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Mayors: Give Us, Not The States, More Money

Speaking of bailouts… from Reuters’ Camille Drummond this morning:

Without more direct aid to U.S. local governments, Washington may make matters worse for cities facing falling tax revenues and increased spending needs, the nation’s mayors said at their annual meeting this weekend.

Mayors said they bear the tough task of cutting services and jobs vital to U.S. cities, even with help from the $787 billion in stimulus funds Congress passed in February…

Local governments, struggling to issue debt in a largely stalled municipal bond market, expressed worries that current federal stimulus initiatives — including development grants, infrastructure funding, and the subsidized Recovery Zone and Build America Bonds — while helpful, may not be enough in the financial crisis.

“And it’s important that metropolitan areas get money directly for recovery, and not through the states,” said Los Angeles Mayor Antonio Villaraigosa, who has voiced concerns that states may use stimulus funds to close their own budget deficits, especially in California with its massive $24.3 billion gap.

“Take your stinking paws off our money,
you damn dirty states!”

Source:

“Mayors say cities need direct economic help”
Camille Drummond
Reuters, June 15, 2009

Foreign Investors Growing Tired Of American Assets?

The month of April saw waning demand for American assets by overseas investors. From Bloomberg’s Vincent Del Giudice this morning:

International purchases of American financial assets grew more slowly in April as China, Japan and Russia pared demand for Treasuries, underscoring the danger of U.S. reliance on foreigners to finance its fiscal deficit.

Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington. International holdings of Treasuries increased a net $41.9 billion, compared with the $55.3 billion gain in March. Including bills, the holdings fell a net $2.6 billion…

Including short-term securities such as stock swaps, foreigners sold a net $53.2 billion of U.S. financial assets, compared with net buying of $25 billion the previous month…

Foreign investments in U.S. agency debt slumped for the eighth time in 10 months, by $2.5 billion in April. Net purchases of American equities slowed to $4.6 billion in April from $13.2 billion the prior month. Holdings of corporate bonds tumbled a net $9.7 billion, the biggest decline since November.

China, the largest holder of U.S. Treasury securities, cut back their holdings to $763.5 billion in April from $767.9 billion in March. Japan, the second largest holder of Treasuries, reduced theirs to $685.9 billion from $686.7 billion a month earlier. China’s holdings of Treasuries represent about 10% of America’s publicly-held debt.

Bloomberg’s Del Giudice noted:

Waning demand for Treasuries may exacerbate a jump in yields that threatens to make it harder for the U.S. to pull out of its deepest recession in at least half a century. Yields on benchmark 10-year notes have climbed more than 1 percentage point since mid-March, contributing to an increase in mortgage rates that’s counteracting Fed efforts to aid the housing market.

Source:

“International Demand for U.S. Assets Slowed in April (Update3)”
Vincent Del Giudice
Bloomberg, June 15, 2009

Russia Plans To Cut Back Its U.S. Treasury Holdings

Russia and China have repeatedly criticized the dominance of the U.S. dollar in the global economy for some time now. Each has called for a new supranational currency in the interests of stability. And today, Russia fired a shot at the world’s reserve currency when it announced it was going to reduce its holdings of U.S. government bonds. From Agence France-Presse (AFP) reporters:

Russia announced plans Wednesday to cut the US Treasury bond holdings in its 400-billion-dollar sovereign wealth fund, the central bank’s first deputy chairman, Alexei Ulyukayev, said.

“We plan to reduce the portion of US Treasuries since the window of opportunity has arisen to work with other (financial) instruments,” he was quoted by Russian news agencies as saying.

Ulyukayev said Russia would shift its reserves into International Monetary Fund (IMF) bonds and commercial bank deposits.

He added, however, that the move would be gradual and Russia would sell off its Treasuries as they reached maturity.

US Treasury bonds now make up 30 percent of Russia’s 400-billion-dollar reserves after the central bank reduced its holdings of high-risk assets, such as US mortgage-backed securities, Ulyukayev said.

The AFP article suggests Russia’s plan to cut Treasury holdings is part of a larger scheme to challenge the greenback. From the piece:

The central bank’s announcement came ahead of a planned meeting of leaders of four key emerging economies in Moscow on June 16, where the dollar’s role as the world’s global reserve currency will be discussed.

