Saturday, May 31, 2008

Money Flows

5/30/08 Money Flows

Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing. In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.

Barack Obama picked up two Texas superdelegates, bringing him within 42 delegates of locking up the Democratic presidential nomination. Obama leads Clinton by about 200 delegates, according to a tally by The Associated Press.

"After June 3, you're going to see a wave of superdelegates beginning to go Obama's way," said Democratic consultant Chris Kofinis, an aide to former U.S. Sen. John Edwards during his presidential bid this year. "And when Sen. Obama reaches the magic number, whenever that is, Sen. Clinton is going to do what every Democrat will do -- acknowledge he is the Democratic nominee and help unify the party to defeat John McCain in November."

Rob Hanna: "On Thursday the market finished higher for the third day in a row. In my “Count To Three” post back in February I showed how 3 higher closes when the market is trading below its 200-day moving average has a negative expectation over the next week or so."

Crude oil for July delivery closed at $127.35 a barrel on the New York Mercantile Exchange Friday, up 73 cents for the day. August gold closed at $891.50 an ounce Friday, up $9.80 for the session, but it was still 4.2% lower for the week.

John Ing: "Despite the biggest jump in food prices in 18 years, the U.S. Labor Department reported that April's "core" inflation rate was an understated 2.3 percent. The benchmark excludes food and energy and thus bears no relation to prices, since it excludes such items as the year-over-year increase in bread of 14 percent, in milk of 13 percent and in gasoline of 21 percent. The Consumer Price Index (CPI) is widely used by governments, so the cost-of-living adjustment from pensions to tax rates alone can cost the government billions. However, you can only fool people for so long. Britain's "core" inflation rose 4.6 percent in April, the highest level since 1995. Consumer prices in Japan, excluding energy and food, rose for the first time since 1988, triggering the biggest one-day rout of the Japanese bond market in five years. Now the government is under pressure to change the makeup of the index."

Brett Steenbarger: "In all, we're seeing more money fleeing stocks when the market sells off than entering stocks when the market rises. As we've moved from April through May, markets have moved higher, but money flows have been drying up. That poses a yellow caution flag for June."

According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $905 million in the four-day week ended 5/28/08 with Domestic funds reporting net inflows of $1.112 billion and Non-domestic funds reporting net outflows of -$207 million; Excluding ETF activity, Equity funds report net cash outflows totaling -$37 million with Domestic funds reporting net outflows of -$31 million and Non-domestic funds reporting net outflows totaling -$6 million.

Friday, May 30, 2008

The Worst Is Ahead

5/29/08 The Worst Is Ahead

Satyajit Das: "Equity markets believe the worst is over. Banks also seem to have convinced themselves that the worst is behind us. An alternative and, arguably, better view of the current state of the financial crisis is that stated by Winston Churchill: “… this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” ...There is acknowledgement that an extraordinary level of debt and leverage precipitated the problems. However, there is limited recognition of the massive de-leveraging of the global financial system that is under way. Leverage amplifies returns but also accelerates de-leveraging."

Freddie Mac said Thursday the 30-year fixed-rate mortgage average hit an 11-week high on inflation jitters. The 30-year fixed-rate mortgage averaged 6.08% with an average 0.6 point for the week ending May 29.

August gold fell to a low of $883.50 an ounce in New York Thursday to trade at its lowest intraday level since May 15.

According to the NY Times, the supertankers that were supposed to deliver cargoes of natural gas from Africa and the Middle East to the United States are taking them to places like Spain and Japan instead, pushing up gas prices and depleting the nation's stockpiles as the hurricane season approaches.

Rob Hanna: "The market may have trouble rallying strongly without faith in the banks, but that doesn’t mean these classic laggards will all of a sudden become powerful leaders."

Natural-gas inventories rose by 87 billion cubic feet for the week ended May 23, the Energy Department said Thursday. Global Insight expected the data to show an increase of 90 billion. Total stocks now stand at 1.701 trillion cubic feet, down 321 billion cubic feet from the year-ago level and 8 billion cubic feet below the five-year average, the government data said.

The American Petroleum Institute reported a fall of 8.7 million barrels in crude supplies for the week ended May 23. The Energy Department had reported a decline of 8.8 million barrels for the latest week. Motor gasoline supplies were down 3 million barrels, the API said. The government had reported that supplies were down 3.2 million barrels. Distillate supplies declined by 266,000 barrels, the API said. But they were up 1.6 million barrels, according to the Energy Department.

