Saturday, June 14, 2008

Interest Rate Prediction

6/13/08 Interest Rate Prediction

Richard Benson: "Unless interest rates are increased materially above the rate of inflation, prices will continue to rise. But with the high level of bad debt in the world banking system, the financial system would not survive the strain of a significant interest rate increase. For a period of time, stagflation will become a new way of life for many of us."

The Federal Reserve will increase its 2 percent benchmark interest rate in quarter-point increments in September and October to curb inflation, Barclays Capital Inc. predicted in a report today. China, which invests up to a third of its record $1.68 trillion in foreign-currency reserves in Treasuries, should seek higher-returning alternatives, a former legislator said.

CPI rose by a seasonally adjusted 0.6% in May - it's biggest jump in six months. Consensus economist estimates were for a gain of 0.5%. Excluding food and energy costs, prices rose 0.2%, matching forecasts.

George Ure: " OK, on a not-seasonally adjusted basis, the inflation rate is now running 10% which is what happens when you pencil out an unadjusted 0.8% for 12 months."

Iraq's prime minister said Friday that talks with the U.S. on a long-term security agreement between the two nations have reached a dead end, saying the U.S. proposals "violate Iraqi sovereignty."

From Banking Times: The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.

From Time Magazine: "If the U.S. or Israel so much as drops a bomb on one of its reactors or its military training camps, Iran will shut down Gulf oil exports by launching a barrage of Chinese Silkworm missiles on tankers in the Strait of Hormuz and Arab oil facilities. In the worst case scenario, seventeen million barrels of oil would come off world markets."

A current MSNBC poll is running about 89% in favor of impeachment proceedings against the current inhabitant of the White House.

UnitedHealth is down to $30, a new 52-week low, and down roughly 50% from the year's high. The last time the stock sold at $30 was in January 2004.

The consumer sentiment index in June fell to 56.7 from 59.8 in May, according to Friday media reports on the reading from the University of Michigan/Reuters. The current economic conditions index fell to 68.7 from 73.3.

Microsoft has said a Yahoo-Google deal would put more than 90 percent of the search ad market in Mountain View, California-based Google's hands.

Apex Silver Mines is down to $5.90, a new 10-year low, and down from over $20 in the past 52 weeks. About one week ago, a director bought stock at $6.95. Based on the outlook for the company's earnings in 2009, I believe the shares will be considerably higher in 12 months.

The swollen Cedar River has complicated operations at John Deere Waterloo Works, forcing employee evacuations and unplanned shutdowns.“The flood situation for the Waterloo area remains critical in general but under control in the specific instance of John Deere facilities,” Deere spokesman Ken Golden said. Deere’s tractor assembly operations are in the first week of a scheduled two-week shutdown. As a result, limited production had been planned at some of the other locations.

Friday, June 13, 2008

Rising Interest Rates

6/12/03 Rising Interest Rates

Retail sales in the U.S. rose twice as much as forecast in May as Americans used their tax rebates to shop at electronics and department stores, and record gasoline prices swelled service-station receipts.Purchases climbed 1 percent, the most since November, following a 0.4 percent gain the prior month that was previously reported as a drop, the Commerce Department said in Washington. Purchases excluding gasoline increased 0.8 percent last month. Treasuries slid after the report, with benchmark 10-year note yields rising to 4.16 percent at 8:52 a.m. in New York, from 4.07 percent late yesterday.

Devin Brady: "This year, cotton acreage nationwide dropped 28-percent, hitting an 18-year low of 11.1 million acres, according to the United states Department of Agriculture. Acreage dropped by about 22-percent in Texas, the national leader, and by nearly 20-percent in California."

Invitrogen, which makes chemical kits used to analyze and clone genes, said it agreed to combine with Applied Biosystems Group, a unit of Applera, in a cash and stock deal it valued at $6.7 billion. The deal price of $38 per share is 17 percent above Applied Biosystems’ closing stock price on Wednesday.

Business sales rose at the fastest pace in five months in April, outpacing the growth of inventories, and leaving most businesses with small stockpiles of unsold goods, the Commerce Department reported Thursday. Total sales increased 1.4% in April, the fastest growth since November. Inventories increased a slower 0.5%, dropping the inventory-sales ratio to 1.25, a tick higher than the record low of 1.24 set in November.

For all of fiscal 2008, Qualcomm said it sees earnings per share to be approximately $2.09 to $2.13, compared to its prior estimate of $2.04 to $2.09.

The Oil Drum: "Strike action by thousands of Spanish and Portuguese truckers produced ominous knock-on effects on food supplies, aviation and industry yesterday, as Lisbon airport ran out of fuel, car factories shut down and petrol stations and supermarkets reported shortages.In a worrying sign for other European countries that face rising discontent at the spiraling cost of diesel, a third day of strikes generated widespread mayhem and the mood turned ugly after the first casualties of the standoff: two strikers died in clashes on picket lines.

South Africa's central bank raised its key interest rate by 50 basis points to 12% Thursday, citing "further deterioration in the inflation outlook."

