plumes of fire and smoke and I FEEL the ground SHAKING.....is this a case I need to WAIT to see the MOLTEN LAVA FLOWING down its side, it's TOP blown off to run for cover?
It is a known fact once I see LAVA flowing it HAS ERUPTED......WHO WOULDN'T thnk so?
If I am ON TITANIC AFTER it hits the iceburg, what are my chances on BETTING (PUTS) the f'er will sink?
Has the market erupted? has it HIT the TITANIC...is it SO OBVIOUS that buying PUTS is the right thing to do? Given MANY other ways we can guage complacency (lemmings sitting tight)
Saturday, March 17, 2007
SMACK BETWEEN THE EYES
Subprime woes, where it ends nobody knows. Greenspun telling any fool who'll listen this will spill over to broader economy, which is SURELY SLOWING DOWN. This from the idiot who started it all spinning money like gold from wheat?
Avg Joe holding tight, money flow still going into 401K's and foreign purchases of our funny money debt goes unabated. Game on!
Meanwhile the grumpies are lining up in front of the PUT money machine ready to CASH IN on a frumpy dumpster market slump coming to a front page near you. Not so fast?
When has the market made it easy to know where it's headed? NAZ continues to underperform. Bond yileds stiffened up at near 4.5% the 10 year.
Market has been following the action of the YEN, whenit goes up the market goes down, further evidence of weakening of carry trade liquidity drain?
Consumer confidence is falling, reaction to all this? Economic indicators in the crapper......put/call ratio near a hist0ric leaning meaning VERY PESSIMISTIC
VIX is rising, weaker market until this trend reverses IMHO
D
Avg Joe holding tight, money flow still going into 401K's and foreign purchases of our funny money debt goes unabated. Game on!
Meanwhile the grumpies are lining up in front of the PUT money machine ready to CASH IN on a frumpy dumpster market slump coming to a front page near you. Not so fast?
When has the market made it easy to know where it's headed? NAZ continues to underperform. Bond yileds stiffened up at near 4.5% the 10 year.
Market has been following the action of the YEN, whenit goes up the market goes down, further evidence of weakening of carry trade liquidity drain?
Consumer confidence is falling, reaction to all this? Economic indicators in the crapper......put/call ratio near a hist0ric leaning meaning VERY PESSIMISTIC
VIX is rising, weaker market until this trend reverses IMHO
D
Friday, March 16, 2007
HEDGE FUNDS TAKE A HIT
http://money.cnn.com/2007/03/16/markets/hedge_subprime.reut/index.htm?source=yahoo_quote
SUBPRIME WOES. WATCH THE VIDEO! The markets do NOT reflect the reality of what is happening on the ground. A MAJOR shakedown is coming IMHO, even if somehow someway this market recovers to new highs ( never say never LOL) a TEST of the 2002 lows in the books down the road IMHO
D
SUBPRIME WOES. WATCH THE VIDEO! The markets do NOT reflect the reality of what is happening on the ground. A MAJOR shakedown is coming IMHO, even if somehow someway this market recovers to new highs ( never say never LOL) a TEST of the 2002 lows in the books down the road IMHO
D
Thursday, March 15, 2007
CRAMER EXPOSED ON UTUBE
http://www.youtube.com:80/watch?v=708wDFX28lc
This you gotta hear. Now MULTIPLY his Millions by tens of tens of millions controlled by Goofman Sax and 1,000's of hedge funds plus the FED manipulation machine et al PPT and you will (or maybe you won't) understand how markets get mannipulated.
Below please find a rant posted by CIVIL BEAR:
CivilBear - Thu, Mar 15, 2007 - 03:00 PM
If Wall Street had any connection to economic fundamentals and the realworld, the markets would be down big-time today.But with options expiration coming up tomorrow, Da Boyz, The PPT, TheWorking Committee on The Markets and every market manipulator on the face ofthe earth are doing their darndest to make sure there is no market drop.
Fact is, today's economic reports were as ugly as Abby Jo in a thong bikini!The Philly Fed report is awful.The Empire State numbers are terrible.The Producer Price Index showed that wholesale prices are rising a helluvalot faster than expected.Consumer confidence is down significantly.Two more subprime lenders are folding their tents.
Yet the market aren't allowed to drop.Gotta love dem "free markets."Not surprising that yesterday, the Fed and the Treasury Department combinedto supply more than $27 BILLION for the buying of stocks.No action is too drastic when it comes to propping up the markets.What a stench-ridden, steaming pile of Kudlow!Ah, that feels better.
Rant completed.
Duratek
This you gotta hear. Now MULTIPLY his Millions by tens of tens of millions controlled by Goofman Sax and 1,000's of hedge funds plus the FED manipulation machine et al PPT and you will (or maybe you won't) understand how markets get mannipulated.
Below please find a rant posted by CIVIL BEAR:
CivilBear - Thu, Mar 15, 2007 - 03:00 PM
If Wall Street had any connection to economic fundamentals and the realworld, the markets would be down big-time today.But with options expiration coming up tomorrow, Da Boyz, The PPT, TheWorking Committee on The Markets and every market manipulator on the face ofthe earth are doing their darndest to make sure there is no market drop.
Fact is, today's economic reports were as ugly as Abby Jo in a thong bikini!The Philly Fed report is awful.The Empire State numbers are terrible.The Producer Price Index showed that wholesale prices are rising a helluvalot faster than expected.Consumer confidence is down significantly.Two more subprime lenders are folding their tents.
Yet the market aren't allowed to drop.Gotta love dem "free markets."Not surprising that yesterday, the Fed and the Treasury Department combinedto supply more than $27 BILLION for the buying of stocks.No action is too drastic when it comes to propping up the markets.What a stench-ridden, steaming pile of Kudlow!Ah, that feels better.
Rant completed.
Duratek
Tuesday, March 13, 2007
90% DOWNSIDE VOLUME DAY ALERT!!!
How's it going lurkers?
This could negate the importance of the 90% upside day after the first 2 90% downside days which began in Feb 27th with 99% downside volume day, one of if not worst on historic market data.
That was taken lightly as the VIX melted back away but SHOT up again today. Of note the VIX stayed about its now rising 20 EMA and a rising trend in the VIX is VERY BEARISH if it continues.
Tomorrow I think is a CRITICAL day for the markets. Many think if 12,000 is broken
(it should be) and that break holds, then we will work our way back to 11,000, any 20% correction is considered a Bear Market. (somewhere near 10,200) 11,475 ish is the 10% NORMAL correction many were "hoping" for.
There is MORE at stake here, we have RECORD MARGIN DEBT BEYOND EVEN 2000 BUBBLE TOP!!! WTF???? and some never learn?
We have subprime lender crisis. Long in tooth bull market. Interest rate inversion (Recession indiactor) WE have DOA housing market and trickle down effects on busineses. Many housing stocks hitting new 52 week lows.
25 year uptrend line from 1982 bull lows is near 11,000, this must NOT be broken o maybe back to 4,000-5,000 on Dow IMHO.
Home Equity loans supporting spending done! Housing NOT affordable to most.
Inventories are building, consumer demand not strong. Price pressure to salaries, prfoit miracle done IMHO, most likely string of double digit SPX earnings growth OVER.
NO leadership in market. Defensive stocks stronger, appetite for risk on decline?
Avg Joe has done NOTHING, sold NOTHING, while he watches and begins to ask what is going on, gets a little nervous, but hasnt sold anything. ALL those gains in jepeordy IMHO
BULL MKT IS INTACT however according to my TA on moving averages, but if we get a cross from 20 week through 50 week, to me that is bear cross, and LOTS of damage would already be done.
As I said before I am IN CASH 100%, I am in effect shorting stocks by being able to buy them MUCH cheaper then they were, when time is right. QID fund is on upswing (inverse naz 2X)
WHAT of potential MARGIN CALLS? FORCED LIQUIDATION, selling of securities.....is possible, and makes matters worse, as bears tag on.
rally off lows was weak, on weaker volume, todays selloff on HUGE VOLUME. NYSE near DOUBLE the NAZ!!! that is a sign also I think.
Hey, I do my thing, I try to reach out, I try to keep open mind to any outcome, but I was ONE LONELY BEAR!
