Friday, 04 June 2010 10:09

Opinions of the MSM News Headlines for June 4th, 2010

In continuing my data intense, hardcore, uber-objective dissection of the stuff that is proffered through the mainstream media (MSM), I bring you:

Payrolls in U.S. Climb Less Than Estimated as Confidence in Recovery Wanes

June 4 (Bloomberg) -- Employers in the U.S. hired fewer workers in May than forecast and Americans dropped out of the labor force, showing a lack of confidence in the recovery that may lead to slower economic growth.

Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census, Labor Department figures in Washington showed today. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. Private payrolls rose a less-than-forecast 41,000. The jobless rate fell to 9.7 percent.

This was not hard to see coming if you studied the numbers with an objective eye. If we dig up last year's BoomBustBlog article on the topic, we'll ponder... "Are the Effects of Unemployment About To Shoot Through the Roof?" as excerpted below.

A recent zero-hedge article rightly questioned the reliability of the reported unemployment figures by comparing the reported increase in the unemployment benefits paid with the reported increase in the number of insured unemployed. According to the figures reported by Department of Labor (DOL), the total number of insured unemployed in the US has risen by nearly 400% since September 2007 and has reached nearly 10.5 million as of Dec 19, 2009. However, if we look at the monthly withdrawals on the unemployment insurance account (according to the Daily Treasury Statement prepared by the Financial Management Service), the expenditure has risen by nearly 550%. The difference has been widening since April 2009 (coincidentally, right about the time the S&P 500 rocketed skywards, and the housing market made several month to month gains [see If Anybody Bothered to Take a Close Look at the Latest Housing Numbers..."]) and has increased substantially in Dec 2009.

With no reason to believe that the average payouts increased dramatically (that could have otherwise explained this variation), the article rightly points out the huge discrepancy that is creeping in the reported figures. According to Zero-hedge, the insured unemployed are understated by 32% and estimate the insured unemployed at nearly 14 million. The Bureau of Labor Statistics reported the total number of unemployed at 15.6 million and the unemployment rate at 10% in Dec 2010. With serious doubts being raised about the reported figures of the insured unemployed that forms a substantial portion of total unemployed (nearly 69% in Dec 2010, based on reported figures), the total unemployment figures reported by the government is most likely severely understated.

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The grave unemployment situation not only undermines the economic health and recovery hopes, but is also acting as a major source of financial strain on the Fed's books. The Fed has been spending huge amounts of money in the form of UI (unemployment insurance) benefits. In 2009, the government paid about $139 billion in UI benefits. Based on the figures for total unemployed by Bureau of Labor statistics and total insured unemployed by DOL, the total insured unemployed which are being supported by the government under the various state and federal programs have risen to 69.0% of the total unemployed as of Dec 2009 from just 29.0% in Sep 2007. Further it is observed that the Fed has been taking in huge deficits on its books because of UI programs. The total UI withdrawals on Fed books in 2009 were $139 billion against deposits of just $31 billion received from states for unemployment. While the withdrawals in 2009 have increased by 320% when compared with withdrawals in 2007, the deposits have declined by 6.6%. The deficit has increased to nearly $107 billion from nearly no deficit, two years ago.

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Back to the news of the day... Hungary's Forint Hits Year Low on Economic Outlook; Bonds, Stocks Plunge and Stocks, Commodities Drop on U.S. Job Data; Forint Falls on Hungary's Debt:

June 4 (Bloomberg) -- Credit-default swaps on sovereign bonds surged on speculation Europe’s debt crisis is worsening after Hungary said it’s in a “very grave situation” because a previous government lied about the state of the economy.

The cost of insuring against losses on Hungarian sovereign debt jumped 83.5 basis points to 391.5, according to CMA DataVision prices. Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 10 basis points higher to 163, and close to the all-time high of 167 on May 6.

Hungary’s bonds fell after a spokesman for Prime Minister Viktor Orban said talk of a default is “not an exaggeration” because a previous administration “manipulated” figures. The country was bailed out with a 20 billion-euro ($24 billion) aid package from the European Union and International Monetary Fund in 2008.

“The comments out of Hungary have really spooked the market,” said Rajeev Shah, a credit strategist at BNP Paribas SA in London. “Investors are interpreting it as bad sign for trying to tackle Europe’s debt crisis.”

BoomBustBloggers, particularly subscribers, should have been well prepared (and hopefully well positioned) for such an event. Any paying (professional) subscriber who hasn't read this document should do so now -
File Icon Banks exposed to Central and Eastern Europe. Any retail subscriber who has been with me for a year should email me, and I will send you the document as a courtesy and acknowledgement of your patronage. All others,
r
eference The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

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Source: IMF, European Commission

Notably, except for Hungary with a public debt-to-GDP of nearly 80%, government debt is within manageable limits for most of the countries in the region. This is most likely due to the fact that these countries did not have an overdeveloped banking system that required bailing out.

We also know that you really can't count on the IMF, the EU or even the county itself to give a realistic accounting of the fiscal situation. Notice how both Hungary's and Greece's current governments are blaming the lies on previous administrations. Well, the lying just doesn't stop there. First reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! to realize it is not just the smaller countries in the east and the south, then peruse the seminal prose, Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for the hard arithmetical truth!!!

