America's Race to the Bottom

Up dating bank failure posts:

"... Georgia’s Community & Southern Bank picked up $800 million in deposits as it acquired three of the six U.S. banks that collapsed this week, bringing the year’s failure count to 125. ...

Regulators closed 140 banks last year. The FDIC’s list of “problem” banks climbed to 829 lenders with $403 billion in assets at the end of the second quarter, a 7 percent increase from the 775 on the list in the first quarter, the FDIC said last month. ..."

From: http://www.bloomberg.com/news/2010-...lender-community-southern-acquires-three.html

 

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… I drove to my children's school for Parent-Teacher conferences. The school is 14 miles away along busy roads. On the route is 3 McDonalds. That sounds fairly normal. But then I saw 5 Cash for Gold locations. Two of them are brand new. The other three came around just over the past couple years. Yes, gold prices are high...but the real existence of these places is for people to trade in family heirlooms for cash because they are going broke. Then throw in all the vacant stores and it's hard to get a sense that things are truly getting better.

So why are corporate profits going higher? Three main reasons.
1) Major cost cutting. Mostly on the staffing side of the equation. So each dollar in revenue produces more profit.
2) Modestly improving US economy moves up revenue a bit. Combine that with #1 above and it creates attractive year over year profit growth.
3) About half of US corporate profits these days come from overseas. Europe may be weak, but growth in China, India, Brazil etc more than makes up for that shortfall.

This is why healthy corporate profits and a rising stock market seem to be disconnected from the realities in our own backyards …”

From Zack’s Emailed newletter today.

BTW, Beef is at 25 year high in prices because too much corn is going into alcohol during a low production year.

 

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Only the corn starch is made into ethanol. The protein germ can be converted into high quality animal feed, as explained here:

http://www.youtube.com/watch?v=lzeJIHaw2LE&feature=related

 

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Thanks for the link. It is a quick informative presentation.

But to quibble a little with your post (and agree with the link) it is not the starch which is made into alcohol. That is as inaccurate as saying the corn is made into alcohol. The alcohol is made from simple sugars, which in the corn were complex poli-sacarides that enzymes can cleave into simple sugars.

Part of corn's lower efficiency and greater cost than sugar cane based alcohol is that after the poli-sacarides are cleaved, there are several different simple sugar, but crushing sugar cane gives only one (sucrose, I think). Each different sugar is fermented by a different yeast so that adds complexity to the corn to alcohol process, but it is relatively easy to cope with compared to the organic mess you get when enzymes cleave up cellulose. Because of this, I doubt cellulosic alcohol will ever compete economically with sugar cane alcohol, with the possible exception of using the crushed cane, which has zero field collection and transport from the field cost as it is already at the alcohol plant.

Even crushed cane cellulosic alcohol may not be economically viable - able to compete with simple burning of it for power production as is widely done now in Brazil (There much more heat available from burning the crushed cane than needed for the distillation process.)

That excess generates something like 3 to 5% of Brazil's electric power now on an annual consumption basis. It is only available about half of the year, but Brazil get more than 80% of it electric power from hydro-electric dams. When power from burning cane is available, less water is released from behind the dams. - I.e. they are a "free storage battery" for the crushed cane to power system making it harder for even the most economical cellulosic alcohol to compete with the simple burning of it for electric power.

 

The point of the video is to demonstrate what a bushel of corn can yeild *aside* from ethanol...most notably oil and high-protein animal feed.

From sugar cane you get alcohol, heat, and maybe some trace minerals like calcium, potassium and magnesium.

 

You also get many plastics. BrasChem has a pilot plant already producing more than a year ago* and PetroBras is also planing to make plastic on large scale from cheaper (than oil, if not already soon) sugar cane feed stocks. Part of their appeal is that the process is renewable and slightly "carbon negative."

Some of these new plastic are bio-degradable**, others, like polyethylene & polypropylene, etc. are not. BrasChem is expecting to be a major global supplier as its plastic will be cheaper than oil based ones.

Starting with the pure sucrose molecule it is amazing what you can economically make. Starting with the mix of sugars you get when you use enzymes to cleave the starches of corn is less attractive, in part because the enzymes are not cheap. The future belongs to sugar cane, and not just because if gives a significantly cheaper per mile driven car fuel.

------------------
* See article on BrasKem's 200,000 TONs /per year polyethylene plant and some of the chemical steps here: http://www.plasticstoday.com/articles/braskem-details-sugar-cane-pe-plans

That 6 month old article projects BrasKem's large scale plant will be producing now (in October2010) but I have not seen any announcement in my local paper that it is. I think it may be as the cost of alcohol for my car has significantly risen in the last month. -Not much cheaper than gasoline now.

