ANOTHER FIRE AT REACTOR #4, TWO WORKERS MISSING
Tagged with: Dollar
ANOTHER FIRE AT REACTOR #4, TWO WORKERS MISSING
Tagged with: Dollar
Here’s That Huge, Bullish JPMorgan Report On Rare Earth Company MolyCorp
Tagged with: FED
What has been hidden will be revealed.
The Independent ” UK
Saudis Mobilise Thousands of Troops to Quell Growing Revolt
By Robert Fisk, Middle East Correspondent
Saturday, 5 March 2011
Saudi Arabia was yesterday drafting up to 10,000 security personnel into its north-eastern Shia Muslim provinces, clogging the highways into Dammam and other cities with busloads of troops in fear of next week’s
See the article here:
Saudi Arabia Mobilises Troops: Provinces in Revolt as the Empire Declines
Tagged with: crash, precious metals, reserve
ZERO HEDGE reports
The key catalyst for Goldman’s suddenly cautious view on gold (which still has a $1,690 price target): the end of QE2 in June 2011. So, presumably, when QE 3 is announced in May in order to allow the continued monetization of $4 trillion in debt issuance over the next 2 years, that should be very bullish for gold, yes? Irrelevant: Goldman has become just one more glorified Jim Cramer: pumping anything that is green, and dumping anything in which there is even a modest (CME margin hike driven) correction.
From Jeffrey Currie’s just released report, “The cyclical commodities join the rally as gold falters.”
That said, the firm is still recommending a long gold (and platinum) trading recommendation:
And here is the summary outlook/key issues on key commodities:
WTI (target $105.50/bbl):
Brent (target $103.50/bbl):
Incidentally, this should make for a great compression arbitrage. If Goldman is even remotely correct, going long WTI and short Brent should generate a substantial IRR.
RBOB (target $2.62)
NYMEX Nat Gas (PT $4.50/mmBtu)
LME Copper (PT:$11,000/mt) ” better hope the “Cold Fusion” story is a hoax here..
Gold (PT: $1,690)
Silver (PT: $28.2)
Cocoa (PT: $2,4000/mt)
Much more in the full report:
Continue reading here:
Goldman Goes Gaga Over Cyclical Commodities, Says Gold Run Is Ending As QE2 Comes To A Close (Full Commodity Update)
Tagged with: currency, yields
ZERO HEDGE reports
Denmark Gives Away $7B USD, or 2% of GDP to Carbon Credit Traders
The Danish tax authority has been robbed blind by a carbon
trading scandal that has rocked the market for carbon off sets: while the story
saw some press a year ago, significantly higher losses have since been reported
and the MSM has ignored the story.?
The Danish Auditor General is on the case now as the scope
of the crime has become obvious, and grown exponentially since it was first
reported.? Originally discussed as a quasi-small-time
dollar scam, the reality a year later is a lot larger: Europol is estimating a
value on the case of 38 Billion Kroners and the values seem to keep going up.
Connie Hedegaard, then the Climate & Energy Minister for
Denmark ?is now the EU Climate Commissioner.? While she was with the Danish government, she
helped set up and manage a system where there were no background checks on the
listings of permitted traders.? This removal
of identification was done even though the EU requires at least passport.? This helped a group of fake, rogue traders
set up a program that looted the Danish economy of up to 2% of its gross GDP in
lost VAT taxes.?
The Denmark CO2 permit registry was setup with
extremely lax rules and regulations, possibly intentionally. ?In 2007, Ms. Hedegaard removed the requirement
for identification and in a very short period of time traders figured out the
loopholes and started to back up the proverbial truck.? How? To put it simply: you could round robin
CO2 credits, booking the VAT as a bonus each time.
What is painfully obvious is that over 1,100 of the 1,256 (or
about 88%) of the registered traders listed in their system were bogusly set up
for fraudulent activity. The traders have since been delisted as the scope of
the crime becomes obvious.?
The fake but registered traders used made up, unique addresses
for their business: in one famous case, a trader was listed as trading out of a
parking lot in London.? In another, the
trader took the name of a dead Pakistani national.?