The Supreme Court ruled Thursday that foreign terrorism suspects held at Guantanamo Bay have rights under the Constitution to challenge their detention in U.S. civilian courts. In its third rebuke of the Bush administration's treatment of prisoners, the court ruled 5-4 that the government is violating the rights of prisoners being held indefinitely and without charges at the U.S. naval base in Cuba.

Natural-gas inventories rose by 80 billion cubic feet for the week ended June 6, the Energy Department said Thursday. Global Insight expected the data to show an increase of 103 billion. Total stocks now stand at 1.886 trillion cubic feet, down 343 billion cubic feet from the year-ago level and 19 billion cubic feet below the five-year average, the government data said. July natural gas was last up 18 cents at $12.835 per million British thermal units in electronic trading on Globex.

July crude turns higher on Globex, up 47 cents at $136.81July crude turns higher on Globex, up 47 cents at $136.81.

The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes has widened to 2.51 percentage points, from 2.28 percentage points at the end of April. The figure reflects the inflation rate that traders expect for the next decade.

Yahoo Inc.has struck a Web search agreement with Google Inc.that could be worth about $800 million in annual revenues. In a statement, Yahoo said the deal will allow it to run ads supplied by Google alongside searches on its main Web site as well as some of its other properties in the United States and Canada. Yahoo shares dropped to $23.52.

Anheuser-Busch Cos. is in early talks with Mexico's Grupo Modelo SA about a possible combination of the companies, The Wall Street Journal reported late Thursday on its Web site, citing people familiar with the matter. Anheuser already has a non-controlling stake in Modelo of about 50%, according to the Journal.

According to the FT, refiners are paying record premiums for the high-quality crude oil they use to produce diesel and petrol, a sign of strong demand in the physical oil market that calls into question claims that soaring oil prices are being driven by speculators. Refiners are paying up to $5-$6 a barrel on top of current record prices to secure high-grade oil, traders said, double the level of a year ago. The mark-ups are four times higher than the 2000-2008 average. The movement in prices paid for physical barrels of oil has gone largely undetected outside the refinery industry because financial markets pay almost exclusive attention to the price of oil futures traded in London and New York.

The 2-year Treasury bond yield jumped up to 3.05% and the 10-year to 4.21%.

According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $7.851 billion in May ($13.819 Bil xETF activity) as Domestic funds report net outfows of -$1.257 billion (Inflows $7.285 Bil xETFs) and Non-domestic funds report net inflows of $9.108 billion ($6.534 Bil xETFs); Excluding ETF activity, International funds report net inflows totaling $4.843 billion, as net inlows are reported in all Emerging and Developed regions except Asia/Pacific (-$259 Mil) and Japan (-$26 Mil); Excluding ETF activity, Real Estate funds report the second consecutive month of net inflows ($1.019 Bil)for the first time since February 2007.

Lehman Brothers Holdings CEO Richard Fuld is actively listening to offers for the beleaguered investment bank, including a possible bid by private-equity firm Blackstone for a 20% to 30% stake, CNBC has learned.

On June 12, 2008, Alliance Data Systems Corporation provided to market analysts an IR Update announcing that its Epsilon business has signed a multi-year extension agreement with Nestle Purina PetCare Company to continue to host and manage its multi-brand interactive marketing database platform.

Gary Dorsch: "The US dollar remains weak against the Euro, because the yield on the 2-year US Treasury note is roughly -180 basis points below the German 2-year schatz yield. A year ago, the US 2-yr T-note was yielding +60 basis points more than the German schatz. On June 11th, St. Louis Fed chief James Bullard said the 2% fed funds rate is too low and could fuel inflation, unless the Fed takes action going forward. "The Fed's easing in January and March was very sharp, for insurance against the possibility of a very bad outcome from the financial crisis. The probability of a very bad outcome from the financial crisis is now receding, and we've still got the low level of interest rates. I see inflationary consequences of that going forward, if we don't take action and stay on top of this situation," Bullard warned."

U.S. foreclosure activity rose 7% in May, or up 48% from the same period last year, RealtyTrac said. The report also shows one in every 483 U.S. households received a foreclosure filing during the month, the highest monthly foreclosure rate since RealtyTrac began issuing the report in January 2005. It's the third monthly rise in a row and 29th straight year-on-year increase.

India's inflation jumped to a seven-year high of 8.75% in the week ended May 31 from the same period a year ago, raising concerns that the country's central bank may adjust monetary policy to rein in soaring prices.

China's retail sales climbed 21.6% in May, holding near April's nine-year high pace of 22% growth, the Chinese government said Friday.

Thursday, June 12, 2008


6/11/08 Buyouts

Gas prices advanced further into record territory Wednesday, reaching a new record national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service.

Toyota is introducing a plug-in hybrid with next-generation lithium-ion batteries in Japan, the U.S. and Europe by 2010, under a widespread strategy to be green outlined Wednesday.

