Saturday, October 18, 2008

Housing Numbers Worsen

10/18/08 Housing Numbers Worsen

John Adams: "All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation."

Housing starts slowed 6% to a 817,000 annualized pace last month, the lowest in 17 years, the Commerce Department said. Starts of single-family homes tumbled 12% to 544,000, the lowest since February 1982. The September estimates were much worse than the annual rate of 870,000 that was expected by economists. Building permits fell 8.3% to 786,000, a 27-year low. Permits for single-family houses fell 3.8% to 532,000, the lowest in 26 years. The declines last month reflected weakness in all parts of the country. It was led by a 7.7 percent drop in the Northeast, where construction of single-family units dropped to the lowest level on record.
With mortgage rates moving sharply higher and banks unwilling to lend, I see no reason for housing starts to improve in the short run.

Richard Daughty: "Non-Borrowed Reserves in the banks now going to a NEGATIVE $363.1 billion! Free Reserves in those same banks has collapsed to a NEGATIVE $407 billion!

With those numbers as a reference, you will be absolutely astonished at the sheer corruption of the Fed and the banks to learn that the Required Reserves in the same banks is back down to a paltry $43 billion, which is the same, laughable bit of chump change that has been the Required Reserves since the '90s! Some things never change! Hahaha!

I heard the sound of my own laughter, and I was delighted to learn that I could still laugh at such things, even considering my highly agitated state, made more so by seeing that the national debt surged $121 billion last week (last week!) to $10.245 trillion! Trillion!

If ever there was a case where circumstances shouted, "Buy gold and silver or die a horrible death by the ruinous inflation of a fiat currency in the hands of giant, corrupt government and its greedy friends!" this is it."

“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”

U.S. stock indexes futures added to early Friday losses after data showed a large drop in housing starts and building permits for September. Down 106 points before the report, futures for the Dow Jones Industrial Average [$indu] were down 137 points at 8,829. Those for the S&P 500 dropped 12.9 points to 928.1, while Nasdaq 100 futures were off 24.25 points at 1,298.75. After 90 minutes of trading the averages were pretty much unchanged.
It's possible that option expiration is influencing today's results.

Opec said on Thursday that it will now meet next week to discuss production quotas after a commodity sell off in recent weeks left Nymex West Texas Intermediate 76 per cent off its $147 July peak. It has decided to reschedule its extraordinary meeting for Oct. 24 rather than Nov. 18 as previously announced.

Brazil and Argentina have launched a new payment system in their bilateral trade, doing away with the US dollar as a medium of exchange.
Exports and imports between the two countries will take place with the Brazilian real (BRL) and the Argentine peso (ARS).

Thomas Jefferson: "If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."

Schlumberger Ltd.said third-quarter net income rose 13% to $1.53 billion, or $1.25 a share. Revenue climbed to $7.26 billion from $5.93 billion. Analysts polled by FactSet had expected a profit of $1.25 a share. Fourth-quarter activity may be limited both by the recent rapid deterioration of credit markets and by the strengthening production of North American natural gas. Schlumberger said it anticipates a slowing in the rate of increase of customer spending in 2009, but said the weakness of the current supply base, the age of the production profile and the decrease in reserve replacement are such that any significant drop in exploration and production investment would rapidly provoke an even stronger recovery.

Honeywell sees 2008 sales of $37.2 billion and earnings per share in the range of $3.76 to $3.80.

The 15-nation euro zone saw its external trade gap widen sharply in August to 9.3 billion euros ($12.5 billion) from a revised 2 billion euros in July, the statistical agency Eurostat reported Friday.

The Nikkei 225 Average rose 3.6% to 8,763.71 a day after it tumbled 11.4% to register its biggest single-day decline since the 1987 crash, while the broader Topix index jumped 4.2% to 900.50. Australia's S&P/ASX 200 index added 2.1% to 4,096.10 and New Zealand's NZX 50 index advanced 2.6% to 2,835.90.

People's regard for the Republican presidential nominee has deteriorated across-the-board since September, an Associated Press-Yahoo! News poll showed Friday, with McCain losing ground in how favorably he's seen and in a long list of personal qualities voters seek in White House contenders.

Perceptions of Obama have improved or remained steady. Beyond views of the two rivals' character traits, McCain faces another problem — Obama is more trusted on the economy, the contest's commanding issue, including a 15-percentage-point edge for better grasping how the raging financial crisis is affecting people. Six in 10 of those whose feelings have worsened are McCain backers. The new AP-Yahoo! News poll of likely voters, conducted this month by Knowledge Networks, shows more people viewing McCain favorably than unfavorably by just 5 percentage points, down from a 21-point difference in mid-September.

Toyota will begin to offer “zero percent” financing on a number of its models.

The Oil Drum: "Oil consumption in the U.S. has fallen by 1.8 million barrels a day (b/d) or nearly 9 percent as compared to last year due to a combination of high prices, a slowing economy, and the shortages resulting from the hurricanes that tore up Gulf coast production and refining last month. During September, however, Chinese imports increased by 2 million b/d as Beijing took advantage of the low prices to start building its strategic reserves -so much for falling American demand. The major oil forecasting agencies are now saying that the increase in worldwide demand for oil will slow from rates seen in recent years, but that worldwide oil consumption is still forecast to increase this year and next."

U.S. investors seem to only consider demand in our country and fail to realistically focus on world-wide demand for crude and natural gas. This is a major error.

According to the NY Times, with the unemployment rate rising and a recession mentality gripping the country, more families are applying for federal aid for students attending college.

Washington Post: "THE NOMINATING process this year produced two unusually talented and qualified presidential candidates. There are few public figures we have respected more over the years than Sen. John McCain. Yet it is without ambivalence that we endorse Sen. Barack Obama for president.

The choice is made easy in part by Mr. McCain's disappointing campaign, above all his irresponsible selection of a running mate who is not ready to be president. It is made easy in larger part, though, because of our admiration for Mr. Obama and the impressive qualities he has shown during this long race. Yes, we have reservations and concerns, almost inevitably, given Mr. Obama's relatively brief experience in national politics. But we also have enormous hopes."

The San Francisco Chronicle recommends Barack Obama for President.

The current financial crisis has destroyed more than $2 trillion of the wealth held in retirement plans, according to Congressional Budget Office estimates. Even before that loss, Americans weren't saving enough to maintain expected standards of living in their senior years. One-fifth of workers over age 45 have quit adding to their 401(k)s.

On Oct. 16, the Social Security Administration (SSA) announced that beneficiaries will get a 5.8 percent cost-of-living increase in their checks next year. That's the largest such rise in a quarter-century.

The average retiree will get an additional $63 per month, according to the SSA.

A new AARP survey of workers over 45 years of age found that 65 percent believe they will have to work longer if the economy does not improve. In this demographic cohort, whose youngest members can just begin to see retirement glimmering on the horizon, fully 69 percent added that it is likely they will spend less after they stop working, unless in the meantime good times return.

Furthermore, 13 percent of workers older than 45 already are withdrawing money from retirement accounts to pay for day-to-day expenses, according to AARP. Twenty percent have stopped contributing to retirement accounts within the past year – unwilling to, in their view, throw good money after bad.

Ballooning food costs, mass layoffs, a dismal economy, rising waste-hauling charges and high fuel prices are making 2008 the worst the year for full-service restaurants—sit-down places to you and me—since 1980, according to industry-watcher Technomic in its latest report.

Rob Hanna: "The VIX put in a huge spike yesterday to another new high. The SPX manage to hold above its recent low before rebounding. Below I looked at long-term VIX spikes that were not accompanied by long term SPX lows and performance moving forward:In the past there this particular setup has provided traders an upside edge."

U.S. money market fund inflows rose $58.38 billion in the week to Oct. 14, led by an increase in government institutional funds, which gained $26.04 billion in assets, the Money Fund Report said on Wednesday.

It was the third consecutive weak of net inflows, following a $49.4 billion rise last week. Last week's gain was approximately four times the previous week's sum and followed record outflows of $120.5 billion three weeks ago.

In 1933 Congressman Louis T. McFadden said: "Every effort has been made by the Federal Reserve Board (FED) to conceal its powers, but the truth is-the FED has usurped the government. It controls everything here (in Congress) and it controls all our foreign relations. It makes and breaks governments at will." "We met Beri Fox, a small business owner from Paden City, West Virginia, who voted for Bush twice but is supporting Barack Obama this time. Fox, who owns a glass manufacturing company in her Ohio River town, told us that her industry had been decimated by overseas competition. "Do you know how many glass manufacturing companies there used to be? 250. Then it dropped to 100. Today," she paused, "there are seven." Fox is supporting Obama because the economic trickle down policies Republicans have promulgated for thirty years haven't worked."

In West Virginia Democrats have 20 open offices, over 30 paid staff and thousands of volunteers. (McCain, by contrast, has one Charleston office open and one paid staffer.)

Michael Kilbach: " In the year 2000 it took roughly 40 ounces of gold to buy one share of the Dow Jones industrial average. Today it takes roughly 10 ounces of gold to buy one share of the Dow Jones. In other words, relative to gold, the Dow Jones has lost roughly 75.5% of its value."

Michelle Leder: " The folks at Insider Score are out with a new report that says 26 companies have disclosed margin call related sales totaling more than $1.16 billion. “However, our figure includes only those sales that have specifically been disclosed as margin sales and we continue to believe that an additional $200M in sales disclosed since October 1st were margin call related. We also believe that we will see additional margin call related sales from insiders” the subscription-only report notes."

