Mon, Apr 28 2008
"ONLY" $164 TRILLION
Mah hero, the Daily Reckoning's Mogambo Guru:
FRIED IN THE FINANCIAL SUN
by The Mogambo Guru
There is a new report from the Comptroller of the Currency titled "OCC's Quarterly Report on Bank Trading and Derivative Activities, Fourth Quarter 2007", which shows that total bank holdings of derivatives is estimated to be "only" $164.2 trillion, whereas I seem to remember that the global glut of derivatives is upward of $700 trillion, which are both numbers so big that I cannot even begin to comprehend the enormity of them.
The report shows that the notional value of derivatives held by U.S. commercial banks has suddenly plunged by a whopping $8 trillion, which is (unbelievably) still only 5% of the total, and which merely takes the total down to the aforementioned-yet-still-staggering $164.2 trillion.
When I realized that $8 trillion is more than half of America's GDP, that is when I realized that "Houston, we seem to have a problem, as we are on fire, and we are tumbling out of control into the sun where we will soon be fried to a cinder."
And let's not forget that even this baleful news is the best that the banks can come up with, as the whole report is based on banks volunteering to tell stories about themselves, which is unbelievably the same as with, according to an article in the Financial Times, Libor rates, which are the agreed-upon interest rates that London bankers agree to charge on short term loans to each other.
The upshot of asking lying, greedy bankers (the villains of history) to tell the truth and let everyone know what disreputable, untrustworthy scum they are has now proved to be an unreliable system of self-regulation, and thus the Libor rate may be understated because the rate is based on self-reports of people who are bankers, which means that they are lying scumbags who falsely report that their short-term borrowing costs are lower than they are, because they know it looks bad that they are getting charged a high interest rate, which proves that the people who are loaning the money to them know what kind of lying, scumbag bankers (as redundant as that is) they are.
But it is these self-reports, like the American O.C.C reports, that are the backbone of the Libor rate, which affects lots and lots and lots of other rates.
By how much is the Libor lending rate understated? Maybe as much as 0.3%, which doesn't sound like that much, but when you are talking about trillions and trillions of pounds and euros of debt, it adds up to a lot of money! Now you see why they are so interested in lying!
And the last thing we need is higher interest rates, as Bloomberg.com reports that "U.S. corporate bankruptcies are accelerating as the economic slowdown compounds the end of easy credit", which is being made manifest by noting that a Merrill Lynch index showed that "The amount of distressed corporate bonds jumped to $206 billion April 11 from $4.4 billion in March 2007." Wow! What's that, an increase of 5,000% or something?
And another scary Bloomberg item was that loans are becoming harder to get, regardless of the interest rates, and "Banks worldwide are demanding 60% more in collateral from investors such as hedge funds to cut the risk of derivative trades going bad, the International Swaps and Derivatives Association said."
And another horror is that the stock market went up, which is Pretty Freaking Strange (PFS) since Barron's reports that the earnings of the Dow Jones Industrials went down, dropping to $225.53 from $234.49. This has produced the unbelievable price-to-earnings ratio of 57! Earnings are going down, but the stocks are going up! To a P/E of 57! Un-freaking-believable!
And not only that, but DJ Transportation index saw its earning drop, too, to $218.60 from $230.91, taking this index's P/E to 23!
And while the venerable S&P500 has not yet shown any more deterioration in its earnings, the fact that the market went up made the P/E of this index go to a lofty 21! All of this in the face of deteriorating conditions and economic collapse! This is beyond incredible!
How can you NOT run to gold in such crazy times? Ponder this question well, as a lot depends on your answering it correctly, much like when the minister asked you, "Do you take this woman to be your lawfully wedded wife?", and you know how well that turned out. So, like I said, ponder it well!
Until next week,
The Mogambo Guru
for The Daily ReckoningMon, Apr 28 2008
ORACLE FORESEES BAD TIMES
Warren Buffet joins fellow gazillionaire smartmoney boyz George Soros, Jim Rogers, Marc Faber, etc in seeing very bad economic times ahead. So why is Wall Street buying? S-U-C-K-E-R-S....
Buffett says recession may be worse than feared
NEW YORK (Reuters) - Warren Buffett, the world's richest person, said on Monday the U.S. economy is in a recession that will be more severe than most people expect.
Buffett made his comments on CNBC television after his Berkshire Hathaway Inc (BRKa.N) (BRKb.N) agreed to invest $6.5 billion in the takeover of chewing gum maker Wm Wrigley Jr Co (WWY.N) by Mars Inc in a $23 billion transaction.
"This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think," Buffett said. "This will not be short and shallow.
"I think consumers are feeling gas and food prices," he added, "and not feeling they've got a lot of money for other things."
He was not immediately available for further comment. Known for his frugality, the 77-year-old Buffett has lived in the same 10-room Omaha, Nebraska, house for a half-century, despite being worth an estimated $62 billion.
On Wednesday, the U.S. Commerce Department is expected to say how fast the economy grew in the first quarter. Economists on average have projected that gross domestic product grew at an annualized 0.2 percent rate in the quarter.
Two quarters of declining GDP is a traditional indicator of recession. That last happened in 2001. Economists expect the U.S. Federal Reserve on Wednesday to cut a key lending rate for a seventh time beginning last September.