China's export growth unexpectedly accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand will trigger an economic slump.Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, the customs bureau said on its Web site today. Exports to the U.S. accelerated, withstanding a 10 percent.

According to the FT, Citigroup, Merrill Lynch and UBS, the banks most exposed to Ambac and MBIA, could face further writedowns of up to $10bn after the bond insurers last week lost their fight to retain their triple A credit ratings.

Japan’s Daiichi Sankyo is to buy Ranbaxy Laboratories, India’s biggest generic drugs maker, in a deal worth up to $4.6bn.

The NY Times reported that fourteen research teams studying the impacts of warming on the Arctic Ocean have issued independent projections of how the sea ice will behave this summer, and 11 of them foresee an ice retreat at least as extraordinary as last year’s or even more dramatic. The other three groups that issued a numerical estimate see the ice extent heading back toward, but not equaling, the average minimum for summers since satellites began tracking the comings and goings of Arctic sea ice in 1979. Five other groups chose not to issue a numerical estimate.

The two refineries in Rio Grande do Norte and Ceara states, along with plants that are either under construction or being planned, will boost Petrobras's refining capacity by at least 1 million barrels a day by 2014, the company said in a statement on its Web site. Brazilian state-run oil giant Petroleo Brasileiro SA (PBR) is planning a major expansion in its fleet of oil rigs, tankers and support vessels, a program that will have a major impact on worldwide capacity for such equipment, the company's president said Tuesday.
"We know this will affect capacity worldwide," the firm's president, Jose Sergio Gabrielli, told a meeting of the Brazilian-American Chamber of Commerce.

Japan's gross domestic product, or the total value of the nation's goods and services, in the January-March period grew at an annual pace of 4.0 percent, up from an initial estimate of 3.3 percent. From the previous quarter, GDP grew 1.0 percent, better than the 0.8 percent first announced, the Cabinet Office said.

China's trade surplus shrank 10 percent in May from a year earlier, the second straight monthly decline, as the value of imports of crude oil and other raw materials surged, the government said Wednesday. The $20.2 billion surplus for May was still relatively large -- up from a $16.7 billion gap in April and $13.4 billion in March -- and larger than analysts had predicted.Imports ballooned 40 percent to $100.3 billion, the General Administration of Customs said. Exports, meanwhile, rose 28 percent to $120.5 billion -- still strong amid speculation that the slowdown in the U.S. economy would significantly erode export demand.

Mortgage applications rose after falling for three straight weeks, rebounding from the lowest level in more than six years despite a rise in home loan rates.

World oil production fell by 0.2 percent in 2007, the first decline since 2002, and proven oil reserves were flat, BP Plc said in an annual review released on Wednesday.Production fell by 130,000 barrels per day (bpd) last year to 81.53 million bpd and reserves were essentially flat at 1.24 trillion barrels, London-based BP said in its 2008 Statistical Review of World Energy.

India's central bank hiked its repo rate by 25 basis points to 8% Wednesday in a move to fight soaring inflation. This was the first rate hike since March 2007.

The Semiconductor Industry Association on Wednesday cut its 2008 semiconductor sales growth forecast to 4.3% from 7.7%, citing ongoing pricing pressure in memory chips.

Burlington Northern Santa Fe Corp.started off lower after UBS AG said it may cut its profit forecast.

Marc Faber: "Stocks, property and commodities are overvalued as an economic slowdown and inflation will curb earnings growth and erode the value of assets...Contrary to the last 25 years, we are in a period of de-leveraging. Corporate profits in particular are still far too high for 2009 and have to be adjusted downwards, and valuations become less compelling.''

The American Petroleum Institute reported a fall Wednesday of 3.2 million barrels in crude supplies for the week ended June 6. The Energy Department had reported a decline of 4.6 million barrels for the latest week. Motor gasoline supplies were up 986,000 barrels, the API said. The government had reported that supplies climbed 1 million barrels. Distillate supplies climbed by 504,000 barrels, the API said. They were up 2.3 million barrels, according to the Energy Department.Demand for gasoline over the four weeks ended June 6 was 1.3 percent lower than a year earlier, averaging over 9.3 million barrels a day.At the same time, U.S. refineries ran at 88.6 percent of total capacity on average, a drop of 1.1 percentage points from the prior week. July crude climbed as high as $137.69 a barrel on the New York Mercantile Exchange Wednesday, and was last up $6.38, or 4.9%, at $137.69.

The Federal Reserve says the economy remained "generally weak" heading into summer as rising costs for energy and food pounded consumers and forced some companies to push their own prices higher.

iShares DJ U.S. Home Construction (ITB) and SPDR S&P Homebuilders ETF (XHB), were both off about 6% in late-afternoon trading.

The railroads were particularly hard hit on Wednesday.

The federal budget deficit widened to $165.9 billion in May as the government paid out some $48 billion in tax rebates to individuals, the Treasury Department reported Wednesday. Receipts fell to $124.3 billion in May, down 24% compared with the previous May. Outlays rose 25% year-on-year to $290.2 billion.