Gap management reiterated that it expects to generate $1 billion in free cash flow for fiscal 2008. If the shares were to decline to the $10 level, I believe they would be worthy of consideration.

Michael Panzer: "The Treasury Department announced that net foreign purchases of U.S. financial assets -- equities, notes and bonds -- rose from $8.57 billion in July to $13.98 billion in August. Although seemingly good news on its face, the increase was less than half of what economists were anticipating, according to Bloomberg. In addition, the pattern of running 12-month total inflows has remained fairly subdued following the break below a multi-year uptrend that occurred just over a year ago."

U.S. consumer sentiment dropped in October, according to a media report on the University of Michigan/Reuters index released Friday. The index fell to 57.5 in October, compared with a reading of 70.3 in late September. Economists surveyed by MarketWatch were expecting an October result of 64.5.

Bertrand Russell: "Dread of disaster makes everybody act in the very way that increases the disaster. Psychologically the situation is analogous to that of people trampled to death when there is a panic in a theatre caused by a cry of `Fire!"

Gold for December delivery slumped $26.40, or 3.3%, to $778.10 an ounce on the Comex division of the New York Mercantile Exchange. The contract has lost nearly $80 this week, or more than 9%, its biggest weekly percentage loss since at least 1984, according to FactSet Research.

Crude oil for November delivery rose $3.94, or 5.6%, to $73.72 a barrel in electronic trading on Globex.

The Obama campaign announced Friday that it is asking Attorney General Michael Mukasey to turn over any investigations of voter fraud or voter suppression to Special Prosecutor Nora Dannehy.

The Dow Jones Industrial Average fell 127.04 points, or 1.4%, to end at 8,852.22, giving the blue-chip index a weekly gain of 4.7%. The S&P 500 declined 5.87 points, or 0.6%, to 940.56, up 4.6% from last Friday's close. The Nasdaq Composite dropped 6.42 points, or 0.4%, to finish at 1,711.29, tallying a weekly gain of 3.7%.

About 250,000 voters have been added to the Missouri rolls since January, many — perhaps most — in the urban areas of Kansas City and St. Louis, where Mr. Obama is expected to win by overwhelming margins.

“I’ve never seen this kind of infrastructure being laid down, registering new voters,” said Clint Zweifel, a Democratic state representative who is running for state treasurer. “It’s pretty overwhelming, the operation.”

Missouri, the crossroads between three distinctive regions, has supported the presidential winner nationwide all but once in the last 100 years, and Republican officials here say Senator John McCain cannot afford to lose the state.
But the Democrats’ grass-roots effort, along with the bad economic news, may be paying off. Mr. Obama has pulled even with Mr. McCain in the latest CNN/Time/Opinion Research poll, released on Tuesday. David Robertson, a political scientist at the University of Missouri-St. Louis, said he believed that the state was now leaning toward Mr. Obama, and that support for Mr. Obama “could be changing before our eyes.”

Thursday, October 16, 2008

Money Flows

10/17/08 Money Flows

Nouriel Roubini: "At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow - a V-shaped six month recession - has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession - like the one experienced by Japan after the bursting of its real estate and equity bubble - cannot be ruled out.

"At this point the risk of an imminent stock market crash - like the one-day collapse of 20% plus in U.S. stock prices in 1987 - cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

"A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway."

Brett Steenbarger: "Institutional investors and traders are transacting more volume on downticks than upticks--not something we'd expect to see if they were finding value at lower prices and accumulating stocks...only 646 stocks made new 20-day lows on Wednesday, much lower than the 5000+ new lows at the recent market lows. I'm watching closely to see how indicators hold up on any further test of lows and might even nibble at the long side if we see sectors holding up well. Still, that will be a trade rather than an investment as long as money flows stay negative."

Japanese Prime Minister Taro Aso said Thursday the U.S. bank bailout was insufficient to quell investors' fears and the lack of confidence is contributing to the renewed plunge in global stock markets.

Mutual-fund investors pulled an estimated $13.9 billion from U.S. and international stock funds in the week through Oct. 15, or only about one-third of the $43.3 billion exodus in the prior week, TrimTabs Investment Research reported Thursday.

The Federal Reserve had extended $784.5 billion in special liquidity programs to the financial system as of Wednesday, up $104.6 billion from the previous Wednesday.

The new cost-of-living increase, to be announced Thursday by the Social Security Administration, is expected to be above 5.5 percent. That would make it the largest increase since a 7.4 percent jump in 1982. The increase for 2008 was 2.3 percent.
A 5.5 percent increase would mean about $60 a month more for the average retiree.

Fixed mortgage rates posted the biggest one-week jump since April 1987, according to Bankrate Inc.'s survey released Thursday. The average conforming 30-year fixed mortgage rate jumped to 6.74% from 6.20% a week ago, while the average 15-year fixed mortgage rate rose to 6.40% from 5.95% a week earlier. Adjustable mortgage rates also increased, with the average 5/1 ARM soaring to 6.61% from 6.21%.

Hershey forecast 2008 per-share profit towards the lower end of the $1.85 to $1.90 range with sales rising 3% to 4%. Next year's per-share profit will increase at a rate below its long-term target of a 6% to 8% growth because of higher commodity prices, Hershey said.

For the year Baxter expects to earn an adjusted $3.35 to $3.37 a share on sales -- excluding foreign-exchange effects -- up 5% to 6%.

Harley-Davidson expects to report full-year earnings of $3.00 to $3.10 a share, compared with its previous forecast of $3.00 to $3.18.
The Nikkei fell 11% to 8,658.The Hang Seng fell 7.6% to 14,786. The Shanghai Composite moved down by 3.8% to 1,919. In Europe, the FTSE opened down 2.5% to 3,980. The DAX fell 5.1% to 4,617. The CAC 40 was down 5.2% to 3,207.

United Technologies sees annual earnings between $4.90 and $4.95 a share.

According to the FT, a group of the largest US hedge funds has called on the Bank of England to intervene to free an estimated $65bn (£38bn) in assets frozen in London in the collapse of Lehman Brothers, warning that delays “could be disastrous for UK plc”.

The funds, through the Managed Funds Association, said the scale of the problem was so great that it could undermine bank rescue plans as tens of billions of dollars would be kept out of the market. It was also likely to lead to the failure of some fund managers, said Richard Baker, chief executive of the MFA.

"There are times when you need to run up the deficit and this is one of them," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan group in Washington that came up with the $1 trillion estimate. "But we ran them up when we did not need to, and we have no plan to stop running them up. We have become serial deficit spenders."

The cost of living in the U.S. was unchanged in September, restrained by plunging fuel costs and decreases in automobile prices and airline fares that signal the slowing economy is starting to cool inflation.

No change in prices, less than the 0.1 percent increase anticipated by the median estimate of economists surveyed, followed a 0.1 percent drop the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.
The September level of 218.783 (1982-84=100) was 4.9 percent higher than in September 2007. The motor fuel index declined 0.8 percent in September but was 31.8 percent higher than a year ago. The latest three month food annualized rate rose 8.7%.

U.S. stock futures added to early gains on Thursday after economic data showed U.S. consumer prices contained in September. Up 52 points before the government report, futures for the Dow Jones Industrial Average rose 149 points to 8,653. Those for the S&P 500 gained 18.5 points to 921.8, while futures for the Nasdaq 100 added 24.5 points to 1,253.5.However, after the first 90 minutes of trading, the Dow was down 325 points, the S&P 35, and the Nasdaq 48.

Wealthy people are buying gold, cash and government bonds -- at the expense of the modern art, private planes and yachts which were more in vogue during the boom years, private bankers and asset managers said at the Reuters Wealth Management Summit this week.

Grupo Modelo, S.A.B. said Thursday it has filed a notice of arbitration against Anheuser-Busch Cos. A-B prepares to merge with brewing rival InBev S.A.Mexico's Modelo is apparently concerned about what will happen to A-B's interests in Modelo following the merger. "As set forth in the notice of arbitration, the Investment Agreement, which is governed by Mexican law, prohibits Anheuser-Busch from taking actions that would result in a transfer or disposition of its interests in Grupo Modelo and Diblo to a competitor in the beer business," Modelo said.

Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by TrimTabs shows.

South Korea's won slumped by the most since the International Monetary Fund bailed the nation out in 1997, after Standard & Poor's said banks may struggle to refinance their debt.

The Kospi stock index tumbled as much as 10 percent, the biggest drop since September 2001, as S&P said it may cut credit ratings for Kookmin Bank and six other financial companies. The cost of protecting South Korean government debt from default rose. The won fell 9.7 percent to 1,373 per dollar as of the 3 p.m. close, Seoul Money Brokerage Services Ltd. said. The currency's 32 percent slump this year threatens to increase the cost of financing dollar-denominated debt.

"Letters of credit and the credit lines for trade currently are frozen," Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company, said in Singapore yesterday. "Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay."

The maritime sector needs about $300 billion over the next three to four years to fund construction of vessels that are already on order, according to Nordea Bank Finland Plc. At least a quarter of container ships, dry-bulk vessels and oil tankers on order are not financed, according to Seaspan Corp., the Hong Kong-based ship lessor.

Nucor declined to provide an earnings estimate for the fourth quarter, given the economic turmoil surrounding the global credit crunch. "The business environment has obviously become significantly more challenging for everyone including Nucor," the company said. "These conditions are such that financial projections are not practical."

Danaher said it would cut more than 1,000 jobs and close a dozen facilities to cut costs.

Stocks in Russia tumbled 9% Thursday, forcing the RTS and the Micex stock exchanges to suspend trading for an hour.

