Daily Digest - Jun 27

• Fungus threat hangs over world wheat production
• SEVERELY Bearish Treasury Development
• Friday Night Special Massacre (1.04b, Week 18, 5 Banks This Week, 45 This Year)
• Mounting Jobless Claims Force States To Borrow Funds (H/T RidTheMonster)
• U.S. Stocks, Dollar Decline on China Calls for World Currency
• State cuts tax exemptions for kids
  
• Mass Layoff Events Continue Accelerating
• Brussels to review workings of 'dark pool' trading facilities
• Worries over systemic risk in CMBS sector
• California Foreclosure Prevention Act: Creating an Army of Lifetime Renters in California
• More retail sales (Chart)
• Seasonal Home Sales Trend (Chart)
• Want to Sell Your Home.... Reduce the Price (Charts)
• The Fed's Emails
• Beware of Zombies Wearing Lipstick

Economy

Fungus threat hangs over world wheat production

OTTAWA — Scientists in Canada and around the world are racing to find a way to stop a destructive fungus that threatens to wipe out 80 per cent of the world's wheat crop, causing widespread famine and pushing the cost of such staples as bread and pasta through the roof.

Canadian officials say that the airborne fungus, known as Ug99, has so far proved unstoppable, making its way out of eastern Africa and into the Middle East and Central Asia. It is now threatening areas that account for more than one-third of the world's wheat production and scientists in North America say it's only a matter of time before the pest hits the breadbasket regions of North America, Russia and China.

"I think it's important people start recognizing what a big threat this is. This could mean world famine. This is quite the deal," said Rob Graf, a research scientist with Agriculture and Agri-Food Canada's research centre in Lethbridge, Alta.

The United Nations calls Ug99 "a major threat" to the world's food security.

"Anything that one part of the world gets, another part of the world will eventually get," said Doug Robertson, president of The Grain Growers of Canada. "Stem rust can be a really devastating disease."

Ug99 — so named because it was first found in Uganda in 1999 — is a type of stem rust. Spores from the fungus attach themselves to the stalk of a wheat plant and a pustule that causes the reddish-brown rust colour grows. The pustule takes over the plant's nutrient and water system to nurture more pustules and spores instead of grain.

Rust is a problem wheat growers have been dealing with since biblical times. Canadian wheat producers last dealt with a massive rust problem in the 1950s.

(More)

SEVERELY Bearish Treasury Development

NEW YORK (MarketWatch) -- Dresdner Kleinwort Securities has withdrawn from the Federal Reserve's primary U.S. government security dealers, the U.S. central bank said Friday.

The change is net neutral in terms of numbers as a new dealer just came online, but in general this is a major net negative for the Treasury market.

Why? Because being a primary dealer is, in general a license to print money. You get to field customer orders for Treasuries and make your spread, and you have a privileged trading position with The Fed.

There's only one fly in the ointment, and that is that the position comes with a requirement that you bid. This is distinct from most other nations where no such system exists, and essentially guarantees that there can never be a "failed" Treasury auction.

Friday Night Special Massacre (1.04b, Week 18, 5 Banks This Week, 45 This Year)

Mirae Bank, Los Angeles, CA	57332	June 26, 2009	June 26, 2009
Metro Pacific Bank, Irvine, CA	57893	June 26, 2009	June 26, 2009
Horizon Bank, Pine City, MN	9744	June 26, 2009	June 26, 2009
Neighborhood Community Bank, Newnan, GA	35285	June 26, 2009	June 26, 2009
Community Bank of West Georgia, Villa Rica, GA	57436	June 26, 2009	June 26, 2009

Mounting Jobless Claims Force States To Borrow Funds (H/T RidTheMosnter)

Fifteen states have depleted their unemployment insurance funds so far, forcing them to borrow from the U.S. Treasury.

A record 30 of the country's 50 states are expected to have to borrow up to $17 billion by next year, said Rick McHugh of the National Employment Law Project, a nonpartisan advocacy group.

"We are setting the stage for big pressures for states to restrict eligibility and benefit levels," McHugh said. "Those type of restrictive actions undercut the (Depression-era program's) economic and social stability purposes."

The state-run unemployment insurance programs are normally financed with payroll taxes paid by employers on each worker. But the funds' tax revenues are falling at the same time as benefit demands are rising.

