Extreme Home Makeover Depression Edition

Inquiring minds are watching a pair of videos from Southern California. Allegedly, banks acquired brand new homes in foreclosure processes, the homes were not quite finished and the banks razed these homes rather than fix code violations.

Extreme Home Makeover Depression Edition Part 1



Extreme Home Makeover Depression Edition Part 2



There you have it. Brand new nearly completed homes have a negative value because of regulations and are therefore destroyed.

Addendum

From "Vision Victory" ...

THANK YOU so much for posting my videos about the homes being destroyed in Victorville CA. The exact location for your records is in the city of Victorville off Bear Valley Road and the 395.

It was in the local paper, but they chose not to put it on their website, which is NOT normal. So right now the videos are the only story out there.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

GM to Become "Government Motors"

The clock is ticking for GM. If an agreement with the bondholders and the unions is not reached by June 1, GM is headed for bankruptcy court. If the deal is approved as currently on the table, the Treasury department would become GM's largest shareholder.

Bankruptcy looks increasingly likely as GM Bondholder Group Says Offer Isn’t ‘Reasonable’.

General Motors Corp. bondholders find the automaker’s offer to exchange their $27 billion in debt for equity unreasonable and said they should be treated more equitably with labor unions.

“We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another,” the ad hoc committee of GM bondholders said today in a statement.

Bondholders are being asked to swap all their claims for 10 percent of the equity in the reorganized company. The offer is contingent on cutting at least half of GM’s $20.4 billion of obligations to a United Auto Workers retiree-medical fund, known as a Voluntary Employee Beneficiary Association, through a debt- for-equity exchange that would give the VEBA as much as 39 percent of common stock in the Detroit-based carmaker.

Without an accord, bondholders face the uncertainty of bankruptcy, GM Chief Financial Officer Ray Young said today. At least 90 percent in principal amount of the notes must be exchanged by June 1 to satisfy the U.S. Treasury, GM said today in a statement.

“This is an offer that’s designed to fail,” said Kip Penniman, an analyst at fixed-income research firm KDP Investment Advisors in Montpelier, Vermont. “To get 90 percent of them to agree to such a deal where there’s no cash, no other debt and pure equity while leaving the union VEBA arrangement unchanged from previous considerations is absurd.”

Bondholder Math

The Market Cap of GM is $1.25 billion. The administration wants bondholders to forfeit $27 billion in debt obligations in return for equity shares worth a mere $125 million (10% of $1.25 billion).

Can anyone blame bondholders for walking away?

Conflicts for Government

The Wall Street Journal is reporting Control Would Create Conflicts for Government.

The government could be exposed to a host of conflicts and potential unintended consequences if it ends up -- as now appears likely -- with a controlling stake in General Motors Corp.

Under GM's latest restructuring plan, the U.S. would get at least a 50% stake in the largest Detroit auto maker. Even without a majority stake, the government was able to use its muscle in March to oust GM Chief Executive Rick Wagoner. But such a major holding would turn GM into a sort of Government Motors, making the federal government the company's de facto boss and bank lender.

A direct stake could create other uncomfortable conflicts: The Obama administration would be setting emissions and mileage standards for cars in Washington while having to implement them in Detroit. It also would make the government a direct partner of the United Auto Workers, which would get a 39% stake in the company under GM's latest blueprint for survival.

A final GM plan is still many months away, and early reaction from bondholders suggests that the plan won't come together in its current form. But even if it flops, the proposal reveals that the government, in close consultation with GM, is prepared to become more deeply immersed in the operations and rehabilitation of the auto maker.

Both the Bush and Obama administrations have grappled with how to shore up the economy without getting directly involved in running companies. They were unable to avoid an entanglement with insurer American International Group Inc., in which the government now owns an 80% stake after committing more than $170 billion in emergency relief. It will soon own more than a third of banking giant Citigroup Inc., with which it has had a sometimes-fraught relationship.

But in contrast with those cases, the GM proposal comes as part of an all-out administration effort to restructure the U.S. auto industry, including the country's third-largest car company, Chrysler LLC.

