Friday, September 05, 2008


9/6/08 Non-Employment

The nation's unemployment rate jumped to 6.1% in August, the highest in almost five years, the Labor Department said Friday.This was the eight consecutive monthly decline. Emplyment is negative year over year. Nonfarm payrolls shrank by 84,000 in August. The labor market was also much weaker over the summer than previously estimated. Job losses totaled 160,000 in June and July, more than the previous estimate of 100,000. Average hourly earnings increased 7 cents, or 0.4% to $18.14. Earnings are up 3.6% in the past year. The average workweek remained steady at 33.7 hours. Unfortunately, inflation ate up the wage gains.

Barry Ritholtz provided that Merrill Lynch's David Rosenberg observes:

"Once the YoY trend in payrolls goes negative, it does not bounce back – it is the hallmark for a new trend that lasts more than a year; and at the trough reaches -1.5% to -2%. So, we have already seen 463,000 jobs cut so far this year, and the historical record would tell you that there is probably between another 1.5-2.0 million to go before the job market backdrop stabilizes."

Merrill Lynch & Co , battered by more than $40 billion of write-downs tied largely to mortgages, will likely incur fresh write-downs, in addition to those assumed after its recent sale of repackaged debt to Lone Star Funds, said an analyst at Goldman Sachs, who cut the stock to a "sell." Analyst William Tanona also widened his third-quarter loss forecast for the world's largest brokerage, while adding the stock to his Americas conviction sell list.

Samsung, one of the largest companies in South Korea, says it may want to buy US flash chip company Sandisk. The US firm's stock has dropped from a 52-week high of $56.46 to under $14.

It's been several years that I began urging you to consider cutting back on the U.S. dollar. Recently, we have witnessed a 10% rally in the dollar. In my view, this may be your last chance to cut back on dollar holdings. Waiting to cut your losses further is non-rational behavior.

George Ure: "On an inflation-adjusted basis, if you put in the Spring 2000 Dow Jones of 11,723 into the Federal Reserve's online inflation calculator, you'll see that in order to have just maintained purchasing power, the Dow would have to be at 14,677.58."

Total print ads in the U.S. were down 16 percent in the second quarter to $8.8 billion. That makes nine consecutive quarters in which “print revenues have declined at an almost continuously accelerating rate,” notes Alan Mutter at Reflections of a Newsosaur.

According to Bloomberg, global markets have lost $17 trillion since the market top in 2007, with global financial companies down 29%.

Bill Gross said during “Street Signs” Thursday that his firm would be staying out of any and all bank offerings for the foreseeable future. Banks the world over have raised $400 billion in capital, Gross said, and may need to raise much more.

The Bush administration has conducted an extensive spying operation on Prime Minister Nouri al-Maliki, his staff and others in the Iraqi government, according to a new book by Washington Post associate editor Bob Woodward.

"We know everything he says," according to one of multiple sources Woodward cites about the practice in "The War Within: A Secret White House History, 2006-2008," scheduled for release Monday.The book also says that the U.S. troop "surge" of 2007, in which President Bush sent nearly 30,000 additional U.S. combat forces and support troops to Iraq, was not the primary factor behind the steep drop in violence there during the past 16 months.

Rather, Woodward reports, "groundbreaking" new covert techniques enabled U.S. military and intelligence officials to locate, target and kill insurgent leaders and key individuals in extremist groups such as al-Qaeda in Iraq.

In a critical epilogue assessing the president's performance as commander-in-chief, Woodward concludes that Bush "rarely was the voice of realism on the Iraq war" and "too often failed to lead."

Interest-rate futures traders eliminated bets the Federal Reserve will increase its target interest rate by the end of the year as the Labor Department showed the U.S. unemployment rate jumped to 6.1% in August, the highest in above five years. As recently as Thursday, the December futures contract showed a 25% chance of a quarter-percentage point hike to 2.25%. Earlier this year, the futures market showed expectations of several increases from the current 2% target rate to combat inflation, but that is now seen as less likely in the face of a weakening job market.

At Thursday's close, the 50-day moving avaerage was below the 200-day moving average and the 50-week was approaching the 200-week moving average. This should be monitored

very diligently.

Chile's central bank raised its target interest rate to 8.25 percent, the highest in almost a decade, as policy makers step up the fight against inflation. Inflation reached a 13-year high of 9.5 percent in July.

Philippine inflation accelerated to the fastest pace in more than 16 years, adding pressure on the central bank to increase borrowing costs further in October. Consumer prices climbed 12.5 percent in August from a year earlier after rising a revised 12.3 percent in July.

It is important to note that Wal-Mart's reported same store sales are NOT adjusted for inflation. Hence, a gain of 3+% is simply no gain at all.

Russian Times: "The Russian Central Bank stepped into the market and sold up to $4 billion on Thursday to brake the ruble's fall, while shares went into free-fall despite a much-awaited shareholder peace deal on oil company TNK-BP.
The ruble fell as low as 30.41, its lowest since the current composition of the basket was set at 55 cents and 45 euro cents in February 2007.
The benchmark RTS Index closed 3.94 percent lower, at 1,526.57, less than a point above the intraday low that marked the index's weakest level this year. The RTS has not seen levels this low since October 2006.

Falling Western markets and fears that capital outflows could accelerate outweighed a long-awaited end to a conflict between BP and its local partners, which had played out in the international media and poisoned sentiment.

"It is easier to undermine investor trust than it is to revive it," said Alexander Orlov, head of research at Da Vinci Capital Management.

Over the past two years I have written many times about the decline in Mexico's Cantarell

oil field. Now Sean Broderick writes: "

Unlike a hurricane, this problem is not short-term, and in fact it will only get worse over time. I'm talking about the steep, sharp drop in production at Mexico's biggest oil field, Cantarell. I am getting increasingly frustrated by how little attention Americans are paying to this major crisis brewing in their backyard. So, I think maybe the mainstream news should start treating Cantarell the same way they do a hurricane. Maybe that would generate some attention! After all, Cantarell's decline has already cost us — 1.2 million barrels per day — the same amount we lost from Gustav.

The only difference: The Cantarell losses are permanent rather than temporary.