The fraud centered on the use of VAT as a mechanism to
generate real non-taxed cash flow.? An
international trader would buy VAT free credits from one nation, and then resell
them to a VAT added customer in a second nation, pocketing as much as 25% of
the cost of the trade as a personal commission.?
The trader then kept the VAT difference in lieu sending in the VAT to
the necessary tax system, effectively arbitraging the VAT system (See, e.g.,
Cap and Trade; Leaving Las Vegas, “The Hole You’re In”).
This trade was coined a “carousel” as the traders would
re-export the credits, claiming the VAT only to reimport the credits and
reselling them again with a new VAT assigned.?
They could wash, rinse and repeat booking up to a 25% VAT in the process
Here is the Danish
Emissions Trading Registry CR User Manual. ?The how to manual.
Jack H Barnes was named the audited Top Stock Picker in 2005
by Forbes’s “Best
of the Web”.? He is a retired hedge
fund manager.? He now writes about Global
Macro Economic issues at jackhbarnes.com.
His twitter feed can be reached here.?
Links of Interest to Story
Denmark Gives Away $7B USD, or 2% of GDP to Carbon Credit Traders
Tagged with: ECB, eur/dollar
ZERO HEDGE reports
Diapason Securities’ Sean Corrigan is rapidly emerging as one of our favorite macro commentators. With his dose of weekly skepticism, he has quickly assumed the position vacated by Goldman Sachs’ Jan Hatzius when it comes to the 3Ms: market, monetary and macroeconomic commentary (courtesy of the now well-known and very infamous flipping by the German strategist on his outlook on the economy). In his latest outlook piece, Corrigan dissects recent moves in the bond market, noticing a 6 sigma, three-decade statistical aberration when it comes to the 2s5s30s butterfly, and continuing through the implications of increasing bond vol on other risk assets (a topic which we believe will receive much more focus in the coming weeks and months), on fund flows (his views on the implications of the December Z.1 statement are worth the price of admission alone), on the cooling off of the European “economic miracle”, and lastly, on what China’s refusal to attempt a soft landing means for global risk. His conclusion is as always absolutely spot on: “in short, that risk assets can continue to rise, pro tem, it also means that RISK itself will be climbing inexorably up the scale and on into the danger zone.”
From Sean Corrigan’s December 17 edition of Money, Macro and Markets
As the increase in the total of US Federal debt outstanding since the LEH-AIG collapse reached the $4 trillion mark, another week began and another sell-off took place in the bond market, with 2004 Euro$ now a cool 140bps off their early November highs in one of those classic, up by the stairs, down by the escalator moves to unwind the previous four months’, Fed”inspired rally.
Only a little less dramatic has been the thumping taken by the belly of the curve where ” for example ” the 2Ã—5-30 butterfly has jumped 120+bps in just five weeks, a sizzling six-sigma move in a three-decade statistical record.
When we note that this was preceded by a 3? sigma, 28-year outperformance of the middle versus the wings, taking it then to a series record low ” and that half the rejection move occurred just during the past week ” we can perhaps grasp some measure of the dislocation being suffered (as well as give vent to our usual despair at the idea that modern financial markets somehow exist to assist in the rational allocation of scarce capital!)
Interest rate markets had, of course, been under pressure in any case ” partly as a result of the slow diffusion of core European creditworthiness out to its prodigal fringe, via the ECB and its market support operations; partly because basis swaps showed “˜Zone banks were again scrambling for USD roll-overs; and partly due to the year end reallocation of funds into an equity market which had only struggled back to par as late as early September, but which finally made a new high on the very day the bond rout began.
It did little to deter the liquidation/allocation switch when Tweedledee and Tweedledum agreed not to have a battle over the US budget but just to let everyone eat cake (or, rather, pork) instead. Given that November saw the worst deficit on record in seasonal terms (despite the pick-up in receipts attributable to the weak recovery), it was no surprise that the Ghosts of Bond Vigilantes Past were moving the furniture about at the prospect of another large slug of deficit finance.
All in all, Blackhawk Ben must be well pleased with himself: since his infamous Jackson Hole address, the S&P500 has returned no less than 25% in excess of 7-10yr USTs, with the S&P600 Small Cap adding a further 10% on top of that.
