Saturday, May 30, 2009

Thoughts on Markets, Investing and Life

Second only to "Super Karate Monkey Death Car"** in the depth of it's profound understanding of the market is NewsRadio's Season 3 Episode 9:

Jimmy: Be careful, Beth, because the stock market can be a cruel mistress.
Beth: Well, so can I, but that's not how I want to make my money any more.
Bill: Have you ever lost something very dear to you?
Dave: Yeah, when I was 12, we had this dog...
Bill: I was actually thinking more along the lines of a large sum of cash.
Jimmy: [about a stock ticker] It's just like television, except without all those people doing stupid things to a fake laugh track.
Bill: Give a man a fish, and he'll eat for a day. Teach a man to fish...
Jimmy: ...and he'll spend all his time in the basement tying flies and neglecting his personal hygiene.
-NewsRadio: "Stocks" at IMDB
Here's the video via Hulu, the stock market stuff starts about five minutes in, mouse over the screen for the controls:

**Great. Here I am calling for a midweek pop in the market and Dow futures indicate down 52.
Will this thwart my plans for world domination? In the words of Jimmy James (News Radio):

Mr. James:
"The original title of this book was 'Jimmy James, Capitalist Lion Tamer' but I see now that it's... 'Jimmy James, Macho Business Donkey Wrestler'... you know what it is... I had the book translated into Japanese then back in again into English. Macho Business Donkey Wrestler... well there you go... it's got kind of a ring to it don't it?

Anyway, I wanted to read from chapter three... which is the story of my first rise to financial prominence...

I had a small house of brokerage on Wall Street... many days no business come to my hut... my hut... but Jimmy has fear? A thousand times no. I never doubted myself for a minute for I knew that my monkey strong bowels were girded with strength like the loins of a dragon ribboned with fat and the opulence of buffalo... dung.

...Glorious sunset of my heart was fading. Soon the super karate monkey death car would park in my space. But Jimmy has fancy plans... and pants to match. The monkey clown horrible karate round and yummy like cute small baby chick would beat the donkey."
-Episode #57 "Super Karate Monkey Death Car"
By way of
Well there you go. Pretty much says it all.
-From our Wednesday April 1 post "U.S. stock futures slip to start second quarter".

The Dow Jones Industrial Average closed up 152.68 that day and a further 216.48. the next.
The run actually started a day earlier than I thought it would, with an 86 point advance on Tuesday.

Mom used to say, "It's great fun to fool around, just get your homework done first."

Spoiler ahead!

The stock Beth chose?

Amalgamated Turbine.

Wiped her out.

The market call referred to was a March 30 post, "Getting Ready for the Wednesday/Thursday Market Pop"

A milder hurricane season could still juice energy. And: Knowing your ENSO from a Hole in the Sea

I disagree with the premise of the first piece, it appears the author is practicing "pop hurricanology" but thought I should post it to show the practical [profitable? -ed] advantage of understanding this stuff. Right now, the expectations are for not just fewer hurricanes but for those that do form to have a slight tendency toward a more northerly track i.e. east coast vs. gulf coast landfalls.

With the caveat, of course, that these are some of the most complex systems that humans try to predict and being chaotic, it is probably a Fool's [trader's? -ed] game anyway.

From MarketWatch:
Fewer hurricanes are likely to gather over the Atlantic during the tropical storm season that starts Monday, but it would only take one or two aimed at key facilities to fan already rising oil and gas prices, analysts say.

The National Oceanic and Atmospheric Administration is expecting 14 storms compared to 16 last year, and fewer major hurricanes.

Still, this hurricane season again threatens to halt energy production and swamp key agricultural regions, raising the cost of natural gas, gasoline and even some food, and possibly waylaying a U.S. economy recovery....

...The storms that originate in the Atlantic Ocean can extend to the Gulf of Mexico, where nearly half of U.S. oil refining capacity is located. The region also produces about 15% of the country's supply of natural gas and 7% of its oil. During three out of the past five hurricane seasons, which runs from June 1 through November, natural gas prices made significant gains.

How much damage the expected hurricanes will do is a wild card, however. Meteorologists can't locate the exact landing place of a hurricane from an early forecast.

If they do make landfall, these major storms will likely add to supply concerns, giving traders a new reason to bid up commodity prices. These have seen a sharp rebound in recent months, mostly due to a weaker U.S. dollar and hopes for an economic recovery. Crude oil has rallied more than 90% from its February low, while natural gas has risen about 20% since the end of April. An index gauging the prices of major commodities has gained 14% this month....MORE

From WunderBlog:

El Niño chances rising for hurricane season
Sea surface temperatures in the Equatorial Eastern Pacific have been rising steadily for several months, and there is now a very real possibility that an El Niño event could occur during the peak of the Atlantic hurricane season, August - October.

This is important, since the number and intensity of Atlantic tropical storms and hurricanes is usually reduced during an El Niño year, thanks to the increased wind shear such events bring to the tropical Atlantic. Last month, Columbia University's International Research Institute (IRI) was giving a 30% chance of an El Niño event for the coming hurricane season; this month, they have bumped their odds up to 45%. The Australian Bureau of Meteorology notes that "recent trends are consistent with the very early stages of a developing El Niño". NOAA's Climate Prediction Center forecasts the current neutral conditions in the Equatorial Eastern Pacific will continue into the summer, but shows that their CFS El Niño model is predicting a moderate El Niño event for the coming hurricane season....

Figure 1. Sea Surface Temperature (SST) departure from average for the equatorial Eastern Pacific (the area 5°N - 5°S, 120°W - 170°W, also called the "Niña 3.4 region"). The +0.5°C mark is the threshold for El Niño conditions, and we are very close to that mark now. Image credit: NOAA's Climate Prediction Center.

...Which model to believe?
As is the case with all seasonal forecasts, El Niño forecasts are not very good, and don't do much better than flipping a coin....

What will an El Niño event do to hurricane numbers?
Since the active hurricane period we are in began in 1995, there have been four El Niño events (Figure 3). During these years, the number of named storms, hurricanes, and intense hurricanes 11 named storms, 5 hurricanes, and 3 intense hurricanes. This is close to the average levels we've seen over the past 60 years--10-11 named storms, 6 hurricanes, and 2 intense hurricanes. If, on the other hand, we look at the five years that had neutral conditions, the numbers are considerably higher--18 named storms, 10 hurricanes, and 5 intense hurricanes. So, let's hope for an El Niño this year.

Note, though, that one of our worst hurricane years--2004, which featured hurricanes Ivan, Charlie, Frances and Jeanne, which all affected Florida with hurricane conditions--was an El Niño year. It seems that in years like 2004, there is a lag between the time a El Niño event develops and the response of the atmosphere over the Atlantic. There is no way of forecasting at this point whether this could be the case this year. One argument against a repeat of 2004 is the presence of much lower heat content and SSTs in the tropical Atlantic this year compared to 2004.

