An inconvenient truth for ‘An Inconvenient Truth’: Copenhagen is Dead.

All in all, the timing is immaculate. After an almost unprecedented run of a couple of good years by the global climate religious right, thanks to the MTV advertorial known as “An Inconvenient Truth”, the climate bears are baring their fangs, and showing that they too, know how to fight when the timing is right.

And the timing is right – right now.

Back when Al Gore was showing pictures of chicks hatching prematurely and frogs swimming in slowly-boiling water, it was heresy to even question the ‘obvious truth’ that humans are responsible for global warming. It was dogma. Remember one of his famous quotes from the movie?

Future generations may well have occasion to ask themselves, “What were our parents thinking? Why didn’t they wake up when they had a chance?” We have to hear that question from them, now.

Well, the answer is, right now, unfortunately, “We don’t really care about climate change, because we’re unemployed.”

Joblessness and economic drift has a way of sharpening the mind wonderfully. And the climate bears understand this. That’s why they have spent much of the year building up quite a bit of underground momentum to counter the Gorists, with ’studies’ after ’studies’ being rolled out proving beyond a shadow of doubt that greenhouse cap-and-trade bills will cost America over one hundred billion jobs.  A typical example is given here:

[W]ho in their right mind would choose an economic policy that promises a 2.5 percent reduction in gross domestic product over the next 40 years? Add to that the likelihood of at least a half-percent loss in employment, and a strategy that would increase the costs of a staple up to 45 percent in the near- and mid-term, a cost that will erode buying power most among the lowest income earners. Does that sound like an economic policy that any rational politician would propose, let alone an entire nation adopt?

Unfortunately, it does – and our own Congress has already proposed it. The cap-and-trade system for controlling the output of carbon dioxide has made it out of committee, sponsored by Henry Waxman and Edward Markey. President Barack Obama campaigned on this revamping of the American energy industry and is widely expected to support it in its current form.

Wait a minute, some of our readers will say. You’re just quoting talking points from the right-wing corporate fascists sputter sputter Halliburton Cheney! Actually, while other think tanks have done notable work analyzing the impact of cap-and-trade systems on the American economy, the figures above come from the Brookings Institution, a center-left think tank in Washington, D.C.

However, these numbers tend to corroborate the analyses of other think tanks. Cap-and-trade proponents scorned a report from the George C. Marshall Institute when it was released in March, but the Brookings analysis matches closely to Marshall’s:

“Estimated GDP losses vary widely, from a 0.3 percent-0.5 percent to 3 percent drop in GDP below the business-as-usual projections in 2015 and a 1 percent to 10 percent drop in 2050. The timeframes of new technology development and growth in existing clean sources of energy, availability of offsets (domestic, international), and banking of allowances are likely to account for most of these differences in GDP costs estimates.”

The Marshall report, based on independent analyses of the Senate version of cap-and-trade sponsored by Joe Lieberman and Mark Warner, gives a range of results that into which the Brookings conclusions fall, both in the near and long terms. The Marshall report went into detail on the potential for job losses as well. Depending on the exact structure of the cap-and-trade system, net job losses by 2015 would be between 850,000 to 1.8 million lost employment opportunities. By 2030, that range goes up to 3-4 million potential jobs lost, as a net. One of the studies predicts a net job loss of over seven million by 2050, which would certainly account for a 2.5 percent drop in GDP.

And, a couple of days ago, karma just effectively ran over the climate dogma, then backed up on it, just to make sure. Hackers pulled out email correspondence and documents from the University of East Anglia’s Climatic Research Unit, and crowd-sourced it to anyone who had an Internet connection. The short of it is that scientists in the CRU had actively gone out of their way to make sure that reports from the Intergovernmental Panel on Climate Change, a United Nations group that monitors climate science include their own views and exclude others that provided dissenting views (scientifically-based research, mind you) against the dogma that “humans were responsible for global warming”. From WSJ:

A partial review of the hacked material suggests there was an effort at East Anglia, which houses an important center of global climate research, to shut out dissenters and their points of view.

In the emails, which date to 1996, researchers in the U.S. and the U.K. repeatedly take issue with climate research at odds with their own findings. In some cases, they discuss ways to rebut what they call “disinformation” using new articles in scientific journals or popular Web sites.

The emails include discussions of apparent efforts to make sure that reports from the Intergovernmental Panel on Climate Change, a United Nations group that monitors climate science, include their own views and exclude others. In addition, emails show that climate scientists declined to make their data available to scientists whose views they disagreed with.

In one email, Benjamin Santer from the Lawrence Livermore National Laboratory in Livermore, Calif., wrote to the director of the climate-study center that he was “tempted to beat” up Mr. Michaels. Mr. Santer couldn’t be reached for comment Sunday.

In another, Phil Jones, the director of the East Anglia climate center, suggested to climate scientist Michael Mann of Penn State University that skeptics’ research was unwelcome: We “will keep them out somehow — even if we have to redefine what the peer-review literature is!” Neither man could be reached for comment Sunday.

Bottom line: Copenhagen is dead. Hackers notwithstanding, it was actually the APEC meeting in Singapore (yay us!) that put the final last few bullets into the possibility that anything binding could be salvaged from the talks on December 7. From BusinessWeek:

At the Asia-Pacific Economic Cooperation (APEC) summit in Singapore, 17 heads of states and government—including ones from China, Russia and the US— destroyed all hopes of setting internationally binding climate targets in Copenhagen. Even the agreement to halve carbon dioxide emissions by 2050 that was agreed upon in L’Aquila has been sidelined. Now, the only possible result of the Copenhagen talks will be a “politically binding agreement.” According to the latest plan for the summit, a formal, legal agreement would then be reached at a later stage.

Even before the summit starts on Dec. 7, the climate talks already look like they will be a failure—at least, if one considers what the original goal of the talks was. At the end of 2007, at a summit on the Indonesian island of Bali, the United Nations decided that a follow-up agreement to the Kyoto Protocol, which expires in 2012, had to be reached within two years—and that its follow-up would be finalized in Copenhagen.

Politically binding? Not if the unemployed masses have anything to say about it. And that’s exactly how the climate bears are going to spin it.

To top it off, we’re going to hear from George Dubya soon, claiming “I told ya so.”

Bears preparing raid on China: “Yuan devaluation and China trade deficits in 2010″

First, the end of the world as we know it. Now, Yuan devaluation and China’s coming trade deficits! (you heard right: China trade DEFICITS). Has SocGen suddenly gone into bear raid mode, and are preparing to take on Goldman Sachs et al?

Here’s what Albert Edwards of SocGen had to say about why China will devalue its Yuan in 2010, despite personal bow-and-shake-hand calls by Obama to do precisely the opposite (h/t politico):

Imagine we are in the middle of 2010. Imagine the western economies (plus Japan) are sliding back into recession as the lack of additional fiscal stimulus reduces 2010 GDP growth back to its weak underlying rate (deficits need to widen to boost the economy). Imagine also that in 2010 the Chinese economy is beginning to roll over. China’s vulnerability is perhaps far higher than the bulls suppose, having engaged in the same sort of recession defying stimulus as the US in 2003. The US authorities in no way thought gently tapping the monetary brakes in 2005/6 would end in the biggest economic and market crashes since the Great Depression. Personally, I see the Chinese conjuncture as little different – in particular, the market’s confidence that the authorities are in control of events opens the possibility of a rude shock.

Any synchronized end in Chinese and US recovery will undoubtedly heighten geo-political tensions and accelerate the inevitable trend towards protectionism. The trend towards competitive devaluation will also increase. And in the case of China, if its economy founders unexpectedly and unemployment soars, no lever to restore growth should be ruled out, including devaluation.

To cite his black swan forecast, Edwards quotes from the analyses of two other China watches. The first from a famous bear, Jim Chanos, of Kynikos Associates, who is attempting to short the entire Chinese economy. Here’s why (h/t BizInsider):

The $4.3 trillion Chinese economy is under-performing despite a $900 billion stimulus program.

China seems to be cooking its books. For instance, it reports that car sales are surging while gasoline consumption is flat. Is that realistic? Or are state run Chinese companies just stock-piling cars?

China may have too much capacity. The central planners built out productive capacity for a booming economy but China is stalling. In nearly every sector of the economy, China is in danger of producing huge quantities of goods with no buyers.

China’s economic and political posturing signals that its leaders have no idea what is in store for them. The result may be a surprising economic collapse, akin to what happened when the housing bubble popped in the US.

Next in line to dump on the China miracle is Edward Chancellor, senior member of GMO’s asset allocation team. He says:

The deteriorating fundamentals of the Chinese economy worry many observers. Exports have plummeted. Economic growth is being driven by ever-rising levels of investment, notwithstanding evidence of serious industrial overcapacity. State-owned enterprises are rushing to build infrastructure projects of doubtful economic viability.

Yet Wall Street is once again playing the greater-fool game, often quietly acknowledging that a mania has developed but unable to resist the lure of quick profits. “When will the music stop?” one brokerage strategist asked recently about the Chinese stock market before advising clients, “Don’t leave the party too early.” Haven’t we heard that somewhere before?

Today many investors are betting that Beijing will continue driving the economy forward while preventing future market declines. Yet a similar belief in the power of governments to support inflated asset markets has accompanied many frenzies, starting with the South Sea Bubble of 1720.

A survey of 12 such events — from the British railway mania of the 1830s to the Saudi Tadawul bubble of 2005 — shows that echo bubbles have common characteristics. The typical one lasts longer than a bear market rally but not as long as the bubble that preceded it. On average, echo bubbles climb for ten months from trough to peak. Furthermore, the echo is proportionate in size to the earlier boom, averaging roughly one third of its size.

So how does China’s echo bubble measure up? Well, the peak-to-trough decline of the Shanghai composite was 67 percent; the dozen bubbles under consideration also fell by two thirds. Since the trough, Chinese stocks have doubled, thus exceeding the average echo bubble by about 10 percentage points. The Chinese echo bubble is about one third the size of the preceding boom, which is in line with the historical ratio.

The greater fools of Wall Street who argue that the Chinese market will continue rising for months to come might consider the following: Echo bubbles normally fade when valuations have climbed to about one standard deviation above the mean. This is roughly the level that Chinese stocks reached earlier this summer. The Shanghai market had been rising for ten months by August. By coincidence, this is also the average length of the dozen former echo bubbles.

SGX: “Mail merge letters are good enough. And you are not the boss of me.”

SGX’s head of risk management explains her approach toward market regulation: press ‘print’ for a mail merge document, and spend the rest of the day (at SIAS events and Yakun outlets) complaining why her job is so damn hard.

From BT “SGX: Public rap for misconduct is enough”

IT is enough at this point for the Singapore Exchange (SGX) to publicly criticise errant company directors for misconduct, said head of risk management and regulation Yeo Lian Sim yesterday.

This was in contrast to the use of fines on directors by the Indonesia authorities to punish misconduct.

‘What we can do is to reprimand or criticise directors,’ said Ms Yeo at a panel discussion at the Asian investors’ corporate governance conference organised by the Securities Investors Association (Singapore).

‘That is enough. If directors know that their reputations are on the line, they would be careful.’

Tell that to the corporate racketeers from China who have plundered Singaporean investors, but have made SGX and its shareholders pretty rich. Was a mail merge letter enough for them? Personally, I don’t think so, since some of them have fled to parts of China where snail mail can’t reach them (even assuming they can read English), while others are now spending jail time trying to catch on unread SGX mail.

The same article goes on:

Responding to a question to SGX’s dual role as a profit-making company and a market regulator and whether it was a conflict of interest, Ms Yeo said: ‘Suffice to say, my regulator, MAS (Monetary Authority of Singapore) seems to be satisfied with what we do.’

In other words: Singaporean investors, you are not the boss of me. So go and eat cake.

Soaring food and asset prices in Asia ‘not a problem’ for the US Fed

A couple of press releases from the US investment banks (i.e. the Fed) which should basically scare the shite out of anyone who wants to actually own a home, or buy food for his family in this part of the world. The Vampire Squids are coming to Asia (if they are not already here), and we’re going to see a replay of the banksters’ rape of America, only this time, the victim is the collective people of Asia.

From BT, “Capital flows to Asia not threatening: Fed’s Plosser”

A top US Federal Reserve official said on Thursday that capital flows to Asia have not reached levels that are threatening. ‘At this point I don’t see any reason to be concerned about it yet,’ Philadelphia Federal Reserve Bank president Charles Plosser told reporters after a speech in Singapore.

So, despite the fact that asset values in Asia – i.e. equities, property et al – have rebounded way way beyond fair value in the midst of ongoing unemployment and recession, and with productivity growth outstripping wages (this means that the production of goods/services – supply – is outpacing demand), we’re supposed to believe that more hot money in Asia (which will either go towards more production capacity, or investments in risk assets) is nothing to be concerned about??

Why does Plonker Plosser say what he’s paid to say? Because he’s opening doors for his bankster buddies. Nothing more, nothing less.

Here’s how it works: Asia (read China) sells stuff on the cheap to the US, and ends up recycling dollars into USTs and other financial derivatives (guess who provides this innovative crap?), keeping interest rates down. This leads to a massive carry trade, since IBs now have tons of cheap capital to chase stocks all around the world, and of course, fatten their bottom lines. (just a quick glance at the recent results from Government Sachs et al will demonstrate why their respective trading desks are deserving of the main bulk of their alloted record bonuses this year)

This is what Lil Timmy “G-man” Geithner had to say in WSJ recently:

“Among other things, emerging economies must strengthen their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances. Regulatory frameworks conducive to competitive markets will support private enterprise, investment and innovation. In the emerging economies, deeper and more efficient financial markets will enable better intermediation of savings and enhance investment productivity.“

In other words: we’ve run out of American pockets to pick with our financial innovation. They are sucked dry. Please open up your markets so that we can start on your citizens.

I’ll end up with another quote from Plosser – again from his trip to Singapore – this time on energy and food prices “Policy shouldn’t tackle energy prices: Fed’s Plosser” (BT)

Central banks should not respond to wild swings in food and energy prices with monetary policy unless expectations of inflation become unhinged, a senior US Federal Reserve official said on Thursday.

Large commodity price moves can have a detrimental impact on emerging economies, but it is ‘generally a mistake’ to use monetary policy as a tool to lessen such effects directly, Philadelphia Federal Reserve Bank president Charles Plosser said.

‘Movements in relative prices drive resource allocations, and one cannot and should not think of monetary policy as a tool to prevent those sometimes painful adjustments,’ he said in remarks prepared for delivery to a conference in Singapore sponsored by the Global Interdependence Centre.

Yet, these same “painful adjustments” are the very ones that are currently NOT ALLOWED by the Fed to happen to their buddies at the big banks. So for the Fed to come here to Singapore, and lecture us on how we should handle painful adjustments is just a bit rich.

From Denninger: Open letters to Wen JiaBao and Barack Obama

Denninger is always good for an amusing read. Here are two open letters he penned recently to the Chinese emperor, and after that, the American one. The facts and numbers – as one can expect from good old Karl – are pretty much on the dot, but it’s how he pieces the bits and pieces together that makes him such a good read (though a vitriolic one).

First, excerpts from his open letter to Premier Wen:

Dear Wen Jaibao:

We in America have noted with concern your nations’ expression of alarm at our Federal Reserve’s blatant money-printing, debt monetization, and interference in the free markets, in particular the recent commentary of China’s bank regulator cited here:

“The continuous depreciation in the dollar, and the U.S. government’s indication, that in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” he told reporters in Beijing today at the International Finance Forum.

Liu said this has “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.”

Mr. Liu is correct, of course.  However, yesterday afternoon Ben Bernanke gave you the finger, first in his speech and then later in the Q&A in which he said:

Nov. 16 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.

Donald Kohn, another Fed Governor, erected his middle finger in your direction as well with his comments last night and Yellen added her view this morning in which they also both said “we see no bubble.”  That’s three.

How many more times do you need to be flipped off before you get it: The Fed isn’t going to do what you want, and neither is Obama.  Get over yourself.

On the objective measures the price/earnings multiple of the S&P 500 currently stands at over 130, more than double its previous record and vastly beyond anything achieved even in China’s manipulated and overheated markets.  In short, they’re lying and they don’t care.

Welcome to American Politics Mr. Wen.

