Saturday, July 19, 2008

Overbought Market

7/20/08 Overbought Market

The Federal Reserve shouldn't wait until financial and housing markets stabilize to raise interest rates, central bank policy maker Gary Stern said.

``We can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course,'' Stern, president of the Federal Reserve Bank of Minneapolis, said in an interview today. ``Our actions will affect the economy in the future, not at the moment.''

The U.K. budget deficit ballooned to the widest since records started in 1946, adding pressure on Prime Minister Gordon Brown to ease his decade-old borrowing rules.

The shortfall was 24.4 billion pounds ($49 billion) in the three months through June, the Office for National Statistics said today. Last month, the deficit expanded to 9.2 billion pounds, more than the median forecast of 7.4 billion pounds in a Bloomberg News survey of 17 economists.

The Economist: "Joshua Rosner, an analyst at Graham Fisher, a research firm, who was one of the first to identify the problems in the mortgage market in early 2007, reckons Fannie and Freddie were buying 50% of all “private-label” mortgage-backed securities in some years—that is, those issued by conventional mortgage lenders. This left them exposed to the very subprime assets they were meant to avoid. Although that exposure was small compared with their portfolios, it could have a big impact because they have so little equity as a cushion.

Both companies make a distinction between losses on trading assets (which they take as a hit against profits) and on “available-for-sale” securities which they hold for the longer term and disregard, if they think the losses are temporary. At the end of 2007, according to OFHEO, Fannie had pre-tax losses of this type of $4.8 billion; Freddie’s amounted to $15 billion.

The companies have also been unwilling to accept the pain of market prices in acknowledging delinquent loans. When borrowers fail to keep up payments on mortgages in the pool that supports asset-backed loans, Fannie and Freddie must buy back the loan. But that requires an immediate write-off at a time when the market prices of asset-backed loans are depressed. Instead, the twins sometimes pay the interest into the pool to keep the loans afloat. In Mr Rosner’s view, this merely pushes the losses into the future.

Adding to the complexity is the need for both Fannie and Freddie to insure their portfolios against interest-rate risk—in particular, the danger that borrowers may pay back their loans early, if interest rates fall, leaving the companies with money to reinvest at a lower rate. This risk caused the duo to take huge positions in the derivatives market, and was at the centre of an accounting scandal earlier this decade.

In addition, Fannie and Freddie have bought insurance against borrower defaults when the homebuyer lacks a 20% deposit. But the finances of the mortgage insurers do not look that healthy, which may mean the risk ends up back with the siblings. Just as the rescuers need rescuing, so the insurers may need insuring."

President Bush agreed to “a general time horizon” for withdrawing American troops in Iraq, the White House announced Friday.

A senior Iranian official ruled out any freeze in uranium enrichment today, rejecting a central demand of major powers at talks on its nuclear programme being held in Geneva.

The average price of a gallon of regular gas fell about a penny for the day, to $4.105, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel prices dipped three-tenths of a cent to $4.842 a gallon.

The U.S. Securities and Exchange Commission exempted market makers in stocks from the emergency rule aimed at preventing manipulation in shares of Fannie Mae, Freddie Mac and 17 Wall Street firms.

The SEC granted relief for equity and option traders responsible for pairing off orders from a rule that seeks to bar the use of abusive tactics when betting on a drop in share prices. Exchange officials said limits on ``naked-short'' sales would inhibit the flow of transactions and raise costs for investors.

``The purpose of this accommodation is to permit market makers to facilitate customer orders in a fast-moving market,'' the SEC said in the amendment.

Americans, unnerved by a worsening job market and sky-high oil prices, plan to pay off debt and boost savings in preparation for expected further economic turmoil, according to a survey from Reuters and the University of Michigan.

Henry To: "The NASDAQ Composite is now at an unprecedented oversold condition. Be prepared for a sustainable rally over the next several months."

Oilfield-services demand will grow internationally through 2009 and revenue will top 20% by that time, according to Schlumberger's Chief Executive.

U.S. oil demand was significantly down for the first six months of 2008, API said today in its Monthly Statistical Report. While U.S. refiners churned out record and near-record amounts of oil products, imports--especially product imports--fell substantially. Deliveries of all oil products, a measure of demand, fell 3.0 percent compared with the same first-half-year period in 2007, with gasoline deliveries slipping 1.7 percent.

For the preceding three years, oil demand had essentially held steady. API statistics manager Ron Planting said, "At 20.08 million barrels per day, total demand was the lowest in five years. And the decline in gasoline demand was the first significant one recorded in 17 years. Higher pump prices and a slowing economy were undoubtedly factors."

Michael Santoli: "A further drop in crude would help the refinery stocks, but it's possible that even sideways action in crude would help crack through the gloom pervading the group." Mike specifically mentioned Valero and Sunoco, two companies I mentioned quite recently along with Marathon Oil. One should note that Lynn Laverty Elsenhans is coming over from Shell to run Sunoco as of Aug. 8. I think her experience and expertise will make a difference in the performance at Sunoco.

Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

F. William Engdahl: "The Royal Bank of Scotland, one of the largest financial institutions in the EU has warned its clients “A very nasty period is soon to be upon us—be prepared.” They expect the S&P-500 index of US stocks, one of the broadest stock indices in Wall Street used by hedge funds, banks, pension funds could lose almost 23% by September as in their term, “all the chickens come home to roost” from the excesses of the US-led securitization revolution that took hold after the bubble burst and Greenspan lowered US interest rates to levels not sustained since the 1930’s Great Depression."

Senior leaders of al-Qaida may be diverting fighters from the war in Iraq to the Afghan frontier area, the top American commander in Iraq told The Associated Press on Saturday.

"Fannie and Freddie spent $170 million on lobbyists," is the report from AP.

Rob Ivanoff: "How do you make money in the current markets? Good question. The answer is: you can’t. Unless you are short-term trader - the only thing you can do is sit it out, deposit in your 401k account monthly and invest in your own professional development. While you are at it, make sure you contribute and spread out the holly messages that I have outlined for America - messages I have propagated here relentlessly: 100% green energy, radical shift in improving education in every city, on every street, in every house of America; and mandatory public transportation plans for every city. The ghost of the last administration and its criminally incompetent leadership have penetrated every pore of our society. It is up to us now, to get rid of it all and put back on the map the Land of the Free, Home of the Brave ."

Iraqi prime minister says U.S. should leave as soon as possible.

Mike Burk: "We had a washout last week. On Tuesday the number of new lows on the NYSE hit an all time record at 1304. The NASDAQ recorded 491 new lows, a big number, but, far from a record. Since Tuesday's low the market has become overbought...

New lows declined dramatically from 1304 on Tuesday to 81 on Thursday and 79 on Friday so it is unlikely that Tuesday's price lows will be penetrated in the next few weeks... However, the record number of NYSE new lows on Tuesday make a retest of Tuesday's price lows likely in the next few months.
I expect the major indices to be lower on Friday July 25 than they were on Friday July 18."


