S&P Rally Slowed by Fastest Cash Depletion Since 1991
Lynn Thomasson, Bloomberg
Equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor’s 500 Index may slow.
Cash dropped to 3.6 percent of assets from 5.7 percent in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Investment Company Institute data show. The last time stock managers held such a small proportion was September 2007, a month before the S&P 500 began a 57 percent drop, according to data compiled by Bloomberg.
For Parnassus Investments and Janney Montgomery Scott LLC, depleted reserves is a sign returns will fall from last year, when the S&P 500 rose 23 percent, the most since 2003. Bulls say any pullback is a buying opportunity because investors have $3.17 trillion in money-market funds and may return to stocks after putting 16 times more money into bonds since last March.
“It’s not a red light, but it’s a flashing yellow light that the strongest part of the rally is probably over,” said Jerome Dodson, who oversees $3.6 billion as president of Parnassus in San Francisco and estimates the S&P 500 will climb 6 percent to 9 percent this year. “There’s not as much buying power out there.”..
(8 Mar 2010)
Economists: Another Financial Crisis on the Way
Matthew Jaffe, abcnews
Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis one that will be even worse than the current one is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.
In the report, the panel, which includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high-risk investing that precipitated the near-collapse of the U.S. economy in 2008.
The report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management and when the risks go wrong, the banks receive taxpayer bailouts from the government.
“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”
Without more stringent reforms, “another crisis a bigger crisis that weakens both our financial sector and our larger economy is more than predictable, it is inevitable,” Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.
The institute’s chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report “an important point of departure for a debate on where we are on the road to regulatory reform.”..
(2 Mar 2010)
Thousands rally on campuses, streets for schools
Nanette Asimov, San Francisco Chronicle
Gathering for a series of feisty rallies on college campuses, in civic plazas and in the streets, thousands of protesters lashed out Thursday against the budget cuts and neglect that they say are breaking down the state’s public education system.
The historic day of demonstrations in the Bay Area and beyond was largely peaceful, with students and others carrying signs like “Chop from the top,” a reference to what they see as puffed-up executive salaries. They chanted, recited poetry and shared personal stories.
But amid an often festive atmosphere, there were also efforts to make more forceful statements during the protests, called the Day of Action to Defend Public Education.
More than 150 protesters were arrested on Interstate 880 in Oakland after using an exit ramp to walk onto the freeway and shut it down for nearly an hour. Many wore black, identified themselves as anarchists and carried a banner that read, “Occupy everything.”
The action just before 5 p.m., which backed up rush-hour traffic for miles, came after a peaceful rally at Oakland City Hall. Police in riot gear chased and tackled some demonstrators. One was taken away in an ambulance after falling from the freeway onto a road below, witnesses said. Police said the man was expected to survive.
…More than 200,000 students will be turned away from community colleges next fall because there won’t be enough classes for them, community college Chancellor Jack Scott said. According to the California Teachers Association, school districts across the state have issued almost 19,000 pink slips to public school teachers, warning that they may lose their jobs at the end of the semester.
The idea for protest, also known as March Forth, was hatched at UC Berkeley last fall and has spread to campuses in dozens of states.
University students began protesting Sept. 24, as UC and CSU were poised to raise tuition by 32 percent. UC had just raised tuition by 9.3 percent the previous May. The protests continued during the fall semester, growing increasingly angry and occasionally violent, as students seized buildings at UC Berkeley, UC Santa Cruz and San Francisco State…
(5 Mar 2010)
And this time…they ain’t got flowers in their hair…-KS
China’s worthless economic statistics
Hari Sud, upiasia
China is trying hard to project itself as one of the world’s greatest economic power with worthless economic statistics is what China’s National Bureau of Statistics headed by Ma Jiantang said on January 28.
Ma was complaining during the national statistics works conference that provincial officials routinely fudge and inflate numbers to make them look good. The rigged statistics become gospel and economists and analysts all over the world use it to polish China’s image. Chinese leaders smilingly acknowledge the attention despite knowing that the statistics are fudged.
The margin of error in China’s gross domestic product statistics over the past 20 years is at least 15 to 20 percent. It could have been higher, but the NBS corrected some errors though not all.
As per the U.S. Central Intelligence Agency’s World Factbook, China’s 2009 GDP at purchasing power parity is US$8.8 trillion. If the figure is overstated by 20 percent, then the true value should be US$7 trillion. But that still puts China much behind the United States and the European Union but well ahead of Japan. India is behind with US$3.6 trillion. One should however note that China exports 62 percent of its output while India consumes 62 percent of its output internally.
