New Warnings About The Canadian Housing Bubble "About To Burst"

There is a popular financial blogger that has kept calling for the Canadian housing bubble to burst, but has said so for quite some time. He may get more ammuniation now that a  research firm warned that "Canada's housing market is in a bubble that's set to burst and prices could plunge by as much as 25 per cent".


Capital Economics says: “Housing valuations have lost all touch with fundamentals and household debt is at a record high,”
“Our fear is that, with the housing bubble now close to bursting and commodity prices retreating, Canada will go from leader to laggard.”

They says house prices could fal by as much as 25 per cent over the next three years.

Canada’s economic success could "become the thorn in its side" as the threat of a downturn in the housing sector looms. A domestic housing boom coupled with high commodity prices worldwide have spared the economy the severe recession felt by other developed countries.

The report adds that Canadian house prices are overvalued by approximately 25 per cent, close to excessive levels seen in the frothy U.S. market at its 2006 peak and that over-building is already visible; the number of unoccupied houses and condos is at a record high. It "closely resembles the 1994-95 housing slump", when the construction industry experienced a severe downturn.

Canada Says Oil and Energy Shortages Could Cause Wars

Canada's Department of National Defence has just released an analysis thatsays that critical energy and water shortages combined with climate change could cause wars within the next 15 years. The news is from the Ottawa Citizen.

Maj. John Sheahan wrote in a draft version of the report "Army 2040": First Look "Global reserves of crude oil could become problematic by 2025,"  "This implies that (barring the discovery of significant new reserves, and barring the adequate adoption of substitute fossil fuels or alternative fuel and energy sources) critical energy shortages will develop in the time frame of (and perhaps prior to) 2025."

Peak oil: The analysis notes that alternative fuels and energy may not be enough to respond to rising demand for energy that is forcing oil production to reach its capacity, given ammunition to the "peak oil" crowd.

"There can be little doubt that unrestricted access to reliable energy supplies is a global strategic issue, one for which, recently, numerous nations have been willing to fight, and have indeed done so," "Thus the trend that envisions depletion of fossil fuels such as crude oil in coming decades may also contribute to international tensions if not violent conflict."
Water. The problems China faces with water are well known. The analysis warns that up to 60 countries may suffer from water scarcity or stress by 2050. Water is "a key source of power" or a "basis for future conflict."

Global warning: It adds that there "can be no further debate that global climate change is occurring." It would turn the phenomenon into a "shock" and not just a driver of change", with crop failures, mass migrations and starvation, rising sea levels from melting ice caps and other factors, would be among the impacts.

"These sorts of changes could lead to impacts resulting in the abandonment of large urban and cropland areas, further aggravating a broad range of existing resource scarcities,"
Melting Ice and Canada: The report mentions that melting ice in the North and the potential reserves equivalent to as much as 22% of the world's fossil fuels, could also create challenges for Canada in the Arctic.

Emerging Nations: The rise of emerging nations would also increase demand for resources in the coming years (with Canada being replaced as the main trading partner of the United States beyond 2030).

Human creativity: On the positive side, it mentions that humans could help avert potential disasters in the future.

"Collective human wisdom and judgment will be crucial in shaping (science and technology) progress and developments in ways that deliver the greatest benefit to humanity while avoiding conceivable catastrophes,"

Fed to Buy $300B in Treasuries To Keep Interest Rates Low, While BIS Says Rates Should Rise To Control Inflation

The headlines are all over the palce today, giving very conflicting "news".

The Bank for International Settlements, BIS,  said that central banks need to start raising interest rates to control inflation and may have to act faster. From its annual report: “Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks,” “Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.”
“Global inflation pressures are rising rapidly as commodity prices soar and as the global recovery runs into capacity constraints,” “These increased upside risks to inflation call for higher policy rates.”

Inflation

Jaime Caruana, the BIS General Manager said global headline inflation has risen 1% to 3.6% since April 2010. At the same time, short-term interest rates adjusted for inflation “have actually fallen in the past year, from minus 0.6 percent to minus 1.3 percent globally,”
“The world economy is growing at a historically respectable rate of around 4 percent,” “The resurgence of demand has put concerns about deflation behind us. Accordingly, the need for continued extraordinary monetary accommodation has faded.”

However, today Reuters reports that the Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of QE2, as the central bank "uses its $2.86 trillion balance sheet to keep interest rates low".


