Saturday, August 7, 2010

FW: Commentary...August 7.2010


Good morning Ladies and Gentlemen:
I would like to introduce to you our latest entrants to the Banking Morgue 2010:

Failed Bank List

Bank Name




Closing Date

Updated Date

Ravenswood Bank Chicago IL 34231 August 6, 2010
details will come on Monday.
Gold closed up by $6.10 to 1203.10.  Silver rose in fine fashion as well closing at 18.46 up  15 cents.
The gold comex OI finally started to turn upwards, rising by 1573 contracts to 513,070
The silver comex Oi however fell marginally by 581 contracts to 124,098.
The comex revealed the COT report after the market closed and it was a doozy!!:
In gold, the large speculators that were long reduced those long positions by a rather large 5547 contracts.
           the large speculators that were short gold reduced their short positions also by a rather large 2161 contracts.
even the spreaders reduced their long/short positions by a huge 14497 contracts.
Now for the commercials in gold:
those commercials that were long in gold reduced their positions to the tune of a whopping 13,553 contracts.
those commercials that are perennial shorts reduced their short positions to the tune of a whopping 19079 contracts.
Now for the small specs:
those small specs that were long in gold reduced their positions by 7826 contracts.
those small specs that were short reduced their short positions by  5686. contracts.
Do you see the picture: 
everyone reduced their positions.  I have never ever seen that happen before.
Generally when you see that happen, you cannot get a more bullish sign to enter "all in" in gold.
Now for silver where the COT responded normally:
Those large specs that were long in silver increased those positions by 4705 contracts.
Those large specs that were short in silver  reduced those short positions to the tune of 1413 contracts.
In the commercial category:
those commercials that were long in silver reduced their long positions by a tiny 1298 contracts.
and those commercials JPMorgan etc that have been short silver since the beginning of time added to their short position by a rather hefty 4477 contracts.
In the small spec category:
hardly any move..not worth talking about it.
So you see a massive difference in gold and silver.
In gold everyone reduced their positions.  Those that were long reduced their longs.  Those that were short reduced their shorts.  Even the spreaders reduced their spread positions
This is not normal behaviour and something big has happened.
In silver, basically what we expect:  the large specs increasing their long positions  and the commercials like JPMorgan increasing their shorts by supplying the paper.
Is it possible that many of the contraction in OI is the receiving of gold notices through the GLD?  And not report on this?
Ladies and Gentlemen:  the gold comex figures just do not pass the smell test.  Something sinister is going on behind closed doors. The figures just do not add up.  Maybe I am wrong
but it is totally different to the silver comex market.
Let us now go to the notices and inventory levels at the comex:
OK here are todays figures:
Withdrawals from Dealers Inventory   255,325oz
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory  N/a
Deposits to the customer Inventory  495,913
No of oz served  0 contracts served 0 oz
No of oz to be served   zero left  xxxxx
Withdrawals from Dealers Inventory   zero
Withdrawals from customer Inventory   n/a oz
Deposits to the dealer Inventory  N/a oz
Deposits to the customer Inventory  688   oz
No of oz served  14notices    1400oz
No of oz to be served  1975 notices to be served    197,500 
As you can see, we saw another 255,325 oz of silver leave the comex from the dealer inventory.
Strangely we saw another 495,913 enter the customer inventory of silver.
We have yet to see large deposits of silver enter the dealer inventory to satisfy all of our long notices.
In gold, again we see no gold enter the vaults and a paltry 688 oz deposited to the customer.
We saw only 14 notices served for a total of 1400 oz, yet for some strange reason we saw over 500 notices
that were to be served vanished into thin air.  We now have only 1975 notices left to be served or 197,500 oz
The total number of notices served thus far total 5420 or 542,100 oz of gold.
The toal number of oz of gold standing for this delivery month equals 542,100 +  197,500  + 90,000 =  828,600 tonnes or 25.8 tonnes of gold.
It looks like 2 tonnes disappeared .
On Thursday, Ed Steer commented that the GLD received 29,329 oz of gold but the Silver ETF dropped a huge 979,024 oz with a rising silver price!!!  The SLV is down  10 million oz..where did this supposed inventory go?
From Ed Steer:

Thursday's CME Delivery Report was pretty skinny... with only 14 gold contracts posted for delivery on Monday.  The GLD ETF reported receiving 29,329 ounces of gold... and the SLV ETF dropped a chunky 979,024 ounces of silver.  That drop was a bit of a surprise, as there's been no negative price action in the last week that would account for it.  I didn't talk to Ted after the ETFs updated their numbers, but I would guess that someone needed to take delivery of silver they owned... so they redeemed their shares.  The SLV is down at least 10 million ounces of silver from its high of 304.7 million ounces on February 26/10. 


