Next to go belly up … Pension Benefit Guaranty Corp
Deficit surges at agency that insures pensions
By DEB RIECHMANN Associated Press Writer
(AP:WASHINGTON) In an ominous setback, the government agency that insures the pensions of 44 million Americans has amassed a record $33.5 billion deficit _ triple what it was just six months ago.
The bleak financial snapshot, in a report obtained by The Associated Press, raises new fears that a federal bailout eventually will be needed for the Pension Benefit Guaranty Corp. The beleaguered agency is being saddled with the underfunded pension plans of companies going bankrupt in the worst economic slump since the Great Depression.
A rare midyear financial update requested by Congress shows the $11.1 billion deficit the agency posted at the end of its fiscal year on Sept. 30 has swelled by $22.5 billion to its highest level in the agency’s 35-year history.
The agency’s acting director says, however, that the more than 640,000 people who currently receive PBGC checks need not worry about the deficit.
"We have plenty of money to make those monthly payments promised to them for the near future," Vince Snowbarger said Tuesday. "We’re comfortable that for the time being we’ve got a way to make sure those payments are going to be there. Long term there is going to have to be some resolution of that deficit. I think at some point in time it’s going to require congressional attention."..
-END-
Here is a story from Denver Dave on the Pension problem:
Dave from Denver…
PBGC bailout on the horizon
Was chatting with a good friend of mine yesterday. He's working on the bankruptcy/liquidation of an auto parts supplier outside of Chicago. Right now he's in the process of transferring the hourly and salaried employee pension plans to the PBGC. To begin with, he said the PBGC people are absolute morons. But more to the point, he said even with the current rally, the funds he's transferring are underfunded by 43%.
Prudential is the plan manager and they are STILL using an 8.5% annual rate of return assumption for their 50/50 fixed income/equity blended model. You can assume that the investment/underfunded profile of this pension plan is going to be consistent across ALL of corporate America. The PBGC will one of the many areas that the Treasury will have either let collapse, which means retirees are in trouble, or monetize with $100's of billions in printed money. May as well hit Home Depot this weekend if they have wheelbarrows on sale - we're all gonna need 'em.
end..
This news tanked the dollar:
Fed mulled increasing Treasury buys: minutes
WASHINGTON (Reuters) - The U.S. Federal Reserve saw modest improvements in the economic outlook at its April meeting, but mulled increasing purchases of mortgage agency and government securities in the future to give the recovery an additional push, minutes of the meeting showed on Wednesday.
"Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery," minutes of the April 28-29 meeting said.
"All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases," the Fed said.
In April, the Fed held its target for benchmark interest rates unchanged at close to zero and took no other actions to boost the amount of money in the economy by increasing the size of its balance sheet.
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The market sensed that QE is not going to end. This from Reuters after the release of the Fed Minutes from the Beige Book:
REUTERS DOLLAR INDEX HITS FRESH FIVE-MONTH LOW AFTER FED MINUTES
Follow-up: Fed saw some signs of economic stabilization in 2010
The Fed says the near-term economic outlook had improved modestly since March, though continues to see significant downside risks to the economic outlook, and continue to see a number of factors that will restrain the pace of the recovery. New economic forecast:
end.
This from the National Association of Realtors (as promised a big decline)
US commercial real estate declined in 1st qtr-NAR
WASHINGTON, May 20 (Reuters) - The U.S. commercial real estate sector declined at the beginning of the year, according to the National Association of Realtors, which said on Wednesday its index of brokerage activity in the sector fell
4.8 percent in the first quarter from the fourth.
Activity was also 12.9 percent below the first quarter of 2008, NAR said.
"Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity," said the association's chief economist, Lawrence Yun, in a statement.
"Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound," he added.
The NAR said commercial real estate activity, which encompasses the finished construction of buildings and their sale and leasing, will continue to decline for the next six to nine months.
end.
Here is Bill Holter's daily commentary and today he commented on the huge fall in the usa dollar:
Bill H…
The summer of discontent
To all; the Dollar is breaking down while Gold, Silver (money) and commodities are breaking out to the upside. Maybe, finally, fundamentals are beginning to take over. The big public debate yesterday pertained to California's $43 billion deficit and how it could be closed. Californians voted down 5 of the 6 fiscal responsibility measures. The only one that passed was to prohibit pay raises to public employees.
