Andy Sutton's Extemporania

Weekly Commentaries and Occasional Observations

About Sutton & Associates

Tags: bonds

Prepare for QE3 – Analyst

by TwoCentsEditor

Published on: 06/01/2011

Categories: Current Events, Economics, Financial Markets

Tags: ben bernanke, bonds, debt, Federal Reserve, fiat money, printing money, quantitative easing

Comments: No Comments

Editor’s Note: The ‘monetary injection trade’? So investors are being reduced to guessing what the Fed may or may not do. This guy pretty much sums it up. They print and markets go up; they stop and markets dive. What a great recovery!

Investors should prepare themselves for a third round of quantitative easing, Simon Maughn, co-head of European equities at MF Global, told CNBC Wednesday.

“The bond market is going in one direction which is up-falling yields which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 (a third round of quantitative easing) is coming,” said Maughn. “The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”

“What’s interesting in the bond markets over the last couple of sessions is, you’ve seen human traders trying to step in and call this turn in the market the same way that equities have done … and they have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up,” added Maughn.

Once again, the United States will step up as the marginal buyer of bonds, said Maughn.

“One more big injection of cash into the bond market should take you through at least the summer season into the beginning of the fourth quarter.”

“That cash injection will have the normal inflationary knock-on impact, driving back up commodities, supporting industrial stocks, dragging the financials up with them… I think it’s all about the monetary injection trade,” Maughn told CNBC.

Global Economy Loses Steam

by TwoCentsEditor

Published on: 05/27/2011

Categories: Current Events, Economics, Financial Markets

Tags: alex jones, bonds, credit, debt, debt limit, Economics, economy, jim willie, max keiser, stocks

Comments: No Comments

Editor’s Note: We told everyone that this ‘rally’ in growth was a sham, bought with debt, and paid for with our kids’ future. Few listened. Now, 2 years later, the MSM is finally starting to admit the truth; always a day late and many, many dollars short.

May 27 (Bloomberg) — The world economy is losing strength halfway through the year as high oil prices and fallout from Japan’s natural disaster and Europe’s debt woes take their toll.

Goldman Sachs Group Inc. now expects global economic growth of 4.3 percent in 2011, compared with its 4.8 percent estimate in mid-April, while UBS AG has cut its projection to 3.6 percent from 3.9 percent in January. Downside risks also include a shift to tighter monetary policy in emerging markets.

“The world economy has entered a softer patch with the incoming growth data mostly disappointing,” said Andrew Cates, an economist at UBS in Singapore. “We suspect this soft patch will endure for longer.”

Data this week backed that outlook as reports showed Chinese manufacturing expanding at the slowest pace in 10 months, orders for U.S. durable goods dropping the most since October and confidence among European executive and consumers sliding for the third straight month. Investors are tuning in, pushing the MSCI World Index of stocks in advanced economies down 4.2 percent this month.

Goldman Sachs economists led by Dominic Wilson and Jan Hatzius said in a May 25 report they now expect “less upside in equities” with their colleagues reducing price targets for most of the major regions even though they still anticipate another 10 percent gain in developed markets this year.

The concern comes as leaders from the Group of Eight conclude a summit in Deauville, France, with a statement that declared the world economy is “gaining strength” and that its recovery will pave the way to debt reduction. They identified commodity prices as a “significant headwind” to expansion.

The MSCI World Index rose 0.6 percent at 6:15 a.m. in New York today, paring its weekly lose, after the G-8 statement.

Energy Costs

Oil prices reached a 31-month high of $114.83 on May 2 as the war in Libya cut supply. Goldman Sachs this week raised its forecast for Brent crude at the end of 2012 to $140 a barrel from $120, suggesting the price’s path will be 20 percent higher than anticipated at the start of the year. That’s enough to shave 0.5 percentage point from U.S. growth over two years and a little less in other wealthy nations, they said.

The fallout from Japan’s earthquake, tsunami and nuclear disaster may also be reverberating, said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who calculates the international expansion will duck beneath its long-term trend this quarter.

Japan’s Consumers

Japan’s retail sales fell 4.8 percent from a year earlier in April, the Trade Ministry said in a report released today, underscoring the impact on consumers from the March disasters and forecasts for gross domestic product to shrink for a third straight quarter in the three months to June.

