Catherine Austin Fitts -- A Major Shift of Capital

From the Marc Faber blog 4/27/11

Japan Rating Outlook Lowered to Negative by S&P on Quake Rebuilding Costs

For a nice breakdown of the situation financially in Japan go to Mr K's Mean Old Investor on the blog list. This is from Bloomberg.

Japan’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s as the nation’s reconstruction needs following last month’s earthquake will likely add to what’s already the world’s biggest debt load.

The outlook on Japan’s local-currency debt rating, at AA-, the fourth-highest grade, was lowered from “stable,” S&P said in a statement today. The company had reduced the rating by one step in January in the first cut since 2002. Moody’s Investors Service said last month the disaster may bring forward the “tipping point” for the country’s bond market.

Today’s decision adds to pressure on Prime Minister Naoto Kan, who has yet to detail how the rebuilding will be paid for and how he plans to rein in longer-term fiscal deficits. A cross-party group of senior lawmakers said that Kan shouldn’t raise taxes, and called on the central bank to buy more government bonds instead.

“Japan has repeatedly suffered under poor leadership, but this disaster has made that point even clearer,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The government needs to decide how it’s going to fund its next reconstruction package.”

The yen slid to as low as 81.78 against the dollar after the announcement, before trading at 81.59 at 2:24 p.m. in Tokyo. Japanese government bond prices fell, with the benchmark 10-year yield rising one basis point to 1.225 percent. The Nikkei 225 (NKY) Stock Average rose 1.4 percent after improved earnings in the U.S. added to signs of strength in the global economy.

Retail Sales

As public spending increases, revenue will likely decline because of the economic hit from the earthquake, tsunami and nuclear radiation crisis, with a report today showing retail sales tumbled the most in 13 years last month.

“It’s wrong to immediately raise taxes from a macro- economic standpoint, and we should use government bonds,” Sakihito Ozawa, a former environment minister and member of Kan’s Democratic Party of Japan, said at a press conference in Tokyo today. “The Bank of Japan should buy bonds in purchase operations to raise cash.”

Ten legislators from the DPJ, the main opposition Liberal Democratic Party, the New Komeito Party, the Social Democratic Party, the Your Party and the People’s New Party attended the briefing. They made no specific mention of pushing the BOJ to directly underwrite government debt, a suggestion Governor Masaaki Shirakawa and administration officials have rejected.

Rebuilding Cost

S&P predicted that rebuilding will cost as much as 50 trillion yen ($611 billion), with 30 trillion yen its “central forecast.” That will require more borrowing, boosting net government debt to 145 percent of gross domestic product in fiscal 2013, compared with an earlier forecast of 137 percent, S&P estimated.

Kan’s first of what may be multiple extra budgets for reconstruction is for 4 trillion yen. The package, including public works to rebuild roads, bridges, ports and other infrastructure in devastated northeastern areas, may create about 200,000 jobs, the Cabinet Office said in a statement today.

“Much will depend on Japan’s political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future,” S&P said. “A downgrade is possible if Japan’s public finances weaken further over the next two years in the absence of fiscal consolidation.”

Japan must work to restore its fiscal health while doing everything it can to rebuild, Finance Minister Yoshihiko Noda said after the announcement. Moody’s today reported no change to its negative outlook for Japan’s Aa2 grade rating, the third highest, after a reduction from “stable” in February because of political gridlock.

Rising Debt

Japan’s public debt will probably rise 5.8 percent to 997.7 trillion yen in the year started April 1, from a projected 943.1 trillion yen last year, the Finance Ministry said in January.

The Organization for Economic Cooperation and Development last week urged Kan’s government to at least double a sales tax to 10 percent and to implement increases as soon as possible. Total public debt will reach 204 percent of gross domestic product this year, according to the OECD, the highest level among nations tracked by the group.

“We’ll continue to work to maintain and secure trust in Japanese government bonds,” Chief Cabinet Secretary Yukio Edano said after S&P’s announcement, while declining to comment specifically on the change.

Japan maintains its credit rating for now because of a strong financial system, a surplus of funds within the nation and a “diversified” economy, according to S&P.

