Reuters reports that President Obama will unveil his 2011 Budget on Monday, and the price tag is going to be $3.8 trillion.
$300 billion increase from his 2010 budget of $3.5 trillion. So what if he finds $20 billion savings?
If the receipts projected for 2011 haven't changed (last updated in May 2009), they will be about $2.7 trillion. The deficit (receipts minus outlays) will be $1.1 trillion in 2011, making it the second consecutive year of over $1 trillion deficit.
If you look at the budget projection summary by the White House, you'll find that it is made of very optimistic (if not irrational) assumptions. It reminds me of the budget of the State of California, which was based on ever-increasing housing price.
For example, receipts (personal and corporate taxes) in 2010 is supposed to grow by a robust 8.2% from 2009, on a 3.4% growth in GDP. Receipts in 2011 is supposed to grow by a phenomenal 15.1%, while GDP grows by 5.2%. Receipts in 2012 is supposed to grow by another 14.5%, and GDP by 6.2%.
And all the while, government spending (outlays) is supposed to stay flat.
Well, flat no more. Instead of 2010 projection of 0.7% growth for 2011, outlays will grow by 5.8% if Obama's budget is indeed $3.8 trillion.
Even before the 2011 budget announcement, the projection by the White House assumes average 5.5% annual increase of receipts from 2009 to 2019, GDP increase of 4.4%, and outlays increase of 5.6%. The White House clearly does not see any "double-dip" or any dip in the next 10 years.
So, tax receipts are to increase at a higher pace than the GDP increase, and the government spending is to outpace both tax receipts and GDP. The budget deficit incurred from 2009 to 2019 will be $9 trillion under the current White House projection, and over $11 trillion with new 2011 budget and apply the average annual increase of outlays of 5.6%.
So what's this talk of reducing the deficit? An empty talk, nothing more.
Current budget deficit, as Timmy Geithner's Treasury Department (Debt to the Penny) tells us, is about $12.3 trillion.
(By the way, Treasury has the site where you can make donations to reduce the public debt, at Pay.gov.)
I have a feeling that Obama may not want to be elected for the second term, and may be wishing that the presidential election is every two years.
Saturday, January 30, 2010
Reuters reports that President Obama will unveil his 2011 Budget on Monday, and the price tag is going to be $3.8 trillion.
I saw this banner ad on a Yahoo Finance page yesterday. Donald Trump is offering a free seminar on how to invest in real estate. If you go to the site, you are greeted with a video that proclaims "This is the best real estate investing market in the history of our country!"
You would think real estate properties are the last thing that any sane person wants to invest, given what has transpired since 2007.
Anecdotal evidence in the local residential real estate market shows there are buyers, a great many of them, buying across the board - from trailer homes to multi-million-dollar beach properties. Real estate professionals in the area say many of these investors are cash buyers, including foreign buyers, buying up short sales and foreclosures. Higher-end properties that are not short sales or foreclosures have started to move. The inventory level is actually back to where it was at the peak of the housing bubble: mere 4.6 months.
Is it possible that the real estate market is clearing, at least the residential market? Or is it just the banks are withholding the inventory and the worst is yet to come?
Friday, January 29, 2010
After taking a shot at the SCOTUS (Supreme Court of the United States) judges in his SOTU (State of the Union address, that is) on Wednesday night (which by the way was highly innacurate at best, outright lie at worst), the president went to the Republican policy retreat to lecture Republicans. (How come he always sounds angry like a middle school principal?)
President Obama rumbles with House GOP (1/29/2010 Politico)
"BALTIMORE — President Barack Obama on Friday accused Republicans of portraying health care reform as a "Bolshevik plot" and telling their constituents that he’s "doing all kinds of crazy stuff that's going to destroy America."
"Speaking to House Republicans at their annual policy retreat here, Obama said that over-the-top GOP attacks on him and his agenda have made it virtually impossible for Republicans to address the nation’s problems in a bipartisan way.
"“What happens is that you guys don’t have a lot of room to negotiate with me,” Obama said. "The fact of the matter is, many of you, if you voted with the administration on something, are politically vulnerable with your own base, with your own party because what you've been telling your constituents is, ‘This guy's doing all kinds of crazy stuff that's going to destroy America.'"