Russia has been aiming to challenge the dollar and raise the status of this group of emerging economies, dubbed the BRIC states — Brazil, Russia, Indian and China.

Ulyukayev also said Russia was ready to diversify its large reserves — accumulated over months of record-high oil prices as the world’s second-largest exporter — to include China’s yuan if it became a new global reserve currency.

“The more we diversify our portfolio, the better,” he said.

Source:

“Russia to cut its US treasury holdings: central bank”
Agence France-Presse, June 10, 2009

Chinese Students Laugh At Treasury Secretary’s Remarks

“Geithner: China Confident in U.S. Policy Steps”

-Washington Post, June 2

“Treasurys up as Geithner, China inspire confidence”

-MarketWatch, June 2

“Geithner’s China Visit Seen Adding Fuel to ‘Great Comeback’ of U.S. Economy”

-Supply & Demand Chain Executive Magazine website, June 2

From the looks of these headlines this morning, it appears that U.S. Treasury Secretary Timothy Geithner is having a lot of success in bolstering Chinese confidence in U.S. assets during his visit to the People’s Republic of China.

Yet, I wonder if this is not just one more instance where “the devil is in the details.”

From the Washington Post’s Ariana Eunjung Cha this morning:

Geithner’s remarks stand in sharp contrast to the commentary in China’s official propaganda papers.

An editorial in the English-language China Daily said it will be “regrettable if [Geithner] underestimates and shuts his ears to voices from China’s civil society,” noting that there are worries that “Washington’s mushrooming deficit, generated by massive government borrowing to fuel its economic recovery plan . . . will undermine both the dollar and U.S. bonds.”

The Global Times, which is affiliated with the Communist Party, said an online poll found that 87 percent of respondents believe China’s dollar-assets are unsafe. The paper concluded, “Ordinary Chinese people are discontent with the declining value of China’s huge foreign exchange reserves denominated in U.S. dollars.”

And the Economic Information Daily, which is part of the official New China News Agency and affiliated with the State Council, in a headline demanded to know of Geithner: “How do you propose implementing fiscal discipline? How will you maintain the stability of the dollar after the crisis?”

Why do you suppose the Post reporter pointed out The Global Times was affiliated with the Communists? To discredit their statement?

Think this might be a case of “the pot calling the kettle black,” considering America’s socialist, and some would argue increasingly fascist, leanings these days?

Other publications also expressed doubts over Geithner’s success. From Peter Ford of The Christian Science Monitor this morning:

US Treasury Secretary Timothy Geithner said Tuesday he had found “a lot of confidence” in the US economy among Chinese leaders he met on his two-day visit here. In other circles, however, skepticism was widespread.

When Mr. Geithner told a student audience Monday that Chinese assets invested in Treasury bonds were “very safe,” his intended reassurance drew loud and dubious laughter.

A survey of 23 top Chinese economists, published in the daily Global Times on the eve of his arrival, found that 17 feared that Beijing’s huge dollar holdings put China in “a very dangerous position.”

More Communist propaganda, I suppose.

Ford added such views also existed outside the political and academic sphere. From the piece:

Ordinary citizens, however, appear to have little sympathy for such arguments, to judge by comments on Internet chat rooms.

“It’s a big joke that China’s money will disappear with nothing to be gained, and the beneficiary still says that the money is safe,” wrote one Internaut from Hebei Province on Sina.com, a popular Internet portal.

“Don’t trust Uncle Sam,” warned another. “Why do they enjoy the pleasures and we pay the bill?”

I suspect this situation might not continue for much longer.

Sources:

“Geithner: China Confident in U.S. Policy Steps”
Ariana Eunjung Cha
Washington Post, June 2, 2009

“Treasurys up as Geithner, China inspire confidence”
Deborah Levine
MarketWatch, June 2, 2009

“Geithner’s China Visit Seen Adding Fuel to ‘Great Comeback’ of U.S. Economy”
Supply & Demand Chain Executive Magazine, June 2, 2009

“Geithner visit: Chinese economists skeptical of US strength”
Peter Ford
The Christian Science Monitor, June 2, 2009

Related Post

From our sister blog Investorazzi.com tonight:

“Bill Gross: U.S., U.K. Credit Ratings In Trouble”

“Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. ‘eventually’ will lose its AAA rating, but not any time soon.

