Extract from www.Retirerichblog.com (I love this website, have been follwing it for quite sometime now)
His firm made $20 billion between 2007 and early 2009 by betting against the housing market and big financial companies. Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. That was more than the 2007 earnings of J.K. Rowling, Oprah Winfrey and Tiger Woods combined.
Saturday, November 28, 2009
Wednesday, November 25, 2009
Jim Rogers: My First Million
From FT.com Published: November 20 2009 18:26 Last updated: November 20 2009 18:26
Since Jim Rogers, 67, co-founded the Quantum Fund with George Soros he has worked as a guest professor of finance at Columbia University and as an economic commentator. In 1998, he founded the Rogers International Commodities Index (RICI).
He is the author of A Bull in China, Hot Commodities, Adventure Capitalist and Investment Biker. His latest book is A Gift to My Children, a father’s lessons for life and investing.
When you realised that you had made your first million were you tempted to slow down?
I can remember the exact day of my first million dollars’ net worth. It was in November 1977. I was 35. I knew I needed more than that to do what I wanted when I was 37 – the age I decided to stop working to seek adventure.
What is the secret of your success?
As I was not smarter than most people, I was willing to work harder than most. I was prepared to examine conventional wisdom. If everyone thinks one way, it is likely to be wrong. If you can figure out that it is wrong, you are likely to make a lot of money.
What has been your most spectacular gain?
The Quantum Fund. When we started the company in 1970, I had $600 in my pocket. Within 10 years, the portfolio had gained 4,200 per cent.
What is your basic investment strategy?
Buy low and sell high. I try to find something that is very cheap, where a positive change is taking place. Then I do enough homework to make sure I am right. It has got to be cheap so that, if I am wrong, I don’t lose much money. Every time I make a mistake, it is usually because I did not do enough homework.
Since Jim Rogers, 67, co-founded the Quantum Fund with George Soros he has worked as a guest professor of finance at Columbia University and as an economic commentator. In 1998, he founded the Rogers International Commodities Index (RICI).
He is the author of A Bull in China, Hot Commodities, Adventure Capitalist and Investment Biker. His latest book is A Gift to My Children, a father’s lessons for life and investing.
When you realised that you had made your first million were you tempted to slow down?
I can remember the exact day of my first million dollars’ net worth. It was in November 1977. I was 35. I knew I needed more than that to do what I wanted when I was 37 – the age I decided to stop working to seek adventure.
What is the secret of your success?
As I was not smarter than most people, I was willing to work harder than most. I was prepared to examine conventional wisdom. If everyone thinks one way, it is likely to be wrong. If you can figure out that it is wrong, you are likely to make a lot of money.
What has been your most spectacular gain?
The Quantum Fund. When we started the company in 1970, I had $600 in my pocket. Within 10 years, the portfolio had gained 4,200 per cent.
What is your basic investment strategy?
Buy low and sell high. I try to find something that is very cheap, where a positive change is taking place. Then I do enough homework to make sure I am right. It has got to be cheap so that, if I am wrong, I don’t lose much money. Every time I make a mistake, it is usually because I did not do enough homework.
Sunday, November 8, 2009
US Unemployment Rate Troubling, But …
By Prieur du Plessis on November 8, 2009 | More Posts By Prieur du Plessis | Author's Website
The US Labor Department announced Friday that the unemployment rate rose to a 26-year high of 10.2% in October, an increase of 0.4 of a percentage point, even though the labor force contracted as well.
The graph below, courtesy of Chart of the Day, illustrates the unemployment rate since 1948 and provides some perspective on the current state of the labor market. As shown, Friday’s increase above the 10% level marks only the second time such a move has occurred during the post-World War II era.
Closer analysis of the chart indicates that the unemployment rate is a lagging indicator, peaking after the end of a recession. However, in the case of the previous two recessions the rate only peaked several quarters following an improvement in real GDP.
Asha Bangalore (Northern Trust) said: “A similar case is projected for the current recovery. Our forecast is for the unemployment rate to peak in mid-2010. At the same time, real GDP should continue to advance during the final months of 2009 and all of 2010.
The US Labor Department announced Friday that the unemployment rate rose to a 26-year high of 10.2% in October, an increase of 0.4 of a percentage point, even though the labor force contracted as well.
The graph below, courtesy of Chart of the Day, illustrates the unemployment rate since 1948 and provides some perspective on the current state of the labor market. As shown, Friday’s increase above the 10% level marks only the second time such a move has occurred during the post-World War II era.
Closer analysis of the chart indicates that the unemployment rate is a lagging indicator, peaking after the end of a recession. However, in the case of the previous two recessions the rate only peaked several quarters following an improvement in real GDP.
Asha Bangalore (Northern Trust) said: “A similar case is projected for the current recovery. Our forecast is for the unemployment rate to peak in mid-2010. At the same time, real GDP should continue to advance during the final months of 2009 and all of 2010.
Saturday, November 7, 2009
Fuel Your Stock Portfolio With BHP Billiton: The Best-Run Commodities Company In The World
By Tony D’Altorio on November 6, 2009 | More Posts By Tony D’Altorio | Author's Website
Some companies just stand out - both in their own sectors and in the larger market.
Australian firm BHP Billiton (BHP: 68.15 +0.32 +0.47%) is one of them.
As the largest and most diversified commodities producer in the world, BHP has leading positions in most key, low-cost, metal and mineral deposits in the world.
And as if that weren’t enough, it also has a solid position in oil, thanks to its petroleum division, which had operating profits of $4 billion last year.
Impressively, that total only made the petroleum division BHP’s third-best performer in 2008. Its iron ore segment scooped up $6.23 billion, while base metals enjoyed a $4.62 billion operating profit.
Crucially, that sets BHP’s oil division apart from its competitors. Not only does it bring in extra revenue, it’s also not overly reliant on the commodity fuel its operations.