Bond Yields

“Japan continues to have an abundance of savings, so bond yields are unlikely to surge,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “If the central bank helps with reconstruction by adding further monetary stimulus, Japan will probably be able to avoid a fiscal collapse.”

After spending to counter the global financial crisis, governments in developed nations are struggling to rein in debt, with S&P last week revising the long-term outlook for the AAA credit rating held by the U.S. to “negative” from “stable.”

That assessment means that the firm sees a one-in-three chance of a downgrade within two years. S&P sees a “material risk” that U.S. policy makers may fail to agree on how to address medium- and long-term budgetary challenges by 2013.

In Europe, ratings companies have this year downgraded Portugal, Greece and Ireland, with yields on those nations’ securities reaching records amid speculation that they will restructure debt.

Worse Than Lehman

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said yesterday that such a move by Greece would be “more devastating” than the collapse of Lehman Brothers Holdings Inc. in 2008.

Nations to get ratings upgrades this year have included Indonesia, Ecuador, Chile and Brazil.

Economists estimate that Japan’s GDP will shrink the most since the global credit crisis this quarter, before restoring expansion in the second half of the year. The economy may contract 3 percent in April-to-June, according to the median of 18 estimates in a Bloomberg News survey this month.

Retail sales slumped 8.5 percent in March from a year earlier, according to a statement by the trade ministry in Tokyo today. None of 14 economists surveyed by Bloomberg News forecast such a large decline. Toyota Motor Corp. (7203) led a record drop in auto sales in March and retailers Aeon Co. and Seven & I Holdings Co. expect full-year profit to slide.

“Everything is working against consumers, from the power shortage to a general reluctance to spend after the tragedy,” Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo, said after the report. “It’s looking increasingly likely that March was the worst month on record for consumer spending, and it’ll take a while before spending returns to pre-quake levels.”

Morning Update/ Market Thread 4/27 – Lip Service Doesn’t Change the Impossible Math Edition…

Good Morning,

I’ll be away this morning; this short update is written on the evening of the 26th…

The market action earlier today (26th) moved all of the major indices above their upper Bollinger Bands. The Transports and the SPX broke out to new closing highs, confirming the uptrend. The XLF, however, is still weak, and the VIX barely moved down after producing a market sell signal yesterday. Conflicting signals to me are a sign of a phony market – one driven not by fundamentals, but instead driven by money printing and manipulation (you can’t argue the manipulation as buying bonds is manipulating equities).

Durable Goods and the worthless MBA Purchase Applications report will come in the morning prior to the bell – hopefully someone will post those in the daily thread, if not I will when I return.

The FOMC announcement comes earlier than usual with the new format – 12:30 Eastern instead of 2:15. This is a SICK game that the “Fed” plays with the markets, lip service that is in fact nothing but psychological manipulation by those who stole the power to produce this nation’s money. They have created a completely impossible math situation, and nothing that Bernanke utters will change that… especially more lip service in the form of a post FOMC news conference. It’s kind of like having your torturer whisper sweet nothings in your ear right before they dunk your head under water for the hundredth time! Gee, thanks…

Raise your hand if you think Bernanke is going to say something stupid! What a ridiculous game, I feel like we should all be pounding out our flour on the nearest flat rock…

Standard & Poor’s tonight downgraded Japan from stable to watch “negative,” just like the U.S.. The truth, of course is that the impossible math of Japan is far further progressed than here and Standard & Poor’s is anything but in front of the situation. Yes, their conflicted business model is a large part of the situation in which we find ourselves (Japan Debt Outlook Cut to Negative by S&P on Reconstruction).

More and more evidence points to our own assessments about the Fukushima nuclear plants being far more accurate than the official story line. Now they are finally admitting leaks in 3 of the reactors, they are admitting that the number 4 fuel pool is leaking, and now experts are considering the possibility that the number 3 explosion wasn’t just hydrogen, but that it also had a nuclear impetus that spread the number 3 fuel pool fuel all over the planet…

Gundersen Postulates Unit 3 Explosion May Have Been Prompt Criticality in Fuel Pool

Again, to me we have a deadly serious situation in which a corporate special interest has been stonewalling the public. Not only that, the captured governments of Japan and the United States have failed to act in humanity’s best interest. At least I can give the Soviet Union far superior grades from that standpoint for the way that they quickly produced an all-out effort to contain the radiation of Chernobyl. Looking at both incidents now in hindsight, it is clear to me that the Russians lacked this special interest capture and thus the government was able to act. Sure would be nice to learn this lesson, it’s the same lesson we should have learned following the BP oil spill.