(In the event you’re not aware, “the finger” is the extended middle finger pointed in your direction, a universal American insult that, roughly translated, asks that you be fornicated.  I do not know what an equivalent insult is in Chinese.)

Now that I have your attention by making sure you that you realize that our Central Bank has flipped you off, let me point out something you should be aware of:

The so-called “paper” you hold denominated in our dollars will not be paid in full.

Let me put forward a few realities you may not be aware of, since you are the Premier of a Communist Nation where there is no freedom of the press nor, for that matter, any of the other freedoms guaranteed in our Bill of Rights.  That is, you head a nation where you believe the government has rights and the serfs, er, population has privileges you grant, where our founding documents express the precise opposite view – we believe that all people have rights that are endowed by our creator, that government can secure and protect rights but is incapable of bestowing them (since it didn’t have them in the first place), and that government has mere privileges granted by the people – and that the people have the right to revoke those privileges.

Here’s the problem you face, in a nutshell, just to make sure you read it correctly the first time:

We’re not going to pay.

First, we (the citizens) didn’t enter into these obligations.  You pursued a mercantilist strategy that involved, among other things, near-literal enslavement of your citizens under working conditions equal to or worse than those we imposed on the Africans we forcibly imported into this nation (that is, kidnapped) in the 1600s and 1700s.  We eventually figured out that this was abusive and stupid, although it took a civil war for us to do so.  You’ve yet to figure it out – you punish dissent with tanks and bullets while refusing to recognize basic human rights.  You build schools and other structures that collapse in minor earthquakes or when 3″ of snow falls on their roofs, claiming this is “progress”, when the native Americans that inhabited this nation were capable of constructing buildings of nothing more than sticks and animals skins that remained standing under similar conditions.  Using this slave labor, having destroyed our middle class workforce via offshoring, you have then sent back to us poisoned children’s toys, toothpaste and drywall, and demanded that we pay for these poisonous and dangerous products with good money.  As a consequence we the people don’t like you very much.  In fact, some of us would be quite content to invite you to dinner – as the main course.

Next, it is clear that you have strong-armed our government into exchanging toxic securities you bought from private actors for “good credit” US Treasuries.  You are among those who have played the “Financial Armageddon” card with a fair measure of success.  Precisely what you said and to whom you said it has not been publicly disclosed, but that threats were part of the negotiation is essentially assured, since nobody in their right mind would exchange used toilet paper for good Treasury Debt otherwise.  Yet our government wasn’t the agent of the original fraud – those were private corporations and actors.  Instead of doing what reasonable people do – that is, sue in a US Court and hold the guilty to account - you decided to play geopolitics.  You have that right, but we have the right to tell you to stuff it – today or tomorrow.  That day will come I can assure you.

Third, there is the matter of our citizens waking up to the scams – including your scams.  An increasing number of citizens in this country have had enough of the BS and, having been ignored when EESA/TARP was debated (by over 100:1 we told Congress not to bail out those bastards who ripped both us and you off) are intentionally reducing their output.  This of course reduces the tax base against which our government can extract money to pay you with.  Further, our government has over the space of more than 30 years embarked on programs that allow any US Citizen to effectively live for free, paying nothing.  There’s not a thing you can do about this, and we both can and are de-funding our government’s ability to tax.  Have a look at tax receipts – the government is running a near-$2 trillion deficit for this reason above all others.  Attempts to raise taxes on the remaining productive citizens simply cause more of them to decide to join those who erect their middle finger toward Washington DC, choosing Food Stamps and Medicaid over hard work.  There’s a phrase for this: “Going Galt.”  I recommend you read Ayn Rand’s “Atlas Shrugged” – I’m sure there’s a Chinese translation somewhere, although I suspect you shot the translator after he completed the work, lest he gain “subversive” thoughts and communicate them to others.

Trust me when I tell you we’re just as pissed off about the frauds and scams as you are, but that doesn’t give you the right to obligate we the people who were not the architects of these scams and frauds to pay for them, and we will not accept any such putative “obligation.”  Go take your gripe up with Mr. Paulson, Bernanke, Geithner, Obama, Bush and those who peddled all this crap worldwide.  Your beef is with them, not us, and we hold that those who commit bad acts are where the liability for same begins and ends.

Finally, we have the matter of our children and those yet unborn.  They did not consent to any of this – not even the rampant consumerism you fueled in this nation with your slave labor and pegged currency.  They have no obligation whatsoever to you or to any debt contracted by anyone prior to their coming of age, and it is highly unlikely they will consent to be bound to it.  The privation necessary for us and our children to pay – that is, reducing our working class to an income of $2/day to match your serfs (who thus far have surprisingly not found their 750 million pitchforks yet) isn’t going to happen.

You proceed from the unfounded belief that our government will be able to extract this effort from us via either voluntary compliance with ever-rising taxation or the employment of naked force at arms.  This is not a sound assumption.  Americans have a long history of suffering various usurpations and injustices, but Americans also have a history of “snapping” when pushed too far.  Ask the British about what happened at Concord on April 19th, 1775.

Sooner or later, whether by peaceful election or less-than-peaceful means, a leader will arise in America who will contemplate erecting the middle finger back in your direction, just as many Americans have flipped off Washington DC.  Ben Bernanke, Mr. Kohn and Ms. Yellen are just the first three you’ve seen in our officials who are willing to tell you where to stick your expectations – the day will come, I assure you, where a decision is made to simply tell you to stuff it at the highest levels of our government.  Yes, such a declaration – that your alleged and dear “Treasuries” are in fact nothing more than toilet paper – would have severe geopolitical consequences.  So what?  By then our nation will be incapable of paying anyway – a default by any other name is still default.  But our citizens, unlike yours, are and will be armed – go ask Admiral Yamamoto about the wisdom of considering an attempt to enforce your alleged debt by force.  While you’re at it count the blades of grass in our nation.  I think you can figure the rest out for yourself.

Worse for you, while we would suffer were America to turn isolationist, we would survive.  Your nation and its people would not.

Let me give you a piece of advice: Sell your Treasuries and dollars while you can.

Oh, you’d love to do that, wouldn’t you?  But you can’t, and you know it.  See, you’ve entered into a pact with the devil – a devil of your own creation.  Should you sell a material amount of your holdings you would collapse the Treasury market and receive only pennies on the dollar.  Further, you would instantaneously cut off your trade flow into the United States – the rise in interest rates this would provoke over here would  force our citizens to spend only what they earn, as the cost of credit would rocket higher – much higher.  It would also force an immediate default on whatever was left of your alleged “Treasuries” as our government would be forced to repudiate your holdings to remain solvent.  When it comes down to “you or us”, let me assure you, it will be us.  This in turn would cause all your poison toy, drywall, toothpaste and melamine-laced baby food factories to close.  Without that meager $2/day salary you would have 750 million hungry and angry Chinese who just might figure out what a pitchfork’s best and highest use is.  We, on the other hand, would chuckle mightily as we returned to actual hard work – for our benefit, not yours.

So let’s cut the crap Mr. Premier.  You have no good way out of this dance with the devil.  The amusing part of this is that you’re reduced to the position of a petulant child who can’t have that next candy bar – you scream loudly but have the balls of a baby, unable to do a damn thing about the increasing number of middle fingers erected in your direction – now by our Central Bank, and soon by the highest levels of our government.

If you have trouble reading the intent behind those three birds being flown in your direction, I assure you – those are only the first three of many you will recognize in the months and years to come.  We the people of America, having been abused with your poisoned toys, toothpaste and construction materials, are taking great amusement in the fact that an alleged “superpower’s” Premier in reality has no more power to effect geopolitical outcomes than the incessant howling of a 2-year old child.

Have a nice day.

 

Then, just for balance, Karl follows up with a reality check to Obama in “An Open Letter to President Obama”:

You could have made quite a splash over there in China – and made a difference for all Americans.  But instead, you did nothing of the sort – you simply continued the sell-out that has been going on for the last two decades in the so-called “strong relationship” between China and America.

That “strength” has included selling China advanced radar technology allowing them to shortcut 20 years of development time off their ICBM targeting, making their nuclear weapons far more lethal to potential targets – including targets in the United States.  It has included turning a blind eye to the blatant and outrageous technology rip-offs that go on over in that nation every day.  You won’t see them because your Presidential Motorcade will never be allowed in the street markets found all over the nation, but if you were, you’d see literal millions of unlawfully-made copies of US-created software and music sold openly while the cops stand by to protect the vendors instead of enforcing internationally-agreed to laws that the Chinese pay only lip service to.  And it has included granting virtually tariff-free “trading” status to a nation that forces poor farmers off their land and into sweatshop factories, away from their families where they are paid a buck a day in US equivalent wages, turning out products for sale in the US.

And let’s not forget who these companies are.  They’re the WalMarts, Apples and Nikes of the world – many of them huge American firms.  Oh not directly – that would bring these firms under US labor and regulatory stricture.  No, they’re “independent companies” owned by Chinese slave-drivers who instruct their employees to lie when the “auditors” from WalMart and Apple show up, telling them to a single employee that they’re “complying” with reasonable wage and hour laws under penalty of losing their job, being blacklisted forever and literally starving to death.  Since there are no whistleblower protections in China (it is, after all, a Communist government) the big US companies can claim to be “responsible” while in the background you hear the slave-driver’s whip crack – and everyone smiles (except the Chinese worker who is being outrageously exploited.)

You ought to know something about this, given your heritage.  Kenya featured prominently in the global slave trade until the British put a stop to it.  There’s nothing like a bit of history to screw up the revisionism that finds its way into American Politics, is there?

You ran on a populist platform and won on the basis of “hope and change.”  But hope and change is not working at WalMart while offshoring the production of our various consumer goods to China where the replacement for our US workers are paid a buck a day.  Indeed, many of the 8 million American jobs lost since the top of the employment market in mid-2007 will never come back, simply because the small and mid-sized businesses that once dotted the landscape have been destroyed by this “offshoring” activity.  It is clearly not possible for a US supplier or vendor to compete with $1/day wages or anything approaching it, yet this is the “competitive supplier” environment over in China and elsewhere.

The Truth is that America and China are locked in a deadly embrace.  They’re not buying our Treasury Debt to be nice or “support” us.  They’re buying because we have exported our inflation to them for more than two decades, and they’re desperately trying to prevent it from destroying them.  See, when you make $1/day (or $2/day) inflation is the difference between eating and not eating, and hungry people have a habit of reaching for pitchforks.  Since there are about 1 billion of them (ordinary Chinese) and a much smaller number of military and leadership, well…. you do the math.

But that “buying” of our Treasury Debt has fueled your (and your Republican cronies) desire to spend beyond all reason.  This distortion has allowed the government to blow money it does not have for more than a decade without watching interest rates ratchet inexorably upward, as happened to Bill Clinton and those before him.

The problem is whatever can’t continue forever won’t, and if you’ve been induced to borrow “interest only” (as our government always has) and the interest rates start to rise you can be bankrupted even if you stop borrowing.  Your refusal to recognize that nobody can survive for long when you take in only half of what you spend, borrowing the rest, is an outrage and insult to anyone with an IQ larger than their shoe size.

Speaking of outrages, let’s go down the list of current ones.  We can start with the SIGTARP report on AIG and their counterparties.  While AIG might have been free (under the law) to sell “insurance-like contracts” with no capital behind them, there is nothing that forced The NY Fed (and The Federal Reserve generally) to allow regulated bank-like entities to purchase those swaps and count them as “money good hedges.”  Yet the very boob who apparently did that, along with intentionally overpaying counterparties, was appointed by you to head the Treasury.  I suppose none of us should be surprised at this revelation by Mr. Barofsky, given that one of Timmy’s qualifications to head the Internal Revenue Service was that he didn’t even bother paying his own taxes.  You do realize the example this set for other Americans, right?  Is that wise, given that the government is undoubtedly going to try to extract more and more tax money from the rest of us in the years to come?

Then there are people like Lloyd Blankfein, who yesterday “apologized” for “participating in things that were clearly wrong.”  I know you created a “government-wide task force” as of yesterday to “fight financial fraud”, but somehow I doubt we’ll see the person who made a public admission yesterday of “participating in things that were clearly wrong” in the dock.  Indeed, yesterday we were treated to a revelation that Sacramento is suing a bunch of banks for bid-rigging and kickbacks – suspiciously similar to what apparently happened in Jefferson County Alabama, in which JP Morgan/Chase agreed to a fine and “foregone profits” of nearly three quarters of a billion dollars – while “not admitting guilt.”  Pardon my cynicism, but I’ve yet to see anyone willingly hand over nearly 3/4 of a billion dollars unless they’re concerned that they might lose a lawsuit or worse, be found guilty in a criminal trial.  It would seem to me that this “task force”, if it really is intended to do something productive, would start at the top – with Racketeering prosecutions aimed at our largest financial firms.  But that’s not going to happen, is it?

Speaking of “OCCE” (operating a continuing criminal enterprise), what about drug companies?  There’s a bit of a problem there too, no? Are not the drug companies one of the beneficiaries of your alleged “Health Care Reform”?  After all, you’re not going to strip them of their re-importation protection, are you?  Why not?

Far more important however is where a ”gentlemen” (Kindler) wound up after not one but two criminal guilty pleas by Pfizer for the same crime.  He was elected to the board of the NY Fed.  Are you as proud of Pfizer’s record as is Mr. Kindler is as their former CEO and General Counsel?  It appears so – not only does your “health care” proposal not bar deals with drug companies that have twice pled guilty to the same felony, not only is Pfizer still operating as a corporation (where any “natural person” who did the same sort of thing would be sitting in the hoosegow) but in addition you’ve sat back silently while their CEO is appointed to one of the chief banking regulatory positions in The United States!

Here’s the problem at the end of the day Mr. President.

You were elected on a platform of “Hope and Change.”  In point of fact the only change we got is the change at the bottom of our pockets – all the rest of our money has been siphoned off by the very same robber barons and banksters that have corrupted our nation for decades.  You’ve done exactly nothing to prosecute them for their previous actions or prevent them from doing the same things in the future.  Nearly a year after your election Citibank served upon the American people a 29.9% “rate jack” on their credit cards – an “atomic bird” served up by one of the largest financial firms in The United States, and one that the government now owns a large stake in.  This was a slap in the face of Americans by THE GOVERNMENT – that is, YOUR ADMINISTRATION.

You claim to be for the working class people in this country, yet you bow down to China paying people $1/day to assemble junk products, from capacitors that explode (found in literally millions of pieces of electronics) to melamine-laced “food products” to poisonous toothpaste to corrosive drywall that destroys wiring, plumbing, and, allegedly, the lungs of US Citizens.

We continue to hear that we “must reform health care” yet just recently Pfizer pled guilty to a criminal felony that it previously, years ago, pled guilty to before. Nobody went to prison, and the fine levied was less than 1% of the firm’s market capitalization.  A mere cost of doing business.  These are the “engines” of Americans’ health you wish to protect with laws that force we the people to pay for the development of drugs and medical devices that are then used worldwide – without the rest of the world paying “their fair share” for the developments that save their lives.  We’re a generous people but don’t you think such charity should be by choice rather than extracted at gunpoint?

You refuse to step in and force The Fed to be audited, even though you could get behind Representative Paul and demand it happen.  Why?  Is it because you’re protecting the very people who ripped us all off?  There are those who believe the true purpose of your Chinese trip is to find a way to pry open the doors in China so our Banksters can loot them, since the blood all seems to be gone from Americans – the vampires simply drank too much and killed us all.  There’s one small problem with that plan, if indeed it is your intention - in China they shoot people for the sorts of things that the banksters did over here.  Call it a “feature” of Communism if you’d like.

Let’s face it: America may need some protectionism.  Americans can’t be expected to compete with $1/day – or $2/day – in wages.  While this “looks good” for a little while as prices come down just as business profits look good when you fire people in the quarter you do it (witness the last two quarters of “earnings”) those employees who lost their jobs can’t buy anything in the future, as their income has evaporated!  They wind up on the dole, and this drives our budget deficit from 20% of our Federal Budget to roughly 50%.  The pegs and forced buying of Treasuries that have allowed this to happen won’t last forever, and when (not if) they snap they will force a Federal Government default.  Thus, my statement in the open letter to China’s Premier – we’re not going to pay you.

Some have claimed in comments I received that my views in that letter are some sort of jingoistic orgasm.  Nothing could be further from the truth; my views are simply an expression of mathematical fact.  Math is the only true science.