So what does this mean for investors?
BHP’s Big Three: Profits, Cash, Growth
Thanks to BHP’s highly disciplined management team, investors have seen consistent profitability. And with $5.6 billion in net debt, that’s significantly less than many fellow mining companies.
In addition, with BHP sitting on almost $11 billion in cash, rumors are swirling that it’s chasing acquisitions, especially in oil and potash.
However, it has no need to rush out and buy anything right away. Thanks in part to a recent $116 billion deal with Rio Tinto plc (RTP: 193.77 +3.20 +1.68%) to merge the Pilbara iron ore operations in Western Australia, BHP is already well positioned with what it has.
Including the $5.8 billion it plans to sink into the Pilbara venture, BHP has a total of $17 billion already set aside for pre-existing projects over the next 12 months, highlighting the fact that it can grow simply by developing its own rich global asset portfolio.
BHP is Perfectly Poised in Emerging Markets
Like many other companies, BHP knows the strategic importance of establishing a strong base in emerging markets.
And deals like the one with Rio Tinto build strong, long-term shareholder value and help BHP fulfill its long-term mandate of capitalizing on booming emerging market demand.
The rise in consumer purchasing power in China, India, Brazil and other emerging economies will lead to a sharp spike in electricity consumption, as wealthier consumers buy televisions, refrigerators, washing machines and other consumer electronic items.
BHP sees energy demand alone growing at an annual 8% pace in China and 7% in India… and it has positioned itself perfectly to capitalize on those trends.
Coal: This still accounts for about 40% of global energy production, which suits BHP just fine, since it’s one of the largest producers of thermal coal in the world. Even better, the company produces copious amounts of coking coal, a commodity the steel industry depends on and one that emerging economies need vast quantities of.
Nuclear: Both China and India have plans to build numerous nuclear power plants over the coming decades. And BHP is already poised to take advantage through its Olympic Dam project in Australia, the world’s largest uranium deposit.
With a strong grasp on not only the commodities market, but also the countries most likely to need them, BHP is a must-have for any investor interested in taking advantage of the commodities markets and fast-growing global economies.
Some companies just stand out - both in their own sectors and in the larger market.
Australian firm BHP Billiton (BHP: 68.15 +0.32 +0.47%) is one of them.
As the largest and most diversified commodities producer in the world, BHP has leading positions in most key, low-cost, metal and mineral deposits in the world.
And as if that weren’t enough, it also has a solid position in oil, thanks to its petroleum division, which had operating profits of $4 billion last year.
Impressively, that total only made the petroleum division BHP’s third-best performer in 2008. Its iron ore segment scooped up $6.23 billion, while base metals enjoyed a $4.62 billion operating profit.
Crucially, that sets BHP’s oil division apart from its competitors. Not only does it bring in extra revenue, it’s also not overly reliant on the commodity fuel its operations.
So what does this mean for investors?
BHP’s Big Three: Profits, Cash, Growth
Thanks to BHP’s highly disciplined management team, investors have seen consistent profitability. And with $5.6 billion in net debt, that’s significantly less than many fellow mining companies.
In addition, with BHP sitting on almost $11 billion in cash, rumors are swirling that it’s chasing acquisitions, especially in oil and potash.
However, it has no need to rush out and buy anything right away. Thanks in part to a recent $116 billion deal with Rio Tinto plc (RTP: 193.77 +3.20 +1.68%) to merge the Pilbara iron ore operations in Western Australia, BHP is already well positioned with what it has.
Including the $5.8 billion it plans to sink into the Pilbara venture, BHP has a total of $17 billion already set aside for pre-existing projects over the next 12 months, highlighting the fact that it can grow simply by developing its own rich global asset portfolio.
BHP is Perfectly Poised in Emerging Markets
Like many other companies, BHP knows the strategic importance of establishing a strong base in emerging markets.
And deals like the one with Rio Tinto build strong, long-term shareholder value and help BHP fulfill its long-term mandate of capitalizing on booming emerging market demand.
The rise in consumer purchasing power in China, India, Brazil and other emerging economies will lead to a sharp spike in electricity consumption, as wealthier consumers buy televisions, refrigerators, washing machines and other consumer electronic items.
BHP sees energy demand alone growing at an annual 8% pace in China and 7% in India… and it has positioned itself perfectly to capitalize on those trends.
Coal: This still accounts for about 40% of global energy production, which suits BHP just fine, since it’s one of the largest producers of thermal coal in the world. Even better, the company produces copious amounts of coking coal, a commodity the steel industry depends on and one that emerging economies need vast quantities of.
Nuclear: Both China and India have plans to build numerous nuclear power plants over the coming decades. And BHP is already poised to take advantage through its Olympic Dam project in Australia, the world’s largest uranium deposit.
With a strong grasp on not only the commodities market, but also the countries most likely to need them, BHP is a must-have for any investor interested in taking advantage of the commodities markets and fast-growing global economies.
Sunday, November 1, 2009
Be Prepared for the Worst
Ron Paul, 10.29.09, 09:20 AM EDT Forbes Magazine dated November 16, 2009
The large-scale government intervention in the economy is going to end badly.
Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
Ron Paul is a Republican congressman from Texas.
The large-scale government intervention in the economy is going to end badly.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
Ron Paul is a Republican congressman from Texas.
Friday, October 23, 2009
BDIY:IND BALTIC DRY INDEX
DryShips website
Primarily Dry Bulk Shipping Stocks
DRYS, EXM, TBSI, EGLE, PRGN, OCNF, NMM, DSX, GNK, NM, DHT, SBLK, FREE, SB
Hybrid Shippers (Shipping Oil and other fuels as well as Dry Bulk)
DHT, FRO
Primarily Dry Bulk Shipping Stocks
DRYS, EXM, TBSI, EGLE, PRGN, OCNF, NMM, DSX, GNK, NM, DHT, SBLK, FREE, SB
Hybrid Shippers (Shipping Oil and other fuels as well as Dry Bulk)
DHT, FRO
Thursday, October 22, 2009
7 Reasons Gold Will Surpass $2,500 - And Inflation Isn’t One of Them
By Money Morning on October 21, 2009
We’ve all heard that inflation drives up gold prices. When inflation is on the rise, investors buy more gold to hedge their portfolios.
