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Tuesday, February 03, 2009 5:00 AM

Runaway Trains Gather Momentum

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The runaway train of bad economic news continues. On another track, a runaway train of bad ideas as to how to deal with the economic crisis is also picking up steam. Here are a sampling of headlines to consider from the US and around the world.

U.S. Property Owners Lost $3.3 Trillion in Home Value Last Year

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said.

The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said in a report today.

“It’s like a runaway train gaining momentum,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “It’s difficult to say when we’ll see a bottom to the housing market.”

The U.S. economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 percent annual pace, the Commerce Department said on Jan. 30. Record foreclosures have pushed down prices as unemployment rose. More than 2.3 million properties got a default or auction notice or were seized by lenders last year, according to RealtyTrac Inc., a seller of data on defaults.

About $6.1 trillion of value has been lost since the housing market peaked in the second quarter of 2006 and last year’s decline was almost triple the $1.3 trillion lost in 2007, Zillow said.
Car sales: From bad to worse
Even as credit starts to flow to potential car buyers, sales could fall to a 26-year low due to a sharp drop in purchases by car rental companies.

Consumers may have had an easier time getting car loans last month, but don't look for that to fuel a rebound in battered auto sales when automakers report their January sales Tuesday.

Forecasts of a modest pickup in sales to consumers are being more than offset by a sharp plunge in purchases by rental car companies, which in a typical year can buy close to 3 million vehicles a year.
China Puts Joblessness for Migrants at 20 Million
The government offered a telling indicator Monday of the slowdown in China’s once-galloping economy, announcing that more than one in seven rural migrant workers had been laid off or was unable to find work, twice as many as estimated just five weeks ago.

The new statistics followed a hint on Sunday by Prime Minister Wen Jiabao that the government might have to expand a recently announced $585 billion stimulus plan to deal “pre-emptively” with growing economic problems.

About 20 million of the total estimated 130 million migrant workers, whose cheap labor underpins China’s manufacturing sector, have been forced to return to rural areas because of a lack of work, according to a survey conducted by the Agriculture Ministry that was cited at a briefing.

In late December, employment officials estimated that at least 10 million migrant workers had lost their jobs in the third quarter of 2008 as waves of factories and businesses shut their doors.

The specter of millions more unemployed clearly has the Chinese government worried. The government has not released annual figures on social unrest — what it terms “mass incidents” — for several years, but foreign news reports suggest growing protests as unemployment spreads.
Any ideas that China is about to start another commodities boom, that China will decouple, or even that the RMB is hugely undervalued vs. the US dollar now seem far-fetched.

Billions in Stimulus Are Proposed for Australia
Australia announced another major stimulus plan and its central bank delivered a deep cut in interest rates on Tuesday as the country sought to prop up growth.

The government said it would spend $42 billion Australian dollars, or $26.5 billion, on infrastructure, schools, housing and payments for low-income earners. Last year, Australia announced several measures as the economic slowdown in the United States and Europe began to spread around the world and engulf the economies of the Asia-Pacific region.

“The weight of the global recession is now bearing down on the Australian economy,” Wayne Swan, Australia’s treasurer, said in a statement. “In the midst of this global recession it would be irresponsible not to act swiftly and decisively to support jobs.
The only responsible action government can take is to cut taxes, stop wasting money, and otherwise getting out of the way so that the private sector can function properly.

Australia Cuts Key Interest Rate to 45-Year-Low 3.25%
Australia’s central bank cut its benchmark interest rate to the lowest level in 45 years and the government announced it will spend a further A$42 billion ($27 billion) to ward off a recession.

Governor Glenn Stevens lowered the overnight cash rate target to 3.25 percent in Sydney today, saving borrowers with an average A$250,000 home loan more than A$120 a month. Treasurer Wayne Swan said the government will spend A$12.7 billion in handouts to families and A$28.8 billion on infrastructure, sending the budget into its first deficit since 2001-2002.
Rent-Hungry Los Angeles Landlords Hide Tenants With Pepsi Signs
Andy Safir says he paid a premium for a view of the Santa Monica Mountains and Los Angeles skyline when he leased space for his economic consulting firm.