Chinese leaders are unmindful of all the faulty statistics. They have acquired airs of greatness around them and anybody that questions them is no longer their friend. The statistics are prepared to support the Communist Party’s agenda that includes 10 percent growth in a recession year. Therefore, provincial leaders fudge the numbers to make them look good…
(19 February 2010)
Murray Bookchin on Growth and Consumerism
Murray Bookchin, climateandcapitalism
The following are excerpts from his article “Death Of A Small Planet,” originally published in The Progressive in 1989. The full text of the article is online http://dwardmac.pitzer.edu/anarchist_archives/bookchin/planet/planet.html”>here.
Perhaps the most obvious of our systemic problems is uncontrollable growth. I use the word “uncontrollable” advisedly, in preference to “uncontrolled.” The growth of which I speak is not humanity’s colonization of the planet over millennia of history. It is rather an inexorable material reality that is unique to our era: namely, that unlimited economic growth is assumed to be evidence of human progress. We have taken this notion so much for granted over the past few generations that it is as immutably fixed in our consciousness as the sanctity of property itself. …
It’s not enough, however, to blame our environmental problems on the obsession with growth. A system of deeply entrenched structures — of which growth is merely a surface manifestation — makes up our society. These structures are beyond moral control, much as the flow of adrenaline is beyond the control of a frightened creature This system has, in effect, the commanding quality of natural law. ….
Unless growth is traced to its basic source — competition in a grow-or-die market society — the demand for controlling growth is meaningless as well as unattainable. We can no more arrest growth while leaving the market intact than we can arrest egoism while leaving rivalry intact.
In this hidden world of cause-and-effect, the environmental movement and the public stand at a crossroads. Is growth a product of “consumerism” — the most socially acceptable and socially neutral explanation that we usually encounter in discussions of environmental deterioration? Or does growth occur because of the nature of production for a market economy? To a certain extent, we can say. both. But the overall reality of a market economy is that consumer demand for a new product rarely occurs spontaneously, nor is its consumption guided purely by personal considerations.
Today, demand is created not by consumers but by producers — specifically, by enterprises called advertising agencies that use a host of techniques to manipulate public taste. American washing and drying machines, for example, are all but constructed to be used communally-and they are communally used in many apartment buildings. Their privatization in homes, where they stand idle most of the time, is a result of advertising ingenuity.
One can survey the entire landscape of typical “consumer” items and find many other examples of the irrational consumption of products by individuals and small families – “consumer” items that readily lend themselves to public use.
Another popular explanation of the environmental crisis is population increase. This argument would be more compelling if it could be shown that countries with the largest rates of population increase are the largest consumers of energy, raw material, or even food. But such correlations are notoriously false. Often mere density of population is equated with overpopulation in a given country or region. Such arguments, commonly cynical in their use of graphics — scenes of congested New York City streets and subway stations during rush hours, for example — hardly deserve serious notice.
We have yet to determine how many people the planet can sustain without complete ecological disruption. The data are far from conclusive, but they are surely highly biased — generally along economic, racial, and social lines. Demography is far from a science, out it is a notorious political weapon whose abuse has disastrously claimed the lives of millions over the course of the century.
Finally, “industrial society,” to use a genteel euphemism for capitalism, has also become an easy explanation for the environmental ills that afflict our time. But a blissful ignorance clouds the fact that several centuries ago, much of England’s forest land, including Robin Hood’s legendary haunts, was deforested by the crude axes of rural proletarians to produce charcoal for a technologically simple metallurgical economy and to clear land for profitable sheep runs. This occurred long before the Industrial Revolution…
(5 Mar 2010)
Swaps and Robbers
ilargi, the automatic earth
First off, apologies for the publishing hiatus, dear ones. Getting flooded and swamped out will do that to you. I never before spent time in an officially declared catastrophe zone (one notch over emergency, if I’m correctly informed} but I did so over the past few days in French Bretagne, or Brittany for those English readers who are spelling-challenged (there seem to be many of them around here). I’m on a tour, if you hadn’t noticed yet, of TAE readers who had invited me over the past two years. Some, if not all, of them now live to regret their promises.
But so anyway, down to business: swaps. Over the past few days, a number of opinions on them appeared. None too positive, mind you. But what are they worth, both the opinions and the swaps themselves? Let’s look at the short and curly wild boar sort of approach, why don’t we? Since in the end, no matter how complex instruments may be, their fall-out will always be as simple as it is dirty, and it will be those who don’t know CDS from DVD’s who are most affected, not the “brilliant” minds who created the stuff in the first place.