Speaking of the math, I’m sure you’re aware that about half the nation loved you at the time of your election and the other half hated you.  That’s a “feature” of American politics, of course.  But I would be concerned for your job security down the road if you don’t change course.  After all, the SEUI and UAW both were strong supporters, as were the “ordinary people” who bought into your “hope and change” mantra.

The problem is that you haven’t kept any of those promises.  Your “stimulus” didn’t, your “Recovery Czar” has refused to certify the jobs “saved or gained” numbers (that’s because they’re flat lies, as is obvious from the employment situation report’s household survey) and a huge stock market rally aside, there hasn’t been any real turn in the economy.  Instead Wall Street is feasting on the destruction of the dollar, which is a direct consequence of your policies – spending more than one makes eventually destroys confidence in the strength of your balance sheet, and the puerile acts of a Fed Chairman who you claim to support for re-appointment in his futile attempt to keep the musical chairs game going isn’t helping matters.  You could stop this tomorrow by demanding that Bernanke raise rates to a mere 2% immediately or you’ll replace him with someone who will – after all, his reconfirmation has not yet occurred, and your nomination can be withdrawn.  You could fire Timmy and direct Mr. Holder to prosecute all of the crooks on Wall Street that stole the hopes and dreams of millions of Americans, then looted their retirement accounts on top of it.  While your admission of the obvious this morning – that “too much debt could lead to a double-dip” sounds good, the fact of the matter is that it is your administration that has piled on most of this debt – and continues to do so.  Are you admitting – in advance – to what’s to come next year?

Best of luck to you Mr. President – from where this commentator sits, given the underlying realities of the economy and exploitation of our working class and your willful blindness to the mathematical realities of our fiscal and economic situation, you’re going to need it.

 

 

October NODX plunged YoY, taken by stock punters and condo flippers as great news

October NODX numbers were – to put it mildly – crap. But going by the bubbly sound bites from economist calls, it seems that Singapore – which incidentally has the world’s highest trade-to-GDP ratio of 370% - is “recovering” purely because we will soon see STI at 2800 and Ang Mo Kio condos at $1,500 psf, never mind the fact that we’re in our 18th consecutive month of trade decline.

From the BT “Momentum stalls as Oct exports plunge”

It’s no wonder that Singapore’s economic planners are unsure of the economic recovery – and wary of pulling back the stimulus measures.

After two months of upward momentum – up 1.2 per cent in August and 2.9 per cent in September – Singapore’s domestic exports minus oil (NODX) stumbled in October and fell sharply.

The seasonally-adjusted 12.6 per cent month-on- month drop was the biggest since December 2002.

The BT editor, of course, had to throw in the obligatory “Singapore recovering because things are getting worse at slower pace” caveat into the article. To wit:

On a brighter note, last month’s NODX – a key leading indicator – posted a smaller decline from a year ago, keeping up with the year-on-year improvement made since January, when the NODX plunged by a record 35 per cent.

The future is so bright, I gotta wear shades. So, with the benefit of my cool pair of Lei Pan glasses (a Chinese copy version of its more famous counterpart) let’s take a closer look at the Oct numbers from IE:

1. Total trade down 12.4%

Total exports (i.e. imports + exports) decreased by 8.9%, after the 19% contraction in the previous month. So not only has exports gone down, we’re now importing less as well – down by 16% in October 2009.

2. NODX continues to decline, but economists say “we shouldn’t drive using the rear view mirror”

Great advice, Mr. Economists. But since you have been wrong about everything that matters to the wealth of the middle class in Singapore over the last few years or so, we’re not about to bet our farm on your ability to find your ass with your hands. So we’ll stick with the rear view mirror for now, since that’s at least accurate.

I’ve said it before, and I’ll say it again: if you thought last Xmas was bad, wait till you see this year’s. Everything in the US and Europe is pointing to a really really awful Yuletide season.

3. The key electronics pillar is crumbling like a scene from “2012″, but with less star power.

Even John Cusack can’t save this one: On a YoY basis, electronic NODX contracted by 14%, same as the decline in the previous month. According to IE: “The decrease in electronic domestic exports was largely due to lower domestic exports of parts of ICs, disk drives and ICs.”

Here’s a detailed account of how the biggest economies of the world are doing, and why they are getting so darn tightfisted with their money.

The Europeans are in the midst of a depression, but really, no one cares, unless you were a Singaporean exporter to that part of the world. According to the IE, “NODX to the EU 27 contracted by 22 per cent in October 2009, after the 15 per cent contraction in the previous month, because of decreases in both electronic and non-electronic NODX. Electronic NODX to the EU 27 contracted by 36 per cent in October 2009, after the 37 per cent decline in the preceding month.” Staggering.

More than 17% of the workforce in the US is either unemployed or underemployed, so it’s not surprising that they don’t feel the need to load up on the next iteration of the iPod. From IE, “NODX to the US decreased by 11 per cent in October 2009, after the 4.7 per cent decline in the previous month, due to lower electronic NODX. Electronic NODX to the US declined by 30 per cent in October 2009, after the 6.2 per cent decrease in the previous month”

China, supposedly the bright spot in the world economy, turns out to be interested only in buying SPC and Noble Group from Singapore, instead of big screen plasma TVs.  “NODX to China decreased by 6.5 per cent in October 2009, after the 15 per cent decline in the previous month, due to lower electronic and non-electronic NODX. Electronic domestic exports to China decreased by 12 per cent in October 2009, after the 42 per cent decline in the previous month.”

As we’ve pointed out before, the decline is structural, not cyclical – The electronics industry in Singapore is in terminal condition. Expect more large-scale retrenchments by elec manufacturers as they move out in the next budgeting cycle.

Possible model for US taxman’s crusade against dodgers in Singapore?

The just revealed IRS criteria targetting UBS accounts may form the basis of an SOP for catching artful dodgers hiding their money in other “we-are-not-tax-havens” tax havens like Singapore and Hong Kong.

In a nutshell, IRS said any of the 4400 Americans with less than CHF 250,000 (roughly 1 for 1 to the USD) will be spared. (I’m betting that many of the 14,700 who owned up in time for the IRS leniency program feel pretty foolish now, eh?) Everyone else is fair game, including those who have parked the money through shell companies. (which means that the IRS is probably salivating at the prospect of getting their hot little hands on details of the approx US-originated USD100 billion parked in Singapore via holding companies through the whole of 2008)

From the WaPo “Swiss no longer shielding biggest U.S. tax dodgers”

If your secret Swiss bank account was small enough, you can breathe easier: A landmark deal between the United States and Switzerland to expose American tax dodgers does not call for the Swiss to blow your cover.

But if you exceeded certain thresholds and failed to disclose the account to the Internal Revenue Service, don’t count on Switzerland’s legendary tradition of bank secrecy to protect you any longer. Your account details may be on their way to U.S. tax collectors and federal prosecutors.

That is the upshot of a previously confidential annex to a settlement reached in August by the IRS with the Swiss government and Swiss banking giant UBS.

The IRS revealed Tuesday that Swiss authorities did not have to spill the beans on Americans who had less than $248,200 (250,000 Swiss francs) in their accounts or received less than $99,280 (100,000 Swiss francs) in annual revenue from them.

Before the showdown over UBS, Swiss law generally shielded depositors whose only offense was failing to disclose assets and income on tax forms. To jeopardize their entitlement to secrecy, bank clients had to engage in more overt acts of concealment, described as “fraud and the like.”

According to the newly unveiled annex, however, the Swiss appear to have stretched the definition of that kind of subterfuge. Under the annex, Switzerland defined “fraud and the like” to include failure to provide a W-9 disclosure form for three years if the account met two measures: having more than $992,802 (1 million Swiss francs) at any time from 2001 through 2008, and generating average annual revenue of more than 100,000 Swiss francs over three years.

The agreement also covers accounts of at least 250,000 Swiss francs if the American depositors used an off-shore shell company to hide ownership of the funds and if they engaged in a “scheme of lies.” That could include using calling cards to disguise trading orders, and using debit cards, credit cards or loans to mask withdrawals from the Swiss accounts.

Under the sometimes fuzzy terms of the international agreement, the Swiss have not explicitly promised to turn over the account information, only to “process” a U.S. request. Nonetheless, the U.S. government has made clear that, once the Swiss review runs its course, it expects to get details on about 4,450 accounts.

“Switzerland is no longer a place where Americans can freely think that their account information will be forever protected,” said Scott D. Michel of the law firm Caplin & Drysdale, which represents UBS clients.

The Swiss government said it has 40 people processing the disclosure requests. UBS admitted early this year that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts. The bank surreptitiously recruited wealthy Americans as clients and then helped some of them set up shell companies to obscure their connection to the accounts.

To avoid a potentially ruinous criminal prosecution, UBS agreed to pay the U.S. government $780 million. Then, the U.S. government stepped up a civil action against UBS, asking a federal court to force the bank to disclose the holders of 52,000 accounts. Through the deal struck in August, the two governments chose accommodation over confrontation, with face-saving measures for both sides. The U.S. government has accepted the possibility that some people who used UBS to evade taxes will get away with it.

Details as to which accounts the two governments would target for disclosure under the agreement were withheld until Tuesday to keep depositors guessing about their risk of being exposed — and to keep them under pressure to confess in return for an IRS offer of leniency.

The offer, originally set to expire in September, was extended to mid-October. As the deadline loomed, a crush of depositors filed voluntary disclosures. All told, more than 14,700 people turned themselves in under the IRS leniency program, more than 12,000 of them after the deal with Switzerland was announced, IRS Commissioner Douglas Shulman said in a briefing Tuesday.

Those figures went beyond UBS clients to include people with accounts at other banks and in other countries; Shulman did not provide a subtotal for UBS.

It was not immediately clear how much money the government stands to recoup from taxpayers who turned themselves in or face exposure under the UBS settlement.

“We are talking about billions of dollars coming into the U.S. Treasury,” Shulman said.

Reality is funnier than fiction: Microsoft charged with infringing IP rights of Chinese software company

This has got to be the funniest piece today. Microsoft (you know, the same company that sold just one single original copy of Windows XP in China, and achieved a 100 percent market share the very next day) has now been ruled to have infringed on the intellectual property rights of a Chinese software company. From China Daily “Microsoft ordered to stop selling OS”:

Microsoft must stop selling products that infringe on the copyrights of a Beijing software company, the Beijing No 1 Intermediate People’s Court ruled on Monday.

In the ruling issued by the court, Microsoft was ordered to stop sales of products that used Chinese character fonts designed by Zhongyi Electronic Ltd.

The products targeted were Chinese versions of the Microsoft operating systems Windows 98, 2000, 2003 and Windows XP.

Microsoft didn’t answer calls from METRO yesterday. According to the Beijing Morning Post, Microsoft said they would appeal.

A statement on the Zhongyi Electronic Ltd website said that Microsoft signed contracts to use Chinese fonts and an input method for the Windows 95 system in 1994.

“Microsoft only paid to use our software for its Windows 95 system,” Lan Fei, press officer of Zhongyi Electronic Ltd, told METRO yesterday.

The company claimed in its online statement that Microsoft used their software in other products, including Windows 98, 2000, 2003 as well as Windows XP without permission or payment.

 

Big surprise (not): Singapore exports stumble in October

Singapore exports fell 6.1% YoY and 12.6% MoM in October  – below estimates! (*gasp* + dramatic music “dan dan dan!”) The only real surprise here is how highly paid economists can’t see what’s at the end of their noses, while rank amateurs like us who are barely capable of typing Google search terms could have predicted a bad Oct for a dollar and a free shoulder rub. (see previous posting on how the Singapore economy is ‘recovering’ because it’s getting worse at a slower rate)

From BT: “S’pore’s exports stumble in Oct”

Singapore’s exports stumbled in October as global demand for the republic’s electronics and petrochemicals languished.

Exports excluding oil fell a seasonally adjusted 12.6 per cent from September, the biggest monthly drop since 2002, after rising slightly the previous two months, according to Trade and Industry Ministry figures released on Tuesday.

Compared to the same month of 2008, exports fell 6.1 per cent in October to $12.5 billion (US$9.0 billion) following a 7.3 per cent drop in September.

‘It is beginning to look as though not everything in Singapore’s garden is rosy right now,’ said Robert Prior-Wandesforde, senior Asia economist for HSBC in Singapore. ‘It will most likely prove a pause for breath … but clearly the situation needs watching closely.’

This is the same hyphenated-name guy who predicted that Oct would be the first growth month when September figures were released. Here’s what he had to say back then:

“It looks more and more likely that the regional, if not the world, trade cycle will gather further momentum,” said Robert Prior-Wandesforde, senior Asia economist for HSBC in Singapore. Prior-Wandesforde said he expected Singapore’s exports to grow in October for the first time in 18 months.

Clearly overpaid. But does he – or any other overpaid economist – get “punished” for making a wrong call? No, it’s because the market came in “below expectations”, i.e. Bobby et al are not wrong, the market is wrong.

It’s time to dig into this set of numbers again. We’ll see what we can come up with in the next posting.

Update: Cambridge refuses to bend over for MI-REIT’s shafting of shareholders

So far, at least one significant shareholder has decided not to bend over to accomodate MI-Reit and AMP’s proposal to screw existing investors. Breaking news from BT “CIT asks unitholders to reject MI reit’s proposal”

Cambridge Industrial Trust Management, a 10 per cent unit holder of MacarthurCook Industrial Reit, said on Monday it opposes a recapitalisation exercise announced earlier this month.

Earlier, MI reit announced a series of fundraising measures that will allow it to repay a portion of its borrowings that expire in December and at the same time buy five new properties. The combined measures, which include a rights issue, the introduction of a new strategic investor and the sale of new shares to eight cornerstone investors, will bring in S$217.1 million in fresh funds.

The proposed exercise will see MI-Reit issuing new units to AMP Capital Holdings and other ‘cornerstone’ investors, followed by the rights issue.

But CIT said the exercise will hurt existing unitholders because it is priced at a steep discount to MI-Reit’s net asset value.

It is urging unitholders to vote against the measure and has offered to take over as manager of MI-Reit.

Reality check: What’s the price of gold in gold?

(courtesy of Infectious Greed)

For consparanoia nuts and gold bugs everywhere, here’s solid proof that there’s a vast global conspiracy that manipulates markets, with the goal of transferring even more wealth from the poor to the rich. Where’s the outrage?

 

APEC: China blames US, US blames China, rest of Asia secretly blames US and/or China but too chicken

According to the column inches generated by local press on the recently-concluded APEC lovefest, you can hardly be blamed for thinking that we’ve all suddenly become enlightened and fully evolved Keynesians, prepared to create a new utopian world order that has no poverty, no financial crises, no barriers to free trade, and no badly-dressed politicians (C’mon press people! how many headline articles can we have on a stupid APEC costume?)

Alas, the reality is that we are only human. The global blame-game gains momentum, even within the APEC woodstock – apparent only if you read anything other than the ST or BT.

First, we have China. From Bloomberg “Low US interest rates a threat to recovery: China”

In an unusually blunt criticism of US monetary policy, the Chinese banking regulator has charged that ultra-low interest rates in the United States are fuelling speculation in overseas asset markets and threatening the global economic recovery.

In the criticism made on the day that President Barack Obama arrives in China for a visit, Liu Mingkang said that the Federal Reserve’s pledge to hold down borrowing costs and the weak US dollar had emerged as a ‘new systemic risk’.

‘This situation has already encouraged a huge dollar carry trade and had a massive impact on global asset prices,’ he said in a speech at a financial forum in Beijing.

‘It is boosting speculative investment in stock and property markets and will pose new, insurmountable risks to the global recovery and, particularly, to the recovery in emerging markets,’ Mr Liu, chairman of the China Banking Regulatory Commission, said.

His view echoes that of Donald Tsang, the chief executive of Hong Kong, who said that the Fed policy of keeping interest rates near zero is fuelling a wave of speculative capital that may cause the next global crisis.

‘I’m scared and leaders should look out,’ Mr Tsang said in Singapore last Friday.

‘America is doing exactly what Japan did last time,’ he said, adding that Japan’s zero interest rate policy contributed to the 1997 Asian financial crisis and US mortgage meltdown

The yuan is heavily anchored to the US dollar, making it very difficult for China to raise interest rates before the United States without attracting more speculative cash than is already streaming towards its stock and property markets.

