Harvard Swaps Are So Toxic Even Summers Won’t Explain
The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school suspended work on the building last week.
“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”
If you purchased the iShares Barclays 20+ Year Treasury Bond Fund (TLT), an exchange traded fund (ETF) that owns long-term Treasuries, at the end of 2008, you would have already lost more than 20.5 percent! That INCLUDES interest payments, by the way.
As a matter of fact, 2009 has been the absolute WORST year for total return on long-term Treasuries since at least 1973. That includes dismal years such as 1994 and 1999, which occurred during Fed rate-hiking cycles.
You know, I have this annoying habit and can't help myself. I love statistics, numbers, charts and things of such nature. Even though I announced my self-imposed exodus from blogging a few weeks ago, somehow I can't drag myself away on a permanent basis.
So, with that in mind, I took a few hours out of my day and compiled unemployment claims data going back to late 2007. I then created a couple of charts which Nate has helped me to share with you here on the Economic Edge.
First, there's a chart depicting total continuing UC claims on a weekly basis.
Second, there's a chart for total UC claims on a weekly basis.
These numbers are NOT seasonally adjusted; they are the raw data released by the Department of Labor in its weekly initial claims report.
What you see is a slow but steady climb in continuing EUC (Emergency Unemployment Compensation) claims beginning in March 2009, and a dramatic spike in extended UC benefit filings beginning this past summer. Note that the amount of extended claims filings recently surpassed initial claims filings during some weeks. Soon, I expect EUC continuing claims to do the same in reference to regular continuing claims.
Clearly you are NOT seeing an improvement in employment. Rather, the opposite is occurring and it's getting much, MUCH worse. If you want to know what I think the near future holds, take a look at last January's filings. That ought to give you a hint.
EUC claims, in my opinion, are the DOL's "off-balance sheet", akin to SIVs, financial institution off-balance sheets.
It's a perverted game of "job market hide-and-seek."
Highlights
Initial jobless claims rose slightly in the Dec. 12 week to 480,000 vs. expectations for 465,000, a mild disappointment that doesn't derail the trend which points to a bottoming for the labor market. The four-week average, especially important to watch during the calendar and seasonal effects of the holidays, points to improvement with a 16th straight decline, down 5,250 to the lowest level since September last year at 467,500. For the last several months, initial claims have been making their way down from the mid-500,000 level.
Continuing claims have at the same time been making their way down from the low 6 million level, at 5.186 million in the Dec. 5 week and taking the four-week average down more than 100,000 to 5.318 million. The unemployment rate for insured workers is unchanged at 3.9 percent, well off the summer peak of 5.2 percent. Though contraction in continuing claims reflects in part the expiration of benefits, much of it also reflects new hiring.
Today's report, despite the higher-than-expected headline, points to ongoing improvement in the labor market including strength for December's employment report. Markets showed little reaction to the report.
Visit msnbc.com for breaking news, world news, and news about the economy
Highlights
The consumer price report for November was calming on most financial markets despite the rise in the headline number. Both the headline and core numbers were much less inflationary than yesterday's scary PPI numbers. Headline consumer price inflation jumped 0.4 percent in November after gaining 0.3 percent the month before. The November headline matched the consensus forecast. Core CPI inflation-in contrast with yesterday's core PPI run up-eased to 0.0 percent (no change) after a 0.2 percent increase in October. The consensus had called for a 0.1 percent rise.
The headline number was boosted mainly by a 4.1 percent surge in energy costs after a 1.5 percent gain in October. Gasoline was up 6.4 percent, following a 1.6 percent gain the month before. Food price inflation was soft in November with a 0.1 percent rise-the same as in October.
Within the core, declines in shelter indexes offset increases in costs for new and used motor vehicles, medical care, airline fares, and tobacco. Shelter costs declined 0.2 percent in the latest month, led by a 1.5 percent drop in lodging away from home. Owners' equivalent rent dipped 0.1 percent. Hotels-including resorts-continued to engage in heavy discounting. High unemployment is keeping rent soft in general.
Year-on-year, headline inflation increased to plus 1.9 percent (seasonally adjusted) from minus 0.2 percent in October. The core rate was unchanged in November at up 1.7 percent. On an unadjusted year-ago basis, the headline number was up 1.8 percent in November while the core was up 1.7 percent.
Inflation is still high at the headline level but it is not as severe as earlier indicated by the PPI for November. A flat reading for the CPI core suggests that a sluggish economy is keeping underlying inflation tame for now.
