DJIA-drops again??? | jamesbdriscoll

DJIA-drops again??? | jamesbdriscoll

DJIA Closes Below 12,000 — Again. What’s Going On? Better results come from directly observing market behavior, not reading Fed statements

Stocks extended their losses again this week. On Wednesday, June 22, the Federal Reserve Bank released its latest interest rates policy statement (no change). Afterward the Fed Chairman Ben Bernanke held a press conference, followed by a Q&A period.

The financial media paid lots of attention to what Bernanke said. Our own Steve Hochberg — editor of the Monday-Wednesday-Friday Short Term Update — had this to say about Bernanke’s press conference (excerpt):

Short Term Update for Wednesday, June 22, 2011; 5:15 PM, EDT:

“I think what the Fed is trying to say is that the economic ‘recovery’ has lost its upside momentum, but you didn’t have to wait until today to try and decipher this seemingly impenetrable Fed-speak to realize this fact. … In our May [Elliott Wave Financial Forecast], we published another ‘key economic indicator’ that we’re quite sure the Fed has never looked at: the share price performance of a major help wanted advertiser [Monster] relative to U.S. Q-o-Q GDP.

“Long before today’s Fed’s statement, the market has been signaling that economic conditions are deteriorating rapidly.

You can almost always read it first in The Elliott Wave Theorist or The Elliott Wave Financial Forecast and stay ahead of the trends that you will eventually read in the newspaper, or hear the Fed discuss. There are never absolutes when studying the human condition, only probabilities. But our experience has led us to conclude that observing actual behavior, as gauged minute by minute in the financial markets, is the far better and more successful way to forecast than reading a Fed statement.

“[Bottom Line]: With no follow-through to yesterday’s rally, stocks appear poised to fall further. …”

Freaked out by bonds???

Freaked Out about the Debt Ceiling? Buy Bonds

June 11^th, 2011

The U.S. is apparently hurtling toward a sovereign debt crisis. The debt limit is fast approaching, with no visible progress. Some Republicans have talked openly about the prospects of a brief default on U.S. government bonds. The ratings agencies, always the last to know about changes in financial conditions, are warning of a possible downgrade of America's debt rating. Washington has shown an unwillingness to compromise over anything in the past few years, except for measures that make the fiscal situation worse. And yet in the face of this, investors continue to pile into the market, pushing bond yields down. It's as if people reacted to warnings of a runaway train by going out and standing on the train tracks.

The thought that the rising prospect of a debt-limit debacle could cause government bonds to rally is counterintuitive. But, as Henry Blodget and I discuss in the accompanying video, it makes a certain amount of sense.

Lets unpack this a little.

Rule #1 of the past few years has been this. When bad things happen in the global economy — a tsunami in Japan, crisis in the Middle East, meltdown in Greece, fears of a slowdown in China — investors around the world react by selling riskier assets and flocking to the safest and most liquid asset around: U.S. government bonds. It's just the way the world's financial mind works.

This reflexive action still dominates behavior even though the next crisis could be in the safe haven of government bonds. And so even as it hurtles toward the deadline without resolution, as the tide of brinksmanship rises like the Missouri River, don't expect people to dump Treasuries and interest rates to spike.

And they're right not to unshackle themselves from government bonds. The U.S. is not going to default on its debt. Period. End of story. It will pay the interest on its bonds, and repay the principal of those that come due.

Consider the difference in mentality and behavior between private borrowers and public borrowers. As seen in the mortgage crisis and at times in the corporate world, private borrowers don't have any compunction about walking away from their biggest debts -- mortgages, bank loans or bonds. In many instances, debt payments came last. Lots of people who walked away from mortgages continued to pay their cable bill, cell phone and car payments, and to eat. At the other end of the spectrum, private equity billionaires chose not to scrounge up the cash to stay current on bank or bond debt when they realized they couldn't salvage the underlying company. They continued to pay themselves management fees, and buy homes and jets even as they shirked debt payments.  The public sector takes the opposite approach. States and cities generally put bondholders first in line ahead of other priorities. Governments have all sorts of ways to conserve cash that don't involve missing bond payments. When California ran into cash flow problems in 2009, it didn't miss bond payments. It issued IOUs to vendors and furloughed employees. On a larger scale, that's what states and cities are doing.