And, to add another chapter to the peak oil versus finance crisis parable, maybe understanding the way CDS have perverted our economies will make people see why peak oil has and had nothing to do with our present economic downfall. Not that I hold out much hope, mind you; I sometimes think I’m talking to a crowd comparable best to the Red State parochial faithful, where in the end and down the line G-d does it all…
(3 March 2010)
We’re all PIGS now
Jeff Rubin, the Globe and Mail
Wall Street is worrying about financing the PIGS (Portugal, Italy, Greece and Spain), and little wonder. Proposals to halt exploding public sector budget deficits in those countries already have the workers out in the streets in Athens and Madrid.
But we needn’t look across the Atlantic to see a debt crisis in the making. The U.S. economy is sporting a record one-and-a-half trillion dollar budget deficit, and even Canada, after running a decade of budget surpluses, is posting its own largest deficit ever.
The fact of the matter is, wherever you go in the OECD, we’re all PIGS now. That’s because we mistook an energy shock for a financial crisis and bailed out everyone under the sun. But we are soon going to find out that today’s bailouts are tomorrow’s spending cuts.
The enormity of the government cutbacks that lie ahead is yet to be appreciated…
(3 March 2010)
The Great American Bank Robbery
Joseph Stiglitz, alternet
The following is Part I of a two-part excerpt from Freefall: America, Free Markets, and the Sinking of the World Economy by Joseph Stiglitz ( W.W. Norton & Co., 2010). Read AlterNet’s recent interview with Stiglitz by Zach Carter.
Bankruptcy is a key feature of capitalism. Firms sometimes are unable to repay what they owe creditors. Financial reorganization has become a fact of life in many industries. The United States is lucky in having a particularly effective way of giving firms a fresh start—Chapter 11 of the bankruptcy code, which has been used repeatedly, for example, by the airlines. Airplanes keep flying; jobs and assets are preserved. Shareholders typically lose everything, and bondholders become the new shareholders. Under new management, and without the burden of debt, the airline can go on. The government plays a limited role in these restructurings: bankruptcy courts make sure that all creditors are treated fairly and that management doesn’t steal the assets of the firm for its own benefits.
Banks differ in one respect: the government has a stake because it insures deposits….The reason the government insures deposits is to preserve the stability of the financial system, which is important to preserving the stability of the economy. But if a bank gets into trouble, the basic procedure should be the same: shareholders lose everything; bondholders become the new shareholders. Often, the value of the bonds is sufficiently great that that is all that needs to be done. For instance, at the time of the bailout, Citibank, the largest American bank, with assets of $2 trillion, had some $350 billion of long-term bonds. Because there are no obligatory payments with equity, if there had been a debt-to-equity conversion, the bank wouldn’t have had to pay the billions and billions of dollars of interest on these bonds. Not having to pay out the billions of dollars of interest puts the bank in much better stead. In such an instance, the role of the government is little different from the oversight role the government plays in the bankruptcy of an ordinary firm.
…The Obama administration has argued that the big banks are not only too big to fail but also too big to be financially restructured (or, as I refer to it later, “too big to be resolved”), too big to play by the ordinary rules of capitalism. Being too big to be financially restructured means that if the bank is on the brink of failure, there is but one source of money: the taxpayer. And under this novel and unproven doctrine, hundreds of billions have been poured into the financial system.
If it is true that America’s biggest banks are too big to be “resolved,” this has profound implications for our banking system going forward—implications the administration so far has refused to own up to. If, for instance, bondholders are in effect guaranteed because these institutions are too big to be financially restructured, then the market economy can exert no effective discipline on the banks. They get access to cheaper capital than they should, because those providing the capital know that the taxpayers will pick up any losses. If the government is providing a guarantee, whether explicit or implicit, the banks aren’t bearing all the risks associated with each decision they make—the risks borne by markets (shareholders, bondholders) are less than those borne by society as a whole, and so resources will go in the wrong place. Because too-big-to-be-restructured banks have access to funds at lower interest rates than they should, the whole capital market is distorted. They grow at the expense of their smaller rivals, who do not have this guarantee. They can easily come to dominate the financial system, not through greater prowess and ingenuity but because of the tacit government support. It should be clear: these too-big-to-be-restructured banks cannot operate as ordinary market-based banks…
(27 February 2010)