Highlights
Housing starts looked good for November but most of the gain was largely a comeback and then some in multifamily starts-a volatile component. The single-family component posted only a partial rebound. Construction companies picked up the pace of groundbreaking for new homes as housing starts in November rebounded 8.9 percent, following a revised 10.1 percent plummet in October. The November pace of 0.574 million units annualized came in right at the market forecast for 0.575 million units and was down 12.4 percent on a year-ago basis. The latest comeback was led by a 67.3 percent rebound in multifamily starts, following a sharp 29.5 percent plunge in October. Meanwhile the single-family component edged up 2.1 percent after a 7.1 percent fall the month before.
Today's housing starts report is good but should be seen in the context of October's weak numbers. The two months together indicate that housing is in a slow recovery. The bad news is that the recovery is slow. But the good news is that the housing construction recovery is slow-anything more robust at this point would not be sustainable.
Highlights
The nation's current account deficit, hit by a deeper trade deficit, widened to $108.0 billion in the third quarter vs. a second-quarter deficit of $98.0 billion (revised from $98.8 billion). The third-quarter gap is 3.0 percent of GDP, the highest rate since 4.3 percent in the fourth quarter last year and vs. 2.8 percent in the second quarter.
.jpg)
Two Beers with Steve interview: Foundation for Freedom's Vision
And here’s a link to Steve’s site, he has some great interview guests, I hope everyone visits and supports his site: Two Beers With Steve…
Visit msnbc.com for breaking news, world news, and news about the economy
Highlights
We got the worst of both for this morning's initial economic news. Producer prices surged while Empire manufacturing fell back sharply. Energy costs jacked up the headline PPI for November but the core also rose significantly. The overall PPI jumped 1.8 percent in November after gaining 0.3 percent in October. The boost in the latest month far exceeded the market forecast for a 1.0 percent increase. The November gain was led by a 6.9 percent spike in energy and a 0.5 percent gain for food. At the core level, the PPI rebounded 0.5 percent after a huge 0.6 percent drop in October. The market had projected a 0.2 percent rise for the latest month. It is easy to jump on the worry wagon about inflation from today's report. But there should be a little caution about that. Oil prices have since come down and the jump in the core partly or mostly reflected getting back to near-term trend after October's sharp drop. The core rebound was mainly for light trucks and cigarettes.
Highlights
Month-to-month growth slowed to a crawl in the New York manufacturing region, according to the Empire State index which barely came in above zero for the December reading, at 2.55 vs. far stronger rates of growth in November (23.51) and October (34.57). Nearly everything is slowing this month: new orders 2.20 vs. November's 16.66, shipments 6.30 vs. 12.97, employment -5.26 vs. 1.32, workweek -5.26 vs. 5.26, and unfilled orders, -21.05 vs. -2.63. The month-to-month contractions in unfilled orders and the workweek are bad news for the area's factory workers, especially those that are unemployed right now.
Prices paid (inputs) was one thing that didn't slow, at 19.74 vs. 10.53. But the region's manufacturers definitely don't have the pricing power to pass through the higher costs to their customer as prices received (outputs) is showing deepening contraction, at -9.21 vs. -2.63.
Even the general six-month outlook fell back, to a still strong 43.01 but down nearly 14 points from last month. Today's report is surprisingly soft but will have to be confirmed by tomorrow's Philadelphia report on the Mid-Atlantic region before questions emerge over manufacturing, a sector that is definitely moving forward though its pace is uncertain. Later this morning the Federal Reserve will post the October U.S. industrial production report, the heart of which are the manufacturing components.
Dec. 15 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit, emerging from a U.S. bailout with higher capital levels and loan-loss reserves than any peer, still has a $617 billion reason to worry.
That’s the amount of assets left in Citi Holdings, the division that Pandit set up to strip his bank of unprofitable businesses, troubled loans and securities. While the bank has unloaded almost $100 billion of the assets so far, getting stuck with the rest may hinder earnings for years, analysts said.
Dec. 14 (Bloomberg) -- Abu Dhabi provided $10 billion to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion bond payment that roiled global financial markets during the past month.
Dubai World will use the money to cover debt of real-estate unit Nakheel PJSC that comes due today. The rest of the money will cover Dubai World’s interest and operating costs until the company reaches a standstill agreement with its creditors, Dubai’s government said in an e-mailed statement.After the emirate and its state-controlled companies borrowed $80 billion to diversify away from dwindling oil supplies, Dubai’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum, has been forced to seek Abu Dhabi’s help three times this year as the global financial crisis dried up credit and triggered a property crash in the city state.
