Good Morning Ladies and Gentlemen:
First of all, Shadow Government Statics has just released its update for the 4th quarter on all aspects of the economy.
The real contraction for 4th quarter retail sales was 17.1%
The 4th quarter was a contraction of 11.5% on output on an annual basis which followed 8.9% in the 3rd quarter.
By definition: we are now in a depression.
Here is the commentary:
Posted: Jan 16 2009 By: Monty Guild Post Edited: January 16, 2009 at 5:22 pm
Filed under: Guild Investment
The excellent Shadow Government Statistics economic service (shadowstats.com) makes the following statements today, January 16,2009 in a flash update.
“The annualized real contraction for fourth-quarter 2008 retail sales was 17.1%”
“Consistent with a still-deepening recession, fourth quarter 2008 production showed an annualized quarterly contraction of 11.5%, following an 8.9% contraction in the third quarter.”
“ A depression is defined [SGS] as a recession where peak-to-trough contraction exceeds 10%, a level currently exceeded in annualized terms by both fourth-quarter real retail sales and industrial production.”
Since we at Guild Investment Management predicted several months ago that we were entering a moderate depression, rather than a recession during the current downtrend, few have agreed with our view. The above data by Shadow Government Statistics show that the trends in retail sales, which is considered a leading economic indicator, and in industrial production are strongly indicative that a depression is in the process of developing in the
It is interesting that Williams, through his calculations determined that the true 2007 GDP was in reality 14 trillion dollars and we have now contracted at about 10% to 12.6 trillion dollars. Another 10% drop in 2009 would bring the GDP level to about 11.3 trillion dollars. This is where we are headed.
Gold had a solid day yesterday climbing by $32.60 to 839.60. Silver rose by 77 cents to 11.20. The open interest on both metals hardly moved despite the huge volatile day on Thursday. Obviously, the cartel were flexing their muscles.
The day began with announcements from two major banks, the Bank of America and Citibank. Bank of America also reported on Merrill Lynch which they took over in December.
Here are the announcements that shook Wall Street:
1. First…Bank of
06:11 BAC Bank of
Company reports revenues of $15.68B vs Reuters $20.59B. Merrill Lynch preliminary results indicate a Q4 net loss of $15.31B, or ($9.62) per diluted share.
Provision for credit losses was $8.54B from $6.45B in Q3. Net charge-offs were $5.54B, or 2.36% of total average loans and leases compared with $4.36B and 1.84% in Q3.
Nonperforming assets totaled $18.23B, or 1.96% of total loans compared with $13.58B and 1.42% in Q3.
Allowance for loan and lease losses was $23.07B, or 2.49% of loans and leases measured at historical cost compared with $20.35B and 2.17% in Q3.
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CNBC’s Mark Faber said the Merrill loss was actually $5 billion greater than reported, therefore in line with what our source told us last week.
08:13 BAC Follow-up: Bank of
Management says there is a considerable amount of uncertainty in 2009 and as a result they will not be providing a detailed outlook for the quarter or year. However, they do not see any slowdown in provisions over the next few quarters and would thus expect losses at least equal to that realized in Q4 to be seen over the next several quarters. Investment bank trading activity is expected to remain a considerable headwind and any improvement on that front would be a substantial boon to results. Net interest income is anticipated to drop in Q1 due to seasonal factors and lower rates, but they are expecting improvement in each quarter thereafter during 2009. Management's overall tone regarding a potential recovery in 2009 has been very downbeat, with CEO Lewis mentioning that he is hopeful some signs of improvement will begin to be seen in the 2H of this year. Regarding the Merrill acquisition, the company expects the deal to be dilutive on a GAAP basis over the next two years as investment banking activity should remain at sub-par levels. They go on to note that they have not formally guaranteed Merrill's debt, but note that they clearly view it as a critical part of their ongoing operations. Company has received several questions regarding the Merrill deal and its completion, with CEO Lewis taking a few minutes to discuss what actually happened over the past few months. He says that the Merrill book experienced much higher deterioration than expected during the fourth quarter; they do not believe it was an issue of overlooking assets, but rather underestimating the severity of what would happen post-Lehman. The magnitude of deterioration was much greater than they (or anyone, he believes) had anticipated. Moving to December, he says that they inquired about amending the deal or adjusting the transaction price; the government conveyed their belief that terminating or delaying the transaction could have a detrimental effect system-wide and then offered its assurance to provide additional liquidity and fence off some of the most toxic assets (which turned out to be the $118B backstop). Concluding the thought, he says that after those assurances, they came to the conclusion that it was best for the company, shareholders and the country to complete the deal on the original terms. Separately, he also noted that of the $118B in the troubled asset pool, around 75% were from legacy Merrill and 25% were from BofA.
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2. 06:00 C Citi reports Q4 EPS ($2.44) (3.83)
Reuters is ($0.91); First Call is ($1.19). Company reports revenues of $5.60B vs Reuters $18.72B.
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06:08 C Citi confirms it will realign into two businesses: Citicorp and Citi Holdings (3.83)
Citicorp will focus on leveraging the competitive advantages of the company’s global universal bank in more than 100 countries, and is anticipated to have assets of approximately $1.1 trillion and will be approximately 65 percent deposit funded.
