Saturday, March 01, 2008

Equities Continue Their Meltdown

3/1/08 Equities Continue Their Meltdown

According to AMG Data, including ETF activity, Equity funds report net cash inflows totaling $2.049 billion in the week ended 2/27/08 with Domestic funds reporting net inflows of $1.839 billion and Non-domestic funds reporting net inflows of $210 million; Excluding ETF activity, Equity funds report net cash inflows totaling $217 million with Domestic funds reporting net outflows of -$105 million and Non-domestic funds reporting net inflows totaling $322 million.

Bond insurer Assured Guaranty Ltd said on Friday billionaire investor Wilbur Ross agreed to buy up to $1 billion of its shares, giving it a much needed capital boost to preserve its triple A credit rating. Under the agreement, WL Ross & Co LLC will purchase $250 million of common shares of Assured and to provide a commitment to purchase up to $750 million of additional common shares of Assured at the option of the company

Bain Capital LLC and China's Huawei Co. plan to resubmit an application seeking U.S. approval for their planned $2.2 billion buyout of 3Com Corp. within the next several weeks, according to people familiar with the matter.

"There will probably be some bank failures," the Fed chairman told the Senate banking committee in his second day of biannual testimony to Congress. He said the banks at risk were "small and in many cases de novo [new] banks that are heavily invested in real estate in localities where prices have fallen".

According to the NY Times, Canadian Imperial Bank of Commerce reported a first-quarter loss of 1.46 billion Canadian dollars ($1.49 billion) on Thursday, compared to a profit of 770 million Canadian dollars a year earlier, as the bank took a slew of charges related to its subprime mortgage exposure.The write-downs and paper losses included a 2.28 billion Canadian dollar (pre-tax) charge because of the bank’s exposure to troubled bond insurer ACA Financial Guaranty; a 626 million Canadian dollar charge on exposure to other financial guarantors; 473 million Canadian dollars of paper losses on securities tied to the U.S. mortgage market; and a 108 million Canadian dollar loss on the sale of some of the bank’s U.S. business to Oppenheimer Holdings as well as management changes and the restructuring of some other businesses.

Reuters writes that Microsoft has cut the price of Vista to encourage upgrades.
Microsoft is cutting prices on some retail versions of Windows Vista in a bid to stoke demand for the company's flagship operating system ahead of a significant upgrade. The price cuts vary by market but in general will range from 20 to 40 percent. In the U.S., an upgrade from earlier versions of Windows to Vista Home Premium will cost $130, compared with the current $160. A full version of the top-end Vista Ultimate edition will sell for $320, down from $400.

S&P's Sam Stovall points out that, in the final quarter of 2007, earnings per share in the S&P 1500 fell by close to 4%.

Financial firms are likely to face at least $600 billion of losses as the crisis triggered by the collapse of sub-prime mortgages batters banks, brokers and insurers, UBS AG analysts said in a report.

Bloomberg reports Ohio has the sixth-largest gay and lesbian population in the U.S. Both Clinton and Obama oppose same-sex marriages while supporting civil unions. A major difference between the candidates is that Obama supports full repeal of the 1996 Defense of Marriage Act, a law signed by Bill Clinton -- under pressure from a Republican-dominated Congress -- that prohibits federal recognition of same-sex marriages and permits states to do the same. Hillary Clinton wants to roll back only part of the law.

Swiss Reinsurance Co. reported an 87 percent drop in fourth-quarter net profit on Friday, blaming massive write-downs linked to bad loans.

According to a Reuters/C-SPAN/Houston Chronicle poll released on Friday, Obama has a 6-point edge on Clinton in Texas, 48 percent to 42 percent. He trails Clinton 44 percent to 42 percent in Ohio -- well within the poll's margin of error of 3.8 percentage points.

The Washington Post’s E. J. Dionne takes a look at the similarities between Obama and Ronald Reagan. Both were criticized by opposing campaigns that charged that the candidates had nothing more than oratory skills. Both faced concerns about their ability to handle foreign policy. Both endured complaints that they wouldn’t achieve bipartisanship - Obama will reveal himself as a “big, bad liberal” and Reagan as a right-wing extremist. But the electorate wanted a change in 1980 and they took a risk to achieve it. And they’re doing it again this year. “Now is the time to go for broke, to challenge not only the ruling party but also the governing ideas of the previous political era and the political coalition that allowed them to dominate public life,” Dionne writes.

On Feb. 22, Obama was endorsed by the Change to Win Coalition, many of whose seven constituent members have significant Latino participation. These developments—along with the momentum his 11 consecutive wins since Super Tuesday provides—could help Obama score victories in Texas and Ohio. It is quite conceivable that Latino voters will comprise more than 25% of the voters in the primary and caucus in Texas.

The Commerce Department reported that January personal spending rose by 0.4 percent, while personal income rose by 0.3 percent. The personal consumption expenditure price index, a key measure of inflation, rose 0.4 percent in January after an upwardly revised increase of 0.3 percent in December. In sum, spending posted a 0.4 percent rise in January, and all of that gain came from a surge in inflation during the month. Taking away the effect of prices, spending showed no gain in January or December.

Defaults on privately insured U.S. mortgages rose 31 percent in January from the same period a year earlier, the 13th straight monthly increase, an industry report today showed.

Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a report.

The New York Times Co. said Friday its advertising revenue for January fell 9.8% to just under $165 million.

The Reuters/University of Michigan survey of U.S. consumer sentiment dropped to 70.8 in February from 78.4 in January.

Jim Rogers: America is “completely out of control” and there will be a 20-year bull market in commodities and that prices will be in turmoil. He also warned that it “made sense” if global competition for resources ended in armed conflict.

Hezbollah on Friday denounced the deployment of U.S. warships off the coast of Lebanon, calling it a threat to the country's sovereignty, but the Shiite militant group said it would not be intimidated by the move. "We are facing an American threat against Lebanon," Hezbollah legislator Hassan Fadlallah said on local television. "It is clear this threat and intimidation will not affect us."

