Thursday, November 11, 2010

Today's Links

1--Insider Selling Hits All Time Record Of $4.5 Billion In Prior Week As Everyone Is Getting Out Of Market, zero hedge

Excerpt: Last week's insider selling of all stocks (not just S&P) hit an all time record of $4.5 billion. This is the biggest weekly number ever recorded by tracking company as Sentiment Trader highlights no other week before had more than $2 billion in net selling. Furthermore, selling in just S&P companies hit a whopping $2.8 billion: over 4 times more than the week prior! Even Bloomberg, which traditionally just posts the data without providing commentary to it, highlighted this ridiculous outlier: "Insider selling at Standard & Poor’s 500 Index companies reached a record in the past week as executives took advantage of a two-year high in the stock-market to sell their shares.

2--Irish bond yields widen as crisis deepens, Reuters

Excerpt: - Ireland warned on Thursday that a surge in its borrowing costs to record highs had become "very serious" and the EU said it was ready to act should the humbled former "Celtic Tiger" require a rescue from its euro partners.

European officials said they were monitoring developments in Ireland closely, but denied for a second day running that Dublin was seeking financial aid, in an ominous echo of the rhetoric that preceded an EU/IMF bailout of Greece six months ago.

"The bond spreads are very serious and there is international concern throughout the euro zone about that," Irish Finance Minister Brian Lenihan said in Dublin.

He blamed part of the surge on "unintended" comments from German officials about a new permanent rescue mechanism for the euro zone that would force private debt holders to help shoulder the costs of future rescues.

3--Over 7 Million 'Shadow Homes' May Take 40 Months to Clear, Says Fitch, Real Estate Channel

Excerpt: If you thought the U.S. housing market is showing any signs of improvement, a new report by New York City-based Fitch Ratings puts the damper on that view.

Fitch says seven million homes in the "shadows" will take 40 months to clear.

The agency defines the shadow supply of properties as loans that are delinquent, in foreclosure, or real-estate-owned (REO) by the servicer. Fitch says based on recent liquidation trends, it will take at least 3 ½ years to clear this existing distressed inventory. reports that according to the ratings agency, the number of months between the date of the borrower's last payment and the date of liquidation has steadily increased over the past several years, and is now at more than 18 months on average....Fitch says that is the highest figure on record.

4--Stiglitz to Obama: You’re wrong about Quantitative Easing, Wall Street Journal

Excerpt: President Barack Obama has defended the Fed’s controversial program, telling the world that a fast-growing America is good for the world economy. But Mr. Stiglitz, in comments at a conference in Hong Kong on Thursday, charged that quantitative easing, by leading to a weaker U.S. dollar, in fact steals growth from other economies.

“President Obama has rightly said that the whole world will benefit if the U.S. grows, but what he forgot to mention is…that competitive devaluation is a form of growth that comes at the expense of others,” Mr. Stiglitz said at the Mipim Asia real estate conference. “So I think it is likely to present problems for the global economy going forward.”...

“We really should learn the lesson from China,” he said. “If you take money and spend it on investments, then you grow the economy in the short run, but you also grow the economy in the long run.” He says China’s massive infrastructure investments over the past two years have “changed the economic geography” of that country, setting it up for strong growth in the years ahead.

The U.S. should do the same, he said, adding that because it has funded infrastructure so poorly over the past 20 years, projects will likely have strong positive return on investment.

5--Economist's Greg Ip answers questions on QE, Felix Salmon, Reuters

Excerpt: FS: Does the Fed print money? If so, how?

GI: Yes, and I’m surprised to see Pragmatic Capitalist dispute this.

It’s true that the Fed is not literally printing the $20 bills that end up in your wallet. As a commenter on your own blog has noted, that’s the job of the Bureau of Printing and Engraving. But money includes both currency in circulation and the reserves that commercial banks keep on deposit at the Fed. By that definition, the Fed is indeed printing it.

Here’s how QE works. The Fed buys a $100 bond from Bank of America. The bond gets added to the Fed’s assets. Bank of America has an account at the Fed. The Fed, with a keystroke, puts a $100 into B of A’s account. Where did the money come from? Thin air. Bank of America can visit its friendly neighborhood Fed branch and withdraw that $100 in the form of bills and coins. So for practical purposes the distinction between currency and reserves is meaningless; the monetary base includes both.

Incidentally, it makes no difference whether the bond belonged to Bank of America, or a customer of Bank of America; the mechanics are identical. When the Fed buys the bond from someone who isn’t a bank (e.g. a primary dealer), the transaction is settled through that person’s bank.

The Fed can also unprint money. Suppose its sells the $100 bond back to Bank of America. It then deducts $100 from B of A’s account at the Fed. The money disappears from existence.

