Saturday, December 06, 2008

The Rally

12/6/08 The Rally

First Georgia Community Bank of Jackson, with four offices southeast of Atlanta, was closed by regulators, becoming the 23rd U.S. bank failure this year amid losses tied to record mortgage delinquencies and foreclosures.

Indexes tied to high-yield, high-risk loan defaults in the U.S. and Europe slumped to records on concern that more companies will break debt terms because of rising unemployment and a global economic slowdown.

The Markit LCDX index linked to U.S. leveraged loans, which falls as sentiment worsens, dropped 1.1 percentage points to 74 percent of face value after falling to as low as 73.55 percent, according to Goldman Sachs Group Inc. The index has fallen from 80 this week. The Markit iTraxx LevX Index of credit-default swaps tied to European loans fell to a record 74 from 77.5 yesterday, according to Morgan Stanley. That compares with 82.9 percent of face value on Nov. 28, according to Markit Ltd.

"A consensus has formed for a significant reduction of production levels" by the 14-member Organization of Petroleum Exporting Countries, OPEC President Chakib Khelil told The Associated Press.

The OPEC head would not discuss how deep the output cut would be, but said it could be "severe," and noted that some analysts are predicting cuts of as much as 2 million barrels per day.

An output decision that startles markets would help bolster plunging oil rates, Khelil said.

"The best way is to surprise them," he said. "I hope it (the decision) will."

The Reserve Bank of India on Saturday announced sizable cuts in its key short-term interest rates, sending a signal to banks to bring down lending rates as it scrambles to protect the real economy from a worsening global financial crisis.

The central bank slashed its lending rate, or the repurchase rate, for the third time since October, by 100 basis points to 6.5%.

It also cut its borrowing rate, or the reverse repurchase rate, for the first time in more than five years by 100 basis points to 5.0%.

The RBI, however, kept banks' cash reserve ratio unchanged at 5.5% and the statutory liquidity ratio at 24%.

The fact that, equities have recently risen during a time of horrendous economic news, has turned several bears into bulls. I prefer not to get caught up in short-term swings but rather focus on the trend. Until that trend turns positive, I will remain a seller into strength and add to positions in times of extreme weakness. In the near-term, I believe there will be pockets of a speculative bounce as well as renewed downward pressure from liquidity problems.

According to the FT, Chinese bargain hunters are preparing to descend on American cities such as Los Angeles and San Francisco, where homeowners have suffered some of the steepest price falls in the US.

SouFun, the biggest real estate website in China, is organising a trip next month to look at properties in California and possibly Nevada. Liu Jian, the company’s chief operating officer, said about 300 people had expressed interest in the idea in the three days since it was advertised, though the company would take only a small group on the first trip.

The government does not count some types of underemployed workers -- those who are overqualified for their current work, for instance. But it does count people who are working part time when they would prefer full time. That count has jumped by 2.8 million in the past 12 months, to 7.3 million. Christine Owens, a worker right's advocate and executive director of the National Employment Law Project, said underemployment "is a much more accurate measure of what the economy is really like for people."

3M Co. is cutting 1,800 jobs in the fourth quarter and ordering some workers to take vacation or unpaid time off for the last two weeks of the year.

3M spokeswoman Jackie Berry told the Star Tribune for a story posted Friday night that the worsening economy forced the cuts. She told the newspaper she didn't have a dollar amount on how much the company expects to save. The company is also postponing merit pay for next year, she said.

The Maplewood-based manufacturer had earlier announced 1,000 job cuts in the third quarter, which ended Sept. 30. The 1,800 new layoffs will come from the U.S., Western Europe and other developed nations.

Billie Joe Armstrong: “A guy walks up to me and asks 'What's Punk?'. So I kick over a garbage can and say 'That's punk!'. So he kicks over the garbage can and says 'That's Punk?', and I say 'No, that's trend!'”

The insurance index rose 10% on Friday.

Chrysler CEO Robert Nardelli told Congress Friday that Chrysler would be pushed toward bankruptcy or even liquidation if it doesn't get federal loans.One might recall that Cerberus owns Chrysler. Cerberus is a private equity firm. No one forced Cerberus to buy Chrysler. If Chrysler needs money, then Cerberus should pony up the funds and not the taxpayers. Chrysler is not too big to fail. They sold 85,260 vehicles last month in the U.S., which amounts to a pimple on an elephant's ass.

Dec. 6 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, may need to cut iron ore production by about a quarter next year as a slump in global steel output curbs demand for the raw material, Merrill Lynch & Co. said.
BHP, the world’s third-biggest iron ore producer, may curb output from mines in Western Australia by 30 million metric tons amid a slump in prices, Merrill Lynch analysts led by Sydney- based Vicky Binns said in a report dated yesterday. Output this year may be cut by 4 million tons, the report said.

Mike Burk: "Downside volume and new lows are the best indicators of bottoms.
Following a bottom, new lows and downside volume diminish rapidly and, although the major averages were down last week, indicators derived from new lows and downside volume showed improvement last week...I keep repeating, because it is important, although there were fewer new lows at the November low than there were at the October low, the November numbers were so high that, at least, a retest of the November lows is likely.
Volatility increases during declines and near bottoms.
Recently we have seen the highest volatility since the crash of 1929....Conditions are in place that would support a rally of a month or two.
I expect the major indices to be higher on Friday December 12 than they were on Friday December 5."


12/5/08 Payrolls

U.S. nonfarm payrolls contracted by 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday. It's only the fourth time in the past 58 years that payrolls have fallen by more than 500,000 in a month. The unemployment rate rose from 6.5% in October to 6.7% in November, the highest jobless rate since October 1993. Revisions for September and October increased job losses by 199,000. The 11th consecutive drop in payrolls brought the number of jobs eliminated so far this year to 1.91 million. service-sector employment plunged 370,000. When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers reached 12.5% last month, up 0.7 percentage point from October.Among the unemployed, the number of persons who lost their job and did not expect to be recalled to work increased by 298,000 to 4.7 million in November. Over the past 12 months, the size of this group has increased by 2.0 million. Average hourly earnings, meanwhile, increased $0.07, or 0.4%, to $18.30, and that was up just 3.7% from a year earlier, suggesting the economic downturn is making it harder for workers to demand higher wages, further restraining household spending.The average workweek fell 0.1 hour to 33.5 hours I had thought the Nov. number would reach 500,000, and I was low.
Off more than 100 points ahead of the data, futures for the Dow Jones Industrial Average were off 152 points in the wake of the data, at 8,250. Futures for the S&P 500 declined 21.3 points to 826.2, while Nasdaq 100 futures shed 28 points to 1,107.

In another depressing note, the government added 7,000 jobs in November. Private sector jobs are getting crushed and the government hires. This is nuts. It's almost as crazy as the bubble in U.S. government bonds and the ridiculously high level for the dollar in the face of economic quicksand.

The job reductions were the most since a whopping 602,000 positions were slashed in December 1974, when the country was in a severe recession. Dec. 1974 was the month the Dow bottomed at 574. The difference is we have not hit the low point in unemployment. The rate will most likely rise to 9% or more.

Canadian employment fell by the most since 1982 in November, led by manufacturing, a sign the world’s eighth-largest economy is falling victim to a global recession.

Employers shed a net 70,600 workers, almost three times as many as economists anticipated, after a gain of 9,500 in October. The unemployment rate rose to a two-year high of 6.3 percent from 6.2 percent the month before.

General Electric Co.'s media and theme park subsidiary, NBC Universal, this week laid off about 500 employees -- about 3 percent of its work force of 15,000 -- as part of a plan to trim $500 million next year, a person familiar with the situation said Thursday.

The percentage of auto loans that were past due 60 days or more rose 15.9 percent in the third quarter compared to last year, according to credit reporting agency TransUnion.

The rate rose to 0.80 percent of outstanding loans, from 0.69 percent in 2007's third quarter.