Fully living up to their embarrassingly undifferentiated, “˜risk asset’ status, commodities ” as per the DCI index ” have matched the broad equity market more or less bp for bp, tracing out an r2 with them of 0.95 over the past six months and never varying by more than 5% from the mean of their combined ratio.
At least until the point where the market again feels happy to hold bonds for income, rather than playing them, as everything else, for leveraged beta on their capital value, both the potential widening of the deficit and the Fed’s decision to help fill it should continue to be of help to equities and commodities. With the private sector still frying to pay down debt (with one rather glaring exception we shall come to in a moment), government incontinence is the fuel on which the printing press will run. As the following graphs, reveal, this has, indeed, become the primary mechanism for inflating prices in the US.
Remember, that for as long as people accept the money it spends into existence, a maintenance ” or even a debilitating over-expansion ” of the quantity of the medium of exchange needs no other agency than a determined treasury acting in concert with its willing accomplices at either the central bank alone, or among the commercial counterparts over which that engine of inflation broods and clucks, in addition.
Though we have yet to parse the report in detail (thanks to the demands made by a hefty year-end writing project with which we are currently wrestling), a cursory glance at the quarterly Flow of Funds release did reveal some interesting quirks in the vexed matter of “˜deleveraging’.
For instance, the household sector seems to have disposed of a signal $540 billion (all numbers saar) in corporate and foreign bonds in the third quarter, but a closer inspection shows that the bulk of this could be set against a net $400bln contraction in outstanding ABS paper (bonds -$460b1n; CP +$60b1n) which was effectively the flipside of that same household bloc paying down (or defaulting on) $290b1n of its own stock of mortgage and credit card debt (the rest of the ABS paydown comprising another incestuous-cancellation of GSE holdings). Again, non-corporate business ” shrinking its collective balance sheet once more ” relieved itself of $118bln in mortgages, more or less accounting for the registered $100bln reduction in funding corporation loans.
Meanwhile, commercial banks and the foreign sector between them issued -$330b1n in bonds, more or less satisfying the $345b1n in demand for paper emanating from Lifers and mutual funds.
This effectively left foreign banks domiciled in the US (+$440b1n) and bank holding companies ($98b1n) to finance the hearty $490b1n appetite for more credit expressed by non-financial corporates ” something which should have been a cheer to all those anxiously awaiting the next debt-fuelled orgy of ill-judged hiring and gross malinvestment.What a shame, then, that the funds were put to no more productive use than manipulating the P/E ratio ” while hiding executive comp dilutions ” by buying back $370bln of equity (the largest amount since Bear, Stearns went under) and in financing a $113 billion inventory accumulation which was the largest in the 58-year record.The markets have not exactly been kind to European fixed income, either, with mid-strip contracts adding 75bps and a whole series of chart lines giving way. Basis swaps have also been heading south once more; forex risk-returns have not shown much follow through since their initial, feeble bounce and ” whisper it ” peripheral yields and spreads are moving the wrong way, once more. The battle for the Euro is by no means over yet.
Part of the problem for the market is that ” unlike in the US ” the business of reinvigorating the flow of money peaked no less than 22 months ago and has been decelerating ever since (though this has been offset somewhat by the more aggressive use to which this money is being put, at least in Germany).
If past is in anyway prologue, the story for the next few quarters should be one of relative disappointment in economic performance, with the disappointment in economic performance, with the IfO and the business revenues (to which the survey tends to respond) peaking out and headline inflation potentially catching up.
In these same German revenue data can be seen the global dichotomy, writ in rather large letters and bearing the rubric: “˜Go EAST, young man!”
Tellingly, the domestic component of sales is still some 10% below its peak of almost three years ago (with domestic consumer goods a woeful 13% off their best). Similarly, sales to the benighted Eurozone lie 11.5% from the top for the category. Contrast this lingering depression with the score for non-EZ exports (only 4.3% down) and the capital goods portion of these latter (-3.0%) and we can see that the Chinese Greater Co-Prosperity Sphere is still of primary importance in helping keep economic activity going elsewhere in the world.
