Friday, December 12, 2008


12/12/08 Autos

UAW: Even if union worked for free, GM would fail by January.

Auto bailout fails in the Senate. Futures down big triple digits in early trading. Futures for the Dow Jones Industrial Average declined 287 points to 8,233. Those for the S&P 500 fell 33.9 points to 840.6 and Nasdaq 100 futures were off 34.2 points at 1155.8.
The U.K. FTSE 100 index dropped 4.1% to 4,209.49, the German DAX 30 index fell 4.4% to 4,559.56 and the French CAC-40 index slid 5% to 3,141.14.

Inflation at the wholesale level decelerated sharply in November for the second straight month, the Labor Department said Friday. The producer price index fell 2.2%, driven by an 11.2% drop in energy prices. This follows a record 2.8% drop in October. Food prices were flat in November. The core PPI, excluding food and energy costs, also moderated in November. The core rate rose 0.1% in the month, down from a 0.4% gain in October and the smallest gain since March.

Retail sales were down 7.4% compared with a year earlier. Sales fell a revised 2.9% in October and a revised 1.6% in September. But the extent of the decline was exaggerated by an historic drop in retail gasoline prices in November. Excluding the record 14.7% drop in sales at gas stations, retail sales fell 0.2%.

Goldman Sachs on Friday cut its 2009 outlook for oil prices to $45 a barrel from $80 a barrel in the face of the global economic slowdown, while raising the possibility that crude could dip below $40 a barrel shortly.

Gold for February delivery fell $9.10, or 1%, to $817.50 an ounce in electronic trading on Globex. Other metals also posted losses, with copper falling 7.4% and silver falling 3.2%. Crude oil for January delivery fell $2.92, or 6%, to $45.05 a barrel in electronic trading on Globex.

India's industrial production contracted for the first time in 15 years in October, the Ministry of Statistics said Friday, the latest gloomy economic news to cast doubt on government efforts to stimulate growth.
The index of industrial production shrank 0.4 percent in October, due in part to falling production of consumer goods. From April to October, the index grew by 4.1 percent versus 9.9 percent during the same period last year.

Dollar slides to 13-year low against the yen.

Martin Hutchinson: "Over the next 15 years, Americans and Europeans may suffer a worse fall in their living standards than during the Great Depression, albeit played out agonizingly slowly."

European Central Bank policy makers signaled they’re reluctant to cut the benchmark interest rate much further after three reductions to 2.5 percent since October, and may not trim borrowing costs again next month.

Blackstone Group LP, the world’s biggest private-equity firm, plans to eliminate about 70 jobs as profits from leveraged-buyout decline, according to two people familiar with the matter.
The layoffs, representing about 7 percent of Blackstone’s 1,000 workers, will affect most of the New York-based company’s business units, said the people, who asked not to be named because the decisions haven’t been made public. A Blackstone official declined to comment.

Ladenburg Thalmann's Richard Bove cut his price target on Wells Fargo and said the bank will take a charge of $40 billion in the fourth quarter related to the acquisition of Wachovia.

California faces a $41.8 billion shortfall for its combined current and next fiscal years, up from a prior $28 billion estimate as its economy weakens and revenues decline, the director of the state's Department of Finance, said on Thursday.

Fairchild Semiconductor said Friday it plans to cut 1,100 jobs, or about 12 percent of its work force, and reduced its revenue guidance for its fiscal fourth quarter.

Alcatel-Lucent SA said Friday it will eliminate another 1,000 white-collar jobs as part of its new chief's plan to return the company to profitability, but shares slumped as investors were hoping for a bolder shift in business strategy.

Biotechnology firm Elan Corp. said Friday it is closing its offices in New York and Tokyo during the first quarter as it realigns operations.
Elan said it will eliminate an unspecified number of positions and revise its marketing activities for Tysabri as a treatment for Crohn's disease.

Galina Alexeenko and Sandra Kollen: "The Baltic Dry Index, an indirect gauge of international trade flows, has dropped by more than 90 percent since its peak in June as a result not only of decreased global demand but also availability of financing that demand, according to Dismal Scientist....In the words of the WTO’s Director-General Pascal Lamy, “The world economy is slowing and we are seeing trade decrease. If trade finance is not tackled, we run the risk of further exacerbating this downward spiral.” Since about 40 percent of U.S. exports are shipped to developing countries, the inability of the importers in those countries to finance their purchases of U.S.-made goods can’t help the U.S. exports sector, which is already suffering from falling foreign demand as the global economy slows."

London Banker: "Deflation has become inevitable...Anyone sitting on a pile of cash now is unlikely to want to either (a) place it in a bank, or (b) invest it in the stock market. As a result, the implosion of the financial and real economy must continue no matter how big the central bank’s aspirations for its balance sheet or the treasury’s aspirations for its deficit.
If US, EU and UK had substantial domestic savings to fund their banks (as in Japan in 1990), then perhaps the consequences would not be so imminently disastrous. Lacking sufficient domestic savings, however, their actions will likely make foreign creditors in Japan, China, the Gulf and elsewhere question whether it is worthwhile to keep pumping scarce savings into such flawed and reckless economies."

The dollar remained 1.3% lower against the Japanese currency at 90.20 yen. The greenback previously plunged to a 13-year low below 89 yen in Asian trade. The euro was up 0.3% against the dollar at $1.3384, near its high for the day. Crude's weakness continues and it's now down 9% on the day.

Including ETF activity, Equity funds report net cash inflows totaling $5.791 billion in the week ended 12/10/08 with Domestic funds reporting net inflows of $5.683 billion and Non-domestic funds reporting net inflows of $108 million;

According to AMG Data Services, Excluding ETF activity, Equity funds report net cash outflows totaling -$3.930 billion with Domestic funds reporting net outflows of -$2.109 billion and Non-domestic funds reporting net outflows totaling -$1.821 billion;
Excluding ETF activity Equity income funds report net inflows ($218 Mil) for the seventh of the last eight weeks.