There were 3,448 oil and natural-gas drilling rigs operating worldwide in November, down 70 from October but up 287 from November of last year, oil-services firm Baker Hughes reported Friday. The November U.S. rig count was 1,935, down 41 from October and up 137 from November 2007. Canadian rigs totaled 417, down 29 from October and a rise of 46 from November 2007.

The U.K. FTSE 100 index fell 1% to 4,121.72, the German DAX 30 index dropped 1.1% to 4,515.84 and the French CAC-40 index declined 1.3% to 3,120.16. Australia's S&P/ASX 200 was down 0.5% at 3,515.10, Japan's Nikkei 225 was up 0.4% at 7,955.62, South Korea's Kospi added 0.6% at 1,012.02 and New Zealand NZSX-50 eased 0.2%% to 2,726.52.

Morgan Stanley widened its fourth-quarter loss estimate on Goldman Sachs Group Inc , citing a fall in equity, credit and real-estate asset values in November, and rising negative marks on the firm's illiquid asset and principal investment portfolios.

Morgan Stanley's Patrick Pinschmidt now expects Goldman to report a loss of $4.45 a share for the quarter, compared with his prior view of a loss of $1.09.

According to the WSJ, Boeing may push back first deliveries of its flagship 787 Dreamliner by at least six more months after the recent strike by union machinists, as well as other snags.

The International Council of Shopping Centers, an industry group, described November’s figures as the weakest in more than 35 years. Declines were recorded in every retail segment the group tracks, with the biggest coming from department stores, with sales down 13.3 percent compared with November a year ago, and specialty apparel retailers, down 10.4 percent.

According to Bloomberg, California, the world’s eighth largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said. In a letter to legislative leaders Dec. 2, Genest said the state “will begin delaying payments or paying in registered warrants in March” unless an $11.2 billion deficit is closed or reduced. California, which approved its budget less than three months ago, may run out of cash by March, state officials say.

Russia weakened its defense of the ruble for a fourth time in a month, pushing the currency near a three-year low against the dollar, as the price of the nation’s crude oil fell by a record this week to less than $40 a barrel.

The currency slid as much as 1.2 percent to 28.1344 per dollar and dropped 1 percent to 31.5971 against the central bank’s target basket of euros and dollars. “The corridor has been widened,” a Bank Rossii official who declined to be identified said in a phone interview from Moscow today.

OPEC, the supplier of more than 40 percent of the world’s oil, will reduce production if crude prices remain below $60 a barrel, said the group’s president, Chakib Khelil.

“If prices remain at the current low level, OPEC will decide an important reduction,” Khelil said in an overnight interview with Algerian television, cited by the state-owned Algerie Presse Service. “If prices go above $60, it is possible that the reduction will be less important.”

According to AMG Data Services, in the week ended Dec.3, Equity Fund Inflows $284 Mil; Taxable Bond Fund Inflows $513 Mil
xETFs - Equity Fund Outflows -$2.5 Bil; Taxable Bond Fund Outflows -$1.4 Bil.

Cummins to cut at least 500 jobs or 3.5% of workforce.

Through October, shipments from RV companies to dealers for the year fell 27 percent from the comparable period in 2007, according to RVIA. The downturn is expected to stretch into 2009, when shipments are forecast at 186,800 units, about 25 percent lower than this year's projected total of 248,000, according to the association, citing statistics from Richard Curtin, director of consumer surveys at the University of Michigan.

"This industry is in the middle of a three-year downturn, and you can really probably even date it farther back than that," said Kathryn Thompson, who follows RV companies for Avondale Partners.

At the height of the industry's upturn this decade, shipments totaled 390,500 units in 2006. But those are now fond memories for manufacturers and dealers feeling the economic pinch.

Dollar demand for gold in Q3 was a record US$32 billion, 45% higher than the previous record, set in 2Q2008. At the same time that demand is setting records, supply has been unable to keep pace, falling 9.7% from year-earlier levels, the WGC reported.Yet, the spot price of gold has fallen more than 20% from its all-time high, reached in March of 2008.

Germany's economics ministry reported a large drop in October manufacturing orders.

The price of high-yield, high-risk Asian corporate dollar-denominated bonds plunged more than 45 percent this year to 52.9 cents on the dollar, pushing yields to a record 28.1 percentage points above benchmark rates yesterday, Merrill Lynch & Co. indexes show.

In an effort to retain top executives, apparel maker and retailer Liz Claiborne Inc. approved new severance agreements and pushed up a portion of their equity grants by three months.
The move, disclosed in a Securities and Exchange Commission filing Thursday, makes Claiborne the first major retailer to speed up equity grants.

Dick Arms: "The huge Arms Index on Monday may have had a very meaningful significance. It was obviously a selling panic, with the down stocks getting 10 times their share of the volume. The effect was to eliminate a number of very nervous sellers. Since then we have noticed that the markets do not seem to be as sensitive to negative news. There have been a number of excuses in the economic news for big selloffs since then that did not materialize. It gives one the impression the markets may, at this time, resemble a tightly compressed spring. Any sign of hope could lead to a sudden dramatic rebound."

The Arms Index is an indicator that uses advancing and declining stocks and their volume to measure intra-day market supply and demand and can be applied over short or longer time periods. The Arms Index is named after its creator Richard W. Arms and is also know as the "TRIN" index The formula is simple and can be applied to any index for which the data is available. It is simply (Advancing issues/Declining issues) / (Advancing volume/ Declining volume). If more volume goes into advancing issues than declining issues the Arms Index falls below 1.0. If more volume goes into declining stocks than advancing stocks the Arms Index rises above 1.0.

At 48, Potash Corp made another 52 week low. The high was 241. Not exactly for the faint of heart.

Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., or Pimco, said the 533,000 drop in U.S. non-farm payrolls in November points to a contraction of gross domestic product of 4 or 5 percent in the fourth quarter.
You don't need to be a rocket scientist to reach this conclusion.

BMC Software Cutting 350 Jobs.

Of the Dow stocks, the two standouts are McDonald's and Wal-Mart. Their prospects still seem pretty good in this dismal environment.

The VIX is at the 66 level with the Dow down 185 points after 90 minutes of trading.

Nearly 7% of all U.S. mortgages delinquent in third quarter. Why do I believe the real number is worse than that? More than 19.5% of all subprime loans were seriously delinquent in the quarter, meaning they were more than 30 days past due.

General Motors Corp. says it will lay off about 2,000 more factory workers early next year as the U.S. auto sales slump continues to wreak havoc on domestic automakers.

Spokesman Chris Lee says the company will cut shifts at car factories in Lordstown, Ohio; Orion Township, Mich.; and Oshawa, Ontario, in February due to slowing demand for their products.

Lee says the company plans to lay off 890 workers at the Lordstown, Ohio, plant and 390 jobs on Feb. 2 at Orion Township. Another 700 workers will be laid off in Oshawa on Feb. 9.

Lordstown makes the Chevrolet Cobalt and Pontiac G5 small chars. The Orion plant makes the Chevrolet Malibu and Pontiac G6 sedans and Oshawa makes the Chevrolet Impala.

Although concerned there is "some government giveaway" happening, Nouriel Roubini's big worry is the TARP funds are not being dispersed quickly enough to recapitalize the banks, which he forecasts will ultimately suffer credit losses approaching $3 trillion. This is a "massive destruction of capital," says Roubini."If you don't recapitalize the banks, the credit crunch will be much, much worse."

Randall W. Forsyth: "The benchmark 10-year Treasury note yield has moved decisively below 3%, under 2.70% at one point, the lowest in a half century. That followed another event that hadn't happened in 50 years: the 10-year Treasury yield falling below the dividend yield on Standard & Poor's 500."

During testimony later Friday, New York University Professor Edward Altman will say that GM’s request for $18 billion in government funds will likely fail to turnaround the company and the struggling automaker could ask for more.

Altman, director of the credit and debt markets research program at NYU, is just one of the people scheduled to testify in the second and last day of congressional hearings on the bailout of the Big Three auto makers.

