Mover Mike

The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending.

The Commerce Department reported Friday that the deficit totaled $58.2 billion, down 5.6 percent from February, a larger improvement than had been expected.

The smaller deficit reflected spreading weakness in the U.S. economy, which cut demand for imports by 2.9 percent, the largest one-month decline since December 2001, one month after the last recession ended.

March 2006 -62,178
March 2007 -63,035
March 2008 -58,200 vs last year down 7.6%.

For three months Jan. through March 2007 -178,620
For three months Jan. through March 2008 -179,480

<see chart>

One month doesn't change the pattern. The USD has been falling since 2002. It's going to take a much bigger USD fall to really cut into the trade deficit?

You may be correct, but I think it is also possible we have a trading range.

We may even have seen the top for bonds and the low for yields. In other words, I think it is completely up in the air. I can't manage much conviction on any of this. I do agree with Bill Gross, the Treasuries have very little value at these levels. His comment was Treasuries are the most overvalued asset in the world. Seems a little strong, but makes a useful point.

Let's stand in the possibility that I'm correct, and the charts look more like I am than on April 30th, what is the treasury 2-10-30 year telling us. That's what fascinated me. In the light of record CRB and Oil and grains and weaker USD, shouldn't the treasuries be dropping, interest rates be rising??? Why aren't they?

A combination of flight to quality and recession talk, both of which might be short term.

Yet, Van Hoisington supports your view, and it has not paid to argue with them - and they are mostly fundamental. Confusing, but fascinating time; maybe the best in 70 or 80 years.

The Fourth Quarter Review and Outlook states:

The longest-dated Treasury bond ended 2007 at a 4.45% yield. This was 35 basis points below the 2006 close, and marked the lowest year-end interest rate on a long Treasury security in 42 years. The capital gain associated with this yield reduction, plus the coupon, generated a 10 ½% return for investors, well above the 7% total registered by the Lehman Aggregate Bond Index.

The Review continues

The beginning of what will surely be considered the greatest credit event since the 1930s emerged in 2007 with the discovery that derivatives multiply bad credit. The “seizing up” of credit markets resulted in a worldwide reduction of credit issuance from $2.5 trillion in the 2nd quarter to $1.3 trillion in the 4th quarter, a near 50% reduction according to a recent New York Times article. A supply shrinkage of over $1 trillion is enough to shift the supply curve to the left, resulting in a bond price increase and lower yields in high quality fixed income securities. This more than offset an increase in inflationary expectations, and was most likely the proximate cause of the sharp reduction in Treasury interest rates in the latter half of 2007.

First, investor desire for risk-free assets will increase at a time when default rates will be soaring on other fixed income securities. Second, the overall reduction in credit market instruments will mean fewer alternatives for those desiring a fixed rate of return. By the end of 2008 we would expect new record low yields in Treasuries for this cycle.

Thus, if this growth, or outright recession, ends in 2008, the low in bond yields will be some time in 2010. However, if we are in an extended growth recession that lasts into 2009 or 2010, as we suspect, and if rates are at record low levels, similar to the 1940s and 1950s, then the low in rates is likely to coincide with the end of the recessionary period.

The city faces a $16 million deficit in the 2008-2009 budget starting July 1 and unsuccessfully negotiated with its police, firefighter and electrical workers unions for contract concessions through 2012. Public safety salaries comprise 74 percent of the city's general fund budget.

Mayor Osby Davis said he believes the city should honor its contracts with the unions, but he was persuaded the city can't pay its debts at this time.

Surprised? I'm not! The new computer system was supposed to save tax payers money.

The new software program was originally estimated to cost $31 million, including $16.9 million promised to Ariston and millions more to pay quality-control consultants and buy the software, new servers and other hardware. Now city analysts expect it to cost $49.5 million.

But the firm's size quickly became a problem. Last summer, a consultant hired to do regular quality control updates told city managers that Ariston was working too slowly and that the city and the contractor lacked the kind of detailed plan necessary to get the new system working on time.

Ben Smith at Politico quotes Sen. Clinton:

"We’re going to go right at OPEC," she said. "They can no longer be a cartel, a monopoly that get together once every couple of months in some conference room in some plush place in the world, they decide how much oil they’re going to produce and what price they’re going to put it at," she told a crod at a firehouse in Merrillville, IN.

