California pensions next state financial crisis

SAN FRANCISCO (Reuters) - On the heels of closing a $24 billion state budget deficit, California faces new financial trouble -- from its public pensions.

The loss incurred by California's biggest pension fund in the last year is more than half the size of the state's spending plan, and financial analysts say the market on its own will keep the pension hole open for years or longer, a challenge public pension funds across the United States will also face.

"Pensions will be a major issue, sooner more likely than later, because they're going to bankrupt many jurisdictions," said Bob Stern of the Center for Governmental Studies in Los Angeles.

Governor Arnold Schwarzenegger on Saturday in a radio address put the California Public Employees' Retirement System, the biggest U.S. public pension fund that is best known as Calpers, on notice that its cost to the state government is in his sights.

"In these challenging economic times, we cannot afford everything we have funded in the past," he said. "And we will take on pension reform to cut down on unfunded liabilities and save the state billions of dollars."

By Monday, Calpers officials were discussing how to respond to Schwarzenegger -- and others who may take aim at the fund.Full Story

Whats Going with 5 Years Treasuries

AZ State Govt Building For Sale !!!!

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn't to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

For investors, the arrangement means long-term lease payments from a stable source.

Once any deals are approved, money could begin flowing into state coffers in as little as 90 days.

The plan has bipartisan backing, but that doesn't make the prospect of paying rent for buildings once owned free and clear by taxpayers any easier to swallow.

"We've mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are.

"To me, it's something we're going to have to do no matter how much we find it undesirable."Full Story

No escape for Fed

In contrast to Federal Reserve chairman Ben Bernanke's testimony last week, we cannot see a safe "exit strategy" for the Fed from its current loose monetary policy. Bernanke's ambivalent testimony of a safe exit strategy can only heighten uncertainty and exacerbate instabilities. Let's explain.

In his recent testimony on July 21 before the Committee on Financial Services of the House of Representatives, Bernanke was felicitous that aggressive money policy had averted the collapse of the financial system. However, he omitted to say that the same policy had failed to avert a collapse of real gross domestic product (GDP) and private investment and rising unemployment.

The economic recession continues despite interest rates being near-zero, money supply rising at 22% a year, unprecedented stimuli packages, and record fiscal deficits reaching 13% of GDP in 2009. Bernanke and President Barack Obama's team had clearly believed that a combination of aggressive money and fiscal policies would secure the return to full-employment and quickly. After all, Larry Summers had predicted the unemployment cresting at about 8%. These expectations were standard Keynesian predictions that have proven to be substantially off the mark. Full Story

IMF: Risks to financial stability have intensified

Risks to financial stability have intensified since October 2008. Macroeconomic risks have risen as global growth has fallen precipitously alongside a sharp slowdown of global trade. Credit risks have also risen as a deterioration of economic and financial conditions have resulted in rising loan losses. At the same time, the flight from risky assets and illiquid market conditions has increased funding costs, even as risk-free rates have declined with monetary easing. Emerging market countries are also feeling the effects of the advanced economies’ financial and economic difficulties, and there is the potential that the abrupt pullback from emerging market assets by investors and heightened financing costs will erase some of the economic gains these countries have made in recent years.

Until now banks have managed to obtain sufficient capital to offset existing writedowns, but that is mainly due to the massive public sector injections of capital in the fourth quarter (Figure 2). The worsening credit conditions affecting a broader range of markets have raised our estimate of the potential deterioration in U.S.- originated credit assets held by banks and others from $1.4 trillion in the October 2008 GFSR to $2.2 trillion. Much of this deterioration has occurred in the mark-to-market portion of our estimates (mostly securities), especially in corporate and commercial real estate securities, but degradation is also occurring in the loan books of banks, reflecting the weakening outlook for the economy.Full Story

Suspend Mark-To-Market--Now

In late 2007, the Financial Accounting Standards Board (FASB) changed the definition of mark-to-market accounting rules as they applied to the U.S. financial industry. The board forced financial firms and auditors to use "observable," market prices to value securities rather than models or cash flow. Within a year, the U.S. was in the middle of the worst pure financial panic in a hundred years. Coincidence? We think not.

On its surface, market-to-market or "fair value" accounting makes some superficial sense. Markets usually provide transparent and verifiable prices, so companies can't just contrive numbers to make their earnings look good.

The problem with mark-to-market is its failure to recognize that market prices for securities often deviate--sometimes substantially, but always ultimately temporarily--from the underlying fundamental value of the assets. Since markets are forward looking, mark-to-market forces financial firms to take hits to capital over something that "might" happen in the future, but has not happened yet. It's like forcing homeowners to come up with more capital when the weather man forecasts a hurricane because their homes might be destroyed.Full Story

Not Just Humans, Robots are Layoffed Too

Many robots in Japan are now being idled or returned as more manufacturers cut back on production, dealing a blow to the robotics industry.Full Story

Quant Funds(with HFT) and Market Manupulation

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage. Full Story

Will This End Silver/Gold Manupulation ?