The dollar is teetering just below a critical level versus the euro that could send it nearly 40 percent lower, Phil Roberts, technical analyst at Barclays Capital, told CNBC.

After hitting a 28-year low in November, consumer sentiment improved in early December, according to a survey by the University of Michigan and Reuters. The consumer sentiment index rose to 59.1 in December from 55.3 in the previous month. All of the increase came in the current conditions index, which rose to 69.4 from 57.5. Economists attributed the gain to the fall in gasoline prices. The expectations index dropped to 52.4 in December from 53.9.

General Motors Corp.on Friday said it will cut its first-quarter production by 250,000 cars and trucks as a result of "rapidly deteriorating market conditions."

Americans drove 100 billion fewer miles in the 12 months ending in October than they had the year before, a decline of about 3.4%, the Transportation Department reported Friday.

Bonds issued by General Motors Corp. and Ford Motor Co. plummeted Friday after the Senate failed to pass a rescue package for the auto industry. General Motors' 8.375% bonds due in 2033 fell 5.5 cents to 10.5 cents for every $1 invested, according to junk-bond specialist KDP Investment Advisors, Inc.

Honda Motor Co. will cut production in North America by another 119,000 units by the end of its fiscal year, underscoring the malaise in the global auto industry, The Wall Street Journal reported on its Web site Friday. The latest decision, the fourth round of production cuts in North America for the Japanese automaker, brings Honda's total output reduction to 175,000 units by March 31, the newspaper said. The company plans to make 1,293,000 vehicles this year, down 12% from its original target of 1,468,000 units, according to the Journal.

International Paper to cut 1,000 to 1,500 jobs.

The Federal Deposit Insurance Corporation said late Friday that Haven Trust Bank of Duluth, Ga., was closed by the Georgia Department of Banking and Finance. The failure not only marks the 24th bank failure of the year, but the fifth in the Atlanta area.

The Dow Jones Industrial Average gained 64.59 points, or 0.8%, to end at 8,629.68, leaving it off nearly 0.1% from last Friday's close. The S&P 500 climbed 6.14 points, or 0.7%, to 879.73, giving it a 0.4% rise on the week. The Nasdaq Composite advanced 32.84 points, or 2.2%, to 1,540.72, leaving the technology-laden index up 2.1% from a week ago.

Crude oil for January delivery fell $1.70 to end at $46.28 a barrel on the New York Mercantile Exchange. Gold for February delivery ended down $6.10 at $820.50 an ounce on the New York Mercantile Exchange.

Thursday, December 11, 2008

Back To The Future

12/11/08 Back To The Future

Costco Wholesale Corp. reported fiscal first-quarter net income was about flat on 1% higher same-store sales and 3.6% higher total sales. For the quarter ended Nov. 23, earnings were $262.5 million, or 60 cents a share, compared with $262 million, or 59 cents, in the year-earlier period. Shares outstanding fell 1.2% to 440.5 million. Net sales reached $16.04 billion from $15.47 billion.

Gold for February delivery gained $19.90, or 2.5%, to $828.70 an ounce in electronic trading on Globex. The dollar extended its losses after the Labor Department reported that the number of first-time filings for state unemployment benefits jumped by 58,000 to a 26-year high of 573,000 last week. The U.S. dollar index, a measure of the greenback against a trade-weighted basket of six currencies, fell 0.7% to 84.10. The euro soared 1.6% to $1.3230 and the British pound rose 0.7% to $1.4907. The dollar fell 1.6% to 91.32 yen.

January crude up $3.09, or 7%, to $46.62 a barrel on Globex.

Prices of goods and services imported into the United States plummeted a record 6.7% in November as imported crude oil prices fell a record 25.8%. It's not just petroleum prices that are falling: Prices of nonfuel imports fell a record 1.8%. The prices that U.S. producers received for their exports also fell, dropping a record 3.2% in November. In the past 12 months, import prices are down 4.4%, including a 29% drop in petroleum prices. It's the largest year-over-year decline in import prices since 2002. Even with lower import prices, the U.S. trade deficit widened by 1.1% in October to $57.2 billion, the Commerce Department said Thursday. The trade deficit was above the consensus forecast of Wall Street economists of a deficit of $54.5 billion. Exports fell faster than imports in October. Exports dropped to the lowest level in seven months as foreign purchases of U.S. aircraft, automobiles, chemicals and food waned. The U.S. trade deficit with China widened to $28.0 billion in October compared with $25.9 billion in the same month last year.

Consumer spending excluding autos fell 3.8 percent last month on a seasonally adjusted basis, steeper than the 1.5 percent decline in October, SpendingPulse said.

The November figure was the largest one-month drop in SpendingPulse history, which began in 2003, surpassing the prior record fall of 2.4 percent set two months ago.

The report was the latest evidence that U.S. retailers are facing one of the worst holiday retail seasons in recent memory. The year-end shopping period accounts for the bulk of the annual business of many retailers.

"We are talking about a consumer who is wary of spending," said Kamalesh Rao, SpendingPulse's director of economic research.

Even though gas prices have fallen sharply, consumer spending is still on the skids. It's all about jobs, fear of losing a job, and a shrinking standard of living.

Benefits for state and local government employees cost an average of $13.41 per hour worked in September 2008, $4.21 of which was for health insurance. Employer costs for civilian workers averaged $28.87 per hour worked; $20.13 for wages and salaries and $8.74 for benefits.

U.S. gross domestic product is on track to decline at a 6.6% annual rate this quarter, one of its worst performances ever, economists for Macroeconomic Advisers said Thursday.

Average U.S. gasoline prices fell by 2 cents to $1.66 a gallon on Thursday, according to the AAA Daily Fuel Gauge Report. A month ago, gasoline sold for $2.22 a gallon. A year ago, it sold for $2.99 a gallon.

P&G continues to expect earnings per share of $1.58 to $1.63 for the quarter and $4.28 to $4.38 for the year

The $41 billion leveraged buyout of BCE Inc., the Montreal telecoms giant, ended after auditors KPMG concluded that the company that resulted from the deal would not be solvent, the potential buying group said.