Figure 3. Looking at the numbers of Atlantic names storms, hurricanes, and intense hurricanes since 1995.

The hole in the ocean line refers to the relationship between Sea Surface Temperature anomalies and Sea Surface Height anomalies. Long way for a short yuck, I know.
[PDF]Impact of Sea Surface Height Anomalies on Cyclone Track M. M. Ali ...
See also:
More on the Possibility of a Hurricane Striking New York City
Hurricane Forecast Reduced ( "Remarkable Cooling in the Atlantic ...")
AccuWeather cuts 2009 Atlantic hurricane forecast. And: Bill Gray May do the Same
WSI Updated 2009 Hurricane Forecast;. And: El Nino odds rising with warming Pacific

Chinese solar stocks soar as earnings plummet. And: Chinese Solar Index Takes Top Spot

We've been beating this drum publicly for two months* and I am starting to feel a bit of acrophobia.
Two examples, are Trina and Yingli. Since our March 31 post "A Bifurcated Market in Solar Stocks (ENER; FSLR; LDK; SPWRA; TSL; YGE)" Trina is up 137.7% (and is up 315% from it's March 2, YTD, bottom) while YGE is up 112.6% and 279.8%.
From Greenwire via the New York Times:
Chinese solar equipment manufacturers have taken a big hit in the economic downturn. But you wouldn't know it from the way their stock values have been performing lately.

This month, most major Chinese suppliers of polysilicon feedstock and solar photovoltaic equipment have reported their first-quarter earnings, and all are negative. The companies blame their woes on plummeting demand in Europe, tight access to capital caused by the recent credit crunch, and a competitive race for market share that is pushing down the prices of their products.

But Chinese solar companies have been among the strongest performers on the New York Stock Exchange and NASDAQ in recent weeks, outpacing their U.S., Japanese and European counterparts even before the dismal figures came in. Virtually all Chinese solar stocks spiked in trading yesterday.

This morning, Changzhou-based Trina Solar Ltd. (NYSE: TSL) reported that its revenues slid by more than 38 percent in the first quarter compared with the previous fiscal period. The company pulled in roughly $132 million over the first three months of the year, compared with $216.3 million at the end of 2008.

But the company's stock has been on a tear over the past couple of months, rising in value by more than 42 percent so far in May alone, from $15.90 to $22.62 at the close of yesterday's trading. Trina is now one of the highest-valued Chinese solar stocks on the market....MORE, including a look at other names.
Here's Tickerspy:
Can anything hold these stocks back?

A look at the Chinese solar sector's massive aggregated first-quarter losses would suggest that the stocks are getting crushed. Instead, these companies are flying, some by over 30% in the last week, and investors relieved that the companies made it through the worst of the economic rough patch. Today the industry is soaring, with most stocks adding more than 5% to their weekly tallies.

As a whole, the Chinese Solar Stocks Index is up by 4.7% [for the day -ed]. It is crushing the S&P 500 by 58% this month.

The most recent earnings news came from Trina Solar (NYSE: TSL - News), which reported a loss of $10.6 million or 42 cents a share in the first quarter. After excluding one-time expenses, the company recorded adjusted earnings per American Depository Share (ADS) of 2 cents, surprising analysts, who expected an -8 cent loss. Today the stock is an industry laggard, adding 1% to its 20% weekly run.

Suntech Power (NYSE: STP - News), China's largest solar equipment producer, announced today that it closed its 23 million ADS follow-on public offering. Net proceeds from the offering are approximately $277 million. The stock is up by 6% today, adding to its 31% run over the last week.

Canadian Solar (NASDAQ: CSIQ - News) and Yingli Green Energy (NYSE: YGE - News) are both having big days, trading up by more than 6%. Yingli is the Index's top performer this week, adding 35% over five days after receiving a price target increase from Collins Stewart on Monday....

...As of this writing. the Chinese Solar Stocks Index is the top performing tickerspy Index over the last month, gaining 63%....MORE

While the Tickerspy Chinese solar index is up for the month and since our posts, it is still down from it's all time high by a huge amount:

Today: +5.3%
1-month: +63.5%
All-time: -75.1%
The stocks were also up in late after hours trading Friday but I am feeling skittish and could probably get spooked by someone saying "Boo". Keep those mental stops tight.

*See also:
JA, Trina Solar Leads Chinese Solars Higher (JASO; TSL; YGE)

China solar set to be 5 times 2020 target (LDK; TSL: YGE)

China Takes Steps To Rebalance Its Solar Industry (ENER, FSLR, LDK, SPWRA, TSL, YGE)

American vs. Chinese Solar Stocks

Solar: And Now, The Rest of the Story (LDK; TSL; YGE)

Friday, May 29, 2009

Data Points: Energy & Metals

The anonymous, electron-stained wretches, "MarketBeat Staff", known only to God (and their Moms), have been putting together concise 'Data Points' posts on equities and energy & metals on a daily basis, with weekly and month-end overviews. Here's the latest at MarketBeat:

Nymex crude for July delivery rose $15.19 per barrel, or 29.71%, this month to $66.31.

  • Up for the fourth consecutive month.
  • Up 59.09% over the last four months.
  • Largest monthly percentage gain since March 1999.
  • This week, crude gained $4.64 per barrel, or 7.52%.
  • Today, it is up $1.23, or 1.89%.

Nymex natural gas for July delivery rose 46.2 cents per million BTUs, or 13.70%, this month to $3.835.

  • Snaps a ten month losing streak.
  • Largest monthly dollar and percentage gain since June 2008.
  • This week natural gas rose 19.9 cents, or 5.47%.
  • Today, it is down 12.2 cents, or 3.08%.

Here's gold and copper.

America's On-Again, Off-Again Light Bulb Affair;

First up, Jeffrey Ball at the Wall Street Journal:

How long does it take to change a light bulb? Nearly a century and a half, it seems, though a replacement has been around for decades.

In the push for energy efficiency, changing old habits is proving more difficult than developing new technology. In the case of the light bulb, consumers see little reason to switch from energy-draining conventional models to more-efficient alternatives as long as electricity remains cheap....

...And technology marches on. The LED is eclipsing the compact fluorescent as the cutting-edge bulb. Wal-Mart Stores has started selling a consumer LED bulb that uses just seven watts of electricity and claims to last for more than 13 years. It costs around $35 -- a daunting price tag for a light bulb. "We're kind of testing the waters," says Rand Waddoups, Wal-Mart's senior director of strategy and sustainability. "This is a behavior change, and that requires some work.">>>Much More

From the New York Times' Green Inc. blog:

Can Incandescent Bulbs Compete on Efficiency?
Deposition Sciences

Researchers are attempting to create incandescent bulbs that will meet looming efficiency requirements.