While spillover to Asia’s emerging economies has been “surprisingly modest,” Hensley said supply-chain disruption is “likely to rise with time” as Japanese production and exports remain depressed before beginning to recover around September.

“The global economy is losing momentum,” Hensley said.

China, after powering the global economy out of the 2009 recession, may also be slowing. The world’s No. 2 economy has raised interest rates four times since mid-October and boosted banks’ reserve-requirement ratio eight times since November, most recently on May 12.

ING Groep NV this month cut its estimate for China’s full- year growth to 9.8 percent from 10.2 percent and reduced its second-quarter forecast to an annual pace of 9.6 percent, from 10.3 percent. Credit Suisse Group AG adjusted its 2011 expansion estimate to 8.8 percent from 9.1 percent. China’s stocks this week fell by the most in eleven months.

Central Banks

“Investors are worried that the tightening is overdone and concerns have widened to a slowdown in earnings and economic growth from just inflation,” said Wang Zheng, chief investment officer at Jingxi Investment Management Co. in Shanghai, which manages about $120 million.

Emerging-market central banks elsewhere are also throttling back. Those in India, the Philippines, Chile, Poland, Peru and Malaysia all raised their benchmark borrowing costs this month to cool price pressures.

Europe’s 18-month debt crisis is another brake on growth as its policy makers prepare a second aid package to save Greece from default and other so-called peripheral economies deploy austerity measures to slash debt. At the same time, the euro’s 6 percent gain against the dollar since the start of the year and the European Central Bank’s shift toward tighter monetary policy may be slowing expansion elsewhere in the region.

Impact on Companies

The global economy’s change in tone is reflected in some company announcements. Chicago-based Boeing Co., the world’s largest aerospace company, said it received two orders last month compared with 98 in March. Hermes International SCA, the Paris-based maker of Birkin handbags, said on May 11 that its forecast for 2011 is “clouded by geopolitical and economic uncertainties.”

The slower growth may still be short-lived and by cooling the oil price could even provide some support for consumers and inflation relief for central bankers, allowing them to keep monetary policy looser for longer. Other reasons for confidence include job growth in the U.S., expectations for an infrastructure-led bounce in Japan’s economy, supportive equity markets and a likely recovery in inventory accumulation, said Hensley at JPMorgan Chase.

Economists Nariman Behravesh and Sara Johnson of IHS Inc. said in a May 24 report that while they expect worldwide growth to slow to 3.5 percent this year from 4.1 percent in 2010, it will rebound to 4 percent in each of the next two years as the pain of austerity, Japan’s woes and high oil prices passes.

“Assuming these shocks do not get any worse and that the world economy is not hit by additional unforeseen jolts, chances are good that the period of slow growth will be relatively short and that the recovery will pick up steam again,” they said.

Pile of Debt to Reach Stratosphere

by TwoCentsEditor

Published on: 05/23/2011

Categories: Current Events, Economics, Financial Markets

Tags: alex jones, bonds, credit cards, debt, default, deficits, government debt, government default, peter schiff

Comments: No Comments

(Reuters) – President Ronald Reagan once famously said that a stack of $1,000 bills equivalent to the U.S. government’s debt would be about 67 miles high.

That was 1981. Since then, the national debt has climbed to $14.3 trillion. In $1,000 bills, it would now be more than 900 miles tall.

In $1 bills, the pile would reach to the moon and back twice.

The United States hit its legal borrowing limit on Monday, and the Treasury Department has said the U.S. Congress must raise the debt ceiling by August 2 to avoid a default.

The White House is trying to hammer out a deal with lawmakers to cut federal spending in exchange for a debt-limit increase.

Most people have trouble conceptualizing $14.3 trillion.

Stan Collender, a budget expert at Qorvis Communications, said the biggest sum most Americans have ever handled — in real or play money — is the $15,140 in the original, standard Monopoly board game.

The United States borrows about 185 times that amount each minute.

Here are some other metrics for understanding the size of the national debt and United States borrowing:

* U.S. Treasury Secretary Timothy Geithner has said the United States borrows about $125 billion per month.