They're slashing funding for higher education, laying off teachers, turning out streetlights, reducing pension contributions, cutting road investments — everything but missing bond payments. That's why municipal and state defaults are so rare, and why analyst Meredith Whitney's call for scores of municipal bond defaults is way off base. Yes, there will be some. But government reliance on debt to fund of operations and investments is so great that they'd rather alienate workers and citizens and taxpayers than anger the bond market.

The same holds true for the federal government. The U.S. is collecting plenty of revenues, more than enough to make its interest payments. So far this fiscal year it has collected $1.3 trillion in revenues and paid $244 billion in interest on federal securities. If it isn't allowed to issue new debt, there are all sorts of things the government can do to ensure it has the necessary resources to stay current on bond payments. Many of them would be painful and unpopular — cutting benefits and food stamps, delaying payment terms on contracts, refraining from placing big new orders. Of course, all these moves would be contractionary — they'd help slow economic growth.

And that's the reason the failure of the debt ceiling would actually be good for bonds and bad for stocks. The U.S. government occupies a pretty large footprint in the economy. It employs 2.85 million people directly. Next, think of all the businesses, many of them publicly held, that rely on the government for a big chunk of their business. For-profit education companies, defense contractors, the entire health care industry, Wal-Mart and other retailers that cater to people who depend on federal benefits to help pay their grocery bills. Every large consulting firm, every large tech firm (from Microsoft to IBM) has a large unit that provides services and products to the federal government.

Should the U.S. bump up against the debt limit without resolution, it's possible the Pentagon would delay indefinitely the signing of new contracts for fighter jets. Or agencies would cancel or slowdown payment on IT projects. Or Congressmen and their staffers would see their wages reduced. Or fewer people would get food stamps. The cumulative impact would be less demand, less economic activity, more uncertainty. Bad for stocks, good for bonds.

The stocks hurt the most would be those whose business is disproportionately in the U.S., and those whose U.S. business relies disproportionately on direct or indirect government funding.

Yes, the possibility remains that prolonged turmoil in the bond markets could ultimately lead to higher rates. It's possible that the debt limit High Noon could finally bring the bond vigilantes out from hiding. But consider what's happened in the past few years. Amid a huge expansion of the Fed's balance sheet, a sharp rise in government spending, trillion-dollar-plus deficits, and epic levels of political dysfunction, government bonds have rallied -- and rallied again. This five-year chart of the 10-year U.S. government bond perfectly illustrates the point. If all that couldn't rouse the bond vigilantes from their slumber, I'm not sure what will.

James B. Driscoll

Economic Update: 5/1/11

U.S. Credit Outlook Downgraded: Old News in ONE Day?
Scarce News Coverage Won't Slow the Fast Changes to Come

By James B. Driscoll Monday, 25th Apr 2011 14:45:00 ET

"...we now believe that [U.S. economic strength] might not fully offset the credit risks over the next two years at the ‘AAA’ level.” ~ Standard & Poor's (4/18)

You probably heard that Standard & Poor's downgraded the U.S. credit outlook. The financial press duly reported the April 18 announcement. The downgrade means S&P sees a one-in-three chance that the U.S. credit rating will fall below AAA within the next two years. That sounds like big news. But, just one day after the downgrade, the absence of stories on the subject was conspicuous.

At midday on April 19, the front page of a popular financial website didn't include the credit outlook downgrade among its top 7 stories. Another well-known financial website listed the downgrade story in fourth place on the side of the front page, but absent from the center row story list.

Earlier that next day I did see a financial website article about the downgrade, but the title had a quote saying that earnings trumped the downgrade announcement.

Is the national financial psyche numb to the nation's debt crisis?

Many astute historians and economists have for years warned of the dangers of America's debt and deficit. And politicians have kicked the can down the road the whole time.

But now, a major credit rating agency just downgraded the credit outlook for the United States of America.

And the silence is deafening.

EWI's Robert Prechter knows what it means when people choose not to "lend an ear." He's long warned about the nation's credit build-up, and of a day of reckoning:

"In the United States, default could happen to municipal bonds at any time after times get difficult. Politicians in many jurisdictions have borrowed and spent way more money than is likely ever to be paid back. Merely paying the interest on that debt in tough economic times will become an acute problem for many issuers. In such cases, default for many cities and counties will be inevitable. Even the debt of some higher-level government agencies is at serious risk of default in a worst-case scenario."

