Dear reader this week’s musings will be rather short and will be mostly information I have copied from the net. In fact I have been very busy this week and will be so the next week too. Due to lack of time first I did not want to publish my today’s musings but due to the very important happenings of this week I decided to post. Please take note that most probably I will not post next weekend.
First let’s have a look at what markets did last week. Following as usual the overview of www.prudentbear.com
For the week, the Dow dipped 0.4% (down 14.6% y-t-d), while the S&P500 added 0.2% (down 14.2%). The Morgan Stanley Cyclicals jumped 1.6% (down 14.5%), and the Morgan Stanley Consumer index added 0.7% (down 9.2%). The Transports slipped 0.2% (up 8.3%), and the Utilities declined 2.1% (down 13.3%). The broader market rally continued. The small cap Russell 2000 gained 0.8% (down 6.5%), and the S&P400 Mid-Cap index rose 0.7% (down 6.7%). The NASDAQ100 declined 1.1% (down 12.4%), while the Morgan Stanley High Tech index gained 0.7% (down 11%). The Semiconductors recovered 0.2% (down 17.1%). The Street.com Internet Index dipped 0.4% (down 11.1%), and the NASDAQ Telecommunications index slipped 0.2% (down 6.6%). The Biotechs rose 1.9%, boosting 2008 gains to 8.0%. The financial stocks rallied sharply. The Broker/Dealers gained 4.9% (down 26.8%), and the Banks rallied 6.4% (down 24.1%). With Bullion sinking $20, the HUI Gold index dropped 4.6% (down 4.7% y-t-d).
And the winner of the week: again it is a draw.
Now to the important information of this week. This week, dear reader, has in my opinion been the week of awakening. Why would I say awakening? Well, what happened this week is that we now have the proof of what I have been writing about all the time. What is it? Well at the beginning of the week we got the news of the Australian bank NAB who sold its CDO portfolio for 10% of its face value. Later the week, Merrill Lynch informed us that they did the same but at a price of 22 cents for an original value of one USD. Well both deals are, without doubt, tremendously bad deals. The 22% that ML got seems at first sight a much better deal of course. But if one looks at the details of the deal, it becomes clear that the deal was not so good as it looks like. ML sold it to a private equity fund and gave them credit to buy the CDOs. The way the deal is structured, the risks of the CDOs will be fully back on MLs book once the price of the CDOs fall another 5%. Why that? Well the total credit granted represents the value of the CDOs sold minus 5%. Well you see, although it seems to be the better deal than the NAB it not necessarily is.
Well dear reader this news is really somehow shocking. You certainly remember that I was saying all the time that banks still have in their books huge amounts of Level III assets. Level III assets are assets without market or with other words assets that cannot be sold easily. This fact as such is not really an issue if the assets would be booked at their market value but as there is no market at all, the banks booked these assets at fantasy prices, which of course were much higher than what could be expected from a possible sale. Well having now a reference price, the banks will be forced to value their Level III assets accordingly. Just to make an example Goldman has Level III assets of above 80 billion USD. I doubt seriously that all of those assets can really be sold at the prices according to their books. Well anyway, I do expect that they will find some kind of arguments to tell us that in fact their assets have a much higher price than the 22%, which now are the reference price. So far many banks have used legal bookkeeping tricks to make their balance look much better than it really is. Furthermore using these tricks they tried to buy time with the hope that things get better or that they could write down slowly step-by-step. If they would have to write down according to values of the market, the capital base of most banks simply would not be sufficient. Buying time might help them to rise much needed capital but it gets more and more difficult as the share prices of the financial stocks are almost in a free fall. Some savvy investors think that the actual rally is very positive for those still holding stocks of financial institutions because it could be one of the last chances to unload them.
Well dear reader we are really at the point of reckoning. You know it is one thing to write about it and to see it coming and it is definitely another thing when it really hits. Markets did not yet absorb the news. Most people are not aware what it really means but sooner or later the news will sink in and markets will adapt to the ugly news.
Of course the accounting rules so far helped the financial institutions to hide a lot. One of those things that so far could be hidden from showing losses are the SIVs. SIVs can still be hold off the balance sheet but sooner or later the banks will have to assume the losses. So it comes as no surprise that the financial institutions were not in favour of changing these rules. Please read on
Postpones Off-Balance-Sheet Rule for a Year
July 30 (Bloomberg) -- The Financial Accounting Standards Board postponed a measure, opposed by Citigroup Inc. and the securities industry, forcing banks to bring off-balance-sheet assets such as mortgages and credit-card receivables back onto their books.