Negotiate what? The health care bills, both House and Senate, were crafted behind closed doors by Democrats and the White House, shutting out Republicans and the general public. C-Span has complained that it was allowed only 1 hour of health care coverage, despite the presidential pledge of transparency. What's there to negotiate, when you don't even really know what's in it?
Besides, why do Republicans want to negotiate, if they believe the whole thing should be scrapped, as 61% of Americans do?
As for 'This guy's doing all kinds of crazy stuff that's going to destroy America', an increasing number of Americans think that way, including this World War II veteran.
I can see two ways to deal with a person who comes in to lecture you whether he is right or wrong. One is to lecture back, point by point, word for word. The other is to laugh at him for telling them a nice joke. But these Republicans invited him in and let him play his game.
And what the hell is the president doing, hopping from one town to another? Is there not enough work to do in Washington? Does he think he is still a presidential candidate? Oh I forgot. The old campaign management team is back, so he is running a campaign again. The difference is that the taxpayers are footing the bill for his trips now.
So Obama scolded the Supreme Court, Congress, and the American people who oppose his policies in his SOTU, and Republicans again today. No one left to scold in this country. Who's next? Chinese, whose electric blankets are to be taxed 175%? Japanese, whose No.1 auto maker is being hauled in front of Congress? Russians, who just unvailed its first stealth fighter? He'd better be careful, for they may simply dump all their Treasury holdings in response...
Thanks mostly to the inventory replenishment.
Economy grows at 5.7 pct pace, fastest since 2003
(1/29/2010 AP via Yahoo Finance)
WASHINGTON (AP) -- The economy's faster-than-expected growth at the end of last year, fueled by companies boosting output to keep stockpiles up, is likely to weaken as consumers keep a lid on spending.
The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. It marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast.
Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will grow 2.5 percent to 3 percent in the current quarter and about 2.5 percent or less for the full year.
That won't be fast enough to significantly reduce the unemployment rate, now 10 percent. Most analysts expect the rate to keep rising for several months and remain close to 10 percent through the end of the year." [The article continues.]
Well, 5.7% GDP growth didn't produce any increase in employment. Why would you assume 2.5% GDP growth would reduce the unemployment at all?
Of 5.7% growth,
- 3.4% from replenishing depleted inventories
- 1.4% from consumer spending (Cash for clunkers and first-time homebuyer credit have a lot to do with it, a market distortion)
- 0.5% from net exports
The stock market is either not impressed, selling the news, or not believing the government number (or all three). All major stock indices are presently negative for yet another day. The slide, which started the day after the Massachusetts special election, has taken the Dow Jones Industrial Average from 10,720 to 10,105 (today's low), 5.7% decline in 8 trading days (hey the same number as GDP growth...).
President Obama's renewed, campaign-style aggressiveness isn't helping the investor sentiment. It seems what he's doing is "doubling down" - going headlong into the policies that haven't worked. What are those policies? Whether it's health care or job creation, his policies have one central theme: Washington is the answer for all the ills. Good luck with that.
Thursday, January 28, 2010
There's something funny going on regarding Toyota Motors recalling the cars and trucks and stopping sales and production.
Toyota announced it was recalling 2.3 million cars and trucks it had sold in the U.S. because of sticking accelerator pedals.
Then, the company announced it was stopping the sales of the affected 8 brands, and stopping the production of these cars and trucks in the U.S. while they figure out the cause.
The pedal assembly is manufactured by an American subcontractor (CTS), who says it is Toyota's problem not theirs, as the company also supplies Honda and Nissan.
It turns out that CTS also supplies GM and Ford. Ford today suspended the production of commercial vans in China, which use the pedals supplied by CTS.
Then, it turns out that Toyota's recall and sales/production suspension was ordered by the Obama administration, specifically by U.S. Transportation Secretary Ray LaHood.
Government Motors, also known as General Motors, is offering $1,000 or zero financing to Toyota owners to switch brands. Nice job, Auto Czar. Ford has decided to join.
Now, Congress has joined the frey. House Energy and Commerce Committee (chairman Henry Waxman, D-CA) will hold a hearing on February 25 "to examine the persistent consumer complaints of sudden unintended acceleration in vehicles manufactured by the Toyota Motor Corporation".
A Congressional hearing??
Toyota today announced additional 1.09 million recall due to floor mat concerns.
Lexus, Scion, Prius are not affected.
