Pretty self explanatory
1. The Fed prints money
2. The Fed buys Agency Securities from Foreign Governments at face value through the Fed Custody Account
3. The Fed sells Treasury Securities to Foreign Governments in the Custody Account
4. The Fed prints money to buy Treasury Securities
5. The Moon is a Balloon
http://www.chrismartenson.com/blog/shell-game-how-federal-reserve-monetizing-debt/25806
Monday, November 30, 2009
Sunday, November 29, 2009
Threads from the Desert
The Dubai Government owns 32% of Emaar which is in a real estate joint venture with an Indian firm. The joint venture filed for a public offering of shares in India, $1 billion, for the second time in two years. The first attempt to raise money by the JV at the market peak in December 2007 met with less investor interest than Lehman shares.
The joint venture proposes to use half the proceeds to repay lenders and the other half to execute its business plan. The lenders to the JV are a representative sample of Indian Public Sector Banks with the largest being the Life Insurance Corp of India.
The auditors certificate from 30 September which expressed an opinion on the health of the JV and the individual firms has been trumped by the default of Dubai World last week.
The Emaar that was at prices before 30 September is not the Emaar that is now at prices expected to decline by at least 20%. And the Indian firm still marinates in litigation that is multiplying by disgruntled sellers of land to the JV that want promised balance payments.
The proposed public offering in India will remain proposed leaving Indian lenders to consider why Indian government officials from the Finance Minister, RBI Governor, to the DEA believe that developments in the desert have been “overblown.”
The Ministers should be encouraged to review the Indian budget line item that indicates $20 of the $45 billion in remittances received in fiscal 2008 from the 4 million Indian workers in the Gulf and West Asia, an amount greater than foreign portfolio and foreign direct investment combined.
The RBI strives to match capital inflows with the current account deficit, roughly 3% of GDP, or $30 billion in a year. These invisible flows, remittances, are the base from which the capital flows start. Lower the base and, well, yes, lower the base.
Indian workers from the UAE on leave for Eid in India were terminated by text message and promised that their four month overdue salary and belongings would be shipped to India which begs the question whether shoes bought in India, transported to the Gulf and returned to India count as an export, import, or remittance.
Maybe the Shipping Corporation of India can bid for the contract
The joint venture proposes to use half the proceeds to repay lenders and the other half to execute its business plan. The lenders to the JV are a representative sample of Indian Public Sector Banks with the largest being the Life Insurance Corp of India.
The auditors certificate from 30 September which expressed an opinion on the health of the JV and the individual firms has been trumped by the default of Dubai World last week.
The Emaar that was at prices before 30 September is not the Emaar that is now at prices expected to decline by at least 20%. And the Indian firm still marinates in litigation that is multiplying by disgruntled sellers of land to the JV that want promised balance payments.
The proposed public offering in India will remain proposed leaving Indian lenders to consider why Indian government officials from the Finance Minister, RBI Governor, to the DEA believe that developments in the desert have been “overblown.”
The Ministers should be encouraged to review the Indian budget line item that indicates $20 of the $45 billion in remittances received in fiscal 2008 from the 4 million Indian workers in the Gulf and West Asia, an amount greater than foreign portfolio and foreign direct investment combined.
The RBI strives to match capital inflows with the current account deficit, roughly 3% of GDP, or $30 billion in a year. These invisible flows, remittances, are the base from which the capital flows start. Lower the base and, well, yes, lower the base.
Indian workers from the UAE on leave for Eid in India were terminated by text message and promised that their four month overdue salary and belongings would be shipped to India which begs the question whether shoes bought in India, transported to the Gulf and returned to India count as an export, import, or remittance.
Maybe the Shipping Corporation of India can bid for the contract
Friday, November 27, 2009
Default in the Desert
A Dubai government arm, Dubai World, asked its lenders to "standstill" on lending agreements for six months. Standard and Poors observed that what smelled like a payment default usually is and downgraded Dubai's debt. Happens all the time.
Dubai borrowed $80 billion to build islands, skyscrapers and golf courses, Dubai World borrowed $55 billion of it. Nakheel, Dubai World's construction unit, was to repay $3.5 billion to Shariah lenders on 14 December. Without tenants or buyers for partially developed units Nakheel was hard pressed to make the payment and six months here or there probably will not make a difference.
The banks involved include HSBC and the Royal Bank of Scotland, HSBC shares are down 6% in London looking for the nearest cliff.
