Saturday, August 09, 2008

The Huge Rally Week

8/9/08 The Huge Rally Week

Mick P: "Doomed? Good grief, get a grip, look about you, doomed would be good compared to what is coming!

Now, most readers know I'm a bearish type of blogger (track record ain't bad) but I have recently seen developments that make me sneer at my own reflection in the mirror for being a bit "bully". My dark side is erupting, my alter-ego awakens. No longer do I consider myself bearish, oh no, now I consider myself a wimp, a puppy in the face of a road crash, a mere sop.

Death and destruction stalk the land and even I, an ultra-bear, am wearing trousers that are brown so no one sees my fear.

Yes fear, true fear that an almighty encompassing of the acceptance of the US Govt willingness to bail out Fannie, Freddie, GM, Ford, et al, is an agreement to participate in the endgame that approaches at such a pace that even drug taking Chinese athletes will falter in the wake of US Govt incompetence.

Do I sound angry, am I ranting? Of course I am! I live in times unheralded by history. Even in the great depression (my favourite album) banks failed, Govt policy failed, liquidity was allowed to retract, growth was allowed to reverse and the mean was achieved to allow the US Govt to reinflate... Not this time my friends, this time you foot the bill, you cover the liabilities, you bear the costs. God forbid that we take it out of the corrupt banking machine that allowed this mess (that includes the FED) to ferment as they chased profits by securitising lending made to those that they KNEW couldn't repay. Lets forget about all those pension funds that bought the toxic wraps, those Municipals and States that invested in this shite expecting a return...Democracy is a personal right and obligation. Failure is your willingness to give up those rights and accept serfdom and slavery."


MBIA said it hasn't altered its projection for its ultimate loss on mortgage-related exposure and as a result loss reserves had an insignificant impact on net income. The company also said its board of directors has authorized the resumption of its share repurchase program, which was suspended in the third quarter of 2007.

Google said in a Securities and Exchange Commission filing late Thursday that its 5% stake in the AOL unit of Time Warner "may be impaired." For now, Google believes the impairment is temporary and won't write it down. Google also holds $241.8 million in auction-rate securities; it hasn't yet recorded a charge on them but has classified the holdings as non-current assets.

Moody's may downgrade American Express.

Swiss bank UBS will buy back $19.4 billion worth of auction-rate securities to settle charges over misleading investors in the United States, the Boston Globe reported on its website on Friday.

Boeing Co and Airbus are facing a slowdown on their older model assembly lines because of a shortage of basic components such as seats, toilets and galleys, the Wall Street Journal reported Friday.

The production disruption was raising costs and delaying millions of dollars in payments from customers, the paper said.

The dollar surged higher on Friday, hitting the highest levels since February against the euro and a seventeen-month peak against sterling amid a growing conviction that the effects of the credit crisis were spreading across the globe.

From Friday's Barron' "
Marathon Oil Shares Ready to Sprint Ahead
by Naureen S. Malik
This often overlooked integrated energy stock is worth far more than its market value."

Sharp fighting in the disputed Caucasian enclave of South Ossetia threatened to draw Russia and the American-backed republic of Georgia into direct military conflict.

For the year, Hormel now sees adjusted earnings between $2.22 and $2.28 a share, below earlier guidance of $2.30 to $2.40 a share.

George Friedman: "If the Israelis were intending to strike Iran's nuclear facilities, they would want to be absolutely certain that as much of the equipment in the facilities was destroyed as possible. But the hard truth is that the heart of Iran's capability, such as it is, does not reside in its facilities but in its scientists, engineers and technicians who collectively constitute the knowledge base of Iran's nuclear program. Facilities can be replaced. It would take at least a generation to replace what we already regard as an insufficient cadre of expertise.

Therefore, if Israel wanted not simply to take out current facilities but to take Iran out of the nuclear game for a very long time, killing these people would have to be a major strategic goal. The Israelis would want to strike in the middle of the workday, without any warning whatever. If they strike Iran, they will be condemned widely for their actions. The additional criticism that would come from killing the workforce would not be a large price to pay for really destroying the Iranian capabilities. Unlike the Iraqi reactor strike in 1981, when the Israelis struck at night to minimize casualties, this strike against a more sophisticated program could not afford to be squeamish.

There are obviously parts of Iran's nuclear capability that cannot be moved. There is other equipment that can be, with enough warning and with more or less difficulty, moved to unknown locations. But nothing would be easier to disperse than the heart of the program — the people. They could be moved out of harm's way with only an hour's notice. Therefore, providing warning that an attack was coming makes very little sense. It runs counter to basic principles of warfare. The Israelis struck the Osirak reactor in Iraq in 1981 with not the slightest hint of the attack's imminence. That was one of the reasons it was successful. Telegraphing your punch is not very smart in these circumstances.

The Israelis have done more than raise the possibility that an attack might be launched in 2008. They have publicized how they plan to do it. Based on the number and type of aircraft involved in the exercise — more than 100 F-15 and F-16 fighter jets — one Israeli attack scenario could involve a third of Israel's inventory of fourth-generation strike aircraft, including most of its latest-model F-15I Ra'am and F-16I Sufa fighter bombers. If Greece were the target in this exercise, then the equivalent distance would mean that the Israelis are planning to cross Jordanian airspace, transit through Iraq and strike Iran from that direction. A strike through Turkey — and there is no indication that the Turks would permit it — would take much longer.
The most complex part of the operation's logistics would be the refueling of aircraft. They would have to be orbiting in Iraqi airspace. One of the points discussed about the Mediterranean exercise was the role of Israeli helicopters in rescuing downed flyers. Rescue helicopters would be involved, but we doubt very much they would be entering Iranian airspace from Israel. They are a lot slower than the jets, and they would have to be moving hours ahead of time. The Iranians might not spot them but the Russians would, and there is no guarantee that they wouldn't pass it on to the Iranians. That means that the Israeli helicopters would have to move quietly into Iraq and be based there...The point here is that, given the exercise the Israelis carried out and the distances involved, there is no way Israel could do this without the direct cooperation of the United States. From a political standpoint in the region, it is actually easier for the United States to take out Iran's facilities than for it to help the Israelis do so. There are many Sunni states that might formally protest but be quite pleased to see the United States do the job. But if the Israelis were to do it, Sunni states would have to be much more serious in their protestations. In having the United States play the role of handmaiden in the Israeli operation, it would appear that the basic charge against the United States — that it is the handmaiden of the Israelis — is quite true. If the Americans are going to be involved in a strike against Iran's nuclear program, they are far better off doing it themselves than playing a supporting role to Israel... In the end, we tend toward the view that this is psychological warfare for the simple reason that you don't launch a surprise attack of the kind necessary to take out Iran's nuclear program with a media blitz beforehand. It just doesn't work that way."

According to the Wwashington Post, thousands of unsuspecting renters who have been paying their rent on time are getting enmeshed in the foreclosure crisis that is plaguing the housing market.

In many cases, their landlords, often individual real estate investors, bought properties during the boom days, rented them out, then failed to keep up with their mortgages. The homes went into foreclosure, often unbeknownst to the tenants, who face disrupted lives and even homelessness.

Buffett has said insurance profits will slip as rates fall amid competition for market share and the pace of natural disasters returns to normal after two uneventful U.S. hurricane seasons.