Toyota's share price, which was at $91.97 on January 19 before the announcement of recall, plummeted $14 dollars (or 15%) since, and ended today at $77.67.
Bernanke is re-confirmed.
The stock market, which during the procedual vote was reducing the loss, started to head back down again in the final vote. Dow Jones Industrial Average ended -115 points to 10,120. Some endorsement by the market.
Now they are voting for the re-confirmation of Ben Bernanke.
According to Washington Post,
"Housing and Urban Development Secretary Shaun Donovan was designated by the White House to ride out the speech in an undisclosed location as a precaution against the possibility of a catastrophe wiping out the rest of the government leadership."
44-year-old Harvard graduate would have been the new President if that catastrophe had hit.
Strictly party-line vote successful because the new Massachusetts Senator Scott Brown hasn't been seated yet.
Senate Lifts Federal Debt Ceiling By $1.9 Trillion (1/28/2010 Fox News)
"The Democratic-controlled Senate has muscled through a plan to allow the government to go a whopping $1.9 trillion deeper in debt.
"The party-line 60-40 vote was successful only because Republican Sen.-elect Scott Brown has yet to be seated. Sixty votes were required to approve the increase. The measure would lift the debt ceiling to $14.3 trillion. That's about $45,000 for every American.
"Democrats had to scramble to approve the plan, which means they won't have to vote on another increase until after the midterm elections this fall. To win the votes of moderate Democrats, President Obama promised to appoint a special task force to come up with a plan to reduce the deficit. The House must still vote on the measure before it's sent to Obama for his signature."
Now the debt limit will be $14 trillion, up 15% from $12.104 trillion current limit. However, as I wrote in my December 10, 2009 post, this $1.9 trillion could be gone faster than the Congressional Democrats are hoping. There are a few large spending bills that are yet to actually be spent:
- $636.4 billion Pentagon appropriations bill
- $446.8 billion year-end package covering more than a dozen Cabinet departments and agencies and representing a healthy 9 percent to 10 percent increase over current spending for the same accounts
- bulk of $787 billion stimulus bill from February 2009 (as of 1/15/2010, less than 25% of the amount is paid out, mostly as tax benefits and entitlements - see Recovery.gov)
Wednesday, January 27, 2010
That's what news media is saying.
Thanks to vigorous campaigning and persuasion by the Democratic leaders and President Obama himself, Ben S. Bernanke's re-confirmation as the chairman of the Federal Reserve seems secured, as of Wednesday night.
According to the latest Reuters' poll,
YES: 50 (36 Democrats, 13 Republicans, 1 Independent)
NO: 22 (6 Democrats, 15 Republicans, 1 Independent)
UNDECIDED/UNANNOUNCED: 28 (16 Democrats, 12 Republicans)
The vote is scheduled for Thursday.
In case you didn't know, the actual re-confirmation vote will only need simple majority of 51. The procedual vote to remove the holds placed by 4 Senators (Sanders, Bunning, DeMint, Vitter) will need super majority of 60, but the Senate Democratic leadership seems confident that they now have the necessary 60 votes.
Huffington Post call this a "double standard" for Ben. It will allow, for example, Senators like Barbara Boxer to have it both ways: vote yes to remove the holds (i.e. procedual vote) and then vote no on the actual re-confirmation.
Inquiring and suspicious minds want to know what kind of "persuasion" has taken place between Friday (when the re-confirmation was in grave doubt) and today. Mish Shedlock refers to this Wall Street Journal article on his blog post:
Senate Majority Leader Harry Reid’s tepid endorsement of Fed chairman Ben Bernanke on Friday left some investors queasy. Mr. Reid said his support for Mr. Bernanke was conditional. “To merit confirmation, Chairman Bernanke must redouble his efforts to ensure families can access the credit they need to buy or keep their home, send their children to college or start a small business.” He added that he expected an announcement from the Fed chairman on this issue soon.
Vincent Reinhart, an economist at the American Enterprise Institute and former Fed staffer, called the statement a “death trap” for the Fed because it suggests that the senator wanted something in return for his vote. Any acknowledgment or action by the Fed could be seen as a breach of its independence.
We asked Mr. Reid’s office to elaborate. His spokesman, Jim Manley, said the Senate majority leader, who is in a tough reelection battle in Nevada, was “fighting for his constituents.” Does that mean Mr. Reid’s vote is dependent on some action by the Fed to help homeowners, college-bound students or small businesses?