The only way to get out from under the thumb of OPEC is to open up all prospective oil productive areas and be self-sufficient.

The only way to get out from under the tax of inflation and dollar ruination is to close the FED!

Sen. Clinton OPEC Federal Reserve

How about the competitors of Exxon?

I dion't see anytjing there that indicates we are getting ripped off.

Here's the WSJ:

This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President? (Emphasis added)

There's another policy contradiction here. Exxon is now under attack for buying back $2 billion of its own stock rather than adding to the more than $21 billion it is likely to invest in energy research and exploration this year.

Looking at the Percentage Price Oscillator (PPO),

The Percentage Price Oscillator is found by subtracting the longer moving average from the shorter moving average and then dividing the result by the longer moving average.

What does all the mean? It means that Treasury Bonds are set to continue higher resulting in lower long yields. It means that interest rates are set to come down a lot! Bonds go up, yields go down.

The lows since since December, 2007 have been 4.26%, then 4.23% and lastly in March, 2008, at 4.17%. We are currently at 4.51%, just off from 4.61%. I could see the long bond trade at 4% and below!

BTW, the Two Year Treasury Yield ($UST2Y) looks like the rally is over. It could go back and test the 1.35% low set in March. It is currently at 2.29% The Ten Year Treasury Yield ($UST10Y) also looks like the rally is over . It could test the low yield of 3.34%. It currently is at 3.77%.

What does it all mean? It may mean the economy is weaker than we are being led to believe. It may mean there is a flight to safety. It may mean that the huge flows of capital directed at banks are finding their way into purchases of safe items rather than take a chance on loaning money.

I was checking out some of the other blogs that have been invited to blog for the Forbes.com Business and Finance Blog Network and came across Two Pennies Earned and Amy L. Fontinelle's Eight Financial Tips For Young Adults

One of the tips. if you want to have a comfortable and prosperous life is:

5. Start saving for retirement now.

Fontinelle mentions compound interest. It is much easier to understand the magic if you see the power this hoary chart presents. I think it was developed by Richard Russell, who writes Dow Theory Letters many years ago.

As you can see, if you had invested, when you were 19, $2,000 each year in an IRA for only seven years ($14,000), you would have more money at retirement than if you had waited seven years to start. And, as a result of waiting, you would have had to invest 11 times as much to get near the same result.

That's a huge lesson to learn at 19!

Droke writes in his latest article, "...the message of the bond market is one of the more exciting and optimistic messages being sent anywhere in the financial markets right now and it behooves us to pay close attention to what bonds are saying."

Droke first looks at the Libor Rate Chart since the first of the year.

...the Libor rate has been coming down conspicuously ever since then and has not approached the high levels of fear of over two months ago. The public remains afraid, yet the monetary powers are clearly not as worried over the state of U.S. financial affairs as they were earlier this year.

The Treasury yield curve is calculated by dividing the 10-year Treasury yield into the 3-month T-bill. On a very basic level tells you gross profit margins of financial institutions. They borrow short-term money and loan it out at long-term yields.

The next chart Droke looks at is the 2-year Treasury yield minus the Fed Funds Target Rate

Whenever this graph shows a rising trend, it indicates improving monetary liquidity. Whenever the graph goes above the “zero” line and into positive territory it means that monetary liquidity has been turbo charged and the results will be powerful. The trend has been rising for some time and isn’t far from going into positive territory.

Finally, Droke has a chart of Securities Lending and Permanent Open Market Operations:

Droke says "The Fed has been loaning securities at a rate not seen in its history."

That's why he says, “Look forward, not backward. Better times are coming!”

"Credit-default swaps (CDS) worldwide expanded to cover $62.2 trillion of debt in 2007 as investors rushed to protect against losses triggered by the collapse of the U.S. subprime mortgage market." so reports the the New York-based International Swaps and Derivatives Association as reported in Bloomberg. The market has grown from $34.5 Trillion in 2006.

The CDS swamps the subprime market in size 6-fold. The entire U.S. mortgage market is $11 Trillion and the subrime is only $1 Trillion. Some are worried that 10% of the CDS market or $6 Trillion could go bad, dwarfing the subprime problem.

Credit-default swaps, traded by banks and securities firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., are the fastest-growing part of the $454.5 trillion market for over- the-counter derivatives, financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.