Mexico Is the World's #6 Oil Producing Nation;
Cantarell Provides Nearly 60% of Mexican Crude Oil Output

In July, output at Mexico's largest oil field, Cantarell, was off 37% from the year earlier period, dropping to 974,000 barrels per day (bpd). What's more, Cantarell's production has already been cut by more than half from its 2004 peak of 2.113 million barrels per day.

Since Cantarell is the biggest Mexican oil field by far, it is dragging down that country's production overall. Combined with Mexico's rising fuel consumption, the amount of oil that Mexico has to export to the U.S. is dropping like a stone.

I can't overstate the importance of Cantarell to global oil production and U.S. oil imports ...

Cantarell is a "supergiant" — as big as combining the four biggest oil fields ever found in the U.S. side of the Gulf.

As of June (the latest EIA statistics available), Mexico was the third-largest supplier of oil to the U.S. — behind Saudi Arabia and Canada — but that might not continue...

Mexico's crude oil production dropped 10% in the first seven months of 2008 to an average of 2.845 million bpd. Meanwhile, oil exports in the January-July period dropped 16.3% to an average of 1.443 million bpd.

In other words, Mexico's oil exports are dropping much faster than its production... A senior Pemex executive said in July that output at Cantarell would drop to just 600,000 bpd by 2012. At the current rate of decline (37%), Cantarell will probably hit that production level at the end of next year."

Those believing crude's drop is going to continue are fooling themselves. How much longer does Saudi Arabia want to get stuck with our drooping dollar? Are we going to take over Canada?

The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday. The delinquency rate, which measures mortgages that aren't in foreclosure but have at least one overdue payment, also was the highest ever recorded in the MBA's quarterly survey.

"While our cranes and materials processing and mining segments continue to perform better than our expectations, continued market softening and input costs in the aerial work platforms and construction segments in Western Europe and the United States are expected to more than offset those positive factors," said Ron DeFeo, Terex Chairman and Chief Executive Officer.

The FT reported National City, the US bank that has been among the hardest hit by the subprime crisis, is trying to reduce its exposure to the riskiest category of home loans by offering customers cash to close their untapped home equity lines.

Daniel Amerman: "Actual losses in the US real estate market are much higher than what you have been reading in the newspapers recently. Using a combination of official government statistics and the most widely used index of housing values, we will demonstrate that the US real estate market has lost a total of $6 trillion in value in the last two years. We will show that an average house that was worth about $226,000 in 2006 is, once you adjust for inflation, down to a real value of only about $160,000. To put what a $6 trillion loss is into perspective, we will show that when all factors are taken into account, the two year drop in US real estate values is equivalent to wiping out the entire retirement savings of all 78 million Baby Boomers, and annual housing losses are close to the annual GDP of China."

"You haven't heard a word about how we're going to deal with any aspect of the economy that is affecting you and your pocketbook day-to-day," Obama told reporters in York, Pennsylvania. "Haven't heard a word about it. I'm not exaggerating. Literally, two nights, they have not said a word about it."

The charge that McCain is ignoring the economy is also worrying some in the GOP. Republican strategists say that after a week of speeches focused largely on reform and national security, McCain's biggest hurdle remains the economy.

"I think it's the greatest challenge," former McCain adviser Mark McKinnon said, at a Thursday discussion looking ahead to the fall campaign, referring to economic and health care issues.

Republicans are trailing the Democrats in party identification and registration. Democrats have registered record numbers of new voters.

Boeing machinists will begin a strike at midnight after contract talks with a federal mediator failed, according to reports Friday.

October crude closed at a fresh five-month low of $106.23 per barrel on the New York Mercantile Exchange Friday, down $1.66 for the session to lose 8% for the week. Gold for December delivery closed down 40 cents at $802.80 an ounce on the New York Mercantile Exchange after trading as high as $823.10. Gold has lost $32.4, or 3.9%, in the week.

Another Big Down Day

9/5/08 Another Big Down Day

Dreamland news: For the last year, productivity increased to 3.4% from the previously reported 2.8%. This is the fastest annual increase in productivity in four years. Unit labor costs rose 0.6% year-over-year, compared with the previous estimate of 1.5%.

The Energy Information Administration estimates that heating oil prices are expected to reach $4.34 a gallon across the nation this year.

First-time claims for state unemployment benefits had their biggest jump in five weeks, the Labor Department reported Thursday. The number of initial claims in the week ending August 20 rose 15,000 to 444,000. It's the highest level since the week ended August 9. Claims in the previous week were revised to a decrease of 6,000 to 429,000 compared with the initial estimate of a fall of 10,000 to 425,000. The four-week average of initial claims fell 3,250 to 438,000. Meanwhile, the number of Americans receiving state jobless benefits held steady rose 6,000 to 3.44 million in the week ending August 23.This is the highest level since November 2003. The four-week moving average of continuing claims rose 33,250 to 3.4 million. This is also the highest level since November 2003.

U.S. private-sector employment fell 33,000 in August, according to a media report of the ADP employment index released Thursday. Analysts surveyed by MarketWatch were looking for a drop of 25,000. Adding in some 20,000 government workers typically hired in a given month, the ADP index suggests U.S. nonfarm payrolls fell about 13,000 in August.

Wal-Mart Stores Inc.said Thursday its August sales at U.S. stores open at least one year rose 3%, excluding fuel.

Korea Asset Management Corp's CEO Lee Chol Hwi told Bloomberg News in an interview that it may be "difficult" for the firm to buy assets from Merrill Lynch because of a difference in how the firms value the assets. ``We have been seeking to buy a significant amount, but a deal may be difficult at this rate," the CEO was quoted as saying. Lee also said Korea Asset may buy non-performing loans from Lehman Brothers and other companies, the report said. Korea Asset set up a 1 trillion won, or $871 million, fund to invest in bad debts in the U.S.

Toll's third-quarter net contracts -- after cancellations -- totaled 812 homes valued at $469.9 million. The figures are down 27% in units and 35% in dollars from the year-earlier period. Toll said that buyers canceled 195 contracts in the quarter, the lowest figure in nine quarters. At the end of the quarter, Toll had $1.5 billion of cash and more than $1.3 billion available under a bank-credit line maturing in March 2011. Debt at July 31 was 18% of total capital, the company's lowest historic level, Toll said.