The dollar fell to a three-year low against the yen on Friday after a weaker than expected reading of a U.S. Midwest business activity index.

Bill Gross, chief investment officer of Pacific Investment Management Co., is planning to invest in municipal bonds and mortgage loans, he told reporters at the Allianz Global Investors annual press conference in London today. There's value in ``assets that are regurgitated into the market place at prices that are more attractive than we have seen in decades,'' Gross said via video link from Newport Beach, California. ``We're moving into assets that have been unwound and sold without discretion. There are tremendous hedge-fund unwinds of municipal securities.''

When Hillary Clinton was ahead by 20 points in the polls in Texas, she had no problem with the Texas voting rules. Now that she's 6 points behind in the latest poll, she is thinking of challenging the Texas voting rules. Soon she will drop out of the race and the thoughts of coronation will come to a halt.

Bill Bonner: "In the United States, as we keep pointing out, the supply of paper money is rising three times the speed of GDP growth. In places like Russia…it is growing five or six times as fast as GDP. China's inflation is at an 11-year high…and at more than 7% is becoming alarming. Don't expect Chinese exports to hold down prices in the United States anymore…now they're just another inflationary pressure."

Gary Dorsch: "For the Bernanke Fed, the devil of hyper-inflation is preferable to the specter of a bear market for the Dow Jones Industrials and weaker home prices. Exercising the “Bernanke Put” means the Fed will slash the federal funds rate further below the US inflation rate next month. But that’s a frightening prospect for foreign holders of $2.3 trillion of US Treasury debt, who must contend with negative interest rates, which in turn, could severely weaken their US dollar denominated investments."

April gold ends up $7.50 at $975 an ounce on Nymex. Crude oil for April delivery fell 75 cents, or 0.7%, to settle at $101.84 a barrel on the New York Mercantile Exchange.

Northrop Grumman Corp. received a contract to replace the U.S. Air Force's KC-135 tankers with the KC-45A aerial refueling tanker. The KC-45A is based on the Airbus A330 commercial jet, which is produced by EADS. The contract has an estimated value of $40 billion. Northrop beat out Boeing Co for the bid.

Berkshire Hathaway said late Friday that fourth-quarter net income came in at $2.95 billion, or $1,904 per class A share, down 18% from a year earlier when the insurance-focused conglomerate made $3.58 billion, or $2,323 per class A share.

J.P. Morgan Chase is reclassifying $4.9 billion of leveraged loans on its books as investments, rather than as held for sale, as the market for loans made to firms doing corporate buyouts weakens further. "While some leveraged finance loans were sold during the fourth quarter of 2007, the firm held $26.4 billion of leveraged loans and unfunded commitments as held-for-sale as of December 31, 2007. Markdowns in excess of 6% have been taken on the leveraged lending positions as of year-end 2007," J.P. Morgan said in a 10k filing with the SEC. "In January 2008, the firm decided, based on its view of potential relative returns, to retain for investment $4.9 billion of the leveraged lending portfolio that had been previously held-for-sale." The bank, the nation's largest, said it expects further declines in the leveraged loan market in 2008.

Wells Fargo & Co. took a $39 million loss in 2007 on debt held in one of its structured investment vehicles. It outlined the loss in an annual report filed with the U.S. Securities and Exchange Commission. Wells said the loss came as part of a $130 million capital support agreement Wells entered into as a way to safeguard a coveted Triple-A credit rating for many of its investment funds.

Friday, February 29, 2008

Mortgage Market Conditions

2/29/08 Mortgage Market Conditions

Sprint Nextel , the No. 3 U.S. mobile service, on Thursday posted a quarterly loss on a steep impairment charge, and forecast a deepening of subscriber losses in the first quarter.

Sears Holdings Corp reported a 47.5 percent decline in quarterly profit on Thursday on increased markdowns and lower sales at its Kmart and Sears stores.

Freddie Mac says its loss widened to $2.5 billion in the fourth quarter as defaults mounted on home mortgages.

Technical problems have forced the Bush administration to retool a high-tech "virtual fence" along the US-Mexico border and will delay the first phase for at least three years, the Washington Post reported on Thursday.

Apple COO Cook said the company is on track to sell 10 million iPhones in 2008.

Jim Rogers: ``If I told you how bullish I am about agriculture, you'd ask me to leave the room. Prices of agricultural commodities are going to explode. Inventories of food are the lowest they've been in over 40 years. The number of hectares devoted to wheat farming has been declining for over 30 years.''
``All of you should get all the sugar you can. The price of sugar is going to explode.''
``I'm bullish on cotton and have been for a while. A lot of people in the textile business are starting to convert from synthetics to natural fibers again because it's so much cheaper'' given the rise in prices for oil used to make synthetic fibers.
On prospects for the Japanese yen:
``I own the yen and it's another thing I'm buying these days. I'm convinced the carry-trade is going to reverse and when it does the yen is going to go through the roof.''

JPMorgan Chase & Co., the third- biggest U.S. bank, had its earnings estimates cut by Goldman Sachs Group Inc. and Merrill Lynch & Co. on expectations of write downs in the value of its home-equity loans.

El Paso Corp., the largest transporter of natural gas in North America, presented plans Wednesday for a pipeline that will carry natural gas from producers in the Rocky Mountains to the high demand market of northern California. The company laid out the $2 billion Ruby Pipeline project at a Wyoming House Minerals, Business, and Economic Development Committee meeting.

Barclays Capital, the U.K. bank's investment banking unit, raised its forecast for the average price of crude oil in 2008 by 12 percent because of increasing Chinese demand and an improving U.S. economy. The price of West Texas Intermediate, the physical grade for oil futures traded on the New York Mercantile Exchange, will average $97.70 a barrel this year, Barclays analysts including Paul Horsnell said in a report dated yesterday. That's higher than their earlier prediction of $87.40. Brent crude in London, will average $96.40 during 2008, up from $85.80.

Rob Hanna: "As you can see, a Nasdaq lagging as badly as it is right now has been quite bearish historically. The bearish tendency carries through over a significant period of time as well (10 weeks.) If the Nasdaq could begin to assert a leadership role, that could help the current rally attempt greatly. If not, bulls better hope it’s different this time."