I may write in vaccum, not sure how many read, I have heard from a few readers from around the globe, but I'll keep my blog going, no matter what.
When I think of it I will post my 25 yr Dow chart
Duratek
This could negate the importance of the 90% upside day after the first 2 90% downside days which began in Feb 27th with 99% downside volume day, one of if not worst on historic market data.
That was taken lightly as the VIX melted back away but SHOT up again today. Of note the VIX stayed about its now rising 20 EMA and a rising trend in the VIX is VERY BEARISH if it continues.
Tomorrow I think is a CRITICAL day for the markets. Many think if 12,000 is broken
(it should be) and that break holds, then we will work our way back to 11,000, any 20% correction is considered a Bear Market. (somewhere near 10,200) 11,475 ish is the 10% NORMAL correction many were "hoping" for.
There is MORE at stake here, we have RECORD MARGIN DEBT BEYOND EVEN 2000 BUBBLE TOP!!! WTF???? and some never learn?
We have subprime lender crisis. Long in tooth bull market. Interest rate inversion (Recession indiactor) WE have DOA housing market and trickle down effects on busineses. Many housing stocks hitting new 52 week lows.
25 year uptrend line from 1982 bull lows is near 11,000, this must NOT be broken o maybe back to 4,000-5,000 on Dow IMHO.
Home Equity loans supporting spending done! Housing NOT affordable to most.
Inventories are building, consumer demand not strong. Price pressure to salaries, prfoit miracle done IMHO, most likely string of double digit SPX earnings growth OVER.
NO leadership in market. Defensive stocks stronger, appetite for risk on decline?
Avg Joe has done NOTHING, sold NOTHING, while he watches and begins to ask what is going on, gets a little nervous, but hasnt sold anything. ALL those gains in jepeordy IMHO
BULL MKT IS INTACT however according to my TA on moving averages, but if we get a cross from 20 week through 50 week, to me that is bear cross, and LOTS of damage would already be done.
As I said before I am IN CASH 100%, I am in effect shorting stocks by being able to buy them MUCH cheaper then they were, when time is right. QID fund is on upswing (inverse naz 2X)
WHAT of potential MARGIN CALLS? FORCED LIQUIDATION, selling of securities.....is possible, and makes matters worse, as bears tag on.
rally off lows was weak, on weaker volume, todays selloff on HUGE VOLUME. NYSE near DOUBLE the NAZ!!! that is a sign also I think.
Hey, I do my thing, I try to reach out, I try to keep open mind to any outcome, but I was ONE LONELY BEAR!
I may write in vaccum, not sure how many read, I have heard from a few readers from around the globe, but I'll keep my blog going, no matter what.
When I think of it I will post my 25 yr Dow chart
Duratek
YHOO FINANCE MKT UPDATE
4:20 pm : Stocks tumbled Tuesday as an overly pessimistic market exaggerated everything from the implications of an unwinding in the yen carry trade to potential defaults by subprime lenders spilling over into an economy that again showed signs of slowing.
Before the bell, February retail sales rose just 0.1% (consensus 0.3%) while the more closely-watched sales, ex-autos, unexpectedly fell 0.1% (consensus 0.3%). Both figures pressured a market already extremely sensitive to signs of potential economic weakness even though unseasonably cold weather was a likely cause for the soft report. It is also worth noting that the data won't alter expectations of about 2% real GDP growth in Q1.
However, with subprime mortgage worries acting as an overhang for weeks now, more negative developments in the space took a weak stock market and made it even weaker as sellers found another excuse to take some money off the table following three straight days of gains for the Dow and S&P 500.
Accredited Home Lenders (LEND 3.97 -7.43) was the latest company in the subprime lineup to warn of such difficulties, saying it needs to raise new funds to cover the risk of default. The stock lost nearly 70% of its value. Adding insult to injury was Countrywide Financial's (CFC 33.49 -1.65) CEO saying on CNBC that the subprime issue is becoming a "liquidity crisis."
But the straw that broke the backs of the bulls today was a report midday from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years!!
Before the bell, February retail sales rose just 0.1% (consensus 0.3%) while the more closely-watched sales, ex-autos, unexpectedly fell 0.1% (consensus 0.3%). Both figures pressured a market already extremely sensitive to signs of potential economic weakness even though unseasonably cold weather was a likely cause for the soft report. It is also worth noting that the data won't alter expectations of about 2% real GDP growth in Q1.
However, with subprime mortgage worries acting as an overhang for weeks now, more negative developments in the space took a weak stock market and made it even weaker as sellers found another excuse to take some money off the table following three straight days of gains for the Dow and S&P 500.
Accredited Home Lenders (LEND 3.97 -7.43) was the latest company in the subprime lineup to warn of such difficulties, saying it needs to raise new funds to cover the risk of default. The stock lost nearly 70% of its value. Adding insult to injury was Countrywide Financial's (CFC 33.49 -1.65) CEO saying on CNBC that the subprime issue is becoming a "liquidity crisis."
But the straw that broke the backs of the bulls today was a report midday from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years!!
AM THOUGHTS
**Data, retail sales come in WEAK***
I am getting that feeling this AM, but I will say this for us.......we have been LOOKING for the TOP and stayed true to that yesterday (Yes P) as one of my targets held (came to within a few points)
AS MANY disregard subprime trouble, this will be THE scandal of 2007.....and its effects hardly felt yet.HOV BZH TOL now falling AGAIN to NEW LOWS, remember how many hopped aboard at the lows, bet they are still holding (THE BAG)
SO OK< we have GS etc nowhere near 52 wk highs, home builders falling to new lows, subprime crisis, consumers pulling back, SPX profits predicted 5% growth (dbl digit string broken), I believe we have enough info as to which side to LEAN on, I will let you know any action I take.
I am hoping on an initial SLOW opening...that doesnt GAP down to the lows...maybe even some GREEN (fake out) there I would prefer to lay my shorts using QID, why QID? because NAZ has lagged all the way.....NEVER confirmed SPX move
I am getting that feeling this AM, but I will say this for us.......we have been LOOKING for the TOP and stayed true to that yesterday (Yes P) as one of my targets held (came to within a few points)
AS MANY disregard subprime trouble, this will be THE scandal of 2007.....and its effects hardly felt yet.HOV BZH TOL now falling AGAIN to NEW LOWS, remember how many hopped aboard at the lows, bet they are still holding (THE BAG)
SO OK< we have GS etc nowhere near 52 wk highs, home builders falling to new lows, subprime crisis, consumers pulling back, SPX profits predicted 5% growth (dbl digit string broken), I believe we have enough info as to which side to LEAN on, I will let you know any action I take.
I am hoping on an initial SLOW opening...that doesnt GAP down to the lows...maybe even some GREEN (fake out) there I would prefer to lay my shorts using QID, why QID? because NAZ has lagged all the way.....NEVER confirmed SPX move
Monday, March 12, 2007
STEPHEN ROACH WEIGHS IN
Global Green China? March 09, 2007 By Stephen S. Roach New York
Pollution is invariably one of the first impressions visitors form of China. From bicycles to cars in 25 years, urban China rarely sees much in the way of blue sky anymore. Rapid and large-scale industrialization only compounds the problem. The Chinese government knows full well it must take prompt and forceful actions to avoid an environmental crisis. There are encouraging signs it is now rising to the occasion. Can China pull it off while, at the same time, staying the course of its remarkable economic development strategy?
On a per capita basis, China’s pollution problem hardly jumps off the page. Its ratio of carbon emissions per person is less than half the global average and less than one-tenth that of the world’s biggest polluter – the United States. China’s enormous population, of course, distorts those comparisons. On an absolute basis, it’s a different story altogether. China’s total carbon emissions are more than double those of Japan and Russia, fractionally behind the European Union, and a little more than half those of the US. The essence of the Chinese environmental degradation problem is both its scale and growth. Over the 1992–2002 period, CO2 emissions in China have expanded at a 3.7% average annual rate – more than two and a half times the global average of 1.4%. At that rate, according to a recent report issued by the International Energy Agency, China will surpass the United States as the global leader in carbon emissions by 2009.