Elisa Parisi-Capone: "Large global banks themselves have gone from being hedged players to taking on net credit risk exposure in the wake of securitization and structured finance but they at least have access to unlimited Fed liquidity. Pension funds are among the main net protection buyers."

The number of air-traffic passengers declined in August for the first time since 2003, according to the International Air Transport Association, an industry trade group.

Conditions in the manufacturing sector in the Philadelphia region deteriorated significantly in October, the Federal Reserve Bank of Philadelphia reported Thursday. The Philly Fed diffusion index fell to negative 37.5 in October from positive 3.8 in September. The new orders index dropped to negative 30.5 from 5.6, while the shipments index fell to negative 18.8 from 2.6. Inflationary pressures eased. The prices paid index dropped to 7.2 from 31.5.

Industrial production in the U.S. fell in September by the most in almost 34 years as hurricanes and an aircraft strike combined with the credit crunch to weaken manufacturing.

The 2.8 percent decrease in production at factories, mines and utilities exceeded forecasts and followed a revised 1 percent decrease in August, the Federal Reserve said today. For the third quarter, output fell at an annual rate of 6 percent, the biggest decline since 1991.

Initial jobless claims hit 461,000 in the most recent week, down 16,000 from the previous week, according to government data released Thursday. The four-week average was up slightly to 483,250. Continuing claims hit 3.7 million, a new recent high.

Natural-gas inventories rose by 79 billion cubic feet for the week ended Oct. 10, the U.S. Energy Department said Thursday. Analysts at Global Insight expected a climb of 85 billion. Total stocks now stand at 3.277 trillion cubic feet, down 87 billion cubic feet from the year-ago level but 85 billion cubic feet above the five-year average, the government data said. November natural gas was up 1.4% at $6.685 per million British thermal units on Globex.

Short-term credit in the commercial paper market declined in the past week by $40.3 billion, or 2.6%, to $1.55 trillion, the fifth straight decline, the Federal Reserve said Thursday.

The Securities and Exchange Commission has extended the duration of its short selling disclosure rules in what it says is reaction to worries about market volatility. In an interim rule issued Wednesday, the SEC said the new rule will be effective until Aug. 1, 2009.

Crude supplies rose for a third week, up 5.6 million barrels for the week ended Oct. 10, according to the Energy Department Thursday. Motor gasoline supplies climbed 7 million barrels. Distillate stocks were down a seventh week, by 500,000 barrels. Refinery utilization was at 82.2% compared with 80.9% of capacity a week earlier. Following the news, November crude was down 4.5% at $71.21 a barrel on Globex.

Google Inc., owner of the most popular Internet search engine, said third-quarter profit climbed 26 percent. Profit was $4.92 a share, beating the $4.75 average estimate of analysts in a Bloomberg survey. Total revenue climbed 31 percent to $5.54 billion. Google, rose $21.39, or 6.1 percent, to $374.41 in extended trading after closing at $353.02 on the Nasdaq Stock Market. The shares have dropped 49 percent this year. In the U.S., Google fielded 63 percent of online searches in August, double the market share of Yahoo! Inc. and Microsoft Corp. combined. ``The economic situation is so fluid that we're all sort of in uncharted territory,'' Chief Executive Officer Eric Schmidt said on a conference call. ``We've always been in this for the long term, and we believe that's even more important today than ever.''

Ambac Financial Group Inc., the second-largest bond guarantor, jumped 48 percent after saying it will present a rescue plan to the Treasury Department.

The S&P 500 advanced 38.59 points, or 4.3 percent, to 946.43. The Dow rallied 401.35 points, or 4.7 percent, to 8,979.26( after being down 380 at one point). The Nasdaq Composite jumped 5.5 percent to 1,717.71.

Merger discussions between General Motors Corp. and Chrysler LLC are picking up pace as the two sides are seeing strong support from banks and other potential lenders that are eager to see a deal done, The Wall Street Journal reported Thursday in its online edition.

November crude closed at $69.85 per barrel Thursday on the New York Mercantile Exchange, down $4.69, or 6.3%. It was the weakest closing level for a front-month contract on Nymex since Aug. 23, 2007. Gold for December delivery lost $34.50, or 4.1%, to end at $804.50 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing level since Sept. 7.

Microsoft Corp. issued a statement Thursday that it has "no interest in acquiring Yahoo," after the software giant's CEO had suggested that a merger would make sense for shareholders. "There are no discussions between the companies," Microsoft said in its prepared statement.

Russian medium-sized bank Globex has frozen early withdrawals from fixed-term deposit accounts for five days, the Moscow Times reported Thursday.

The doom and gloom mood in the U.S. home building industry worsened in October as fears about credit availability sent the home builders' sentiment index down to a record low, an industry trade group reported Thursday. The National Association of Home Builders/Wells Fargo index fell three points to 14 in October, two points below the previous low, NAHB said. The survey has been conducted monthly for 23 years. "Not surprisingly, builder confidence has taken a heavy hit from the recent financial market crisis," said Sandy Dunn, president of the NAHB and a builder from Point Pleasant, West Va.

The credit crunch underway in the U.S. economy may restrain economic growth by a greater amount that the previous episode in the 1990s, Gary Stern, the president of the Minneapolis Federal Reserve Bank said Thursday.

Morgan Stanley Chief Executive Officer John Mack said Thursday that he believes the world is in a recession and is headed for a deepening economic slowdown.

According to AMG Data Services, including ETF activity, Equity funds report net cash outflows totaling -$9.899 billion in the week ended 10/15/08 with Domestic funds reporting net outflows of -$4.447 billion and Non-domestic funds reporting net outflows of -$5.452 billion; Excluding ETF activity, Equity funds report net cash outflows totaling -$14.222 billion with Domestic funds reporting net outflows of -$9.215 billion and Non-domestic funds reporting net outflows totaling -$5.007 billion;

Excluding ETF activity, Non-domestic funds hold 24% of weekly reporting assets and are reporting 35% of the net outflows.

More Bad News

10/16/08 More Bad News

Nouriel Roubini said the U.S. will suffer its worst recession in 40 years, driving the stock market lower after it rallied the most in seven decades yesterday.
``There are significant downside risks still to the market and the economy,'' Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. ``We're going to be surprised by the severity of the recession and the severity of the financial losses.'' The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent.

Mike Shedlock: "In addition to the capital infusions, which will be made this week, the government said it would temporarily guarantee $1.5 trillion in new senior debt issued by banks, as well as insure $500 billion in deposits in noninterest-bearing accounts, mainly used by businesses.
All told, the potential cost to the government of the latest bailout package comes to $2.25 trillion, triple the size of the original $700 billion rescue package, which centered on buying distressed assets from banks...And so here we are. The Fed slashed interest rates to 1.50% and banks are unwilling to lend.
All the Fed and Treasury have accomplished so far was to put over a trillion dollars of taxpayer money at risk, and in doing so caused long term interest rates to spike up. This of course puts still more pressure on the housing sector. Someone needs to tell Paulson to go to hell."

Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes.

Ludwig von Mises: "The date on which the bank's obligations fall due must not precede the date on which its corresponding claims can be realized." Only thus can the danger of insolvency be avoided."

Gold for December delivery rose $7.10,or 0.8%, to $846.50 an ounce in early electronic trading.
Oil futures fell 4% early Wednesday, pressured by worries that the global financial crisis will lead to a sharp slowdown in global economic growth and thus hurt demand for oil. Crude oil for November delivery fell $2.99 to $75.59 a barrel in electronic trading on Globex.

J.P. Morgan Chase's third-quarter net income for the three months ended Sept. 30 fell 85% to $527 million, or 11 cents a share from $3.4 billion, or 97 cents a share in the year-ago period.

Coca-Cola Co.'s third-quarter net profit rose 14% to $1.89 billion, or 81 cents a share, from $1.65 billion, or 71 cents a share, in the year-earlier period.

Lufkin Industries raised its 2008 earnings from continuing operations view to a range of $5.65 to $5.85 a share, up from $5.50 to $5.70.

The Central Bank of Iceland cut its interest rates sharply, by 3.5% to 12%.

Rio Tinto PLC said Wednesday output of iron ore rose to a record in the third quarter. Production of the steel making ingredient rose 17% to a record 48 million tones, Rio Tinto said in its quarterly production report. Output of aluminum climbed 371%, uranium rose 13% and mined cooper fell 7% on year, the company said in a filing to Australian securities regulators. The company noted a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the “vast majority of Chinese aluminium producers are now making operating losses.”

The Nikkei 225 Average fell 0.7% to 9,381.73, a day after it surged a record 14.2%, while the broader Topix index slid 1.4% to 942.52. Australia's S&P/ASX 200 lost 1.5% to 4,271 and New Zealand's NZX 50 index gave up 1.1% to 2,916.97. South Korea's Kospi dropped 2.1% to 1,338.46.

A recent survey by Workplace Options said that nearly 50% of US workers fear for their jobs

Libor, the interest rate that banks charge each other to lend, dropped 16 basis points today, to settle at 4.64%. But Libor still has a long way to drop before it hits anything near normal levels. Before Lehman Brother’s bankruptcy, Libor traded around 2.8% and historically, it trades near the Fed Funds rate, which is currently 1.5%.

Rob Hanna: "On Monday the Nasdaq rose over 11% yet the volume was the lowest in 5 days. Previously, the largest percent gain accompanied by a 5-day low in volume was under 6%...I’d be wary of further gains on low volume. I’d also continue to watch volume for clues at a time when price action is incredibly volatile."