First-time claims for state unemployment benefits rose 19,000 to 373,000 in the week ended Feb. 23, reaching the highest level since late January, the Labor Department reported Thursday. The four-week average of initial claims fell 1,250 to 360,500. Recipients of state jobless benefits rose 21,000 to 2.81 million in the week ended Feb. 16. The four-week moving average of continuing claims rose 24,250 to 2.78 million.

Thornburg Mortgage Inc. in a regulatory filing Thursday said since Feb. 14, it has met margin calls in excess of $300 million related to securities backed by about $2.9 billion of mortgage debt. The company said there was "once again a sudden adverse change in mortgage market conditions." Thornburg said it has not realized any losses on the mortgage securities, but it has "observed deterioration in the liquidity for these securities and increased difficulty in obtaining market prices." Market valuations on the securities have decreased between 10% and 15% since the end of January, which triggered the margin calls on the collateral. "In the event that we cannot meet future margin calls from our available cash position, we might need to selectively sell assets in order to raise cash," Thornburg said. "To date, no such sales have been required to meet margin calls."

George Ure: "Monetary inflation around 4% and GDP up 0.6% annualized? Sounds like a recession to me."

Rowan's offshore rig utilization was 97% during the fourth quarter, up from 81% in the year-ago period and down slightly from the 99% level in the third quarter. Rowan's average offshore day rate was $164,300 during the fourth quarter, up by $19,900 or 14% from the fourth quarter of 2006 and by $6,100 or 4% from the third quarter. "Our backlog of business, which currently approaches $2.5 billion, together with our aggressive strategic growth plan, suggest that even better times are ahead for Rowan," the company said.

The dollar index, which measures the greenback against a basket of six major currencies, was at 73.74, down from 74.540 in late U.S. trading Wednesday.

Salesforce.com reported a 14-fold increase in fourth-quarter profit as more companies subscribed to its sales programs and created online applications. The company boosted its fiscal 2009 revenue forecast.

Gannett Co., the nation's largest newspaper publisher, said Thursday that January operating revenue dropped 7.5 percent on sharp declines in real estate and employment ad sales.

U.S. natural gas inventories down 151 Bcf last week. Stockpiles were 133 billion cubic feet less than last year at this time and 87 billion cubic feet above the five-year average of 1,532 billion cubic feet, EIA said. On the New York Mercantile Exchange, April natural gas futures soared 25.4 cents to $9.314 per million British thermal units.

Bernanke sees some bank failures, but not larger firms.

The euro is trading above the $1.52 level.

The Japanese yen rose to a near three-year high against the U.S. dollar Friday, following comments Thursday from U.S. Federal Reserve Chairman Ben Bernanke which were interpreted as signaling intentions to reduce benchmark lending rates to support the flagging U.S. economy. In Tokyo trading Friday the dollar fell to 104.28 yen, its weakest level since May 2005, before recovering to 104.39 yen in late afternoon trade in east Asia business hours.

India's economy expanded 8.4% during the October-December period from a year ago, easing from an 8.9% expansion in the previous quarter, official data showed Friday.

Crude oil futures hit a record high above $103 per barrel in electronic trading Friday amid reports Ecuador's state-run oil company, Petroecuador, suspended operations at a key export pipeline after a landslide damaged infrastructure.

Fremont General Corp. plans to delay interest payments on some of the debt issued by a trust unit as the lender struggles to recover from subprime mortgage problems last year. The payments will be deferred on Fremont's junior subordinated debentures and related 9% trust originated preferred securities, the company said. Fremont "has significant liquidity risk as a result of limited sources of cash available to satisfy its obligations," the company explained. It's now working with its investment-banking advisors Credit Suisse and Sandler O'Neill to explore strategic alternatives including raising capital, restructuring debt and the possible sale of the company, Fremont added.

American International Group reported a $5.29 billion fourth-quarter net loss late Thursday after the insurance giant took a big charge related to the estimated market value of credit derivatives. The net loss was $5.29 billion, or $2.08 a share, vs. net income of $3.44 billion, or $1.31 a share, a year earlier, the company said. The adjusted net loss for the fourth quarter of 2007 was $3.20 billion, or $1.25 a share.

Kohl's Corp. reported net income of $411.7 million, or $1.31 a share, compared with $484.6 million, or $1.48 a share, for the same period a year ago.

Dell Inc. reported a fourth-quarter profit of $679 million, or 31 cents a share, on revenue of $16 billion. During the year-ago period, Dell earned $726 million, or 32 cents a share, on $14.47 billion in revenue.

Gold for April delivery hit a record $970 an ounce on the New York Mercantile Exchange. The contract rose $6.50 to end at $967.50 an ounce.

The chief executive of U.S. Airways said Thursday the industry is facing a downturn as it grapples with record-high oil prices and a weaker economy, Reuters reported.

Thursday, February 28, 2008

Durable Goods

2/28/29 Durable Goods

Luxury home builder Toll Brothers said it posted a fiscal first-quarter to Jan. 31 loss of $96 million, or 61 cents a share, after $153.3 million in write-downs. It earned $54.3 million, or 33 cents a share, in the year-ago quarter. Revenue dropped 23% to $842.9 million, and its backlog fell 42% to $2.4 billion. Excluding write-offs, it would've earned 35 cents a share during the quarter. The company is seeing "glimmers of hope" in the Naples, Fla. area and suburban Washington D.C.

The euro remained above the $1.51 level Wednesday morning, after the U.S. dollar set a new all-time low versus the single currency on fears the U.S. economy may be headed toward recession.

Gold futures hit a new record high in electronic trading on Wednesday, up as high as $961.30 an ounce, and recently up $11.50 to $960.40 an ounce.

Demand for durable goods fell back in January after a burst of orders in December, the Commerce Department reported Wednesday, another sign that the economy is slowing. New orders for durable goods fell 5.3% in January, close to the 5.1% drop anticipated by economists surveyed by MarketWatch. December's gains were revised lower to 4.4% from 5% previously reported. Much of the decline in January was due to the unwinding of the flood of orders for aircraft in December. Declining demand was seen in almost every industry in January, however, despite reports of higher exports.