And a slumping US dollar weighs on the value of China’s US$2.27 trillion of foreign exchange reserves, of which about two-thirds are estimated to be invested in US dollar-denominated assets.

Mr Liu also said that the global economic recovery gave little grounds for optimism, as it was driven largely by governments’ stimulus spending rather than real corporate activity.

Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp, said over the weekend that low interest rates in the US have spurred a carry trade with some currencies, notably the Australian dollar after recent interest rate increases by that nation’s central bank.

Then, we have the US response. From Bloomberg “Obama Can’t Avoid Immovable Yuan As Dollar Sinks Asia”

Asked in a Nov. 11 Bloomberg Television interview whether Obama should discuss the yuan, the Connecticut Democrat and chairman of the Banking Committee [Christopher Dodd] responded: “He’s got to raise that issue. You can’t give your competitor, your adversary in this case, a 40 percent advantage in global economies.”

Steelmakers such as Nucor Corp., the second-largest U.S.- based steelmaker by sales, unions such as the United Steelworkers, corn growers and textile companies have ramped up pressure on Congress to enact legislation aimed at forcing China to raise the value of its exchange rate.

“They’ve had a pretty good deal for a long time,” AFL-CIO President Richard Trumka said yesterday at a Washington conference hosted by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. “They’ve not played by the rules.”

Finally, we have the rest of Asia (ex China), which really really hates the low Yuan, which is the result of a low USD, which has prompted all Asian CBs to buy USD, in essence funding US QE with Asian taxpayer’s money, but can’t really say anything too obvious about it, for fear of not getting invited to wear a Chinese-made costume in the next Beijing-based event.

From the same Bloomberg article:

From Mumbai-based Alok Industries Ltd., which supplies Wal- Mart Stores Inc. with textiles, to Bangkok-based semiconductor packager Hana Microelectronics Pcl, Asian companies say Chinese rivals have an unfair advantage because of the yuan-dollar link. The dollar has declined 14 percent in the past year against the currencies of six major trading partners.

In meetings at the Asia Pacific Economic Cooperation summit in Singapore and then in Beijing, Obama probably will discuss China’s fixed-rate policy, which has prompted central banks in India, South Korea, Thailand and Taiwan to accelerate dollar purchases to curb currency appreciation.

“It’s just outrageous, the impact on their neighbors and on relatively poor countries,” said Simon Johnson, chief economist at the International Monetary Fund in 2007 and 2008 and now a senior fellow at the Peterson Institute for International Economics in Washington.

Yet, it should be apparent to anyone who has a pulse that the current mexican standoff that the US, Asia and the rest of the world are in right now, has resulted in opportunities for bystanders (read investment bankers, property developers and trading houses) betting that no one in the standoff will be the first to pull the trigger.

From Bloomberg “Yuan ‘Straitjacket’ Risks Inflating China Bubbles”

China is facing the biggest challenge to its currency policy since the start of the global recession as economists warn the peg to the dollar risks causing an asset bubble.

As recently as Nov. 9, People’s Bank of China Governor Zhou Xiaochuan said he didn’t feel much pressure to let the yuan rise, deflecting calls for an increase as exports start to recover and President Barack Obama prepares to discuss the issue in Beijing next week. China’s stance risks adding to liquidity after credit surged by $1.3 trillion this year, according to Fred Hu at Goldman Sachs Group Inc.

China’s sales of yuan to keep it fixed to the dollar contributed to a 29 percent jump in money supply, and the peg helped spur more than $150 billion in speculative funds from overseas in the past six months, China International Capital Corp. says. Record apartment prices and a 74 percent climb in the benchmark stock index this year are prompting warnings that the policy is inflating asset prices excessively.

China’s benchmark Shanghai Composite Index of stocks has climbed 74 percent in 2009. The $1.3 trillion in new loans this year ignited private housing investment, which rose 35 percent in August from a year before, accelerating from a 20 percent gain in July, according to New York-based JPMorgan Chase & Co.

China Vanke Co., the nation’s largest developer by market value, increased average apartment prices in September, charging 10,168 yuan ($1,489) per square meter, 26 percent more than a year earlier. Property sales climbed 27 percent in September from a year earlier, according to the company.

In Shanghai’s downtown Xuhui district, developer Shanghai Greenland (Group) Co. paid 7.245 billion yuan for 90,000 square meters in September, a record for the city’s auctions, according to real-estate services firm Colliers International, a London- based property broker. In the eastern city of Shenzhen, home prices climbed 11 percent that month from a year earlier.

“Risks of asset-price bubbles and misallocation of resources amidst abundant liquidity need to be addressed,” Louis Kuijs, the World Bank’s senior economist in Beijing, said in a Nov. 4 report.

“When the system is filled with cash, it will find its way to property, whether it’s commercial or residential; it also finds its way to stock markets,” Zhang Xin, chief executive officer of Soho China Ltd., the biggest developer in Beijing’s central business district, said in an Oct. 20 interview. “We have banks coming to us and saying ‘please borrow money.’”

The US taxman hits Hong Kong. Next stop, Singapore?

It was only a matter of time before the infrastructure set up by the US taxman in APAC to collect much-needed taxes to fill up the hole left by the bank bailout starts gaining momentum. From Bloomberg “Hong Kong Is New Target of U.S. Crackdown on Global Tax Evasion”

Hong Kong is a new target of U.S. prosecutors pursuing a global campaign against evaders of federal taxes, spurred by data acquired in their crackdown on Swiss banks.

Prosecutors are trying to determine what role financial professionals in Hong Kong play in tax evasion, according to people familiar with the matter. They are examining how much taxable money was moved to the former British colony that returned to China in 1997, whether accounts were based there in name only and what banks were involved, the people said.

The push follows the government’s success in penetrating Swiss bank secrecy and learning from insiders how UBS AG helped Americans evade taxes. UBS, the largest Swiss bank by assets, avoided prosecution by agreeing in February to pay $780 million and disclose account data on 250 clients. In August, it agreed to supply information on another 4,450.

“They must have reason to believe this is a target-rich environment and a very significant amount of tax evasion is going on there,” said Peter Zeidenberg, a former federal prosecutor now at DLA Piper LLP in Washington.

Since the February settlement, prosecutors have won guilty pleas from six UBS clients who described a web of bankers, lawyers and advisers who helped conceal income and assets. All six hid money in shell companies outside Switzerland. Four used Hong Kong corporations, including toy salesman Jeffrey Chernick.

Probes Beyond Switzerland

Debriefings of Chernick started probes of financial institutions in Switzerland and beyond, “in particular tax- haven jurisdictions such as Hong Kong,” prosecutor Michael Ben’Ary said Oct. 30 at Chernick’s sentencing in Florida.

“From the public statements at the Chernick hearing and elsewhere, the government has made it very clear that they are interested in other secrecy jurisdictions, especially Hong Kong,” said Douglas Tween, an attorney for Chernick, 70.

Chernick told prosecutors he hid sales commissions in an $8 million UBS account in the name of a Hong Kong corporation.

Hong Kong is already changing its laws to implement the Organization for Economic Cooperation and Development’s efforts to enhance tax transparency, said Katherine Kwong, a spokeswoman for the government’s Financial Services and Treasury Bureau.

These changes would help “significantly enhance Hong Kong’s position as a transparent tax jurisdiction,” she said yesterday.

If any of the sound bites issued by the Hong Kong government sound familiar, it’s because Singapore may have purchased the same mail merge press release from the same supplier, only with the word “Hong Kong” replaced with “Singapore”.

Next stop, Singapore? The article continues:

Hong Kong hasn’t been the only tax jurisdiction implicated in the past year. UBS admitted in February that it helped U.S. clients create sham companies in Panama and the British Virgin Islands, while hiding the true owners from the U.S. Internal Revenue Service. UBS clients who pleaded guilty also implicated Singapore, Liechtenstein, Mexico and the Cayman Islands.

The IRS is analyzing a trove of information from more than 7,500 taxpayers who voluntarily disclosed their offshore accounts this year to avoid prosecution. To qualify, clients had to disclose everyone who handled their money overseas and everywhere it went.

‘Scouring the 7,500 Disclosures’

“We’re going to be scouring the 7,500 disclosures to identify financial institutions, advisers and others” who helped taxpayers cheat on taxes, IRS Commissioner Douglas Shulman said Oct. 14.

He said the IRS is hiring 800 people in the next year and increasing staff in eight overseas offices, including Hong Kong. It also will open offices in Beijing, Sydney and Panama City.

“There is a phenomenal amount of money in undeclared status in Singapore, Hong Kong and maybe now China,” said Scott Michel, an attorney at Caplin & Drysdale in Washington. “The IRS has decided that the template has worked so well for Switzerland that it wants to mimic that investigative strategy with other countries.”

Daily money: Singapore share placements best way to screw retail investor

Share placements (aka corporate-sponsored jacking of the punter/minority shareholder who didn’t bother to show up for AGMs) are taking Singapore by storm. A recent announcement by MI-Reit, from the BT, attests to this growing trend: “Big recapitalisation exercise at MI-Reit” (from BT):

MACARTHURCOOK Industrial Reit (MI-Reit) has announced a slew of measures to recapitalise and refinance its debts and contractual obligations. It has proposed to raise gross proceeds of $217.1 million through the issue of new units to AMP Capital Holdings and ‘cornerstone investors’ and followed by a rights issue. In addition, it has secured credit agreements for a term loan of $175 million and a bridge loan of $39.9 million.

Under the unit placement, AMP Capital is buying a 16.1 per cent stake in MI-Reit for $22 million. MI-Reit will issue 78.6 million new units to AMP Capital at $0.28 each. The issue price is at a 31.7 per cent discount to the closing price of $0.41 on Thursday.

MI-Reit is also issuing 142.9 million new and fully underwritten units to certain ‘cornerstone investors’, including 9.8 million units to its principal sponsor AIMS Financial Group at $0.28 apiece. The gross proceeds of $40 million will be partially used to meet a contractual obligation to pay $90 million for a private lot at 1A International Business Park.

After leaving the retail investor lying face up in main street, bleeding from multiple stab wounds, MI-Reit then turns around and asks “You wouldn’t happen to have any spare change on you, would you?”, by issuing a two-for-one rights issue:

Following these placements, MI-Reit will undertake a two-for-one rights issue, which is also fully underwritten. It will issue 975.6 million new units at $0.159 apiece to raise $155.1 million. The proceeds will be used to pay down debts and acquire properties from AMP Capital.

‘The transactions are critical for MI-Reit and will restore MI-Reit to a stable platform,’ said Nicholas McGrath, CEO of the Reit manager. ‘The key benefits will outweigh the dilutive effects of the transactions on MI-Reit’s distribution per unit and net asset value per unit, and are in the best interests of unitholders.’

Yippie Kai Yay, MI-Reit retail shareholders.

Why share placements are the best way to screw retail investors

Granted, managers do raise funds for good reasons: e.g. to buy good and cheap properties in anticipation of an upturn in the economy. In the financial pecking order, acquisitions and investments are typically carried out via retained earnings first (the easiest and most hidden, though normally not a REIT path), debt (comes naturally to REITs given their huge store of collateral), followed by equity (the least optimal path, not only because it is the most expensive, but also for reasons stated below)

Here’s how existing retail investors get jacked:

1. Massive discounts on placements shares: “Management and the placement agent agree that in order for placement to be successful, so big discounts are required to attract them.” However, the discount is a huge cost to the company and existing shareholders, in effect moving wealth from current shareholders to new shareholders and financial intermediaries, without creating any new value, and sending a strong signal to market that shares are way overvalued. AMP 1, MI-Reit shareholders 0.

2. Same product, different price: Assuming prices are discounted future cash flows, any share placement discounts mean that the new placement shareholders are receiving higher returns than current shareholders. If MI-REIT reneges on its promise to make new investments, then any higher returns for placement shareholders have to come from existing ones. (2-0). If MI-REIT makes new investments, placement shareholders enjoy higher risk premiums then the current shareholders even though both undertake the same risk. (3-0)

3.  Drive by jacking: Share placements can be rushed out in 3 to 14 days days, compared to cash calls which can take up to 3 months. What’s worse, SGX has relaxed regulations on offer price discounts earlier this year, which makes it even easier to mug the retail investor: an EGM is unnecessary if the discount is anywhere south of 20%.

Unfortunately, as refi start cropping up in the midst of tight credit markets, placements seem to be most popular way forward in 2009, knocking cash call off the perch for 2009. From BT: “Placements knock out rights issue in 2009″

The rights issue must, ironically, be feeling rather wronged. Used frequently by companies at the beginning of the year before the market had rallied, rights issues have been unceremoniously cast aside in favour of share placements.

‘We have definitely seen an increase in share placements, since the second half of this year. With improved market sentiment, companies are more willing to raise funds via share placements,’ said Serene Seow, CIMB’s head of equity capital markets.

‘Earlier in the year, right issues were more popular, as the market conditions then had not been conducive for share placements.’

In a volatile market that has risen with unsettling alacrity since March, the share placement has also outclassed its lumbering peer.

Rights issues take about two months to complete from the announcement date, compared to two weeks for a placement exercise.

‘Also, rights issues require financial support from the controlling shareholders, and there may be takeover issues for consideration in some cases,’ said Ms Seow.

The share placement’s offer information statement, which runs over 50 pages and lists the finer details of the placement and company’s financials, usually takes two weeks to be developed, but can be rushed out in three days, according to industry insiders.

After the in-principle approval by the SGX, which takes about seven market days, things move at a fairly rapid clip – the new shares could be issued the next day and listed the day after that.

From the retail investor’s standpoint, it remains to be seen who wins in a placement deal.

To begin with, existing shareholders are not afforded the option of buying the shares like they are in a rights issue, and face the unappealing prospect of share price dilution.

Clouding the crystal ball further, the SGX relaxed regulations on offer price discounts to the share price earlier this year.

‘Now, the company can save time without having to go through an EGM if the discount is more than 10 per cent, but less than 20 per cent. The time from negotiation to market for these deals has been shorten significantly. This should bode well for the market,’ said Mr Ding.

This could backfire on firms, another equity capital markets insider noted. ‘With this regulation, everyone is going to squeeze the listed firms for a discount of no less than 20 per cent.’

Regardless of whether the placee is Temasek Holdings or a faceless investor, the undisputed champions of this year’s round of share placements have been the placement agents.

Merrill Lynch Singapore got a 1.25 per cent cut of the Noble group placement in September which will yield gross proceeds of $1.2 billion, according to Bloomberg data.

Placement fees this year have ranged from one per cent for Credit Suisse and Nomura Singapore in the $102.4 million Raffles Education Corporation placement, to 5 per cent for Sterling Coleman in the $14.3 million China Animal Healthcare deal.

Like the Donna Summer song, placement agents stress that they work hard for the money.

Yes, rushing out a mail merge form in 3 days is pretty hard work. Give that Merrill Man a Tiger! Meanwhile, we weak hands can only clasp them together, and pray that share placements result in upward price movements.

Big recapitalisation exercise at MI-Reit$217.1m from AMP Capital, cornerstone investors and a rights issue; $214.9m from term and bridge loans By LYNETTE KHOO

MACARTHURCOOK Industrial Reit (MI-Reit) has announced a slew of measures to recapitalise and refinance its debts and contractual obligations.

It has proposed to raise gross proceeds of $217.1 million through the issue of new units to AMP Capital Holdings and ‘cornerstone investors’ and followed by a rights issue. In addition, it has secured credit agreements for a term loan of $175 million and a bridge loan of $39.9 million.

With these transactions, the Reit’s short-term borrowings of $226 million due to mature by the end of this year will be fully refinanced.

Under the unit placement, AMP Capital is buying a 16.1 per cent stake in MI-Reit for $22 million. MI-Reit will issue 78.6 million new units to AMP Capital at $0.28 each. The issue price is at a 31.7 per cent discount to the closing price of $0.41 on Thursday.

This will usher in the Australian investment manager as a co-sponsor of MI-Reit to join hands with existing sponsor AIMS Financial Group.

MI-Reit is also issuing 142.9 million new and fully underwritten units to certain ‘cornerstone investors’, including 9.8 million units to its principal sponsor AIMS Financial Group at $0.28 apiece. The gross proceeds of $40 million will be partially used to meet a contractual obligation to pay $90 million for a private lot at 1A International Business Park.