Ed also commented on the huge volume of gold and silver minting at the US MINT:


The U.S. Mint had another report yesterday.  They reported selling another 10,500 ounces into their gold eagle program... and another 3,000 24-K gold buffaloes as well.  There was no silver eagle update.  Month-to-date... 14,000 ounces of gold has disappeared into the gold eagle program, plus another 4,500 in the buffaloes... along with 275,500 silver eagles.  


Let us now go to the big economic stories of yesterday.


As I indicated to you on Thursday night, Friday was the release of the non farm payrolls. The announcement of a loss of jobs sent the Dow initially down 160 points but an Hail Mary saved the day

with the Dow only losing 29 points.

here is a summary of the non farm payrolls and what it means:


3rd month of weak hiring signals long slog ahead

A 3rd straight month of sluggish hiring points to weak growth and high unemployment 

WASHINGTON (AP) -- The nation isn't creating nearly enough jobs to reduce persistently high unemployment.

For the third straight month, the private sector hired cautiously in July. And those meager gains in the job market were nearly wiped out by tens of thousands of cuts at all levels of government.

Making matters worse: Many of the new jobs that are being created do not pay well enough to significantly jump-start spending by shoppers and stimulate the broader economy.

The unemployment rate was stuck at 9.5 percent for the second straight month, the Labor Department said Friday. Analysts said it would probably climb back into double digits because the private sector is not creating jobs fast enough.

Private employers reported a net gain of 71,000 jobs for July -- far below the 200,000 it takes for the unemployment rate just to hold steady and keep pace with the growing work force.

Counting the jobs that were lost at the local, state and federal levels in July, the net gain was only 12,000 jobs. And on top of that, 143,000 temporary jobs with the Census Bureau for the 10-year population count came to an end.

So far this year, state and local governments wrestling with budget shortfalls have shed 169,000 jobs. And further losses are on the way -- about 20,000 to 30,000 more job cuts a month expected over the rest of the year, despite $26 billion in federal aid.

The weak report could put pressure on the Federal Reserve to take new steps to boost the economy when it meets next week.

Economists are especially concerned that the recovery is losing momentum as it enters the second half of this year, when the benefits of most of the government's stimulus spending will start to wear off.

For now, most of them are betting the economy will continue to grow, though at a lackluster pace, through the rest of this year. Some analysts fear the recovery could fizzle altogether, though.

"If we don't see significant job growth by the end of the year, the economy could be in serious trouble," said Bill Cheney, chief economist at John Hancock.

President Barack Obama noted that the economy has added private-sector jobs for seven straight months but said the progress "needs to come faster."

Job seekers face tough competition these days. On average, there are 4.7 people vying for each opening. That's down from the peak of 6.3 last year, but more than double the 1.8 unemployed per opening when the recession began in December 2007. Those who do have jobs are working longer and getting only scant increases in pay.

"Employers do not want to take chances," said Sung Won Sohn, an economist at California State University, Channel Islands.

In particular, the economy has struggled to add high-paying jobs, which help power the economy by putting more spending money in people's pockets.

So far this year, the economy has added only 117,000 high-paying jobs in industries such as construction, manufacturing and mining. Over the past 12 months, it has lost 352,000 of these jobs.

The number of higher-paying jobs in engineering and at law firms has fallen over the past 12 months, too. Electrical engineers make an average of about $41 an hour, lawyers $62.

Arthur Santa-Maria was laid off at Intel Corp. in 2007 after 25 years as an engineer. Now, he's selling refrigerators at Sears and has all but given up on finding an engineering job, instead just trying to make a little money before retiring.

After he lost his job, the 58-year-old landed some interviews, but competition was fierce for every opening, he said. He took the Sears job even though he is paid on commission and has no health benefits.

"Usually, on Fridays and Saturdays I'll make minimum wage, but beyond that, I don't even make lunch money because no one is spending right now," he said.

The meager job growth in the economy has mainly come from the lower-paying service sector, which has generated 513,000 jobs so far this year. Examples of those jobs are cashiers, who make an average of $9 an hour, and hairdressers, who make $13.

That helps explain why Americans overall have reined in their spending and will probably stay hesitant. In June, shoppers failed to boost their spending, and their incomes stagnated, the government said this week. They also saved more. The annualized savings rate reached 6.4 percent, the highest level in nearly a year -- and triple the rate in 2007, before the recession.

About a quarter of the job gains this year have been at temporary help firms, according to Moody's Analytics. Those jobs generally offer no benefits and are often part-time. And 70 percent of the employment gains this year have been among workers with a high school degree or less.