On the U.S. EconoMonitor, Brad DeLong analyzes the recent unemployment report. According to him, the U-6 measure of unemployment--reported unemployed plus part-time for economic reasons plus marginally-attached workers all divided by the labor force plus marginally-attached workers is now telling us that we are in a recession. Read his: “Another Bad Employment Report: Brad DeLong Calls Recession”

Citigroup will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators.

According to Bloomberg, U.S. consumers borrowed more than twice as much as economists forecast in June as a decline in home equity forced Americans to fund purchases with credit cards and other loans.

Consumer credit rose by $14.3 billion, the most since November, to $2.59 trillion, the Federal Reserve said today in Washington. In May, credit rose by $8.1 billion, previously reported as an increase of $7.8 billion. The Fed's report doesn't cover borrowing secured by real estate. Consumers are using credit cards and loans to cover expenses as falling home values cause banks to restrict access to home- equity lines.

McDonald's Corp.'s same-store sales increased 8% in July. Comparable sales in the U.S. rose 6.7%, driven by advertising of the classic Big Mac sandwich and focus on breakfast, chicken and beverages. European sales climbed 7.6%, led by gains in France, U.K. and Russia. Sales in Asia Pacific, Middle East and Africa rose 7.2%, spurred by demand in Australia and China, McDonald's said.

According to rigzone, Petrobras announced that its new discovery well in the ultradeep Santos Basin waters proved the existence of yet another light oil field, with specific gravity around 30 degrees API in the pre-salt reservoirs.

Productivity increased 2.2 percent in the nonfarm business sector during the
second quarter of 2008 as unit labor costs rose 1.3 percent (seasonally
adjusted annual rates). In manufacturing, productivity fell 1.4 percent in
the second quarter of 2008; unit labor costs jumped 6.1 percent.

This year Minn. Governor Tim Pawlenty vetoed 34 bills passed
by a Democratic-dominated Legislature, more than any other
Minnesota governor had vetoed in a year since at least
World War II, leading his most fervent critics to
describe him as more of a goalie fending off pucks than a leader
rushing the net.

A fire on the Turkish section of the Baku-Tblisi-Ceyhan oil pipeline was under control, but still
ongoing Friday, more than two days after an apparent blast shut it down, Dow Jones



Friday, citing a spokesman for Botas International Ltd. It was still unclear if the incident, which shut
down 850,000 barrels of oil a day, had been caused by sabotage or a technical fault, according to the report.

Boeing is short on toilets for the planes.

Economist Martin Feldstein: "Recent government statistics show
that only between 10% and 20% of the rebate dollars were spent.
The rebates added nearly $80 billion to the permanent
national debt but less than $20 billion to consumer spending."

The dollar index stood at 75.62 from 73.357.

Diversified global miner Rio Tinto PLC Friday said it was considering
an initial public offering for its U.S. coal business instead of an
outright sale to another company.

Wal-Mart, the world’s largest retailer, says the new small Marketside grocery
stores it is to launch this autumn could expand to a chain of more than
1,000 stores, delivering $10bn-plus in annual sales. The retailer
plans to open 10 of the 15,000 sq ft Marketside stores initially,
including four in the Phoenix area, where they will be competing
directly with Tesco’s recently launched US Fresh & Easy store concept.

Gold futures closed with a loss of more than $13 an ounce Friday in New York, and silver futures fell almost 6% as strength in the U.S. dollar helped drive investors away from the commodities markets. December gold closed at $864.80 an ounce, down $13.10 for the session. It lost 5.7% for the week. September silver fell 92.7 cents for the session to close at $15.33, down 12.5% for the week.

Societe Generale SA closed a New York unit that traded shares of companies involved in takeovers, the latest firm to cut back or drop the strategy as mergers decline, said two people with knowledge of the decision.

Berkshire Hathaway late Friday reported its second-quarter net income fell to $2.88 billion, or $1,859 a class A share, from $3.12 billion, or $2,018 a class A share, a year earlier. Operating income, which excludes net realized investment gains and losses, was $2.27 billion, or $1,465 a class A share, down from $2.51 billion, or $1,625 a class A share, a year ago, the insurance-focused conglomerate run by Warren Buffett said.

The Dow Jones Industrial Average added 302.89 points to end at 11,734.32, a weekly gain of 3.6%. The S&P 500 rose 30.26 points to 1,296.32, up 2.8% from last Friday's close. The Nasdaq Composite advanced 58.37 points to 2,414.10, up 4.5% for the week.

Crude futures closed Friday with a loss of 7.9% for the week as strength in the U.S. dollar helped drive traders away from the commodities markets. September crude closed at a three-month low of $115.20 per barrel on the New York Mercantile Exchange, down $4.82, or 4%, for the session. September natural gas wasn't quite settled, trading 4% lower for the session at $8.23 per million British thermal units. It's down about 12% for the week.

Gold futures closed with a loss of more than $13 an ounce Friday in New York, and silver futures fell almost 6% as strength in the U.S. dollar helped drive investors away from the commodities markets. December gold closed at $864.80 an ounce, down $13.10 for the session. It lost 5.7% for the week. September silver fell 92.7 cents for the session to close at $15.33, down 12.5% for the week.

Friday, August 08, 2008


8/8/08 Global

Toyota Motor Corp posted a 28 percent drop in quarterly net profit, dented by a strong yen and slumping U.S. sales, and kept its forecasts unchanged for what is set to be its most challenging year in recent memory.

Israel is building up its strike capabilities amid growing anxiety over Iran's nuclear ambitions and appears confident that a military attack would cripple Tehran's atomic program, even if it can't destroy it.

Such talk could be more threat than reality. However, Iran's refusal to accept Western conditions is worrying Israel as is the perception that Washington now prefers diplomacy over confrontation with Tehran.
The Jewish state has purchased 90 F-16I fighter planes that can carry enough fuel to reach Iran, and will receive 11 more by the end of next year. It has bought two new Dolphin submarines from Germany reportedly capable of firing nuclear-armed warheads — in addition to the three it already has.

Ayn Rand: "A government is the most dangerous threat to man's rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. "

China announced changes to its foreign-exchange rules to address surging growth in its hard currency reserves, saying domestic companies can now keep their foreign-currency income overseas and pledging tougher penalties for illicit capital inflows. The new rules were announced late Wednesday and take effect immediately.

In early trading, oil prices rebounded on Thursday, regaining the $120 level on supply concerns, while gold firmed and base metals rose.

BP's announced Wednesday that it will invest $90 million in U.S. biofuels company Verenium Corp.

Turkey said a pipeline carrying crude to the country's Mediterranean coast from Azerbaijan may remain shut for two weeks following an explosion on Tuesday.

It may be as long as two weeks before the pipeline reopens, Ali Gungor, the governor of Erzincan province where the blast occurred, said in a phone interview today, citing information from a repair team that's studying the extent of the damage. The explosion prompted BP to cancel export obligations from the 1-million-barrel-a-day pipeline.

According to Bloomberg, a year after losses on U.S. subprime mortgages caused a seizure in credit markets worldwide, European companies are starting to default.

As many as 6 percent to 7 percent of corporate borrowers may fail to pay debts on time in the next year, a 10-fold increase from July, according to Dresdner Kleinwort, a unit of Germany's third-biggest bank. That would be the highest since July 2003, according to data compiled by Moody's Investors Service, straining an already faltering economy.

