Tuesday, July 7, 2009

Green Shoot Wilting Fast

Headlines at Bloomberg not looking too good today:



Yen Rises to Five-Week High Versus Dollar as Recession Spurs Safety Demand
S&P 500 Slumps to Lowest Level Since May 1 on Concerns Over Tech Spending
Bank of Japan May Extend Emergency Lending as Companies Struggle to Borrow
Japan Machinery Orders Unexpectedly Fall for Third Month as Profits Slide
Rio Says Chinese Authorities Detain Four Employees From Shanghai Office



Now that is a rosy picture, ain't it. Don't blame me, I am just the messenger. And I have been delivering this story for much longer than I have had any desire to do so. I just have not seen the fundamentals improving and apparently now some others are not now either. We will see.



Next Time - Let Them Fail



I know certain individuals in government - like those who came from big financial institutions (Paulson) or that received big pay checks for work for them ( Summers) - believed it was essential to save the financially too-big-to-fail to the tune of trillions of dollars, but the leading reason (as I understood it) was to unfreeze credit. Well it seems to be a bit unfrozen at the moment. One problem, those that need it still cannot get it and those that can get it are trying to reduce, not increase, debt. Sudden Debt explains this well:



http://suddendebt.blogspot.com/2009/07/memo-to-fed-and-ecb-raise-rates.html



Sure, there are plenty of other reasons to save these institutions, but incresingly there seem to be some reasons to regret saving them. First there was the continuing bonuses, apparently paid for with taxpayer dollars. Now I read recently that some were getting around the bonus restrictions the government has been seeking to impose by simply increasing salaries, so this equally has me fuming. Second, dividends. I wrote to my Congresspeople over a year ago complaining about us supporting corporations still giving out dividends. I got the usual form letters explaining to me how these were difficult times and, implicitly, I did not understand what the heck I was saying. I still am complaining that taxpayers have been giving money to companies that pass it on to shareholders. Rule one, no bonuses or raises for officers or directors of companies receiving taxpayer support. Rule two, no freaking dividends to their shareholders. Period.



And if all this was not enough to get your dander up (not sure what that means) now those very institutions we enabled to survive are now unwilling to return the favor and help out those of us taxpayers in need. They have announced that they are unwilling to take California IOUs and pay out cash in return. Either they are telling us that they do not give a damn about the taxpayers that saved them or they are still in such desperate financial condition that they need to conserve every little cent. I cannot think they have any doubt that California (or the federal government on its behalf) will eventually pay the IOUs. I just view it as another sign that we saved the idiots that got us in this mess and they are shoving it in our faces. If this were not a family oriented blog I would not mince words so much. Mish tells it in better detail here:



http://globaleconomicanalysis.blogspot.com/2009/07/tell-wells-fargo-bank-of-america-jp.html



Foreclosure News Getting Worse, Not Better



As Calculated Risk reports, the divergence between completed foreclosures versus default is mounting as a result of government intervention. Now I must add this is a report from one market, San Diego, which does not mean a national trend. Yet, perhaps disturbing if this is a bit more wide-spread.



http://www.calculatedriskblog.com/2009/07/more-evidence-of-foreclosure-backlog.html



How Can Someone from Lehman Be So Smart?



The CEO of Lehman in charge of the wind-down, Bryan Marsal, had some interesting comments during a CNBC interview. Scary thing for me is that I agree with pretty much all he has to say. So why did they fail? He had this to say in the interview:



"One of my partners said yesterday that we are going to call this phase the "extend and pretend" phase in our economy. Which is you extend someone's maturity - because they are going to default - and you pretend that business will come back or that leverage factor is going to come back.Then we'll enter phase two, which he said is the request to extend or "amend".Then "send". In other words send the keys.That is the phases we are in right now. Everyone is trying to buy time, as opposed to dealing with the leverage, they are trying to buy time. Whether you are a banker or a company, they are all trying to buy time. I don't see the leverage coming back, and I don't see the consumption of good and services coming back.


Bryan Marsal, CEO of Lehman Brothers Holdings.


I will end here as I cannot say it any better. Government stimulus has been desperately trying to simply buy time for many, many companies. And time is running out.
Disclosures: None.

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