Berkshire is a $197 billion conglomerate best known for its insurance holdings, such as auto insurer Geico Corp, but it owns more than 70 businesses.
Many of those businesses are tied to the housing market, including Acme Brick Co, insulation maker Johns Manville, and the real estate brokerage HomeServices of America Inc.
Others depend on consumers to spend more on discretionary items, such as Ben Bridge Jeweler and Borsheims Fine Jewelry.
"In the retail businesses ... if anything, they've gotten a little worse," Buffett said. "Of course, things connected with housing, whether it's in brick or whether it's in carpet, those businesses have shown no uptick at all. Jewelry had a bad Christmas ... and it stayed that way."
Buffett sees no respite from the housing slump.
"I think this is going to be fairly long and fairly deep, but who knows," he said.
In March, Forbes magazine pegged Buffett's net worth at $62 billion, ahead of Mexican tycoon Carlos Slim's $60 billion and Microsoft Corp (MSFT.O) Chairman Bill Gates's $58 billion. Gates is a friend of Buffett and a Berkshire director.Mon, Apr 28 2008
INHUMANITY KNOWS NO BOUNDARIES
This depraved monster kept one of his daughters in a secret dungeon as a sex slave for 24 years. All the while, he raised a normal family in the outside world. WTF, is all that I can say. WTF.
[Joseph Fritzl, depraved monster]
Police: Dad confesses to holding daughter captive 24 years
AMSTETTEN, Austria (AP) — A man has confessed to imprisoning his daughter for 24 years in windowless cell with a soundproofed door and fathering seven children with her, police said Monday.
The man, now 73, also told investigators that he tossed the body of one of the children in an incinerator when the infant died shortly after birth, said Franz Polzer, head of the Lower Austrian Bureau of Criminal Affairs.
"We are being confronted with an unfathomable crime," Interior Minister Guenther Platter said.
The daughter, who is now 42, had been missing since 1984 and was found by police in the town of Amstetten on Saturday evening after police received a tip.
Police on Monday released several photos showing parts of the cramped basement cell, with a small bathroom and a narrow passageway leading to a tiny bedroom. Investigators said an electronic keyless-entry system apparently kept the daughter from escaping from the cell, which was made of solid reinforced concrete.
[Elizabeth Fritzl, innocent victim of depraved monster]
The suspect, identified by authorities as Josef F., was expected to appear in court later Monday.
"He admitted that he locked his daughter, who was 18 at the time, in the cellar, that he repeatedly had sex with her, and that he is the father of her seven children," Polzer told The Associated Press.
Three of the surviving children lived with the grandparents and were registered with authorities. The other three apparently were held captive in the cellar with their mother, Polzer told reporters.
Hans-Heinz Lenze, a senior local official, said the suspect's wife apparently had "no idea" of what went on and was devastated.
"You have to imagine that this woman's world fell apart," he said.
Austrians — still scandalized by a 2006 case involving a young woman who was kidnapped and imprisoned in a basement cell outside Vienna for more than eight years — expressed disbelief at the latest case.
"The entire nation must ask itself just what is fundamentally going wrong," the newspaper Der Standard said Monday in a commentary.
Guenter Pramreiter, who owns a bakery just down the street, told The Associated Press that the suspect and his wife would regularly buy bread and rolls, though never in large quantities.
"They appeared normal, just like any other family," Pramreiter said. "I'm totally shocked, this was next door. It's terrible."
The case unfolded after a gravely ill teenager was found unconscious on April 19 in the building where her grandparents live, and taken to a hospital in the town of Amstetten, about 75 miles west of Vienna. Authorities publicly appealed for her to come forward to help diagnose the young woman's condition.
After receiving a tip, police picked up the 42-year-old woman — identified as Elisabeth F. — and her father on Saturday close to the hospital.
Police said Elisabeth F. appeared "greatly disturbed" during questioning. She agreed to talk only after authorities assured her she would no longer have to have contact with her father and that her children would be cared for.
On Sunday evening, police said investigators had found the area where Elisabeth and three of the children were held captive. Investigators said the rooms were at most 5 feet 6 inches feet high. The area had a TV and small hot plates for cooking.
In a chronology of events outlined in a police statement, authorities said Elisabeth F. told them her father began sexually abusing her when she was 11. She told police that some years later in 1984, he sedated her, handcuffed her and locked her in the cellar.
Police said a letter written by Elisabeth had apparently surfaced a month after her disappearance, asking her parents not to search for her.
The Austria Press Agency reported that the surviving children are three boys and three girls, the youngest of whom is 5. DNA tests were expected to determine whether Josef F. is the father of the children.
Sunday's developments recalled another case that shocked Austrians in the summer of 2006, when a young woman escaped after being largely confined to a tiny underground dungeon in a quiet Vienna suburb for more than eight years.
Natascha Kampusch was 10 years old when she was kidnapped in Vienna on her way to school in March 1998. Her abductor, Wolfgang Priklopil, threw himself in front of a train just hours after her dramatic escape.
Kampusch, now 20, issued a statement Monday saying she wanted to contact Elisabeth to offer emotional and financial help.All news articles and images provided under the Fair Use Notice.