Some companies that lack confidence in the durability of the recovery are turning to temporary, rather than permanent, hires. Federal-Mogul Corp., which makes car parts, has hired 1,400 workers in the United States in the past year as car sales have grown. But many of them are temporary hires, allowing the company to stay flexible and get smaller if the economy sours, said Jose Maria Alapont, CEO of the Southfield, Mich., company.

"There is a very clear recovery during the first half of the year, but there are still questions whether that will continue in the second half," Alapont said in an interview.

The bleak government report initially sent stocks falling, with investors seeking the safety of more conservative Treasury bonds, but stocks shaved their losses. The Dow Jones industrial average closed down 21 points, or 0.2 percent.

The economy lost speed in the spring, growing at just a 2.4 percent pace in the April-to-June quarter. And it's probably growing even more slowly now, analysts said. It takes about 3 percent growth to create enough jobs to keep up with population growth.

All told, there were 14.6 million people unemployed in July, roughly double the number without jobs when the recession started in December 2007. Counting people working part-time who would prefer full-time work, plus unemployed workers who have given up on their job hunts, 25.8 million people were "underemployed" in July. The "underemployment" rate was 16.5 percent, the same as in June.

Even if hiring picked up, it would take years to regain all the jobs lost during the recession. The economy lost 8.4 million jobs in 2008 and 2009. This year, private employers have added only 559,000 jobs.

AP Business Writers Christopher Leonard in St. Louis, Tom Krisher in Detroit and Tali Arbel in New York contributed to this report. 




Zero Hedge gives a great critique on the jobs number:


He comments that in reality 181,000 people were removed from the labour rolls.  During the past 3 months 1.1 million discouraged workers could not find a job and were removed from the labour scene.

If you add 1.1 million people back to the total labour numbers the U3 would be 10.5% and not 9.5%.  Tyler Durden states and he is correct, that we should use the employment rate or employment to population ratio of the usa to give a better understanding of the unemployment.  This figure as fallen again from 58.5% to 58.4%.  Historically it has been around 62-63% in good times.

Here is his paper:

Rosie Is Back From Vacation And Is As "Rosy" As Ever

If listening to Mark Zandi makes you punch your monitor every time, this is, as always, required reading.


Again, U.S. nonfarm payrolls came in weaker than expected, and while some of the components offered up some good news, like a 36,000 rise in manufacturing employment and an uptick in the workweek, the report overall was quite soft. If this were summer school, I'd be tempted to give it a C-minus, and only because after a terrific week vacationing in Chicago, I'm in a generous mood.

The headline came in at -131,000 versus the consensus estimate of -65,000 (private payrolls did rise 71,000 but this was below the 90,000 increase that was widely expected). And, the net revisions to the prior two months was -97,000, so in effect the "level" of employment was 153,000 lower than what the economics community was penning in the for the month. So, the shortfall was even greater than the headline "miss" would suggest, counting in the revisions.

The Establishment survey tends to understate what is happening at the small business level, which is why it is imperative to keep a close eye on the household survey — and employment here contracted 159,000 in July after sliding 301,000 in June and 35,000 in May. Historically, the odds of seeing three whiffs in a row in this survey without the economy either being in a recession or quickly heading into one is 50 to one.

There was palpable relief in some circles that the unemployment rate managed to stabilize at 9.5% in July. The problem here is that the labour force continues to shrink as discouraged workers drop out an alarming rate for an alleged economic recovery — down 181,000 in July and down 1.2 million in the past three months. If the labour force merely stayed the same in the past three months — keeping in mind that in "normal" recoveries the labour force swells as job opportunities expand — the unemployment rate would be sitting at 10½% today. What investors should really be keying on — no doubt the Fed is — is the "employment rate" or the employment-to-population ratio, which fell to 58.4% from 58.5% and is back to where it was at the turn of the year.

While it was encouraging to see the work week rebound, two other leading indicators of job trends — the direction of revisions and temp agency hiring — point to lingering malaise. In fact, the 5,600 drop in temps was the first decline since last August. And, we already know that 479,000 on jobless claims (a three-month high) is the starting point; therefore, we are likely on our way for another poor August reading on the employment backdrop.

To put it all in context, by this stage of the cycle, fully 31 months after the onset of recession, the U.S. economy has not only recouped all of the losses induced by the prior downturns but employment is already at a new high by now (having smashed the previous pre-recession peak by 1.1 million jobs or 2.3%). And, here we are today, sadly, still 7.7mln (or 5.6%) below the December 2007 peak. It will probably take at least five years to climb out of this hole.

