Commercial Real Estate, IYR

FN: Notice how despite a bounce attempt in the broader markets yesterday, IYR drilled lower? The CRE collapse is still that "next shoe to drop". It hasn't happened yet. The loans are in "pretend and extend" mode over at the big banks. They've been praying for a CRE bailout. They've tried everything. The PPIP program went from $1 trillion to a mere $60 billion. The IYR will get the March lows of about $20 fast as reality sets in. The only question really, is how messy will the ride down be?

Deflation, Japan Leads the Way

FN: Deflation first. Then inflation. That is the Master Plan. After fighting deflation for more than a decade and using every single trick in the book, and some that weren't, the Bank of Japan has still been unable to spark inflation. It is becoming more and more probable that the BOJ has lost control and cannot maintain price stability. Expect deflation to accelerate as job losses continue to mount.

The Federal Reserve and Ben Bernanke face the same kinds of risks, but from a much weaker starting position than the BOJ.

UPDATE 2-Japan deflation deepens, BOJ may keep funding support: "
* Wholesale prices fall at a record 6.6 percent yr/yr
* Drops in commodity costs, weak demand weigh on prices
* Analysts say BOJ to prolong corporate finance support

TOKYO, July 10 (Reuters) - Japanese wholesale prices fell a
record 6.6 percent in the year to June, as the world's No.2
economy slides deeper into deflation, reinforcing the view that
the Bank of Japan will keep its corporate funding support
measures in place beyond September.

We are Failing. We are Cowards

FN: The people, they're still fighting. Bravely. They stand unarmed against a vicious foe that makes all the rules and has all the weapons. They have nothing but their determination to be free.

We won't help. Not really. Words are meaningless. Even worse, ours are intentionally so. That is why the "West" has no respect and no authority in that part of world. We speak of freedom, and protecting it. But we do not. That is why the "West" is failing. We are corrupt. We are duplicitous. We are liars and we are weak. That is why we must eventually fall.

We will interact with him. Again. After he has smashed the hopes and dreams of an entire nation. The "West" is handling Ahmadinejad the same way we handled previous dictators like Stalin, Mussolini and Hitler. Like the cowards we are, we will do NOTHING. Until it is too late and our hand is forced. We won't defend freedom until the last pocket is surrounded and under assault.

Ahmadinejad Says World Powers Must Interact With Him (Update1): "Iranian President Mahmoud Ahmadinejad said that although the world’s powers are angry over his re- election, they must “interact” with his administration.

“The enemies of the Iranian people are very angry because, despite their efforts and propaganda, a government will be in power with the support of 40 million votes,” he said in a meeting with officials in Tehran today, according to the state- run Iranian Students News Agency. “We will not give them any advantage, and they must interact with this government.”

Authorities used force to suppress demonstrations after hundreds of thousands of people took to the streets last month to protest Ahmadinejad’s June 12 re-election. The opposition said the vote was rigged, an allegation he denied. Unrest continued today in Tehran, as the militia that was called in to put down post-election protests was deployed at a commemoration for students attacked in 1999, Agence France-Presse reported.

International condemnation of Iran over the election and the treatment of protesters may complicate any future talks over the country’s nuclear program. The leadership accuses the U.S. and the U.K. of instigating the violence. Ahmadinejad’s main challenger, former Prime Minister Mir Hossein Mousavi, has demanded the election result be scrapped.

Group of Eight leaders condemned Iran’s violent crackdown on protests, while avoiding the threat of sanctions. “We call upon Iran to solve the situation through democratic dialogue,” according to a statement released late yesterday at the G-8 summit in L’Aquila, Italy. “We remain committed to finding a diplomatic solution to the issue of Iran’s nuclear program.”"

FN: If sanctions aren't warrented here, when would they be? What is the point of "negotiating" Nuclear issues with a dictator? Did we learn nothing from history?

Nationalized Banks Not Making Debt Payments

“In making its decision, the government will have to balance this upside with the possible downside associated with annoying liquidity providers.” -Scot Rankin, Davy

FN: Some nationalized banks have stopped interest payments on some of their debts. Anglo Irish Bank isn't the first... nor will it be the last. Bradford & Bingley did as well. When these banks were nationalized, halting interest payments on certain kinds of debt were part of the terms. The probable next step is that taxpayer money is used to 'buy back' this defaulted debt.

Anglo Irish May Stop Payments on Subordinated Debt (Update2): "Anglo Irish Bank Corp. said it may stop interest payments on some of its subordinated notes as it seeks approval to redeem as much as $4.5 billion of the debt.

The lender, which was seized by the government in January, may halt coupon payments on 1.2 billion euros ($1.68 billion) and 800 million pounds ($1.3 billion) of Tier 1 notes from September, the Dublin-based bank said today in a statement. The securities are issued by banks as capital required by regulators to cushion against losses.

