older workers going into early retirement at alarming rates -- helping to suck down pension funds down earlier than previously anticipated

TO BE NOTED: From Clusterstock:

"Aging Workers Stage A Run On Their Pensions

Joe Weisenthal|May. 29, 2009, 3:40 PM|6

Print

Tags: Economy, Investing, Unemployment

Have you heard the one about Continental Airlines (CAL) suing some of its own pilots for faking their divorce?

Yeah, it's a good one. It seems 9 pilots lied about getting divorced in order to take advantage of a loophole that allows them access to their retirement pension before they, well, retired. The company got suspicious when it realized that many of the couples were still living together and in some cases got remarried (Not that all this doesn't happen in a legitimate divorce).

But then, given the nervousness surrounding pensions these days, who wouldn't want to jump ahead in line and get access to the cookie jar? Let those who play by the rules wait around watch their pension assets wind up in court.

This dovetails with another story about older workers going into early retirement at alarming rates -- helping to suck down pension funds down earlier than previously anticipated. It's a combination of being laid off and general frustration.

Stories go like this.

LA Times: For Herman Hilton, 66, of Jacksonville, Fla., a lean 6-foot-2 electrician with a bushy gray beard, the decision to lay down his pliers and screwdriver was born of frustration.

For at least the last 10 years, as he wired new buildings, he was looking toward retiring as soon as he hit 66 and qualified for full benefits. And last fall, like millions of other older workers, Hilton put his "golden years" plan on hold when his 401(k) lost more than a third of its value.

Then last month, his life took another unwelcome turn: Hilton's foreman pulled him aside to tell him that he was being laid off. For several weeks, Hilton collected unemployment insurance. But he soon decided to call it quits and file for Social Security.

Once again, you have to ask, why wait around for your benefits? Who knows what could go happen. The US could go broke or do some kind of "default" on Social Security, so it can keep paying China. Yeah, you might not get full benefits for retiring early, but money is money, and with the future of these systems so uncertain, both early retirement and faked divorce may be a good idea."

confirming the revival of risk taking and a general acknowledgement that economic life will continue

TO BE NOTED: From Alphaville:

"BarSlap! Posted by Paul Murphy on May 28 17:10.

Tim Bond, the Barclays Capital strategist, is having none of this bearish pessimism that has gripped markets since Bill Gross said the US could lose its triple A status and Marc Faber invoked the Z-word when discussing the prospects for American inflation.

From Bond’s latest Global Speculations - “Upside down bulls”:

In the financial markets, interpretation often counts for more than fact. Indeed, after passing through the qualitative and emotional analytical filter, factual inputs can often emerge from the process as anti-facts. At present, many market participants still appear to be afflicted by the mood of depressive pessimism that became pervasive last year. Under this condition, market developments and economic data-points that an impartial analysis would usually construe as positive are being warped into negative signals. Signs of an economic recovery, somehow, end up being interpreted as signs of impending economic doom.

Nowhere, Bond says, is this truer than with the prevailing fuss about the dollar and US treasury yields.

The fact that both asset classes have been losing their safe haven status is an unambiguously positive development, confirming the revival of risk taking and a general acknowledgement that economic life will continue.

Why, the BarCap man asks, if investors are fleeing the US because of its towering debt burden and the threat of hyperinflation, is sterling going up? Frying pans and fires springs to mind. Similarly, why has the Yen been depreciating against the dollar?

The current rumblings of discontent smack more of the avoidance of cognitive dissonance on the part of inveterate bears, than any dispassionate analysis of the situation.

Full takedown of the bears available here.

This entry was posted by Paul Murphy on Thursday, May 28th, 2009 at 17:10 and is filed under Capital markets. Tagged with barcap, green shoots, recovery, tim bond."

And Clusterstock:

"Analyst Says The Treasury Collapse Is Bullish Sign

Joe Weisenthal|May. 29, 2009, 6:41 AM|5

Print

Tags: Economy, Debt, U.S. Government, Tim Geithner, Interest Rates

You've seen the scary charts showing just how bad the Fed's policy of quantitative easing has failed. Although it would love to push long-term interest rates down to 4%, the market was having none of it. And the general consensus is that the uber-steep yield curve is a big nyet vote on both fiscal and monetary policy.