As I said, there were some bright spots in the report. Incomes edged up. The workweek did likewise, though is still at depressed levels. The manufacturing sector is in revival mode, though part of this has reflected the powerful inventory cycle that seems to have run its course. The overspending culprits in the prior bubble phase, notably construction, financials and state/local government continue to shed jobs and these sectors comprise 25% of the overall employment pie. To put the math into perspective, for every 1% decline in jobs in these three shrinking areas of the economy, the manufacturing sector has to post a 3% increase. Daunting to say the least.


We need a little perspective on the economic backdrop because I am becoming increasingly concerned. The fact that some at the Fed are beginning to warm towards the idea of more quantitative easing, vocal support from a growing number of Democrats to extend the once-reviled Bush tax cuts, and now chatter of another government-led bailout of "upside-down" homeowners, suggests that I am not alone in this concern.

Even before the release of the nonfarm payroll data, we received the ADP number for July, and while fractionally surpassing market expectations, the results were simply awful. To put it into some perspective, when the economy was coming out of its lull in 2003 and 2004 we were already north of 100k on ADP, on a monthly basis, and by 2005-06 we were printing 200k-250k numbers consistently. A 42k print is actually horrible and is telling you that the economy is either fundamentally weak or that companies are still rationalizing on labour.

Again, to put a 42k print into context, it printed 78k in December 2007 when everyone thought a recession was being averted (it started that month). That same month, the ISM non-manufacturing index came in at 52.3 and if I recall, the widespread sentiment at that time was that we were seeing a pause that refreshes. To sum it all up, the data points don't tell you a whole lot right now that is very good. They certainly don't give anyone a green light for cyclical exposure any more than the December 2007 data-flow managed to do. And, as for the non-manufacturing ISM, like its manufacturing counterpart, showed that the number of industries reporting "growth" is on the decline — down to 13 in July from 15 in June and 16 in May, and at a five-month low.

What we know is that we are heading into the third quarter knowing that there was minimal growth coming from that key 70% of the economy otherwise known as the U.S. consumer. July's data on chain store and auto sales were both below expectations. Personal bankruptcies jumped 9% in June (138,000 personal filings during the month) and 2010 is now on track to be the highest in five years, with respect to consumer insolvencies (908,000 thus far or just under 1% of the total number of households). If capital spending is going to do the heavy lifting, keep in mind that just to keep the economy steady, it has to accelerate by nearly 10 percentage points for every percentage point slowing in household spending. Now that is a daunting task.



At 1;30 Goldman Sach's Jan Hatzius stunned the street with this: 


Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite"

Tyler Durden's picture

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday's meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

From Goldman Sachs:

Over the past two to three months, the US economic recovery has lost a considerable amount of its momentum.   As a result, our forecast of a significant slowing in US growth in the second half of 2010—widely regarded as implausible just three months ago—is now increasingly accepted as the baseline.  As the data disappointments intensified in early July, we indicated that we would consider revisions to our economic outlook.  With the annual revisions to real GDP now behind us, we are making the following changes:

1.         Slower growth in 2011.  We continue to expect real GDP growth to average 1½% at an annual rate in the second half of 2010.  However, we have scaled back the anticipated reacceleration in US output in 2011, largely due to heightened congressional resistance to extending various measures of fiscal stimulus.  Thus, whereas we previously forecasted growth to rise from 2½% in the first quarter to 3½% by the second half, we now look for a more gradual pickup—from 1½% in the first quarter to 3% in the fourth quarter.  The 2¼% fourth-quarter-to-fourth-quarter average is about 0.9 percentage points below our previous forecast; on an annual average basis our forecast for growth in 2011 drops to 1.9% from 2.4%.  As a result of this downgrade, we now expect the jobless rate to rise to 10% by early 2011 and remain there for the rest of the year.

2.         Continued disinflation, but at a slower pace than before.  We now expect both the price index for personal consumption expenditures excluding food and energy (core PCE index) and the core CPI to slow to a year-to-year rate of ½% by year-end 2011; our previous forecasts were ¼% and zero, respectively.  Although the growth revision implies a larger output gap over the next 18 months, two other considerations dominate: (a) upward revisions to core PCE inflation announced in the latest annual GDP revisions, and (b) signs that disinflation in rents may have ended.

3.         A return to unconventional monetary easing by late 2010/early 2011.  We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing.  These measures could involve more asset purchases—probably Treasury securities—and/or a more ironclad commitment to low short-term policy rates.  If the committee decides on more asset purchases, the amount would be at least $1 trillion (trn). 

4.         A "baby step" to unconventional easing next week.  Although it is a fairly close call, we now expect the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday's meeting.  This would be a "baby step" in the direction of renewed unconventional easing, although it would probably be packaged as a decision to prevent a gradual tightening of the overall stance.

The table below shows the key changes in our forecasts.  Further detail will be available in today's US Economics Analyst.