‘It’s certainly nothing that’s going to happen overnight,’ Newport Beach, California-based Gross said in an interview today on Bloomberg Television. ‘The markets are beginning to anticipate the possibility.’”

U.S. Risks Losing Triple A Credit Rating

When the former chief accountant of the United States warns that the nation’s credit rating is at risk, Americans might want to listen to what he has to say. David Walker, chief executive of the Peter G. Peterson Foundation and former Comptroller General of the United States, wrote in the Financial Times (UK) this past Tuesday:

Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar.

Walker warned that the nation’s credit rating could be downgraded with the help of two developments. He wrote:

The US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

First, while comprehensive healthcare reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.

On the topic of health care reform, Walker noted:

There is no question that this nation needs to pursue comprehensive healthcare reform that should address the important dimensions of coverage, cost, quality and personal responsibility. But while comprehensive reform is called for and some basic level of universal coverage is appropriate, it is critically important that we not shoot ourselves again. Comprehensive healthcare reform should significantly reduce the huge unfunded healthcare promises we already have (over $36,000bn for Medicare alone as of last September), as well as the large and growing structural deficits that threaten our future.

Walker concluded that a new government commission is needed to help get the nation’s finances back on track— or else. From the piece:

One way out of these problems is for the president and Congress to create a “fiscal future commission” where everything is on the table, including budget controls, entitlement programme reforms and tax increases. This commission should venture beyond Washington’s Beltway to engage the American people, using digital technologies in an unparalleled manner. If it can achieve a predetermined super-majority vote on a package of recommendations, they should be guaranteed a vote in Congress.

Recent research conducted for the Peterson Foundation shows that 90 per cent of Americans want the federal government to put its own financial house in order. It also shows that the public supports the creation of a fiscal commission by a two-to-one margin. Yet Washington still sleeps, and it is clear that we cannot count on politicians to make tough transformational changes on multiple fronts using the regular legislative process. We have to act before we face a much larger economic crisis. Let’s not wait until a credit rating downgrade. The time for Washington to wake up is now.

Source:

“America’s triple A rating is at risk”
David L. Walker
Financial Times (UK), May 12, 2009

Robert Prechter Sees Stock Plunge, Deflationary Depression

If Marc Faber’s prediction that the U.S. government will go bust didn’t start your weekend off on a positive note, how about Robert Prechter’s forecast that U.S. stocks will plummet in advance of a deflationary depression? From Reuters (UK) yesterday:

Longtime technical analyst Robert Prechter, who forecast the 1987 stock market crash, predicted this week that U.S. equities may plunge to half their lows hit in March as a deflationary depression bites.

Oil and U.S. Treasury bonds are also locked in long term bear markets, while corporate bond prices will plunge precipitously by next year as broad economy, banking system and company earnings sustain more damage from a financial crisis that’s akin to the Great Depression, he said.

The U.S. S&P 500 stock index’s rebound by nearly 40 percent since it sagged to a 12-year closing low of 676 points on March 9 is not sustainable, Prechter said in an interview with Reuters.

“It’s not the start of a new bull market,” said Prechter, chief executive at research company Elliott Wave International in Gainesville, Georgia. “Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932,” he told Reuters in a wide ranging interview. “It’s a very rare event,” he added.

“I think the next leg down will be at least as severe if not more severe than what we just experienced. So you want to stay on the side of safety,” he said.

As in his 2002 book “Conquer the Crash,” which warned of the dangers of a U.S. debt bubble and deflationary depression, Prechter continues to advocate safer cash proxies such as Treasury bills…

“Deflation is coming, it’s going to lead to a depression. We’re not at the bottom yet,” Prechter said. “I think we are going to have bouts of deflation separated by recoveries.”