He was surprised one morning to find the office in shadows even though the sun was shining. While he traveled abroad, the side of the building had been draped with a giant Statue of Liberty in protest against a city sign moratorium on just that kind of display.

So-called supergraphics, huge posters made of vinyl and mesh, can bring in $20,000 a month or more, said Paul Fisher, a lawyer in Newport Beach, California, who represents advertising firms and landlords in disputes with the city of Los Angeles.

That’s drawing landlords hungry for revenue, as vacancy rates rise for Los Angeles office buildings. Ads for Tropicana orange juice, Pepsi-Cola, Club Med and other products cover as much as 10 stories of building faces, including windows.

Tenants complain that the signs block their natural light, while other opponents say the banners clutter an urban landscape already filled with commercial messages. The city opposes some signs for safety reasons, and the fire department ordered removal of about 20, City Councilman Jack Weiss said at a news conference last week.
If I was a renter in one of those buildings I would vote with my feet.

California delays $3.5B in payments
Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies.

With the governor and state lawmakers locking horns on resolving California's budget crunch, the controller Monday halted checks covering these obligations so the state could continue funding its school system and making its debt payments.

The delay will inflict more pain on the already sorry condition of the Golden State, which is facing a $40 billion budget gap. People won't have tax refund money to spend, businesses won't get paid for their services and agencies won't have funds to help the needy until the budget situation is addressed.

Nearly $2 billion in personal state income tax refunds are being held up, according to state estimates. Last year, some two million Californians received refunds in February.

"People are going to be hurt starting today," said Garin Casaleggio, a spokesman for Controller John Chiang.
People have been hurting badly for years thanks to the policies of the Bush administration, the Fed, Congress, and coming soon Geithner, who is slated to become the worst treasury secretary ever. That is quite an achievement.

BOJ may buy $111.5 billion in shares held by banks
Japanese stocks ended lower Tuesday, in volatile trading highlighted by a midday announcement that the Bank of Japan will resume buying shares held by financial institutions, with plans to spend up to 1 trillion yen ($111.5 billion) through April 2010.

The Nikkei rose as much as 2.7% after the announcement, but retreated later in the afternoon to close 0.6% lower at 7,825.51. The BoJ did not say when it would begin buying shares. It plans to halt the buying by the end of April 2010 and dispose of all shares it acquires by autumn 2017.

The last time the central bank had run a similar share purchase, it spent 202 billion yen purchasing shares from financial institutions during the 22 months ended in September 2004. At the time, the central bank had pledged to buy as much as 3 trillion yen of shares.

The BoJ began disposing of its holdings in October 2007 but suspended the program during the market slump last autumn. The central bank held 1.273 trillion yen of shares as of September 2008, it said in the statement.
The BOJ never managed to unload the shares it bought the last time it tried this ridiculous maneuver. Buying shares to prop up prices can never work.

Macy's cuts 7,000 jobs, slashes dividend
Macy's Inc said on Monday it would slash about 7,000 jobs and cut its quarterly dividend as it forecast earnings for fiscal 2009 that fell far below Wall Street expectations, sending its shares down 4 percent.

The department store operator said it took the steps to counter what it expects will be a very tough retail market this year, and that it would plan conservatively despite efforts by the U.S. government to build an economic stimulus package.

Macy's expects these initiatives, which also include integrating its divisions into one unit, to reduce its previously planned expenses by about $400 million per year starting in 2010, and $250 million in part of 2009.

"We just believe that this is a time when nothing should be considered a sacred cow," Chief Executive Terry Lundgren said in a conference call following the announcement.

The job cuts announced on Monday are about 4 percent of the company's workforce and should mostly be completed by May 1, Lundgren said. Macy's also cut its quarterly dividend to 5 cents a share from 13.25 cents.
Macy's is way late in cutting that dividend. Furthermore, it ought to slash the dividend to no more than 1 cent. It is going to need that cash and raising money in this environment will not be easy.

20,000 NEC employees to be let go
As losses continue to mount at NEC, news has reached us that the company will embark on plans to start massive layoffs in an effort to slash the red ink. Like many other Japanese companies, NEC is expecting to struggle unless the industry rebounds sooner than expected.