August gold climbed by $7.30 to $889 an ounce Friday morning in New York, but it's trading more than 4% lower for the week after suffering three days of declines. July silver rose 34 cents, or 2.1%, to $16.86 an ounce.

U.S. consumer sentiment dropped in May to the lowest level in 28 years as worries about inflation grew, according to the University of Michigan/Reuters consumer sentiment index released Friday. The UMich index fell to 59.8 in May from 62.6 in April, the lowest since June 1980.

Business activity in the Chicago region contracted for the fourth straight month in May, according to a survey of corporate purchasing managers released Friday. The Chicago purchasing managers index rose slightly to 49.1 in May from 48.3 in April.

Crude oil futures gained back some ground early Friday, following a slide of over $4 in the previous session, as traders looked towards the start of hurricane season next week. Crude oil for August delivery was up $1.03, or 0.8%, at $127.60 a barrel.

The dollar index was up 0.2% at 73.13, compared with 72.978 in late trade Thursday.

Inflation erased all the gains in disposable personal income in April, while consumer spending was flat after adjusting for higher prices, the Commerce Department estimated Friday. Personal incomes, consumer spending and consumer prices all increased 0.2% in April, the government said in a report that suggests the economy weakened further in the second quarter of the year even as the first tax-rebate checks began arriving. Employee compensation dropped 0.1% in nominal terms, the first decline in a year.

Consumer price inflation across the 15-nation euro zone accelerated at a 3.6% annual pace in May, according to a preliminary estimate by the statistical agency Eurostat.

Dell Inc. reported a fiscal first-quarter profit of $784 million, or 38 cents a share, on $16.08 billion in revenue. During the same period a year ago, the computer giant earned $756 million, or 34 cents a share, on sales of $14.72 billion.

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Thursday, May 29, 2008

The Target Lending Rate

5/28/08 The Target Lending Rate

Brazilian President Luiz Inacio Lula da Silva said Monday that South American nations will seek a common currency as part of the region's integration efforts following the creation of the Union of South American Nations (Unasur) last week. "We are proceeding so as, in the future, we have a common central bank and a common currency," said Lula in his weekly radio program, noting that this process will "not be fast." The president highlighted the importance of helping the group's more "economically fragile" members, such as Paraguay, Uruguay and Bolivia. "We have to help them because the stronger the countries in South America economically are, the more tranquility, peace, democracy, trade, companies, jobs, incomes and development," he said.

Democratic Party lawyers are telling a committee looking at the fate of disputed delegates from Florida and Michigan that they can't restore all of them, the Associated Press is reporting this morning. The two states must lose at least half of their 368 total delegates for holding their primaries before party rules allowed, the lawyers say in a 38-page memo sent late Tuesday to the 30 members of the party's Rules and Bylaws Committee, which plans to meet Saturday in Washington. The committee can either allow half the number of delegates from each state into the national convention or allow the full delegations to attend, but give them each half a vote, but seating half the delegates is "as far as it legally can" go, the lawyers say, according to the AP.The lawyers, however, don't suggest how any delegates should be divided between Hillary Clinton and Barack Obama.

The economy plodded ahead at a 0.9 percent pace in the first quarter — slightly better than first estimated — but still underscoring caution on the part of consumers and businesses walloped by housing, credit and financial problems.

The dollar index was at 72.86.

Initial jobless claims rose by 4,000 to 372,000.

According to the WSJ, petroleum shipments by the world's top oil exporters decreased 2.5% last year, despite a 57% increase in prices, a shift that defies traditional market logic and looks set to continue.

Sears Holdings Corp. swung to a surprise loss in its most recent quarter, as sales continue to weaken and margins shrank. Meanwhile, Costco's earnings rose 32% and that exceeded expectations.

Dallas Fed President Richard Fisher said yesterday the central bank will probably raise the target lending rate if the public's inflation expectations increase.

The two-year note's yield increased 13 basis points to 2.73 percent. It touched 2.77 percent, the highest since Jan. 8.

Obama needs fewer than 50 more delegates to clinch the nomination.

Wednesday, May 28, 2008

Gasoline

5/27/08 Gasoline

Brett Steenbarger: "The January-March period represented a significant bottoming of the major indexes, but the subsequent rise has been restrained, with considerable sector rotation and unevenness and weak money flows. It is difficult to imagine sustaining a vigorous bull market on such a foundation."