7/19/08 Waste

Republic Services, Inc. said Friday its board had unanimously decided that Waste Management Inc.'s bid for the company wouldn't match the "currently contemplated" offer from Allied Waste Industries, Inc. in terms of shareholder value. As a result, it said it won't open its books or pursue talks with Waste Management, which had announced its bid July 14. Republic also said that its board has not changed its recommendation of the existing merger with Allied.

For the year, Honeywell increased is full-year earnings outlook between $3.75 and $3.85 a share on sales of $37.6 billion to $38.2 billion.

Barr Pharmaceuticals Inc. said Friday that it will be acquired by Teva Pharmaceutical Industries Ltd. for a total consideration of $7.46 billion, plus the assumption of net debt of about $1.5 billion. Under the terms of the agreement, each share of Barr will be converted into $39.90 in cash and 0.6272 Teva ADRs.

Citigroup lost money for the third consecutive quarter after writing down $7.2 billion of investments. The company said it lost $2.5 billion, or 54 cents a share, compared to a profit of $6.23 billion, or $1.24 a share. On a continuing operations basis, the firm lost $2.22 billion, or 49 cents a share, compared to $6.14 billion, or $1.23 a share.

Schlumberger's second-quarter net income rose to $1.42 billion, or $1.16 a share, from $1.26 billion, or $1.02 a share, a year ago. Analysts had been expecting average earnings of $1.13, according to data compiled by FactSet.

Freddie Mac is considering raising capital by selling as much as $10 billion in new shares to investors, The Wall Street Journal reported, citing people familiar with the matter.

Double-digit drops in median home prices hit every Bay Area county in June, even the ones that had seemed Teflon-coated.

Across the nine counties, the median price paid for resale homes, new homes and condos in June plunged 27.1 percent from a year ago to $485,000, dipping below the half-million-dollar mark for the first time in four years, DataQuick Information Systems of La Jolla (San Diego County) reported Thursday.

German producer prices rose at the fastest pace in 26 years in June, adding to pressure on the European Central Bank to keep interest rates high even as economic growth slows. Prices for goods from newsprint to plastics increased 6.7 percent from a year earlier, the most since March 1982, after rising an annual 6 percent in May, the Federal Statistics Office in Wiesbaden said today.

AMG Data Services: "Including ETF activity, Equity funds report net cash inflows totaling $1.669 billion in the week ended 7/16/08 with Domestic funds reporting net inflows of $3.614 billion and Non-domestic funds reporting net outflows of -$1.945 billion;
Excluding ETF activity, Equity funds report net cash outflows totaling -$5.323 billion with Domestic funds reporting net outflows of -$3.502 billion and Non-domestic funds reporting net outflows totaling -$1.820 billion."

Citigroup reduced headcount by about 6,000 in the second quarter and about 11,000 in the first half of 2008.

Mexico's central bank raised its overnight rate by 25 basis points to 8% on Friday to fight inflation.

Sony Ericsson on Friday said its plans to save about 300 million euros annually including a targeted reduction in its work force, including contractors, of about 2,000 people, President Dick Komiyama said in a conference call on Friday.

Activists in San Francisco are campaigning to get the city's largest sewerage works named after George W Bush as a "fitting monument to the President's work".
More than 8,500 signatures have already been gathered in support of the renaming which has kicked up a stink.

Under US law any proposal which is supported by a petition containing more than 7,168 signatures must go to a vote.

Crude-oil futures fell for a fourth straight day Friday, extending this week's losses to more than 11%. Crude for August delivery fell 41 cents, or 0.3%, to end at $128.88 a barrel on the New York Mercantile Exchange. Futures have lost $16.2, or 11.2%, this week.Gold for August delivery dropped $12.70 to end at $958 an ounce on the New York Mercantile Exchange.

American Airlines said it expects to lay off about 1,300 aircraft mechanics and 200 management and support staff positions as it begins retiring its A300 fleet later this year.

Google Inc.'s share of the U.S. online search market fell slightly in June to 61.5% of the searches conducted from 61.8% in May, according to data released by comScore Friday. Yahoo Inc. saw its share rise to 20.9% last month from 20.6% in May while Microsoft sites grabbed 9.2%, compared with 8.5% in May. Ask Network had 4.3% and Time Warner's ( AOL recorded 4.1%.

Scott Burns: " Today, the net worth of the entire country (U.S.)is equivalent to a mere 400 billion barrels of oil. That's a smidgeon less than the proven reserves of two Middle Eastern countries: Saudi Arabia (264 billion barrels) and Iran (139 billion barrels).

At more than 40 times its 1970 price, oil has outstripped the value created by a full working generation of Americans in a period of dramatic technological change and innovation. During the same time, the value of American business shares, as measured by the S&P 500 Index, has risen only about 15 times above its 1970 level."

Barack Obama visits war-torn Afghanistan, his first visit there in almost two years.

“The US forces should withdraw gradually so our Iraqi forces can fill the gaps that the American forces will leave,” said Brig Gen Najim Abdullah, spokesman for the Iraqi national police.

Michael Kahn: "The greenback continues to struggle. And that should keep pressure on both stocks and bonds."

Thursday, July 17, 2008

Dollar Holdings

7/18/08 Dollar Holdings

The Financial Times, citing no sources, said an unidentified Gulf fund has cut its dollar-denominated holdings to less than 60% from more than 80% a year ago.
It also said China's State Administration of Foreign Exchange, or SAFE, has been looking to cut deals with European private equity firms in an effort to reduce dollar holdings. SAFE holds a majority of China's $1.6 trillion in foreign currency reserves in dollar instruments, the report said.
According to Rigzone, XTO Energy Inc. has closed its previously announced acquisition of producing oil properties from Headington Oil Company for $1.05 billion in cash consideration and 11,742,391 shares of XTO common stock for total consideration of $1.8 billion. The purchase includes 352,000 net acres of Bakken Shale leasehold in Montana and North Dakota. XTO Energy's internal engineers estimate proved reserves on the properties to be 68 million barrels of oil equivalent, of which 60% are proved developed. The acquisition will add about 10,000 barrels of oil equivalent per day of production. In addition, the Company has agreed to acquire 100,000 net undeveloped acres in the play and 400 barrels per day of production for approximately $115 million from undisclosed parties in separate transactions.

"With these deals, XTO now becomes a leading operator in perhaps the largest oil resource play in the nation, with more than 450,000 net acres. As with all our other acquisitions, our objective is to more than double the proved reserves through the application of cutting-edge technology. Given the opportunities in the Bakken through horizontal drilling, multiple stimulations and enhanced recovery, we anticipate the potential for even more," said Keith A. Hutton, President. "Currently, our team has four drilling rigs at work with plans to increase the activity to six rigs during the first half of 2009. Early well results are encouraging with a recent producer, completed in the Middle Bakken, flowing at a rate of 650 barrels per day. At the same time, we have expansive coverage of the emerging Sanish-Three Forks play as established by production rates on offsetting acreage. XTO will soon spud its first horizontal well into this interval."