Less than two hours before the start of trading, Dow Jones Industrial Average futures were 89 points lower at 9273. The S&P 500 futures slipped 8.3 to 994, and Nasdaq 100 futures were flat.
At the end of the day, the Dow Jones Industrial Average fell 733.08 points, or 7.9%, to 8,577.91. The S&P 500 was off 90.17 points, or 9%, to stand at 907.84( which is within three points of where it closed last Friday). The Nasdaq Composite declined 150.68 points, or 8.5%, to 1,628.33.

US investors pulled a record $65bn out of mutual funds in the week to last Friday, as their losses mounted from failing stock and bond markets.

Two-thirds of the money was drawn from equity funds, which saw outflows of close to $9bn on Friday alone. Equity funds have had outflows of $56bn during October so far – the largest monthly drop since records began almost 20 years ago, according to TrimTabs, which tracks fund flows.

A Times/CBS News poll found that 53 percent of voters would choose Barack Obama and 39 percent would choose John McCain if the election were today.

Wells Fargo says third-quarter profit fell 23 percent as it took losses on investments in troubled financial companies. Results, however, topped analysts expectations.
The San Francisco bank says it earned $1.64 billion, or 49 cents per share, compared $2.17 billion, or 64 cents per share, a year earlier. The bank says total revenue rose 5 percent to $10.38 billion.
Thomson Reuters says analysts had expected a profit of 41 cents per share on revenue of $10.96 billion.

Prices paid to U.S. producers fell in September for a second consecutive month on lower fuel costs, while the rate excluding food and energy rose more than economists forecast.

The 0.4 percent drop followed a 0.9 percent decline in August, the Labor Department said today in Washington. So-called core producer prices that exclude fuel and food increased 0.4 percent from a month earlier, double economists' projections. After this report was released, futures for the Dow Jones Industrial Average fell 239 points to 9,123. Those for the S&P 500 dropped 27.5 points to 974.80, while Nasdaq 100 futures were off 22 points at 1,344.

Abbott Laboratories reported a 51 percent rise in third-quarter profit Wednesday, citing double-digit sales increases for its prescription drugs, medical devices and nutritional products, and raised its 2008 earnings forecast.

U.S. retail sales fell 1.2% in September, the biggest drop in three years and the third decline in a row, a further sign that the economy has sunk into a recession led by an exhausted consumer.

U.S. businesses added to their inventories in August as their sales slumped, the Commerce Department reported Wednesday. Sales fell 1.8%, the biggest decline in two years, while inventories rose 0.3%. The key inventory-to-sales ratio ticked up to 1.27 from 1.24 in July, a sign that inventories are building up from very low levels. Inventories at retail auto dealers plunged 1.6%.

Manufacturing activity in the New York area deteriorated sharply in October, the New York Federal Reserve Bank said Wednesday. The bank's Empire State Manufacturing index fell to a record negative 24.6 in October from negative 7.4 in September. The new orders index also fell to a record low, and the indexes for shipments, unfilled orders, and inventories all declined sharply.

World oil demand growth for next year has been revised down by 100,000 barrels a day to show a growth of 800,000 barrels a day, the OPEC cartel said in its monthly oil market report. "In 2009, reduced economic growth outlook is expected to continue impacting oil demand," OPEC said. "Hence, oil demand in the USA will be lower than initially expected, at least in the first half of the year. The likely spillover to other economies will affect oil demand elsewhere to some degree."

Hungary's stocks and currency tumbled Wednesday, as worries intensified about the health of the banking system of the Eastern European country. In Budapest, the BUX stock index fell 12% in intraday trade. The Hungarian currency, the forint, dropped 5% against both the euro and the U.S. dollar.

JP Morgan thinks investors will buy bullion as a haven from risk, boosts 2008 target to $904 and 2009 to $875. Other metals - such as silver, platinum and palladium - may not fare as well, firm says. Considering tha gold is trading at $855, Morgan's targets are of little or no value.

Commodity shipping rates plunged to the lowest in more than five years as a lack of trade finance left cargoes stranded and the global economic slowdown limited raw material demand.

Traders are finding it harder to get letters of credit that guarantee payments for goods, shipping executives said. Together with a slowdown in trade, that has contributed to this year's 82 percent drop in shipping costs for grain, coal and other commodities. Rates are so low that Zodiac Maritime Agencies Ltd., the line managed by Israel's billionaire Ofer family, announced today it may idle 20 of its largest ships.

This may prove an excellent time to be a contrarian and buy some futures on shipping rates. An alternative might be a scale-down buy program in Dryships starting at $20+.

The president of Toyota Motor said the business environment has deteriorated beyond earlier expectations and predicted the key North American car market would remain sluggish through next year.

Katsuaki Watanabe told reporters that he was worried the financial market turmoil originating in the United States was starting to impact economies worldwide. Demand in emerging markets has been slower than expected, he said.

Shares of Jones Apparel Group Inc. hit a 12-year low Wednesday morning after the apparel maker lowered its profit outlook for the year amid a deteriorating consumer spending climate.

Shares plummeted as low as $9.26 in morning trading, their lowest level since late 1995. The stock recently traded down $3.40, or 25.2 percent, at $10.12.

The New York-based apparel company, whose brands include Nine West, Anne Klein and Gloria Vanderbilt, said late Tuesday that it expects to earn 93 cents to 98 cents per share for the year, lower than the previously estimated range of $1.20 to $1.35 per share.

According to SurveyUSA, Obama is leading by an average of 23 points among early voters in NM OH, GA, NC and IA, states which went to George W. Bush by an average of 6.5 points in 2004. According to a study by Kate Kenski at the University of Arizona, early voters leaned Republican in both 2000 and 2004; with Bush earning 62.2 percent of their votes against Al Gore, and 60.4 percent against John Kerry. In the past, early voters have also tended to be older than the voting population as a whole and more male than the population as a whole, factors which would seem to cut against Obama or most other Democrats.

I expect the Democrats to have 58 or more seats in the 2009 Senate.

Gold for December delivery closed down 50 cents at $839 an ounce on the Comex division of the New York Mercantile Exchange. November crude fell $4.09, or 5.2%, to close at $74.54 per barrel Wednesday on the New York Mercantile Exchange.

A broad slowdown in economic activity was underway by the end of September, according to the latest report on economic activity, known as the Beige Book, released by the Federal Reserve on Wednesday. Consumer spending was down in most regions. Factory activity was also slow. Even more worrisome was the downturn in "nonfinancial services," which has been the backbone of economic activity. At the same time, credit was scarce as banks tightened standards due the financial market stress. Inflation pressures did ease a bit. Labor market conditions also deteriorated. The agricultural sector was one bright spot, the report said. The Fed will meet on October 28-29 to set monetary policy. The financial market is expecting another interest rate cut.

EBay Inc warned on Wednesday that its full-year revenues would fall below its previous forecast as the Internet company restructures to reinvigorate growth in its main online auctions business.

The company's shares fell 12 percent in extended trading.

Japan's Nikkei ends morning 9.6% down at 8,635.56. The benchmark Hang Seng Index was indicated to open more than 1,000 points lower, with the oil and gas sector expected to lead declines after crude oil prices fell $1.42 to $73.12 a barrel in electronic trading in late morning trading in Tokyo. Australia's S&P/ASX 200 index lost 5.3% to 4,074 and New Zealand's NZX 50 index gave up 4.3% to 2,779.55. South Korea's Kospi slumped 6% to 1,259.39.

The U.S. economy likely won't improve significantly for at least another year, the No. 2 leader at the Federal Reserve said Wednesday, echoing equally dour comments from his boss earlier in the day.

Switzerland gave UBS AG, the European bank with the biggest losses from the credit crisis, a $59.2 billion bailout and pushed Credit Suisse Group AG to raise funds

Citigroup Corp.said Thursday it lost $2.8 billion, or 60 cents a share, including a $4.4 billion pre-tax write-down in its Securities & Banking unit, in its fiscal third quartet ending Sept. 30. Citi also reported $4.9 billion in net credit losses, and a $3.9 billion net charge to increase loan loss reserves.

Merrill Lynch & Co. reported a third-quarter net loss of $7.47 billion, or $5.58 a share, wider than the loss of $2.2 billion, or $2.82 a share, registered in the same period during 2007.

The Bank of England will launch a new discount window facility on Monday that will let banks borrow U.K. government bonds or cash against a wide range of collateral in an effort to provide liquidity insurance to commercial banks in the event of stress, the central bank announced Thursday.

Tuesday, October 14, 2008

An Economy Without Capital

10/15/08 An Economy Without Capital

U.S. Treasury Secretary Henry Paulson’s sweeping measures to bailout the financial system will probably fail, Marc Faber, editor & publisher of the Gloom, Boom and Doom Report, tells CNBC's Asia Squawk Box. The proposed $250 billion infusion into financials is meaningless -- merely a drop of water on a hot stove, Faber, popularly known as Dr. Doom says. These measures do not address the fundamental problem.

The Oil Drum: "It is not a coincidence that just as we are hitting peak oil, world monetary systems seem to be edging toward collapse. Monetary systems are debt based, and depend on growth to continue. Resources are finite, and we are reaching limitations on them. Many of us have predicted that monetary systems may collapse, either as we approach peak oil, or shortly after peak oil. I have talked about the connection between peak oil and monetary system collapse in a number of posts."

Obama holds double-digit margins over McCain in Minnesota, Michigan and Wisconsin and carries a nine-point advantage over his Republican rival in Colorado, according to polling conducted by Quinnipiac University for and the Wall Street Journal.