"The big question is whether the government, as a shareholder, will be focused on GM making money, or it making clean and green cars, or whatever other political agenda they have for the auto space," says Peter Kaufman, president and head of restructuring at investment bank Gordian Group LLC.

The Treasury's current plan is to hold its GM ownership stake in some form of trust, say people briefed on the situation. The administration's auto team is now drafting documents that lay out how that trust and its government-appointed trustees will manage the government's majority stake.

Still unclear is how long the government would maintain its ownership, these people say. There are differing views in the administration, with some advocating a quick sale of the stake while others argue the government needs to take a long-term view and hold GM for a long time to get a better price. One administration official said the government would likely sell its shares gradually, but only after GM had regained its financial moorings and rebuilt its reputation.

GM to Eliminate 21,000 Jobs

The New York Times is reporting G.M.’s Latest Plan Envisions a Much Smaller Automaker.

For all the uncertainty swirling around General Motors, the troubled automaker said Monday that one thing was clear: it must become drastically smaller if it hopes to remain a viable company, regardless of whether it has to file for bankruptcy.

G.M. said it would eliminate another 21,000 factory jobs, close 13 plants, cut its vast network of 6,500 dealers almost in half and shutter its Pontiac division.

By the time it is finished, G.M. expects to have only 38,000 union workers and 34 factories left in the United States, compared with 395,000 workers in more than 150 plants at its peak employment in 1970.

Where once G.M. had a 50 percent share of the market for new vehicles in the United States, the company hopes to at least hang on to its current 18 percent share.

Analysts warned that even those projections could be optimistic. “There is still a huge risk for market share losses beyond what the company is forecasting,” said John Casesa, an industry consultant.

G.M., however, still faces difficult odds of restructuring outside of bankruptcy court.

The company is still negotiating with the United Automobile Workers union. The government wants the union to accept company stock to finance half of G.M.’s $20 billion obligation for retiree health care.

If bondholders approve the debt-for-equity exchange, they would own about 10 percent of G.M., making them a minority shareholder in a company controlled by the Treasury and the U.A.W.’s retiree trust.

According to the offer, the Treasury would own at least 50 percent of G.M. in exchange for forgiving about $10 billion in federal loans. The union trust, in turn, would receive a stake of about 39 percent.

A committee of big G.M. bondholders on Monday called the offer a “a blatant disregard for fairness for the bondholders” and an example of “political favoritism” toward the U.A.W. “The current offer is neither reasonable nor adequate,” the committee said.

Representative Thaddeus McCotter, a Michigan Republican, is concerned that some bondholders want the company to go bankrupt because they also hold credit-default swaps insuring them against losses.

He is urging the Treasury secretary, Timothy F. Geithner, to disclose which G.M. bondholders have default swaps from the American International Group, the insurance company that was bailed out by the government.

“It would be unconscionable to use taxpayer money to help people benefit from the bankruptcy of General Motors,” Mr. McCotter said.

Deal Recap

If the deal goes through as currently proposed....

• The Treasury (taxpayers) would be stuck with 50% of GM's equity (currently worth $625 million) in exchange for forgiving about $10 billion in federal loans.
• The UAW would get 39% of GM's equity (currently worth $488 million) in exchange for giving up $10 billion in health care benefits
• Corporate bondholders would get 10% equity (currently worth $125 million) in exchange for giving up $27 billion in bonds.

Under the above agreement there is still a missing $10 billion piece of the puzzle: "The government wants the union to accept company stock to finance half of G.M.’s $20 billion obligation for retiree health care as noted above."

What happens to the other $10 billion? Does it vanish into thin air? My guess is this would be dumped on taxpayers via the Pension Benefit Guarantee Corporation (PBGC)

Everybody loses but the credit default swap holders. Now who might that be? JPMorgan, Goldman Sachs, and/or Citigroup by any chance?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Technical Indicators Scream Caution

A huge array of charts I am following are signaling caution. Let's take a look at various Bullish Percent charts, High-Low charts, and McClellan Oscillator charts, starting with a review of the theory behind each.

Bullish Percent Index (BPI)

The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Bullish Percent levels that are above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%.