In terms of sulfur dioxide, China’s current rate of discharge is already double its so-called environmental capacity – responsible for an acid rain that now covers about one-third of China’s total land mass. According to SO2-based measures of air pollution, seven of the ten most polluted cities in the world are in China. With respect to the emissions of organic water pollutants, China leads the world by more than three times the number two polluter – the United States. Moreover, fully 90% of China’s urban rivers are polluted, and 90% of its grassland has been degraded. (Data cited above are from Al Gore’s Inconvenient Truth [2006], Nicholas Stern’s The Economics of Climate Change [2007], and a recent paper prepared by the Development Research Center of China’s State Council, “China: Accelerating Structural Adjustment and Growth Pattern Change” [2007]).
China’s environmental moment of truth is now at hand. The problem is twofold, in my view: It is not just an issue of moving from dirty to clean technologies that drive production, distribution, and transportation platforms, but it is also a matter of shifting the macro structure of the Chinese economy from a pollution-intensive to an environmentally-friendly mix. This latter point is a key and often overlooked aspect of China’s environmental challenge. It is also a crucial element of the rebalancing challenge that shapes China’s macro debate. The issue, in a nutshell, is that the Chinese economy is heavily skewed toward exports and fixed investment – two sectors that now collectively make up over 80% of China’s GDP. This concentration represents the most lopsided mix of a major economy in modern history. It is not sustainable from a macro point of view in that it threatens to produce the twin possibilities of a deflationary overhang of excess capacity and a protectionist backlash to an open-ended export boom. And it is not sustainable from an environmental point of view because the industrial-production-driven export and investment booms have a natural bias toward excessive carbon emissions.
This latter conclusion is key but, unfortunately, difficult to quantify in light of the paucity of data on the carbon intensity of the various sectors of the Chinese economy. Bear with me as I take you through a brief, but important, digression that uses the United Kingdom production model to illustrate what China is up against. The Stern Review contains a detailed breakdown of the carbon intensity of 123 production sectors in the UK economy. Not surprisingly, services are at the low end of the UK spectrum in terms of carbon emissions – averaging around 0.3 on the carbon intensity scale; for manufacturing industries, the range is wide – motor vehicles ( 0.5) and sporting goods/toys (0.8) are at the low end while the paper (2.4) and steel (2.7) industries are at the high end. A comparable dispersion is evident in the energy share of total UK business costs – with non-transportation services at the low end of the spectrum and manufacturing industries at the high end.
OK, China is not exactly England. But I strongly suspect – and this is my key analytical leap of faith – that the relative dispersion of the carbon- and energy-intensity of the major sectors of the Chinese economy is comparable to that of the UK. In other words, just as manufacturing is more carbon-intensive than services in the UK, the same ranking is likely in China. Under that presumption, consider the following: The latest data put China’s industrial sector at around 52% of its GDP – well in excess of the 32% share of the average developed economy and considerably higher than the 37% average of the low- and middle-income countries of the developing world. That means the manufacturing-intensive Chinese economy is most likely highly skewed toward a pollution- and energy-intensive model of economic activity.
In the case of China, there is an important twist – it is the heaviest consumer of coal of all the major economies in the world today. According to China’s Development Research Center, coal-driven power accounted for fully 79% of total electricity generated in 2003 – eight percentage points higher than in 1990 and essentially double the 40% share of coal-powered electricity for the world as a whole. The adverse environmental implications of coal power are well known; according to the Stern Review, the CO2 emissions of coal per unit of energy generation are twice as much as those associated with the combustion of natural gas and about 50% more than those generated by oil-burning technologies. Inasmuch as UK coal consumption – fueling 34% of the country’s total energy generation – is less than half the share in China, there is actually good reason to believe that the pollution implications for the Chinese economy per unit of GDP would be a good deal worse than those implied by the British results cited above.
The India comparison is also an interesting one in putting Chinese environmental issues in perspective. India’s per capita carbon emissions are only about half those in China and its total emissions are about one-third those of the Chinese. But the 4.3% average annual growth rate of Indian CO2 emissions over the 1992-2002 period is more than 15% faster than the rapid growth evident in China over the same period – suggesting that if India stays its current course, its environmental threats will quickly get out of hand. Even so, the structure of Indian GDP – a much smaller industrial portion (28%) than China (52%) and a much larger services share (53%) than China (34%) is biased toward a less pollution- and energy-intensive growth trajectory. That’s not to let India off the hook on environmental issues but only to stress that China is very much in a league of its own.
China has a rare and important opportunity to kill two birds with one stone. A successful rebalancing of the Chinese economy – moving away from excess reliance on investment and exports and embracing more of a pro-consumption growth model – would be a huge plus in dealing with two key issues: On the one hand, it would enable China to avoid the capacity excesses and protectionist risks that might arise from a continued irrational expansion of a severely unbalanced real economy. But it would also have the advantage of tilting the mix of Chinese output away from a pollution- and energy-intensive growth trajectory.
The latest statements from official Beijing are quite encouraging in addressing this conjoined problem. Premier Wen Jiabao’s 5 March “Work Report” to the National People’s Congress strongly endorsed a strategy of macro rebalancing, energy conservation, and environmental remediation. Just as China has had the will and determination to deliver on the reform front over the past 28 years, I am hopeful that it will rise to the occasion and deliver on the rebalancing front. In the end, there is no other choice.
TIME IS RUNNING SHORT
D
Pollution is invariably one of the first impressions visitors form of China. From bicycles to cars in 25 years, urban China rarely sees much in the way of blue sky anymore. Rapid and large-scale industrialization only compounds the problem. The Chinese government knows full well it must take prompt and forceful actions to avoid an environmental crisis. There are encouraging signs it is now rising to the occasion. Can China pull it off while, at the same time, staying the course of its remarkable economic development strategy?
On a per capita basis, China’s pollution problem hardly jumps off the page. Its ratio of carbon emissions per person is less than half the global average and less than one-tenth that of the world’s biggest polluter – the United States. China’s enormous population, of course, distorts those comparisons. On an absolute basis, it’s a different story altogether. China’s total carbon emissions are more than double those of Japan and Russia, fractionally behind the European Union, and a little more than half those of the US. The essence of the Chinese environmental degradation problem is both its scale and growth. Over the 1992–2002 period, CO2 emissions in China have expanded at a 3.7% average annual rate – more than two and a half times the global average of 1.4%. At that rate, according to a recent report issued by the International Energy Agency, China will surpass the United States as the global leader in carbon emissions by 2009.
In terms of sulfur dioxide, China’s current rate of discharge is already double its so-called environmental capacity – responsible for an acid rain that now covers about one-third of China’s total land mass. According to SO2-based measures of air pollution, seven of the ten most polluted cities in the world are in China. With respect to the emissions of organic water pollutants, China leads the world by more than three times the number two polluter – the United States. Moreover, fully 90% of China’s urban rivers are polluted, and 90% of its grassland has been degraded. (Data cited above are from Al Gore’s Inconvenient Truth [2006], Nicholas Stern’s The Economics of Climate Change [2007], and a recent paper prepared by the Development Research Center of China’s State Council, “China: Accelerating Structural Adjustment and Growth Pattern Change” [2007]).
China’s environmental moment of truth is now at hand. The problem is twofold, in my view: It is not just an issue of moving from dirty to clean technologies that drive production, distribution, and transportation platforms, but it is also a matter of shifting the macro structure of the Chinese economy from a pollution-intensive to an environmentally-friendly mix. This latter point is a key and often overlooked aspect of China’s environmental challenge. It is also a crucial element of the rebalancing challenge that shapes China’s macro debate. The issue, in a nutshell, is that the Chinese economy is heavily skewed toward exports and fixed investment – two sectors that now collectively make up over 80% of China’s GDP. This concentration represents the most lopsided mix of a major economy in modern history. It is not sustainable from a macro point of view in that it threatens to produce the twin possibilities of a deflationary overhang of excess capacity and a protectionist backlash to an open-ended export boom. And it is not sustainable from an environmental point of view because the industrial-production-driven export and investment booms have a natural bias toward excessive carbon emissions.