Bloomberg: Aluminum dropped in London as the biggest jump in inventories since August 2006 signaled demand may be weakening, and a slump in crude oil prices spurred sales of commodities. Copper also fell.

Stockpiles of aluminum in warehouses monitored by the London Metal Exchange jumped 24,825 metric tons to more than 1.1 million tons, bringing the gain this year to 20 percent. Prices rose to a record last week after smelters in China, the world's largest producer, agreed to cut output as much as 10 percent.

The jump in aluminum inventories ``is a really big one,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.

EBay Inc., the world's largest Internet auctioneer, fell 6.6 percent in late U.S. trading after reporting that people are paying less for items on its retail sites.

The average selling price fell 6 percent in the second quarter, slowing growth in spending by online buyers. Gross merchandise volume, the value of all goods that users sold on EBay's sites, rose 8 percent, the smallest increase in at least five quarters, EBay said today in a statement.

JPMorgan Chase & Co , the third-largest U.S. bank, said on Thursday that second-quarter profit fell, hurt by $1.1 billion in write-downs at its investment banking unit, but the results beat expectations. Coca-Cola and United Technologies posted stronger-than-expected quarterly profits, adding to optimism sparked earlier by JPMorgan Chase's results. All three companies are components of the Dow.

Nigerian villagers blew up a key crude oil supply pipeline operated by Agip, the Nigerian subsidiary of Italian group Eni early Thursday, Agence-France Presse reported, citing industry sources.

Harley-Davidson Inc.expects U.S. economic conditions and ongoing consumer concerns to create challenges at least through the end of the year. It forecast per-share profit of $3 to $3.18 a share for 2008.

Johnson Controls Inc., for the fourth quarter,is expecting earnings of 72 cents to 74 cents a share, compared to 78 cents a share a year earlier.

BLS:Real average weekly earnings fell by 0.9 percent in June 2008.

Baxter International expects sales growth for the year, excluding the impact of foreign exchange, of 5% to 6%, with earnings per share of $3.28 to $3.32, before any special items. This compares to the company's previous earnings guidance of $3.18 to $3.24. In addition, the company expects cash flow from operations of at least $2.6 billion.

United Technology raised its earnings outlook for the year to a range of $4.80 to $4.95 a share, up from a prior range of $4.65 to $4.85 a share. It also now sees 2008 revenue in excess of $60 billion.

Textron said it still expects to report 2008 earnings from continuing operations of $3.80 to $4.00 a share, and it issued a third-quarter profit forecast of 80 to 90 cents a share.

Teva Pharmaceutical Industries Ltd., the Israeli drugmaker, is in talks to buy Barr Pharmaceuticals Inc.for as much as $7.5 billion, Israeli press reports say. That figure would be a nearly 50% premium for the Montvale, N.J., producer of generic and proprietary pharmaceuticals.

According to Bloomberg,Coal prices more than doubled this year to $119.50 a ton on the U.S. East Coast. Demand soared 33 percent worldwide in the past five years because coal is combined with iron to make steel and is used to produce 29 percent of the world's power, according to data compiled by BP Plc.
Cleveland-Cliffs, North America's biggest producer of iron ore, is buying Abingdon, Virginia-based Alpha for its 57 mines and 617 million tons to provide more raw materials to the steel industry. The purchase values Alpha's reserves at $16.19 a ton, 35 percent more than on July 15.

China's first-half gross domestic product expanded 10.4% from a year earlier, easing from an 11.9% expansion for the full year of 2007, according to data released by the National Bureau of Statistics.

Merrill Lynch is set to sell its 20 per cent stake in Bloomberg for about $4.5bn but will retain its far more valuable 49 per cent holding in money manager BlackRock.

Senator Barack Obama raised $52 million in June, his campaign announced on Thursday morning, more than twice the amount he raised one month earlier before claiming the Democratic presidential nomination. The average contribution to the campaign, he said, was $68.

First-time claims for U.S. unemployment benefits rose 18,000 to 366,000 in the week ended July 12, the Labor Department reported Thursday. The four-week average of those claims fell 4,500 to 376,500. Continuing claims fell 81,000 to 3.12 million for the week ended July 5. The four-week average of continuing claims rose 16,500 to 3.14 million - the highest level since February 2004.

New construction of single-family homes fell 5.3% to a fresh 17-year low in June, while a change in data collection procedures for multifamily units in New York City pushed up total starts by 9.1%, the Commerce Department reported Thursday. A flood of multifamily building permits was filed in New York following adoption of the new rules, skewing the overall data for both building permits and housing starts. Excluding multifamily starts in the Northeast, housing starts fell 4%, the government said. The new rules affected only multifamily construction in New York City.

China's inflation rate fell to 7.1 percent in June but is still "fairly high" and the country faces pressure for more price rises due to high costs for energy, grain and industrial materials, the government said Thursday.

Sonoco said Thursday that second-quarter earnings were $58 million, or 57 cents a share, compared to $42 million, or 41 cents a share, in the same period a year ago. Sales were $1.01 billion, compared to $994 million a year ago. Base earnings for the second quarter of 2008 were 62 cents a share, up 11%, compared with 56 cents, a year ago. Base earnings excluded a charge of 5 cents a share stemming from previously announced plant closings, while 2007 second-quarter base earnings excluded a charge of 12 a share related an environmental claim and 3 cents for other restructuring charges. The company expects full-year 2008 base earnings a share to be in the range of $2.44 to $2.47, unchanged from previously announced guidance.

For the third quarter, Illinois Tool Works forecast earnings from continuing operations in the range of 93 cents to 99 cents a share. The Wall Street consensus is for earnings of 95 cents a share. In premarket trading, shares of Illinois Tool Works added 1.5% to $47.23.

J.P. Morgan Chase CEO Jamie Dimon said on a Thursday conference call with analysts that the firm is seeing some improvement in the credit quality of its home equity loan portfolio, but cautioned that as defaults grow in Florida and California, its losses on its prime mortgage portfolio "could triple" in the next year.

The United States will announce in the next month that it plans to establish a diplomatic presence in Tehran for the first time in 30 years, a British newspaper said on Thursday.

The largest shareholder of Southern Union Co. on Thursday called on the natural gas distributor to put itself up for sale or undertake a major restructuring, including ousting Chief Executive George Lindemann and much of the board.

The central bank of the Philippines raised its key interest rate by 50 basis points to 5.75% on Thursday in a move to fight inflation. The bank said its baseline forecasts show the risk of inflation exceeding the inflation targets for 2008 and 2009.

Natural-gas futures Thursday fell more than 3% after government data showed U.S. inventories gained more than expected. Natural gas inventories gained 104 billion cubic feet in the week ending July 14, the Energy Information Administration reported. Analysts at Global Insight had been expecting a buildup of 86 Bcf. After the data, natural gas futures for August delivery fell 43.7 cents, or 3.8%, to $10.96 per million British thermal units. Futures were down 0.5% before the data. At 2,312 Bcf, stocks were 361 Bcf less than last year at this time and 49 Bcf below the five-year average of 2,361 Bcf, the EIA said.

