Gerri Willis on Healthcare & Foreclosure

Weekly Unofficial Problem Bank List Update

CalculatedRisks Unofficial Problem Bank List is now at 875 institutions.  There were 8 removals from the list and 6 additions.  The removal of Premier Bank, Security Savings Bank and Westbridge Bank and Trust attributed to 3 of the 8 removals.  The aggregate assets have declined to $401.6 billion from $417.3 billion. [ Read More ... ]

Weekly Bank Failures

We had 3 more banks fail this week.  One from Kansas (Security Savings Bank) and two from Missouri (Westbridge Bank and Trust Co and Premier Bank), bringing the total banks failed in 2010 to 132.

Fed POMO Purchase

The Fed initiated another POMO (Permanent Open Market Operation) purchase today of $4.69 billion dollars of treasuries from its primary dealers.  This action is right on with the schedule that was published earlier (schedule).

This brings the Feds total purchase since 8/17/2010 to $48.401 billion dollars.

Operation 1 - RESULTS
Operation Date:	10/15/2010
Operation Type:	Outright Coupon Purchase
Release Time:	10:15 AM
Close Time:	11:00 AM
Settlement Date:	10/18/2010
Maturity/Call Date Range:	10/31/2014 - 09/30/2016
Total Par Amt Accepted (mlns) :	$4,690
Total Par Amt Submitted (mlns) :	$14,862

Fed Funds Rate Adjusted

The Fed funds rate changed last night from .18% to .19%.

Monthly Consumer Price Inflation

I normally don't post the Government released figures for CPI, as I feel that it has been changed too much over the years (with hedonics and etc) that it doesn't actually reflect true consumer price inflation.  As it does have some value as to how cost of living increases (COLA) come into play for Social Security (hence why it isn't the real number, it is kept artificially low to keep the COLA low).

CPI is the change in the price of goods and services purchased by consumer. Core CPI is the change in the price of goods and services purchased by consumers, excluding food and energy.  The forecast for CPI was a 0.2% increase, but the actual headline number is 0.1% (we know this isn't right given the recent hikes in food and gas).  The forecast for Core CPI was 0.1%, but the actual headline number came in at 0%.  Both were seen as a disappointment as the Fed wants a certain amount of inflation to occur.  Historically this has been an indicator for our currency, as higher inflation rates meant that the Fed would soon hike interest rates, thereby strengthening the currency.

We are not referring to historic norms anymore.  The Fed is trying to weaken the currency by having higher inflation and wants a lower inflation number so that he can keep Social Security COLA.  Why would you want higher inflation and a lower interest rate, it devalues your currency and if you devalue your currency, then in real dollar value terms you owe less on your debt than you otherwise would.  It also boosts exports helping your GDP look better in dollar terms.  This is all fakery anymore, as all countries are in a race to the bottom with their currencies and the people of those countries are the ones that get hurt.  If you really want to know what the inflation rate is, refer to shadowstats.com's inflation graph which I post at the bottom and will post here.

Trade Balance

The Trade Balance numbers were released today showing a worse than expected result.  The Trade Balance measures the difference in value between imported and exported goods and services during the reported month.  A positive number indicates that more goods/services were exported than were imported and vice-versa for a negative number.  Exports impacts our production as if we export more than we import or see improvements in exports over imports demand for U.S. products is getting stronger.  The forecast was for the trade balance to be -$43.5 billion, but the actual headline number was -$46.4 billion.  This signals a slowdown in production and services for companies that export either.  We'll have to keep an eye on the trend going foreword, but serves as a datapoint along with other market signals, which currently most are not looking good.

Weekly Initial Unemployment

Todays Initial Unemployment numbers were worse than expected and the stock market dropped in value quickly there after, only to be pulled back up.  Initial Unemployment numbers or Initial Claims is the number of people filing for unemployment for the first time in the past week.  The forecast was for 448K, but the actual headline number came in at 462K (that is why I always say, look for a trend not an one time improvement).  This number was worse than the prior revised number of 449K (revised from 445K), therefore we lost 13,000 more jobs in the past week.

The delta between actual and revised is staying higher as the new norm is to announce a lower headline number (as that is what everybody looks at) and then revise higher the next week.  Realistically if wee keep with the norm we could expect revisions in the initial claims to be anywhere from 465k to 467K.  It will be interesting to see where we go with the revisions.  

Ron Paul on the Future Economy

Fed Plans $32 Billion in Debt Purchases

The Federal Reserve Bank of NY plans to purchase $32 billion dollars between mid-October and mid-November from the Primary Dealers.  Below is a tentative schedule of POMO purchases that will occur on the operation date.  We will continue to graph the purchases as they unfold.