The Fed said last week that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. "That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system".

Nothing here is really new. Rates cannot rise as the world recovery is extremely fragile, while food and energy inflation are having a an effect on people's purchasing power. This is also why we see strategic oil reserves being released.

Asian Countries Also Release Oil Reserves: Equivalent to $140B Stimulus

Asian countries followed the IEA's lead and are also releasing emergency oil stockpiles in a rare global coordinated action to boost the sagging global economic recovery.

JPMsaid even some cooling effect on prices "would prove a boon to the world economy": "If our projections are realized, the IEA release provides the equivalent of a $140 billion stimulus to consumers,"  "The release will prove stimulatory to the global economy, particularly for emerging markets and the U.S."

Oil prices fell sharply to a four-month closing low on Thursday, then rose overnight, only to fall again today after the Asian news.
IEA Asian members Japan and Korea said that from next week they will start releasing oil reserves in line with the agency's targets. Japan will cut the reserve requirement for oil companies by 7.9 million barrels over the next 30 days and South Korea will release 3.46 million barrels, together providing about 19 percent of the IEA target.
Some analysts say the IEA decision will only have a short-term impact on prices becuase oil faces an incremental increase in demand now after several countries are turning away from nuclear power generation following Japan's crisis.

We track all oil ETFs live here.

Greek Police Launch Street Protests Against 25% Salary Cuts: Who WIll Control the Protesters?

Absolutely bizarre. One wonders who will control the thousands of other protesters in Greece? Thousands of Greek police and firefighters protested in central Athens against the government's austerity plan, the latest in a series of demonstrations in the Greek capital.


Whistles and carrying banners that condemned the recent spending cuts, the protesters marched on Parliament chanting: "Stop the cuts! Change policies."

Police and firefighters were among those affected by the cuts the government and saw their salaries reduced by 25%.

The protest is just a few days before the Greek parliament to vote on the austerity plan of five years of 28 billion euros that the government promised to its creditors in exchange for new international financial aid.

Is It All About Saving The Banks? Or Saving Face?

Is it all this talk about bailouts just about saving the big banks? The Bank of England said today that teuro-area debt crisis "poses the biggest risk to the stability of the U.K. financial system and banks should build up capital when earnings are strong",

It's the same about giving more money to Greece so that the bond holders don't lose money, at least not the executives sitting on their current mandate. Does anyone think Greece will pay its debt, with or without "austerity" measures?


“The committee judged that sovereign and banking sector strains in some vulnerable euro-area economies were the most material and immediate threat,” "U.K. banks’ “direct exposures to vulnerable euro- area sovereigns were limited, but they had larger claims on the private sectors of some of those economies.”

European Central Bank President Jean-Claude Trichet also said this week that the most serious threat to financial stability in the European Union was the mounting debt crisis.

"... strains in the euro region pose a risk to Britain’s lenders, because U.K. banks’ combined claims on France and Germany account for about 130 percent of their so-called core Tier 1 capital, with close to half of that representing claims on banks".

“Any escalation of stresses could also be transmitted via interconnected global markets, including via the U.S., leading to a tightening of bank funding conditions,”  “Such contagion could be amplified if bank creditors were unsure about the resilience of their

Infamous Agicultural Subsidies Are Spreading From Rich Countries To China and Russia

Ms. Raquel Landim from a major Brazilian newspaper reports today a very interesting and disturbing price on global agricultural subsidies, the subject of major fights between emerging nations and rich countries. It appears to be a case of "if you can't beat them, join them", at least for some emerging nations.

While rich countries insisist on providing subsidies, and they have a huge lobby machine to get them, China and Russia are now granting financial support for their farmers at a similar level to that of rich countries.


Subsidies represent 17% of agricultural production in China and 22% in Russia. In the OECD, support for farmers is 18% of production. There is no data on the subject in India, which also gives generous agricultural subsidies. In Brazil and South Africa, subsidies are only 5% of production.

As a result, the so-called BRICS countries (Brazil, Russia, India, China and now South Africa) have now fewer points of convergence. At the beginning of the Lula government, Brazil's Foreign Ministry received a major victory by arranging support of poor nations around the end of agricultural subsidies in the World Trade Organization (WTO). This will not work anymore.