New Zealand business confidence slipped to 10-month low in February, deteriorating sharply from the previous poll in December, as firms grew more pessimistic about the outlook amid weaker economic conditions, according to a survey released Wednesday.

Hong Kong lowers 2008 GDP estimate to 4% to 5%.

In early Wednesday trading, crude hit a record $102.

The European Commission fined Microsoft a record $1.35 billion for failing to comply with a 2004 antitrust ruling.

The monthly RealtyTrac.com survey of foreclosure activity nationwide showed that filings in Idaho jumped from 382 in January 2007 to 735 last month, an increase of 92 percent.

According to the SF Chronicle, there have been more large, environmentally damaging sewage spills in the San Francisco Bay Area in the first two months of 2008 than in the last 7 1/2 months of last year, a Chronicle analysis has found.The flood of effluent continued over the weekend when two spills in Marin County dumped thousands of gallons of sewage into San Francisco Bay and an adjoining waterway. There have been 276 sewage spills this year that either flowed into Bay Area waterways or contained at least 1,000 gallons of effluent, according to the analysis of State Water Resources Control Board statistics.That's more than 14 million gallons of sludge oozing out into the environment, the statistics show. That doesn't even include the Jan. 26 and Jan. 31 spills of 5.15 million gallons of raw and partially treated sewage by the Sewerage Agency of Southern Marin treatment plant in Mill Valley.

Brett Steenbarger: "My Cumulative Demand Supply Index hit an overbought level Tues, which has led to subnormal returns 20 days out."

According to the Seattle Times, Microsoft is celebrating the release of a new version of one of its most successful products outside of the desktop Windows and Office one-two punch. Windows Server 2008, which is being feted in a series of launch events starting in Los Angeles today, is the flagship product of Microsoft's long-term effort to build a presence in the lucrative market for software that businesses run behind the scenes. The part of the company that built the product, the Server and Tools unit, brought in sales of about $11.2 billion in the past fiscal year, more than one-fifth of Microsoft's total. It was very profitable, too, forming the third leg of the stool with Windows and Office.

Nouriel Roubini Says U.S. Recession May Last Up to Six Quarters.

Fannie Mae posted a $3.55 billion loss in the fourth quarter as the failure of homeowners to keep up with their mortgage payments dragged down the value of the company's assets. The net loss was $3.80 share, compared with profit of $604 million, or 49 cents, a year earlier, Washington-based Fannie Mae said in a statement today. Excluding some items, the per-share loss was $3.79, compared with the $1.20 average estimate of 12 analysts in a Bloomberg survey.

BMW said it is cutting 5,600 jobs, including full-time and temporary workers by the end of the year. Another 2,500 workers have already left the company. That brings the total number of jobs affected to 8,100.

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis. FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas. Can you say a run on the banks?

Shares of Intel Corp. after JPMorgan cut its profit estimates for the world's largest chipmaker. JPMorgan analyst Christopher Danely said his checks indicate that Intel's first quarter is "trending below plan due to weaker than expected orders for microprocessors."

Nortel will cut 2100 jobs.

Allstate Corp. authorized a $2 billion share repurchase and increased its quarterly dividend 7.9 percent.

Sales of new U.S. homes fell by 2.8% in January, led by a drop of more than 10% in the Northeast, the Commerce Department reported Wednesday. Sales of new homes fell 2.8% to a seasonally adjusted annual rate of 588,000 in January. January's sales pace was down 33.9% compared with January 2007. December's sales pace for new homes was revised to 605,000, up slightly from the 604,000 reported earlier.

U.S. crude inventories rose more than expected, up 3.2 million barrels to 308.5 million barrels in the week ending Feb. 22, U.S. Energy Information Administration reported on Wednesday. Gasoline supplies rose by 2.3 million barrels in the latest week, while distillate stocks fell by 2.5 million barrels, EIA reported. By comparison, U.S. crude inventories fell by 1.7 million barrels to 307.3 million barrels in the week ending Feb. 22, the American Petroleum Institute reported on Wednesday. Distillate stocks fell by 1.2 million barrels to 121.7 million barrels in the same period, while gasoline stocks dropped by 1.0 million barrels to 221.7 million barrels, API said. API uses different methods than the Energy Information Administration to calculate inventories.

Federal Reserve Chairman Ben Bernanke signaled additional rate cuts are in store, at least in the near term.

Shares of Fannie Mae and Freddie Mac jumped on Wednesday, after the federal regulator for the mortgage finance companies said it will lift an investment cap, in a move that will free up billions of dollars to invest in the U.S. housing market.

More than a fifth of Germany's electricity comes from burning hard coal, whose price for delivery into northwest Europe with settlement next year rose as much as 3.5 percent to $134 a metric ton, according to ICAP Plc. The contract has gained 19 percent this year. Surging demand in South Africa, China, India and the closure of a German coal mine continues to support prices.

Bank of Japan board member Atsushi Mizuno said Thursday the central bank needed to hold interest rates unchanged, while acknowledging rising downside risks to Japan's domestic economy and the global outlook.

South Korea's trade account balance deteriorated sharply in January, as the goods-trade account swung to deficit while the service-account deficit widened, data released by the Bank of Korea showed Thursday. The seasonally-adjusted current account deficit ballooned to $2.03 billion, from a deficit of $1.07 billion in December.

Crude oil for April delivery dropped $1.24, or 1.2%, to close at $99.64 a barrel on the New York Mercantile Exchange. Gold for April delivery rose $12.10 to end at $961.0 an ounce on the New York Mercantile Exchange. Earlier, the contract hit a record $967.70 an ounce.

Tuesday, February 26, 2008

Prices

2/27/08 Prices

The dollar index touched an all-time low of 74.706.

Crude for April delivery settled up $1.65, or 1.7% on the New York Mercantile Exchange. Earlier it rose to a new intraday high of $101.15 a barrel. Heating-oil futures for March delivery ended at $2.815 a gallon, the highest closing a front-month contract has ever seen.