McClellan Oscillator

Developed by Sherman and Marian McClellan, the McClellan Oscillator is a breadth indicator derived from each day's net advances, the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average from the 19-day exponential moving average of net advances forms the oscillator.

Buy and sell signals are generated as well as overbought and oversold readings. Usually, readings above +100 are considered overbought and below -100 oversold. Overbought and oversold readings may vary among indices and historical precedent. Buy signals are generated when the oscillator advances from oversold levels to positive territory. Sell signals are generated on declines from overbought to negative territory. Traders may also look for positive or negative divergences to time their trades. A series of rising troughs would denote strength, while a series of declining peaks weakness.

Record High Percent Index

The Record High Percent Index is a market breadth indicator created by dividing the number of 52-week highs for a given market by the sum of the number of new highs and the number of new lows.

Record High Percent = New Highs / (New Highs + New Lows)

The values range between 0.0 and 1.0. A value of 0.0 means that there were no new highs on that day. A value of 1.0 means that there were no new lows on that day. A value of 0.5 means that the number of new highs and new lows were equal.

Click On Any Chart In This Series For a Sharper Image

$BPSPX - S&P 500 Bullish Percent Index



$BPCOMPQ - Nasdaq Bullish Percent Index



$BPNYA - NYSE Bullish Percent Index



$BPTRAN - Dow Jones Transports Bullish Percent Index



$BPFINA- S&P Financial Sector Bullish Percent Index



$NAMO - Nasdaq McClellan Oscillator



$NYMO - NYSE McClellan Oscillator



$RHSPX - S&P 500 Record High Percent Index



$RHNYA - NYSE Record High Percent Index



$RHCOMPQ - Nasdaq Record High Percent Index



Please remember these indicators are not a precise timing device. Nor do they indicate magnitude of a move. They do however indicate direction, and in this case, a potential change in direction.

The key point to note is these and many other similar indicators are flashing warning signs that this rally is getting very long in the tooth. With that in mind, bulls may wish to consider reviewing their risk reward setups and stop loss positions.

Bears who have not been blown out of the water may have an opportunity at hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Money Multipliers, Velocity, and Excess Reserves

Inquiring minds are reading the Quarterly Review and Outlook by Van Hoisington and Dr. Lacy Hunt. It's an excellent report so let's take a look at some commentary and charts.

Record Expansion of the Fed's Balance Sheet and M2

In the past year, the Fed's balance sheet, as measured by the monetary base, has nearly doubled from $826 billion last March to $1.64 trillion, and potentially larger increases are indicated for the future. The increases already posted are far above the range of historical experience. Many observers believe that this is the equivalent to printing money, and that it is only a matter of time until significant inflation erupts. They recall Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon."

These gigantic increases in the monetary base (or the Fed's balance sheet) and M2, however, have not led to the creation of fresh credit or economic growth. The reason is that M2 is not determined by the monetary base alone, and GDP is not solely determined by M2. M2 is also determined by factors the Fed does not control. These include the public's preference for checking accounts versus their preference for holding currency or time and saving deposits and the bank's needs for excess reserves. These factors, beyond the Fed's control, determine what is known as the money multiplier. M2 is equal to the base times the money multiplier. Over the past year total reserves, now 50% of the monetary base, increased by about $736 billion, but excess reserves went up by nearly as much, or about $722 billion, causing the money multiplier to fall (Chart 3). Thus, only $14 billion, or a paltry 1.9% of the massive increase of total reserves, was available to make loans and investments. Not surprisingly, from December to March, bank loans fell 5.4% annualized. Moreover, in the three months ended March, bank credit plus commercial paper posted a record decline.



click on chart for sharper image

Hoisington is correct that the Fed is not in control. However, the statement "Thus, only $14 billion, or a paltry 1.9% of the massive increase of total reserves, was available to make loans and investments" places the cart in front of the horse.

The money is available to lend in theory (It's not really for reasons we will get to in a moment) but banks simply do not want to lend as the pool of credit worthy borrowers is shrinking. Moreover consumers and corporate borrowers are showing a huge demand for dollars (a reluctance to borrow and spend).