This latter conclusion is key but, unfortunately, difficult to quantify in light of the paucity of data on the carbon intensity of the various sectors of the Chinese economy. Bear with me as I take you through a brief, but important, digression that uses the United Kingdom production model to illustrate what China is up against. The Stern Review contains a detailed breakdown of the carbon intensity of 123 production sectors in the UK economy. Not surprisingly, services are at the low end of the UK spectrum in terms of carbon emissions – averaging around 0.3 on the carbon intensity scale; for manufacturing industries, the range is wide – motor vehicles ( 0.5) and sporting goods/toys (0.8) are at the low end while the paper (2.4) and steel (2.7) industries are at the high end. A comparable dispersion is evident in the energy share of total UK business costs – with non-transportation services at the low end of the spectrum and manufacturing industries at the high end.
OK, China is not exactly England. But I strongly suspect – and this is my key analytical leap of faith – that the relative dispersion of the carbon- and energy-intensity of the major sectors of the Chinese economy is comparable to that of the UK. In other words, just as manufacturing is more carbon-intensive than services in the UK, the same ranking is likely in China. Under that presumption, consider the following: The latest data put China’s industrial sector at around 52% of its GDP – well in excess of the 32% share of the average developed economy and considerably higher than the 37% average of the low- and middle-income countries of the developing world. That means the manufacturing-intensive Chinese economy is most likely highly skewed toward a pollution- and energy-intensive model of economic activity.
In the case of China, there is an important twist – it is the heaviest consumer of coal of all the major economies in the world today. According to China’s Development Research Center, coal-driven power accounted for fully 79% of total electricity generated in 2003 – eight percentage points higher than in 1990 and essentially double the 40% share of coal-powered electricity for the world as a whole. The adverse environmental implications of coal power are well known; according to the Stern Review, the CO2 emissions of coal per unit of energy generation are twice as much as those associated with the combustion of natural gas and about 50% more than those generated by oil-burning technologies. Inasmuch as UK coal consumption – fueling 34% of the country’s total energy generation – is less than half the share in China, there is actually good reason to believe that the pollution implications for the Chinese economy per unit of GDP would be a good deal worse than those implied by the British results cited above.
The India comparison is also an interesting one in putting Chinese environmental issues in perspective. India’s per capita carbon emissions are only about half those in China and its total emissions are about one-third those of the Chinese. But the 4.3% average annual growth rate of Indian CO2 emissions over the 1992-2002 period is more than 15% faster than the rapid growth evident in China over the same period – suggesting that if India stays its current course, its environmental threats will quickly get out of hand. Even so, the structure of Indian GDP – a much smaller industrial portion (28%) than China (52%) and a much larger services share (53%) than China (34%) is biased toward a less pollution- and energy-intensive growth trajectory. That’s not to let India off the hook on environmental issues but only to stress that China is very much in a league of its own.
China has a rare and important opportunity to kill two birds with one stone. A successful rebalancing of the Chinese economy – moving away from excess reliance on investment and exports and embracing more of a pro-consumption growth model – would be a huge plus in dealing with two key issues: On the one hand, it would enable China to avoid the capacity excesses and protectionist risks that might arise from a continued irrational expansion of a severely unbalanced real economy. But it would also have the advantage of tilting the mix of Chinese output away from a pollution- and energy-intensive growth trajectory.
The latest statements from official Beijing are quite encouraging in addressing this conjoined problem. Premier Wen Jiabao’s 5 March “Work Report” to the National People’s Congress strongly endorsed a strategy of macro rebalancing, energy conservation, and environmental remediation. Just as China has had the will and determination to deliver on the reform front over the past 28 years, I am hopeful that it will rise to the occasion and deliver on the rebalancing front. In the end, there is no other choice.
TIME IS RUNNING SHORT
D
"AN INCONVIENENT TRUTH"
http://www.climatecrisis.net/
Yes, it's Al Gore, this is well researched, well presented, not irrefutable fact, but seems very plausable, very probable and more than worth considering and how each of us can make a change, a difference in lessening the possibility of irreversable damage to our environment and the world we live in.
Is it any miracle the #1 car maker in the world is TOYOTA? IS IT any wonder they lead in fleet miles per gallon? or are leaders in HYBRID SYNERGY TECHNOLOGY? WHO makes the HUMMER? WHO is $350 Billion in debt?
It is true you can be conscious about environment and be good for business. The BUSH ADM are frauds and lack any leadership in the world except war making and lies.
ONLY 2 countries have NOT signed KYOTO TREATY, the US is one of them.
Which country is hopelessly in debt and has $50 Trillion in unfunded liabilities?
One day you will wake up and wonder what the F**!! happened to the world, and wish you could have done something to change it!!
Vote for those who have of like mind and want to change the way things are done and what the priorities are.
By invading Iraq we have created 10X more terorists than we have killed, and the 1st country we freed and attacked terrorism is now slipping back into a haven...Afghanistan.
Talk TOUGH to IRAN now, see where that gets us too. But I digress, and well its my blog.
Duratek
Yes, it's Al Gore, this is well researched, well presented, not irrefutable fact, but seems very plausable, very probable and more than worth considering and how each of us can make a change, a difference in lessening the possibility of irreversable damage to our environment and the world we live in.
Is it any miracle the #1 car maker in the world is TOYOTA? IS IT any wonder they lead in fleet miles per gallon? or are leaders in HYBRID SYNERGY TECHNOLOGY? WHO makes the HUMMER? WHO is $350 Billion in debt?
It is true you can be conscious about environment and be good for business. The BUSH ADM are frauds and lack any leadership in the world except war making and lies.
ONLY 2 countries have NOT signed KYOTO TREATY, the US is one of them.
Which country is hopelessly in debt and has $50 Trillion in unfunded liabilities?
One day you will wake up and wonder what the F**!! happened to the world, and wish you could have done something to change it!!
Vote for those who have of like mind and want to change the way things are done and what the priorities are.
By invading Iraq we have created 10X more terorists than we have killed, and the 1st country we freed and attacked terrorism is now slipping back into a haven...Afghanistan.
Talk TOUGH to IRAN now, see where that gets us too. But I digress, and well its my blog.
Duratek
Friday, March 09, 2007
CHINA CARRY TRADE OVER?
China to pursue higher returns on reserves
Beijing to create agency to oversee its investment of foreign currency reserves of more than $1 trillion; global investors wary of impact.
March 9 2007: 7:11 AM EST
BEIJING (Reuters) -- China is setting up a new investment agency to seek higher returns on its foreign currency reserves of more than $1 trillion, the largest stockpile in the world, Finance Minister Jin Renqing said Friday.
It was the first official confirmation of China's plans, which Premier Wen Jiabao foreshadowed in January by saying Beijing would actively explore new ways of using the reserves.
"The biggest priority is safety, and under the principle of security we will try to increase the efficiency of management and the investments' returns," Jin told a news conference.
He gave no details of how much money the fund would manage, let alone how it might invest, but he said Singapore's state-owned Temasek investment company would be one of its models.
"This company is still in the process of being formed, and it will let the public know when it has been formally set up," said Jin, who was speaking during the annual session of the National People's Congress, China's largely ceremonial parliament.
China's financial firepower means the fund has the potential over time to make a big impact on world markets.
"Some people in the market are concerned that if there is going to be a drastic change in the way the FX reserves are being managed, it could have a potentially important impact on capital flows and financial markets," said Grace Ng, an economist at JPMorgan Chase in Hong Kong.
Academic studies estimate that investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by anything from half a percentage point to 2 percentage points - a boon to U.S. businesses and home buyers.
The State Administration of Foreign Exchange (SAFE), an arm of the central bank, currently manages all of China's reserves.
Where they are invested is a state secret, but bankers assume two-thirds or more are held in low-risk dollar bonds.
SAFE, which regulates China's currency, would continue to manage what Jin called China's "normal" reserves; the rest would be invested by the new agency.
As China's reserves have ballooned on the back of record trade surpluses, demands have grown for part of the hoard to be managed more aggressively.
Some researchers have argued for buying oil, natural resources and high-technology imports; others want the money to be converted back into yuan and spent relieving poverty at home.