Have a great morning, carry on my wayward sons, and enjoy the “Fed” lip flappin’!

Wealthy Leaving Las Vegas Mansions as Foreclosure Pain Spreads

Nicolas Cage, the Oscar-winning star of “Leaving Las Vegas,” bought a seven-bedroom home with a panoramic view of the city’s casino-lined Strip in 2006 for $8.5 million. By January 2010, it was in foreclosure.

The next owner, who property records show paid $4.2 million, has put the house on the market for $7.9 million -- an “unrealistic” price, according to Zar Zanganeh, the broker handling the listing.

“It’s sad,” Zanganeh said, his high-heeled boots clacking on the marble floor as he gave a tour of the 14,000-square-foot (1,300-square-meter) mansion featuring a six-person steam shower and a closet the size of a small apartment. “There’s a lot of inventory, a lot of homes like this waiting for an owner.”

A growing number of high-end homes are selling at a loss or facing repossession by lenders in Las Vegas, which already has the highest rate of foreclosure filings among large U.S. cities. The wave of defaults that began with subprime borrowers and the unemployed has spread to upscale homeowners who see no point of staying even if they can afford to.

In the 15 months through March, at least 25 houses in the Las Vegas area changed hands for more than $3 million, with at least seven doing so through foreclosure or by selling at a loss, according to the Greater Las Vegas Association of Realtors andClark County property records. In 2009, 14 homes sold for more than that amount, with one trading at a loss.

‘A Sucker’

In the first quarter, 30 Clark County homes with loans exceeding $1 million were repossessed by banks or bought by third-parties in foreclosure sales, up from 20 homes a year earlier, according to ForeclosureRadar.com, a Discovery Bay, California-based company that tracks defaults. Short sales, in which the bank agrees to accept less than the loan balance, and bank-owned properties accounted for about three-quarters of all home sales, according to the Las Vegas Realtors.

“You feel like a sucker if you’re paying a $5 million mortgage on a house that’s worth $2 million,” Zanganeh, 28, said while showing the grounds of an 11-acre Las Vegas estate built by Prince Jefri Bolkiah, brother of the Sultan of Brunei. “These days, there are no traditional sales. They’re all short sales or bank-owned.”

The estate -- with 18 bedrooms, 36 bathrooms, a 20,000- bottle wine cellar, an 11-car garage and air-conditioned stables for 10 horses -- sold for $14 million in 2004 to Eric Petersen, who owned Consumer Credit Services Inc., a Las Vegas-based catalog-merchandising company that closed in 2008. Petersen, 44, said he spent $20 million to make the estate habitable.

Giving Up

It’s back on the block for $25 million -- $9 million less than his investment -- with an offer “for considerably less on the table,” Petersen said in a telephone interview from Las Vegas. He has slashed the listing price four times since October from an initial $37.5 million.

“I gave up on Vegas,” Petersen said. “There’s no opportunity for anything in this town that I can see.”

Another listing with Zanganeh’s firm, Luxe Estates Collection, is a never-occupied, bank-owned mansion overlooking a Jack Nicklaus-designed golf course in the gated Ridges community west of Las Vegas. The asking price is $3 million for the 8,550-square-foot house, which was repossessed in 2010 and had a $3.2 million mortgage from the Community Bank of Nevada, a lender seized by regulators in August 2009.

About 100 homes in the county are listed for $3 million or more, according to the Las Vegas Realtors, a five-year supply at the current sales pace.

‘Rolled the Dice’

In Nevada, 23 percent of delinquent borrowers said they “strategically defaulted,” or walked away from their homes by choice rather than necessity, according to a January report by the Nevada Association of Realtors.

“It’s folks that feel the hopelessness of it all,” Rob Wigton, chief executive officer of the state association, said in a telephone interview from Reno. “They’ve rolled the dice and lost.”