Source:

“Stocks still face deflationary collapse: Prechter”
Haitham Haddadin, Ellis Mnyandu, and John Parry
Reuters (UK), May 14, 2009

Suspicion Grows Over China Dumping U.S. Assets

On Tuesday, a Federal Reserve official downplayed talk of China dumping its U.S. assets. Reuters’ Kevin Plumberg wrote yesterday:

Dallas Federal Reserve President Richard Fisher said on Tuesday China would not do anything to harm U.S. interests such as dumping Treasuries, adding that solid capital returns support the dollar’s attractiveness.

Fisher, who was headed to Beijing, soundly rejected the view that China can decouple economically from developed countries such as the United States and described the relationship between the two powerhouses as “symbiotic.”

“China cannot succeed if the U.S. does not succeed,” he said after a speech sponsored by the Asia Society, noting that while China owns a lot of U.S. Treasuries its economy is still dependent on U.S. consumer spending.

Recent comments from Chinese public officials have suggested Beijing is uncomfortable with the Fed’s rapid expansion of its balance sheet. Last month, Premier Wen Jiabao said he was worried about the country’s holdings of some 70 percent of the $2 trillion in foreign reserves and asked for a guarantee of safety for Chinese assets.

While the Fed might be unconcerned about China’s intentions, the U.S. military doesn’t appear to be so sure. FOX Business’ Rebecca Diamond reported Monday that for the first time ever, the Pentagon played a war game that focused on economic warfare. And, one of their key findings involved China selling off American dollars and Treasuries…

FOX Business Video Link

Source:

“Fed’s Fisher says China won’t harm U.S. interests”
Kevin Plumberg
Reuters, April 14, 2009

One Recession, Two Recession…

Good news. A non-profit global business organization is predicting that the current recession will end later this year. Bad news is, it’s also saying there’s the potential for another one to emerge in 2010. From Reuters tonight:

Although the U.S. economy is expected return to growth later this year, there is a danger of a second recession if monetary easing and a weak dollar leads to increased inflation expectations, a report said on Wednesday.

Massive stimulus spending and moves by the Federal Reserve to fuel economic activity is expected to jump-start the anemic U.S. economy in the last quarter of this year after it contracted 6.3 percent in fourth quarter of 2008.

But the Fed’s moves to boost the economy by slashing interest rates and buying up billions in government debt could have undesired consequences, The Conference Board, a private research group, said in the report.

“If the United States experiences a too-rapid recovery, there may be a risk of another recession in 2010,” said Bart van Ark, vice president and chief economist of The Conference Board.

“It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery,” he said.

The U.S. economy has the potential for a “double-dip” recession, van Ark noted, similar to 1980 and 1982, as commodity prices rise on the back of a falling dollar and monetary easing.

He added, however, that the likelihood of this scenario taking place is small as deflation risks are great, while government stimulus spending should stem further economic decline and ease the flow of job losses.

Others would disagree with the assumption the U.S. economy will grow later in the year. Just last week, National Bureau of Economic Research President Emeritus and Harvard economist Martin Feldstein predicted the recession will last into 2010. From Reuters’ Jason Subler and Shengnan Zhang on March 24:

The recession in the United States will stretch well into next year, probably raising the need for another fiscal stimulus package at least as large as the first one, prominent economist Martin Feldstein said on Tuesday.

Feldstein, a Harvard University professor who is a member of President Barack Obama’s Economic Recovery Advisory Board, told Reuters that the stimulus would offset only a relatively small piece of the likely fall in spending, exports and construction.

“I’m afraid that the economy will continue to slide down well into next year,” Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.

“I don’t know when it will end, but the forecasts that it’ll end later this year I think are too optimistic,” he said of the recession.

Sources:

“U.S. seen facing danger of 2nd recession next year”
Reuters, April 1, 2009

“U.S. recession to last into 2010: Feldstein”
Jason Subler, Shengnan Zhang
Reuters, March 24, 2009

Related Post

From our sister blog Investorazzi.com this morning:

“George Soros: ‘Brace For Slower Economic Growth’”

In any case, the Chinese government can no longer be relied on to plough money into US government debt, he warns. “They will have less money to spend because their surplus is shrinking and their exports are falling, so they will have less to dispose of, so I think that there will be a definite shift.”