Singapore model
Cheng Siwei, a leading lawmaker, told Reuters this week that China needed no more than $600 billion-$700 billion in reserves, and various state media reports have said the new agency could receive as much as $200 billion to manage.
Bankers, however, say a fund would take years to grow that big without driving the prices of assets it buys sharply higher.
To avoid rocking markets, one possibility for the new agency would to give it only part of China's new reserves, not its existing stash. The reserves are growing by about $20 billion a month.
"Given the way the Chinese government does things, it's likely to be a gradual process. Any impact on the market would likely to be gradual and manageable," said Ng at JPMorgan.
Reflecting the importance of the venture, the new agency will report directly to the State Council, China's cabinet, and not to either the finance ministry or the central bank.
Lou Jiwei, a former vice finance minister, was promoted to a cabinet-level post this week in a move that analysts saw as prefiguring his appointment to run the agency.
"We will draw upon the successful practices of other countries, for example Singapore's Temasek, to manage China's foreign exchange reserves," Jin said.
Temasek Holdings invests Singapore's fiscal surpluses, not its currency reserves. It owns stakes in several of Singapore's biggest firms and has expanded aggressively in Asia since 2002 to try to boost its long-term investment returns.
Temasek reported total shareholder return by market value of 24 percent in the year ending March 31, 2006, matching that of the city-state's main stock market index.
Over a 10-year period, its total shareholder return of 6 percent a year was also in line with the Singapore index.
Last year it paid $3.8 billion for Shin Corp., Thailand's biggest telecommunications firm, triggering a political crisis in Bangkok that culminated in a military coup against former prime minister Thaksin Shinawatra, who founded the company.
China has grown into an economic powerhouse in the last decade, becoming the home to manufacturing for products sold by Wal-Mart (Charts), Target (Charts), Lowe's (Charts), and Home Depot (Charts).
China looks to boost property rights
Paulson calls for change in China
Find this article at: http://money.cnn.com/2007/03/09/news/international/bc.china.economy.reserves.reut/index.htm
Beijing to create agency to oversee its investment of foreign currency reserves of more than $1 trillion; global investors wary of impact.
March 9 2007: 7:11 AM EST
BEIJING (Reuters) -- China is setting up a new investment agency to seek higher returns on its foreign currency reserves of more than $1 trillion, the largest stockpile in the world, Finance Minister Jin Renqing said Friday.
It was the first official confirmation of China's plans, which Premier Wen Jiabao foreshadowed in January by saying Beijing would actively explore new ways of using the reserves.
"The biggest priority is safety, and under the principle of security we will try to increase the efficiency of management and the investments' returns," Jin told a news conference.
He gave no details of how much money the fund would manage, let alone how it might invest, but he said Singapore's state-owned Temasek investment company would be one of its models.
"This company is still in the process of being formed, and it will let the public know when it has been formally set up," said Jin, who was speaking during the annual session of the National People's Congress, China's largely ceremonial parliament.
China's financial firepower means the fund has the potential over time to make a big impact on world markets.
"Some people in the market are concerned that if there is going to be a drastic change in the way the FX reserves are being managed, it could have a potentially important impact on capital flows and financial markets," said Grace Ng, an economist at JPMorgan Chase in Hong Kong.
Academic studies estimate that investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by anything from half a percentage point to 2 percentage points - a boon to U.S. businesses and home buyers.
The State Administration of Foreign Exchange (SAFE), an arm of the central bank, currently manages all of China's reserves.
Where they are invested is a state secret, but bankers assume two-thirds or more are held in low-risk dollar bonds.
SAFE, which regulates China's currency, would continue to manage what Jin called China's "normal" reserves; the rest would be invested by the new agency.
As China's reserves have ballooned on the back of record trade surpluses, demands have grown for part of the hoard to be managed more aggressively.
Some researchers have argued for buying oil, natural resources and high-technology imports; others want the money to be converted back into yuan and spent relieving poverty at home.
Singapore model
Cheng Siwei, a leading lawmaker, told Reuters this week that China needed no more than $600 billion-$700 billion in reserves, and various state media reports have said the new agency could receive as much as $200 billion to manage.
Bankers, however, say a fund would take years to grow that big without driving the prices of assets it buys sharply higher.
To avoid rocking markets, one possibility for the new agency would to give it only part of China's new reserves, not its existing stash. The reserves are growing by about $20 billion a month.
"Given the way the Chinese government does things, it's likely to be a gradual process. Any impact on the market would likely to be gradual and manageable," said Ng at JPMorgan.
Reflecting the importance of the venture, the new agency will report directly to the State Council, China's cabinet, and not to either the finance ministry or the central bank.
Lou Jiwei, a former vice finance minister, was promoted to a cabinet-level post this week in a move that analysts saw as prefiguring his appointment to run the agency.
"We will draw upon the successful practices of other countries, for example Singapore's Temasek, to manage China's foreign exchange reserves," Jin said.
Temasek Holdings invests Singapore's fiscal surpluses, not its currency reserves. It owns stakes in several of Singapore's biggest firms and has expanded aggressively in Asia since 2002 to try to boost its long-term investment returns.
Temasek reported total shareholder return by market value of 24 percent in the year ending March 31, 2006, matching that of the city-state's main stock market index.
Over a 10-year period, its total shareholder return of 6 percent a year was also in line with the Singapore index.
Last year it paid $3.8 billion for Shin Corp., Thailand's biggest telecommunications firm, triggering a political crisis in Bangkok that culminated in a military coup against former prime minister Thaksin Shinawatra, who founded the company.
China has grown into an economic powerhouse in the last decade, becoming the home to manufacturing for products sold by Wal-Mart (Charts), Target (Charts), Lowe's (Charts), and Home Depot (Charts).
China looks to boost property rights
Paulson calls for change in China
Find this article at: http://money.cnn.com/2007/03/09/news/international/bc.china.economy.reserves.reut/index.htm
IT'S A NEW CENTURY
UPDATE: New Century Stops Accepting Loan Applications
March 08, 2007: 07:10 PM EST http://money.cnn.com/news/newsfeeds/articles/djhighlights/200703081910DOWJONESDJONLINE001264.htm
SAN FRANCISCO (Dow Jones) -- New Century Financial Corp. said late Thursday that it has stopped accepting loan applications because some of the subprime- mortgage specialist's financial backers are refusing to provide access to financing.
New Century also said that it has received $150 million worth of margin calls from its so-called warehouse lenders. It has satisfied about $80 million of those calls, but $70 million remains, according to the company.
"As a result of the current constrained funding capacity, the company has elected to cease accepting loan applications from prospective borrowers effective immediately, while the company seeks to obtain additional funding capacity," New Century said in a statement.
"The company expects to resume accepting applications as soon as practicable; however, there can be no assurance that the company will be able to resume accepting applications," it added.
New Century shares fell 4.4% to $3.70 during after-hours trading on Thursday. The stock slumped 25% to close at $3.87 during regular trading, leaving it down more than 85% so far this year.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. Companies like New Century (NEW) that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows.
Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.
New Century said on Thursday that it has yet to get waivers on this covenant from five of its warehouse lenders, having made no progress on this point since Friday.
"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.
Mason, who recently published a study on the subprime mortgage market, said he's expecting more bankruptcies in the sector.
Subprime originators usually sell their loans on to big banks or package them up into mortgage-backed securities for sale into the secondary market. The buyers of these assets have the right to send them back in certain circumstances, including when borrowers fail to make payments during the first month or two. In those cases, the originator is forced to repurchase the loans.
New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.
One of New Century's lenders also has extended $265 million in financing that is mainly secured by its real-estate investment trust mortgage loan portfolio.
New Century also announced that it borrowed more money to help it refinance roughly $710 million in mortgage loans currently financed through another lending relationship.
The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.
"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.
In another blow earlier on Thursday, New Century said one of its directors - David Einhorn of hedge fund Greenlight Capital - resigned.
March 08, 2007: 07:10 PM EST http://money.cnn.com/news/newsfeeds/articles/djhighlights/200703081910DOWJONESDJONLINE001264.htm
SAN FRANCISCO (Dow Jones) -- New Century Financial Corp. said late Thursday that it has stopped accepting loan applications because some of the subprime- mortgage specialist's financial backers are refusing to provide access to financing.