In prepared remarks obtained by FOX Business Network, Altman will warn that GM could fall into bankruptcy once the initial funds are used.

“GM’s cash burn of perhaps $2 billion a month or more will reduce the assets of GM even further and be exhausted in six to nine months based on current conditions,” Altman will say.

Altman predicts the global automobile industry is facing a “severe economic recession” that could last another two years. He will call for GM and Chrysler to file for bankruptcy protection as soon as possible.

Legg Mason Inc., the Baltimore-based fund manager that has lost three-quarters of its market value this year, will cut about 200 jobs, or 8 percent of its workforce, as it seeks to lower annual expenses by $120 million.

Big Lots Inc. fell 10 percent to $14.58, and slid as much as 16 percent, the steepest intraday decline since Nov. 6. The largest U.S. seller of discontinued goods, which had gained 1.8 percent this year in New York trading, lowered its earnings forecast for the current fiscal year and the quarter ending in January after posting a decline in third-quarter sales.

The broad and deep November job losses make one thing painfully clear, says Diane Swonk, the chief economist of Mesirow Financial. "It's not a blue collar recession, it's not a white collar recession. This recession runs from Wall Street to Main Street, coast to coast," Swonk says. We're approaching 2 million job losses this year alone, and Swonk expects the next several months to be bad as well. It'll be too easy, she says, to lose another 1.5 million jobs next year, "which is very scary."

Feb. gold ends down $13.30, or 1.7%, at $752.20 an ounce. Crude oil for January delivery ended down $2.85, or 6.5%, at $40.81 a barrel on the New York Mercantile Exchange, the lowest closing level since December 2004.

I find it interesting that over the past 2 hours the Dow had gone from -220 points to +10 points and the VIX has hardly budged at 65.

Worthington Industries Inc.will cut 300 jobs, or about 4% of its workforce. The company said the cuts will come from its steel processing and metal framing businesses, following the closure of three plants early in 2009. Worthington estimates about $17 million a year in savings from the cuts, and expects to take a charge of $5 million.

The Dow Jones Industrial Average gained 259.18 points, or 3.1%, to end at 8,635.42, leaving the blue-chip index down 2.2% for the week. The S&P 500 rose 30.85 points, or 3.7%, to 876.07, off 2.3% from last Friday's close. The Nasdaq Composite climbed 63.75 points, or 4.4%, to 1,509.31, down 1.7% for the week.

Tightening credit and recession fears have led U.S. consumers to reduce their debt in October for the second time in the past three months. Total seasonally adjusted consumer debt decreased by $3.54 billion, or a 1.6% annual rate, in October to $2.58 trillion, the Federal Reserve reported Friday. Consumer credit rose at a 3.1 % pace in September after dropping a record 3.0% in August. Non-revolving credit - such as auto loans, personal loans and student loans - had the biggest drop in October, falling by $3.3 billion, or 2.5%, to $1.60 trillion. Credit-card debt fell by a slim $181 million, or 0.2%, in October to $976 million.

Thursday, December 04, 2008

More Layoffs

12/4/08 More Layoffs

Shares of Nippon Oil and Nippon Mining Holdings jumped 10% and 12.9% after the firms said they were holding merger talks, a move that reportedly woudld create the world's eighth largest oil company. Shares of Sanyo Electric were down 12.4% after the Nikkei newspaper reported Panasonic Corp had lifted its buyout offer per share by less than 10%.

AT&T Inc.said Thursday it'll take a $600 million charge in its fiscal fourth quarter as part of a plan to cut 12,000 jobs, or 4% of the Dallas-based telecommunication giant's work force.

DuPont to lay off 2,500 employees, cut 4,000 contractors, and warns of a loss.

Abercrombie & Fitch Nov. same-store sales down 28%.

Wal-Mart Stores Inc.said Thursday its November sales at U.S. stores open at least one year, including its Sam's Club outlets, rose 3.4%, excluding the impact of fuel. With fuel, the figure was 3.0%.

The European Central Bank made a record rates cut today, lowering the key interest rate to 2.5% from 3.25%.

According to the FT, "The Markit iTraxx Crossover index rose above 1,000 basis points for the first time since it was created in 2004, implying a record number of companies are on the verge of default because of deepening financial problems."
"The index, which measures the cost of protecting junk-grade companies against default, has risen sharply in the past month as sentiment has worsened because of gloomy numbers on the global economy and worries over whether companies will be able to refinance their debt."

Nordstrom Inc.said Thursday its November sales at stores open at least one year fell 15.9%.

For 2009, Merck estimates GAAP earnings per share of $3.15 to $3.30, excluding certain items and a 2009 GAAP EPS range of $2.95 to $3.17.

The Bank of England's rate-setting Monetary Policy Committee on Thursday cut the central bank's key lending rate to 2% from 3%.

As a result of lower demand and decreasing visibility, Nokia said it can no longer vouch that its market share will remain stable at 38% in the quarter. Nokia added that lower demand from consumers would lead operators and retail distribution channels to go through a period of destocking. It expects 2009 industry mobile device volumes to fall 5% or more from 2008 levels.

General Motors and Chrysler might accept a deal in which they'd file prepackaged bankruptcy-reorganization plans in return for the government providing a multibillion-dollar bailout, a person familiar with the companies' internal discussions told Bloomberg News.

Toll Brothers Inc., the Horsham, Pa., home builder, narrowed its fiscal fourth-quarter loss on 40% lower revenue. The company declined to forecast earnings for fiscal 2009, citing "numerous uncertainties," but said revenue should drop significantly from fiscal 2008's total of $3.16 billion.

British house prices saw a seasonally-adjusted monthly decline of 2.6% in November, leaving the average price 14.9% below the level seen in same month last year, mortgage lender Halifax reported Thursday.

Costco Wholesale Corp. reported that in November, comparable-store sales fell 5%. Total sales fell 3% to $5.55 billion from $5.72 billion in the year-earlier period. Same-store sales -- revenue from stores open at least a year, to eliminate the effects of new and closed stores -- were off 2% in the U.S. and 15% internationally, Costco said on Thursday.

Belden Inc., the St. Louis producer of signal-transmission solutions for automation, data networks and electronics applications, said it will cut 1,800, or 20%, of its jobs and consolidate manufacturing operations. In a statement late on Wednesday.

AbitibiBowater to lay off about 1,100 employees.

Indonesia's central bank cut interest rates a quarter-point Thursday, lowering its key rate to 9.25%. It said the impact of the global financial crisis is "taking increasing hold" of the economy. In a statement accompanying the rate-cut announcement, Bank Indonesia said domestic inflationary pressures are easing, with inflation expected to fall to its 6.5% to 7.5% target range in 2009.

Initial Jobless Claims of 509,000, down 21K from last week, were less than the 540,000 economists expected - the second week in a row forecasts have overshot. The 4-week moving average moved up 6,250 to 524,500. Meanwhile, the number of Americans receiving state jobless benefits rose 89,000 to 4.09 million in the week ending Nov. 22. This is also the highest level since December 1982.

Credit Suisse will cut 5,300 jobs, or around 11% of its workforce, after making a loss of roughly 3 billion Swiss francs ($2.5 billion) in the first two months of the fourth quarter.

Viacom Inc.said it would book a charge of $400 million to $450 million, or 42-48 cents a share, in its fourth quarter as it lays off about 850 employees or 7% of its work force.

Target Corp.said Thursday that sales at stores open for at least a year fell 10.4% in November.

Toyota Motor will close its plant in Hokkaido, Japan.
The factory, which makes engine transmissions, will suspend all production for the first time in fifteen years. On Wednesday, Toyota said it will suspend production of Lexus luxury models at its Tahara plant, and output of all vehicles at its Miyata plant for two days in December. Both plants are located in Japan.

