The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

From Information is Beautiful, this handy graphic puts the BP Deepwater Horizon accident into some mathematical context:

>

>

See also: In Deep Water: Can we afford to spill any oil?

Wall Street’s chief cop has done an awful job policing its charges. This was due to a combination of incompetence, structural deficiencies and malignant (not benign) Congressional neglect.

Ann Woolner has a fascinating, counter-intuitive idea to reform the SEC. Give the agency more to do and freer rein. Oh, and let it fund itself.

“The Senate version of the optimistically named Restoring American Financial Stability Act would let the agency fund itself with the fees it collects from registrations and transactions. It’s an idea that SEC Chairman Mary Schapiro advocates and Senator Charles Schumer, a New York Democrat, has pushed.

The downside is that it would remove leverage that Congress and the president have over the SEC by keeping them away from the agency’s purse strings. As with the Federal Reserve, SEC budgets would still be submitted to Congress, but lawmakers couldn’t cut them.

If the agency is ever going to have the resources to catch up with the growing size and evolving sophistication of the financial markets, it has to have more money and a way to protect itself from the ever-swinging political pendulum.”

I like the idea. I also like the idea of paying SEC staff bonuses based on the fraud they uncover, monies recovered for investors, and fines. But there needs to be a balance so that investigators aren’t only pursuing the home run cases.

There would also need to be some sort of mechanism to counter-balance the SEC if it ever became a runaway freight train of unjust fines — but we can cross that bridge when we get to it.

>

Previously:
SEC: Defective by Design? (March 18th, 2010)
http://www.ritholtz.com/blog/2010/03/sec-defective-by-design/

SEC: Regulatory Capture Hard at Work (March 18th, 2010)
http://www.ritholtz.com/blog/2010/03/sec-regulatory-capture-hard-at-work/

Source:
Go Fund Yourself, Congress Ought to Tell the SEC
Ann Woolner
Bloomberg June 16 2010   
http://www.bloomberg.com/apps/news?pid=20601039&sid=a9C_zQpvH1Qs

There is an interesting (albeit wonky) discussion in this month’s Monetary Trends, published by the Federal Reserve Bank of St. Louis. Its titled The First U.S. Quantitative Easing: The 1930s.

Excerpt:

“The term “quantitative easing” became popular jargon in 2009. After setting the target for the federal funds rate at a range of zero to 25 basis points on December 28, 2008, the Federal Open Market Committee announced its intent to purchase up to approximately $1.7 trillion of agency debt, agency-guaranteed mortgage-backed securities, and Treasury securities. The Treasury collaborated, buying for its own account approximately $220 billion in agency mortgage-backed securities during 2009. This policy was labeled quantitative easing.

Few analysts recall, however, that this is the second, not the first, quantitative easing by U.S. monetary authorities. During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities (half, however, was offset by a decrease in Treasury bills discounted at the Reserve Banks). At the end of 1932, short-term market rates hovered at 50 basis points or less. Quantitative easing continued during 1933-36.”

Who knew?

>

Source:
The First U.S. Quantitative Easing: The 1930s
Richard G. Anderson
Monetary Trends, Federal Reserve Bank of St. Louis, July 2010
http://research.stlouisfed.org/publications/mt/20100701/mtpub.pdf

The story in a Spanish newspaper that the IMF, EU and US Treasury are ready to provide a financial backup to Spain was said to be “rubbish” by a EC spokesman but Spanish bonds are under pressure again and yields are at the highest spread vs German bunds since the mid ’90s ahead of a 10 yr and 30 yr Spanish bond auction tomorrow. Since the EU is setting up its own bailout fund, I’m not sure how the US Treasury got into that story. Portuguese debt is also under pressure after they sold 9 month bills at a yield of 2.69% and a b/c of 1.8 vs the one last month that yielded 2.44% with a b/c of 2.3. 3 month Euribor is up at the highest level since Oct ’09 and its spread to EU 3 month LIBOR is at a fresh record. Back to the US, ABC confidence fell 2 pts to -45 after matching its high of the year last week. After a 42% drop in the past 5 weeks, the MBA said purchases rose 7.3% and refi’s gained 21% to the highest since May ’09.

Currently, the United States has seen more than 5 million foreclosures completed. My expectations is that we are about halfway through the working off of the ill-advised and financially untenable home purchases of the past decade. Meaning, we likely have another 5 million foreclosures to go.

Some other housing analysts think that number is too modest, and forecast millions more foreclosures. Housing expert Laurie Goodman, for example, noted in April that we maybe could have12 million more foreclosures before the housing cycle has run its course.

However, that was before a policy change at certain lenders. It seems some banks have realized that they have made it too easy for borrowers to wash their hands of a bad home purchase, and they are pushing back. Many are pursuing borrowers in recourse states for any short falls after a Foreclosure or Short Sale. (NOTE: In nonrecourse states, banks can pursue individuals for enabling purchase loans; They can go after 2nd mortgages or refis that were not for the purpose of the initial purchase).

