The Federal Reserve must make records about emergency lending to financial institutions public within five days because it failed to convince a judge the documents should be exempt from the Freedom of Information Act.
Maybe we will get a little transparency now. Maybe we will be able to see which banksters have gotten billions of dollars of our money. Thank you Bloomberg!!!! :)
The Zimbabwe economy has basically been destroyed by hyperinflation. Now the Zimbabwe central bank is considering making a currency backed by gold and diamonds. The inflation rate in Zimbabwe has fallen to 1% per month in July 2009 from an annual rate of over 200 million per cent in July 2008.
This story was reported by Nelson Banya in Reuters. According to Nelson Banya,
Zimbabwe's central bank governor Gideon Gono on Thursday proposed the introduction of a gold-backed local currency, which was destroyed by hyperinflation and replaced by multiple foreign currencies in January.
A unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai in a bid to end a political crisis introduced multiple foreign currencies to stop sky-rocketing inflation and revive the economy.
But Gono, a Mugabe ally whose reappointment last year has been opposed by Tsvangirai, says the shortage of foreign currencies in the country was hurting economic recovery efforts. In an article he wrote in the state-controlled Herald newspaper, Gono urged the re-introduction of the Zimbabwe dollar to ease the liquidity crunch, but said this was not a call for 'a blind return to the money printing press'.
This market has been on fire since March. I think stock prices are too high but may go higher. Bottom Line: Be Careful! ...and make sure you have stop-losses put in.
With the U.S. stock market up 54% from the March lows it may be prudent to take at least some profits and wait for a correction to put more money back into the market.
6. FDIC is bankrupt. Read it here. Even though the FDIC is bankrupt it will not run out of money because Congress will most likely bailout the FDIC. Read it here.
There is an interesting U.S. senate race going on in Kentucky. This race is wide open since incumbent Republican Senator Jim Bunning announced his retirement.
Senator Bunning barely won reelection last time beating Democrat his challenger Dan Mongiardo, 873,507 votes (50.7%) to 850,855 votes (49.3%). Sen. Bunning's approval rating in Kentucky had recently slipped to 43% and he was having trouble raising money for a run again in 2010. These were some of the factors that have led to his retirement. Democrats have high hopes to gain this seat from the Republicans in 2010.
On the Democrat side, Kentucky Attoney General Jack Conway is running against Lt. Gov. Dan Mongiardo, the man who almost won the U.S. Senate seat in 2004. According to the latest polling Lt. Gov. Mongiardo holds a 39% to 31% lead over Jack Conway. Both men are no strangers to Kentucky politics.
Lt. Gov. Mongiardo holds some fairly conservative views on social issues. If elected Mongiardo would probably be one of the more moderate Democrats in the Senate.
On the Republican side, Kentucky Secretary of State Trey Grayson is running against Randal (Rand for short) Paul. Trey Grayson was once considered the presumptive nominee of the Republican Party but Rand Paul has made the race much more interesting.
Former Democrat, Trey Grayson, the two-term Kentucky Secretary of State, is no stranger to Kentucky politics. That is why it came as a shock when a poll came out this week showing Grayson only leading Rand Paul 37% to 26% in the Republican primary; Rand Paul is a newcomer to Kentucky politics and has never ran for political office. Rand Paul is an ophthalmologist from Bowling Green and the son of Congressmen and former Presidential candidate Ron Paul.
Another equally big shock is that Rand Paul is polling within a statistical dead heat against well-known Democratic front-runner Lt. Gov. Dan Mongiardo (43% Mongiardo to 41% Paul). This is big news because Rand Paul has only been campaigning for a few months and has only officially been a candidate for a few weeks! Rand Paul is doing particularly well with voters aged 18 to 34. In that age group Paul is leading Grayson 43% to 13%.