New Century also said that it has received $150 million worth of margin calls from its so-called warehouse lenders. It has satisfied about $80 million of those calls, but $70 million remains, according to the company.
"As a result of the current constrained funding capacity, the company has elected to cease accepting loan applications from prospective borrowers effective immediately, while the company seeks to obtain additional funding capacity," New Century said in a statement.
"The company expects to resume accepting applications as soon as practicable; however, there can be no assurance that the company will be able to resume accepting applications," it added.
New Century shares fell 4.4% to $3.70 during after-hours trading on Thursday. The stock slumped 25% to close at $3.87 during regular trading, leaving it down more than 85% so far this year.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. Companies like New Century (NEW) that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows.
Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.
New Century said on Thursday that it has yet to get waivers on this covenant from five of its warehouse lenders, having made no progress on this point since Friday.
"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.
Mason, who recently published a study on the subprime mortgage market, said he's expecting more bankruptcies in the sector.
Subprime originators usually sell their loans on to big banks or package them up into mortgage-backed securities for sale into the secondary market. The buyers of these assets have the right to send them back in certain circumstances, including when borrowers fail to make payments during the first month or two. In those cases, the originator is forced to repurchase the loans.
New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.
One of New Century's lenders also has extended $265 million in financing that is mainly secured by its real-estate investment trust mortgage loan portfolio.
New Century also announced that it borrowed more money to help it refinance roughly $710 million in mortgage loans currently financed through another lending relationship.
The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.
"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.
In another blow earlier on Thursday, New Century said one of its directors - David Einhorn of hedge fund Greenlight Capital - resigned.
Thursday, March 08, 2007
THE WORM TURNS
DOW (should be resistance)
100 EMA 12,283
.382 Fib 12,329
12,247.40
12,353.47
12,650 ish
As it looks we have similar setup to JULY bottom!!! how could that be?? series of 80-90% down volume days and now we have had one 90% up day, and today has good chance of doubling that!
World markets appear to have gotten their footing back, lost their fear already. VIX shedding points like SUMO wrestler in steam room.
ANother 90% upside day could set stage to challenge previous highs, as strange as that seams to me.
100 EMA 12,283
.382 Fib 12,329
12,247.40
12,353.47
12,650 ish
As it looks we have similar setup to JULY bottom!!! how could that be?? series of 80-90% down volume days and now we have had one 90% up day, and today has good chance of doubling that!
World markets appear to have gotten their footing back, lost their fear already. VIX shedding points like SUMO wrestler in steam room.
ANother 90% upside day could set stage to challenge previous highs, as strange as that seams to me.
Tuesday, March 06, 2007
WE HIT BOTTOM YET?
http://money.cnn.com/2007/03/06/news/economy/bernanke.reut/index.htm Fannie Mae and MAc trouble
http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm yen carry trade bet
Don't be a Lemming, read, educate yourself, form your OWN opinion or Wall Street will give it to you, the kind that make you grab your ankles.
D
http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm yen carry trade bet
Don't be a Lemming, read, educate yourself, form your OWN opinion or Wall Street will give it to you, the kind that make you grab your ankles.
D
90% SURE
Market makes a top, then quickly has 2 90% DOWN days, one was 99% DOWNSIDE VOLUME!
Today we had a 90% up day. It is VERY unusual to have a market top followed by 2 such HUGE downside volume days, stay tuned, should we go down again and break the recent lows near 12,000 with similar volume, the health of this bull is definately in question, and the BEAR must be potentially entertained, IMHO
Today IMHO is nothing more than a normal bounce from HUGE oversold, see if it lasts.
D
Today we had a 90% up day. It is VERY unusual to have a market top followed by 2 such HUGE downside volume days, stay tuned, should we go down again and break the recent lows near 12,000 with similar volume, the health of this bull is definately in question, and the BEAR must be potentially entertained, IMHO
Today IMHO is nothing more than a normal bounce from HUGE oversold, see if it lasts.
D
Thursday, March 01, 2007
500 POINT WARNIG SHOT, MASSES ABOUT TO BE BURNED AGAIN
To my many loyal readers, to the lurkers, or those like an insect accidently landed here in my web, stay awhile while I weave a web of intrigue, espionage, danger, and warning.
The 500 point jugernaught decline 2 days ago IMHO is a wanring shot, not a one day wonder or blip on the chart, some mistake or a reaction to rumor. If you try to figure out fundamentally why anything happens, you will parse away the meaning, and lose your way.
We may never know exactly why anything happens, what we can do is look at a move in context of where we are, how far we have come, and what it means technically.
It may that when you add the news from China, and the tightening going on in Japan, that what the 500 PT drop is warning is that the WORLD LIQUIDITY GAME IS COMING TO AN END. And that is ALL that is carrying this game forward for so long.
WE have now accumulated historic levels of debt, and imbalances, and the scales are tipped toward Deflation, there seems to be plenty of everything.......from China that is.
How do we pay for these things? With credit, from foreign purchases of our debt, of which China holds near $1 Triillion. Their currency is 40% or more undervalued, and they have NO intention of making any rude changes.
We have had WILD and damaging real estate specualtion here, it is rippling through our economy, a 4.5% 10 yr bond, which is lower in yield than the 2 yr and the 90 day, has been warning of trouble.
Durable goods orders plummeting, construction spending, home sales off the charts, but today our Manufaturing index inched up and all is well!?? LOL reason for stock turnaround given.
The Dow hit previous reaction lows andbounced, no doubt program buying came to recue.
Very good argument can be laid we have seen the highs for this market.
If it isnt cars and housing, tell me what will drive the economy?
Under current conditions, I am stepping aside and feel profits are profits, and sitting idle and letting them slip away would not be prudent.
I think the tenor of market has been changed, shocked into recognition or it should be that a direction stock prices can and do go in once in awhile is down.
Duratek
The 500 point jugernaught decline 2 days ago IMHO is a wanring shot, not a one day wonder or blip on the chart, some mistake or a reaction to rumor. If you try to figure out fundamentally why anything happens, you will parse away the meaning, and lose your way.
We may never know exactly why anything happens, what we can do is look at a move in context of where we are, how far we have come, and what it means technically.
It may that when you add the news from China, and the tightening going on in Japan, that what the 500 PT drop is warning is that the WORLD LIQUIDITY GAME IS COMING TO AN END. And that is ALL that is carrying this game forward for so long.
WE have now accumulated historic levels of debt, and imbalances, and the scales are tipped toward Deflation, there seems to be plenty of everything.......from China that is.
How do we pay for these things? With credit, from foreign purchases of our debt, of which China holds near $1 Triillion. Their currency is 40% or more undervalued, and they have NO intention of making any rude changes.
We have had WILD and damaging real estate specualtion here, it is rippling through our economy, a 4.5% 10 yr bond, which is lower in yield than the 2 yr and the 90 day, has been warning of trouble.
Durable goods orders plummeting, construction spending, home sales off the charts, but today our Manufaturing index inched up and all is well!?? LOL reason for stock turnaround given.
The Dow hit previous reaction lows andbounced, no doubt program buying came to recue.
Very good argument can be laid we have seen the highs for this market.
If it isnt cars and housing, tell me what will drive the economy?
Under current conditions, I am stepping aside and feel profits are profits, and sitting idle and letting them slip away would not be prudent.
I think the tenor of market has been changed, shocked into recognition or it should be that a direction stock prices can and do go in once in awhile is down.
Duratek
Wednesday, February 28, 2007
Tuesday, February 27, 2007
MARKET CRASH ALERT
*(click to enlarge)Been pretty boring until today, record NYSE volume, HUGE down day, near 99% down volume, a huge 64% SPIKE in VIX (volatility index) to over 18.
QID gained $4.50 (proshort Q's) and it doubled its normal volume!!! Previous PEAK volume day (was around 7.5 m shares) was near high for move (near end of selloff).
Is there a global liquidty short circuit? Will the Chinese follow through on RUMORS to tighten speculation, add capital gains taxes, rein in fever. Is it a rumor?
70 High cranes seen in Shanghai city alone.
BOJ raising rates, YEN higher, Dollar weaker, is US DOLLAR in trouble?