Will this hearing from CFTC with their positive note end the manipulation of Commodities(Energy/GOLD/SILVER) by the big banks end after having deregulated back in late 80's so that they have total control on thier position sizing on thier investments. Anyway here is whole story and Hearing.

CFTC to Hold Three Open Hearings to Discuss Energy, Position Limits, and Hedge Exemptions

First Hearing Scheduled for July 28, 2009

WASHINGTON -- The Commodity Futures Trading Commission (CFTC) today announced that it will hold three hearings to address the current application of position limits and exemptions from position limits in energy markets. The hearings are scheduled to be held between 9 a.m. ET and 1 p.m. ET on Tuesday, July 28, Wednesday, July 29, and Wednesday, August 5, 2009.

The first hearing will consist of testimony by Congressman Bart Stupak, CFTC staff presentations and two witness panels:

Panel 1: Jeff Sprecher, Intercontinental Exchange, and
Terry Duffy, Chicago Mercantile Exchange

Panel 2: Todd Petzel, Futures Industry Association; Ben Hirst, Delta Airlines; Laura Campbell, American Public Gas Association; and Sean Cota, Petroleum Marketers Association of America

"The CFTC is directed by statute and provided with broad authorities to ensure the fair, open, and efficient functioning of futures markets," CFTC Chairman Gary Gensler said. "While the CFTC currently sets and ensures adherence to federal position limits for certain agriculture products, the agency does not do the same for energy markets. Our hearings, beginning next week, will be critical as we look into different approaches to regulate energy markets. I look forward to hearing from our panelists as we consider applying position limits to energy markets.Full Story

HyperInflation Vs Deflation

One of the key issues investors have to make a decision on in the next couple of years is what the likely profile for inflation is going to be and how it will affect their investment decisions.

Some have framed this decision as being one between deflation and hyper inflation. Even if we ignore the somewhat ridiculous “hyper” element of the choice, the implications for financial assets are hugely different.

If we see deflation then the obvious choice is government bonds, with equities likely to struggle and commodities still more so, while index linked bonds are likely to be a waste of money.

If we get inflation you can largely turn the order around, although too high an inflation rate is normally not to be good for equities either as interest rates tend to be high and volatile in such an outcome. Yet is this the real choice we are facing? The Financial Times has been full of articles arguing that inflation is a necessary outcome of the quantitative easing, normally citing a likely surge in “inflationary” lending.Full Story

Commercial real estate freefall

Commercial real estate values around the country have dropped 35 percent from their peak in October 2007, according to Moody’s REAL Commercial Property Price Indices.

The decline appears to be accelerating as the index dropped more than 15 percent during April and May. Transactional volume also fell along with value, which is showing signs of effects from distressed sales.

“May marked a new low for both counts,” the report said.

Along the lines of kicking a sector when it’s down, a rise in interest rates caused several deals to unravel, hitting apartment sales the hardest.

To calculate the index, Moody’s used 52 repeat sales, which had a dollar value of $400 million in April 2002.

Dan Fasulo, managing director of Real Capital Analytics, said Moody’s report is beginning to reflect true market pricing conditions “well ahead of any other indicators” and noted that commercial property values have fallen more than residential prices in annual terms.Full Story

Goldman Sachs : The Money Suckers !!!!

Goldman Sachs Internal Memo

After all that federal aid, a resurgent Goldman Sachs is on course to dole out bonuses that could rival the record paydays of the heady bull-market years. Goldman… announced that it had earmarked $11.4 billion so far this year to compensate its workers. At that rate, Goldman employees could, on average, earn roughly $770,000 each this year.

—The Times.

Internal Memorandum No. 8121b

ATTN: Employees of Goldman Sachs

We did it. Bottom of the ninth, down by three, bases loaded, and we cranked another grand slam to the moon. They may have shot Lennon, but nothing can kill the Beatles.

I admit things looked bleak for a minute there. We had to convert to a bank holding company and were forced to accept a taxpayer bailout. It felt un-American. Terribly unbanksmanly. But we accepted the money, knowing that we could magically weave it into a much larger mountain of money.

We had a few hard months there, didn’t we? They regulated our corporate jet so that we could no longer use it to fly from hole to hole on the green. Dave had to drain his money pool to half capacity. I stopped injecting gold into my blood. They don’t call it a recession for nothing. One day, we’ll look back on the year we received only five-figure bonuses and laugh.