Thus, the crucial significance of this past weekend’s Chinese Central Economic Work Conference and its seemingly pusillanimous decision not to raise interest rates in the face of rapidly mounting consumer prices and a pace of monetary creation which has quickened again in the past two months.One can only suppose that the Chinese have clung to the hard lesson that there is nary a single successful instance of a “˜soft landing’ being engineered, once a malinvestment boom has truly taken hold, but have not followed the reasoning through to the necessary conclusion that the longer remedial action is postponed, the higher the eventual bill tends to become.
Perhaps they hope that food prices will come down at the next harvest (or that they can import ” and subsidise ” enough grain to supplement the domestic supply). Perhaps they fear a further influx of “˜hot money’ and doubt their ability to sterilize the same. Perhaps they are dimly aware of the size of the tiger to whose tail they are clinging ” frightened it will devour them in an inflationary upsurge if they do not fight it and equally terrified that its claws will shred them if they if do not keep it fed instead with sufficient credit to support the vast array of sub-economic projects they have called into existence these past few years.
If this last is the case, they might just be keeping their fingers crossed that the deceleration in real money supply already in evidence for some time past will temper the pace of industrial activity and even allow for an amelioration of the rate of price rises, as has typically happened in the past.
The problem with relying on the working of such a macroeconomic comovement to spare them this toughest of decisions, however, is that it both makes the fatal mistake of assuming ceteris is indeed paribus AND that the inevitable magnitudes and delays ” inherent in what is not, after all, a law of hard, physical science, but merely a dim mirror of the combined effects of millions of subjective human choices ” will not come to bite them most grievously in the behind.
That the debate may not yet be fully settled may be seen in the official Xinhau mouthpiece which ran a post-Conference piece saying, correctly, that:-
“It is one thing to be patient with the fight against inflation, it is another thing to make an urgent and exact diagnosis of the root cause of mounting inflationary pressures. In fact, after the country announced a record harvest for this year, it has become clear that the latest round of inflation is not so much about food supply as the double-digit food price hikes suggested.”
“If that is the case, Chinese policymakers should promptly acknowledge excess liquidity as the main culprit behind soaring inflation. It is high time to take the firewood from under the cauldron as 5.1 percent consumer inflation in November is biting deeply into the pocket of Chinese consumers, who can currently enjoy a one-year interest rate of only 2.5 percent for their deposits.”
In the meantime, what we can say is that for so long as they fail to act, the malign effects of too-easy money being drawn into its own self-fuelling vortex of higher prices, a larger collateral, more concentrated leverage, and fleetingly greater gains will not receive much of a check from one of its main contributors.
If this means, in short, that risk assets can continue to rise, pro tem, it also means that RISK itself will be climbing inexorably up the scale and on into the danger zone.
Originally posted here:
Sean Corrigan On Six Sigma Events In The Bond Curve, “Inexorably Rising Risk”, And Other Observations
Tagged with: bond, eur/dollar, gold, goldman
ZERO HEDGE reports
With Julian Assange’s arrest now seen by many to be a matter of days if not hours, it seems that the Wikileaks founder has taken some modest retaliation precautions, primarily along the lines of the infamous “letter in the mail should something happen to me.” Using Bit Torrent, Wikileaks has distributed an “insurance” file, which however is encrypted, and the contents of which are unknown, although may possibly contain at least some of the infamous BofA incriminating selection. It is very possible that Wikileaks will release the encryption code upon Assange’s arrest. That said, the insurance file, which can be downloaded from Pirate Bay at the following link, is merely 1.4 GB, and far less than the expected 5 GB which the BofA data is supposed to contain. Since Zero Hedge is read by quite a few hackers, we would like to extend the challenge to all to find the proper key to decrypt the insurance file and spill its contents to the general public.
More from MSNBC:
And some more from German website dnews.de, google translated:
Once again, for all with bittorrent client access, the wikileaks insurance file can be downloaded here.
Who Will Be The First To Decrypt The Wikileaks “Insurance” File
Tagged with: bric, Economy, eur/dollar, silver, yields
ZERO HEDGE reports
Since once again we may have been a little too far ahead of the curve in demonstrating just who the biggest beneficiaries of the Irish taxpayer funded bailout are, we would like to repost an analysis from over a month ago presenting the key bondholders in Anglo Irish bank, who incidentally happen to be the cross-holders across most of the Irish capital structure, and which banks will likely be next in line for the bailout wagon. Not surprisingly, there are some names here (especially one) which Zero Hedge readers are all too familiar with.
