Barack Obama and Joe Biden's cap-and-trade system will require all pollution credits to be auctioned. A 100 percent auction ensures that all large corporate polluters pay for every ton of emissions they release, rather than giving these emission rights away for free to coal and oil companies.
Under the House bill, only 15% of the emission permits will be auctioned initially. The rest of the permits will be given away -- 2% to oil refiners, 5% to free-standing "merchant" coal plants, 9% to regulated natural-gas distributors, and so on.
So, Mr President, the bill now being considered in Congress is in direct contradiction to your campaign pledge. Will you now please stand up for principle and issue a veto threat?
2. Internet Usage Comparison between China and US
While the number of Internet users in China has surpassed US, let's look at an interesting comparison between their usages. Please check Chart 1.
3. Chart on US PCE and the spot oil price.
The nose dive of oil price in the past year has been quite in time and actually helpful to the budget of US household, what about now? On Chart 2.
4. FDIC Bailed Banks, interesting charts.
Chart 3. Number of failed banks since the establishment of FDIC, from 1934;
Chart 4. Number of failed banks since 1921, without FDIC before 34 of course.
Chart 5. Asset and Deposits of those failed banks.
A interesting report produced for the HKMA by Giovanni Ferri and Li-Gang Liu, which argues that the rapidly rising profitability of SOEs may be a mirage. (Full HKMA report attached)
Summary: We are interested in investigating whether the profits of SOEs would still be as large as they claim if they were to pay a market interest rate. Using a representative sample of corporate China, we find the costs of financing for SOEs are significantly lower than for other companies after controlling for some fundamental factors for profitability and individual firm characteristics. In addition our estimates show that if SOEs were to pay market interest rate, their existing profits would be entirely wiped out.
2. S&P from 1929, priced in Gold
Given Gold is looking hot again these days. See Chart 1_SG.
3. Unemployment EU vs US Chart 2_US vs EU
While US has been outperformed EU for quite a while, which makes it the model of labor mobility. When they both reached a level around 9%, what will happen next? We shall see.
Even if he is saying that part of the portfolio is not fiat money based but Gold based, and he bought them more as a hedge, still 30% of the total equity portfolio is not a small number at all, according to the latest SEC filing for his equity book listed below. Moreover, it is not only SPDR Gold but also Gold miner stocks and ETFs.
That is not to say that Gold is going to the sky tomorrow or next week, like for him to short CDO and bought CDS on those toxic stuff in 2005 does not necessarily indicate that the housing is going to tumble next quarter, it is hard to do the exact timing on dollar debasement trade, but you can at least get well prepared for that while you can, can't you?
Other things worth noting is, he kicked out all of its Merrill and Wells Fargo holding in the 1st quarter and bought into both Jpm and Capital One, both of which are feeling much less credit card debt pain compared with their counterparts as said before.
SPDR Gold Trust (GLD): 30.37% of portfolio
Wyeth (WYE): 13.96% of portfolio
Rohm & Haas (ROH): 13.44% of portfolio
Boston Scientific (BSX): 8.4% of portfolio
Gold Miners ETF (GDX): 6.81% of portfolio
Kinross Gold (KGC): 5.87% of portfolio (Only his equity book,ONLY)
Attached Chart 1_John Pulson, just for fun.
2. Credit market update (Numbers from DTCC report)
A. Shrinkage on the Notional amount of CDS. According to DTCC, estimated notional amount of CDS outstanding at the end of 2007 was over 60 trillion USD, and this number has now gone to less than 30 trillion. In short, 2008 was characterized by a massive destruction of money, and this process will likely continue well into 2009 and 2010.
B. Shoot squeez on the sovereign front. As pointed out before, it is not only the equity market which is experiencing a dramatic short squeeze liquidity driven rally, it is also the case in sovereign front. Since March, all those well shorted sovereign names are seeing a phenomenal like ECC and PIGS. Check out Chart 2_Sovereign CDS, which shows both current spread as well as the pre-squeeze level, and the notional amount outstanding respectively.
C. On the Corporate side. A little bit surprisingly, there is not too much going on with the Corporate CDS side in April, despite of course a well tightening of Financial names. According to the latest DTCC data, there appears to be a net increase in the outstanding amount of CDS in many sectors like consumer service, again except for the Financial ones. Please check Chart 3_Corporate CDS for a sector break down.
It shows resets increasing from here with peaks in 2010 and 2011/2012 in the range of $30 to $45 billion monthly. The chart also shows subprime resets are still going on, but decreasing in frequency over the rest of 2009. However, prime resets and resets on loans to people with decent credit scores but special circumstances (stated income) are heading straight up through early 2012.
4. Well, you know which and where the problem is, when you read stuff like that.
From theFederal Reserve: Federal Reserve announces that certain high-quality commercial mortgage-backed securities will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF)
5. Tracking the discount window. Source:Northern Trust - Daily Global Commentary, May 18, 2009. Not only the Libor and TED spread but also the amount of discount window borrowing, see Chart 5_DW. Great reflection done.
6. While David Rosenberg has left Bank of Amerill, he is still with us. Please see attached his latest report, if you care.
In the short run, people are underestimating the impact that these global synchronized stimulus might have as well as how far it could run; while in the long run, we might also be underestimating how prolonging that this resession and its ensuring slow recovery is going to be.
2.PPIP vs. FDIC (See chart 1 FDIC)
On major banks balance sheets, as indicated by the proposal of PPIP, they are marking their commercial real estate loans, both non-performing and performing ones, between 80c - 90c of a dollar.