The emerging giants are important customers of Brazilian agribusiness and food business, as their consumption grows exponentially (see our many posts on this matter). In rich countries, the consumption of food is stabilized. In addition, the United States and the European Union have cut agricultural subsidies because of the strong fiscal adjustment imposed by the global crisis. The recent defeats of the farm lobby in Congress are proof of that. However, agricultural subsidies of emerging countries, of the two mentioned above at least, are going up.

This never ends well.

How Dumb Can Voters Be? Argentina to Subsidize Digital TV Sets for Everyone

In announcing her bid for reelection, the president of Argentina, Cristina Kirchner, launched a program to subsidize the purchase of high-definition TVs for low-income population. The project "TV for All", will finance 200,000 32-inch digital TV sets.

The program defines a distribution of credits from Banco de la Nacion, a state bank, for the purchase of televisions, and coincides with the start of the Copa America, South American soccer tournament selections to be played in July.
 
The devices will sell for $ 675 and payment can be made up to 60 times. "I am a president who does not like an Argentina for a few, but for many," said Kirchner.
 
Amazing!

Oil Comes Crashing Down as IEA Releases Stragetic Inventories To Bring Prices Down

Oil is off about 5% this morning on the news.

IEA: TO RELEASE STRATEGIC OIL INVENTORIES;

Will release 60M BBLS over coming month a rate of 2M barrels per day, for 30 days, then will reassess the situation.

• Release of crude stocks will bridge production gaps stemming from Libya crisis, 132M bbls of production have been lost due to Libya disruption.
• IEA believes that the impact of the supply disruption has been worse for developing economies.
• 2M bpd will be available over the next month.

Confidence in Bernanke: 4%

This CNBC survey may not be "scientific", but there have been over 20,000 votes s far, as of  7:30AM today.

Vote here.

El Erian: Only Outcome for Greece Is Default; In The Next 3 Months Other European Nations Will deal With Serious Issues

Mohamed El-Erian , Chief executive of Pacific Investment Management Co. (Pimco), said on Wednesday, that the only solution to the debt crisis of Greece is default. Videoconferencing from Taiwan, El-Erian said that Greece will probably end up declaring a moratorium on its sovereign debt, even after the adoption of new austerity measures.


El-Erian cautioned that the IMF and European Union are at risk of wasting money by giving aid to Greece and a Greek default will probably not cause a new global financial crisis, because Greece is very small in terms of economic impact.

Pimco's CEO also said that other European countries are also likely to enter into default, but did not specify what these countries. "For the next three months, we'll see different economies deal with different problems. For the European economies, especially Greece, it will be by way of default,".

Watch Out Groupon IPO: New 'Google Offers' Takes It Straight On; Silly IPOs

Groupon better hurry, and the other silly recent technology/social IPOs better watch out. The much commented Groupon IPO may suffer a huge setback. Google now offers an alternative: Google Offers. It was clear that Groupon's model had little to no barriers to entry. Here is more proof.

Sign up here.

Roubini Says ECB/Greece Is Delusional Kicking of The Can Down The Road; Ensuring a Default

Nouriel Roubini says that the attempt to apply a voluntary Vienna Initiative to Greece is "just a continuation of the big fudge and delusional kicking of the can down the road that the ECB and the official sector has indulged in for over a year now in Greece".

The ECB has effectively vetoed any bail-in of Greece’s creditors, with Germany joning.  Now the official sector is running out of options for a "meaningful bail-in of creditors". Roubini write in an article for EuroIntelligence.

He comments on the latest idea of a “voluntary maintenance of the exposure of Greece’s bank creditors by inducing them to hold their exposure to the sovereign once their bond claims mature by rolling over their maturing bonds into new bonds". There is nothing voluntary about that.

Adds Robini: "This option has been compared to the Vienna Initiative, which induced the cross-border exposure of foreign banks to the central and east European banking system during the 2008-09 global crisis, when a number of sovereigns and banking systems in that region were at risk of rolling off the claims of foreign creditors.


"A purely voluntary maintenance of exposure at current market rates would make the sovereign’s debt even more unsustainable and, in time, will ensure a default on the new bonds."

He sasy that the only way to prevent the coupon/yield on the new bonds from being close to market rates and thus unsustainable would be to provide the new bonds with seniority or some collateral. However, both options are undesirable as a rollover is not a case of “debtor-in-possession” financing and thus doesn’t justify such credit sweeteners.