Are Irish Taxpayers About To Bail Out Goldman? Is Peter Sutherland Stealing From His Own People To Give To The Vampire Squid? (Zero Hedge, October 17, 2010)
It is deja vu all over again. To little media fanfare the dire
financial situation in Ireland is nothing less than a repeat of the
Lehman collapse in those dark days of September 2008. With the recent
nationalization of half of the country’s six big banks,
and the blanket guarantee over the rest of them, the Irish government
has effectively made sure that bondholders in all banks, even those
which such as long insolvent Anglo Irish bank will be made whole by the
long-suffering Irish taxpayers. And despite rumors of haircuts for at
least sub debtholders, actual facts validating this possibility remain
unseen. Which begs the question why is everyone in the world so
terrified of taking mark to market losses on even a few billion in debt?
Simple: as all of the world’s banks, but Europe more so than anyone
else, are now caught in the biggest circle jerk ever imaginable, with
one entity’s liabilities making up another’s assets, which in turn are
someone else’s liabilities, and so forth in a MC Escher (or is that HR Giger?)-esque flow chart of the surreal (as can be seen here),
even one dollar of write downs can spiral and affect tens if not
hundreds of billions of downstream assets (and thus liabilities). Which
explains why the ECB and everyone else in Europe is so intent on
preventing a failed auction in Ireland (we previously disclosed that virtually every September auction of
Irish bonds was purchased by the ECB, either directly and indirectly):
should the banks that are on the hook actually validate their
impairment, Europe is one step away from activating its own $1 trillion
TARP package. Yet what is amusing is that inbetween the cracks of
exclusively European-bank based senior and subordinated bondholders in
such bankrupt banks as Anglo-Irish, a familiar name emerges: Goldman Sachs.
nested quietly inbetween the â‚¬4,034,756,880 in face value of Anglo
Irish bondholders is the name that managed to pull the strings (via its puppet Hank Paulson)
and get bailed out when AIG threatened to make Goldman management and
investors insolvent. Is Goldman, via its UK-based Goldman Sachs Asset
Management Intl. subsidiary, currently petitioning Brian Lenihan to be
the only US-based bank to receive a direct bailout on its Anglo bond
position? Or is it, as always behind the scenes, negotiating on behalf
of 80 other European banks, among which Lombard Odier, Rothschild, and
Deutsche, and achieve what it always succeeds in: escaping scott free,
and stuffing taxpayers with the bill? We are confident Irish taxpayers,
and drivers of cement trucks, would be fascinated in getting the correct answer.
Guido Fawkes, who managed to obtain the Anglo Irish bondholder list, shares the following commentary:
on question. And as the highlighted area in the chart below
demonstrates, we would like to add Goldman Sachs to the list of
bailoutees. Surely, few firms in the world deserve to be redeemed as
much as god’s little helpers.
Little else that can be added here”¦ except for this amusing anecdote of another Goldman Sachs International Chairman, one Peter Sutherland,
former Ireland attorney general and EU commissioner who just so happens
was a chairman of British Petroleum (remember those guys?) previously.
To wit from the Irish Times:
this great son of Ireland, who obviously has Lenihan in his back
pocket, is in active negotiation on behalf of his current employer,
Goldman Sachs. Yet something tells us Mr. Sutherland will be the last
person to share light on Goldman’s twilight relationship vis-a-vis the
of revisionism is not too surprising coming from a person whose
personal, and future, fortune, is based on the past generosity of
American, and now Irish taxpayers. Because his wealth is certainly not
due to his skill at anything related to his actual career:
instead of driving trucks full of cement into Parliament, Irish
taxpayers can be a little more proactive, and ask one of their most
respected “leaders” just on whose behalf he is working on in this latest
bailout, which could easily be Ireland’s last.
