China Holds Sway Over US Dollar

China continues to talk negatively about the role of the US dollar as the world's reserve currency. They announced today that they will settle all trade with Yuan instead of dollars. Russia, Brazil and India are also starting to trade using non-dollar local currencies. The demise of the dollar is gaining steam and the Fed's quatatative easing (money printing) and the Obama Administration's $1.5 trillion dollar budget deficits assure it.-Lou

Beijing Formalizes Call for New Reserve Currency

BEIJING -- China's central bank reiterated its call for the creation of a new international currency that could replace currencies such as the dollar in countries' official reserves.
In its annual report on financial stability, issued Friday, the People's Bank of China said the country will push reform of the international currency system to make it more diversified and reasonable. While it didn't specifically target the U.S. currency, it said it aims to reduce over-reliance on the current reserve currencies, of which the dollar is the biggest.

"To avoid the shortcomings of sovereign credit currencies acting as reserve currencies, we need to create an... international reserve currency that can maintain the long-term stability of its value," the PBOC said.

The report, a lengthy document that addressed a broad range of issues, reiterated a proposal made by PBOC governor Zhou Xiaochuan in March to use Special Drawing Rights, the synthetic currency developed by the IMF, as a super-sovereign reserve currency. That proposal, made just before the G20 summit in London earlier this year, appeared in an essay authored by Mr. Zhou and posted on the PBOC's Web site.

The call for a new global reserve currency was among a host of factors exerting pressure on the dollar Friday. The U.S. currency fell during New York trading against the U.K. pound, Australian dollar, yen, Swiss franc and euro.

The PBOC comments "fuel concern about reserve diversification undermining the U.S. currency," said analysts at Credit Suisse.

Senior Chinese officials, including Premier Wen Jiabao, have repeatedly expressed concern about the dollar, which comprises most of China's roughly $2 trillion in foreign-exchange reserves. China is concerned that the dollar's dominance exacerbates global financial imbalances. It also worries that massive U.S. government borrowing to support stimulus spending could eventually lead to inflation, hurting the value of China's holdings.

The SDR proposal's inclusion in the central bank's latest stability report appears to formalize the idea as an official view of the central bank, which ultimately reports to China's State Council.
China's central bank said in the annual report that under the proposal, the IMF should "manage part of the reserves of its members" and be reformed to increase the rights of emerging markets and developing countries.

It also urged stronger monitoring of countries that issue reserve currencies. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency.

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JPMorgan Raises Monthly Minimum Payments on Credit Cards to 5%

Nice move by JPMorgan just before restrictive rules come into effect. Just another reason to only use credit cards for emergencies.-Lou

JPMorgan Raises Monthly Minimum Payments on Credit Cards to 5%

June 30 (Bloomberg) -- JPMorgan Chase & Co., the biggest U.S. credit-card issuer, plans to raise the monthly minimum payment on balances to 5 percent less than a month before new federal curbs on rates and marketing practices take effect.

The increase from 2 percent starts in August, Chase said in a notice received by customers in June. Customers who pay less than the minimum may be charged extra fees, the bank’s Web site says. New York-based JPMorgan has about 159 million cards in circulation, a regulatory filing shows.

The increase is at least the second disclosed by JPMorgan, which told consumers this month that balance-transfer fees will rise to 5 percent. Card companies have said a law signed May 22 by President

Barack Obama to restrict interest-rate increases and penalties will push up fees, curtail credit and restrict rewards. The law was aimed at practices that advocates and a MasterCard Inc. executive called “unfair” and “deceptive.”

The new minimum affects “select accounts that have carried balances,” according to JPMorgan spokeswoman

Stephanie Jacobson. “The way customers use and maintain an account helps us determine what changes to make in order to protect our customers and our company,” Jacobson said in an e-mailed statement.

The Credit Card Accountability Responsibility and

Disclosure Act requires that consumers receive 45 days’ notice of “significant” contract changes, including rate increases, as of Aug. 20.
Chase confirmed earlier this month its balance-transfer fee on credit cards will rise in August to 5 percent from 3 percent. The bank cited “new federal regulations” in a notice to cardholders.

JPMorgan Chief Executive Officer Jamie Dimon said May 27 the card business was the “most challenged” and the new rules could cost the bank about $500 million. The unit lost $547 million in the first quarter.

Gloomy U.S. consumers clip housing recovery hopes

Consumer confidence is lower because there is no reason why it should not be, unemployment is still rising, foreclosures continue to escalate and home prices are still falling.-Lou

Consumer Confidence Falls Unexpectedly

WASHINGTON (Reuters) - U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors' spirits. Another crop of economic data showed business activity in New York City and the Midwest remained weak, while retail chains slogged through a rough June.

Billionaire investor George Soros added to the cautionary tone, saying that rising borrowing costs posed a threat to any eventual economic recovery.

"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said at a breakfast hosted by the Wall Street Journal.

Major stock market indexes fell after the Conference Board's consumer confidence index showed households felt gloomier about their current situation and less optimistic about what the coming months might bring.

Kevin Kruszenski, head of listed trading at Keybanc Capital Markets in Cleveland, said the confidence data "kind of took the wind out of things a little bit."

Investors had been in a somewhat better mood since an early March trough as economic data suggested the pace of the recession was slackening. But with no clear sign that growth is about to resume, sentiment has begun to fade in recent weeks.