Adrian Douglas comments on this important release:

Do you think that Government Sachs is just guessing on "expecting" more QE????

BREAKING Goldman Sachs cuts forecasts for U.S. growth

12:52p Goldman expects more 'unconventional' easing
12:51p Goldman sees 2011 average GDP of 1.9% vs. 2.5%

It looks to me like many are fleeing the ship.  Two very important personnel has decided to leave immediately,
Christina Romer chief economist to the White House and Michael Bradford, chief legal counsel to the FDIC.
First Ann Romer:

Romer To Leave White House

August 5, 2010 5:54 PM

Christina Romer, chairwoman of Pres. Obama's Council of Economic Advisers, has decided to resign, according to a source familiar with her plans.

Romer, an economics professor at the University of California (Berkeley) before taking the key admin post, did not respond to repeated calls to her office."She has been frustrated," a source with insight into the WH economics team said. "She doesn't feel that she has a direct line to the president. She would be giving different advice than Larry Summers [director of the National Economic Council], who does have a direct line to the president."

"She is ostensibly the chief economic adviser, but she doesn't seem to be playing that role," the source said. The WH has been pounded for its faulty forecast that unemployment would not top 8% after its economic stimulus proposal passed.Instead, the jobless rate is 9.5%, after exceeding 10% last year. It was "a horribly inaccurate forecast," said Bert Ely, a banking consultant. "You have to wonder why Summers isn't the one that should be taking the fall. But Larry is a pretty good bureaucratic infighter." 


and here is the announcement on Michael Bradford:


FDIC Announces Departure of General Counsel Michael Bradfield

Michael Bradfield, General Counsel of the FDIC, has decided to resign his position and will leave the FDIC effective August 13, 2010. Mr. Bradfield has served in this position since May of 2009.

"Mike's broad professional experience has brought immense value to the FDIC on a host of legal and policy issues," said FDIC Chairman Sheila C. Bair. "His knowledge of domestic and international banking issues and command of the regulatory framework has served the FDIC well through a period of challenging resolution activity and the many legal issues stemming from these bank failures. Mike has also added his unique perspective to the Corporation's engagement in the financial reform debate, particularly in supporting a strong Volcker rule to guard against excessive risk taking by insured depository institutions."

"Mike's distinguished career in government at the Treasury Department, as General Counsel for the Federal Reserve Board and now at the FDIC demonstrates his strong commitment to serving the public. I wish him well in the future and thank him for his service to the country."

Before coming to the FDIC, Mr. Bradfield was a partner at Jones, Day, concentrating on domestic and international banking, mergers and acquisitions, federal bank regulatory matters, and international trade.

Mr. Bradfield served as General Counsel of the Federal Reserve Board in Washington, serving as counsel to Chairman Paul Volcker and Chairman Alan Greenspan. He was responsible for the legal work of the Board, including the legal aspects of monetary policy formulation, regulation, litigation, enforcement, administration, and legislation.

Before becoming the Federal Reserve's General Counsel, Mr. Bradfield was in private law practice with Cole Corrette & Bradfield. From 1968 to 1975, he served as Assistant General Counsel of the Treasury Department where he participated in the formulation of international monetary and trade policy. He also worked with the Multilateral Development Banks and the International Monetary Fund.


It  looks like Fannie Mae is in trouble again.  For the 12th straight quarter it lost considerable dollars. It has requested another infusion of 1.5 billion dollars.

Fannie Mae Seeks $1.5 Billion From U.S. Treasury After 12th Straight Loss 
By Lorraine Woellert – Aug 5, 2010 4:31 PM MT

Fannie Mae, the mortgage-finance company operating under federal conservatorship, is seeking $1.5 billion in aid from the U.S. Treasury Department after a 12th straight quarterly loss.

A decline in costs from bad loans helped narrow the second- quarter loss to $1.2 billion from $14.8 billion in the same period a year earlier, the Washington-based company said today in a filing to the Securities and Exchange Commission. Fannie Mae has accrued more than $148 billion in consecutive losses since 2007, according to data compiled by Bloomberg.

The Treasury seized Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of U.S. mortgage funding, in 2008 as souring subprime loans pushed the companies to brink of collapse. Including today's request, Fannie Mae has drawn $86.1 billion in aid. The growing tally has helped spur the Obama administration to solicit proposals to fix the companies, and prompted some lawmakers to demand their closure.

"Congress must act to end this taxpayer-funded bailout," said Representative Jeb Hensarling, in a statement after today's earnings were announced. The Texas Republican is the lead sponsor of legislation to abolish the companies.

Freddie Mac hasn't yet disclosed second-quarter results.