FASB, the Norwalk, Connecticut-based panel that sets U.S. accounting standards, voted 5-0 today to delay the rule change until fiscal years starting after Nov. 15, 2009. The board needs to give financial institutions more time to prepare for the switch, FASB member Thomas Linsmeier said at a board meeting.
http://www.bloomberg.com/apps/news?pid=20601009&sid=a4O4VjK.fX5Q&
Financial Times – July 29 – (Paul J Davies and Joanna Chung): “Banks have been given a one-year reprieve by US accounting standard-setters from having to take up to $5,000bn of debt assets on to their balance sheets, easing fears that they would be forced to raise large amounts of new capital quickly. The Financial Accounting Standards Board voted to delay until January 2010 the introduction of rules that will force banks to consolidate more off-balance-sheet vehicles directly in their accounts. However, Robert Herz, FASB chairman, said that the move was made reluctantly after a staff recommendation for a delay because there might not be enough time for all companies to adjust to the up-heaval. ‘It does pain me to allow something that has been abused by certain folks, to let that go on for another year,’ he said.”
Now coming back to the event of the week, following some more information found on the net
NAB, National Australia Bank, was just forced to write down over ninety percent of its exposure to US mortgages via so-called SIV's or conduits last Friday, to the order of $830 million dollars.
This was by no means a matter of choice for NAB. The bank had just issued and sold $850 million worth of new debt paper. Buyers of that debt are now screaming bloody murder. They are asking why this information, which surely must have been known to the bank at the time of the debt sale, was not disclosed to the market beforehand. They are now demanding their money back or some other way to back out of the deal.
Yet, what happened to this single Australian bank is nothing compared to what will happen to US equity and bond markets
Another comment found on the net follows
We have a mark-to-market data point
MER sells super-senior ABS CDO for 22 cents on the dollar:
On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.
This tranche would be equivalent to the super senior AAA tranches priced up
http://www.markit.com/
http://www.markit.com/information/products/category/indices/abx.html
MER is providing 75% of the financing for the transaction; I'm not sure how they are going to be able to remove the CDO from their balance sheet:
Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction. The transaction is expected to close within 60 days.
And a comment from Bloomberg
Merrill Gives Up Gains, Is `On Hook' for CDO Losses
July 30 (Bloomberg) -- Merrill Lynch & Co. gave up any potential gains on $30.6 billion of securities it sold this week while remaining ``on the hook' for losses, Bank of America Corp. analysts said, revising their earlier positive view of the sale.
Merrill agreed to sell collateralized debt obligations to private-equity firm Lone Star Funds for about 22 cents on the dollar and to lend about 75 percent of the purchase price. Bank of America analysts, who said yesterday the sale ``suggests the endgame' for banks' CDO risk, today wrote they had overstated the ``positive implications' of the transaction.
A drop in the value of the CDOs by about a further 5 cents would wipe out the equity from Lone Star and ``leave Merrill back on the hook for the exposure,' said the analysts, led by Jeffrey Rosenberg in New York. Lone Star bought ``the upside of the underlying subprime assets in the CDO pools' while Merrill retained ``most of the downside,' they wrote.
Merrill, the third-biggest U.S. securities firm, has written down or lost almost $52 billion mainly on mortgage-backed CDOs since the third quarter of last year. Financial firms worldwide have marked down or lost $474 billion since the start of the credit crunch.
Merrill yesterday raised $8.55 billion by selling new shares to cushion the loss on the asset disposal. The bank will have recourse only to the CDOs it sold should Lone Star fail to repay the loan, it said July 28.
5-Cent Call Option
Lone Star effectively ``purchased a call option on the value of the subprime assets backing the CDO' for the $1.68 billion it paid from its own funds, or about 5 cents on the dollar, the Bank of America analysts wrote today. That is about the level indicated by the lowest-rated portions of the benchmark Markit ABX.HE BBB- indexes of mortgage-backed securities.
An option gives the holder the right and not the obligation to buy or sell a security at a stated price. A call option, which gives the right to buy, is a bet the price of a security will rise.