The consumer confidence index fell to 49.3 in June from 5
4.8 in May. Economists polled by Reuters had expected a healthier reading of 55.0 for the month.

Standard & Poor's/Case Shiller home price indexes showed prices of single-family homes declined in April from the prior month, but the pace of the slide moderated.

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Chart Of The Day

click on chart to enlarge

This chart plainly illustrates the problem our country faces. Ouststanding debt has gone straight up and will result in collapse of the US dollar and an inlation problem that the average American connot even imagine. This chart tops out at $10 trillion but look at the debt counter to the right of this post it is now $11.4 trillion.-Lou

All Markets Manipulated By Government?

I have been telling you for months that there are no free markets anymore. The stock market is regularly goosed out of nowhere (usually when it's down late in afternoon), the bond and currency market and especially the gold and silver market trade in ways that are counterintuitive to the fundamentals and news. Listen to the trader on CNBC yesterday talking about government manipulation.-Lou

College Loan Payments Now Tied To Income

This may sound like a good thing at first blush but if you read deeper into it you will see it is more government control over the free market system. Forgiveness of loans are based on "public service" which means working for the government and this governments constituents-Lou

New Plan Ties Reduced College Loan Payments to Income

For the first time in years, there is good news for college students who borrow to pay for their education.

Starting Wednesday, the federal Education Department will begin offering a repayment plan that lets graduates reduce their loan payments, based on their income.

“We know today’s borrowers are concerned about their ability to repay student loans in the current economic environment,” Arne Duncan, the education secretary, said in a statement. “This new plan addresses the issue head-on by giving them the option of a reduced monthly payment tied to their annual income.”

Also on Wednesday, the interest rate on new federal Stafford loans, the most widely used federally guaranteed student loan, will drop to 5.6 percent, from 6.8 percent. By 2012, the rate will fall to 3.4 percent, under a schedule mandated by Congress.

The changes come as student borrowers face a difficult job environment and after many families have found it harder or impossible to use home equity loans to pay for college. Since the credit crisis, it has also become more difficult and more costly to obtain private student loans, which are not guaranteed by the government and which typically carry variable interest rates determined by borrowers’ credit histories.

“These benefits are guaranteed, no matter what happens in our economy, and are kicking in at exactly the right time for millions of Americans,” said Representative George Miller, Democrat of California and chairman of the House education committee.

While the interest rate cut applies to new loans, the new repayment option is available to borrowers who took out federal loans or who used a federal consolidation loan to combine their higher education debts.

The extended payment program, called “income-based repayment,” limits what borrowers have to pay to 15 percent of the difference between their gross income and 150 percent of federal poverty guidelines. After borrowers make payments on loans for 25 years, the balance is forgiven. (The Education Department already offered an “income-contingent” repayment plan, which was similar, but less generous.)....

.....There is a catch, though. To participate in the program, a borrower must shift their loans into the federal Direct Loan program, in which the government extends credit directly. The forgiveness is not available for loans made by banks or other loan companies, like Citigroup or Sallie Mae.

The definition of public service under the forgiveness program is broad. Jobs in government, public schools or colleges, nonprofit organizations, public interest law, early childhood education, public health or public libraries all could qualify, according to the Education Department.
The forgiveness benefit could lead to even greater interest in public service jobs, which are already drawing more applicants. For example, in the 2008-9 academic year, more people than ever applied to Teach for America — 40 percent more than the year before, according to Kerci Marcello Stroud, a spokeswoman.

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Bernard Madoff sentenced to 150 years in prison

Here is a story about a 90 year old victim of the monster known as Bernard Madoff. 150 years, I say we let him out after only serving 2/3 of the sentence.-Lou

Listen To This Week's Radio Show

Listen to this past Sunday's "The Financial Physician" radio show. The show is available all week.

Listen HERE

Throw The Book At Him

A Snake Learns His Fate

by
Louis Scatigna

Today Bernie Madoff learns his fate. His 4,800 victims, individuals and charities, already know their fate, impoverishment and destitution and closure. Never in history has one man stolen so much from so many.

As time passes we will learn exactly how Madoff was able to defraud investors out of $60 billion. We will also find out who was also involved in the scam, there is no way one man could run a fraud of this size and for so long without help.

I have trouble understanding why someone needs so much money, when is enough enough? After he stole $10 million dollars from his first victims what motivated him to keep ripping people off for over a decade and for billions? He didn't care if you were a charity, a friend or a helpless widow, he wanted it all.

Probably the worst thing Bernie Madoff did was make people distrust their financial advisors, after all if this respected Wall Street advisor could do this to his clients what's to stop their advisor from doing the same. Many of us have worked many years to build up our reputations and you have tarnished us all. Shame on you Mr. Madoff for all your selfish, uncaring and unrepentent actions.

Today Bernard Madoff learns his fate. Anything less than 20 years more than his life expectancy would be a gross injustice.

Good bye Bernard Madoff have a nice life.

World Wheat Crop In Danger

Like the world does not have enough to worry about with Swine Flu, economic collapse, global warming (maybe), sweeping poverty and geopolitical destabilization, now the possibility of a world-wide famine. I wonder if the next worry will be locusts and boils.-Lou

Fungus threat hangs over world wheat production

OTTAWA — Scientists in Canada and around the world are racing to find a way to stop a destructive fungus that threatens to wipe out 80 per cent of the world's wheat crop, causing widespread famine and pushing the cost of such staples as bread and pasta through the roof.

