What to think about carbon taxes?

There's an ongoing debate whether or not the carbon tax that the US goverment wants to impose is a good idea. On top of that, there's an even bigger debate about whether or not global warming actually is real. It reached the point where global warming has been recently renamed climate change since even though the polar ice is melting the warming doesn't seem to be global. The scientific community seems to be split in two camps, none of which can really prove anything. So even though I think that the major polluters and oil companies in the world finance the research of those trying to prove that there's no climate change at all or that if there's any, it's not due to human (destructive) activity.

My opinion is that nobody can prove that carbon emissions are dangerous for the planet or not. I mean, prove in a mathematical/scientific way that cannot be refuted.

So, my opinion is that climate change or not pollution does not do any good and can only hurt the environment.

So even in doubt, why should we keep on cutting trees, pouring toxic waste into the ocean and rivers, and emitting all sorts of toxic pollutants into the atmosphere? What good does it do?

Also, the real cost of oil should include the environmental cost (cleaning after ourselves) and also the cost of "producing" oil, which seems to take thousands of years if not millions to create. Today, the cost of oil is actually only the cost of discovery + extraction. In that sense, it makes sense to find a way to make the price of oil move toward its real cost.

I honestly believe that if cleaner energy sources haven't made their way through is because the major oil companies are preventing them from emerging.

Then, government taxes are probably not the solution to the problem, specially goverment like Obama's.

But it doesn't mean that the problem is not real.

CNNMoney spreading FUD in the US

Please note: I've been reported that the embedded videos do not work from various RSS readers. If you don't see the video, please open the actual post in a web browser.

I am sure it's not just CNNMoney, but this video typifies the role of media as a fear monger instead of trying to dig just a bit deeper than scratching the surface of an issue. For those of you who are not familiar with the acronym FUD; it's defined by Wikipedia as:

Fear, Uncertainty, and Doubt (FUD) is a tactic of rhetoric and fallacy used in sales, marketing, public relations, politics and propaganda. FUD is generally a strategic attempt to influence public perception by disseminating negative information designed to undermine the credibility of their beliefs.

She seems to be talking only about facts and give actual figures, but then, when it comes to what alternative exists to raising taxes, she goes complitely wild: "You cut services [...]. What we could see Tony is shorter school weeks - teachers cut a lot of them, crowded classrooms and even some prison inmates freed, Tony". So I say WOW !!! Because it's for sure that they cannot reduce the size of the bureaucracy that has become so huge in the past few years only. It's really easy to just go back to where they were 10 years ago, before highly inflated property prices resulted in highly inflated property taxes and also full employment in unproductive jobs drove income taxes so high... The politicians, supported by the media, are doing nothing less than emotional blackmail against their people.

And then she goes on "we should be taxing the rich" propaganda that Obama has started, as if taking the people who produce and the successful entrepreneurs as scapegoat would solve the problem of too much spending.

Trends that I have seen for about a year and that are getting stronger and stronger:

• The state (and corporatocracy) waging war against their people
• Fear mongering and FUD by the politicians and media (although this has been the bread and butter of George W Bush and the US media for many many years).
• The schims that the government is trying to create between the so called "rich" and so called "poor".

Full video of Bernanke's testimony at the House

Please note: I've been reported that the embedded videos do not work from various RSS readers. If you don't see the video, please open the actual post in a web browser.



Mish wrote a good post about Bernanke's lies err... selective memory.

Jastram's Golden Constant 2009 edition out of stock already?

It's interesting to see that Jastram's Golden Constant, which has been recently updated in a new edition is out of stock on both Amazon.co.uk and Amazon.com.

I am still reading mine along with several other books. It's a unique kind of work and is definitely worth reading to get a grasp of the true power of gold and you can pre-order from the links above.

In the meantime, lots of bullion merchants have had their stocks replenished and I took the opportunity to place an order for various gold coins while the premium are very low and availability is high. Silver is still quite expensive, with premiums of about 20-30% before VAT or GST depending on the country.

Interestingly, please not that gold is not subject to VAT nor capital gains tax in the UK. So it's really the best invesment you could possibly make in the UK. Unfortunately, silver is subject to both.

Switzerland tries to devalue again

They already did it once about three months ago, but it looks like destroying a currency is the favorite game in town with Mervyn King, Ben Bernanke and the anonymous incompetents chairing the SNB on the podium. At that time I said:

This is the reason why I never bought Swiss Francs as a safe haven, because I knew their Central Bankers are as mad as Ben Bernanke and Mervyn King. For those who still believe the Swiss Franc is better than the USD or the GBP, I suggest you read Gold Wars, The Battle Against Sound Currencies as seen from the Swiss Perspective by Ferdinand Lips. It's a fantastic book.

One must understand that these kind of intervention are destroying the value of the currency, stealing from their people their purchasing power and leading to nothing productive. At least people will start to understand that the Swiss Franc is not a safe haven anymore and only Gold and precious metals are safe in these times. Please read Ferdinand Lips' book - (may he R.I.P). Here's the ugly result of the SNB's intervention:

June 25 (Bloomberg) -- The Swiss National Bank is attempting to put a “line in the sand” with its first intervention in the foreign-exchange market in more than a decade after previous attempts to weaken the franc failed.

Currency traders said the Zurich-based central bank intervened twice yesterday, driving the franc down against more than 150 currencies tracked by Bloomberg. It fell the most in three months versus the dollar and euro. The franc extended declines today.

While policy makers mainly sought to weaken the franc versus the euro, the latest round of intervention may have included the dollar, said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co. in New York, describing the moves as a new “aggressiveness’ on the part of policy makers. “It looks like the SNB changed its tactics,” he said.

The franc dropped as much as 2.4 percent to 1.5380 versus the euro yesterday and 3.2 percent against the dollar to 1.1023, the biggest declines since the central bank said on March 12 it would halt the currency’s appreciation to avoid a “dramatic deterioration” in the economy.

The intervention surprised traders, who tested the central bank’s resolve by pushing up the franc on speculation policy makers wouldn’t try to influence exchange rates unless it strengthened beyond 1.50 per euro, said Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG. The franc will trade at 1.52 to the euro in three months, he said.

Most of the Swiss currency’s declines yesterday occurred in two periods of less than an hour each.

Switzerland’s central bank “must retain its credibility,” said Ursina Kubli, an economist at Bank Sarasin in Zurich. “I have no doubts that they have the willpower, determination and independence to push this through.”

Volcker should resign

I wrote here a while ago that Volcker should and will resign because Obama will just not listen to him. Obama is a socialist or a fascist but definitely not a libertarian or free-market advocate. Obama wants more power in the hands of the government and the Fed when Volcker has been pushing for the opposite. Obama is handing trillions of dollars to failed private corporations and banks taking it from the US citizens and their children and their grand children... Please read the previous posts about Volker and see what I have already predicted a while ago.

June 25 (Bloomberg) -- The salad was made with the first green shoots from the White House garden. The main course was roast beef. The topic of conversation in the second-story Family Dining Room on a warm evening in April: President Barack Obama’s economic policies.

