Thursday, June 26, 2008

The Market Tanks

6/26/08 The Market Tanks

Anheuser-Busch Cos.formally rejected the $65-a-share bid from InBev to acquire the company, calling the offer "financially inadequate."

Bank of America Corp. expects to make about 7,500 job cuts after acquiring Countrywide Financial Corp.

Crude at $140.

Gold up $37 and silver tops $17.

The panic button is not pushed with the VIX around 24.

Natural Gas at $13.

All 30 Dow stocks down on the day.

AIG at 11 year low. Citigroup at 10 year low. GM at 53 years low!

Nasdaq down 80 and breaks 2400 on the downside.

The S&P 500 down 39 and breaks 1300 on the downside.

The Dow tanks 358 and breaks 11,700 on the downside.

GE down about $1.50 to a news 52-week low.

There are few places to hide.

The Fed

6/25/08 The Fed

The Fed: "although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased."

Sales of new U.S. homes tumbled 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low, the government said Wednesday. The decline nearly matched economists' expectations. It was the lowest since the 501,000 rate in March. New-home sales were down 40.3% compared with a year earlier. The median sales price in May was $231,000, down 5.7% from a year earlier. The number of homes on the market fell to a three-year low of 453,000, representing a 10.9-month supply.

Poland's central bank raised its key interest rate Wednesday by 25 basis points to 6.0%.

Grey Wolf Inc.received a third unsolicited takeover bid from Precision Drilling Trust. Grey Wolf said the proposal, indicated as its final offer, was for $10 a share, consisting of Trust units and no more than 50% in cash.

The Commerce Department said orders for durable goods were unchanged last month, after a revised 1% decline in April. Excluding demand for transportation equipment, which tends to be volatile, orders declined 0.9 percent, the first drop in three months.

Monsanto also raised its full-year profit guidance to $3.63 a share.

Williams Companies Inc. upped its 2008 profit estimate to a range of $2.30 to $2.80 a share, from its earlier view of $1.70 to $2.10 a share. For 2009, Williams increased its profit view to $2.05 to $2.90 a share, from $1.80 to $2.30 a share earlier.

Florida, which is seeking to restore the Everglades, has offered $1.75 billion for 300 acres on which closely held U.S. Sugar Corp. farms sugar cane, The Wall Street Journal reported. The deal would see the Clewiston, Fla., company, which is the largest U.S. grower of the crop, continue to produce sugar cane for six years.

In its weekly inventory report, the department's Energy Information Administration said crude oil supplies rose slightly last week. Analysts surveyed by research firm Platts had expected a 1.7 million barrel decline.

Gasoline supplies fell less than expected. And inventories of distillates -- which include diesel fuel and heating oil -- rose much more than expected.

Demand for gas, meanwhile, fell 2.1 percent.

"At some point, that's going to bring (gas) prices down," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Boeing Co shares fell to a two-year low on Wednesday after Goldman Sachs cut its rating on the plane maker and defense company to "sell" from "neutral," reflecting falling orders, problems facing airlines and high fuel prices.

Inflation is "exploding" and the Federal Reserve should stress that fighting rising prices is a primary goal, Berkshire Hathaway Chairman Warren Buffett told CNBC on Wednesday. The Fed should be concerned about both inflation and economic growth, a tough thing to do, he explained. But inflation should be the Fed's main concern right now, Buffett added. "Inflation is really picking up," he said. "Whether it's steel or oil... we see it every place. It's exploding." The Fed has to be very careful not to signal that inflation is a secondary concern and something that can be dealt with later, Buffett explained.

Warren Buffett says he's concerned about ``stagflation,'' or slowing in the U.S. economy while inflation accelerates.

``We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. ``I think the `flation' part will heat up and I think the `stag' part will get worse.''