No matter what combination of measures they use, cutting expenditures, raising taxes, or vice versa, the deficit will not and cannot be narrowed to zero. On the Federal level the situation is obviously more precarious. Tax revenues have absolutely imploded which I believe will soon be seen as the norm rather than a "one off" and short term occurrence. The impossible fiscal situation that we find ourselves in is fact, but "fact(s)" are a funny animal. Even though they "are", until public sentiment deems or acknowledges they "are", facts don't matter.
I believe we are very, very close to facts and reality coming to the forefront and being seen for what they are. We are entering the summer season where several very well respected economic analyst firms have forecast the final swan song for the Dollar. If correct as you know I believe they are, this is BIG, BIG stuff. The repudiation of the Dollar means the end of the world as we have known it for roughly 60 years, every country, corporation, and all individuals will feel the effects.
Unless the Dollar can turn on a dime right here and another rabbit get pulled out of Uncle Sam's hat, this is it. The smoke and mirror short covering rally in the Dollar and equities will be no more than a memory and the so called "green shoots" will be seen for the poison ivy that they are. Keep close watch on the Dollar, Treasuries, and Gold as these are all that count currently. Obviously an Israeli/Iran/US, or Pakistan/India skirmish will exacerbate and accelerate the current move from paper to metals, but even without geo political stress, I believe this summer will finally witness the fundamentals that we all know exist. Many of you remember the rocket ride for precious metals in early 2006, I think what we have in store for summer 2009 will amaze even the most ardent metals bulls. There is simply too much paper that will seek haven in far too little metal. Paper is being created at will while metal production has been declining for 5 years or more, this is the most lethal of combinations for a fiat currency system. Regards, Bill H.
end.
Japan saw a huge contraction in its economy in the first quarter down a full 15.2%. Generally this means that usa citizens are not in the buying mood. The green shoots look like duds:
Japan’s Economy Shrank Record 15.2% Last Quarter
May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter amid an unprecedented collapse in exports and a drawdown of inventories that could pave the way for a recovery later this year.
Gross domestic product contracted an annualized 15.2 percent in the three months ended March 31, following a revised fourth-quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. Economists predicted the economy would shrink 16.1 percent.
http://www.bloomberg.com/apps/news?
pid=20601087&sid=aKvBOrSyVlDY&refer=home
end.
The federal debt continues to rise to 11.293 trillion dollars for a rise of 9 billion for the day.
I am enclosing the bloomberg article on the fed planning to buy more bonds as it continues to quantitive ease. This sent gold soaring and the dollar plummeting:
Fed Officials Raised Prospect of More Bond Purchases (Update2)
By Craig Torres
May 20 (Bloomberg) -- Some Federal Reserve officials judged last month that the central bank may need to boost its purchases of assets to secure a stronger economic recovery, while all policy makers agreed to hold off on such a move at the time.
“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” minutes of the April 28-29 Federal Open Market Committee meeting showed today in Washington. “All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train” before making a decision.
U.S. central bankers cited a slower pace of contraction in their April statement, leaving the benchmark interest rate trading in a range of zero to 0.25 percent. They cited improved financial conditions, stronger sentiment from businesses and households and expectations of an increase in industrial production to replace inventories.
“Committee members agreed that the Federal Reserve’s large-scale securities purchases were providing financial stimulus that would contribute to the gradual resumption of sustainable economic growth,” the minutes said. “Members also agreed that it would be appropriate to continue making purchases” in the total amount of $1.75 trillion previously announced.
Ten-year Treasury yields fell for the first time in four days on expectations the Fed will purchase more government securities. The yield on the 10-year note fell six basis points to 3.19 percent as of 4:12 p.m. in New York. A basis point is 0.01 percentage point.
Growth Forecast Cut
Fed governors and district-bank presidents cut their projections for economic growth in quarterly forecasts submitted at the meeting. They foresaw a deeper contraction in 2009 and a weaker recovery in 2010, with the unemployment rate projected to remain at 9 percent or higher through next year.