The race to find more efficient lighting technologies appears to have an unlikely dark horse: the incandescent light bulb....MUCH MORE

The hybrid was of course predicted by America's Finest News Source in 2006:

Green-Conscious GE Develops Hybrid Lightbulb

FAIRFIELD, CT—One year after pledging to develop more energy-efficient products, General Electric Co. unveiled a product it is calling its most eco-friendly lighting source to date: the first-ever gasoline-electric hybrid lightbulb.

"With the price of gas escalating as its supply dwindles, now is the perfect time to introduce innovative lighting technology that only relies on this fast-depleting, nonrenewable resource for a portion of its power," GE chairman Jeff Immelt said in a statement released Monday.

Enlarge Image Green Conscious Jump R

If the Wisebulb, which will be available in stores by November for the retail price of $89.99, is used only for recommended short-term, dim, and frequent on-and-off lighting, it could eliminate nearly 80 percent of global-warming pollution that would be caused by using solely gas-powered lightbulbs, GE spokesman Brian Tormey said.

"A full tank of gas can illuminate a hybrid bulb for an average of two weeks," Tormey said. "Once the 1.5-gallon tank is empty, all customers have to do is drive their lightbulb to the gas station and fill it up for only about $6."

The hybrid bulb's structure—slightly more complex than the older filament-and-wire models—features a small, efficient four-cylinder internal-combustion engine at the base of the bulb that powers an electric generator attached to the glass mount. The generator produces electricity that is then fed to the electric motor, which ignites a small flame inside the glass casing. Any excess electricity is used to charge the bulb's 300-volt lead-acid battery, which at full capacity is capable of independently lighting a 60-watt bulb for up to 30 minutes....Not Much More

Gold Off To The Races. And: Richard Russell Sees Blow-off Phase coming

The shiny stuff was recently trading at $979.20 up $20.20.
First up, Bespoke Investment Group:


And from The Daily Crux:
The great Richard Russell: We are near the mania phase in gold
By Richard Russell in Dow Theory Letters:

Every major primary bull market takes place in three sentiment phases. The first phase of the gold bull market occurred around 1999 to 2005. This was the "dirt cheap" phase of gold when only the true believers assumed positions. Old timers probably remember back in 2000 when I wrote that the listed gold shares were so ridiculously cheap that they could be bought and "put away" as perpetual warrants.

The second phase of the gold bull market started around 2005 and is still in force. This is the phase where the seasoned professionals and a few more sophisticated funds take their positions. It is in the second phase where we see the most painful secondary corrections. And it is in the second phase where the public first notices the persistent rise in gold. In the current area, gold is just starting to attract the attention of the public.

Every major primary bull market that I have studied or lived through ends up with a wildly speculative third phase. This is the phase where the public and the crowd rushes head-long into the market. We saw this last in the years around 2000 when people bought any kind of tech stock. "I don't care what it is, if it's tech, just get me in!"

My belief is that we're now nearing the beginning of the third speculative phase of the great gold bull market...

Solar: Reed, Dodd call for stronger sunscreen standards

From the Boston Globe:
Two New England senators are pushing for stronger testing and labeling standards for sunscreen.

U.S. Sens. Jack Reed, a Rhode Island Democrat, and Chris Dodd, a Democrat from Connecticut, have introduced legislation that calls on the U.S. Food and Drug Administration to require manufacturers to test sunscreen products against ultraviolet A and ultraviolet B rays....MORE
I guess they're looking ahead to solar cycle 24.

NOAA Predicts Solar Cycle 24
A new active period of Earth-threatening solar storms will be the weakest since 1928 and its peak is still four years away, after a slow start last December, predicts an international panel of experts led by NOAA's Space Weather Prediction Center. Even so, Earth could get hit by a devastating solar storm at any time, with potential damages from the most severe level of storm exceeding $1 trillion. NASA funds the prediction panel.

Solar storms are eruptions of energy and matter that escape from the sun and may head toward Earth, where even a weak storm can damage satellites and power grids, disrupting communications, the electric power supply and GPS. A single strong blast of solar wind can threaten national security, transportation, financial services and other essential functions.

The panel predicts the upcoming Solar Cycle 24 will peak in May 2013 with a daily sunspot number of 90. If the prediction proves true, Solar Cycle 24 will be the weakest cycle since number 16, which peaked at 78 daily sunspots in 1928, and ninth weakest since the 1750s, when numbered cycles began.

The most common measure of a solar cycle’s intensity is the number of sunspots—Earth-sized blotches on the sun marking areas of heightened magnetic activity. The more sunspots there are, the more likely it is that solar storms will occur, but a major storm can occur at any time.

"As with hurricanes, whether a cycle is active or weak refers to the number of storms, but everyone needs to remember it only takes one powerful storm to cause expensive problems," said NOAA scientist Doug Biesecker, who chairs the panel. "The strongest solar storm on record occurred in 1859 during another below-average cycle similar to the one we are predicting."

The 1859 storm shorted out telegraph wires, causing fires in North America and Europe, sent readings of Earth's magnetic field soaring, and produced northern lights so bright that people read newspapers by their light.

A recent report by the National Academy of Sciences found that if a storm that severe occurred today, it could cause $1-2 trillion in damages the first year and require four to ten years for recovery, compared to $80-125 billion that resulted from Hurricane Katrina....MORE

Grain Reserves at 30 Year Lows

From Daily Wealth:
There is some mind-bending stuff percolating in the agricultural markets. In fact, the setting recalls the one that set off the big move in oil prices in recent years...

"Investing in agriculture today will be like investing in the oil sector in 2001-2002," writes Mark McLornan in the May issue of Marc Faber's Gloom Boom & Doom Report. McLornan runs a fund that invests in farmland. Some of his on-the-ground observations confirm many of the things I've been telling my readers for the past several years.

As for likening agriculture today to oil in 2001-2002, an investor's pulse quickens. We all know the great run oil stocks had as the price of oil sprinted from under $30 to a peak of $143 per barrel. Investors made hundreds-of-percent gains – even thousands-of-percent gains. What most investors forget is that oil prices halved from 2000 to the bottom in 2001 before the great run-up. The same sort of setup seems to exist in agriculture.

In agriculture, most commodities are half or so of their June 2008 highs. This is the pause that refreshes. All the kindling that turned them ablaze in 2008 – rice was trading for $1,000 per ton – are still in place for a much bigger surge this time around.

"I believe one should look for areas in which there is underinvestment, low leverage and undersupply," McLornan continues. "Agriculture is one of the very few sectors globally that currently face supply shortages." The biggest reason to get excited about agriculture is to look at the stocks-to-use ratio, which measures how much supply is on hand versus how much we use.