Obama's ascendancy in these key states mirrors his growing lead in national polling. The latest Washington Post/ABC News survey put Obama at 53 percent to McCain's 43 percent, while the daily Gallup tracking poll showed Obama holding a similar lead of 51 percent to 41 percent on Monday. The Marist Poll reported Monday that the presidential race across Ohio “is no longer a statistical dead heat.”

Among registered voters, Obama now outpaces McCain 48 percent to 40 percent. Among likely voters including those who are undecided yet leaning toward a candidate, Obama has 49 percent compared with 45 percent for McCain.

According to the WSJ, in recent days, Steven Cohen, the hedge-fund manager who runs the $14 billion SAC Capital Advisors, moved about half his funds, or about $7 billion, into money-market and other short-term securities, eliminating much of his fund's exposure to the stock market, says a person close to the fund. Mr. Cohen plans on sitting on the sidelines for the rest of the year -- trading a small portfolio himself.

Tesoro's CEO became one of the latest corporate chiefs to sell shares in their companies to meet margin calls.

Cadbury on Tuesday announced 580 job cuts.

So far this year, the average hedge fund is down 17 percent, about half as much as the Standard & Poor’s 500-stock index.

China's trade surplus with the United States held steady at $17.5 billion in September, the national customs agency announced Tuesday.

The surplus matched the $17.5 figure for August, showing the resiliency of exports despite fears of a downturn in key markets. China's exports to the U.S. over the first nine months of the year grew by 11.2 percent over the same period last year, while imports increased by 22.1 percent, the agency said.

A day earlier, the government said China's global trade surplus — the amount that exports exceed imports — in September hit a new monthly high of $29.3 billion. The trade gap is fueling demands by the United States and the European Union for Beijing to lift trade barriers and loosen currency controls.

Beginning October 27 the Commercial Paper Funding Facility (CPFF) will fund purchases of commercial paper of 3 month maturity from high-quality issuers.

The dollar index, which tracks the performance of the greenback, fell 0.6% to 80.87.

Ingersoll-Rand Co.said Tuesday it was cutting its third-quarter earnings estimate from continuing operations due to a sharper-than-expected downturn in the global economy. For the recent quarter, the Hamilton, Bermuda company lowered its estimate to a range of 98 cents to $1.00 a share from a prior range of $1.05 o $1.10 a share.

As we move into the reporting of quarterly earnings, it will be interesting to see the volume of companies reducing their estimates for the third and fourth quarter and possibly for part of 2009. Then P/E ratios can be adjusted for 2009 and even 2010 and we'll see whether equities are truly undervalued or even fairly valued. Lower earnings mean lower tax payments and possibly larger state and federal budget deficits leading to increased borrowing needs and eventually higher interest rates, which are already taking place.

Gold prices could hit $1,500 as global plans to rescue the financial industry are set to increase inflation pressures, according to analysts led by Francisco Blanch at Merrill Lynch.

In early Tuesday trading the Dow gained almost 400 points and quickly lost all but 100 points of the rise. After 90 minutes of trading the Dow, S&P, and Nasdaq were all in negative trading. Was Monday a one-trick pony? Tuesday trading was highly volatile. The Dow Jones Industrial Average was up as much as 700 points and down nearly 300, the blue-chip index closed at 9,310.99, off 76.62 points, or 0.8%. The S&P 500 dropped 5.35 points, or 0.5%, to 998.0, while the Nasdaq Composite shed 65.24 points, or 3.5%, to finish at 1,779.01

George Magnus: "Even if a financial meltdown is averted, we should be under no illusion that the deleveraging in the financial and household sectors will stop. As a result, four big battlegrounds remain. First, there is a high possibility of further bouts of financial stress and failures. Money markets are still broken and recovery will take time. Second, illiquidity, a preference for cash-type instruments, even over government bonds, and a considerably ex­panded supply of government bonds raise the threat of an untimely increase in bond yields. Third, the global recession that has started may yet turn out to be sharper than expected – and certainly longer. This will bring sustained, and some new, credit risks. Fourth, much slower growth and the risk of some home-made financial crises in emerging markets warrant close scrutiny."

Steve Saville: "Always bear in mind that the government doesn't have any real savings of its own, so the only way the government can help an unhealthy corporation is to divert savings away from healthy corporations. This diversion often occurs via inflation (increasing the money supply), and is therefore unseen by most observers.

We can't say for certain that the actions being taken to counteract the financial crisis will lead to a drawn-out economic depression, but we can say that the actions greatly increase the risk of such an outcome. Furthermore, we can say that similar policy moves have, in the past, been followed by drawn-out economic depressions."

Thomas Tan: "How long will this bear market last? Well, 1930s great depression caused a bear market lasting over 2 decades, from 1929 to 1952. It was only until 1958 that market came back to the old 1929 peak, 3 decades later. And 1970s was not much better, lasting 14-16 years from 1966 or 1968 to 1982. Even bear market ended quicker for 1970s, it was until 1992 or 24 years later to reach 1968 peak. My most optimistic forecast is it will last another 4-5 years from now, or about 12 years if we count year 2000 as the starting point. If we use the commodity super-cycle by Jim Rogers, which usually runs opposite to the general equity market and lasts until 2020 as Jim predicts, it will be also a 2 decade bear market for equities, consistent with both 1970s and 1930s. When will S&P 500 be back to last October peak? At least 24 years from 2000, or 2024. A few chart technicians today think Dow can drop all the way to $1,000, back to the 1982 level. Even it is possible, but I think it might bottom at one of the lower Fibonacci level between $14,000 and $1,000. Which one of them is yet to be seen in future years but my guess is around $4-5,000...Pretty soon, people will realize holding cash in US dollar is also not right due to quick deterioration of US dollar. The current rise in US dollar is due to short term disappearance of money supply since no bank wants to lend any money out. Once the government socializes the banking industry and flooding the system with worthless paper, people will downgrade US treasuries before rating agencies do, since US government is buying and holding the worst quality mortgages and CDOs dumped by the banks."

Clif Droke: "'The men and women who control U.S. monetary policy display a clear lack of concern for free enterprise and by all appearances are more interested in furthering the interests of the corporate statists than of the smaller businesses that form the backbone of the domestic economy.

What is needed here is a growth-oriented monetary policy and it's questionable that Mr. Bernanke is the right man for the job. He has been painfully slow in responding to the crisis every step along the way. He's had several opportunities to avert disaster before the crisis began spiraling downward, beginning with last year, and yet he mostly chose to sit back and do nothing. Only when the market forced him to act has he responded and half-heartedly at that. At times it has seemed that he wanted the credit crisis to inflict maximum damage."

In a letter to GM car dealers, the financing arm says only those shoppers with credit scores above 700 will be approved for loans. I wonder if GM could qualify for a car loan?

"I've seen a lot of crisis, but I've not seen anything quite like this one," Paul Volcker said in a speech in Singapore. "I don't think we can escape damage to the real economy. I think we almost inevitably face a considerable recession."

Rep. Ron Paul: "Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital."

The U.S. federal government budget deficit widened to $455 billion in fiscal 2008. The deficit widened from 1.2% of gross domestic product in 2007 to 3.2% in 2008, the largest deficit since 3.6% in 2004. The deficit was $162 billion in 2007. Excluding the surplus of $183.3 billion from Social Security and other trust funds, the on-balance deficit soared to $638 billion from $343 billion last year.

Genentech Inc reported on Tuesday that sales of its cancer drug Avastin topped Wall Street estimates and its shares rose more than 3 percent, despite third-quarter earnings that fell short of analyst expectations due to higher costs.

Japan's Topix index loses 1.8% to 939.22 in early minutes.

Intel Corp.CEO Paul Otellini said Tuesday that the financial crisis is "creating some signs of stress that may impact our business."

November crude closed at $78.63 per barrel Tuesday on the New York Mercantile Exchange, down 3.2%, or $2.56. Gold for December delivery fell $3, or 0.4%, to end at $839.50 an ounce on the Comex division of the New York Mercantile Exchange. Gold has fallen $67 in the past four sessions.

Obama leads Republican presidential nominee John McCain 50 percent to 41 percent among likely voters, a Bloomberg/Los Angeles Times poll shows. That's more than double Obama's advantage from a month ago.

Iran will face a budget deficit if crude oil prices decline to $70 a barrel, citing a former Iranian oil minister. “Previous governments sought to decrease Iran ’s dependence on oil revenue but these efforts were not pursued by the current government,” said Bijan Namdar Zanganeh. Iran “cannot live with oil at $70 a barrel,” said Namdar Zanganeh, who was oil minister for eight years until 2005.

Big Green Numbers

10/14/08 The Big Green Numbers

The Dow Jones Industrial Average gained 936.42 points, or 11.1%, to end at 9,387.61, its greatest daily point jump ever and its 5th-largest daily percent gain. The S&P 500 [$spx] rose 104.1 points, or 11.6%, to end at 1,003.32. The Nasdaq Composite climbed 194.75 points, or 11.8%, to end at 1,844.25.

Peter Marshall: “When we long for life without difficulties, remind us that oaks grow strong in contrary winds and diamonds are made under pressure”

A Citigroup analyst late Monday issued a dour outlook for the U.S. economy, writing in a note to clients that the recent crisis has "broken the bounds of any previous, merely cyclical event." Citigroup analyst Steven Wieting wrote that tightening financial conditions and weakening economic activity are expected to continue, and suggest "a more severe recession." Wieting wrote that even if "traction is eventually regained," he is nonetheless expecting contraction in the U.S. GDP over the four quarters ending in the second quarter of 2009. "We believe large company profits will now fall 27% peak-to-trough, and the unemployment rate to peak above 8 1/2%," Wieting wrote.