What The World’s Highest-Paid Investment Adviser Thinks

On February 4, MarketWatch’s Peter Brimelow talked about what Harry Schultz, the highest-paid investment consultant in the world, thinks is in store for us next. Brimelow wrote:

I’m particularly interested in International Harry Schultz Letter. Despite its appalling and paradoxical portfolio performance, I named it 2008 Letter of the Year because of its extraordinary prescience in predicting, more than a year early, an imminent “financial tsunami.”

Schultz’ latest issue just arrived. It’s full of cheerful items such as how to guard against an anticipated rise in home invasion robberies and technologically-enhanced government surveillance (”make sure kids don’t become victims of Facebook/ My Space craze by splashing their personal info on Internet.”)

But in the short run, Schultz writes: “gold is a bit overbought, stocks are a bit oversold. Overlay Dow Jones Industrial Average of 1929-1940 vs. 2000-2008 and you see a rally due.”

He continues to hold to a 20-year “V-formation” forecast, with not just stocks but investor “buying power” declining and the rebounding, interspersed with 1-2 year counter-trends. He advises: “Hold approx half of your assets in Swiss/French/German/Dutch (or other First world non-U.S. dollar) government bonds, and approximately half in a mix of blue-chip gold shares and physical gold bullion (best bought and stored in Switzerland, Canada, Australia, Hong Kong or Singapore).”

Schultz has been particularly alert to the possibility of deflation. He now says: “I seem to see deflation getting a stronger grip in early 2009, partly due to the consumer buyer’s strike, despite a possible upside breakout in commodities, rising gold and slipping bonds. It will in any case probably gradually morph toward high or hyperinflation later in ‘09. 2010 looms as a mega inflate-year. Only if deflation gets out of control in early ‘09 due to government failure to increase money supply enough, and/or business/ bank sectors collapse in a sea of bankruptcies and lawsuits, will inflation be delayed.”

On gold, he writes: “Mathematically it will need a U.S. $2,300 gold price to equal the $800 gold peak of 1980. So, gold is cheap today, is well under half its 1980 worth in inflation-adjusted dollars.”

He cites one technical indicator: “Basis on French Curve chart projection, gold will reach $3,500 by 2012, then fall to $2,500 (29%), then rise to $10,000. There are a lot of projections around by some able technicians. If we go into Weimar inflation, the sky is the limit. But, we will play it a stage at a time, by the charts, because being overconfident about any future prices has been the undoing of many souls.”

Source:

“A great month for gloom-and-doomers”
Peter Brimelow
MarketWatch, February 4, 2009

(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

Peter Schiff Warns Of Coming Dollar Collapse

Last week, Russia Today’s Marina Portnaya spoke to Peter Schiff, president of Euro Pacific Capital and author of Crash Proof: How to Profit From the Coming Economic Collapse (Lynn Sonberg Books) and The Little Book of Bull Moves in Bear Markets: How to Keep Your Portfolio Up When the Market is Down (Little Books. Big Profits), about his outlook for the U.S. economy. Notable excerpts from the exchange included:

The politicians don’t want to listen to my advice, because my advice is that they get out of the way, and they let the recession run its course. That Americans have to have some discipline, on their spending and their consumption. That what we need in this country is more savings, and less borrowing. We need more production, and less consumption. But everything the government is doing now, all the economic stimuli, all the bailouts, they’re all designed to perpetuate the problem, to get us deeper into debt, and all they’re doing is throwing gasoline on a fire…

I think we’re on the verge of another major crisis, that’s far greater than the one the government is trying to deal with now, and that is the coming collapse in the value of the U.S. dollar. I think we’re going to have a run on our currency. I think the dollar is going to completely fall through the floor. And that’s going to unleash problems much greater than the ones we have now, because it’s going to send both interest rates, and consumer prices, up into the stratosphere in this country…

We are on a collision course for massive inflation.

Portnaya asked Schiff how people should prepare for the “doom and gloom.” He replied:

What individual Americans need to understand, is if they’ve got dollars invested in government bonds, in municipal bonds, in Treasuries. If they’ve got insurance, if they’ve got cash value accounts, they’ve got bank accounts, they’ve got CDs— all that wealth is going to be wiped out, unless they act quickly to get out of U.S. dollars and to move their wealth into foreign currencies, and to bonds issued by foreign governments or foreign corporations. They could buy stocks, common stocks, traded in foreign markets, but where the income and dividends are paid in foreign currencies. They can buy precious metals, they can buy gold and silver, they can buy other commodities. But people need to act quickly to get out of U.S. dollars before the dollars lose their value.