The Swiss National Bank on Thursday cut its three-month Libor target range by half a percentage point to to a 0% to 1% range, in line with expectations.

Toyota Corp. is planning to cut output by more than one million vehicles next year in anticipation of weak global demand, according to Japanese media reports.

Sharp Corp., facing slumping demand for some consumer products, will lay off about 300 workers and shutter two production lines at two factories in western Japan that make liquid-crystal-display panels for cell phones and personal computers, according to a report in the Nikkei newspaper Thursday, which did not cite its source.

Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.

The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 percent, said a spokesman who declined to be identified on bank policy.

Saudi Arabia, the world’s biggest oil exporter, cut production more than traders and analysts had estimated last month, reflecting the nation’s commitment to halt the $100 plunge in crude prices. Oil rallied after Oil Minister Ali al-Naimi said in an interview in Poznan, Poland, that the kingdom pumped 8.493 million barrels of oil a day in November. That’s 287,000 barrels a day less than estimated by the International Energy Agency, and close to Saudi Arabia’s OPEC quota of 8.477 million barrels.

The IEA said world crude oil demand this year is now expected to officially enter its own recession of sorts, with oil consumption contracting for the first time in 25 years.

Real-estate developer Forest City Enterprises said it will halt new projects and focus on reducing debt and managing its existing real-estate portfolio.

The Iraqi government has called for the administration of U.S. President-elect Barack Obama to initiate sustained dialogue with Iran in hopes of greater Middle Eastern stability, a government spokesman said on Thursday.Spokesman Ali al-Dabbagh also called for dialogue to improve relations between Iran and Arab countries.

The IEA cut its forecast for global oil demand this year by 350,000 barrels a day to 85.8 million barrels a day, down 0.2 percent from 2007.

"The global demand contraction expected in 2008 will be the first since 1983," the agency said in its monthly oil market report.

The IEA slashed its forecast for oil demand in developed nations in the 30-country Organization for Economic Cooperation and Development by 290,000 barrels a day this year and 210,000 barrels a day in 2009.

Demand in non-OECD countries will rise 3.9 percent this year and 2.9 percent in 2009, the IEA said, slightly slower than its forecast in its report for November. It said the predicted cuts were linked to the economic slowdown and revised data in Asian countries like Malaysia, Taiwan and Thailand.

Sara Lee Corp. will reduce its work force by 700 jobs as part of plan to cut costs by up to $250 million.

Cummins Engine Co.said Thursday it would cut 500 jobs, or 3.5% of its workforce, before 2009 because of a sudden drop in demand for its medium- and heavy duty trucks and construction products. Cummins said it now expects 2008 sales to increase 9%, which is below its previous guidance of 12%. Earnings before interest and taxes were reduced to 9% of sales, versus the prior guidance of 10%.

Stanley Works says it plans to cut 2,000 jobs, or about 10 percent of its work force, and close three manufacturing facilities.

Boeing Co. said the 787 Dreamliner is now almost two years behind schedule and won’t be delivered to the first customer until the first quarter of 2010, the fourth delay for the best-selling new aircraft in the planemaker’s history. Boeing has clearly shown that its ability in the field of logistics is nil.

General Motors Corp. has been asked for payments in advance by a small number of auto-parts suppliers after saying it would run out of money by month’s end without U.S. loans, people familiar with the matter said.

GM has rejected the requests, which so far come from a fraction of its 3,600 suppliers, said the people, who asked not to be identified because the discussions are private. GM typically pays vendors about 45 days after getting an invoice.

The full moon of tomorrow is the biggest and brightest of the year. What impact will that be having?

Some industry executives and analysts predict that 2009 could be the worst year for freight-transportation volume in three decades or more. You believe the rail stocks fully reflect this view? Berkshire Hathaway's stake in Burlington Northern Santa Fe is up to 19.83 percent, after Warren Buffett's holding company bought 3.3 million additional shares on Monday and Tuesday.It reported a stake of about 18.9 percent as of October 28. In a filing with the SEC tonight (Wednesday), Berkshire says it bought the Burlington shares at $77 and $80 a share after 'put' options it sold were exercised.During those two days, Burlington traded between a low of $73.76 and a high of $77.50, about where it was at the beginning of the year, after retreating from a 52-week high of almost $115 in June.

According to, the first marriage failure rate is running about 41%, second marriages fail at a 60% rate, while thirds fail at 73%.

Mexico said Wednesday that rising domestic consumption will cut the country's oil exports almost 40 percent by 2017, although the country hopes to increase crude production to just over 3 million barrels per day by that time.

Exports will drop from the estimated daily average of 1.4 million barrels per day in 2008 to about 875 million barrels in 2017, according to a 10-year planning report from the Energy Department. Mexico is currently one of the main crude suppliers to the U.S. market.

Marathon Oil continues to weigh whether to break out its refining business from its exploration and production operations in the wake of the challenging economic environment. "Our review thus far indicates that a separation of the businesses may enhance shareholder value, however, the recent extreme volatility in the capital and commodity markets requires further evaluation before a decision can be reached.

Bank of Korea Cuts Key Rate to Record Low of 3%.

Mathias Kruettli: "Unemployment in the U.S. is likely to increase further, and this will cause a jump in defaults on credit card debt. Since the total outstanding credit card debt in the U.S. has reached a level of 1 trillion USD, higher charge-off rates on credit card portfolios could turn out to have devastating effects for U.S. commercial banks.... we forecast write-downs on U.S. credit card debt receivables in 2009....In the worst case scenario the write-downs could be as high as 146 billion USD. In the best case the write-downs will be around 64 billion USD. We come to the conclusion that write-downs in 2009 are likely to be significantly higher than in 2008 (50 billion USD). Considering that the total write-downs on credit card receivables have never exceeded 50 billion USD in the past, it is doubtful if the credit card issuers could absorb write-downs of far above 100 billion USD."