Excess reserves are rising because of the increased demand for money and because banks are preparing in advance for future writeoffs, not because the increased demand for money means there is less money to lend. It's important to place the horse in front of the cart.

Nonetheless, it's important to note that "from December to March, bank loans fell 5.4% annualized. Moreover, in the three months ended March, bank credit plus commercial paper posted a record decline."

Total Bank Credit



click on chart for sharper image

While not yet negative, total bank credit is plunging. Now conceptualize what that chart would look like if banks marked that credit to market (my preferred way of looking at things). No doubt that chart would be deep into negative territory.

We do not know the full extent of what that chart would look like with credit marked to market because banks are playing games with level 3 assets, hiding bad debts in off balance sheet SIVs, and otherwise pretending that many loans that will never be paid, will be paid back.

Factors Affecting Banks Unwillingness To Lend

• Rising unemployment will cause ...
• Rising credit card defaults
• Rising home equity loan defaults
• Rising mortgage loan defaults
• Rising commercial loan defaults

On top of that there is an increased demand for money by cash starved boomers headed into retirement who finally realize they do not have enough savings.

Excess Reserve Mirage

Factor all of upcoming defaults and much of those so called Excess Reserves are pure fantasy!

Is it any wonder banks are reluctant to lend? The irony in this situation is that bank lending is the most responsible it has been in a decade, and neither the Fed nor Congress is happy about it.

With that let's return to the article with and discussion about M2 and Velocity.

What about the M2 Surge?

M2 has increased by over a 14% annual rate over the past six months, which is in the vicinity of past record growth rates. Liquidity creation or destruction, in the broadest sense, has two components. The first is influenced by the Fed and its allies in the banking system, and the second is outside the banking system in what is often referred to as the shadow banking system. The equation of exchange (GDP equals M2 multiplied by the velocity of money or V) captures this relationship. The statement that all the Fed has to do is print money in order to restore prosperity is not substantiated by history or theory. An increase in the stock of money will only lead to a higher GDP if V, or velocity, is stable. V should be thought of conceptually rather than mechanically. If the stock of money is $1 trillion and total spending is $2 trillion, then V is 2. If spending rises to $3 trillion and M2 is unchanged, velocity then jumps to 3. While V cannot be observed without utilizing GDP and M, this does not mean that the properties of V cannot be understood and analyzed.



Click on chart for sharper image

The highly ingenious monetary policy devices developed by the Bernanke Fed may prevent the calamitous events associated with the debt deflation of the Great Depression, but they do not restore the economy to health quickly or easily. The problem for the Fed is that it does not control velocity or the money created outside the banking system.

In regards to velocity it is important to understand that falling velocity does not cause anything to happen. Falling velocity is a result of two phenomena.

1. Increased demand for money
2. Undertaking projects that make no economic sense (i.e. there is negative cost benefit payback).

Most government sponsored work efforts have a negative payback as do the various "ingenious monetary policy devices developed by the Bernanke Fed", as did the lending practices of Fannie Mae, etc.

Moreover those "highly ingenious monetary policy devices" are guaranteed to prolong the recovery process if not make the ultimate calamity worse. This is what happened when Japan tried the same measures.

Let's return once again to Hoisington.

Japan Government Debt vs. Economic Recovery

By weakening the private economy, government borrowing is not an inflationary threat. Much light on this matter can be shed by examining Japan from 1988 to the 2008 and the U.S. from 1929 to 1941. In the case of Japan government debt to GDP ratio surged from 50% to almost 170%. So, if large increases in government debt were the key to economic prosperity, Japan would be in the greatest boom of all time. Instead, their economy is in shambles. After two decades of repeated disappointments, Japan is in the midst of its worst recession since the end of World War II. In the fourth quarter, their GDP declined almost twice as fast as that of the U.S. or the EU. The huge increase in Japanese government debt was created when it provided funds to salvage failing banks, insurance and other companies, plus transitory tax relief and make-work projects.

