Mish's Global Economic Trend Analysis

First Houses, Now Cars: "Please Take the Damn Thing"
Gold "The World's Currency"
German Labour Minister Wants Gold Collateral
Hello Richard Bove, Repeating Nonsense Does Not Make It True; Bank of America Will Not Survive in One Piece

First Houses, Now Cars: "Please Take the Damn Thing"

Posted: 24 Aug 2011 02:03 PM PDT

We saw it with homes, especially condos, now we see refusal of lenders to take possession of cars and boats following bankruptcy.

Please consider My lender refuses to repossess my car

Dear Bankruptcy Adviser,
I was forced to file Chapter 7 bankruptcy. I agreed to surrender my vehicle. After my Chapter 7 was discharged, I naturally expected my car to be picked up by the lender. It has now been three months. Is there a required amount of time in which they have to pick it up? I have made many calls about this to my lender. Not one call has been returned. Isn't there something in the law that states they have a time limit to pick up the car, or else release the title to me?-- Jim

The "Bankruptcy Adviser" responded that he is seeing this action more frequently because resale value is "so low that the lender doesn't want to waste resources to repossess, refurbish and resell."

The BA presented three options.

"Keep the vehicle and use it."
"Park the vehicle in a secure, public location and send a copy of the keys via registered mail to the creditor"
"Call the lender every 48 hours until you talk someone into picking up the vehicle."

In regards to option number 2, the BA failed to mention there is a risk the vehicle is towed and storage charges assessed. That risk is so high and the consequences so great that #2 is not a good option at all.

To be fair, the BA does say "The risk for you here is that you will need to confirm that the car eventually was picked up by the proper entity", but that warning is not emphatic enough.

My personal suggestion is keep the vehicle and use it, but please make sure it has legally required insurance.

If someone cannot afford the insurance or this was a second, now unneeded car, then option number 3 could be appealing.

I think that upon proper notification, a lender should lose rights to the property if the lender refuses possession.

In the case of cars and boats that would work. However, in the case of condos where homeowner fees, maintenance, insurance, and back taxes may easily total far more than the home is worth, such a law would still not entice banks to take possession.

By the way, are such loans written off as worthless on the balance sheets of banks? I suspect not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Gold "The World's Currency"

Posted: 24 Aug 2011 09:45 AM PDT

Central bank and government actions around the globe increasingly prove that gold is the place to be.

Here is an interesting Bloomberg headline that shows what I mean: Central Banks to Retain Gold to Manage Debt in Crisis

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

"Once they've sold, that's it, and buying back would be extremely expensive," said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who's studied metals markets for 20 years. "They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt."

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico and Russia have added to reserves this year. The precious metal is the "currency of the world" amid the debt crisis, economist Dennis Gartman wrote Aug. 19.

"Under conditions of austerity we're going to see a further deterioration of debt," Richardson said in an interview yesterday. "Rising risk argues in favor of holding on to their gold reserves rather than selling them because they've only got one shot at selling."

Currency Credibility

"The European central banks won't sell their gold because while it may be a means to raise cash, it definitely won't be enough to settle their debts," said Duan Shihua, head of corporate services at Haitong Futures Co., China's largest brokerage by registered capital. "Besides, none of the central banks believe in the currencies of other countries."

Central Bank Actions Speak Louder Than Fiat

Check that last comment out: "none of the central banks believe in the currencies of other countries".

Clearly that is an opinion, but I believe a accurate one.

Gold, Unlike all other Commodities, is a Currency

It's not often, but occasionally Alan Greenspan says something that make sense. For example yesterday Greenspan said Euro 'Breaking Down'.

It wasn't just the headline that caught my eye, it was this pair of statements:

"The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system."

"Gold, unlike all other commodities, is a currency. And the major thrust in the demand for gold is not for jewelry. It's not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating."

Gold as Collateral for Loans

Also note that the German Labour Minister Wants Gold Collateral for additional loans to Greece.

Why not? Why shouldn't there be collateral for loans? And what makes more sense than gold as collateral?

Why Governments Buy US Treasuries

So why do governments buy US treasuries? Because they need to, as a simple mathematical balance-of-trade fact as I have pointed out on numerous occasions.

China and Japan (and the world in general) want to keep their export engines alive. They do not want rising currencies. Japan and Switzerland have recently intervened in the Forex markets to suppress their currencies. China does so on an ongoing basis with a peg.

As a simple mathematical necessity of trade imbalances and currency suppression, central banks accumulate US dollar denominated reserves (while bitching about it the entire time).