The U.S. government is poised to buy preferred equity stakes in nine top financial institutions as part of its new comprehensive plan to battle the credit crisis, The Wall Street Journal reported late Monday. In addition, the centerpiece of its latest effort is a plan for the Treasury to take about $250 billion in equity stakes in potentially thousands of banks by mobilizing funds from the $700-billion bailout package, the Journal said, citing people familiar with the matter. The Federal Deposit Insurance Corporation is also expected to temporarily extend its backstop to new senior preferred debt issued by banks and thrifts for three years and temporarily lift the insurance limits for non-interest bearing bank deposit accounts, according to the newspaper.

Brett Steenbarger: "The huge volatility (with a 1000 point Dow range on Friday) offers both risk and opportunity to daytraders; the indiscriminate selling offers risk and opportunity to longer term investors. We're seeing a healthy bounce before the open on Monday, which might start a process of base building; I will need to see evidence of a drying up of selling pressure before concluding that the worst is over for stocks. Thus far, every indicator tells us that weakness has been expanding, not drying up."

Rob Hanna: "It’s late Sunday night and the S&P futures are up over 4%. Typically when the market gaps up by massive amounts it tends to pull back at some point in the next few days. Below are listed all instances where the SPY gapped up by 2% or more. In 19 of 20 cases it posted a close below the gap open within the next 5 days."

Frederic Ruffy: "Contrary-minded investors might find some reassurance from the fact that the VIX, the sentiment surveys, and the overall action in the options market suggest that bearishness and pessimism has reached levels considerably higher than at the market bottom following the 49 percent decline in the S&P 500 from March 24, 2000 to October 9, 2002."

European central banks have promised unlimited dollar funding in a coordinated action with the US Federal Reserve. The European Central Bank, Bank of England and Swiss National Bank said they were ready to inject as much as needed into the markets for dollars funding covering periods of seven days, a month and 84 days.

Karl Marx: “The meaning of peace is the absence of opposition to socialism.”

According to the FT, Santander of Spain, the biggest bank in the eurozone, is poised to buy the three-quarters of Sovereign Bancorp of the US it does not already own in an all share deal worth around $1.8bn, according to bankers familiar with the negotiations.

The likely term of exchange is one Santander share for 3.4 shares in Sovereign. Based on the two banks’ closing share prices on Friday, the deal would give Sovereign an equity value of about $2.4bn.

According to a new Washington Post-ABC News poll, overall, Obama is leading 53 percent to 43 percent among likely voters, and for the first time in the general-election campaign, voters gave the Democrat a clear edge on tax policy and providing strong leadership.

The poll was conducted after Tuesday night's debate, which most voters said did not sway their opinions much. Still, voters' impressions of Obama are up, and views of McCain have slipped. Nearly two-thirds of voters, 64 percent, now view Obama favorably, up six percentage points from early September.

Ninety percent of Americans now see the country as headed in the wrong direction, the worst rating in polls dating to 1973.

Iceland has suspended trading on its stock exchange for the third consecutive trading day, citing "unusual market conditions."

Richard Shaw: "When the stock market moves away from historical norms, it tends to overshoot. The modern low on the Graham P/E was 6.6 in July and August of 1982, and it has sunk below 10 for several long stretches since World War II -- most recently, from 1977 through 1984. It would take a bottom of about 600 on the S&P 500 to take the current Graham P/E down to 10. That's roughly a 30% drop from last week's levels; an equivalent drop would take the Dow below 6000.

Could the market really overshoot that far on the downside? "That's a serious possibility, because it's done it before," says Prof. Shiller. "It strikes me that it might go down a lot more" from current levels.

In order to trade at a Graham P/E as bad as the 1982 low, the S&P 500 would have to fall to roughly 400, more than a 50% slide from where it is today. A similar drop in the Dow would hit bottom somewhere around 4000."

The cost of borrowing in dollars for three months today fell to 4.75 percent from 4.82 percent, the highest this year. The rate for euros over the same timeframe declined to 5.32 percent from 5.38 percent. On foreign exchange markets, the dollar dropped as much as 0.9 percent against the euro, declining o $1.3671. Stocks rallied worldwide and the MSCI World Index climbed 2 percent.

If bank solvency risk should decline as the government offers protection, at what price will this occur? Is this the end to the free market system?

Interim Assistant Secretary for Financial Stability Neel Kashkari told a bankers' group Monday morning that Treasury is designing a program to purchase equity in a broad array of financial institutions. The program will be voluntary and designed with attractive terms to encourage healthy firms to participate, he said.

MUFG has acquired $7.8 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $25.25 a share. Under the revised terms of the deal, MUFG also gets $1.2 billion of non-convertible preferred stock with a 10% dividend. This investment gives them a 21% ownership stake in Morgan Stanley.

The hedge-fund industry may lose as much as one-fifth of its $1.93 trillion in assets by the end of the year as markets decline and investors withdraw their money, according to Commerzbank AG.

In the early part of 2008 when crude rose to $80, gasoline was $2.40 at the pump. Now it's back to $80 and gasoline is $3.30 at the pump. I don't hear Congress screaming about the disparity.

Tesoro Corp. said Friday that it expects third-quarter earnings per share in the range of $1.70 to $1.90, which includes an approximately 29 cents per share after-tax last-in-first-out benefit.The stock is selling under $10 and down from $65. You think there is value here?

Sometimes it's better to buy the company instead of just the stock.

Alexis de Tocqueville: “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”

Russian equities fell 7% in intraday trading Monday after local stock markets had stayed closed during the previous session. Trading on the RTS stock market reopened at 10:30 a.m. Monday. The dollar-denominated RTS stock index dropped 6.5% in intraday trading.

Vishay Intertechnology Inc.said Monday that it has ended its bid to acquire International Rectifier Corp. and will return tendered shares to their holders. "As we have consistently said, we can not pursue our proposal in the face of opposition from a board of directors that has refused to engage in any discussion with us regarding our offer," Vishay said in a press release.

Analysts at Goldman Sachs slashed their year-end forecast for oil prices to $70 a barrel from $115 a barrel previously, saying that "we clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand." Jeffrey Currie and other Goldman analysts wrote in a research report dated Oct. 13 that "the timing of the trough, however, remains highly uncertain as credit issues have created significant distortions in demand and production, inventory management and pricing across the supply chain."

The German government on Monday assembled a rescue package worth as much as 500 billion euros ($671 billion) to shore up the country's financial system -- part of a coordinated European bailout effort.

French President Nicolas Sarkozy says his government will provide up to 360 billion euros ($491 billion) to help banks stay afloat through the financial crisis.

Crude for November delivery was also benefiting from the broad rebound, up $3.88 at $81.58 a barrel in New York.

General Motors Corp. says it will idle its Janesville, Wis., sport utility vehicle factory on Dec. 23, earlier than the company had expected.

The factory employs 1,200 workers and makes the GMC Yukon, Chevrolet Tahoe and Chevrolet Suburban SUVs.

General Motors Corp. will close a metal stamping plant in Wyoming, Mich., by the end of 2009, The Associated Press reported late Monday. The closure will affect 1,340 hourly jobs, according to the AP. Workers were notified of the plans on Monday, the news service reported.

Waste Management Inc., the nation's largest garbage hauler, on Monday withdrew its $6.73 billion bid to acquire smaller rival Republic Services, saying the move wouldn't be prudent given current financial market turmoil.

A shift in refining from the Gulf of Mexico to the Midwest and Great Plains could hurt refiners such as Valero, Deutsche Bank Securities Inc. wrote Monday.

"Our thesis is that the decline in Mexican and Venezuelan heavy oil supply will be offset by the rise in Canadian heavy oil supply," Deutsche Bank wrote. "We see no Canadian pipeline bottlenecks, but rather an excess of heavy oil upgrading capacity being developed."

Obama led McCain 53 percent to 43 percent among likely voters in a Washington Post-ABC News poll Oct. 8-11. No candidate has ever lost with a lead like this since modern polling began in 1936. Mr. Obama will stay in Toledo until Wednesday to prepare for the debate.

Sen. Barack Obama called for allowing tax-free withdraws from IRAs and 401(k)s in 2008 and 2009 on Monday, as well as a new tax credit for companies that create jobs in the U.S. Obama made the proposals as part of what he calls an economic "rescue plan" for the middle class. He would allow a maximum of $10,000 to be taken tax-free out of retirement plans. Obama is also calling for a 90-day foreclosure moratorium for homeowners who are making efforts to pay their mortgages.

United Technologies Corp.said Monday it withdrew its offer for Diebold Inc. In February, United Technologies offered $40-a-share for Diebold, which Diebold rebuffed in March.

The maker of Archway and Mother's cookies has filed for Chapter 11 bankruptcy protection in the wake of rising food and fuel costs and plans to end its U.S. operations.

Archway & Mother's Cookie Co. Inc. on Monday announced the filing in U.S. Bankruptcy Court in Delaware for its Mother's Cake & Cookie Co. and Archway Cookies LLC subsidiaries.

The Battle Creek Enquirer reports the announcement came three days after the company sent notices to the cities of Battle Creek and Ashland, Ohio, stating that operations in those cities would close.

The Amex Natural Gas Index soared 20% to 397 points, matched by a 20% advance by the Philadelphia Oil Service Index. Crude rallied $4.

Nikkei 225 Average ends morning up 13% at 9,355.56.