Mr. Manley said Sen. Reid does “not necessarily” expect any particular action before the vote. What are the “plans” that the Fed chairman said he would outline? Mr. Manley said the senator was looking for “additional efforts to help homeowners in Nevada” from the “Fed and the federal government.” He noted that the rest of Mr. Reid’s statement pledges support for Mr. Bernanke and also that Mr. Reid had talked to the president Saturday and is working to get additional votes for the Fed chairman.
Apple Inc. announced iPad today.
0.5 inch thin
9.7 inch IPS display
Full capacitive multitouch
16 to 64 GB flash storage
1GHz Apple A4 chip
WiFi, Bluetooth, 3G (on deluxe models)
10 hour battery life, 1 month standby
$29.99 per month, no contract, for unlimited data, $14.99 for up to 250 MB
I was watching the stock market as I was glancing at the live update by engadget.com. It was another dismal day in the market, under the heavy weight of uncertainty. Apple's shares were being sold as the event in San Francisco progressed.
Then, at 11:18AM PST, when the price was announced, AAPL (stock symbol for Apple) shot up: $499.
The priciest iPad, with 64GB storage and 3G, will be $829. So much for the tech pundits whispering $1,000.
The pundits, thus outsmarted by Steve Jobs, have been busy talking down the device. Early reviews (just from the presentation, I suppose, as the device won't be available for another 60 days) are mixed at best.
What don't they like about?
Lack of "killer app"
No Flash (Adobe, that is)
No phone, no camera
Just a big iPhone or iPod Touch
I like it. I particularly like no-commitment, unlimited data for only $30 a month. I think it may appeal to the segment of the population that these pundits and analysts are not thinking about. It's not for the 20-something or 30-something, and not even for kids. It's for the boomer generation and above. Just a big iPhone or iPod? Great. For many, they don't want to struggle with tiny screens. Boomers and seniors may not quite care for "killer app" or multitasking.
When Jobs announced iPhone, analysts weren't too happy either. We will find out how it will be received, 60 days from now.
should make Treasury and the Federal Reserve happy.
While the financial press is more focused these on the banking industry regulations and the re-confirmation of the Fed chairman, the Security and Exchange Commission has just adopted a new set of rules to regulate $3.3 trillion (and rapidly declining) money market funds industry, which will affect the public much more than the re-confirmation of Ben Bernanke.
There are 3 areas that SEC focuses on to regulate the industry:
1. Further Restricting Risks by Money Market Funds
2. Enhancing Disclosure of Portfolio Securities
3. Improving Money Market Fund Operations
Of these, the first is the most detailed. It includes:
Minimum liquidity requirement (currently there is no such requirement):
Daily Requirement: For all taxable money market funds, at least 10 percent of assets must be in cash, U.S. Treasury securities, or securities that convert into cash (e.g., mature) within one day.
Weekly Requirement: For all money market funds, at least 30 percent of assets must be in cash, U.S. Treasury securities, certain other government securities with remaining maturities of 60 days or less, or securities that convert into cash within one weekShorter maturity requirement:
Restricting the maximum "weighted average life" maturity of a fund's portfolio to 120 days. Currently, there is no such limit. The effect of the restriction is to limit the ability of the fund to invest in long-term floating rate securities.It seems like SEC has found a ready (unwilling, maybe) buyer of Treasury debts and agency bonds and MBS backed by Fannie, Freddie, Ginnie and FHA (as long as these bonds mature in 60 days). Now the Federal Reserve has a big enough counterparty to do the reverse repo agreement! Bernanke can finally implement one of his "exit strategies". (If he is re-confirmed as chairman, that is.)
Under the third, there is this clause:
Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule.
SEC says that the "new rules are intended to increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements". What's ironic about it is that the Reserve Primary Fund broke the buck in September 2008 because of the government regulators' capricious decision to let Lehman Brothers go bankrupt. The run on the Reserve Primary Fund triggered a far bigger run on money market funds that could have collapsed the entire world economy.
SEC also says the new rules are being adopted to "better protect investors". Now, do you feel secure, knowing you may not able to get your money back in a crisis?
The rules will be effective 60 days after their publication in the Federal Register.
60 days, folks.