The frenzied pace of development in Dubai and elsewhere in the United Arab Emirates is grinding to a halt and the over-the-top extravagance on full display late last month at places like the new Atlantis, at the tip of one of Dubai's three man-made, palm-tree shaped island archipelagos, may soon be a thing of the past.
The global financial crisis has brought construction to a stop as developers put projects on hold, lay off workers, and scale back several high-profile ventures.

U.S. auto sales fell for the 13th consecutive month in November, led by a 47 percent sales drop at Chrysler and a 41 percent decline at General Motors Corp , and major automakers said there was no sign that demand would rebound in the next six months in the world's largest vehicle market.
Industrywide auto sales in November were down nearly 37 percent to a seasonally adjusted annual sales rate of around 10.2 million, the lowest in 26 years, according to preliminary results released by the automakers on Tuesday.
With automobile sales dropping, payrolls plunging and manufacturing contracting, economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.

Riksbank (Sweden's central bank) slashed the repo rate a greater-than-expected 175bp to 2.0%.

U.S. natural gas inventories fall 64 Bcf last week: EIA. Stocks were 107 bcf less than last year at this time and 69 bcf above the five-year average, the EIA said. January natural gas futures fell 3.3% after the report to trade at $6.138 per million British thermal units.

New orders for manufactured goods fell 5.1% in October, the biggest decline since 2000, the Commerce Department reported Thursday, as new orders for transportation equipment dropped. Action Economics analysts had expected overall new orders to fall 5%. New orders for durable goods fell a revised 6.9%, compared with 6.2% estimated last week. October's drop in overall orders is the third consecutive months of declines, following drops of 3.1% in September and 4.3% in August. Nondurable goods orders in October fell 3.4%. Core capital equipment orders fell 5%.

Before the market opened, AMD said it expects its fourth-quarter revenue from continuing operations to fall about 25% from its third-quarter level of $1.59 billion.

Microsoft's currently toasting Xbox 360's biggest sales month in its six-year European history. And it wants you to know all about it.
According to sales data from stat-cruncher GfK-ChartTrack, 360 sales during November were up 124 percent over the same period last year, compared to a 43 percent rise in Wii sales and a three percent gain in the number of PS3s shifted.

Starbucks Chief Financial Officer Troy Alstead said Thursday the coffee-shop chain is facing deteriorating comparable store-sales and the company won't meet Wall Street's profit target for the current quarter of 21 cents a share. Speaking to analysts in New York, Alstead didn't indicate what Starbucks will earn for the December quarter. He said sales at stores open at least one year have fallen 9% since the quarter began Sept. 29. While store traffic had perked up in October, sales weakened in November, he explained. The CFO said it was "too early" to predict fiscal first-quarter sales.

William Greider: “The US financial position is rapidly deteriorating, due mainly to America's persistent and growing trade deficit. US ambitions to run the world, in other words, are heavily mortgaged. Like any debtor who borrows more year after year with no plausible way to reverse the trend, a nation sinking deeper into debt enters into an adverse power relationship with its creditors -- greater and greater dependency.”

Oil tumbled below $44 a barrel Thursday and the average gallon of gasoline is now less than $1.80 nationally, both four year lows. Crude for January delivery ended down $3.12, or 6.7%, at $43.67 on the New York Mercantile Exchange, the lowest closing level since January 2005.

Constellation Energy Group will cut about 8% of its workforce, or about 800 jobs, mostly in its commodities trading group, Reuters reported Thursday.

Car rental company Avis Budget Group Inc. said Thursday that it has cut more than 2,200 jobs and taken other steps to meet its goal of reducing annual costs by $150 million to $200 million by the middle of 2009.

The Dow Jones industrial average dropped 215.45 points, or 2.51 percent, to end at 8,376.24. The Standard & Poor's 500 Index fell 25.52 points, or 2.93 percent, to 845.22. The Nasdaq Composite Index slumped 46.82 points, or 3.14 percent, to close at 1,445.56. There were about three times as many stocks down as up and on the NYSE there were 3 new highs and 81 new lows.

Sotheby’s suffered about $53 million in losses from guarantees at recent auctions that it extended to sellers as prices fell short of presale estimates. It is “developing additional global cost reduction proposals,” the filing said. Sotheby’s fired employees this week as demand for high-priced art follows real estate and financial markets south.
Sotheby’s spokeswoman Diana Phillips declined to say how many jobs were eliminated. The company said in a filing that the board’s three-man executive committee approved cuts reducing salaries and other related costs by $7 million in 2009. Sotheby’s will also take a fourth-quarter “restructuring” charge, for severance, of $5 million.
Rival Christie’s is “reviewing our strategic plans in light of the current global economic environment and our sale results for this autumn,” it said in a statement.

Wednesday, December 03, 2008

Will The Economic Numbers Worsen?

12/3/08 Will The Economic Numbers Worsen?

United States Steel Corp. will idle three plants over the next several weeks. The affected plants are in Keewatin, Minn.; near Detroit, Mich.; and near St. Louis, Mo. The company said it will consolidate production at other plants. About 3,500 employees will be affected by the idling.

Bed Bath & Beyond Inc. estimates third-quarter earnings of 31 cents to 35 cents a share. Analysts surveyed by FactSet Research estimate third-quarter earnings of 42 cents a share. Bed Bath & Beyond also estimates third-quarter sales to drop 0.7% from a year ago, and same-store sales to drop 5.6% for the quarter.

In early Wednesday trading, gold for February delivery fell $12.60, or 1.6%, to $770.70 an ounce. Crude oil for January delivery was down 15 cents to $46.79 a barrel in electronic trading on Globex.

The U.S. private sector shed 250,000 jobs in November, the biggest job loss in seven years, according to the ADP national employment index released Wednesday. Job losses rose to 158,000 in the goods-producing sector and to 92,000 in the services.

Labor tracking firm Challenger Gray & Christmas said on Wednesday that the financial sector cut 91,356 jobs in November, the second-worst month for industry layoffs since September 2001. In September 2001 the financial sector lost 96,333 jobs.

Freeport-McMoRan Copper & Gold Inc.will cut 2009 copper production by approximately 200 million pounds and cut 2010 production by approximately 500 million pounds from October 2008 estimates, principally due to reduced operating rates at several of FCX's North America operations. The firm will also suspend its dividend. "We are responding aggressively to the current market conditions which have weakened dramatically in recent weeks," said James Moffett, chairman.

Research in Motion Ltd., producer of the iconic BlackBerry mobile-communications system, cut its estimates of fiscal third-quarter earnings and sales. At the same time, "Initial sales of new products have been very positive," said Jim Balsillie, co-chief executive at RIMM. For the quarter ended Nov. 29, Research in Motion estimates net income of US$0.67 to US$0.71 a share, compared with its previous estimate of 89 cents to 97 cents. The latest adjusted earnings are seen at 81 cents to 83 cents. It expects to report revenue of US$2.75 billion to US$2.78 billion, compared with its previous view of $2.95 billion to $3.1 billion.

Beijing might need to devalue the yuan, thus making goods made in China cheaper, to help its exporters weather the global recession.
"Pushing for a rising yuan now will be a lose-lose move for both China and the U.S.," the China Daily cited Zhou Shijian, a researcher at Beijing's prestigious Tsinghua University, as saying.
He said China would prefer to see the high-level talks Thursday and Friday in Beijing, known as the Strategic Economic Dialogue, focus on cooperation in energy and the environment.

Kimball Hill Homes, the Rolling Meadows-based home builder that has operated under Chapter 11 bankruptcy protection since April, said late Tuesday that it would wind down its operations after failing to find a buyer. The 400-employee company, which has been a prominent player in the west and northwest suburban Chicago housing market, has a significant presence in California and four other states. Kimball pulled out of the troubled Florida market earlier this year. A year ago, it had 1,100 employees.

Toyota Motor Corp. said Wednesday it will suspend production of some vehicles in Japan for two days later this month to reduce output to grapple with slowing global demand.
Toyota will halt production of Lexus luxury models at the Tahara plant and output of all vehicles at the Miyata plant on Dec. 24 and 25, company spokesman Toshiaki Hori said.

