Perspectives on the global economic meltdown

Raghav K · Post by **Raghav K** » 19 Mar 2009 19:33

So it begins....
U.N. panel says world should ditch dollar.

By Jeremy Gaunt, European Investment Correspondent

LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.
http://www.reuters.com/article/newsOne/ ... CY20090318

Raghav K · Post by **Raghav K** » 19 Mar 2009 19:39

AIG COULD BE ON $1.6T HOOK FOR GLOBAL SWAPS

By MICHAEL GRAY and KAJA WHITEHOUSE
Last updated: 2:03 am
March 19, 2009
Posted: 1:44 am
March 19, 2009

The investors that own many of the derivative securities at the center of American International Group's collapse are among the world's and this country's biggest investors, sources told The Post.

People familiar with the matter said buyers of AIG Financial Products' derivatives, which consist mostly of collateralized debt obligations tied to mortgages, include Middle Eastern sovereign-wealth funds and the Chinese and Indian governments, which are also among the biggest holders of US Treasury securities.

Exactly how much AIG has in derivative exposure is subject to debate. While AIG's beleaguered CEO Ed Liddy told a House subcommittee yesterday that the insurer's exposure is around $1.6 trillion, others have dismissed that figure as not reflecting actual losses.

I did not know Indian government was also involved.

http://www.nypost.com/seven/03192009/bu ... 160218.htm

Suraj · Post by **Suraj** » 19 Mar 2009 20:17

Just =/=

China holds ~$800 billion in treasuries and related debt.
We hold ~$8 billion.

Singha · Post by **Singha** » 19 Mar 2009 21:09

the secret why warran sar is silent on the ratings agency punks....he owns a good chunk of moody's (who rate berkshire a-a-a )

http://www.nytimes.com/2009/03/18/busin ... ml?_r=1&em

vsudhir · Post by **vsudhir** » 19 Mar 2009 21:12

From Brad Setser's blog. WOrthwhile read, iMHO.

Foreign demand for long term [US] treasuries has disappeared

This trend can only accelerate with time w.r.t. commodities. Seismic shifts underway, IMO.

Moi, will be watching what happens to other major currencies (euro, yen, yuan, gbp and of course, the INR, and the TSPR). Should hold early indications for where things are headed.

Fasten seatbelts folks. Keep your assets liquid, stockup on essentials and keep the powder dry.

Update: sesky graphics onlee.

It is also striking that — for all the talk of safe haven flows to the US — foreign demand for all long-term US bonds has effectively disappeared.

To recall Bob Dylan's poignantly precocious lyrics... the Times They are a changin'

Singha · Post by **Singha** » 19 Mar 2009 21:17

I sold the last tattered remnants of my stock portfolio today...stars like DLF

, reliance comm, ACC cement, royal orchid hotel, elecon engg...most of them 80% down off buying price.

still I figure its a good deal - got something real vs 0 later.

also sold the dogs among my MFs in phases during dec-jan keeping only
a few strong ones and a couple ELSS for long term.

topped all forms of tax saving schemes and laddered FDs.

chipanda is making a rogue sized play to lock up mineral resources worldwide for next phase of growth. some deal with rio tinto was the news recently...

vsudhir · Post by **vsudhir** » 19 Mar 2009 21:29

Whilst moi thought the current plunge in USD was on account of the 'bold' Fed plan to purchase upto $1.2 trillion in T bills, turns out the mkt for USD had soured back in Jan itself, the numbers say.

Foreigners net sellers of Dollars in January

Foreign investors cut their holdings of US long-term securities in January although China and Japan purchased more Treasury bonds, according to data released by the Treasury on Monday.

The latest Treasury International Capital report, known as Tic, revealed net sales of $43bn in long-term US securities in January, following purchases of $34.7bn in December.
The big reversal in January was not accompanied by a drop in the dollar. The dollar index rallied nearly 6 per cent in the month, marked by a notable decline in the euro.

That rally, likely reflects Fed's mkt interventions where Fed swapped some $115 billion of currencies with foreign central banks.

svinayak · Post by **svinayak** » 19 Mar 2009 21:56

World turned upside down
By Nehemia Shtrasler
http://www.haaretz.com/hasen/spages/1071653.html

Chinese Prime Minister Wen Jiabao rattled the Obama administration late last week. He said China is concerned about its loans to the United States and asked the U.S. government to preserve its good credit standing and guarantee the security of these loans.

The comments by the Chinese leader sent U.S. treasury bills lower because it is clear to many observers that President Barack Obama's spendthrift and irresponsible policy will be costly for the U.S. economy and the entire world.

Obama quickly sought to restore faith. The U.S. budget deficit, he said, will shrink 50 percent in four years (doubtful). The White House spokesman added that there is no safer investment in the world than the United States. Still, the Chinese are not calm.

During the past decade China has paid for the shopping sprees and deficits of American consumers and their government. Every morning the Chinese went to work in the rice paddies and factories and saved a large portion of their incomes. The savings were directed by the Chinese government to the American money markets, where treasury bills issued by the government were bought, as were bonds issued by banks, investment houses and other financial institutions once considered to be extremely safe. This way the Chinese worker financed the home, car, bonuses and good life of Americans. Then came the crash.

At first, the Chinese lost a big chunk of the money invested in banks and investment houses on Wall Street. Now they are afraid of a much worse scenario - that the price of U.S. T-bills will collapse, and the value of the American debt the Chinese hold will fall hard. China is the largest lender in the world to the U.S. government. The Chinese hold $700 billion worth of T-bills, which is 3.5 times more than Israel's annual GDP.

The Chinese concerns stem from Obama's generous policies. The U.S. president has been presenting a list of contradictory and unclear economic programs worth about $2 trillion, a frightening and unprecedented record in spending.

The many programs failed to restore calm to the American markets; the opposite is true. The rate of dismissals has risen to 650,000 per month, and unemployment has reached 8.1 percent. During the last four months 2.3 million Americans have lost their jobs, and there are new concerns that unemployment will reach 10 percent this year. Wall Street has also voted no confidence in Obama's policies. Stocks have dropped sharply since his election, the unavailability of credit is getting worse, and the big banks and insurance companies are at risk of collapse.

Today it is clear that Obama has used the financial crisis as a cover for his political agenda. Had he been elected in 2006, a year of plenty and growth, he would have carried out the same programs he is now targeting. In 2006 he would have said it is not right for only Wall Street to benefit from abundance, so we have to intervene in the economy significantly. Now he is saying the crisis obliges him to intervene in the economy.

Obama believes he is creating new jobs, but this is not true. Government does not make new jobs; government needs to create an atmosphere for private entrepreneurs to set up factories and businesses. The fact is, since Obama presented his programs, unemployment has increased.

The president is not only thinking about the short term. He is pouring hundreds of billions into welfare, the environment, renewable energy, cheap mortgages, aid to workers, subsidies to factories, national health insurance and budgets for education - all from the federal budget. This will require a tax rise for the middle class, not just the wealthy.

Obama is an ideologue. He wants to alter the fundamental values of American society, to move from a capitalist market economy to a social-democratic economy. Instead of a country where the budget is small and taxes are low, he wants an enormous administration that manages a large budget, interferes in details and clashes with free enterprise.

It is this socialist dream that appears to be worrying the Chinese prime minister. The world has turned upside down.

svinayak · Post by **svinayak** » 19 Mar 2009 22:02

Oriental Morning Post, China

China Shouldn’t Count on
the U.S. to Guarantee
Dollar Asset Values
http://watchingamerica.com/News/23403/c ... et-values/

By Lu Qianjin

Translated By Peter Stevens

16 March 2009

Edited by Katy Burtner

China - Oriental Morning Post - Original Article (Chinese)

China is the biggest holder of U.S. government bonds. In December 2008, Chinese government treasury bond holdings reached $696.2 billion, corresponding to 36 percent of China's foreign currency reserves for this last year.

Because of the security of U.S. government credit, the low risk of default and the steady income they provide, treasury bonds are by far the main asset in China's foreign currency reserves. America is an economic superpower - its government's credit is assured. But this author believes that investing in treasury bonds presents risks - apart from the risk of default, there are also risks associated with the currency, inflation and the markets. If the dollar depreciates, the risk of inflation will rise and dollar-denominated assets will lose purchasing power.

For example, since the outbreak of the sub-prime crisis in July 2007, the U.S. economy has deteriorated, the Federal Reserve has continued to cut interest rates, the dollar has continued to weaken, international commodity prices rose for the first half of the year, and China's foreign currency reserves faced losses. This is the problem we are afraid of.

The risk of the dollar's depreciation is real. During the age of the Bretton Woods system, the dollar experienced three crises, emerging significantly devalued. Once problems arose in the U.S. economy, America would undertake expansionary monetary policy to stimulate the economy, "softening" its currency. As an international reserve currency, the dollar needed to maintain stability - correspondingly, America would constrain its macroeconomic policy, leading many times to a significant devaluation of the dollar, which presented substantial losses to those holding dollar assets. This is the dilemma facing the dollar as both a national and international currency; it existed in the past and continues to exist now.

Recently, in the name of "stimulus," America greatly expanded its fiscal policy and intensified its monetary policy. In terms of monetary policy, the Fed continuously lowered the federal funds rate, moving the target rate down to between 0 and 0.25% on December 16th, at the same time making clear that it would maintain the rate at extremely low levels. On the fiscal policy side, Obama passed the $787 billion stimulus plan on February 18th and submitted his first budget plan on February 26th. According to the budget, the total U.S. fiscal deficit will reach $1.75 trillion by September 30th - about 12 percent of GDP.

Recently, due to the hedge features of treasury bonds, the dollar has strengthened. But from a long-term perspective, the expansion of the money supply and the monetization of fiscal deficits will both lead to a depreciation of the dollar. While the dollar declines, international commodity prices will rise and dollar-denominated assets will be at risk.

So, from a long-term perspective, the real price of U.S. treasury bonds may go down, an important problem for those of us holding U.S. government debt. In other words, when the bonds fall, the principal and interest collected may have less buying power than the dollars that bought the bond in the first place. This is like savers putting their money in the bank due to inflation only to have the principal plus interest yield less buying power upon maturity. These kinds of potential losses should be our greatest concern.

China holds a lot of U.S. treasuries. How can it prevent its foreign reserves from shrinking? We can't count on the U.S. The initiative should rest in our hands. To resolve this issue, we need a system that combines a variety of policies. I would emphasize two points. First, in the short term, we should adjust the structure of our assets, take advantage of falling commodity prices, increase our imports of strategic resources and advanced technology, and expand foreign direct investment. Second, in the long-term, we should increase domestic demand and adjust our industries to be less dependent on exports. At the same time, we should reform the way we manage foreign exchange, allowing more people to hold foreign currencies and overhauling the centralized management of the forex system.

RamaY · Post by **RamaY** » 19 Mar 2009 22:43

vina wrote: ...

India, didnt rise by riding Unkil's coat tails. That is why we have no obligations either!

Vina-saar,

Thank you very much. That made it a little clear.

China is trying to replace its financial assets with real assets so it will not lose much in real terms.

US is trying to reduce the value of $$$ so the nominal value of its real assets goes up to pre-2007 levels. It will definitely reduce the value of financial assets (foreign reserves) that China, Japan, Germany are holding. Will it solve US’s problems in anyway?

Assuming the asset prices fell by 20% in the last year, we are looking at a real-loss of >$400B of its $1.9T foreign reserves (2008 GDP = $4.3T) for China and ~$50B of its $250B reserves (vs $1.3T GDP 2008) for India. That is a 9% of GDP loss for China Vs 4% of GDP loss for India.

In your words this (~5% of GDP loss) is the price of integration with US.

Did I understand it right?

Next Question:
What are India’s options? Why is not buying real-assets/commodities to exploit the slum economy?

Is buying majority stakes in Caterpillar, GE Power like companies an option for India? Will it give India any benefit w.r.t technology transfer in heavy engineering areas?

How can it forge better relations with Russia (w.r.t resources) and selected European countries (w.r.t Engineering)?

vsudhir · Post by **vsudhir** » 19 Mar 2009 22:53

Vina, RamaY

Humble query onlee. Given that PRC sees what is coming, what is to stop them from buying real assets abroad?

Lemme explain.

PRC wants to buy up some mine in Africa or South America, say. The country concerned can also see that USD is falling so it wants to raise prices. Fine. But what is 'price' if the seller needs money in a tight credit economy and there's no buyer but PRC around?

The only way unkil can really raise the cost of buying up real assets abroad for PRC is using pvt proxies and the Fed reserve oprinting press to bid up prices of all such assets PRC is targetting onlee.

Heck, might seem like a joke now but an umreekan SWF might someday see the light of day to fight precisely such wars of the future, maybe.....

vsudhir · Post by **vsudhir** » 19 Mar 2009 23:08

China inoculates itself against dollar collapse

Any publicly recognized effort by the Chinese government to reduce its heavy exposure to US dollars could bring about the very collapse in dollar value that it fears. Beijing is fully aware of the risks - and is acting accordingly

vsudhir · Post by **vsudhir** » 19 Mar 2009 23:16

Boy, chan akya is ona roll here.

Who is the fish?

An oft-repeated saying from the game of poker holds that "around the table, you should always know who the fish is. If you don't, it's you." In this case, the "fish" refers to the worst player on the table, the one who is effectively paying for everyone else's winnings.

Non-Japan Asia is the unfortunate fish in the global game of devaluation being played by the major economies: the US, the EU, the UK, Switzerland, Japan and so forth. In particular, export powerhouses such as China, South Korea and Taiwan really have it bad, as do the Southeast Asian economies as we enter the next phase of the economic slowdown in the global economy.

It is not just in terms of currency values that the Asians are being made out to be the fish in this game. Adding insult to injury, it is the savings of Asians that actually help fund the government bonds of the major world economies. As interest rates are pushed down along with a parallel shift in the value of the currencies, savers in Asia are getting the worst possible deal, namely a decline in both current income and future purchasing power.

Central banks around the region are holding on to the bonds issued by the major economies because of fears that a large sell-off - by say, China - would damage the total value of their holdings and cause significant pain. However, this is to forget the longer-term, slow leakage that is currently on the cards anyway; leading as it will to the eventual destruction of values.

On the other side of the ring, we have countries such as South Korea, China and India all creating their own stimulus programs to push up domestic demand. Instead of participating in each other's government bond auctions though, the countries have been busy supporting the activities of the major economies and herein are the main problems for the region as a whole.

China certainly needs the experience of Korean construction companies in its initiative, much as India does too. The easiest way for both these countries to help Korea would be to award contracts to the latter; in return, the Korean government could easily buy infrastructure bonds denominated in US dollars issued by China or India. Similar instances of possible cooperation abound in areas ranging from energy to health.

A lot of this, though, will remain a pipe dream of this writer as Asian central banks continue their slavish purchases of whatever they have always been buying. For the citizens of the region though, the same question that should have been asked 24 months ago arises once again: who do these guys work for: their own citizens or those of the G-7?

Read it all. Thought provoking and interesting onlee.

ramana · Post by **ramana** » 19 Mar 2009 23:18

India should not buy any US assets or companies because of the long list of fake laws/sanctions/end use requirements that prevent any benefit accruing to India. Better buy up the competitors elsewhere.

ramana · Post by **ramana** » 19 Mar 2009 23:21

Well the citizens dont fund their retirement lifestyles so its what benefits G-7!

Chinmayanand · Post by **Chinmayanand** » 20 Mar 2009 00:39

The Invisible One Quadrillion Dollar Equation
by DK Matai

The Invisible One Quadrillion Dollar Equation -- Asymmetric Leverage and
Systemic Risk

According to various distinguished sources including the Bank for
International Settlements (BIS) in Basel, Switzerland -- the central
bankers' bank -- the amount of outstanding derivatives worldwide as of
December 2007 crossed USD 1.144 Quadrillion, i.e., USD 1,144 Trillion.
The main categories of the USD 1.144 Quadrillion derivatives market were the
following:

1. Listed credit derivatives stood at USD 548 trillion;

2. The Over-The-Counter (OTC) derivatives stood in notional or face
value at
USD 596 trillion and included:

a. Interest Rate Derivatives at about USD 393+ trillion;

b. Credit Default Swaps at about USD 58+ trillion;

c. Foreign Exchange Derivatives at about USD 56+ trillion;

d. Commodity Derivatives at about USD 9 trillion;

e. Equity Linked Derivatives at about USD 8.5 trillion; and

f. Unallocated Derivatives at about USD 71+ trillion.

Quadrillion? That is a number only super computing engineers and
astronomers used to use, not economists and bankers! For example, the North star is
"just" a couple of quadrillion miles away, ie, a few thousand trillion
miles. The new "Roadrunner" supercomputer built by IBM for the US
Department of Energy's Los Alamos National Laboratory has achieved a peak
performance of 1.026 Peta Flop per second -- becoming the first supercomputer ever
to reach this milestone. One Quadrillion Floating Point Operations (Flops)
per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second. It is
estimated that all the data found on all the websites and stored on
computers across the world totals more than One Exa byte of memory, ie,
1,000 Quadrillion bytes of data.

Whilst outstanding derivatives are notional amounts until they are
crystallized, actual exposure is measured by the net credit equivalent.
This is normally a lower figure unless many variables plot a locus in the
wrong direction simultaneously. This could be because of catastrophic
unpredictable events, ie, "Black Swans", such as cascades of
bankruptcies and nationalizations, when the net exposure can balloon and become
considerably larger or indeed because some extremely dislocating
geo-political or geo-physical events take place simultaneously. Also, the
notional value becomes real value when either counterparty to the OTC
derivative goes bankrupt. This means that no large OTC derivative house can be allowed to go broke without falling into the arms of another.
Whatever funds within reason are required to rescue failing international
investment banks, deposit banks and financial entities ought to be provided on a
case by case basis. This is the asymmetric nature of derivatives and here
lies the potential for systemic risk to the global economic system and financial
markets if nothing is done.

Let us think about the invisible USD 1.144 quadrillion equation with black
swan variables -- ie, 1,144 trillion dollars in terms of outstanding
derivatives, global Gross Domestic Product (GDP), real estate, world
stock and bond markets coupled with unknown unknowns or "Black Swans". What
would be the relative positioning of USD 1.144 quadrillion for outstanding
derivatives, ie, what is their scale:

1. The entire GDP of the US is about USD 14 trillion.

2. The entire US money supply is also about USD 15 trillion.

3. The GDP of the entire world is USD 50 trillion. USD 1,144 trillion is
22
times the GDP of the whole world.

4. The real estate of the entire world is valued at about USD 75
trillion.

5. The world stock and bond markets are valued at about USD 100
trillion.

6. The big banks alone own about USD 140 trillion in derivatives.

7. Bear Stearns had USD 13+ trillion in derivatives and went bankrupt in
March. Freddie Mac, Fannie Mae, Lehman Brothers and AIG have all
'collapsed' because of complex securities and derivatives exposures in September.

8. The population of the whole planet is about 6 billion people. So the
derivatives market alone represents about USD 190,000 per person on the
planet.

The Impact of Derivatives

1. Derivatives are securities whose value depends on the underlying
value of other basic securities and associated risks. Derivatives have exploded
in use over the past two decades. We cannot even properly define many
classes of derivatives because they are highly complex instruments and come in
many shapes, sizes, colours and flavours and display different
characteristics under different market conditions.

2. Derivatives are unregulated, not traded on any public exchange,
without universal standards, dealt with by private agreement, not transparent,
have no open bid/ask market, are unguaranteed, have no central clearing
house, and are just not really tangible.

3. Derivatives include such well known instruments as futures and
options which are actively traded on numerous exchanges as well as numerous
over-the-counter instruments such as interest rate swaps, forward
contracts in foreign exchange and interest rates, and various commodity and equity
instruments.

4. Everyone from the large financial institutions, governments,
corporations, mutual and pension funds, to hedge funds, and large and
small speculators, uses derivatives. However, they have never existed in
history with the overarching, exorbitant scale that they now do.

5. Derivatives are unravelling at a fast rate with the start of the
"Great Unwind" of the global credit markets which began in July 2007 and
particularly after the collapse of Freddie Mac and Fannie Mae in
September this year.

6. When derivatives unravel significantly the entire world economy would
be at peril, given the relatively smaller scale of the world economy by
comparison.

7. The derivatives market collapse could make the housing and stock
market collapses look incidental.

Three Historical Examples

1. The so-called rogue trader Nick Leeson who made a huge derivatives
bet on the direction of the Japanese Nikkei index brought on the collapse of
Barings Bank in 1995.

2. The collapse of Long Term Capital Management (LTCM), a hedge fund
that had a former derivatives and bond dealer from Salomon Brothers and two
Nobel Prize winners in Economics as principals, collapsed because of huge
leveraged bets in currencies and bonds in 1998.

3. Finally, a lot of the problems of Enron in 2000 were brought on by
leveraged derivatives and using derivatives to hide problems on the
balance sheet.

The Pitfall

The single conceptual pitfall at the basis of the disorderly growth of the
global derivatives market is the postulate of hedging and netting, which
lies at the basis of each model and of the whole regulatory environment
hyper structure. Perfect hedges and perfect netting require functioning
markets. When one or more markets become dysfunctional, the whole deck of
cards could collapse swiftly. To hope, as US Treasury Secretary Mr Henry
Paulson does, that an accounting ruse such as transferring liabilities,
however priced, from a private to a public agent will restore the
functionality of markets implies a drastic jump in logic. Markets
function only when:

1. There is a price level at which demand meets supply; and more
importantly when

2. Both sides believe in each other's capacity to deliver.

Satisfying criterion 1. without satisfying criterion 2. which is
essentially about trust, gets one nowhere in the long term, although in the short
term, the markets may demonstrate momentary relief and euphoria.

Conclusion

In the context of the USD 700 billion rescue plan -- still being
finalised in Washington, DC -- the following is worth considering step by step.

Decision makers are rightly concerned about alleviating immediate
pressure points in the global financial system, such as, the mortgage crisis,
decline in consumer spending and the looming loss of confidence in financial
institutions. However, whilst these problems are grave, they are acting as a
catalyst to another more massive challenge which may have to be tackled
across many nation states simultaneously. As money flows slow down sharply,
confidence levels would decline across the globe, and trust would be broken
asymmetrically, ie, the time taken to repair it would be much longer.Unless
there is government action in concert, this could ignite a chain-reaction
which would swiftly purge trillions and trillions of dollars in over-leveraged risky bets.

Within the context of over-leverage, the biggest problem of all is to do
with "Derivatives", of which CDSs are a minor subset. Warren Buffett has
said the derivatives neutron bomb has the potential to destroy the entire
world economy, and is a "disaster waiting to happen." He has also referred
to derivatives as Weapons of Mass Destruction (WMD). Counting one dollar per
second, it would take 32 million years to count to one Quadrillion.

The numbers we are dealing with are absolutely astronomical and from the
realms of super computing we have stepped into global economics.

There is a sense of no sustainability and lack of longevity in the
"Invisible One Quadrillion Dollar Equation" of the derivatives market
especially with attendant Black Swan variables causing multiple implosions
amongst financial institutions and counterparties! The only way out, albeit
painful, is via discretionary case-by-case government intervention on an
unprecedented scale. Securing the savings and assets of ordinary citizens
ought to be the number one concern in directing such policy.

Arya Sumantra · Post by **Arya Sumantra** » 20 Mar 2009 06:52

IMF Tweaks Loan Program in Bid to Attract Borrowers

The International Monetary Fund plans to sweeten a $100 billion lending program announced in October that didn't attract a single borrower.

The new program of less-restrictive loans is designed to boost the Fund's standing as an authority in containing the global meltdown and to assuage member countries' concerns about borrowing from a lender often seen as heavy-handed and intrusive.

Among countries targeted: Mexico, Peru, Chile, Brazil, Singapore, South Korea, Taiwan and perhaps Poland. Those countries have escaped the worst of the downturn thus far, but are being hit by a falloff in bank lending and trade.

"If I were running a country, I wouldn't want the IMF in a headline unless it's something like, 'Poland tells the IMF to stuff it,' " said Simon Johnson, a former IMF chief economist who is now a professor at Massachusetts Institute of Technology.

vsudhir · Post by **vsudhir** » 20 Mar 2009 07:08

Oooh, mighty goldman seems to be hurting too (after too much hearting AIG in the past)

Goldman to detail AIG trading relationship Friday

NEW YORK (MarketWatch) -- Goldman Sachs said it would hold a conference call with reporters on Friday to, "answer questions from journalists, and clarify certain misperceptions in the press regarding Goldman Sachs' trading relationship with American International Group."
...
Members of the public can listen to the call via webcast, the company said in a press release.

Some new spin, some new salve, some new myth-making..... usual high-finance wall-street stuff.

But much harder to sell this time, even for goldman. I hope.

shaardula · Post by **shaardula** » 20 Mar 2009 07:22

v,

thanks. since even i understood what you wrote, i assume you just worked it out using first principles. myself was stuck in 'nominal' value of money till recently.

my question is, is their an absolute value of money? to me it appears it is always relative in time. as a sdre paisa pincher i find it simpler to assume relative value of paisas within a period. even with a deflated R^* he who has more, has more no? he can do more when value appreciates, no?

* in anticipation of dileep winning

Arya Sumantra · Post by **Arya Sumantra** » 20 Mar 2009 08:14

Companies try to make cars, apartments layoff-proof

AutoNation (AN) is offering to cover up to six months of a customer's car payments if they lose their job.

Under the program, the company will reimburse customers for loan or lease payments of up to $500 a month for up to six months.

In order to be eligible, customers must own the vehicle for at least 90 days before losing their job and be unemployed for at least 30 days.

The offer is only good for the first year a customer owns their car.

Meanwhile, a landlord is promising two months free apartment rent if its tenants in Ohio, Florida, North Carolina and Texas lose their jobs.

Goldberg Cos. says layoffs have become the No. 1 concern for prospective renters. In response, the company's "Layoff Proof Lease" program, as it's called, will begin Saturday.

SriKumar · Post by **SriKumar** » 20 Mar 2009 08:55

vina wrote: Why is there an economic crisis ?. Is that asset prices have crashed . That is the fundamental core fact. Get asset prices back up....... and everything will be normal.

By assets, do you specifically mean the U.S. housing market or something esle?

So the solution to the crisis is to get asset prices up. Now how will you get asset prices up . And that is to reflate the collapsed bubble. Now remember, all the bonds and contracts are at NOMINAL values. So if you drop the value dollar, asset prices will go up in Nominal value. For eg, if you bought a house for $400,000 in 2007 and it had dropped to $300,000 in 2009 dollars, if in 2010, your value of the dollar drops by say the correct amount and you re inflate, your house will be back to $400,000 in 2010 dollars forwards , back to the 2007 levels and the MBS on your property banks and others are holding are back in black and the balance sheet is fine now. But notice however, the difference in value between the 2010 dollah and 2007 dollah. In REAL terms, there is a loss, but in NOMINAL terms you are fine.

Even if the US prints $ to re-flate the asset prices (am assuming you are talking about the US housing market here), the fundamental problem remains- there are still a lot of houses under foreclosure and there is about 1-2 more years still left for that to work through the system (sub-prime lending peak was 2005). There is a large glut of houses today and more to come. The bigger problem is that banks, even if flush with cash, will never again lend to people with less than good credit, so the pool of future home-buyers will be (much) smaller than in the past. Unless there are more buyers than homes, IMHO, I dont expect home prices to come to 2007 levels (even nominal terms) . Also, in an economy where educated+skilled people are now starting to lose jobs, the good_job+good_credit borrower market is also becoming smaller for the banks translating to fewer home buyers.

John Snow · Post by **John Snow** » 20 Mar 2009 09:15

Everything is relative
Death, Taxes, Layoffs are certain

yesterdays reality is todays history
Todays reality is tomorrows history

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AIG means America Is Golmal (America Is Global Maal)

Arya Sumantra · Post by **Arya Sumantra** » 20 Mar 2009 10:49

Unkil is monetizing to reinflate. But what if the burden of cloud lifting episode between Hercules and Atlas is played out between Unkil and the Investors? Investors being Hercules and Unkil being Atlas.

The sudden and rapid precipitation of crisis trapped a lot of investors money. Unkil(Atlas) agrees to monetize the financial institutions and bail out corporations assuming this to be a temporary burden and assuming investors to work to bring things back to normal. Instead, the investors(Hercules) convinced of future doom & gloom use this opportunity as a buffer time allowing them to pull out their investments and encash and leave their burden perpetually on unkil.

Nayak · Post by **Nayak** » 20 Mar 2009 11:25

http://www.nytimes.com/2009/03/20/nyreg ... wanted=all

Scorn Trails A.I.G. Executives, Even in Their Driveways

Article Tools Sponsored By
By JAMES BARRON and RUSS BUETTNER
Published: March 19, 2009

The A.I.G. executive who was nicknamed “Jackpot Jimmy” by a New York tabloid walked up the driveway toward his bay-windowed house in Fairfield, Conn., on Thursday afternoon. "How do I feel?” said the executive, James Haas, repeating the question he had just been asked. “I feel horrible. This has been a complete invasion of privacy."

Mr. Haas walked on, his pink shirt a burst of color on a slate-gray afternoon. The words came haltingly. "You have to understand,” he said, “there are kids involved, there have been death threats. ..." His voice trailed off. It looked as if he was fighting back tears.

"I didn’t have anything to do with those credit problems,” said Mr. Haas, 47. “I told Mr. Liddy” — Edward M. Liddy, the chief executive of A.I.G., the insurance giant — “I would rescind my retention contract.”

He ended the conversation with a request: “Leave my neighbors alone.”

Too late. Jean Wieson, who has lived down the block for 24 years, had stopped her car in front of Mr. Haas’s house before he arrived home. She was angry about the millions of dollars in bonuses paid to its executives, the credit-default swaps that brought American International Group, to its knees, the $170 billion the federal government has spent to prop it up. "It makes me absolutely sick," she said. "It’s despicable. It’s disgusting what these people have done. They should be forced to give every cent back."

Those bonuses in years past helped make A.I.G. executives into prominent local citizens. They own big houses like Mr. Haas’s, with its three chimneys and its views of Southport Harbor and Long Island Sound in the distance. Some are well-known contributors to arts groups and private schools in Connecticut communities not far from the office park in Wilton that is the workplace of many of the employees in A.I.G.’s Financial Products division, which is at the center of the storm over bonus payments.

Now these executives are toxic, and those communities are rattled and divided. Private security guards have been stationed outside their houses, and sometimes the local police drive by. A.I.G. employees at the company’s office tower in Lower Manhattan were told to avoid leaving the building while a demonstration was going on outside. The memo also advised them to avoid displaying company-issued ID cards when they left the office and to abandon tote bags or other items with the A.I.G. logo.

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. “It is as bad if not worse than McCarthyism,” he said. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, “for their own political agenda.”

The public’s anger, he said, “is coming from bad facts as a result of someone else’s agenda — or just bad facts period.” Instead, he said, the so-called bonuses were in fact just payments that had been promised long ago to workers, including technical and administrative assistants.

A.I.G. employees are not the only ones seeking protection: An executive at Merrill Lynch, where bonuses have also come under fire, said that some employees had asked whether the firm would cover the cost of private security for them.

Scott Silvestri, a spokesman for Bank of America, which bought Merrill in December, would not respond to that claim, but said in a statement, “The safety and security of our associates is paramount, and we will always take the appropriate steps.”

And there may be more protests. The Connecticut Working Families party, which has support from organized labor, is planning a bus tour of A.I.G. executives’ homes on Saturday, with a stop at the company’s Wilton office.

“We’re going to be peaceful and lawful in everything we do,” said Jon Green, the director of Connecticut Working Families. “I know there’s a lot of anger and a lot of rage about what’s happened. We’re not looking to foment that unnecessarily, but what we want to do is give folks in Bridgeport and Hartford and other parts of Connecticut who are struggling and losing their homes and their jobs and their health insurance an opportunity to see what kinds of lifestyle billions of dollars in credit-default swaps can buy.”

A.I.G. paid the $165 million in bonuses to 463 of its executives, but in the uproar that erupted when the payments were made public, Mr. Liddy asked the employees to return much of that money. He said that many of them have agreed to do so.

The New York attorney general, Andrew M. Cuomo, said on Thursday that A.I.G. had handed over a list with the names of the bonus recipients. But he did not release the list. “We are aware of the security concerns of A.I.G. employees,” Mr. Cuomo said in a statement, “and we will be sensitive to those issues by doing a risk assessment before releasing any individual’s name.”

It was unclear exactly what measures the officials at A.I.G. have taken in the name of protecting the company’s executives. Officials at several police departments in Connecticut towns where A.I.G. executives live said they did not know about possible threats against the bonus recipients. “We haven’t heard of it,” said Sgt. Carol Ogrinc of the New Canaan police. “There have been no complaints made to our department.”

But several security companies in New York credited the financial crisis with a noticeable increase in some areas of their business, from protecting executives to dispatching bomb-sniffing dogs to check for trouble. “There is certainly anger among people about the economy and fear among corporate executives themselves,” said Patrick Timlin, the president of Michael Stapleton Associates, which provides bomb-dog teams.

And there is concern in places like Wilton that the scandal is tarring their town. “They’re blaming us,” said Konstantinos Papanikolaou, a manager at Orem’s Diner in Wilton, about a mile from the A.I.G. office.

Jay Fiedler of Trumbull, Conn., said his town was also a “victim,” initially of a brutal economic downturn that had been fueled by problems at companies like A.I.G., and then of the outrage that has coalesced around the bonuses that A.I.G. paid.

“It just so happened that it happened here,” Mr. Fiedler said. “The community is the victim of the fact that it takes place here.”

Others in A.I.G.’s neighborhood were clearly angry. Tamara King, an immigration specialist at a health care company whose office is adjacent to the A.I.G. quarters, said she feels disgust each time she walks past it.

"You don’t want to associate with them because it’s not a reflection on the state, it’s not a reflection on us," she said. But she added, “You have so many people out of a job, and these people think they can take the money and run."

The largest single bonus check, for $6.4 million, went to Douglas L. Poling, an executive vice president for energy and infrastructure investments. Mark Herr, an A.I.G. spokesman, said Mr. Poling had told him he was returning the bonus “because he thought it was the correct thing to do.”

Gerry Pasciucco, a former vice chairman of Morgan Stanley who was brought in by Mr. Liddy in November to wind down the financial products unit, said Mr. Poling had sold off roughly 80 percent of the unit’s assets. Mr. Pasciucco said the money from the sales would go to the government, which has handed more than $170 billion in bailout money to A.I.G. in the last six months.

“He’s done an outstanding job in winding down his investment books,” Mr. Pasciucco said. "He did it at the right time, and we’ve made money. We would be losing money today if we waited to sell some of these assets."

Mr. Poling’s father, Harold A. Poling, retired as the chief executive of Ford Motor Company in 1994. On Thursday, Cheryle Campbell answered the phone at Harold Poling’s house in Bloomfield, Mich., where she said she had worked as a housekeeper for 20 years. She said she was not surprised to hear that Douglas Poling had decided to give back his bonus. “You’d think, being in the kind of job he is, that he’d be one of those sharks,” she said. “But he’s not at all.”

Douglas Poling has lived in the same house on a dead-end street in Fairfield for 11 years. The local papers say that he and his wife have given generously to a homeless shelter, to the Westport Country Playhouse and the Fairfield Country Day School, a boys’ prep school where tuition runs as high as $29,300 a year.

But on Thursday, his house, like Mr. Haas’s, was being watched by private security guards.

Reporting was contributed by Cara Buckley, Kenny Porpora, William K. Rashbaum, Nate Schweber and Joel Stonington.

Raghav K · Post by **Raghav K** » 20 Mar 2009 11:27

SriKumar wrote:
vina wrote: Why is there an economic crisis ?. Is that asset prices have crashed . That is the fundamental core fact. Get asset prices back up....... and everything will be normal.
By assets, do you specifically mean the U.S. housing market or something esle?

So the solution to the crisis is to get asset prices up. Now how will you get asset prices up . And that is to reflate the collapsed bubble. Now remember, all the bonds and contracts are at NOMINAL values. So if you drop the value dollar, asset prices will go up in Nominal value. For eg, if you bought a house for $400,000 in 2007 and it had dropped to $300,000 in 2009 dollars, if in 2010, your value of the dollar drops by say the correct amount and you re inflate, your house will be back to $400,000 in 2010 dollars forwards , back to the 2007 levels and the MBS on your property banks and others are holding are back in black and the balance sheet is fine now. But notice however, the difference in value between the 2010 dollah and 2007 dollah. In REAL terms, there is a loss, but in NOMINAL terms you are fine.
Even if the US prints $ to re-flate the asset prices (am assuming you are talking about the US housing market here), the fundamental problem remains- there are still a lot of houses under foreclosure and there is about 1-2 more years still left for that to work through the system (sub-prime lending peak was 2005). There is a large glut of houses today and more to come. The bigger problem is that banks, even if flush with cash, will never again lend to people with less than good credit, so the pool of future home-buyers will be (much) smaller than in the past. Unless there are more buyers than homes, IMHO, I dont expect home prices to come to 2007 levels (even nominal terms) . Also, in an economy where educated+skilled people are now starting to lose jobs, the good_job+good_credit borrower market is also becoming smaller for the banks translating to fewer home buyers.

This will be another vicious cycle. People cannot afford houses, vacancies will drive up,job losses will add to more glut of homes. bubbles within bubbles.

vina · Post by **vina** » 20 Mar 2009 13:11

Guys. Guys. Why is it so difficult to understand what Unkil is doing ?. Bottomline is this . Unkil /Unkil denizens are deeply in debt (to everyone, including Chicoms who hold treasury).

Let me explain it simply.

Abdul Lungi goes to a showroom and buys a TFTA car for Rs 5 lakh (fixed). His EMI is Rs 15,000 pm say and he works in a guaranteed job like say Govermund (now even if you jump in and say gotcha!, but jobs are not guaranteed in this kind of downturn, on an aggregate basis /avg they are, a far higher percentage will keep their jobs, rather than lose them). Now Abdul's sister, Ayesha has run off with some wastrel and parents intervene and say okay , lets get the Nikah done. Father is penniless and old and says, for "Khandaan ki izzat" , Ayesha has to be given a grand wedding and reception, so Abdul, foot the bill . Abdul needs to go to the Pathan money lender and borrow at usurious rates (it is haraam to lend only to momin , but fully halaal to lend to kaffirs, I have seen pathan money lenders/ loan sharks lined up in Tata Steel's gates in the first week of every month to collect dues ) . However, Abdul has repaying capacity of only Rs 15000 pm. So what is he to do ?.

Now if inflation shot up, your existing loans become lot less valuable in real terms. How ?. Abdul's union (if he worked in Tata Steel) or his DA if Governmund (sharp increases in inflation will immediately result in salary hike demands), will do hartaal /bandh /gherao, with comrade Karat, Yechury leading the pack , N. Ram doing "rear admirargiri" from Chennai and writing editorials in the Frontline and Al-Hundi goading them on, and Mamta didi, will go on a fast and rasta roko in support of "workers" , in short a massive circus, so Abdul's salary will increase dramatically (tracking inflation).

Now Abdul as the borrower is actually happy. His take home has risen significantly, so he has enough money to pay the Rs 15,000 for the TFTA car and also he has enough money to pay the Pathan money lender for the money he borrowed for Ayesha's wedding. Abba jaan is happy and proud on what a good /dutiful son Abdul is, Ammi jaan is thrilled that Ayesha is married. So everyone is happy.

So what gives? . Who was shafted in this happy scene of things? It was actually the finance company who gave Abdul 5 lakhs to buy the TFTA car!. That is who. Abdul is now paying them back with Wampum.

Now substitute Abdul with Unkil and Ayesha with the economic crisis, the "sudden surge in inflation" to Helicopter Ben. So who is the Finance company which gave Abdul the 5 Lakhs here ? .. Hint --> Our Tarrel than Mountain and deepel than ocean friend to the east!

Singha · Post by **Singha** » 20 Mar 2009 13:18

your theory kind of assumes the dollah will devalue against all important currencies ie, the chipanda can buy less and less with its hoard of dollah holdings right?

what if Unkil keeps on engineering crisis and fanning the flames around so that other
currencies too devalue in relative sync (UK and Japan are also printing notes, leaving out the basket cases in comatose state like ireland, iceland and greece). UK and Japan are top5 ecos and huge international traders. Swiss are also in the soup now via UBS.

so that way chipanda can still get relatively current values for its dollah notes when buying from other nations in other currencies.

only if the dollah alone devalues steeply and permanently vs euro/yen etc will chipanda get screwed.

vina · Post by **vina** » 20 Mar 2009 14:03

Singha wrote:what if Unkil keeps on engineering crisis and fanning the flames around so that other
currencies too devalue in relative sync (UK and Japan are also printing notes, leaving out the basket cases in comatose state like ireland, iceland and greece). UK and Japan are top5 ecos and huge international traders. Swiss are also in the soup now via UBS.

Ah, Singhaji, it is standard Econ 101. In periods of high inflation, bond holders/lenders get shafted . No grand ISI/DSE/JNU/Ivy League Quant / ding dong modeling here.

so that way chipanda can still get relatively current values for its dollah notes when buying from other nations in other currencies.

only if the dollah alone devalues steeply and permanently vs euro/yen etc will chipanda get screwed.

This is ultra sunnah and halaal onree. Let us see how.

Okay, instead of Rupees, Abdul got even more TFTA and bought the car for 5 lakhs of Wampum, which is a basket of currencies . Wampum lent by our Tarrel than Mountain friend of course.

say 1 unit of Wampum has a% of dollah, b% of Pound, c% of Euro and d% of Yen . Now doesn't matter which currency depreciated more , for a given 1% depreciation of Wampum in the overall analysis. That is just academic. For Abdul, 1 Wampum = 1 Wampum. Baki sab, upar wala jaane.

Now as long as Wampum depreciates, Abdul is happy and lender is shafted.

So, it wont matter. Consider it from Tarrel than Mountain side. They have $1.5 T or whatever in dollars. Now if they say, okay , lets change 20% into Euro (trash), the moment they sell, the 20%, the value of he remaining 80% shrinks even more!

. So they do "harmonious society thingy" and do it by Chipanda/Pakiness stealth. But Unkil has preempted by
running printing presses, so have the Euros, Japs and Swiss!. So Panda is shafted anyway. So for the 1 Wampum it lent, if it could buy 10 gms of rice in 2007, in 2011, 1 Wampum will get 8 gms of lice onree!

. All this assumes fundamental currency convertibility among the major currencies , a reasonable bet to make I think.

Suraj · Post by **Suraj** » 20 Mar 2009 14:26

Singha wrote:so that way chipanda can still get relatively current values for its dollah notes when buying from other nations in other currencies.

only if the dollah alone devalues steeply and permanently vs euro/yen etc will chipanda get screwed.

The very act of a large selloff of dollars by chipanda will devalue it. The yuan on the other hand is pegged to a basket of currencies and will strengthen . Point is unkil doesn't need to do something like mms announcing devaluation in the old days - what chipanda does with it's hoard - short of buying *more* dollars - will devalue it ...

Ardeshir · Post by **Ardeshir** » 20 Mar 2009 14:44

Ah, as expected.

Dollar Heads for Record Weekly Loss Versus Euro as Supply Rises

March 20 (Bloomberg) -- The dollar traded near a two-month low against the euro, heading for a record weekly drop, after the Federal Reserve ramped up supply of the currency by unexpectedly saying it will start buying Treasuries.

The U.S. currency was also on course for a second weekly decline versus the yen following the Fed’s March 18 announcement that its balance sheet will grow by as much as $1.15 trillion as it buys as much as $300 billion of government debt and increases mortgage-bond purchases. Australia and New Zealand’s dollars advanced, heading for third weekly gains, as prices of commodities the nations export surged.

Dollar evaluation + buying up bonds. Where have I read that before?

vina · Post by **vina** » 20 Mar 2009 15:22

Alright Prasant. I know you must have shorted USD and loaded up on all other currencies from Euro to NZD, Aust Dollah, everything in fact and it must be a nice payday.

But remember, since you heard it here first.. So write a 1% of your take to BRF as a contribution (they take credit cards and and can be done online) and also have a bottle of bubbly (Veuve Cliquot Ponsardin , thank you) over to me here in Bangalore. Gosh. I havent had that since I left NYC and moved back ! There are no free lunches you know.

Singha · Post by **Singha** » 20 Mar 2009 15:41

> Veuve Cliquot Ponsardin

what is it? wine flavoured with exotic dwarf snails from britanny and pigs feet?

Tanaji · Post by **Tanaji** » 20 Mar 2009 16:55

^^^
http://www.veuve-clicquot.com/

Not too expensive , in fact downright cheap given the company vina usually keeps

About Rs. 2300 assuming a straight conversion and no duty.

Ardeshir · Post by **Ardeshir** » 20 Mar 2009 17:50

vina wrote:Alright Prasant. I know you must have shorted USD and loaded up on all other currencies from Euro to NZD, Aust Dollah, everything in fact and it must be a nice payday.

But remember, since you heard it here first.. So write a 1% of your take to BRF as a contribution (they take credit cards and and can be done online) and also have a bottle of bubbly (Veuve Cliquot Ponsardin , thank you) over to me here in Bangalore. Gosh. I havent had that since I left NYC and moved back ! There are no free lunches you know.

Why Vueve Cliquot, might as well have some Laurent-Perriere Magnum while we are at it.

By the way, didn't know you are in Bengaluru too. Been holed in here for a month now.

John Snow · Post by **John Snow** » 20 Mar 2009 18:03

This is analogous to TSP cycle of N guru.....

This monetization will lead to slowly to hyper inflation and this will not happen like a dicrete funtion values but a continous function.

Right now Chinpanda will adjust its currency (value) to fall artificially relative to dollar (in reality Chinpanda currency should go up relative to dollar, as defacto devaluation of dollars because of Print Master being very busy lately) to keep Chinpanda slave factories busy and continue to export ( because price advantage and feed the consumption of AmriKhans appetite)

This is what I mentioned when earlier I said developing countries and emerging economies will have to artificailly delate their assets (of export) to keep Amerikhans going the way they are used (notice the exception of oil price going up , but that is little more complicated as it is oligopoly... etc with production cuts ...)

Dollar decline other also slide down to keep the equlibrium undisturbed (as if nothing happened)

Then comes operation Argentina/Zimbabwe...

vsudhir · Post by **vsudhir** » 20 Mar 2009 20:23

Follies have a way with repeating themselves.

Recall UKstan attempted to 'revert' back to 1912 from 1919 by returning to the gold standard and when GBP ruled the seas etc. Big mistake onlee. There is sometimes no going back. WWI had effectively bankrupted UKstan (thank the lawd for small mercies) and effectively set the ball rolling on Indian independence.

Now we have the spectre of Bernake uncle attempting to reflate back to the glory days of 2006. What is it about genies and bottles, eh?

Singha · Post by **Singha** » 20 Mar 2009 21:31

yawn
http://www.businessweek.com/bschools/co ... ries_ssi_5

negi · Post by **negi** » 20 Mar 2009 21:52

^ Gurudev

kamments are hillarious.

It's a pity that foreign students are not pursuing MBA's here. I was hoping we could export the delusional theories espoused by these idiot US professors to our competitor nations and level the playing field so that everyone is shallow, unethical and in pursuit of nothing but an easy way to make a lot of money.

vsudhir · Post by **vsudhir** » 21 Mar 2009 01:09

Is this the end of America as we know it?

A tad over the top but nevertheless, another perspective on the downturn.

shyamd · Post by **shyamd** » 21 Mar 2009 01:29

U.S. Oil and Gas Demand and Supply: Inventories on the Rise?

* EIA: (week ending March 6). Refineries operated at 82.7% of their operable capacity, below the 5 year average. Gasoline production fell averaging 8.5 million barrels per day. Crude oil inventories increased 0.7mb replacing the loss last week to 351.3 mb, still above the 5yr average range.
* Oil imports averaged 8.9mbd for the last four weeks, slightly lower than a year ago. Demand for oil products has fallen 2.1 % y/y for the last 4 weeks, much less than the -7% decline of mid 2008. Demand for Gasoline actually rose 1.6% y/y but demand for distillates (-6.1%) and jet fuel (-12.2%) is lower.
* BarCap: gasoline is emerging as the strongest of the oil products, with demand recovering from the severe declines seen in Q3. Having represented as much as a half of the overall y/y decline in OECD oil demand in the middle of 2008, gasoline now makes up less than a fifth of that overall decline and may return to y/y demand growth before the other main products.
* jet fuel consumption dropped by 100 tb/d, or 6.2%, in 4Q 2008. With little immediate prospect of recovery, the EIA forecasts that aviation fuel demand will decline by another 60,000 b/d in 2009. By late February, jet fuel prices were $1.21/gallon, a 57% drop from 2008.
* OD: weekly figures may overstate actual demand for oil products compared to the monthly figures and thus overstate 2009 demand. The overestimations were mostly in the other than gas segment
* Oil and oil product supplies are building up around the world as demand falls despite the supply cuts at production and refining levels. Oil majors are stockpiling oil in supertankers for sale in the future when oil prices are higher, contributing to a widening contango effect in which future prices are higher than those closer in time. US inventories are above 5 year averages as are those in the rest of the OECD
* Merrill: global petroleum product demand has sunk despite the very cold Northern Hemisphere winter, driving refinery capacity utilization to very low rates on both sides of the Atlantic Basin. Total oil demand growth in the United States is still falling at a 5% annual rate, and is at 2002 levels. Despite much lower retail prices, the contraction in US gasoline demand has accelerated on the back of a 50% drop in car sales and a collapse in miles driven. Gasoline demand has only declined for 14 months so far compared to an average of 25 months in the recessions of 1973, 1981 and 1991.
* Citi: Total crude and product stocks fell 2.9mmbbls vs. a normal seasonal draw of 1.4mmbls, and are now 5.6% above last year's level and 6.7% higher than the five year average. Forward gasoline demand cover now stands at 24 days, slightly above the average of 23 days.
* Halff: Tight refining capacity was key driver of high prices. Oil demand has likely peaked in US as it already has in Europe
* OPEC: With current production well above the expected demand, there is potential for a sharp build in crude oil inventories, encouraged by the contango market structure.
* DnB: The correlation between low oil inventories and high nominal oil prices worked for many years but broke down after 2003 with longer-term fundamentals is driving nominal prices of oil higher. Low spare capacity has increased the demand for inventory coverage by market participants
* CIBC: To date, oil demand destruction in the US and the rest of the OECD is modest, and much of it has come from low-hanging fruit (state government cutbacks on asphalt paving and reductions in the use of residual fuel for power plants). Motor Fuel demand has dropped only 220,000 bd
* WSJ: regulators are concerned that companies may be reporting inventory levels that benefit their own trading positions but that may not be accurate
* ECB: only an increase in crude oil stocks not refinery capacity increases lowers price. Little likelihood that price will fall below 2004 levels unless demand slumps
* CERA: 2007 probably will represent the peak year of gasoline consumption in the U.S., with annual demand dropping in 2008 for the first time in 17 years
* TD: Added to slower economic growth, higher energy prices have led to demand destruction in developed economies like the U.S.
* WSJ: The breadth of change in gas consumption patterns is even more dramatic than in the 70s and, if oil prices stay near current levels, the decline in demand could be more sustained