In 2008, after two decades of massive debt increases, the Nikkei 225 average was 77% lower than in 1989, and the yield on long Japanese Government Bonds was less than 1.5% (Chart 6). As the Government Debt to GDP ratio surged, interest rates and stock prices fell, reflecting the negative consequences of the transfer of financial resources from the private to the public sector (Chart 7). Thus, the fiscal largesse did not restore Japan to prosperity. The deprivation of private sector funds suggested that these policy actions served to impede, rather than facilitate, economic activity.


click on chart for sharper image

Other than an occasional putting the cart in front of the horse syndrome, this was an excellent read by Van Hoisington and Dr. Lacy Hunt. It's well worth a complete review.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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A Quick Technique for Edgier Group Shots

When I shot for newspapers, one of the most common visually subpar assignments was the two- or three-person group shot. Nothing against group shots per se, but the small group was usually indicative of a reporter who just couldn't say "no."

The story might really be about Person "A," but the reporter gets strong-armed into this really being a "group effort," (translation: I don't want to be the only one in the photo, blah, blah, blah...)

So the 2-3 person group shot gets a bad rap from the get-go. Which is a shame, really, because most group shots are a good opportunity to play.

Why? Because you typically have nothing to lose since the normal group shot in the paper is a huge yawner to begin with. Hit the jump for a quick tip for carving out quick group light.
__________


Experimenting on Captive Subjects

Let me begin by saying that I especially love one thing about lighting classes: They are attended by a roomful of people who think it is perfectly normal to play around with light for no good reason whatsoever. So naturally, I use them as guinea pigs for lighting ideas that I have in the back of my head.

Lord knows, they are much more cooperative than my kids. Heck, the cat won't even stay in the same room with me at home any more.

I have a project coming up this summer that will call for shooting some edgy looking small group shots, so I want to work a look that has a little more cowbell than the typical big-soft-light group. Nothing wrong with that light -- just a little too been-there-done-that for me at this point.


For the group above (R to L, Damian, Romain and Christian) at the CERN workshop, I started with my fill to place my baseline exposure before even considering the key lighting. The fill is an umbrella right behind the camera -- sort of a poor man's ring flash. A little better than ring, actually, as it is softer and does not leave that "ring signature" on the background wall.

I saw one immediate problem. The fill was not pushing to the back of the scene very well. This was because of the difference in distance between the fill as it hit the subject on the right (a coupla feet away from the camera) to the distance to the back wall (10-15 feet away). Of course the wall is gonna be dark, right?


Solution: Back that flash up. This is where the on-axis umbrella kicks the ring's butt. With a ring flash, your light location relative to the camera is locked down. With the on-axis flash, not so much.

So, by backing up the light we get better penetration of the fill into the back of the scene. Not perfect, but way better than before.

Now, it is just a matter of dialing in the baseline exposure before we accent the faces. This is a piece of cake, and easy to do by eye without a meter. Just light the scene with the umbrella fill, adjust the power until the scene looks good, and then alter either the flash power or the aperture until you see that the shadows -- areas will not be lit by your key(s) -- are where you want them to be. Check your histograms to make sure you are not falling off of the table on your darkest tones. Unless you really want to, of course.


You can set the base fill by dropping your power on the umbrella. But you'd probably want to just close down your aperture in a case like this, to buy yourself some depth of field. I am not gonna carry Romain in the back as tack sharp, but I may as well get him recognizable.

Which brings up an important point. Just for the heck of it, we shot them exactly where they sat in class. Sort of an exercise in lighting angles. If I was shooting them critically, I would want to compress the distance to hold focus on all three.


Now it is just a matter of adding the key lights. Remember, we are in total control of both the quality and the intensity of the fill, as we nailed that stuff down first. What that gives you is both the ability (and the excuse) to get a little atypical with your key lighting. We can go hard, grids, edgy angles -- whatever. Their faces will hold it because we have pre-determined the look and depth of the shadows.

For the key(s) we went with two hard speedlights, one of which sported a grid spot.

As the lead dog, Christian, right, got his own key light. It was gridded to control the beam spread. But I was able to light both Damian and Romain with the same speedlight, which was also bare.