The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting. The January surge left wholesale prices rising by 7.5 percent over the past 12 months, the fastest pace in more than 26 years, since prices had risen at a 7.5 percent pace in the 12 months ending in October 1981.

Thomas Jefferson: “If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless”

Prices of existing U.S. single-family homes slumped 8.9 percent in the fourth quarter versus a year earlier, the largest decline in the 20-year history of a national home price index released on Tuesday. The S&P/Case-Shiller composite index of 10 metropolitan areas fell 2.3 percent in December versus November, to 200.55, and fell 9.8 percent year-over-year, S&P said in a statement.

Target Corp reported a more than 8 percent drop in quarterly profit on Tuesday after shoppers spurned purchases of higher-margin merchandise like clothes in favor of necessities like food. "Our financial performance in 2007 fell short of our expectations as the pace of sales and earnings slowed considerably in the second half of the year," said Bob Ulrich, chairman and chief executive officer, in a statement.

Home Depot Inc said on Tuesday earnings per share could fall as much as 24 percent this year, and it plans to open fewer new stores due to the slumping U.S. housing market. The world's largest home improvement retailer also reported profit for the 2007 fourth quarter that fell short of analysts' estimates, and its shares fell 1.6 percent in trading before the bell.

U.S. home foreclosures for January increased 57 percent from a year earlier, but the pace at least temporarily subsided in response to private and government efforts to help homeowners, RealtyTrac said. Foreclosure filings in January rose 8 percent from the prior month after jumping 19 percent a year earlier, the real estate marketing company said on Tuesday.

A comScore report showed lower paid-click search rates for Google from a year ago.

Office Depot Inc.'s net income fell 85% to $18.8 million, or 7 cents a share, from $126.6 million, or 45 cents a share, a year earlier.

U.S. consumer confidence slumped to a reading of 75 in February.

Chicago wheat prices rose by the most in more than five years, breaching $12 a bushel for the first time.

VMware has struck a deal to install its virtualisation software on some servers shipped by Dell, Hewlett-Packard, IBM and other suppliers of computer equipment to big companies.The move also includes servers made by Fujitsu Siemens.

The Oil Drum: "Oil output in Mexico, the third-biggest supplier to the US, is declining, and the state company Petroleos Mexicanos (Pemex) lacks the technology to explore for new reserves. For many the answer seems simple: more capital. But now that senators have begun debating ways to attain that capital – a top priority of President Felipe Calderón – resistance has mounted, particularly to the idea to allowing in private enterprise." This from a country that
nationalized U.S. oil interests in 1936-37 that became Pemex.

Sam Zell Sees Start of Housing Recovery in the Spring.

Rob Hanna: "Not all breakouts are good news. Between the 2-day surge and the triangle breakout study it appears the edge over the next few days is to the downside."

Brad Setser: "The rise in shipping from Asia to Europe and the Middle East helps to explain how the Baltic freight index decoupled from the US economic cycle. The Baltic dry index rose strongly for most of the year even as the US (non-oil) import growth slowed in 2007. Things obviously changed a bit in November. It also explains why Europe is increasingly putting pressure on China to appreciate against the euro, not just the dollar -- and why Europe seems to worry more about about the risk that it might attract too much investment from sovereign funds than to worry about the risk that it might attract too little."

U.S. home prices fell 0.3% in 2007, the first annual decline in home prices in decades, according to the purchase-only home-price index released Tuesday by the Office of Federal Housing Enterprise Oversight.

Natural gas rose on an outlook for supplies to decline amid a wave of colder weather in the regions of highest consumption. Lower-than-normal temperatures are probable March 4 through March 10 in the Midwest, the U.S. Climate Prediction Center in Camp Springs, Maryland, said in an outlook released yesterday. Gas for March delivery rose 6.6 cents, or 0.7 percent, to $9.252 per million British thermal units at 10:17 a.m. on the New York Mercantile Exchange. Futures earlier climbed to $9.267. Gas has risen 24 percent this year.

Marsoft: "A strong third quarter was followed by a spectacular fourth quarter, as dry bulk freight rates and vessel values shattered all previous records. By the end of the year, dry bulk freight rates had risen by 30-50% relative to their third quarter levels, and they were nearly triple their year-earlier levels...However, after these dramatic late-2007 gains, the dry bulk market experienced a significant correction in late December and early 2008, with spot rates falling by 50% in January, to levels last seen in the second quarter of 2007. At the very end of January, rates finally moved up again. Dry bulk ship prices also soared into uncharted territory during late 2007, rising by 20% over the past three months and by about 100% over the past year. The price of a 5 year-old Cape was marked up from $118 million in the third quarter to $146 million in the fourth quarter. Broker reports show prices edging down in January, in response to lower freight rates...
China remained the driving force behind the dry bulk market boom, as we estimate that it was responsible for just over half of the growth in global tonne-mile demand during 2007, and close to three-quarters if the increase seen during the fourth quarter. But interestingly, the increase in Chinese import activity came despite a noteworthy deceleration in steel production growth during the final months of 2007. After growing at a 19% pace in the first half of 2007, Chinese steel output grew by only 13% in the second half of the year.
The slowdown was partly due to a decline in Chinese steel exports, which were hit by a combination of restrictive tax measures implemented by the Chinese government, as well as by protectionist measures taken in Europe. And yet, despite the slowdown in steel production growth, Chinese iron ore imports remained robust, and were increasingly sourced from longer-haul suppliers such as Brazil. Despite a rise in domestic Chinese iron ore production, the low quality of China’s domestic supplies makes rising imports a necessity."

IBM said it plans to make about $12 billion in stock repurchases in 2008. The company said expected buyback activity could add about 5 cents a share to 2008 earnings, and now expects a profit of at least $8.25 a share for the year.