``Companies that would have refinanced a year ago find now that they can't,'' said Andy Stoneman, managing partner at MCR Corporate Restructuring in London, the administrator for General Trading Co., the store where Prince Charles and Princess Diana had their wedding list.

Target Corp. said Thursday that its July sales at stores open at least one year fell 1.2%.

First-time claims for state unemployment benefits remained unusually high in the latest week as more workers qualified for regular benefits under an unrelated extended federal benefits program, the Labor Department reported Thursday. Claims for the week ending Aug. 2 rose to 455,000, a gain of 7,000 from the 448,000 claims reported a week prior. The four-week average of new claims rose by 26,750 to 419,500, the highest since July 2003. Continuing unemployment claims rose by 31,000 to 3.3 million.

The average conforming 30-year fixed mortgage rate rose to 6.74% from 6.70% a week ago, while the average 15-year fixed mortgage rate increased to 6.27% from 6.22% a week earlier.

Nordstrom, Inc. reported preliminary sales of $840 million for the four-week period ended August 2, 2008, a decrease of 6.7 percent compared to sales of $901 million for the four-week period ended August 4, 2007. Same-store sales decreased 6.1 percent.

Preliminary second quarter sales of $2.29 billion decreased 4.3 percent compared to sales of $2.39 billion during the same period in 2007. Second quarter same-store sales decreased 6.0 percent.

Preliminary year-to-date sales of $4.17 billion decreased 4.1 percent compared to sales of $4.34 billion for the same period in 2007. Year-to-date same-store sales decreased 6.2 percent.

J. C. Penney Company, Inc.'s comparable store sales decreased 6.5 percent for the four-week period ended Aug. 2, 2008, compared with the Company’s guidance for sales to decrease mid-single digits. In last year’s July period, comparable store sales increased 12.0 percent, largely driven by a calendar shift that moved sales for an important Back-To-School selling week from August into the July reporting period. Total Company sales in the 2008 July period decreased 4.9 percent.

WCI Communities Inc, the luxury home builder led by Carl Icahn that recently filed Chapter 11 bankruptcy, said on Wednesday the bankruptcy court approved its use of $50 million in cash on hand. WCI said its access to funds will provide sufficient liquidity to run the business until it can finalize a deal for a new debtor-in-possession credit facility, which the company expects the court to approve on Aug. 27.

Japan painted a darker picture of its economic health Thursday, warning of deteriorating exports, output and corporate profits -- signals that may point toward a contraction of the world's second largest economy. "The economy is recently weakening," the Cabinet Office said in its monthly economic report for August.

Although it did not include the word "recession," the government notably left out any reference to an economic "recovery" for the first time in more than six years.

Sunoco's net income in the second quarter fell to $82 million, or 70 cents a share, from $509 million, or $4.20 a share, from last year.

Excluding one-time items, the company said on Wednesday it earned 52 cents a share. Analysts, on average, had expected 34 cents a share, according to Reuters Estimates.

Still, the company warned its refining margins for gasoline continue to be weak in the third quarter, despite recent declines in crude oil prices.

The Philadelphia-based company said it would reduce output at its refineries given the weaker demand for products. It also said it was looking to focus on buying cheaper types of light, sweet crude.

Nouriel Roubini: "It is now clear that all G7 economies are headed towards a recession; the US is in a recession; the UK is headed towards one with the bust of their housing; Japan - as recognized today by its government is entering a recession; Italy's economy is comatose and borderline in recession; Canada had negative growth in Q1 and its economy is tied to the US; while Germany and France (as well as Ireland and Spain and Portugal especially but also the rest of the Eurozone are headed towards a recession.

So all of the G7 economies are now in a recession or headed in the short run towards a recessionary hard landing. Add to these G7 the recession in the rest of the Eurozone (starting with Spain Ireland and Portugal but by now all of the Eurozone as industrial production, sales and business confidence are plunging in all of the Eurozone). Add also the recession in Estonia, Latvia, the risk of hard landing in South East Europe (Bulgaria Romania Hungary and Turkey) and the recession in New Zealand

These generalized recession in the advanced economies will soon lead to a sharp growth slowdown in the BRICs (Brazil Russia India and China) that is already evident in the data and a significant growth slowdown in the rest of emerging market economies.

A sharply slower global growth starting with the G7 recession, falling commodity prices, an increase in global investors' risk aversion, falling equity markets in emerging markets (EM), the weakness of the US dollar and the rise of EM currencies both in nominal and real terms, a tightening of monetary policies in emerging markets to control inflation, the effect of the global liquidity and credit crunch, the risk of a sudden stop and reversal of capital inflows in those EMs with large current account deficits) (the 20 countries in Europe from the Baltics to Turkey as well as India, South Africa and other capital importing EMs) are the factors that will lead to a sharp growth slowdown in the EMs as well as downward pressures on their equity and other financial markets."

Ben Levisohn: "How much is mortgage-finance giant Freddie Mac (FRE) worth? Judging by the stock market, $4.2 billion, its market capitalization at the close of trading on Aug. 6. But the company's update on its second-quarter earnings and financial condition, released Aug. 6, seems to tell a grimmer story.

Look past the devastating $821 million loss it reported for the quarter—nearly three times what Wall Street analysts had forecast. Ignore the $1 billion writedown the government-sponsored enterprise took on subprime and other risky mortgages, only the latest in a painful series. Disregard the rising rate of foreclosures, which grew 20% in the June quarter from the preceding quarter. Drill down to its fair value—a measure of the total worth of the assets on its balance sheet, minus its total liabilities. What do you see?
It looks an awful lot like a gaping hole. Freddie's fair value as of June 30 was a negative $5.6 billion. Based on this particular measure of its financial condition, if it had to sell its assets today, Freddie Mac would be worth less than nothing."

Hedge funds tracked by Hennessee Group LLC fell 1.95% on average in July, partly because a popular trade of betting against financial-services stocks and investing in energy-related securities backfired. "Hedge funds underperformed in July due to sharp reversals in the equity markets during the second half of the month," said E. Lee Hennessee, Managing Principal of Hennessee Group.

An index of sales contracts on previously owned U.S. homes rose 5.3% in June from the prior month, the National Association of Realtors reported Thursday. The index, which is considered a leading indicator of existing home sales, was down 12.3% from the June 2007 level. Pending home sales in June rose in all regions, with a gain of 9.3% in the South, 4.6% in the West, 3.4% in the Northeast and 1.3% in the Midwest. The May pending home sales index was revised to a decline of 4.9% from the prior estimate of a 4.7% drop.

Ayn Rand: "Government "help" to business is just as disastrous as government persecution... the only way a government can be of service to national prosperity is by keeping its hands off."

Natural-gas inventories rose by 56 billion cubic feet for the week ended August 1, the Energy Department said Thursday. The figure matched expectations from analysts at Global Insight. Total stocks now stand at 2.517 trillion cubic feet, down 353 billion cubic feet from the year-ago level and 6 billion cubic feet below the five-year average, the government data said. September natural gas was up 23.8 cents at $9.011 per million British thermal units on Globex.