Sweden's Riksbank on Thursday raised its repo rate by a quarter of a percentage point to 4.75% and said the lending rate is likely to remain unchanged for the rest of the year.

Boeing Co faces a walkout by 27,000 workers on Friday after members of its largest labor union rejected the planemaker's contract offer and voted to strike unless a compromise is reached in time.

The International Association of Machinists (IAM) said 87 percent of its members had voted to strike from midnight on Wednesday but would hold off for 48 hours to allow last-ditch talks to prevent an economically damaging strike.

Hurricane Gustav may be long gone, but more than a dozen Gulf Coast refineries remained shut down Wednesday, raising the specter of higher gasoline prices if the plants don't reopen soon.

Robert McHugh: "We are likely to see a large price move either Thursday or Friday, as we got an extremely small change in the McClellan Oscillator Tuesday and again Wednesday, and if wave 2 up is over, that move should be down. It is more and more likely that wave {c} of 2 up completed its Rising Bearish Wedge Tuesday, with the spike rally at the open, followed by the afternoon plunge. If so, it means the top of wave {c} is below wave {a}, a truncated rally. The 30 minute and 15 minute Full Stochastics argue there could be a decline in stock prices by the close on Thursday. The short-term EW labeling considers that a small degree wave 2 occurred Wednesday, meaning a bunch of waved 3's down could be next."

Brett Steenbarger: "News coming from the housing market has hardly been positive, but the homebuilder stocks seem to be looking beyond the current weakness. The rise in fixed income prices--the 10-year Treasury yield fell below 3.7% today--would seem to suggest economic weakness and a flight to safe yields. All the more interesting, then, that we're seeing relative strength among consumer discretionary and housing issues."

Between The Hedges: " I continue to see evidence of forced selling. I suspect the many hedge funds that had massively overweight commodities are seeing redemption notices right now, which is leading to pressure in many non-commodity stocks as they are forced to liquidate holdings to meet these redemptions. As well, margin calls are likely a factor. We should see the broad market lift when this forced selling subsides."

On Wednesday, Bloomberg reported Aluminum fell for an eighth day, the longest losing streak since 2001, on signs manufacturers are delaying purchases until economic growth improves. Nickel, copper and zinc advanced.

Stockpiles of aluminum climbed 2,650 metric tons, or 0.2 percent, to 1.17 million tons, the highest since April 2004, the London Metal Exchange said today. European company investment fell 1.2 percent in the second quarter, the first decline in five years, the European Union's statistics office said today.

George Ure: "Tomorrow morning we'll get the newest unemployment report. I expect it will be flat to maybe up a tenth. But, just between us, we know that one reason for the 'low unemployment rate is the multiple wars the West is waging. Drop those and I expect unemployment would be a full 2 percentage points higher and maybe 4. And remember, 'discouraged job seekers' (those who have run out of benefits) don't count. "

Through the Wednesday close, the S&P 500 has rebounded 4.9 percent from its 2008 low on July 15 as oil tumbled 21 percent. The index has still lost 13 percent this year as subprime-related losses at global banks climbed above $500 billion and the U.S. economy teetered on the brink of a recession.

Iran has invited Brazil to join the Organization of Petroleum Exporting Countries, Latin America News Digest reported Wednesday.

The New York Times reports:"Procter & Gamble, for example, has raised by 7 percent to 10 percent the prices it charges retailers for items made with ingredients derived from oil. The company is planning to maintain the increase 'to recover costs already incurred,' Paul Fox, a spokesman, said."

Nouriel Roubini: "

It is by now clear that the shopped-out, saving-less and debt-burdened US consumer is on the ropes and that there will be a significant and persistent contraction of real consumption for the next few quarters. About a dozen separate negative headwinds – to be described in detail in this note - are now hitting the US consumer while the positive effects on consumption of the tax rebates are already fading away.

That rebate boost was supposed to stimulate consumption until august of this year instead after a recovery of retail sales, real personal spending and consumption in April and May real retail sales and real personal consumption spending have fallen already in June and July. So consumers stopped consuming in spite of the tax rebates instead of spending such rebates (so far only 30% of them have been spent). This suggests that real consumption will certainly fall in Q3 and will continue to fall for a while into the middle of 2009. Real consumption did not fall in the 2001 recession and you have to go back to the 1990-91 recession to see a single quarter of negative consumption growth."

Natural-gas inventories rose by 90 billion cubic feet for the week ended August 29, the Energy Department said Thursday. That matched an estimate from analysts at Global Insight. Total stocks now stand at 2.847 trillion cubic feet, down 148 billion cubic feet from the year-ago level but 102 billion cubic feet above the five-year average, the government data said. October natural gas was down 16.2 cents, or 2.2%, at $7.102 per million British thermal units on Globex.

Steve Benen: "It started like a harmless joke, didn't it? Sarah Palin is from Alaska, Alaska is near Russia, and since Republican rhetoric has become breathtakingly ridiculous lately, some of us joked that Republicans might think the proximity between the state and the country counts as foreign policy experience. It was meant as satire. No one really expected Republicans to make the argument.
And yet, he we are. On ABC's "World News Tonight," none other than John McCain became the latest Republican to make the connection.
GIBSON: But as you know, the questions revolve really around foreign policy experience. Can you honestly say you feel confident having someone who hasn't traveled outside the United States until last year, dealing with an insurgent Russia, with an Iran with nuclear ambitions, with an unstable Pakistan, not to mention the war on terror?MCCAIN: Sure. And one of the key elements of America's national security requirements are energy. She understands the energy issues better than anybody I know in Washington, D.C., and she understands. Alaska is right next to Russia. She understands that."

Longtime Boca Raton homebuilder Oriole Homes Corp. filed an assignment for the benefit of creditors in Palm Beach County and plans to liquidate its assets.

A survey being released Thursday by the Mercer consulting firm found 59 percent of companies intend to keep down rising health care costs in 2009 by raising workers' deductibles, copays or out-of-pocket spending limits. On average, health care costs will go up by an estimated 5.7 percent next year for both workers and their employers, the study found. That repeats this year's 5.7 percent hike and a 6.1 percent jump in 2007.