When a move in the markets is followed by VOLUME, in this case record volume, I don't think it smart to dismiss it. Instead of one day wonder could be kickoff to much larger decline. As my chart shows, a trip down to 100 wk would not surprise me, not all at once of course.
Today SELLING PRESSURE came back in a big way.
MARGIN DEBT, those stupid enough to buy stocks on CREDIT hit a NEW ALL TIME HIGH, yes higher than in bubble top of 2000 !!!!
Margin calls could beget more selling which begts more selling until it exstiguishes itself.
I expect a possible green open then reversal, then maybe another reversal, BUYERS MUST come in and soon to stem the rout, sellers will get aggresive again, get their nerve back.
Little guy did nothing today, dont get him worried.
Why guess, my moving averages show no cross, when they do the debacle will be in full swing, volatility will be back in big way and to stay for awhile.
Bull is OLD, on last legs, MANY may want to lock in gains, instead of sit around and watch it possibly whither away again like in 2000-2003. Many are in much better shape now, gaining a lot back, maybe better off.......will the little guy sit by this time around should a bear market come back?
I am in CASH my friends, I get a check each month, no risk, I felt best of bull had come and gone, so WHY risk it.
I know HARD to time short, so for most best to wait for bargains to appear, if they do, you will need CASH to buy.
Market MAY stabilize for a few days not sure, will be watching overseas markets tonight, if China etc does better, we may too.
I think this is severe warning shot, money fled to bonds yielding scant nothing.
INVERTED yield curve has been screaming trouble, Wall Street Shills said don't worry.
Durable goods PLUNGED over 7% today. Anyone suggesting housing slump isn't hurting business wake up.
LOTS of damage done today, record volume, I am not long are you? I am in preserve mode, live to fight another day.
Record volume in QID tells me NAZ selloff should level off here, but I hope today is not shortly forgotten should the PPT get us going again , not to worry, at some point you better have an exit strategy IMHO.....I mean who wants to be last there selling AGAIN at the lows......you NEED CASH to BUY, how much of your portfolio is cash?
Take care, I am hoping the world economy is not unraveling as we speak, liquidity and speculation got us here, and it can also unwind and take us down!
Duratek
Friday, February 16, 2007
Thursday, February 15, 2007
BRIEFLY
http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm
Industrial production plunges
Capacity ute swan dives
NET foreign purchases disappears!!
Initial claims UP sharply
MKT rallies
Industrial production plunges
Capacity ute swan dives
NET foreign purchases disappears!!
Initial claims UP sharply
MKT rallies
Tuesday, February 13, 2007
SUBPRIME TIME BOMB
Subprime Time Bomb
With HSBC and New Century Financial suffering losses from subprime borrowers, which other mortgage lenders face an unpleasant reckoning?
by Maya Roney
As investors swallowed negative news from two of the biggest players in the subprime mortgage market on Feb. 8, the "housing bottom" question took a backseat to a new debate: Who will get crushed in the subprime shakeout, and who will emerge unscathed?
The market started showing more signs of subprime jitters when HSBC Finance, the Prospect Heights (Ill.)-based consumer lending unit of British banking giant HSBC Holdings (HBC) said it was setting aside 20% more than analysts had estimated for bad loans in 2006 because of weakening in the U.S. mortgage business. Shares of the bank were off 3% early afternoon on Feb. 8.
More bad news came from Irvine (Calif.)-based lender New Century Financial (NEW). New Century, the second-largest subprime mortgage originator in the U.S., announced it would restate results for the first three quarters of 2006 to correct accounting errors related to loan repurchase losses, sending the stock down 30% on Feb. 8. The company expects to see a loss for the fourth quarter of 2006 due to early payment defaults.
Defaults Aren't the Whole Story
Shares of other big mortgage players, Countrywide Financial (CFC) and Washington Mutual (WM), were down more than 2% on Feb. 8. Smaller subprime lenders were hit even harder: Kansas City (Mo.)-based Novastar Financial (NFI) shares fell 13%, and San Diego-based Accredited Home Lenders Holding (LEND) dropped 7%.
As investors become more aware of the problems with subprime loans, lenders that focus on customers with poor credit histories will have to face the music. But it may be for different reasons than people think.
"Just because some subprimers are bad doesn't mean all are," says Stuart Plesser, a mortgage lender and insurer analyst for Standard & Poor's Equity Research. "Countrywide will suffer because they are going to face a pricing issue." Plesser has a "sell" rating on Countrywide, the No. 1 mortgage originator and fourth largest subprime mortgage originator in the U.S., according to National Mortgage News.
Many mortgage lenders, including Countrywide and New Century, sell their loans to banks and investors that are attracted to the high interest rates they carry. HSBC got into subprime during the U.S. housing market boom, but when the market began to cool and foreclosure trends accelerated, the bank found itself in trouble. Washington Mutual, another big player in the subprime market, said in January that its mortgage business lost $122 million in the fourth quarter thanks entirely to losses in its subprime segment.
Price Competition
"This is the leitmotif of this whole thing: These people don't really know what they are doing in mortgage banking," says Plesser. "They are writing whatever loans just to write loans, thinking they will worry about it later. But now it's later."
Regular lenders also suffer when banks get into their territory. Companies like Countrywide have been forced to price loans lower since investment banks started buying up subprime loans and pricing them aggressively. Banks assumed they were covered from potential losses by the revenue streams from their myriad other businesses.
Despite the headwinds, lenders like Countrywide, which only has 10% of its business in subprime production, could weather the housing slump better than nearly pure subprime companies, like New Century and Novastar.
"Countrywide is diversified and will start picking it up when everyone goes out of business," says Piper Jaffray analyst Bob Napoli, who has a "buy" rating on the stock. Napoli also says Accredited, though a pure subprime company, could also "get to the other side."
Diversified Against Danger
As for New Century, Napoli says that although the earnings restatement came as a surprise, he has been looking for an ugly fourth quarter from a company that "grew way too fast for their infrastructure." Still, the analyst has a "market perform" rating on New Century shares, which he says are "not yet a certain sell."
Several other analysts downgraded New Century to "sell" on the news Feb. 8, including Kenneth Bruce of Merrill Lynch (MER). "In short, we think New Century will shift to survival mode, putting shareholders at further risk," the analyst wrote in a report.
Diversification will also be the key factor in keeping banks afloat in 2007. That may be why Bear Stearns (BSC) wasn't afraid to buy the subprime loan business last October of another Irvine-based lender, ECC Capital (ECR).
"Because they are so big and [Bear Sterns has] so many businesses, it doesn't go straight to their bottom line," says Plesser. By 2008, the analyst expects many of the big banks to unload their subprime portfolios and leave the business to the regular lenders.
Let That Be a Lesson
Even if banks decide to stick with their subprime segments, HSBC's profit warning and New Century's restatement may prevent other banks from getting into it in the future. Despite the profit warning, Standard & Poor's Ratings Services affirmed its "AA" long-term and "A1" short-term credit ratings on HSBC Holdings on Feb. 8 and said the outlook for the company remains positive. "The positive outlook reflects the potential for HSBC's diversification to generate very strong group performance even when some business lines are performing weakly," wrote credit analyst Michelle Brennan.
"They are going to look really stupid for making these acquisitions," says Napoli. "Things like this remind people that it's not an easy business."
Click here to see the U.S. cities with the highest foreclosure rates. (newsweek)
With HSBC and New Century Financial suffering losses from subprime borrowers, which other mortgage lenders face an unpleasant reckoning?
by Maya Roney
As investors swallowed negative news from two of the biggest players in the subprime mortgage market on Feb. 8, the "housing bottom" question took a backseat to a new debate: Who will get crushed in the subprime shakeout, and who will emerge unscathed?
The market started showing more signs of subprime jitters when HSBC Finance, the Prospect Heights (Ill.)-based consumer lending unit of British banking giant HSBC Holdings (HBC) said it was setting aside 20% more than analysts had estimated for bad loans in 2006 because of weakening in the U.S. mortgage business. Shares of the bank were off 3% early afternoon on Feb. 8.