September crude closed at $120.02 per barrel Thursday on the New York Mercantile Exchange, up $1.44, or 1.2%, for the session. December gold closed at $877.90 an ounce in New York Thursday, down $5.10 for the session.

Influential Iraqi Shi'ite cleric Moqtada al-Sadr would dissolve his Mehdi Army militia if the United States starts withdrawing troops according to a set timetable, a spokesman said.

According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $4.721 billion in the week ended 8/6/08 with Domestic funds reporting net inflows of $4.847 billion and Non-domestic funds reporting net outflows of -$126 million;
Excluding ETF activity, Equity funds report net cash outflows totaling -$1.148 billion with Domestic funds reporting net outflows of -$656 million and Non-domestic funds reporting net outflows totaling -$493 million.

Thursday, August 07, 2008


8/7/08 China

Wal-Mart Stores Inc. said that its July sales at stores open at least a year rose 3%, missing the average estimate of a 3.4% gain of analysts surveyed by Thomson Reuters. Wal-Mart U.S. same-store sales rose 3% and Sam's Club's increased 3.5%, both missing estimates. The company expects its August sales to slow.

Costco Wholesale said July same-store sales rose 10%, with U.S. growth of 10% and international growth of 11%. Excluding gasoline price inflation, U.S. comparable sales would have climbed 6%, and excluding exchange rates, international comparable sales would have climbed 9%.

December gold closed at $883 an ounce in New York Wednesday, down $3.10 for the session, pressured by weaker oil prices as the U.S. dollar gained ground against other major currencies.

American International Group reported a $5.36 billion second-quarter net loss late Wednesday as the insurance giant was hit again by write-downs and impairments on mortgage-related exposures. The net loss was $2.06 per common share. A year ago, AIG reported net income of $4.28 billion, or $1.64 a share. The quarterly net loss included $5.57 billion of unrealized market valuation losses on AIG's super senior credit default swap portfolio. It also included $6.08 billion of net realized capital losses, the company disclosed.

The Bank of Korea lifted its base lending rate a quarter-point to 5.25% Thursday, noting surging inflation remains at the forefront of its concerns even though economic growth is decelerating.

China's central bank has loosened controls on lending to small- and medium-size companies hit hardest by credit limits and slowing exports, state media reports said Wednesday, the latest evidence of growing concern over an economic slowdown.

The People's Bank of China advised local commercial banks that their annual quota for loans to smaller companies was raised by 10 percent, while the quotas for national commercial banks were increased by 5 percent, China Daily and other state-run newspapers reported.

Smaller companies have long suffered from a lack of access to bank loans, and recent efforts to fight inflation by imposing stringent controls on lending have hit them hardest.

China's chief economic planning agency, the National Development and Reform Commission, estimates that 67,000 such companies went bankrupt in the first half of the year due to credit controls and the deteriorating business environment, the state-run Shanghai Securities News reported.

Higher costs for energy and other materials have left many low-cost exporters, especially makers of toys, shoes and other light industrial goods, struggling to survive at a time when demand is weakening. At the same time, the surging value of the Chinese currency, the yuan, against the U.S. dollar has sapped their competitiveness in overseas markets.

Sprint Nextel booked $1.1 billion in cash flow from operating activities and held $3.5 billion in cash at the end of the quarter. Looking ahead, Sprint Nextel expects to report higher post-paid subscriber losses in the third quarter, "due to a seasonal uptick in churn," the company said.

Barry Ritholtz: "Tuesday was the first 90% day we have seen June 26th. On the NYSE, there were 2526 advances and 862 declines. That means up volume was 91.4%. Paul Desmond of Lowry's notes that bottoms are usually accompanied by a series of 90% up and down days. The absence of 90% Days is very unusual, especially given the Uptick Rule has not been in place. Since this was the first 90% day in 2 months, that makes it noteworthy. Back on July 15, the Dow made a closing low of 10962.54 -- the lowest Dow close since July 2006. Yesterday, it closed at 11,615.77. So we have yet to run even 1,000 points. Hence, despite the turmoil, this is still early in the rally's lifespan.

On the other side of the ledger, we have Lowry's Selling Pressure Index at those highs. Normally, it declines well ahead of a market bottom. The new high in this Index does not equate with the thesis that we're near a market bottom.

Further, Paul Desmond tells me that since we did not have any 90% Down Days close to the mid-July low, we have not seen the required selling exhaustion for a major bottom.

Further, its been 3 weeks since the lows, and we did not have a 90% Upside Day quickly after the rally began. Paul's prior work on market bottoms suggests that almost always accompanies major market bottoms. He views the recent rallies as primarily short-covering by hedge funds rather than accumulation from investors. I agree.

Bottom line: A classic Bear Market rally, one that could run for a few more weeks. My best guess is to 12,250 - 12,500."

Brett Steenbarger: "The market rose sharply on Tuesday, but we only had 1027 stocks making fresh 20-day highs against 868 new 20-day lows across the NYSE, NASDAQ, and ASE. That is fewer new highs than we saw during the prior market bounces in July. I will be watching closely to see if the rally is gaining or losing traction, particularly among the small cap stocks, which have shown less relative strength of late."

Heather Bellini of UBS AG, ranked the best software analyst by Institutional Investor magazine in 2007, expects Microsoft to complete the repurchase -- at least five times larger than its average per quarter in the last fiscal year -- over the next three months.

``They won't announce it until it's done,'' Bellini said.

A buyback of between $15 billion and $20 billion would lift earnings per share by as much as 10 cents annually, Bellini said. She expects shares of the Redmond, Washington-based company to climb 53 percent to $40 in the next year.

Transocean Inc., the world's largest offshore oil driller, said profit rose for the eighth quarter in a row as record crude prices spurred demand for deepwater rigs, pushing rents to an all-time high. Net income doubled to $1.11 billion, or $3.45 a share, from $549 million, or $2.63, a year earlier, Houston-based Transocean said today in a public filing. The company was expected to earn $3.21 a share, the average of 34 analyst estimates compiled by Bloomberg.

Oil refiner Sunoco Inc. reported late Wednesday second-quarter net income fell to $82 million, or 70 cents a share, from $509 million, or $4.20, a year ago. Excluding one-time items, income for the quarter was $61 million, or 52 cents a share. There were no special items in the year-ago quarter. Revenue for the three months ended June 30 rose to $16.08 billion from $10.76 billion. Analysts surveyed by FactSet Research predicted the Philadelphia-based company would post earnings of 72 cents a share on $12.47 billion in revenue.

Xstrata Plc, the owner of mines on four continents, made a hostile 5 billion-pound ($9.8 billion) bid for Lonmin Plc to double revenue from Africa and become the world's third-largest platinum producer.

Xstrata, based in Zug, Switzerland, offered 3,300 pence a share for Lonmin, 42 percent more than the company's London closing price yesterday. Lonmin called the all-cash bid ``entirely unwelcome'' as its shares rose as much as 51 percent.

Gold and platinum advanced in London on speculation the $9.8 billion takeover offer of Lonmin Plc will spur consolidation of South African mines and limit supplies. Palladium rose the most in three months.

Xstrata Plc, the world's fourth-largest copper producer, bid for Lonmin to add mines in South Africa and diversify its metals output to include more platinum. South Africa is the world's second-biggest gold producer after China and largest miner of platinum used in jewelry and car parts.