	Operation Date	Settlement Date	Operation Type	Maturity Range
	October 15, 2010	October 18, 2010	Outright Treasury Coupon Purchase	10/31/2014 – 9/30/2016
	October 18, 2010	October 19, 2010	Outright Treasury Coupon Purchase	10/31/2016 – 8/15/2020
	October 20, 2010	October 21, 2010	Outright TIPS Purchase	1/15/2011 – 2/15/2040
	October 22, 2010	October 25, 2010	Outright Treasury Coupon Purchase	4/15/2013 – 9/30/2014
	October 26, 2010	October 27, 2010	Outright Treasury Coupon Purchase	2/15/2021 – 8/15/2040
	October 28, 2010	October 29, 2010	Outright Treasury Coupon Purchase	4/15/2012 – 3/31/2013
	November 1, 2010	November 2, 2010	Outright Treasury Coupon Purchase	4/15/2013 – 9/30/2014
	November 4, 2010	November 5, 2010	Outright Treasury Coupon Purchase	10/31/2014 – 9/30/2016
	November 8, 2010	November 9, 2010	Outright Treasury Coupon Purchase	10/31/2016 – 8/15/2020

Courtesy of the Federal Reserve Bank of NY

Weekly Fund Flows

Wow, the weekly fund flows numbers were very interesting with an increase in outflows of stocks and inflows in taxable bonds.  Money flows represent the mount of money that is leaving (outflows) or entering (inflows) stock or bonds.  This week we saw -$5.569 billion in outflows in domestic stocks and $1.26 billion inflows into foreign stocks.  Bonds saw an inflow of $7.793 billion.  Figure 1 shows the bond relationship to stock flows.  

Figure 1

Figure 2 shows the flows for domestic and foreign stocks.  As you can see investors continue to flee the domestic stock market.  Again, you have to ask yourself, where is the money coming from that is propping up the U.S. Stock markets.  A total of $41.3 billion dollars have left the domestic stock market since the week of July 28th 2010. 

Figure 2

Figure 3 shows the flows into taxable and Municipal bonds.  Again, $7.1 billion dollars funneling into taxable bonds and $605 million into Municipal bonds.  Since the week of July 28th, $65.9 billion dollars has flowed into taxable bonds and $10 billion into municipal bonds.   

Figure 3

Bailout for Union Pension Funds

It seems we have every organization on the planet standing in line for a bailout.  Next up to bat Union Pension bailouts.  It would seem that these pension funds have been mismanaged over the past few decades and now are at risk of going under.  Unions are looking to the senate to get this bailout in the November timeframe.  This article by Connie Hair makes reference to the government seizing private 401k's to more fairly distribute tax-payer funded pensions to everyone.  Not much more is given on this subject and is something that deserves more research if this is true.  [  Read More ... ]

Gerri Willis on Mortgage Mess

FOMC Minutes from Today

Today's FOMC minutes reflected the FOMC's economic outlook.    I want to take the time to go over some of the minutes.

In the economic forecast prepared for the September FOMC meeting, the staff lowered its projection for the increase in real economic activity over the second half of 2010.

Well there is a shocker, real economic activity projections were lowered in the 2nd half of 2010.  Hmm, I wonder if this is due to the fact that real unemployment (U6) actually did increase and businesses are afraid to make a move prior to elections because they don't know what to expect from the administration on taxes, healthcare and paperwork.

The staff also reduced slightly its forecast of growth next year but continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012.

It would make sense that into the 1st quarter of 2011 the economy would remain sluggish as uncertainty reigns.  With the pickup in economic growth for latter 2011 and 2012 that they talk about, I would have to ask where this growth will come from.  I ask as we are facing further challenges in foreclosures that will create lawsuits and will drag on the financial industry.  More layoffs in front of the financial industry as well.

The softer tone of incoming economic data suggested that the underlying level of demand was weaker than projected at the time of the August meeting. Moreover, the outlook for foreign economic activity also appeared a bit weaker.

We definitely see the weakness in the economy here and overseas for the most part (Germany's GDP being the bright spot).

In the medium term, the recovery in economic activity was expected to receive support from accommodative monetary policy, further improvements in financial conditions, and greater household and business confidence. Over the forecast period, the increase in real GDP was projected to be sufficient to slowly reduce economic slack, although resource slack was anticipated to still remain elevated at the end of 2012.