Another thing that is sure to send shockwaves in the political world is that Rand Paul just raised $433,509 yesterday in a 24-hour netroots money bomb. He has raised nearly $700,000 so far. This now puts Paul in competitive position money wise against Greyson who raised a little more than $600,000 in the second quarter of this year. Dan Mongiardo raised a little over $300,000 in the second quarter and has raised a total of $732,546 over the last two quarters.
Although Grayson is now the frontrunner (leading Mongiardo 46% - 40%), with polls this close and the amounts the candidates are raising, this race is definitely wide open. Who knows? We may be saying Senator Paul in the near future.
To find out where the candidates stand on the issues: For Rand Paul click here.
Today Shanghai stocks represented by the Shanghai composite index lost 5.8% on the day. China's Shanghai Composite index ended at 2870.63 down 176.34 points from Friday's close. This was the largest percentage decline in one day since November for the Shanghai Composite. In Shenzhen, the main stock index dropped 6.6% to 955.87. Hong Kong's Hang Seng Index fell 3.6%, led by a decline in China-related stocks. Read the whole story here. I reported a few weeks earlier about some of the problems in Chinese economy and urged people to take some profits in Chinese stocks.
As of Friday the Shanghai Composite was up over 100% since the 2008 low (see chart below).
Since the global financial crisis began the Shanghai Composite Index is still down over 50% from its all time high of over 6,000. See Chart Below.
Almost all global markets were down today from Shanghai, to Australia, to London. Many equities around the world were getting overbought particularly in the United States, no wonder the stocks pulled back some today.
Steve Chapman wrote a great column on health care today. Read the whole article here.
Some excerpts from the article below:
Plenty of people think the existing system is in need of repair. But when they hear about expensive plans that require a more powerful and intrusive federal government, they fear that what is best in our approach to medicine may get smashed in the process. ... One big reason our life expectancy lags is that Americans have an unusual tendency to perish in homicides or accidents. We are 12 times more likely than the Japanese to be murdered and nearly twice as likely to be killed in auto wrecks.
In their 2006 book, "The Business of Health," economists Robert L. Ohsfeldt and John E. Schneider set out to determine where the U.S. would rank in life span among developed nations if homicides and accidents are factored out. Their answer? First place. ... Some of those foreign systems are great, as long as you don't get sick. Samuel Preston and Jessica Ho of the Population Studies Center at the University of Pennsylvania examined survival rates for lung, breast, prostate, colon and rectum cancers in 18 countries and found that Americans fared best.
The U.S. also excelled on other measures, such as surviving heart attacks for more than a year. Why? Because our doctors and patients don't take no for an answer. The researchers attribute the results to "wider screening and more aggressive treatment." Another factor is that we get quicker access to new cancer drugs than anyone else. ... The challenge in this country is to extend coverage to the uninsured without degrading quality for everyone. With a little caution and humility, the president and Congress can find ways to achieve that goal. But first, they need to put down the hammer.
I just finished watching the town hall Obama held in Montana. I felt he did a much better job than the one he held earlier this week. I actually agreed with many of the things he said. For example, insurance companies should not be allowed to discriminate against people with pre-existing conditions and that the healthcare system is definitely in need of reform.
I am still skeptical of his plan, mainly on the issue of the cost of the plan. I don't see how they can expand coverage to 47 million American without it costing trillions of dollars. The average annual cost of insurance for a single person is about $4,700 per year. Using this average, take 47,000,000 people uninsured times $4,700 and you get a cost of $220.9 billion per year. Over ten years this amounts to about $2.2 trillion, without taking into account rising costs (i.e., if they can keep health care premiums from rising at all during the next 10 years a task I find unlikely to be achieved). To give some idea about how much $220.9 billion per year is, the U.S. government will spend about $651.2 billion on defense this year.
Obama stated that 2/3's of the costs would be covered by making the healthcare system more efficient and that the government would only have to raise about $50 billion in addition revenue per year. I find these numbers quite dubious. I think best case scenario the plan will cost about $2 trillion over the next 10 years.