Higher ratios imply a fully supplied market. Lower ratios hint at possible shortages. McLornan provides two charts that show how the stocks-to-use ratios look for wheat and corn, respectively.

The Cupboard Is Almost Bare
Wheat: Stocks-to-use vs. Real Prices
Corn: Stocks-to-use vs. Real Prices

Those ratios today are lean. You have to go back to the 1970s to find inventories this low....MORE
Hat Tip Chain: Market Folly directed us to Commodity Bull Market who writes:
...Investing in grains is actually pretty easy - when supplies are low, and prices are low, you know prices should eventually go up. Then, at some point, high prices spur enough new supply onto the market that prices come down. Ideally, that's when you go short!

You'll notice from the charts that grain stocks and prices move in fairly long cycles - about 15 to 20 years in length. It takes time to bring new supply online, to replenish stocks...ultimately to rebalance the supply/demand situation....
Here's the ten second tutorial on Ag cycles:

The Hog Cycle

No not Harley-Davidson, although I imagine some econ grad student has written the paper.
Wheat and hogs are two commodities with long price series. We mentioned the hog cycle back in January:

The hog price series is one of the longest we have records for, back to the 1200's. The cycle is:
slaughter begets scarcity begets higher prices begets breeding begets over-supply begets slaughter. It's been going on for a while.

Today Professor Mankiw tips us to a government subsidized variation:
We also have an interest in grain reserves. From April '08:
Um, folks, um, maybe we should start thinking about rebuilding our grain reserves.

A Black Swan in Food
...As a follow-up to the PDO/food thoughts that ended the post below and the crop progress report yesterday, we have this snip from Minyanville:

...Donald Coxe, chief strategist of Harris Investment Management and one of my favorite analysts, spoke at my recent Strategic Investment Conference. He shared a statistic that has given me pause for concern as I watch food prices shoot up all over the world.

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Don, you have to go back 800 years to find a period of such favorable weather for so long a time....
From "Climate Change and the Pacific Decadal Oscillation":
...Here's the monthly PDO chart.
You might want to
look up the word famine. And store a couple tons of wheat in a vermin proof room. The risk of a major crop failure somewhere in the world over the next ten years just went up. My best guess (wild-ass variant) would be northeastern Russia/Ukraine. Which could get interesting:
...With the international financial institutions working on a slow track, countries have been cutting their own deals. Ukrainian President Viktor Yushchenko said on Tuesday that he had agreed to let Libya grow wheat on 247,000 acres of land in the Ukraine. In exchange, Libya promised to include the former Soviet republic in construction and gas deals.
-Wall Street Journal
April 14, 2008 Page 1A
And from January this year "Industrialization of China increases fragility of global food supply":
This is something that is truly concerning. Policymakers have to address the greater than trivial chance that there will be a major crop failure sometime in the next decade.
With grain prices down dramatically from last year's highs this would be a very good time to rebuild stocks of grain in storage. We've been beating this drum for a year, it's that serious....
...Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere....
Yeah, we have an interest in this stuff.

GM is Deer Nuts

Under a buck.

Wells Fargo CEO says California in 'financial ruin'. AND: "Billions in new cuts loom for California — including eliminating welfare...

First up, from the Silicon Valley/San Jose Business Journal:

Wells Fargo CEO John Stumpf said Thursday that California’s large budget deficit means state services will have to be cut.

“The state of California is in financial ruin,” Stumpf told those attending a statewide microfinance lenders’ conference at Stanford University. “The budget deficit in California is staggering.”

Stumpf said the recession is taking a toll on some of the loans made to creditworthy borrowers who lost their jobs and fell behind on payments.

“Today we’re charging off loans to people we should have made loans to,” said Stumpf, reiterating that the bank avoided many of the exotic mortgages offered by rivals.

Stumpf’s comments were not intended as guidance on how the San Francisco bank is faring in the second quarter, a bank spokesman said.

The state of California is struggling with a growing budget deficit after tax and financial measures failed at the ballot box this month. Earlier this year, the state delayed tax refunds and other payments due to what State Controller John Chiang called a “cash crisis not seen since the Great Depression.”

The state recently asked the federal government for assistance in guaranteeing California’s short-term borrowings, fearing that it could not raise the money standing on its own credit.

On the national economy, Stumpf said this is his “third rodeo” or downturn. He pointed to the deep recession of the early 1980s when the prime rate hit 21 percent and the struggling economy of the late 1980s that counted most the nation’s largest thrifts and major banks in Texas among its casualties. He says the economic fallout from the dot-com bust and Sept. 11 terrorist attacks was significant but not as harsh as the earlier recessions.

“This one feels different,” Stumpf said. “It feels different in the respect that the whole world is in recession.”>>>MORE

We are now seeing prime borrowers defaulting.

The next story is a bit deceptive. While the bare facts are prima facie true, the writer does not point out that some of the program cuts are not the primary safety net programs but extensions. That said, the extent of the human impact is going to be very large. From the Silicon Valley Mercury News:

Faced with a ballooning deficit and a clear signal that voters won't pay more to fix it, California Gov. Arnold Schwarzenegger released a budget plan Tuesday that would eliminate welfare, drop 1 million poor children from health insurance, cut off new grants for college students and shut down 80 percent of state parks.

In a state that long has prided itself on its social safety net, it could well go down in history as the most drastic reduction in social programs ever. And billions in further cuts will be unveiled later this week.

The governor's proposal to whack an additional $5.5 billion from state programs stunned even longtime Capitol-watchers with its blunt force. Ending cash assistance for 1.3 million impoverished state residents, for example, would make California the only state with no welfare program.

"Every single first-world nation has a safety net program for children," said Will Lightbourne, Santa Clara County's social services director. "This would return us to the era of Dickens — you'd have to go back to the 19th century to find a comparable proposal."

The governor's office reiterated that the cuts were painful but unavoidable, with the proposed budget for the 2009-10 fiscal year already outdated before lawmakers even begin debate. Schwarzenegger's finance team now says the deficit will grow to $24.3 billion by July 1, up from the previous $21.3 billion projected shortfall....