The Bank of America analysts wrote yesterday that the sale ``creates initial losses but relieves future uncertainty,' before issuing its report today, titled ``On Second Thought?'…
US corp distress could mean big bankruptcies-report
And Reuters
NEW YORK, July 28 (Reuters) - The amount of U.S. investment-grade bonds trading at distressed levels has risen close to an all-time high, a sign that a wave of mega-bankruptcies is likely on the way, a veteran high-yield strategist said.
Bonds are considered distressed when their yields, which move in the opposite direction of prices, exceed 1,000 basis points over those on U.S. Treasuries.
The distressed trading levels in both investment-grade and speculative-rated bonds "suggests that we will see record-sized bankruptcies by volume into 2009-2010," said Christopher Garman, writing in high-yield research publication Leverage World.
About 1.8 percent of high-grade bonds by par value are trading at distressed levels, slightly under an all-time high of 2.4 percent, according to Garman, publisher of Leverage World and former head of high-yield strategy at Merrill Lynch & Co Inc.
About 27.2 percent of high-yield bonds by par value are distressed, Garman said.
Strategists often track junk bond distressed levels as a precursor of default rates, but high-grade borrowers are now contributing nearly 20 percent to total distressed bond volumes, or nearly 70 issues, Garman said.
"The largest corporate bankruptcies on record often follow this level of distress," Garman said.
Including both high-grade and high-yield issues, about 7.5 percent of total corporate bonds are trading at distressed levels, pointing to nearly $97 billion of defaults through 2009, Garman said.
That level of distress is the same seen during the credit downturn of 2000 to 2002, a period when the largest corporate bankruptcies on record were filed.
mortgage conduit CDO = synthetic securitization transaction
http://www.whitepage.co.uk/publications/pdfs/sec_eur01sidleyaustin.pdf
It would be interesting to know how many synthetic mortgage SIVs and CDO's were issued.
Well dear reader the financial sector is certainly under tremendous stress. The FED had boost their liquidity measures, please read on
FED
U.S. Fed expands liquidity-boosting measures
WASHINGTON, July 30 (Reuters) - The Federal Reserve on Wednesday said it was extending a credit facility that it provides for primary dealers in one of several steps to boost liquidity in stressed financial markets.
The U.S. central bank said its Primary Dealer Credit Facility (PDCF) and its Term Securities Lending Facility (TSLF) will be extended through Jan. 30. The PDCF was initially launched as a six-month measure in March in the wake of the near bankruptcy of Bear Stearns.
The Fed said it extended the PDCF "in light of continued fragile circumstances in financial markets," and said it would withdraw it once it determines that conditions in the financial markets are no longer "unusual and exigent."
It also said that it will introduce 84-day Term Auction Facility (TAF) loans, which it said will complement its existing 28-day TAF loans. The Fed introduced the loans program to try to ease a credit crunch that policy-makers feel has shown only limited signs of easing.
well it might not work the well
FED
The Fed announced today the credit crisis is far from over. In fact, banks will still be desperate for cash till at least 2009.
Why else would Ben Bernanke and crew extend their newfound lending facilities to January 2009? The Fed announced this morning it will extend its TAFs and TSLFs to the end of the year. Combined, both measures have lent out over $1.4 trillion to struggling financials in the past seven months… safe to say this will at least be a $2 trillion endeavor when it’s all said and done.
And get this… not only will the cash keep flowing, but investment banks will be able to buy options on future loan programs. So if a brokerage house can’t unload enough toxic investments before a quarterly earnings report, it can buy options to exchange asset-backed securities at a later date. Incredible, isn’t it? So much for the free market…
Not only did the Fed dole out record funds from the discount window this week, but Bernanke and his crew also conducted another wave of TAFs and TSLFs. Earlier this week, the Fed “successfully” conducted its 17th TAF. Banks were able to secure another $75 billion in emergency loans.
And yesterday, another TSLF came and went. In less than 30 minutes, the Fed took on another $28 billion in illiquid asset-backed securities in exchange for U.S. Treasuries.
Between the TAFs and TSLFs, the Fed has now dedicated over $1.5 trillion to keeping financials afloat.
Well the system is under stress without doubt. On below link you can find an interview
Meredith, Can Lehman Survive This?