Government defaults on both local-and foreign-currency debt have increased ``dramatically'' since the mid-1990s, according to a Moody's Investors Service report.

Forty-one percent of sovereign defaults since 1997 included halting payments on debt obligations denominated in local and foreign currencies, up from 5 percent from 1960 to 1996, Moody's analysts Elena Duggar and Guido Cipriani wrote.

Rob Hanna: "The CBOE hit it lowest level since December 20th on Tuesday...While the SPX was up over 2% Tuesday, I used a 1% spike to ensure a decent amount of instances. More often than not the market tended to pull back over the next couple of weeks. While the downside edge isn’t huge on a percentage basis, the risk is quite a bit higher than the reward. Overall not encouraging for the bullish case over the next 2 weeks."

The Oil Drum: "If the peak oil folks are correct -- and I'm not saying they are, but their predictions seem to be coming to pass, so they deserve a decent hearing in the world media -- it constitutes a story of immense importance.

The world runs on oil. The prosperity of the middle classes of the industrialized world was built on it. So was the green revolution that allowed world population to increase from two billion to six and a half billion. So was globalization, which allows the flow of goods from everywhere to everywhere on a magic carpet of cheap oil. So was air travel and mass tourism. The list goes on and on."

According to Bloomberg, China's soybean production, the world's fourth-biggest, may surge 36.7 percent from year ago after farmers boosted planting and favorable weather improved yields, a state-owned market forecaster said.

Output may rise to 17.5 million metric tons, the China National Grain and Oils Information Center said in an e-mailed monthly forecast report. Corn production may surge 2.7 percent to a record 156 million tons, it said.

The country's output of wheat, the world's biggest producer, may gain 2.4 percent to 112.5 million tons, while rice production may rise 0.5 percent to 186.5 million tons, the center said.

Production of rapeseed may also increase 8.5 percent to 11.5 million tons, it said.

The housing correction "has some distance to go" and prices will fall another 5% "if we're lucky," says Lawrence White, professor of economics at NYU's Stern School of Business.

And if we're "unlucky," White sees another 10%-15% downside in the national average for house prices, which would wipe out over $1 trillion in household wealth.

Either way, the economist does not see housing bottoming until the second half of 2009 at the earliest, and foresees no quick snapback for real estate after the bust.

George Ure: "If it's wrong for terrorists to attack our national borders, security and identity and steal our liberties, why should tax exempt groups with soft versions of the same objectives get a pass? Arguing for America's integration into a non-elected regional super-government doesn't square with the Constitution I read.

But then, come to think of it, it doesn't say anything about 'administrative law' and shadow governance, either."

Time Magazine: " Writing in the International Herald Tribune last week, Trita Parsi, President of the National Iranian American Council, and analyst Anatol Lieven, argued that insisting Iran give up its right to any uranium enrichment is untenable, and instead suggested that the Western powers base their demands on the rights and limitations of the Nuclear Non-Proliferation Treaty — which would allow the international community "to place a verifiable cap on Iranian enrichment and other nuclear capabilities well short of weaponization."

Bill Bonner (Daily Reckoning): "And millions of Americans are facing "retirement poverty," continued the salmon-colored paper. Why? They haven't saved enough…and their houses - on which they had counted to finance their golden years - suddenly seem to be made of base metal.

Fannie Mae faces a "glut of unsold homes," reports the Chicago Tribune. (What the paper means is that it faces a glut of houses, not homes. A home is what people make of a house. But if it is unsold, it is a house, not a home. And many of the houses built in America in the last 10 years will probably never be homes. They are too expensive. Too far out. And too many.)

"Ghost towns across America," is how the Wall Street Journal describes them."

Republican presidential candidate John McCain opposes the $300 billion farm bill and subsidies for ethanol, positions that both supporters and opponents say might cost him votes he needs in the upper Midwest this November.

The International Monetary Fund on Wednesday said it expects Britain's gross domestic product to grow by only 1.4% in 2008 and 1.1% in 2009, down from its earlier projections of 1.8% for this year and 1.7% in 2009.

Whole Foods also sharply cut its outlook for 2009, saying it now expects sales growth of 6 percent to 10 percent for the year — rather than the previously stated 25 percent to 30 percent growth. And it said its comparable-store sales are expected to grow 1 percent to 5 percent, down from the previously anticipated growth of 7.5 percent to 9.5 percent.

Ladenburg Thalmann & Co. analyst Richard Bove in a research note Wednesday cut his profit estimates on Lehman Brothers and reduced the price target on the stock to $23 from $27. The analyst predicted the company, which has been pressured by the credit tumult, will sell assets, raise capital and cut the dividend payout. "My sense is that Lehman feels a need to take action now to stop, for once and, hopefully, for all, the constant stories and rumors swirling around the company," Bove wrote.

U.S. house prices will fall by as much as 20% nationally and the current mortgage finance crisis is about half-way through, Freddie Mac's CEO said.

The worldwide count of rotary drilling rigs in operation compiled by Baker Hughes stood at 3,436 last month, up 167 from the count for June and up 292 from July 2007, said the provider of drilling and production services for oil and natural gas. Offshore rigs in operation totaled 380, off from 388 in June but up from 376 in July 2007. U.S. offshore rigs held steady on a month-to-month basis at 67 but were down from 78 in operation in July 2007, Baker Hughes' data showed. Land-based drilling rigs in operation in the U.S. jumped to 1,865 in July, up from 1,699 a year earlier and compared to 1,834 in June 2008.

September crude fell further late Wednesday morning to trade at $117.46 a barrel on Globex, down $1.71. The American Petroleum Institute accidentally released its report on supplies 5 minutes early -- ahead of the Energy Department's data. The API had reported a fall of 2.6 million barrels in crude supplies, but the Energy Dept. said they rose by 1.7 million. When the API figures came out, "people bought -- and later had to sell" when the government data were released, said Phil Flynn, a vice president at Alaron Trading.
Motor gasoline supplies were down 1.8 million barrels, the API said. The government had reported that supplies fell by 4.4 million barrels. Distillate supplies were up 3.1 million barrels, the API said. They were up 2.8 million barrels, according to the Energy Department.

Wednesday, August 06, 2008

Another Volatile Market Day

8/6/08 Another Volatile Market Day

"Operating margin was up due to overhead productivity improvements and increased pricing, which combined, more than offset a significant increase in commodity and energy costs," P&G said. The Cincinnati household products giant expects first-quarter earnings 98 cents to $1 a share vs. the forecast of $1 a share. Adjusted 2009 earnings are seen at $3.80 to $3.87 a share, compared to the analyst expectation of $3.83 a share.

D.R. Horton said it closed on 6,167 homes in the latest quarter, compared with 9,643 in the year-ago quarter.

Retail sales volume across the 15-nation euro zone saw a 0.6% monthly fall in June and declined 3.1% from the same month a year ago, the statistical agency Eurostat reported Tuesday.

The purchasing managers index for the euro-zone's services sector fell to 48.3 in July from 49.1 in June, news reports said Tuesday.