Research In Motion saw both revenue and earnings more than
> double in its first fiscal quarter. For the quarter ended
> May 31, Research In Motion (RIMM) reported earnings of
> $482.5 million, or 84 cents a share, compared to earnings
> of $223.2 million, or 39 cents a share, for the same period
> last year. Revenue grew more than 100% to $2.24 billion.
> Analysts were expecting earnings of 85 cents a share on
> revenue of $2.27 billion, according to consensus estimates
> from FactSet Research. The company said it expects revenue
> of $2.55 billion to $2.65 billion with earnings-per-share
> between 84-89 cents for the second fiscal quarter. Analysts
> were expecting revenue of $2.44 billion and earnings of 90
> cents a share for the period.
> Excluding special items, Oracle said net income for the
> quarter was 47 cents a share.
> Standard & Poor's said Wednesday that it has
> elevated its count for potential bond-rating downgrades
> this month to an all-time high of 749 due to a material
> slowdown in housing and consumer-related activity. The
> number is 132 more than the group reported at the same time
> a year ago, and 11 more than it reported last month.
> Two activist hedge funds said on Wednesday that
> they've won seats on the board of CSX Corp. A
> spokesperson for The Children's Investment Fund and 3G
> Capital Partners said that, based on preliminary results
> from the proxy voting at CSX's annual meeting, the
> funds expect to have won at least two seats.

August crude fell $2.45, or 1.8%, to close at $134.55 a barrel in New York Wednesday.

August gold fell $9.30 to close at $882.30 an ounce in New York Wednesday.

The South African rand rose 1.6% against the U.S. dollar Wednesday after a report showed that annual CPIX inflation rose by 10.9% in May, up from 10.4% in April. South Africa's headline CPI annual inflation jumped to 11.7% year-on-year in May compared with 11.1% in April, according to the country's statistics agency. Persistent inflationary pressures will likely force South Africa's central bank to continue to raise interest rates. On June 12, the South African Reserve Bank hiked its key interest rate by 50 basis points to 12%.

Anheuser-Busch will reject InBev's unsolicited $46.35 billion offer as early as this week, setting the stage for a hostile takeover battle, The Wall Street Journal reported late Wednesday. Anheuser is likely to argue that InBev's offer undervalues the maker of Budweiser and that it will present its own strategic plan which could include sale of non-core assets such as its theme parks, according to the newspaper. However, InBev is not expected to retreat without a fight, the Journal said.

Tuesday, June 24, 2008

Taking A Battering

6/24/08 Taking A Battering

Home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor's/Case Shiller home price index report on Tuesday. However, the monthly pace of the decline showed some moderation.The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year. Prices are now down 17.8% from the peak two years ago. Home prices in 20 major U.S. cities are now back to where they were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Eastman Kodak Co.said Tuesday its board of directors has approved a stock repurchase program totaling up to $1.0 billion, which at recent prices would represent approximately 25% of shares outstanding. The Rochester, N.Y., company also said it had received a tax refund of $581 million related to the audit of certain claims filed for tax years 1993-1998. It said the majority of the stock repurchase, which is authorized through the end of 2009, would be paid with money from the tax refund.

Dow Chemical Co. will raise product prices by as much as 25% in July, citing the "continuing relentless rise in the cost of energy and hydrocarbon feedstocks." The Midland, Mich.-based chemical company said it will also add freight surcharges of $300 per truck shipment and $600 per rail shipment, effective Aug. 1.

U.S. consumer confidence plunged in June to reach its fifth lowest reading ever, the Conference Board reported Tuesday, as expectations reached a record low. The June consumer confidence index fell to 50.4 from a May reading that was revised to 58.1 from a prior estimate of 57.2.

OPEC Secretary General Abdalla Salem el-Badri said Tuesday other members of the cartel don't want to lift their oil output, Dow Jones Newswires reported on Tuesday.

India's central bank hiked its benchmark interest rate for the second time this month on Tuesday in a move to curb soaring inflation. The Reserve Bank of India raised its repo rate by 50 basis points to 8.5%. It also hiked the cash reserve ratio by 50 basis points to 8.75%.

Los Angeles is the nation's homelessness capital, with an estimated 73,000 people on the streets. A survey of 3,230 homeless people last year in Los Angeles County found nearly 7 percent living in vehicles, according to the Los Angeles Homeless Services Authority.