In case you missed it, the Obama government plans to effectively take over the student loan industry. "The Student Aid and Fiscal Responsibility Act" (H.R. 3221) already passed the House (apparently no one was paying attention amid the health care bill debate), and right now it is in the Senate. The Senate Democrats are considering passing it during the budget reconciliation process.
So it comes as no surprise that the Loan Administrator in Chief may be announcing measures in tonight's State of the Union address that will forgive the student loan debt, with preferential treatment for the government employees of course. This is all to save the middle class, of course.
State of the Union: Cutting monthly student loan payment would be big help to graduates (1/27/2010 The Florida Times Union)
"Another major component of the president’s bid to re-energize a flagging middle class is to overhaul the student-loan process and make college more accessible to more people.
"He proposed instituting a cap on student loan payments for people carrying massive debt. Payments will be limited to 10 percent of income. Obama also said the program will forgive remaining debt after 10 years of payment for public-service workers and 20 years for everyone else." [Emphasis is mine. The article continues.]
What the heck. I am all for Obama to own everything. He should take over the credit card industry, and declare that all the credit card debt will be forgiven after 10 years of paying them at no more than 10% of one's monthly income. To expedite the "recovery", cut those years to 2 years, just in time for the next presidential election.
While we're at it, since the government practically owns half of U.S. residential mortgages, how about forgiveness on mortgage debt, after, say 10 years of payment?
Easy availability of student loans distort the market mechanism. Instead of valuing the time and money that you would have to spend getting the degree against the future potential value derived from having that degree (an economic decision), you can go to college, major in anything you want because you have the student loan and don't need to worry about paying back for some time. This inflates the cost of education. Schools have little incentives to lower the costs, and students have little incentives to do comparison shopping as they would if they were spending their own money.
Now the president is going to tell you you don't even need to pay back. The cost of education is now guaranteed to go up further, as cheap money (i.e. loans that don't need to be fully repaid) bid up the price of goods (in this case, education).
(HT: W.C. Varones Blog)
So it was mere 50 percent of the par value.
Nice job, New York Fed. A true defender of big banks on Wall Street and around the world.
Tuesday, January 26, 2010
'New and improved Obama', as Drudge headline proclaims (see the picture), is to propose federal spending freeze in his State of the Union address on Wednesday. Since his health care "reform" has floundered, defeating the purpose of delaying the address, the suddenly populist president has decided to join the rest of us in attacking the ever increasing federal deficit.
One obvious problem here is his record budget size and his record budget deficit, not this year but as far as eye can see.
According to various news reports (here's one from Washington Post), Obama is to propose a freeze for 3 years on federal discretionary spending, excluding the military, veterans affairs, homeland security and certain international programs. Also excluded will be the various stimulus packages past, present, and future. Total of the affected spending amounts to $447 billion. Obama's proposal will cut $10 to 15 billion, or 2 to 3 percent, from that $447 billion, for 3 years.
Discretionary spending makes up about one-third of the total federal budget. Each year, Congress determines how much to spend/not to spend on which programs. The remaining two-thirds is called mandatory spending, which includes entitlement programs like Medicare and Social Security.
Now, Obama's 2010 budget is whopping $3.5 trillion dollars. $447 billion worth of programs subject to the freeze is only about 13% of the total budget. In relation to the total budget size, this 10 to 15 billion saving amounts to 0.3% reduction in budget size. As to the impact on the deficit, 10 billion reduction of the projected $1.3 trillion deficit is less than 0.8%.
Washington Post's article has this amusing quote from Senator Kent Conrad, chairman of the Senate Budget Committee:
Senate Budget Chairman Kent Conrad (D-N.D.), a strong proponent of balanced budgets who would have to sell the notion of a freeze to his colleagues, said Obama's proposal is "entirely possible to do." The results of a freeze would be "relatively modest in terms of overall deficit reduction," Conrad said. "But it sends an important signal that everything is on the table."
'Relatively modest' is such an understatement, as it reduces the projected deficit by 0.8% or less. And it is unlikely to send "a signal that everything is on the table" because everything is not on the table. Defence-related spending is untoucheable, so are the entitlements. Unless they default, they can't cut the interest payment on the Treasuries. The incredibly wasteful stimulus spending could be made efficient, and should be easy to shave $10 billion from $787 billion package, but that's another untouchable.