In the past year, productivity has risen 2.1%, while unit labor costs are up 1.4%. Real hourly compensation fell 1.6%. In the nonfinancial corporate sector, productivity is up 3.5% in the past year, with unit labor costs up 0.2%, real hourly compensation down 1.2%, and unit profits down 6.7%.

Bank of America could end up cutting 30,000 jobs as it moves to absorb Merrill, three times as many cuts as previously estimated, CNBC television reported Wednesday, citing people familiar with the situation.

Chevron said it may sell some refineries in the face of lower gasoline margins.

Schlumberger said Wednesday the company's fiscal year profit for 2008 will be below analysts' consensus estimates due to the worldwide economic slowdown and its effect on oil and gas exploration and production. "We have been consistent in our view that our results would be affected in the event of a severe global economic downturn, which we are now facing," said Chairman and Chief Executive Officer Andrew Gould. "However, we still maintain that in the longer term, the fundamentals of our industry are sound."

Millie Munshi: "More than $31 trillion has been erased from the value of global equities as the collapse of the U.S. subprime mortgage market sparked financial turmoil that pushed economies worldwide into contraction."

Copper futures for March delivery sank 6.8 cents, or 4.2 percent, to $1.5325 a pound at 9:19 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest one-day drop since Nov. 11.

Lead dropped to a two-year low in London after Ivernia Inc., the former supplier of 3 percent of world output, was cleared to resume a shipment from Australia.

The Bank of Thailand reduced its one-day bond repurchase rate by 1 percentage point to 2.75 percent, it said today in Bangkok.

Nonmanufacturing sectors of the U.S. economy contracted at a record pace during November, the Institute for Supply Management reported Wednesday. The ISM nonmanufacturing index fell to 37.3% from 44.4% in October. The decline was broad-based with 17 out of 18 industries reported contraction. The business activity index fell to 33.0% in November from 44.2% in the previous month. New orders fell to 35.4% from 41.5%. The employment index fell to 31.3% from 41.5%. Inflation pressures eased. The price index plunged to 36.6% from 53.4% in the previous month.

Coal producer Alpha Natural Resources Inc. on Wednesday lowered its production and earnings estimates for the year, citing declining demand from steel producers and deferred customer orders. Its shares fell 17 percent.
The Abingdon, Va., mining company reduced its production estimate to 23.5 million to 23.8 million tons from a previous forecast of 24.5 million to 25 million tons.
The company said as demand for steel products have diminished, steel producers have reduced their raw-material requirements. On top of that, as customers face economic constraints they are deferring orders, resulting in an estimated 500,000 ton reduction of fourth-quarter metallurgical coal shipments for the company. The deteriorating steel market has even led one customer to seek to reopen 2009 contract negotiations, it said.

Crude stockpiles fell 400,000 barrels to 320.4 million in the week ended Nov. 28, U.S. Energy Information Administration reported. Gasoline supplies dipped by 1.6 million barrels in the latest week, while distillate stocks fell by 1.7 million barrels, the EIA reported. U.S. crude inventories fell by 2.3 million barrels to 317.4 million in the week ended Nov. 28, the American Petroleum Institute reported on Wednesday. Distillate stocks rose by 3.1 million barrels to 131.8 million in the same period, while gasoline stocks dropped by 416,000 barrels to 200.8 million.

After an initial triple-digit slide, the Dow Jones Industrial Average rallied to 8,523.75.37, up 104.66 points. The S&P 500 climbed 11.9 points to 860.71, while the Nasdaq Composite rose 29.76 points to 1,479.56.That was the scorecard after almost two hours of trading.

Online spending at U.S. retailers jumped 15 percent on Dec. 1 to $846 million, the second-biggest amount on record, as Internet sites lured customers with discounts on clothing and electronics, ComScore Inc. said.

Former AOL Chief Executive Jonathan Miller is trying to raise capital for Velocity Interactive Group, an investment firm focused on digital media where he is a partner, and not for buying Yahoo Inc, the New York Post reported.

Jet engine maker Pratt & Whitney laid off about 350 employees across the country on Wednesday.

The Treasury Department may float a plan to reduce mortgage rates on new mortgages to boost the housing market, The Wall Street Journal reported late Wednesday on its Web site, citing people familiar with the matter.

Crude for January delivery ended down 17 cents, or 0.4%, at $46.79 a barrel on the New York Mercantile Exchange.

New Zealand’s central bank cut its benchmark interest rate by a record 1.5 percentage points to 5 percent to help steer the economy out of it worst recession in 18 years. New Zealand’s central bank cut its benchmark interest rate by a record 1.5 percentage points to 5 percent to help steer the economy out of it worst recession in 18 years.

The Standard & Poor’s 500 Index climbed for the seventh time in eight days, rallying 2.6 percent to 870.72 after earlier sliding as much as 2.5 percent. The Dow Jones Industrial Average added 172.6, or 2.1 percent, to 8,591.69. The Nasdaq Composite increased 2.9 percent to 1,492.38. Almost three stocks rose for each that fell on the New York Stock Exchange.

Vale, the world's largest iron ore producer, has cut 2.1 percent of its work force because of slumping global demand for the raw ingredient used to make steel, the company confirmed Wednesday.

Companhia Vale Rio Doce SA said the cuts amount to 1,300 jobs from its global work force of about 62,000. An additional 5,500 workers are being idled with pay to slow production, and 1,200 are being retrained for new assignments.

Adobe Systems Inc.lowered its fourth-quarter revenue forecast to $912 million to $915 million from $925 million to $955 million, blaming the global economic crisis. However, it raised its fourth-quarter earnings outlook to 45 cents to 46 cents a share from 39 cents to 41 cents a share previously due to favorable tax items. On an adjusted basis, the company revised its view to 59 cents to 60 cents a share from 51 cents to 53 cents a share. Adobe will reduce its headcount by about 600 full-time positions globally.

State Street Corp will reduce its workforce by 6%, or by 1,600 to 1,800 jobs, to lower operating costs.

Carlyle Group is cutting 10% of its staff today, the first large U.S. private-equity firm to announce firmwide layoffs as the industry braces for leaner times.

The Washington, D.C., buyout shop will cut about 100 of its 1,000-person staff. It is the first firmwide layoff in Carlyle’s 20-year history. Other large firms are also considering cutbacks, according to two people familiar with discussions.

According to the WSJ, Google is ratcheting back spending and cutting new projects and employee perks as revenue growth has slowed dramatically over the past year.

According to the Fed Beige Book,"verall economic activity weakened across all Federal Reserve Districts since the last report. Districts generally reported decreases in retail sales, and vehicle sales were down significantly in most Districts. Tourism spending was subdued in a number of Districts. Reports on the service sector were generally negative. Manufacturing activity declined in most Districts, and new orders were soft. Nearly all Districts reported weak housing markets characterized by reduced selling prices and low, but stable, sales activity. Commercial real estate markets declined in most Districts. Lending contracted, with many Districts reporting reductions in residential, commercial and industrial lending and tightening lending standards. Agricultural conditions were mixed with a relatively good harvest but concerns about profitability. Mining and energy production and exploration started to soften due to lower output prices.

District reports generally described labor market conditions as weakening. Wage pressures were largely subdued. District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly energy, fuel, and many raw materials and food products.
Consumer spending weakened during the reporting period. Retail sales were described as weak or down in the New York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and San Francisco Districts. In Kansas City, consumer spending slowed sharply."

Telecom Italia unveiled a plan to reduce debt and trim costs through 4,000 job cuts and disposals of noncore assets valued at as much as $3.8 billion.

Tuesday, December 02, 2008

A Tight Spot

12/2/08 A Tight Spot

Rep. Ron Paul: "The updated total bailout commitments add up to over $8 trillion now. This translates into a monetary base increase of 75% over the last two months. This money does not come from some rainy day fund tucked away in the budget somewhere - it is created from thin air, and devalues every dollar in circulation. Dumping money on an economy, as they have been doing, is not the same as dumping wealth. In fact, it has quite the opposite effect.