6--Nearly 1 in 5 Americans Struggle To Put Food On The Table, Survey Finds, Huffington Post

Excerpt: A staggering 18 percent of Americans surveyed last month said there have been times over the past year when they could not afford to put food on the table, recent Gallup data shows. This number is slightly lower than it was in September 2009, despite persistently high unemployment levels and record participation in the food stamp program....

"Food insecurity is very widespread in this country -- it's not a phenomenon of just poor districts or inner-city districts," Weill said. "Well over 300 Congressional districts had ten percent or more households answering yes to this question about struggling with food hardship, so as unemployment lingers, we're hopeful that Congress will be responsive to the need to maintain and strengthen the nutrition programs."

7--Is the European Financial Stability Facility "a big bluff"?, FT Alphaville

Excerpt: Gary Jenkins, head of fixed income at Evolution Securities. He asks if the European Financial Stability Facility, set up in May, was a big bluff from the very beginning? Was it implemented just to buy time in the face of deteriorating markets, a la Henry Paulson’s bazooka strategy for dealing with deteriorating confidence in US Government-Sponsored Enterprises in 2008?

Gary Jenkins: It is worth remembering that the EFSF was put in place over a weekend in response to the likelihood of an impending Greek default at a time when it appeared that contagion could lead to a multi sovereign crisis. It was created in a rush and the idea was that it was very much the nuclear option, in the sense that the mere existence of the EFSF would ensure that the market did not take major positions against the weaker European sovereigns as they would not default.

The ECB announcing that it would buy government debt reinforced this strategy. However as time has moved on it appears that some EU constituents now regret the principles upon which the EFSF was based. Initially it gave the impression that it was safe to lend because the sovereigns would have access to liquidity and therefore bond investors could take comfort from the fact that there was a safety net in place which would ensure that they got repaid. It was the European version of Paulson Bazooka. Its three year maturity did of course just mean that in reality it was probably just kicking the Greece default probability down the road, but the intention was that it would remove the immediate default risk and the contagion effect that was impacting the likes of Spain and Portugal.

8--Commodity inflation, Econbrowser

Excerpt: I guess now we know that the Fed has the tools to prevent deflation....I feel that there is a pretty strong case for interpreting the recent surge in commodity prices as a monetary phenomenon. Now that we know there's a response when the Fed pushes the QE pedal, the question is how far to go.

My view has been that the Fed needs to prevent a repeat of Japan's deflationary experience of the 1990s, but that it also needs to watch commodity prices as an early indicator that it's gone far enough in that objective. In terms of concrete advice, I would worry about the potential for the policy to do more harm than good if it results in the price of oil moving above $90 a barrel.

And we're uncomfortably close to that point already.

9--The dollar takes a drubbing at G20 summit, WSWS

Excerpt: On Monday, World Bank President Robert Zoellick stunned governments and central bankers by proposing that the G20 consider a radical revamping of the world currency system. He suggested that the role of the dollar as the supreme reserve and trading currency be ended and that it be supplanted by a new system involving the dollar, the euro, the yen and the Chinese renminbi. He further proposed that the new structure use gold as an indicator of currency values.

This was a tacit acknowledgement that the system that has prevailed for the past 65 years is no longer viable and that there is no national currency that can replace the dollar as a world reserve currency.

The near-zero interest rate policy of the US Federal Reserve has flooded financial markets with cheap dollars, resulting in a staggering decline in the value of the dollar on world currency markets. The dollar has fallen by 13 percent against the Japanese yen so far this year. Just since last June, it has dropped 18 percent versus the euro. Weighed against a basket of currencies, the dollar is down 8 percent since late August.

The starkest expression of the erosion of confidence in the dollar and the existing currency system is the explosive rise in the price of gold. This week, gold futures hit an all-time high of over $1,420 an ounce. The precious metal has risen 28 percent his year.

The precipitous fall in the dollar is fueling a general surge in commodity prices, including copper, oil, corn and other foodstuffs....

This is correctly understood by the major exporting nations—China, Germany and Japan—as a protectionist measure to increase US exports at their expense. For the emerging economies, the Fed’s policy heralds a flood of speculative dollars driving up their exchange rates and stoking asset bubbles and inflation.

The run-up to the summit has seen a chorus of complaints and denunciations of the US by G20 members. The most bellicose reaction was that of German Finance Minister Wolfgang Schäuble, who told Der Spiegel magazine last Saturday that the Fed’s decision was “undermining the credibility of US financial policy.”

He declared the US “growth model”—which he said was based on “borrowed money,” “inflating its financial sector and neglecting its small and mid-sized industrial companies”—to be in “deep crisis.”

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