Also, during the town hall meeting it seemed like Obama and Dems were backing away from a public option. The public option was one of the mechanisms to control costs.
I would be in favor of a healthcare plan that is paid for by cuts in other government programs. I would not be in favor of a healthcare plan that is not paid for or one which would be paid for by rising already high taxes on the American people. Also, the costs of the plan have to be realistic numbers; the numbers that the CBO is putting out are unrealistically low.
I think some form of healthcare reform will be passed this year because the Republicans have no more credibility than the Democrats. My biggest fear is that it will not be paid for or that the government will drastically underestimate its cost.
We cannot continue to run up high deficits and expect that America will not go bankrupt some time down the road.
According to Daniel Whitten and Simon Lomax in Bloomberg today:
The U.S. Senate should abandon efforts to pass legislation curbing greenhouse-gas emissions this year and concentrate on a narrower bill to require use of renewable energy, four Democratic lawmakers say.
Australia’s Senate rejected the government’s climate-change legislation, forcing Prime Minister Kevin Rudd to amend the bill or call an early election.
Senators voted 42 to 30 against the law, which included plans for a carbon trading system similar to one used in Europe. Australia, the world’s biggest coal exporter, was proposing to reduce greenhouse gases by between 5 percent and 15 percent of 2000 levels in the next decade.
Australia is the only developed country to my knowledge has not gone into recession during this economic crisis. Read about Australia's good economy here.
This has not been a good month for the Democrats and Obama to say the least. According to new polling, only 47% of Americans approve of the job Obama is doing while 52% disapprove. People are starting to really fight back against Obama's healthcare plan; only 42% now favor his healthcare plan and 53% oppose it. The town hall meetings have been going very poorly for the Dems to say the least.
The town hall Senator Arlen Specter had this week went especially poorly. You can watch it here. According to the latest polls Arlen Specter is now behind his potential Republican rival Pat Toomey, 36% to 48%.
Also, the according to the latest polling data the Dems are likely to lose two governorships in November, in Virginia and New Jersey. In Virginia, Robert McDonnell (R) is leading Creigh Deeds (D), 47% to 38%. In New Jersey, Chris Christie (R) is leading incumbent Jon Corzine (D), 50% to 37% according to the latest polling.
So why are things going so poorly for Obama and the Dems in general? I think there are several reasons.
The first thing is that the Dems and Obama have lost a great deal of credibility with the American people. One of the reasons for the lack of credibility with the people is due to the failure of his stimulus plan to actually work.
Obama promised the stimulus plan it would create 3.5 million new jobs and that the unemployment rate would not go over 8%. The stimulus was rushed through Congress without anyone reading the bill. Since then millions of jobs have been lost and the unemployment rate is well over 8%. Just today, news has come out that new jobless claims unexpectedly rose and retail sales unexpectedly fell in July. The stimulus did not turn out the way Obama was predicting, therefore many more people are questioning everything he says or does.
Another credibility problem Obama has is the fact that he promised he would post bills online five days before he would sign them. This has not happened. He promised he would end torture but he is still allowing the practice of rendition to continue. I could go on and on. The fact is he has promised many things that have not happened.
Secondly, the Democrats do not have a concrete healthcare plan to sell to the people yet. They are just asking the people to trust them, like they have credibility to do as they say they will do. For Democrats, it would not be a problem not having a concrete healthcare plan if they still had some credibility and the trust of the American people.
Third, the people are rightfully extremely worried about the deficit. The Dems have no good solid plan for dealing with this problem and getting us back to a budget surplus.
Fourth, the Democrats' cronies in the media are trying to paint anyone who disagrees with their healthcare plan as being part of some lunatic fringe. This is a brilliant strategy seeing how 53% of all Americans now oppose it.
Fifth, Obama's town hall appearance yesterday. It was horrible, obviously staged, rambling, and ridden with gaffes Joe Biden could be proud of. While trying to sell a public option he admits the U.S. postal service is in need of work and the private companies, Fed Ex and UPS, are, "doing just fine." Watch below.