Australia unveiled a surprise A$10.4 billion ($7.4 billion) fiscal stimulus package Tuesday designed to bolster the economy in the face of what Prime Minister Kevin Rudd described as the greatest global financial crisis since the Great Depression.

Negotiations aimed at resolving a five-week walkout by Boeing Co. commercial jet production workers broke down late Monday.

Boeing framed the crucial issue as "long-term competitiveness." A union leader said the machinists were being asked to "bargain away our members' jobs."


PepsiCo said Tuesday that third-quarter earnings were $1.58 billion, or 99 cents a share, compared to $1.74 billion, or $1.06 a share, in the same period a year ago. Revenue rose to $11.2 billion compared to $10.2 billion. Analysts polled by FactSet Research estimated, on average, earnings per share of $1.08 on sales of $11.2 billion. PepsiCo said it plans to eliminate about 3,300 jobs worldwide.

Johnson Controls, Inc. said it expects earnings to decline 10% to 16% to between $1.95 and $2.10 a share in fiscal 2009.

Iceland's OMX 15 share index dropped 76.2% to 716.27 points when it restated trading on Tuesday.

German car maker Daimler AG said Tuesday that its Daimler Trucks North America unit will close two plants, shed around 3,500 jobs and discontinue one of its brands in response to continued depressed demand across the industry. The group said it will stop making vehicles under the Sterling Trucks brand in March 2009. It added its St. Thomas, Ontario, plant will cease truck manufacturing at that time, and its Portland, Oregon, plant will also close in June 2010. Daimler said 2,300 workers at the plants will be affected by mid-2010, including 720 previously announced cuts, and the company also plans to reduce its salaried workforce by around 1,200 positions.

China's money supply as measured by M2 climbed 15.29% in September on year, easing from 16% growth in August, according to government data released Tuesday.

The ZEW German economic sentiment indicator plunged in October to -63 from a reading of -41.1 in September, the Center for European Economic Research, or ZEW, reported Tuesday. Market expectations were for a decline to -52.5. "The concerns of the financial market experts that the crisis on the financial markets might spill over to the real economy increased this month," said ZEW President Wolfgang Franz.

U.K. home sales continued to decline in September, according to a survey by the Royal Institute of Chartered Surveyors, which found the average number of completed sales per surveyor over the last three month fell to it's lowest level in at least 30 years.

British consumer inflation surged 0.5% in September, boosting the annual rate to 5.2% -- the highest year-on-year reading since March 1992, the Office for National Statistics said Tuesday.

Yields on the 10-year Treasury bond rose to 4% in early morning action, the first time it's reached that level since August.

Johnson & Johnson said its third-quarter profit jumped 30 percent due to higher sales of consumer products and medical devices and a large restructuring charge a year ago.

Monday, October 13, 2008

Global Help Is On The Way

10/13/08 Global Help Is On The Way

Australia and New Zealand launched coordinated plans to safeguard their banking systems on Sunday, hoping to stem heavy losses suffered by their currencies and markets last week.

The two governments, which were previously unique among developed states in not providing any explicit deposit guarantee, pledged on Sunday to guarantee all bank deposits. Canberra went further, guaranteeing all term wholesale funding by Australian banks in international markets and doubling its pledge to purchase residential mortgage-backed securities to A$8bn.

Leaders from European countries agreed Sunday on a joint plan to attack the financial crisis by guaranteeing inter-bank lending and safeguarding financial institutions from collapse.

In Florida, Obama is ahead 49 percent to 44 percent for McCain, according to a survey by Research 2000 of 600 likely voters taken Oct. 6-8. The survey has a margin of error of plus or minus 4 percentage points. In a poll in mid-September, McCain led Obama by one percentage point, 46 percent to 45 percent.

In Ohio, Obama is leading McCain 49 percent to 44 percent, according to an Oct. 9 InsiderAdvantage/Poll Position survey of 509 likely voters with a sampling error of 4 percentage points. That's up from a 2-point lead in a Sept. 29 poll. No Republican candidate has won the presidency without carrying Ohio.

Obama holds a 12 percentage-point lead in Pennsylvania over McCain, according to a Muhlenberg College tracking poll of 602 likely voters. That's grown from just 4 points in late September, equal to the survey's margin of error.

In Iowa, a state that President George W. Bush narrowly won four years ago, Obama leads McCain by 13 percentage points, 54 percent to 41 percent, according to a SurveyUSA poll of 692 likely voters conducted Oct. 8-9. Three weeks ago, Obama's lead was slimmer, 54 percent to 43 percent.

The race is tight in other battleground states such as North Carolina. McCain leads 48 percent to 46 percent there, according to a WSCO-TV poll taken Oct. 6-7 with a sampling error of 4.5 percentage points. In Georgia, McCain led Obama 49-46 percent, according to an Oct. 9 Insider Advantage/Poll Position survey of 531 likely voters with a sampling error of 4 percentage points.

The new plan to buy stock in banks, which has become the administration's primary focus, comes closer to a partial nationalization of the banking system than at any time since the Depression. In exchange for providing capital, the government would demand some kind of nonvoting minority stake. Treasury officials said they hoped to make the first capital infusions within the next two weeks.

The average U.S. equity fund skidded 10% in the third quarter -- and the damage was minor compared with the brutalization in the eight trading days since the period ended. So far in October, the Standard & Poor's 500 index is down a stunning 23%. Even foreign stock funds, whose strong gains in recent years provided a much-needed counterbalance to meandering domestic stock performance, were pounded, sinking on average 20.5%.

Stainless-steel netting hanging 20 feet down and extending 20 feet on either side will be placed beneath the Golden Gate Bridge to catch would-be suicide jumpers, San Francisco officials decided Friday.

According to AMG Data Services, "Equity funds report net cash outflows totaling -$2.371 billion in Q3 (-$75.329 Bil xETF activity) with Domestic funds reporting net inflows of $28.156 billion (outflows -$41.130 Bil xETFs) and Non-domestic funds reporting net outflows of -$30.526 billion (-$34.200 Bil xETFs);

Excluding ETF activity International funds report record net outflows of -$25.928 Bil as net outflows are reported in all Developed and Emerging regions;

Excluding ETF activity Taxable Bond funds report net inflows of $6.837 billion as inflows are reported to all sectors except Balanced funds (-$6.049 Bil) and Flexible funds (-$3.090 Bil);

Money Market funds report net outflows totaling -$44.350 Bil as General Money Market funds report record net cash outflows (-$429.920 Bil) and Government Money Market funds report record net cash inflows ($384.071 Bil), the largest reallocation and flight to quality in history;

Municipal Bond funds report net inflows totaling $5.195 Bil."

Dubai's market was down by more than 20% in four days of trading, while the Arab world's largest, Saudi Arabia, fell by more than 17%. Among the hardest-hit in Dubai were developers and banks.

On Sunday OPEC said the overall bearish sentiment in the market is expected to persist, especially since there was no quick end to the current market crisis or worsening economic outlook. This view came from Mohammad Alipour-Jeddi, head of the group's petroleum studies department in a statement made to the International Monetary Fund's steering committee.

Yi Gang, deputy governor of the People's Bank of China, told the IMF annual meeting that China was willing to strengthen coordination with other nations, and hoped all countries could make concerted efforts to protect the stability of the international financial market.

San Jose Mercury News: "Our next president will need the kind of qualities that Barack Obama has demonstrated in his long and historic fight to lead the United States of America.

We urge his election."

According to the FT, Morgan Stanley has been forced to renegotiate the terms of a planned $9bn cash injection from Japan’s Mitsubishi UFG, following the steep fall in the price of its shares since the deal was announced last month.

The Japanese bank still plans to invest $9bn and take a 21 per cent share of Morgan Stanley, but under a changed formula that will see the entire investment in the form of convertible preferred shares at a significantly lower price than previously agreed.

Based on the Oct. 10 closing share price in Tokyo, Ford's 33% ownership of Mazda holding was valued at $1.36 billion. Mazda denied Saturday that a decision had been made by troubled Ford Motor Co. to sell its stake in the Japanese automaker but it didn't rule out a possible deal.

24/7wallst: "State and municipal governments have failed to fund tens of billions of dollars into health plans for their retired workers. The Governmental Accounting Standards Board was set up to monitor the use of GAAP accounting by the these bodies and is also supposed to collect data on how large the funding deficits of their programs are. Its work is only beginning and may not be done for another two years.

The US Government Accountability Office is not waiting for the results and has already sounded an alarm that most of these government retirement health plans are under water, but very few people seem to be listening."

John Hussman: "The main thing investors have to fear here is fear itself. Stocks are now measurably undervalued. The markets have endured credit-related "panics" before. We remain largely hedged, but are gradually, modestly and intentionally reducing that hedge on price weakness...Stocks are now at the same valuations that existed at the 1990 bear market low. Relative to 30-year Treasury yields, the S&P 500 is priced to deliver the highest excess return since the early 1980's...we have covered our short call options, and have moved our put strikes lower. At present, those options provide significant (but not complete) defense against continued market losses without exerting a major drag on positive returns that appear increasingly likely...The Fund also has about 12% of assets invested in precious metals shares, about 12% of assets in foreign currencies, and about 6% of assets in utility shares. That 30% of assets has induced some additional day-to-day volatility in the Fund, but all of these asset classes appear extremely oversold."

The Hang Seng Index surged 9.9% to 16,259.48 in late afternoon trading, while the Hang Seng China Enterprises Index flared up 12.6% to 8,033.22. Shares in Europe are up about 5%. In early morning electronic trading the Dow is up almost 400 points. Is providing capital to the banking industry different from socialization of the banks? The S&P is up 54 and the Nasdaq up 65. Isn't Big Government just great?