Time alone will tell if America's credit outlook downgrade will turn into an actual credit rating downgrade.

Economic Update: 4/30/11

Banks Rush to Improve Foreclosure Practices

By James B. Driscoll - 4/30/11

The clock is ticking for the biggest U.S. banks to revamp their foreclosure practices.
Under orders from U.S. regulators, 14 financial institutions have until mid-June to lay out plans to clean up their mortgage-servicing operations—and another 60 days to make the changes.
It will be a daunting, expensive chore despite the work done since the foreclosure mess erupted last fall. J.P. Morgan Chase & Co. said it would take a $1.1 billion charge related to the consent order and other servicing-cost increases. Citigroup Inc., which services $602 billion of mortgage loans, predicted the changes will boost expenses by as much as $35 million a year.

"It does raise the bar," said Frederick Cannon, director of research at Keefe, Bruyette & Woods Inc. The overhaul either goes "beyond what was considered best practices for the industry, or [banks] weren't really complying with best practices."
On Thursday, Fannie Mae, Freddie Mac and their federal regulator rolled out new guidelines designed to encourage more successful modifications while preventing foreclosures from dragging on. The rules will require servicers to approach borrowers earlier and more frequently after a first missed payment in order to have a better chance at modifying loans. The mortgage titans also will pay more to servicers that meet certain benchmarks and establish timelines for banks to modify loans or process foreclosures.
Here is a status report on how close some of the largest mortgage servicers are to meeting three important requirements in the regulatory order:
• Single point of contact. Borrowers who have been bounced from one bank employee to another must get a "single point of contact" to steer them through loan modification and the foreclosure process.

Read More

• Judges: Little Improvement in Processes
In June, Wells Fargo & Co. began assigning an employee and backup employee to each borrower seeking a loan modification. The program "significantly improved customer communication and the modification process," said Wells Fargo spokeswoman. It plans to expand the effort to foreclosures and short sales, or sales for less than what is owed on the property.
Some borrowers still aren't satisfied. "They kept assigning me a person, but I never got to speak to that person," said Rachel Goler, a bus driver who lives in Monroeville, Pa.
Wells Fargo's spokeswoman said the employee assigned to Ms. Goler "was falling down on his job." The borrower's phone calls also weren't transferred to the right department, the San Francisco bank said.
Ally Financial Inc. assigns borrowers who have had trouble submitting a completed financial package a team of employees to help them gather documents, execute a final loan modification or weigh other foreclosure alternatives. Ally is looking for ways to better identify borrowers who need extra help, a spokeswoman for the Detroit lender said.
J.P. Morgan is working on a software program to make it easier for employees and borrowers to track loan-modification requests. Last year, it started providing some borrowers with a "relationship manager" to advise on the process.
Citigroup now provides borrowers with a single point of contact for gathering documents and handling short sales. In the next months, it will roll out a "concierge" system that will assign a small team of employees to help delinquent borrowers and homeowners at risk of default navigate the system.
Bank of America Corp. has begun its version of a single point of contact but declined to provide details.
• Deadlines. Banks are required to set "appropriate deadlines" for deciding whether borrowers can get a loan workout.
Frustrating waits are common, and borrowers often are asked for fresh financial information because their documents sit around at the bank for too long. Los Angeles Neighborhood Housing Services says it takes an average of 141 days for borrowers it works with to get an answer after completing an initial loan-modification request. The nonprofit group, which works with borrowers at risk of foreclosure, said Wells Fargo has the fastest turnaround, with initial reviews averaging 79 days. A Wells Fargo spokeswoman said 60% of borrowers receive a decision five days after the company receives a complete package, up from 45% a year ago.
"We're not happy" with the time it takes to give borrowers an answer, said Christine Larsen, head of operations for retail financial services at J.P. Morgan, who is responsible for implementing the consent orders. The bank is trying to speed response times by setting new customer-communication deadlines.
Ally Financial said it responds to the average borrower within seven to 10 days of receiving a complete financial package.
At Citigroup, the goal is to give borrowers a final answer about a permanent modification within 22 days of their final trial payment. "On average, we do that," said Sanjiv Das, chief executive of the CitiMortgage unit.
• Staffing levels. Banks must make sure they have enough employees to deal with the tidal wave of troubled loans. For some lenders, that means hiring more workers.
J.P. Morgan said it will add as many as 3,000 new home-lending jobs, mostly drawing the workers from elsewhere in the company. BofA said it hired roughly 3,000 people in the first quarter to work on troubled mortgages. Citigroup said it will expand its loan-modification unit by 500 employees.
Wells Fargo doesn't expect to increase staffing because the number of borrowers behind on loan payments is declining. It might transfer employees from other parts of the company with excess capacity.