Under a CDS, a bank originates loan to a company. A second bank (or other financial institution) can agree to cover the credit risk for the loan, by agreeing to make payment to originating bank if the company defaults on the original loan.

What happens if your loan goes bad, but the counter-party is overwhelmed with losses and can't make good on the insurance? Since everyone is trying to manage risk with derivatives and the biggest risk is the counter-party risk, expect to see some kind of hedge used in conjunction with CDS to manage that risk. It's just junk piled upon junk!

Before I get there a little background. In September, 2007, I posted about Web of Debt based on the book of the same name written by Ellen Hodgson Brown J.D.. Our Constitution says:

Article I, Section 8, Clause 5. The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.[2]

The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up.”

When the banks ran out of creditworthy borrowers, they had to turn to uncreditworthy “subprime” borrowers; and to avoid losses from default, they moved these risky mortgages off their books by bundling them into “securities” and selling them to investors. To induce investors to buy, these securities were then “insured” with credit default swaps. But the housing bubble itself was another Ponzi scheme, and eventually there were no more borrowers to be sucked in at the bottom who could afford the ever-inflating home prices. When the subprime borrowers quit paying, the investors quit buying mortgage-backed securities. The banks were then left holding their own suspect paper; and without triple-A ratings, there is little chance that buyers for this “junk” will be found.

Now that good news that I first wrote about. The U.S. is looking into nationalizing our banks. Whether the Nordic model is used or we come up with some other solution, the end result will be the dismantling of the cartel of banks that own the FED.

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged.

"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.

[2] See Ellen Brown, “Dollar Deception: How Banks Secretly Create Money,” webofdebt.com/articles (July 3, 2008).

Century High''s dropout rate is down to 1% and several strategies seem made for a small school.

• Monitor teens constantly and step in early at the first sign of trouble.
• Reach out to families with help even therapy
• Put freshmen into intensive reading classes if needed
• Make it easy for students to catch up on credits

• But graduation rates have been falling at BizTech and ACT for the past two years as students adjusted to the transition from a large, comprehensive high school to smaller schools.

  (Shouldn't the smaller schools be able to monitor students better?)

• Under the federal No Child Left Behind law, students at schools that don't meet federal benchmarks in math and reading have the option to transfer to a higher-achieving school.

  The exodus left Marshall and Roosevelt with "a harder population to teach, a population with more academic challenges," she said. "We've done a good job with some students getting them closer to standards."

  (Shouldn't the smaller schools be able to reach students better?)

• Marshall and Roosevelt are among 38 small schools across Oregon that have received grants from the Gates Foundation and the Meyer Memorial Trust. The money promotes a philosophy that students will feel more motivated to stay in class and graduate if they're in an intimate setting and make a personal connection with teachers.

  Graduation rates are falling for the last two years. Where's the sense of urgency?

We are not getting our money's worth!

Hat tip to George Ure at UrbanSurvival

John Bird & John Fortune Sub Prime Mover Mike

General Electric (GE) plans to raise cash — $1 billion to $3 billion — from outside investors to begin investing in commercial real estate and other properties through newly established real estate investment funds.

[...]

"We think it'll be a good time to take advantage of pricing adjustments," said Joe Parsons, chief executive of GE's recently initiated global investment management division.

Here's the latest twitch from government officials and immediately shot down:

Der Spiegel magazine reported in a preview of its latest edition that Finance Ministry State Secretary Werner Gatzer had proposed selling part of the central bank's gold reserves, currently worth around 65 billion euros (51.5 billion pounds).

According to the plan, the proceeds could then be either invested to earn interest or debt could be paid off freeing up cash that would have been used to for interest payments, the magazine said, citing unidentified participants in a March 13 meeting of budget experts.

The result: the canary warning is subdued, confidence is hurt, margin accounts suffer and the insiders rush in and scoop up cheap Gold. Now, we are told the FED needs more power! More power to help the insiders and to screw the public.

BARTIROMO: "How do you plan to change the tax code when it comes to capital gains? How high will that 15 percent rate go?"