Obama sat at the head of the table, administration insiders arrayed along one side to his right. To his left, facing a French marble fireplace, were some of his harshest critics: Nobel laureates Joseph Stiglitz and Paul Krugman, Harvard University professor Kenneth Rogoff and former Federal Reserve Vice Chairman Alan Blinder.

One chair on the insiders’ side was empty, according to attendees. It was reserved for Paul Volcker, the 81-year-old former chairman of the Fed, who was an adviser to Obama during the campaign and now heads the President’s Economic Recovery Advisory Board, or PERAB. He was stuck at the White House gate, trying to convince guards that he was expected for dinner. His plane from New York had been delayed by a storm, and his security clearance to enter the building that day had expired.

That Volcker’s seat was on the same side of the table as Treasury Secretary Timothy Geithner’s and National Economic Council (NEC) Director Lawrence Summers’s was a clear sign he’s one of the president’s most valued advisers. That he was stuck outside suggested his role is ambiguous. While he doesn’t have a full-time job, isn’t paid for his advice and lives in New York, the 6-foot-7-inch (2.01-meter) Volcker is hard to ignore.

Volcker, who eventually made his way to the dinner table the evening of April 27, earned a reputation for standing up to Wall Street in the 1980s when, as Fed chairman, he brought inflation down to 1 percent from 15 percent by pushing the fed funds rate up to 20 percent. Now, he’s urging radical regulatory reforms that would limit how big banks can get, separate deposit taking from trading at financial institutions and force all derivatives trading onto public exchanges. His proposals go beyond what Geithner, Summers and other members of the Obama administration have advocated.

The Bernanke PUT is born

After the Greenspan PUT and mega inflationary policies, here's the turn of Helicopter Bernanke to provide the market with a PUT:

June 25 (Bloomberg) -- U.S. stocks rose the most in three weeks as investors bet that Ben S. Bernanke’s defense of his emergency measures to rescue Merrill Lynch & Co. bolstered his chances of remaining Federal Reserve chairman.

What if Jim Rogers was wrong?

Following my previous post a couple of weeks ago, I have been trying to think for myself about a few statements that Jim Rogers often makes.

On options, my opinion was that:

I am remember a few years ago reading Jim Rogers say that he never buys options because 80 or 90% of them ends worthless. I would disagree with him on this one! I am happy to have bought this options, because they insured my portfolio for about 4 months. If I had shorted the markets instead of buying these options, I would have made major losses on this portfolio instead of making big gains.

My opinion on options is the following: Options are very good deals when you are very good at timing (big gains!) and also when you are completely WRONG (limited losses)! This had previously happened to me about 18th months ago, when I had bought options on some European companies, thinking its shares should rise a lot and not be affected by the US subprime collapse. Well, the shares actually collapsed to about 40% less than the strike of my calls! So I couldn't be more WRONG on the short term ! Should I have bought the shares instead of the options, I would have lost about 4 times more money than on the options.

On cotton:
Jim Rogers keep on saying that cotton will do very well in the future because its price is very depressed. I have been thinking about that, and have come to the two following realisations:

• Given that during the inflationary boom of the past several years, quality has been falling, it might be a good reason for the price of cotton to have fallen as well, replaced by cheaper lower-quality fabric.
  
• Synthetic fabrics are now far cheaper to produce than cotton and so it might be one of the reasons why cotton's price is depressed.

On sugar:
When asked for investment advice he most often says he buys his own index, the RICI but that sugar is one of the most depressed commodities, about 80% bellow its all time high 20 years ago. Again, I have come to the following realisations:

• Synthetic sweetners have been competing with sugar because people are eating more and more rubbish food and drinking rubbish beverages but they are more 'health conscious' and prefer having Diet Coke than regular Coke, etc. So sugar is competing against Aspartame and the likes.
• Not only sugar is no longer the only 'contenter' but it's actually competing against cheaper products. Have you noticed that Diet Coke tends to be cheaper than regular Coke? So Aspartame must be cheaper than natural sugar, which probably won't help the price of sugar to rise.

Nevertheless, he might be wrong on this two single picks but I believe he must be right on the general trend: commodities will rise, specially agriculturals ones which prices are more depressed and more needed during recessions than base metals etc.

What do you think? Please share your opinion by commenting on this post.

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate

Again, this is one of those quotes you might think has been written last week. Does that still make any sense, 80 years later?

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people", Andrew Mellon to Herbert Hoover.

Obviously, his advice wasn't followed by Hoover, who preferred to intervene massively following Keynesian theories and push the economy into the Great Depression.

80 years later, Bush, Obama, Greenspan, Bernanke, Hank Paulson and Geithner, are now pushing us into the Greater Depression.

You might want to read this previous post as well:

• 2009-03-23 Saving the auto-industry in the US

Pimco's McCulley's disturbing 2001 market commentary

This is the kind of news that will fuel many conspiracy theories. I am quite impressed and disturbed by McCulley's Market Commentary published back in July 2001. Here's what this Managing Director at PIMCO wrote at that time:

I’m fundamentally bullish on American business, as are Mr. Greenspan and Mr. O’Neil. Good businesses with bad balance sheets are fixing their balance sheets, and bad businesses with bad balance sheets are going out of business. This is the way that capitalism is supposed to work. Unlike Mr. Greenspan, however, I see no reason whatsoever to anticipate a return to robust business investment any time soon. To expect such a thing after a bubble is to put out the landing lights for Amelia Earhart. She may return, but I see no reason to bet it that way. Bubbles do not re-bubble for a very, very long time after they blow up.

But that does not mean that the American economy is a fundamentally bad business, just that it must change, with a shifting of resources away from business investment to household investment and consumption. And a housing bubble fits the bill. So I’m not critical of Mr. Greenspan at all for helping to inflate one, despite bellyaching about mal-investment from members of the Austrian School of economics (there must be a lot of you, gauging from the volume of email I get accusing me of intellectual or moral bankruptcy, or both!). Better a bellyache than an empty belly, I say.

So the questions are numerous, but here's a sample:

• Is this market commentary genuine?
• Was Greenspan's goal to create a housing bubble?
• Was Greenspan capable enough to pull such a thing at will?

A few certainties as well:

• PIMCO is an evil company, and has been for quite some time.
• Members of the Austrian School of economics were right about McCulley 's intellectual AND moral bankruptcy (both!).
• Krugman is an idiot, and has been for quite some time.
  

I found this market commentary while digging for confirmation after reading Karl Denninger's post about a report Krugman wrote in 2002.

Irrational exuburance and extreme markets valuation - when will it end?

While the markets have rallied by about 40% since the low just 3 months ago, it's probably time to stop and think a bit. Why this rally? Because the consensus is now that:

1. We will have a V shaped recovery, and that the recovery is now and will be quick.
2. Banks are now posting profits, they are recovering as shows the payback of the TARP funds.
3. Unemployment rise is slowing (even though unemployment is still rising).
4. "Green shoots" have sprouted and blossomed.