This is one of those times when you know someone was not prepared for the question they were asked. Here's Maria Bartiromo with Meredith Whitney, executive director of equity research at Oppenheimer, discussing what's in store for the financial sector.
Maria Bartiromo: Meredith, Can Lehman Survive This?
Meredith:
Umm
I
I
I
I
umm
I
think
I don't know I don't know
to see the video please click on the following link
http://www.cnbc.com/id/15840232?video=808357964&play=1
Mish Shedlock who posted the above made the following comment
It was a good interview, and also very much out of character for Meredith to be at a loss for words. Play the whole thing. It's a good listen.
My comment dear reader is that it is in my opinion a very good interview indeed. However I truly believe that Meredith is too optimistic with her comments about Goldman and JPM. They are not much better than the rest of the pack. They just knew better how to hide things so far. Remember, both have tremendous Level III assets and JPM has an incredibly enormous toxic derivate book, which is several times their capital base. Yes it is toxic and could blow up anytime. JPM was lucky that the FED helped them to take over Bear Stearns (yes it was a planned take over) because if the FED would not have given them the funds to take over Bear Stearns, JPM would have gone broke. Yes they would have gone broke, which of course cannot happen with the biggest shareholder of the FED. Most of the derivate risk of Bear Stearns was in the books of JPM. So with BS gone JPM would be history too. As said, this cannot happen and that is why the bailout or takeover was done. But dear reader, and this is the important fact, JPM’s derivate risks are in my opinion too high and thus the risk of a JPM is much higher than many believe.
Some comments about the general situation
So things are bad, but how bad? Nouriel Roubini, Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business, is now being recognized by the financial media for having correctly predicted many of the afflictions, which currently ails our economy. He believes that:
This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk - and the collapse of many counterparties - will lead to a systemic collapse of this market.
James Turk: More than a helping hand
GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report, takes a look at the money borrowed by U.S. banks from the Federal Reserve since 1913, notes the recent explosion in borrowing, and suggests that the U.S. banking system may be more insolvent than "liquid." Turk's analysis is headlined "More Than a Helping Hand" and you can find it in the "Founder's Commentary" section in the third column of the GoldMoney home page here:
http://goldmoney.com/
Following another excellent essay, please read on
from Martin Weiss
http://www.moneyandmarkets.com/Issues.aspx?Unthinkable-Truth-Undeniable-Reality-2024
and John Williams
The story now will go along the lines,” speculates John Williams , “that the economy dipped a little in the fourth quarter -- not enough to be called a recession -- and has been in recovery ever since. Despite sharp quarterly contractions in employment, industrial production, new orders, real retail sales and residential construction, among other series, the second-quarter 2008 GDP was reported as booming. (Net of inventory reductions, the inflation-adjusted economy expanded at an above-average annualized 3.9% rate.)
“Such is an absurdity, given the reporting of better-quality surveys and extremely strong anecdotal evidence to the contrary. But the reporting will enable the pushing off of any recession recognition until after the election.”
Well some more
July 29 – Financial Times (Francesco Guerrera and Saskia Scholtes): “The US financial crisis is spreading from subprime borrowers to wealthier consumers, with evidence mounting that more affluent people are failing to pay their mortgages and credit card balances. Growing concerns over the financial health of richer borrowers are prompting banks and card issuers to tighten lending practices in moves that could futher dampen consumer confidence and spending more. Banks such as JPMorgan Chase and credit card groups such as American Express have clamped down on lending to customers that have traditionally been regarded among the safest and most profitable borrowers. ‘The crisis is just starting to spread beyond the middle class,’ said Curtis Arnold, founder of CardRatings.com. ‘Even folks with good credit-ratings scores are no longer immune from adverse actions from their card issuers.’ Senior bankers say that after the subprime debacle, the worsening outlook of ‘prime’ portfolios shows the crisis is far from over and could inflict substantial losses on financial institutions… At American Express, which has traditionally focused on high-spending consumers… Kenneth Chenault, chairman and chief executive, said the company’s most affluent card-holders were feeling the pinch.”
July 28 – New York Times (Peter Goodman): “Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term ‘commercial paper’ not backed by collateral — collectively dropped almost 3% over the last year, to $3.27 trillion from $3.36 trillion, according to [fed] data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001. The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt… Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory… His company, which makes parts for makers of home appliances, is growing and profitable, he said… But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response. ‘The exact words were, ‘We’re saying no to almost everybody,' Mr. Greenblatt recalled.”