One key attribute that gives money value is scarcity. If something that is used as money becomes too plentiful, it loses value. That is how inflation and hyperinflation happens. Giving a central bank the power to create fiat money out of thin air creates the tremendous risk of eventual hyperinflation. Most of the founding fathers did not want a central bank. Having just experienced the hyperinflation of the Continental dollar, they understood the power and the temptations inherent in that type of system. It gives one entity far too much power to control and destabilize the economy."

For the quarter ended Sept. 30, 3.96 percent of people holding a mortgage were at least 60 days behind in payments, compared with 2.56 percent in the 2007 third quarter.

"It's nothing short of staggering," said Ezra Becker, principal consultant in TransUnion's financial services group. Becker noted the rate had hovered at about 2 percent for years, until the second quarter 2007, when it started climbing.

Moreover, the climb is not likely going to slow, he said. "Our projections are that it's not only going to be increasing but it's increasing at a faster pace," he said. The fourth quarter of 2008 could see the percentage of mortgages past due jump as high as 4.6 to 4.7 percent, he said, an estimate that reflects the recession and rising unemployment rates. "This is more pessimistic than what we would have forecast a quarter ago," he acknowledged.

The highest delinquency rates continue to be in Florida, at 7.8 percent, Nevada, at 7.7 percent, California, at 5.8 percent and Arizona at 5.5 percent, TransUnion data showed. Mississippi is fifth, at 4.6 percent.

Sears Holdings Corp., parent of Sears and Kmart stores, swung to a third-quarter net loss from a year-earlier profit on 8.3% lower total sales and 9% lower domestic same-store sales. For the quarter ended Nov. 1, the loss was $146 million, or $1.16 a share, compared with net income of $4 million, or 3 cents, in the year-earlier period. Excluding special items, the adjusted loss for the latest quarter was 90 cents a share.

Beazer Homes USA Inc. reported a wider fiscal fourth-quarter net loss on 35% lower revenue. For the quarter ended Sept. 30, the loss widened to $473.9 million, or $12.29 a share, from $155.2 million, or $4.03, in the year-earlier period. Revenue fell to $712.6 million from $1.09 billion.The backlog at Sept. 30 was 1,358 homes, down 55% from the year-earlier 2,985. The sales value of the backlog was $326.6 million, down 61% from $838.8 million.

The Bank of Japan's policy board decided at an unscheduled meeting Tuesday to accept a broader range of collateral against the provision of liquidity, including loosened standards for the acceptance of corporate bonds, as it seeks to bolster funding available to companies ahead of the calendar and fiscal year end. The central bank said it will now accept BBB-rated corporate debt or higher as collateral, effectively watering down its previous qualifying standard of A-rated or higher, effective Dec. 9. The central bank also said it would provide unlimited funds collateralized by corporate debt at interest rates equal to its overnight call rate of 0.3%. The central said it would finalize the conditions for the new collateralized funding facility at its Dec. 18 to 19 policy meeting.

The Reserve Bank of Australia cut its main interest rate to 4.25% from 5.25% Tuesday, its lowest level since December 2001.

Tokyo's benchmark stock index led the region with a 6.4% drop, while Hong Kong shares fell 5% and Australian shares fell 4.2% despite a bigger-than-expected cut in interest rates there. South Korean shares fell 3.3%.
Futures on the Standard & Poor’s 500 Index added 1.9 percent to 831.30 at 1:04 p.m. in London, indicating the gauge will rebound from the worst selloff since October.

Demand for Treasuries has reached the ‘bubble” phase seen among technology stocks in 2000 and real estate six years later, according to David Rosenberg, chief North American economist at Merrill Lynch & Co.

“The 10-year note yield is now firmly below the 3 percent threshold and this next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase that quite plausibly sees an overshoot to or even through the April 1954 lows of 2.3 percent,” New York-based Rosenberg said in a research note today.

“It’s pretty simple,” says John Siciliano, a managing partner at Grail Partners LLC, a merchant bank that serves asset management firms. “The number of hedge funds is going to be cut in half in the next two quarters. You’re going to see capital calls like you can’t believe.”

Peter Schiff: "But what if the root of our financial problem is that American consumers have already taken on too much debt? By trying to force feed even more credit down the throats of already overly indebted Americans, Paulson's plan will only weaken the economy further.

Building on the groundwork laid by Paulson, the massive stimuli that will likely be pushed through by Obama and an overly eager Democratic Congress will further impede any real recovery. By swallowing up all available capital, spending to create government jobs will destroy far more private sector jobs. Rather than expanding government and increasing the national debt, policy makers should be thinking about doing the opposite.

The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market's attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis."

General Electric Co. said profit at the GE Capital finance unit will decline to $8 billion this year, less than previously forecast, and to $5 billion in 2009. GE said it will take a charge to accelerate cost cutting and add to reserves.

Profit excluding charges at GE Capital will be about $9 billion, as forecast, while total fourth-quarter profit at the parent company will be 50 to 52 cents a share, the low end of its previous forecast, the Fairfield, Connecticut-based company said in a statement. Chief Financial Officer Keith Sherin repeated GE’s goal to keep the $1.24 a share dividend in 2009 and protect its AAA credit rating, the highest available.

The charge may be as much at $1.4 billion, GE said.

Goldman Sachs Group Inc is likely to report a net loss of as much as $2 billion for the fourth quarter, the Wall Street Journal said, citing industry insiders.

The quarterly loss, equivalent to about $5 a share, will be Goldman's first ever as a public company, as it faces writedowns on everything from private equity to commercial real estate, the paper said.

BofA to Cut 10,000 Investment Banking Jobs

Platinum is trading at its lowest price relative to gold in about 11 years, signaling investors should buy the silver metal and sell the yellow one, according to Dresdner Bank AG. “It is a very rare event for platinum to trade this close to or below gold,” Bayram Dincer, and analyst at Dresdner in Zurich , said. “You surely have to buy platinum and sell gold. The downside risk is very limited.” I prefer to buy platinum and add to long-term gold holdings.

Bernanke: "The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand. Indeed, on No 25 the Fed announced plan to purchase $600bn in mortgage securities ($100bn agency debt, $500bn pass-throughs) in the open market over the next few quarters. It is encouraging that the announcement of that action was met by a fall in mortgage interest rates."

Dow starts the day up 1% to 8228. S&P +1.4% to 828. Nasdaq +1.35% to 1417.

Ryan Barnes: "Noting the “unprecedented global economic and credit downturn,” Mosaic reported phosphate volumes of just 1.3 million tonnes, down 800k sequentially. This is tracking much lower than the reduced estimate Mosaic put out just one month ago, when the company told us of planned production cuts of 1 million tonnes by the end of 2008. On the potash side, production was 1.7 million tonnes, down from 1.9m in the prior quarter.

Monday’s press release calls for a further 1m cut in 2009 phosphate production, depending on market conditions. Sales guidance for the current fiscal year has been completely taken off the table, for both phosphates and potash. At this point, a production level anywhere between 4m and 8m tonnes for phosphate seems plausible, but the company is still forecasting a strong spring planting season to boost results on the back end of the fiscal year."

Russia should abandon its defense of the ruble to kick-start economic growth by devaluing the currency 20 percent, according to Troika Dialog, the country’s oldest investment bank.

“The sooner they do it, the more chance that the economy will start to recover,” Evgeny Gavrilenkov, Troika’s chief economist, said in an interview in Moscow yesterday. “The exchange rate prevents growth.”

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.
“This may be referred to as the Great Recession,” because of its length, said Norbert Ore, chairman of the Institute for Supply Management’s factory survey.

In the first hour of trading the Dow was up about 150 points. Research in Motion was down 3 points to a new 52 week low, Google could not muster a rally, Apple was down, and Potash was near a new 52-week low. These are all high growth companies selling at multiples not seen in a very long time. Would you rather buy a financial stock or Google at $263?