Also: "Braskem, Latin America’s largest petrochemicals company, may open a second factory to produce polyethylene from sugarcane-based ethanol, once a first plant starts up around October, a project manager at the firm said on Monday" {released 22March2010}
From: http://sugarcaneblog.com/2010/03/22/brazil-braskem-may-expand-cane-plastics-on-strong-demand/

**See very recent article here: http://www.impactlab.net/2010/02/18...ade-from-sugar-that-can-be-composted-at-home/

 

To quibble a bit, 2010 is not a low production year for corn. The US crop, despite recent down-grading from the spectacular early summer forecasts, is still expected to be the largest ever - more than 13 billion bushels.

Mexico is also looking at a record harvest.

The price is rising for other reasons, including the kind of futures market screwing around that was illegal until the deregulation Phil Gramm and his buddies sneaked into the 2000 budget bill at the last moment.

 

I think corn is currently selling wholesale at $5.75/ bushel. If true that is about 75 Billion dollars.

 

http://www.ft.com/cms/s/0/f3895e30-c1c4-11df-9d90-00144feab49a.html

http://www.agrimoney.com/news/floods-and-heat-deprive-us-of-record-corn-yield--2220.html

Such an amplified reaction to news that the US corn crop is only the largest ever, not the monster forecast, kinda rings some bells from the recent past with this new world of deregulated commodity speculation. Recall what happened to rice prices a couple of years ago?

 

The important distinction here is between the words AND versus OR.

Corn can produce ethanol AND high protein animal feed AND Oil.

Sugar Cane can produce ethanol OR plastics.

The point being that arguements against corn production displacing
livestock production do not have to be valid.

As long as corn's full potential is exploited.

Even the left over cobs can be burned to heat the distillation process.

 

(It is not the production of corn, but its diversion to alcohol production, that makes beef, chicken etc. more expensive.) Yes, the "corn based alcohol makes food more costly" arguement against using corn to produce alcohol are valid as the protein derived from "alcohol corn" can only be a small fractions of the steer's feed for two reasons:
(1) It is not healthy for any animal mother nature designed to eat grass to eat very much protein.
(2) Protein, even from corn producing alcohol, is also not a the cheapest animal food. I think mainly soy beans in a grain mix, which includes corn, are used in in "feed lots" after grass feeding on the range.

True in principle, but not their most economic use. I think just returned to the soil as the corn is collected is.

In any case corn cobs, which are low density energy and expensive to transport, as source of heat is several times more expensive than natural gas so they are not used.

 

" Oct. 19 (Bloomberg) -- Three Federal Reserve regional presidents reinforced the idea that policy makers will start a second round of unconventional monetary stimulus, with two saying asset purchases must be big enough to aid the economy. ..."
From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=a3w7235.ddAM&pos=6

Billy T comments:If at first you fail, try, try again.

 

More on corn to alcohol's impact on food prices:

" U.S. corn prices this month revisited levels not seen since the months after the
amended Renewable Fuels Standard was signed into law, rekindling the debate
about whether food products should be used to make fuel. But this month's
corn market rally to highs near $6 per bushel was driven more by the U.S.
Agriculture Department's lower corn production forecast amid an already tight
supply/demand balance than by rising demand from makers of corn-based
ethanol, said Tim Gallagher, executive vice president of grains and biofuels
with Bunge North America. Gallagher, speaking in a panel discussion at the
Global Financial Leadership Conference in Naples, Florida, ..."

From C. Schwab's daily report (I have owned BG for many years, back when its HQ was still in Brazil, so get news about them).

 

Updating bank failure data (post 141 & earlier posts):

"... There have been 149 bank failures so far this year, compared to 140 in 2009, 25 in 2008 and just 3 in 2007. Increasing loan losses on commercial real estate are expected to cause hundreds more banks to fail in the next few years. … FDIC list of problem institutions in the third quarter grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s. … While the list is increasing gradually, bank failures are snowballing.* …”

From: http://www.zacks.com/stock/news/43814/FDIC's Problem Bank List Increases

With 35 days left in 2010, 330/149 is 2.22 calendar days between failure as annual average. In the 67 days since post 141, 24 more banks have failed. 67/24 is a recent failure rate of one bank every 2.79 days so failure rate is finally slowing instead of accelerating. This may be due to the fact many banks have stopped foreclosures - I.e. can still carry bad mortgages on the books as if they would be paid. Banks do take quite a loss when they foreclose - Almost always the house is "under water" - worth less than the mortgage balance and then bank takes further loss in its "distress sale" price.