Following these placements, MI-Reit will undertake a two-for-one rights issue, which is also fully underwritten. It will issue 975.6 million new units at $0.159 apiece to raise $155.1 million. The proceeds will be used to pay down debts and acquire properties from AMP Capital.

MI-Reit has agreed to acquire four industrial properties in Singapore from AMP Capital for $68.6 million to diversify its sources of income. These properties have initial yields of between 8.2 and 9.6 per cent.

‘The transactions are critical for MI-Reit and will restore MI-Reit to a stable platform,’ said Nicholas McGrath, CEO of the Reit manager. ‘The key benefits will outweigh the dilutive effects of the transactions on MI-Reit’s distribution per unit and net asset value per unit, and are in the best interests of unitholders.’

Speaking at a briefing yesterday, Mr McGrath said that he expects the rights issue to enjoy a good take-up as it is attractively priced.

MI-Reit will seek shareholders’ approval for these transactions at an extraordinary general meeting on Nov 23. MI-Reit will be rebranded as AIMS AMP Capital Industrial Reit.

Mr McGrath termed the transactions ‘transformational’ for MI-Reit. The Reit will enjoy support from the new sponsor AMP Capital, whose expertise in asset management and exposure in Asia Pacific complements AIMS’s direct fund management experience and presence in Australia and China.

MI-Reit will also have the first right of refusal to acquire AMP Capital’s logistics complex at 27 Penjuru Lane in Singapore, Mr McGrath said. There are opportunities over the next eight to 12 months for asset acquisitions given the properties identified under AMP Capital and other parties, Mr McGrath added.

To show its commitment, AMP will acquire 50 per cent of the Reit’s manager from AIMS and has committed to sub-underwrite a portion of the rights issue, bringing its total investment in MI-Reit to $54.1 million. This marks its first investment in an Asian Reit.

MI-Reit has separately signed a three-year term loan of $175 million with three banks – Standard Chartered Bank, Commonwealth Bank of Australia and National Australia Bank – and a bridge loan of $39.9 million with Standard Chartered Bank. These credit facilities will be used to partially refinance a Singapore dollar term loan.

The transactions are expected to pare down the Reit’s leverage from 44.7 per cent as at Sept 30 to 29 per cent on a proforma basis, Mr McGrath said.

China’s empty city: Build them and they will contribute to 8% GDP target

I’ve always found the goal-seek function in excel to be a real time saver. It turns out that the Chinese government has something similar: build enough cities – never mind if they remain unoccupied – and voila! the magical ‘8′ appears.

Summary: Ordos is a hyper modern city in China, full of brand new glass walled residential and commercial buildings, yet devoid of inhabitants. (from Al Jazeera)

This video is best served with helpings of the following:

- Lies, damned lies, and the Chinese GDP

- Why property bears get pummelled in China

- Temasek, GIC Longfor some action in Chinese property bubble

 

 

 

Mr. T cites government’s ability to manage property cycle, walk on water

Another leaf from the “I Have Full Control Of The Market” governing bible of MIWs everywhere. According to Mr. T, “every tool” at the government’s disposal will be brought to bear to prevent boom and bust in the property market. How should we read this? Depends: If you’re a speculator, then this probably the topping on what has already been a REALLY bad couple of weeks. If you’re a new buyer, then you should stop waiting for a better entry point in the near future, since the government has just – in effect – talked a hard floor underneath the market. As far as announcements go, this is a pretty efficient one: it aims to calm heartlander voters cum would-be speculators who are angry that they’ve again missed out on a massive property bull run, yet assure Indonesia matriachs and Chinese pei-du-mama families that their investments in St Regis and Casa Merah respectively won’t be rocked too much.

From BT “All tools to avoid property boom, bust”

FINANCE Minister Tharman Shanmugaratnam yesterday said the government will use every tool at its disposal ‘in a calibrated fashion’ to prevent boom and bust in the property market. One day after the Monetary Authority of Singapore served notice of further action to cool the housing market if needed, in the face of growing speculation risks, Mr Tharman spoke about the need to manage the property cycle.

It won’t involve macroeconomic levers such as the interest rate or exchange rate, though, as such tools apply across the board to businesses at large, not just the asset markets.

‘But we do have other tools like credit rules, land supply decisions and, in the extreme, tax policies, which we will use in a calibrated fashion depending on the circumstance, depending on the stage of the asset market.’ He was speaking about managing volatility generally at an Economic Strategies Committee industry forum when he cited the property market. ‘We will keep our eyes on the ball and use every tool at our disposal in a calibrated fashion to try to manage . . . as best as we can,’ he said.

And yet, while the government claims to have the ability to ‘manage the property cycle’, it admits in almost the same breath that it’s the very same government’s intervention that causes the next whiplash in the cycle.

But it’s ‘very hard to anticipate four to five years in advance what’s going to happen globally, regionally and hence within this global city’, he said, recalling how the government did pay heed to market signals of a supply glut in the property sector a few years ago, but found instead, by 2006 and 2007, a severe shortage, especially in the office market.

Here’s a suggestion: don’t bother to ‘manage’ the property cycle, since we’re not very good at it anyway. If enough property busts happen, then maybe our kids will no longer have a hankering to be a real estate agent or a banker, and start working at creating some real value for Singapore and the world instead.

Stuyvesant Town gets TKO-ed: GIC’s US$575 million goes down for the count

It’s official: Stuyvesant Town is in default. (or according to the press agent for Tishman Speyer, “…not in default”, which makes you wonder what it takes for a default to be called a default nowadays). Well, you be the judge: according to the S&P financial dictionary, a special servicer is ‘responsible for managing all delinquent loans upon a specified stage of delinquency as well as directly performing loss mitigation functions.’ But then these are the same guys that gave out AAA like a 5-dollar hooker on a Saturday night, so we can never be too sure.

Anyhoo, given that the property is now worth US$1.8 billion (according to Fitch’s latest estimates), and we (the citizens of Singapore) helped to fund the purchase at US$5.4 billion, we is pretty much chao tar (as it is technically called by savvy financiers in Singapore Pools). When the complex is sold, first in pecking order are ’something with massive haircut’ to the main bondholders – Fannie Mae and Freddie Mac (!), followed by ‘nothing’ to GIC and Church of England.

From Bloomberg “Tishman Nears Restructuring, Sale of Stuyvesant Town”

Tishman Speyer Properties LP and BlackRock Realty, the owners of Manhattan’s Stuyvesant Town- Peter Cooper Village, moved closer to restructuring $3 billion in debt on the apartment complex as the property verges on default, Fitch Ratings said.

The companies turned the loan over to mortgage servicer CW Capital on Nov. 6, Fitch said in a statement. Fitch said the property doesn’t produce enough income to pay the debt and a reserve fund probably will be depleted by year-end. A sale is more likely than a restructuring because the complex has lost so much value, said Kevin O’Shea, managing partner and head of the real estate practice at the law firm Allen & Overy.

“We requested that the joint venture’s loan be moved to special servicer in order to facilitate negotiations on a restructuring of the debt load,” said Bud Perrone, a Tishman Speyer spokesman. “The loan is not in default.” (Comment: he’s lying)

The biggest holders of the securitized mortgage are Fannie Mae and Freddie Mac, the government-owned home-loan finance companies. Freddie Mac has said it doesn’t expect to lose money on the bonds backed by the property. Tishman Speyer and BlackRock paid $5.4 billion for Stuyvesant Town in November 2006, near the top of the market, in the biggest deal in New York residential real estate history. They counted on increasing rents but were blocked by a tenant lawsuit and rising costs. Since 2007, U.S. commercial property values have fallen about 40 percent and apartment rents declined nationwide. The drop in prices and the credit freeze have made refinancing many loans impossible.

Wiped Out

Stuyvesant Town’s worth has plunged to $1.8 billion, according to Fitch. This means that all the investors besides the senior bondholders are probably wiped out. BlackRock has written down the investment to zero, said spokesman Brian Beades. On a conference call on Oct. 20, BlackRock Chief Financial Officer Ann Marie Petach said the writedown occurred “last year.”

Transferring a loan to a servicer means “the occurrence of a default is considered to be imminent,” said O’Shea, who represented the lenders in foreclosures of Boston’s John Hancock Tower and New York’s Sheffield57 condominium.

A loan modification is far less likely in this case, said O’Shea.

“The borrowers’ equity is currently so far underwater, there’s not much point in extending the loan in the hopes that the market will recover quickly enough to service or repay the debt,” O’Shea said. “You’d probably be just delaying the inevitable.”

Singapore bankers wonder why Singaporeans are so darn tightfisted

Bankers must be wondering: what the hell does it take to get Singaporeans to spend spend spend? Today’s article in BT “Wages rise, debts slow and S’poreans get richer” is the kind that riles up loans managers, making them thump conference tables at meetings with trembling sales guys, demanding to know why stretch targets can’t be met. (The relationship manager who handles Myanmar and Indonesia, he’s all smiles.)

Salient points from the article:

Singaporeans are getting richer as household debt has risen slower than wage growth, financial crisis notwithstanding. Add high property prices and the reluctance to spend freely and you have household assets standing at more than six times the household debts.

Household net wealth stood at an all time high, an estimated $1,001 billion in Q3 2009, after hitting a trough at $895 billion in Q1 2009. This is also more than double that of $400 billion plus in 1999.

As Singaporeans maintain discipline in taking on consumer debt, assets remain more than 6 times the household liabilities. Cash and CPF balances alone have exceeded total household liabilities since 2006.

If nothing else, the numbers point to a continuing reluctance on the part of the Singaporean to get into debt, which in itself is a a pretty good indicator of deflation. The article continues:

Total liabilities increased moderately by 4.4 per cent year-on-year in Q3 2009, which is much lower than the long-term average growth rate of about 13 per cent. Most of the increase came from housing loans, which account for the bulk of household borrowing. After moderating from around 15 per cent in Q4 2007 to 8.8 per cent in Q4 2008, housing loan growth has seen a recent uptick to 12 per cent in Q3 2009 due to increased activity in the property market.

Other types of household debt such as credit cards, car loans and share financing grew at a sluggish pace.

Credit card loan growth slowed from 19.5 per cent in Q3 2008 to 11.4 per cent in Q3 2009 while car loans shrank by 2.2 per cent in Q3 2009 as a result of falling car sales.

Credit card loans comprise a relatively small share of total household debt at about 3 per cent as of Q3 2009.

But bankers have a glimmer of hope – that the liquidity-driven bubble in the equity and property market will push those who missed out of the greatest bull(shit) run in history since the formation of Singapore to rush back in the market.

Looking ahead, households may be tempted to take on more leverage in the short term, given strong market sentiment in the domestic equity and property markets and expectations that low interest rates could persist for some time, it said.

‘This might expose households to increased risks in light of the still uncertain paths of economic recovery and interest rates. The current healthy balance sheet position suggests that households in general would be well placed to weather these downside risks.’

MAS asks property speculators: “Do you feel lucky, punk?”

More from the signals division: MAS gets into the property-cooling game, and issues a “do ya feel lucky” challenge to Singapore property speculators. Already, the recent announcements and measures (and more pending, if MAH and MAS’ recent warnings are anything to go by) seems to have had a cold turkey effect on property sub sales.

In fact, the massive number of “for sale” signs from hot flips like Casa Merah (which, according to Savills, would have resulted in a 22.5% chance of a loss in a flip, based on 1H 09 subsale numbers) indicates that sellers are now being demoted to the rear passenger’s seat. Further market ‘rumors’ circulating amongst agents (in Singapore, there’s no smoke without a trial balloon) hint at possible loan caps as well as valuation restrictions on the bay window we all thought was usable land area.

From BT today “More action may be needed if recent property measures inadequate: MAS“

Further action to cool the Singapore property market may be needed if recent measures to dampen speculation prove insufficient, the Monetary Authority of Singapore said yesterday.

‘As Singapore emerges from recession and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted.’

Despite lingering uncertainties in the economic outlook for Singapore and the rest of the world, ‘the domestic property market activity has taken on its own dynamic’, MAS said in a special section in the report highlighting what it sees as the key risks to Singapore’s financial system.

Other downside risks centre on the sustainability of the global economic recovery after governments start to withdraw their fiscal stimulus and tighten monetary policy, MAS said.

‘Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects. Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves,’ it said elsewhere in the report, commenting on the recent sharp rise in private home prices.

‘While the market rebound may appear to be aligned with improved prospects for the domestic economy, the current low interest rate environment has also played a part by reducing the cost of property financing,’ MAS said.

‘If unchecked, this could lead to a rising spiral of demand and prices as more and more property buyers and speculators are drawn into the market, and expose the property market to the continuing risks in the global economy.’

The article highlights a couple of measures taken so far to douse cold water on randy property flippers:

In September, the government banned interest-only housing loans and the interest absorption scheme that allows developers to absorb interest payments for apartments that are still being built.

It also restarted the confirmed list of the Government Land Sales programme in the first half of next year to meet the strong demand for private homes. (Comment: Not to mention the cessation of government budgetary prop-ups for developers.)

Why MM’s comment on US-China ‘balancing act’ needs to taken in right context

Isn’t China ‘our’ friend? ‘Our’ economic miracle? ‘Our’ photo opportunity to band together as comrades to show US and the West the proverbial Chink middle finger?

Then why did MM Lee, in a move guaranteed to help every Chinese flame forum achieve nuclear critical mass, make the following statement during the US-Asean Business Council’s 25th anniversary dinner in Washington on Oct 27:

‘The size of China makes it impossible for the rest of Asia, including Japan and India, to match it in weight and capacity in about 20 to 30 years. So we need America to strike a balance.‘

Reading this, Singaporeans must be suffering from some serious cognitive dissonance: on the one hand, we’re constantly told that we have to hitch the economic future of our children to the Chinese bandwagon or face imminent starvation, and then on the other, to hear implicit claims from our leaders that China is not a trustworthy partner for the long term, requiring ‘geopolitical balancing’ from the US, since the Nips and Indians don’t have what it takes to keep China in line.

Local detractors – as always – will say that MM Lee skipped a daily prescription of dopamine. But I would argue that the MM is reading from a wider canvas: this smart old codger is one of the few who understand why US behaves the way it does, and I think he got it spot on with this one.

To understand why MM Lee is (sigh) right, here’s some required reading from STRATFOR:

Strategy, as we have argued, is less a matter of choice than a matter of reality imposing itself on presidents. Former U.S. President George W. Bush, for example, rarely had a chance to make strategy. He was caught in a whirlwind after only nine months in office and spent the rest of his presidency responding to events, making choices from a menu of very bad options. Similarly, Obama came into office with a preset menu of limited choices. He seems to be fighting to create new choices, not liking what is on the menu. He may succeed. But it is important to understand the overwhelming forces that shape his choices and to understand the degree to which whatever he chooses is embedded in U.S. grand strategy, a strategy imposed by geopolitical reality.

The article goes on to argue that America’s grand strategy is essentially modeled after the British Empire, writ large at a global scale. The English strategy was simple: encourage potential rivals to engage in land-based conflict with one another (thereby keeping the rivals attention focused on immediate concerns, while at the same time reducing resources to build a navy), allowing it to control regional sea lanes. As such, UK in the 19th century was spared from the destruction of war, whilst giving it the opportunity to politically interference/influence (or provide direct aid where necessary) to maintain rivals in a delicate balance of power. If that failed to work, the final option was military – mostly through blockades of sea lanes.

STRATFOR argues that “[Lasting] empires are not created by someone deciding one day to build one.” Instead:

They emerge over time through a series of decisions having nothing to do with empire building, and frequently at the hands of people far more concerned with domestic issues than foreign policy. Paradoxically, leaders who consciously set out to build empires usually fail. Hitler is a prime example. His failure was that rather than ally with forces in the Soviet Union, he wished to govern directly, something that flowed from his ambitions for direct rule. Particularly at the beginning, the Roman and British empires were far less ambitious and far less conscious of where they were headed. They were primarily taking care of domestic affairs. They became involved in foreign policy as needed, following a strategy of controlling the seas while maintaining substantial ground forces able to prevail anywhere — but not everywhere at once — and a powerful alliance system based on supporting the ambitions of local powers against other local powers.

The limited choices available to the Obama administration (or whatever administration, whether it’s GOP or Dem) are dictated by the very existence of America as the “Elephant In The Room”, whether they like it or not. And these limited choices will guide the way America behaves towards rising powers like China, just like they did with Russia.