FOMC members also saw “some signs pointing toward economic stabilization,” and some officials detected prospects for “a trough” in the housing market’s downturn.
“The Fed wants to be as flexible as possible because the dynamics of the economy and monetary policy have never been this complex,” said Mark Spindel, who manages more than $100 million at Potomac River Capital LLC in Washington.
Currency Swaps
By unanimous vote, the committee extended currency swaps with the Bank of Canada and the Banco de Mexico for an additional year, beginning in mid-December 2009. The swap with the Bank of Canada is $2 billion, and the swap with Mexico’s central bank is $3 billion. The arrangements are standing programs related to the North American Framework Agreement of 1994, and differ from the temporary swap lines created last year.
A firming in consumer confidence, industrial production and other areas of the economy indicate the worst U.S. recession in five decades may be easing. Output at factories, mines and utilities decreased 0.5 percent last month after dropping 1.7 percent in March, Fed figures showed last week.
“Participants continued to see significant downside risks to the economic outlook,” the minutes said. “While financial strains and risk spreads had lessened somewhat over the intermeeting period, participants agreed that the global financial system remained vulnerable to further shocks.”
A gauge of confidence among U.S. consumers rose to 67.9 in May from 65.1 in April, according to the Reuters/University of Michigan preliminary index of consumer sentiment. Payrolls shrank last month by the least since October, falling 539,000 after declining 699,000 in March.
Economy Contracting
The economy is contracting at a 1.1 percent annual pace in the second quarter, according to estimates from Macroeconomic Advisers LLC, compared to a 6.1 percent annual rate of decline in the first three months.
Central bank governors and regional bank presidents presented a new set of forecasts at the April meeting. Their central tendency ranges project the economy will shrink 1.3 percent to 2 percent this year and grow 2 percent to 3 percent in 2010. That compares with forecasts in January of a contraction this year of 0.5 percent to 1.3 percent and growth of 2.5 percent to 3.3 percent for 2010.
The officials forecast inflation, minus food and energy, will rise 1 percent to 1.5 percent this year and 0.7 percent to 1.3 percent next year. That compares to a January core personal consumption expenditures price index forecast of 0.9 percent to 1.1 percent for 2009 and 0.8 percent to 1.5 percent in 2010.
Unemployment Rate
Central bankers forecast the unemployment rate at 9.2 percent to 9.6 percent this year and 9 percent to 9.5 next year. That compares with forecast ranges of 8.5 percent to 8.8 percent for 2009 and 8 percent to 8.3 percent for 2010 in January.
The Fed has expanded assets on its balance sheet by $1.3 trillion over the past year to $2.2 trillion to replenish liquidity, narrow credit spreads and support borrowing and spending.
“It is about time for the financial markets to stand on their own to a greater degree than they have,” Catherine Mann, an economics professor at Brandeis University and former Fed Board economist, said in a Bloomberg Television interview.
“So long as the Federal Reserve sits as a backstop, as the buyer of last resort, or buyer of first resort in some cases of these assets, then the financial system really won’t get back into the game,” she said.
The central bank said yesterday that in July it will begin accepting commercial mortgage-backed securities issued before Jan. 1 into the Term Asset-Backed Securities Loan Facility, which provides financing to investors in asset-backed securities backed by consumer and business loans.
Profit Growth
The Standard & Poor’s 500 index is up about 18 percent in the past two months on forecasts for better profit growth in quarters ahead.
The cost of three-month dollar loans between banks in London has fallen for more than a month to 0.72 percent from 1.42 percent on Dec. 31, 2008, as confidence in financial institutions improves. The cost of a 30-year fixed rate U.S. mortgage fell to 4.86 percent on May 14 from 5.1 percent at the start of the year, according to Freddie Mac’s poll of a 125 lenders.
The Fed’s securities purchase program hasn’t prevented yields on U.S. notes from rising. Ten-year Treasury yields are up from 2.53 percent March 18 when the central bank said it would buy $300 billion of government debt over six months.