So where are we?
V-Shaped recovery
The only sign of V shaped recovery is the stock markets, nowhere else do we seen any recovery. Which other signs of recovery have we seen? What I have seen is manipulated data from the government, showing that the decline is slowing. But nothing stating that we are recovering.

Bank are posting profits and repaying the TARP
I already mentioned that the sole reason for banks to post profits is that a change in the accounting rules is legalizing "mark to fantasy", which banks are now using instead of the "mark to market" accounting rules. This is fraud.

We also know that repaying the TARP is yet another way for the government to make a wealth transfer to the banks from the tax-payer payer, their children and grand-children, and the USD-barer to the banks.

Banks won't be sound as long as their total borrowing does not return to normal (see chart below, from the Fed itself, click for bigger view).

Unemployment rise slowing?
First of all, this is seen as "Unemployment is declining" which is obviously wrong.
Second of all, according to the official figures of the BLS, both U-3 and U-6 have seen their increase accelerate (higher rate of increase) up to the latest data point available:
Jan. Feb. Mar. Apr. May
2009 2009 2009 2009 2009
U-3 7.6 8.1 8.5 8.9 9.4
U-6 13.9 14.8 15.6 15.8 16.4

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

And according to ShadowStats, the real rate of unemployment is now slightly above 20% already.

Finally, Yahoo Finance is reporting Jobless benefit rolls post first dip since January (copied from Mish).

The number of people receiving unemployment aid fell by 148,000 to 6.69 million in the week that ended June 6 -- the largest drop in more than seven years. The decline broke a string of 21 straight increases in the number of people claiming benefits for more than a week, the last 19 of which were records. (A dip in continuing claims several weeks ago was later revised higher.)

On the surface, the government seemed to signal Thursday that more Americans are finding jobs: The number of people receiving unemployment aid fell for the first time since early January.

But that doesn't necessarily mean more companies are hiring.

Fewer people are receiving jobless aid largely because more of them have exhausted their standard unemployment benefits, which typically last 26 weeks. Government figures, in fact, show the proportion of recipients who used up their jobless benefits in May topped 49 percent, a monthly record.

Where are the green shoots? I can't see them, and it seems that I am not the only one:
June 19 (Bloomberg) -- General Electric Co. Vice Chairman John Rice said he isn’t seeing an increase in orders even as U.S. economic statistics suggest the world’s largest economy may soon shift to a recovery.

“I am not particularly of the green shoots group yet,” Rice said today to the Atlanta Press Club, referring to a phrase used by Federal Reserve Chairman Ben S. Bernanke that described signs of a nascent recovery. “I have not seen it in our order patterns yet. At the macro level, there may be statistics suggesting the economy is starting to turn. I am not seeing it yet.”

GE is the world’s biggest maker of jet engines, power-plant turbines, locomotives, medical imaging equipment. Rice oversees the Fairfield, Connecticut-based company’s industrial businesses.

“We see a world where good companies and good consumers can’t get all the credit we would like,” Rice said. “Companies with lots of cash on their balance sheet are worried about whether they will get what they need for working capital” and are cutting spending.

“Until that changes I don’t think you will see a significant rebound,” Rice said. “We are preparing for 12 or 18 months of tough sledding.”

Are the markets cheap?
The Russell 2000 is loosing money, and hence has no PER. Yet, it has rallied 50% since the bottom.
The S&P 500 has a current PER of 35. Which makes it very expensive by historical standards AND absolute values.

Here is the chart of the S&P 500 historical PER, one series is the historical average since inception, the other is the quarterly values (click for bigger values).


Last but not the least, Sovereign Speculator has an interesting thread on the overvaluation of the markets:

the P/E ratio is subjected to all kinds of perversions to deflate it to levels that can be passed off as reflecting value. At the very least, most bubbleheads try to make it less scary than its current level of 133 for the S&P 500. [...]
Q1 2009 earnings were about $7.53, and Q2 and Q3 are expected (analysts tend not to be that far off for quarters directly ahead) to be more or less the same, so we are on pace for about $30 in annualized earnings. A glace at the historical data shows that this is about the same level as in 2001-2003, after a peak of $48-54 for a few quarters in 1999 and 2000. You have to go back to 1994-1995 to again see the $30 level, with the $20 level about the norm from 1988-1993. Assuming that the $30 is sustained, you could say that the current P/E is 30. That’s not value in anyone’s book.[...]
To say that stocks are anything other than dangerously overpriced with a P/E of over 130 and a yield of 2.5% on unsustainable dividends is either farcical or fraudulent.

It's time to remove your pink-colored shades and put on your reality lenses!

Gold sold from vending machines in Germany

Interesting report from the Telegraph:

TG-Gold-Super-Markt aims to introduce the machines at 500 locations including train stations and airports in Germany.

The company, based near Stuttgart, hopes to tap into the increasing interest in buying gold following disillusionment in other investments due to the economic downturn.

Gold prices from the machines – about 30 per cent higher than market prices for the cheapest product – will be updated every few minutes.

Customers using a prototype "Gold to go" machine at Frankfurt Airport on Tuesday had the choice of purchasing a 1g wafer of gold for €30, a 10g bar for €245, or gold coins.

A camera on the machine monitors transactions for money laundering controls.

Thomas Geissler, who owns the company behind the idea, said: "German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons. They have twice lost everything.

"Gold is a good thing to have in your pocket in uncertain times."

Interest in gold has risen during the financial crisis, particularly in Germany, according to GFMS, the London-based precious metals consultancy.

Retail demand reached an estimated 108 tonnes in 2008, up from 36 tonnes in 2007 and 28 tonnes in 2006. [...]

The worst is yet to come

Option-ARM resets and the Commercial Real Estate (CRE) collapse are likely to lead to a far bigger disaster than the collapse of the subprime and jumbo mortgages that the US has been facing in 2008. If the US government and the Fed decide to bail out the creditor banks, I am pretty sure it means the end of the USD.

June 11 (Bloomberg) -- Shirley Breitmaier’s mortgage payment started out at $98 when she refinanced her three-bedroom home in Galt, California, in 2007. The 73-year-old widow may see it jump to $3,500 a month in two years. [...]

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

More than $750 billion of option ARMs were originated in the U.S. between 2004 and 2008, according to data from First American and Inside Mortgage Finance of Bethesda, Maryland. California accounted for 58 percent of option ARMs, according to a report by T2 Partners LLC, citing data from Amherst Securities and Loan Performance. [...]

The delinquency rate for payment-option ARMs originated in 2006 and bundled into securities is soaring, according to a May 5 report from Deutsche Bank AG. Over the past year, payments 60 days late or more on option ARMs originated in 2006 have almost doubled to 42.44 percent from 23.26 percent, Deutsche Bank said. For 2007 loans, the rate has climbed from 10.1 percent to 35.25 percent.

June 11 (Bloomberg) -- Investors in bonds that packaged $62 billion of debt for U.S. offices, hotels and shopping malls are bracing for more loan defaults through 2010 as Bank of America Merrill Lynch says landlords’ monthly payments may jump 20 percent or more.