LONDON (MarketWatch) -- More financial institutions could see government bailouts before the credit crisis runs its course, former U.S. Federal Reserve chairman Alan Greenspan wrote in Tuesday's Financial Times. "There may be numbers of banks and other financial institutions that, at the edge of defaulting, will end up being bailed out by governments," Greenspan said. The crisis will end only when U.S. home prices begin to stabilize, clarifying equity levels, which serve as collateral support for mortgage-backed securities. Greenspan warned against governments seeking to "reassert their grip" on economic affairs. "If that becomes widespread, globalization could reverse -- at awesome cost," he wrote.

International dairy prices are likely to decline next year from record peaks as demand falls and production increases, New Zealand's Ministry of Agriculture said Tuesday.

"During 2008 and 2009, weaker world economic growth is likely to mean lower demand for dairy products," the ministry said in its annual situation and outlook report.

According to the NY Times, for more than three years starting in 2005, there has been a reduction in the number of voters who register with the Republican Party and a rise among voters who affiliate with Democrats and, almost as often, with no party at all.

Bloomberg reported supertanker owners are slowing down their vessels in response to higher fuel costs and plunging rental rates, three shipbrokers said.

Benchmark hire rates for very large crude carriers, ships bigger than the Chrysler Building designed to ship 2 million barrels of crude, plunged 65 percent last week. Bunker, or fuel, costs have advanced 47 percent this year.

"Most owners say they have ordered the ships to slow down to economical speed," Halvor Ellefsen, a broker at SeaLeague AS in Oslo, said in an e-mail today.

The five-member Bloomberg Tanker Index has dropped 15 percent since the start of last month, on concern that lower rental rates and higher fuel costs will curb earnings for shipowners including Frontline Ltd. Slower sailing speeds reduce vessel availability and may bolster hire rates.

Japanese automaker Toyota has laid off 800 people at a plant in southwestern Japan, or about 10 percent of the plant's work force, in response to declining sales in North America, a company official said Tuesday.

Mike Allen: "A new book by the author Ron Suskind claims that the White House ordered the CIA to forge a back-dated, handwritten letter from the head of Iraqi intelligence to Saddam Hussein.
Suskind writes in “The Way of the World,” to be published Tuesday, that the alleged forgery – adamantly denied by the White House – was designed to portray a false link between Hussein’s regime and al Qaeda as a justification for the Iraq war.

The author also claims that the Bush administration had information from a top Iraqi intelligence official “that there were no weapons of mass destruction in Iraq – intelligence they received in plenty of time to stop an invasion.”
The letter’s existence has been reported before, and it had been written about as if it were genuine. It was passed in Baghdad to a reporter for The (London) Sunday Telegraph who wrote about it on the front page of Dec. 14, 2003, under the headline, “Terrorist behind September 11 strike ‘was trained by Saddam.’”
The Telegraph story by Con Coughlin (which, coincidentally, ran the day Hussein was captured in his “spider hole”) was touted in the U.S. media by supporters of the war, and he was interviewed on NBC's "Meet the Press."

The 10 percent of households with the highest incomes account for nearly a quarter of all spending, according to data compiled by research firm Moody's from a 2006 federal survey.
"That does suggest those folks are important for the spending outlook, and the overall economic outlook," said Scott Hoyt, Moody's director of consumer economics.
Other government data show households in the top one-fifth of the U.S. population ranked by income earn about half of all total personal income before taxes — an imbalance that gives the wealthy immense economic clout, said Sara Johnson, an economist at the research firm Global Insight.
"Consumer spending makes up 70 percent of gross domestic product, and when one group accounts for a very substantial share of consumer spending, they also account for a large share of the economic activity that creates jobs," Johnson said.

EMarketer Inc. expects spending on such ads to grow to $25.9 billion this year, from $21.1 billion last year, and hit $30 billion in 2009.
Online advertising is "not going to grow as much as expected, but it's still going to be growing more than other media," Hallerman said.

Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles.

Weyerhaeuser said it expects challenging market conditions to continue into the third quarter, with operating losses "slightly less than second quarter." The company also said it closed the sale of its containerboard packaging assets unit on Tuesday.

Rep. Ron Paul: "Some mistakenly identify the falling home prices as the disease instead of merely a symptom - which they plan to fix with more easy credit and more liquidity to push more unqualified buyers back into the market for homes they still cannot afford. This is akin to the drug addict identifying withdrawal symptoms as his problem and searching for another fix as his solution. The cycle continues and the problems compound themselves. The addiction deepens.

Addicts are told the first step to recovery is to admit their problem. To cure this addiction to intervention we have to honestly admit the problem and once and for all, kick the habit. That will involve some pain, without a doubt. There is no easy, painless solution to the mess the disastrous economic interventions of the past have wrought. The question is - do we allow some lending institutions to collapse, or do we allow the dollar to collapse? To extend the metaphor, do we endure the temporary discomfort of withdrawal, or do we continue on until there is a fatal overdose? We can delay the agony, but only for a little while, and then we will all end up paying the price for the mistakes of a few.
With the final passage of the Housing Bailout Bill quietly on a Saturday in the Senate, and the President's signature, our government has unfortunately chosen the latter."

Rob Hanna: "The S&P fell on Monday for the third consecutive day. There are some short-term price indicators reaching oversold levels at this point. More often than not, when the market goes into a Fed meeting and is short-term oversold, the result is a bounce."

OPEC production reached its highest level so far this year in July on increased barrels from Saudi Arabia and Iraq and a recovery in Nigerian output, a Dow Jones Newswires survey released Friday said.
The 13 members of the Organization of Petroleum Exporting Countries pumped 32.675 million barrels a day on average last month, up 1.1%, or 366,000 barrels, from 32.309 million barrels a day in June.

The ISM nonmanufacturing index rose to 49.5% in July from 48.2% in June. The new-orders index fell to 47.9% from 48.6%, while employment rose to 47.1% from 43.8%. The production index slipped to 49.6% from 49.9%. Nine of 18 industries were growing in July.

Australia's central bank signaled it may cut borrowing costs for the first time in almost seven years as slowing economic growth cools inflation.

The Federal Reserve held interest rates steady on Tuesday, expressing concerns about both economic growth and inflation and indicating it is in no rush to push borrowing costs higher. Policymakers said "downside risks to growth remain" and "the inflation outlook remains highly uncertain."


earnings excluding items rose to 40 cents per share from 36 cents and exceeded the average analyst forecast by a penny, according to Reuters Estimates.

Quarterly revenue rose 9.9 percent to $10.4 billion, the first quarter in the company's history to surpass $10 billion, it said. Analysts on average expected revenue of $10.3 billion.

The Treasury Department announced Tuesday that it has hired Morgan Stanley to analyze Fannie Mae and Freddie Mac.

The Dow Jones Industrial Average gained 331 points, or 3%, to end at 11,615. This marked the blue chip index's biggest one-day point gain since April 1. The S&P 500 index gained 35 points, or 2.9%, to 1,284, while the Nasdaq Composite rose 64 points, or 2.8%, to 2,349.

September crude closed at $119.17 per barrel in New York Tuesday, down $2.24, or 1.2%, as concerns over oil demand continued.

December gold was up $1.80 at $887.90 an ounce in Globex electronic trading after the Federal Open Market Committee on Tuesday kept its benchmark federal funds rate unchanged at 2.0%. December gold had closed earlier on New York Mercantile Exchange at $886.10 with a loss of $21.80.

Weyerhaeuser Co.seeks to trim 1,500 jobs, or about 6% of its workforce, over the next 18 months, according to a conference call transcript from FactSet Research.

