November 2009

Dr. Doom - The Mother of all Carry Trades

Nouriel Roubini, aka Dr. Doom, has written a damning op-ed in the Financial Times, Mother of all carry trades faces an inevitable bust.

Firstly a carry trade is:

investors borrow low-yielding currencies and lend (invest in) high-yielding currencies.

Firstly, Roubini notes risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

Roubini then asks why is this happening?

ISM Manufacturing Index - Manufacturing Hiring, first time, in October

The ISM Manufacturing Report is out. PMI is at 55.7%.

The biggest element to note in the survey is the 6.9% jump in employment for manufacturing to 53.1. While inventories are still contracting, this implies firms are finally ramping up with new production. The employment index has been below 50 (which means contracting) for over a year.

U.K. to break up big banks

While we have proposals to create a permaTARP, the U.K. is breaking up the big banks:

The U.K.'s top treasury official Sunday said the government is starting a process to rebuild the country's banking system, likely pressing major divestments from institutions and trying to attract new retail banks to the market.

"I would hope that you would have perhaps three new entrants over the next few years," U.K. Chancellor of the Exchequer Alistair Darling said on the BBC's Politics Show.

News reports Sunday indicated sweeping plans to create three new high-street banks from assets sold by bailed out lenders Royal Bank of Scotland, Lloyds Banking Group and Northern Rock.

The Approaching Muni Bond Implosion

New York Lieutenant Governor Richard Ravitch made a statement last week that should have gotten headlines, but didn't.

“I believe that the states across the United States will face deficits a year after stimulus ends of $300 billion to $500 billion a year,” Ravitch told about 200 people gathered at New York University’s Robert F. Wagner Graduate School of Public Service. “You’re going to begin to see cracks in the municipal bond market well before then, because that’s an inexorable casualty of unfundable state deficits.”

To put this into perspective, the total state budgets for 2010 was about $1.4 Trillion. If his predictions are anywhere close to being true then the budget problems of the states are essentially unfixable.

Hearing on Too Big to Fail Bill

The House Financial Services Committee held a hearing, Systemic Regulation, Prudential Matters, Resolution Authority and Securitization last Thursday.

What was rare is almost all of the experts said basically the same thing, the too big to fail bill is TARP on Steroids, a disaster, making TARP permanent de facto.

Congressman Brad Sherman sums it up:

 

Who woulda thunk it - Delaware Biggest Tax Haven

When one thinks about tax havens, tiny tropical islands and corrupt banana Republics comes to mind. Not so says the Tax Justice Network. Nope it's Delaware, the incorporation haven of the U.S.A.

  • According to the Delaware Secretary of State's office their operating budget was $12 million in 2007 and they made $24 million in the fees for expedited incorporation filings alone.
  • There are currently some 695,000 active entities registered in Delaware, including 50 percent of the corporations publically traded on the U.S. stock exchange.
  • New business formations in Delaware are currently running at about 130,000 per annum.

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