There are some great bargains out there now, especially in Florida, and Europeans are buying ($49,000 condos near beach or major cities, etc.) This is partly due to fact dollar has dropped wrt the Euro.

* True on an annual basis, but false by my comparison to post 141 data.

 

"...Three more U.S. banks were closed by regulators Friday, bringing the total number of bank failures for the year to 157. ... The three bank failures will cost the federal deposit-insurance fund a combined $102.3 million, the FDIC said. ..." From: http://www.marketwatch.com/story/three-us-bank-failures-bring-years-total-to-157-2010-12-17

Billy T notes: Friday was day 365-14 = 351. So, 351/157 = 2.236 days between failures, certainly a slowing rate now, but as noted in post 155 that may be due to banks finalizing fewer foreclosures so can carry on books mortgage value that is not real. With two more Fridays in 2010 (that is when the FDIC acts, or at least reports) the total for 2010 should be or exceed 160 failures, 20 more than in2009 - problem still getting worse, but not sure total cost to FDIC is greater this year as small bank failure are, I think, a higher fraction of all.

 

On personnel impact of the long recession / unemployment is home sharing:

"... Census Bureau data released in September showed that the number of multifamily households jumped 11.7 percent from 2008 to 2010, reaching 15.5 million, or 13.2 percent of all households. It is the highest proportion since at least 1968, accounting for 54 million people.

Even that figure, however, is undoubtedly an undercount of the phenomenon social service providers call “doubling up,” has ballooned in the recession and anemic recovery. The census’ multifamily household figures, for example, do not include such situations as when a single brother and a single sister move in together, or when a childless adult goes to live with his or her parents. ..."

From: http://www.nytimes.com/2010/12/29/us/29families.html?a=7

But it they get a good job, help is on the way via still falling home prices:

"... Case-Shiller Home Price Index of 20 metro areas shows that on a year-over-year basis home prices in the U.S. fell -0.8% on a seasonally adjusted basis in October, which was below the consensus for a drop of -0.2%. On a monthly basis, prices for the 20-city index fell -1.3% in October.
The 20-city index is up +4.4% from its April 2009 bottom but it remains -29.6% below the peak of July 2006.

From: http://www.topstockportfolios.com/r.../1/0/23aa6bcdd866bce85c2a4847a478b9403e040128

Billy T comment: And you thought falling home prices was bad news! - For sellers, yes, but not for all. (Above NYTs article tells of the conflicts that come with three generations trying to live in a small three-bed-room urban house. That work OK 100 years ago in a large farm house.) And worse (or better if you are among the 13.2% now "doubled up") likely to come:

"... I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher. ..."

Read more: http://www.businessinsider.com/peter-schiff-home-prices-2010-12#ixzz18pUGY9ib Where there is also a link to the full "Op Ed" article in today's WSJ.

 

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27 weeks = 0.5 year. "99 or more weeks jobless" and "on average jobless more than 2 years" exceeds 150,000 workers.

 

"... The current U.S. level of total non-farm payroll employment now stands at 131.5 million compared to 131.3 million ten years ago in December of 2001. However, the population in December of 2001 was only 285,669,915 compared to a population of 311,853,211 today. To have kept up with population growth, we would need to have 143.3 million non-farm payrolls today, but we are currently 11.8 million jobs short! ..."

From: http://inflation.us/blog/2011/01/unemployment-falls-to-9-4-from-declining-labor-force/

I think facts are true (all I have tested from this source have been) but source has a strong POV.

 

"... The 16-page decision in the case of US Bank vs Ibanez does not make for easy reading. But it’s a very important case: it’s a solid precedent saying that if a bank doesn’t own a mortgage, then it can’t foreclose on a home. That was the decision of the lower court in Massachusetts, back in March 2009, and it has now been unanimously upheld on appeal to the Massachusetts supreme court. ...

The immediate effect of the ruling, which covers two separate cases, is that Mark and Tammy LaRace get to stay in their home, despite being foreclosed on in 2007. And Antonio Ibanez gets title to his home back, which means that the bank will either have to let him retake possession or else pay him for his deed.

Essentially, these homeowners bought their homes, defaulted on their mortgages, and then — after a long legal struggle — get to stay in their homes. {without paying the mortgage}..."

From: http://seekingalpha.com/article/245...market-catastrophe-risk?source=hp_wc&wc_num=3

BT comment: Looks like many more mortgages will not be paid even by those who can. So many smaller banks will fail but good for retail stores as they buy things with the mortgage money.