Hurricane forecasters Philip Klotzbach and William Gray at Colorado State University raised their forecasts for the Atlantic Hurricane season in a report issued Tuesday. The report pegs the total seasonal forecast at 17 named storms for the region, up from 15 predicted in June. The forecasters also raised the number of expected Altantic hurricanes to nine for the seasson, compared to eight in the June forecast.

Morgan Stanley told several thousand clients this week that they won't be allowed to withdraw money on their home- equity credit lines, said a person familiar with the situation.

The action mostly affected clients with properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York- based investment bank will review home equity lines of credit, or HELOCS, monthly from now on, the person said.

Foster Wheeler's consolidated backlog in terms of future revenue jumped, but new orders booked came in below levels seen in the year-earlier second quarter.

Freddie Mac said it swung to a second-quarter loss of $821 million, or $1.63 a share, after taking $2.5 billion in provisions for credit losses. Revenue fell to $1.69 billion from $2.34 billion. Analysts polled by FactSet Research had expected a loss of 38 cents a share. The mortgage giant is going to cut its third-quarter dividend to 5 cents a share or less from 25 cents a share and pay the full preferred dividend.

News Corp."isn't talking to anybody right now," said Chief Operating Officer Peter Chernin when asked if the commpany is talking to AOL, Yahoo or Microsoft about a possible deal or alliance.

Monday, August 04, 2008

Expensive Insurance

8/5/08 Expensive Insurance

John Hussman: " Once an ongoing (and in my view, probably deepening) recession becomes broadly recognized, we may observe abrupt losses as the likelihood of more sustained earnings disappointments and much broader default risk becomes reflected in one fell swoop...Having worked in the financial markets in one capacity or another for nearly three decades, I've observed that market declines typically don't hit bottom until sometime after the phrase “free fall” begins emerging with regularity. We haven't seen that yet. To the contrary, there appears to be a general consensus that the lows set a few weeks ago were, if not the final lows, quite close to the ultimate bottom."

Humana now sees annual earnings between $4.30 and $4.40 a share, up from a prior range of $4.10 to $4.35.

Industrial producer prices across the 15-nation euro zone rose at a monthly pace of 0.9% in June for an annual rise of 8%, Eurostat reported Monday.

The Kuwait Investment Authority plans to triple its investments in Japan to 48 billion dollars, the country's finance minister Mustafa al-Shimali said, according to a Nikkei business daily report Monday.

Vikas Bajaj: "Homeowners with good credit are falling behind on their payments in growing numbers, just as the problems with subprime mortgages have begun to level off."

Washington Post: "Democratic Sen. Barack Obama holds a 2 to 1 edge over Republican Sen. John McCain among the nation's low-wage workers, but many are unconvinced that either presidential candidate would be better than the other at fixing the ailing economy or improving the health-care system, according to a new national poll.

Obama's advantage is attributable largely to overwhelming support from two traditional Democratic constituencies: African Americans and Hispanics. But even among white workers -- a group of voters that has been targeted by both parties as a key to victory in November -- Obama leads McCain by 10 percentage points, 47 percent to 37 percent, and has the advantage as the more empathetic candidate.

Still, one in six of the white workers polled remains uncommitted to either candidate. And a majority of those polled, both white and minority, are ambivalent about the impact of the election, saying that no matter who wins, their personal finances are unlikely to change."

Real consumer spending fell in June for the first time since February as the windfall of cash from Washington was eaten up by the worst inflation in 27 years, the Commerce Department reported Monday. Nominal spending rose 0.6%, but the increase was all due to higher prices, which rose 0.8% during the month, the most in 27 years. Real spending (which is adjusted for inflation) fell 0.2% in June. Real disposable incomes fell 2.6% in June after a 5.2% gain in May. Inflation surged in June. The personal consumption expenditure price index rose 0.8% in June compared with May and is up 4.1% in the past year, the largest year-over-year inflation in 17 years.

The latest GDP rise comes from consumer spending, which rose 1.5% in Q2. Adjusted for inflation do you really believe that GDP rose in the quarter? If you do, then check your brain into life support.

Family-held department store chain Boscov's has filed for Chapter 11 bankruptcy protection, Reuters reported Monday, citing a Delaware court filing. The Reading, Pa. chain with 49 stores had $538 million of assets and $479 million of liabilities as of May 3, the report said. The company was hurt by a promotion where it gave customers who cashed their IRS rebate check at their stores an additional 10% payout.

Brett Steenbarger: "I continue to view the recent market bounce more in terms of sector rotation and short-covering than in terms of fresh longer-term capital being put to work to take advantage of attractive valuations. We need to see increased money flows and an expansion in the number of stocks registering fresh new highs for this rebound to have legs."

Iran's military tested a new naval weapon with a range of more than 300 kilometers (185 miles), the commander of the Islamic Revolutionary Guards Corps said.

The technology in the anti-ship weapon hasn't been used by other nations, Brigadier General Mohammad-Ali Ja'fari said today in comments carried by state-run news agencies including Press TV and the Islamic Republic News Agency. Details of the weapon weren't given.

Planned layoffs at U.S. companies totaled 103,312 in July, compared with June's 81,755, employment consulting firm Challenger, Gray & Christmas Inc said.

Announced job cuts at U.S. companies last month were the second highest total so far in 2008, more than double the 42,897 a year earlier, the report said.

George Ure: "Not only are the nation's banking reserves gone, but they are now funding their day-to-day operations dollars and printer's ink!...We lose how many umpteen billions in 401(k) and real estate equity, and see banks falling left and right, and yet as a national we still claim a positive savings rate? LOl, OMG who are we kidding? Maybe I can get some nitrous from that whipping cream can, too... "Special accounting rules' no doubt - sort of like banks borrowing all their assets and then some?"

Residential builder WCI Communities Inc. on Monday said it and about 130 subsidiaries have filed for Chapter 11 to restructure debt and capital. Billionaire investor Carl Icahn, the company's chairman, said the company had tried to avoid a bankruptcy filing, but it became necessary "because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default."

Global airline passenger growth has slowed to 3.8%, its lowest since the industry was rocked by a SARS panic in 2003, the International Air Transport Association said Monday. Passenger load factors, which measures how many seats airlines are able to fill on the average flight, fell 1.2 points to 77.6%.

Bill Bonner: " Net corporate tax receipts are expected to fall by $100 billion in 2009. Net individual tax receipts should fall by $100 billion too. Hey, a billion here…a billion there…pretty soon, the government is running a trillion-dollar deficit…"

"GM credit spreads continue to be priced on the basis that just about everything will keep going wrong," Glenn Reynolds, senior analyst at fixed-income research service CreditSights, said in a report on Monday.

"The price action has now blown past the Chrysler meltdown of the second half of 1990" and is reminiscent of the bursting of the tech and telecommunications bubble, he said.

GM's five-year credit default swaps rose to 47.5 percent of the sum insured as an upfront payment from 46.5 percent at Friday's close, plus 500 basis points in annual payments, according to Phoenix Partners Group. This means it would cost $4.75 million to insure $10 million in debt for five years, plus $500,000 a year.