...So, in the wake of the resounding "no" that came from a disillusioned electorate, he has held true to his promise and then some:

  • The budget proposal would eliminate vast swaths of programs, including CalWORKs — the welfare program serving more than 521,000 families who now receive $526 average monthly grants — and Healthy Families, which subsidizes health care for low-income children whose families don't qualify for Medi-Cal. Those cuts would also cost the state billions in federal matching funds.
  • Medi-Cal coverage for dialysis and for breast and cervical cancer treatment for those over age 65 would be cut. Undocumented immigrants would lose nonemergency health care.
  • In the prisons, rehabilitation, education and vocational programs would be hacked. So would the sentences of nonviolent, non-serious offenders, who would go free a year early.
  • More than 200,000 college-bound students would lose some or all of their tuition assistance under the Cal Grant program. New grants for students to attend college would be eliminated, and existing grants would be reduced. All of that would come on top of $335 million in cuts for the University of California and California State University systems — which already have seen $415 million in cuts this year, forcing student fee increases....
  • On that last point, remember the chart of the top ten public employee pensioners from Wednesday's "Damn! California Public Employees Get Paid A Lot...":

    Here are the top CalPERS pension beneficiaries via Mike Shedlock:

    CalPERS Top 10

    click on chart for sharper image

    Giant underwater volcano found off Indonesia

    Further proof that Homo Sapiens really don't know all that much about how the pieces fit together. After the headline story from EarthTimes I'll link to one of the most amazing finds of the last couple years.
    From the ET:
    Jakarta - Scientists have discovered a giant undersea volcano off Indonesia's Sumatra island, the state-run Antara news agency said Friday. The volcano spans 50 kilometres at its base with a height of 4,600 metres, said Yusuf Surachman, a director at the state-run Agency for the Assessment and Application of Technology. Indonesian, American and French scientists found the volcano 330 kilometres off Bengkulu province on Sumatra while they were surveying the sea floor to study changes in its geological structure following major earthquakes in the region. "This volcano is huge and tall. There are no volcanoes of similar height on Indonesian land," he was quoted as saying by Antara. Surachman said the scientists did not know if the volcano was active....
    Did you catch that? A volcano 15,000 feet tall and thirty miles across at its base. And, oh, it might be active.
    Here's a 2007 story from NewScientist that I posted at Climateer:

    The true extent to which the ocean bed is dotted with volcanoes has been revealed by researchers who have counted 201,055 underwater cones. This is over 10 times more than have been found before.

    The team estimates that in total there could be about 3 million submarine volcanoes, 39,000 of which rise more than 1000 metres over the sea bed.

    Human beings aren't near as smart as we think we are, a point I exemplify on a daily basis at Climateer Investing.

    From NewScientist

    Thursday, May 28, 2009

    Buffett Aide Sokol Says Housing, Economy Aren’t Near Recovery (BRK.A)

    Being a major player in electricity generation/distribution and owning the second largest real estate brokerage operation in the country gives Mr. Sokol insight into the actual state of the economy that other commentators just don't have.
    From Bloomberg:
    The U.S. housing market is nowhere near recovery and signs of stabilization are premature, said David Sokol, a top aide to billionaire investor Warren Buffett who oversees the nation’s second-largest real estate brokerage.

    Sokol was among money managers who told an investment conference in New York the economy is still deteriorating and they don’t have a lot of confidence in President Barack Obama’s economic policies.

    “We’re not seeing the green shoots,” said Sokol, head of MidAmerican Energy Holdings Co., which owns HomeServices of America Inc. “We don’t see improvement.”

    MidAmerican is owned by Buffett’s Berkshire Hathaway, and Sokol is considered a possible successor to Buffett as head of Berkshire. Sokol spoke before reports today showed new-home sales posted their second increase in three months during April, and mortgage delinquencies and foreclosures rose to records in the first quarter.

    Homes in the process of foreclosure are creating a “shadow backlog” of unsold properties that will continue to hang over the market, Sokol, 52, said in a speech yesterday at the Ira W. Sohn Investment Research Conference in New York.

    While official statistics show a 10- to 12-month supply of unsold homes, “we believe the backlog of homes for sale is twice that.”

    Balance in 2011

    Many people who want or need to sell their homes haven’t put them on the market yet because the outlook for sales has been poor, he said. “It will be mid-2011 before we see the market in balance,” with no more than a six-month backlog, he said....MORE

    Oil soars past $65. And: Rising oil may test U.S. economy's green shoots

    Two from Reuters:
    Oil surged past $65 a barrel on Thursday to a fresh six-month high after OPEC decided to keep output unchanged and government data showed a steep drop in U.S. crude inventories.

    U.S. crude oil for July delivery settled up $1.63 to $65.08 a barrel, the highest settlement since November 5, after hitting an intraday high of $65.44. London Brent crude rose $1.89 to settle at $64.39 a barrel....MORE


    Swiftly rising oil prices threaten to sap the buying power of U.S. consumers who are essential to ending the longest recession since the Great Depression.

    Oil has been on a tear in the last five weeks, rising 48 percent since April 21 to hit a 2009 intraday peak above $65 per barrel on Thursday. Part of that reflects hopes that the global economy is inching out of a deep slump, but it may also have something to do with investors seeking an inflation shield as the U.S. dollar weakens and government spending grows.

    While oil is nowhere near last summer's record high of $147 per barrel, the run-up in prices comes at a fragile time for the U.S. economy and so could prove particularly harmful. Unemployment is at its highest level since 1983 and wages are growing at the slowest rate on record, leaving consumers with a much thinner cushion to absorb rising costs.

    "We're counting on consumers to be the spending that eventually brings us back on track," said James Hamilton, an economics professor at the University of California, San Diego, who has studied the role that last year's oil price spike played in triggering the current recession.

    Hamilton said oil is not yet expensive enough to cause the same degree of pain it did last year, when gasoline prices exceeded $4 per gallon and squashed consumer spending, but if it continues to increase it could "postpone some of the recovery we'd been hoping for."

    The U.S. Federal Reserve, which is currently more concerned about deflation than inflation, would find itself in a tough spot if oil prices sparked a bout of inflation. Its strongest inflation-fighting medicine is higher interest rates, but that would put an unwelcome drag on economic growth....MORE

    TRADE WAR! "Protectionist Breezes: Wind-Power Companies Cry Foul on China"

    Say it like "Toga Party!".
    I see the Running Dogs at Environmental Capital have beaten me to the 'send key' on this story.
    Actually, I shouldn't joke about this. If you want to see 20% inflation rates, 25% interest rates and 25% unemployment just keep poking the Dragon.

    Our unsustainable fiscal and monetary policies have allowed China to have us over a barrel. Frankly, if I were China I would push it, right now. The administration has shot it's wad as far as non-inflationary stimulus is concerned (maybe over-shot). The Fed can't keep interest rates down, even with their extraordinary purchases of treasuries, we are at a point of extreme vulnerability.
    From Environmental Capital:

    There is an ugly side to China’s headlong rush into clean energy: Protectionism.

    Foreign firms complain that China’s quest for a domestic clean-energy industry is coming at their expense. European and U.S. wind-turbine makers, in particular, say they are being squeezed out of one of the world’s fastest-growing wind-power markets because of discriminatory rules for bidding on power projects. Here’s the European discontent:

    “All the foreigners are out of the race,” Jorg Wuttke, the [European Union Chamber of Commerce in China’s] president, said at a media briefing in Beijing today. “There seems to be a drive by the central government to award this to Chinese and not Europeans established in China.”