Principal is coming due on the so-called partial interest- only loans as an 18-month-old recession saps demand for commercial real estate. About $179 billion of such loans were written between 2005 and 2007 and bundled into bonds, according to data from Bank of America Merrill Lynch.

With soaring vacancies and falling rents, some cash- strapped borrowers will fail to cover the higher costs, said Andy Day, a commercial mortgage-backed securities analyst at Morgan Stanley in New York. About 87 percent of mortgages sold as securities in 2007 allowed owners to put off paying principal for several years or until maturity, compared with 48 percent in 2004, Morgan Stanley data show.

“The worst is yet to come,” MetLife Inc. Chief Investment Officer Steven Kandarian said yesterday in a Bloomberg Television interview. “Typically there’s a lag between when the economy softens and when the defaults actually occur.” [...]

Property owners turned to Wall Street to finance office towers, apartment complexes and hotels as banks bundled the debt and sold it to investors. A record $230 billion in commercial mortgage-backed securities were sold in 2007, up from $93.3 billion in 2004, according to Morgan Stanley data. About $750 billion of such debt is outstanding, bank data show. [...]

I have received my copy of More Mortgage Meltdown and intend to start reading in a week or two. It seems to contain lots of interesting info and figures.

Société Générale on the brink

It's not common for me to speak about European companies, but given the issues in Eastern Europe and the recent rally, it's important to keep an eye everywhere and try to figure out whether or not I am right to think that we are in a bear market rally.

So here I find some pieces of information relative to new bond issues from big French companies and it reminds of my previous post: Many CAC40 companies are financially unhealthy. The current post can actually be seen as a sequel to this previous post.

So what do we see?

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 1.000.000 certificats de dépôt, pour un montant total de 1.000.000,0 EUR émis par DEXIA CREDIT LOCAL DE FRANCE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 4.500.000 certificats de dépôt, pour un montant total de 4.500.000,0 EUR émis par DEXIA CREDIT LOCAL DE FRANCE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 20.000.000 certificats de dépôt, pour un montant total de 20.000.000,0 EUR émis par BANQUE PSA FINANCE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 23.000.000 certificats de dépôt, pour un montant total de 23.000.000,0 EUR émis par BANQUE PSA FINANCE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 25.000.000 certificats de dépôt, pour un montant total de 25.000.000,0 EUR émis par BNP PARIBAS.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 20.000.000 certificats de dépôt, pour un montant total de 20.000.000,0 EUR émis par BNP PARIBAS.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 20.000.000 certificats de dépôt, pour un montant total de 20.000.000,0 EUR émis par BNP PARIBAS.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 500.000.000 certificats de dépôt, pour un montant total de 500.000.000,0 EUR émis par SOCIETE GENERALE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 600.000.000 certificats de dépôt, pour un montant total de 600.000.000,0 EUR émis par SOCIETE GENERALE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 20.000.000 certificats de dépôt, pour un montant total de 20.000.000,0 EUR émis par RENAULT CREDIT INTL S.A.BANQUE.

Admission sur Euronext Paris (XPAR) le 16/06/2009, de 35.000.000 certificats de dépôt, pour un montant total de 35.000.000,0 EUR émis par CREDIT INDUSTRIEL COMMERCIAL.

Yesterday, I also found this:
LAFARGE : émission obligaire de 750 millions d’euros (AOF, le 15/06/09 à 16:44)
So Lafarge has already raised 1.5 billion € in shares and borrowed about 2.1 billion € in debt. It's the forth time in two months that Lafarge borrowed huge sums of money! Lafarge is worth today less than 14 billion €. Does these numbers smell sound corporate governance?

So today, Société Générale borrowed 1.1 billion € while its current market cap is about 23 billion € and that it had already raised money by selling a 7% stake to the French government. So they can keep on telling that their exposure to Eastern Europe is not dangerous, that the 5 billion € loss due to Jérôme Kerviel was a singular event, that the 4 to 5 billion hidden loss in their books which lead to their CEO to step down was not an actual loss, but actions speak louder than words, and according to these actions, one this is for sure, SocGen IS IN DEEP TROUBLE (unless I have been completely mislead by this report of course).

Now the more general picture is that this mega large cap companies are raising as much money as they can, while the markets have rebounded. Is this a sign of "green sprouts"? Or are these companies trying to keep a cushion of cash for the upcoming Greater Depression?

Peter Schiff on Jon Stewart's Daily Show

This is an interesting interview of Peter Schiff by the Jon Stewart because Peter Schiff is actually talking about really serious matters with Jon Stewart who's show is a comedy. And Jon has been really nice with Peter who did has a far better moment than Jim Cramer — part 1 part 2 (he gets literally killed on part 2) — part 3.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Peter Schiff
thedailyshow.com
Daily Show Full Episodes Political Humor Newt Gingrich Unedited Interview

Denmark the next country to default?

Bloomberg has published an article summing up information found in a ECB report and the conclusions are quite scary. The UK is in very serious trouble, but it looks like Denmark is in far worst state than even the UK. All in all, I am a bit doubtful about my long EUR position against both the USD and GBP because depending on what the ECB will do following the collapse of one of the many default-candidates in the Eurozone. My position will need to be assessed but for now, I think the ECB has been able to control is destructive powers and even if I stated several times that Trichet should resign, it still seems that he's trying to avoid following the BoE and the Fed toward hyper-inflation. [Update: Just to clarify, Denmark is not in the Eurozone. But Portugal, Greece, Spain, Italy are. It will also be interesting to see what the ECB does if (when?) Denmark defaults]

June 12 (Bloomberg) -- European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.

The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros. [...]

[My Comment: Denmark: Population of 5.5 Million (less than Greater London) GDP of around $200 Million, 140 banks (!!!!) 13 of which were bailed out with about 600 B€ that is about 4 times the GDP of country. Denmark reminds me of Iceland...]

EU governments approved about 311.4 billion euros for capital injections, 2.92 trillion euros for bank liability guarantees, 33 billion euros for relief of impaired assets and 505.6 billion euros for liquidity and bank funding support, a total of 3.77 trillion euros, the document shows.

The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.

[My Comment: there still is a huge gap between the waste done by the EU and the US]

A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody’s Investors Service.

All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.[...]

The British government this year secured promises of additional mortgage and business lending from Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc in return for aid.[...]

Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion euros. Commerzbank AG, Germany’s second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.

Following is a table of European government’s commitments. All figures are in billions of euros and include capital injections, guarantees granted, effective asset relief and liquidity interventions.

United Kingdom 781.2
Denmark 593.9
Germany 554.2
Ireland 384.5
France 350.1
Belgium 264.5
Netherlands 246.1
Austria 165
Sweden 142
Spain 130

Here are the previous related posts:

• 2009-05-18 Trichet not as hopeless as it seems
• 2009-14-18 Trichet should resign
• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

The Fed is scared

Just follow the events in the past few days:

June 5 (Bloomberg) -- The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

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

Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said. [...]