India exports over $24 billion worth of merchandise to Dubai, has 1 million citizens employed there, receives over $2 billion a year in remittances from workers annually, and sources 70% of its annual oil requirement from the region. Naturally, none of the Indian companies involed in business with Dubai admit to having any exposure.
But what is the big deal about a $3.5 billion default in the desert?
Dubai could be Denver, or any other US city with commercial real estate being used as museum space for construction equipment. Property prices in Dubai are expected to decline another 20% before buyers dip their toes, presuming there are any toes left. A commensurate decline in the US would knock $1 trillion off the carrying value on the books of FDIC banks, and make TARP look like a minnow in the mouth of Moby Dick.
Dubai borrowed $80 billion to build islands, skyscrapers and golf courses, Dubai World borrowed $55 billion of it. Nakheel, Dubai World's construction unit, was to repay $3.5 billion to Shariah lenders on 14 December. Without tenants or buyers for partially developed units Nakheel was hard pressed to make the payment and six months here or there probably will not make a difference.
The banks involved include HSBC and the Royal Bank of Scotland, HSBC shares are down 6% in London looking for the nearest cliff.
India exports over $24 billion worth of merchandise to Dubai, has 1 million citizens employed there, receives over $2 billion a year in remittances from workers annually, and sources 70% of its annual oil requirement from the region. Naturally, none of the Indian companies involed in business with Dubai admit to having any exposure.
But what is the big deal about a $3.5 billion default in the desert?
Dubai could be Denver, or any other US city with commercial real estate being used as museum space for construction equipment. Property prices in Dubai are expected to decline another 20% before buyers dip their toes, presuming there are any toes left. A commensurate decline in the US would knock $1 trillion off the carrying value on the books of FDIC banks, and make TARP look like a minnow in the mouth of Moby Dick.
Wednesday, November 25, 2009
Recycling
Moody's opines that debt to economic production for the global economy will be 80% up from 63% before governments borrowed money to spend. Sovereign debt will be $15.3 trillion, or over "100 times the inflation adjusted spending of the Marshall Plan."
Presume a tax rate of 10% of economic production, a guess, then the quantum of government borrowing is expected to be 8 times economic production (80/8). Presume an interest rate of 5%, then governments will have debt service of 4% (5% of 80)of economic production or 40% (4/10) of tax revenues.
Increasing cash flow requires growth of economic production, and that is lacking in developed economies.
Economic production in the past year has been banks bailed out without replacing managements, bad assets being shifted to government balance sheets, and an artificial increase in equity prices that make marking collateral to market bearable for US financial institutions.
Economic production has been a mirage of revalued clunkers and one time tax incentives for borrowers to buy houses today that will be worth less tomorrow, especially in California.
In the real world the FDIC is operating at negative net worth of $8 billion and expects another 500 of its flock of banks to fail in the next year. The expected cost to FDIC is $100 billion, half of which has been accounted for and the other half is to be supplied by bailed out banks pre paying 3 years worth of premiums into the FDIC fund ($45 billion).
This is before the commercial real estate market (CRE) is considered. In 2007 commercial real estate assets in the system were valued at $4.5 trillion with $3 trillion of loans outstanding. Presently CRE is conveniently valued at $3 trillion with $3 trillion of loans. Asset values have been adjusted by 30% despite residential real estate prices having declined by double.
The bell tolls in the first half of 2010 with CRE loans maturing (5-7 year maturities) and variable rate payments adjusting upward. Refinancing and extending were this years option. Next year bank, government, balance sheets may be on the hook for another $500 billion.
Goldman Sachs has been downgraded by the analyst tha advised buying it in the spring. A leading regional securities firm calculates that if all banks in the mortgage system pay 5% of expected loan origination income to Fannie Mae and Freddie Mac then the value of those companies is precisely Nada.
Indian Industrial production figures indicated growth while excise tax collections decline. One of those numbers is wrong. No bonus for the right guess.
The Reserve Bank has started to restrict credit because asset prices (equities) have increased by 65%, and chastised banks in the system for not banking. The RBI had lowered borrowing rates by 4.5%, banks lowered lending rates by 2.5%, but instead of making loans invested the money in Indian government bonds.
An Indian real estate developer in a joint venture with a Dubai compnay that tried to issue shares to the public in the spring of 2008 is back asking for half as much money at 30% lower prices to pay off their bankers.
The developer has been busy in the meantime fending off over 150 criminal and civil suits, and fighting with his father and sister over necessary financial disclosures that the latter refuse to make despite being shareholders in the over 100 family firms that are tangentially and spatially involved in the share offering.