The Energy Information Administration reported Wednesday that over the last four weeks, U.S. motor gasoline demand has averaged 9.3 million barrels per day, down by 2.1% from the same period last year.

BLS: "Median weekly earnings of the nation's 107.1 million full-time wage and salary workers were $719 in the second quarter of 2008. This was 4.2 percent higher than a year earlier, compared with a gain of 4.4 percent in the Consumer Price Index for All Urban Consumers (CPI-U) over the same period."

Merrill Lynch & Co., the third- biggest U.S. securities firm, reported a wider-than-forecast quarterly loss as the credit contraction saddled the company with $9.7 billion of writedowns.Moody's Investors Service cut Merrill's credit rating and the firm's shares fell after it posted the second-quarter net loss of $4.65 billion, or $4.97 a share. The results, which compared with earnings of $2.14 billion a year earlier, were worse than the most pessimistic analyst forecast in a survey by Bloomberg.

IBM raised its full-year forecast to at least $8.75 a share from $8.50, and stuck by its long-term forecast of a profit of $10 to $11 a share for its 2010 fiscal year.

Google Inc. fell as much as 12 percent in late trading after reporting earnings that missed analysts' estimates on a surge in spending on new projects and costs to defend YouTube in a copyright lawsuit. Excluding costs such as stock-based compensation, profit amounted to $4.63 a share, trailing the $4.73 average of estimates compiled by Bloomberg.

The debt limit is $9.815 trillion and the current outstanding public debt subject to that limit is about $9.4 trillion, according to the Treasury Department.

Microsoft reported fourth-quarter earnings of 46 cents per share, or $4.3 billion, on revenue of $15.84 billion -- up from last year but falling short of analyst estimates.

The earnings rise was boosted by an increase of personal computer sales in emerging markets and demand for new computer server software, especially strong demand for Windows 2008, the flagship software at its server and tools division.

The profit growth looked even bigger due to a $1.06 billion charge that Microsoft incurred during last year's June quarter to fix problems with its Xbox 360 game console.

Analyst consensus was 47 cents per share -- or a 21 percent rise from 39 cents in the year-ago quarter -- on $15.65 billion revenue, according to a Thomson Financial survey.

Gilead Sciences Inc.reported second-quarter net income of $442.83 million, or 46 cents a share, compared with profit of $407.94 million, or 42 cents a share for the year-earlier period. Revenue was $1.28 billion, up from $1.05 billion. Analysts had expected the company to report earnings of 47 cents a share on revenue of $1.24 billion, according to a survey by FactSet Research.

Crude for August delivery closed down $5.31, or 3.9%, at $129.29 a barrel on the New York Mercantile Exchange. Crude has lost $15.89, or 11%, in the last three days. Meanwhile, natural-gas futures tumbled more than 8% Wednesday after government data showed U.S. inventories gained more than expected. Gold for August delivery rose $8 to end at $970.70 an ounce on the New York Mercantile Exchange.

Chesapeake Energy Corp. said Thursday that BP America Inc. (BP) will pay $1.75 billion in cash to buy its interests in the Arkoma Basin Woodford Shale play, based in Oklahoma. The companies said the properties produce about 50 million cubic feet of natural gas equivalent a day and encompass about 90,000 net acres. The deal is expected to close Aug. 8.

Qantas Airways Ltd., Australia's flagship carrier, said Friday it will slash 1,500 jobs worldwide and abandon plans to create 1,200 more as it tries to deal with skyrocketing fuel costs.

Al Gore urged Congress not to overturn a federal ban on offshore drilling, and complained that lawmakers are "being stampeded by lobbyists for special interests" eager to lift the moratorium.

Starbucks Corp. on Thursday disclosed the locations of the 600 stores it plans to close by early next year.The list includes cafes in 44 states plus the District of Columbia, with large amounts of closures in California, Florida and Texas.

A one-two punch of higher commodity prices and increasingly frugal US consumers is forcing Coca-Cola’s largest bottler to write down the value of its business by $5.3bn.

We've had essentially a 500 point rally in the DJIA in just the last two days.

Wednesday, July 16, 2008

The Short-Covering Rally

7/17/08 The Short-Covering Rally

A soured public has given President Bush and Congress record low approval ratings in the latest Associated Press-Ipsos poll, underscoring the toll taken by fretful economic woes and long-lasting wars in Iraq and Afghanistan.

The survey, released Tuesday, also set a new AP-Ipsos floor for the number of people saying the country is heading in the right direction. Just 16 percent said the country is moving the right way, a virtual tie with the 17 percent who said so last month.

In addition, 28 percent said they approve of the job Bush is doing, tying his low in the AP-Ipsos survey set last April.

Congress fared even worse: A new AP-Ipsos low of 18 percent said they were happy with Congress' work, down a steep 5 percentage points from last month.

Wells Fargo & Co , the fifth-largest U.S. bank, reported better-than-expected quarterly results on Wednesday and raised its dividend despite a 23 percent decline in profit caused by deteriorating credit. Wells Fargo raised its quarterly dividend 10%, to 34 cents a shares from 31 cents a share. Wells said this is the twenty-first consecutive year that it has raised its dividend.

Net income for the San Francisco-based bank fell to $1.75 billion, or 53 cents per share, from $2.28 billion, or 67 cents, a year earlier. Revenue increased 16 percent to $11.5 billion. Analysts on average expected profit of 49 cents per share on revenue of $10.7 billion, according to Reuters Estimates.

The consumer price index rose 1.1% in June--the biggest gain in 26 years! With prices rising so fast, real (inflation-adjusted) weekly earnings fell 0.9% in June, the biggest decline in 22 years.

Mining company Cleveland-Cliffs Inc.agreed to buy coal producer Alpha Natural Resources Inc. in a cash and stock deal worth around $10 billion. Under the terms of the deal, Alpha Natural investors will received 0.95 Cleveland-Cliffs shares and $22.23 in cash for every share of Alpha Natural they own. The offer is valued at $128.12 a share based on Cleveland-Cliffs' closing price on Tuesday and represents a premium of 35% to Alpha Natural's Tuesday closing price. The combined company would be renamed Cliffs Natural Resources, with existing Alpha stockholders controlling around 40% of the combined company.

Consumer price inflation across the 15-nation euro zone rose at a monthly pace of 0.4% in June, for an annual rise of 4%, Eurostat reported Wednesday. The annual rate is more than twice the European Central Bank's target of just below 2%.

Delta Air Lines swung to a $1 billion quarterly loss amid surging fuel costs and a weak U.S. economy.

Medical device maker St. Jude Medical Inc. raised its 2008 earnings forecast on Wednesday for the second time, and said it expects its third-quarter profit that would top Wall Street's estimates.The St. Paul, Minn., company expects to earn between 56 and 58 cents per share in the third quarter. It raised its full-year outlook to $2.28 to $2.33 per share, up from $2.15 to $2.20.