Robertson served under Treasury Secretaries Lawrence Summers, Robert Rubin and Lloyd Bentsen. She didn’t return calls seeking comment.

Summers now heads the White House National Economic Council. Along with Treasury Secretary Timothy Geithner, he is leading Obama administration efforts to broaden the economic rescue and overhaul financial regulation. He has been mentioned as a possible successor to Fed Chairman Ben S. Bernanke should Bernanke not be renominated when his term ends in January.

The Fed is playing defense and trying to avoid spotlight:

June 9 (Bloomberg) -- The Federal Reserve has backed off from seeking a new tool to forestall inflation, refraining from asking Congress for the power to issue its own debt, according to a person familiar with the matter.

The House attacks the Fed:

June 9 (Bloomberg) -- The Federal Reserve was subpoenaed by the House Oversight Committee for e-mails and documents related to Bank of America Corp.’s purchase of Merrill Lynch & Co. after the panel was unable to obtain them through a request last week.

Ken Lewis — lacking any courage in the first place when he accepted the deal and now the courage to accept the consequences of the deal — also attacks the Fed. I had already predicted that, almost a year ago:

June 10 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis said federal officials pushed him to complete the purchase of Merrill Lynch & Co. after he became aware of “significant accelerating losses” at the New York-based brokerage.

The Fed is bending and trying to avoid further litigation is chickening out:

June 10 (Bloomberg) -- The Federal Reserve unveiled its most detailed picture yet of its record $1 trillion expansion of credit, as Chairman Ben S. Bernanke responds to congressional pressure for greater transparency from the central bank.

For the first time, the Fed announced details on the number of borrowers and the ratings of securities pledged as collateral for loans. The data come in a new monthly report released by the central bank today in Washington.

Officials still stopped short of identifying the firms, a measure called for by some lawmakers and the subject of freedom-of-information requests and lawsuits. [...]

Senator Bernie Sanders, the Vermont independent who sponsored an April 2 resolution that urged the Fed to identify borrowers and passed by a 20-vote margin, said today’s Fed report is “completely insufficient.”

“It is time for the Fed to name names,” Sanders said in a statement. The money “belongs to the American people,” and disclosure would show whether banks that are repaying the government’s capital injections are getting loans from the Fed, the senator said. [...]

Everything that has a beginning has an end. The Fed's time might be up and there's never been a better moment to abolish the Fed.

The Monkey Experience

This blog is also about [...] the world that has been pulled over your eyes to blind you from the truth. And sometimes, we are blinding yourself by following conventions and processes without turning on your brain and questioning it.

This is not new, but I felt like sharing it.

So next time remember this simple experience and make sure you know the reason why are doing what you are doing:

Begin with a cage containing five monkeys. Inside the cage, hang a banana on a string and place a set of stairs under it. Before long, a monkey will go to the stairs and start to climb towards the banana. As soon as he touches the stairs, spray all of the other monkeys with cold water. After a while, another monkey makes an attempt with the same result, and all the other monkeys are sprayed with cold water. Pretty soon the monkeys will try to prevent it.

Now, put away the cold water. Remove one monkey from the cage and replace it with a new one. The new monkey sees the banana and wants to climb the stairs. To his surprise and horror, all of the other monkeys attack him. After another attempt and attack, he knows that if he tries to climb the stairs, he will be assaulted.

Next, remove another of the original five monkeys and replace it with a new one. The newcomer goes to the stairs and is attacked. The previous newcomer takes part in the punishment with enthusiasm! Likewise, replace a third original monkey with a new one, then a fourth, then the fifth.

Every time the newest monkey takes to the stairs, he is attacked. Most of the monkeys that are beating him have no idea why they were not permitted to climb the stairs or why they are participating in the beating of the newest monkey. After replacing all the original monkeys, none of the remaining monkeys have ever been sprayed with cold water. Nevertheless, no monkey ever again approaches the stairs to try for the banana. Why not? Because as far as they know that's the way it's always been done around here.

Fed Gets Subpoena From the House Oversight Committee

Everybody start to realise that the Fed is a corrupt and incompetent institution and I think thanks to Ron Paul, the end of the Fed is near. The one big benefit of the current collapse will be that we might finally be freed from the destructive powers of the Fed (and FDIC and SEC and Fannie and Freddie and so on!).

It is obvious that the Fed has been behaving fraudulently. As usual, if you are clear, you wouldn't try to hide the information.

June 9 (Bloomberg) -- The Federal Reserve was subpoenaed by the House Oversight Committee for e-mails and documents related to Bank of America Corp.’s purchase of Merrill Lynch & Co. after the panel was unable to obtain them through a request last week.

The central bank will comply and seeks confidentiality for the information, a Fed official said today on condition of anonymity. The panel said it wants to secure the Fed documents for a hearing scheduled for June 11, and Bank of America Chief Executive Officer Kenneth Lewis has agreed to testify.

The move is part of increased congressional scrutiny of the central bank, which helped craft a government aid package enabling Bank of America to absorb Merrill Lynch in January. Lewis told New York state investigators in February that he was pressured in December by Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill acquisition amid mounting losses at the brokerage firm.
[...]
Committee Chairman Edolphus Towns, a New York Democrat, and Ohio Representative Dennis Kucinich, chairman of the domestic policy subcommittee, sent Bernanke a letter this month requesting 43 items, including e-mails from Bernanke and other officials, meeting notes and the Fed’s analysis of the companies’ merger.

The Fed “refused” to provide the documents, resulting in the subpoena, California Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement today.

In an April letter to Kucinich, Bernanke said the Fed “acted with the highest integrity” during its discussions with Bank of America on Merrill Lynch and didn’t seek to withhold any information from the public on Merrill Lynch’s losses.

Bernanke said in the letter that information collected by the Fed up to that point consisted of “confidential supervisory information or confidential business information, both of which have traditionally been regarded as material that should not be made public, especially in the case of institutions that continue to operate.”

Towns and Issa agreed to the subpoena today, the panel said.

“The marriage between Bank of America and Merrill Lynch was a shotgun wedding pushed by the Federal Reserve,” Issa said in his statement.

Bank of America acquired the brokerage on Jan. 1.

Bernanke said in February that Bank of America had sufficient time to study its acquisition of Merrill Lynch from September until mid-December, when Lewis asked about canceling the transaction. “We didn’t see any realistic legal way to break the deal,” Bernanke said at the time.

Bank of America has sold $45 billion in preferred shares to the U.S., more than any other bank except Citigroup Inc. The bank agreed to a loss-sharing plan with federal regulators in January on $118 billion in assets, mostly involving securities held by Merrill Lynch. Bank of America in May said it is negotiating to end that agreement because improving credit market conditions make the protection unnecessary.

Should you still need to be convinced about the incompetence of the Fed, I recommend watching this video (shameless copied from Mish). It's mind boggling.