Crude has difficulty holding any kind of a rally.

Rob Kirby: "This past Friday, Nov. 28, 2008, was first notice day for delivery of the December COMEX [a division of NYMEX] gold and silver futures contracts which trade on the New York Mercantile Exchange. The chart appended below shows that on Friday, 8,600 gold futures contracts @ 100 ounces per contract [and 3,040 silver futures contracts @ 5,000 ounces per contract] were delivered. To try to give some perspective to these numbers the previous delivery month for gold futures was October, 2008 when there were 11,554 deliveries for the entire month – a “big” number by historical standards."

Top Japanese steelmakers are considering temporarily shutting down blast furnaces in response to sagging demand, particularly from automakers, the Nikkei reported Wednesday in its online edition. No major steelmaker has shut a blast furnace down to adjust production in about seven years, the daily said.

Ford's November sales down 31%, GM's down 41%, Chrysler's down 47%, and Toyota's down 34%. The U.S. automakers all want multi-billion dollar bridge loans from the taxpayers, the same taxpayers who have trouble getting car loans.

Auto club AAA, the Oil Price Information Service and Wright Express said prices fell 0.8 cents overnight to $1.812, down 62.4 cents in the past month and $1.249 in the past year.

Light, sweet crude for January delivery fell more than 4 percent, or $2.32 to settle at $46.96 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average gained 270 points, or 3.3%, to end at 8,419. The S&P 500 index gained 4% to 848, while the Nasdaq Composite rose 51 points, or 3.7%, to end at 1,449.

Monday, December 01, 2008

Bleak Monday

12/1/08 Bleak Monday

John Hussman: "With regard to the market as a whole, if the long-term record is clear on one point, it is that most of the fluctuaton in the stock market is due to changes in risk-premiums, not major variations in the long-term stream of cash flows delivered by U.S. corporations over time. Just as driving down the price of a bond raises the long-term yield to maturity on that bond, stock market plunges also increase the long-term return that stocks are priced to deliver. This was true even in the Great Depression....I expect that pressure is growing on short-sellers to cover their positions and for investors who abandoned stocks near the lows to re-evaluate their exit. On the other side, however, the market has not recovered enough for value-driven investors to have much eagerness to abandon their positions. All of that is why a combination of retreating risk aversion coupled with favorable valuations tends to produce quite strong risk-adjusted returns, on average. I wouldn't want to be net short here because there are few natural suppliers of stock in the event the shorts are forced to cover. The doomsday club is already out, value investors are in no hurry to sell, and the trend-followers aren't even in yet."

UnitedHealth Group will affirm its 2008 adjusted earnings estimate of $2.95 to $2.98 a share. For 2009 it sees revenue of $85 billion to $86 billion and earnings of $2.90 to $3.15 a share.

The purchasing managers index for U.K. manufacturing slumped to a worse-than-forecast 34.4 in November from 40.7 in October, according to news reports.

Manufacturing activity in the United States declined at the fastest pace in 27 years in November, the Institute for Supply Management reported Monday. The ISM index fell to 36.2% in November from 38.9% in October. It's the lowest since early 1982. The new orders index fell to 27.9%, the lowest since 1980. The prices paid index fell to 25.5%.

The U.K. FTSE 100 index dipped 0.6% to 4,263.43 while the German DAX 30 index fell 0.8% to 4,631.19. The Japanese Nikkei 225 was down 2% to 8,343.69, the Australian S&P/ASX 200 was off 1.6% at 3,681.20 and the South Korean Kospi fell 1.5% to 1,059.74. Singapore's Strait Times Index edged down 1.8% at 1,701.05 and the Taiwanese Taiex index was off 0.8% at 4,426.44. At 4:45 a.m. EST, S&P 500 futures were down 2 percent, Dow Jones futures were down 1.7 percent and Nasdaq 100 futures were down 1.9 percent.

Saks, the luxury department store chain, on Wednesday announced a “poison pill” defence against possible hostile suitors, after Carlos Slim, the Mexican billionaire, significantly raised his holding in the company.

Mr Slim invested $23.1m in Saks over four days last week, to give him 17.6 per cent of Saks outstanding shares, up from around 12 per cent at the end of October.

There are now more than 600 Bay Area properties priced below $100,000.

Iranian state TV is reporting that OPEC's Secretary-General says a daily oil production cut of between 1 million and 1.5 million barrels is likely in December.

Secretary-General Abdullah El-Badri was quoted Monday on the station's Web site saying that the Organization of Petroleum Exporting Countries is facing a very difficult situation and plans to "restore oil prices to $90 per barrel."

OPEC's next official meeting is in Algeria on Dec. 17.

The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."

Oil for January delivery fell $3.15, or 6%, to $51.34 a barrel in electronic trading on Globex.

Gold for February delivery dropped $28.30 to $790.50 an ounce in electronic trading on Globex. March silver futures tumbled 95 cents, or 9%, to $9.29 an ounce.

The Chinese government may tell its state-owned airlines to delay new aircraft deliveries because of slowing travel growth amid a global-wide economic downturn, the Associated Press reported, citing a weekend article in the China Morning Post newspaper.

Johnson & Johnson said Monday it would pay $1.07 billion in cash to buy Mentor Corp., a supplier of medical products for the aesthetic market. The deal values Mentor Corp. at $31 a share, a premium of $14.85, or 92% over its closing price of $16.15 a share on Friday.

"We take all of this into context and realize Black Friday is not going to save the holiday season," National Retail Federation spokeswoman Ellen Davis said. "Regardless of retail sales, retail profits are another matter. Everything they sold was at a razor-thin margin."

According to the NRF, shoppers spent an average of 7.2 percent more per person at nearly $373 during the four-day holiday weekend from U.S. Thanksgiving on Thursday through Sunday. Total spending was $41 billion.

Bank of Japan Governor Masaaki Shirakawa warned on Monday economic conditions were deteriorating fast, and Japanese firms were finding it increasingly hard to secure credit.

Porsche schedules 8 days of production stops at main plant

* Volkswagen may stop production in Wolfsburg for 3 weeks

* Audi says production halts are a precaution

* BMW says will cut further 400 temporary jobs in Leipzig

Dick Bove widens his 2008 loss forecast for Citigroup to $2.79 from $2.44, and now sees a 2009 lost of $0.05 vs. +$0.79.

Seeking Alpha: "Securing a $45B jumbo loan to buy the remaining 44% of Genentech seems increasingly unlikely for Roche."

Yahoo! Inc. isn't planning to sell its Internet search business to a group of investors backed by Microsoft Corp., people familiar with the situation said today, denying a report in the Sunday Times of London.

According to research by Morgan Stanley, hedge fund's assets under management are likely to sink to $900bn (€706.8m) by the end of 2009. The figure had been $1.93 trillion in the first half of 2008.

Warren Buffet's investment strategy of buying stocks to hold for a number of years is no longer viable due to the extreme levels of volatility, Marc Faber, editor & publisher of The Gloom, Boom & Doom Report, told CNBC. "The Warren Buffett approach is dead and it's been dead for ten years and it's going to be dead for another ten years," Faber said Monday.

"We've moved into an environment of very high volatility where you will have up and down moves of like 20 percent all the time and that is a traders' market," Faber said.

For the four weeks of November through Friday the 28th, retail e-commerce dropped to $10.4 billion, down 4 percent from $10.8 billion for the same period in 2007, according to ComScore. For the full holiday season, ComScore predicted that for November and December, online sales will be flat compared with 2007, coming in again at $29.2 billion.

The Commerce Department reported Monday that construction spending dropped by 1.2 percent in October, much bigger than the 0.9 percent decline many analysts expected.

Gas prices slipped 0.5 cents to a national average of $1.82 a gallon, the cheapest price since January 2005, according to Monday's survey from motorist group AAA. That price is $1.24 less than what gas cost on the same day last year.

Lower gas prices help consumer pocketbooks but do not assist with counterbalancing growing job losses.