John Hussman: "When investors frantically compress extreme views about the indefinite future into current prices, the bubble ends in tears more often than not. We probably shouldn't assume that the world has suddenly changed so dramatically that the demise of fossil fuels and the extinction of mankind as a species has to be priced in by Labor Day, and then continually revised so that prices form an ever steeper parabola."

According to rigzone, the price of oil will continue to climb, especially if there is no improvement in the outlook for the dollar, OPEC president Chakib Khelil told Spain's national radio Monday. "We are going to witness a price rise," especially if the economic situation in the United States persists and the dollar continues to decline, he said.

In pre-opening Tuesday trading, Lehman Bros. shares fell 3.8% to $34.75.

The decline in U.S. home prices picked up speed in March, with prices down a record 14.4% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

U.S. consumer confidence extended its tumble in May to reach a 16-year-low, the Conference Board reported Tuesday, as inflation expectations reached a record high on rising gas prices. The May consumer confidence index fell to 57.2 from a reading for April that was revised up to 62.8 from a prior estimate of 62.3.

U.S. home sales rose 3.3% in April, the Commerce Department estimated Tuesday. The rise in new-home sales to a seasonally adjusted annual rate of 526,000 was in line with the expectations of economists surveyed by MarketWatch.New-home sales are down 42.0% compared with a year ago, the biggest drop since September 1981. The months' supply of homes on the market fell slightly to 10.6 months from 11.1 in March. Median sales prices rose 9.1% to $246,100.

U.S. fuel consumption averaged 20.3 million barrels a day in the four weeks ended May 16, down 1.3 percent from a year earlier, the Energy Department said last week.

Gold for June delivery was down $11.60, or 1.27%, at $896.40. Crude-oil futures fell further on Wednesday, with the market growing concerned that high gasoline prices at the pump will cut demand. Crude for July delivery off $2.13 to $126.72 a barrel in electronic action. The drop in oil prices follows a slide on Tuesday.

J.P. Morgan analyst Kenneth Worthington cut Lehman's estimated earnings most dramatically, trimming it by 46 cents to 18 cents a share. J.P. Morgan also cut Goldman's estimated earnings for the second quarter to $3.55 a share from $3.68 a share previously, and reduced Morgan's estimated profit by 13 cents to $1.

Orders for U.S.-made durable goods fell 0.5% in April on weaker demand for airplanes, vehicles, and computers. But the fall was much smaller than the expected 2.8% drop forecast by economists surveyed by MarketWatch. A sharp gain in electronics orders partially offset the weakness in other areas.

Gasoline prices edged up less than a penny, but stayed at the record level of $3.94 a gallon on average in the last week, according to the Daily Fuel Gauge Report from AAA. A month ago, gasoline cost $3.60 a gallon and a year ago it cost $3.20 a gallon.

SABMiller shares edged up 0.2% to 1,312 pence a share as the FT Alphaville Web site said the Anglo-South African brewer has quietly indicated to InBev that it would consider a bid pitched at 1,500 pence a share, or 22.6 billion pounds ($44.7 billion). SABMiller also is said to want a merger of equals rather than the straight forward takeover that InBev executives prefer, the report said.gnificant bottoming of the major indexes, but the subsequent rise has been restrained, with considerable sector rota

Tuesday, May 27, 2008

Difficult Times

5/25/08-5/26/08 Difficult Times

"Now, let me be clear: No one can dispute John McCain's love for this country or his concern for veterans. But here's what I don't understand. I don't understand why John McCain would side with George Bush and oppose our plan to make college more affordable for our veterans," Barack Obama said.

John Adams: "Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide."

"This is going to be another difficult spring," said Mark Zandi, chief economist at Moody's Economy.com. "I think we are at the beginning of the end of the housing downturn, but it is going to be a long and painful end."

California home prices tumbled 32 percent in April from a year earlier as ``distressed'' properties and a lack of financing cut demand, the state realtors group said.The median existing home price fell to $403,870, the California Association of Realtors said in a statement today. Sales increased 2.5 percent, ending 30 months of consecutive year-on-year declines. Homes priced under $500,000 accounted for 64 percent of sales compared with 40 percent a year earlier. California had the second-highest U.S. foreclosure rate in April, one for every 204 households, and the most foreclosure filings for the 16th consecutive month, RealtyTrac Inc., a seller of default data, reported on May 14. Sales increased in northern and southern California last month as buyers purchased discounted properties that had been in some stage of default, DataQuick Information Systems said this week.