Canadian officials say that the airborne fungus, known as Ug99, has so far proved unstoppable, making its way out of eastern Africa and into the Middle East and Central Asia. It is now threatening areas that account for more than one-third of the world's wheat production and scientists in North America say it's only a matter of time before the pest hits the breadbasket regions of North America, Russia and China.

"I think it's important people start recognizing what a big threat this is. This could mean world famine. This is quite the deal," said Rob Graf, a research scientist with Agriculture and Agri-Food Canada's research centre in Lethbridge, Alta.

The United Nations calls Ug99 "a major threat" to the world's food security.

"Anything that one part of the world gets, another part of the world will eventually get," said Doug Robertson, president of The Grain Growers of Canada. "Stem rust can be a really devastating disease."

Ug99 — so named because it was first found in Uganda in 1999 — is a type of stem rust. Spores from the fungus attach themselves to the stalk of a wheat plant and a pustule that causes the reddish-brown rust colour grows. The pustule takes over the plant's nutrient and water system to nurture more pustules and spores instead of grain.

Rust is a problem wheat growers have been dealing with since biblical times. Canadian wheat producers last dealt with a massive rust problem in the 1950s.

"Those producers who are challenged with feeding the world should be concerned about this," said Rick Istead, executive director of the Alberta Winter Wheat Producers Commission. "If this rust becomes rampant in North America, we believe all wheat types would be susceptible — spring and winter and durum wheat."

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A Little Weekend Humor

Two Trillion Tons - Sung by the Ghost of Tennessee Ernie Ford

Humourous, but also sad and true.-Lou

Friday's Bank Seizures now raised to Five

In my earlier post I told you four banks were seized last night but according to this Bloomberg report actually it was 5. Small banks are in big trouble, they are not big enough, powerful enough or have the Washington connections the big boys do, so they get no bailout funds. Don't you feel that there is something wrong with that?-Lou

Five Banks Are Seized, Raising U.S. Failures This Year to 45

By Margaret Chadbourn
June 27 (Bloomberg) -- Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures.

Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.

Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement.

Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said.

The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.
“The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The agreement also is expected to minimize disruptions for loan customers.”

Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.

Bank Holiday Coming: Harry Schultz

I like the Harry Schultz Letter, been reading it for years, and the old guy has been very accurate with his forecasts (if not his portfolio) for a long time. In his recent letter he paints a very sobering picture of our immediate future. The part about foreign embassies buying huge amounts of local currencies scares me the most, whats that all about? Sadly, I do agree with him that a bank holiday is in our future.-Lou

Latest Schultz Shock: a 'bank holiday'
Commentary: A leading newsletter paints a grim picture of the future

NEW YORK (MarketWatch) -- The top-performing letter that predicted the Crash of 2008 now predicts a confiscatory Franklin D. Roosevelt-style "bank holiday." But it's surprisingly sanguine about stocks -- in the (very) short term.

The Harry Schultz Letter (HSL) was my pick for Letter of the Year in 2008 because it really did predict what it rightly called a coming "financial tsunami." But its performance in 2008 was still terrible, albeit arguably for technical reasons.

In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."

Yes, yes, it's paranoid. But paranoids have enemies -- and the Crash of 2008 really did happen.
HSL's suspicion: "Another FDR-style 'bank holiday' of indefinite length, perhaps soon, to let the insiders sort out the bank mess, which (despite their rosy propaganda campaign) is getting more out of their control every day. Insiders want to impose new bank rules. Widespread nationalization could result, already underway. It could also lead to a formal U.S. dollar devaluation, as FDR did by revaluing gold (and then confiscating it)."

HSL is still sticking with its 20-year "V" formation forecast, but emphasizes that within the current 10-year downtrend phase there will be rallies that will "last 1-2 years." It attributes its current success to "successfully trading almost daily, especially in commodity stocks (coal/potash/energy/ fertilizer/gold). Take profits constantly and rebuy on mini pullbacks. Prefer non-U.S. dollar companies; many such companies are listed in U.S. & Canada or Australia."

HSL says: "The world is staggering today between stagflation and net deflation right now; it varies widely around globe. Net deflation is a maybe 35% risk, due to toxics and/or deepening depression. Bit more likely, we'll slowly creep up to a dangerous 4.5% inflation on average, medium-term. But the wild card is the currency risk, which has a 50% (?) chance of boiling over and causing literally overnight (i.e. 24 hours) mega inflation in the asset markets."

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Bank Failure Friday Claims 4 More Banks

After three banks were seized by regulators last week, four more banks bite the dust this Friday. The pace of bank failures appears to be accelarating as the year goes on. The FDIC will run out of funds either later this summer or, most certainly, by sometime this fall and be in need of a taxpayer bailout. Expect the numbers of bank failures go continue to grow, please make sure you are within FDIC limits.-Lou


Four banks fail, bringing 2009 tally to 44

SAN FRANCISCO (MarketWatch) -- Four banks in Georgia, Minnesota and California were closed by regulators Friday, as the ongoing credit crisis continued to claim victims.