The American Petroleum Institute reported Thursday a rise of 4.2 million barrels in crude supplies for the week ended August 29. The Energy Department had reported a decline of 1.9 million barrels for the latest week. Motor gasoline supplies were up 935,000 million barrels, the API said. The government had reported that supplies fell by 1 million barrels. Distillate supplies were down 157,000 barrels, the API said. They were down 400,000 barrels for the week, according to the Energy Department.

The Dow Jones Industrial Average dropped 344 points, or 3%, at 11,188, with 29 of its 30 components ending in the red. The Dow suffered its worst percentage drop since June 26. The S&P 500 index fell 38 points, or 3%, to 1,236, while the Nasdaq Composite slid 74 points, or 3.2%, to 2,259.

October crude fell $1.46, or 1.3%, to close at $107.89 per barrel on the New York Mercantile Exchange Thursday. Gold for December delivery slid $5, or 0.6%, to close at $803.20 an ounce on the New York Mercantile Exchange.

According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $4.732 billion in the week ended 9/3/08 with Domestic funds reporting net inflows of $5.621 billion and Non-domestic funds reporting net outflows of -$889 million;
Excluding ETF activity, Equity funds report net cash outflows totaling -$398 million with Domestic funds reporting net inflows of $170 million and Non-domestic funds reporting net outflows totaling -$567 million.

The People's Bank of China, China's central bank, has begun discussions with the finance ministry on ways to shore up its capital, The New York Times reported, citing three people familiar with the discussions. The move could makes it less likely that China will allow the yuan to continue rising against the dollar, and accepting an injection of capital from the finance ministry could reduce the independence of the central bank, the report said. The central bank is in need of capital because of its roughly $1 trillion purchase of U.S. Treasury bonds and Fannie Mae- and Freddie Mac-issued mortgage-backed debt, which have dropped in value in yuan terms.

Altria is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion, The New York Times reported on its Web site, citing people with close knowledge of the negotiations.

Thursday, September 04, 2008

20-Day Volume

9/4/08 20-Day Volume

Coca-Cola Co will pay $2.5 billion for Chinese juice maker Huiyuan (1886.HK), triple its value, strengthening the world's leading drinks maker's hold on a booming market in the biggest foreign takeover in China. The U.S. firm will pay HK$12.20 a share in cash -- 43 times Huiyuan's forecast 2008 earnings and nearly three times its Friday close of HK$4.14, sending the Chinese firm's shares up 170 percent.

China's big banks, having trimmed their holdings of U.S. mortgage-related debt, are facing increasingly difficult decisions about how to invest their sizable foreign-currency holdings.

Amid jitters about the future of Fannie Mae and Freddie Mac, China's four biggest listed banks have pared back their holdings in debt related to the two U.S. mortgage giants. At the end of June, the four banks held a combined $23.28 billion of debt issued or guaranteed by Fannie and Freddie. That's a small fraction of the trillions of dollars outstanding, but the reductions attracted interest as a possible gauge of broader sentiment toward such securities.

Barack Obama met the 50 percent threshold for the first time Tuesday in the Gallup daily tracking poll, a symbolic hurdle that until now had eluded the Democratic nominee.
The Gallup daily tracking poll has found that since the conclusion of the Democratic convention, Obama has risen 5 percentage points in the polls and now leads John McCain 50 percent to 42 percent.

Brett Steenbarger: "I see that Rennie Yang, author of the excellent Market Tells service, observes that 20-day volume in the stock market has made a seven-year low. "Once in 2004 and a couple of times in the 70's NYSE volume hit a three-year low," he observes, "but this is the first time in the last fifty years we've seen it hit a 5-year+ low. Volume is not just low, it's really low." Of course, it's not just that volume is low; it's that we are seeing reduced volume following a bounce from the mid-July lows. If you think in Market Profile terms, this means that higher prices are failing to attract participation--not something you'd expect to see if this were a fresh bull market leg."

U.S. companies' announced layoffs in August fell from July, but were running above the level set a year ago, suggesting persistent weakness in the labor market, a report released Wednesday showed.

Downsizing at U.S. companies last month totaled 88,736, 14 percent lower than in July, but 12 percent higher than August 2007, employment consulting firm Challenger, Gray & Christmas Inc. said.

"We have not seen this level of summer job cutting since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11 (attacks)," said John Challenger, chief executive officer of Challenger, Gray & Christmas, in a statement.

Year-to-date, planned layoffs total 667,996, up 29 percent from 515,855 during the same eight-month period in 2007.

The Korean won is now at a near four-year low against even the dollar and has fallen almost 21 percent in the past year, and 11 percent in the past three months, including a 9 percent drop against an anemic yen. Those who forecast it would end 2008 below 900 to the dollar now talk about 1200. For sure, the US dollar has been experiencing a revival against most currencies (China’s excepted) but that does not explain why Korea’s has been so hard hit even compared with Asian ones with far worse political problems and no better economics.

Almost every statistic that comes out of Korea is now treated as a horror story by the analysts from houses with fine records of losing other people’s money while paying themselves huge amounts.

Falling exports and lower household spending caused the euro economy to shrink by 0.2 percent in the second quarter, EU statistics showed Wednesday.

Oil analysts doubted that Opec would agree to an output cut at its conference in Vienna on September 9, but unease over the price fall is being seen even in Saudi Arabia, the most moderate Opec member. Saudi Aramco has been cutting the discount at which it sells Arab heavy, a poor-quality crude which it uses to calm the oil price, off- ering large quantities at big discounts.

Leo Drollas, of the Centre for Global Energy Studies, said: “[The Saudis] . . . fear heavy oil price falls. They are trying to anticipate that by not putting much oil on the market.”

Chris Mayer: "The Economist ran a good piece recently highlighting industry's reliance on water and water's relationship in producing so many goods. In Silicon Valley, for instance, 25% of the water use is for making computer chips. Across the country, 40% of the water drawn from lakes and aquifers goes toward cooling power plants. The link between water and energy is strong and largely unappreciated, but not by industry insiders.