Goldman Sachs Group giving longtime employees an incentive to leave before the end of the year, the Financial Times reported Thursday. The company as of 2009 is extending the length of service required by Goldman employees to be eligible for the firm's full retirement package, FT said. Rather than requiring a combination of age and years of service to exceed 55, the new rule will call for 60, according to the report. Like other Wall Street firms, Goldman has been hurt by the credit crunch and announced layoffs.

The "nasty" U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said. Inc. lowered its fourth-quarter revenue guidance on Thursday after the Chinese search engine operator suspended thousands of merchants from its paid-search service that were selling medical products without licenses on file.

Beijing-based Baidu now expects its quarterly revenue to range from 890 million yuan ($131 million) to 900 million yuan ($133 million). The company previously forecast revenue of roughly 1.03 billion yuan ($151 million) to 1.06 billion yuan ($155 million).

“Treasuries have some bubble characteristics, certainly the Treasury bill does,” said Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., which oversees the world’s largest bond fund. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk?” he said in a Bloomberg Television interview yesterday.

An investor who bought $1 million in three-month bills at the closing rate of negative 0.01 percent on Dec. 9 would realize a loss of $25.56 when the securities mature. This is nuts!!!!!!

Even at the low yields, the government received bids for four times the amount of four-week bills it auctioned this week, according to the Treasury.

The VIX, which measures the cost of using options as insurance against declines in the S&P 500, has dropped 31 percent since Nov. 20, when it rose to 80.86, the highest in its 18-year history. Equities have rallied about 20% from their lows; however, the VIX still sits at a lofty 55+.

Randall Forsyth: "ISI, the perennially top-rated economics advisory headed up by Ed Hyman and Nancy Lazar, is telling clients its own survey of trucking companies has fallen into “uncharted territory” to the lowest in a decade. They admit their survey doesn’t go back to the 1990 recession let alone the 1981-82 deep downturn. But ISI says the steep plunge in its trucking survey would correlate with a 7.2% plunge in fourth-quarter gross domestic product."

Defense contractor Textron Inc. is laying off more than 120 employees, primarily from its corporate offices in Rhode Island, Michigan and Texas.

Natural gas stocks fall 67 Bcf last week: EIA.

Cocoa rose to its highest since at least 1989 in London as a weaker dollar buoyed demand for commodities and amid concern about supply from Ivory Coast, the world’s biggest grower.

Deliveries to Ivory Coast ports for shipment abroad fell 30 percent in the week ended Nov. 30 to about 45,315 metric tons from 65,000 tons a year earlier, an industry official with access to the information said yesterday. The country’s growers are getting paid 20 percent more for beans than a month ago because prolonged rainfall has reduced supply, according to figures published by the state-run Bourse du CafĂ© et du Cacao.

The South African Reserve Bank has cut a key interest rate by a half percentage point to 11.5 percent in a bid to stimulate the flagging economy.

KB Toys filed for bankruptcy protection for the second time in four years on Thursday, joining fellow retailers Linens 'n Things and Steve & Barry's in seeking Chapter 11 protection amid the recession.

U.S. household net worth decreased 4.7 percent in the third quarter, the fourth consecutive quarterly decline, as real estate and financial assets lost value in the recession, a Federal Reserve report showed on Thursday.

January crude ends up $4.46, or 10.2%, to $47.98 a barrel. Gold for February delivery rose $17.80 to end at $826.60 an ounce on the New York Mercantile Exchange. The euro soared 2.8% against the U.S. dollar to trade at $1.3384 Thursday, as the greenback posted broad-based losses.

Stung by the loss of $2.81 trillion in their net wealth, U.S. households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday. As of Sept. 30, households' total outstanding debt shrank at an annual rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.

For 2009, Jamie Dimon, JP Morgan Chase CEO, believes that the economy is going to be unemployment driven. He expects unemployment to drive commercial losses and consumer losses. He even noted that "if we are lucky" it would get worse for another two quarters and then start to see some improvements. But he did re-stress that that would be under the "lucky" case scenario.

Dimon already called for lower housing prices. He did say he thinks that it is possible that housing could go another 20% or 10% from today. But he did not know where that will really go. He said "November" was a terrible trading month in the usual suspects and said December was looking that way too. As he said before, he still expects loan losses to rise.

Bank of America plans to cut 30,000 to 35,000 jobs over the next three years. The reductions reflect it's upcoming acquisition of Merrill Lynch and the "weak" economy, which the bank said is affecting business activity.

The Dow Jones Industrial Average fell 196 points, or 2.2%, to 8,565, well off a high of 8,809 as 28 of the Dow's 30 components fell. The S&P 500 index also fell 25 points, or 2.8%, to 873, while the Nasdaq Composite fell 57 points, or 3.7%, to end at 1,507.

GlaxoSmithKline PLC said Thursday that a Phase III study showed that the combination of its breast cancer drug Tykerb with Novartis AG's Femara significantly increased survival in postmenopausal breast cancer patients compared with the use of Femara alone. The 1,286-patient study showed that patients with spreading breast cancer given Tykerb and Femara survived without the cancer progressing an average 5.2 months longer than women given Femara alone. Tykerb was approved in the U.S. in 2007 to be used with Roche's Xeloda to treat advanced, metastatic breast cancer.

The Nikkei 225 Average dropped 3% to 8,462.05, after rising for four straight sessions, and the Topix Index gave up 2% to 832.73. South Korea's Kospi lost 2.7% to 1,123.87, snapping a five-session advance, Australia's S&P/ASX 200 slid 1.6% to 3,539.90 and New Zealand's NZX 50 index dipped 1.1% to 2,697.85.

BorgWarner said that it would have reduced its global workforce by about 2,900 people, or 17% of its workforce, by the end of the year. It is planning to shut down most of its North American operations for extended periods starting the week of Dec. 15 and will re-open at various times in January.