“It comes as a relief for the market, underpinning hopes that the implicit government support for Dubai corporate issuance is intact,” said Jason Watts, head of credit trading at National Australia Bank Ltd. in Sydney. “Whilst we are not out of the woods yet, it is definitely a step in the right direction.”
Dec. 14 (Bloomberg) -- Citigroup Inc., recipient of the biggest U.S. bank bailout, struck a deal with regulators to repay $20 billion to taxpayers and escape government-imposed pay restrictions.
Citigroup, the only major U.S. lender still dependent on what the government calls “exceptional financial assistance,” will raise the funds with a sale of $20.5 billion of equity and debt. The New York-based company also plans to substitute “substantial common stock” for cash compensation, the bank said in a statement today.
Chief Executive Officer Vikram Pandit has pressed for an exit from the Troubled Asset Relief Program out of concern that TARP pay constraints make Citigroup vulnerable to employee poaching by Wall Street rivals. Bank of America Corp. exited the program last week after paying back $45 billion of rescue funds.
“It’s great news,” Gary Townsend, chief executive officer of Hill-Townsend Capital LLC, an investment firm in Chevy Chase, Maryland, said in a Bloomberg Television interview. “It’s important for Citi to exit these extraordinary agreements with the U.S. Treasury and the government as quickly as possible. It’s expensive perhaps, but I think it had to be done.”
Stock Sale
The bank will sell $17 billion of common stock, with a so- called over-allotment option of $2.55 billion, and $3.5 billion of “tangible equity units.” The U.S. Treasury will sell as much as $5 billion of common stock it holds, with plans to unload the rest of its stake during the next six to 12 months. An additional $1.7 billion of common stock equivalent will be issued next month to employees in lieu of cash they would have otherwise received as pay.
The TARP payments will result in a roughly $5.1 billion loss. Citigroup will also terminate its loss-sharing agreement with the government on $301 billion of its riskiest assets. Canceling about $1.8 billion of trust preferred securities linked to the program will result in a $1.3 billion loss, the company said.
Citigroup fell to $3.86 in New York trading at 8:03 a.m., down from its $3.95 close on Dec. 11. The stock has tumbled 41 percent this year, valuing the lender at about $90 billion.
Senate passes bill to keep government funded
The $447 billion bill spending bill also features provisions to reinstate auto dealers closed down by General Motors and Chrysler.
WASHINGTON (CNN) -- The U.S. Senate on Sunday approved $447 billion in spending for several Cabinet departments and other agencies for the 2010 budget year -- money needed to fund the federal government after the coming week.
On a mostly partisan vote of 57-35, the Senate approved the compromise omnibus spending plan worked out with the House, which passed it last week. The measure now goes to President Barack Obama to be signed into law to succeed the previous funding resolution that expires December 18.
The vote occurred in an unusual Sunday session as the Senate worked for the second consecutive weekend in a push by the Democratic leadership to complete work on a sweeping health care bill and also get the appropriations bill passed.
The omnibus bill, which combines six separate appropriations measures, provides money for for non-defense government agencies including the departments of Transportation, State Department, Veterans Affairs, Commerce and Justice for the fiscal year that started October 1.
A separate defense spending bill is expected to be considered later this week.
The omnibus measure also authorizes about $600 billion in mandatory federal spending on government programs such as Medicare, Medicaid and Social Security, funding that is set by formula and cannot be altered by Congress.
Republicans denounced the bill as bloated with wasteful spending. On Saturday, the Democratic-controlled Senate cleared a procedural vote needed to end a Republican filibuster and allow for Sunday's vote to take place.
According to the independent, nonpartisan group Taxpayers for Common Sense, the spending bill includes 5,244 earmarks -- or pet projects sought by members of Congress -- that total just under $4 billion.
"I demand the president of the United States keep his word, when he signed another pork-laden bill last March, to veto this bill," Republican Sen. John McCain of Arizona, who lost to Obama in last year's presidential election, said before Sunday's vote.
Among its many provisions, the bill would allow the government to transfer suspected terrorists now held at Guantanamo Bay, Cuba, to the United States to stand trial, and allow guns in checked luggage on Amtrak trains.
It also would provide auto dealers closed down under the General Motors and Chrysler restructuring an opportunity to be reinstated. The bill sets up a binding arbitration process that would let dealers present evidence that could allow them to reopen.