Despite disappointing inflation reports for January, the weak economy and fragile financial markets are a bigger threat to the economy than higher prices, said Federal Reserve Vice Chairman Donald Kohn. The bigger threats to the economy are the Fed's printing press, the ever-increasing spending by Congress and the Bush administration, the out-of-control government and consumer debt levels, and the wars in Iraq and Afghanistan.

Gold futures for April delivery climbed $8.40, or 0.9 percent, to $948.90 an ounce on the Comex division of the New York Mercantile Exchange. Silver futures for March delivery jumped 63.5 cents to $18.72 an ounce. The price earlier reached $18.77, the highest since December 1980. Silver gained 25 percent this year, and gold climbed 13 percent.

Cotton rallied for a sixth session to a 4 1/2-year high and wheat was limit up. Wheat climbed above $12 a bushel for the first time in Chicago.

Imports of refined copper and alloys by China gained 7.1 percent in January from a year earlier, the nation's customs office said Feb. 22. China is the world's biggest consumer of the metal.

Ernest Hemingway: “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

Monday, February 25, 2008

The Housing Market

2/26/08 The Housing Market

Lowe's Companies, Inc. reported net earnings of $408 million for the quarter ended February 1, 2008, a 33.4 percent decline over the same period a year ago. Diluted earnings per share declined 30.0 percent to $0.28 from $0.40 in the fourth quarter of 2006. For the fiscal year ended February 1, 2008, net earnings declined 9.5 percent to $2.81 billion while diluted earnings per share declined 6.5 percent to $1.86. Comparable store sales declined 7.6 percent for the fourth quarter and 5.1 percent for fiscal 2007. "As we look to fiscal 2008, we know the next several quarters will be challenging on many fronts as industry sales are likely to remain soft," Niblock, the company's chairman and ceo continued. "We remain focused on what we can control: providing great customer service while managing expenses and offering customers the best shopping experience in home improvement. As the year progresses, the recent Federal Reserve interest rate cuts and the approved fiscal stimulus package are expected to lend support to the broader economy and the consumer. As a result, many of the headwinds facing the housing market and the home improvement industry should lessen, and consumers' confidence in investing in and improving their homes should improve."

Home prices are forecast to fall 12 percent this year, according to Richard Syron, chief executive officer of Freddie Mac, the second-largest provider of money for U.S. home loans. Housing starts may plunge 22 percent in 2008 and remain at their lowest level in 16 years, he said in a speech to the homebuilders association on Feb. 13.

Visa Inc. disclosed details of its much-anticipated initial public offering early Monday. The San Francisco-based card giant, in a Securities and Exchange Commission filing, said it's registered 446.6 million Class A common shares, including 40.6 million subject to underwriters' option to purchase additional stock. Visa also pegged its proposed offering price in a range of $37 to $42 a share, meaning the IPO would generate maximum potential proceeds of nearly $18.76 billion. The company's applied for a New York Stock Exchange listing under the symbol V.

Goldman Sachs upgraded oil and gas services group company BJ Services Company to neutral from sell. "We see U.S. natural gas fundamentals as among the most attractive in the energy landscape, and believe a higher expected commodity price increases visibility into our North American drilling forecasts," the broker said.

Deutsche Bank downgraded New York Times Co. to sell from hold.

Silver mining group Silver Wheaton Corp. expects to have annual silver sales of around 15 million ounces in 2008, rising to 25 million ounces in 2010.

Anglo-Swiss mining firm Xstrata said that it saw record annual production for coking and thermal coal, ferrochrome, nickel, zinc mining and platinum operations in 2007. Xstrata also said that it produced record amounts of copper in the second half of the year, with particularly strong operating performances from Tintaya, Ernest Henry and Collahuasi. In total, Xstrata produced just under 1 million tonnes of copper, down 2% from a year ago, after a 46-day shut-down affected first half volumes.

According to the NY Times, the Middle East’s heavy reliance on food imports has made it especially vulnerable to the global rise in commodity prices over the past year, said George T. Abed, the former governor of the Palestine Monetary Authority and a director at the Institute of International Finance, an organization based in Washington. “For many basic products, we don’t have free market prices, we have monopoly prices,” said Samer Tawil, a former minister of national economy in Jordan. “Oil, cement, rice, meat, sugar: these are all imported almost exclusively by one importer each here. Corruption is one thing when it’s about building a road, but when it affects my food, that’s different.”

NY Times: "Another buyout is in danger of collapsing — but this time because one of the banks involved is suing its own client, the private equity firm trying to do the deal. The deal in jeopardy is Clear Channel’s $1.2 billion sale of its television unit to Providence Equity Partners, a media-focused buyout firm. Providence began to balk at the price, citing deterioration in the business and the economy, prompting a lawsuit by Clear Channel. Yet by late last week, the two sides had struck a deal in principle to lower the price by $100 million. But now comes a new bombshell. Wachovia, one of the three banks financing the deal, is now refusing to commit. It even sued its client, Providence, in a North Carolina state court on Friday, contending that the new agreement has voided its previous commitment. Goldman Sachs and UBS, the two other banks, have committed to finance the new transaction, which now calls for Providence to borrow less money at a higher interest rate."

Professor Cusumano suggests that rather than acquire Yahoo, Microsoft should pursue SAP.

The Association for Business Economics survey of economists showed 45% think the US economy will go into recession. How about we're in a recession?

The Wall Street Journal writes that Goldman Sachs may post its lowest profit in three years due to write-downs in debt from corporate buy-outs.

To accuse Obama of stealing ``two lines by somebody who is a colleague of yours is almost like saying you're plagiarizing from your speechwriter,'' said Stephen Hess, a presidential scholar at the Brookings Institution in Washington who was a speech writer for President Dwight D. Eisenhower.

An ingredient in curries, stir-fries and Skittles candy, Malaysian palm oil costs 15 percent less than soybean oil on the Chicago Board of Trade. Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney, said the two may soon be even money.

Russia, the world's second-biggest oil exporter, is scheduled to ship about 5 percent more crude from its main terminals in March.

Nigeria, Africa's biggest oil producer, raised the official selling prices for its crude exports loading in March to match record highs.