What President Obama and his government are doing is little more than image control, much like some advertisement campaign of branded goods. Perception is everything.
Oregon is voting today to decide whether to raise taxes on higher income earners to pay for schools and other public services. Public employee unions are in favor, as the new taxes would help secure their jobs. Businesses are against, calling the measures "job killers".
How will the people in Oregon vote? After all, this is a state known for its anti-tax tradition.
Last-minute voters could decide tax Measures 66, 67
(1/25/2010 The Oregonian)
"After a bruising campaign and weeks of voting by mail, today's big tax election may be decided by an onslaught of last-minute voters such as Courtenay Morton and Neil McManaway, two Portlanders who were among a steady stream of voters dropping off ballots Monday at Pioneer Courthouse Square.
""The election is going to be close enough that those who are still wrestling with a decision and sending in their ballots can have a significant effect," said Pat McCormick, spokesman for Oregonians Against Job-Killing Taxes, the main group opposing Measures 66 and 67.
"Tuesday is the last day to vote on whether to increase taxes on higher-income earners and corporations to pay for schools and other state services. Ballots, which have been in the hands of voters for nearly three weeks, must be deposited in one of nearly 300 drop-box sites across Oregon. It's too late to mail them to meet Tuesday's 8 p.m. deadline." [The article continues.]
According to the article, the turnout seems unusually high (62 to 64%). The state is divided into two opposing camps: public employee unions (teachers, firefighters, policeman, etc.) vs the business community.
Public employee unions has raised more money ($6.8 million) than the opponents ($4.6 million) in support for the measures. Teachers union has contributed millions of dollars.
If these measures are to be passed, Oregon will tie with Hawaii for the highest personal income tax rate in the nation, the highest capital gains tax, and the highest minimum corporate tax. Read this article from LA Times for more details.
The LA Times article features a young woman carrying placard that says "Protect middle class, preserve vital services". Can't argue against that, can you? But at what price? Vital to who? They are the services that the taxpayers pay, but at some point the taxpayers would rather have less or no such services than pay through their noses.
Indonesia mulls tearing down Obama statue (1/25/2010 AFP via Google)
"JAKARTA — Indonesian authorities said Monday they are considering a petition to tear down a statue of US President Barack Obama as a boy, only a month after the bronze was unveiled in Jakarta.
"The statue of "Little Barry" -- as Obama was known when he lived in the capital in the late 1960s -- stands in central Jakarta's Menteng Park, a short walk from the US president's former elementary school.
"Critics say the site should have been used to honour an Indonesian and 55,000 people have joined a page on social networking website Facebook calling for the statue to be removed."
"......Members of the "Take Down the Barack Obama Statue in Menteng Park" group on Facebook say Obama has done nothing for Indonesia.
""Barack Obama has yet to make a significant contribution to the Indonesian nation. We could say Obama only ate and s (expletive) in Menteng. He spent his subsequent days living as an American," the web page says.
""For the dignity of a sovereign nation, Barack Obama's monument in Menteng Park must be removed immediately."" [The article continues.]
It looks like the reality of his presidency has set in around the globe.
Monday, January 25, 2010
It started with tariffs against Chinese-made steel pipes and tires last year. Then earlier this month Google threatened to pull out of China, alleging the hacking of Google's email system by Chinese authorities. Secretary of State Hillary Clinton followed up by demanding net freedom. Now President Obama seems to have decided to sell advanced weapons to Taiwan.
Report: U.S. Close To Arms Sale To Taiwan (1/25/2010 AP, via NPR)
"The Obama administration has notified Congress that it has decided to sell weapons to Taiwan, senior congressional aides said Monday — a move expected to worsen already tense ties between China and the United States.
"China considers Taiwan a renegade province and will vehemently object to the arms package, which is likely to include UH-60 Black Hawk helicopters, Patriot Advanced Capability-3 missiles and material related to Taiwan's defense communications network.
"The aides said the administration has been consulting with Congress about Taiwan's defense needs ahead of a formal announcement of the sale. Meetings began last week and are continuing this week.
"The aides, who have direct knowledge of the meetings, spoke on condition of anonymity because of the sensitivity of arms sales to Taiwan and because the notification is not yet official.
"The package appears to dodge a thorny issue: The aides say the F-16 fighter jets that Taiwan covets are not likely to be included.