"According to a recent survey by the Marsh Center for Risk Insights, 40% of Fortune 100 companies recognize that the impact of a water shortage on their businesses would be 'severe' or 'catastrophic.' "

Frank Barbera: "Since mid-July, stocks have experienced a lot of short term volatility with the DJIA posting 13 sessions of the last 30 days with daily closes in excess of 150 points up or down. Today, was more evidence of this wild volatility with the market soaring higher at the opening and then giving back all of the gains. Since roughly mid-July 18th to present, the net gain thru last Friday's close was only a gain of 47.39 DJIA index points -- how ironic. Essentially, stocks have been riding the roller coaster up and down, but overall have really been going nowhere fast. Unfortunately, this is not a good sign in the larger outlook for stocks as very substantial oversold conditions, which had previously built up going into the lows in March and in mid-July, are beginning to unwind without the market averages having made enough progress to reverse the larger bearish tide. This type of failing price action is indicative of bear market rallies, rallies ultimately pre-disposed to roll over into even larger declines."

Sales of new imported vehicles in Japan plunged about 40% in August for the fourth straight monthly decline, affected by high gasoline prices and an economic slowdown in the country, industry sources said Tuesday.
Sales excluding Japanese-brand vehicles built overseas fell nearly 30%, the sources said.

Core capital equipment orders rose 2.5%, the government said. Overall new orders rose 1.3% in July, compared with 1% expected by economists surveyed by MarketWatch. Orders for durable goods rose 1.3% in July, while orders for nondurable goods rose 1.2%.

Ford Motor Co said on Wednesday that sales fell 26.6 percent in August amid steep declines in large pickup trucks and SUVs, and cut its second-half production plans.

GMAC LLC said on Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 percent of that work force, and shut its 200 GMAC Mortgage retail offices as it combats weak credit and housing markets.

GMAC also plans to stop offering home loans through its Homecomings wholesale brokerage channel, and is evaluating strategic alternatives for its GMAC Home Services and noncore mortgage servicing businesses.

The "headwinds" facing the economy are much stronger than those experienced during the last credit crunch in the early 1990s, said Eric Rosengren, the president of the Boston Federal Reserve Bank on Wednesday. This credit crunch is likely to hit consumers as well as businesses. The last crunch primarily impacted small businesses, he said. It may push the unemployment rate up to 6%, with more than 2 million people losing their jobs since the financial turmoil began last summer, Rosengren said in a speech in New Hampshire.

"As we continue to compete against record foreclosures, higher than normal levels of resale listings and poor consumer confidence, the housing market remains challenging," Ara Hovnanian, chief executive of the company, said in a statement.

October crude fell 36 cents to close at $109.35 per barrel on the New York Mercantile Exchange. Gold for December delivery fell $2.3, or 0.3%, to end at $808.20 an ounce on the New York Mercantile Exchange.

Wednesday, September 03, 2008


9/3/08 Volatility

The Washington Post reported Alaska Gov. Sarah Palin employed a lobbying firm to secure almost $27 million in federal earmarks for a town of 6,700 residents while she was its mayor, according to an analysis by an independent government watchdog group...McCain's crusade against earmarks -- federal spending sought by members of Congress to benefit specific projects -- has been a hallmark of his campaign. He has said earmarks are wasteful and are often inserted into bills with little oversight, sometimes by a single powerful lawmaker...As mayor of Wasilla, however, Palin oversaw the hiring of Robertson, Monagle & Eastaugh, an Anchorage-based law firm with close ties to Alaska's most senior Republicans: Rep. Don Young and Sen. Ted Stevens, who was indicted in July on charges of accepting illegal gifts. The Wasilla account was handled by the former chief of staff to Stevens, Steven W. Silver, who is a partner in the firm.

Microsoft has released the second beta of Internet Explorer 8, the next version of its dominant Windows Web browser.

Liberty Shipping Group LLC on Tuesday offered $25.75 a share to buy International Shipholding Corp. The deal values International Shipholding at a 27% premium over its closing price of $20.25 a share on Aug. 29 for a total buyout offer worth about $308 million. Liberty Shipping Group currently owns and operates six U.S.-flag dry bulk vessels.

Gold futures Tuesday tumbled nearly $30 to below $810 an ounce as the U.S. dollar rallied, putting downward pressures on dollar-denominated gold prices. Gold futures for December delivery slumped $27.2, or 3.3%, to $808 an ounce in early electronic trading.

Brett Steenbarger: "With falling commodities and a strong U.S. dollar, stocks are finding some support; U.S. equities have been relatively strong compared with many global counterparts, particularly in Asia. Still, the weak money flow, lack of consistent trending across sectors, and modest new high/low strength have me questioning the upside, particularly if we make new price highs without meaningfully expanding those indicators."

Zman: " Computer models from Kinetic Analysis Corporation, a Silver Spring, Md.-based company, predict that 40% of Gulf of Mexico oil will be offline for 30 days and about 30% of natural gas will be offline for 30 days with marginal improvements after that. Estimate of 15% of U.S. refining capacity is off line due to the storm. Forecast is for rain, rain, and more rain through the end of the week. (VLO)’s 250,000 bopd St Charles refinery is relatively undamaged and has power. Valero plans further inspection work today before announcing a restart plan. (XOM) has shut its 503,000 bopd Baton Rouge refinery due to power loss. Refineries generally take several days to restart..Computer models developed by Kinetic Analysis Corporation, a Silver Spring, Md.-based company estimate that LOOP will be out of service for two or three weeks. ~ Forbes"

Hong Kong's purchasing managers index remained below the breakeven threshold of 50 for a second straight month in August, as output in the private sector fell at its fastest pace in more than five years, according to data released Monday by index compiler Markit Group Ltd.

Volatility: At the end of June the U.S. Natural Gas Fund (UNG) was $63. Two months later it is trading at $33+. During this time, natural gas dropped from $12+ to $7.40. The last time UNG traded at $33+ (Dec. 2007) natural gas was $6.50.

The ISM index inched lower to 49.9% in August from 50% in July. The new orders index rose to 48.3% in August from 45.0% in July. The price-paid index retreated in August.

Korea Development Bank is considering buying more than a 25% interest in Lehman Brothers with the Korean bank seeking enough of a stake to impact management, reported the Korean-language online news provider Edaily on Tuesday, citing a high-level financial industry official.

After a strong triple digit rally in the morning, the Dow Jones Industrial Average fell 26.38 points, or 0.2%, to 11,517.17. The S&P 500 declined 5.27 points, or 0.4%, to 1,277.56, while the Nasdaq Composite shed 18.28 points to end at 2,349.24.