Sixth, the lobbying and the corruption are as alive and well as they ever have been.
Seventh, Geithner. People hate Geithner, he is a Wall Street crony like Bush's Treasury Sec. Paulson. Geithner helped create the economic problem we are in. What is he doing as Sec. of the Treasury?
If the Dems continue on this path they will lose big in 2010. This is warning coming from one who is no fan of the Republicans and Bush--someone against the Iraq war--someone who did not vote for McCain.
Marc Faber and Nouriel Roubini on CNBC today. Must see videos.
Nassim Taleb, principal of Universa Investments and author of 'The Black Swan,' discusses, the markets, the economy and whether Fed Chairman Ben Bernanke should be reappointed.
Taleb says,
We still have a very high level of debt, we still have leadership that's literally incompetent.
Japan is has the third highest public debt to GDP ratio in the world. Only the very economically sound countries of Lebanon and Zimbabwe have higher ratios of public debt to GDP. This debt is causing economic woes in Japan now and well cause more problems in the future if the government debt is not brought down. Japan has basically been in economic stagnation for almost two decades now.
America should learn from Japan and not take the same path. Read about it here.
Every investor should own at least some gold, silver, and other precious metals. They are good ways to hedge against catastrophic events and inflation. I have bought silver from two different places.
The first one is American Precious Metals Exchange. They offer great service and have some of the lowest prices online that I have seen. They offer silver rounds as low as $0.79 over the spot price. It's very easy to order from them just go to apmex.com and order online and they ship your order right away. I have ordered from APMEX in the past and have been highly satisfied by their service.
The second place I would recommend is the Perth Mint. The Perth Mint is based in Perth, Australia but it is no problem for Americans and other foreigners to order online from them. In my opinion, they sell the most beautiful silver and gold coins of any mint in the world. They also sell many limited issue collector silver and gold coins. The Perth Mint also offers a gold certificate program where American investors can buy gold and store it there at the mint. I have ordered online from them in the past and have also been very happy with their service. There website is: http://www.perthmint.com.au/
The civilian labor force participation rate declined by .2 percentage points in July to 65.5%. People who drop out of the labor force because they can't find work are not included in the unemployment number.
A normal U.S. economy would be producing at least 125,000 per month. Australia, with a population about 7% as large as the U.S. added 32,200 jobs last month. That would be the equivalent of the United States adding over 400,000 jobs in a month. However, 247,000 jobs were lost in July. This is an improvement in the rate of decline from June when 443,000 jobs were lost. So things are still getting worse in the U.S. just at a slower rate.
Some good news in the report, "In July, the average workweek of production and nonsupervisory workers on private nonfarm payrolls edged up by 0.1 hour to 33.1 hours."
By sector in July:
Construction -76,000 jobs Manufacturing -52,000 jobs Retail Trade -44,000 jobs Professor and Business Services -38,000 jobs Transportation and Warehousing -22,000 jobs Financial Activities -13,000 jobs Health Care +20,000 jobs (only segment that gained).
The Australian dollar held fast above 84 US cents on Thursday after the jobs report for July showed a surprise jump in employment, fuelling speculation local interest rates may rise even before December.
The dollar bounced to a high of $US0.8462 after data showed employment rose by 32,200 in July, confounding expectations for a drop of 20,000. Unemployment was steady at 5.8 per cent. ...
"Today's figures suggest that at worst Australia is experiencing the mildest of recessions," said Riki Polygenis, an analyst at ANZ.
On March 9th the S&P 500 stock index bottomed; the closing price of the S&P 500 on that day was 676.53 and the US Dollar Index was at 89.19. Today the S&P 500 is at 1002.63, a nominal gain of 48.2% since March 9th, but the US Dollar index has fallen to 77.59. This means that about 40% of the gains in the S&P 500 since March 9th are due to the dollar depreciation and thus not real. Let me explain…
The US Dollar Index is a measure of the value of the US dollar relative to a basket of foreign currencies. The higher the index the more the US dollar is worth compared to other currencies and the cheaper it is for people in the US to buy foreign goods. The lower the US dollar index the less the US dollar is worth compared to other currencies and the more expensive foreign goods becomes.
The value of the US dollar is very important to foreign investors looking to invest in the United States. Let’s say for example an investor from Britain, Nigel, wants to invest in US stocks. For the sake of this example, let’s say one British Pound will buy one US Dollar. Nigel wants to buy 100 shares of a US stock at $10 per share for a total investment of $1000. He decides this is a wise investment so he converts 1000 British Pounds into dollars and then purchases 100 shares of the US company.
One year later the price of the shares doubles to $20 per share; 100 shares at $20 apiece means his shares are now worth $2000. Nigel thinks this is great because has just made $1000 dollars on his investment. He then sells his shares for $2000. However, he cannot buy anything in England with US dollars so he has to convert his dollars into pounds. Let’s also say the dollar lost half of its value relative to the pound. Thus it now takes $2 to buy a British pound. Nigel then convents the $2000 he received from the sale of his shares into 1000 British pounds. Nigel has now discovered he has not actually made any money in British pounds because it took 1000 pounds to buy the shares a year ago.
All the perceived gains his stock in US dollars were due to the fact the US dollar lost value relative to the pound. There were no real gains in British pounds for him. This risk of an investment's value changing due to changes in currency exchange rates is known as foreign exchange risk.
Way does this matter? Well since the March 9th lows in the S&P 500, the S&P 500 has gained about 48% in value in dollar terms. It went from a March 9th close of 676.53 to a 1002.63 close on August 3rd. However, the US dollar has lost a good deal of value relative to other currencies. The US dollar index was at 89.19 on March 9th and on August 3rd it was at 77.59. This means that the value of the dollar has declined by about 13.5% relative to foreign currencies since March 9th.
So to get real returns one has to adjust for the fall in the dollar which I have done in the graph below. Nominal gain is the percentage gain in the S&P 500 not adjusted for the depreciation in the dollar and the dollar index adjusted gains are the gains adjusted for the fall in the value of the dollar relative to other currencies. The real dollar index adjusted gain since March 9th is only about 29% this compares to a nominal gain of about 48% (see Graph below).
**A technical note for people who want to know how I did the calculations for the graph:** Example: On Aug. 3rd the S&P closed at 1002.63 and 676.53 on March 9th. The dollar index was 77.59 on Aug. 3rd and 89.19 on Mar. 9th. To make the adjustment take 77.59/89.19 = .87. Then multiply 1002.63 by .87 to get real value of S&P 500 in a constant US dollar index adjusted value: 1002.63 * .87 = 872.23. Finally to get % real gain take (872.23 - 676.53) / (676.53) = 28.9% % of gains due to dollar depreciation calculation: Real gains since March 9th = 28.9% Nominal gains since March 9th = 48.2% To get % of gains due to dollar depreciation take 1 – (28.2% / 48.2%) = .400 or 40.0%
In the Independent of the UK day there was an article entitled, "Warning: Oil supplies are running out fast." In the article it says that Dr. Birol thinks, "that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated."
This article also reports that, "The IEA estimates that the decline in oil production in existing fields is now running at 6.7 per cent a year compared to the 3.7 per cent decline it had estimated in 2007, which it now acknowledges to be wrong."
The Wall Street Journal also reported on this today. Read it here.
This is potentially a huge problem in the future and needs to be addressed now. This is a potential tragedy of the commons in the making.
Mexico is the 12th largest economy on the planet. Right now the Mexican Peso has been getting crushed. Losing 24% versus the weak U.S. dollar over the past 12 months. Mexican has a budget gap of 480 billion pesos the largest in its history. Read all about it here.
One of Mexico's biggest problems is that it is running out of oil to export. Oil production in Mexico is falling dramatically (see picture below).
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