There are Obama supporters and opponents who also dream of the perfect balance: security for the United States achieved by not interfering in the affairs of others. They see foreign entanglements not as providing homeland security, but as generating threats to it. They do not understand that what they want, American prosperity without international risks, is by definition impossible. The U.S. economy is roughly 25 percent of the world’s economy. The American military controls the seas, not all at the same time, but anywhere it wishes at any given time. The United States also controls outer space. It is impossible for the United States not to intrude on the affairs of most countries in the world simply by virtue of its daily operations. The United States is an elephant that affects the world simply by being in the same room with it. The only way to not be an elephant is to shrink in size, and whether the United States would ever want this aside, decreasing power is harder to do than it might appear — and much more painful.

Obama’s challenge is managing U.S. power without decreasing its size and without imposing undue costs on it. This sounds like an attractive idea, but it ultimately won’t work: The United States cannot be what it is without attracting hostile attention. Actually, it is America’s presence — its very size — that intrudes on the world and generates hostility. Like that of Britain or Rome, U.S. grand strategy is driven by the sheer size of the national enterprise, a size achieved less through planning than by geography and history.

So what are the options available to the US? From the article:

First, the United States must maintain the balance of power in various regions in the world. It does this by supporting a range of powers, usually the weaker against the stronger. (Comment: i.e. the little island just to the bottom right of China where our boys are sent to lose their virginity) Ideally, this balance of power maintains itself without [too much] American effort and yields relative stability. But stability is secondary to keeping local powers focused on each other rather than on the United States: Stability is a rhetorical device, not a goal. The real U.S. interest lies in weakening and undermining emergent powers so they don’t ultimately rise to challenge American power. This is a strategy of nipping things in the bud.

Second, where emergent powers cannot be maintained through the regional balance of power, the United States has an interest in sharing the burden of containing it with other major powers. The United States will seek to use such coalitions either to intimidate the emerging power via economic power or, in extremis, via military power. (Comment: It’ll be a cold day in hell, or a clear day in Yangquan, when the US decides to close its bases in Japan, or for that matter, Sembawang)

Third, where it is impossible to build a coalition to coerce emerging powers, the United States must decide either to live with the emerging power, forge an alliance with it, or attack it unilaterally.

The interesting point from where we sit is not only how deeply embedded Obama is in U.S. grand strategy, but how deeply drawn he is into the unintended imperial enterprise that has dominated American foreign policy since the 1930s — an enterprise neither welcomed nor acknowledged by most Americans. Empires aren’t planned, at least not successful empires, as Hitler and Napoleon learned to their regret. Empires happen as the result of the sheer reality of power. The elephant in the room cannot stop being an elephant, nor can the smaller animals ignore him. No matter how courteous the elephant, it is his power — his capabilities — not his intentions that matter.

[Obama] came into the presidency promising to be more amiable than Bush, something not difficult given the circumstances. He is now trying to convert amiability into a coalition, a much harder thing to do. In the end, he will have to make hard decisions. In American foreign policy, however, the ideal strategy is always to buy time so as to let the bribes, bluffs and threats do their work. Obama himself probably doesn’t know what he will do; that will depend on circumstances. Letting events flow until they can no longer be tolerated is the essence of American grand strategy, a path Obama is following faithfully.

When we understand the choices available to the American Empire (make no mistake, that’s what the US is, whether it calls itself one or not), we understand where MM Lee is coming from. In his own inimitable way, he’s simply pointing out what should now be very obvious to us mere mortals: China is on its way to becoming an elephant, and the incumbent elephant in the room will do all it can – peaceful or otherwise – to trade time for risk.

It’s worthwhile pointing out STRATFOR’s own cheerful prediction of how such a strategy typically ends.

It should always be remembered that this long-standing American policy has frequently culminated in war, as with Wilson, Roosevelt, Truman, Johnson and Bush. It was Clinton’s watchful waiting to see how things played out, after all, that allowed al Qaeda the time to build and strike. But this is not a criticism of Clinton — U.S. strategy is to trade time for risk. Over time, the risk might lead to war anyway, but then again, it might not. If war does come, American power is still decisive, if not in creating peace, then certainly in wreaking havoc upon rising powers. And that is the foundation of empire.

The sound of deflation: APAC syndicated loans shrunk by 40% y-o-y

From the BT “Syndicated loans shrink as landscape changes”

It is far from business as usual for Asia-Pacific’s syndicated loan market – notwithstanding last month’s mega US$2.4 billion Noble deal. Volumes are much lower than last year, according to Thomson Reuters LPC.

Its data shows that this year, up to Nov 2, syndicated loan volumes for Asia-Pacific ex-Japan reached US$118 billion with 449 deals. In 2008, there were 811 deals amounting to US$235 billion.

‘From April, sentiment has improved quite significantly until now but volumes have not followed,’ said Phil Lipton, HSBC head and managing director of syndicated finance, Asia-Pacific.

Extrapolating to the end of the year, APAC ex J syndicated loan growth for 2009 would have shrunk by 40%! Just in case you were wondering where the next big wave of capital growth is coming from to support the Asian equity bubblemarket that’s discounting the next half a decade or so, the correct answer is: ‘no where’. The credit bubble, which popped in 2008, is still deflating. But somehow, everyone feels great that the market’s ‘recovering’, but there’s nothing they can point to to justify the feel.

US-China Trade Wars: Tariffs amassing at the borders

In this new, more xenophobic, economic reality, all it takes for China manufacturers to get hit with a 438 percent duty from the US Commerce Department is to not know how to read American.

From Reuters “US sets duties on China steel goods as cases mount”:

The United States said on Tuesday it set preliminary duties ranging from 2 percent to 438 percent on hundreds of millions of dollars of imported steel wire decking from China to offset government subsidies.

It was the latest in a growing list of actions against imports from China, the United States’ second-largest trading partner. Industry filed five new complaints against China in September, believed to be a record for a single month.

Since January, the Commerce Department has launched at least one dozen investigations into charges Chinese companies receive government subsidies that allow them to sell more cheaply than U.S. competitors or “dump” goods in the United States at unfairly low prices regardless of profit or loss.

The preliminary decision on Tuesday concerns welded-wire rack decking, a product used in industrial and other commercial storage rack systems.

U.S. companies imported an estimated $317 million of such decking in 2008, an increase of 49 percent from 2006.

The Commerce Department said it set countervailing duty rates of 2.02 percent for Dalian Huameilong Metal Products Co and 3.13 percent for Dalian Eastfound Metal Products. Both cooperated in its investigation.

But a significant number of Chinese companies did not complete the U.S. government’s questionnaire and those companies were given an adverse countervailing duty rate of 437.73 percent “for non-responsiveness,“ the department said.

Of course, China is not blameless – earlier in the week, China had announced that locally-made nylon stockings should no longer be sullied by Yankee hands (or chemicals). From AFP “China imposes duties on imported chemicals”:

China on Monday imposed anti-dumping duties of as much as 35 percent on a chemical from the United States, in the latest tit-for-tat trade measure ahead of a visit by US President Barack Obama.

The tariffs on adipic acid, which will also be imposed on imports from the European Union and South Korea, will be effective for five years at a rate from five percent to 35.4 percent, the commerce ministry said in a statement.

“Investigation authorities concluded that the products made in countries and regions like the US and EU are being dumped (in China), causing substantial damages to the domestic adipic acid sector,” said the statement posted on its website.

Adipic acid is mainly used to make nylon but is also a pharmaceutical ingredient and can be used to produce food flavouring.

Trade tensions between China and the United States have intensified in recent weeks, with both sides taking action against the other’s imports.

President Brobama has only himself to blame. His sop to US worker unions in September by imposing tariffs on China-made tyres gave the sense of a man that is standing on a crumbling political base.  In response, the Chinese decided that fowl play was involved in the imports of US produced chicken, followed very quickly by a US decision to consider slapping 100 percent tariffs on Chinese steel.

Why are trade tensions escalating, despite the seemingly Woodstock Liveaid lovefest that was the recently concluded G20 meeting? As I’ve pointed out in a previous posting:

The main mechanism for distributing slower growth among the world’s major economies will be through international trade. Consumption, not savings, is the most valuable commodity for every country now, whether they are running a trade surplus or trade deficit. BOTH OF THEM will be maneuvering to access as much consumption – globally as well as domestically – as they can. In this fight, you can expect MORE trade tensions, not less, as each will try to protect the competitiveness of their own production, and stifle others. Of course it doesn’t make sense when the world is considered as one market, but then, politicians are beholden to domestic voters, not the UN or the G20 committee

As usual, we’ll be keeping a pretty close eye on this. We’ll also be tracking Brobama’s continuing descent on the popularity polls from a high of “Cancer-curing savant” at the start of his Presidential career, to the low “Can’t find ass with hands” at the end of his first term. When his rating hits a middling “Banker’s best bud” – probably somewhere around the end of this year, we can expect at least a couple of more protectionist press releases.

 

The holiday disaster movie no one is watching: “Japan – The Sequel”

Is Saizen’s CMBS default a microcosm of the Japanese condition? From BT this morning “Update: Saizen Reit defaults on CMBS loan”

Singapore-listed property trust Saizen Reit said on Tuesday it had defaulted on 7.253 billion yen (US$80.25 million) commercial mortgage-backed securities loan.

The company said in a statement the ‘maturity default’ was not expected to affect Saizen Reit’s ability to operate as a going concern nor impair its ability to get further financing.

A maturity default occurs when the borrower fails to pay the lender the balloon payment, or principal balance, at maturity.

‘The main impact of this maturity default is an increase in the interest rate from 3.07 per cent to a default rate of 7.07 per cent per annum,’ Saizen said in a statement.

The loan, known as ‘YK Sintoku’, is a non-recourse and not cross-collateralised against other properties in Saizen Reit’s portfolio. It was originally provided by Credit Suisse Principal Investments Ltd, a unit of Credit Suisse , in 2005 and was later securitised and transferred to an issuer of the commercial-mortgage backed securities, the statement said.

Micro first: For those currently vested in Saizen, here are the things you should be immediately concerned with. Clipped from Saizen’s press release on the default:

To the best of the Manager’s knowledge, as at the date of this announcement, the Manager expects that the maturity default of the YK Shintoku Loan will (i) not affect Saizen REIT’s ability to operate as a going concern, and (ii) not impair the ability of Saizen REIT and its subsidiaries (the “Group”) to obtain further financing from financial institutions.

Pretty good spin. But it doesn’t wash.

Saizen follows this immediately with a huge caveat emptor statement:

In the worst case scenario, the maturity default could lead to, among other consequences, the foreclosure of YK Shintoku, including the foreclosure of all of the properties under YK Shintoku (the “YK Shintoku Properties”).

What’s the potential bottom line impact to the portfolio and DPUs? See table below:

For those without calculators, YK Shintoku makes up approximately 23% of Saizen’s total rental income.

Bear in mind that said Manager had already decided to suspend yield payouts to investors sometime back in April, as a way to preserve cash, so any valuation attempts based on yield is pretty much moot. What’s worse, when BT ran a story back in April 2009 entitled “Saizen Reit aims to resume dividend payments in June 2010″, Saizen immediately came up with a clarification in response to the article, which said (and I quote):

In the Article, it was reported that “SAIZEN Real Estate Investment Trust (Reit), which recently suspended dividend payments to unitholders to conserve cash, hopes to resume payments by June 2010 at the latest”.

The Board would like to clarify that Saizen REIT has not determined a definite time to resume dividend payments due to the uncertain credit environment, but aims to do so as soon as possible.

This was followed soon after by a 25 May downgrade by Moody’s, from Ba3 (“questionable credit quality”) to Caa1 (“at risk of default”).

“The downgrade reflects Saizen’s exposure to significant liquidity pressures, including a material level of refinancing risk and increased difficulty faced in complying with its loan covenant,” said Moody’s lead analyst for Saizen’s trust, Mr Kaven Tsang.

With such outright declarations of “we’re got liquidity problems”, you’d expect investors to drop Saizen into the meat grinder. But you’d be wrong. Saizen rallied 50 percent to hit an intermediate high of 15 cents a month after the announcement, followed by yet another melt up to 17 cents by August, capping an eye-watering 70% rally, even after the dilution from a 11 for 10 cash call made sometime in 5 May. Which goes to show how strong the QE-funded rally has been: that in a rising tide, all floating turds get lifted.

Said Manager has argued that there’s value of Saizen is supported by the the NAV of the asset. But these are the same guys that were selling properties in August in a desperate attempt to refinance the YK Sintoku loans, and we know how that turned out.

So how does this link to the macro story that’s happening in Japan? Let’s start off with a statement by Saizen themselves :

The default of underlying loans of CMBS is not unique, as evidenced by a report of Fitch Ratings (“Fitch”) in July 2009, which stated that Japanese CMBS “continue to see an unprecedented increase in underlying loan defaults”, with a majority of defaults resulting from the lack of refinancing options. The default rate on maturing loans and loans becoming due in Fitch-rated CMBS reached 53% in the first six months of 2009 and the overall default rate is expected to continue to rise under an “extremely challenging refinancing environment” in the near-to-medium term.

Evans Pritchard argues pretty eloquently that “It is Japan we should be worrying about, not America“

Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return.

The rocketing cost of insuring against the bankruptcy of the Japanese state is telling us that the model has smashed into the buffers. Credit default swaps (CDS) on five-year Japanese debt have risen from 35 to 63 basis points since early September. Japan has suddenly decoupled from Germany (21), France (22), the US (22), and even Britain (47).

Regime-change in Tokyo and the arrival of Yukio Hatoyama’s neophyte Democrats – raising $550bn (£333bn) to help fund their blitz on welfare and the “new social policy” – have concentrated the minds of investors at long last. “Markets are worried that Japan is going to hit a brick wall: the sums are gargantuan,” said Albert Edwards, a Japan-veteran at Société Générale.

Simon Johnson, former chief economist of the International Monetary Fund (IMF), told the US Congress last week that the debt path was out of control and raised “a real risk that Japan could end up in a major default”.

The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014. This has been manageable so far only because Japanese savers have been willing – or coerced – into lending for almost nothing. The yield on 10-year government bonds has been around 1.30pc this year, though they jumped to 1.42pc last week.

“Can these benign conditions be expected to continue in the face of even-larger increases in public debt? Going forward, the markets capacity to absorb debt is likely to diminish as population ageing reduces saving,” said the IMF.

The savings rate has crashed from 15pc in 1990 to near 2pc today, half America’s rate. Japan’s $1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.

Japan Post Bank is balking at further additions to its $1.7 trillion holdings of state debt. The pillars of the government debt market are crumbling. Little wonder that the Ministry of Finance has begun advertising bonds in Tokyo taxis, featuring Koyuki from The Last Samurai. If Japan’s bond rates rise to global levels of 3pc to 4pc, interest costs will shatter state finances.

No one knows exactly when a country tips into a debt compound trap. But Japan must be close, even allowing for the fact that liabilities of the state Loan Programme (FILP) have fallen by 40pc of GDP since 2000.

“The debt situation is irrecoverable,” said Carl Weinberg from High Frequency Economics. “I don’t see any orderly way out of this. They will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this.”

Deflation – despite Japan’s decades of wasteful efforts to ‘QE’ the issue -  is Japan’s ‘problem’. From WSJ “Deflation Signs Spur Fears of a Drag on Japan’s Recovery“:

As the world resumes economic growth after the steep global downturn, a familiar problem may keep Japan from following: deflation.

Economists expect the Bank of Japan in its semiannual outlook Friday to forecast that the core consumer-price index will fall for the fiscal year ending in March 2012, at a rate of at least 0.5%. That represents three years of expected deflation. The central bank has projected a decline of 1.5% for the current fiscal year and 1% for the next.

Japan’s core CPI fell for six straight months, on a year-to-year basis, ending with a record 2.4% decline in August. A similar decline is projected for September, though the size of the declines are projected to narrow afterward, reflecting changes in energy prices. Excluding both food and energy, Japan’s CPI fell 0.9% in August from a year earlier.

Though Japan remains expensive, signs of deflation can be found throughout the economy. Workers’ cash earnings fell 2.7% in August from a year ago. Year-end bonuses paid by 218 large companies listed on the Tokyo Stock Exchange will fall 13.1% this year, the largest drop at least since 1970, according to a survey by the Institute of Labor Administration.