The failure to disclose has restricted the offering to Indian residents and specifically prohibited the offering in the US. The largest lender to the group companies, in varied forms, is the Government of India.
The US budget deficit is expected to be $1.5 trillion. The Chinese hold $2.25 trillion.
The President now admits that $750 billion may have been too little to solve a $2.5 trillion valuation problem, and the prospect for a "double dip" exists if Congress is not prudent with spending.
The over under on the Treasury Secretary keeping his job is 6 months
Presume a tax rate of 10% of economic production, a guess, then the quantum of government borrowing is expected to be 8 times economic production (80/8). Presume an interest rate of 5%, then governments will have debt service of 4% (5% of 80)of economic production or 40% (4/10) of tax revenues.
Increasing cash flow requires growth of economic production, and that is lacking in developed economies.
Economic production in the past year has been banks bailed out without replacing managements, bad assets being shifted to government balance sheets, and an artificial increase in equity prices that make marking collateral to market bearable for US financial institutions.
Economic production has been a mirage of revalued clunkers and one time tax incentives for borrowers to buy houses today that will be worth less tomorrow, especially in California.
In the real world the FDIC is operating at negative net worth of $8 billion and expects another 500 of its flock of banks to fail in the next year. The expected cost to FDIC is $100 billion, half of which has been accounted for and the other half is to be supplied by bailed out banks pre paying 3 years worth of premiums into the FDIC fund ($45 billion).
This is before the commercial real estate market (CRE) is considered. In 2007 commercial real estate assets in the system were valued at $4.5 trillion with $3 trillion of loans outstanding. Presently CRE is conveniently valued at $3 trillion with $3 trillion of loans. Asset values have been adjusted by 30% despite residential real estate prices having declined by double.
The bell tolls in the first half of 2010 with CRE loans maturing (5-7 year maturities) and variable rate payments adjusting upward. Refinancing and extending were this years option. Next year bank, government, balance sheets may be on the hook for another $500 billion.
Goldman Sachs has been downgraded by the analyst tha advised buying it in the spring. A leading regional securities firm calculates that if all banks in the mortgage system pay 5% of expected loan origination income to Fannie Mae and Freddie Mac then the value of those companies is precisely Nada.
Indian Industrial production figures indicated growth while excise tax collections decline. One of those numbers is wrong. No bonus for the right guess.
The Reserve Bank has started to restrict credit because asset prices (equities) have increased by 65%, and chastised banks in the system for not banking. The RBI had lowered borrowing rates by 4.5%, banks lowered lending rates by 2.5%, but instead of making loans invested the money in Indian government bonds.
An Indian real estate developer in a joint venture with a Dubai compnay that tried to issue shares to the public in the spring of 2008 is back asking for half as much money at 30% lower prices to pay off their bankers.
The developer has been busy in the meantime fending off over 150 criminal and civil suits, and fighting with his father and sister over necessary financial disclosures that the latter refuse to make despite being shareholders in the over 100 family firms that are tangentially and spatially involved in the share offering.
The failure to disclose has restricted the offering to Indian residents and specifically prohibited the offering in the US. The largest lender to the group companies, in varied forms, is the Government of India.
The US budget deficit is expected to be $1.5 trillion. The Chinese hold $2.25 trillion.
The President now admits that $750 billion may have been too little to solve a $2.5 trillion valuation problem, and the prospect for a "double dip" exists if Congress is not prudent with spending.
The over under on the Treasury Secretary keeping his job is 6 months
Friday, November 13, 2009
Sell Em
13 November 2009
Friday
Sell Em
The last time real estate companies tried to sell shares to the public the Sensex was 25% higher and promptly lost half its value. The boys are back this time asking for $5 billion.
Raising less money at 25% lower prices indicates either that they really need the money, really believe that prices are not going much higher, really need to use the auditors certificates from the end of the September quarter, or really a combination of all.
The certificates obtained at the end of September are valid for six months. An optimist may wait for the next half year certificate to obtain better valuations if the next six months were expected to be better. A pessimist, well, would rush the existing certificate into the hands of investment bankers and instruct them to sell while they can.
Indian companies have raised over $20 billion this year in direct placement to institutions (QIP’s) because there is less paperwork, environmentally friendly, and because the money was there.
The Government of India is joining the queue to sell another $10 billion in shares of Public Sector Undertakings.
The buyers are expected to be institutions well equipped to evaluate the potential value of land bank not owned by the companies asking for money, and the general public that will borrow money to invest in a Draft Red Herring Prospectus that it would not know from, well, a Herring.
The good news is that the US budget deficit is expected to be a tad less than $1.5 trillion in fiscal 2010.