Villa Rica, Ga.-based Community Bank of West Georgia and Newman, Ga.-based Neighborhood Community Bank were closed, as were Irvine, Calif.-based MetroPacific Bank and Pine City, Minn.-based Horizon Bank. The closures brought the national tally this year to 44, and marked the ninth so far in Georgia.

The Federal Deposit Insurance Corporation said in a statement that it will mail checks to insured depositors at Community Bank of West Georgia on Monday. An institution able to assume the failed bank's deposits could not be found, the FDIC added.

Community Bank of West Georgia had $199.4 million in assets and $182.5 million in deposits as of May 15, according to the regulator, which said that at the time of the closing the bank had roughly $1.1 million in deposits that exceeded the $250,000 limit for insurance.
The FDIC estimated that the failure of Community Bank of West Georgia will cost its deposit insurance fund roughly $85 million.

Neighborhood Community Bank had $221.6 million in assets and $191.3 million in deposits as of March 31, the FDIC said.

The regulator said that West Point, Ga.-based CharterBank will assume National Community Bank's deposits, and that offices of National Community will reopen as branches of CharterBank.
CharterBank also agreed to buy $209.6 million worth of the failed bank's assets.
The failure of National Community will cost the deposit insurance fund $66.7 million, the FDIC added.

Minnesota-based Horizon Bank had $87.6 million in assets and $69.4 million in deposits as of March 31, the FDIC said. The failed bank's deposits will be assumed by St. Cloud, Minn.-based Stearns Bank, National Association.

The cost of Horizon Bank's failure to the deposit insurance fund will be $33.5 million, the FDIC added.

California-based MetroPacific Bank had $80 million in assets and $73 million in deposits, according to the regulator. The failed bank's deposits have been assumed by Tustin, Calif.-based Sunwest Bank.

The cost of MetroPacific Bank's failure to the deposit insurance fund will be $29 million, the FDIC said.

H1N1 'swine' flu has infected an estimated 1 million in U.S.

I have not heard this large number anywhere else. I'm surprised that a large mainstream newspaper would report such a large number and frighten the people. It's going to be a very unusual cold and flu season this winter.-Lou

H1N1 'swine' flu has infected an estimated 1 million in U.S.

The virus is also spreading rapidly through the Southern Hemisphere. A French company announces large-scale production of a vaccine.

By Thomas H. Maugh II 3:54 PM PDT, June 25, 2009

At least 1 million Americans have now contracted the novel H1N1 influenza, according to mathematical models prepared by the Centers for Disease Control and Prevention, while data from the field indicates that the virus is continuing to spread even though the normal flu season is over and that an increasing proportion of victims are being hospitalized.Meanwhile, the virus is continuing its rapid spread through the Southern Hemisphere, infecting increasing numbers of people and at least one pig.

Nearly 28,000 laboratory-confirmed U.S. cases of the virus, also known as swine flu, have been reported to the CDC, almost half of the more than 56,000 cases globally reported to the World Health Organization.But Lyn Finelli, a flu surveillance official with CDC, told a vaccine advisory committee meeting in Atlanta today that standard models of viral spread indicate that many times that number have been infected. Although 1 million seems like a high number, between 15 million and 60 million Americans are infected by the influenza virus during a normal flu season.At least 3,065 of those infected in this country have been hospitalized and 127 have died.

The very young are most likely to be infected, Finelli said, but older patients seem to suffer more. The average age of swine flu victims is 12, the average age of hospitalized patients is 20 and the average age of those who have died is 37, she said.

The normal seasonal flu virus has virtually disappeared from this country, as would be expected. But the novel H1N1 virus is continuing to spread, and now accounts for 98% of all cases."So far, it doesn't look like transmission is declining at all," Finelli said.The spread is highest in New England and the Northeast, and it is beginning to take its toll. Dr. Andrew Doniger, director of public health for Monroe County, N.Y., which includes the city of Rochester, said hospitals, emergency rooms and laboratories in the county are being overwhelmed by "very high volumes" of patients. He called on those who have mild symptoms to self-medicate at home.

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May incomes surge, but savings outpace spending

An increase in the savings rate is a good development long-term given that Americans had a negative savings rate in 2007. The fact that Americans are saving more will have an immediate negative impact on the economy because if we are saving we are not spending. One of the elements necessary for economic recovery is a significant increase in consumer spending.-Lou

May incomes surge, but savings outpace spending
Households push savings rate to 15-year high as May incomes rise

WASHINGTON (AP) -- Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending.

The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.

The income increase reflected temporary factors related to the $787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.

The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy. Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.

The savings rate, which is a percentage of disposable income, rose to 6.9 percent from 5.6 percent in April. Last month's savings rate was far above recent annual rates, which dipped below 1 percent from 2005 through 2007 as a booming economy and soaring home prices pushed Americans to spend most of what they earned.

Those factors have been reversed amid the longest recession since World War II. Triggered by a housing bust, the downturn has depressed home prices by the largest amounts since the Great Depression.

Economists believe that a rise in personal savings rate is a good development in the long run, but they worry that it could make the rebound from the recession slower than it otherwise would have been.