General Motors has hired lawyers and bankers to consider whether the company should file for bankruptcy protection as it continues to await a Federal bailout package, The Wall Street Journal reported Thursday on its Web site.

Chrysler LLC is nearing the minimum level of cash it needs to run the company and will have trouble paying bills after the first of the year, according to its chief financial officer.

Wednesday, December 10, 2008


12/10/08 Grim

Influential bank analyst Meredith Whitney remains bearish about the economy, and her outlook for the banks that "lubricate the economy" is grim. "The big banks are going to be on life support for at least 18 months, if not 36 months,"
Oppenheimer's executive director of equity research told CNBC Wednesday morning. "The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years."

Quintus Rufus: "Fear makes men believe the worst."

Average U.S. retail gasoline prices fell a penny to $1.68 a gallon on Wednesday, according to the AAA Daily Fuel Gauge Report. A month ago, gasoline sold for $2.24 a gallon. A year ago, it sold for $3.00 a gallon.

The Federal Reserve is mulling issuing its own debt for the first time in a move that would give it more flexibility to stabilize financial markets, The Wall Street Journal reported Wednesday, citing a person familiar with the matter.

Agrium estimates second-half earnings at US$3.30 to US$4 a share. Lower wholesale volumes and pricing and inventory-valuation adjustments could reduce operating results as much as 15% from the low end of its estimates.

Japanese machinery orders fell a less-than-expected 4.4% in October from September, dragged lower by a sharp fall in orders from overseas buyers.

Yahoo reportedly will layoff 1,500 employees.

Rio Tinto to cut 14,000 jobs and slash spending.

The Oil Drum: "Just how daunting is OPEC’s challenge to rein in falling oil prices? Beyond its control, if economist and oil-market analyst Philip Verleger is right.
Mr. Verleger, a former Carter administration official, academic, and energy-industry consultant, says OPEC can forget about tiny production cuts of 1 or 2 million barrels when it meets later this month in Algeria. The cartel needs to wipe out at least 7 million barrels per day of oil production to bring oil markets close to balance, he says, according to Platt’s The Barrel.
And that’s not likely to happen, which spells even more happy times for oil bears, Mr. Verleger says: “Since cuts of such magnitude are out of the question, one should expect prices to come under further downward pressure.”
Verleger did not account for the coming downward leg for the dollar, and that will give a big boost to oil prices. I wonder if Verlager is putting his money where his mouth is. Talk means nothing to me.

U.S. stock futures indicate a higher open, buoyed by progress toward a bailout program for troubled U.S. auto makers. Congress is a group of suckers placing the burden on tax payers.

China's exports dropped for the first time in seven years. Imports plunged 17.9 percent, pushing the trade surplus to a record $40.09 billion. Demand from the US and EU which account for 40% of Chinese exports is plunging. Processing trade components have shown the sharpest slowing. China experienced four consecutive record monthly trade surpluses as commodity prices falls eroded import growth.

Toyota Motor Corp. said Wednesday it would further reduce production at several factories in North America, as the global slowdown continues to cut into the automaker's sales abroad.
Japan's largest carmaker will temporarily suspend output in December and January, according to Toyota spokesman Paul Nolasco.
Production will be stopped in Indiana for six days, Kentucky for nine days and Canada for 10 days. In addition, production of the Corolla and Tacoma brands at a plant in California jointly run with General Motors will be suspended for 10 days.

The biggest slump in U.S. consumer spending since 1942 will extend the recession and push the jobless rate to the highest level in a quarter century, according to economists surveyed by Bloomberg News.
Household spending will drop 1 percent in 2009, the biggest decline since after the attack on Pearl Harbor, according to the median estimate of 51 economists surveyed Dec. 4 through Dec. 9. By the middle of next year, the economy will have shrunk for a record four consecutive quarters, the survey showed.

Applications for U.S. home mortgages slipped last week in a setback from the record jump in the previous period after a Federal Reserve proposal aimed at lowering interest rates, according to data from an industry group on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 7.1 percent to 796.8 in the week ended Dec. 5.

Seagate slashed its outlook for its fiscal second quarter ending January 2, as the disk-drives business continues to suffer along with falling PC sales.

Nortel Networks has hired legal counsel to explore bankruptcy-court protection from creditors in case its restructuring plan fails, according to the Wall Street Journal, which attributes the story to “people familiar with the situation.”

Hutchinson Technology will cut its workforce by 20%-25% by the end of January 2009.The move will result in the loss of between 900 and 1,125 jobs.

Office Depot Inc.said Wednesday that over the next three months it will close 112 underperforming North American stores and another 14 stores as their leases expire in 2009. New store openings for 2009 now have been reduced to approximately 20, down from the previous estimate of 40 stores.

Gold for February delivery gained $15.20, or 2%, to $789.50 an ounce in electronic trading on Globex.

Frank Barbera: "Yet even as the air waves of cable TV fill with fervent deflationary forecasts for even lower Oil prices and even lower bond yields, the evidence continues to mount that the current extremes look historically overdone. I believe Treasury Bonds are the last great bubble yet to pop. As the New Year approaches and a great deal of the forced hedge fund liquidation comes to its end, odds are high the Treasury Bond yields will begin to reverse and chart an upward course during the first quarter of 2009. In my view, Bond yields are near what promises to be an historic secular low...the 2.50% zone on the 10 Year Bond is likely to host a very important secular low...a lot of the heavy selling stemming from hedge fund carry trade unwinding could now be coming to an end with a downside reversal in the Yen dead ahead."

Britain's pound fell to a record low against the euro on Wednesday -- hitting near parity -- as fears about the strength of the British economy grew.
At its lowest, one pound bought just under 1.14 euros -- marking the weakest the pound has been against Europe's single currency since the euro was launched a decade ago.

GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive.
A debt exchange by GMAC and its Residential Capital LLC mortgage unit designed to bolster the company’s finances didn’t attract enough participation, GMAC said today in a statement. That leaves GMAC short of the $30 billion in regulatory capital demanded by the Federal Reserve, and the regulator won’t approve the conversion unless the goal is met, the lender said.