Tim Bond, an analyst at Barclays, says hogwash, taking the Geithner view that the rally in yields is the predictable response to both a recovering economy and the dissipation of the panic premium in US-denominated assets that built up during the bubble. The full report is embedded below (via FT Alphaville). Here's the introduction:

In the financial markets, interpretation often counts for more than fact. Indeed, after
passing through the qualitative and emotional analytical filter, factual inputs can often
emerge from the process as anti-facts. At present, many market participants still
appear to be afflicted by the mood of depressive pessimism that became pervasive last
year. Under this condition, market developments and economic data-points that an
impartial analysis would usually construe as positive are being warped into negative
signals. Signs of an economic recovery, somehow, end up being interpreted as signs of
impending economic doom.

Nowhere is this truer than of the prevailing fuss about the dollar and US treasury yields.
Both asset classes have been losing the save haven and liquidity premiums established
during the market carnage of last year. This is an unambiguously positive development,
confirming a revival in risk appetites, decreased fears about the financial system and a
general improvement in economic expectations. However, after passing through the
prevailing interpretative filter, these positives become negatives. Rather than indicating
an economic recovery, the lower dollar and higher bond yields apparently reflect a crisis
of confidence in US Inc, investors fleeing the prospect of endless budget deficits, a
towering government debt burden and prospective hyperinflation.

Never mind the rather obvious objection that the violent rally in Cable specifically
contradicts this theory – unless of course one assume s that jumping out of the frying
pan into the fire is a rational approach to securing a safe haven. Equally, never mind the
other rather obvious point that the currency of the largest creditor nation – Japan – has
recently been depreciating against the dollar, a development that is not exactly
indicative of rising concerns about US borrowing. Rather, if one starts from the premise
that nothing good is happening in the global economy, any contrary empirical
indications must inevitably be re-interpreted to fit the premise. The current rumblings
of discontent smack more of the avoidance of cognitive dissonance on the part of
inveterate bears, than any dispassionate analysis of the situation.

Bond Sell Off

Publish at Scribd or explore others:"

Me:

Don the libertarian Democrat (URL) said:

May. 29, 10:20 AM

I agree with him, as does Richard Fisher:

"Meanwhile, Reuters reported, "Federal Reserve Bank of Dallas President Richard Fisher said on Thursday it was not clear if the U.S. Treasury yield curve was steepening because of concerns over supply or a more optimistic economic outlook. "Obviously, there is a lot of supply of debt. Another way to interpret the steepening of the yield curve is ... confidence in economy going forward," he told reporters after a speech, adding that both could be happening at the same time. "I think it is probably a little bit of both, discounting the supply of new debt, but I detect...there is a pick up in confidence about the future," said Fisher."

In my book, this is how QE is supposed to work,ie, low short term interests rates and rising longer term interest rates. It's working. Now, of course, at some point, higher interest rates will become a problem, but we're a bit away from that now. So, the negative comments are reasonable, and might turn out to be right. We might, possibly, lose control down the road. I simply disagree.

By the way, haven't we all learned that we're all highly fallible in predicting the future yet?

And:

Don the libertarian Democrat May 29 15:24

I agree with him and Richard Fisher:

"Meanwhile, Reuters reported, "Federal Reserve Bank of Dallas President Richard Fisher said on Thursday it was not clear if the U.S. Treasury yield curve was steepening because of concerns over supply or a more optimistic economic outlook. "Obviously, there is a lot of supply of debt. Another way to interpret the steepening of the yield curve is ... confidence in economy going forward," he told reporters after a speech, adding that both could be happening at the same time. "I think it is probably a little bit of both, discounting the supply of new debt, but I detect...there is a pick up in confidence about the future," said Fisher."

I just want to be on record as an idiot.

Don the libertarian Democrat (URL) said:

May. 29, 10:31 AM

Joe,

Thanks a million for making that report available.