From George Ure: "The food crisis in Milwaukee — and throughout the United States — is worse than many of us have realized," [Milwaukee Common Council President Willie] Hines said in a statement. "We expect long lines for free food in Third World countries; we don't expect a line of 2,500 people waiting for food vouchers at the Marcia P. Coggs Center."
"Texas is a free and independent State, subject only to the Constitution of the United States, and the maintenance of our free institutions and the perpetuity of the Union depend upon the preservation of the right of local self-government, unimpaired to all the States. "
Zimbabwe's natural resource list includes "coal, chromium ore, asbestos, gold, nickel, copper, iron ore, vanadium, lithium, tin, platinum group metals "

The Financial Times reports that there are 15 times as many houses for sale than there are buyers looking for them.

Occidental signed a definitive agreement with Enerplus Resources Fund to purchase a 15% interest in the Joslyn Oil Sands Project in Alberta, Canada for C$500 million.

The mandate of the Federal Reserve is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Since they have failed miserably, maybe we should eliminate the Fed.

"We're seeing longer lines for food than we've ever had before," said Bridget Hayden, education manager for Sacred Heart Community Service in San Jose. "We've also seen a huge increase in requests for help with housing."

According to Forbes, the U.S. consumes 21 million barrels of per day. At $135 per barrel, the U.S. spends $1.0 trillion per year on oil, which is equal to 15% of the $6.8 trillion in take-home pay of everyone who pays taxes. If oil prices rose to $200 per barrel, the U.S. would spend $1.5 trillion per year on oil, which would be equal to 22% of take-home pay. Moreover, those percentages of 15% and 22% do not even include the cost of coal or natural gas. In other words, the U.S. will be broke long before oil prices hit $200 per barrel, and the rest of the world would be sure to follow.

Chinese millers agreed to pay Anglo-Australian miner Rio Tinto up to 96.5 per cent more for their ore supplies this year, the largest ever annual increase and well above the 9.5 per cent increase paid last year.

Dow Chemical, the biggest US chemicals manufacturer, said on Tuesday it would boost its prices by as much as 25 per cent, institute freight surcharges and cut output of some products because of soaring energy prices.

The price hikes come after last month’s across-the-board 20 per cent increase by the Midland, Michigan-based company, which makes thousands of products ranging from plastic wraps to car parts and insecticides.

CenturyTel Inc. gained the most since August 1988, advancing 19 percent to $37.06. The provider of telephone and high-speed Internet service to small and midsized U.S. cities boosted its annual dividend 10-fold, accelerated a stock repurchase plan and said it will meet or beat second-quarter revenue and profit forecasts.

Lufthansa's ground and cabin crews are demanding a 9.8 percent increase in wages, a decision that could ripple across other services industries. In Britain, though not a part of the euro area, 600,000 British local government workers voted Monday to strike over contract offers that do not reflect the rising cost of living.

The U.S. corporate profit outlook is deteriorating rapidly, with S&P 500 earnings for the second quarter now seen falling at a double-digit pace from a year earlier, according to Thomson Reuters Proprietary Research released on Tuesday. Second quarter profits are expected to fall at a rate of 10.2 percent, compared with the Monday estimate for a drop of 9.6 percent. At the end of May, analysts expected a 7.3 percent drop.

A worsening outlook for consumer discretionary and financials was behind the bleaker earnings view. Inc. has opened a new office supplies that will reportedly carry more than a half million products.The division of the Seattle online retailer will carry staplers, writing supplies, paper, envelopes, calendars, tape, ink and other office products. What impact will this have on Staples and Office Depot?

August gold closed at $891.60 an ounce Tuesday, up $4.40 for the New York session. August crude fell by 20 cents to trade at $136.57 a barrel Tuesday in electronic trading on Globex, retreating from an earlier high of $138.75.