Mark Thoma: "In the past two years the wealth that is the global capital stock has fallen in value from $80 trillion to $60 trillion."

Eastman Kodak Co said its 2008 revenue and earnings will fall short of expectations, because of a dramatic slowdown in consumer spending, sending shares down as much as 9 percent.

Crude-oil stocks rose by 3.4 million barrels during the week ended Dec. 5, American Petroleum Institute (API) reported Wednesday. In a separate report, the U.S. Energy Information Administration said that crude supplies rose by 400,000 barrels during the week. API also reported that total motor gasoline stocks rose by 5 million barrels last week and total distillate stocks increased by 3.7 million barrels.

Inventories at U.S. wholesalers fell in October by the most in seven years as the biggest drop in demand ever caused companies to scale back.
The 1.1 percent decline in the value of stockpiles was larger than forecast and followed a revised 0.4 percent decrease in September, the Commerce Department said today in Washington. Sales plunged 4.1 percent in October, the most since records began in 1992.
Wholesalers had enough goods on hand to last 1.16 months at the current sales pace, the most since February 2007. Excess stockpiles heading into the holiday shopping signal companies may have to slash prices to trim stocks.
Again, pricing power has vanished.

Corn, wheat, and soybeans are enjoying big morning gains. Gold for February delivery surged $34.60 to end at $808.80 an ounce on the New York Mercantile Exchange.The train is leaving the station. Crude oil for January delivery rose $1.45, or 3.4%, to end at $43.52 a barrel on the New York Mercantile Exchange.

Positivo Informatica SA, Brazil’s biggest computer maker, jumped 89 percent in the past two days after Brazilian newspapers reported that Lenovo, China’s biggest PC maker, or Dell, the world’s second-largest computer maker after Hewlett-Packard Co., may buy Positivo.

Venezuela’s debt rating outlook was lowered to negative from stable by Standard & Poor’s amid concern President Hugo Chavez will be reluctant to cut spending as oil revenue plunges.

Praxair, the largest producer of industrial gases, is cutting 1,600 jobs and reducing its earnings guidance due to a drop in demand.

California's budget crisis is growing worse as its shortfall for its current fiscal year has increased to an estimated $14.8 billion from a previously estimated $11.2 billion, Gov. Arnold Schwarzenegger said on Wednesday.

The federal government registered a record budget deficit for the month of November, reflecting the impact of a recession on tax receipts and the mounting costs of the $700 billion financial rescue program.
The country remains on track to hit a record deficit of $1 trillion or more for the entire year, which would be more than double the previous all-time high set last year.
The Treasury Department said Wednesday that the gap between the government's revenue collections and what it paid out last month totaled $164.4 billion, the largest deficit ever recorded for the month of November. For the first two months of the fiscal year, Treasury reported a record deficit of $401.6 billion. The government spent $99.6 billion in November in various bank bailout programs.

The S&P 500 index rose 10 points, or 1.2%, to 899, while the Nasdaq Compositegained 18 points, or 1.2%, to 1,565. The Dow Jones Industrial Average rose 70 points, or 0.8%, to 8,761.

Mexican bakery giant Grupo Bimbo SAB announced Wednesday it has signed an agreement to buy the U.S. subsidiary of Canada's George Weston Ltd. for $2.4 billion, a deal that would make it one of the world's largest baked foods companies.

Weston Foods Inc. makes breads and pastries under brands including Entenmann's, Freihofer's, Stroehmann and Thomas'. It has 22 plants and more than 4,000 distribution routes, concentrated largely on the east coast of the United States.

Dipchand "Deep" Nishar, a longtime Google Inc. executive who helped start its mobile business and other key products, is leaving the company to become a senior executive at LinkedIn Corp.
Mr. Nishar, 40, in January will become vice president of product strategy for the social-network that is focused on professionals. He will lead LinkedIn's efforts to develop new products and services on top of its social-networking site.

Tuesday, December 09, 2008

Pricing Power Has Vanished

12/9/08 Pricing Power Has Vanished

John Crudele: "In 1994 the Clinton White House decided that the unemployment rate needed to be modernized.

So anyone who had been out of work for at least a year was no longer counted as unemployed - they were just too lazy and discouraged to find work.

Those clever Clintons also changed the way the questions were asked, so that more people would drop out of the unemployment statistics.

John Williams, an economist who tracks this stuff on his Web site, says today's unemployment rate would be 16.5 percent if we went back to the old way of measuring it."

The National Federation of Independent Business's small-business optimism index reached its fourth-lowest reading in the survey's 35-year history. "Pricing power has vanished and reports of sales declines are at record high levels," said William Dunkelberg, NFIB chief economist in a statement. "Profits can't improve in this environment."

The U.K. FTSE 100 index dropped 1.4% to 4,240.1, the German DAX 30 index fell 1.5% to 4,645.82 and the French CAC-40 index dropped 1.3% to 3,204.11. The Nikkei 225 Average finished 0.8% higher at 8,395.87, adding to a 5.2% advance Monday. The broader Topix index added 0.7% to 817.94.

Japanese electronics major Sony Corp.Tuesday said it plans to cut 8,000 jobs and close about 10% of its 57 manufacturing sites as part of measures to achieve annual savings of more than 100 billion yen ($1.08 billion) by March 2010.

World airlines expect $2.5 billion in losses in 2009.

As more people turn to emergency rooms as a last resort, doctors warn that hospitals could be overwhelmed.

Another sign of tough times: Clinics are reporting a surge in the number of women applying to donate eggs.

Virgin America, the only U.S. carrier based in the Bay Area, will begin service from California to Boston in February.

Loan volumes under the Small Business Administration's main small-business loan program -- called the 7(a) program -- were down 30 percent in the year ended in October compared with the previous year.

And more than 75 percent of the nation's banks said they had tightened their standards for loans to small businesses over the past three months, according to a recent Federal Reserve Senior Loan Officer Opinion Survey.