October crude fell $5.75, or 5%, to close at $109.71 per barrel on the New York Mercantile Exchange Tuesday. Gold for December delivery slumped $24.7, or 3%, to $810.50 an ounce on the Chicago Board of Trade, the weakest closing level since Aug. 18.

Directors at three of the 12 Federal Reserve district banks voted in favor of hiking the central bank's benchmark interest rate by a quarter of one percentage point prior to the August meeting, according to documents released by the Fed on Monday.

Retail sales across the 15-nation euro zone fell more than expected in July, declining by 0.4% from June and decreasing by 2.8% from July 2007, according to data released Wednesday by the statistical agency Eurostat.

Rupert Murdoch is considering an acquisition of The New York Times, according to a report by Vanity Fair's Michael Wolff, who wrote a profile and interviewed the News Corp.chairman and chief executive.

Tuesday, September 02, 2008


9/2/08 The LOOP

Gerard Jackson: "As the world's largest economy by far, American monetary policy has had a detrimental effect on the world economy. The first thing to consider is the effect of monetary expansion on a country's price structure. Money is not neutral. This means that by increasing the quantity of money the pattern of spending changes in response to the emergence of new monetary streams. The necessary adjustment to the price structure that the monetary expansion causes is not sustainable. As soon as the monetary brakes are applied the price distortions reveal themselves in the form of bankruptcies, 'excess' capital and rising unemployment...By running current account deficits fuelled by 'cheap money' policies the US has, in my opinion, badly distorted the pattern of international trade by causing its trading partners to direct more resources into producing exports to the US. Just how bad this situation is we cannot know until the Fed puts and end to its loose monetary policy...the Fed's monetary policy artificially raised the prices of home-produced goods relative to foreign goods. In effect, this inflationary policy was the equivalent of taxing domestic products while subsidising foreign goods*. What to do? The sensible thing is to implement a sound monetary policy. As that is highly unlikely to happen the next best thing is for the government not to make matters worse by imposing tariffs and more taxes."

The Louisiana Offshore Oil Port, or LOOP, and Port Fourchon, which has historically been a land base for offshore oil support services in the Gulf, was directly in the path of Gustav and is expected to be damaged.

Matthew Simmons: "LOOP is the only facility in the Gulf to unload VLCC tankers which carry over 2 million barrels of crude. They can in theory be "litered" by unloading onto smaller tankers that can make it into the Gulf Coast ports but this is very lengthy timewise and the spare capacity of these smaller tankers is slim. We get about 1.2 million b/d of crude imports through Loop. (+/- 10%)."

The punch of Hurricane Gustav appeared to fall softly Monday on the nation's vast energy complex along the U.S. Gulf Coast, and was overshadowed by growing anxiety over the state of the global economy.

Even as 110 mph winds raked refineries that line the coast and rushed over the deep-water rigs off the shores of Texas and Louisiana, the price for a barrel of oil plummeted by more than $4 a barrel amid a broad sell-off in European and Asian markets.

The storm's impact on production platforms, drilling rigs and other equipment will not likely be fully known for another day or so.

Assuming no damage, it typically takes two to four days to restart a refinery, depending on its size. It can take a day or two to get offshore oil and natural-gas production going again. In 2005, hurricanes Katrina and Rita knocked out the region's offshore energy infrastructure for several weeks.

Transocean Inc., the world's largest offshore drilling contractor, said Monday afternoon it appeared its three moored, semisubmersible rigs in the Gulf remained anchored in position during the storm.

The U.S. military handed over control of once brutally violent Anbar province to Iraqi forces Monday — marking a major milestone in America's plan to eventually send its troops home.

Twenty-nine percent of people in their late 60s were working in 2006, up from 18 percent in 1985, according to the Bureau of Labor Statistics. Nearly 6 million workers last year were 65 or over.

Over the next decade, the number of 55-and-up workers is expected to rise at more than five times the rate of the overall work force, the BLS reported.

A slowing economy and stock market, squeezing funds set aside for retirement, also are contributing.

In an April survey conducted for AARP, 27 percent of workers age 45 and over, and 32 percent of those 55-64 said they had pushed back their planned retirement date because of the economic downturn. The telephone poll by Woelfel Research interviewed 1,002 respondents and carried a sampling error margin of plus or minus 3.1 percentage points.

"We have people who are healthier, who are living longer and have more economic reasons to stay in the work force," said David Certner, AARP's legislative policy director. "On the employer side, you have greater demand for experienced (older) workers. That all adds up to longer work lives."

U.S. crude oil futures fell as much as $3.51 to a session low of $111.95 per barrel in electronic trading Monday as Hurricane Gustav weakened to a Category 2 storm before making landfall in Louisiana. U.S. natural gas futures fell more than 5 percent in electronic trading on Monday as Hurricane Gustav weakened to a Category 2 storm.

Many of the world's wealthiest people have moved their money out of stocks and bonds and into cash, the head of HSBC's Swiss private banking unit said on Monday.

"The first half of 2008 has seen a notable change in client expectations and investment choices," said Peter Braunwalder, chief executive of HSBC Private Bank (Suisse), the British-based bank's main affiliate catering to the ultra-rich.

"Faced with inflation worries, volatile asset prices and sudden changes in exchange rates, a majority of investors have reduced their transaction volumes in equities, bonds, and structured products," he told a news briefing in Geneva.

Total British mortgage approvals fell to 33,000 in July from a downwardly revised 35,000 in June, the Bank of England reported Monday, setting another all-time low since the start of the statistical series in 1993.

Google Inc is set to introduce on Tuesday a new Web browser designed to more quickly handle video-rich applications, posing a challenge to browsers designed originally to handle text and graphics.

Google officials confirmed news of long-rumored plans to offer its own Web browsing software, entitled Google Chrome, in a company blog post after it mistakenly mailed details of the project to a Google-watching blog, called

Key evangelical leaders rallied to Sarah Palin's support Monday amid news that her 17-year-old daughter, Bristol, was having a child.

According to the FT, the stricken US mortgage market is set to suffer further setbacks in the next two years as $96bn of risky home loans sold with initial flexible payment options switch to more stringent terms.These will raise borrowers’ monthly payments by about 60 per cent.