Gold for August delivery surged $11.70 to end at $882.90 an ounce on the New York Mercantile Exchange.

InBev, which makes Stella Artois and Beck's, is offering $65 per share for Anheuser, which is the leading U.S. brewer with 48.5 percent of the market. Its shares closed at $58.35 on Wednesday on the New York Stock Exchange.

Peter Acciavatti, a credit analyst and managing director at JP Morgan Securities Inc, said Wall Street write-downs and losses totaling at least $325 billion so far may ultimately mean $3.9 trillion in tighter credit conditions, he told Reuters in an interview.

Midwest rains push corn prices above $7 a bushel.

Initial jobless claims jumped by 25,000 in the week ending June 7, to 384,000, the Labor Department reported Thursday. The four-week average of initial claims rose by 2,500 to 371,500. Continuing unemployment claims posted a gain of 58,000, pushing the number up to 3.14 million for the week ending May 31. The four-week average of continuing claims rose by 16,500 to 3.09 million in the latest week.

Wednesday, June 11, 2008

Declining Confidence

6/10/08 Declining Confidence

Confidence in the global economy fell in June as central banks signaled interest rates may be heading higher, a survey of Bloomberg users on five continents showed.The Bloomberg Professional Global Confidence Index fell to 21 from May's 22.7, with respondents becoming more pessimistic in every region. A level below 50 indicates negative sentiment. The measure had rebounded in the previous two months after hitting a low of 13.1 in March.``There's been a shift in focus to the inflation beast,'' said Martin Van Vliet, an economist at ING Bank in Amsterdam who took part in the survey. ``You can clearly see a coordinated verbal response from central banks highlighting the rise in long- term inflation expectations.''

Bloomberg reported rainstorms sweeping the biggest corn states in the U.S. are damaging a crop that's already failing to keep pace with global demand for food, fuel and cattle feed. Farms in Iowa were drenched with 5.78 inches of rain last month, or 37 percent more than normal, according to Harry Hillaker, the climatologist for the biggest corn-growing state. The 22.23 inches that fell on Illinois from January through May was 45 percent above normal and the third-wettest on record, according to data compiled by the state. Corn rose to a record $6.73 a bushel yesterday in Chicago, extending this year's gain to 44 percent. Yields in the U.S. may fall 10 percent short of government forecasts, the biggest drop in 13 years, and send prices up another 34 percent as storms delay planting, stunt growth and leech fertilizer from the soil, said Terry Jones, who farms more than 6,000 acres near Williamsburg, Iowa.

The cost of renting ships that transport key raw materials such as iron ore and coal have risen to all-time highs and put further pressures on inflation and the global economy.

According to the LA Times, despite the jaw-dropping prices at the pump -- they jumped 19 cents a gallon in California to $4.43 in the last week and averaged more than $4 a gallon nationwide for the first time, the Energy Department said Monday -- service station owners aren't making the killing that motorists assume.
That's because credit card fees, the price of tanker-loads of fuel and other costs are rising so rapidly that station owners haven't been able to keep pace despite the record prices they're charging. "People see $4 gas, and they think these retailers are making a fortune," said Ben Brockwell, a director at Oil Price Information Service, which tracks fuel prices. "The reality is these guys are being stressed to the limit."

Rep. Ron Paul: "If the Fed continues with its bubble blowing policies of the past, the new commodities bubble will continue to grow, gas prices will continue to go up, as the value of your dollars go down. We will see an overinvestment in these commodities as solutions are desperately sought for a supply shortage, which is only part of the problem. Make no mistake, though, this is not the free market at work. Government manipulations have added levels of complication and unintended consequences to the marketplace.This is not the time for members of Congress to take political potshots at each other, or to imagine that the free market is somehow to blame. This is the time to understand and fix problems. That begins with making sure the decision makers have a firm grasp on the causes of the problems and possible effects of their decisions. This is absolutely crucial if we want to get it right this time. That is why I am in the process of calling for hearings on Capitol Hill on how the falling value of the dollar affects energy prices."

According to the FT, Chinese white-goods maker Qingdao Haier is considering a bid for General Electric’s appliance business and has begun to approach investment banks to advise it, according to a person familiar with the matter. Haier is one of a large group of potential bidders across the globe with an interest in acquiring the GE operations, which could fetch up to $7bn.

The World Bank sees global economic growth of just 2.7% in 2008, down from a previous 3.3%. Developing countries should expand 6.7%; the U.S. just 1.1%.

Citigroup boosted its 2008 Brent outlook 22 percent to $116.60 a barrel, while Merrill Lynch raised its own by 14 percent to $114.

Rising food and energy costs are still trickling through the economy, complicating the outlook for inflation, Boston Federal Reserve President Eric Rosengren said on Tuesday. Speaking on Cape Cod, Rosengren said the central bank still expects prices to trend down as the economy softens, but conceded that it is less confident in this outlook because of simmering commodity costs. "The effects of significant increases in food and energy prices are still feeding through the economy, as are the impacts of appropriately aggressive monetary and fiscal policy responses to the recent financial turmoil,'' he said.