This may make some of the marginal walkaways and short sales that much less desirable — and hence less likely to occur.

Here is the Washington Post:

“Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.

In many localities — including Virginia, Maryland and the District — lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.

Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.”

Don’t be surprised if this becomes a national trend. The next leg down in Housing is upon us, and banks do not want to take the full hit for the losses.

Note also that second lien holders are another major issue. My pal Josh Rosner has been discussing this for a while, and it is an ongoing issue. 2nd lenders are next in line to get paid after a distressed property is sold — and there is never any cash left over in a short sale or foreclosure. Expect to see more of these holders using the courts to pursue larger deficiencies in the future . . .

>
Source:
Lenders go after money lost in foreclosures
Dina ElBoghdady
Washington Post, June 16, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/15/AR2010061505428.html

Jim Bianco, president of Bianco Research LLC, talks about the cut in Greece’s credit rating to non-investment grade by Moody’s Investor Service. Bianco and Jeff Carter of pointsandfigures.com also discuss the outlook for inflation in the U.S. They talk with Matt Miller, Carol Massar and Julie Hyman on Bloomberg Television’s “Street Smart.”

Bloomberg — June 14, 2010

Its been a while since we published a music industry update — and the details are pretty ugly.

First up, the touring situation:

SUMMERTIME BLUES: It’s the worst of times for the summer touring business. Apart from standing rock fests like Bonnaroo, Sasquatch and Lollapalooza (see story), along with package tours like Warped and Taste of Chaos, all of which offer multiple acts for reasonable prices, the business is in terrible shape.  Stadium dates and entire shed tours are being canceled, while promoters and agents pressure managers to take reduced fees, cancel dates and give back deposits.

Ironically, the situation this year is uglier than it was last summer, when economic conditions were at their worst, and some are attributing the numerous disasters to overexposure, as certain acts attempt to move high-priced tickets in markets they’ve hit frequently in recent years, including radio shows. (6/10a)

-Hits

Album sales are even worse:

Album Sales Plummet To Lowest Total In Decades

Bad times just got worse. For the week ending May 30, the U.S. music industry sold a total of 4,984,000 albums, according to Nielsen Soundscan. This figure, which includes new and catalog releases, represents the fewest number of albums sold in one week since Soundscan began compiling this data in 1994.

-Billboard

A friend in the industry adds:

Digital is already approaching 40% of sales. The problem is the rate of growth is slowing (digital download sales growth could be negative this year). And of course as CD sales continue tanking, digital sales are a larger percentage of the total.

There is no answer for owners or creators of recorded music except an ISP level fee imposed from above. Subscription services are losing users – why subscribe when everything you want is available for free on YouTube? And mobile isn’t the answer either. As people migrate to smartphones and 3G and now 4G services, they’ll have You Tube connectivity anywhere so no need to subscribe.

I have a Spotify subscription, which is pretty cool. And I might pay for it if it were available here (though it does need some tweaking), but I’m not sure most people would cough it up. Most people care about the hits, and those are ubiquitously available for free.

But I’m a broken record . . .

Thanks for the update, Gene!

BP Develops Technology to Convert Lies into Energy

‘Totally Renewable Resource,’ Says CEO

LONDON (The Borowitz Report) – In what is being called a game-changer for the embattled oil company, British Petroleum announced today that it has developed a new technology to convert lies into energy.

At a press conference at corporate headquarters in London, BP CEO Tony Hayward said that environmentalists would embrace the new technology “because lies are a totally renewable resource.”

Illustrating the impact of BP’s new technology, Mr. Hayward told reporters, “Over the past month alone, my words could power the city of London for a year.”

But the new technology has its skeptics, including the University of Minnesota’s Davis Logsdon, who warns of the dangers of “lie spills.”

“We have learned from recent BP press conferences that once the lie flow starts, it can be very hard to stop,” he says.

Last week, TBP contributor Invictus posted comments about my pal Larry Kudlow. These comments noted that Larry was not in the recession camp as of December 2007, and currently does not see a double dip coming.

Now, Larry is a big boy, and he sure as hell doesn’t need me to defend him. But a little context goes a long way, and there are two data points worth adding to the mix.

First, on February 12, 2008, Kudlow admitted a mild recession was possible, saying “With as much objectivity as I can muster (yes, I still look at the facts), we are teetering very close to a recession. A case could be made that we are in one right now.”

That was on air, on the record. Off the record, after the show, Larry expressed great concern that profits were starting to rapidly fade.

This led me to create this guide:

The Modern Kudlow To Standard English Translation Guide

>

Ironically, at the time he said “A possibility of Recession exists,” it was true that the recession has already begun. And when he finally called the recession, it was already broad and deep.

Larry & I have had differing viewpoints on pretty nearly most topics for as long we have known each other. Yes, he is a perennial optimist. And he hates to make negative calls. But I wanted to clarify, as he did eventually come around to the viewpoint of us recessionistas.

Here is today’s random digital info-p0rn: US Government Employees:

>

>
Pretty random, huh?

via Princeton