Brett Steenbarger: "Equity put volume has now exceeded equity call volume for seven consecutive trading sessions, a situation that in the recent past has been associated with market bounces."

The Bank of Thailand increased its one-day bond repurchase rate by a quarter percentage point to 3.50 percent, the central bank said today in Bangkok.

Rob Hanna: "Over 1/3 of all issues hit a new 52-week low today(Tuesday) according to my data provider. This is the first time that has happened since 1990."

Excluding one-time items, American Airlines said its loss was $248 million, or $1.13 per share. That compares with Wall Street expectations for a $1.42-per-share loss, according to Reuters Estimates.

U.S. crude inventories gained surprisingly in the week ending July 11, up 3 million barrels to 296.9 million, the U.S. Energy Information Administration reported on Wednesday. Analysts surveyed by energy-information provider Platts expected a drop of 3 million barrels. After the data, crude-oil futures for August delivery fell $6.24, or 4.5%, to $132.50 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 2.4 million barrels in the latest week, and distillate stocks gained by 3.2 million barrels, the EIA reported.

Marathon Oil made a new 52-week low.

Robert McHugh: "The Industrials rose 276.74 points, closing at 11,239.28 Wednesday.The NASDAQ 100 rose 45.52 points Wednesday, closing at 1,843.87. The Russell 2000 rose 24.40 points Wednesday, closing at 686.75. The HUI Amex Gold Bugs Index fell 10.06 points, closing at 445.75 Wednesday. Gold fell to 961.3. Silver fell to 18.76, and Oil closed down at 134.80. The Dollar rose 0.26 to 72.06, pausing along its journey toward the sixties, then eventually the 40's. Bonds fell over a point to 115^16. The VIX fell 3.44 to 25.10, back inside its Bollinger Bands, which has significance in the developing change in markets."

U.S. homebuilder sentiment dropped to a record low in July, a reminder of the troubled housing market's drag on the economy, while the minutes from the Fed's latest policy meeting highlighted increasing worries over inflation amid an uncertain outlook for growth.

Alliance Data Systems Corp. expects third-quarter earnings of $1.15 and raised its earnings outlook for 2008 to $4.35 a share from its original guidance of $4.30 a share.

Crude for August delivery settled down $4.14, or 3%, at $134.60 a barrel on the New York Mercantile Exchange, the lowest closing since June 25. Gold for August delivery fell $16 to end at $962.70 an ounce on the New York Mercantile Exchange.

Tuesday, July 15, 2008

It's Not Business As Usual

7/16/08 It's Not Business As Usual

Nouriel Roubini predicts the worst financial crisis since the Great Depression and the worst U.S. Recession in the last few decades.

Mike Shedlock: "If you have money at any bank above the FDIC limit you are living in a complete fog or your are completely nuts. This statement not only applies to individuals but corporations as well. Corporations better be thinking about where they park their payroll."

In early Tuesday trading, gold futures surged as high as $987.50 an ounce in electronic trading on Globex. Getting a boost from the U.S. dollar's tumble to a new record low against the euro, crude oil for August delivery gained $1.26 to $146.44 a barrel in electronic trading on Globex. Then a reversal took place in mid-morning. Crude oil futures slumped more than $9 to below $136 a barrel as President Bush discussed the energy market and Federal Reserve Chairman Ben Bernanke said the U.S. economy is facing significant growth risks. Gold pared gains with gold for August delivery gaining only $2.30 to $976 an ounce on Nymex.

Oppenheimer analyst Meredith Whitney downgraded her rating on Wachovia to underperform from perform, saying expenses simply cannot come down fast enough to offset a fall in its mortgage portfolio and on-balance sheet loans.


Nouriel Roubini: "Two years ago in July and August of 2006 this author first presented here his analysis of why the U.S. would experience its worst housing recession of the last 50 years, why home prices would fall at least 20%, why the collapse of mortgages would start with the “subprime” ones (a term that at that time was unknown to 99.9% of the public including most investors) and how this housing bust would lead to a severe banking crisis and a credit crunch that would tip the U.S. economy in a recession by 2007. My timing of the recession call was off by six months – as the recession started at the end of 2007 rather than mid-2007 as then predicted – but all the other predictions turned out to be correct.

At that time this author also predicted that this housing bust and mortgage bust would lead to a bust of the two government sponsored enterprises (GSEs) in the mortgage market, Fannie Mae and Freddie Mac. Predicting the insolvency of Fannie & Freddie was the obvious logical implication of the prediction of the worst housing recession in decades. So no wonder that this week headlines are all about Fannie and Freddie being insolvent and the systemic consequences of such insolvency."

J&J also raised its 2008 financial forecast. It now sees adjusted earnings per share in the range of $4.45 to $4.50 a share.

U.S. Bancorp's second quarter net income fell about 18%, to $950 million, or 53 cents a share, compared to $1.16 billion, or 65 cents a share a year ago. Analysts surveyed by Thomson Reuters First Call expected Minneapolis-based U.S. Bancorp to post a profit of 59 cents a share.

Fannie Mae and Freddie Mac fell over 20% in pre-open trade early Tuesday.

South Korean financial institutions had exposure of $550 million in securities to U.S. mortgage giants Fannie Mae and Freddie Mac, according to a Yonhap New Agency report, which cited data released by the Financial Supervisory Service Tuesday.

Eaton Corp. now expects net of $7.20 to $7.50 a share and adjusted earnings of $7.70 to $8 in 2008.

Lehman Brothers CEO Richard Fuld is looking at a way to take the investment bank private, The New York Post reported Tuesday, citing unnamed sources.

Surging food and fuel costs drove British annual consumer inflation to 3.8% in June, the Office for National Statistics reported Tuesday, exceeding market expectations for a surge to 3.6% after May's 3.3% rise. The June rise is the largest since the statistical series began in January 1997, the ONS said.

Verifying software in the 787 Dreamliner’s brake control system is the latest problem holding back the first test flight of the plane, the program’s chief said.

Wholesale prices rose 1.8% in June, after seasonable adjustments, with energy prices gaining 6% and food prices rising 1.5%, the Labor Department reported Tuesday. Economists polled by MarketWatch had expected the producer price index to rise 1.4%. In the past year, the PPI gained 9.2% -- the largest change since June 1981, the government said.

Manufacturing activity in the New York area contracted for the third straight month in July, the Federal Reserve Bank of New York said. The bank's Empire State Manufacturing index rose slightly, to a negative 4.9 in July from a negative 8.7 in June.

Brett Steenbarger: "We make our greatest trading mistakes when we start managing our emotional responses to markets and stop managing our trades and portfolios. Fear is the enemy of flexibility. When we react out of fear of loss, we are deer in headlights. When we react to a fear of missing a market move, we lurch into trades impulsively, often at the worst times. In each case, we're acting in a way to assuage the fear of the moment, not to address opportunity or its absence."