Wanting to celebrate our renewed success is natural, but it’s important that we don’t go crazy here. Remember, ten per cent of the non-bank country is unemployed, and even those who are working have “real” jobs, where payment is proportional to the creation of a “product” or a “service.” Those poor bastards. So I ask that, in celebrating our raping of the stock market, we show restraint in the following ways:

* Please limit high-fives and chest bumps to a dozen a day.
* Don’t wear your crowns, except around the office.
* Stop paying for things in Monopoly money—I understand it is the same as real money to us, but there have been some complaints.
* For now, let’s take down the giant scoreboard that reads “Main Street: zero. Wall Street: a billion gazillion bajillion.”

Furthermore, to avoid drawing criticism from the press, this year the bonuses, expected to be comically large, will be distributed in blood diamonds, which can be easily concealed in a briefcase so it looks like we’re working.

I’d like to thank everyone who made this possible—for a second time. Respect to President Obama for keeping us in the green. Thanks to the big guy upstairs (me). And let’s not forget all the ordinary Americans, who, for some unfathomable reason, have refused to put us behind bars. We are literally taking money out of their wallets. Seriously, with these returns we are making Madoff look like a little kid with his hand caught in the cookie jar. Amateur!

Yours in money,

Lloyd Blankfein, C.E.O., Goldman Sachs

Source

The Fed’s Exit Strategy

The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.

These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages.Full Story

Barofsky : U.S. Rescue May Reach $23.7 Trillion

uly 20 (Bloomberg) -- U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

Treasury spokesman Andrew Williams said the U.S. has spent less than $2 trillion so far and that Barofsky’s estimates are flawed because they don’t take into account assets that back those programs or fees charged to recoup some costs shouldered by taxpayers. Full Story

Pension Calculus Draws New Scrutiny

A California dustup over large pension payments is shining a spotlight on the practice of spiking -- increasing a salary just before retirement and boosting the lifelong payout.

Pete Nowicki had been making $186,000 shortly before he retired in January as chief for a fire department shared by the municipalities of Orinda and Moraga in Northern California. Three days before Mr. Nowicki announced he was hanging up his hat, department trustees agreed to increase his salary largely by enabling him to sell unused vacation days and holidays. That helped boost his annual pension to $241,000.

The boost was legal, and Mr. Nowicki said he is receiving a permissible pension. "People point to me as a poster child for pension spiking, but I did not negotiate these rules," he said.

The fire district's board agrees. "Chief Nowicki abided by existing rules and guidelines for optimizing his retirement pay," said Frank Sperling, the board's vice president. "I don't fault him. The system itself is broken. We need to change the system."Full Story

Ben Testimony at 10 a.m

Fed Chairman Ben Bernanke will testify before the House Financial Services Committee at 10 AM video links for web users: CNBC feed, And a live feed from C-SPAN.

Semiannual Monetary Policy Report to the Congress

July 21, 2009
Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress.

Economic and Financial Developments in the First Half of 2009
Aggressive policy actions taken around the world last fall may well have averted the collapse of the global financial system, an event that would have had extremely adverse and protracted consequences for the world economy. Even so, the financial shocks that hit the global economy in September and October were the worst since the 1930s, and they helped push the global economy into the deepest recession since World War II. The U.S. economy contracted sharply in the fourth quarter of last year and the first quarter of this year. More recently, the pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization. The labor market, however, has continued to weaken. Consumer price inflation, which fell to low levels late last year, remained subdued in the first six months of 2009. Full Report

Small Business: Defaults Doubled !!

July 20 (Bloomberg) -- Advanta Corp., the credit-card company that cut off almost 1 million small-business accounts after posting three quarterly losses, said the default rate more than doubled in June from May to 56.95 percent.

Advanta started writing off loans after they were delinquent 120 days, the Spring House, Pennsylvania-based lender said today in a federal filing for its Advanta Business Card Master Trust Advanta Series. Loans previously were deemed uncollectible after 180 days, the industry standard.

The policy “was changed as a result of closing customer accounts to future use,” the filing said.

Advanta’s charge-off rate dwarfs the national average, which set a record in June when it topped 10.4 percent, according to Fitch Ratings. Bank of America Corp. on July 15 posted the highest June write-offs among the nation’s biggest lenders at 13.86 percent, a rate that includes consumer credit cards.

Delinquencies for Advanta loans 30 to 119 days past due rose to 8.12 percent in June, compared with 7.07 percent in May, and “early stage” delinquencies for accounts 30 to 59 days late increased to 3.64 percent, from 2.71 percent, the filing said. Full Story

FDIC : Up To 500 More Banks Could Fail

By Jessica Holzer, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Federal Deposit Insurance Corp. Chairman Sheila Bair believes up to 500 more banks could fail, a U.S. senator said Bair told him in a recent meeting.