Overall inflation was projected to remain subdued, with the staff's forecasts for headline and core inflation little changed from the previous projection.

Ok here is where we have another problem, inflation isn't subdued, nor are we in deflation.  I'll give you housing (yeah no kidding), but consumers are experiencing inflation in gas/oil prices, energy prices, corn, wheat (causing food prices to rise, stealth inflation really picking up).  If anything we are in an inflationary environment like I have pointed out in prior posts.  These are things that impact consumers.  consumer spending my have tipped up slightly, but what season are we in again?

In light of the considerable uncertainty about the current trajectory for the economy, some members saw merit in accumulating further information before reaching a decision about providing additional monetary stimulus. In addition, members wanted to consider further the most effective framework for calibrating and communicating any additional steps to provide such stimulus. Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee's mandate, they would consider it appropriate to take action soon.

QE2 is going to happen,  The fed funds rate is already at zero (near zero) so QE2 which is been rumored from $1 Trillion to $7 Trillion is going to happen in November.   They want to wait until after the elections to do this and it is the only tool they really have left.  Another point is that no other government body is doing anything to help the economy, all are relying on the FED to pull us out of this.  Many have debated whether this will actually have enough to stimulate the economy.  Then you have to ask yourself how do we pay this back?  Things to think about.

Ron Paul on the Fed

Ron Paul talks about how the Treasury Secretary is talking about spending more and the failure of Keynesian economics.

Insider Stock Sales & Purchases

This is just another tool in your tool belt to help you in deciding whether to get into the stock market.  I have graphed the output from Bloombergs Insider Stock Sales and Purchases so you have another data point when making that decision to invest in stocks.  An insider is someone that works for a company (like a CEO, director, manager, individual contributor and etc).  The numbers reflect the amount of money that has transacted in selling or buying stocks by insiders (as an aggregate of all reported selling/buying).

As you can see there is much more money pouring out of stocks held by insiders than is coming in.  You can barely see the blue line representing purchases by insiders.  Use this tool along with the weekly Mutual fund flows and monthly ETF flows to help aid your decisions.  As always, consult with a certified financial advisor to aid you in making the decision as to the right place to invest your money.  

More Massive Selling by Insiders

Bloomberg posted the weekly insider buying and selling report showing massive insider selling in the past week.  We have seen massive insider selling for weeks now, which really gives me a signal of where I shouldn't be right now.


Total Insider Purchases: $286,204
Total Insider Sales: $334,482,737

60 Minutes on High Frequency Trading

If you thought we were all running on an even playing field as retail investors, well you would be wrong.  High frequency trading has made the market a very uneven market place.  Some in this 60 minutes video say that it makes trading better by adding liquidity, but as it has been pointed out in the market-ticker these high frequency trading machines are also used to falsely elevate prices by bidding on stocks at a higher price and withdrawing the bid before it can close.  This creates prices to rise or fall without any real fundamentals behind it.  Big investment banks (the TBTF) can now steal money from the stocks and ultimately you by manipulating prices.  If they decide a stock needs to go down they can execute it in that direction which causes you to lose in your position (when you panic and liquidate or makes you take longer to get value).

Economic Wrap-up

I apologize for this being a little later than planned, but here is your economic wrap-up for the week ending October 10th 2010.

Updated Problem Bank List

CalculatedRisk's Unofficial Problem Bank List showed that there was no change this weeks number of banks on the list and remains at 877 problem banks.  The Problem Bank List is a list of banks that are at risk of failing (not necessarily that will fail, but most failures have at one time been on the list).  Assets of the problem banks were increased slightly from $416.1 billion to $417.3 billion.  Knowing the assets of these problem banks is imported as it shows how much money is at risk (or needs to be covered by the FDIC or ultimately us as tax payers) if it fails.  Even though the number of banks on the list did not fail there were changes to the list, 3 removals and 3 additions occurred.

Removals: 
First National Bank and Trust Company - removed due to action termination
First National Bank & Trust Company in Larned - removed due to merging with another bank already on the Unofficial problem bank list
Clear Creek National Bank - removed due to mergint with another bank already on the Unofficial Problem Bank List

Additions:
Valley Bank, Roanoke,VA
Fullerton Community Bank FSB, Fullerton CA
Fort Lee Federal Savings Ban FSB, Fort Lee, NJ

See the Unofficial Problem Bank List here.

Weekly Bank Failures

There were no bank failures reported this week leaving the total for 2010 at 129.  I would say this is great news, but we have had pauses in bank failures prior in 2010, so I am going to wait to break out the party hats and kazoos for now.