“The continued drops in income are making households more thrifty,” says Ryutaro Kono, an economist for BNP Paribas Securities in Tokyo. “Companies are responding by cutting prices, sensing they wouldn’t survive otherwise.”

The deflation can be blamed on Japan’s long-term structural problems, including an aging population and one of the lowest birth rates in the developed world. Japan’s new government has proposed an ambitious program of $185 billion in spending each year to spur consumption at home, though many economists say longer-term growth initiatives and economic overhauls are needed.

The BOJ is expected to forecast near-flat growth in gross domestic product for the fiscal year ending in March 2012. Previously, it forecast a growth rate of 1.2% for fiscal 2011 after a 3.2% decline this fiscal year.

“Expectations for long deflation may be making companies more cautious about their capital-investment plans,” says Junko Nishioka, a RBS Securities economist in Tokyo.

And the final paragraph of this article sums up why the Japanese can expect a wall of CMBS defaults, coming soon from a declining commercial real estate near you.

Deflation can benefit consumers and companies by making goods and services more affordable. But it also hurts people with debts—whether an individual with a home mortgage or a nation with a fiscal deficit—by inflating the value of their debts in real terms.

Q3 labour numbers: Singapore’s job losses continues to grow as economy ‘recovers’

Singapore’s ‘jobloss recovery’ gathers momentum. From the glowing inches generated by Singapore’s main stream media on Q3 labour numbers released by MOM, the casual reader might be tempted to plow his bets into an economy that’s “turned the corner” and “definitely out of a recession”. But upon further reading, he/she might want to ask the question: if total employment increased by 15,400 jobs, why did the rate of unemployment go up?

A short answer: whatever misleading headlines might imply, Singapore’s economy is “recovering” because it’s STILL getting worse – albeit at a slower rate. This cartoon sums it up pretty well:

Courtesy of Calculated Risk

A more detailed answer follows.

The basic formula for unemployment is simple:

UR = U/(U+E), where U is the total unemp, while E represents the employed numbers. In essence, U+E= total labour force.

If UR goes up, either U has gone up, or E has come down.Or (shudder) the total labor force has shrunk.

From MOM’s Q3 numbers, total employment numbers was positive (by 15,400 jobs), which means that total unemployed must have gone up at a faster rate. So the thesis is again painfully familiar: the employment situation is getting ‘better’, because unemployment has gone up at a slower rate.

Let’s take a look at some of the numbers and implications behind the rising UR:

1. The anemic pace of job creation can’t keep pace with growth in labour force

3Q 2009 added 15K jobs, versus 55.7K jobs in 3Q2008, a decrease in jobs creation by 72%. If the resident labour force continues to grow (which it is), then this can only mean that net jobs created can’t keep up with net workers created. Worse, the number of jobs added in 3Q 2009 was actually LOWER than the 21,300 jobs added in 4Q 2008, typically a slow period in the year for hiring. Somewhere out there, gliding slowly below the radar, is one heck of a retrenchment fail whale that’s going to breach the surface pretty soon.

The breakdown from the MOM:

“With a recovering economy, total employment is estimated to have grown by 15,400 in the third quarter, ending losses in the first and second quarters of 2009 (-6,200 and -7,700 respectively). Nevertheless, the gains were significantly lower than 55,700 in the third quarter of 2008.

Services employment rose by 13,400 in the third quarter, significantly higher than the gains of 7,500 in the first and 3,800 in the second quarter this year, but lower than 34,300 in the third quarter last year.

Manufacturing shed workers for the fourth consecutive quarter, but the decline (-6,600) was substantially lower than in the first two quarters this year (-22,100 in 1Q 09 and -15,900 in 2Q 09).”

MAS, in its recently released Macroeconomic Review, didn’t have much more cheer to add to employment:

Job vacancy rates in all sectors remain well below their levels before the recession, the Monetary Authority of Singapore (MAS) said in its Macroeconomic Review yesterday.

Overall,there were only 33 job openings per 100 jobseekers, compared to an average of 72 during the 2005-07 period.

And hirings are not likely to pick up much. Three-quarters of the 635 firms polled intend to maintain headcount, the MAS report pointed out.

The outlook is most pessimistic for the manufacturing sector, it added.

Apart from the biomedical industry, which will see increased employment arising from new investment, such as Medtronic setting up operations in Singapore, most manufacturing companies are not looking to hire in 2010 due to the uncertain business outlook.

The PM concurs, since he has all but said that Singapore’s jobless recovery is turning into a jobloss recovery.

2. More people have completed SPUR (or finished reading “The Ten Day MBA”) and are now looking for a job.

SPUR acts as a very important unemployment ‘Special Interest Vehicle’ for the government (apart from its other more formally stated benefits to employees and employers), because anyone who goes into SPUR – defined as those which employers have no immediate use for, and which in normal circumstances, would be canned – can thus be neatly re-classified as “training” instead of “unemployed”. According to MOM, SPUR signs up an average of 20,000 workers per month which knocks off at least 0.7% off monthly unemployment numbers (based on an estimated labour force of 2.95 million workers).

Hence, it’s my guess that the government’s recent tut-tut noises directed at employers that are cutting back on sending their workers on SPUR probably stems more from the worry that UR will start spiking again somewhere in the near term, rather than the much harder-to-quantify measures of agility and competitiveness. And the same goes for the Jobs Credit Scheme - once the plug is pulled from July 2009 next year, we can only hope that the economy would have generated enough forward momentum to carry on its own. But my own bet is that when the Jobs Credit gets pulled, we’ll get a short spike (albeit small) in UR.

Finally, Q3 numbers and other media statements point to two pillars of the economy which are hiring: one being construction, and the other being pharma/biomedical. Unfortunately, employment in construction is dominated massively by non-residents. As for pharma, it begs the question: can a couple of months of SPUR retraining effectively convert general hard-disk assemblers into biomedical workers?

From BT’s “Jobs are back, and so are job seekers”

Total employment rises by 15,400 in Q3, even though the unemployment rate creeps up to 3.4% in Sept

THE jobless rate is up, even though the economy is on the mend and churning out more jobs. The seasonally adjusted unemployment rate edged up to 3.4 per cent in September, from 3.3 per cent in June, according to a preliminary report released yesterday by the Ministry of Manpower (MOM).

But total employment jumped 15,400 in the three months ended September, after losses in the two preceding quarters.

So while jobs came back in Q3, more members of the working population were out of work by end-September – due to more people looking for jobs in a recovering economy, after taking a break.

And that’s not counting the 20,000 new grads that are coming into the labor force from NUS, NTU and SMU. So, as more seniors put off retirement, either because of botched “retire rich and happy” plans as a result of the crisis, or from the government’s continuing extension of the retirement age, we’re going to see more and more grads competing against their parents and grandparents in a shrinking job market.

3. Resident unemployment hits 5%. At least migrant workers have options.

The resident unemployment rate – which counts Singaporeans and PRs, both of whom have less  flexibility than migrant workers to move their economic fortunes elsewhere – was 5 per cent. Granted, this value is below the peak of 6.2 per cent hit about six years ago during the SARS crisis. At 5%, a total of 100,300 citizens and permanent residents are jobless.

The nitpickers in the flame forums harping on the ‘blurring line’ between citizens and PRs, miss out on the most obvious blurring line: that for the most part, both groups are pretty much in the same sinking boat. The ever practical Singapore government grants PR-ship on the basis of contribution to the Singapore economy, and the tax bottom line. So, unless the new batch of PRs all happen to be part of the Jet Li or Jim Rogers family, PRs tend to be people who have put down roots here in some way: the minimum requirement of which is purely based on economic and tax considerations.

In short, whether you are Singaporean or PR, you’re both pretty much screwed. The main difference is, when crunch time comes, Singaporeans can put Vivian “No Singaporean will go hungry” Balakrishan on their speed dial, while PRs cannot.

Conclusion: Get ready for the new normal in unemployment

We’ve been continuously prepped over the last few months by our MIW to get ready for the new normal - read: higher unemployment rates, and lower growth. From FT “Minister warns of Singapore slowdown”, Mr. T sums it up pretty well:

Singapore’s trend rate of economic growth is likely to slow because of labour constraints and its success in achieving high levels of income per head, according to Tharman Shanmugaratnam, the island state’s finance minister.

“I think it is reasonable to assume that growth going forward over the next five to 10 years will be somewhat lower than growth in the past,” Mr Tharman told the Financial Times in an interview.

“You can’t keep growing at 5, 7, 8 per cent over the next five to 10 years; and it is not advisable to either.”

So if it’s ‘not advisable’ or ‘not possible’ to grow at the old normal with unemployment rates at 2-3%, what impact will the ‘new normal’ below par growth for the next few years have on the jobless numbers? Place your bets, folks.

Among residents, it was 5 per cent – still below the 6.2 per cent peak six years ago. This means 100,300 citizens and permanent residents were jobless. The previous high was 109,100 in September 2003.

Dirty money: Singapore scores well in “harmful tax haven” test

Just when Mr. T thought that the fuss over Singapore as a tax haven would just die quietly and leave him alone, the US Tax Justice Network makes him work hard for his money by, yet again, raising Singapore’s world-class ranking for promoting financial secrecy that is culpable for illicit fund flows:

From FT “Leading economies blamed for fiscal secrecy”:

Leading economic centres including the US, UK and Singapore are among the countries most to blame for promoting international financial secrecy, according to a new index comparing the harm allegedly done by tax havens and rich nations.

The research – which comes ahead of the Group of 20 finance ministers’ meeting in Scotland next week – is an unusual attempt to measure whether powerful countries are as culpable over illicit fund flows as the offshore centres they have attacked since the financial crisis.

John Christensen, Tax Justice Network director, said the index outlined “a much more intricate story than has been told in the past about how financial markets have secrecy at their core”.

He said: “We like to think that liberalised financial markets are transparent. But when you dig deep into their arrangements, you find transparency is something of a chimera.”

The rankings are made by giving each of 60 onshore and offshore financial centres an “opacity score”, which is then weighted according to the jurisdiction’s significance in the world financial system.

The tax havens hardly escape unscathed, with hedge fund centre Cayman ranked fourth and Bermuda, a leading base for insurers, coming in seventh. European nations fare badly, with Belgium and Ireland making it five entries for the Continent in the top 10.

Singapore’s eighth place reflects longstanding criticism from overseas investigators, who allege it is uncooperative despite its highly sophisticated financial system.

The question of the degree of blame attached to rich nations and tax havens for failings in financial transparency has become highly political in the wake of the credit crunch.

 

The hissing sound you hear may be deflation

From Ambrose Evans-Pritchard of the Telegraph “Deflation fears as Eurozone and US credit contracts”:

Data from the European Central Bank shows that the M3 broad money supply has contracted over the last six months, confounding expectations that ultra-low interest rates would soon boost monetary growth. Loans to the private sector fell 0.3pc from a year earlier, the first such decline since the data started in 1983.

The picture is even starker in America where M3 has shrunk at an annual rate of 6.5pc over the last three months, a pace of contraction not seen since the 1930s. US bank loans have plummeted since May.

The credit data on both sides of the Atlantic are hard to square with market expectations of a “V-shaped” recovery. Experts at the ECB and the Federal Reserve view the loan contraction as a short-term anomaly caused by the distortions of the crisis, and some have begun to hint that emergency stimuli will be withdrawn soon.

However, an ominous pattern is emerging where excess liquidity from low rates and quantitative easing is flooding into the equity (QE) and bond markets without gaining full traction on the underlying economy. This threatens to become a central banker’s nightmare.

Otmar Issing, the ECB’s former chief economist, told an Open Europe forum in London that policymakers are entering treacherous waters. “Nobody can be sure that we have a self-sustaining recovery. The challenges facing the ECB are tremendous,” he said.

“Money multipliers have collapsed everywhere. What M3 is telling us is that confidence is missing. I don’t see any way to stabilise M3 in such circumstances,” he said.

Professor Tim Congdon from International Monetary Research called on the ECB to buy state bonds in a blitz of QE to insure against a double-dip recession. He said: “2010 is going to be very difficult.”

Why is the M3 measure important?

Many inflationistas use M1 to justify inflation calls, which others, like Mish and Pretchter, rail against. As described in a previous video log, 95 percent of all our money in the world is created from debt (aka credit aka broad money), with only 5 percent of it being actually printed by the government and deposited into our savings accounts (which we typically describe as narrow money, or M1). Given the ratio of broad to narrow at roughly 95 to 5, even a small single digit percentage decline in broad would require an order of a magnitude jump in narrow to take up the slack.

Yet, even as governments attempt to switch on their Keynesian printing presses in an attempt to do get banks to transform M1 to M3 (through the magic of fractional reserve banking), banks are doing exactly the opposite – they are sitting on the cash, instead of lending out this money to increasingly distressed businesses and consumers. Why? Because of capital adequacy requirements: banks are carrying too much toxic crap on their balance sheets.

So, what do they do with the cash, that cost them almost nothing from the governments? They pass them to their own trading desks to pump anything from AIG to Citi, and drive up equity markets on low volumes, from Brazil to China (A look at Government Sachs’ recent stellar performance will show you where most of their profits came from).

For a reminder of how money is created from debt, and why this results in all of us being slaves to banks, have a look at Money As Debt.

Container shippers get that sinking feeling, American bankers not helping

NOL’s announcement that Q3 losses came in more than forecast is a pretty good leading indicator of just how Scrooge-like this Christmas buying season is going to be in the West. Expect a couple of tear-jerker holiday movies this season to depict champagne-sipping bankers yelling “Let them eat cake”.

From today’s BT “NOL’s losses mount, more storms ahead, expects to incur significant losses in Q4 and H1 of 2010“

Neptune Orient Lines (NOL) continued to sink deeper in the red in the third quarter ended Sept 30, racking up net losses of US$138.9 million, compared to a net profit of US$35.1 million a year ago.

For the first three quarters of 2009, NOL has reported cumulative net losses of US$529.7 million. Nine-month loss per share came to 28.52 US cents, against the previous corresponding period’s restated 14.23 cents.

Given the severity of the downturn in container shipping, the group said it expects to incur significant losses in the fourth quarter and at least through the first half of next year.

Revenue for the third quarter slipped 34 per cent year-on-year to US$1.56 billion. At the core Ebit (earnings before interest and tax) level, NOL posted a loss of US$115 million for the third quarter.

‘As anticipated, the third quarter saw a continuation of adverse business operating conditions,’ said NOL group president and CEO Ronald D Widdows. ‘Despite some improvements in certain trades, container shipping freight rates remain at uneconomic levels.’

Container shipping revenue from APL during the quarter slumped 36 per cent year-on-year to US$1.31 billion as volumes and freight rates declined. The Ebit loss from this segment stood at US$143 million.

Q3 volumes carried by the container shipping business dipped 6 per cent year-on-year at 586,000 FEUs (forty-foot equivalent unit) due to declines in volumes in Europe and Americas trade.

Even a price-fixing agreement back in July amongst the container lines failed to stem the red ink, which goes to show just how strong the clamps are on American wallets. From Bloomberg on July 7  “NOL and 13 shippers tries to end price war and panic”:

NOL’s APL Ltd. unit, China Cosco Holdings Co. and 12 other container lines agreed to raise rates on Asia-U.S. routes, seeking to end a price war caused by slumping demand, overcapacity and “panic.”

The lines decided on a $500 increase for carrying a 40-foot box from Aug. 10 as a “voluntary guideline,” the Transpacific Stabilization Agreement said in an e-mailed statement yesterday. The companies will also raise fuel levies and may add peak season surcharges, the group said.

Container lines will try to raise rates again after an April increase collapsed amid rising competition and a 20 percent drop in demand, the TSA said. Spot market Hong Kong-Los Angeles rates have slumped to as low as $900, according to Lloyd’s List, as U.S. retailers pare orders for Asian-made furniture and toys on weak consumer spending.

“The eastbound transpacific trade lane has been driven by panic,” Lee Won Woo, chief executive of TSA member Hanjin Shipping Co.’s container unit, said in the statement. “Panic is difficult to stop once it has begun.”