The world's tallest tower, largest mall, longest bridge -- it has them all, or will soon. The new airport complex, under construction about 40 kilometers (25 miles) southwest of old Dubai, is no exception.
At 140 square kilometers (54 square miles), the land set aside by former Dubai ruler Sheikh Rashid bin Saeed Al Maktoum 30 years ago for the visionary $33 billion urban aviation project is almost twice the size of the island of Hong Kong. The heart of this new city, known as Dubai World Central, will be the Al Maktoum International airport. Upon completion, it will be the world's largest airport, bigger than London's Heathrow and Chicago's O'Hare combined.

Rising consumer prices will leave more U.S. consumers unable to pay their debts and may lead to a ``financial tsunami,'' according to Bennet Sedacca, president of money manager Atlantic Advisors LLC in Winter Park, Florida.
``Whether it is anecdotal or statistical evidence, I see inflation everywhere, and this is where the financial tsunami cometh,'' Sedacca wrote in a report published yesterday. ``A battered, over-indebted consumer, if forced to retrench, could create even more problems for the banking system as loan delinquencies would begin to rise even further. All sorts of delinquencies are rising. This is now a systemic issue.''

Washington Mutual Inc may set aside as much as $30 billion for credit losses through 2011, according to Lehman Brothers Inc analyst Bruce Harting, who increased his forecast for losses this year at the largest U.S. savings and loan.
Harting also wrote that the Seattle-based thrift may need to widen its loss forecast of $12 billion to $19 billion tied to single-family residential home loans for the next three to four years.

Retailer Pier 1 Imports Inc. said Tuesday it is withdrawing its offer to buy rival Cost Plus Inc. for $88 million.

Chevron Corp. declared force majeure at its Escravos oil facility in Nigeria because of lost production, The Wall Street Journal reported late Tuesday on its Web site. Under its contracts, Chevron can legally miss deliveries because of circumstances beyond its control. The move comes after Nigerian militants blew up a Chevron-operated oil supply pipeline last week, cutting output by 120,000 barrels a day at the facility, according to the Journal, citing industry sources.

Democrat Barack Obama has opened a 15-point lead in the presidential race, and most of the political trends -- voter enthusiasm, views of President George W. Bush, the Republicans, the economy and the direction of the country -- point to even greater trouble for rival John McCain.
Illinois Senator Obama, winning support from once skeptical women and Democrats, beats McCain 48 percent to 33 percent in a four-way race, a Bloomberg/Los Angeles Times poll shows. Independent candidates Bob Barr and Ralph Nader get 7 percent combined, with the remainder undecided.

Monday, June 23, 2008


6/23/08 GM

Disposal company Republic Services said Monday it will buy Allied Waste Industries in a $6.07 billion stock deal that would combine the second- and third-largest players in the industry. Republic Services Inc. will pay Allied Waste shareholders .45 worth of a Republic share for each share held, valued at $14.04 per share based on Republic's Friday closing stock price of $31.19.

GM stock is trading at the $13 level, a price I have not seen in my adult life. Other than in China, do their products have much of a future? GM said it will extend a previously announced two-week shutdown at six of its plants by one week, according to reports. GM will also raise prices on its 2009 models by 3.5% on average.

"The Standard & Poor's 500 Index has never reached a low within the first three months of a contraction, said Brian Belski, Merrill's U.S. sector strategist," according to Bloomberg.

Nouriel Roubini: "Central banks in many advanced and emerging economies are facing a nightmare scenario, in which they simultaneously must tighten monetary policy (to fight inflation) and ease it (to reduce the downside risks to growth). As inflation and growth risks combine in varied and complex ways in different economies, it will be very difficult for central bankers to juggle these contradictory imperatives."

John Hussman: "From the standpoint of capitulation, last week's decline was actually very orderly, and hardly caused the CBOE volatility index to budge. When we see the VIX spike to the mid 30's or 40's, it may become useful to survey opportunities to assume greater market risk. So far, however, the VIX makes it clear that investors are taking recent losses very casually."

Google planning to unveil a new service that measures Internet usage utilizing data from Web servers, the Wall Street Journal reported late Monday, citing sources who have been briefed on the plan.

UPS is slashing its second-quarter earnings outlook to a range of 83 cents to 88 cents a share from its previous target of 97 cents to $1.04 a share.