With that amount, the United States could buy each of its more than 300 million residents an Apple Inc iPad.

* In a 31-day month, that means the United States borrows about $4 billion per day.

A stack of dimes equivalent to that amount would wrap all the way around the Earth with change to spare.

* In one hour, the United States borrows about $168 million, more than it paid to buy Alaska in 1867, converted to today’s dollars.

In two hours, the United States borrows more than it paid France for present-day Arkansas, Missouri, Iowa and the rest of the land obtained by the 1803 Louisiana Purchase.

* The U.S. government borrows more than $40,000 per second. That’s more than the cost of a year’s tuition, room and board at many universities.

“That usually gets their attention,” Doug Holtz-Eakin, who was chief White House economist under President George W. Bush, said in an email. “I have two kids, so every 10 seconds, the feds borrow more than I paid lifetime.”

* The Congressional Budget Office projects the total budget deficit in fiscal 2011 at about $1.4 trillion.

“The net worth of Bill Gates, roughly around $56 billion, could only cover the deficit for 15 days,” said Jason Peuquet, a policy analyst with the Committee for a Responsible Federal Budget. “The net worth of Warren Buffet, roughly around $50 billion, could only cover the deficit for 13 days.”

Treasury to Tap Federal Pensions to Fund Government

by TwoCentsEditor

Published on: 05/16/2011

Categories: Current Events, Economics, Financial Markets

Tags: bond market, bonds, credit, debt celling, default, Treasury

Comments: No Comments

Editor’s Note: We warned of this a long time ago. First it will be Federal pension plans, then it will be IRAs/401ks and other types of retirement plans. Follow Ireland for an example of how this might transpire.

The Obama administration will begin to tap federal retiree programs to help fund operations after the government lost its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt.

May 13 (Bloomberg) — Lee Sachs, chief executive officer for AlliancePartners and former assistant U.S. Treasury secretary, says the debt ceiling can’t be tied to deficit talks.

A look at the national debt and the debt ceiling for the past 30 years.

Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling — a legal limit on how much it can borrow. With that limit reached Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills.

Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers. The measure won’t have an impact on retirees because the Treasury is legally required to reimburse the program.

The maneuver buys Geithner only a few months of time. If Congress does not vote by Aug. 2 to raise the debt limit, Geithner says the government is likely to default on some of its obligations, which he says would cause enormous economic harm and the suspension of government services, including the disbursal of Social Security funds.

Many congressional Republicans, however, have been skeptical that breaching the Aug. 2 deadline would be as catastrophic as Geithner suggests. What’s more, Republican leaders are insisting that Congress cut spending by as much as the Obama administration wants to raise the debt limit, without any new taxes. Obama is proposing spending cuts and tax increases to rein in the debt.

“Everything should be on the table, except raising taxes,” House Speaker John Boehner (R-Ohio) said on CBS’s “Face the Nation.” “Because raising taxes will hurt our economy and hurt our ability to create jobs in our country.”

The Obama administration has warned that it is dangerous to make a vote on raising the debt limit contingent on other proposals. But Boehner is demanding that Congress use the debt vote as a way to bring down government spending.

“I’m ready to cut the deal today,” Boehner said. “We don’t have to wait until the 11th hour. But I am not going to walk away from this moment. We have a moment, a window of opportunity to act, because if we don’t act, the markets are going to act for us.”

Geithner’s plan to tap federal retiree programs as a temporary means to avoid a government default comes as the Obama administration has shown growing interest in altering those programs to curb the debt in the long run.

Administration officials have expressed interest in raising the amount that federal employees contribute to their pensions, sources told The Washington Post.

The Republicans have suggested that the civilian workforce contribute more to its retirement in the future, effectively trimming 5 percent from salaries. The administration has not been willing to go that far in talks being led by Vice President Biden.

Treasury secretaries have tapped special programs to avoid default six times since 1985. The most protracted delay in raising the debt limit came in 1995 after congressional Republicans swept to power during the Clinton administration.

But today, the government needs far more money to cover its obligations than in the past, making the special measures less effective than they used to be. The government needs about $125 billion more a month than it takes in each month.