WSJ: " According to a Zogby International survey of 755 people conducted in May for Marlin Co., a workplace communication firm, nearly half of employees surveyed had reduced their food purchases. As a result, restaurateurs cite a decrease in lunchtime traffic -- and say existing customers now gravitate toward lower-price items on the menu."

Bloomberg reported copper will fall 9.4% in London by the fourth quarter as global demand for the metal used in pipes and wires weakens, according to Standard Chartered Plc. Copper for delivery in three months will sink to $7,500 a metric ton as demand growth slows in China , the world’s largest user, Judy Zhu and Dan Smith, analysts for the London-based investment bank, said in a report. They said consumption in the major industrialized nations fell 3.1% in the first half of the year compared with a year earlier, driven lower by slowing housing and automotive sales. Labor strife in Peru and Chile , as well as speculative investment and the dollar’s decline this year helped push copper up 27% in the first half in London , the analysts said. Standard Chartered said copper will fall 21% next year to $6,500 a ton in London.

FED CHIEF BERNANKE: INFLATION IS THE BANK'S PRIMARY WORRY. Spoken like a true professor: Ben Bernanke told Congress Tuesday that the fragile economy is being confronted by "numerous difficulties" including persistent strains in financial markets, rising joblessness and housing problems — despite the Fed's aggressive interest rate reductions and other fortifying steps over the past year.

The Organization of Petroleum Exporting Countries lowered its forecast for world oil demand growth for 2008 to 1.03 million barrels a day, which represents a decline of 70,000 barrels from its previous estimate. In the United States and other OECD countries, oil demand for transport fuel showed a strong decline as a result of less travel, OPEC said Tuesday in its monthly oil market report. World oil demand is forecast to grow by 900,000 barrels a day in 2009, which is lower by 100,000 barrels a day from estimated growth in 2008, OPEC said.

Verifying software in the 787 Dreamliner's brake control system is the latest problem holding back Boeing.

The U.S. Treasury Secretary could make greater progress toward a safer financial system by putting Fannie Mae and Freddie Mac into federal receivership, the Wall Street Journal said on Tuesday. If the current law doesn't give Henry Paulson that power, he should seek it from Congress, the newspaper said in an editorial on its website.

Fed funds futures show a 17% chance of a quarter-percentage point rate increase as soon as September, down from a 52% likelihood Monday. It briefly showed no chance of a hike. Futures still indicate a 32% probability of a rate hike to 2.25% by November, after recently pricing in a 50-basis-point increase by then.

Citigroup, which has lost almost half its value on the New York Stock Exchange this year, dropped 43 cents to $14.79 at 9:31 a.m., the lowest since Oct. 8, 1998, the day the New York-based bank was formed through the $36 billion combination of Travelers Group Inc. and Citicorp.

Intel Corp.reported a second-quarter net income of $1.6 billion, or 28 cents a share, compared with a profit of $1.28 billion, or 22 cents a share, for the year-earlier period. Revenue was $9.47 billion, up from $8.68 billion. Analysts had expected the Santa Clara, Calif. chip giant to report earnings of 26 cents a share on revenue of $9.3 billion, according to a consensus survey by FactSet Research.

San Francisco Federal Reserve President Janet Yellen said developments in the U.S. credit markets, the downturn in housing and rising commodities prices "pose serious challenges and will require vigilance" as monetary policymakers monitor future events and try to achieve low, stable inflation and sustainable growth. In a speech on housing foreclosures in the West, Yellen said the U.S. central bank views the high rate of mortgage foreclosures as an urgent problem and believes preventing unnecessary foreclosures to be a "key priority for both the private and public sectors."

Crude futures for August delivery ended at $138.74 a barrel on the New York Mercantile Exchange, down 4.4%, or $6.44, the biggest one-day drop in price for a front-month contract since January, 1991. Gold for August delivery gained $5 to end at $978.70 an ounce on the New York Mercantile Exchange.

CSX reiterated that it is targeting the upper end of its 2008 profit range of $3.40 to $3.60 a share. Wall Street previously forecast $3.58 a share for the full year.

Pessimism about the U.S. economy hit a record high in June with 78% of Americans saying the economy is getting worse, the according to the ABC News survey released Tuesday. Only 2% said the economy was getting better, ABC said. ABC first began asking the "better or worse" question in its monthly surveys in march 1981. In May, 77% said the economy was worsening, while 4% said it was getting better. The poll was taken between June 29 and July 13.

The SEC announced an emergency action aimed at reducing short-selling that targets Wall Street brokerage firms as well as Fannie Mae and Freddie Mac, and will immediately begin considering new rules to extend new requirements to the rest of the market.

According to the FT, SK Telecom is in talks with Sprint Nextel, the struggling US mobile network operator, over potential deals that could range from SK taking an equity stake in the company to an all-out, private equity-backed acquisition.

The talks are highly preliminary, however, and loss-making Sprint has been flashing on the radar screen of every turnround-minded corporate and private equity buyer for months, people close to the situation said.

Lehman CEO Fuld Fuld says that “research analysts have estimated the Investment Management business alone is worth $8-$10 billion, which was the approximate market capitalization of our entire firm on Friday.” This could mean that Lehman is also shopping its investment management business, formerly known as Neuberger Berman.

It's not business as usual. Look at the share price for Citigroup, Bank of America, Wachovia, US Bancorp, Fannie, Freddie, Washington Mutual, Lehman, Merrill Lynch, Wells Frgo etc etc.

Monday, July 14, 2008

No Money

7/15/08 No Money

David Walker: "There are $40+ trillion in off-balance sheet items. We have no money. Washington is out of control."

In pre-opening trading on Monday, Freddie Mac and Fannie Mae both rallied 30%.

Industrial production across the 15-nation euro zone saw a 1.9% monthly fall in May, for a 0.6% decline compared to May 2007, the statistical agency Eurostat reported Monday.

The European Union and its Mediterranean neighbours launched a new platform for their relationship on Sunday at a summit boosted by a promise from Lebanon and Syria to open embassies in each other’s capital.

Afghanistan opposes U.S. use of its territory for launching a possible attack against neighbouring Iran, President Hamid Karzai said in an interview broadcast on Monday.

John Hussman: " Late last week, we removed a significant portion of the short call option side of our hedges, leaving our defensive put options in place. With that shift, the Strategic Growth Fund can be thought of as still being fully hedged, but with an additional 2% of assets in call options, primarily on the S&P 500 Index...presently, the overall context is one of only moderate overvaluation (finally), relatively constructive interest rate trends, and moderate (if not spectacular) capitulation in market internals and sentiment."

NY Times: "There is less danger than in the savings-and-loan crisis of the 1980s, but as many as 150 U.S. banks could fail over the next year, analysts say."

More than 100 insurgents breached a US outpost in north-eastern Afghanistan on Sunday, killing nine US troops in hours of fierce fighting, officials say.