UAL Corp.plans to lay off 950 pilots Reuters reported Monday.

August crude closed at $136.74 a barrel Monday in New York, up $1.38, or 1%, for the session. August gold closed at $887.20 an ounce in New York Monday, down $16.50, or 1.8%, for the session.

CME Group, parent company of the world's largest derivatives exchange, said its board has authorized a $1.1 billion share buyback and a special dividend of $5 per share.

CNH Global N.V., a supplier of agricultural and construction equipment businesses, said Monday it will implement a 5 percent surcharge on a range of products due to higher costs for steel, energy, commodities and transportation.

Saudi Arabia

6/22/08 Saudi Arabia

The Oil Drum: "When Saudi Arabia announces production targets it isn't using a clear cut definition of oil. Saudi Arabia produces two groups of hydrocarbons: crude oil and natural gas liquids. Natural Gas Liquids (NGL) are a group of hydrocarbons that fall between natural gas and oil - which consist amongst others of ethane (C2H6), propane (C3H8) and butane (C4H10).
The important difference is that crude oil can be refined into gasoline, diesel and kerosene while NGL's cannot. These are mainly used as feedstock for the chemical industry. Therefore when Saudi Arabia increases crude oil it can influence oil markets heavily, but if it increases NGL's the impact is much smaller. Point one to watch for is therefore whether production announcements refer to crude oil or to all liquids.
A second point is that the country always talks about production capacity. It is not very clear whether actual production or production plus spare capacity is meant. Spare capacity is additional capacity that can be brought online within 90 days in case of an emergency (e.g when the US or Israel attacks Iran). The US Energy Information Administration and OECD International Energy Agency think that spare capacity of Saudi Arabia amounts to 1.5 to 2 million barrels per day. Whether this is the case or not is of course debatable, but for analysis of production it is less interesting...Saudi Arabia has not produced more than 9.5 million barrels per day of crude oil in recent years. In fact the last time Saudi Arabia produced more was 1981 when production briefly reached 9.65 million barrels per day.

The latest high of all Liquids production was 11.10 million barrels per day in the first quarter of 2006. We can establish from production data sources that last known production of total liquids was 10.58 million barrels per day in the 4th quarter of 2007 and last known crude oil production was 9.2 million barrels per day in may 2008.

Saudi Arabia may raise its oil production beyond a planned 200000 barrel-a-day increase in July if the oil market requires extra supply, Saudi Oil Minister Ali al-Naimi told consumers at a summit.

According to the Financial Times, the Federal Reserve is likely to indicate some increased concern about inflation following its policy meeting this week, but to do so in a manner than avoids any suggestion that interest rate rises are imminent.

Veteran news anchor Tom Brokaw has agreed to moderate NBC's "Meet the Press" through the November election to fill the vacancy created by the death of Tim Russert.

According to the WSJ, Citigroup is set this week to embark on an aggressive round of layoffs totaling as much as 10% of its world-wide investment-banking work force.

The U.N. nuclear watchdog chief warned in comments aired Saturday that any military strike on Iran could turn the Mideast into a "ball of fire" and lead the country to a more aggressive stance on its controversial nuclear program.

The comments by Mohamed ElBaradei, head of the International Atomic Energy Agency, came in an interview with an Arab television station aired a day after U.S. officials said they believed recent large Israeli military exercises may have been meant to show Israel's ability to hit Iran's nuclear sites.

"In my opinion, a military strike will be the worst ... it will turn the Middle East to a ball of fire," Mr. ElBaradei said on Al-Arabiya television. It also could prompt Iran to press even harder to seek a nuclear program, and force him to resign, he said.
Iran on Saturday also criticized the

Economists expect the deficit to top $400 billion when the fiscal year ends Sept. 30, rivaling the all-time high of $413 billion set in 2004. Meanwhile, Congress recently adopted a spending plan that projects a $340 billion deficit in 2009 -- a number likely to grow, lawmakers say, as the cost of the Iraq war rises, the economy weakens and the flow of revenue slows.

Bunge Ltd. has agreed to acquire Corn Products International Inc. for $4.4 billion in stock.