Stopping interest payments on Tier 1 securities was a condition set by the European Commission when it approved a capital injection, the statement said. The Irish government has pumped 3 billion euros into the bank, the country’s third biggest, to boost capital eroded by losses on property loans. The bank posted a loss for the six months to March 31 of 3.77 billion euros.

“Obviously every euro less offered to bondholders is a euro gained by the Irish taxpayer,” Scott Rankin, analyst at securities firm Davy, said in a research note today. “In making its decision, the government will have to balance this upside with the possible downside associated with annoying liquidity providers.”

The bank is “actively working” on a plan to buy back the Tier 1 notes, as well as 750 million euros and 300 million pounds of higher-ranking Tier 2 debt, the statement said. The offer is subject to regulatory and Department of Finance approval, it said."

Bradford & Bingley Swaps Triggered by Credit Event (Update1): " Bradford & Bingley Plc’s failure to pay interest on some of its subordinated bonds will trigger settlement of credit-default swaps linked to about $414 million of the nationalized mortgage lender’s debt.

Dealers and investors agreed today that the Bingley, England-based company’s decision not to pay interest on 125 million pounds ($202 million) of 6.625 percent subordinated bonds maturing 2023 was a “credit event,” the International Swaps and Derivatives Association said on its Web site.

The ruling will prompt an auction to settle credit swap contracts even though the U.K. government changed the terms of the bank’s nationalization in February, allowing it to miss coupon payments without that constituting a default. Bradford & Bingley said in May it didn’t intend to pay interest on the notes, which form part of the bank’s so-called lower Tier 2 capital.

“Credit-default swap holders can now expect a payout based on the credit event,” said Louis Gargour, chief executive officer at hedge fund LNG Capital LLP in London. “It reinforces confidence in the efficient functioning of the market.”

Yen: Safe Haven, But for How Much Longer?

“Money is gradually being pulled out of risk assets and that benefits the yen. People have been hoping that the world will become a better place after the crisis, and now reality is catching up.” -Geoffrey Yu

FN: The argument that the Japanese Yen was a safe haven used to make sense, but I don't understand it anymore. Before the financial crisis the Yen was a carry currency and the Yen carry trade was massive. So whenever the risk trade anywhere in the world was being scaled back, the Yen would have to go bid. This, coupled with the belief that the Japanese economy was in good shape and somehow 'decoupled' via it's exports to China and the rest of Asia made the Yen a safe haven refuge.

The Yen carry trade is long gone. Now that everybody else has the same "zero interest rate policies" the trade has been unwound. The Japanese economy is absolutely imploding as the fatal flaw in the great export experiment is revealed. No amount of so called "stimulus" at home will make up for evaporating foreign demand, especially after fifteen years of bridges to no where has satiated local demand. Japanese debt to GDP ratio is well over 100% and rising.

Why then is the Yen still considered a safe haven?

Yen Climbs to Six-Week High as Stocks Fall on Recession Concern: "The yen rose to a six-week high against the euro and the dollar as stocks fell and Japanese machinery orders unexpectedly declined, stoking demand for the currency as a refuge from the economic turmoil.

The yen climbed against all 16 of the most-traded currencies for a second day on speculation the worldwide slump will sap corporate profit as earnings season gets under way. The dollar fell for a third day against the Japanese currency on concern the greenback’s role as the world’s reserve currency will be questioned at a Group of Eight meeting starting today.

Investors typically buy the yen as a haven for their cash because Japan’s current-account surplus reduces the country’s dependence on borrowing abroad. The yen has strengthened more than four times as much as any of the 16 most-traded currencies versus the dollar in the past month, according to data compiled by Bloomberg."

FN: Current account surplus? Come on. For how long? The current account consists of the balance of trade, plus net factor income from abroad plus net unilateral transfer from abroad.

Japan Current-Account Surplus Slips for Fourth Month (Update1): "Japan’s current-account surplus narrowed for a fourth month in May as the global recession eroded demand for exports.

The surplus shrank 34.3 percent to 1.302 trillion yen ($13.8 billion) from a year earlier, the Ministry of Finance said in Tokyo today. The median estimate of 20 economists surveyed by Bloomberg News was for 1.5 trillion yen.

Even as China’s stimulus spending has spurred demand for Japanese cars, electronics and machinery, it hasn’t been enough to offset sales declines in other parts of the world. Exports and production have still fallen by about a third from last year’s levels and job losses and pay cuts at home are undermining consumption in the world’s second-largest economy.

“Japan’s current-account surplus will probably stay at a low level in the long run,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “Overseas demand has been slow to recover because sales in the U.S. and Europe remain sluggish despite the pickup in China.”

Exports fell 42.2 percent in May, today’s report showed. Imports slid 43.9 percent.

The slump in imports indicates domestic demand is weak and companies are reluctant to buy materials, Nishioka said. Reports in the past month showed the unemployment rate surged to a five-year high in May and the ratio of jobs to applicants fell to a record low, while big companies said in a central bank survey they plan to cut spending at a faster rate than they predicted earlier this year."