Brett Steenbarger: "The line specific to the S&P 500 large cap stocks made fresh lows on Friday, but the lines specific to the S&P 600 small cap stocks and the S&P 400 midcaps held above their lows. This lack of participation among the smaller issues was the first time in a while that the market weakness was not begetting more weakness...Given the resilience of the indicators late in the week, it would not surprise me to see some sharp short-covering ahead, especially among these beaten down sectors. If that is going to happen, we should see some sustained positive action in the NYSE TICK."

Brazil's Oil Workers Confederation began a five-day strike against Petroleo Brasileiro SA, an action that may cut the country's daily crude production by more than 50 percent.

Randy: "Going back to 1970, there has only been ONE OTHER time (since this recent economic downturn) where gambling revenues actually fell -- in the aftermath of the Sept. 11 terror attacks. During that timeframe (2001-2002) gaming revenue fell 1 percent.

On the Las Vegas Strip, gaming revenues were down 16.4 percent in May 2007 and down 5.4 percent for the first five months of 2008.

Clark County as a whole was far worse, including a 29 percent drop in North Las Vegas and a 30 percent drop in the Boulder Strip, which includes some casinos in Henderson."

The U.S. petroleum refining sector upped its construction project spending by 240% to $34 billion in 2008, up from $10 billion in 2007, according to Industrial Info Resources. The cost per project nearly doubled to $77 million from $37 million, according to data from the Sugarland, Texas marketing intelligence firm. In 2008, the sector has booked 444 projects for refinery upgrades, up sharply from 269 in 2007.

Barack Obama vowed Monday not to seek permanent US military bases in Iraq and reiterated his pledge to pull out the bulk of US forces by mid-2010. But he insisted on keeping "a residual force" in the violence-ravaged nation to fight remnants of Al-Qaeda for an unspecified amount of time, if he moved to the White House next January.

Waste Management, Inc. offered to buy Republic Services, Inc.for $34.00 per share in cash. Waste Management's proposal represents a premium of approximately 22% over Republic's closing price Friday of $27.90.

Apple Inc. sold one million 3G iPhones in the first weekend since the official launch of the mobile phone. "It took 74 days to sell the first one million original iPhones, so the new iPhone 3G is clearly off to a great start around the world," Apple Founder and CEO Steve Jobs said.

Lehman Brothers' executives, seeking to shore up the brokerage's share price, is mulling options including a strategic alliance with a partner, the Wall Street Journal reported on Monday. The investment bank is also considering a form of share buyback or an asset sale, the newspaper said, citing people familiar with the matter.

Midwest Airlines, a unit of Midwest Air Group, on Monday said it would cut its work force by 1,200 employees, or 40 percent, making it the latest airline to reduce staffing amid soaring fuel prices.

Crude for August delivery settled up 10 cents at $145.18 a barrel on the New York Mercantile Exchange. Gold for August delivery rose $13.10, or 1.4%, to end at $973.70 an ounce on the New York Mercantile Exchange.

For the quarter ended June 30, Kimberly-Clark said preliminary adjusted earnings were $1.03, compared with its previous outlook for adjusted earnings between $1.08 to $1.11 a share. The company pegged full-year adjusted earnings in the range of $4.20 to $4.30 a share. It had expected between $4.45 and $4.60 a share. In late trading, Kimberly-Clark shares fell 6.5% to $55.

According to the WSJ, mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers.

Barrick Gold Corp. said Monday the Toronto company is proposing a 354 million Canadian-dollar takeover of Cadence Energy Inc., an Alberta junior oil and natural-gas company.

Royal Dutch Shell, Europe’s biggest oil company, has made its first takeover bid since 2006, launching an agreed C$5.9bn (US$5.87bn) offer for Duvernay Oil, a Canadian gas company.The bid is Shell’s second significant deal in Canada in successive years; last year it bought out the minority interests in its Shell Canada subsidiary for $7.1bn.

Sunday, July 13, 2008


7/14/08 Retirement

Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.

The study, set to be released tomorrow, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life. Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more -- 37 percent.

Yahoo has rejected a new proposal from Microsoft and investor Carl Icahn to break up the Internet firm, an arrangement that Yahoo said would give Yahoo's search business to Microsoft and the remainder of the company to Mr. Icahn.

Senator Chuck Hagel, Republican of Nebraska, and Senator Jack Reed, Democrat of Rhode Island, will join Mr. Obama on his first trip to Iraq as a presidential candidate. All three senators share similar views — critical ones –- of the administration’s Iraq policy.

According to the Houston Chronicle, the Barnett Shale is the largest producing natural gas field in Texas, and some experts say it could be the largest in the U.S. The U.S. Geological Survey estimates that the Barnett field has about 27 trillion cubic feet of gas.

But the gas is hard to get. Unlike conventional wells, which extract gas from porous rock formations, shale is hard and nonporous.

The chief executive of EADS said he is confident his company and U.S. partner Northrop Grumman Corp. will win a disputed $35 billion Pentagon Air Force tanker contract when the bidding process reopens.

Airbus parent European Aeronautic, Defence & Space Co. said as much as one-third of its orderbook is at risk of deferral or cancellation as spiraling oil prices wipe out airline earnings.

U.S. and Iraqi negotiators have abandoned efforts to conclude a comprehensive agreement governing the long-term status of U.S troops in Iraq before the end of the Bush presidency, according to senior U.S. officials, effectively leaving talks over an extended U.S. military presence there to the next administration.

Barack Obama left open the possibility that the federal government won't need to take any steps to aid mortgage giants Fannie Mae and Freddie Mac, saying it needs to watch the evolving situation before making a decision.

``I think we need to watch carefully to see how it plays out before we make a decision about which steps need to be taken, if any,'' Obama, 46, said aboard his campaign plane from Chicago to San Diego late Saturday. It was the first time Obama addressed concerns over the stability of the two firms that own or guarantee almost half the $12 trillion in U.S. mortgages.

Canadian employers unexpectedly shed jobs in June for the first time this year, pushing the unemployment rate up and showing that the effects of the U.S. slowdown are spreading through the country's economy.

Employers fired 5,000 workers, Statistics Canada said today, after a gain of 8,400 the month before. The jobless rate rose to 6.2 percent, the highest since April 2007. Economists anticipated 8,000 new jobs and the same jobless rate, according to the median of 23 and 21 estimates in Bloomberg surveys.

Earthfiles: “Wilkins Ice Shelf is the most recent in a long, and growing,
list of ice shelves on the Antarctic Peninsula that are responding to the rapid
warming that has occurred in this area over the last fifty years. Current events are
showing that we were being too conservative when we made the prediction in the early 1990s that Wilkins Ice Shelf would be lost within thirty years - the truth is it is going more quickly than we guessed.” - David Vaughan, British Antarctic Survey

"The first domino for commercial real estate was the loss of construction jobs. The second domino was the effect of job losses, foreclosures and lost home equity on the local economy. And the third domino was the national economic slowdown," said Hessam Nadji, managing director of Marcus & Millichap.