Citi Holdings will be made up of "non core businesses": brokerage and retail asset management, local consumer finance and a special asset pool, whose management will focus on tightly managing risks and losses, and maximizing the value of these assets The moves confirm numerous media reports of such a split. Citi CEO Vikram Pandit said, "Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses. This will help in our ongoing efforts to reduce our balance sheet and simplify our organization, which will enable us to better serve our clients and customers in both businesses without disruption. In light of the opportunities we see in the market today, we believe this new structure will provide a wide range of options going forward to continue strengthening our core franchise.
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06:12 C Citi and
The agreement provides details on that first reached on 23-Nov. The covered asset pool includes $301 billion of assets, including loans and securities backed by residential and commercial real estate, consumer loans and other assets as agreed by Citigroup and the government. The covered asset pool does not include any hedges. The loss coverage period is 5 years for non-residential assets and 10 years for residential assets.
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Both results were pretty dismal. Bank of
The Government also announced the definitive agreement with Citibank on loss sharing. Citibank decided that they were going to split their company into two bankrupt entities: a good bank and a bad bank. I wonder how the bond holders are going to react? And what about their credit default swaps? This will not fly!
Then he heard from GE. It seems that this entity is also in trouble and that they are going to layoff 11,000 employees:
GE Capital May Target Up to 11,000 Jobs This Year
Jan. 16 (Bloomberg) -- General Electric Co.’s finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump, people familiar with the company’s plans said.
The reductions are part of GE Capital’s announced plan to reduce expenses by $2 billion this year, said the peoplewho didn’t want to be identified because the numbers aren’t public. The savings goal also includes expenses such as office closings.
This was no surprise: industrial production dropped a huge 2% in December as the economy was contracting big time:
U.S. Dec industrial production drops 2 pct
WASHINGTON, Jan 16 (Reuters) -
Economists polled by Reuters had expected a 1 percent decline in December after a revised 1.3 percent drop in November, initially reported as a 0.6 percent dip.
For the fourth quarter as a whole, total industrial production fell 11.5 percent at an annual rate.
Compared with December 2007, industrial production was down 7.8 percent.
Capacity utilization fell to 73.6 percent, which was 7.4 percentage points below its average level from 1972 to 2007.
From Bloomberg at 3:45 in the afternoon:
03:45 Unintentional nationalization may be pending for US banks - NYT
Losses, particularly for Citi (C), have become so large that it will be almost mathematically impossible for the government to inject enough capital to save large banks without taking a majority stake or at least squeezing out existing shareholders. Recall that Fed Chairman Ben Bernanke warned earlier this week the government has no choice but to put more money into banks. Analysts say TARP gives too many ways for real problems at banks to be concealed from shareholders and taxpayers. The ideas of a government wrap and creating a government-backed bad bank would protect common stockholders from being wiped out.
Reference Link (registration required)
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Note only are banks in the
It is beginning to appear that it is not just some of the
The interesting thing is that there appears to be a trend in that the smaller banks were the first to become distressed, but now we are seeing the problem feeding back through the chain to some of the larger players like Barclays ?
Barclays shares closed down 25 percent at 98 pence, its lowest level since 1993.
Royal Bank of
Barclays shares have crashed 45 percent this week. end
Barclays stock has been plummeting. It crashed 45% this week alone. Last month it was 8 pounds. Today it is 98 pennies. Look at Royal Bank of
William Thomas Cain/Getty Images
California Gov. Arnold Schwarzenegger said on Thursday the state "faces insolvency within weeks" and he will put new policies on hold until there is a deal to close the budget gap, which will top $40 billion over the current and next fiscal year. "It doesn't make any sense to talk about education, infrastructure, water, health care reform and all these things when we have this huge budget deficit," Schwarzenegger said in his annual state of the state speech. The Republican governor and Democrat-led legislature are at adds over how to fill the current year's budget shortfall and are poised for a struggle to balance the budget for the state's next fiscal year, which begins in July. "The reality is that our state is incapacitated until we resolve the budget crisis," Schwarzenegger said. "The truth is that
The stock market rose by 68 points yesterday . Usually it rises on option expiry. However the financials did not participate. JPMorgan fell to 22.81 after hitting a low of 20.75 early in the session. Citibank closed on its low at 3.47 which is not a good sign. Bank of America fell into the low 7’s after a big spike early in the session to $9.30 as the market initially liked the rescue. On reflection, everyone decided to sell.
ON Thursday, Nouriel Roubini stated that the banking sector needs 2 trillion dollars to replenish their losses in the
The banks need to get this junk from their balance sheet but if they do, their stock value is so low that the only alternative is nationalization.
While this is going on, the economy is faltering. Unemployment is rising as Federal and State coffers go empty.
It looks to us that the deficit for 2009 for the
On top of that,
The Federal Reserve in December announced a total of 8.5 trillion dollars in various facilities to help beleagured banks. Approximately 3 trillion dollars has already entered banks but not loaned out yet. Banks are still worried about their brethren. If this 8.5 trillion gets out into the market place along with the 4 trillion of deficit paper bills we will have 16 trillion dollars of an increase in money supply. MZ is around 4 trillion dollars so this will be a 400% increase and will cause prices to hyperinflate big time, probably as high as 200-400% depending on the velocity of money transfer.
We could see huge price increases because of the
This is why gold surged on Friday. The big boys are realizing the game is over.
Have a great weekend