Sen. OBAMA: "Well, you know, I haven't given a firm number. Here's my belief, that we can't go back to some of the, you know, confiscatory rates that existed in the past that distorted sound economics. And I certainly would not go above what existed under Bill Clinton, which was the 28 percent. I would--and my guess would be it would be significantly lower than that. I think that we can have a capital gains rate that is higher than 15 percent. If it--and if it, you know--when I talk to people like Warren Buffet or others and I ask them, you know, what's--how much of a difference is it going to be if it's 20 or 25 percent, they say, look, if it's within that range then it's not going to distort, I think, economic decision making. On the other hand, what it will also do is first of all help out the federal treasury, which is running a credit card up with the bank of China and other countries. What it will also do, I think, is allow us to make investments in basic scientific research, in infrastructure, in broadband lines, in green energy and will allow us to give us--give some relief to middle class and working class families who have been driving this economy as consumers but have been doing it through credit cards and home equity loans. They're not going to be able to do that. And if we want the economy to continue to go strong, then we've got to make sure that they're getting a little relief as well."

Here's a rundown of countries and their rates courtesy of Wikipedia:

Argentina - There is no capital gains tax charged in Argentina.

Australia - 50% capital gains tax discount

Belgium - There is no capital gains tax.

Brazil - Capital gains tax is set at 15%.

Bulgaria - There is no capital gains tax.

Canada - Currently 50% of capital gains are taxed

China - Flat 10% of capital gains taxed with traded equities being exempt.

Denmark - Share dividends and realized capital gains on shares are charged 28%

Ecuador - Ecuador does not have capital gains tax for income gained abroad.

Estonia - All earned income from capital gains is taxed the same as regular income, the rate of which currently stands at 21% and is expected to drop to 20% by 2009.

Finland - The capital gains tax in Finland is 28% on realized capital income.

France - Capital gains tax is a flat 16%, with an annual exclusion or allowance of €5600. Residents pay an additional 11.6% 'Social Charges', non-residents are not liable to this

Germany - There is currently no capital gains tax after a holding period of one year for shares

Hong Kong - no capital gains tax.

Hungary - Since 1st of September 2006 there is one flat tax rate (20%) on capital income.

Iceland - In Iceland there is a 10% tax on realised capital gains.

India - Long term capital gains from equities are not taxed.

Ireland - There is a 20% tax on capital gains The tax rate is 23% on certain investment policies, and rises to 40% on certain offshore gains when they are not declared in time.

Italy - Capital gains are taxed at a flat 12.5%.

Japan - In Japan, there are two options for paying tax on capital gains. The first, Withholding Tax (源泉課税, Withholding Tax?), taxes all proceeds (regardless of profit or loss) at 1.05%. The second method, declaring proceeds as "taxable income" (申告所得, "taxable income"?), requires individuals to declare 26% of proceeds on their income tax statement.

Malaysia - There is no capital gains tax for equities

Mexico - There is a capital gains tax, rate unknown

Netherlands - There is no capital gains tax

However a "theoretical capital yield" of 4% is taxed at a rate of 30%.

In other words, all property and savings (with the exception of owner-occupied dwelling, pensions, approved "green" investments and monies below a certain threshold) are taxed at 1.2% as a substitute for capital gains tax.

Also, dividends and "proceeds (Dutch: vervreemdingswinsten) from significant stakes" (e.g. 5% or more of the ownership of a company) are taxed at 25%. So the latter can be seen as a capital gains tax.

Norway - The individual capital gains tax is 28%.

Poland - Since 2004 there is one flat tax rate (19%) on capital income.

Portugal - There is a capital gains tax on sale of home and property. Any capital gain (mais-valia) arising is taxable as income.

Currently, for stock held for more than twelve months the capital gain is exempt. The capital gain of stock held for shorter periods of time is taxable on 10%.

Russia - The capital gains tax in Russia is 13% for tax residents and 30% for non-residents.

Singapore - There is no capital gains tax in Singapore.

South Korea - Capital gains tax in South Korea is 11% for tax residents for sales of shares in small- and medium-sized companies. Rates of 22% and 33% apply in certain other situations.

Sweden - The capital gains tax is 30% on realized capital income.

Switzerland - There is no capital gains tax in Switzerland for residents.

Thailand - There is no separate capital gains tax in Thailand. All earned income from capital gains is taxed the same as regular income.However, if individual earns capital gain from security in the Stock Exchange of Thailand, it is exempted from personal income tax.

United Kingdom - All individuals are exempt from CGT up to a specified amount of capital gains per year. For the 2007/8 tax year this "annual exemption" is £9,200.