"If, instead the rollover occurs at original coupon or well below market rates, so as to provide Greece with some debt relief, the rollover option is not purely voluntary and has coercive elements; thus, it is not different in any substantial way from the orderly debt restructuring, or reprofiling, that the ECB and other official sector folks so vehemently oppose".

"Only an orderly and market-oriented, but partially coercive, debt exchange could restore debt sustainability while avoiding contagion; a purely voluntary approach would make the debt even more unsustainable — and would risk eventually triggering a disorderly workout — if the rollover occurs at market rates that price in massive default probabilities".

Papandreou: From Frying Pan to Fire

Hos true is the Der Spiegel's headline today!

Papandreou Allowed to Continue from Frying Pan to Fire

The Amazing (Not) Solution for Greece: Solar Energy

This is just unbelievable, amazing.

Greece has a 110B loan (so far) at 5.2%/year, reduced In March to 4.2%, payable in 7.5 years. If my quick math is correct that's about 40B to 50B in interest alone, and not even touching the 110B principal, and some officials say that the solution for Greece is... solar energy.

EuroIntelligence reprotes that German Finance Minister Wolfgang Schäuble thinks that Greece will be very competitive as a potential exporter of renewable energy in the future!

 “One approach could be to push the Mediterranean countries stronger to participate in our push towards renewable energy, for example with solar energy”, Schäuble told the weekly Die Zeit. “Greece has many more hours of sun per year than we do in Germany and it could export electricity to us. With that the Greek economy would have a competitive and desired export product. Without this and other growth perspectives I would be very hard pressed to burden the German tax payer with the considerable risk of a new (rescue) program (for Greece).”


(This is for after the crisis. But Schäuble has so far not made a single plausible proposal about how to return Greece to sustainability. When he talks about solar energy at a time like this, he tells us that they really clueless.) "

World Food Crisis: Brazil to Donate Food: 500K Tons of Rice, 100K Tons of Beans, 100K Tons of Milk Powder

Brazil will donate public stocks of food to the World Food Program (UN WFP) for to 12 months, according to law no. 12,429 that President Roussef signed Tuesday. Donations will be enforced by the National Supply Company (Conab).
According to a statement from the Ministry of Agriculture, the decree provides for up to 500,000 tons of rice stocks that are part of the Rio Grande do Sul, up to 100,000 tons of beans from Santa Catarina, up to 100,000 tonnes of milk powder from Sao Paulo and Rio Grande do Sul, and one ton of vegetable seeds also stock gauchos. "The limits of the legislation were calculated so as not to compromise the supply of people who suffered the effects of events in Brazil," the statement said.

The Brazilian Ministry of Agriculture is responsible for authorizing the processing of food products ready for human consumption.

I.M.F. Sees Considerable and Substantial Risks in Spain

The IMF said it saw considerable risks associated with Spain's economy and urged the Spanish government to redouble its efforts to implement reforms. "The repair of the economy is incomplete and risks are substantial,"

The IMF made the declarations in a statement after a meeting of representatives of the institution with the local government.


According to the IMF, the Spanish economy is growing again thanks to strong exports. The statement cautioned that "downside risks dominate the outlook for growth" among the factors detrimental to the performance of the Spanish economy were worsening financial conditions and the level of unemployment, which remains high.

The President of the Bank of Spain, Miguel Angel Fernandez Ordonez, said the country's banks have taken decisive steps to increase their solvency, but acknowledged that new stress testing may reveal additional capital needs.

"Stress tests being conducted in Europe will show the extent of the institutions of the need for more capital to extreme scenarios," said Ordonez, who is also a board member of the European Central Bank (ECB). But the deficiency of capital in Spain should be small, he said.

To Greece Or Not to Greece The Markets

The world awaits Greece's decision, as it would change anything in the long term. It won't solve anything. If there is an agreement, it's kicking the can down the road. If there isn't, the markets come crashing down.

Market update live:



Unlimited access to this and other videos Click Here!

Moody's Upgrades Brazil Again

Moody's rating agency has just raised the rating of the bonuses of the Brazilian government from Baa3 to Baa2, "considering that the performance of sovereign credit is consistently rated in the high margin Baa, that recent policy adjustments that should result in a macroeconomic environment more sustainable, and the prospect of improvement in fiscal indicators and growth in the medium term". "The rating outlook for the Brazilian still positive".
In its statement, the agency states that the positive outlook for the rating of Brazil captures the possibility of a new rise in rank in the next 12 to 18 months. "This will happen if:

1) economic growth to continues in moderate at lower rates - but more sustainable
and
2) the authorities wanted and successfully met the goals and short-term budget.