The population of Clark County, home of Las Vegas, has fallen by about 16,000 from its estimated high of 1.97 million in 2008, according to the government-funded Nevada StateDemographer. Almost 15 percent of homes in the county -- 125,000 residences -- were vacant, according to the 2010 Census, following a construction boom in the last decade that peaked with 39,000 housing permits issued in 2005.

Las Vegas home values plunged 58 percent from the 2006 high-water mark through February, the biggest drop of the 20 metropolitan areas tracked by the S&P/Case-Shiller index, and are the lowest since June 1999, the group said today in New York. Prices fell 7.4 percent in March from a year earlier to a median $125,950, the Las Vegas Realtors reported April 8.

70% Underwater

Almost 70 percent of Las Vegas-area homeowners with mortgages were underwater at the end of 2010, meaning they owed more than the value of the property, according to CoreLogic Inc. (CLGX), a Santa Ana, California-based real estate information company. Among cities with a population of more than 200,000, Las Vegas has led the nation in the pace of foreclosure actions since November 2009, with one of every 31 homes receiving a filing in the first quarter of this year, RealtyTrac Inc., an information provider in Irvine, California, reported April 14.

About 20 percent of Las Vegas homeowners seeking short sales owe at least $750,000, said Jamie Cogburn, a Las Vegas plaintiff’s attorney who said he has handled 350 such sales and is working on 200 more. One client is a doctor with a home now valued at about half of its $1 million mortgage, Cogburn said. The doctor earns enough to save for a 20 percent down payment on his next home within a few months at current prices, he said.

“People with a higher income can go buy another house,” Cogburn said in a telephone interview. “You’ve got to cut your losses at some point, just like with a stock.”

Four Weekends

Cage, who won an Academy Award for 1995’s “Leaving Las Vegas,” in which he portrays an alcoholic who drinks himself to death in the city, stayed in the house now being marketed by Zanganeh for four weekends, according to the broker.

The actor sued his manager in October 2009 for placing him in “numerous highly speculative and risky real estate investments, resulting in Cage suffering catastrophic losses,” according to court filings. The manager, Samuel Levin, countersued, saying Cage ignored advice and “set off on a spending binge of epic proportions,” acquiring 15 homes, four yachts, an island in the Bahamas, a Gulfstream jet and millions of dollars of jewelry and art, according to a November 2009 complaint in state court in Los Angeles County. The case was settled out of court in August.

Cage, 47, who also starred in the 1992 film “Honeymoon in Vegas,” “is working and not doing press at this time,” his publicist, Samantha Hill, said in an e-mail. He was arrested in New Orleans on April 16 for domestic abuse and public drunkenness after arguing with his wife about the address of a house they are renting, according to a statement by the city’s police department.

Sales Pick Up

Las Vegas’s economic collapse has made it hard for many executives and business owners who own mansions to keep up with their mortgages, said Brian Gordon, a partner at Applied Analysis LLC, an economic-consulting firm in the city.

“People on the lower end were forced out a long time ago,” he said. “People on the high end had a longer staying power. Now they’ve chewed through their resources.”

While high-end homes fall in price, total residential- property sales have accelerated, rising 8.2 percent in March from a year earlier to 4,316 units, the Las Vegas Realtors reported. More than half of this year’s purchases were all-cash transactions, a sign that investors are finding bargains at the low end of the market, said Robert Lang, a professor of sociology at the University of Nevada, Las Vegas.

Making Lemonade

“Prices are below the cost of materials and labor,” said Lang, also a senior fellow at theBrookings Institution in Washington. “If you’re betting the U.S. economy won’t go back to Armageddon, you might see one-third appreciation if you buy now.”

Las Vegas’s affordable housing and warm weather will be the theme of a promotional campaign the city plans to use to attract out-of-town investors and potential new residents, Mayor Oscar Goodman said.

“We’re going to make lemonade out of this ‘crisis’ by promoting our foreclosures here,” Goodman, who’s stepping down in July after 12 years in office, said during an April 5 campaign party for his wife, Carolyn Goodman, a candidate to succeed her husband.

The city, he said, will be “showing the opportunities to people who are freezing to death in the middle of the country in the worst winter imaginable -- that they can come out here and buy a home at one-third what it cost five years ago and have a wonderful quality of life.”