$5 billion does not sound so bad after all
Friday
Sell Em
The last time real estate companies tried to sell shares to the public the Sensex was 25% higher and promptly lost half its value. The boys are back this time asking for $5 billion.
Raising less money at 25% lower prices indicates either that they really need the money, really believe that prices are not going much higher, really need to use the auditors certificates from the end of the September quarter, or really a combination of all.
The certificates obtained at the end of September are valid for six months. An optimist may wait for the next half year certificate to obtain better valuations if the next six months were expected to be better. A pessimist, well, would rush the existing certificate into the hands of investment bankers and instruct them to sell while they can.
Indian companies have raised over $20 billion this year in direct placement to institutions (QIP’s) because there is less paperwork, environmentally friendly, and because the money was there.
The Government of India is joining the queue to sell another $10 billion in shares of Public Sector Undertakings.
The buyers are expected to be institutions well equipped to evaluate the potential value of land bank not owned by the companies asking for money, and the general public that will borrow money to invest in a Draft Red Herring Prospectus that it would not know from, well, a Herring.
The good news is that the US budget deficit is expected to be a tad less than $1.5 trillion in fiscal 2010.
$5 billion does not sound so bad after all
Thursday, November 12, 2009
Creaks and Leaks
11 November 2009
Creaks and Leaks
The Reserve Bank of India gently applied the internal brakes last month by requiring Indian Banks to set aside more money to invest in Indian Government Bonds. The Government could use the help because it has to borrow $100 billion this year to keep the lights on and has been doing so at an average of $3 billion a week. Those are real numbers.
The not so real numbers are measures of the percentage change in Industrial Production which suggest that the manufacturing sector is expanding by 10%. The GDP numbers suggest the economy is growing by 6.5%.
But the taxes collected in customs, excise, and duties declined 12% year over year to $5 billion for the month of October. Higher economic growth, lower tax collection, and the Planning Commission is not involved in any of this?
The Finance Ministry promises to get to the bottom of the apparent contradiction provided Indian equity prices do not arrive there first.
Manana
Creaks and Leaks
The Reserve Bank of India gently applied the internal brakes last month by requiring Indian Banks to set aside more money to invest in Indian Government Bonds. The Government could use the help because it has to borrow $100 billion this year to keep the lights on and has been doing so at an average of $3 billion a week. Those are real numbers.
The not so real numbers are measures of the percentage change in Industrial Production which suggest that the manufacturing sector is expanding by 10%. The GDP numbers suggest the economy is growing by 6.5%.
But the taxes collected in customs, excise, and duties declined 12% year over year to $5 billion for the month of October. Higher economic growth, lower tax collection, and the Planning Commission is not involved in any of this?
The Finance Ministry promises to get to the bottom of the apparent contradiction provided Indian equity prices do not arrive there first.
Manana
Wednesday, November 11, 2009
Civililty
11 November 2009
The FCPA insures that market opportunities are left to those countries that consider gratuities to benevolent dictators, or their husbands, tax deductible. The French have long appreciated the civility of lubricating the process of supplying armaments to those countries unable to afford rice.
The Zardari of 2002 was husband to the late Benazir Bhutto and his act of civil obedience coupled with more criminal complaints than criminal statutes in Pakistan has elevated him to the highest elected office in the land
Paris, Islamabad
Citing documents acquired by it, the daily 'Liberation' in Tuesday's edition claimed Zardari received $4.3 million in kickbacks from the sale of three Agosta-90 submarines for 825 million euros (currently $1.23 billion). In addition, the daily said investigators believed that the non-payment of the full amount of the agreed kickbacks may have led to the deaths of 11 French nationals in a 2002 terror attack in the port city of Karachi.
The FCPA insures that market opportunities are left to those countries that consider gratuities to benevolent dictators, or their husbands, tax deductible. The French have long appreciated the civility of lubricating the process of supplying armaments to those countries unable to afford rice.
The Zardari of 2002 was husband to the late Benazir Bhutto and his act of civil obedience coupled with more criminal complaints than criminal statutes in Pakistan has elevated him to the highest elected office in the land
Paris, Islamabad
Citing documents acquired by it, the daily 'Liberation' in Tuesday's edition claimed Zardari received $4.3 million in kickbacks from the sale of three Agosta-90 submarines for 825 million euros (currently $1.23 billion). In addition, the daily said investigators believed that the non-payment of the full amount of the agreed kickbacks may have led to the deaths of 11 French nationals in a 2002 terror attack in the port city of Karachi.
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