Food Inflation Threatens Asia

Food inflation is a favorite topic here, having discussed several times, ever since the beginning of this blog a few years ago. The reaons we have alwasy discussed, food pattern changes in Asia (people eating "better" - although better and healthier are not necessarily the same thing), oil prices, the value of the U.S. dollar.

World Bank president Robert Zoellick noted last month that food inflation is “the biggest threat today to the world’s poor”.

Asia News: discusses the subject and reasons that although the current price spikes superficially resemble those of the 2007-09 food crisis, there are differences today, differences that agree with our reasons:.

"During the 2007-09 period, the main problem was the price of rice which at one point shot up by 50 per cent. This time, however, rice supplies are abundant. But prices of other basic food items such as cooking oil, meat and dairy products have registered large increases, while cereals are 44 per cent more expensive now than during early last year.

More importantly, while the previous grain shortage was prompted by ‘traditional’ causes such as droughts in key producing countries, the current spike is the result of far more intractable developments.

The first has little to do with agricultural cycles, but with the hike in the price of fuel. Rising oil prices lead to higher fertiliser costs, as well as bigger expenditures on running farming machinery, such as tractors and irrigation equipment. Oil prices also raise the cost of transporting food to markets.

And they also encourage the greater use of food products such as corn and sugar in the production of biofuels. In the US, up to a third of total corn output is used for biofuels, and this is expected to rise to 40 per cent this year. Unsurprisingly, corn supplies in northern and Latin America are at their lowest level in 30 years.

A second factor is changes in consumption.

Each year the world’s farmers must feed 80 million additional people, and nearly all of them are in developing countries. The farming industry has coped well with the doubling of the world’s population since the 1970s through more intensive and efficient production. But it is less able to cope with a new phenomenon: the movement of an estimated three billion people up the food chain.

As families in emerging economies join the ranks of the middle classes, their diet expands to items which only a generation ago were regarded as luxuries. The people of China, for instance, now consume 2.4 times more meat than a decade ago, and three times more milk, fruit and vegetables. Meanwhile, Indian customers have expanded their consumption of similar items by an average of 30 per cent".

The Elephant In The Room is Greece; Moody Threatens New Downgrade

While all the talk today is on Greece, including withholding of a bailout tranche, non-confidence vote on the PM disagreements between Germany and the rest of the Europeans, well, it's a lot. But the real elephant in the rook is Italy. And the news there is not good.

Moody’s Investors Service says its credit ratings may be reduced because of "economic growth challenges, risks associated with efforts to reduce debt and the potential for higher borrowing costs". Local and foreign-currency government bond ratings were placed under review for a possible downgrade.

The agency added that Italy may have trouble reducing its public debt to more affordable levels as borrowing costs rise and support for the government of Prime Minister Silvio Berlusconi weakens.

“The Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth,” “The fragile market sentiment that continues to surround European sovereigns with high levels of debt poses additional risks for Italy.”


Italy's debt was about 1.8 trillion euros ($2.6 trillion) at the end of last year, with a ratio of debt to gross domestic product of about 119%. The IMF projecta Italy’s economy would expand 1% this year, down from 1.3% in 2010.

RIM Crashes: The New Nortel? Not Exactly

Please take a look at RIMM's implosion today:

Is this the new Nortel? No, not exactly. This company did not have financial mistatements or accounting isuses. Can it go bankrupt like Nortel? It sure can.

It would sure be a shame.

Risk of Investing in Brazil Is Lower Than In The U.S. For First Time In History

Guido Mantega, Brazil's finance minister said that for the first time in history Brazil's risk is lower than the U.S.. In an interview at the Planalto Palace, Mantega said the report shows "the strength of the Brazilian economy and the confidence we have in the market."


The minister explained that the 'Brazil risk', as measured by credit default swap (CDS, its acronym in English) is a classification of sovereign bonds in foreign markets. Whoever is afraid of a payment failure, takes on insurance," he explained. He added that the government is "very happy " with this classification on the cost to ensure protection against a possible Brazilian debt default.

According to Mantega, president Rousseff was "very satisfied " with the fact that Brazil had a lower risk than the U.S.. "It shows that we are on track, that economic policy is correct, Brazil has been consolidating and we have earned respect from the rest of the world,".