HSBC Holdings Plc said its first-half pretax loss in North America was $2.9 billion, compared with profit of $2.4 billion in the year-earlier period. U.S. consumer bad loan charges and other provisions rose 85 percent to $6.8 billion as the bank reduced its number of branches by 10 percent to 900 and said it would ``run off'' its $13 billion vehicle finance operation. The shares dropped 2 percent in London.

Second-quarter profits at the 355 companies in the S&P 500 that reported results so far dropped 20 percent on average, dragged down by losses at financial companies including Merrill Lynch & Co.

Mexican cement maker Cemex SAB de CV said Monday it will raise U.S. concrete prices $25 per cubic yard, effective Oct. 1, in response to escalating fuel prices.

"We have put forth this new, transparent pricing structure that will allow our customers to count on a firm price through January 2010," Gilberto Perez, president of Cemex USA, said in a statement.

"We are effectively removing all fuel surcharges and taking on fuel price risk through this time."

Beth Ann Bovino, senior economist at Standard & Poor's, says the Fed can't do much more than talk tough about inflation now.
Bovino believes the central bank will tighten as soon as there's evidence the economy is stabilizing, most likely in the second or third quarter of 2009. But the Fed's need to address inflation could stifle any recovery before it gets a chance to flourish; that's one big reason why Bovino thinks the recession will be "long" and admits the downturn could ultimately be a lot worse than "mild."

December gold closed at $907.60 an ounce in New York Monday, down $9.60, or 1%, for the session after trading as low as $903. September crude closed at $121.41 per barrel on the New York Mercantile Exchange Monday, down $3.69, or 3%, for the session. The contract marked its lowest closing level since May 6.

The iShares DJ U.S. Home Construction Index (ITB) was off nearly 4% at last check. The ETF is down almost 30% the past three months.

Corn futures slumped more than 3% Monday on concerns that cooler weather will help the crop's pollination. Soybeans and wheat also tumbled. Corn futures for December delivery slumped 20.25 cents, or 3.5%, to $5.65 a bushel on the Chicago Board of Trade. Soybeans for November delivery dropped 56 cents, or 4.1%, to $13.09 a bushel, and September wheat fell 29 cents, or 3.7%, to $7.65 a bushel. "A forecast for relatively cooler weather this week will be beneficial for" corn's pollination, said Elaine Kub, a grain analyst at commodities research firm DTN.

Pulte Homes Inc.'s CEO says a new, temporary tax credit for first-time homebuyers signed into law last week is a "shot in the arm" to the housing industry and the builder will help promote it by offering a matching discount.

The Energy Intelligence Group reported that global oil production remained at a record high of 87.8 million barrels per day in June, with global demand at 86.8 million barrels per day.

Merrill Lynch & Co Inc Chief Executive John Thain said Monday if the company loses more money, it may have to raise more capital, leaving the door open to further capital raises if markets deteriorate.

Sunday, August 03, 2008

Storm Clouds

8/4/08 Storm Clouds

Prices at the gas pump continued their downward trend over the weekend, with the national average price for a gallon of self-serve regular hitting $3.892, a fraction of a penny lower than Friday, according to AAA's Daily Fuel Gauge Report. The average for midgrade gasoline was $4.059 and diesel was $4.674. While lower than the month-ago averages, when regular was $4.098, fuel prices are substantially higher than they were a year ago. On Aug. 2, 2007, the national average for a gallon of regular gasoline was $2.858.

Iran rebuffed an informal U.N Security Council deadline to stop expanding uranium enrichment or face more sanctions. Mahmoud Ahmadinejad reasserted his country's right to nuclear technology during discussions with Syria's president.

Obama campaign manager David Plouffe said “Due to the late date of the two parties’ nominating conventions, and the relatively short period between the end of the conventions and the first proposed debate, it is likely that the four Commission debates will be the sole series of debates in the fall campaign.”

The Federal Deposit Insurance Corporation revealed on Friday that it had issued warnings to four small US banks that lacked sufficient reserves to cover potential loan losses.

The cease-and-desist orders issued in June said the four banks needed to raise more capital, expand their loss allowances and better oversee and diversify their loan portfolios. A fifth bank was cited for violating consumer protection laws.

Larry Rohter: "Many see evidence that companies looking to keep prices low will have to move some production closer to consumers. Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago.

To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers."

Citywide in NYC, 2,216 residents have lost their homes to foreclosure already this year. The figure was 338 last month alone - compared to 203 in July 2007.

Mike Burk: "For the past week or so the market has been consolidating without any major glitches. There should be another leg up, soon. I expect the major indices to be higher on Friday August 8 than they were on Friday August 1."

“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”

“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”

Nouriel Roubini: “Yes, That's $2 Trillion of Debt-Related Losses”

Brian Fabbri: "Business continues to layoff temporary workers and cut back hours
worked. Another 29k temporary workers were eliminated in July
raising the total of temporary jobs lost in the past 7 months to 189k;
this represents 29% of all private payroll jobs lost this year.
Temporary workers account for only 2.2% of all private workers on
establishment payrolls. Businesses, however, sensed that domestic
demand growth was beginning to cool last year and began reducing
its temporary work force starting in January 2007. Thus total
temporary jobs lost in the past 19 months cumulate to 268k.
Nevertheless, as the economic downturn deepens business will soon
have to begin cutting more core workers than they have."

Mike Shedlock: "Perhaps the boldest move by Freddie Mac on Thursday — and one that won’t get much press attention — was its decision to eliminate foreclosure timeline compensation altogether for servicers, effective immediately. In other words, servicers will no longer earn a bonus based on how quickly they can foreclose.
If that doesn’t scream “modify more loans,” then the GSE’s decision to double compensation for servicers in completing workouts certainly will. Freddie said it will now pay servicers $800 for a loan modification, $2,200 for a short payoff or make-whole preforeclosure sale, and $500 per repayment plan. Deeds-in-lieu of foreclosure didn’t get Freddie’s same endorsement, however, and will remain at the current incentive level of $250, the GSE said."

According to the WSJ, hedge funds appear set to post their worst monthly performance in six years as strategies run into trouble. Some previously highflying funds are sustaining declines in the double digits, and several managers are down more than 20% for the year.

The WSJ reported Chrysler Financial was unable to renew all of $30 billion in short-term debt it was trying to refinance in a month, coming up $5 billion to $6 billion short.

The FT said the Federal Reserve, European Central Bank and the Bank of England are likely to keep interest rates on hold this week, amid deteriorating global growth and high inflation.

Crude oil rose for a second day as a storm threatened U.S. output in the Gulf of Mexico and Israel and U.S. officials sought extra sanctions against Iran.

Tropical storm Edouard lies about 95 miles (155 kilometers) southeast of the Mississippi River mouth and may strengthen to a hurricane as it heads west toward Texas, the National Hurricane Center said. Oil rose from an 11-week low last week as U.S. fuel stockpiles fell and Iran ignored a deadline in its dispute with the United Nations over its nuclear research.

``Those wildcat factors'' are holding up prices today, Gavin Wendt, senior resources analyst at Fat Prophets in Sydney, said in a Bloomberg Television interview. ``Prices should be a lot stronger than they were a week ago,'' given the risks from the storm and Iran, he said.

The U.S. said on Sunday that Iran has left the United Nations Security Council no choice but to increase sanctions against it for ignoring demands that it halt sensitive nuclear activities.