The amount of money Mexicans sent home suffered its sharpest drop on record in July as the U.S. economy slowed and the dollar fell, Mexico's central bank reported Monday.

Iran is considering lopping three to four zeros off its currency, a top official said Monday, in an apparent effort to fight out-of-control inflation that many critics blame on the country's hardline president.

The governor of the Central Bank of Iran, Tahmasb Mazaheri, told state-run radio that monetary experts are studying three options: Cutting three zeros off the rial, cutting four zeros, or boosting each rial's value to one-hundredth of a gram of gold, or about 2,500 rials at current rates.

"We are studying all these three options," Mazaheri said on state-run radio.

The Iranian rial is now traded at 9,600 rials to one U.S. dollar. That compares with 70 rials against the dollar in 1979, the year an Islamic revolution toppled the pro-Western Shah Mohammad Reza Pahlavi.

Chesapeake Energy Corp.of Oklahoma City, the No. 1 U.S. natural-gas producer, agreed to sell 25% of certain shale assets to BP America for $1.9 billion, the companies said on Tuesday.

Worldwide sales of semiconductors rose 7.6% to $22.2 billion in July, or up 2.8% from June levels, the Semiconductor Industry Association said.

Producer prices in the 15-nation euro-zone rose at a monthly pace of 1.1% in July, bringing the annual rise to 9%, Eurostat reported Tuesday.

October light sweet crude futures traded down $6.89 at $108.58 a barrel in electronic trading on Tuesday, extending losses from Monday. The contract hasn't traded traded below $109 a barrel since April.

Monday, September 01, 2008

Labor Day

9/1/08 Labor Day

Rep. Ron Paul: " Removing governmental power to manipulate money, removes the temptation for government to spend, print and cheat. Sound money ensures that our government's spending priorities would be brought into sharp focus and reduced to only what we can afford.

Sound money also limits the ability to wage wars of aggression. Imagine how much more careful Washington would have to be about starting a war if they did not have this financial sleight of hand at their disposal! Fiat currency allows government do expensive things they should not be doing while paying the bills with cheap money. The Federal Reserve has lately been auctioning off large amounts of treasury bills as a way to finance the wars in Iraq and Afghanistan, and our crushing entitlement burden. The resulting devaluation of the dollar is quickly eroding our image as a good trading partner in the world. As a consequence, there is therefore more talk of economic isolation and war."

Obama leads McCain 49-41 percent in the most recent Gallup Poll daily tracking survey, which measured voter sentiment during a three-day period ending Aug. 28.

Brett Steenbarger: "Until we see greater evidence of sector strength and money flows, I will be viewing the recent market bounce as a countertrend rally in a broader bear market."

More than 75 percent of Gulf oil cut off for storm. The Gulf of Mexico area is home to a quarter of U.S. crude supplies and 40 percent of refining capacity.

Japanese Prime Minister Yasuo Fukuda announced his resignation in a news conference Monday night, news reports said. The surprise move comes as Fukuda wrestles with low approval ratings and an economy that's seen on the verge of recession. Fukuda didn't say when the resignation would take effect, the Associated Press reported.

Commerzbank said that it has agreed to buy Dresdner Bank from Allianz for 8.8 billion euros ($12.9 billion). Allianz will also receive a payment into a trust for specific ABS assets of Dresdner Bank of up to 975 million euros. 9000 jobs will be eliminated in the takeover.

The state-run Korea Development Bank of South Korea has not abandoned its efforts to buy a stake in Lehman Brothers, according to a report in the online edition of the Korea Economic Daily on Sunday, citing anonymous Korean government officials.

McCain canceled the first day of his Republican National Convention, and his campaign made plans to turn the gathering into a giant fundraiser as they braced for the fallout from Hurricane Gustav. Bush and Cheney both had earlier called off appearances.

Russia's Foreign Minister Sergei Lavrov warned the US and its allies that supporting Georgian President Mikhail Saakashvili would be a historic mistake, and called for an arms embargo "while a different government turns Georgia into a normal state".

Russia, the biggest market for American poultry exporters, will ban imports from 19 producers in the United States and warned on Friday that an additional 29 suppliers face a possible ban on health and safety grounds.

The ban will take effect Monday and includes three plants belonging to the meat giant Tyson Foods, Russia’s animal and plant health watchdog said, a day after Prime Minister Vladimir V. Putin first spoke of the measures.

“Joint Russian-U.S. inspections of U.S. poultry processing plants at the end of July and the beginning of August showed a number of inspected plants do not fully observe the agreed standards,” the watchdog, Rosselkhoznadzor, said in a statement.

“The inspection showed that many plants have not taken steps to eliminate faults discovered by previous inspections.”

Monday morning the National Hurricane Center downgraded Gustav to a Category 2 hurricane with top winds now at 110 mph.

Sunday, August 31, 2008

Reject Government Numbers

8/31/08 Reject Phony Government Numbers

Leaders of Boeing Co.'s Machinists union called Friday for a strike after rejecting the aerospace giant's "best and final" contract offer. They urged union members to reject the offer in a vote set for Wednesday.

Doug Noland: "First of all, I am certainly of the view that the economy is much weaker than the headline 3.3% growth rate. At the minimum, I am skeptical that the 1.2% annualized increase in the GDP price index accurately captures what I believe is a significant inflationary component in current “output”. It is worth noting that the favored inflation gauge of Greenspan and the Fed, the PCE Deflator, was up 4.5% from a year earlier, the strongest year-over-year increase since 1991...the growth in Fannie and Freddie’s Combined Books of Business slowed sharply to a 3.7% rate during July, the slowest pace in two years. And while there is nothing really in the works to compare to the abrupt Credit tightening that emanated from collapsing subprime and Alt-A securitization markets, I’ll argue today’s tighter Credit is a more subtle dynamic resulting from various types of lending institutions restricting, on the margin, loans to even prime Credits...The private mortgage marketplace self-destructed, and now the entire “prime” mortgage/housing market is dependent upon ongoing cheap mortgage finance available only through American taxpayer backing and subsidies. The private sector simply cannot today – or at any time in the foreseeable future - provide the hundreds of billions of cheap ongoing new mortgage Credit necessary to forestall a systemic housing/economic/financial collapse. There will be no happy “recapitalize and privatize” ending to this saga. The bill to the taxpayer is now growing rapidly – along with GSE exposure – and will balloon into the trillions over the coming years and decades. And for how long the holders of GSE debt and MBS will be allowed such handsome returns at taxpayer expense is a quite intriguing question...there are some very dangerous “Ponzi Finance” Dynamics Still very much At Play. The most obvious resides with the GSEs. And there are closely related Bubbles throughout the agency and Treasury bond arena. Meanwhile, a view has gained adherents that the U.S. economy is actually in much better shape than Europe and elsewhere. The reality that Europe is not buoyed by their own government-sponsored mortgage behemoths and that their economies are more manufacturing based (and thus vulnerable to cyclical downturns) are only short-term relative disadvantages."