And, with all the government bailouts and stimulus packages, it’s hard to deny that inflation is coming. After all, the money supply has more than doubled since October.
Yet few people realize that inflation may be the least of the reasons why gold prices will push higher.
Since bottoming out in 2001, gold prices have risen by nearly 300% and have twice targeted the $1000 mark. And that’s happened in a relatively “inflation-free zone.”
There are other forces at work here. This report will show you exactly why inflation is only a small part of the gold story. And, we’ll identify the best ways to profit from the coming gold rush.
Gold Trend #1: Gold Mine Production is Decreasing.
Annual worldwide mine production of gold has decreased by 9.3% since 2001. Considering gold prices have nearly quadrupled since then, why isn’t more gold being produced? The answer is simple. Resources are being depleted and their quality is diminishing. And, when a discovery is made, it takes about 7-10 years to get a mine permitted and into production - making it difficult to quickly ramp up gold production.
Gold Trend #2: Gold is Getting Harder to Find.
Fewer and fewer large gold discoveries are being made every year. And the discoveries that are being made tend to be in more remote and less geopolitically attractive areas. Considering that the risks to opening any gold mine are considerable, mining companies just aren’t interested in mining in areas that have significant political and geographical drawbacks. As a result, miners are having difficulty replacing depleted resources.
Gold Trend #3: Investment Demand for Gold.
Large institutional investors, such as hedge and pension funds, are making large allocations to gold and gold shares. Individual investors are also getting in on the action, with gold exchange-traded funds (ETFs) gaining influence. SPDR Gold Trust (GLD: 103.745 0.00 0.00%), the largest physically backed ETF on the planet, is now the 6th biggest holder of gold bullion with more than 1000 tons. That is helping to facilitate and spread the ownership of gold by individuals. In fact, in the first half of 2009 investment demand for gold is up 150% over the first half of 2008, according to the World Gold Council.
Gold Trend #5: Push for Gold-backed Currencies.
As investors the world over lose faith in their government’s ability to contain the financial and economic crises, many are calling for gold backed currencies - much like the U.S. dollar was until the early 1970’s. Even Zimbabwe, which a year ago had hyperinflation running at 231 million percent annually, is now considering reintroducing its Zimbabwe dollar, but this time fully backed by assets, including gold. In order for this to happen, countries would have to purchase enough gold to back all their currency - putting extreme pressure on the gold supply.
Gold Trend #6: Asian Demand for Gold is Exploding.
Asia, with its more than two and a half billion people, has a major impact on investment demand. Asians have a long-standing cultural affinity for gold as a store of wealth. India is the world’s largest gold consumer. For the last 50 years, until 2009, the Chinese government has forbidden its citizens from owning gold. But now China is encouraging its citizens to buy silver - which automatically draws more attention to gold. Today, Chinese investors even have access to gold-linked checking accounts. As a result, demand for gold in mainland China is expected to triple in the next few years.
Gold Trend #7: Gold is in a Secular Bull Market.
Gold’s price has increased every single year since 2001. This is a clear signal that we are currently in the middle of a secular bull market for gold. A secular bull market typically last about 17 years and ends with a mania stage where investors throw the concept of supply and demand out the window and frantically invest in gold. We’ve seen this same pattern repeat itself over the last hundred years of investment history and we’re about to see a major run up in gold prices. The gold market is very small in relation to the currency, bond or stock markets, so when investors start to pile in, look out. Prices will go through the roof - making the tech and housing bubbles seem small in comparison.
How to Play the Gold Rally
There are a few ways to play the rise in gold prices. You can buy investments backed by gold or you can invest in gold miners themselves.
To play gold prices directly, invest in the SPDR Gold Trust (GLD: 103.745 0.00 0.00%) Each unit of this ETF represents 1/10th of an ounce of gold. It’s highly liquid, and provides you with the quickest and easiest way to get exposure to gold. It’s also the lowest risk option, without the storage costs associated with buying physical bullion.
Next up on the risk scale is the Market Vectors Gold Miners ETF (GDX: 47.39 0.00 0.00%). This investment vehicle tracks the world’s major gold and silver producers. While more volatile than GLD, the leverage offered based on the gold price and profitability makes this an attractive option. And you have the added benefit of owning some 30 precious metals producers all wrapped into one simple investment.
Barrick Gold Corporation (ABX: 38.10 0.00 0.00%) is the world’s largest gold miner. With lots of liquidity, it draws considerable interest, in particular from big money institutional investors. Keep in mind, ABX carries more risk than the two previous options, as you have exposure to a single company. But this gold mining behemoth is sure to pay off big as gold rises and eventually soars.
We’ve all heard that inflation drives up gold prices. When inflation is on the rise, investors buy more gold to hedge their portfolios.
And, with all the government bailouts and stimulus packages, it’s hard to deny that inflation is coming. After all, the money supply has more than doubled since October.
Yet few people realize that inflation may be the least of the reasons why gold prices will push higher.
Since bottoming out in 2001, gold prices have risen by nearly 300% and have twice targeted the $1000 mark. And that’s happened in a relatively “inflation-free zone.”
There are other forces at work here. This report will show you exactly why inflation is only a small part of the gold story. And, we’ll identify the best ways to profit from the coming gold rush.
Gold Trend #1: Gold Mine Production is Decreasing.