You can more easily get away with hard lighting when you have pre-set your fill. Because while the transition from highlight to shadow will be quick and hard, you have decided exactly how far the drop-off will be. You can play it safe or be increasingly risky, by altering the intensity of your fill light.

You can see a setup shot here, courtesy Mark Howells-Mead of the Swiss Strobists Group. (Check out their meetup schedule if you are local, too.)


Here it is again. I took some liberties with the seams on the back wall (which turned it into a pretty cool backdrop) and removed a sticker.

But what the hell, I am not bound to the newspaper's rules anymore. It's not a completely finished look. But this quick experiment give me enough to go on to where I feel comfy trying it for my project later this summer. I tried a second variation (still honing it) on a single portrait early this month. And I really like the way it is evolving. I will hit that one on a later post.


Test, Test, Test.

It sounds weenie, but it will give you the courage to try new stuff when you really need a different look. And when you get dealt your fourth three-person group shot in a week, a new look is exactly what the doctor ordered.

Homeland Security Declares Public Health Emergency Over Swine Flu Outbreak

Swine Flu outbreaks have been reported in New York, Texas, California, Kansas and Ohio. In Mexico, the health minister has requested (voluntarily at this point) suspension of public events (movie theaters, church gatherings, bars).

In addition Russian has suspended meat imports from Mexico and the US over swine flu concerns. Here are the headline items.

Mexico Seeks to Contain Swine Flu, Economic Impact

Mexican President Felipe Calderon, operating under emergency powers declared yesterday, stopped short today of shutting down work places in the Mexico City area, the most populated and productive of the country, amid a deadly swine flu outbreak to ease the economic impact.

Calderon is holding powers to order quarantines and suspend public events. So far, the government has closed schools in Mexico City and the states of Mexico and San Luis Potosi and has canceled government activities that draw crowds.

Health Minister Jose Cordoba requested, but didn’t order, the closure of bars, movie theaters and churches to help contain the outbreak.

At least 20 deaths are confirmed in Mexico and 1,324 patients are hospitalized with flu-like symptoms, Cordova said yesterday at a Mexico City news conference. The strain is a variant of the H1N1 swine influenza that has infected 11 people in Kansas, California and Texas and may have sickened at least eight students in New York.

Museums, theaters and other venues in the Mexico City area, where large crowds gather, have shut down voluntarily and concerts and other events have been canceled to help contain the disease. Two professional soccer games will be played today in different Mexico City stadiums without any fans.

“We request the collaboration to reduce the sources of contact by suspending events in closed or open spaces of any type,” Cordoba said.

The emergency decree lets Calderon regulate transportation, send inspectors into any home or building, order quarantines and assign any task to all federal, state and local authorities as well as health professionals to combat the disease.

Swine Flu Confirmed in US

The Center for Disease Control says Swine Flu Confirmed in 20 People in the U.S.

Twenty people in the U.S. have confirmed cases of swine flu linked to the virus that has spread in Mexico, and the acting head of the Centers for Disease Control and Prevention said officials expect more severe infections to begin showing up.

Richard Besser, the CDC’s acting director, said the virus has been identified in New York, Texas, California, Kansas and Ohio. So far, the cases have been relatively mild and only one person has reported being hospitalized.

“It looks to be the same virus that is causing the situation in Mexico,” Besser said at a briefing at the White House. Scientists are trying to determine why the virus, normally transmitted among pigs, has been more severe in Mexico, where as many as 81 deaths have been linked to the infection.

There is no vaccine for the virus, he said.

Homeland Security Secretary Janet Napolitano said stockpiles of drugs to treat patients will be made available. The government is issuing a health emergency declaration to free up more resources to combat the spread of the virus.

Swine Flu Outbreak at Private New York School

Swine Flu Virus Outbreak Confirmed at New York School

Health officials have confirmed an outbreak at a New York private school of swine flu that may have come from Mexico where the virus is suspected of killing 81 people.

The virus may have been brought back by students who were vacationing in Mexico during a recent spring break, though that couldn’t be confirmed, Bloomberg said. The virus has sickened more than 1,000 in Mexico. There have been 20 confirmed cases in five U.S. states requiring one hospitalization, the Centers for Disease Control and Prevention said today. New York health officials have been urging people not to go to the hospital unless they are severely ill.