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Treasury Auctions Pass The Test

I told you last week that it would be an interesting test of the bond market with the Treasury auctioning off $104 billion in bonds this week. It seems like the bond market passed the test or did it? Firstly the longest maturity was 7 years, I would be interested to see the appetite for 10 year or 30 year bonds. Another question is how much did the Fed buy and how much did foreigners buy. Too bad the States can't print money and purchase their own debt, see post below. Stock market halted four days of losses with a strong 172 point gain in the Dow-Lou

NEW YORK (Reuters) - Stocks rose sharply on Thursday, helped by consumer discretionary shares after Bed Bath & Beyond Inc (NasdaqGS:BBBY - News) posted a surprising profit increase and home builder Lennar Corp (LEN - News) reported a rise in new home sales.

Lennar posted a wider quarterly loss, but noted an increase in new sales and orders. Its stock shot up 16.5 percent to $9.11.

The Dow Jones U.S. home construction index (DJI:^DJUSHB -News) jumped 5.7 percent.

Gains in home builders and retailers point to signs of strength in consumer spending, which could be a boon for stocks just as the second-quarter earnings reporting period gets under way.

"To us, this is a market that wants to move higher. I think the market's recovering from that 6 percent decline" from recent highs, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The Dow Jones industrial average (DJI:^DJI - News) was up 149.86 points, or 1.81 percent, at 8,449.72. The Standard & Poor's 500 Index (^SPX - News) was up 16.53 points, or 1.83 percent, at 917.47. The Nasdaq Composite Index (^IXIC - News) was up 30.93 points, or 1.73 percent, at 1,823.27.

Earlier, all three indexes gained as much as 2 percent to 2.29 percent to hit session highs.

Another sign that encouraged investors was news the Federal Reserve was extending a number of emergency funding facilities while scaling back some others.

"What we saw is an improvement here in that one program went away, but also the flexibility that these other ones are staying around in case they're needed," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

An auction of $27 billion of 7-year notes attracted strong demand, pressuring U.S. Treasury bond yields. The auction completed this week's sales of Treasury coupons, with all three auctions seeing solid demand.

In the retail sector, Bed Bath & Beyond reported a surprising increase in quarterly profit as it cut costs to offset slumping demand, and its stock gained 10.2 percent to $31.29. The retail index (^RLX - News) climbed 3.8 percent.

There was also some relief in the market that Federal Reserve Chairman Ben Bernanke had weathered a tough grilling in Congress relatively well.

State shutdowns loom as deadlines near

At least 19 states still have to approve their fiscal 2010 budgets before next Tuesday. If they don't, staffers might not be paid and services might shut down

NEW YORK (CNNMoney.com) -- One week and counting. An unprecedented number of states have only days left to pass their fiscal 2010 budgets.

At least 19 states are still hammering out their spending plans as the recession wreaks havoc with their finances and sparks fights between governors and lawmakers. If spending plans aren't approved, state workers may not receive their paychecks and some government offices may shut down.

"A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."

Some 46 states end their fiscal years on June 30 and all but one require balanced budgets be adopted.

"She doesn't think much of what's in them," said Paul Senseman, the governor's spokesman.

Arizona Senate President Bob Burns is also confident that the two sides will reach an agreement and avoid a government shut down. The two branches are meeting daily, a spokeswoman for Burns said.

In some states, the leaders aren't even talking. Pennsylvania's governor and Senate Republicans, who have to close a $3.2 billion gap for the current year, are not negotiating on their budgets.

"There's been no significant movement on the budget," said Chuck Ardo, press secretary for Gov. Ed Rendell, who is prepared to cancel his African safari in August if the budget isn't set.

The governor's $28.4 billion budget seeks to raise the personal income tax rate by half-a-percentage point and draining the commonwealth's $750 million rainy day fund. Senate Republicans' $27.3 billion plan looks to cut spending on areas such as education and community revitalization.

Though the states has never passed a budget on time during Rendell's seven years in office, both sides agree this year is the worst standoff ever.

"It's hard to see how a meeting would be productive given the two very different points of view," said Erik Arneson, communications director for Senate Majority Leader Dominic Pileggi. "At this point, there's no support in our caucus for a tax increase."

Sending IOUs instead of $$$

If states don't pass their budgets on time, one of three things usually happens, according to the National Conference of State Legislatures. Lawmakers can pass temporary appropriations measures to keep the doors open and bills paid. Some states have provisions that maintain funding for agencies and services even without a budget.

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Unemployment Stll Rising

The economy is still losing too many jobs, until we start to see first time claims declining there can be no talk about a second half rebound. I know of many seeking jobs and they are having a horrible time-Lou

U.S. Jobless Claims Rise, Total Benefit Rolls Climb

June 25 (Bloomberg) -- The number of Americans filing claims for unemployment benefits unexpectedly rose last week and the total number receiving payments increased, indicating the labor market may take longer to stabilize.

Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before, the Labor Department said today in Washington. The number of people collecting unemployment insurance gained by 29,000 in the prior week, to 6.74 million.

Recent economic data shows some areas of the economy, such as housing and manufacturing, are seeing a smaller pace of decline, and the Federal Reserve said yesterday after a two-day meeting in Washington that the economy’s slump is “slowing.” Even so, companies have been loath to hire new employees, in part because they are waiting for sustained gains in demand.

