The Chief Economists

But do they care?

China Makes Biggest Cut in US Treasury Assets Since 2000

China dumps US Treasuries the most aggressively in a decade. Now THAT's a change you can believe in.

One has to wonder how long the UK, Japan and the US can keep supporting each other's crony capitalist oligopolies.

China Daily
China cuts US Treasury holdings in June
2009-08-18

NEW YORK: China reduced its holdings of US Treasury debt in June by the biggest margin in nearly nine years, according to a US Treasury Department report issued on Monday.

China cut its net holdings by 3.1 percent to $776.4 billion in June from $801.5 billion in May, the report says. This is also the first large-scale reduction of US Treasury debt by China so far this year.

However, its June holdings were still larger than April's $763.5 billion and $767.9 billion in March, according to the statistics of the Treasury Department.

Reuters data show the drop in China's Treasury holdings in June was the biggest percentage reduction since a 4.2 percent cut in October 2000.

On the other hand, Japan, the second-largest holder of US Treasury securities, increased its holdings to $711.8 billion in June from $677.2 billion in May.

The United Kingdom, the third largest holder, also increased its holdings to $214 billion in June from $163.8 billion, a surge of 30.6 percent.

SP Futures Hourly Chart at 1 PM

The US equity markets have bounced back to key resistance on a much great than expected drawdown in oil inventories.

The trade today seems very technical (ie short squeeze by the 100 million dollar men) and lacking in conviction.

Let's see how the markets deal with this and then trade accordingly. Volumes remain light, and may do so until September. However, if anything 'happens' this market may flop as convincingly as Obama's "change" platform.

The Gathering Storm: Stay Defensive

"...market is ahead of reality...worry about things particularly going into Ramadan on the 22nd (of August)...there are things gathering around here (the NYSE) that are kind of esoteric, but we could perhaps see historic trading over the next eight weeks...potentially a very exciting period." Art Cashin, 18 Aug 2009

Larry Summers, Tim Geithner, and Ben Bernanke have managed, once again, to place the economy on the edge of a chasm by pandering to Wall Street, which has a narcissistic short-term obsession with stuffing its pockets at any risk or cost, while the corporate media distracts the public with an outrageous parade of disinformation, delusion, and distraction.

The world markets are entering a period of high risk and volatility. No one knows for certain what will come. Professional traders are preparing for it by managing their risks. We are as well.

The Great American Bank Robbery

If you suspected that fraud, corruption, incompetence, and coverups at the highest levels are at the heart of our current financial crisis, you're right.

"...ideology enabled criminality and political failure led to economic crisis as Wall Street bought Capitol Hill..."

The Great American Bank Robbery
Video - Lecture
By William K. Black

1. Why do we have repeated, intensifying economic crises?
2. What can white collar criminology add to our understanding of what's going wrong?

SP Futures Hourly Chart 9:45 AM with the SP Weekly Chart

So far this is merely a pullback from a consolidation, and a likely distribution top in the making as insiders continue to take profits on their ponzi pump in US equities.

We signalled 'defensive' last week, and that the risk reward in the market was dangerous, and we exited or hedged all longs. Time to Get Defensive

Now we wait to see if this is just a pullback from a consolidation, with a subsequent rally to new highs, or a break in the market slightly ahead of our forecast target. We have been looking for a 3% pullback first, and then a rally to the final high for the year.

The obvious level to watch is the neckline.

Bear in mind that these 100 million dollar men on Wall Street make their pay by taking investors, and the economy, for rides up and down in stocks, commodities, and just about any other market they can push using the leverage of their taxpayer supported funds.



The SP Weekly Chart show that a rally back to 1014 on the cash market represents an approximate 38.2% rally from the bottom. This number is one of the key fibonacci numbers watched by traders. The next stop higher would be 50%.

More Than 150 Publicly Traded US Banks Are In Serious Trouble

This analysis by Bloomberg is based on some fairly modest economic assumptions. Most of the banks in question are state and regional banks that have not enjoyed the largesse of the Fed and Treasury like the free-spending, Wall Street money center banks, who are sharply curbing lending and raising rates on credit cards and other revolving debt aggressively even for customers with excellent credit and no history of non-payment.

As you might suspect, even the worst of the banks with large percentages of non-performing loans all claim to be 'well capitalized' by regulatory standards.

If as indicated more of the smaller banks fail, we will be left with a few, larger, more potentially lethal financial institutions.

The Obama Administration policy decisions, particularly the programs and reserves decision enabled in October 2008, appear to be favoring Wall Street heavily, monetizing debt for the Primary Dealers and the Wall Street market players, while choking off the consumer and the state and regional banks.

Policy decisions have impact, especially when they have the weight of the Federal Reserve, the Treasury, the Congress, and a powerful President behind them. The question becomes are they the right policy decisions? How were they crafted?

Regretfully, most of them were done behind closed doors, with little public discussion or scrutiny, crafted by an army of lobbyists, campaign donors, and crony capitalists galore.


Bloomberg
Toxic Loans Topping 5% May Push 150 Banks to Point of No Return
By Ari Levy

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.

“At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.

Cash DrainNonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators.... “This is a fairly widespread issue for the larger community banks and some regional banks across the country,” said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.

Ratios above 5 percent don’t always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans. Banks with higher ratios of equity to total assets can better withstand such losses, said Jim Barth, a former chief economist at the Office of Thrift Supervision. Marshall & Ilsley and Synovus said they’ve been getting bad loans off their books by selling them...

‘Off the Charts’

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the “ability to try and earn their way through the cycle,” said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp....

Will the US Consumer Make it a Merry Christmas?

Only if they want to hit those maxed out 24% APR credit cards just one more time.

US Credit Card Trap - Jennifer Barry

The Next Wave of the Financial Crisis Is Coming (And Why)

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.

Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine change with so many Wall Street denizens forming their policy?

"In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem."

We are persuaded that the government is waiting for the next wave of failures, or some exogenous event of catastrophic proportion, to provide their rationale to take new aggressive action.

But while the financial oligarchy is in control of the men in power, we doubt that these will be the right steps for the majority of Americans, the US economy, and its debt holders.

"There are a thousand hacking at the branches of evil to the one who is striking at the root."
Henry David Thoreau

Congressional Oversight Panel - August 11 Report - The Continued Risk of Troubled Assets

"...But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today.

If the troubled assets held by banks prove to be worth less than their balance sheets currently indicate, the banks may be required to raise more capital. If the losses are severe enough, some financial institutions may be forced to cease operations. This means that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued operation of the banks.

...If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.

...Part of the financial crisis was triggered by uncertainty about the value of banks' loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of troubled assets on institutions‟ books so that markets can function more effectively. Finally, as noted above, Treasury must keep in mind the particular challenges facing small banks.

This crisis was years in the making, and it won‟t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the
financial system.

...Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved."

The banks must be restrained, and the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

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