"The sale would satisfy parts of an $11 billion arms package originally pledged to the self-governing island by former President George W. Bush in 2001. That package has been provided in stages because of political and budgetary considerations in Taiwan and the United States. The aides say it is unclear when an official announcement will come but that it could be soon.
"The sale has been widely expected, and Beijing has already warned of a disruption in ties with Washington." [The article continues.]
Chinese are understandably indignant (declaring the so-called 'honeymoon' with Obama is now over), while Japanese are worried about increasing tension in the region.
Morgan Stanley has done it. Now Blackrock is doing.
The joint venture of Blackrock Inc. and Tishman Speyer Properties has decided to return the key to the lenders and walk away from the Manhattan apartment project.
Tishman Venture Gives Up Stuyvesant Project (1/25/2010 Wall Street Journal)
"A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.
"The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.
"The property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding." [The article continues.]
The property was acquired for $5.4 billion, but is currently valued at less than $2 billion. The joint venture is underwater by $2.4 billion, as its mortgage is $3 billion (1st) and $1.4 billion (2nd), according to the AP article on the subject.
When a big financial firm and a big property management firm do it, it's called "strategic default", a wise business decision; if a distressed underwater homeowner does it, it is called "walk away", with a stigma of irresponsibility attached.
The article also mentions other investors in the project, who is set to lose almost all their investment:
"By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out."
CALPERS again. But the Church of England??? What is the world coming to?
GIC is set to lose $575 million in the form of mezzanine loan backed by the property, on top of $200 million in equity. Ouch.
"Cash for clunkers" house version. What else would you expect?
According to the National Association of Realtors, December sales of existing homes dropped by 16.7%, the largest monthly drop in more than 40 years.
December home sales down nearly 17 percent (1/25/2010 AP via Yahoo Finance)
"WASHINGTON (AP) -- Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.
"The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.
"The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics. "
Really? You don't say... Who could have known?
But the article continues, and concludes with a positive declaration that the worst is over:
"Despite fears that home prices are starting to fall again, some analysts still believe the worst is over.
""We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way, but hitting some bumps in the road.""
All that "cash for clunkers" program did was to pull the demand forward (see the chart). The auto sales plunged over 30% in September 2009 when the program ended. Many people had predicted that the tax credit for the first-time buyers would simply pull the demand forward. And it did, plus more: it put more people into the large debt (mortgage debt to buy the house), much larger than the auto loan under the cash for clunkers program.
There will be more struggling homeowners that the government gets to save.
There's a name for this kind of behavior - inflicting pain and suffering on others so that you can save them. It is called "Munchhausen Syndrome by proxy".
Sunday, January 24, 2010
This guy is getting incoherent by the day.
Obama endorses deficit task force (1/23/2010 AP via Yahoo Finance)
"WASHINGTON (AP) -- President Barack Obama Saturday endorsed a bipartisan plan to name a special task force charged with coming up with a plan to curb the spiraling budget deficit, though the idea has lots of opposition from both his allies and rivals on Capitol Hill.
"The bipartisan 18-member panel backed by Obama would study the issue for much of the year and, if 14 members agree, report a deficit reduction blueprint after the November elections that would be voted on before the new Congress convenes next year. The 14 would have to include at least half of the panel's Republicans -- a big obstacle.
""These deficits did not happen overnight, and they won't be solved overnight," Obama said in a statement. "The only way to solve our long-term fiscal challenge is to solve it together -- Democrats and Republicans."
"The deficit spiked to an extraordinary $1.4 trillion last year and could top that figure this year as the struggling economy puts a big dent in tax revenues. Even worse from the perspective of economists and deficit hawks, the medium-term deficit picture is for deficits hitting around $1 trillion a year for the foreseeable future." [Emphasis is mine. The article continues.]
Not only that, the debt limit is set to be raised by $1.9 trillion dollars (which, by the way, will require all of 60 votes in the Senate to pass). Who is he kidding?
This is not the first time and definitely will not be the last time for me to remind the readers that when politicians don't want to solve anything and don't want to find out about anything, they form a committee, or a task force or whatever they want to call it. I'm looking for that particular episode of BBC's "Yes Prime Minister" where Cabinet Secretary Sir Humphrey tells his novice boss exactly that. It could have been "Yes Minister".
The president must have watched the episode. (Or his handlers did.)