Krugman Says Recession Should End This Summer

It's just such a pathetic statement that I want to have it archived on my blog so that I can dig it a couple years from now while the US would still be in the middle of the Greater Depression:

June 8 (Bloomberg) -- The U.S. economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.” [...]

Even with a recovery, “almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period,” Krugman said.

I am still trying to make sense of how unemployement can be rising for a long time but the recession being over. I am a bit slow...

Hidden inflation with new packaging

One must be very careful when one sees a product with a new packaging in supermarkets. I have noticed that several of the household products that I buy are now coming in new packages/bottles/formats etc.

The question one must ask is: Why would any company, in the midst of a very severe recession — actually, it's not officially called a Depression yet — invest in packaging design, and then would also change its manufacturing process, references, etc. ? Is the corporation investing (tapping into their savings) in order to gain market share? Is it to compete with a newer better more catchy packaging for washing machine or dishwasher liquids?

The answer is NO 90% of the time. Most of the time, the only reason to change a packaging is simply to reduce the content of it but not the price. The sad reality is that every time a saw a new packaging, the content was about 10% less than the previous packaging while the price remained the same. Typically, a 500ml product would become 450ml or a 500g would become 450g. This is nothing but 10% of hidden inflation.

Pedge Fund Performance 200905

Just a quick post to relate the performance of PedgeFund for the month of May 2009. April 2009 returns are available here.

Summary:
Pedge Fund USD
May performance: +31.49% (gross, approx)

Highlights:
Very good month in May. The big rebound in global equities has been missed in this portfolio but thanks to the big rebound in commodities prices, my commodity related stocks performed extremely well.

• Major gains on oil and natural gas related equity positions
  
• Major gains on gold and silver
• Major gains on short USD/long EUR
  
• Some gains on short Long-Bond
  
• Some losses on short GBP/long EUR
• Major losses on PUTs on the US markets
  

Some quick comments:

I have had a non-negligible stake in PUTs on the US equity markets and have made an almost 100% loss on them. I am remember a few years ago reading Jim Rogers say that he never buys options because 80 or 90% of them ends worthless. I would disagree with him on this one! I am happy to have bought this options, because they insured my portfolio for about 4 months. If I had shorted the markets instead of buying these options, I would have made major losses on this portfolio instead of making big gains.

My opinion on options is the following: Options are very good deals when you are very good at timing (big gains!) and also when you are completely WRONG (limited losses)! This had previously happened to me about 18th months ago, when I had bought options on some European companies, thinking its shares should rise a lot and not be affected by the US subprime collapse. Well, the shares actually collapsed to about 40% less than the strike of my calls! So I couldn't be more WRONG on the short term ! Should I have bought the shares instead of the options, I would have lost about 4 times more money than on the options.

June might be a tough month, as I have now started to short the equity markets. Should I be wrong, losses might hurt...

HFR Macro Index return in May 2009 was: +3.01%
S&P 500 return in May 2009 was: +5.59%

Banks CEOs compensation analysed by Bloomberg

Another very good research work done by Bloomberg. CEOs are making hundreads of millions while their shareholders are loosing as much as 90% on their equity... It looks like shareholders have to wake up!
The full article is a lot longer and definitely worth reading.

May 28 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit weathered almost six hours of grilling from shareholders at the bank’s annual meeting on April 21. He had a lot of explaining to do: The company lost $27.7 billion in 2008 and stayed afloat only with help from a $45 billion government bailout.

Even as his bank was floundering, Pandit in 2008 earned $38 million in salary and stock, No. 3 among the best-paid CEOs of the top 50 U.S.-based financial companies, according to data compiled by Bloomberg. In February, Pandit told a congressional committee that, starting in 2009, he would take just $1 in annual salary until the bank is profitable again. “I get the new reality,” he said. [...]

Lloyd Blankfein, CEO of New York-based Goldman Sachs Group Inc., was No. 1 in the ranking after earning $42.95 million in salary and stock awards. The ranking includes CEOs who held their jobs for at least 10 months in 2008 (How We Crunched the Numbers). Kenneth Chenault, CEO and chairman of American Express Co., was No. 2, with total pay of $42.75 million. Chenault’s pay package included $8.57 million in salary and other direct compensation, with the rest paid in stock options and restricted shares.

Chenault, who has run New York-based Amex since 2001, topped a ranking of financial CEOs providing the least value for the money they earned, according to Bloomberg data. That ranking is based on Amex’s stock return for 2007 and 2008 -- down 69 percent -- combined with Chenault’s pay over the same period per million dollars of corporate assets. [...]

The financial executive providing the most value for the money was Warren Buffett, CEO and chairman of Omaha, Nebraska- based Berkshire Hathaway Inc., 58 percent of whose assets are in insurance. Buffett paid himself an average of $175,000 a year in 2007 and 2008 and was awarded no bonus and no stock options. He owns 33 percent of Berkshire’s Class A shares, which were valued at $31.5 billion on May 27.

Berkshire Hathaway was the single biggest holder of Amex stock as of March 31, with 13 percent of the shares outstanding. Buffett, 78, blames out-of-control executive pay on boards of directors who accede to CEO demands for multimillion-dollar compensation packages.

“Half of the directors I’ve met on corporate boards don’t know anything about business,” Buffett told shareholders during Berkshire’s annual meeting in May. “They are not going to do anything that not only gets them kicked off that board but that reduces their chances of getting on another one.” [...]

“We’re very well capitalized and expect to repay the TARP money soon,” Blankfein told shareholders at the company’s May 8 annual meeting. Goldman sold $10 billion in preferred shares to the Treasury in October.

The highest-paid U.S.-based CEO was Bruce Wasserstein, head of investment firm Lazard Ltd., with headquarters in Bermuda and principal offices in New York, Paris and London. He was awarded a total of $133 million in salary and stock awards in 2008 as part of a new contract, $96 million of which was a special retention award not scheduled to vest for five years. Lazard shares returned negative 28 percent in the 12 months ended on May 27. Lazard was excluded from the Bloomberg ranking because it’s based offshore.

Dimon earned an average of $32 million a year in 2007 and 2008, yet still provided relatively good value for the money, according to Bloomberg data, which ranked him No. 3 out of 36 CEOs in that category. That’s because JPMorgan stock did comparatively well -- its return for the two years was -30 percent compared with a fall of 66 percent for the Standard & Poor’s 500 Financials Index -- and because the assets of the firm are so huge. They were $2.2 trillion as of the end of its 2008 fiscal year.

Obama wants to legalize Guantanamo

Obama who is leading the path of Mussolini and Staline is now trying to create a "legal framework" to legalize Guantanamo and indefinite detention with no court or lawyer allowed. The American gulags are on their way and the US constitution is definitely down the toilet.

Rachel Maddow has made a nice show available on YouTube.

Mish on GoogleTalk - Peter Schiff on Authors@Google

Mish has been talking at the GoogleTalk sessions and Peter Schiff on the Authors@Google sessions.The only comment I'll make is: I didn't know Mish was a former software developer who worked 20 years programming mainframes!

