Important News - Dec. 21

• 1) RBI cuts dollar holdings in forex reserve to 50%

“The dollar holdings in India’s foreign exchange reserves are probably around 50 per cent as the Reserve Bank of India has diversified reserves in favour of non-dollar currencies as the trend is globally.”

• 2) China banks need $73bn capital in 2010: Regulator

“China’s new loans surged to record levels in the first half of this year and, despite an easing in the second half, are likely to remain relatively high by historical standards next year at 7.5 trillion yuan, according to a Reuters poll of 20 analysts.

The massive lending, aimed at sustaining China’s economic growth, would cut banks’ capital adequacy ratios, a key measure of their ability to absorb losses.”

• 3) State prepares to tackle its latest deficit (California)

“Lawmakers and the governor spent much of 2009 cobbling together a way to close a $60 billion budget deficit, with the full realization that whatever they did, it wouldn’t be enough to fend off a new deluge of red ink in 2010.

Sure enough, the nonpartisan Legislative Analyst’s Office estimated last month that the state now faces a $20.7 billion gap between what it can expect to collect in revenues and spend over the next 18 months.

That figure includes a $6.3 billion hole for the current fiscal year, which ends June 30, and a $14.4 billion deficit in the 2010-11 year, which begins July 1.

The California constitution requires the governor to produce a balanced budget proposal by Jan. 10, and Schwarzenegger plans to do it Jan. 8.”

• 4) Is Ohio headed for financial disaster?

“”I’ve been in state government now 15 years, and I am probably the most frustrated I’ve ever been in terms of how (state government) is working,” said State Rep. Jay Hottinger, R-Newark. “There are just enormous financial problems we are about to face.”

Hottinger said the deficit this year was about $851 million, but he anticipates that in 2011 the deficit could be between $5 billion and $9 billion. That is because the budget this year uses almost $6 billion of one-time federal funding, much of it from the stimulus package, in the operating budget. In addition, rainy day funds were eliminated.”

• 5) Road-funding crisis looms for N.J.

“The state Transportation Trust Fund is projected to run dry by June 2011, leaving the new governor with two unsavory options: borrow more money or raise taxes and tolls. So far, he has said he is against both.

Christie, who argued against additional debt during his gubernatorial campaign, approved a decision by the Transportation Trust Fund Authority this month to borrow $1.2 billion, bringing the fund’s debt to about $11.6 billion.

The new borrowing should provide enough money to pay for transportation projects for the six months after Christie takes office on Jan. 19.

That will leave about $1.6 billion before the fund is tapped out. After that, all of the $895 million that annually flows to the fund from tolls and fuel and sales taxes will be needed to pay the interest on previously borrowed money. No money will be available for new transportation projects.”

• 6) Instead of lending, banks focus on covering losses

“”The banking crisis has moved into a second stage” as banks slowly write off bad loans on their books, said James Ferguson, chief international strategist at Pali Capital. Mr. Ferguson estimates total U.S. bank losses on loans of all kinds at $1.6 trillion, while other analysts say the losses could run as high as $3.8 trillion amid rising unemployment, defaults and foreclosures.

But banks so far have reported only a little more than $607 billion of those losses, suggesting that they have publicly acknowledged only the tip of the iceberg, Mr. Ferguson said.

“That would imply that the loss-recognition process, which took almost two decades to complete in Japan, is not yet much more than one-third of the way through,” he said. ”

• 7) Firms Still Sick on Pensions (Wall Street Journal)

“The market rally has been a healing experience for many investors. But companies with battered pension funds may be feeling ill for some time.”

“As a result, the total pension deficit for calendar-year companies probably has narrowed only slightly in recent months, to $270 billion, from $298 billion at the start of the year, estimates Mr. Zion. By law, companies have to make contributions toward closing those deficits over a seven-year period. Barring a new bull market, investors should count on plenty of that cash coming out of companies’ pockets.”

• 8) New York goes broke, pension by pension

“Meanwhile, some 275,000 retired NYC employees — including 69,775 teachers, 44,290 cops, 17,404 firefighters and 13,664 others — cost city taxpayers $6.7 billion this year, as officials dipped into the general revenue to make up pension-investment shortfalls. That’s up from only $703 million in 2000. By 2016, taxpayers will be on the hook for $12.3 billion.

New York City pensions, which increase each year whether the stock market rises or falls, threaten to hit the city “like a tsunami,” one expert said.”