Gold's Honest Discipline

Speaking of trade, the way to solve trade imbalances is clear. For details, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited.

Gold is Money

I made the case before and I repeat it now Gold is Money.

Central bank and government actions speak louder than Fiat, regardless of what crap governments force citizens to accept by decree.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

German Labour Minister Wants Gold Collateral

Posted: 24 Aug 2011 08:51 AM PDT

The battle over Greek collateral took another interesting turn as the German Labour Minister hopped into the fray asking for gold as collateral.

The Irish Times reports Merkel faces fight to restore order after intervention on collateral

BACKGROUND : Minister's remarks rapidly sent German officials into full damage limitation mode

URSULA VON der Leyen picked her moment well.

Hours before a crucial meeting of Germany's ruling Christian Democrats (CDU) yesterday, as a summer storm rolled through the German capital, the labour minister suggested Germany should follow Finland's lead on Greece.

Rather than simply hand over further loans to Athens, money many Germans believe they will never see again, Dr von der Leyen suggested Berlin should ask for collateral. Gold, preferably.

As thunder rolled overhead, the suggestion hit home like a political thunderbolt.

One month after euro zone leaders agreed a bailout reform package, and a month before the package goes to vote before national parliaments, a senior German minister appeared to be calling for a renegotiation.

On an aircraft back from Belgrade, a thin-lipped chancellor Angela Merkel reportedly told advisers: "I'm going to have to have a word with Ursula."

"This is sub-optimal," groaned a senior government source. "No one is amused."

European Commission officials in Brussels are less optimistic the collateral row is over.

The warning was clear: opening a political can of worms could spook markets and throw everything into question, including Ireland's own future loan terms.

Were yesterday's remarks a summer storm in a teacup, a strategic show of independence by an ambitious minister – or more?

That depends on whether Dr Merkel and her officials can cut dead the collateral discussion in Berlin. That will be difficult if the proposal finds favour among CDU backbenchers and the tabloid press.

For a look at other nations demanding collateral, please see Moody's Warns Against Collateral Proposal; In Response, Finnish PM Warns Finland will Not Sign Second Greek Bailout Without Collateral; Merkel Madness

So, not only might Finland, Austria, Slovakia, and the Netherlands tell the EU, the ECB, and the IMF to "go to hell", a revolt in Germany shows the matter is unsettled as well.

As icing on the collateral cake, a constitutional ruling in Germany on bailouts, (I believe a correct one that requires collateral) might end the discussion once and for all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Hello Richard Bove, Repeating Nonsense Does Not Make It True; Bank of America Will Not Survive in One Piece

Posted: 24 Aug 2011 12:49 AM PDT

Richard Bove says Bank of America Has 'No Reason' to Raise Capital

Bank of America Corp. (BAC), the U.S. lender that lost half its market value this year, has sufficient capital to weather mounting costs tied to souring loans, said Richard Bove, an analyst at Rochdale Securities.

"Bank of America has so much cash on its balance sheet that it could pay back all of its short-term debt and a big chunk of its long-term debt," Bove said in an interview today on Bloomberg Television's "InBusiness With Margaret Brennan." "There's no reason for the bank to have to go out and raise capital whatsoever."

The firm fell as much as 6.4 percent in New York trading today and the cost to protect its debt from default surged to a record before retreating. Henry Blodget, the former Internet stock analyst turned blogger, wrote today on Business Insider that charges and loan costs may force the bank to raise as much as $200 billion.

"Mr. Blodget is making 'exaggerated and unwarranted claims,' which is what the Securities and Exchange Commission stated publicly when he was permanently banned from the securities industry in 2003," the Charlotte, North Carolina- based bank said today in an e-mailed statement.

Blodget, a former Merrill Lynch & Co. analyst, was banned for life from the securities industry after regulatory inquiries into how analysts touted stocks during the Internet boom. He was hit with $4 million in fines and repayments after watchdogs including the SEC faulted his reports on companies including go2.com. Merrill was acquired by Bank of America in 2009.

Fairest of the Fair Weather Fans

I am the fairest of the fair weather fans, in sports and in stock analysts. I like sports teams and stock analysts when they make the right plays and calls, and I criticize them when they don't.

When it comes to analysts, I do not care so much for the call itself as opposed to the reasoning behind it.

It takes time to rebuild teams and reputations. In my opinion, Henry Blodget has done just that. However, my opinion can change tomorrow because I appreciate common sense more than platitudes.

In this case, I side with Blodget and common sense. Reasonable opinions are by definition reasonable. Words and actions of 11 years ago must be discounted.