In a letter released last week to Sen. Michael Bennet (D-Colo.), Geithner wrote that a default would risk a “double-dip” recession.

“Default would not only increase borrowing costs for the federal government, but also for families, businesses and local governments — reducing investment and job creation throughout the economy,” Geithner wrote.

But several prominent congressional Republicans have dismissed the Obama administration’s assertion that the country would face dire consequences if Congress does not vote to raise the federal limit on government borrowing by August. Many of the skeptics are affiliated with the tea party.

In the Senate, freshman Sen. Pat Toomey (R-Pa.) has said the Obama administration has been exaggerating the effects of hitting the default mark. He says breaching the limit would cause only a partial government shutdown.

Other freshman Republicans have said that Geithner could raise money to avoid defaulting by selling investments in private companies. The Republican Study Committee, which represents more than 150 lawmakers, sent a letter to Geithner last week pressing for more details about the Aug. 2 deadline.

Social Security Deficits Now ‘Permanent’

by TwoCentsEditor

Published on: 05/14/2011

Categories: Current Events, Economics, Financial Markets

Tags: bonds, credit cards, debt, loans, medicare, social security, stocks

Comments: No Comments

Editor’s Note: A ’rounding error’? This guy probably believes in the tooth fairy too. This Commissioner’s complacency makes this a must-read!

Social Security will run a permanent yearly deficit when looking at the program’s tax revenues compared to what it must pay out in benefits, the program’s trustees said Friday in a report that found both the outlook for Social Security and Medicare, the two major federal social safety-net programs, have worsened over the last year.

Medicare’s hospital insurance trust fund is now slated to run out of money in 2024, or five years earlier than last year’s projection, while Social Security’s trust fund will be exhausted by 2036, a year earlier than the prior projection.

The trustees stressed that exhaustion of the trust funds doesn’t mean the programs will stop paying all benefits. Social Security could fund about three-fourths of benefits past 2036, and Medicare could pay 90 percent of benefits past 2024 under current trends.

The figures come as Congress and President Obama are wrestling over whether to make major changes to the entitlement spending, and Republicans said the new projections should force the debate to turn in their direction.

“Today’s report makes it clearer than ever that doing nothing is not an option. The failure to act means current as well as future beneficiaries, will face significant cuts even sooner than previously estimated,” said three top House Republicans on the Ways and Means Committee, which oversees both programs.

Treasury Secretary Timothy Geithner, the managing trustee of the boards of trustees for the two programs, said the report shows the need to act “sooner rather than later,” but said Mr. Obama has actually put forward an outline calling for changes to stabilize the finances for the major entitlements programs.

And Health and Human Services Secretary Kathleen Sebelius argued that Medicare would have been in worse shape without the new health care law Democrats passed last year, which reduced billions of dollars of Medicare payments.

Social Security began running an annual deficit in 2010 when looking at tax income and benefit payments. The gap right now is made up by payments from the trust fund, which in theory has built up over the years when the program ran an annual surplus.

Charles Blahous, one of the trustees, said the gap between tax revenues and benefit payments is now “a permanent feature of the program’s finances going forward.”

Still, Michael Astrue, the Social Security Administration’s commissioner, said the gap was not a major issue compared with the broad size and scope of Social Security.

“It is a rounding error in terms of its significance, in my opinion,” he said.

Treasury Auctions to Take US Over Debt Limit on 5/16

by TwoCentsEditor

Published on: 05/11/2011

Categories: Current Events, Economics, Financial Markets

Tags: bonds, credit card, debt ceiling, debt limit, stocks

Comments: No Comments

Editor’s Note: Two months ago, the warnings were dire, especially from Secy. Geithner who beseeched Congress not to play ‘chicken’ with the debt limit. The media was ferocious in its coverage. Now the day has arrived and there is nary a word about it. Amazing.. Simply amazing!

WASHINGTON -(Dow Jones)- The Treasury Department auctioned $56 billion in new debt Tuesday and Wednesday, enough to take the U.S. over its federal debt ceiling when the three- and 10-year notes settle on Monday.

Treasury officials last month flagged May 16 as the day the government would hit the $14.294 trillion debt limit.