Soaring Food Inflation and Commodity Prices Cause People To Change Diets - And Go Hungry

If you have been grocery shopping in recent months you know all about saoring food prices (in spite of "official inflation", being so low).

A recent 17-nation survey 16,421 people surveyed by GlobeScan conxluded that soaring food prices and health concerns are prompting people around the world to change what they eat.


A whopping 53 per cent said say they're no longer eating the same foods they did two years ago. 40% of those say some of the food they used to eat is now too expensive, while one-third changed their diets for health reasons.

Robert Fox, Oxfam Canada's executive director, says "The rising cost of food is pushing more people into hunger, with women and girls representing most of the world's hungry,"

Vancouver Sun: "The Food and Agriculture Organization's food price index, which measures monthly changes in international prices of a basket of food commodities, has risen 37 per cent in the past year. Cereal prices have shot up 69 per cent, meat prices are up 20 per cent and dairy prices are 10 per cent higher.

While Canada wasn't included in the GlobeScan survey, a related poll done by EKOS for Oxfam Canada found that two-thirds of Canadians have changed their eating habits in the past two years, half for health reasons.

Just 17 per cent cited cost as their reason for changing their diets, though that rises to 27 per cent among women between 34 and 55. But two-thirds of Canadians say they're extremely concerned about rising food prices, the EKOS poll found.

Canadians haven't yet felt the full impact of raw food price increases, in part because of our strong dollar, which has gained seven per cent in value in the past year.

But grocery prices have gone up in recent months, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. After edging up just one per cent in 2010, groceries in Canada cost 3.7 per cent more in April than they did a year earlier.

And, Porter warned, prices will continue to rise because it takes about six to 12 months for changes in the cost of raw materials to work their way down to the grocery store level. "We think we're going to ultimately get about five-to sevenper-cent food price inflation later on this year."

The good news is that the rise in the FAO indicator has flattened out in the past month or so, which suggests the increase in food commodity prices may have peaked. "We're not seeing big relief yet, but we're not seeing a further run-up," Porter said.

On average, Canadians spend less than 10 per cent of their income on food. But that can reach 80 per cent in developing countries, according to Oxfam. In the GlobeScan poll, Kenyans reported the biggest shift in eating patterns, with three in four saying they were no longer eating the same foods they did two years ago. Nearly 80 per cent changed their diet because of rising food costs.

Food price increases were also a significant factor in altering diets in Mexico, Guatemala, Pakistan, Tanzania, Spain and Britain".

We track all commodity ETFs live here.

S&P Downgrades Greece To Lowest Possible, Worst Than Jamaica, Pakistan, Grenada; Warns 'Restructuring' is Default

Standard & Poor' has done it again. We have heard this story many times, but it was three notches today.

Greece is now officially lowest-rated country in the world in the rankings, ranked below Ecuador, Jamaica, Pakistan and Grenada.


It also warned it would view a likely debt restructuring as a default.
"S&P said European policymakers looked increasingly likely to impose a restructuring of Greece's debt -- either via a bond swap or by extending bond maturities -- as a means of having the private holders of Greek bonds share the burden".

"In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria,"
Reuters: "In such a case, S&P added, Greece's credit rating would be lowered to "selective default," or SD, while the ratings on the country's debt instruments would be cut to D.

It cut Greece's long-term sovereign credit rating to CCC, four steps away from default, from B. The short-term rating was affirmed at C and all ratings were removed from credit watch.

The move takes S&P's rating of Greece one notch below Moody's Caa1, while Fitch ranks Greece at B+. This makes Greece the lowest country in S&P's rankings.

S&P said the outlook on the long-term rating remained negative, a sign that another downgrade is likely in the next 12 to 18 months".

Near Perfect IWM Straddles

IWM tracks the Russel 2000 index.

I bought June IWM 85 puts when IWM was tarding at 85, May 31. They were sold today on the spike down around 12:30PM.

Late last week I also bought some 81 calls to hedge this position, I still hold the calls. It remains to be seen what will happen to them.

The gain on those IWM puts was 3.45X.

IWM is still my most preferred ETF for options. It is extremely liquid and easy to trade. Just watch out you don't buy the new weeklies by mistake.