July 30 – New York Times (Michael Grynbaum): “Several national restaurant chains were shuttered on Tuesday, possibly offering an early taste of what’s in store this year for businesses that depend on free-spending consumers whose budgets are now being squeezed. The parent company of Bennigan’s… with about 200 sites across the country, filed for bankruptcy, a move that will put hundreds of employees out of work and leave many landlords with empty retail space during a painful time in the real estate market. A sister brand, Steak & Ale, will also close… The restaurants are the latest casualties in the so-called casual dining sector, considered a cut above fast food. Soaring food costs and a surfeit of locations have hurt the companies’ bottom lines just as Americans are choosing to take more meals at home…"
August 1 – Bloomberg (Mike Ramsey): “U.S. auto sales tumbled 13% in July, pushing the industry toward its worst year since 1993, as General Motors Corp., Ford Motor Co. and Toyota Motor Corp. posted declines on lower demand for fuel-thirsty trucks… The industry’s annualized selling rate for July was 12.6 million vehicles, the lowest since April 1992, according to Autodata.”
Following a comment from Puru Saxena about markets and investments in general terms
The energy market continues to correct and it seems as though the price of oil will decline to $100-110 per barrel. It is interesting to note though that energy stocks have already undergone a massive correction and may be forming an important bottom. It is possible that energy stocks move sideways or even rally during the rest of the correction in crude oil. At today's levels, energy stocks are ridiculously undervalued and they are priced as though oil was trading at $70-75 per barrel. Obviously, the market believes that the oil "bubble" has burst and soon crude will trade below $100 per barrel. Now, I have spent 5 years studying "Peak Oil" and can tell you that the days of cheap oil are over and unless we have a global depression, you will never see oil at $70 per barrel again. So, I would urge you to take advantage of the recent correction in energy stocks and buy all the upstream and oil+gas service companies that you can afford. These companies are growing their earnings rapidly and their stock prices will go through the roof when the public catches on to the reality of "Peak Oil". Apart from oil, I would also suggest that you invest in natural gas and coal companies at these prices. Metals continue to consolidate with gold and silver prices drifting around in these dull summer months. I would look at buying gold below $880 per ounce and silver below $17 per ounce because I believe the bull-market has a long way to go. Furthermore, I would recommend that you buy physical bullion instead of the precious metals mining stocks since they no longer provide the leverage when compared to bullion (more on this issue in August's Money Matters). Base metals are also showing signs of a bottom formation and are likely to trend higher towards the end of this year. So, hold on to your positions in diversified mining companies and add more during this period of weakness. Finally, in the currencies markets, the US Dollar is rallying simply because the whole world had become bearish on the world's reserve currency. Make no mistake though, the US is the world's largest debtor nation and its establishment is committed to destroying the value of its currency via bail-outs which are being financed courtesy of the American taxpayer. So, I have no doubt in my mind that the US Dollar will continue to decline against the other relatively stronger currencies such as the Canadian, Aussie and Kiwi Dollars. Keep your cash in these currencies and sell the Euro and British Pound as they are also likely to fall in the months ahead.
My comment to Puru Saxensas opinion; Regarding precious metals, I would not wait until Gold or Silver fall to the levels he mentions. We are close to these levels anyway so it does not make a huge difference at all. Furthermore if prices really go to the levels I expect it does not matter at all if you were able to buy gold for example at 880 USD oz. or if you paid 910. Furthermore I am in general terms not so positive for shares. Yes I agree with the kind of shares Puru prefers. However there is the possibility that all shares including for example oil&gas shares, will fall in a market crash. If you like to hold some shares then I would follow Purus recommendation. I for my part prefer to be on the sidelines with the hope to buy lower.
General Motors
Well dear reader I do hope you hold no shares or bonds of the US carmakers. They are in deep problem no doubt and have been so for many months. They might become the next bailout candidates as they are somehow to big to fail too.
Following a comment found on the net.
GM has a market cap of US $6 billion (according to www.bigcharts.com) but just reported a loss of US $15.5 billion. Aside from that they have obligations to pension funds for more than US $15 billion. Doesn't this all mean they're bankrupt?