The U.S. is selling $72 billion in new debt over three days this week. The Treasury auctioned $32 billion in three-year notes Tuesday and $24 billion in 10-year notes Wednesday, and will sell $16 billion in 30-year bonds Thursday. All of the auctions will settle Monday.

As of Tuesday, total debt subject to the limit was $14.274 trillion, according to the Treasury Department.

The Obama administration has asked Congress to raise the limit, warning that failure to act could lead the government to default by Aug. 2–and could spook investors even before then.

House Speaker John Boehner (R., Ohio) said Monday that any increase in the government’s debt limit should be accompanied by trillions of dollars in spending cuts.

“It’s true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt limit without simultaneously taking dramatic steps to reduce spending and to reform the budget process,” he said.

The federal budget deficit widened in April, with the government spending $ 40.49 billion more than it collected last month, a Treasury Department report said Wednesday.

The deficit was the 31st monthly shortfall in a row. With seven months of fiscal 2011 elapsed, the government has spent $869.90 billion more than it has collected.

Even the most aggressive plans wouldn’t wipe out budget deficits for years, meaning that debt will continue to mount.

Doubts Increase on US Recovery after weak GDP Data

by TwoCentsEditor

Published on: 04/29/2011

Categories: Current Events, Economics, Financial Markets

Tags: bonds, economy, gross domestic product, money, stocks

Comments: No Comments

Doubts have been cast over the strength of the US economic recovery after output grew at an annualised rate of only 1.8 per cent in the first quarter.

A surge in oil prices held back consumption growth, while public spending fell at every tier of the US government.

Most analysts expect the weakness to be temporary but government support for the economy will start to fade later in the year, so the lack of any acceleration in growth points to years of further pain for the world’s largest economy.

At this stage of a recovery, growth often rebounds by between 4 and 5 per cent. Expansion of less than 2 per cent will not create enough jobs to keep up with population growth and cut the US unemployment rate of 8.8 per cent.

The dollar fell further on release of the growth numbers as investors judged that weak growth would cause US interest rates to stay lower for longer.

Although overshadowed by the growth figures, there was another disturbing economic release on Thursday. Initial claims for unemployment insurance rose to 429,000 and the four-week average rose back to more than 400,000. Jobless claims had been on an improving trend and the reversal suggests that momentum in the labour market might have stalled.

Economists attributed some of the growth weakness to a temporary decline in defence spending and weather-related weakness in construction output.

Sales by consumer goods companies, led by Procter & Gamble, the world’s largest, provided fresh evidence of consumer weakness and, in some product categories, suggested consumers felt more cash-strapped than last year.

Growth was also held back by high petrol prices, which kept growth in real personal consumption spending to an annualised 2.7 per cent, compared with 4 per cent in the fourth quarter of 2010.

Prices increased by 3.8 per cent but, even excluding food and energy costs, they rose at a rate of 1.5 per cent, the fastest since 2008.

Nariman Behravesh of IHS Global Insight said: “While higher gasoline prices are eroding consumer confidence, an improving jobs market is supporting consumer spending. Meanwhile, businesses remain optimistic and are spending more freely on both new technologies and new hires.”

The Federal Reserve on Wednesday revised its outlook for the rest of the year. Officials now expect the US economy to grow at a rate of between 3.1 and 3.3 per cent in 2011, compared with an earlier forecast of 3.4 to 3.9 per cent.

Proposed Budget to ‘Pay Off’ National Debt?

by TwoCentsEditor

Published on: 04/05/2011

Categories: Current Events, Economics, Financial Markets, Foreign Exchange Markets

Tags: bonds, debt, deficit, interest, money, national debt, stocks

Comments: No Comments

Editor’s Note: Now this would make a good April Fool’s joke. $4 Trillion in cuts over 10 years.. $400 Billion a year – that doesn’t even cover the interest paid on the national debt each year. These guys have got to be kidding. Not to mention the structural defects in Social Security and Medicare. They think that by changing the source of funding it all goes away. This type of economic gymnastics is why we’re in this mess in the first place.

The Republican budget proposal will eliminate the national debt while still preserving costly entitlement programs like Medicare and Social Security, Rep. Paul Ryan told CNBC.