China shippers aren’t doing much better, as pointed out in Shipping Guide’s “Chinese Container Carriers Suffer As Freight Rates And Cargo Levels Fall“:

CHINA, 28 Oct – Reality bit this week for two more of Asia’s market leaders. Cosco Pacific and China Shipping Container Lines both posted figures showing substantial last period declines. Cosco, responsible for more than twenty container terminals in the region, joined with its two larger competitors, Hong Kong based Hutchison Port Holdings and Singapore Group PSA International in producing results which demonstrate the depths which cargo levels have fallen to. The group, also based in Hong Kong showed a profit fall of almost 50% in Q3 against the previous year.

China Shipping fared even worse seeing a nett loss for the same July to September period of almost $280 million representing a worsening against last years loss over the same period of around $40 million. Both companies cited falling traffic levels from China to Europe and the US as entirely responsible for the depressing figures. Although spokesmen from each were keen to point out that there are signs of an upswing in cargo levels both admitted that the recovery appeared to be moving slowly and the talk is very much of “less bad” than an instant return to former figures.

And from Llyod’s List “Box Barometers”:

THE past few months have been so awful for the container shipping industry that it is hard to remember that this crisis is little more than a year old.

This time last year, Neptune Orient Lines was in the black — just. It was the final quarter of 2008 that tipped lines into the red, and that is where they and most others remain, with cash fast running out.

There were no words of comfort from NOL when it published its latest results, which showed a $139m loss in the third quarter. That is certain to be followed by another significant deficit in the final three months of the year, with NOL warning that these difficult conditions are likely to continue at least through the first half of 2010.

In fact, that may be the one note of optimism. There are still those who believe something will happen to turn markets around, but it is hard to see what. The number of surplus ships continues to rise and demand remains in the doldrums.

Just take a look at the latest inbound figures for Long Beach, which provide a reasonable barometer. The port saw a drop of 19% from a year ago, with the numbers down by almost a third compared with 2007.

Charter rates remain way below operating costs, and many owners are technically bankrupt. Most container shipping players will continue to lose money until the massive overhang of capacity is absorbed. And that could take years.

The US bankers are, in their own inimitable manner, inflicting even more pain to the American consumer: banks like Citi jacked up credit card rates to 29.99% on unsuspecting customers, other banks are following suit (hoping to avoid a new law coming into effect) by punishing credit card holders who pay on time.

With smart moves like these, it’s no wonder entire invasion-of-Troy-sized fleets of cargo ships will continue to sit idle off the coast of Singapore.

Temasek, GIC Longfor some action in China property bubble

Notwithstanding the global equities top being called, and the Stuyvesant Town flip that’s turning Titanic, the ‘long-term investors’ at GIC and Temasek are now planning to sink a total of US$100 million of our HDB money into China property through Longfor Properties Co.

From WSJ “Temasek, GIC buy Longfor Shares”:

Singapore state-owned investment companies Temasek Holdings Pte. Ltd. and Government of Singapore Investment Corp. have committed to buying China’s Longfor Properties Co. shares for a combined total of about US$100 million, two people familiar with the situation said Thursday.

Longfor, a Beijing-based developer, plans to sell 1 billion shares in an initial public offering in Hong Kong and seeks to raise up to US$1 billion, according to a term sheet seen by reporters Tuesday.

Two people familiar with the situation told Dow Jones Newswires Tuesday that Longfor plans to kick off the IPO next week, with listing slated for Nov. 19.

Yet, as noted previously in this rag, recent property IPOs have flopped Gloriously, as interest in new shares wane.

Here’s the relevant extract:

Some markets seem to have gotten the message. As noted by Bloomberg, China IPOs are flopping Gloriously on HKSE:

Glorious Property Holdings Ltd. fell 15 percent on its first day of trading in Hong Kong, the fifth straight debut slump for an initial public offering in the city.

The stock dropped to HK$3.76 at the 4 p.m. close after slumping as much as 20 percent from the HK$4.40 offer price. Glorious Property last week raised HK$9.9 billion ($1.28 billion) in the largest Hong Kong IPO by a Chinese property company in two years.

The developer joins four companies, including China South City Holdings Ltd., in falling on the first day in the past two weeks. The declines have heightened investors’ concern the market’s appetite for offerings is waning as Wynn Macau Ltd. prepares to start trading on Oct. 9 after raising $1.63 billion.

“It’s a massacre,” Francis Lum, general manager at Hong Kong-based brokerage Fulbright Securities Ltd., said in an interview. “Right now investors have lost all confidence in new shares and I can’t see this changing in the near term.”

Hong Kong’s benchmark Hang Seng Index, which has rallied 80 percent from a four-month low on March 9, fell 3.1 percent this week, the biggest drop since the five days ended Aug. 21. JPMorgan Chase & Co., Deutsche Bank AG and UBS AG were the global coordinators in the Glorious Property IPO.

I’m hoping to be proven wrong (cos I’ve got some involuntary skin in the game, thanks to GIC and/or Temasek), but I fear that this is yet another portion of our national wealth tied up in ‘long term’ turkeys.

Top called: is the global sucker rally about to end?

The bears sense blood. US consumer confidence in Oct is unexpectedly down, Sept home sales are (unexpectedly) down as tax breaks run out, VIX has just displayed a massive short term spike, and buy-call advertising flyers are covering Main Street like confetti. Is this the turning point of the great sucker’s rally? Is the start of Wave 3 upon us? Will 29 Oct’s 80th anniversary of the end of the Great Depression sucker rally lead us to hoard gold, cowrie shells and vanilla pods instead? From Gross to Grantham (who quotes Macbeth!) to Roubini to Faber (who quotes from the Old Testament, typically the Book of Revelations), everyone who has shorts in the business is calling for a top in equities. A sampling of recent statements below:

Bill Gross: “Out, out, brief candle” (Bloomberg summary, and full report here)

Asset appreciation in U.S. and other G-7 economies has been artificially elevated for years. In order to prevent prices sinking even lower than recent downtrends averaging 30% for stocks, homes, commercial real estate, and certain high-yield bonds, central banks must keep policy rates historically low for an extended period of time. If policy rates are artificially low, then bond investors should recognize that artificial buyers of notes and bonds (quantitative easing programs and Chinese currency fixing) have compressed almost all interest rates.

But while this may support asset prices—including Treasury paper across the front end and belly of the curve—at the same time it provides little reward in terms of future income. Investors, of course, notice this inevitable conclusion by referencing Treasury bills at 0.15%, two-year notes at less than 1%, and 10-year maturities at a paltry 3.40%. Absent deflationary momentum, this is all a Treasury investor can expect. What you see in the bond market is often what you get. Broadening the concept to the U.S. bond market as a whole (mortgages plus investment-grade corporates), the total bond market yields only 3.5%.

To get more than that, high yield, distressed mortgages, and stocks beckon the investor increasingly beguiled by hopes of a V-shaped recovery and “old normal” market standards. Not likely, and the risks outweigh the rewards at this point. Investors must recognize that if assets appreciate with nominal GDP, a 4%–5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets—while still continuously supported by Fed and Treasury policymakers—is likely at its pinnacle. Out, out, brief candle.

Nourel Roubini “We have the mother of all carry trades” (from Bloomberg)

Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.

“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”

The dollar has dropped 12 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.

“The risk is that we are planting the seeds of the next financial crisis,” said Roubini, chairman of New York-based research and advisory service Roubini Global Economics. “This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.”

Jeremy Grantham: “Painful pullback of at least 20%” (from Bloomberg, his full report here)

U.S. stocks will “drop painfully from current levels” in the coming year amid disappointing economic data and shrinking profit margins, according to investor Jeremy Grantham.

The so-called fair value for the Standard & Poor’s 500 Index is at the 860 level, the chief investment strategist at Boston-based Grantham Mayo Van Otterloo & Co., which oversees about $89 billion, wrote in a quarterly report. The gauge fell 1.2 percent yesterday to 1,066.95. It has rallied 58 percent from a 12-year low on March 9 on rising confidence a U.S. economic recovery will boost corporate earnings.

“My guess, though, is that the U.S. market will drop below fair value” before 2010 is over, said Grantham, 71. “Corporate ex-financials profit margins remain above average and, if I am right about the coming seven lean years, we will soon enough look back nostalgically at such high profits.”

Equities have rallied globally since March amid signs government and central bank stimulus measures are helping countries exit the worst financial crisis since the Great Depression. Analysts estimate S&P 500 companies’ earnings per share will climb 53 percent in the next two years.

Grantham said his firm recently reduced equity holdings from a “neutral” 65 percent weighting in its portfolio to 62 percent, leaving “room to pull back further” should markets continue to climb. He said he favors emerging market stocks as they are likely to enter a bubble.

Implications for SGD investors

The STI is hard down from the word go – expect the 2700 resistance (previously known as support) not to be seen again in the couple of weeks (and if the dollar carry unwinds even more, say bye bye to 2500, much less 2600). USD SGD has been up strongly since 26 Oct. If Pretchter’s theory of “all the same market” holds, gold will fall hard, mainly because the speculation has been in paper holdings. Cash is the new black, people.

STI broke 50MA easy, watch out for 88MA

USD short squeeze?

 

 

Bloomberg: CONFIRMED – Timmy G bails out Goldman et al, leaves US$13B tab with US taxpayers

It doesn’t get any clearer than this. Bloomberg reveals the secret decision of the prez of NY Fed, Lil Timmy G himself, to pay AIG’s swap counterparties – Goldman, Merrill Lynch, SocGen and DB – at PAR to retire protection, despite most of the CDOs being toxic crap. (As a comparison, Ambac paid Citi 60 cents to the dollar, but Citi can only blame itself for not getting an alum a job in the Fed).

The full sordid details from Bloomberg “New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers”:

Oct. 27 (Bloomberg) — In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

Among AIG’s bank counterparties were New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG.

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.

Subprime Mortgages

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

Habayeb, who left AIG in May, did not return phone calls and an e-mail.

Goldman Sachs

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

In his resignation letter, Friedman said his continued role as chairman had been mischaracterized as improper. Goldman Sachs spokesman Michael DuVally declined to comment.

AIG paid Societe General $16.5 billion, Deutsche Bank $8.5 billion and Merrill Lynch $6.2 billion.

New York Fed

The New York Fed, one of the 12 regional Reserve Banks that are part of the Federal Reserve System, is unique in that it implements monetary policy through the buying and selling of Treasury securities in the secondary market. It also supervises financial institutions in the New York region.

The New York Fed board, which normally consists of nine directors, in November 2008 included Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Friedman. The directors have no direct role in bank supervision. They’re responsible for advising on regional economic conditions and electing the bank president.

Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance Inc., a financial consulting firm, says the government squandered billions in the AIG deal.

“There’s no way they should have paid at par,” she says. “AIG was basically bankrupt.”

Citigroup Inc. agreed last year to accept about 60 cents on the dollar from New York-based bond insurer Ambac Financial Group Inc. to retire protection on a $1.4 billion CDO.

Unwinding Derivatives

In March 2009, congressional hearings and public demonstrations targeted AIG after it was disclosed it had paid $165 million in bonuses that month to the employees of AIGFP, which is unwinding billions of dollars in derivatives under the supervision of Gerry Pasciucco, a former Morgan Stanley managing director who joined AIG after the CDS payments were mandated.

Far more money was wasted in paying the banks for their swaps, says Donn Vickrey of financial research firm Gradient Analytics Inc. “In cases like this, the outcome is always along the lines of 50, 60 or 70 cents on the dollar,” Vickrey says.

A spokeswoman for Geithner, now secretary of the Treasury Department, declined to comment. Jack Gutt, a spokesman for the New York Fed, also had no comment.

One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. “Some of those banks needed 100 cents on the dollar or they risked failure,” Vickrey says.

A Range of Options

People familiar with the transaction say the New York Fed considered a range of options, including guaranteeing the banks’ CDOs. They say that by buying the securities, AIG got the best deal it could.

According to a quarterly New York Fed report on its holdings, the $29.6 billion in securities held by Maiden Lane III had declined in value by about $7 billion as of June 30.

Edward Grebeck, CEO of Stamford, Connecticut-based debt consulting firm Tempus Advisors, says the most serious breach by the government was to keep the process of approving the bank payments secret.

“It’s inexcusable,” says Grebeck, who teaches a course on CDSs at New York University. “Everybody should be privy to the negotiations that went on. We can’t have bailouts like this happening behind closed doors.”

Secret Deliberations

The deliberations of the New York Fed are not made public. In this case, even the identities of the AIG counterparties weren’t disclosed until March 2009, when U.S. Senator Christopher Dodd, head of the Senate Finance Committee, demanded they be made public.

Bloomberg News has filed a Freedom of Information Act request seeking copies of the term sheets related to AIG’s counterparty payments, along with e-mails and the logs of phone calls and meetings among Geithner, Friedman and other New York Fed and AIG officials. The request is pending.

The Federal Reserve has been reluctant to publish information on its efforts to stabilize the financial system since the crisis began. The Fed has loaned more than $2 trillion, yet it refuses to name the recipients of the loans, or cite the amount they borrowed, saying that doing so may set off a run by depositors and unsettle shareholders.

Bloomberg LP, the parent of Bloomberg News, sued in November 2008 under the Freedom of Information Act for disclosure of details about 11 Fed lending programs. In August, Manhattan Chief U.S. District Judge Loretta Preska ruled in Bloomberg’s favor, saying the central bank had to provide details of the loans.

The Fed has appealed to the Second Circuit Court of Appeals, and the data remain secret while the appeal proceeds.

‘Cataclysmic Financial Crisis’

Information on the borrowers is “central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” attorneys for Bloomberg said in the Nov. 7 suit.

Questions about the New York Fed transactions may be answered by Neil Barofsky, inspector general for the Troubled Asset Relief Program, or TARP. He is working on a report, which may be released next month, on whether AIG overpaid the banks. TARP is the vehicle through which the Treasury invested more than $200 billion in some 600 U.S. financial institutions.

William Poole, a former president of the Federal Reserve Bank of St. Louis, defends the New York Fed’s action. The financial system had suffered through months of crisis at the time, he says. The investment bank Bear Stearns Cos. had been swallowed by JPMorgan; mortgage packagers Fannie Mae and Freddie Mac had been taken over by the government; and the day before AIG was rescued, Lehman Brothers Holdings Inc. had filed for bankruptcy.

‘Enough Trouble’

“I think the Federal Reserve was trying to stop the spread of fear in the market,” Poole says. “The market was having enough trouble dealing with Lehman. If you add, on top of that, AIG paying off some fraction of its liabilities, a system which is already substantially frozen would freeze rock-solid.”

Still, officials at AIG object to the secrecy that surrounded the transactions. One top AIG executive who asked not to be identified says he was pressured by New York Fed officials not to file documents with the U.S. Securities and Exchange Commission that would divulge details.

“They’d tell us that they don’t think that this or that should be disclosed,” the executive says. “They’d say, ‘Don’t you think your counterparties will be concerned?’ It was much more about protecting the Fed.”

‘An Outrage’

Friedman’s role remains controversial. In December 2008, weeks after the payments to the banks were authorized in November, Friedman bought 37,300 shares of Goldman stock at $80.78 a share, according to SEC filings. On Jan. 22, he bought 15,300 more at $66.61.

Both purchases took place before the payments to Goldman Sachs were publicly disclosed under pressure from Senator Dodd in March. On Oct. 26, Goldman Sachs stock closed at $179.37 a share, meaning Friedman had paper profits of $5.4 million.

Jerry Jordan, former president of the Federal Reserve Bank of Cleveland, says Friedman should have resigned from the New York Fed as soon as it became clear that Goldman stood to benefit from its actions.

“It’s an outrage,” Jordan says. “He needed to either resign from the Fed board or from Goldman and proceed to sell his stock.”

98,600 Goldman Shares

Friedman remains a member of Goldman’s board and held a total of 98,600 shares of the firm’s stock as of Jan. 22.

Vickrey says that one reason the New York Fed should have insisted on discounted payments for AIG’s CDSs is that the banks likely had hedges against their insured CDOs or had already written down their value. On March 20, Goldman Sachs CFO David Viniar said in a conference call with investors that Goldman was protected.

“We limited our overall credit exposure to AIG through a combination of collateral and market hedges,” Viniar said. “There would have been no credit losses if AIG had failed.”

In any event, former St. Louis Fed President Poole says the entire process should have been public and transparent. “There should be a high bar against not disclosing,” Poole says. “The taxpayer has every right to understand in detail what happened.”