Sunday, October 12, 2008

Can You Spare A Dime?

10/12/08 Can You Spare a Dime?

Joey Adams: "The difference between playing the stock market and the horses is that one of the horses must win."

Groucho Marx: "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies."

It was noted by Doug Noland that Federal Reserve Credit ballooned another $106bn to a record $1.495 TN, with a historic 4-wk increase of $606.4bn. Fed Credit has expanded $621bn y-t-d (90% annualized) and $636bn y-o-y (74%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended 10/7) jumped $19.5bn to $2.485 TN. “Custody holdings” were up $429bn y-t-d, or 26.4% annualized, and $481bn y-o-y (24%).

Randolph Buss: As the saying goes: "In a ham and eggs breakfast, the hen is involved, but the pig is committed". By my reckoning, Paulson and Central Banks are the chicken and the world's (stupid) taxpayers are the pig. We have no choice in the matter, and by the way, to get ham, the pigs are always slaughtered."

James Madison: “Experience has proved that the real danger to America and to liberty lies in the defect of energy and stability in the present establishment of the United States”

Doug Noland: "I am of the view, however, that the collapse of the hedge fund industry has moved to the forefront – that it is now at the epicenter of global market upheaval. To watch silver lose more than 20% of its value today in intraday trading; to see the collapse in energy prices; to see the entire commodities complex absolutely routed; to view global currency markets in complete disarray, with double-digit intraday drops in the Brazilian real and Mexican peso; to witness major currencies such as the Australian and Canadian dollars suffer precipitous declines; for benchmark Fannie Mae MBS yields to surge 62 bps in three days; to see Brazilian dollar bond yields jump almost 200 bps in four sessions; for global equities indices to suffer rapid double-digit drops throughout both the developed and “emerging” markets; to witness a 1,000 point intraday swing in the DJIA. All the favorite trades are blowing up, and the leveraged speculating community is in a panic de-leveraging...The Massive Pool of Global Speculative Finance is being drained. Investors and speculators alike are desperate to flee risk...I am Hoping that China, India, Russia, Brazil and the Middle East have today sufficient reserves to somehow avoid a ‘90s style financial and economic meltdown. I am Hoping that demand from China, India, Asia and Latin America will help offset inevitable economic downturns in the U.S. and Britain and, hopefully to a lesser extent, Europe. I am hoping that the collapse in energy and commodities prices is more a reflection of acute financial market dislocation rather than a harbinger of synchronized global economic upheaval. I am hoping there is more substance to the dollar’s rally than simply an unwind of bearish dollar bets. And I am hoping that with large capital infusions our deeply impaired banking system will retain the capacity to finance a much less robust but at least functioning U.S. economy. I really Hope everything is not as dire as it appears."

Peter Schiff: "Despite the myriad of proposals that are coming from Washington and other world capitals, we must understand that this crisis cannot be cured by governments. In the United States, credit is gone because savings are gone. Our shallow pool of savings has been depleted through bad loans, and we can no longer entice foreigners to lend us their available savings. Given that we are already too loaded up on existing debt they we cannot realistically repay, who can blame them for not wanting to lend us more?

Result, the free market is trying to put an end to our spending spree. Without savings or home equity to fall back on, Americans struggling with rising prices are finally being forced to cut back. This has terrified our leaders and is causing them to dismantle the remaining structure of our free enterprise-based economic system.
The intention of all these daily federal interventions is to keep the credit spigots open so Americans can go even deeper into debt to buy more stuff they can't actually afford...if the government keeps creating inflation to artificially sustain consumer borrowing and spending, there will be no savings left to fund anything and prices will be so high that despite massive consumer spending there will be few goods that Americans could actually afford to buy."

Barry Ritholtz: "Relative Strength Indicator, SPX, 1928-2008

Ever since the beginning of the S&P500, the RSI's monthly indicator has only dropped below 30 on four occasions: 1929, 1973, 2002, and 2008.

All 3 prior instances were very close to lows.

All 30 Dow stocks are below their 200 day moving average -- a condition that has only occurred once before -- and the last time was right after the 1987 crash."

Working-class women, generally defined as those in blue-collar and service jobs earning less than $50,000 a year -- comprise almost a quarter of American voters. Sen. Obama trailed Sen. John McCain by 12 points among these women just two weeks ago, but has since closed the gap. According to a Wall Street Journal poll conducted the weekend of Oct. 4, the two senators are now running even, with 45% of such voters giving each candidate the nod. The reversal is one of the main reasons Sen. Obama is gaining ground in swing states like Michigan, Ohio, Pennsylvania, North Carolina and Indiana -- all of which have large rural and blue-collar populations.

GE on Friday painted a bleak picture of US consumers’ financial health, saying that rising defaults on credit cards and other loans would force it to set aside up to $1bn to cover losses this year. GE Capital, which accounts for about half of its earnings, would suffer pre-tax losses of up to $6.6bn this year and up to $9bn in 2009, largely because of consumers’ ailing financial conditions.

Harold Ford Jr :"John McCain has to make a choice over the next 3 1/2 weeks. Will he succumb to base impulses and take the country down a path littered with smears and personal attacks? Or will he focus on the future with straight talk and big ideas? America deserves solutions for its problems. Where are McCain's plans to replace the 750,000 jobs lost since the beginning of the year, to stop our financial meltdown, and to help the families hammered by the prices of gas, food and health care?"

George Bernard Shaw: “You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”

Anais Nin: "There came a time when the risk to remain tight in the bud was more painful than the risk it took to blossom."

The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley's chief economist. Two weeks ago, budget analysts said the measures might push deficit to as much as $1.5 trillion.

That means a lot more borrowing by Treasury, which will push up interest rates, said Greenlaw. ``The Treasury's going to be ramping up supply dramatically over the course of coming months to meet this enormous federal budget obligation,'' Greenlaw told Bloomberg this week. ``The supply will trigger some elevation in yields.''

In my view, U.S. Treasuries are not a safe haven. Rather, their yields are reflective of a giant bubble. The giant popping noise you will soon hear will reflect yields rising dramatically and billions of dollars being lost by investors as their principal erodes with falling prices. It will not take long for their AAA ratings to be downgraded. At the very least, I strongly suggest one considers cutting their holdings in Treasuries.

Ronald Reagan: “All systems are capitalist. It's just a matter of who owns and controls the capital -- ancient king, dictator, or private individual. We should properly be looking at the contrast between a free market system where individuals have the right to live like kings if they have the ability to earn that right and government control of the market system such as we find today in socialist nations.” If Reagan were alive today, I wonder what he would say about our present economic system of bailouts for the few."

Milton Friedman: "The most important single central fact about a free market is that no exchange takes place unless both parties benefit."

Brinker Int'l, operator of Chili's, staed that, before special items and excluding the operating results of Macaroni Grill, FY09 earnings are expected to decline between 15% and 25% as compared to FY08. That is down from to the company's previous guidance of 8% to 10% growth. The revised guidance is based on a full-year FY09 decrease in comparable restaurant sales of ~2-4%.

Rather than prolong the agony, maybe GM, Ford, and Chrysler should merge. It will make it one bankruptcy filing instead of three.

Home Depot Inc. said safe sales have seen double-digit increases in the past two weeks, and safe-maker Honeywell reports sales that are 50 percent higher than usual during the past three weeks.

The market for safes typically climbs during dour economic times — a pattern repeated during the gold and silver crisis of the '70s, stock market crash of the '80s, the Y2K fears in 2000 and even after 9/11.

But this time, Edward Baroody, president of Gardall Safe Corp. in Syracuse, N.Y., thinks the trend will be more long-lasting and pronounced.

"People start shifting assets into other vehicles than just banks, and they need someplace to store that new asset," said Baroody, whose business is up as much as 30 percent. "I think there will be a lot of people are buying safes to try to protect what they've accumulated over these last five or 10 years."

John Mauldin: "Over 16% of loans made for condominium construction are now delinquent. Loans made for single-family home construction are only slightly more than 12% overdue. But that masks a much bigger problem. Single-family loans account for 86% of all for-sale residential construction loans outstanding.

The good news is that for the top 100 banks by size, single-family loans make up only 2% of the total. But that small portion totals $245 billion. And condos add another $41 billion. That puts almost $40 billion at risk of default at today's delinquency levels."

Japan said on Saturday it is ready to offer a part of its $1 trillion foreign reserves to the International Monetary Fund (IMF) if the multi-national lender is to support countries facing economic crisis.

But Finance Minister Shoichi Nakagawa also criticised the IMF's attitude in the past, saying too stringent conditions it had imposed on loans during the Asian crisis in 19987-98 destroyed social and economic fabric of Asian countries.

The Times of London reports that the four largest banks in the UK will ask for 35 billion pounds.

According to the WSJ, after this week's bloodbath, the Standard & Poor's 500-stock index is priced at 15 times earnings by the Graham-Shiller measure. The Graham P/E has not been this low since January 1989; the long-term average in Prof. Shiller's database, which goes back to 1881, is 16.3 times earnings. . The modern low on the Graham P/E was 6.6 in July and August of 1982, and it has sunk below 10 for several long stretches since World War II -- most recently, from 1977 through 1984. It would take a bottom of about 600 on the S&P 500 to take the current Graham P/E down to 10. That's roughly a 30% drop from last week's levels; an equivalent drop would take the Dow below 6000.

In my view, the last great buying opportunity was in July and August,1982. Before that it was December, 1974. Will 2008 present a third great buying opportunity? With patience we'll find out.