How toExplain the Current Economic Situation to
Friends & Family

Sunday, March 22,2011, 4:46 pm, by James B. Driscoll

Givenits simple elegance in addressing a question frequently asked on this site,this post has been elevated from the forums section. It has been updated bysite members driscoll and smith since its first appearance (theoriginal post can be read ).
I've been working on a way to get across tofriends and family how bad the economic situation has become. I find one of thebiggest problems is that when numbers are in the billions and trillions theyare very hard to imagine, and people get this glazed/deer in the headlightslook. So I decided to try to scale the numbers in a way that can be more easilyvisualized.
Below is an updated version, with many thanksto members of ChrisMartenson.com community who suggested changes/corrections,and particularly to Travlin for rewording much of the message to make it abetter story. Hopefully this version will help convince others of the seriousnature of the US fiscal outlook.
My Troubled Relative
I need your advice. I have a relative whois in financial trouble. He makes $50,000 a year, but he spent $74,591last year, and his prospects of making $50,000 this year look kind ofbad. There's a good chance he will get a pay cut.
Unfortunately, he’s been overspending forquite a while and has charged $295,632 on credit cards. He’s been luckyenough to get low teaser rates, and when those have expired, he’s been able totransfer the balances to other low-rate cards. So he keeps charging $24,591 peryear beyond his income. If he can’t keep rolling over his debt at superlow rates, the interest will quickly eat him up.
But, that's not his worst problem. Heconvinced his family he was a great investor. His parents gave him aportion of their income for many years, and he promised he would make regularpayments to them and cover their medical care when they got too old towork. The problem is, he spent all the money. He also has dependentswho are poor, and he promised to help them out, too. To cover those promises,he should have $2,372,953 sitting in a bank account earning an interest ratethat keeps up with inflation. But the money is all gone.
So what should he do? Well, hisRepublican friends, who say they are responsible with money, have decided hemust really cut spending to get things under control. There are lots ofthings he can live without, so they say he should reduce spending by $1,292 peryear. His Democrat friends say that’s too much. They feel it would be agreat hardship for him to cut spending that drastically, so reducing it by $137should be about right.
So here’s the picture:
· $50,000:Income
· $74,591:Expenses
· $24,591:Deficit
· $295,632:Short-term revovling debt at artificially low rates
· $2,372,632:Unfunded promises
· $1,292: Republican friendsbudget cuts
· $137: Democrat friendsbudget cuts
So, what does the future look like for myUncle Sam? Do you think he can keep going like this much longer? Whatabout his family who are counting on the promises he made to them? Do yousee any possible solution other than bankruptcy?
Multiply the above numbers by 47,620,000, andyou get the fiscal picture for the United States Government in 2010:
· $2.381 Trillion: Revenue
· $3.552 Trillion: Budget
· $1.171 Trillion: Deficit
· $14.078 Trillion: Debt
· $113 Trillion: Unfunded Liabilities (Social Security, Medicare, Medicaid)
· $0.0615 Trillion ($61.5 Billion): Republican proposed budget cuts
· $0.0065 Trillion ($6.5 Billion): Democrat proposed budget cuts
Sincerely,
JamesB. Driscoll
God Bless America

Economic Update: 4/22/11

How to Explain the Current Economic Situation to Friends & Family

Sunday, March 22, 2011, 4:46 pm, by James B. Driscoll

Given its simple elegance in addressing a question frequently asked on this site, this post has been elevated from the forums section. It has been updated by site members driscoll and smith since its first appearance (the original post can be read ).

I've been working on a way to get across to friends and family how bad the economic situation has become. I find one of the biggest problems is that when numbers are in the billions and trillions they are very hard to imagine, and people get this glazed/deer in the headlights look. So I decided to try to scale the numbers in a way that can be more easily visualized. 