The Dow had been on a tear, gaining 1,276.75 points, or 16.9%, over the past five trading sessions, the biggest five-day consecutive point gain ever for the index. It was also the first five-day winning streak since the five-day period ending July 17, 2007. After 90 minutes of trading on Monday, the Dow had dropped 400 points. February gold was down $47.60, or 6%, to $771.40 an ounce. January crude was down $4.54, or 8.4%, to $49.90 a barrel.

By the end of the trading day, the Dow fell 680 points, or 7.7%, to 8,149. The S&P 500 was off 80 points, or 8.9%, to 816, and the Nasdaq Composite Index tumbled 138 points, or 9%, to 1,398. Crude oil for January delivery fell $5.15, or 9.4%, to end at $49.28 a barrel on the New York Mercantile Exchange. Gold for February delivery dropped $42.20 to end at $776.80 an ounce on the New York Mercantile Exchange.

Pilgrim's Pride Corp. filed for Chapter 11 bankruptcy protection to address short-term operational and liquidity challenges.

PMorgan Chase & Co on Monday said it will eliminate about 9,200 jobs at the former Washington Mutual Inc , which on Sept 25 became the largest U.S. bank to fail.

The cuts amount to more than 21 percent of the workforce at Washington Mutual, which ended June with 43,198 employees.

Gov. Arnold Schwarzenegger on Monday declared a fiscal emergency and called for a special session with lawmakers to address California's $11.2 billion deficit, the Associated Press reported. California's revenue gap is expected to reach $28 billion over the next 19 months and without immediate action, the state could run out of cash in February, according to the report.

Asian stocks traded sharply lower early Tuesday. Japan's Nikkei benchmark briefly tumbled below the 8,000 point level before recovering. Among regional indexes, the Nikkei 225 was down 3% at 8,144.27, South Korea's Kospi fell 4.1% at 1,014.90, Australia's S&P/ASX 200 was down 3.8% at 3,541.30 and New Zealand's NZSX-50 Composite shed 1.8% at 2,642.40.

The Bank of Japan decided to call an unscheduled monetary policy meeting Tuesday, the central bank said on its Web site.

Tata Steel unit Corus has applied for Dutch government financial aid to temporarily reduce the work hours of 4,600 workers to cope with the global economic slowdown, Dutch news agency ANP reported on Monday.

Sunday, November 30, 2008

Dow Theory

11/30/08 Dow Theory

The Oil Drum: "The long-term implications of declines in energy production are very serious. Research shows that standards of living are closely tied to energy consumption. With less energy available, standards of living are likely to decline."

"Every company is trying to secure as much cash as it can [to withstand] the longer-term effects of the credit crisis," says Stefano Rettore, general manager at CHS Brazil, a major grain-trading company. "That's leaving less cash available to finance Brazilian agriculture."

Mike Burk: "Since 1928, over all years the SPX has been up 74% of the time in December with an average gain of 1.3% making it the best month of the year. During the 4th year of the Presidential Cycle the SPX has been up 80% of the time making December the best month of the year by that measure. The average gain of 1.3% in December is 3rd behind an average gain of 2.8% in August and a 1.7% gain in July....The pattern of a violent rally from the November lows is uncomfortably similar to the rally off the October lows into Election day. I expect the major indices to be lower on Friday December 5 than they were on Friday November 28."

Tim Wood: "The most important aspect of Dow theory is the joint movement of the Industrials and the Transports above and below previous secondary high and low points. As you can see on the chart below, the averages last made a joint price low on November 20, 2008, which served to yet again reconfirm the bearish primary trend that was established on November 21, 2007. Now, this is not to say that there won't be bounces. Of course there will and following every secondary low point there is of course, a bounce into a secondary high point. The key is understanding when a secondary low point has been made, what the advance into the secondary high point is telling you and then identifying the turn down out of that secondary high point....As of the October 2007 high the bull market advance that began in 1974 has now run 33 years and has consisted of eight 4-year cycles with a total advance of 2,385%. Note that this advance has been roughly double the previous bull market advance in terms of the percentage move out of the low in which the bull market began. Now the question at hand is, did the October 2007 top mark THE top of this entire bull market advance up from the 1974 low? If so, then we are now operating within the context of a much longer-term secular bear market that should serve to correct the entire 1974 to 2007 bull market. Also, based upon the historical bull and bear market relationships of the past, the 33 year bull market period should be corrected by a 10 to 12 year bear market, which, based on the 2007 top, would take the bear market down into the 2017 to 2019 timeframe."

China’s economy may grow 10 percent next year as the “huge” potential of domestic consumption and investments counters the impact of a global slowdown, a State Council researcher said.

The “vast development potential” of the world’s most- populous nation will ensure a fast rate of expansion in 2009, said Zhang Liqun, a researcher with the Cabinet’s Development Research Center, according to the official Xinhua News Agency. “Domestic enterprises need to accelerate the pace in upgrading their business structures to better cope with a severe world economic situation.”

Rigs drilling for gas in the lower 48 states fell 68 from the prior week and are now down on a year over year basis for the first time since May.

Australia's Perth Mint has suspended physical deliveries of gold until January. it is unable to keep up with demand.

Brady Willett: "The only global currency that doesn’t represent the increasing liabilities of governments, gold, will benefit if current trends persist."

Industry analysts at ShopLocal say "retailers increased Black Friday sale offers by 21% over last year."

"The customer is so pressed for money, so scared, and so in debt," says Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates. "They are so focused on price that the huge must-have toys are gone."

Hormel is cranking out as much Spam as its workers can produce.

China’s manufacturing contracted by the most on record, signaling the growing risk of a slump in the world’s fourth-biggest economy.
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today.

The dollar fell against the yen before U.S. reports that may show manufacturing shrank and employers cut jobs by the most since 2001 as the recession deepens.

Retail Sales

11/29/08 Retail Sales

Saudi Arabia's king says the price of oil should be $75 a barrel, much higher than it is now, but his oil minister indicated Saturday that no measures will likely be taken until OPEC meets again next month.

Saudi Oil Minister Ali Naimi said that the Organization of Petroleum Exporting Countries will "do what needs to be done" to shore up falling oil prices when the cartel meets Dec. 17 in Algeria.

Excluding Wal-Mart Stores, retailers are expected to report Thursday that November sales at stores open more than a year fell 7.1%, according to Thomson Reuters. Even so, it was reported the sales boost during the post-Thanksgiving shopathon came at the expense of profits as the nation's retailers had to slash prices to attract the crowds in a season that is expected to be the weakest in decades. Sales during the day after Thanksgiving rose 3 percent to $10.6 billion, according to preliminary figures released Saturday by ShopperTrak RCT Corp., a Chicago-based research firm that tracks sales at more than 50,000 retail outlets. Last year, shoppers spent about $10.3 billion on the day after Thanksgiving. I question the validity of these post-Thanksgiving numbers.

According to the FT, Hassan, whose pretzel cart has sat outside the Disney store on New York’s Fifth Avenue for almost 10 years, had never seen a Black Friday like it.

“Last year, I sold almost 1,000 breads. This year it’s only 100 or 150,” he said.

U.S. retailers that lowered prices as much as 70 percent on the day after Thanksgiving may see sales eroded by steeper price cuts in what may be the worst holiday shopping season in six years.

Bargains such as Best Buy Co.’s Toshiba Corp. satellite laptop computer for $379.99, a $270 discount, and Gap Inc.’s buy-one-get-one free holiday sweater offer may leave retailers with slowing sales even as they entice more people to visit stores during the holidays.

More than one million jobs have been lost this year through October, according to the Labor Department. And the upcoming November employment report is expected to show a loss of another 350,000 jobs, according to analysts surveyed by MarketWatch. A decrease of 350,000 would be the largest drop since May 1980, when more than 400,000 jobs were shed.

Falling markets and a sour economy have opened a gap of more than $200 billion in the pension plans of S&P 500 companies, including Ford and GM.