Banks Profit From Masking Looming Loan Losses

Another Bloomberg report which confirms what we have been saying for the past couple of months about the GAAP accounting principles, mark to market rules replaced by mark to fantasy rule, and other level-3 assets soaring against level-1 assets and even level-2 assets.

June 5 (Bloomberg) -- [...] Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

Further deterioration of loans will eventually force banks to recognize losses that their bookkeeping lets them ignore for now, says David Sherman, an accounting professor at Northeastern University in Boston. Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, says the government stress scenarios underestimate how bad the economy may get.

The accounting rule changes that matter most for the banks came on April 2, when the Financial Accounting Standards Board gave companies greater latitude in how they establish the fair value of assets. Lawmakers, including Representative Paul Kanjorski, a member of the House Financial Services Committee, had complained that existing mark-to-market standards worsened the financial crisis.[...]

At Citigroup, the recipient of $346 billion in fresh capital and asset guarantees from the government, about 25 percent of the quarterly net income came thanks to the debt securities rule change, the bank said.

Another $2.7 billion before taxes came from an accounting rule that lets a company record income when the value of its own debt falls. That reflects the possibility a company could buy back bonds at a discount, generating a profit. In reality, when a bank can’t fund such a transaction, the gain is an accounting quirk, Weiss says.

Citigroup also increased its loan loss reserves more slowly in the first quarter, adding $10 billion compared with $12 billion in the fourth quarter, even as more loans were going bad. Provisions for loan losses cut profits, so adding more to this reserve could have wiped out the quarterly earnings.

Without those accounting benefits, Citigroup would probably have posted a net loss of $2.5 billion in the quarter, Weiss estimates. In the five previous quarters, Citigroup lost more than $37 billion.

Wells Fargo also took advantage of the change in the mark- to-market rules. The new standards let Wells Fargo boost its capital $2.8 billion by reassessing the value of some $40 billion of bonds, the bank said in May. And the bank augmented net income by $334 million because of the effect of the rule on the value of debts held to maturity.

Wells Fargo spokeswoman Julia Tunis Bernard declined to comment, as did Citigroup’s Jon Diat.[...]

“These changes will help the banks hide their losses or push them off to the future,” says Sherman, a former Securities and Exchange Commission researcher.[...]

The banks may look pretty, but they’ll be zombies until they clean up their books.

China is waking up to the US foolish and reckless behaviour

A couple of very interesting articles regarding the lies of Geithner and Bernanke and the wake of China who seem be slow but real:

June 1 (Bloomberg) -- Another global financial crisis triggered by a loss of confidence in the dollar may be inevitable unless the U.S. saves more, said Yu Yongding, a former Chinese central bank adviser.

It’s “very natural” for the world to be concerned about the U.S. government’s spending and planned record fiscal deficit, Yu said in e-mailed comments yesterday relating to a visit to Beijing by U.S. Treasury Secretary Timothy Geithner. [...]

It may be helpful if “Geithner can show us some arithmetic,” said Yu. “We need to know how the U.S. government can achieve this objective.”

[...] The U.S. needs a higher savings rate and a smaller deficit on the current account, which is the broadest measure of trade, or “another financial crisis triggered by a dollar crisis could be inevitable,” the Chinese academic said.[...]

China is the biggest foreign holder of U.S. Treasuries with $768 billion as of March. Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets.” Central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.
[My Comment: $768 billion - a huge amount just a year ago - now seem to be just a drop in the ocean of USD printed by the Fed and planned borrowing by Obama]

[...] Referring to the Federal Reserve “as the world’s biggest junk investor,” and to Chairman Ben S. Bernanke as “helicopter Ben,” Yu said the Fed has dropped “tons of money from the sky since the subprime crisis.” “The balance sheet of the Federal Reserve not only has expanded like mad but is also ridden with ‘rubbish’ assets,” he said.
[My Comment: Wow. The raw truth!]

June 1 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.
[My Comment: Wow. The blatant lie!]

A major goal of Geithner's maiden visit to China as Treasury chief is to allay concerns that Washington's bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China's total U.S. dollar-denominated investments could be twice as high.

[My Comment: $768 billion - a huge amount just a year ago - now seem to be just a drop in the ocean of USD printed by the Fed and planned borrowing by Obama]

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

[My Comment: Wow. The blatant lie!]

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.[My Comment: He's not fooling anyone anymore...]

[...] "We have the deepest and most liquid markets for risk-free assets in the world. We're committed to bring our fiscal deficits down over time to a sustainable level.

[My Comment: Risk free? Wow. The blatant lie!]

"We believe in a strong dollar ... and we're going to make sure that we repair and reform the financial system so that we sustain confidence," he said.

[My Comment: Strong dollar? Wow. The blatant lie!]

[...] Geithner said he was hopeful that General Motors Corp and Chrysler would be able to stand on their own feet once they emerge from bankruptcy. [...]

"We want a quick, clean exit as soon as conditions permit," Geithner said. "We're very optimistic these firms will emerge (from restructuring) without further government assistance."

For previous related posts, please read:

• 2009-04-24 At last, China announces it's been buying Gold
• 2009-03-24 The US find some hope in China's cluelessness
• 2009-03-13 China warns the US - 1st official warning
• China warns the US - 2nd semi-official warning?
• China warns the US - 1st semi-official warning?

Obama and GM

USA or USsAr?

WASHINGTON (AP) -- President Barack Obama pushed General Motors Corp. into bankruptcy on Monday and said it was part of a "viable, achievable plan that will give this iconic company a chance to rise again."
[Why does the president has the power to push a private company into bankruptcy? Or plan for the recovery of the same company?]

Obama said he hoped the firm would emerge quickly from bankruptcy court, and said the government was ready to commit an additional $30 billion to help the company get on its feet.
[Why send $30 billion more into the whole? And at that time??]

He said the government would own 60 percent of the new GM -- much as it has taken part ownership of Chrysler, banks and other corporations in recent months -- and acknowledged that could prove controversial with some.
[USsAr]

Seeking to ease those concerns, Obama said, "What I am not doing, what I have no interest in doing, is running GM."

The president said auto executives "will call the shots and make the decisions about turning this company around." He said the government would refrain from playing a management role in all but the most critical areas.
[Yes, because they have a very good track record of doing the right thing. They have been able to do anything about it for the past many years, and I don't see how the same people would be able to now become competent all of the sudden]

"Our goal is to help GM get back on its feet ... and get out quickly," he said of the federal government.

Obama spoke as GM entered bankruptcy court at the same time Chrysler was looking to emerge after a two-month reorganization. Over the weekend, a bankruptcy judge gave the No. 3 automaker approval to sell most of its assets to Italy's Fiat, part of a plan under which the U.S. government will own somewhat less than 10 percent of the firm.

Ford Motor Co., the other large U.S. automaker, has said it can weather the current economic and industry crises on its own.

Under the GM plan envisioned by Obama's auto industry task force, the federal government will wind up with 60 percent ownership in the one-time pillar of American capitalism.