The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side – and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable "austerity" plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised – No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem – just to cover some of the Euro states caught fudging the numbers)!

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

 

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Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad…

What does this all mean? Well, if I was a betting man, I would say it will end up as Flash Crash, 2.0, that is without the "flash" part. Methinks anyone who doesn't believe the market is an overvalued casino waiting to implode either is delusional or arithmetically impaired. Hey, at least the NYSE sees things the way I do...

NYSE Invokes Rule 48 to Suspend Price Indications Before New York Trading

June 4 (Bloomberg) -- The New York Stock Exchange and NYSE Amex cash platforms invoked a rule today that aims to smooth the opening of U.S. equities when futures and overseas markets signal high levels of price volatility.

Rule 48 halts the requirement for market makers to send pre-opening indications, or bid and ask prices created in auctions used to determine a stock’s opening price. The regulation is used only when the “potential for extremely high market-wide volatility would likely impair floor-wide operations at the exchange,” NYSE Euronext said.

U.S. stock-index futures plunged today following a report showing the nation added fewer jobs than economists estimated last month, spurring concern employment recovery isn’t as robust as forecast. June contracts on the Standard & Poor’s 500 Index slid 2.1 percent to 1,079.50 as of 9:10 a.m. in New York.

Imagine where we would be if the exchange allowed prices to move down as freely as they allowed prices to move up! Quasi-socialism (an economic system that directly maximizes use-values as opposed to exchange-values) in American stock exchange operations and management? Ain't that an anti-capitalistic bitch!

Austria, Belgium and Sweden, while apparently healthy from a cursory perspective, have between one quarter to one half of their GDPs exposed to central and eastern European countries facing a full blown Depression!

Click to Enlarge…

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These exposed countries are surrounded by much larger (GDP-wise and geo-politically) countries who have severe structural fiscal deficiencies and excessive debt as a proportion to their GDPs, not to mention being highly “OVERBANKED” (a term that I have coined). 

So as to quiet those pundits who feel I am being sensationalist, let’s take this step by step.

Depression (Wikipedia): In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen as part of a normal business cycle.

Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflationfinancial crisis and bank failures are also common elements of a depression.

There is no widely agreed definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1] Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).[2] Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years.[3][4]

Before we go on, let’s graphically what a depression would look like in this modern day and age…

A depression is characterized by its length, and by abnormal
increases in
unemployment.
image012.png
Price deflationfinancial
crisis
and bank failures are
also common elements of a depression. image011.png

A depression is characterized by … shrinking output and investment
… reduced amounts of trade and commerce.

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… as well as highly volatile relative currency value fluctuations,
mostly devaluations.

A former premier has called for a 30% devaluation and a
sitting minister said in June that there should be a “debate.”
Meanwhile, chief executive of SEB, Sweden’s number two bank, says total
loan losses would ultimately be little different if the Baltics stayed
the course or devalued now – though rapid devaluation might be tougher
to deal with. (Lex/FT.com)

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The global slowdown coupled with the unprecedented financial crisis has
uncovered significant vulnerabilities that can currently be witnessed in
the Central and Eastern Europe in the form of structural imbalances and
growing foreign indebtedness. Not surprisingly, the region, which until
a couple of years back was forecasted to be one of the most profitable
investment avenues, now stands out as the hardest hit with many
countries such as Hungary, the Ukraine, Latvia, and Romania forced to
seek IMF and foreign aid and bail-outs. Heavy reliance on exports and
foreign capital (especially from Western Europe), which fed the economic
growth in the pre-crisis period, has backfired when peak global demand
dried up and the liquidity crunch hit the global financial system.

Countries in this region are highly dependent on foreign trade, with
exports accounting for more than 50% of GDP for many countries. Sharp
declines in exports have triggered a series of internal predicaments
including rampant and rising unemployment as well as declines in
domestic demand that exacerbate trade account imbalances through
declines in imports. However, the problems for these countries have been
aggravated by huge foreign indebtedness and the resultant interest and
income payments that put additional pressure on the balance of payments.
While currency depreciation could have provided some much needed
respite (although that can be seriously debated), for countries like
Latvia, Estonia, Lithuania, Bulgaria and Ukraine which have a fixed
currency peg to Euro, the option is not available. As a result, Latvia,
Lithuania and Estonia have witnessed double digit negative real growth
in GDP and are witnessing structural issues of deflationary pressures
(owing to price and wage cuts) and very high unemployment levels. Click
any graphic to enlarge…

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Source: IMF, European Commission

Last modified on Saturday, 05 June 2010 06:12

3 comments

  • Comment Link Reggie Middleton Friday, 04 June 2010 12:48 posted by Reggie Middleton

    I just downloaded the doc, so it works for me. Check your subscription status in the "my subscription" menu item in the "user men" below the main menu.

    I'll have to look into the other issue.

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  • Comment Link shaun noll, CFA Friday, 04 June 2010 12:39 posted by shaun noll, CFA

    i don't think the emails about follow up comments system is working either, I have not been getting them and have checked my spam box and email setup.

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  • Comment Link shaun noll, CFA Friday, 04 June 2010 12:39 posted by shaun noll, CFA

    when I try to read the banks exposed to east europe it doesn't seem to bring up the file?

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