United Rentals plans to make a "modified Dutch auction" tender offer to repurchase up to 27,160,000 shares of its common stock at a price between $22.00 and $25.00 per share.

XTO Energy Inc.said it'll buy closely held Hunt Petroleum Corp. for $4.19 billion in cash and stock, as the Fort Worth, Texas, natural gas and oil producer moved to boost its reserves and production.

The U.S. trade deficit widened to $60.9 billion in April behind higher prices for crude oil and other commodities, the Commerce Department reported Tuesday. Imports rose 4.5% to $216.4 billion, while exports increased 3.3% to $155.5 billion.

Skillanalytics: "XHB (Homebuilder’s ETF) showed up on my RSI2 scan - and then I looked at a Bullish % Index I constructed in Bull’s-Eye Broker a while back. I think it’s pretty compelling. Now, the ATR on it is quite large - so I’d be taking a fairly small position."

George Ure: " The macro-problem is that somewhere between 2000 and 2015, a Grand Super Cycle top will be in. As that occurs, we won't be looking at a decline from 14,000 to 12,000 that became evident last week. Nope: it will be more like 14,000 to 2,000 to a Dow somewhere between 2,000 and zero. If there's a number I fear more than any other, it is a weekly close under 11,893.7."

Regulators and banks agreed to changes aimed at easing the risk of a collapse in the $62 trillion market for credit-default swaps.Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. are among the 17 banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market-makers, the Federal Reserve Bank of New York said yesterday in a statement following a meeting with the firms.This will reduce ``the systemic risk when a large counterparty fails,'' Tim Brunne, a Munich-based credit strategist at UniCredit SpA, said in an interview today. ``A large portion of the market would be trading against the central counterparty, and that would be a good thing.''

By the Fed's late October meeting, futures traders are now fully pricing in the chance of a half point hike to rates, to 2.50%.

Agrium ups 2Q view to $2.80-$3.00 range from $1.92-$2.22.

Oil futures moved higher Wednesday morning, with the Nymex July contract up $1.77 at $133.08 a barrel in electronic trade. Oil futures fell by more than 2% on Tuesday.

The European Central Bank has not signaled it will make a series of rate hikes after July, ECB Executive Board member Juergen Stark said, according to a report published Wednesday by Bloomberg.

China's imports of crude oil in the January through May period totaled 75.97 million metric tons (659.8 million barrels), up 12.7% from the year-earlier period, according to figures released by the General Administration of Customs Wednesday.

Staples announced that it's reached an agreement with Corporate Express' board in a deal that values the Dutch office supplies group at 3.1 billion euros ($4.8 billion) on an enterprise basis.

China's producer-price index climbed in May from a year earlier at its fastest pace in three years, as industry grappled with higher prices for oil, coal and steal. The producer-price index climbed 8.2% in May, after rising 8.1% in April, the National Bureau of Statistics said Wednesday.

Tuesday, June 10, 2008


6/9/08 Inflation

Corn for July delivery rose as much as 22.25 cents, or 3.4 percent, to $6.73 in after-hours trading on the Chicago Board of Trade and stood at $6.675 as of 11:59 a.m. London time. The contract gained 8.6 percent last week, the biggest gain in 10 weeks. New-crop December corn traded as high as $6.985 a bushel.

Soybeans for July delivery added as much as 32 cents, or 2.2 percent, to $14.895 a bushel, and last traded at $14.7825. The price rose 6.9 percent last week, the most since June 2005. Soybeans, which reached a record $15.865 on March 3, are up 22 percent this year, for a fourth consecutive annual gain.

U.K. producer prices increased at the quickest rate in two decades in May, increasing the odds the Bank of England will refrain from interest-rate cuts even as the economy edges toward a recession. Prices charged by factories rose 1.6 percent from April, the Office for National Statistics said in London today. That's the most since comparable records began in 1986 and double the median forecast of 32 economists in a Bloomberg News survey. From a year earlier, prices rose 8.9 percent.

Willis Group Holdings, the London-based global insurance broker, is to acquire a smaller rival in the US for about $2.1bn in cash and shares, kicking off what could be a wave of consolidation in the sector.The deal to buy Hilb Rogal & Hobbs for $46 a share would expand Willis’s presence in North America. The region contributes 45 per cent to overall revenues, up from 30 per cent in 2007.

Iranian supreme leader Ayatollah Ali Khamenei on Monday warned Iraq's visiting prime minister against signing an agreement with the United States keeping foreign troops in the country beyond 2008.

According to Business Week, by April, 2009, hundreds of thousands of option ARM mortgages will begin resetting, bringing on a fresh wave of foreclosures.