About 200 students at St. Francis were ill last week with flu-like symptoms, the New York Department for Public Health and Mental Hygiene said yesterday.

Public Health Emergency Declared

In the US, the Department of Homeland Security Declares Public Health Emergency.

A public health emergency has been declared in the U.S. to free up resources to deal with the swine flu, Janet Napolitano, secretary of the Department of Homeland Security, said at a White House briefing today.

No official travel advisories have been issued by the U.S. State Department in relation to the disease, Napolitano said. A follow-on flu outbreak is possible in several months, she said.

Russia Suspends Meat Imports

Russia Suspends Mexican, Some U.S. Meat Imports on Swine Flu

Russia suspended imports of all meat from Mexico and the U.S. states of Texas, California and Kansas shipped after April 21 on concern about the spread of swine flu, the country’s veterinary watchdog said.

The suspension also affects pork from Guatemala, Honduras, the Dominican Republic, Columbia, Costa Rica, Cuba, Nicaragua, Panama, Salvador, and the U.S. states of Alabama, Arizona, Arkansas, Georgia, Kansas, Louisiana, New Mexico, Oklahoma and Florida, the watchdog added in a statement on its Web site today.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ECB's Lord Voldemort Policy

Inquiring minds are reading ECB Likely to Make Moderate Rate Cut.

European Central Bank governing council member Guy Quaden said the bank will probably cut its benchmark interest rate by a “moderate” amount next month.

“A new cut for our main interest rate is surely not excluded,” Quaden told reporters in Washington today. “It will probably be moderate, but it would bring our main rate to a new historically low level. We will also discuss and probably decide other non-conventional measures.”

Bank of Italy Governor Mario Draghi said today that there is now a “long list of indicators that are less ugly.” Bank of France Governor Christian Noyer said confidence was improving and consumption was holding up “quite well,” while colleague Ewald Nowotny of Austria said he sees positive signs and high uncertainty in the economy.

Both Draghi and Quaden said deflation was a risk to the economy. Nowotny said while the ECB expected prices to shrink for some months, they will rise over this year and next.

“We, as the ECB, don’t speak of deflation but disinflation,” Nowotny said in Washington. “At the moment, we have certainly the need for an expansionary policy.”

Like the wizards in Harry Potter afraid to say "Voldemort" the dark lord's name, the ECB is afraid to speak of deflation. Whether they are willing to speak of deflation or not, it has arrived.

ECB Options to Fight Recession Include Rate Floor

ECB Governor Nout Wellink says ECB Options to Fight Recession Include Rate Floor.

The European Central Bank is considering several options including a floor for its benchmark interest rate to fight the recession, said Nout Wellink, a member of its governing council.

The ECB’s 22 council members appear split over how to counter the worst economic slump since World War II, at a time when the bank’s main rate is already at a record low of 1.25 percent. Germany’s Axel Weber has said the bank shouldn’t cut the rate below 1 percent. Others, including Athanasios Orphanides of Greece, want to keep open the option of deeper rate reductions and have argued in favor of asset purchases.

The Federal Reserve and Bank of England have already cut lending rates close to zero and are buying government and corporate debt to bolster their economies. The Bank of Canada this week cut its key rate to 0.25 percent and said it plans to leave it there for more than a year.

Trichet Signals

While ECB President Jean-Claude Trichet has signaled another quarter point reduction in the main lending rate is likely next month, he has declined to comment on what new tools the bank will adopt. He said in Washington on April 24 that growth was unlikely to return “rapidly.”

“A negative inflation rate by itself is not a problem, on the contrary it increases real disposable income,” Wellink said. “The lower and the longer the disinflationary process is, the greater of course the chance that in a certain moment people are going to react in a way we don’t want them to react. That is at this very moment not an issue.”

Inflation hawk Trichet signals things are much worse than anyone suspects by suggesting growth is unlikely to return “rapidly.” Moreover, Wellink, like Nowotny just cannot bring himself to say the dreaded D word, confirming the ECB's Lord Voldemort policy on deflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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