Why should China, Hong Kong and Russia have lower CGT rates lower than the seat of Capitalism?

His post ran in March 22, 2006 entitled Market Psychology or The Wall Of Worry. In the piece he is bullish about the market and the U.S. economy with these points:

1. Today, PE's are down, companies have strong balance sheets, and tons of cash laying around burning a hole in the pockets of management.
2. Whatever happens in Iran and Iraq is already discounted in the market
3. A recession? Maybe, maybe not. But probably not this year so a non-starter to the market.
4. Inverted yield curve which means short term rates are higher than long term rates. I will make it a neutral to the market.
5. Inflation and/or deflation--when you get one, people worry. When you get the other, people worry. However, even terrorists want to live here.
6. A new Fed chief? The new boss looks pretty much like the old boss.
7. GM is a dinosaur waiting to expire. (If they expire)the impact will be significant (especially if you are a UAW member) but not earth shaking.
8. The perennial weak dollar. Here's the news. The dollar is up, not down.

I challenged him on the credit worthiness of major companies saying, "As a result of GE's restatement of its financial information in its amended 2004 Form 10-K dated May 6, 2005, readers should no longer rely on our previously filed financial statements and other financial information for the years and for each of the quarters in the years 2004, 2003, 2002 and 2001. Readers should also no longer rely on our previously announced results for the first quarter of 2005."

I challenged him on the USD saying, "What you had is a mini rally in a bear market from 80 to 91, after a fall from 120 to 80, Big deal! Now it appears to be rolling over. I won't even bother to critique the rest of your points"

Looking back on Uncle Bill's post he was pretty accurate. The DJIA closed March at 11195. (See Chart) It has been over 14000 and even though the first two months have been rough and volatile, it still closed Friday at 12410. (See Chart)

The USD is a different story.

See Chart

In fact, the USD was only in a rally, as I said, and has since fallen to 71!

Now, Uncle Bill is mostly right. One would think, however, that the falling dollar will have consequences for interest rates, inflation and our ability to fund our deficits. That's what gets played up in the press and that's why we should continue to read Uncle Bill for the other side. His comment to me however was uncalled for.

The collection of influential characters who now work, have worked, or have invested in the group would make the most convinced conspiracy theorists incredulous. They include among others, John Major, former British Prime Minister; Fidel Ramos, former Philippines President; Park Tae Joon, former South Korean Prime Minister; Saudi Prince Al-Walid; Colin Powell, former Secretary of State; James Baker III, former Secretary of State; Caspar Weinberger, former Defense Secretary; Richard Darman, former White House Budget Director; the billionaire George Soros, and even some bin Laden family members. You can add Alice Albright, daughter of Madeleine Albright, former Secretary of State; Arthur Lewitt, former SEC head; William Kennard, former head of the FCC, to this list. Finally, add in the Europeans: Karl Otto Poehl, former Bundesbank president; the now-deceased Henri Martre, who was president of Aerospatiale; and Etienne Davignon, former president of the Belgian Generale Holding Company.

Somehow this mission statement is passe:

Carlyle states that its "mission is to become the premier global private equity firm and to generate extraordinary returns while maintaining our good name and the good name of our partners. Toward that end, we have established a family of funds in the Carlyle name and a network of offices around the world. We maintain the highest standards of ethical conduct and employ a conservative, proven and disciplined approach to investing.

Its public offering raised $670 Million which was used to buy $22 Billion of subprimes. That's leverage of 32:1. It seems that Carlyle Capital and Eliot Spitzer have one thing in common. They both believed they wouldn't get caught.

Carlyle Capital Carlyle Group Mover Mike

In January of 2008 2007, Bear Stearns (BSC) was trading at $170 per share. As I noted here, it dropped almost 50% on Friday to $30. At $30, the market was saying BSC, a firm that had been business for almost 85 years, a firm that never had a losing year, a firm that was 1/3 owned by the employees, was worth over $4 Billion.

Over this weekend the PTB met and rescued the world from a bankruptcy and JP Morgan bought BSC for $2 a share or about $236 Million. Think of the ruined lives, the dreams up in smoke, the possible personal bankruptcies to follow such a devastating development. Think of the possible repercussions even the saving of BSC will have on other financial firms. It makes me gag!

Update: