The FDIC currently insures bank depositors up to $250,000 – up from $100,000 prior to the financial crisis. So far this year, 81 banks have failed, costing the FDIC an estimated $21.5 billion.

And the situation is almost certainly going to get worse.

A Growing List of Troubled Banks

The FDIC reported yesterday (Thursday) that the number of distressed banks rose to the highest level in 15 years during the second quarter, thanks to an economic malaise that’s saddling banks with a growing level of bad loans.

The number of troubled banks rose to 416 at the end of June from 305 at the end of March. The FDIC hasn’t had that many banks on its “problem list” since June 1994, when there were 434, the agency said. Assets at these troubled institutions totaled $299.8 billion – the worst level since the end of 1993, according to the FDIC.

The FDIC’s insurance fund, as of March 31, was down to its last $13.5 billion. Bank failures in the second quarter cost the insurance fund an estimated $9.1 billion. These hits were mostly offset by an emergency special assessment of $6.2 billion and an additional $2.6 billion raised as part of the regular quarterly assessment on FDIC-insured banks.

The FDIC just took another hit due to the recent failure of Colonial Bank, which cost the fund an estimated $2.8 billion, and the failure last week of Guaranty Bank, which cost an estimated $3 billion. FDIC Chairman Sheila C. Bair is determined to not have an insolvent FDIC turn to the U.S. Treasury Department to draw on a $500 billion line of credit set up for just this purpose, although that move is clearly inevitable.

In a fatalistic twist of irony, however, the FDIC’s demand for another special assessment in the fourth quarter and another expected special assessment in the first quarter of 2010 may tip several more banks into failure.

Although there seems to be a desperate need for private equity capital to come running to the rescue, the reality unfortunately isn’t that simple.

A Disappointing Decision

As most all consumers and investors know, the FDIC only covers insured deposits. However, the ongoing cost of a busted bank becomes higher for the FDIC if the agency cannot merge that failed institution with a healthy player, or can’t sell it outright. When The FDIC can’t find a willing partner or buyer, the agency must instead manage the “unwinding” of every failed bank’s stockpile of illiquid and toxic assets. With so many more banks in trouble and so many fewer banks willing to acquire additional suspect assets, private equity firms have offered to step up and buy failed banks these professional investors believe can be turned around.

On July 9, the FDIC published and sought comments on its “Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions.” The controversial proposed policy statement suggested tough terms and conditions under which the federal agency would be willing to sell failed banks to non-traditional buyers – specifically, private equity firms.

A total of 61 comments were filed during the 30-day comment period – most of them from private-equity firms, their lawyers, financial-services trade associations and lobbyists. There were also comments from academics, four U.S. senators and six individuals. The FDIC also received 3,190 form-letter comments in support of the controversial proposal.

The FDIC issued its final decision on the matter on Wednesday. The new version was much weaker, once again underscoring the federal government’s proclivity for weakening banking regulations – a willingness we’ve repeatedly warned will have dire consequences for the U.S. financial system, as well as for the broader economy.

These alterations are setting the stage for an escalation in bank failures. The real losers will once again be the U.S. taxpayers, who will end up footing the bill for the FDIC’s failure to take a tough stand.

How much weaker were the new regulations, when compared with the earlier proposals? In one instance, instead of the initially proposed requirement that new investors maintain a 15% Tier 1 common equity capital ratio – three times what traditional bank holding companies are required to maintain – the new entry hurdle is only a 10% ratio.

Private equity firms will be spared the requirement of other bank holding companies and will not be called upon as a “source of strength,” should their investment in a bank need shoring up.

Bank holding companies have to make their resources available if their banking operation requires support. But private equity companies don’t want to expose their vast pools of capital to any one investment. Just as Cerberus Capital Management LP refused to put any more money into its failed Chrysler LLC investment – leaving taxpayers to bail it out – firms are loathe to be put into a position to support a bank holding with anything more than what was deemed as a suitable capital investment at the outset.

The FDIC granted other compromises granted in favor of private equity buyers. For instance, the agency spared them from having to cross-guarantee their portfolio-bank investments – unless they owned at least 80% of two or more banks.

Getting “Real” About Private Equity

Private equity interests certainly didn’t get everything they wanted. For one thing, the final policy statement prohibits “insider” and “affiliated” loan transactions and strips firms of using a controversial “silo” structure to obfuscate ownership and control positions.

The final policy statement reads like the painful enunciation of a split decision in a controversial heavyweight title fight. The valiant efforts Bair, the FDIC chairman, to keep the howling wolves of private equity at the door and out of the banking henhouse were ultimately undermined by the rapidly dwindling coffers of the Deposit Insurance Fund, which brought the FDIC to its knees. The compromises in the final policy statement grant the private-equity crowd a lot of what it was lobbying for while only momentarily sparing the FDIC the embarrassment of being knocked out.

But make no mistake. That day of reckoning is on its way. And not even the entrepreneurially gifted private-equity set will be able to keep that from happening.

Let’s be clear: We’re not saying that the private-equity sector is made up of angels (angel investors, yes, but outright angels, no way). Indeed, as we’ve demonstrated in past columns, the private-equity set is actually a group of uber-capitalists who are hell-bent on turning their gargantuan ambitions into extraordinary wealth – and who aren’t above shopping for regulators or hardballing Congress to get what they want.

Private-equity players demanded – and got – the FDIC to agree to share whatever losses they might incur, whereby the government (meaning taxpayers) must bear the brunt of the losses incurred when risky loan pools are acquired.

In all fairness to private equity firms, acquiring banks also have loss-sharing agreements with the FDIC. But they are regulated entities and private equity firms are not. Nor will private equity firms willingly become regulated in order to buy banks.

And there are actually some advantages in having private equity investors acquire failed banks – including a host of issues that critics describe as “self-serving,” grousing that the private-equity benefits come only at a cost to taxpayers.

Given the new set of rules, private equity firms can swoop in and pick up failed banks by banding together and dividing the equity commitment and investment liability assumed upon purchase. If there is no recourse against other private equity firm assets or even any cross-guarantees against other acquired banks, unless they are 80% owned, the consortiums cannot be called upon and certainly not relied upon to be a “source of strength” for their depository, taxpayer-backed portfolio banks.

Regardless of any rules on self-dealing, as sure as “bank” is a four letter word, private equity firms will find a legal way to lend from their taxpayer-backed banks to leverage their other portfolio companies and extract their usual exorbitant fees. If they don’t lend to their own portfolio companies, they will surely lend to other private equity firms’ portfolio companies in a modified version of the “club deals” that bind them together. These firms have a mutual interest in generating deal fees and in controlling their lucrative franchises.

A Glimpse of What’s to Come

The problem with banks is that they became too leveraged. When they couldn’t amass assets on their books, against which they had to set aside “reserves,” they established “off-balance-sheet” vehicles to acquire leveraged pools of assets. They were leveraged inside and out.

But now the originators of the leveraged-buyout business model want to control taxpayer-backed banks, to apply another round of leverage to already crippled banks in order to squeeze out all the profits possible. Although this comes at a cost to duped and already drained taxpayers, regulators, legislators and the American public would be foolish to expect anything else from the private equity crowd. If the FDIC thinks it has a problem now, wait until the next implosion of leveraged banks happens.

In a comment letter to the FDIC on the original policy proposal, the Private Equity Council, an industry advocacy group, without recognizing the irony of its comment, suggested that mandating higher capital ratios for private equity buyers of failed banks would actually increase the risk at those banks because their owners would essentially have to employ more leverage to generate sufficient returns to meet the higher capital standards – while still generating returns high enough to satisfy the investors in their private-equity funds.

If that’s not an advance look at the next round of financial-sector problems we could be facing, we are deluding ourselves.

Private equity should be allowed to buy banks, but should also be held to a higher standard. They have a proven record of success at leveraging companies when they have access to cheap funding, and they also have a record of spectacular failures that resulted from their leverage. The last thing that American banks need – especially right now – is a hyper-aggressive management that leverages them to the hilt in order to generate “acceptable” rates of return for a select group of private investors.

Unfortunately, we’ve once again placed ourselves in a position where the viable solutions to the problems that were created will end up causing an entirely new set of problems – problems that always seem to provide a benefit to the old crony network while leaving the battered U.S. taxpayer as the ultimate victim.

We have no one to blame but ourselves.

More town hall meetings and more vocal opposition to being duped and used by Wall Street would be a good place to start.

Source: Desperate for Capital, the FDIC Backs Away From Tougher Rules Governing Private Equity Purchases of Failed U.S. Banks

“Investing in this market is like trying to take cheese out of a set mousetrap,” Chris Mayer begins today. “It’s very tempting to make a grab, but you are also fairly certain about what will happen if you do. The market’s 50% rise from its March lows is stunning. It’s like the cheese in the trap. But we also know that no market moves up like that for long. The kill bar is never far from such rallies.”

Check out Asia early this morning… you can almost hear that bar whipping through the air:

Today’s global stock sell-off really started on Friday, when the U.S. suffered its worst bank failure of 2009.Alabama-based Colonial Bank gasped its last breath late Friday. With roughly $25 billion in assets, it was the biggest bank failure since Washington Mutual back in September.

Like WaMu, the FDIC brokered most of Colonial’s burden onto another bank’s balance sheet. BB&T picked up the lion’s share. And just like the WaMu/JP Morgan deal, the FDIC greased the gears by including some kind of backstop provision. In this case, BB&T and the FDIC (read: your tax revenues) will enter a loss sharing agreement on $15 billion in shaky Colonial assets.

Colonial’s failure took a $2.8 billion chunk out of the FDIC’s deposit insurance fund. With just $13 billion left — at best — the fund is at its lowest level since 1993. Along with four other banks that failed over the weekend as well, the FDIC has closed 77 banks this year. One more and we’ve tripled last year’s count.
“The FDIC has been tardy in resolving banks and cleaning them up,” says Dan Amoss, “which will result in higher costs to the FDIC in the long run. Plus, with these ‘loss sharing’ deals (Colonial/BB&T), the FDIC is putting off the recognition of losses over a period of years, and its estimates of ultimate losses will likely be low, whether they’re ultimately absorbed by the deposit insurance fund or acquiring banks like BB&T.

“A perfect example is Integrity Bank in Georgia, which should have been shut down long before it was allowed to attract new deposits with high CD rates.

“Also, note to 5 readers: If your CD rates seem too good to be true, your bank may not be healthy, and you may have to deal with the hassle of not accessing your money while the bank is resolved.”

Dan has quite a knack for spotting bad banks. His Strategic Short Report readers bagged gains of 162% betting against Allied Capital, 220% on PNC Financial and the whopping 462% winner shorting Lehman Brothers. We just published his latest short-financial play… available to readers of The 5 for just $1.
Already anxious over Friday’s lousy U.S. consumer confidence number and Colonial’s failure, Chinese traders slammed the bid today on rumors that the Chinese government is going to tighten lending standards. No official word yet from Beijing, but rumor alone was enough to knock the Shanghai Composite down almost 6%. The Chinese benchmark is down 12% so far this month.
Thus, the foundation of the U.S. bear market rally is quickly eroding: The consumer is pulling back again, the banking crisis (as we noted Friday) is alive and well, and China — the world’s great hope for growth — is looking tired. Add all that up and the S&P 500 opened down almost 2% this morning.
“Investors might forget we’re in a bear market because investing this year has looked easy,” continues Chris Mayer. “Those who have missed out on the rally must be tearing their hair out. Their money burns a hole in their pockets.

“In fact, the evidence is that most investors have the attention span and patience of a field mouse. Here’s the average holding period for a stock on the New York Stock Exchange:

“What jumps out at you right away is that the average holding period is less than a year. That means that, on average, an ‘investor’ typically holds an NYSE stock for a matter of months. This is not investing, which is why I put the term in quotes. I don’t know what it is. Mindless gambling comes to mind.

“It’s no surprise that the last time we were down here was in the Roaring Twenties. We all know what that was the opening act for.

“This chart also speaks to a larger problem in the markets today — there are too few owners and too many renters. Just as in real estate, owners generally take better care of a property than renters. Why should it be different with companies?”

If you’re among the few long-haul investors left, you should team up with Chris. Check out his long-term “paycheck portfolio” here.
Commodities are under lots of pressure today, thanks mostly to Chinese investor anxiety. Oil’s down about $5 from Friday’s high, to $65 a barrel. Gold has fallen over $20 since Friday and goes for $932 an ounce as we write.
Thus, the dollar and U.S. Treasuries are today’s winners.The dollar index is up a full point, to 79.4. Bond demand has pushed the yield on a 10-year down 5 bps, to 3.5%.
Ben Bernanke is taking extra steps to save commercial real estate. The Fed announced this morning a three-six month extension of the Term Asset-Backed Securities Loan Facility (TALF).

The trillion-dollar program was set to expire at the end of the year. The Fed said today — conveniently, right before the market was about to open into a big sell-off — that it would bump the program back to June 31, 2010, for commercial mortgage-backed securities and to March 31, 2010, for other asset-backed paper. That should, in theory, encourage banks to securitize lots of new mortgage and consumer loans… the kinds they would avoid in a normally functioning free market. God bless the Fed!

The TALF has been in action since November 2008.
China’s sovereign wealth fund is preparing to buy up to $2 billion in U.S. mortgages. Having not felt quite enough pain from their Morgan Stanley and Blackstone investments, China Investment Corp. is rumored to be vying for a seat at the Public-Private Investment Plan — the yet-to-be-launched scheme the U.S. Treasury cooked up to get mortgage backed sectors off of U.S. bank balance sheets.
“We’re watching Far East telecoms,” Penny Stock Fortunes’ Greg Guenthner tells us. “Chinese Internet population is increasing at an astronomical rate, growing 42% last year alone, to nearly 300 million users, according to the China Internet Network Information Center. Now the government is setting its online ambitions toward the countryside, vowing to hook up every village with broadband lines by 2010.

“Still, the region’s penetration rate is only 17%, compared with 75% here in the U.S. The opportunities are boundless.

“Most of the time, backdoor plays offer the largest profits in growth industries like this one. Sometimes, however, a straightforward approach is your best chance at the quickest gains. This is one of those times.

“Take China Mobile, for instance. This telecom behemoth is the most obvious play in the region. In the last three years, the company doubled the number of subscribers and grew its bottom line 107%. That’s a rare feat for a $230 billion company.

“China Mobile’s growth is impressive, but it’s nothing compared with what a small-cap player can do in this field. There’s plenty of room to grow in the telecom industry of the Far East.

“That’s why we’ve been looking for under-the-radar Internet providers in Asia. And we just we found a beauty.”

Want the ticker? Subscribe to Penny Stock Fortunes here.
Japan has joined the ranks of recession-emerging nations. This morning, the Japanese government claimed the country’s GDP grew 3.7% in the second quarter. That puts an end to a five-quarter losing streak and the longest period of Japanese GDP contraction since World War II. As with Germany, France and Hong Kong last week, there’s little expectation for Japan to maintain this growth in the coming quarters.
Employees of the Chicago city government might be reading The 5 in their pajamas today. In a sign of the times, the city closed up shop to help close its budget gap. Running a skeleton crew will save ’em about $8 million a day
Last today, another strange reoccurring theme: Even the dead can’t escape the credit crisis.

An LA widow is auctioning her husband’s famous gravesite so she can afford the mortgage payments on their $1.6 million house.The deceased, Mr. Richard Poncher, is a relative unknown. But you might recognize the tenant immediately below his crypt:

At the end of the eBay auction — currently up to $4.5 million — Mrs. Poncher will rip her hubby out of his resting place and deed the crypt to the whoever the winner chooses. Before you fret for Mr. Poncher, we should add that he bought the place from Joe DiMaggio and insisted he be buried face down, in everlasting creepiness.

The new tenant will have to share Marilyn with Hugh Heffner, who has the crypt next to her reserved.
“Are you serious?” a reader asks. “How can this recession/depression possibly be over?” We enjoyed an overwhelming response to Friday’s issue, when we asked you to guess when the government/NBER would claim the recession is over.

“The causes of this man-made disaster have not been addressed and the same banksters-political class-financial oligarchy are still actively proceeding backward with their own hidden agendas. To quote Albert Einstein: “Never expect the people who caused a problem to solve it.” In other words, business as usual on the USS Titanic with its numerous enormous self-inflicted holes. Full speed ahead to the 1930s.”

The 5: We’re not suggesting it’s all sunshine from here on out. Here’s an example of someone who was closer to “pickin’ up what we were puttin’ down”:
“By my statistical analysis, the recession ended in May of this year; and that’s the good news,” he writes. “The bad news is that the DEPRESSION began in the following June. If anyone believes these smoke blowers at the gov’t and/or financial institutions (perhaps that’s redundant), they deserve what is upon us. It is not all sweetness and light. Bitterness and dark is the life we will lead until we restructure and begin the long pullback.”

The 5: Not a bad guess. Off the cuff, the average guess for when the government/NBER will officially declare an end to the recession is around November 2009. Most readers added that it won’t feel like it’s over for years to come. Lots of double-dip guesses too, which seems to make a lot of sense these days. And there were outliers, of course, which we’d be remiss not to share:
“2015,” a reader wrote. “No sooner — no way. Expect to defend yourself. It will get ugly.”
“It will officially end sometime in 2025-2028,” declared another.
“This depression should end technically around mid-2016 with the Dow under 1,000,” opined another. “So-called normalcy will not return until the mid-2020s. God only knows what this country will look like when it’s all over. Good luck to us all.”

Source: Global Sell-Off, Long Haul Investing, A Small Cap Opportunity, Commercial Real Estate and More!

Since the Great Depression, a period marked by widespread runs on banks, the FDIC has done a good job of fulfilling its mandate. So how are they doing in this crisis?

In a nutshell, they are in trouble.

The FDIC insures 8,246 institutions, with $13.5 trillion in assets. Not all of them are going bankrupt, of course. Yet as of late July, a disturbing 64 banks had gone belly up this year – the most since 1992 – costing the FDIC $12.5 billion. At the end of Q1, the agency was already asking for emergency funding.

And worse, much worse, is likely yet to come. The following chart shows the total assets on the books of the FDIC’s list of 305 troubled banks. The list doesn’t include the biggest banks that are considered too big to fail, as they are being separately supported with bailouts. By contrast, if the banks on this list fail, the FDIC is on the hook to have to step in and take them over and, of course, make depositors whole.

Other measures of how serious the losses at banks are becoming can be seen in the chart below, which shows charge-offs and non-current loans at all banks. You can see that the Net Charge-offs remain stubbornly high, with banks charging off almost $40 billion in bad loans in the last two quarters alone. And the number of non-current loans – loans where payments are not being kept up – is soaring.

Together, these measures indicate the potential for more big failures and more big bailouts coming down the pike.

Into the battle against bank insolvency the Fed brings a level of reserves that can best be described as paper-thin. From almost $60 billion last fall, the FDIC’s reserves have been drawn down to only about $13 billion today, a 16-year low. A quick look at the FDIC’s own data shows us how inadequate those reserves are compared to the deposits they are now insuring.

The chart below says it all:

As you can see, the Federal Deposit Insurance Corporation currently covers each dollar on deposit with a trivial 2/10ths of a penny.

And even that understates the seriousness of the situation: the $4.8 trillion in deposits the FDIC is providing coverage on doesn’t include the expansion that now extends insurance coverage from $100,000 to $250,000 for normal bank accounts. That likely brings the exposure of the FDIC closer to $6 trillion. But that’s pretty inconsequential at this point: using any reasonable accounting method, the FDIC is already bankrupt and will require hundreds of billions of dollars in government bailouts just to keep the doors open.

So, given the dire shape of its finances, what measures is the FDIC taking, you know, to batten down the hatches and all that?

For starters, they are expanding their mandate by guaranteeing bank loans – $350 billion and counting at this point. And the government has tapped the FDIC to play a pivotal role in guaranteeing the loans issued to buy toxic waste through the government’s highly problematic and fraud-prone new Private Public Investment Partnership (PPIP). The FDIC’s commitment to the PPIP is and may become limited based on its resources.

It is hard to draw any other conclusion but that hundreds of billions in new funding will be required to keep the FDIC operating. Given the catastrophic consequences of the FDIC failing, starting with a bank run of biblical proportions, there’s no question it will get whatever funding it needs. By loading the new loan guarantee responsibilities and the PPIP onto the FDIC’s back, the administration will go back to Congress and ask for the next large bailout.

Of course, in the end, all of this falls on the taxpayer, either directly in the form of more taxes or indirectly via the destruction of the dollar’s purchasing power. Another bale of straw on the camel’s back, and another reason to be concerned about holding paper dollars for the long term.

Regards,

Bud Conrad

Source: The FDIC is in Trouble

“[We] must control the risk of real estate loans,” said a mystery banker. “In the first half of the year, our country’s banking loans expanded rapidly… but the loans growth has led to accumulated risks also increasing.” Our man of the moment said his banking sector had become “not prudent and impulsive” in issuing loans for new housing projects, many of which have falsified their capital levels to meet current standards. He urged lenders to “strengthen risk management” right way, before they loan themselves into poor credit positions.

So who is he? Robert Shiller, who just recently suggested another housing bubble could be in the mix? Or maybe some vintage Ben Bernanke, circa 2007? Nope… Liu Mingkang, the head of China’s version of the FDIC, said the above over the weekend at a conference in Beijing. China bulls take heed.

And at the risk of belaboring the obvious — he’s Chinese. We know what kind of exigency would get an American regulator to speak out against a bubble in the making. We imagine it’s far more politically dangerous for a member of the Chinese government to publicly go against the grain.
Back in America, the housing market rejoices: Housing starts climbed an unexpected 3.6% in June. According to the latest from the Commerce Department, builders broke ground on new homes at an annual rate of 582,000 in June, well above the Street’s expectations and the “best” month for housing starts since November. Curiously, single-family homes led the way, with a 14% building boom from the month before. That’s the biggest one-month gain since 2004.

Of course, this is a “signal that the housing market was improving” in June, as The New York Times suggests. But we dug up a longer-term chart of housing starts this morning that didn’t inspire as much confidence. Starts may have come up from the deep blue abyss, but we’re yet to emerge from uncharted waters

And who says more housing starts are a good thing? We may be market simpletons, but we’re under the impression home prices are falling because demand is exceptionally weak and supply is exceptionally high. So explain to us again how adding more inventory to the 3.8 million existing homes on the market helps stop the bleeding.
Over 1.53 million homeowners were in the foreclosure process in the first half of 2009. That’s an all-time high, said RealtyTrac late last week — and up 9% from the last half of 2008 and up 15% from the same time last year.

Around 1.9 million individual properties are in some form of foreclosure, or one in every 84 U.S. properties. And we’re adding new homes at an annual rate of 582,000? Really, we must be missing something this morning.
The stock market is still giddy over recent earnings surprises. The S&P 500 finished last week up 7% after companies like Intel, Goldman Sachs, JP Morgan, IBM and Citigroup all beat earnings.

Today the market looks poised to finish in the black again. CIT, the commercial lender we discussed Friday looks like it might live to fight another day. The lender managed a last-minute debt-equity deal with bondholders that will give them another $3 billion to play with. (Look for this crisis to repeat in a couple weeks.) Still, the market has dodged a bullet, and is up about 0.5% as we write.
“In last week’s market, you could almost feel portfolio managers reacting to the prospect of missing a rally,”writes Dan Amoss, a former money manager himself. “Career risk drives many irrational investing decisions. And missing out on a rally is a cardinal sin for portfolio managers. This goes a long way toward explaining this week’s rally.

“The consensus seems to be looking for a return to something resembling the environment before the credit crisis. They’ll be waiting for a long time. Sure, there are still lots of wealthy people. But the essence of the financial crisis has to do with most consumers and businesses stretching their budgets and capital spending plans in unsustainable fashion. The next few years will reverse this trend, and we’ll continue to see economic development in emerging markets maintain pressure on commodity prices.

“Mr. Market is now testing the conviction of the bears. But through the rest of 2009, the momentum favors the bears. The stock market is far below its peak, but this is justified by long-term fundamentals. In fact, the recent rally has priced in very rosy earnings for many sectors and stocks, including our short ideas.

“Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.”
Four more banks failed this weekend. Two in California, one in Georgia and another in South Dakota got the FDIC kibosh late Friday. That makes 57 failed financials for 2009, at an FDIC cost of over $13.4 billion.
After a long flight from Baltimore to Vancouver, we were able to move through Canadian immigration last night with relative ease, but many Czechs and Mexicans were suddenly not welcome. Just another sign of the times… the Canadian government recently legislated rules that prohibit any Mexican or Czechoslovakian from entering Canada without a visa.

Canadians say political and economic strife in both nations has caused a wave of immigrants seeking refugee status, many of which are bogus. So the Canadian government drafted the law last Monday and enacted it on Tuesday… Canadian diplomats in Mexico City have been ripping their hair out ever since:

The scrum for last-minute visas at the
Canadian embassy in Mexico City

Heh, nothing stokes a free market like sudden and severe travel restrictions.
We’re in Canada this week for our Investment Symposium (more below in the P.S.) and got a visceral reminder of the loonie’s recent strength. 98 cents to the U.S. dollar at the airport currency exchange! No thanks… we’ll wait till we stumble upon a bank.

The Canadian dollar is once again rapidly approaching parity. The ol’ loonie is officially at 90 cents today, up a full cent since Friday and about a nickel in July. Most of the loonie’s strength can be attributed to dollar weakness. Since breaking through that historic barrier at 80 last week, the dollar index has been in steady decline. It’s at 78.9 today, nearly a two-month low.
Oil’s recent stabilization has been helping out the Canadian dollar, too. Light sweet crude traded as high as $64 a barrel today, a $4 bump from last week’s low.
Gold is performing nicely as the U.S. dollar falls. The spot price is up $20 from Friday’s low, to $955 an ounce.
“The first thing to understand,” writes Mr. Byron King, “as an old geology professor at Harvard once told me, is that ‘gold is where you find it.’ And the second thing to understand is that no matter where you look, gold is hard to find — and getting harder.

“In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

“But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.

“I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?”

If it does, will you be ready? Check out Byron’s favorite gold plays here.
“To back up Mr. Shiller,” writes a reader in response toRobert Shiller’s call that the new wave of “cheap” homes might cause another housing bubble, “I was Skyping a friend in Phoenix last week, and they were all excited that they just bought a foreclosed home for a ‘steal,’ with an 80/20 FNMA-backed mortgage. Not five minutes later, I read the 5 article regarding that the Phoenix market is still dropping. I still don’t think that many people (my friend included) get it that prices can still drop, and that just a 10% drop wipes out almost all their equity, since they will have to pay some sort of 6% commission. I myself have seen a greater than 20% drop on my very expensive house in Atlanta, costing me hundreds of thousands of dollars.

”My wife is an agent, and she has counted three (yes, three) home sales in our area in six months. Two of them were foreclosures. The unsold homes continue to accumulate, and the market is moving toward ‘the only sale is a short sale.’ I live in Augusta, and my prayers go to my neighbor who was just transferred up to an area outside of Detroit. I can see the wealth destruction personally, and can only imagine the nationwide ramifications.”

Source:   China’s Bubble Warning, New Home Paradox, Gold Production Sea Change, Vancouver Updates and More!

Washington regularly moves entire cadres off the unemployed list, once they are satisfied that they have no hope of finding employment.

I could reference the latest report from the American Bankers Association, which warns that adding 6 million to the unemployed rolls has driven consumer loan delinquencies to an all-time high. The ABA notes that the number of borrowers behind 30 days or more has risen to 3.22% while the amount of money that is overdue has risen to 3.35%.

The credit card situation is even worse: 4.75% of all accounts are now delinquent, as compared to 4.52% in the previous quarter. And the balances on those delinquent accounts is up 108 basis points to 6.60% of the value of all outstanding bank card debt.

I suppose I could list the seven banks that the FDIC has closed in July. Or all 52 that failed in 2009. Or even the 80 financial institutions that have been shuttered since the crisis began back some 19 months ago.

“We misread how bad the economy was.” – Vice President Joe Biden

It would not be difficult at all to go on like this at great length.

My desk is awash in such depressing reports. I am literally drowning in ugly economic statistics. Even the spinmeisters in Washington are conceding that its “green sprouts” are shriveling up. Turns out, the situation is considerably more dire than anyone predicted, and the stimulus is not working.

Of course, Washington’s solution is to borrow even more, spend even more, regulate even more, and keep interest rates at zero for the foreseeable future, because in the end, it’s the only trick they know.

But all that generalized economic pain and degradation is not what I wanted to bring to your attention today. Rather, I wanted to point out a specific news item I have found, buried on page six as it were, that has the hairs on the back of my neck standing on end.

Bad Medicine Indeed

Remember all those awful mortgage-backed securities that were blamed for laying Wall Street low in the first place? The toxic assets that the TARP fund was supposed to buy up, except that no one could figure out how to price them or break them up, so they are still rotting away in Wall Street’s dank basement?

Guys in New York got fired for inventing them, right? Heck, guys in Asia got shot for buying them! And it seems like no one can figure out what to do about these ugly tar babies.

As the evil genius in the old serials used to say: “Maybe yes – and maybe no.”

This brings us neatly to our friends at Morgan Stanley (MS:NYSE), who are in a bit of a pickle. They would dearly like to go back to the good old days of million-dollar bonuses. In order to do that, they have to ditch their Washington nannies by paying off some $10 billion in TARP loans.

The Fly in Their Pudding

Problem is, this massive payout would cause them to come up short for the third quarter in a row, to the tune of some -32 cents a share. (Or maybe even -50 cents a share: depends on whom you ask). And then there’s all those “shriveled brown shoots” of economic overhang.

Investors want to know how the heck the bright boys at MS are gonna fill a hole like that. And if they don’t get a good answer but soon, they are going to cut MS shares in half.

But these folks are America’s best and brightest, right? So they have come up with a really cool solution. They are going to pedal off $130 million in collateralized debt obligations or “CDOs.”

Sorry about that. Let me give you a moment to wipe up the coffee you just spit out your nose.

Didn’t Kill Us the First Time, So Why Not Try It Again?

Here are the details on the scam (courtesy of a trio of investigative reporters at Bloomberg). The bonds were the result of some sort of squirrelly deal between Goldman Sachs (GS:NYSE) and a private New York outfit called Greywolf Capital Management.

As is, the horrid things were worth zilch. That is, after all, why the world’s biggest institutions have taken $1.47 trillion in write-downs and losses on CDOs and their ilk.

But with a cut here, a snip there and a little paint, and Shazam! Now you’ve got $87.1 million in AAA-grade bonds and $42.9 million in bonds Moody’s has labeled “Baa2,” a polite Wall Street euphemism for “toilet paper.”

What! You say you don’t have any faith in this magical transformation? Don’t feel bad. Neither does anyone else.

You Can’t Fix Stupid, But You Can Sell It Short

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Here is your Technical Chart for Morgan Stanley (MS:NYSE), showing the breakdown signal as traders began to head for the exits. It generously posits support at $22.63 and $20.26. A rebound off either of these levels could still be construed as bullish in the long term.

However, should this short-term drop build some real strength, a genuine fall from grace could see MS shares hit $16.12 with relative ease. And I should like to point out that a 37% drop like that could power select put options up to 191% gains.

Source: How to Dine in High Style on Shriveled Brown Sprouts

Are we reading this right? The new president wants to give the Federal Reserve… more power?  The very body that’s easy credit policies over the past 15 years helped fulminate the largest speculative bubble in history… could soon oversee nearly every major company in the U.S.?

In a surprisingly brief (for Washington standards) 88-page plan released yesterday, President Obama revealed the first steps toward the biggest financial overhaul since post-Depression reform. We could fill the next five minutes with juicy bits from the plan, but here are just the ones that made us choke on our morning brew:

• The Fed — already the controller of money supply and interest rates — will be given “authority and accountability for consolidated supervision and regulation of Tier 1 FHCs.” And what the hell is a Tier 1 FHC? Glad you asked… it’s ANY company “whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness.” In simple terms, the Fed will become the master of all things “too big to fail”

We’re with you, Ben… scares us too

• The FDIC (and maybe the Treasury) could have a third option for failing companies. Not content with just the “big bailout” or “let ’em fail” options, the plan proposes to allow federal regulators to overtake failed companies and sell their assets to investors, much like the FDIC already does with dead banks
• The private sector gets the regulations you’d expect… higher capital requirements at banks, tighter borrowing standards at mortgage lenders, lots of restrictions on complex derivatives and so on… typical reactionary reform. But one notably absent smackdown: rating agencies will be untouched
• The Office of Thrift Supervision is the fall guy. The OTS will be abolished under the plan, thus taking the blame for nefarious companies it oversaw like AIG and WaMu. Years of free money interest rates from the Fed, all the blundering bailouts at the Treasury and the total inadequacy of the SEC will go unnoted. In fact, all three of those agencies are getting more money and responsibility. Par for the course in 2009… the bigger your failure, the greater your reward.

And just one more… we can’t resist. A whole new bureaucratic arm will be created: the Consumer Financial Protection Agency. You see, it’s not our own fault that millions of Americans signed up for liar loans, high-interest credit cards and no-money-down adjustable-rate mortgages. It’s those damn predatory lenders! Thus, this new office will be tasked with saving us from ourselves. Best of luck.
We’re premature in passing judgment on this reform. After all, it’s yet to pass through the slimy halls of Congress. When Hank Paulson proposed the three-page, carte blanche TARP, it came out of the Senate 448 pages heavier, with such memorable additions as the “exemption from excise tax for certain wooden arrows designed for use by children.” We’ll let you know how they manage to “improve” this proposal.

For more, and how you can voice your opinion on this matter, check out the reader mail at the end of today’s issue.
Oy… even Larry Kudlow gets it.

The stock market gave lukewarm approval to the new array of reform. Its announcement pulled markets from a loss to a flat close yesterday. And this morning, Tim Geithner’s explanation of the various regulations before Congress is helping pull indexes up to about a 1% gain. Still, for the week, the S&P 500 is down 2.5%.

“No market goes straight up,” says one of our options traders, Wayne Burritt. “That’s why pullbacks like the one we’ve experienced over the last few days are not only natural, but welcome.

“When markets take a break, they give new traders and investors a chance to jump in at lower prices. That provides new buying pressure for a new bull run down the road. Plus, they give traders a chance to bank some cash, another positive for sure.

“The S&P 500 has had quite a challenge getting and staying above the important 944 level. That level — which the market first failed to eclipse on Jan. 6 — has proved to be a stubborn resistance level. In fact, if you take a good look at the market’s action prior to the recent pullback, you can clearly see that 944 continues to be a sticking point.

“But here’s the key: While we’d love to see the market blow through 944, the fact that it continues to take shots at that level is a positive: Repeated attempts — even if they haven’t yet succeeded — are a clear sign that U.S. stocks aren’t about to give up. And that means it’s only a matter of time before 944 is history. And once that happens, hold onto your hats . The charge higher could be spectacular.”

If you’d like to be prepared for another leg up, Wayne’s Easy Money Options would be a great place to start. It’s an affordable, simple guide to the complicated options trade. Details here.
Traders understandably sold the dollar yesterday. Right as President Obama announced his financial reform, the dollar index plunged half a point, to just above 80, where it remains today.
“The dollar lost over 95% of its purchasing power in the 20th century,” notes Chris Mayer. “And arguably, that was during a century when it was harder to debase the currency than it is now, as the gold standard — or some variation of it — served to check government spending at different points along the way. It seems hard to do worse in the 21st century, but I think we will manage it.

“Inflation — rising prices, or a drop in the purchasing power of the dollar — will soon rise to the very top of economic concerns. I can’t understand why there are pundits who insist we can’t have inflation while the economy is weak. There are plenty of examples of weak economies with high inflation. After all, I don’t think they are hitting on all cylinders in Zimbabwe, where inflation is thousands of percent.

“As an investor, the way to bet is for the dollar to lose value as it has for a century. A couple of places that look to hold their value in the face of a dollar decline: agricultural goods and energy assets.”

You can find lots of those assets in Chris’s Special Situations portfolio… currently available for just one dollar.

But just because the dollar is down today doesn’t mean the euro is sitting pretty. The euro is bogged down at $1.39, nowhere near its recent highs, thanks mostly to this:
Banks in the eurozone could face another $283 billion in write-downs this year, warned an European Central Bank report this week. It’s latest “Financial Stability Review” found, well, anything but financial stability in the region. The ECB said “uncertainty prevails” over the whole system… hundreds of billions in losses could still be around the bend.

“Some news sources are reporting that the eurobanks’ toxic exposure liabilities are at $5.3 trillion,” adds our currency man Bill Jenkins. “Now, my figures, based on other research, were considerably higher, but if we take the more conservative stance, that $5.3 trillion is greater than the GDP of Germany, the eurozone’s largest economy, and fully 25% of the whole ball of wax.

“And folks still feel they will fare well in a race against the dollar? I’m thinking I might leave my $2 on Uncle Sam’s entry. Of course, I’m not a big U.S. dollar fan, but we’re in this to make money. And pulling bets off a horse with a bum leg is a dumb move if you put your money on a horse with two bum legs!”
This part we don’t get: Give the Fed — the world’s most prominent debaser of the U.S. dollar — extra power and gold doesn’t budge? Alas, that’s the case today… the spot price has been bouncing between $930-940 for the last few days.
“My fair value of gold for 2008 was $763 an ounce,” Paul van Eden wrote in The Daily Reckoning. “Using the average of 2008 and 2009’s inflation rates for the U.S. dollar, and gold’s inflation rate for 2008, I come up with an approximate average value for gold of $815 for 2009. Please note that this is an estimate of the average value for the year, and not a year-end estimate.

“Clearly, the gold price is well above $815 an ounce, and has been so for quite some time. The macroeconomic environment has probably never been so obviously in favor of gold, and it is my belief that the market has already priced much of this into the gold price. While I fully recognize gold’s lure at these times, and the probability that the gold price could still increase quite substantially, I remain cautious about gold. Recall that investors who bought gold when it was grossly overpriced during 1979 and 1980 and then forgot to sell suffered severe losses.

“I would personally prefer gold to sell down to around $800 an ounce, where I know it represents good value, than buy gold at overvalued prices and hope that it keeps going up.”

You can count on the same sober, well-reasoned advice from Paul at this year’s Investment Symposium, where he’ll be one of many esteemed speakers. Seats to our July shindig are filling up fast… reserve yours, here.
Other commodities are struggling to forge ahead today. Oil’s stuck at yesterday’s price, $71 a barrel. Ditto with more industrial commodities like copper, lead and aluminum… all at a near-standstill.
Standstill is the name of the game in economic data today too. The only A-list release, jobless claims, remained almost exactly at last week’s levels. Initial claims for unemployment benefits rose just a bit, to 608,000. The Labor Department said continuing claims fell a skosh, to 6.68 million.

That would technically end the remarkable 19-week streak of record-high claims for unemployment… but we’re not taking the bait so easy. The Labor Department pulled the same move two weeks ago, only to later revise their number and keep the streak alive. We’ll keep an eye out for changes next week.
“Obama’s plan,” a reader writes, “to give the Federal Reserve Bank the power to regulate the entire financial sector is completely outrageous. This is the classic ‘fox guarding the henhouse.’ I do not want a bunch of greedy private bankers getting any more power than they already have, I am talking about the private Federal Reserve, for those out there who don’t know that the Fed is a private institution. Alan Greenspan admits on CNN’s Larry King Live that the Fed is above the law. This is why Ron Paul’s bill to audit the Federal Reserve is so important. Its books have never been opened to anyone outside the Fed.”

The 5: We’re with you… support his bill, HR 1207, right here.

Source: Empower the Fed? Details of Obama’s New Plan, Inflation Forecast, Gold Advice and More!

Treasury Secretary Timothy Geithner said to the Senate Banking Committee that he expects the programs to start by early July, Bloomberg reported.

“Working with the Federal Reserve and the FDIC, we expect these programs to begin operating over the next six weeks,” Geithner said in prepared testimony.

The Public-Private Investment Program is a coordinated effort with the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) to help banks sell as much as $1 trillion in distressed mortgages and other assets.

Announced in March, the Public-Private Investment Program will be funded with $75 billion to $100 billion of U.S. Federal Reserve and Federal Deposit Insurance Corp. (FDIC) debt guarantees, as well as the funds remaining in the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).

Geithner is betting this plan will finally establish market values for the toxic debt left over from the U.S. housing bust, and that getting the private market involved will minimize the risk that taxpayers will overpay for assets.

“Leverage has declined, the most vulnerable parts of the non-bank financial system no longer pose the same risk, and banks are funding themselves more conservatively,” he said.

TALF Expanded, TARP Reserves Revised

Earlier this week, the Federal Reserve announced it would add older real estate to TALF. And Geither reiterated that the Treasury and Fed intend to expand programs to help asset-backed securities markets, such as TALF, Bloomberg reported.

“The Treasury and the Federal Reserve will continue to monitor and enhance the ABS programs to bring in new, more niche asset classes and make sure that the number of eligible borrowers and issuers continues to increase,” Geithner said.

In late March, the Federal Reserve kicked up TALF’s capacity from $200 billion to $1 trillion and began accepting mortgage-related securities as loan collateral.

Geithner also said the Treasury has about $124 billion of the $700 billion Troubled Asset Relief Program (TARP) left, $11 billion less than his previous estimate in March. He also said he expects about $25 billion to be repaid over the next year.

Source: Treasury Selling As Much As $1 Trillion in Bank Assets with Fed and FDIC

The Silverton Bank was supposedly a key cog in the Southeast, according to the Wall Street Journal, and bankers in Georgia are saying that Silverton’s collapse could take down at least 8 to 12 other banks with ties to Silverton. Domino dancing…
(All day, all day) Watch them all fall down
(All day, all day) Domino dancing
(All day, all day) Watch them all fall down
(All day, all day, domino dancing)

I’m not being flippant about this folks… I’m trying to point out that the rot on the vine is deeper than the media and the leaders of this country would have you believe them to be. I keep coming back to that interview with Ron Paul that I saw in March, where he said, “people are saying that problems in other countries are worse than ours… Those people are wrong!”

Oh, and did you hear that Boston’s most storied newspaper, the Boston Globe, is going to be shut down? And one more item… Those “stress tests”? Well, wouldn’t you know it, the results are being delayed, due to the Banks debating the findings… Well, they have that right to do so… Maybe, the regulators didn’t understand something in their accounting methods, or something like that… Unfortunately, I believe the banks’ debating will be like arguing with an umpire over balls and strikes!

OK… Enough of the blood in the streets! Let’s talk about some good things… Like last week when the Bank of Canada (BOC) decided to do a Nancy Reagan, and just say “no” to Quantitative Easing… Let’s hope they don’t end up with egg on their collective faces should they need to implement Quantitative Easing at some point in the future… But I’m sure they have weighed all the facts to this point. Canada’s Banks are in tip top shape, compared to their neighbors to the south, and I’ll explain this about the Canadian dollar / loonie once more for those new to class… When Oil returns to higher levels, the loonie will follow… This currency is so juiced by energy prices, and Oil is the Big Kahuna…

And remember what you heard here first, last month, and that is that China would be the first to come out of the economic doldrums… I had someone ask me last week, why I thought China’s stimulus worked better than anyone else’s… Ahhh grasshopper, I’ve explained that before… But again, it’s very simple… With China being a Communist Country, they can dictate not only to whom the stimulus goes to, but HOW the stimulus is used… Imagine if you will the initial $150 Billion that was sent out last spring… If there were stipulations on how it was to be spent, maybe you’d have something, or better yet… The initial $700 Billion in TARP funds… They didn’t have strings attached, and the receivers didn’t use the funds to loan out, as “requested by the Treasury”, they threw it in the nearly empty treasure chest and sat on it… See the difference in the two methods?

It appears that the so-called “decoupling” is back on the table, as China and India seem to be coming out of the economic doldrums long before the U.S., Europe, and Japan will… Hmmmm…

OK… The Chinese renminbi has begun to move higher again, just when everyone thought the Chinese would batten down the hatches on currency appreciation. This is only happening because the Chinese economy is beginning to show signs of improvement.

Those signs of improvement in China are doing wonders for the Aussie dollar (A$)… Don’t look now, but the A$ has climbed past 73-cents! Aussie’s kissin’ cousin across the Tasman, New Zealand, is not seeing the same kind of McLovin the A$ is seeing… The Reserve Bank of New Zealand (RBNZ) left the door open to further rate cuts last week, while the Reserve Bank of Australia (RBA) is giving signals that the rate cuts may be nearing an end. The Tale of Two Central Banks…

A long time readers sent me a link to a story on Morningstar regarding our fave shiny metal… Gold… Here’s a snippet…

“Jon Nadler, a senior analyst at Kitco Bullion Dealers, points out that all of the world’s above-ground gold amounts to around 0.6% of total global wealth, so even if gold were at $10,000 per ounce, the metal would only amount to 6% of total global wealth.” (I know Jon, so I just had to use his quote!)

Here’s another snippet from someone else… “Singapore, Norway, Saudi Arabia and other member nations of the Organization of the Petroleum Exporting Countries are likely already increasing their allocation to gold, or likely to do so in the coming months. They would be somewhat ignorant and financially and economically illiterate not to do so.”

Everyone at the Total Wealth Symposium in Bermuda last week was talking about Gold… I see that it has slipped back below the $900 level, which I have taken as the line in the sand for buying opportunities… Could it go lower? Of course it could, but that wouldn’t change my mind as far as a sub $900 level being a buying opportunity to get it cheaper than where most people see it going…

Did you see that China announced last week that they had increased their holdings of Gold by 76% in the past 6 years? Hmmm… No wonder the last 6 years have been so kind to holders of the shiny metal, eh?

And… How about this for some “good news”… Ford outsold Toyota in April! Now, that’s something you don’t see every day! Well, maybe when Ford was selling their pick-em-up trucks like funnel cakes at a state fair… But not often, at least not to my recollection.

OK… The data cupboard is pretty feeble this week until we get to the end of the week, where the April Jobs Jamboree gets printed. We’ll see Pending Home Sales, Construction Spending today, and then not much, until later in the week… The initial forecast for jobs in April are showing a job loss of 606K… The weekly numbers show this forecast to be quite understated… But, as I’ve explained many times in the past, the Bureau of Labor Statistic (BLS) doesn’t use those Weekly Initial Jobless Claims… The BLS uses a survey of corporations, and then puts the survey in their witch’s caldron and stirs in the Birth / Death model, and comes out with “their number”…

Bad news for my little river town this past week, as Chrysler closed down the plant that had been operating in our city since the 60’s. Good thing we decided back in the late 90’s to diversify our income stream in the city! I was an alderman then, and recall this to be my greatest fear, that the city depended on one corporate entity so much… And the alderman at that time made great strides to diversify the city’s portfolio of income streams… So… That today, when the bad news hits, it doesn’t hit as hard as it would have if no diversification had taken place. You see… The overall risk to the portfolio was reduced!

Well, what does that lesson teach us? It should teach us the diversification is the most important monetary thing anyone should be thinking about! Diversification so that the asset classes in your portfolio have a low correlation to one another. That they have different pricing mechanisms. Currencies and metals represent the best diversifying assets to your already existing portfolio of stocks, bonds, mutual funds, and land… It is a proven fact that by adding currencies and metals to a portfolio, you will reduce the over risk in the portfolio! And…. Remember… 94% of a portfolio’s return is based on asset class selection…

Just thought I would give you an example of diversification in real life, and then apply it to the lesson for today… That’s how I always tried to explain things to my kids, and the older two are teachers today, and probably use the same methods for explanation!

The U.K. is on holiday today, as they decided to do May Day on the 4th! Either way, it was a 3-day weekend for those that celebrated May Day!

Currencies today 5/4/09: A$ .7330, kiwi .5720, C$ .8415, euro 1.3230, sterling 1.4845, Swiss .8770, rand 8.38, krone 6.5750, SEK 8.08, forint 218, zloty 3.33, koruna 20.14, yen 99.30, sing 1.4815, HKD 7.75, INR 49.90, China 6.8220, pesos 13.76, BRL 2.1725, dollar index 84.77, Oil $52.89, Silver $12.61, and Gold… $890.60

Source: The Rot On The Vine Goes Deeper

]]> http://www.contrarianprofits.com/articles/the-rot-on-the-vine-goes-deeper/16138/feed 0 http://www.contrarianprofits.com/articles/global-investment-news-briefs-wednesday-april-22-2009/15836 http://www.contrarianprofits.com/articles/global-investment-news-briefs-wednesday-april-22-2009/15836#comments Wed, 22 Apr 2009 14:02:38 +0000 William Patalon III http://www.contrarianprofits.com/?p=15836 Bellwethers Report Disappointing Earnings; Morgan Stanley on the Hunt for Regional Banks; NYT Reports Loss; Pentagon Computers Hacked; FDIC Ready to Replace Pandit; TARP Faces Fraud; Financial Institutions Lost $4.1 trillion; India Cuts Rates

• A parade of bellwether U.S. companies reported disappointing earnings results yesterday (Tuesday) and cut their outlook for the future. Caterpillar Inc. (CAT) reported its first loss since 1992 and cut its projection for the full year by 50%. Pharmaceutical giant Merck & Co, Inc. (MRK) and chemical maker E.I. du Pont de Nemours & Company (DD) said profits fell 57% and 59% respectively, as both cut forecasts for the full year.
• After acquiring Citigroup Inc.’s (C) Smith Barney retail brokerage unit, Morgan Stanley (MS) is considering buying U.S. regional banks in a move…