Brown University's governing board on Saturday said grants will be substituted for loans for families that make less than $100,000 per year. Parents who earn less than $60,000 also will no longer be expected to make a financial contribution to fund their child's education at Brown.

Qatar's prime minister, who heads the country's $60 billion sovereign wealth fund, said he favors investing in European over U.S. lenders because U.S. bank stocks are likely to fall further on sub-prime-mortgage write downs.

Roche Holding AG shares rose 3.5 percent on Monday after US regulators approved its Avastin drug for treating advanced breast cancer and added a potentially significant new revenue source.

Builders are doing whatever they can to move properties. In February, almost half surveyed said they cut prices, according to the National Association of Homebuilders, a Washington-based trade group. More than half ``reported offering optional items at no charge and 44 percent said they paid all or some of the closing costs.''

Jean-Marie Eveillard added to his holdings in Palatin Technologies Inc by 60.35%. His purchase prices were between $0.21 and $0.38, with an estimated average price of $0.3. The impact to his portfolio due to this purchase was less than 0.01%. His holdings were 2,922,848 shares as of 12/31/2007. Palatin Technologies, Inc., a biopharmaceutical company, engages in the discovery and development of receptor-specific small molecule and peptide therapeutics, including melanocortin (MC)-based therapeutics in the United States. Palatin Technologies Inc has a market cap of $23.90 million; its shares were traded at around $0.31 with P/S ratio of 1.35.

Getty Images has agreed to be bought by a unit of Hellman & Friedman LLC for $34 per share in cash. The offer puts a premium of 39 percent over the stock's closing price Friday of $24.45.

Brink's Co., a provider of security-related services, said Monday its board approved the spin-off of its home security unit into a separate publicly traded company. The spin-off, which is anticipated to involve a tax-free stock distribution to shareholders, is expected to be completed in the fourth quarter.

Oppenheimer analysts on Monday slashed their earnings estimate for Citigroup Inc's. full year 2008 earnings per share estimate by 70%, to 75 cents from $2.70, and said the bank may have to sell $100 billion of assets to put its balance sheet right. Analyst Meredith Whitney said Monday that Citi shares could fall below $16 a share as they retreat to valuations from the last difficult credit cycle of 1990-1991.

"We can't keep passing unfair trade deals like Nafta that put special interests over our workers' interests," Sen. Obama said. "The fact is, she (Hillary Clinton) was saying great things about Nafta until she started running for president," Sen. Obama said.

Resales of U.S. homes and condos dropped 0.4% in January to a seasonally adjusted annualized rate of 4.89 million even as the number of homes on the market rose, the National Association of Realtors reported Monday. It was the lowest sales pace since the real estate group began tracking combined sales in 1999. Resales were down 23.4% compared with the previous January. The inventory of homes on the market rose 5.5% to 4.19 million, representing a 10.3-month supply at the January sales pace. The inventory rose 18.4% compared with January 2007. With a glut of homes on the market, the median sales price fell 4.6% over the past year to $201,000.

The Oil Drum: "Brazil has declined to cede any of its imports of Bolivian natural gas to Argentina, which is struggling to find more energy sources to avoid supply shortages that could derail its fast-growing economy. Argentina and Brazil are facing the possibility of short-term energy crises from a lack of natural gas, which is needed to fuel industries and generate electricity for residents. Bolivia is sitting in the middle, with the region's largest gas reserves."

David H. McCormick, under secretary for international affairs at the Treasury Department, said Monday that the Bush administration considers the plan to sell 12.9 million ounces of gold as "probably the most viable" option to ensure the long-term funding of the IMF, Dow Jones Newswires reported Monday.

Standard & Poor's Corp. reaffirmed AAA ratings on bond insurers MBIA and Ambac Financial Group. MBIA was taken off the credit watch, but the rating agency left Ambac on its "creditwatch negative" list, although that designation could be removed. In response, the Dow jumped 189 points.

Fitch Ratings Monday placed several mortgage insurers, including MGIC Investment Corp., The PMI Group, and Radian Group on Rating Watch Negative, citing continued weakness in the U.S. mortgage markets.

Nordstrom Inc. reported a fourth-quarter profit of $212 million, or 92 cents a share, compared with $232 million, or 89 cents a share, a year earlier. Sales fell 4.4% to $2.5 billion because of what the company described as a "challenging" consumer and retail environment.The company's estimate for fiscal Jan-2009 is EPS $2.75 to $2.90 on diluted shares outstanding of 228 million

Crude for April delivery gained 42 cents, or 0.4%, to settle at $99.23 a barrel on the New York Mercantile Exchange. Gold for April delivery fell $7.30 to end at $940.50 an ounce on the New York Mercantile Exchange.

According to data released Monday by Nielsen Online. Google's share of the Internet search market grew to 56.9% in January, compared to 56.3% in the previous month. Yahoo Inc. also saw a gain in its search market share in January, with an increase to 19% from 17.7% in December. Microsoft Corp.saw its share slip over the same period, falling to 12.1% from 13.8%.

John Hussman: "The total return of the S&P 500 is now a few weeks shy of having lagged riskless Treasury bills for a decade...expectations of 4-5% annual total returns for the S&P 500 over the coming decade would be reasonable."

According to the WSJ, German engineering conglomerate Siemens AG plans to slash nearly 4,000 jobs from its struggling telecommunications-equipment unit and shift roughly another 3,000 workers elsewhere, according to a person familiar with the matter.

The company behind the hugely popular video game "Grand Theft Auto" says it is not going to jump at a $2 billion buyout offer from Electronic Arts Inc. The offer is "the wrong price at the wrong time," Take-Two Interactive Software Inc. chief executive Ben Feder said Monday after the news of the $26-per-share bid sent Take-Two's shares up 55 percent to a $26.89 close. Electronic Arts is undervaluing Take-Two and not factoring in the benefits of its recent turnaround efforts, Feder said in an interview. Take-Two said it is open to discussions with EA, but wants to wait until April 30, the day after the latest version of Grand Theft Auto hits store shelves.