Brett Steenbarger: "Only 43% of S&P 500 stocks are now trading above their 50-day moving averages, down from 80% at the market peak. Only 29% of those stocks are now trading above their 20-day moving averages.
Despite this weakness, we are not yet recording significant oversold levels in my Cumulative Demand-Supply Index (middle chart), though the index has been deteriorating for a while. Readings below -20 have tended to accompany good intermediate-term buying opportunities; the current reading is -4.69."

McDonald's Corp.said sales at outlets open at least 13 months rose 7.7 percent in May, driven by demand from customers in the U.K., France and Australia.

Japan's longest postwar expansion may be over, as record crude oil and raw materials costs discourage companies from hiring and spending, a government report showed. The economy may be reaching a ``turning point,'' the Cabinet Office said today after releasing figures that showed the coincident index, a measure of current economic activity, fell to 101.7 in April from a revised 102.4 the previous month.

Fund manager BlackRock expects the global credit crisis to last another two to four years as a weakening U.S. economy triggers more write downs by banks, its chief investment officer for equities said on Monday.

Michael Pettis: "An article came out Monday evening on Reuters claiming that inside sources have revealed that China’s foreign currency reserves at the end of April were $1.7567 trillion. If this is true that means that reserves grew in the month of April by $74.5 billion, the biggest one-month reserve jump in China’s history (and probably in the history of the world)."

Bruce Berkowitz: "People are driving less, getting older. So we are moving from oil stocks to healthcare."

Lehman prices $4 billion offering at $28 per share.

Interest-rate futures traders see a 76% chance the Federal Reserve will raise its target rate to 2.25% by this autumn, according to the November fed funds futures contract. The probability was 56% late Friday.

Pending sales of previously owned U.S. homes unexpectedly rose in April to the highest level in six months as foreclosed properties flooded the market and drove prices sharply lower, a real estate trade group report showed. An index of sales contracts on previously owned U.S. homes rose 6.3% in April from the prior month, the National Association of Realtors reported Monday. The index, which is considered a leading indicator of existing home sales, was down 13.1% from the April 2007 level.

A new employment indicator released Monday morning by the Conference Board, a business-research group, suggests more labor-market weakness is ahead. Their employment trends index, which aggregates eight separate leading employment indicators to forecast labor-market turning points, is at a level of 113.7 for May – its lowest level since 2004. The index has been falling steadily since last July except for a one-month rise in January, the new data shows.

August gold falls 90 cents to end at $898.10/oz in NY. July crude closed at $134.35 a barrel Monday in New York, down $4.19.

``The increase in prices isn't justified in terms of market fundamentals,'' the Saudi government said today in a statement distributed by the Saudi Press Agency.

Richard Fisher, president of the Federal Reserve Bank of Dallas, said he agrees with another central bank official's assessment today that higher interest rates may be needed to offset global inflation.``It's something that I think a lot of monetary authorities will have to come to grips with,'' Fisher said of inflation during an interview with CNBC today. ``The question is how and when.''

On Monday, the financials had a particularly poor day and the rails a particularly good day.

Apple unveiled an upgraded iPhone with a faster Internet connection that will start at $199.

Two-year yields rose 33 basis points, or 0.33 percentage point, to 2.71 percent at 4:45 p.m. in New York, according to BG Cantor Market Data.Yields on two-year notes touched 2.74 percent, the biggest one-day increase since March 1996.

Tracinda Corp. on Tuesday said approximately 1.02 billion shares of Ford's common stock were tendered in its offer to buy 20 million shares of the auto maker. Tracinda will purchase 20 million shares at $8.50 per share, for a total purchase price of $170 million.

The International Energy Agency on Tuesday lowered its forecast for average global oil product demand in 2008 to 86.8 million barrels a day, down 80,000 barrels a day from its estimate last month. The decline followed the reduction of price subsidies in several non-OECD countries, the IEA said.

The Shanghai Composite Index plunged 8.1% to 3,061.47 while the Shenzhen Index tumbled 8.3% to 925.72. The PBOC announced over the weekend it would lift the ratio of reserves banks must set aside as deposits by 1 percentage point to 17.5%.

Manpower Inc said its seasonally adjusted net employment outlook fell for the third consecutive quarter, to a level of 12, compared with 14 last quarter and 18 a year ago. The index measures the difference between employers saying they plan to add jobs and those planning to cut them. Of 10 sectors tracked by Manpower, only one -- mining -- has a stable outlook for job seekers compared with the previous quarter.

Monday, June 09, 2008


6/8/08 Crude

Robert McHugh: "We said in Thursday, June 5th's, evening newsletter, after that day's phony sharp rally, "Technically, what Thursday's rally did accomplish was to set up the possibility of getting a Hindenburg Omen observation over the next week or so." Well, guess what, we got a Hindenburg Omen observation Friday, June 6th. What this means is we are now on the clock for a confirming observation. Should we get a second observation within the next 36 days, it means there is a much higher than normal probability that we will get a major stock market decline over the next 120 days, with a 25 percent shot at a full blown stock market crash. 120 days takes us into the dreaded September/October period."