That comes in addition to its smaller stake in Chrysler, as well as significant interests in banks, insurance giant AIG and two mortgage industry giants, Fannie Mae and Freddie Mac.

Speaking at the White House, where he was flanked by Cabinet secretaries and economic advisers, Obama said the coming restructuring will "take a painful toll on many Americans" with the closure of additional plants and the loss of jobs.

The president did not pause to answer questions, but Republicans had plenty.

"The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars," said House Republican Leader John Boehner of Ohio.

"Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability? It's time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all," Boehner said.

Obama cited Chrysler's experience in bankruptcy court as a model of how GM could fare.

"Some said a quick bankruptcy was impossible ... they were wrong," he said.

He added that unnamed critics predicted car sales would "fall off a cliff," and added, "they were wrong." Chrysler sold more cars in May than it did in April.
[Obviously, he's lying. If he's not, he might just be insane]

The outcome, he said, is "dramatically better than the one we found when we began."

Looking ahead, he said, GM will be prodded at every juncture by the administration's top officials.

The announcement marked the latest step in a series of measures Obama has taken since he became president to salvage an industry that has been part of the American landscape for a century.

Earlier in the year, he rejected a restructuring plan submitted by GM's ownership, and ordered its leaders to try again. They did, under the direction of administration officials, and the result is a blueprint in which hundreds of dealerships will be closed and familiar model names jettisoned. Officials have estimated the new GM should be profitable at a level of 10 million vehicle sales a year. The company that entered bankruptcy court had to sell an estimated 16 million units to make a profit.
[10 million a year is still a huge number, specially in the current economic environment and when you produce car that nobody actually want]

Obama stressed that GM's workers and its investors had both made sacrifices. The United Autoworkers Union agreed in recent days to numerous concessions, and a majority of investors agreed to accept less than the paper value of their holdings. The administration, sensitive to charges that it favored the UAW, said the terms accepted by the unions were harsher than what had been proposed by the Bush administration.

NEW YORK (AP) -- General Motors CEO Fritz Henderson says the new GM will be a leaner and quicker company that's more focused on its customers and its products.
[Yes, because he has a very good track record of doing the right thing. They have been able to do anything about it for the past many years, and I don't see how the same people would be able to now become competent all of the sudden]

Henderson spoke Monday at a news conference in New York after the fallen icon of American industry filed for bankruptcy protection. President Barack Obama says it is part of a "viable achievable plan" that will give the company "a chance to rise again."

Henderson says the new GM will be built from the strongest parts of its business, including its best brands and best products.
[Obviously, if you believe in fairy tales... I can't do much for you]

The company plans to focus on four core brands -- Chevrolet, Buick, Cadillac and GMC -- and get rid of four others -- Pontiac, Saturn, Hummer and Saab.

Many CAC40 companies are financially unhealthy

It is sad to notice that many of the top French companies are financially unhealthy just several months into the crisis and that it's not only banks which are in deep trouble but also other sectors like Commodities, Energy, Food & Beverages...

Remembering that during the past several years all the same companies were showing record profits quarter after quarter just to see them raise money on the markets now is quite telling.

All the profits have vanished now, most of them wasted on high executive compensation and shares buy-backs at record equity valuation and all that remain is the debt that needs to be serviced and the various costs of running the company in a difficult economic environment.

It is also probably the right time to question the work done by the executives and assessment their vision and competences and ability to run the companies.

Also note that the money is badly needed given the yields that the bonds offer (typically 8 to 10% !) in the current low interest rate environment.

Here's the list that I quickly gathered from the CAC40 index in France.

• Danone raised 3 billion € by selling equity
• Pernod Ricard raised 800 M€ buy selling bonds
• Saint Gobin has raised 1.5 billion €
• Lafarge has raised 1.5 billion € in shares and 1.4 billion € in bonds
  
• ArcelorMittal has raised 3.2 billion € in shares and 5 billion € in bonds
• Suez Environment has raised 1.8 billion € in bonds
• EDF 5.0 billion € in bonds
• GDF Suez 4 billion € in bonds
• Société Générale has sold a 7.2% stake to the French government
• Probably several more that I missed, notably banks...

I am sure France is not the only country affected by this behaviour and that Mid- and Small cap are probably in the same bag, as confirmed by the CGGVeritas example: the company just borrowed 350 M€ at 9.5% (or 10 1/8 depending on the source).

Countrywide's Mozilo targeted by the SEC

It is interesting to see that the SEC is waking up and actually trying to sue a few people but some interesting questions rises:

• Why now and not during the credit bubble?
• Why Mozilo and not all the other subprime mortgage execs?
• Why not Thain, Ken Lewis, Richard Fuld, Alan Schwartz and the many others who brought their company to the ground and lied to their shareholders?
  

All of these confirm that SEC is a big failure and that along with the Fed, Fannie, Freddie, and several others governments agencies, should be ended.

There's no way to regulate all the companies and avoid fraud. Investors should do their homework. The only way to do that is to enforce total transparency nothing more.

Disclosure of all insider trading should be done. Executive selling big stakes of their companies should be a warning big enough. BlackStone going public should have been a warning big enough.

Enforcing very good accounting practices should be another one. Instead we are seeing the opposite moves in the current climate.

(Bloomberg) -- The day after Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo arranged to start $139 million in stock sales, he told two top deputies there was “no way” to value one of its most popular mortgages.

“We are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,” he wrote in a 2006 e-mail released yesterday by the Securities and Exchange Commission. “We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet.”

Mozilo, 70, co-founded Countrywide in 1969 and built it into the nation’s biggest home lender. Yesterday he became the most prominent executive targeted by the SEC in a regulatory autopsy of the subprime crisis. He, and the two deputies who received his e-mails on so-called pay-option ARM loans, were accused of hiding deteriorating lending standards before the housing bubble burst. The agency quoted Mozilo’s messages, arguing he avoided losses by making illegal insider trades.

“While hiding his hand from investors, Mozilo was actively taking his own chips off the table” SEC enforcement chief Robert Khuzami told journalists in Washington. “Concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”

The defendants, including former Chief Operating Officer David Sambol, 49, and Chief Financial Officer Eric Sieracki, 52, deny wrongdoing. Their lawyers accused the SEC of succumbing to political pressure and cherry-picking quotes from e-mails to build a case. [...]

Sieracki bought Countrywide stock during the period the SEC claims he believed the company was withholding information from the market, said his lawyer, Shirli Weiss. He said Sieracki didn’t violate securities law and called the lawsuit “completely without merit.”

The company has repeatedly come under fire from U.S. officials including Senator Charles Schumer for lax lending standards and its compensation packages.

“Under Angelo Mozilo, Countrywide became the poster child for unconscionable behavior by mortgage lenders,” Schumer, a New York Democrat, said in a statement yesterday. “This is a company that turned the American dream into a nightmare for thousands of innocent borrowers, and misled their shareholders along the way.”

The case is Securities and Exchange Commission v. Mozilo et al, 09-3994, U.S. District Court, Central District of California (Los Angeles).