Small businesses are "getting hit from both sides," said Sandy K. Baruah, acting administrator of the SBA, because even the companies that have long relationships with financial institutions and are in solid financial condition are no longer getting new loans approved and are having existing lines curtailed.

About two-thirds of U.S. homeowners are cutting spending on everything from new cars to visits to the local cinema, as a troubled economy leads people to reassess how much debt they are comfortable having. Twenty-seven percent of homeowners said they are putting off big expenses such as a car or home improvement, according to a Wells Fargo survey released Monday.

Chain-store sales for the week ended Dec. 6 rose 0.4% from the year-ago period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales fell 0.8%.

Palatin Technologies, Inc. (Amex: PTN) today announced an extension of its exclusive research collaboration and license agreement with AstraZeneca (NYSE: AZN) to discover, develop and commercialize compounds that target melanocortin receptors and the signing of a clinical trial sponsored research agreement.

Under the extension to the license agreement, Palatin will receive an upfront payment of $1.6 million and AstraZeneca has been granted licenses to additional compounds and patents. Additionally, the research collaboration term has been extended, with Palatin contributing scientific expertise and AstraZeneca supporting Palatin’s internal activities at an agreed full-time equivalent rate.

Under the clinical trial sponsored research agreement, Palatin will be responsible for conducting a study of the effects of melanocortin receptor specific compounds on food intake, obesity and other metabolic parameters.

Novellus to cut global workforce by about 10%.

Canada's central bank cut its benchmark interest rate more than expected, reducing the overnight rate by 75 basis points to 1.50% because of the "weakening outlook for growth and inflation." Most analysts expected a rate cut of 50 basis points.

Nucor Corp., the Charlotte, N.C., steelmaker, estimated it would be "marginally" profitable in the fourth quarter as end users order less steel and reduce their inventories. Total steel shipments for the quarter should drop some 40% from the third quarter, and Nucor should use on average only a bit more than half its capacity in the fourth period, Nucor said in a statement on Tuesday.

Jefferies & Co. analyst Daniel Binder said in a note on Costco: raised his first-quarter earnings estimate to 66 cents per share from 62 cents per share. However, Binder cut his fiscal 2009 earnings estimate to $2.88 per share from $3.08 per share. He also cut his fiscal 2010 earnings estimate to $3.16 from $3.40. At $55, I don't see much near-term upside potential.

BCE Inc. said it hired PricewaterhouseCoopers LLP in an effort to help the Canadian telecom giant complete a $35 billion deal to go private later this week.

PricewaterhouseCoopers was hired to help convince auditor KPMG LLC that BCE, the parent of Bell Canada, will remain solvent after the deal is completed. To close the deal on Thursday as scheduled, KPMG must sign off on the solvency opinion.

Late last month, KPMG said it did not believe BCE could remain solvent if the deal is completed because of the amount of debt needed to finance the deal and current market conditions. BCE was set to sell itself to a consortium of private groups, led by the Ontario Teachers Pension Plan Board and several U.S. partners.

Corning Inc.plans to reduce capital spending next year as nearly all of its businesses have been "negatively impacted" by the global recession. In a statement, the company said it is contemplating "permanent manufacturing capacity consolidation, reducing operating expenses to be flat or lower than 2008, and workforce reductions."

Danaher Corp. fell 5.1 percent to $49.29. The company said fourth-quarter profit will be lower than previously forecast. It will close 13 factories and cut 1,700 jobs because of the deteriorating economy.

Fewer Americans signed contracts to buy previously owned homes in October as credit markets seized, signaling the housing slump will extend into a fourth year.

The index of signed purchase agreements, or pending home resales, fell a less-than-forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the National Association of Realtors today in Washington. Pending resales jumped 7.8 percent in the South and climbed 0.6 percent in the Northeast. They slumped 8.7 percent in the West and 4.3 percent in the Midwest. Demand for housing remains “uneven” across the country, with some markets in Florida, California and the Las Vegas region showing “healthy gains” from the same time last year, the report said.

The Federal Reserve announced Tuesday that it will auction $300 billion in credit through its Term Auction Facility in January. The central bank will offer $150 billion in 28-day credit on Jan. 12 and $150 billion in 84-day credit on Jan. 26. The TAF is aimed at providing credit to banks.

Some of the recent indices have rallied 20%; however, the rail stocks have rallied only 10% from their 52-week lows. That is a further indication of industrial weakness now and looking forward.

Do FedEx and UPS have further to go on the downside?

“Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said. “In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.”

Are earnings estimates for the Dow and the S&P 500 too high for 2009?

With the heating season upon us, has natural gas hit bottom at $5.50?

Des Moines-based Principal Financial Group Inc. says it is cutting 300 jobs at its headquarters and around 250 in 45 other locations.

The National Football League will cut about 150 league jobs, or about 14% of its staff, over the next 60 days to cut costs in response to the recession, according to media reports Tuesday.

Gold for February delivery rose $4.90 to end at $774.20 an ounce on the New York Mercantile Exchange. Crude for January delivery dropped $1.64 to end at $42.07 a barrel on the New York Mercantile Exchange.

Citigroup Inc.will cut 1,000 jobs at its Japanese retail brokerage unit, Nikko Cordial Securities Inc., Bloomberg reported Wednesday.

The Dow Jones Industrial Average fell 242.85 points to 8,691.33. The S&P 500 shed 21.03 points to 888.67. The Nasdaq Composite (COMP) declined 24.4 points to 1,547.37.

Electronic Arts said late Tuesday it expects fiscal 2009 net revenue and earnings per share to be below the guidance previously announced in October due to lower than expected sales in North America and Europe.

The Treasury Department sold $32 billion in four-week bills Tuesday at a yield of zero, implying investors purely wanted the assurance that they would get their principal back. Investors bid $128 billion at the auction, more than four times the amount available.