Roughly 60 million people said they were going to use their government economic stimulus checks to pay down credit card debt, student loans or medical bills.

The U.S. Geological Survey's Leigh Price, a Denver geochemist who died in 2000, estimated that the Bakken ( in North Dakota and Montana) might hold 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels. The challenge is getting the oil out. Bakken crude is locked two miles underground in a layer of dolomite, a dense mineral that doesn't surrender oil the way more porous limestone does. The dolomite band is narrow, too, averaging just 22 feet in North Dakota.

There will be a total solar eclipse on August 1, 2008.

Wall Street is closely watching whether Pfizer can continue to pay its hefty dividend, which at a 6.7 percent yield, is twice the industry average. It is D'Amelio's (Pfizer CFO) job to balance the books in a manner that protects the dividend. D'Amelio insists the dividend is not only safe, but projects it will grow 10 percent this year -- barring any "significant events," he has said with a classic Jersey accent. If the Pfizer dividend is safe, the risk/reward on the stock at $17.98 could be quite favorable. The last time the stock traded at this price was in 1997.

The Oil Drum: "Iraq, home to the world's third largest proven oil reserves, is in talks with neighbouring Iran and Kuwait to reach a deal to pool shared oilfields, the London-based Asharq al-Awsat reported on Sunday."Iraq has entered negotiations with Kuwait and Iran," it quoted Iraqi Oil Minister Hussain al-Shahristani as saying. "We have informed them of the necessity of signing an agreement to unify the oil fields and to move away from a situation where each side has control from its side as that will bleed these fields in an uneconomical way."

Over the weekend, the national average for gasoline hit $4.02 a gallon.

Lehman Brothers Holdings Inc on Monday announced plans to raise $6 billion to bolster its capital base after losses from trading and hedging resulted in an expected $2.77 billion second-quarter loss for the investment bank. Ratings agency Moody's Investors Service on Monday lowered the rating outlook on Lehman Brothers Holdings Inc. to negative from stable.

Pier 1 Imports Inc.has offered to buy Cost Plus in a stock-for-stock transaction in which Pier 1 would issue 0.6000 shares for each share of Cost Plus. This represents an offer price of $4.00 per share.

John Hussman: "While the surge in oil had the marks of a short squeeze, my own view continues to be that the commodities run will most likely complete its course during the coming quarter. As I noted a couple of weeks ago, “once a speculative price run-up becomes nearly vertical, it becomes very difficult to form expectations about the final price peak, since very small changes in the date of that peak imply significant differences in the final price. Still, the combination of a developing contango in the oil futures curve, a weakening global economy, and the likelihood of a moderate but positive supply response in the months ahead makes it unlikely that oil prices will escape their cyclical tendencies beyond the summer months.”

Sunday, June 08, 2008

Diminishing Wealth

6/7/08 Diminishing Wealth

Robert McHugh: "The financial situation is deteriorating and we would not be surprised by an all-out stock market crash before year end. Raise cash. Borrowing is going to get harder and harder now that the bond insurers lost their AAA rating."

Doug Noland: "During Q1, Household Assets declined $1.590 TN (8.8% annualized) to $70.466 TN, led by a $1.334 TN (11.8% annualized) decline in Financial Assets and a $305bn (5.5% annualized) drop in Real Estate. And with Liabilities increasing $106bn (3% annualized), Household Net Worth contracted a meaningful $1.696 TN (11.8% annualized). Over the past year, Household Assets have increased only $309bn (0.4%). And with Liabilities growing $871bn (6.8%), Household Net Worth dropped $562bn from a year earlier. This is in sharp contrast to the almost $12 TN surge in Household Net Worth during the previous three years. This negative wealth effect has and will continue to place a drag on consumption. It should be noted, however, that so far resilient 4.5% y-o-y income growth has worked to bolster spending in the face of declining wealth...And despite the weak dollar, a rapidly slowing economy, and severe U.S. Credit tumult the intractable dollar “recycling” requirement had ROW (rest of the world) acquiring U.S. Credit instruments at a stunning SAAR $996bn during the quarter. This is an enormous U.S. and global problem.
Total ROW holdings of U.S. Financial Assets have expanded $1.383 TN over the past year to $15.507 TN. It is no coincidence that this growth closely matches the increase in International Reserve Assets over the past year ($1.426 TN). And the various forms of Acute Global Monetary Disorder that have taken root are certainly a consequence of this increasingly Unwieldy Pool of Excess Global Finance. Crude oil and energy prices have surged better than 40% so far this year (natural gas up 70%), with the Goldman Sachs Commodities index sporting a y-t-d gain of 38%. Moreover, today’s moon shot in crude and commodities provides further warning as to the newfound degree of Global Price Instability that has emerged from a dysfunctional U.S. Credit mechanism and global financial “system.”...I’ll continue to argue passionately that the current trajectory of U.S. Credit expansion and today’s unsound Economic Structure are highly inflationary and a dollar disaster. Importantly, today’s dollar outflows hit a world already inundated with excess dollar balances – not to mention domestic Credit excesses that become extreme almost across the globe. It is also my view that current Monetary Processes and the trajectory of U.S. and global imbalances ensure ongoing ballooning of the massive Global Pool of Speculative Finance. Indeed, this “Pool” is at the epicenter of today’s most intense inflationary and speculative biases – biases that are being thrust to blow-off extremes by the latest round of aggressive (and misguided) Fed reflation (think NASDAQ 1999 and U.S. mortgages 2006)."