A New Revolutionary Cheaper TetraPak Container; Balance of Power Shifts to Emerging Markets

The change in the balance of world economic power is directly reflected in sales of Swedish Tetra Pak. Ten years ago, 55% of sales from packaging manufacturer came from Europe. In 2010 the European share on revenue was 40%. As the potential for growth in consumption is concentrated in developing countries, it is likely that the importance of the "old continent" for the company to fall further in coming years.


Today, the two main individual markets for Tetra Pak are Brazil and China. The two countries are responsible, each for a share of 13% of company revenues, which totaled nearly $7B last year. So says the executive vice president of Tetra Pak, Nils Björkman: the intelligence efforts of the company aiming to expand the consumption of cartons are concentrated in emerging nations.

In 2010, Tetra Pak sold 11 billion packages in Brazil. With only the expansion "normal" economy, the market is growing between 5% and 6% - a direct reflection of the increase in family income, which now consume more products like milk, yoghurt and ready juices. To "boost" to expand further, increasing the current consumption by 20% (or at least 2 billion units), the company is not betting its chips on lower prices for packs of 1 liter - the most consumed locally - by the least 30%.

The triumph is to use the model without the folded edges of the 200 ml pack in 1l boxes. According to Paul Nigro, vice president of Tetra Pak South America, a better account of packaging entails a reduction in the final price of milk and juice ready - thus, the poorer classes (known as "D" locally), poorly represented in these categories, would contribute more revenue for Tetra Pak.

Worldwide. Björkman notes, however, that the development of cheaper packaging is a necessity not exclusive to Brazil. Experience with the model without folded edges, which will reach the Brazilian market later this year, should be taken to other nations in the coming years.

"Major markets around the world, including India, have a contingent of consumers very sensitive to the price factor," he says.

As the price of foods also escalates almost without control in developed nations, expect to see the new packaging here too.

Gold: Kitco Accused of Massive Tax Fraud

Canada's Revenu Quebec has named two companies publicly as being the subject of its investigations – Kitco Metals Inc. and Carmen International Inc. but says 125 are involved.
Kitco denies the allegations.

Financial Post reports: "Revenu Quebec has initiated a massive series of searches and seizures in the Montreal area, alleging that companies and individuals in the gold refining and trading industry engaged in widespread tax fraud on transactions worth $1.8-billion.

More than 175 government investigators conducted the sweep this week, targeting businesses, residences, accountant offices and bankruptcy trustees. Some 125 companies are complicit in the scheme that bilked the government of more than $150-million worth of taxes, Revenu Quebec asserts. No arrests have so far been announced".
“Revenu Quebec has a duty to be intransigent with those who contravene financial rules and can begin legal proceedings against them,” the department said in a statement. The maximum prison term for anyone found guilty in relation to tax evasion is five years, it said.

"The six-step fraud involved companies using artificial transactions to obtain refunds of taxes that were never actually paid as gold was turned into scrap and then refined back into its pure state.
The company won court approval to appoint an interim receiver, RSM Richter, to help it deal with the allegations. Its daily operations are continuing as they normally do, said company spokesperson Sharlene Dozois".

“We appointed the receiver to protect the interest of everyone and have someone work with us through the process,” Ms. Dozois said. “We did that voluntarily.”

EuroRating Agency Cuts U.S. Credit Rating

German Feri EuroRating, the risk rating agency, was reported to have downgraded the U.S. credit rating from AAA to AA,citing the "continuing deterioration in the credit worthiness of the country due to high public debt, fiscal measures inadequate and weak outlook growth ".


Feri EuroRating also said that the U.S. deficits "are not a sustainable fiscal policy"and said it would reconsider the rating if the government "create a sustainable long-term budget.". The agency, which has about a thousand customers worldwide, is small compared to its competitors and has focused on Germany, France and the UK.

Jobless Claims Rise Again

Initial claims for state jobless benefits have been just reported, showing an increase of 1,000 to 427,000, according to the Labor Department, against forecasted claims of a drop to 415,000.
This is the ninth week in a row that first-time claims perched above 400,000.

Reuters: "Fueling concerns about job creation, the U.S. government said on Friday the U.S. unemployment rate ticked up to 9.1 percent in May while nonfarm employers added a paltry 54,000 workers to their payrolls.

Federal Reserve Chairman Ben Bernanke on Tuesday acknowledged the economy had slowed but offered no hint the central bank was considering more stimulus to boost growth".