Fannie Mae's credit-related expenses, including home-loan delinquencies and defaults, fell to $4.9 billion from $18.8 billion a year earlier. Foreclosure sales, efforts to rework distressed loans, and a change in accounting helped reduce the costs, the company said.


The Fed will hand over the money via bond sales. QEII is upon us.
Even a monopoly cannot make a profit:

US Postal Service loses $3.5 bln in third quarter 
Thu Aug 5, 2010 4:15pm EDT 
By Jasmin Melvin

WASHINGTON, Aug 5 (Reuters) – The U.S. Postal Service reported a quarterly net loss of $3.5 billion on Thursday and said it will likely have a cash shortfall going into 2011.

The agency, which delivers nearly half the world's mail, has reported net losses in 14 of the last 16 fiscal quarters.

Revenue in the third quarter that ended June 30 fell $294 million to $16 billion from a year ago, while expenses were $789 million higher at $19.5 billion, due largely to higher workers' compensation costs and retiree health benefits.

"Given current trends, we will not be able to pay all 2011 obligations," said Joseph Corbett, the agency's chief financial officer.

Cash flow seems on track to handle 2010 operations, Corbett said, but it is uncertain whether sufficient liquidity will be in place for 2011 after the agency must make a $5.5 billion payment on Sept. 30 to prefund retiree health benefits.

"It is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts," Corbett said.




This story is big.  For the first time Social Security dips into the red ie. it paid out more in entitlements than it received in payroll taxes:

A ll administrations have "borrowed" from this fund to pay for Social Security.  Now the fed debt will  start to rise exponentially as baby boomers hit 65 yrs of age/

Here is this article by Stephen Dinan:

Social Security in the red this year 
By Stephen Dinan 
12:08 p.m., Thursday, August 5, 2010

Social Security will pay out more this year than it gets in payroll taxes, marking the first time since the program will be in the red since it was overhauled in 1983, according to the annual authoritative report released Thursday by the program's actuary.

Meanwhile President Obama's health care overhaul has given Medicare's basic Hospital Insurance an extra 12 years of financial stability, though it did not solve all of the program's long-term challenges.

"The financial status of the HI trust fund is substantially improved by the lower expenditures and additional tax revenues instituted by the Affordable Care Act," the program's actuary said in its annual report. "These changes are estimated to postpone the exhaustion of HI trust fund assets from 2017 under the prior law to 2029 under current law and to 2028 under the alternative scenario."

But the actuary said the programs' finances are still troubled in the near and long terms, and warned that Congress is making things worse by putting off scheduled doctor fee cuts.

The Obama administration said the report shows the success of the health care overhaul, which passed earlier this year on the strength of Democratic votes.


 Here is a great commentary where the world still praises the bailouts of the banks.


the title of the paper is as follows:

Crazy Economists Are Still Defending The Wall Street Bailout As The Recession Gets Worse 


y ou can read the entire article here:


From the Huffington Post:

Fannie Mae: Home Prices To Decline Into Next Year




Home prices will decline into next year, Fannie Mae said Thursday, reversing earlier projections that the housing market would stabilize this year.

Former Federal Reserve Chairman Alan Greenspan said Sunday on NBC's "Meet the Press" that a so-called double-dip recession was possible "if home prices go down."

Fannie's forecast, disclosed in its latest quarterly report filed with the Securities and Exchange Commission, shows that the government-owned mortgage giant has turned bearish on the housing market. Fannie Mae, the federal mortgage association, along with its sister entity, Freddie Mac, own or guarantee about half of all U.S. mortgages.

"We expect that home prices on a national basis will decline slightly in 2010 and into 2011 before stabilizing, and that the peak-to-trough home price decline on a national basis will range between 18 percent and 25 percent," the bailed-out behemoth said in its filing.

Some housing market analysts, notably John Burns, Mark Hanson, and Dean Baker, have been expecting price declines for some time, but a review of Fannie's recent regulatory filings show that the firm's expectations at the start of the year were more positive but have grown grim as time has passed.

Put another way, Fannie Mae says the housing market is getting worse.

In February, the Washington-based firm said in its annual filing that it expected "home prices to stabilize in 2010."




It looks like Canada will also face a pension shortfall.  Here is this zero hedge commentary today:


Canada's Biggest MEPP in Dire Straits?

Leo Kolivakis's picture

Via Pension Pulse.

Tony Van Alphen of the Toronto Star reports, Workers in big pension plan could soon face cuts in benefits:

Canada's biggest multi-employer pension plan says thousands of members could soon face future benefit cuts of 15 to 50 per cent depending on negotiations with companies.


The Canadian Commercial Workers Industry Pension Plan (CCWIPP), with 130,000 active members, said in a recent letter to members that companies in Ontario will need to increase their contributions by up to 40 cents an hour per worker by Sept.1 just to maintain current levels for future benefits.