Cheers,

Don

unemployment goes to 14%... well then nearly all all of the major banks will have negative Tangible Common Equity, or put in other way: insolvency

TO BE NOTED: From Clusterstock:

"Everything Hinges On Unemployment

Joe Weisenthal|Apr. 22, 2009, 3:18 PM|7

Print

Tags: Economy, Banks, Credit Cards, Housing Crisis, Recession

Defaults among prime borrowers are really starting to pick up. Why? Cause even solid borrowers can fall behind if they lose their jobs.

Credit card companies see much deeper charge offs than they'd foreseen just a few months ago. Again, unemployment.

While the talking heads insist that unemployment is a "lagging indicator", it's pretty clear that the financial system is highly levered to this numbers, so it's hard to imagine a real turnaround unless the economy stops bleeding jobs.

A new report from FBR analyst Paul Miller says the health of the banking system all depends on this number:

FBR has constructed it own stress test ahead of the planned release of the government's stress test parameters this Friday, April 24. We tested nine commercial banks under coverage, using 10%, 12%, and 14% unemployment rate scenarios. We conclude that, if unemployment peaks at 10%, roughly consistent with the government's stress test, most of the big banks will be able to earn through it.
On the other hand, if unemployment is closer to 12%, which FBR believes is more realistic, their viability without additional capital is more questionable. FBR surveyed 62 buy-side clients and found that 41% expect unemployment to peak between 10% and 11% and that 39% expect unemployment to peak between 11% and 12%.

And if unemployment goes to 14%... well then nearly all all of the major banks will have negative Tangible Common Equity, or put in other way: insolvency.

Obviously this is the number that elected officials look at, since for most people, a good economy means that they and the people they know have jobs. Employed people are less likely to vote out politicians.

But as we've been saying, we expect unemployment to remain exceptionally high even into the "recovery" period, whatever that means. That's because besides the cyclical changes, the economy is also experiencing deep secular shifts resulting in displacement and lag time between jobs, as workers and industries take longer to adopt."

bondholders who have purchased CDS on this debt have little incentive to negotiate or play ball

From Clusterstock:

"The AIG Bailout Is Pushing Other Companies Into Bankruptcy

Joe Weisenthal|Apr. 17, 2009, 8:14 AM|8

Print

Tags: Economy, Bankruptcy, Holiday Season, Bailout, AIG, Financial Crisis

This week, mall operator General Growth Partners (GGP) and newsprint maker AbitibiBowater both filed for bankruptcy, after failing to persuade bondholders to restructure voluntarily.

Now lawyers involved in these bankruptcy proceedings tell the Financial Times that the credit default swaps are the problem -- mainly, bondholders who have purchased CDS on this debt have little incentive to negotiate or play ball, since the CDS, if the counterparty honors the agreement, makes them whole.

FT: Some creditors, including Citigroup, which held a small exposure to AbitibiBowater, hedged themselves in the CDS market, meaning their economic interest in the deal was different to lenders who had not bought credit insurance, according to people familiar with the matter. Citigroup declined to comment.

Lawyers say CDS holdings were also a factor in the default and filing for Chapter 11 protection of General Growth Properties this week. Restructuring advisers expect many more such cases involving so-called fallen angels, or firms originally investment grade, since CDS was widely sold on such names.

Now just take a wild guess. What firm is most likely to be on the other end of Citi's CDS purchase? AIG maybe?

If it is AIG, it means our bailout is pushing companies into bankruptcy that might otherwise be able to restructure.

Note that this has been alleged before, though previously with GM's ongoing failure to get its bondholders to exchange debt for equity. Now those involved in actual bankruptcies are citing it as a problem."

Me:

Don the libertarian Democrat (URL) said:

Apr. 17, 10:36 AM

"hedged themselves in the CDS market"

This makes sense. They insured themselves against a loss in their bonds. Consequently, they will be paid something either way, and are simply trying to figure out the best deal. What's the problem? Wouldn't you do that? The other creditors took a risk by not buying CDS insurance. What am I missing?

But, but... first regulators are going to publish a paper explaining the stress tests on April 24.