U.S. Stocks, Dollar Decline on China Calls for World Currency

June 26 (Bloomberg) -- U.S. stocks and the dollar dropped after China’s central bank reiterated a call for a “super sovereign currency,”

State cuts tax exemptions for kids

California parents beware: Those little tax deductions running around the house are now worth less (in a strictly financial sense, of course).

Mass Layoff Events Continue Accelerating

It was only three months ago when people assumed that the turnaround in BLS' metric for mass layoff events meant an end to something or another. Nope. For the third straight month both mass layoff events and initial claimants for insurance picked up. There is nothing even remotely optimistic about this data... Which probably explains why unlike March when CNBC filled an entire day discussing this brand new datapoint that none of the anchors had heard before, today one would not hear a peep out of them on it. Next month: the 6 month MA gets surpassed on both indications.

Here are my last month's observations.

(P.S. is continue accelerating redundant? acceleration is a second derivative of speed (or whatever, semantics), so if you "continue" does that make it a third? Are third derivatives more potent in their greenshootery/astroturfery than second derivs?)

Brussels to review workings of 'dark pool' trading facilities

Dark pools started in the US more than five years ago and are popular with institutional investors such as banks and asset managers. Their operators say they provide a legitimate service because the execution of large orders is becoming increasingly difficult on normal markets as electronic trading slices orders into ever-smaller sizes, creating an environment where large orders are easily visible to rival traders.

Dark pools have also come under the scrutiny of the Committee of European Securities Regulators (CESR) as part of its review of Mifid. In a report this month the CESR said that, while such dark pools were "unlikely to have attracted much liquidity" so far, it was unclear how the market would develop.

"This is a space whose development regulators may wish to monitor to better understand the impact dark pools may have on the market," it said.

Mifid says market operators must make public details of best bids and offers "on reasonable commercial terms", to allow the investing public to assess trading opportunities.

However, it exempted dark pools from certain obligations under special "pre-trade transparency waivers".

The CESR agreed in February to review all existing Mifid waivers, starting in the second half of this year. It said that work would be fed into any Commission review of dark pool waivers.

Worries over systemic risk in CMBS sector

Even as conditions in many parts of the credit markets have improved, a big question mark hangs over one large part of the market that is still dysfunctional: the market for securities backed by commercial mortgages.

California Foreclosure Prevention Act: Creating an Army of Lifetime Renters in California

[Lots of excellent charts on page]

On June 15th California implemented another foreclosure moratorium. The California Foreclosure Prevention Act (CFPA) was signed into law by Governor Schwarzenegger which adds another 90 days to the foreclosure process. If you recall, a similar law was put into place in 2008 and turned out to be an utter failure. So what do we do? We virtually create another replica plan for a second go around. The plan will fail on so many levels and we will discuss the reasons why in this article. California has taken a major beating since it was part of the housing bubble mania and is now at the forefront of the bubble bursting.

The problem with dealing with the current foreclosure issue in California is how the issue is being framed. Take this perspective for example:

More retail sales (Chart)

Seasonal Home Sales Trend (Chart)

Want to Sell Your Home.... Reduce the Price (Charts)

Falling prices boosted sales of pre-owned homes in May to the highest level since October, the National Association of Realtors estimated Tuesday. Existing-home sales rose 2.4% to a seasonally adjusted annual rate of 4.77 million, the trade group said. Sales have risen in three of the past four months, and are down 3.6% in the past year. The sales increase was less than the 4.85 million rate expected by economists surveyed by MarketWatch. The median sales price fell 16.8% in the past year to $173,000 (worse than the 14.9% we saw last month, which was likely just noise), the third largest year-over-year decline on record. Inventories of unsold homes fell 3.5% to 3.80 million, representing a 9.6-month supply at the May sales pace.
The only region which has seen an increase in year over year sales is the West.

The Fed's Emails

Beware of Zombies Wearing Lipstick

Before last fall’s crash, our economic views here at Casey Research were regarded by many in the mainstream as being extreme and alarmist. Unfortunately, they were also another thing: correct.

Predictably, having been proven right hasn’t changed anything; Wall Street still pooh-poohs us as being part of the lunatic fringe. But that’s okay; while the Suits are wondering if they can back-date their stock options far enough if the economy doesn’t recover, we are poised to profit whether it does or doesn’t.

Personally, I think the U.S. economy has decayed from dead-man-walking status to that of a zombie in the grave.