Wayne Hanley, a senior trustee of the plan and president of the United Food and Commercial Workers, also said Thursday that if some employers don't agree to negotiate adequate contributions in new contracts or in special bargaining, the amount of future benefits could quickly plunge by 50 per cent.


"If there is no additional negotiated contributions as of Sept.1, then members of the plan with that employer will go on to a benefit scale that is up to 50 per cent of what they are accruing on a future basis," Hanley said in an interview.


He added the situation of continuing funding shortfalls in the plan could lead to labour unrest.


"There may be a few strikes over this," Hanley said. "This is an important issue to the members."


The letter from trustees also disclosed that inactive members who have left a contributing employer but are still eligible for a pension will take a 40-per-cent hit on future benefits next month. However, those inactive members over 50 years of age who would be eligible to draw a pension now won't be affected by the reductions.


The plan, which has assets of more than $1.58 billion, provides benefits to about 20,000 retired union members and their spouses. It also has 130,000 active members working at more than 300 employers and another 150,000 deferred or inactive members.


The squeeze on the plan's finances has not affected the pensions of retirees or accrued benefits of active members.


In the letter, the trustees said a significant recovery in 2009 hasn't made up for the steep decline in financial markets in the second half of 2008.


"Assets have shrunk while liabilities have increased, leaving large unfunded liabilities," the trustees' letter added. "The CCWIPP, like all others, did not escape the financial crisis which has affected the funding status of the plan considerably."


The trustees warned members of a "benefit restructuring" a year ago but would not comment on the possibility of any significant benefit cuts at that time. The plan had already cut future benefits for members by 20 per cent in 2005,


In 2008, the plan posted a negative 19.6 per cent return on investment but it turned into a 17.1-per-cent gain last year, which outpaced many other major plans.


The plan has not released an actuarial valuation for 2009. But at the end of 2008, actuarial liabilities topped assets by $759.3 million on a "going concern" basis, which underscored the plan's difficulties.


Trustees representing the union have pushed employers to jack up their contributions to bolster the plan for more than a year.


Hanley said some companies such as the Metro Inc. grocery store chain have "stepped up" in bargaining to make the adequate hourly contributions to maintain future benefit levels.


But he said it is a major issue in current bargaining for a new contract covering thousands of workers at Loblaw Cos.


Greg Hurst, a prominent Vancouver-based pension consultant, said active plan

members not close to retirement should be "very concerned" if their company closes and they become a deferred or inactive member and a potential victim of a 40-per- cent cut.


"The impact of a decision or circumstance (which may not be in the individual's control) that results in termination from the plan prior to retirement is draconian and extraordinary," Hurst said. "If I were a member, I would make my concerns known to the Financial Services Commission of Ontario and my local MPP."


A court fined nine trustees of the plan including Hanley and founder Cliff Evans a total of $202,500 earlier this year for spending too much of the fund's money on questionable investments in Caribbean hotels and resorts.

On those "questionable investments", #343434;">Mark Zigler and Anthony Guidon of Koskie Zigler LLP were the defence lawyers for 5 of the 9 trustees for the Canadian Commercial Workers Industry Pension Plan, whom the Ontario Court of Justice  found guilty on December 7, 2009 of the offence of failure to supervise the Investment Committee as was prudent and reasonable, as it related to the 10% limit that was to have restricted the plan's investment in Caribbean resorts and hotel properties, contrary to section 22(7) of the Pension Benefits Act. Madame Justice Beverly Brown imposed a fine of $18,000 on each defendant for a total fine of $162,000 plus victim surcharge (you can read more on this case by clicking here).

I went over the CCWIPP's 2009 Annual Report. The results were impressive, especially in public markets and hedge funds:

  • The Canadian Commercial Workers Industry Pension Plan (the "Plan") had a strong year in 2009, achieving an aggregate rate of return of 17.1%, which outperformed the average Canadian pension fund return of 15.4%.
  • The Plan's investment portfolio generated investment income of $232 million, increasing its net assets to approximately $1.6 billion.
  • The equity component (both domestic and foreign) of the Plan's investment portfolio realizeda combined 68.3% return in 2009, which outperformed each of its respective
    benchmarks (S&P/TSX Composite and MCSI World - CAD) of 35.1% and 12.9%. As at December 31, 2009, the Plan's total equity allocation was valued at $657 million.
  • The fixed income component of the Plan's investment portfolio achieved a 7.5% rate of return in 2009, which outperformed its benchmark (DEX Universe Bond Index) of 5.4%. Included in the Plan's fixed income investments are a series of segregated long-term bond portfolios, collectively valued at $268 million, which are under management by CIBC Global Asset Management.
  • The hedge fund component of the Plan's investment portfolio achieved a 32.9% rate of return in 2009, which outperformed its benchmark (HFRI Hedge Fund of Funds Index - CAD) of negative 3.8%. The Plan invests in hedge funds in an effort to increase diversification and generate returns, in both rising and falling markets, that are not highly-correlated to major stock market indices. As at December 31, 2009, the Plan's total hedge fund allocation was valued at $90 million.
  • The private equity/private debt component of the Plan's investment portfolio achieved a negative 28.2% rate of return in 2009. However, based on the assets held within this asset class, there is no industry-recognized benchmark from which to draw a comparison. The portfolio generated income of $5.3 million, which was offset by: a) currency adjustment in the amount of $38.6 million, resulting from the appreciation of the Canadian dollar; and, b) a negative market value adjustment in the amount of $55.2 million, resulting from the economic impact of the post-2008 worldwide reduction in travel on the Plan's hospitality-related investments. As at December 31, 2009, the Plan's total private equity/private debt allocation was valued at $233 million.
  • The real estate and loan component of the Plan's investment portfolio realized a negative
    0.8% rate of return in 2009. As in the case of private equity/private debt, based on the assets held within this asset class, there is no industry-recognized benchmark from which to draw a comparison. As at December 31, 2009, the Plan's total real estate allocation was valued at $51 million, the largest portion of which is comprised of the Plan's investment in Citi Plaza (, a mixed-use commercial property located in London, Ontario.

Weakness in 2009 was concentrated in the private equity and private debt portfolio, which should recover in 2010. However, I'm not familiar with the funds they chose to invest in this space, and cannot comment further on their performance and track record.

The outperformance in hedge funds could be due to the strategy selected. Remember, 2009 was the year of big beta, so I'm not surprised their hedge fund portfolio did well relative to the HFRI fund of funds index. The latter is not an appropriate benchmark if they're investing all the assets in a L/S funds which did well last year given that equity markets rallied sharply (Note: HFRI Fund Weighted Composite Index and HFRI Equity Hedge Index returned 20% and 25% respectively in 2009. For details, click here).

But the biggest concern remains the plan's funded status:

The Plan's actuary, Buck Consultants, prepares an annual valuation of the Plan's financial position, which is filed with the Ontario regulatory authorities (Financial Services Commission of Ontario). The most recent valuation established a going-concern funding deficiency of $760 million as at December 31, 2008, based on a $1.68 billion actuarial value6 of assets and total liabilities of $2.44 billion. A going concern funding deficiency is not uncommon for a multi-employer pension plan (MEPP), particularly in the aftermath of the 2008 market meltdown.


The going-concern funded status assumes the Plan continues indefinitely. The Plan was 69% funded7 as at December 31, 2008, a decline of 12% over the previous year, and not surprising given the financial turmoil of 2008. The very favourable investment performance in 2009 will have a positive impact on the financial position of the Plan.


On a windup basis the Plan was 42% funded as of December 31, 2008, meaning that, if the Plan had been wound up on that date, accrued benefits would have had to be reduced significantly.


As part of the process in dealing with the deficiency in the 2008 valuation, the Trustees have approved a Funding Improvement Plan (FIP) designed to provide the Plan with a more solid financial foundation. In addition, the Plan is electing to become a Specified Ontario MEPP (SOMEPP), which allows for a more favourable funding framework to be applied.

Hopefully none of the companies will be closing their doors anytime soon. One major governance concern I have is in regards to the trustees:

The Plan is administered by a Board of Trustees, consisting of an equal number of individuals appointed by UFCW Canada and by the participating employers.


The Trustees receive no personal benefit, financial gain or fee payment from the Trust Fund for their role as fiduciaries of the Plan.

I happen to think you need some outside, independent experts (eg., an independent professor of finance with no industry ties whatsoever or a retired senior pension officer) to help them manage this fund. Trustees should be paid and they should be held accountable for the decisions they take on behalf of plan members. Most of these multi-employer plans suffer from poor governance, leaving them exposed to corruption and questionable decision-making.

Finally, while the funded status is a concern, the situation isn't hopeless. It's just that they need to raise contribution rates to close the gap and make up for the shortfall left after 2008. They're not alone. Others are also struggling with the same issues, which bolsters the case for enhanced an enhanced Canada Pension Plan (CPP). 



On Tuesday, we will probably hear that the Fed will announce some sort of QEII.  Gold and silver will resume its northernly trajectory as the world enters into a global turmoil of


high debt, huge unfunded entitlements, and rising food prices. When everyone returns from their vacation in Sept, watch for stock markets to tank as everyone tries to exit the small door

available to the markets. 


have a great weekend





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