    In a nutshell, rules for getting a piece of the $7 billion wind-energy part of the Chinese stimulus all boil down to the cost of wind turbines—not factors such as equipment reliability or the total cost of generating clean electricity. That favors Chinese makers and punishes foreign companies such as General Electric, Vestas, and Gamesa, Mr. Wuttke said.

    This isn’t the first time foreign companies have complained about China’s often Byzantine rules for bidding on public projects. The EU’s Chamber of Commerce includes that as one of its standing complaints about doing business in China. The desire to support homespun industry isn’t unique to China. Recall the “Buy American” rider in the U.S. stimulus package....MORE

    Here are the links I so laboriously gathered (and EC so blithely inserted into their post):

    From Bloomberg:

    China Rules Block Overseas Bids for Energy Projects, Group Says
    From Reuters:

    Foreign firms cry foul over China wind power rules

    From the Financial Times:

    Protectionist fears over China stimulus

    Just wait til the markets figure out the Chinese solar incentives. Here are some of our posts, in reverse chronological order, over the last couple months:

    China solar set to be 5 times 2020 target (LDK; TSL: YGE)

    China Takes Steps To Rebalance Its Solar Industry (ENER, FSLR, LDK, SPWRA, TSL, YGE)

    American vs. Chinese Solar Stocks

    Solar: And Now, The Rest of the Story (LDK; TSL; YGE)

    A Bifurcated Market in Solar Stocks (ENER; FSLR; LDK; SPWRA; TSL; YGE)
    ...Third, it is no longer a homogeneous, run with the pack, industry.
    The Chinese solars will be favored by the Chinese government. And catch a break from the decline in silicon costs. Investors are going to have to know what differentiates these companies, it's not 2007 and never will be again.

    Wind: "China, Japan on collision course over rare-earth metals"

    A subject we've been pounding the keyboard over, this time presented from a geopolitical perspective. I'll link to prior posts below this article from the Times of London via The Australian:
    JAPAN'S increasingly frantic efforts to lead the world in green technology have put it on a collision course with the ambitions of China and dragged both government and industry into the murky realm of large-scale mineral smuggling.

    The robust international trade in illegally mined, quota-busting rare-earth metals highlights China's near monopoly on the raw materials for environmental technology - a 95 per cent dominance of world supply that is likely to become more widely noticed as China tightens its grip.

    The weight and magnetic properties of rare-earth metals have made them important for wind turbines, essential to hybrid cars, and indispensable if the world ever hopes to covert to fully electric vehicles.

    One mining company president told The Times that governments that had promised a way out of economic turmoil with bold schemes to subsidise green cars, solar panels and other environmental technology had "spoken without understanding the upstream of modern products".

    Don Burbar, the chief executive of Avalon Rare Metals, said: "The crux of the matter is that there are now a lot of technologies that can't work without rare earths, and China is currently in effective control of the global supply. China has positioned itself to retain control, and meanwhile politicians around the world do not appreciate how the supply side of green technology works."

    In Japan, the world's biggest importer of rare-earth metals, more than 10,000 tonnes per year about a fifth of the country's total annual consumption are thought to enter the country through a thriving black import network without which Japan would already be in a severe supply crisis, a senior government official said....MORE
    Prior posts on rare earths:
    China tightens grip on rare earths

    With a Name Like Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., it has to be good

    Wind: So Why the Interest in Rare Earths?

    Wind: Why rare earth metals matter

    WSI Updated 2009 Hurricane Forecast;. And: El Nino odds rising with warming Pacific

    With the start of the 2009 hurricane season on Monday we are welcoming Dr. Jeff Masters' Wunderblog back to the blogroll.
    As we have for the last couple years we will supplement his thinking with the Houston Chronicle's SciGuy for action in the Gulf and the Sun-Sentinal's Storm Center for Florida. Of course we'll also be drawing off NOAA and the National Hurricane Center.

    For now, it appears that the P&C insurers will make money. That of course could change any day but it's the way to shade the betting.
    From the WSI press release:
    WSI Corporation's updated 2009 hurricane season forecast continues to call for 11 named storms, 6 hurricanes, and 2 intense hurricanes (category 3 or greater).

    Ocean temperatures in the tropical Atlantic are cooler, relative to normal, than at any time since 1994
    These forecast numbers are the same as the previous WSI forecast issued in April due to a continuation of relatively cool tropical Atlantic Ocean temperatures and a trend towards El Nino conditions in the tropical Pacific. The 2009 forecast numbers are quite close to the long-term (1950-2008) average of 9.8 named storms, 6.0 hurricanes, and 2.5 intense hurricanes, but are significantly lower than the numbers from the relatively active seasons of the past 15 years.

    The 2009 WSI tropical forecast comes on the heels of a very successful 2008 forecast. The WSI December forecast values of 14 named storms, 7 hurricanes, and 3 intense hurricanes were slightly smaller than the final observed 2008 values of 16/8/5. The subsequent updates improved the forecast further, as the April 2008 updated forecast values of 14 named storms, 8 hurricanes, and 4 intense hurricanes were the most accurate amongst the publicly-available forecasts issued last spring.

    "Ocean temperatures in the tropical Atlantic are cooler, relative to normal, than at any time since 1994," said WSI seasonal forecaster Dr. Todd Crawford. "Further, the recent La Nina event has now ended and a trend towards El Nino conditions has begun, and because of this we expect at least slightly above-normal wind shear in the tropical Atlantic this season. Neither the cooler tropical Atlantic nor the expected wind shear conditions are enabling for tropical activity this year. While we have persisted our forecast numbers in response to the latest information, future changes to our forecast are more likely to be towards smaller numbers than larger numbers.">>>MORE

    From Reuters:

    The chances of a 2009 El Nino, a warming of eastern Pacific waters that often brings drought to Australia's farmlands, has risen and is above a 20 percent probability, the Australian Bureau of Meteorology said on Thursday.

    International climate models are now predicting a warming of the Pacific Ocean," said the bureau.

    "The average of the forecasts from each of these five models predict El Nino conditions being established by the southern spring, and by mid-winter in four of them," said the bureau in its latest report.

    "With this higher predictability and better agreement between the forecasts, the probability of the development of an El Nino event in 2009 is now much higher than one month ago and it is significantly higher than the climatological probability of about 20 percent."