The company plans to start laying off employees company-wide. Currently the exact numbers are not set in stone, but the number of workers to be slashed are projected to be as high as 20,000 when it is all said and done. The company says that the layoffs will be split evenly between full time and part time workers.

With over 150,000 employees worldwide, the cuts at NEC come at a time for the company when the Japanese tech sector has been hard hit in the wake of the current financial crisis. It is currently unknown if the company plans to discontinue any of its product lines in light of the current announcement.
20,000 jobs is a lot of jobs. There is no decoupling for Japan.

L.A. Times at the Abyss

"It was a really, really depressing thing," says the L.A. Times reporter. "If you weren't depressed before you came in, you were walking out."

The staffer, who spoke to the L.A. Weekly on condition of anonymity, was describing the scene in the Times' newsroom last Friday, when Times editor Russ Stanton personally announced a few changes - 20 minutes after outlining them in an email soon posted by L.A. Observed. Things like the folding of the paper's California section into Section A in March, and the loss of 300 jobs - 70 of which would come from the very room in which the assembled reporters were gathered.

The only silver lining Stanton offered his audience was that he was trying to ensure that the California-section reporters would be the least hard hit when the layoffs come in the next few weeks. Besides editorial, the biggest hits are expected on the business side, where advertising-sales staff members fear their jobs are about to be contracted out. And, because the folding of California means one less print run, the move will also hit the pressmen and designers.
I am saddened to see this. The LA Times provided many good stories for the blogging world. I wish the best of luck to everyone affected.

Citigroup to Use $36.5 Billion of Funds for Expanding Lending

Citigroup Inc. plans to use $36.5 billion to lend to consumers and companies and to fund U.S. mortgage loans after receiving $45 billion as part of the government’s bailout of the banking industry last year.

The New York-based bank will use $25.7 billion for mortgage lending, $2.5 billion for consumer loans, $1 billion for student loans, $5.8 billion for credit card lending, and $1.5 billion for corporate loans, according to a report to be issued today by Citigroup and which was obtained by Bloomberg News.

Citigroup and other banks that received funds from the U.S. Troubled Asset Relief Program have been criticized by politicians including Representative Barney Frank for not using the money for making loans. President Barack Obama will require banks to boost lending to consumers and companies in return for taxpayer aid from the $700 billion bailout fund, in a departure from Bush administration policy, a key lawmaker said yesterday.

“The government, on behalf of the American taxpayer, has invested in Citigroup,” Chief Executive Officer Vikram Pandit said in the report. “We have an obligation to repay in ways that go well beyond the $3.41 billion Citigroup will pay the government each year in dividends associated with its TARP investment, and a separate loss sharing agreement.”

The Treasury has distributed more than $194 billion through its program of purchasing stakes in U.S. banks. It has also mounted rescues of Citigroup and Bank of America Corp., insuring a total of more than $400 billion of illiquid assets on their balance sheets.
The US taxpayer has guaranteed hundreds of billions of dollars of Citigroup debt and Pandit comes across as bragging about paying a lousy $3.41 billion in dividends back to the government, all of which really came from the taxpayers in the first place.

In essence Citigroup is taking a bag of peanuts from the taxpayers and bragging about returning the shells.

FDIC seeks to triple Treasury Dept borrowing power

The Federal Deposit Insurance Corp is seeking to more than triple its credit line with the U.S. Treasury Department to $100 billion, a move to give it more financial power to handle U.S. bank failures, the agency said on Monday.

Frank said the FDIC's desire to increase its borrowing power is a safeguard to ensure the agency can quickly pay out insured deposits when a bank fails and the FDIC is named as a receiver.

"They have no immediate need for it, but they just want to make sure they're not constrained in the decision by a lack of the insurance fund," Frank told reporters after meeting Treasury Secretary Timothy Geithner on Monday. "They don't want to say, 'We have to keep this bank open longer than it should because we don't have enough money.'"
Translation: The FDIC is in deep *@&&, and has an immediate need for taxpayer money.

The deflation train continues to gather steam. Unfortunately Geithner, Frank, Bernanke, and Obama (along with numerous counterparts worldwide) are on a runaway train of their own, taking countermeasures guaranteed to make a very bad situation, much worse.

Mike "Mish" Shedlock
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