Commerzbank AG is close to buying Allianz SE's Dresdner Bank for about 9 billion euros ($13.3 billion) in a deal that would create Germany's largest bank by customers and branches, surpassing Deutsche Bank AG, two people with knowledge of the matter said.

John Mauldin: "Banks in the US are going to need to roll over almost $800 billion dollars in medium-term debt in the next 16 months. Banks borrowed heavily in 2006, a lot of it in 2-3 year floating-rate notes, and now they must refinance those notes. Say a bank borrowed at LIBOR plus 50bps. In today's environment, many banks are not going to be able to borrow at such low rates. Remember the two Ohio banks mentioned earlier? These regional banks will have to pay spreads of 7-9%, based on the price of their debt today. If you have to pay 12% to borrow money when prime is at 5% and you are lending at 6-8%, you clearly cannot make a profit. That means they will have to sell assets or raise very expensive equity capital.

There are a lot of small and regional banks that are in trouble. The FDIC has a list of 117. Out of (I think) 8500 banks that does not sound bad. But remember, Indy Mac, which failed a few months ago, was not on that list. Banks can get into trouble rather quickly if they cannot raise capital, sell assets, or borrow money due to perceived distress.

The problem is that these banks will have less money to lend and will be calling loans from otherwise good customers, which of course makes the economic situation even worse. It is a vicious cycle."

John Ing: "Market sentiment indicators showed commodities were simply overbought after reaching record highs. As a result, traders exited en masse when key chart support levels broke down. We also believe that the correction was due to commodity players who earlier drove up prices to record highs unwinding speculative positions as they sought to raise liquidity and pay for huge redemptions. In addition, the normal seasonal slowdown in the commodity markets made the moves much more exaggerated as over-leveraged hot money hedge players took profits to offset their dreary bets. We also believe the $7.5 billion bankruptcy of big oil player SemGroup LP depressed the oil markets as bankers unwound their positions. (SemGroup had hedged 21 million barrels of oil.)

But is this really the end of the boom? We think not. The super cycle in commodities is not even half over. This secular bull is intact. The fundamentals such as tightening supply/demand conditions remain. Indeed, the pullback has sparked such a run on physical gold supplies that the U.S. Mint suspended and then rationed American Eagle gold coin sales for the first time in two decades due to depleted stocks. Big gold banks such as HSBC and UBS also reported healthy demand for physical gold.

The laws of supply and demand have not been suspended. The lack of excess capacity, not speculation, is one of the major drivers, particularly since continued strong demand from fast growing Asia will support higher commodity prices. The demand destruction for oil in the U.S. is offset in part by growing Asian demand and by the fact that inventories, particularly in the U.S. have fallen to low levels. The other driver remains the U.S. dollar. And America's insatiable need to borrow to finance both consumption and Wall Street's bailouts will ensure the dollar rally is short-lived.

Our view is that a correction was needed, and provides a classic buying opportunity."

Giovanna Negretti: "I find it incredibly startling that McCain would choose a person he hardly knows for a job as important as the Vice Presidency of the United States. It is so obvious that he is doing this as a political tactic that it makes me question his judgment. Is that the way he will make decisions about our economy, our security, our well-being as a nation? If, God forbid, Senator McCain dies during his presidency then he will entrust this nation with a person with zero foreign affairs experience, whom he hardly knows to be the Commander in Chief? How irresponsible is that?

I can appreciate that this is a historic moment for women but what is insulting and shameful is that it comes as a result of political tactics and not merits. As a woman, I am insulted. I can't help but asking how does he dare insult the intelligence of millions of women who voted for Clinton with this tactic of trying to appeal to them by choosing a woman with no qualifications as a vice presidential candidate. What does he think, that women are stupid? Or is he implying that people supported Hillary just because she was a woman? People supported Hillary because they thought she was the best qualified person for the job. It just so happened that she was a woman, which made the decision to support her even more exciting."

According to the FT, Gordon Brown’s authority as British prime minister suffered a further setback when his own chancellor admitted on Saturday that Britain was facing its worst economic crisis in 60 years.

In an interview in Saturday’s Guardian newspaper, Alistair Darling admitted that he had been taken by surprise by the credit crunch, warning that the economic downturn would be more “profound and long-lasting” than most people had feared.

Dell warned that companies worldwide are cutting back on technology spending.

The mayor of New Orleans ordered a mandatory evacuation of the city as Hurricane Gustav neared. Gustav weakened slightly after slamming Cuba and entering the Gulf of Mexico, but forecasters warned the storm would regain strength. The Category 4 hurricane may slam into the Louisiana coast as early as Monday.

Mike Burk: "The market is playing a disappearing act. Volume and new highs are at their lowest levels in years. Identifying strength or weakness under these conditions is challenging...On July 15 there were 1304 new lows on the NYSE, a record. After every record or, with only one exception, after every time there were even half as many new lows as we saw on July 15 there has been a retest of the low by the blue chip indices. A retest of the July 15 low in the next several weeks is likely...On August 31, 1998 there were 1183 new lows on the NYSE, a record that held until last July. On October 10, 1998 there was a retest of the August 31 low on the retest there were 930 new lows and NY NL was considerably higher at the time. After the August 31 low the Fed opened the spigots and money supply was growing at a 24% annualized rate at the time of the October retest...By all measures the market has been up about 60% of the time during the coming week with modest gains."