TO BE NOTED: From Clusterstock:

"Let's Just Cancel The Stress Tests

Joe Weisenthal|Apr. 16, 2009, 12:58 PM|3

Print

Tags: Wall Street, Tim Geithner, Financial Crisis, Banks, TARP, Bailout

Is there any good reason to follow through with the stress tests and actually release the results?

Word is, the White House plans to announce its finidings on May 4. But, but... first regulators are going to publish a paper explaining the stress tests on April 24. It's the latest evidence that the whole concept is becoming something of a fiasco for the administration, which is now going to great pains to maintain its credibiliy as a serious test for banks, while not spooking investors.

Of course, we've also been told that all 19 banks have passed. But also that some banks would need more shareholder-diluting capital once the results are released.

It doesn't help that all the banks apparently had blowout quarters, which if they're being totally honest should make you wonder why they need any extra capital at all.

At this point, we don't think anyone would begrudge the administration for doing an about face and admitting that they won't do much good. It's ok. People make mistakes.

Besides, the market can do a fine job distinguishing winners and losers on its own. As an alternative, just make all the banks raise, say, 5% of their market cap in the private sector. The ones that can do it are healthy. The ones that can't will get some extra help from TARP and voila. It'd be a lot more honest, and less political."

protecting insurers -- who are among the big holders of bank debt -- is one of the reasons that we've protected bank bondholders

TO BE NOTED: From Clusterstock:

"Treasury Will Expand TARP To Bail Out Insurers (HIG, LNC, PRU)

Joe Weisenthal|Apr. 7, 2009, 9:41 PM|

Print

Tags: Wall Street, Treasury, Bailout, TARP, Financial Services, Insurance, Financial Crisis, Tim Geithner

HIG Apr 7 2009, 07:38 PM EDT

8.45	Change	% Change
	-0.96	-10.20%

LNC Apr 7 2009, 07:41 PM EDT

6.89	Change	% Change
	+0.51	+7.99%

PRU Apr 7 2009, 06:41 PM EDT

22.10	Change	% Change
	-0.71	-3.11%

Life insurance companies are facing many of the same solvency challenges as banks, and have been trying desperately to get under the TARP. Some, like Hartford Insurance (HIG), have announced acquisitions of thrifts banks in hopes of garnering eligibility.

In fact, Hartford has been nursing its potential acquisition to the tune of $20 million in loans while it finds out whether the move will make it eligible.

Well it looks like they're in luck.

WSJ says the move to allow insurer participation will be announced in the next few days:

How much money would be available to the insurers remains unclear. The Treasury says it has about $130 billion remaining in TARP funds. Life insurers that are bank holding companies have been eligible for TARP for some time, but the Treasury had not yet given the green-light to approve their applications.

Several have applied, including Prudential Financial Inc. (PRU), Hartford Financial Services Group Inc. (HIG) and Lincoln National (LNC) Corp. No decisions have been made yet about which applications will be approved, these people said.

Bear in mind that protecting insurers -- who are among the big holders of bank debt -- is one of the reasons that we've protected bank bondholders so far. Obviously, that alone isn't enough.

Just $130 billion left though. Might take some creativity to stretch it out, since the prospects of getting more from Congress are daunting."

so the idea that the sum of its parts will ever be worth a sliver of what we've pumped in is absurd.

TO BE NOTED: From Clusterstock:

"Lousy Bids For AIG Asset Management Unit (AIG)

Joe Weisenthal|Apr. 7, 2009, 7:05 AM|2

Print

Tags: Wall Street, AIG, Bonus, Financial Crisis, Financial Services, Insurance, Bailout

AIG Apr 7 2009, 10:55 AM EDT

1.07	Change	% Change
	-0.03	-2.74%

It's funny that anyone still talks about AIG (AIG) paying back the taxpayer. The insurer has taken in far more money than its peak market cap, so the idea that the sum of its parts will ever be worth a sliver of what we've pumped in is absurd.

Still, they're still trying to salvage some parts for scraps. And yes, it does look like a firesale.

The Journal reports that bids for the company's asset management unit, which manages about $100 billion, have come in around $400-$800 million. That's far lower than typical valuations for these type of businesses. Normally with that much money in house, it might get bids for $1-$2 billion.

But alas, it's AIG and nobody knows how healthy the business really is, and whether customers are fleeing in droves. But hey, Ed Liddy, don't worry about selling "under market" or whatever. We'll take the $800 million please. That's like $2.50 for everyone in America."

You're not suggesting that American could end up in a situation like Zimbabwe with totally out-of-control inflation?

From Clusterstock:

"Peter Schiff Slams The Fed's Zimbabwe Economics

Joe Weisenthal|Mar. 19, 2009, 7:39 AM|9

Print

Tags: Economy, Financial Crisis, Debt, Federal Reserve

Peter Schiff, the EuroPacificCapital chief that's been a fierce bear on the dollar, slammed the latest fed move in an interview with ABC radio in Australia:

STEPHEN LONG: But some reckon that printing money, in effect, will make it a whole lot scarier.

PETER SCHIFF: Well, I don't think it's going to rescue us from anything. I think what we're doing is the equivalent of selling our financial souls to the devil.

STEPHEN LONG: Peter Schiff, the head of Euro Pacific Capital in Connecticut, speaking to me last year when this kind of intervention was first mooted.

PETER SCHIFF: I mean if we think we can solve our problems by creating inflation, we oughta send some of these guys down to Zimbabwe to see how well it's working out for them.

STEPHEN LONG: You're not suggesting that American could end up in a situation like Zimbabwe with totally out-of-control inflation?

PETER SCHIFF: No, no, yes, I am. I'm not only suggesting that, I'm saying that.

Of course, Schiff has had his clients positioned against the dollar for some time, a move that's had limited success given the ongoing flight-to-safety trade. But eventually, the Fed could, in theory, print more than enough to satisfy this demand, prompting a real decline.

One counterpoint, as Hayman Capital has argued, is that ultimately other countries, where the banks have grown to even larger percentages of national GDP, will be forced to print even more.

Meanwhile, here's a good picture of what the dollar collapse looked like when the Fed's move was announced. Straight down.

Me:

Don the libertarian Democrat (URL) said:

Mar. 19, 11:39 AM

This is what happened in Zimbabwe:

http://cato.org/pub_display.php?pub_id=9481

"On the economic front, the situation is dire. The economic crisis that was precipitated by Mr. Mugabe's seizure of commercial farms in 2000 has put four out of five Zimbabweans out of work. The government's tax revenue collapsed as did most of the public services. The Reserve Bank of Zimbabwe was ordered to print money to make up for the budget shortfall, leading to the first hyperinflation of the 21st century."

It should be understood that politics plays a huge part in how crises are dealt with. In Zimbabwe, these actions are a designed policy to keep a despot and his minions in power. If deflation would have worked, he would have done that. Just so we know what's actually going on in Zimbabwe.

This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy.

From Clusterstock:

"MARKETS SOAR (C, MSFT)

Joe Weisenthal|Mar. 10, 2009, 4:00 PM|15

Tags: Investing, Stock Market

C Mar 10 2009, 05:55 PM EDT

1.45	Change	% Change
	+0.40	+38.10%

MSFT Mar 10 2009, 05:40 PM EDT

16.48	Change	% Change
	+1.33	+8.78%

After days and days of unending pain and false hopes of a bottom, the market finally roared higher today. If nothing else, it was a nice one-day respite from the steady drip of a melting economy. Of course, throughout this down-cycle we've had several monster rallies and they've never amounted to anything.

The big winners: The banks. After Vikram Pandit's memo suggesting that Citigroup (C) was operating at a profit, they all roared higher. Citi itself was up 36%.

Other big winners: Big tech. Lost in all the news was Microsoft's (MSFT) announced dividend hike to $.13 per quarter from $.11. It's a modest amount nominally, but given where the stock was trading, it now pays a pretty juicy 3.4% dividend. It ended up over 8%, and the NASDAQ as a whole was up over 7%.

The final levels on the indices: The Dow ended up 379.44, to 6926.49, the S&P 500 added 43.07, to close at 719.60 and the NASDAQ gained 89.64, finishing at 1,358.28.