General Electric
Do you remember my comment about General Electric being almost a financial institution. Following a comment
July 30 – Globe & Mail (Lori McLeod): “The global credit crisis has claimed another victim in the Canadian mortgage industry as General Electric Co. winds up its mortgage operations here. After three years in the business, GE Money Canada said it will stop taking new mortgage applications tomorrow. It’s the latest in a string of alternative lenders that have decided to scale back operations or close shop amid the credit crunch. Lenders who relied on bundling and selling loans to fund new mortgages have run into trouble as the securitization market went dry.”
Alternative energy
Well dear reader I was asked if Hydrogen will be the future. I have my serious doubts. Even if the technology would advance, which is not the case (please see the following comment), the infrastructure for the massive use of hydrogen is not available and will cost amounts that nobody is willing to spend and possibly cannot spend due to lack of money.
Hydrogen fuel-cell vehicles are still 15 years away from becoming a viable business for automakers even if they overcome remaining technical hurdles and the U.S. government provides massive subsidies.
Commodities, China need for coal, steel etc.
The big news this morning is that President Bush has dropped his threat of a veto for the housing bill that will bail both Fannie Mae and Freddie Mac out, and also offer relief to homeowners that have gotten in over their heads and now run the risk of foreclosure. CNNMoney.com reports that the legislation would allow the Federal Housing Agency to insure up to “$300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write-down their loan balances to 90% of the current appraised value of their homes...The cost of the FHA program – which would begin on October 1 and be in place for just a few years – would be funded by fees from Fannie and Freddie.”
And of course, since Fannie and Freddie are seriously ill-equipped to offer up those kinds of funds at the present moment, the bill would allow the Treasury broad powers that would provide the mortgage giants with liquidity and a “capital background” – basically an unlimited line of credit. It is generally understood that this will leave U.S. taxpayers with a gigantic bill to pay – in fact, yesterday the CBO estimated the cost of the “rescue” at $25 billion, and said there is a chance that it could end up costing the U.S. government $100 billion in the long term. Does the term “hemorrhaging money” mean anything to you, dear reader?
Gold
Even the pros may be stuffing the mattresses
http://www.chicagotribune.com/business/yourmoney/chi-tue-gail-jul29,0,1843564,print.column
USD
China is slowly looking to reduce its dollar holdings. According to this morning’s FT, China’s State Administration of Foreign Exchange (SAFE) is shopping around in the European private equity market for away to diversify massive dollar reserves. The salmon-colored journal didn’t report any specific details as to how much China is looking to spend, but it did say that “SAFE has been holding talks with Europe-based private equity firms about putting billions of dollars into their latest funds, precisely because these funds are not dollar denominated.”
The overwhelming majority of China’s $1.6 trillion reserves are dollar denominated, including over $500 billion in U.S. Treasuries.
Now that Congress has approved the bailout of housing giants Fannie Mae
and Freddie Mac, those who voted "yes" are soon going to be asked an
uncomfortable question: Why are you taking money from U.S. taxpayers to
bail out the Bank of China and other nations' central banks? It turns out the
biggest supporter of the Fannie Mae and Freddie Mac bailouts has been the
Chinese government. The Chinese own about half a trillion dollars in Fannie
and Freddie securities and they've put the warning out to Hank Paulson they
expect to be repaid in full. The fear among Mr. Paulson and other Treasury
officials is that if Fannie and Freddie debt isn't repaid at 100% par, the
Chinese may start dumping their hundreds of billions of dollars of securities,
possibly causing a run on U.S. debt and sharply raising borrowing costs.
Food
Oil fuels America's agricultural might. Soon, experts fear, it could plunge the world into a food crisis.
http://www.baltimoresun.com/news/opinion/ideas/bal-id.oil20jul20,0,1606377.story
more about food
Agricultural powers those self sufficient in food, fabric, and hydrocarbon
production - once were unambiguously regarded as strategic powers. This
has been true throughout history: societies which were not agriculturally
efficient and abundant could never long or fully sustain strategic power.
Now, once again, a ne set of nations is likely to emerge in the twenty-first
century with significant regional, if not global, influence . . .
http://www.redorbit.com/news/business/1499253/the_rise_of_agripowers/
Housing
http://www.rgemonitor.com/us-monitor/253126/10_things_to_understand_about_the_housing_bubble_and_the_debt_crisis
Posts
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)