Bove attacks Blodget for things he said 11 years ago. I attack Bove for pathetic analysis today.

Which is more important?

Bank of America Tier One Capital Ratio 6 Percent

While pondering the above question, let's continue reading Bloomberg.

Bank of America had a Tier One capital ratio of about 6 percent as of June 2011 under the new rules recommended by the Basel Committee on Banking Supervision, according to an Aug. 9 note from Jonathan Glionna of Barclays Plc. The bank probably has until 2019 to reach 9.5 percent, the level required of the world's largest banks. That's enough time to bolster capital by selling assets deemed risky, Moynihan has said.

Lovely.

Bank of America is undercapitalized by huge amount by its own admission. It just wants until 2019 to straighten things out.

Moreover, Bank-of-America is counting on delays after delays after delays in rules requiring assets be marked-to-market.

Flashback March 29 2009: Mark-to-Market Lobby Buoys Bank Profits 20% as FASB May Say Yes

Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use "significant judgment" in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

FASB's acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world's largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.

Officials at Norwalk, Connecticut-based FASB were under "tremendous pressure" and "more or less eviscerated mark-to- market accounting," said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. "I'd say there was a pretty close cause and effect."

Mark-to-market rules were supposed to go into effect in 2007. Those rules were twice suspended. Now it seems they have been postponed indefinitely, if not scrapped altogether for the benefit of Citigroup and Bank-of-America.

Where's There's Smoke There's Fire

Forget all that. It is irrelevant. Share price alone says bank of America is is deep s***.

Bank stocks do not plunge 58% in six months for nothing. They just don't. You are delusional if you think otherwise.

That chart says there is smoke somewhere, and fire underneath.

Bove Says Share Price Irrelevant

In a bloomberg interview Bove says ...

"There is no impact whatsoever on Bank of America's balance sheet, based upon the price of its stock in the open market. If the price of the stock goes to a penny a share, it has no impact on the balance sheet of Bank of America. Bank of America sells the stock to the public, it takes in the money, and that is the end of the transaction as far as Bank of America is concerned. If you're going to break a bank, you're going to have a run on its deposits. That's not happening. Exactly the opposite is happening…Deposits are pouring into Bank of America."

Technically that is an accurate assessment. Fundamentally it is nonsense. Deposits are flowing in everywhere because of what I call a "mad dash for cash".

I commented on that phenomenon in Bank of New York Mellon to Slap Fees on Big Deposits Following "Global Dash For Cash"; When was Hyperinflation Supposed to Start?

To equate deposits, which are actually a balance sheet liability, to fiscal strength is sheer incompetence, at best.

Moreover, I stand by my statement that bank stocks do not plunge 58% in six months for no reason. Thus Bove is in FantasyLand.

Will Bank of America Survive?

I said in 2007 that Citigroup would not survive in one piece, that dividends would be sliced (well before Meredith Whitney), and that it may not survive at all. It did survive but only because of a massive rescue effort by the Fed and taxpayers.

The same applies to Bank of America today. It will not survive in one piece, and that is not just my opinion, that is what the market implies.

I am willing to take a contrary position for a while as I have done many times regarding the stock market and treasuries. However, a 58% decline in share price of a bank stock is well beyond any reasonable contrary opinion.

Sadly Richard Bove attacks the messenger instead of paying attention to the message.

Richard Bove Calls

As long as Dick Bove is willing to dig into the distant past of Blodget, let's dig into the more recent analysis of Dick Bove.

June 19, 2009: Citi 'too big to fail', will hit $12 a share: Richard Bove
September 30, 2010: Dick Bové Gives Citi's Balance Sheet Two Thumbs Up
May 5, 2011: Citigroup to Triple By 2013: Bove

In a perverse sense, Dick Bove was correct. Citigroup wildly exceeded his $12 price prediction. Sadly, I must point out that it did so after a 10:1 reverse split.

Split adjusted, on June 19, 2009, Bove predicted a share price of $120. On May 5, 2011 Bove called for Citigroup to triple. Let's take a look at how he did.

C - Citigroup Weekly Chart

click on chart for sharper image

Bear in mind, I am just investigating nonsense by Bove on Citigroup. Time does not permit investigation of other Bove fantasy predictions.

To be fair, I fully understand how difficult predictions are. However, Bove's Citigroup predictions are both wildly and consistently wrong in terms of both magnitude and direction.

Regardless of what you think about year 2000 calls, the far more important present shows that Richard Bove is a "bullshill" selling "bullsheet". Bove's credibility is zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Wednesday, August 24, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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