Annual worldwide mine production of gold has decreased by 9.3% since 2001. Considering gold prices have nearly quadrupled since then, why isn’t more gold being produced? The answer is simple. Resources are being depleted and their quality is diminishing. And, when a discovery is made, it takes about 7-10 years to get a mine permitted and into production - making it difficult to quickly ramp up gold production.
Fewer and fewer large gold discoveries are being made every year. And the discoveries that are being made tend to be in more remote and less geopolitically attractive areas. Considering that the risks to opening any gold mine are considerable, mining companies just aren’t interested in mining in areas that have significant political and geographical drawbacks. As a result, miners are having difficulty replacing depleted resources.
Gold Trend #3: Investment Demand for Gold.
Large institutional investors, such as hedge and pension funds, are making large allocations to gold and gold shares. Individual investors are also getting in on the action, with gold exchange-traded funds (ETFs) gaining influence. SPDR Gold Trust (GLD: 103.745 0.00 0.00%), the largest physically backed ETF on the planet, is now the 6th biggest holder of gold bullion with more than 1000 tons. That is helping to facilitate and spread the ownership of gold by individuals. In fact, in the first half of 2009 investment demand for gold is up 150% over the first half of 2008, according to the World Gold Council.
Gold Trend #4: Central Banks are Buying Gold.
The Central Bank Gold Agreement, originally signed in 2001 and recently renewed for another five years, limits the amount of gold European central banks - including the International Monetary Fund - can sell to 400 tons per year. This means that even if governments want to sell off their gold reserves, they can’t - further straining the supply of gold on the market. The U.S., the world’s largest holder of gold, is holding on to their stash as well. Some governments are going even further: Venezuela’s Finance Ministry now requires 70% of gold produced in the country to be sold domestically. At the same time, Russia, Ecuador, Mexico and the Philippines are all buying gold. And China has increased its reserves by a staggering 76%.Gold Trend #5: Push for Gold-backed Currencies.
As investors the world over lose faith in their government’s ability to contain the financial and economic crises, many are calling for gold backed currencies - much like the U.S. dollar was until the early 1970’s. Even Zimbabwe, which a year ago had hyperinflation running at 231 million percent annually, is now considering reintroducing its Zimbabwe dollar, but this time fully backed by assets, including gold. In order for this to happen, countries would have to purchase enough gold to back all their currency - putting extreme pressure on the gold supply.
Gold Trend #6: Asian Demand for Gold is Exploding.
Asia, with its more than two and a half billion people, has a major impact on investment demand. Asians have a long-standing cultural affinity for gold as a store of wealth. India is the world’s largest gold consumer. For the last 50 years, until 2009, the Chinese government has forbidden its citizens from owning gold. But now China is encouraging its citizens to buy silver - which automatically draws more attention to gold. Today, Chinese investors even have access to gold-linked checking accounts. As a result, demand for gold in mainland China is expected to triple in the next few years.
Gold Trend #7: Gold is in a Secular Bull Market.
Gold’s price has increased every single year since 2001. This is a clear signal that we are currently in the middle of a secular bull market for gold. A secular bull market typically last about 17 years and ends with a mania stage where investors throw the concept of supply and demand out the window and frantically invest in gold. We’ve seen this same pattern repeat itself over the last hundred years of investment history and we’re about to see a major run up in gold prices. The gold market is very small in relation to the currency, bond or stock markets, so when investors start to pile in, look out. Prices will go through the roof - making the tech and housing bubbles seem small in comparison.
There are a few ways to play the rise in gold prices. You can buy investments backed by gold or you can invest in gold miners themselves.
To play gold prices directly, invest in the SPDR Gold Trust (GLD: 103.745 0.00 0.00%) Each unit of this ETF represents 1/10th of an ounce of gold. It’s highly liquid, and provides you with the quickest and easiest way to get exposure to gold. It’s also the lowest risk option, without the storage costs associated with buying physical bullion.
Next up on the risk scale is the Market Vectors Gold Miners ETF (GDX: 47.39 0.00 0.00%). This investment vehicle tracks the world’s major gold and silver producers. While more volatile than GLD, the leverage offered based on the gold price and profitability makes this an attractive option. And you have the added benefit of owning some 30 precious metals producers all wrapped into one simple investment.
Barrick Gold Corporation (ABX: 38.10 0.00 0.00%) is the world’s largest gold miner. With lots of liquidity, it draws considerable interest, in particular from big money institutional investors. Keep in mind, ABX carries more risk than the two previous options, as you have exposure to a single company. But this gold mining behemoth is sure to pay off big as gold rises and eventually soars.
Saturday, October 17, 2009
The Crisis of Credit Visualized
This person is able to explain a complex finance CRISIS into simpler
context.... Genius! He is jonathan jarvis.com and currently designing for Google's Creative Lab.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
context.... Genius! He is jonathan jarvis.com and currently designing for Google's Creative Lab.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Monday, October 5, 2009
The Truth About Jobs That No One Wants To Tell You
By Robert Reich on October 2, 2009 By Robert Reich
Unemployment will almost be certainly in double-digits next year - and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before (I’m in the last category, now that the University of California has instituted pay cuts). And there’s yet another person who’s more fearful that he or she will be next to lose a job.
In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment).
Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues weilding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It’s already started. Next year is a mid-term election. Be prepared for worse.
So why is unemployment and underemployment so high, and why is it likely to remain high for some time? Because, as noted, people who are worried about their jobs or have no jobs, and who are also trying to get out from under a pile of debt, are not going do a lot of shopping. And businesses that don’t have customers aren’t going do a lot of new investing. And foreign nations also suffering high unemployment aren’t going to buy a lot of our goods and services.
And without customers, companies won’t hire. They’ll cut payrolls instead.
Which brings us to the obvious question: Who’s going to buy the stuff we make or the services we provide, and therefore bring jobs back? There’s only one buyer left: The government.
Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.
Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.
When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn’t even know what a debt was, but it kept me up at night.
My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.
You see? The most important thing right now is getting the jobs back, and getting the economy growing again.
People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then - after people are working and the economy is growing - we can pay down that debt.
But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.
Unemployment will almost be certainly in double-digits next year - and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before (I’m in the last category, now that the University of California has instituted pay cuts). And there’s yet another person who’s more fearful that he or she will be next to lose a job.
In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment).
Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues weilding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It’s already started. Next year is a mid-term election. Be prepared for worse.
So why is unemployment and underemployment so high, and why is it likely to remain high for some time? Because, as noted, people who are worried about their jobs or have no jobs, and who are also trying to get out from under a pile of debt, are not going do a lot of shopping. And businesses that don’t have customers aren’t going do a lot of new investing. And foreign nations also suffering high unemployment aren’t going to buy a lot of our goods and services.
And without customers, companies won’t hire. They’ll cut payrolls instead.
Which brings us to the obvious question: Who’s going to buy the stuff we make or the services we provide, and therefore bring jobs back? There’s only one buyer left: The government.
Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.
Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.
When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn’t even know what a debt was, but it kept me up at night.
My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.
You see? The most important thing right now is getting the jobs back, and getting the economy growing again.
People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then - after people are working and the economy is growing - we can pay down that debt.
But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.
Sunday, September 27, 2009
Fed’s Strategy Reduces U.S. Bailout to $11.6 Trillion
Fed’s Strategy Reduces U.S. Bailout to $11.6 Trillion (Update2)
By Mark Pittman and Bob Ivry
Sept. 25 (Bloomberg) -- The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.
The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.
The central bank has purchased $694 billion of mortgage- backed securities since January and plans to spend $556 billion more by April 2010 to keep interest rates down. The debt-buying is the biggest program in the Fed’s arsenal.
“The first thing the Fed had to do was stop the bleeding in the banking system,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “Now that that seems to have been accomplished, they’re focusing on the economy by buying mortgage-backed securities.”
The purchases were scheduled to stop at the end of December. The Federal Open Market Committee decided on Sept. 23 to continue the program through the first quarter of next year and slow the pace of buying to “promote a smooth transition in markets,” the committee said in a statement. It also said the economy has “picked up.”
9.4 Percent Decline
The debt-buying pushed the average 30-year mortgage interest rate this week to 5.04 percent, its lowest since May, according to McLean, Virginia-based Freddie Mac. The debt is guaranteed by Freddie Mac and the other government-sponsored home-loan financiers, Fannie Mae and Ginnie Mae, both based in Washington.
The U.S. has lent, spent or guaranteed $11.6 trillion to bolster banks and fight the longest recession in 70 years, according to data compiled by Bloomberg.
That’s a 9.4 percent decline since March 31, when Bloomberg last calculated the total at $12.8 trillion.
The tally “ignores the fact that virtually all commitments are backed by assets,” Andrew S. Williams, a Treasury Department spokesman who had the same role at the Federal Reserve Bank of New York until earlier this year, said in an e- mail. “The Federal Reserve’s current ‘outlays’ are largely in the form of secured loans. The aggregate value of the collateral backing those loans exceeds the loan value. These are not ‘outlays.’”
Refused to Identify
Spokesmen Calvin A. Mitchell of the New York Fed and David Skidmore of the Fed in Washington declined to comment.
The Fed has refused to identify the collateral backing its loans. Bloomberg News parent Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued the central bank in November to force it to provide the information. U.S. District Judge Loretta A. Preska gave the Fed until Sept. 30 to appeal her decision requiring more disclosure about the financial institutions that have benefited.
The Standard & Poor’s 500 Financials Index has risen 140 percent since its low on March 6, including a 174 percent increase in share price for JPMorgan Chase & Co. to $43.65 and a 137 percent jump for Goldman Sachs Group Inc. to $179.50.
Among the U.S. programs that have expired is the Treasury guarantee of money market mutual fund deposits, instituted a year ago to stem an investor run the week after Lehman Brothers Holdings Inc.’s collapse. The department said it collected $1.2 billion in fees from funds before the effort concluded on Sept. 18 and never paid out a claim.
Gas Guzzlers
The $3 billion “cash for clunkers,” which gave people rebates for trading in gas-guzzling vehicles, ended in August after 700,000 vehicles were sold, according to the U.S. Department of Transportation.
The Fed’s Money Market Investor Funding Facility, or MMIFF, is slated to be closed on Oct. 30, and four other Fed programs with a total limit of $2.5 trillion are scheduled to expire in February. Others have been cut back.
The central bank said Sept. 24 it will reduce the Term Securities Lending Facility to $50 billion from $75 billion and the Term Auction Facility, once $900 billion, will shrink to $50 billion. Support for commercial paper, short-term loans that corporations and banks use to pay everyday expenses, has fallen to $1.2 trillion as the market fell from a one-year peak of $1.8 trillion in January.
64 Percent Higher
Banks have repaid about $70.6 billion of the $204.6 billion in direct aid extended through the Capital Purchase Program of the Troubled Asset Relief Program, or TARP. Congress created the $700 billion fund last October.
The $70.6 billion includes $25 billion from New York-based JPMorgan Chase, one of the biggest recipients, and $28 million from Novato, California-based Bank of Marin Bancorp, one of the smallest, according to the Treasury and regulatory filings.
“Because financial conditions have started to improve, Treasury has already begun the process of exiting from some emergency programs,” the TARP administrator, Herb Allison, told the Senate Banking Committee Sept. 24. “It will, however, be some time before all CPP participants have fully extinguished their obligations to the taxpayers.”
The Federal Deposit Insurance Corp. said its Temporary Liquidity Guarantee Program has generated more than $9 billion in fees.
The combined commitments of the Fed and government agencies are 57 percent higher than on Nov. 24, when Bloomberg’s first tally was $7.4 trillion.
“We’re not self-sustaining yet,” William O’Donnell, head of Treasury strategy for RBS Securities Inc. in Stamford, Connecticut, said in an interview.
===========================================================
--- Amounts (Billions)--- Limit Current
===========================================================
Total $11,563.65 $3,025.27
-----------------------------------------------------------
Federal ReserveTotal $5,870.65 $1,590.11
Primary Credit Discount $110.74 $28.51
Secondary Credit $1.00 $0.58
Primary dealer and others $147.00 $0.00
ABCP Liquidity $145.89 $0.08
AIG Credit $60.00 $38.81
Commercial Paper program $1,200.00 $42.44
Maiden Lane (Bear Stearns assets) $29.50 $26.19
Maiden Lane II (AIG assets) $22.50 $14.66
Maiden Lane III (AIG assets) $30.00 $20.55
Term Securities Lending $75.00 $0.00
Term Auction Facility $375.00 $196.02
Securities lending overnight $10.42 $9.25
Term Asset-Backed Loans (TALF) $1,000.00 $41.88
Currency Swaps/Other Assets $606.00 $59.12
GSE Debt Purchases $200.00 $129.21
GSE Mortgage-Backed Securities $1,250.00 $693.60
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of America Bailout $87.20 $0.00
Commitment to Buy Treasuries $300.00 $289.22
---------------------------------------------------------------
Treasury Total $2,909.50 $1,075.91
TARP $700.00 $372.43
Tax Break for Banks $29.00 $29.00
Stimulus Package (Bush) $168.00 $168.00
Stimulus II (Obama) $787.00 $303.60
Treasury Exchange Stabilization $50.00 $0.00
Student Loan Purchases $60.00 $0.00
Citigroup Bailout Treasury $5.00 $0.00
Bank of America Bailout Treasury $7.50 $0.00
Support for Fannie/Freddie $400.00 $200.00
Line of Credit for FDIC $500.00 $0.00
Treasury Commitment to TALF $100.00 $0.00
Treasury Commitment to PPIP $100.00 $0.00
Cash for Clunkers $3.00 $2.88
------------------------------------------------------------
FDIC Total $2,477.50 $356.00
Public-Private Investment (PPIP) $1,000.00 $0.00
Temporary Liquidity Guarantees* $1,400.00 $301.00
Guaranteeing GE Debt $65.00 $55.00
Citigroup Bailout, FDIC Share $10.00 $0.00
Bank of America Bailout, FDIC Share $2.50 $0.00
------------------------------------------------------------
HUD Total $306.00 $3.25
Hope for Homeowners (FHA) $300.00 $3.20
Neighborhood Stabilization (FHA) $6.00 $0.05
------------------------------------------------------------
* The program has generated $9.3 billion in income, according to the agency.
Glossary:
ABCP -- Asset-backed commercial paper AIG -- American International Group Inc.
FDIC -- Federal Deposit Insurance Corp.
FHA -- Federal Housing Administration, a division of HUD
GE -- General Electric Co.
GSE -- Government-sponsored enterprises (Fannie Mae, Freddie Mac and Ginnie Mae)
HUD -- U.S. Department of Housing and Urban Development
TARP -- Troubled Asset Relief Program
Breakout of TARP funds:
==========================================================
--- Amounts (Billions)---
Outlay Returned
==========================================================
Total $447.76 $75.33
----------------------------------------------------------
Capital Purchase Program $204.55 $70.56
General Motors, Chrysler $79.97 $2.14
American International Group $69.84 $0.00
Making Home Affordable Program $23.40 $1.13
Targeted Investment Bank of America $20.00 $0.00
Targeted Investment Citigroup $20.00 $0.00
Term Asset-Backed Loan (TALF) $20.00 $0.00
Citigroup Bailout $5.00 $0.00
Auto Suppliers $5.00 $1.50
To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net.
Last Updated: September 25, 2009 16:39 EDT
By Mark Pittman and Bob Ivry
Sept. 25 (Bloomberg) -- The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.
The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.
The central bank has purchased $694 billion of mortgage- backed securities since January and plans to spend $556 billion more by April 2010 to keep interest rates down. The debt-buying is the biggest program in the Fed’s arsenal.
“The first thing the Fed had to do was stop the bleeding in the banking system,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “Now that that seems to have been accomplished, they’re focusing on the economy by buying mortgage-backed securities.”
The purchases were scheduled to stop at the end of December. The Federal Open Market Committee decided on Sept. 23 to continue the program through the first quarter of next year and slow the pace of buying to “promote a smooth transition in markets,” the committee said in a statement. It also said the economy has “picked up.”
9.4 Percent Decline
The debt-buying pushed the average 30-year mortgage interest rate this week to 5.04 percent, its lowest since May, according to McLean, Virginia-based Freddie Mac. The debt is guaranteed by Freddie Mac and the other government-sponsored home-loan financiers, Fannie Mae and Ginnie Mae, both based in Washington.
The U.S. has lent, spent or guaranteed $11.6 trillion to bolster banks and fight the longest recession in 70 years, according to data compiled by Bloomberg.
That’s a 9.4 percent decline since March 31, when Bloomberg last calculated the total at $12.8 trillion.
The tally “ignores the fact that virtually all commitments are backed by assets,” Andrew S. Williams, a Treasury Department spokesman who had the same role at the Federal Reserve Bank of New York until earlier this year, said in an e- mail. “The Federal Reserve’s current ‘outlays’ are largely in the form of secured loans. The aggregate value of the collateral backing those loans exceeds the loan value. These are not ‘outlays.’”
Refused to Identify
Spokesmen Calvin A. Mitchell of the New York Fed and David Skidmore of the Fed in Washington declined to comment.
The Fed has refused to identify the collateral backing its loans. Bloomberg News parent Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued the central bank in November to force it to provide the information. U.S. District Judge Loretta A. Preska gave the Fed until Sept. 30 to appeal her decision requiring more disclosure about the financial institutions that have benefited.