Today’s report is “just a reminder that the labor market is still in serious trouble and the unemployment rate will continue to increase into 2010,” said Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania. While the trend in recent weeks shows a slower pace of claims, “hopes for a quick rebound in the labor market are overly

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More On The Mysterious $134 billion in Treasury Securities in Italy

It is amazing that the mainstream media has reported so little on what may be a huge story. I brought to your attention last week the story of two Japanese men who were caught in Italy with $134 billion in US Treasury Securities (yes that's billion with a B) stashed in the bottom of a suitcase. What are these guys up to? This article has a source that claims that one of the two Japanese stopped and then released in Ponte Chiasso was Tuneo Yamauchi, brother-in-la of Toshiro Muto, who was until recently Deputy Governor of the Bank of Japan. Very mysterious, there is something big going on here, I just don't know what. I'll do my best to keep you informed on this Clancy type mystery, stay tuned.-Lou

Securities seized in Chiasso still between a wall of silence and a flow of disinformation

Neither Italian nor US authorities have officially said whether the seized US Treasury bills worth US$ 134.5 billion are real or fake. A US Treasury spokesperson said they were fakes, but acknowledged that he only saw them in a photo on the internet. For Italy’s financial police, if they are forgeries, they are practically indistinguishable from the real stuff. Both the US Federal Reserve and the Bank of Japan have an interest in denying their authenticity.


Milan (AsiaNews) – Italy’s financial police (Guardia di Finanza) seized US$ 134.5 billion last 3 June. In the following days the news hit the front pages of Italian newspapers and became a major story in the country’s news broadcasts.

AsiaNews is a missionary news agency, not an economic agency and began reporting the story a few days later (8 June) noting how foreign media were ignoring news of such importance which could have major social and economic implications for Asia (and the rest of the world) and this irrespective of whether the bills were real or not.

Despite the many uncertain explanations, one thing is certain, namely that the major print and electronic media and the authorities have said almost nothing about it.

So far the only official statement made by any government authority is that by the Italian financial police, on 4 June, right after the money was seized. The only new piece to this big puzzle is information from Japanese agencies which cite Japanese consular sources.

According to them, the two Asian men stopped at Ponte Chiasso (Italy) on their way to Chiasso (Switzerland) were indeed Japanese nationals, one from Kanagawa Prefecture (central Japan) and the other from Fukuoka Prefecture (western Japan).

The only other certainty is that both men were released after their identity was established.
If police had enough elements to conclude that the securities were fakes (and this is true even for lower denominations or net worth), it had to arrest the two men. Failure to do so would have meant charges for the police officers involved.

If this was not the case, then the two men were released because police authorities were convinced that the securities were real. In fact under Italian law, the authorities could not arrest the two Japanese nationals but could only impose a fine worth 40 per cent of the value of anything above 10,000 €.

If this did not happen, there is only one other possible explanation, namely that an order from higher up the chain of command in the government came on national interest grounds.
Neither the Guardia di Finanze nor any other Italian government agency has released an official comment or statement on the matter one way or the other. It is not even known if a written fine was issued (had it been it would indicate that the securities were real for the police).

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Warren Buffet: Economy In Shambles

If anyone has his fingers on the pulse of the economy and business it is the Oracle of Omaha, Warren Buffet. His somber assesment about the current state of the economy and business in general is both honest and accurate. I always like to hear what Mr. Buffet has to say, he is truly the best investor in history.-Lou


In a live interview on CNBC today, Warren Buffett said there has been little progress over the past few months in the "economic war" being fought by the country. "We haven't got the economy moving yet," he told Becky Quick.

While the economy is a "shambles" and likely to stay that way for some time, he remains optimistic there will eventually be a recovery over a period of years.

BECKY: The last time we sat down to talk to you was on May 4, and at that point you told us that you think we're in an economic war right now. How much progress do you think we've made in that war?

BUFFETT: Well, it's been pretty flat. I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true.

Buffett also noted that he had a cataract operation on his left eye about a month ago. He joked that he thought it might help him see "green shoots" for the economy, but so far he hasn't seen any hopeful signs.

Taking a firm position in an ongoing debate in the financial markets, Buffett says he's not concerned about deflation, but thinks inflation will be a problem in coming years.

Read the whole transcript of his interview at the link below

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California On The Brink

The coming default of California will be the start of the next phase of the world financial meltdown. California's economy is the eighth largest in the world. A downgrade of the state's debt is all but assured making it difficult or impossible for the state to raise money in the municipal bond market. I would be a seller of all municipal bonds issued by the state of California as well as every city and municipality. California's insolvency will have a broad negative effect on the entire U.S. economy. Other states are sure to follow as both income and sales tax revenues are down as much as 30%. New York (what a circus that state government is) and New Jersey will not be far behind California. Be very careful if you own municipal bonds, the default rate is going to soar in the months to come.-Lou

California set to issue IOUs as fiscal crisis weighs

LOS ANGELES/NEW YORK (Reuters) - California's controller said on Wednesday that he would have to issue IOUs in a week if lawmakers can't quickly solve a $24 billion budget deficit, and the state's treasurer plans to tap a reserve fund to meet debt service costs.

The measures came as a budget crisis deepened in the most populous U.S. state and the gridlocked legislature failed to pass a proposed $11 billion in cuts.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said in a statement announcing that he would be forced to use IOUs to pay the state's bills beginning on July 2.

"The state's $2.8 billion cash shortage in July grows to $6.5 billion in September and after that we see a double digit freefall," Chiang said. "Unfortunately, the state's inability to balance its checkbook will now mean short-changing taxpayers, local governments and

small businesses."
State Treasurer Bill Lockyer, meanwhile, is planning to draw on reserves for economic recovery sales tax bonds, according to a spokesman.

Rating agency Standard & Poor's warned it may downgrade the bonds, given the problems California is likely to face in replenishing its emergency funds.

The state is expecting to file a material event notice on Thursday to alert bondholders to the move that comes in response to plunging sales tax receipts, said spokesman Tom Dresslar.
"The senior coverage account will be drawn on and debt service on all economic recovery bonds will be paid in full on July 1," Dresslar said.

California has been in crisis since the housing slump and credit crunch caused a severe decline in revenues. The state has seen its unemployment rate climb steadily to 11.5 percent in May from 6.8 percent a year earlier, according to labor department data.

LAWMAKERS REJECT CUTS

The government dipped into the same reserve fund in December to make a principal payment on economic recovery bonds, but was able to top the reserve back up within days.
The California Legislature on Wednesday voted down $11 billion in proposed cuts to state

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More Stupidity From National Association of Realtors

You can't make this stuff up folks, the NAR wants appraisers to lie and make up appraisals that are inflated to help them sell homes. One of the big scandals that caused this financial crisis was appraisers overvaluing properties so the buyers could get large mortgages. For the NAR to say that appraisers are being too tough with their valuations is a joke, if anything they are probably still over estimating the value of homes as prices continue to decline.-Lou

Real Estate Associations Want Appraisers To Inflate Home Prices

The housing is still struggling because appraisers are being too tough assessing the value of homes.

That's the self-serving argument being made by realtors who are complaining that lower appraisal values of homes are delaying deals, ruining sales and prolonging the housing crisis.
Their solution? Delay reforming the appraisal industry for another 18 months, then we can worry about the real value of a home. Until then, they argue, what's wrong with a few inflated prices?

Well, as Barry Ritholz puts it:

Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price. New York Attorney General Andrew Cuomo, in an attempt to prevent this kind of appraisal fraud, instituted the Home Valuation Code of Conduct, which took effect May 1.

According to the Wall Street Journal:
The code covers any mortgage that can be guaranteed by Fannie or Freddie, which means the majority of all home loans. It bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. The idea is that people who are hungry for commissions shouldn't be in a position to lean on the appraiser. Now, NAR and other real estate lobbying groups, who are trying to maintain stay in business despite the total destruction of their market, are mobilizing a major effort to reach out to Congress and housing officials.

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Barney Frank and Fannie and Freddie Are At It Again

Barney Frank is one of the bad guys in this financial crisis. Here he goes again weakening lending standars again, when will they ever learn-Lou

Fannie, Freddie asked to relax condo loan rules: report

(Reuters) - Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

In March, Fannie Mae (

FNM.N)(FNM.P) said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac (FRE.P)(FRE.N) is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added.

In an interview with the paper, Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers.

In addition to the 70 percent sales threshold, Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units, as the firm sees these as signals that a building could run into financial trouble, the paper added.

Both Fannie and Freddie are preparing a response to the lawmakers, according to the paper.
Fannie Mae and Freddie Mac could not be immediately reached for comment by Reuters.

New home sales unexpectedly drop of 0.6 percent

The durable goods report was better than expected and now the new home sales comes in worse than expected. The housing market must stabilize (sales, inventory and prices) before there can be any hope of economic recovery.-Lou

New home sales unexpectedly drop of 0.6 percent in May as demand for housing remains sluggish

WASHINGTON (AP) -- The government says new U.S. home sales fell slightly last month, another sign that the housing market's recovery is likely to be gradual and prolonged.

The Commerce Department said Wednesday that sales dropped 0.6 percent in May to a seasonally adjusted annual rate of 342,000, from a downwardly revised April rate of 344,000.
Sales were down nearly 33 percent from May last year.

May's results missed economists' expectations of a 360,000 sales pace, according to Thomson Reuters.

The median sales price of $221,600 was down 3.4 percent from a year earlier but still up 4.2 percent from April.

A Surprisingly Good Economic Report

This was an unexpected good report. Durable Goods numbers tend to be volatile so I would not make too much of this number but it's nice to see none the less.-Lou

US durable goods orders rise unexpectedly in May

WASHINGTON (AP) -- Orders to U.S. factories for big-ticket manufactured goods rose sharply for a second straight month in May, and a key indicator of business investment surged by the largest amount in nearly five years.

The Commerce Department said Wednesday that demand for durable goods rose 1.8 percent last month, far better than the 0.6 percent decline that economists expected. It also matched the rise in April, with both months posting the best performance since December 2007, when the recession began.

Orders for non-defense capital goods, a key proxy for business investment plans, jumped 4.8 percent, the biggest increase since September 2004. That could signal that businesses have stopped trimming their investment spending.

The back-to-back monthly gains in orders for durable goods, or items expected to last at least three years, were further evidence that a dismal stretch for U.S. manufacturers may be nearing an end. Still, analysts say any sustained rebound is still months away.

American companies have been forced to trim millions of workers as they struggle with the longest U.S. recession since World War II. U.S. businesses also have faced a sharp drop in exports as many major overseas markets struggle with their own downturns.
Excluding transportation, orders for durable goods posted a 1.1 percent rise in May, also better than the 0.4 percent drop that had been expected.