In the past two months, Senator Barack Obama has built a commanding coalition among Democratic voters, with especially strong support among men, and is now viewed by most Democrats as the candidate best able to defeat Senator John McCain, according to the latest New York Times/CBS News Poll. For the first time in a New York Times/CBS News Poll, he moved ahead of Mrs. Clinton nationally, with 54 percent of Democratic primary voters saying they wanted to see him nominated, while 38 percent preferred Mrs. Clinton. A new USA Today/Gallup Poll released Monday showed a similar result, 51 percent for Mr. Obama to 39 percent for Mrs. Clinton.

Hillary Clinton: “Many of you are well enough off that the tax cuts may have helped you. We're saying that for America to get back on track, we're probably going to cut that short and not give it to you. We're going to take things away from you on behalf of the common good.” Hello socialism!!!!

Sunday, February 24, 2008

Politics

2/25/08 Politics

President Mahmoud Ahmadinejad called on the U.S. and its allies Saturday to "apologize" for accusing Iran of seeking nuclear weapons, a day after the U.N. nuclear watchdog released its latest report on Iran. Mr. Ahmadinejad said the International Atomic Energy Agency report vindicated Iran and warned that Tehran would take unspecified "decisive reciprocal measures" against any country that imposed additional sanctions against Iran. In addition, Iran said Sunday that it has started using new centrifuges that can churn out enriched uranium at more than double the rate of the machines that now form the backbone of the Islamic nation's nuclear program.

Mike Burk: "Although the market is likely to retest the January lows in the near future, it is unlikely the new low indicators will confirm the retest...The persistently high levels of downside volume suggest there will be more downside price movement...Historically the secondaries have had a positive seasonal bias over the coming week during the 4th year of the Presidential Cycle. By all other seasonal measures the week has been flat...I expect the major indices to be lower on Friday February 29 than they were on Friday February 22."

Tim Wood: "According to Dow's theory, on November 21, 2007 the Primary Trend was confirmed as being bearish. I can assure you that nothing has occurred to negate this bearish trend."

"Central banks have only two tools," says Satyajit Das, author of "Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives," who has emerged as a voice of concern. "They can cut interest rates or they can regulate banks. But these are very old-fashioned tools, and are completely inadequate to the problems now confronting them."

Hours after chiding Congress for not finishing a wiretapping bill and leaving the nation 'vulnerable to terrorist attack,' officials acknowledge all requested information is being received.

Fannie Mae and Freddie Mac are expected to post big quarterly losses.

Jeff Bezos sold 1.85 million Amazon shares on Feb. 15 at $73.21 apiece — for $135.4 million. The sale leaves Bezos with 99.3 million shares, still nearly a quarter of Amazon's total.

China, which is expected to have 10 percent economic growth this year, will stick with a tight monetary policy as controlling inflation remains a top priority, the vice governor of the People's Bank of China said.
The central bank will boost open-market operations and increase the required reserve ratios for commercial banks to ``vigorously'' soak up liquidity, Yi Gang said today at an economic forum in Beijing. The central bank will select an ``optimal'' tightening package out of currency, interest-rate and money-supply measures, he said.

Northern Trust Corp. disclosed Friday that it has agreed to provide as much as $229 million in financial backing to help shield investment funds it sponsors from potential losses caused by two troubled structured investment vehicles.

McDonald's coffee offensive, which also includes smoothies, frappes and bottled drinks, entails an investment of up to $100,000 per restaurant, including $25,000 for equipment and up to $75,000 for remodeling. Essentially, operators must add a special "beverage cell" to one end of their counters near the drive-through window. The cell will house coffee and smoothie equipment and will be staffed by one worker. It will be highly automated, so McDonald's won't offer the coffee customization level of Starbucks. Specialty coffee drinks cost about 25 percent less than they do at Starbucks.

More first-time voters than ever are getting ready to cast their ballots in Texas, driven to the polls by a tight Democratic race. Many are students and that should enhance the chance for Barack Obama to pull out a win, plus the advantage in the caucus, and the votes that shall be cast by Independents.

Ayn Rand: “Why do they always teach us that it's easy and evil to do what we want and that we need discipline to restrain ourselves? It's the hardest thing in the world--to do what we want. And it takes the greatest kind of courage. I mean, what we really want.”

A recent Obama advertisement mailed out to voters in Alaska and perhaps elsewhere carried this headline: "8 years of the Clintons, major losses for Democrats across the nation." The mail piece said the Democrats lost 12 governors, seven senators and 46 congressmen during the Clinton White House years.

"Unless you're building from the ground up and broadening the appeal of the party to independents and even some disaffected Republicans ... we're not going to be able to get things done," Obama said. "I think we have been able to get folks in every state that we've campaigned in to take a second look at the Democratic Party."

Ralph Nader is launching a third-party campaign for president. The consumer advocate made the announcement Sunday on NBC's "Meet the Press."

The national average price for gasoline rose 16 cents per gallon over the past two weeks, an industry survey shows. According to the Lundberg Survey, the average price of self-serve regular gasoline on Friday was $3.10 per gallon, the Associated Press reported.

Electronic Arts Inc. made a all-cash bid of $2 billion for Take-Two Interactive Software Inc. despite earlier rebuffs from the company. The offer of $26 per share represents a premium of 64% to Take-Two's share price on Feb. 15, the last day before EA sents its revised takeover proposal to TakeTwo, and was an increase from their initial $25 offer.

Tiger Woods won his fifth straight tournament and captured his 15th World Golf Championship, holding all three world titles for the first time. He has set the tournament record for margin of victory in his last three wins.

Brett Steenbarger: "We're seeing more hitting of bids than lifting of offers among the broad list of NYSE issues. This is in marked contrast to the NYSE TICK strength that we saw off the January lows. It is difficult to imagine sustaining anything other than sharp, short-covering rallies when selling sentiment remains so dominant."

Democratic Party Chairman Howard Dean accused Republican presidential front-runner John McCain of trying to skirt campaign finance laws Sunday by trying to opt out of public financing for his primary campaign.

Satyajit Das: "Don't confuse credit with liquidity"