However, the fact is, the average auction clearing price on the 331 loans the FDIC sold in January and February was49.3%. In March, the number of loansFDIC sold in various auctionsincreased almost four-fold to 1,328, for a total of $470 million in book values of sales, with the average price dropping even more: the latest being at46.4%.
And for those who claim that this price is distorted because it includes several non-performing loans, pls check out the details on chart 1.
3.When banks are all raising capital…
They are now all declaring that they do that aiming to return the TARP fund. However, as said before, even though they do not have to mark those loans on the book to the market, for now. It is still their biggest concern as to the write down of those loan values, while their earning power fades after these great government momentum trade runs out. So if you are as cynical as me, will you think they would rather be returning the money and then come back later to ask for more in case needed, or will it be better off to raise the capital in the name of returning TARP fund, but keep it on your hand when it comes to the hard time?
4.An interesting Chinese P2P student loan website
Basically it is like a Student Loan Alibaba, while students who wants to borrow to pay for their tuition fees and living cost, can actually post out their intended rate and the amount needed, to wait for being matched if there is another side. The website is helping out with the credit history due diligence by conducting a background check on the borrowers.
1.Moody’s view on Fed’s “Adverse Case” – Yes, EVEN MOODY. (See Chart 1)
In this particular case, Moody's focuses on credit-card charge offs; however the same principle can easily be applied to any other axis in theSupervisory Capital Assessment Program. As Moody's says:
SCAP loss rates for credit card assets range from 12%-17% in the Baseline scenario, and 18%-20% in the More Adverse one. We currently expect industry charge-offs to peak at 12% in the second quarter of 2010, which translates, roughly, to 22% on a two-year cumulative basis [TD: their base case]
Therefore, the Fed’s More Adverse charge-off rate assumptions for issuers’ managed credit card portfolios are consistent with our expected range of charge-off rates for related credit card trusts.Our current assumptions are predicated on the observance of surging delinquency trends and also the expectation that the unemployment rate will peak at about 10% in early2010.Changes in the trajectory of unemployment will have the greatest influence on the actual magnitude and timing of peak charge-off rates.
2.An interesting Chart from SentimentTrader.com (See Chart 2)
As for the definition of dumb money, well as the saying goes, if you're gonna ask who is the weakest hand on the poker table…
3. CMBS (See Chart 3)
Not aimed to talk down the market, and am incapable of doing that neither. Just wanna point out 1 thing while we are all cheering.
4. And one more, God bless US tax payers...
To end, an interesting read.
President Obama's troubling mantra: In debt, we trust
It is no surprise thatPresident Obamasupports unprecedented spending and borrowing in the federal budget since he has never suffered any consequences from the excessive spending and borrowing in his private life.
And I'm not just talking about the First Lady's $540 sneakers.
A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005, when Obama's book royalties came through and Michelle received her 260% pay raise at theUniversity of Chicago. This was also the year Obama started serving in theU.S. Senate.
During the presidential primary campaign,Michelle Obamacomplained how tough it was to make ends meet. During a stop inOhio, she said, "I know we're spending - I added it up for the first time - we spend between the two kids, on extracurriculars outside the classroom, we're spending about $10,000 a year on piano and dance and sports supplements and so on and so forth."
Let's examine how tough things were for this couple using various public records.
In April 1999, they purchased aChicagocondo and obtained a mortgage for $159,250. In May 1999, they took out a line of credit for $20,750. Then, in 2002, they refinanced the condo with a $210,000 mortgage, which means they took out about $50,000 in equity. Finally, in 2004, they took out another line of credit for $100,000 on top of the mortgage.
Tax returns for 2004 reveal $14,395 in mortgage deductions. If we assume an effective interest rate of 6%, then they owed about $240,000 on a home they purchased for about $159,250.
This means they spent perhaps $80,000 beyond their income from 1999 to 2004.
The Obamas' adjusted gross income averaged $257,000 from 2000 to 2004. This is above the threshold of $250,000 which Obama initially used as the definition of being "rich" for taxation purposes during last year's election campaign.
The Obama family apparently had little or no savings during this period since there was virtually no taxable interest shown on their tax returns.
In 2003, they reported almost $24,000 in child care expenses and, in 2004, about $23,000. They also paid about $3,400 in household employment taxes each year. And as Michelle stated, they spent $10,000 a year on "extracurriculars" for the children.
These numbers clearly show the Obamas were living beyond their means and they might have suffered financially during the decline in housing prices had they relied on taking ever larger amounts of equity from their home to pay the bills.
But in 2005, Obama's book sales soared and the royalties poured in. Michelle explained, "It was like Jack and his magic beans."
Without those magic beans, the Obama family would have eventually suffered the consequences of too much debt.
Obama's penchant for borrowing in his private life carries over to his public life.
He gave the Congress virtually free rein in writing the huge stimulus bill. He had no reservations whatsoever about the country assuming so much debt. Other Presidents have tried to work out compromises on spending measures since it is ultimately the President who takes responsibility for the consequences.
Obama did make a feeble attempt to control spending when he announced that his cabinet had found ways to reduce federal spending by $100 million. But this is laughable. Compared to an estimated $3.6 trillion federal budget, it is a minuscule 0.0028%.
To put this into the context of the Obamas' income for 2004 of $207,647, this savings works out to $5.77, or about the price of an arugula salad.
President Obama has never faced consequences in his private life when it comes to managing money. He always had enough money simply by borrowing more and more. And just when things got tight, those magic beans came along to save the day.
But as a nation, we cannot base our future on the hope that some day Jack and those magic beans will also save the rest of us.