Chemtura Corp. could get a bid from Blackstone Group LP and Apollo Management LP, according to a report Tuesday in The Wall Street Journal.

The majority of small business owners think the U.S. economy is getting worse, though sentiment showed some improvement in May from its recent lows, according to a survey released on Tuesday.

Citi Investment Research downgraded General Motors Corp. late Monday, saying the automaker will likely burn through $7 billion in cash through 2009 and may need to raise more capital. Analyst Itay Michaeli cut his rating on the Detroit-based company to "Hold" from "Buy" and cut his price target to $21 from $32.

The Treasury will auction $30 billion 2 year notes tomorrow and $19 billion 5 year notes the following day.

According to the Financial Times, "State oil giant Saudi Aramco plans to invest $129 billion on new energy projects in the next five years."

Sunday, May 25, 2008

Technically

5/24/08 Technicals

Robert McHugh: "The Dow sliced through its 50 day moving average support easily Friday, which is not good. That support level should have offered a bounce point, but it failed. That supports the argument that wave iii down is well underway. But this is just the first of a five leg decline for iii, so a break below the January lows is quite possible. If that happens, we are likely headed for 9,750. The Industrials have reached the lower Bollinger Band, and the Daily Full Stochastics are looking to want to roll up from oversold levels, so a bounce should arrive soon. However, with today's sharp decline against the odds of a normal rally heading into a holiday weekend, we have to respect the power behind this Bear Market wave three down, and consider that it will continue to decline sharply while oversold."

Peter Schiff: "Poorly concealed behind contrived government statistics, the signs of America's falling standard of living are everywhere; all one has to do is look. We are unloading SUVs for less desirable compacts, and are paying more to fly on crowded planes (where we pay to check luggage and dine only on what we bring onboard). We drink our lattes at McDonalds or not at all, and we increasingly forego dining out, trips to the mall, and vacations, just so we can scrape together enough to fill our gas tanks and kitchen pantries, pay taxes and insurance, or make credit card, mortgage or car payments. The collective belt tightening is simply the down payment on the Government's massive bailout of Wall Street investment banks and mortgage lenders. As the Fed creates money to buy bad mortgages and other shaky securities held by banks and brokerage firms, the value of the savings and wages of everyone on Main Street will continue to fall. As a result, the costs of products previously taken for granted have begun to bite."

According to the Financial Times, InBev has long studied the possibility of a merger with Anheuser, the US brewer of Budweiser beer, but has consistently run into opposition from Anheuser’s board of directors.

Hillary Clinton: "“My husband did not wrap up the nomination in 1992 until he won the California primary somewhere in the middle of June, right?” she said. “We all remember Bobby Kennedy was assassinated in June in California.” Only a MONSTER could utter those words.

Less than four months after losing the California primary, Democrat Barack Obama leads Republican John McCain in projected November general election matchups, a new Los Angeles Times/KTLA Poll has found.

GM stock at 26-year low! GE at new 52-week low.

Brett Steenbarger: "Much of trading boils down to pattern recognition and the ability to act promptly on patterns as they unfold. When traders change markets or time frames, they inevitably move to different patterns or similar patterns that unfold differently. I've seen traders make successful transitions in their careers, but the key has been their willingness to undergo a fresh learning curve. Impatience is the enemy of change."

``The Fed appears to be done,'' said Theodore Ake, head of Treasury trading in New York at Mizuho Securities USA Inc., one of 20 primary dealers that trade directly with the central bank. ``Two-year note yields are going to work their way back to 3, 3.25 percent.'' From his lips to God's ears.

Copper inventories monitored by the London Metal Exchange have surged 13-percent this month, reaching the highest level since March 17. China imports of copper fell 19-percent in the first quarter from a year earlier.

Mike Burk: "The market is oversold and seasonally next week has a modestly positive bias. I expect the major indices to be higher on Friday May 30 than they were on Friday May 23."

To move its potential offer for Anheuser forward, InBev has worked to arrange a financing package through JPMorgan and Santander, the Financial Times’ Alphaville website reported. InBev, which owns the Stella Artois and Beck’s beer brands, would gain control of roughly a quarter of the world’s beer market if a deal with Anheuser were successful.