    The possibility of a drier spring could reduce estimates of Australia's 2009/10 wheat crop, now being planted....MORE

    Regular readers may remember this map and commentary from May 14's "AccuWeather cuts 2009 Atlantic hurricane forecast. And: Bill Gray May do the Same":

    Here's the latest anomaly map from Unisys Weather:

    Current Sea Surface Temperature Anomaly Plot

    Here are the tables of monthly values for the AMO and the PDO. One quick note, the El Nino-Southern Oscillation (ENSO) is distinct from the PDO but the PDO cool phase appears to correlate with a 2:1 La Nina/El Nino ratio whereas the warm phase correlates with twice as many El Nino's. Here is the current Oceanic Nino Index.
    See also:
    US Climate Update: Driest Start to Year on Record
    ...*Note: Although the AMO is in it's warm phase, the monthly sea surface temperature anomaly is currently negative. This happens. During the 30-year warm phase of the PDO that ended in September 2007, there were months in which the anomaly fluctuated in the opposite (cooler) direction. The east coast drought appears closer to the historical record for -AMO/-PDO. It should break when the AMO anomaly rises. This stuff is so exceedingly complex that it is probably impossible to model with any degree of resolution (granularity), it is more about shading the odds in one direction or another. If you want certainty, go rig a market (or something)....
    More on the Possibility of a Hurricane Striking New York City
    Atlantic Hurricane Season Will Be Less Active, AccuWeather Says

    See also April 20's "Hurricane Forecast Reduced ( "Remarkable Cooling in the Atlantic ...")"

    Coal Giant Looking to Wind in Wyoming? (BTU)

    From the St. Louis Post-Dispatch:
    Thousands of tons of coal a day flow from Peabody Energy Corp.'s three Powder River Basin mining complexes in northeastern Wyoming to power plants across the country.

    But the sprawling mines aren't just major sources of power plant fuel. The mammoth shovels, drag lines and conveyors used to scrape away earth and transport coal to rail cars are also big electricity users.

    Like other businesses, the mining industry is constantly searching for ways to reduce energy costs. For Peabody, the world's largest private sector coal producer, that quest has executives considering an unlikely option — wind.

    "We are evaluating whether or not one or several wind turbines may be helpful in supplementing the power supply," said Vic Svec, a Peabody vice president. He added that Peabody was still in the early stages of its analysis and couldn't say how many turbines it was considering or when a decision would be made.

    Peabody is quick to note that it already benefits from low-cost electricity in Wyoming, fueled mostly by home-grown coal. But the company is also keenly aware of the state's wind resources and is looking for ways to reduce its energy costs, Svec said.

    For instance, Peabody already installed miles of conveyors to move coal to train loading facilities — a move that will take huge trucks off of haul roads and save the company millions of gallons of diesel fuel.

    Wyoming, which is easily the nation's largest coal producer, also ranks No. 7 in the nation in wind energy potential, according to a Department of Energy study. And wind energy development in the state is rapidly expanding....MORE

    Over the last year BTU has almost exactly matched the PowerShares WilderHill Clean Energy ETF (PBW), while both have trailed the S&P 500 (^GSPC) of which BTU is a component. Chart via Yahoo Finance:

    Chart for Peabody Energy Corp. (BTU)

    Solar: European Cold and Snow Smack Trina Numbers, Stock Will Probably Trade Up (TSL)

    In early pre-market trade the stock is down $0.62 (2.74%). The pattern of the Chinese solars has been "Let's get this quarter out of the way and hope for better days". From the press release:
    ...First Quarter 2009 Financial and Operating Highlights

    -- Solar module shipments were 48.8 MW, compared to the Company' s previous guidance of 50 MW to 55 MW, representing a decrease of 15.3% sequentially and an increase of 65.5% year-over-year

    -- Total net revenues were $132.1 million, a decrease of 38.9% sequentially and an increase of 9.5% year-over-year

    -- Gross margin was 17.2%, exceeding the Company's previous guidance of between 15% and 17%, compared to 9.6% in the fourth quarter of 2008

    -- Operating income and operating margin were $6.8 million and 5.2% respectively, compared to $3.9 million and 1.8% respectively in the fourth quarter of 2008

        -- Net loss was $10.6 million, which includes
    -- a $6.5 million tax liability accrued in the first quarter resulting
    from a reversal in the government's approval for a past tax holiday

    -- a charge of $4.6 million for the estimated cost in connection with
    the cancellation of two polysilicon supply agreements

    -- Earnings per fully-diluted ADS was negative $0.42, which includes a negative impact of $0.44 per fully diluted ADS for the above reasons

    "Our first quarter was adversely affected by unusually harsh weather in our key European markets, tightened credit conditions for our customers and the general slowdown in world economic activities," said Mr. Jifan Gao, Chairman and CEO of Trina Solar. "Improved conditions beginning in April have contributed to increasing customer deliveries and higher levels of new contracts and projects."...MORE

    The conference call is in progress, I'll have the transcript tomorrow. The replay is available here.

    Wednesday, May 27, 2009

    Solar: Huge New Polysilicon Supply

    Everyone knew this was coming online but man that's a lot of PolySi. From PV-Tech:

    Hemlock Semiconductor begins operation of 8500-mt polysilicon plant in Michigan

    Hemlock Semiconductor Group has begun operation of a new 8500-metric-ton polysilicon production facility several months ahead of schedule. The plant, located in Hemlock, MI, is the first phase of a planned $1 billion expansion at the site.

    The company says the second phase of this capacity expansion will start to become operational in 2010 and, together with the initial phase, will increase the total annual capacity onsite to approximately 36,000 metric tons.

    Excavation has already begun on the site of Hemlock's new polysilicon manufacturing facility in Clarksville, TN, according to the company. Construction will soon begin on plant, which is scheduled to come online in 2012.

    Hemlock has announced investments totaling more than $4 billion over the past five years, moves that will expand the company's capacity by nearly 10 times while creating more than 1500 new jobs....MORE
    Here's the press release:
    Hemlock Semiconductor Group Brings New Polysilicon Capacity Online for Solar and Semiconductor Industries

    Climate conference sex boom

    Since we've already had one post on whores (Latvian Hookers Signal No Recovery for Economy), I was reluctant to post this one but the alternative was Jeff Immelt and GE who seemed to be ubiquitous today.
    So what the heck, I suppose they are greencollar jobs.
    From Politiken.DK:

    Copenhagen’s sex trade did brisk business during the recent business climate conference.

    The global climate challenge may have been on the daytime agenda during the recent World Business Summit climate conference in Copenhagen, but in the evenings many businessmen, politicians and civil servants are reported to have availed themselves of the capital’s prostitutes.

    “We’ve been extremely busy. Politicians also need to relax after a long day,” says ‘Miss Dina’, herself a prostitute.

    Good for the economy
    Nyhedsbrevet 3F called various escort agencies and prostitutes to hear whether they had been busier than normal during the climate conference – and all agreed; summits in Copenhagen are good for the economy....MORE
    HT: Green Sheet

    Hey! How are We Doing With "Short GM to Zero: Obama Auto Team Drives Imports"

    The stock just traded at $1.20 down 24 cents (16.7%) on the day. The original thesis still stands.
    (don't ya just hate the term "investment thesis"?)
    The company was insolvent back in November. The only question was political.
    The "Auto Team..." post was just shorthand for which way the wind was blowing.
    Originally posted February 23, 2009:

    Short GM to Zero: Obama Auto Team Drives Imports

    The stock was recently $1.86 up nine cents.
    From the Detroit News:

    The vehicles owned by the Obama administration's auto team could reflect one reason why Detroit's Big Three automakers are in trouble: The list includes few new American cars.