Clearly the market was due for some kind of vicious move upwards. Eventually the easy trade -- shorting the banks day in and day out -- was going to come back and bite the traders in the ass.

None of this means the market is "back" however, and there's even a negative spin on the Citi news, which is that the bank is profitable merely because of the massive amount of help its received from the govermnent, lowering its cost of capital, potentially creating a competitive advantage over sound, healthy institutions. This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy."

Me:

Don the libertarian Democrat (URL) said:

Mar. 10, 6:01 PM

"None of this means the market is "back" however, and there's even a negative spin on the Citi news, which is that the bank is profitable merely because of the massive amount of help its received from the govermnent, lowering its cost of capital, potentially creating a competitive advantage over sound, healthy institutions. This is what Warren Buffett was referring to when he talked about the advantage of being a financial crippled in this economy."

That's a very good point. So, when John Hempton quotes this:

http://brontecapital.blogspot.com/2009/03/fools-seldom-differ.html

"BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view, with lots of capital. They need to let almost all of--I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital. The government has needed to say--what the government needs to say is nobody's going to lose a dime by having their deposits in these banks. They're going to make lots of money with the deposits."

Buffett is making a point about how government help hurts private investments, like his. Right?

Also, the amount of the profit wasn't announced, was it?

All this shows is that this kind of approach is a failure.

From Clusterstock:

"NYT Bashes Economists For Not Giving Up On Free Markets Yet

Joe Weisenthal|Mar. 6, 2009, 1:50 PM|10

Tags: Economy, Recession

We don't think it's possible or productive to blame the financial crisis on any particular ideology. Bush policy was far, far from the laissez-faire dogma his critics made it out to be. Conversely, we do have a market system in most areas, so to say we live in some kind of socialist state is wrong, too.

But Patricia Cohen at the New York Times is dismayed that the financial collapse hasn't prompted academic economists to get on their hands and knees and beg for forgiveness. As she puts it, the "Ivory Tower" elite, still haven't learned the lesson that they were wrong.

This exercise is silly. Not because they're right and she's wrong, but because she thinks it's so obvious that her view has been vindicated, and that their has been invalidated. Of course, we've read similar arguments in more conservative publications on how the crisis proves beyond a doubt that government regulation is a failure (we've even made some ourselves!).

All this shows is that this kind of approach is a failure.

For some reason Cohen's argument appears in the NYT Books section, so maybe that should tell you something.

(via Jeff Tucker)"

Me:

Don the libertarian Democrat (URL) said:

Mar. 06, 3:51 PM

We have a welfare state. The only real question is the mix and balance between government and the private sector, and which interest groups are currently pulling the levers. I'm a very free market person and a Democrat. I follow Milton Friedman in at least three main ways:
1) I think that a guaranteed income would be a fairer and more efficient social safety net than what we have. In the meantime, I'm a strong supporter of a robust social safety net, and my party fits my position on that issue better than the GOP.
2) Like MF, I believe that, in health care, we should either have a government run program or a totally free market. Given where we are, I believe that a government run program is more viable. But the current hybrid is a total mess as far as costs are concerned, and far worse than the extremes.
3) I favor a return to narrow banks, as did Milton Friedman.
Finally, this is Milton Friedman about Socialism:

"MF: At the moment, opinion has shifted a great deal away from the idea of planning. Nobody anymore is a socialist in the dictionary sense, of the ownership and operation of the means of production. Nobody thinks that's the way a country should go. It is widely accepted that private property, private enterprise, and the market are more efficient."

I can't find an actual socialist. The current use is as a meaningless pejorative. The idea that our current investor class, after crying for more and more government support, defies belief. The real worry, from my point of view, is nationalism, and even more concentrated power and wealth. Those are free market concerns, in my view.

People might be interested in this essay:

Read "Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe by Jacob Funk Kirkegaard " here:

http://petersoninstitute.org/publications/interstitial.cfm?ResearchID=1096

I do expect more intrusive government in the short run, but that's a bother more than a serious worry.

Don the libertarian Democrat (URL) said:

Mar. 06, 3:53 PM

The idea that our current investor class, after crying for more and more government support, are Cato Scholars, defies belief