Speaking just hours before the spending plan gets its formal introduction before Congress, Ryan, head of the House Budget Committee, said the debt will peak at 74.5 percent of gross domestic product in 2014 and then drop from there.

“We’ve got to show the country that we can get this situation under control and grow the economy, and that’s what we’re doing,” he said. “So whether (Democratic Senate Majority Leader) Harry Reid is willing to pass this bill or Barack Obama is ready to sign it, I don’t know the answer to that question.

“What I do know is I can’t look my kids and my constituents in the eyes with my conscience being clear and not know that I didn’t do everything I could to try and fix this problem before it got out of control.”

Among the key tenets in a budget resolution to be presented are fundamental changes to the way Medicare and Medicaid are financed. The resolution forestalls action on Social Security, though Ryan said he expects a bipartisan agreement on that issue later this year.

More broadly, the plan contains provisions that Ryan has said will slash $4 trillion from federal spending over the next decade.

The resolution is necessary as a potential shutdown looms over Washington and Congress must approve raising the national debt limit.

Ryan acknowledged the political obstacles he will face both from Democrats and some members of this own party who may bristle at the aggressive spending cuts involved.

“The problem in Washington is, they take any honest and sincere attempt to fix this problem and use it as a political weapon against you in the next election,” he said. “We can’t let that deter us.”

Reich: Beware the Double-Dip

by TwoCentsEditor

Published on: 04/04/2011

Categories: Current Events, Economics, Financial Markets

Tags: bailouts, bonds, credit, deficits, finance, government spending, government stimulus, jobs, money, robert reich, stocks, unemployment

Comments: No Comments

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip — but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March — the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn’t get back to 6 percent unemployment until 2016.

But isn’t the economy growing again — by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

So why aren’t we getting the truth about the economy? For one thing, Wall Street is buoyant — and most financial news you hear comes from the Street. Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street’s creativity hasn’t been watching.

To the extent non-financial companies are doing well, they’re making most of their money abroad. Since 1992, for example, G.E.’s offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group that’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.

Washington, meanwhile, doesn’t want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it like it is Americans will want government to do more rather than less. They’d rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit we’ll get more jobs and higher wages).

I’m sorry to have to deliver the bad news, but it’s better you know.

AIG Spurned in Offer to Buy Junk Mortgages from Maiden Lane

by TwoCentsEditor

Published on: 03/30/2011

Categories: Current Events, Economics, Financial Markets

Tags: AIG, bonds, charlie sheen, credit default swaps, derivatives, Fannie Mae, Freddie Mac, gold, housing, judge judy, money, mortgage bonds, silver, stocks

Comments: No Comments

Editor’s Note: This is the laugher of the year so far. Suddenly there is a voracious demand for junk mortgages and AIG bonds? Hold onto your wallets folks – you’ll be bailing this mess out again – probably sooner than you think.

The Federal Reserve announced Wednesday that it was declining an offer from American International Group [AIG 36.05 -0.13 (-0.36%) ] to buy the mortgage-related assets it holds in its Maiden Lane II portfolio.

Instead of selling the assets as a block to a single buyer, the Fed says it will sell the assets in individually and in blocks in a “competitive process.” Earlier reports have said that the Fed was considering an auction for the assets.

The Fed acquired the mortgage-related assets in connection with the bailout of AIG in 2008. At the time, they were considered to be “toxic.”

AIG had offered $15.7 billion to purchase the assets, which have a face value of $30 billion. At that price, the Fed would have made a profit of over $1.5 billion.

“In light of improved conditions in the secondary market for non-agency residential mortgage backed securities (RMBS), and a high level of interest by investors, the Federal Reserve believes that conditions are right for ML II to begin more extensive asset sales while taking appropriate care at all times to avoid market disruption,” the Federal Reserve said.

Outside investors have privately indicated that they are very interested in buying the assets. Offering the assets in a segments or individually—rather than as a complete block—will allow smaller investors and hedge funds to make bids. The Fed believes this will create a large set of potential investors in the assets.

BlackRock Solutions [BLK 198.84 12.34 (+6.62%) ] is expected to circulate the first bid list sale early next week.

« page 2 of 12 »