YouTube Video Link

Signs Of The Time, Part 30

Going for the trifecta tonight…

From the Associated Press yesterday:

Reported incidents of mortgage fraud grew by 45% in the second quarter compared to the year-ago period, as borrowers misstated their financial information to maneuver around tighter lending standards, industry data released Tuesday showed.

Florida properties led the way with about one-fifth of mortgage fraud incidents reported in the second quarter, the Mortgage Asset Research Institute reported. California was second, and Illinois third, the data showed.

Mortgage fraud incident reports had increased 42% in this year’s first quarter, compared to the first quarter of 2007.

The largest increase in mortgage fraud in the first half of this year involved borrowers misstating their financial profile, which is not surprising as borrowers try to get around stricter lending guidelines, the report said…

Some basic examples of fraud included false bank statements made on computers and pay stubs with white correction liquid on them, said Jennifer Butts, the institute’s director of operations…

The metro areas of Miami and Tampa were one-two in Florida for mortgage fraud. In California, Los Angeles and San Francisco led the way. Chicago and Rockford were tops in Illinois.

My kind of town, Chicago is…

Also from the Associated Press yesterday:

Sgt. Ryan Nyhus spent 14 months patrolling the deadly streets of Baghdad, where five members of his platoon were shot and one died. As bad as that was, he would rather go back there than take his chances in this brutal job market.

Nyhus re-enlisted last Wednesday, and in so doing joined the growing ranks of those choosing to stay in the U.S. military because of the bleak economy.

“In the Army, you’re always guaranteed a steady paycheck and a job,” said the 21-year-old Nyhus. “Deploying’s something that’s going to happen. That’s a fact of life in the Army- a fact of life in the infantry.”

In 2008, as the stock market cratered and the housing market collapsed, more young members of the Army, Air Force and Navy decided to re-up. While several factors might explain the rise in re-enlistments, including a decline in violence in Iraq, Pentagon officials acknowledge that bad news for the economy is usually good news for the military.

In fact, the Pentagon just completed its strongest recruiting year in four years.

Just in time, as I hear the Pentagon was about to bust out that old recruiting commercial from the late seventies/early eighties in hopes of boosting numbers. “Pick a service, pick a challenge. Army, Navy, Air Force, Marines. We don’t ask for experience, we give it.”

From Bloomberg’s Adam Cataldo and Jeremy Cooke earlier today:

The Port Authority of New York and New Jersey attracted no bids from investment banks interested in underwriting a $300 million taxable note offering in another sign that the seizure in credit markets persists.

The three-year notes, backed by revenue from the bi-state agency that operates airports, river crossings and transit in the New York City area, were placed up for competitive sale this morning. The deal carried the highest short-term ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings and would have been the largest of its kind in eight months.

“It’s astonishing,” said Fred Yosca, managing director and head of trading at BNY Mellon Capital Markets in New York. “A household name, like the Port Authority, not being able to get a bid is truly a sign of a market that is in distress.”

States and cities have struggled to sell bonds through advertised bidding in recent months, as underwriters focus on lining up individual investors in negotiated deals ahead of time to avoid getting stuck with too many unsold securities.

One economist today suggested that the situation was the financial equivalent of Warren Buffett not being able to get a $20 million loan…

Sources:

“Mortgage fraud incidents up 45%”
Associated Press, December 2, 2008

“US soldiers re-enlisting because of poor economy”
Associated Press, December 2, 2008

“Port Authority Gets No Bids for Taxable Bond Offering (Update3)”
Adam L. Cataldo, Jeremy R. Cooke
Bloomberg, December 3, 2008

Related Post

It’s not often you see a “crash prophet” criticize another prophet’s investment style. From our sister blog Investorazzi.com tonight:

“Mark Faber: Forget Warren Buffett Aproach, This Is A Traders’ Market”

“I think The Warren Buffett approach is dead, and it’s been dead for ten years, and it’s going to be dead for another ten years. We’re moving into very high volatility, big swings in all markets.”