    Among the eight members named Friday to the Presidential Task Force on the Auto Industry and the 10 senior policy aides who will assist them in their work, two own American models. Add the Treasury Department's special adviser to the task force and the total jumps to three....MORE

    Since that date the Dow Jones Industrial Average, of which GM is a component, is up 1263.61 points or 15% while GM is down 35.48%. It is going to zero.

    Damn! California Public Employees Get Paid A Lot...

    ...and they have a pretty sweet pension deal too! Here's a threefer, starting with Clusterstock:

    In a way this is actually really good news. Seeing how much state workers in California make means the state should be able to cut a lot of fat without drastic cuts in services.

    Over at MyProps, a user has posted a list of some San Francisco salaries, based on this database, and as you can see, they make some pretty tall coin. We're talking police officers and various public health officers making over $200,000. Now it's true that San Francisco is an expensive city, but it's true that a lot of people get by on much less than that....

    Here are the top fifty salaries:

    san francisco salaries

    Here are the top CalPERS pension beneficiaries via Mike Shedlock:

    CalPERS Top 10

    click on chart for sharper image

    Here's the database of the $100K Club, 5115 members at last count and growing.

    Here's a Climateer Investing post from a year ago:

    Green Collar Jobs: What Do they Pay?

    With all the political positioning of climate legislation as 'creating' jobs it is startling how reticent the proponents are about actual numbers. From doing due diligence I know some of the numbers but public sources that have specific wages that I can link to aren't common.

    Some of the jobs are well paying. For example the insiders at First Solar have sold $1.1 Billion worth of stock in the last 15 months.
    (bless those German hausfraus paying the feed-in tariff)

    The City of San Francisco seems like a good place to look for work:

    ..."If there are 25 people working on climate protection issues for the city, that's a good start," Newsom spokesman Nathan Ballard said....

    ...At least 12 San Francisco Public Utilities Commission staff members work on climate issues related to water and energy, including a $146,000-a-year "projects manager for the climate action plan."...

    The list doesn't include the scores of staff members who work on broader environmental policies, like the recently hired $130,700-a-year "greening director" in Newsom's office...

    How Lobbying Exacerbated the Financial Services Bubble

    Oxford Analytica via Research Recap:
    Guest post by Oxford Analytica.

    A recent report by the Center for Public Integrity, an advocacy group, documents the extensive, long-term lobbying efforts of 25 firms involved in fostering the hectic growth of the sub-prime mortgage industry. During the peak years of the sub-prime market in 2005-07, these leading securities and investment companies made millions of dollars in campaign donations to both Democrats and Republicans with a stake in overseeing the industry.

    While the report has received widespread media coverage in the United States, there is nothing particularly remarkable about its conclusions. Business lobbying is as old as the US republic and is constitutionally protected under the First Amendment. Indeed, furious lobbying and overt political corruption (which would be impossible under current rules) facilitated the post-Civil War railroad construction boom — and bust.

    However, lobbying may have helped exacerbate the size of the financial services bubble — and the consequences of its implosion.

    • • One credible estimate suggests that over the course of the last decade, the financial services sector collectively donated 2.2 billion dollars to political campaigns, and spent 3.5 billion dollars on lobbying activity in Washington.
    • • This may have helped produce a sanguine political response to the surge in sub-prime lending: from 2000-07, the most active 25 originator firms issued approximately 1 trillion dollars in sub-prime mortgages to over 5 million borrowers — generating billions of dollars in additional revenue.
    • • Of course, the sector’s implosion ultimately created a surge in systemic risk, led to the collapse of several major financial institutions, and necessitated hundreds of billions of dollars in federal bailout outlays.
    • Financial lobbying tactics. In their lobbying efforts, the financial services community has pursued two key tactics:...MORE

    Fed May Have to Keep Rates Near Zero for Years

    This is recapitalizing the banks at the expense of savers, pure and simple.
    From the Wall Street Journal's Real Time Economics blog:

    Strains on the U.S. economy are so profound the Federal Reserve will be shackled to its zero interest rate policy for years to come, a San Francisco Fed economist argues in new research.

    Writing for the bank’s Economic Letter, Glenn Rudebusch says the Fed’s history and its current economic expectations indicate “the funds rate should be near its zero lower bound not just for the next six or nine months, but for several years.”

    The economist said the Fed will need to maintain this stance in part because its current interest rate policy is not easy enough, having been constrained by an inability to go below zero.

    “In order to deliver a degree of future monetary stimulus that is consistent with its past behavior, the FOMC would have to reduce the funds rate to -5% by the end of this year — well below its lower bound of zero,” he wrote. That’s not possible, and it explains why the Fed will have to keep rates where they are for such a long time....MORE

    See also:
    April 2009
    Free Money Good for Bank Earnings, says Faber

    December 2008
    "Mom, Ben Bernanke Likes Bankers Better than He Likes You"
    ...Savers are getting screwed as banks reliquify their balance sheets.
    The ostensible reason short rates are now officially at 0.2% is to encourage banks to lend.
    It's not going to happen. The banks are not taking on individual's or commercial's risk. Auto loans for a FICO score of less than 720 aren't being written.
    So what are they doing? Carry-trade (say it like "Toga party").
    For months, the borrow U.S. short, lend U.S. long has been used to rebuild banks balance sheets, destroyed by their former business practices.

    Now with the Fed explicitly committed to lowering long rates (the 30-year trading at 2.63%, the 10-year at 2.144%), even borrowing at 0.2% doesn't give enough spread to run cash flow through the income statement and onto the bank's balance sheets.
    What will the banks do? My guess is they will start buying sovereign debt for the yield, maybe even selling it to the Fed so they can take the money and do it all over again.
    Right now Australian 15-years are priced at 4.20%.

    Today, the American saver gets a pittance in a money market. It's really nothing but a wealth transfer racket.
    Mom, we're going to Sydney.
    Similar thoughts at "Investment Postcards from Cape Town":


    ...Hat tip: Mish, Global Economic Analysis

    ...Sharing my sentiments, Bill King (The King Report) commented: “Ben Bernanke and the Fed just screwed everyone in the US, and some abroad, that played by the rules, was prudent and live on fixed incomes. Ben, just like Easy Al, is once again redistributing wealth from the prudent, the savers and retirees to the reckless and the boobs that created this mess. But the Fed, via its communiqué, is admitting that it is petrified of what is occurring in the economy and financial system so it is now in all-out money/credit dump mode.”...