Through May, Las Vegas had lost 5,000 jobs, "a significant turnabout" from only three years ago when 56,000 jobs were created, Nadji said. The housing environment is the main culprit. One in every 99 Las Vegas households received a foreclosure filing in June, RealtyTrac Inc. said Thursday.

The NY Times reports many who were previously reluctant to study online, have suddenly decided to take one or more college classes over the Internet.

“Gas prices have pushed people over the edge,” said Georglyn Davidson, director of online learning at Bucks County Community College, where Mr. Gibbons studies, and where online enrollments are up 35 percent this summer over last year.

The vast majority of the nation’s 15 million college students — at least 79 percent — live off campus, and with gas prices above $4 a gallon, many are seeking to cut commuting costs by studying online. Colleges from Massachusetts and Florida to Texas to Oregon have reported significant online enrollment increases for summer sessions, with student numbers in some cases 50 percent or 100 percent higher than last year. Although some four-year institutions with large online programs — like the University of Massachusetts and Villanova — have experienced these increases, the greatest surges have been registered at two-year community colleges, where most students are commuters, many support families and few can absorb large new expenditures for fuel.

One might ponder what contribution the elimination of the Uptick Rule has had on rapid declines in several big name stocks.

The Federal Reserve, in a bid to end abusive lending practices, will ban penalties on some high-cost mortgages that make it harder for people to refinance, a person familiar with the decision said.

In the Big Sur area, fire officials reopened part of California 1 and expected to fully reopen the road at 8 a.m. this morning. The blaze has charred nearly 116,829 acres, making it the state's biggest fire this season, and it was still burning on the remote east side of Los Padres National Forest. The fire was 61% contained by Saturday evening, officials reported.
Still, it continued to threaten some areas. As it burned east, firefighters imposed a mandatory evacuation for 217 homes in the Tassajara Road area, including the historic Tassajara Zen Mountain Center. Five Buddhist monks had stayed behind to care for the facility as firefighters beat back flames that damaged three remote outbuildings.
Warmer weather, as a marine layer lifted and thick smoke cleared, hindered crews' efforts Saturday, according to Adrienne Freeman, a fire spokeswoman.

Mike Paulenoff:"Interesting that the TLT's (Lehman 20 year T-bond ETF) fell 1.4% on Friday, which reflects a climb in 10-year T-note yields to 3.94% from 3.83% earlier on Friday. Yet the stock indices continued to undergo waves of intense long liquidation. My guess: that the reversal in the TLTs -- normally an instrument that attracts buyers during times of financial panic and flight to safety -- is hinting that the current phase of the plunge in stocks is nearing completion. The problem is that it could last into Monday or Tuesday, so no sense in standing in front of this falling sword."

With Sunoco shares at a 52-week low, the market cap has been reduced to $4 billion.

Sunoco’s Retail Marketing Business is comprised of approximately 4,700 retail gasoline outlets in 24 states, which are primarily supplied by 5 high-efficiency refineries that produce over 900,000 barrels per day. With over 5 billion gallons of gasoline sold and $700 million of merchandise sales per year, Sunoco is a major retailer and recognized brand in the sale of gasoline and convenience store items. Sunoco’s retail outlets are primarily located along the east coast of the United States ; especially the I-95 corridor. This is only one part of Sunoco. In my view, the parts are worth well over 50% of the current market value.

California Gov. Arnold Schwarzenegger said in an interview aired Sunday that he would be open to the idea of serving as energy czar in a Barack Obama administration.

Anheuser-Busch Cos. on Sunday agreed to a $49.91 billion offer ( $70 per share) from InBev NV in a global deal that will create the world's largest beer maker and transfer ownership of the legendary U.S. company to the Belgian-Brazilian giant.

The implicit government guarantee of Fannie Mae and Freddie Mac is now explicit. In a dramatic statement released Sunday, the White House and Federal Reserve moved to give the mortgage giants the capital they need to survive the depression in the housing market and turmoil in financial markets that had left them dangling over a cliff.
Of most immediate importance, the Fed's board of governors voted to open up its emergency discount window to Fannie and Freddie.
In addition, Treasury Secretary Henry Paulson announced that he will seek Congressional authorization to buy stock in the two companies and increase the government's credit line.
At the moment, each company may borrow only $2.25 billion.


7/13/08 The VIX

On Friday the VIX came to life and rose about 14% to 29+. However, that level is still low considering the Dow decline to 11,000. This coming Friday is option expiration day. Volatility could very well increase this week.

World Bank President Robert Zoellick said on Saturday he expected food prices to remain above 2004 levels until at least 2012 and energy prices would also remain high and volatile.

Brett Steenbarger: " We have had day after day of high/expanding new lows with nary a bounce in the market index. What that tells us is that, as prices move lower, longer time-frame participants are not finding value. What makes for a market bottom is the perception by these participants that the selling has been overdone; that bargains are to be had. When markets move lower and cannot attract buyer interest, they can only do one thing: probe yet lower value regions until equilibrium is attained. That's exactly what we've been seeing over the last month."

"The debt crisis that we've got here is significant," said Sebastian Leburn, chief investment officer at Weiss Capital Management in Del Ray Beach, Fla. "It's going to be rippling through the economy for a few years. It's probably going to keep interest rates below where they should be for a considerable period of time."

John Mauldin:"Bridgewater Associates has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn [$1.6 trillion], four times official estimates and enough to pose a grave risk to the financial system.

"The giant US hedge fund said that it doubted whether lenders would be able to shoulder the full losses, disguised until now by 'mark-to-model' methods of valuing structured credit.

" 'We are facing an avalanche of bad assets. We have big doubts as to whether financial institutions will be able to obtain enough new capital to cover their losses. The credit crisis is going to get worse,' said the group in a confidential report, leaked to the Swiss newspaper Sonntags Zeitung.

"Bank losses on this scale would have far-reaching effects. Lenders would have to curtail loans by roughly 10-to-one to preserve their capital ratios. This would imply a further contraction of credit by up to $12,000bn [$12 trillion] worldwide unless banks could raise fresh capital."

Mike Burk: "There were 897 new lows on the NYSE Friday, the highest number since the January 22 low. The NASDAQ recorded 359 new lows on Friday, down from 447 on Monday. Both numbers (of new lows) are large enough to imply, at least, a retest of current levels if not lower lows. A rule of thumb for a tradable rally is: New low indicators must have been rising for at least 5 consecutive days before a sustainable rally is likely. Current levels of the new low indicators are 414 for the NYSE and 269 for the NASDAQ...By all measures the coming week has been one of the worst of the year...The market is already at oversold extremes, money supply is not growing and seasonally next week has been one of the worst weeks of the year. Give me a washout. I expect the major indices to be lower on Friday July 17 than they were on Friday July 11."

Robert McHugh: "We believe there are compelling indicators and patterns suggesting that most major markets are about to see trend changes, starting sooner than many folks realize."