More bad news came from Irvine (Calif.)-based lender New Century Financial (NEW). New Century, the second-largest subprime mortgage originator in the U.S., announced it would restate results for the first three quarters of 2006 to correct accounting errors related to loan repurchase losses, sending the stock down 30% on Feb. 8. The company expects to see a loss for the fourth quarter of 2006 due to early payment defaults.
Defaults Aren't the Whole Story
Shares of other big mortgage players, Countrywide Financial (CFC) and Washington Mutual (WM), were down more than 2% on Feb. 8. Smaller subprime lenders were hit even harder: Kansas City (Mo.)-based Novastar Financial (NFI) shares fell 13%, and San Diego-based Accredited Home Lenders Holding (LEND) dropped 7%.
As investors become more aware of the problems with subprime loans, lenders that focus on customers with poor credit histories will have to face the music. But it may be for different reasons than people think.
"Just because some subprimers are bad doesn't mean all are," says Stuart Plesser, a mortgage lender and insurer analyst for Standard & Poor's Equity Research. "Countrywide will suffer because they are going to face a pricing issue." Plesser has a "sell" rating on Countrywide, the No. 1 mortgage originator and fourth largest subprime mortgage originator in the U.S., according to National Mortgage News.
Many mortgage lenders, including Countrywide and New Century, sell their loans to banks and investors that are attracted to the high interest rates they carry. HSBC got into subprime during the U.S. housing market boom, but when the market began to cool and foreclosure trends accelerated, the bank found itself in trouble. Washington Mutual, another big player in the subprime market, said in January that its mortgage business lost $122 million in the fourth quarter thanks entirely to losses in its subprime segment.
Price Competition
"This is the leitmotif of this whole thing: These people don't really know what they are doing in mortgage banking," says Plesser. "They are writing whatever loans just to write loans, thinking they will worry about it later. But now it's later."
Regular lenders also suffer when banks get into their territory. Companies like Countrywide have been forced to price loans lower since investment banks started buying up subprime loans and pricing them aggressively. Banks assumed they were covered from potential losses by the revenue streams from their myriad other businesses.
Despite the headwinds, lenders like Countrywide, which only has 10% of its business in subprime production, could weather the housing slump better than nearly pure subprime companies, like New Century and Novastar.
"Countrywide is diversified and will start picking it up when everyone goes out of business," says Piper Jaffray analyst Bob Napoli, who has a "buy" rating on the stock. Napoli also says Accredited, though a pure subprime company, could also "get to the other side."
Diversified Against Danger
As for New Century, Napoli says that although the earnings restatement came as a surprise, he has been looking for an ugly fourth quarter from a company that "grew way too fast for their infrastructure." Still, the analyst has a "market perform" rating on New Century shares, which he says are "not yet a certain sell."
Several other analysts downgraded New Century to "sell" on the news Feb. 8, including Kenneth Bruce of Merrill Lynch (MER). "In short, we think New Century will shift to survival mode, putting shareholders at further risk," the analyst wrote in a report.
Diversification will also be the key factor in keeping banks afloat in 2007. That may be why Bear Stearns (BSC) wasn't afraid to buy the subprime loan business last October of another Irvine-based lender, ECC Capital (ECR).
"Because they are so big and [Bear Sterns has] so many businesses, it doesn't go straight to their bottom line," says Plesser. By 2008, the analyst expects many of the big banks to unload their subprime portfolios and leave the business to the regular lenders.
Let That Be a Lesson
Even if banks decide to stick with their subprime segments, HSBC's profit warning and New Century's restatement may prevent other banks from getting into it in the future. Despite the profit warning, Standard & Poor's Ratings Services affirmed its "AA" long-term and "A1" short-term credit ratings on HSBC Holdings on Feb. 8 and said the outlook for the company remains positive. "The positive outlook reflects the potential for HSBC's diversification to generate very strong group performance even when some business lines are performing weakly," wrote credit analyst Michelle Brennan.
"They are going to look really stupid for making these acquisitions," says Napoli. "Things like this remind people that it's not an easy business."
Click here to see the U.S. cities with the highest foreclosure rates. (newsweek)
TIME TO LOOK AT TAIWAN?
*(click to enlarge chart)MA'S rising nicely, but IMHO looks like EWT might be taking a little breather as it has on way up as my TA suggests good chance that has begun. If I decide to nibble, I will wait at least until indicators turn up as shown before.
D
Sunday, February 11, 2007
Friday, February 09, 2007
Thursday, February 08, 2007
NEW LOW FOR COPPER
We have new lows for copper (in BEAR MKT IMHO) we have had inverted yield curve for an extended period of time, near collapse of housing mkt, near exhaustion of cash out refi's, all of which point to some kind of economic slowdown or Recession, but none in sight? strange very strange.
Dow and Transports now in synch with new highs (9 months after Trannies first made new high w/o Dow) the NAZ 50% below previous 2000 bubble highs is LAGGING badly, even after CSCO earnings hype.
Several of my trusted subs say NO NEW HIGH IN SIGHT, uptrend should continue for "at least 4 more months".hmmmmmm
As prices rise, we need to see buying demand diminish, selling pressure must rise, new highs vs new lows must fall.
I see even now a VERY SELECTIVE rally, it hs been called a "stock pickers market".
VIX (volatility index) extremely LOW, no one buying put protection.
I am looking for interest rates to rise (10 yr) above 5%, will be initial sign of trouble IMHO.
Weren't a slew of mortgages supposed to rise this year in payments?
Early year money pump is right on schedule propping things up.
Bullish is year after mid term elections historical bullsihness.
I would abandon WEAK performers in favor of strong stocks in the strong sectors, if you feel you must be IN. IMHO
When was the LAST serious correction?
D
Saturday, February 03, 2007
"ON THE WINGS OF A BUTTERFLY"
In honor of my father's passing on Monday Jan 29th at 82 years old, I love you dad and will miss you terribly, this poem is also for anyone who has lost someone.ON THE WINGS OF A BUTTERFLY, I AM FREE
I AM FREE OF THE WORLD’S TROUBLES
I AM FREE TO FLY ABOVE ALL THE WORRIES
I AM FREE TO LEAVE THIS WORLD AND ENTER
A NEW ONE
A NEW WOLRD FREE OF STRIFE AND TURMOIL
FREE OF HATE AND INJUSTICE
FREE OF CRIME AND INPATIENCE
FREE OF THE HANDS OF TIME
ON THE WINGS OF A BUTTERFLY, I AM FREE
I AM FREE TO GO WHERE I WANT
I AM FREE OF ALL PAIN
I AM LIGHT AS A FEATHER AND HAVE NO WORRIES
ON THE WINGS OF A BUTTERFLY
I HAVE ONLY ONE REGRET IN LEAVING THIS WORLD
AND THAT IS THAT I CANNOT BE WITH YOU ANYMORE
YOU HAVE BROUGHT ME SO MUCH JOY IN MY LIFE
I HOPE YOU KNOW HOW MUCH I LOVED YOU
ON THE WINGS OF A BUTTERFLY I AM FREE,
BUT I CANNOT HAVE YOU
BUT WHAT I DO HAVE, AS DO YOU IS A LIFETIME OF MEMORIES
OF HAPPY TIMES AND OF LOVE AND JOY
I KNOW WHAT WE MEANT TO EACH OTHER
THE SADNESS AND EMPTYNESS WILL LIFT
ON THE WINGS OF A BUTTERFLY I AM LIFTED FROM MY SORROW
AND AM UPLIFTED WHEN I THINK OF YOU, OUR LIFE TOGETHER
YOU WILL BE THAT BUTTERFLY SOMEDAY,
AND I AM SURE WE WILL MEET AGAIN
HIGH ABOVE THE WORLD
WITHOUT A CARE, IN TOTAL PEACE
AND TOGETHER AGAIN.
Thursday, February 01, 2007
NEW LOW
(Personal Savings Rate for 2006 Tumbles to Negative 1 Percent, the Lowest Level in 74 Years. ) I'm sure you saw this , but all is good? Hard to think of embarking on NEW ERA with this stat?
http://biz.yahoo.com/ap/070201/economy.html?.v=15
http://biz.yahoo.com/ap/070201/economy.html?.v=15
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