The Standard & Poor’s 500 Financials Index has risen 140 percent since its low on March 6, including a 174 percent increase in share price for JPMorgan Chase & Co. to $43.65 and a 137 percent jump for Goldman Sachs Group Inc. to $179.50.
Among the U.S. programs that have expired is the Treasury guarantee of money market mutual fund deposits, instituted a year ago to stem an investor run the week after Lehman Brothers Holdings Inc.’s collapse. The department said it collected $1.2 billion in fees from funds before the effort concluded on Sept. 18 and never paid out a claim.
Gas Guzzlers
The $3 billion “cash for clunkers,” which gave people rebates for trading in gas-guzzling vehicles, ended in August after 700,000 vehicles were sold, according to the U.S. Department of Transportation.
The Fed’s Money Market Investor Funding Facility, or MMIFF, is slated to be closed on Oct. 30, and four other Fed programs with a total limit of $2.5 trillion are scheduled to expire in February. Others have been cut back.
The central bank said Sept. 24 it will reduce the Term Securities Lending Facility to $50 billion from $75 billion and the Term Auction Facility, once $900 billion, will shrink to $50 billion. Support for commercial paper, short-term loans that corporations and banks use to pay everyday expenses, has fallen to $1.2 trillion as the market fell from a one-year peak of $1.8 trillion in January.
64 Percent Higher
Banks have repaid about $70.6 billion of the $204.6 billion in direct aid extended through the Capital Purchase Program of the Troubled Asset Relief Program, or TARP. Congress created the $700 billion fund last October.
The $70.6 billion includes $25 billion from New York-based JPMorgan Chase, one of the biggest recipients, and $28 million from Novato, California-based Bank of Marin Bancorp, one of the smallest, according to the Treasury and regulatory filings.
“Because financial conditions have started to improve, Treasury has already begun the process of exiting from some emergency programs,” the TARP administrator, Herb Allison, told the Senate Banking Committee Sept. 24. “It will, however, be some time before all CPP participants have fully extinguished their obligations to the taxpayers.”
The Federal Deposit Insurance Corp. said its Temporary Liquidity Guarantee Program has generated more than $9 billion in fees.
The combined commitments of the Fed and government agencies are 57 percent higher than on Nov. 24, when Bloomberg’s first tally was $7.4 trillion.
“We’re not self-sustaining yet,” William O’Donnell, head of Treasury strategy for RBS Securities Inc. in Stamford, Connecticut, said in an interview.
===========================================================
--- Amounts (Billions)--- Limit Current
===========================================================
Total $11,563.65 $3,025.27
-----------------------------------------------------------
Federal ReserveTotal $5,870.65 $1,590.11
Primary Credit Discount $110.74 $28.51
Secondary Credit $1.00 $0.58
Primary dealer and others $147.00 $0.00
ABCP Liquidity $145.89 $0.08
AIG Credit $60.00 $38.81
Commercial Paper program $1,200.00 $42.44
Maiden Lane (Bear Stearns assets) $29.50 $26.19
Maiden Lane II (AIG assets) $22.50 $14.66
Maiden Lane III (AIG assets) $30.00 $20.55
Term Securities Lending $75.00 $0.00
Term Auction Facility $375.00 $196.02
Securities lending overnight $10.42 $9.25
Term Asset-Backed Loans (TALF) $1,000.00 $41.88
Currency Swaps/Other Assets $606.00 $59.12
GSE Debt Purchases $200.00 $129.21
GSE Mortgage-Backed Securities $1,250.00 $693.60
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of America Bailout $87.20 $0.00
Commitment to Buy Treasuries $300.00 $289.22
---------------------------------------------------------------
Treasury Total $2,909.50 $1,075.91
TARP $700.00 $372.43
Tax Break for Banks $29.00 $29.00
Stimulus Package (Bush) $168.00 $168.00
Stimulus II (Obama) $787.00 $303.60
Treasury Exchange Stabilization $50.00 $0.00
Student Loan Purchases $60.00 $0.00
Citigroup Bailout Treasury $5.00 $0.00
Bank of America Bailout Treasury $7.50 $0.00
Support for Fannie/Freddie $400.00 $200.00
Line of Credit for FDIC $500.00 $0.00
Treasury Commitment to TALF $100.00 $0.00
Treasury Commitment to PPIP $100.00 $0.00
Cash for Clunkers $3.00 $2.88
------------------------------------------------------------
FDIC Total $2,477.50 $356.00
Public-Private Investment (PPIP) $1,000.00 $0.00
Temporary Liquidity Guarantees* $1,400.00 $301.00
Guaranteeing GE Debt $65.00 $55.00
Citigroup Bailout, FDIC Share $10.00 $0.00
Bank of America Bailout, FDIC Share $2.50 $0.00
------------------------------------------------------------
HUD Total $306.00 $3.25
Hope for Homeowners (FHA) $300.00 $3.20
Neighborhood Stabilization (FHA) $6.00 $0.05
------------------------------------------------------------
* The program has generated $9.3 billion in income, according to the agency.
Glossary:
ABCP -- Asset-backed commercial paper AIG -- American International Group Inc.
FDIC -- Federal Deposit Insurance Corp.
FHA -- Federal Housing Administration, a division of HUD
GE -- General Electric Co.
GSE -- Government-sponsored enterprises (Fannie Mae, Freddie Mac and Ginnie Mae)
HUD -- U.S. Department of Housing and Urban Development
TARP -- Troubled Asset Relief Program
Breakout of TARP funds:
==========================================================
--- Amounts (Billions)---
Outlay Returned
==========================================================
Total $447.76 $75.33
----------------------------------------------------------
Capital Purchase Program $204.55 $70.56
General Motors, Chrysler $79.97 $2.14
American International Group $69.84 $0.00
Making Home Affordable Program $23.40 $1.13
Targeted Investment Bank of America $20.00 $0.00
Targeted Investment Citigroup $20.00 $0.00
Term Asset-Backed Loan (TALF) $20.00 $0.00
Citigroup Bailout $5.00 $0.00
Auto Suppliers $5.00 $1.50
To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net.
Last Updated: September 25, 2009 16:39 EDT
FDIC Is Broke, Taxpayers at Risk, Bair Muses
FDIC Is Broke, Taxpayers at Risk, Bair Muses: Jonathan Weil
Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.
Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.
“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.
Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.
Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.
Flipping Out
Bair’s comments last week reminded me of a year-old article by Bloomberg News reporter David Evans, who wrote that the FDIC soon could run out of money and might need a taxpayer bailout by the Treasury Department. Most revealing was the FDIC’s reaction. It flipped out.
The day the story ran, the agency released an open letter to Bloomberg from a spokesman, Andrew Gray. He said the piece “does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.”
Gray said “the insurance fund is in a strong financial position to weather a significant upsurge in bank failures” and that he did not foresee “that taxpayers may have to foot the bill for a ‘bailout.’” He said the fund “is 100 percent industry backed,” and “our ability to raise premiums essentially means that the capital of the entire banking industry -- that’s $1.3 trillion -- is available for support.”
Tapping Capital
If needed, he said, the FDIC could borrow from the Treasury, noting that the funds by law would have to “be paid back from industry assessments.” He stressed the FDIC had done this only once. It happened in the early 1990s, and the money was repaid with interest in less than two years.
Gray told me this week that he stands by his earlier remarks. His notion that the FDIC could tap the capital of the entire banking industry still baffles me. While hypothetically this might be true, I doubt all $1.3 trillion would be available in any practical sense.
The FDIC said its insurance fund’s assets exceeded liabilities by $10.4 billion, a mere 0.22 percent of insured deposits, as of June 30. The liabilities included $32 billion of reserves the FDIC had set aside to cover bank failures that it believed were likely to occur during the next 12 months.
As recently as March 31, 2008, the FDIC had earmarked just $583 million of reserves for future failures. This was after the rest of the financial world already knew we were in a crisis. By the end of 2008, it had boosted these reserves to $24 billion.
Projected Losses
The balance-sheet reserves don’t capture all the insurance fund’s anticipated losses. In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well- capitalized just before their failure. After the law changed, the FDIC still didn’t charge enough premiums.
So far this year, 94 banks have been shut, the fastest pace in almost two decades. Hundreds of others are in trouble. The FDIC said 416 banks were on its “problem” list, a 15-year high, as of June 30. That was up from 305 three months earlier.
Regardless of the law’s requirements, if the FDIC starts tapping its credit line at the Treasury, there can be no assurance it would be able to pay back all the money through future assessments on banks. That’s why it should be reluctant to borrow from taxpayers now, even though the banking industry whines that it can’t afford any short-term cost increases.
At the rate it’s going, though, the FDIC may not have a choice much longer. Perhaps Bair and the FDIC someday might see fit to deliver a full account of how the agency managed to mess itself up this badly. The country deserves an explanation.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: September 23, 2009 21:00 EDT
Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.
Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.
“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.
Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.
Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.
Flipping Out
Bair’s comments last week reminded me of a year-old article by Bloomberg News reporter David Evans, who wrote that the FDIC soon could run out of money and might need a taxpayer bailout by the Treasury Department. Most revealing was the FDIC’s reaction. It flipped out.
The day the story ran, the agency released an open letter to Bloomberg from a spokesman, Andrew Gray. He said the piece “does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.”
Gray said “the insurance fund is in a strong financial position to weather a significant upsurge in bank failures” and that he did not foresee “that taxpayers may have to foot the bill for a ‘bailout.’” He said the fund “is 100 percent industry backed,” and “our ability to raise premiums essentially means that the capital of the entire banking industry -- that’s $1.3 trillion -- is available for support.”
Tapping Capital
If needed, he said, the FDIC could borrow from the Treasury, noting that the funds by law would have to “be paid back from industry assessments.” He stressed the FDIC had done this only once. It happened in the early 1990s, and the money was repaid with interest in less than two years.
Gray told me this week that he stands by his earlier remarks. His notion that the FDIC could tap the capital of the entire banking industry still baffles me. While hypothetically this might be true, I doubt all $1.3 trillion would be available in any practical sense.
The FDIC said its insurance fund’s assets exceeded liabilities by $10.4 billion, a mere 0.22 percent of insured deposits, as of June 30. The liabilities included $32 billion of reserves the FDIC had set aside to cover bank failures that it believed were likely to occur during the next 12 months.
As recently as March 31, 2008, the FDIC had earmarked just $583 million of reserves for future failures. This was after the rest of the financial world already knew we were in a crisis. By the end of 2008, it had boosted these reserves to $24 billion.
Projected Losses
The balance-sheet reserves don’t capture all the insurance fund’s anticipated losses. In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well- capitalized just before their failure. After the law changed, the FDIC still didn’t charge enough premiums.
So far this year, 94 banks have been shut, the fastest pace in almost two decades. Hundreds of others are in trouble. The FDIC said 416 banks were on its “problem” list, a 15-year high, as of June 30. That was up from 305 three months earlier.
Regardless of the law’s requirements, if the FDIC starts tapping its credit line at the Treasury, there can be no assurance it would be able to pay back all the money through future assessments on banks. That’s why it should be reluctant to borrow from taxpayers now, even though the banking industry whines that it can’t afford any short-term cost increases.
At the rate it’s going, though, the FDIC may not have a choice much longer. Perhaps Bair and the FDIC someday might see fit to deliver a full account of how the agency managed to mess itself up this badly. The country deserves an explanation.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: September 23, 2009 21:00 EDT
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