Tagged with: Economy, eurozone, PIIGS, precious metals
ZERO HEDGE reports
For those who wrongly believe that the biggest real estate bubble in the world is in Manhattan, the following may come as a surprise: according to Dylan Grice, in central Hong Kong, a 400 sq. foot property recently sold for HK$14MM, or about $1.8 million: an insane $4,500 per square foot. And that’s just the beginning. Yet, as we have started to speculate recently, is this precisely the goal of Ben Bernanke ” to create pockets of silly inflation within China so that the country is eventually forced to unpeg the CNY? If so, this is a huge gamble, as the bulk of the country still has far more slack than America ever can. And while China, and the bulk of its wealthy citizens, continue to pretend there is no bubble (created by the same free credit mechanism that results in the 2008 near-death of the US economy), has, as Dylan muses, China “already lost control? And if so, who’s to say what will happen if the asset inflation goes into reverse? Maybe when the authorities engineer the slowdown they desire and tell investors it’s safe to buy again, those investors? won’t want to buy. In which case a hard landing shouldn’t be beyond the realms of imagination.” Grice then proceeds to explain the obvious, namely that the fall out of the inevitable collapse of the Chinese bubble will be unprecedented, as not only the EM world, but the developed economies have all hitched their fates upon the successful continuation of the Chinese bubble ” the same bubble Bernanke has to unwind to get the much desired CNY reflation. Grice says “Go to Ireland and ask them how they feel about bubbles. They’ll tell you a bubble is a curse, not a blessing.” Of course, Ireland is about to be bailed out. Who, however, will be able to bail out China when the overheating economy gets it trillions in loan supports taken out? That one not even Chairman Ben will be able to rescue”¦
In his must read piece which once again explains why the Emerging Market bubble is the greatest threat to the entire world, a theme which little by little is getting ever more traction, Grice first looks at a post-bubble economy. That of Japan.
This is why the comparison with Hong Kong could not be more shocking (and more deja vu-ish). Here is how Grice views the former British colony:
Why are China’s residents ” traditionally so careful (growing up under a communist regime will do that to you) ” throwing all caution to the wind? Here is one possible reason.
Here Grice once again returns to his recent meme that it is in fact China’s fault for not letting its currency appreciate, and in doing so not only is it reaping the benefits of having a monetary policy that mimics that of the Fed, but an FX regime which allows it to extract far more benefits from the globalized system. The only Achiles Heel ” inflation. And that is what Grice believes will bring the whole theater down.
Which of course brings up the old staple of decoupling, which ironically is most relied upon as a driving force of growth, just before it is proven to be a lie (see 2007).
And yet, very little happens. And here is the kicker. Grice speculates that unlike the Fed which at least pretend to be ahead of a bubble (although we know now this is only a myth), could China’s regulators (PBoC et al) in fact realize that it has already lost control? If so, the repercussions are tremendous, as the entire world is now driving at 60 miles headed straight into a brick wall and nobody is even attempting to be behind the wheel.
The risk: a complete collapse of everything, and the biggest deflationary collapse in history, which is precisely why the Chairman’s last response at D-Day will be to print an infinite amount of money to save whatever Keynesian remains are left.
How much time is left?
One thing is certain: the end, as fatalistic as it appears, is coming, and judging by today’s token 50 bps RRR hike, may be closer than expected.
See the original post:
In Hong Kong $1.8 Million Gets You 400 Sq. Feet, And Other Observations On The Biggest Bubble Ever, From Dylan Grice
Tagged with: bankruptcy, china, ECB, Economy
ZERO HEDGE reports
In a just released report, New York State’s Comptroller Thomas DiNapoli presents his expectations for what is set to be another bumper year for Wall Street. Per the report: “The first quarter of 2010 was among the most profitable on record ($10.3 billion), but in the? second quarter profits eased (to $3.8 billion) and were more in line with pre-crisis levels. It appears that profits were relatively modest in the third quarter as well, but 2010 could still be the fourth most profitable year for the securities industry in New York City.” Yet here is the most relevant piece: “While it appears that the cash bonus pool will be smaller than
last year, the average bonus paid to employees in the securities
industry in New York City may be a bit larger, since the pool will be
divided among fewer workers given continued staff reductions”. Money well earned. So summarizing the report ” in a year when US underemployment persists at around 17%, when the US federal debt is at nosebleed levels, when well over 40 million Americans are on foodstamps, when personal bankruptcies are at the highest they have been in 5 years, when GDP is about to turn red again, when America still doesn’t have a formal budget, the average banker bonus may be one the biggest ever on record. Peasants ” 0; Kleptocrats ” 1.