"She told us that unless something dramatic happens, we could lose up to 500 more banks," Sen. Jim Bunning, R-Ky., said Thursday at a hearing of the Senate Banking Committee on the foreclosure crisis.

Bunning said Bair made the remarks in a recent meeting.

"That means that people who make mortgages in local places .... people that could really help in a foreclosure will not be there," Bunning said. Full Story

Dark Pools : To Understand Market Manipulators

The US-China Ponzi scheme

By Jon Markman
MSN Money

Imagine becoming so successful at your job that you stack up $2 trillion in income, which you conservatively place in short-term U.S. Treasury bonds for safekeeping.

Now imagine that when you try to cash in those bonds to buy a few things for your kids, the clerk at the bank abruptly shuts her window and tells you to go away. That is essentially the situation faced by China these days as it wonders whether its plan to manufacture goods for U.S. consumers over the past two decades in exchange for a pile of credit slips was really such a hot idea. Full Story

What went wrong with economics ??

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”

In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”Full Story

Storage space for gold bullion Running Out

Worries about the economy and the success in marketing gold ETFs has seen Swiss banks finding difficulty in meeting secure storage requirements for gold bullion.

In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions. Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment - and in gold in particular, and in the necessary secure storage space in which to hold it..

One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold. The Zurich Kantonal bank put this down to the success of its gold ETF.Full Story

Global Economic Meltdown, Political Unrest

BOSTON — I wrote a rather nerdy column in February about the Davies J-Curve, the political science theory put forth by James C. Davies in the 1950s.

Davies' idea was simple but powerful: Political unrest occurs when a people's rising expectations — about how much money they can make, what they can buy, whether they have enough food or medicine — are suddenly dashed by, let's say, a global economic crisis that follows the longest expansion in decades.

Here's how professor Davies put it, in that special language of academia:

"Revolutions are most likely to occur when a prolonged period of objective economic and social development is followed by a short period of sharp reversal. People then subjectively fear that ground gained with great effort will be quite lost; their mood becomes revolutionary."Full Story

Market Villains : Goldman are Scums :)

Market And Gold Updates

Markets to me looks like we are headed for a blow off tops (meaning markets moving higher for brief period ) suggesting significant drop in market value in every asset value. So please don't chase this market. Price to volume action does not a suggest strength in markets but like a house of cards the image below will give u a total pic how this markets are gauged, And it may fall apart at any moment. Markets are manipulative at this juncture for sure and volatility index is getting compressed to escape from the trending range.



Dow Jones Industrial Average

click image for sharper view

Gold Chart

Click image for sharper view

Weekly Natural Gas Storage Report

Click for Sharper Image and Full Report Here

Working gas in storage was 2,886 Bcf as of Friday, July 10, 2009, according to EIA estimates. This represents a net increase of 90 Bcf from the previous week. Stocks were 589 Bcf higher than last year at this time and 454 Bcf above the 5-year average of 2,432 Bcf. In the East Region, stocks were 116 Bcf above the 5-year average following net injections of 62 Bcf. Stocks in the Producing Region were 246 Bcf above the 5-year average of 786 Bcf after a net injection of 19 Bcf. Stocks in the West Region were 91 Bcf above the 5-year average after a net addition of 9 Bcf. At 2,886 Bcf, total working gas is above the 5-year historical range.

Janet Tavakoli On Recent Financial DownTurn

United Future World Currency coin

July 10 (Bloomberg) -- Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

“Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”

The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.” Full Story

Hope, Markets Won't Dive Like This One

Business Models Changing Stratergy

June 29 (Bloomberg) -- Sears Holdings Corp., the largest U.S. department-store chain, will let customers who lose their jobs suspend payments and keep appliances bought with store credit cards in an effort to bolster sales in the recession.

Customers who spend at least $399 on appliances and related merchandise between July 6 and Aug. 1 will have one-twelfth of the purchase price credited to their account for every month they are out of work, said Larry Costello, a company spokesman. Those who are jobless for more than a year will have the full debt forgiven, he said. The offer period may be extended, he said.

“We thought this would be a way to get folks to jump in where they’d been a little reluctant,” Doug Moore, president of Sears’s home-appliance unit, said in a telephone interview.

The retailer, based in Hoffman Estates, Illinois, is running the trial program to spur spending on refrigerators and washing machines as consumers hold off on bigger purchases amid declining home values and mounting job losses. Full Story

States brace for shutdowns

Reporting from Indianapolis and Denver -- The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.

But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today.

Indiana is one of five states -- along with Arizona, California, Mississippi and Pennsylvania -- bracing for possible shutdowns this week as time runs out for lawmakers to close billion-dollar gaps in their fiscal 2010 budgets.

Of the 46 states whose fiscal year ends today, 32 did not have budgets passed and approved by their governors as of Monday afternoon, according to the National Conference of State Legislatures.Full Story