U.S. Debt Now Exceeds 102% of Size of Economy, 3 Years Ahead of Estimates

The latest Treasury report shows that national U.S. debt will exceed the size of the economy in 2011, for the first time since World War II.

What is notable is the sheer deterioration. One year ago the Treasury had estimated that record would not be reached until 2014.


Current expectations of total debt to GDP are 102%+ this year (from 96.4% last year)..
The two biggest factors:

1. White House's 2011 GDP estimate is $219 billion lower today than it was a year ago. So debt as percentage of a lower number will always look higher.

2. The debt grew larger because of a tax cut deal brokered by President Obama and Republicans last December. That deal will add an estimated $858 billion to the deficits over a decade -- $410 billion of it in 2011 alone, according to the Congressional Budget Office.


Tax cuts would drive most of the debt under Obama's 2012 budget proposal, according to CBO.

That's why deficit hawks on the left and the right advocate letting the tax cuts expire or paying for any further extension. At this point, the debt is so big, whether it is just below or just above GDP isn't really a huge distinction.

"After examining data from dozens of countries over two centuries, economists Ken Rogoff and Carmen Reinhart found that when a nation's gross debt reaches 90 percent of its economy, it often loses about one percentage point of growth a year". Chicago Tribune

Chinese Official Warns Against Holding Too Much U.S. Assets, as "U.S. Could Pursue Weakening of The Dollar"

Chinese officilas have again warned against risks from excessive"holdings of U.S. assets. What they are afraid of: that the U.S.could pursue a policy to weaken the dollar: "We must be alert of economic and political risks in excessive holdings of U.S. dollar assets,"

Those are the words by Guan Tao, head of the international payment department at the foreign exchange regulator
"The United States has taken an expansionary fiscal and monetary policy to stimulate economic growth, and the United States may find it hard to resist the policy temptation of weakening the dollar abroad and pushing up inflation at home,"
According to Reuters, market conditions are favorable for China to forge ahead with market-based reforms of the yuan regime, however there is no basis for any sharp yuan rise.

"... some economists have said as much as 70 percent of the country's foreign exchange reserves, which hit a record $3.05 trillion at the end of March, are parked in dollar assets".

Unemployment Jumps to 9.1%, Not Unexpected; IWM Puts Jump

The employment figures were a huge disapointment today, but nobody can say they were unexpected.

May nubers showed that employers hired only 54,000, the fewest in eight months. Worse, the unemployment rate rose to 9.1%.


The Labor Department data indicates that the  U.S. economy is slowing and the hiring rate has weakened dramatically. Private companies hired only 83,000 new workers in May, which is the fewest in nearly a year.

Stock futures plunged, which will be good for IWM puts.

Moody's Threatens Downgrade of Bank of America, Citi and Wells fargo

They just announced a possible downgrade of Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. as the U.S. government may limit support of the largest financial firms. The review will “focus on whether these ratings should be adjusted to remove this unusual uplift and include only pre-crisis levels of government support.”

Moody’s Senior Vice President Sean Jones says “‘The U.S. government’s intent under Dodd-Frank is very clear,” said “It does not want to bail out even large, systemically important banking groups.”
Moody’s assessments “... may temper the extent of any ratings downgrades that could result from its review of these firms’ unusual level of systemic support,”.

Still, Bank of America and New York-based Citigroup “have sizable residential mortgage exposures,” “Their credit costs could therefore spike if the U.S. economy were to contract again. Further, they continue to face litigation costs related to faulty foreclosure practices.”

As for Bank of New York Mellon, it had the outlook on its debt lowered to negative from stable.

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The ADP Numbers: Down Goes The Market

The wild ADP employment numbers are out today, and they are totally out of whack. Estimates were for increases of 125,000 to 200,000, according to the Bloomberg survey of 37 economists. It turns out that companies in the U.S. added only 38,000 workers in May, "a sign that job growth is struggling to gain momentum"

This was the smallest increase since September.

"Such gains in employment are insufficient to help the world’s largest economy accelerate after a surge in food and fuel costs earlier this year. Businesses added 207,000 jobs last month after a 268,000 gain in April and the jobless rate dipped to 8.9 percent from 9 percent, economists project a Labor Department report to show in two days".

TD Securities was quoted as saying that “The weakness reflects a general slowdown and turn in sentiment that set in with the sharp rise in energy prices, disruptions from Japan, and to a lesser extent risk aversion stemming from the Greek fiasco.”