Highlights from the report:
And some more details on the ever interesting topic of banker comp:
Personal income in New York State fell by 3.1 percent in 2009″the first annual decline in 70 years. The decline was due in large part to a steep drop in employment and cash bonuses in the securities industry.
Wages (i.e., base salary and bonuses realized during the calendar year) make up the largest portion of personal income. Wages paid to securities industry employees who work in New York City fell by 28.5 percent in 2009 ($20.5 billion), the largest decline in at least 30 years (see Figure 21). This drop represents 64.3 percent of the total decline in wages that occurred in New York City in that year. The large decline reflects employment losses and a steep drop in cash bonuses for work performed in 2008, most of which were paid? during the first few months of calendar year 2009.
The average wage in the securities industry in New York City posted a record decline in 2009, falling by 20.5 percent to $311,330. Average wages in the securities industry in other parts of New York State and in the rest of the nation ($202,000 and $141,980, respectively) were much lower than the average in New York City, because New York City is home to some of the most highly compensated positions in the industry, such as chief executives and investment bankers.
Securities industry wages rose by 18.5 percent in the first quarter of 2010, reflecting an increase in cash bonuses for work done in 2009, when the industry reported extraordinary record profits. Since about 30 percent of all industry wages are generally paid in the first quarter of the year, this strong gain will likely boost wages for all of 2010.
The disparity in pay between the securities industry and other private sector jobs has generally widened over the past three decades (see Figure 22). In 1981, the average wage in the securities industry was nearly twice as high as other private sector jobs, but by 2007 it was 6.2 times higher. Although the average wage in the securities industry in New York City contracted sharply in 2009, it was still 4.9 times higher than the average for all other private sector jobs in New York City ($63,650).
Wall Street Bonuses
The Office of the State Comptroller estimated that cash bonuses paid to securities industry employees located in New York City for work performed in 2009 grew by 17 percent to $20.3 billion (see Figure 23), following a 47 percent decline in 2008.2 Despite record profits, the growth in the 2009 cash bonus pool was restrained by federal intervention and the public’s outcry over the industry’s compensation practices.
Changes in compensation practices have slowed the growth in cash bonuses, with a greater share of bonuses deferred to the future. According to a global study conducted by Mercer earlier this year, many of the 61 financial firms surveyed have begun to replace cash bonuses with increased base salaries and deferred compensation.
Financial firms, like many other businesses, report compensation (i.e., base salaries, fringe benefits, and bonuses, including deferred remuneration) on an accrual basis of accounting. As such, cash bonuses paid in January and February of one year, for work performed during the prior calendar year, are reported in the prior year’s financial statements. Tracking the compensation trends of firms during the year provides insight into the size of the bonus pool, much of which will be paid out at the beginning of the following year. For example, most of the resources that were set aside by financial firms for cash bonuses during 2010 will be paid out in January and February of 2011.
The amount of revenue set aside by member firms of the New York Stock Exchange to fund compensation was down by only 4.4 percent in the first half of 2010, even though net revenues and profits were down sharply (by 26.8 percent and 61.1 percent, respectively). Compensation may have fallen further in the third quarter. In the aggregate, Goldman Sachs, JPMorgan Chase Investment Bank, and Morgan Stanley reported a 7.1 percent reduction in compensation through the third quarter of 2010.
The securities industry has reported declines in revenues, profits, and compensation as 2010 has progressed, and compensation was down compared to one year ago. While it appears that the cash bonus pool will be smaller than last year, the average bonus paid to employees in the securities industry in New York City may be a bit larger, since the pool will be divided among fewer workers given continued staff reductions. It is difficult to predict, however, the impact of regulatory reforms (both enacted and anticipated) on? compensation practices, which could result in the deferral of a larger share of bonuses. An analysis of personal income tax withholding patterns, beginning in late December 2010, will clarify the change in the cash bonus pool.
Continue reading here:
New York Comptroller Anticipates Larger Average Wall Street Bonuses In 2010
Tagged with: bond, gold, PIIGS, sterling