(Page 2)

“OUR $30B PENSION BILL

Pension losses from last year’s economic crash have hit New York taxpayers like a fiscal stealth bomb.

The city has to pay its employee retirement funds an extra $30 billion to cover last year’s huge investment losses, plus interest and higher benefit payments, The Post has learned.

The city’s five pension funds plunged in value from $101.9 billion to $79.5 billion in fiscal year 2009, according to city Comptroller Bill Thompson’s new Comprehensive Annual Financial Report.

The five funds — covering cops, firefighters, teachers, transit, sanitation and other workers — lost about $20 billion in stocks and other investments in disastrous FY 2009, which ended June. 30.

Since, by law, the city has to increase assets by 8% a year, that adds $8 billion to the shortfall, plus $2 billion from increased benefit payments”

• 9) Public braces for pension-fund bill (PA)

“In a sort of “OK news/bad news” announcement, the state agency that oversees the teacher pension fund reported an impressive 9.18 percent return on investments from July through September.

But that came after a precipitous drop of 26.4 percent during the four previous quarters – a loss of nearly $20 billion from a fund that, two years ago, topped $67 billion.”

(Chart from their story, showing the rising costs of their state teacher pensions)

• 10) Borrowers with modified loans falling into trouble (Yahoo News)

“WASHINGTON (AP) — Homeowners who get a substantial cut in their monthly mortgage payments still stand a good chance of falling behind again, a report by two federal regulators says.

Nearly 40 percent of homeowners who received a loan modification that reduced monthly loan payments by 20 percent or more were at least two months late again within a year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said Monday.

That’s an ominous sign for the Obama administration’s plan to stem the foreclosure crisis, which was launched in March. Only about 31,000 modifications have been made permanent under that plan.”

• 11) Russia transfers $1b worth gold to Central Bank

“Russia’s Finance Ministry has sold 30 metric tons of gold to the country’s Central Bank for US$1 billion, an official said Monday, saying the cash will be use to help ease the crisis in the country’s budget.”

• 12) Treasury Yield Curve Steepens to Record Amid Growth Outlook

“Dec. 21 (Bloomberg) — The difference between 2- and 10- year Treasury notes widened to a record as investors bet an accelerating economic recovery will fuel inflation and damp demand for government debt as the U.S. borrows record amounts.”

• 13) U.S. Commercial Real Estate Index Falls 1.5%

“Dec. 21 (Bloomberg) — Commercial property values in the U.S. declined in October to the lowest level since 2002 as unemployment reduced demand for apartments, offices and retail space.

The Moody’s/REAL Commercial Property Price Indices fell 1.5 percent in October from September, according to data compiled by Bloomberg. Prices fell 36 percent from a year ago and are 44 percent below the peak in October 2007.

Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month. ”

• 14) Junk Borrowers Sell Most Bonds in 18 Months: New Issue Alert

“Companies rated B- or lower by Standard & Poor’s have issued $8.42 billion of bonds in December, more than in any full month this year, and compared with $6.91 billion in November, Bloomberg data show.

“This bulge in CCC and B- origination shows potential for heightened near-term defaults,” said William Chew, managing director of corporate and government ratings at New York-based S&P. “We went from white-knuckle fear to some level of investor amnesia in a short period of time.” ”

• 15) Serious U.S. mortgage delinquencies up 20 percent (Reuters)

“Serious delinquencies among U.S. prime mortgages rose nearly 20 percent in the third quarter from the prior quarter, as the percentage of current and performing mortgages fell for the sixth consecutive quarter, banking regulators said on Monday.

The report by the Office of Comptroller of the Currency and the Office of Thrift Supervision, which are part of the Treasury Department, covered about two-thirds of all U.S. mortgages.

It found 3.6 percent of prime mortgages — those made to the most credit-worthy borrowers — were seriously delinquent in the third quarter. That was more than double the year-ago quarter and up nearly 20 percent from the 2009 second quarter.

The report defined “serious delinquencies” as those loans 60 days or more past due and loans to delinquent bankrupt borrowers.”

• 16) When Trucks Stop, America Stops (M.W.)

The American Trucking Associations researched 7 key consumer industries to quantify the consequences of restricting truck traffic in response to an emergency.This report details the findings including this: Most water treatment facilities receive chlorine in enormous cylinders that are delivered by motor carriers. On average, trucks deliver purification chemicals to water supply plants every 7 to 14 days. Without these chemicals, water supply plants will run out of drinkable water in 14 to 28 days.

- Saxplayer00o1