At Fidelity of Boston, the largest retirement plan administrator in the country, the number of people making hardship withdrawals rose 17 percent last year. At Vanguard, hardship withdrawals rose 16 percent in 2007, to 47,197. The share of all custom ers making hardship withdrawals remains relatively low, however; at Vanguard, 1.5 percent of customers made early withdrawals last year, up from 1.2 percent in 2002. "It's another measure of economic stress among households," said Stephen Utkus, retirement research director at Vanguard in Pennsylvania. "I suspect you'll see people dropping out of 401(k) plans or ending their contributions because they can't afford to save."

Russian President Dmitry Medvedev said ``economic egoism'' has led to what may be the worst economic contraction since the depression of the 1930s, and placed some of the blame on the U.S. The Russian leader said no single country, even the U.S., can reverse the global economic decline alone, and claimed a role for Russia in finding a solution.

Australian house prices fell in the first quarter by the most in five years after the central bank raised interest rates at the fastest pace in more than a decade. The median price for houses fell to A$458,488 ($439,644) in the March quarter, down 2.7 percent from the previous three months, the Real Estate Institute of Australia and Mortgage Choice Ltd. said. Apartments also fell 2.7 percent to A$355,297.

Samuel Bodman, attending two days of meetings in northern Japan among energy chiefs from Group of Eight industrialized countries and other top economies, said the surge in world oil prices was largely a simple problem of supply and demand.

Graham Summers: "I believe the market is ripe for a major (20% or more) downturn in the coming months. Novice investors would do well to shift a sizable portion of their portfolios to cash."

Brett Steenbarger: "That is the paradox at the heart of trading and many other performance activities. The goal is profitability, but the best practice is to not focus on the goal. By staying connected to the processes that lead to the goal, we maintain consistency in our expectations, mood, and outlook--and that pays off in consistent performance."

“According to the May 1, 2008 CCC inventory report there are only 24.1 million bushels of wheat in inventory, so after this sale there will be only 2.7 million bushels of wheat left the entire CCC inventory,” warned Matlack. “Our concern is not that we are using the remainder of our strategic grain reserves for humanitarian relief. AAM fully supports the action and all humanitarian food relief. Our concern is that the U.S. has nothing else in our emergency food pantry. There is no cheese, no butter, no dry milk powder, no grains or anything else left in reserve. The o°©nly thing left in the entire CCC inventory will be 2.7 million bushels of wheat which is about enough wheat to make 1⁄2 of a loaf of bread for each of the 300 million people in America.”
The CCC is a federal government-owned and operated entity that was created to stabilize, support, and protect farm income and prices. CCC is also supposed to maintain balanced and adequate supplies of agricultural commodities and aids in their orderly distribution.
“This lack of emergency preparedness is the fault of the 1996 farm bill which eliminated the government’s grain reserves as well as the Farmer Owned Reserve (FOR),” explained Matlack. “We had hoped to reinstate the FOR and a Strategic Energy Grain Reserve in the new farm bill, but the politics of food defeated our efforts. As farmers it is our calling and purpose in life to feed our families, our communities, our nation and a good part of the world, but we need better planning and coordination if we are to meet that purpose. AAM pledges to continue our work for better farm policy which includes an FOR and a Strategic Energy Grain Reserve.”

The two-year U.S. Treasury note yielded 2.38 percent, or 2.25 percentage points less than the comparable-maturity German bund. The gap was the widest since 1993, making dollar- denominated assets less attractive. This may prove to be a very attractive entry point for this trade.

"I don't think ministers will meet before September unless there is a real threat to supply," the OPEC source told Reuters. "They won't meet just to talk about price increases." Israel's deputy prime minister said in remarks published last week that an attack on Iran's nuclear sites looked "unavoidable." A senior Israeli defense official said on Sunday the remarks did not reflect Israeli policy.

Arjun Murti says gas may have to hit $5.75 a gallon before consumption cools enough to take the heat off fuel prices.

According to Bloomberg, sales at U.S. retailers probably rose in May as Americans started spending tax rebate checks and record gas prices inflated service-station receipts, economists said before reports this week.

Axel Weber, Bundesbank president, was one of the ECB governing council members most strongly in favour of raising borrowing costs. On Friday, the Bundesbank said it expected German inflation to average 3 per cent this year - 0.7 percentage points higher than it had expected in December.

Mike Burk: "The market appears to be in a normal healthy correction with the blue chips leading the way downward. I expect the major indices to be lower on Friday June 13 than they were on Friday June 6."