Below is an updated version, with many thanks to members of ChrisMartenson.com community who suggested changes/corrections, and particularly to Travlin for rewording much of the message to make it a better story. Hopefully this version will help convince others of the serious nature of the US fiscal outlook. 

My Troubled Relative 

I need your advice. I have a relative who is in financial trouble. He makes $50,000 a year, but he spent $74,591 last year, and his prospects of making $50,000 this year look kind of bad. There's a good chance he will get a pay cut.

Unfortunately, he’s been overspending for quite a while and has charged $295,632 on credit cards. He’s been lucky enough to get low teaser rates, and when those have expired, he’s been able to transfer the balances to other low-rate cards. So he keeps charging $24,591 per year beyond his income. If he can’t keep rolling over his debt at super low rates, the interest will quickly eat him up.

But, that's not his worst problem. He convinced his family he was a great investor. His parents gave him a portion of their income for many years, and he promised he would make regular payments to them and cover their medical care when they got too old to work. The problem is, he spent all the money. He also has dependents who are poor, and he promised to help them out, too. To cover those promises, he should have $2,372,953 sitting in a bank account earning an interest rate that keeps up with inflation. But the money is all gone.

So what should he do? Well, his Republican friends, who say they are responsible with money, have decided he must really cut spending to get things under control. There are lots of things he can live without, so they say he should reduce spending by $1,292 per year. His Democrat friends say that’s too much. They feel it would be a great hardship for him to cut spending that drastically, so reducing it by $137 should be about right.

So here’s the picture:

·         $50,000: Income

·         $74,591: Expenses

·         $24,591: Deficit

·         $295,632: Short-term revovling debt at artificially low rates

·         $2,372,632: Unfunded promises

·         $1,292: Republican friends budget cuts

·         $137: Democrat friends budget cuts

So, what does the future look like for my Uncle Sam? Do you think he can keep going like this much longer? What about his family who are counting on the promises he made to them? Do you see any possible solution other than bankruptcy? 

Multiply the above numbers by 47,620,000, and you get the fiscal picture for the United States Government in 2010:

·         $2.381 Trillion: Revenue

·         $3.552 Trillion: Budget

·         $1.171 Trillion: Deficit

·         $14.078 Trillion: Debt

·         $113 Trillion: Unfunded Liabilities (Social Security, Medicare, Medicaid)

·         $0.0615 Trillion ($61.5 Billion): Republican proposed budget cuts

·         $0.0065 Trillion ($6.5 Billion): Democrat  proposed budget cuts

Sincerely,

James B. Driscoll

God Bless America

Twitter / Home

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What To Do When Medicare Says 'No'

Your doctor suggested you have a minor operation or procedure, you went ahead and had it done, and now Medicare won't pay for it. What should you do? Appeal.

Medicare covers procedures that are deemed medically necessary. "Appealing is easy and most people win so it is worth your while to challenge a Medicare denial," says the Medicare Rights Center, a national nonprofit organization. The denial of coverage may be due, for example, to a simple coding error in your doctor's office.

People have a strong chance of winning their Medicare appeal. According to Center, 80 percent of Medicare Part A appeals and 92 percent of Part B appeals turn out in favor of the person appealing.

The Medicare Rights Center offers the following tips to maximize your success when appealing your denial:

• Write "Please Review" on the bottom of your Medicare Summary Notice (MSN), sign the back and send the original to the address listed on your MSN by certified mail or with delivery confirmation.
• Include a letter explaining why the claim should be covered.
• When possible, get a letter of support from your doctor or other health care provider explaining why the service was "medically necessary."
• Save photocopies and records of all communications, whether written or oral, with Medicare concerning your denial.
• Keep in mind that you only have up to 120 days from the date on the MSN to submit an appeal.

The Center notes that the appeals process is slightly different if you are in a private Medicare plan, like an HMO or a PPO. One difference is that you have only 60 days from the date on the denial notice to file an appeal.

Resources:

For information on how to fight a hospital discharge, click here.

For more on the Medicare Rights Center, visit its Web site at http://www.medicarerights.org

To download Medicare appeal forms from the government's Medicare website, click here.