Demand for transportation products rose 3.6 percent, reflecting a 68.1 percent surge in orders for commercial aircraft, a volatile category that had fallen 1.4 percent the previous month.
The big increase in aircraft offset continued weakness in the troubled auto sector. Demand for motor vehicles and parts fell 8.1 percent in May, reflecting major disruptions from the bankruptcy filings at Chrysler LLC and General Motors Corp.

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Listen To This Week's Radio Show

I'm reloading the link to this week's "The Financial Physician" radio show for all my new Twitter friends. The show starts with my first half 2009 financial review and my forecast for the rest of the year.

Listen HERE

First Sub-Prime Now Prime Mortgage Defaults

First it was sub-prime defaults (although "well contained" Ben Bernanke told us) and now we are seeing credit problems moving up the ladder to prime borrowers. The unwinding of the massive debt bubble will take years, with banks, insurance companies and pensions realizing massive losses. This recession/depression has a long way to go unfortunately.-Lou

S&P downgrades prime jumbo mortgage securities
Ratings cut on 102 classes from 33 prime jumbo MBS deals

SAN FRANCISCO (MarketWatch) - Standard & Poor's Ratings Services said Tuesday that it downgraded several securities backed by large, higher-quality mortgages, a sign the housing crisis has spread well beyond its subprime origins.

S&P said it lowered ratings on 102 classes from 33 U.S. prime jumbo residential mortgage-backed securities that were issued from 1998 to 2004. The rating agency also affirmed ratings on 669 classes from 32 of the downgraded deals, as well as 34 other deals.
"The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," S&P said in a statement.

The financial crisis was sparked by rising delinquencies and foreclosures among less creditworthy home buyers who took out so-called subprime mortgages. However, these defaults triggered a broad, global financial crisis and a punishing recession. Unemployment has soared, which has fueled a second wave of mortgage defaults that's affected all types of home loans.
Prime mortgages are only offered to the most creditworthy borrowers, while jumbo mortgages are larger home loans that still conform to the standards of government-owned finance giants.

Prime mortgages were originally thought to be less vulnerable to housing cycles. Home loans offered before 2005 -- when the lending binge really took off -- were also considered more solid. But the rapid increase in unemployment has undermined these assumptions.

Dow Tumbles 200 Points

Last week I told you that I felt that the stock market was at a critical turning point. Both the Dow and SP 500 have moved below their 200 day moving averages and any further deterioration could lead to a major decline in the months ahead. Well todays action was ugly accross the board with banks, miners and virtually all commodities getting hit hard.

Last week I showed you bullish charts of the Ultra short Financials (SKF) and Ultra short SP 500 (SDS) ETFs and suggested a trade here to capitilize on the coming downturn. Today SDS was up $3.13 or 5.63% and SKF was up a whopping $4.51 or 10.78%.

On yesterday's radio show ( LINK )I said that I foresee the market declining at least 30% ( and possibly 50%) the second half of the year. Forget all the talk about "green shoots" of recovery, it's not going to happen.

Treasury is auctioning off $104 billion in debt this week, surely some of thiis money is being diverted from the stock market Let's see what appetite the world has for our record debt offering-Lou

Insiders Dumping Shares Like Crazy.

If executives are using this rally to seel huge portions of their holdings, the rest of us should do the same. I believe the next bear leg down has already started and it's likely to get very nasty.-Lou

Insiders Dumping Shares

From Bloomberg:

Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show. Amgen Inc. Chairman and Chief Executive Officer Kevin Sharer and five other officials sold $8.2 million of stock.

Christopher Donahue, the CEO of Federated Investors Inc., and his brother, Chief Financial Officer Thomas Donahue, offered the most in three years.Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,” said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada that oversees $33 billion in client assets. “They’re taking advantage of this bounce and selling into it.”

How To Rob The Treasury For Bonuses

This article is from The Market Ticker blog. Goldman Sachs has been called the biggest insider trading operation in the world. The incestious relationship between the US Treasury and Goldman has been well documented. It seems anyone who has been high up in the Treasury was a former Goldman executive. How is it that Goldman Sachs always seems to have huge trading profits each quarter, no matter if we are in a bull or bear market? It is easy to make profits trading when you know in advance when and in what market the government is going to launch their intervention.-Lou

How To Rob The Treasury For Bonuses

You have to love Goldman Sachs:

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.
Nothing like a little taxpayer money funneled through AIG to add to the pool, right?

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Let's remember that Goldman got roughly $10 billion in AIG-funneled money to "settle" CDS that their CEO said was a fully-hedged position and which would have had no material impact if AIG had gone down, mostly because they had collected nearly all of the hedge before AIG got in serious trouble.

That is, they got paid twice - once with their hedge (good move guys) and again by government fiat, directed by Henry Paulson who coincidentally used to run Goldman.

Also note the size of the first-quarter profit, multiply by four (assuming equally good results) and then compare against the "extra" payout through AIG to figure out whether there would be any bonus pool absent that payment.

Looks to me like the US Taxpayer is funding all of Goldman's bonuses, never mind this ditty:
Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Nice, eh? Do Treasury's bidding, get paid for it, get an extra $10 billion from the taxpayer as a gift to cover a bet you had already hedged against default, and pocket it all.
Change we can believe in - yep, we'll steal even more than we did under The Bush Administration!

LINK