Monday, December 08, 2008


12/8/08 Ambiguous

John Hussman: "The condition of the stock market here is ambiguous. Valuations are generally favorable, market action is generally unfavorable but with tenuous signs of improvement, the economy is deteriorating, and it is difficult to estimate how much further it will weaken, yet the outlook for further economic weakness is common knowledge, so it may already be reflected in prices.

The ability to be comfortable with uncertainty is one of the qualities that allow good investors to function – to pursue a disciplined investment approach even when the likely direction of the market is ambiguous.

The desire to create certainty out of ambiguity; to boldly take one side or another in defiance of all contrary evidence; is both tempting and foolish. Ambiguous conditions warrant moderate investment positions because the prospect for expected returns has to be tempered by the prospect for risk. Investors who accept a moderate investment exposure here should not do so in hopes of “picking a bottom” or “catching a falling knife.” They should do so in order to properly align their investment exposure with the moderate return/risk profile that characterizes market conditions here."

President-elect Barack Obama braced the country for more tough times Sunday, saying twice in an interview that the nation’s already dismal economy would continue to worsen in the months ahead.

Obama, speaking to Tom Brokaw on NBC’s “Meet the Press,” used some of his starkest language yet to underscore the severity of the challenge he’ll face upon taking office next month.

“If you look at the unemployment numbers that came out yesterday, if you think about almost 2 million jobs lost so far, if you think about the fragility of the financial system and the fact that it is now a global financial system so that what happens in Thailand or Russia can have an impact here, and obviously what happens on Wall Street has an impact worldwide, when you think about the structural problems that we already had in the economy before the financial crisis, this is a big problem, and it's going to get worse,” he said in the interview taped Saturday.

Nobel economics prize winner Paul Krugman said Sunday in Stockholm that the beleaguered U.S. auto industry will likely disappear.

Switzerland's troubled financial-services giant UBS may announce as many as 4,500 more job cuts in coming weeks, Swiss newspapers reported Sunday.

The average price of U.S. gasoline fell 22 cents a gallon during the past two weeks, bringing it to its lowest level in nearly five years, according to a national survey released Sunday.

The average price of regular gasoline Friday was $1.75 a gallon, oil industry analyst Trilby Lundberg said. The price of mid-grade was $1.90 a gallon and the price of premium was $2.02 a gallon.

Illinois Tool Works Inc. said Monday that it was lowering its forecast for fourth-quarter earnings from continuing operations for 2008. The new fourth-quarter forecast for continuing operations range is 44 cents to 52 cents a share. That compares to a range of 74 cents to to 82 cents previously issued on Oct. 16. This new forecast assumes a revenue decrease of 7% to 9%. For the full year, the company is now forecasting income per share from continuing operations to be in a range of $2.94 to $3.02.

Dow Chemical Co. will cut about 5,000 full-time jobs as it accelerates a strategy to cut costs to address "current economic realities." Further, the Midland, Mich., chemical giant will dismiss 6,000 contractors, idle 180 plants and shutter 20 facilities in "high-cost locations."

February gold soared $20.80, or 3%, to $773 an ounce in electronic trading on Globex. Crude oil for January delivery soared $2.72, or 6.7%, to $43.55 a barrel in electronic trading on Globex.

McDonald's Corp.said Monday that its global same-store sales rose 7.7% in November. In the U.S., comparable sales grew 4.5% during the month, on strength in breakfast and chicken items.

For 2009, 3M forecast earnings of $4.50 to $4.95 a share, while analysts' outlook is for $5.29 a share.

The Tribune Company filed for Chapter 11 bankruptcy.

Rob Hanna: "The market posted at Follow Through Day again last week. This is at least the 6th Follow-Through Day since the 2007 top. New blog readers may want to check out the series of studies I’ve written on Follow-Through Days (FTD’s) to gauge their usefulness....A FTD is a positive sign when looking for a potential market bottom and subsequent rally. The current rally attempt may succeed. The market certainly seems overdue for a substantial and sustained rally. FTD and other bottoming signals have proven far less reliable over the last year. There have been a few other times where they have struggled as well. The period above is one example. Just something for the back of the mind as the current rally attempt unfolds."

Brett Steenbarger: "In sum, the ball is in the bull's court. We made several runs at the lows this past week and held at higher lows. We rallied off bad economic news and now are testing resistance at SPX 900. As noted in the quote above from last week's review, a strong close above 900 with an expansion of new 20-day highs would confirm an intermediate-term uptrend. Failure to remain above the 900 level would keep us in a range bound market and, ultimately, would lead me to expect a test of last week's lows at minimum."

Australia was up nearly 3.7%, The Hang Seng was up 8.66%, Japan's Nikkei was up 5.2% and South Korea was up almost 7.5%. France is up 6.6%, Germany up more than 6% and even England is up nearly 5%. Russia's dollar-denominated RTS stock index surged 7.3% and South Africa's All Share index rose 7.2%. In Brazil, the Bovespa stock index rallied 6%.

The National Credit Union Administration (NCUA) today accepted appointment as receiver/liquidator of West Hartford Credit Union, Inc., in Farmington Connecticut, following the State of Connecticut Department of Banking decision to close the credit union.

China's passenger car sales fell 10.3 percent in November from a year earlier as stalling economic growth sapped consumer confidence, state media reports said Monday.

Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39 percent sell at a discount to shareholder equity, data compiled by Bloomberg show.

The cash-rich companies allow investors to pay nothing for future earnings streams, providing opportunities to buyers concerned about deflation, according to Jean-Marie Eveillard, whose $16 billion First Eagle Global Fund has beaten 98 percent of competitors this year. Microsoft Corp. and Novo Nordisk A/S, which generate the most money compared with debt, can expand even if lower consumer demand erodes profits.

“Cash is king, not necessarily for the investor but for corporations,” Eveillard said in an interview from New York last week. His fund holds both Microsoft and Namyang Dairy. “It’s useful to sit on a ton of cash, No. 1 to survive, as opposed to going bankrupt, and No. 2 to seize opportunities either to make acquisitions cheaply or to squeeze competitors.”

The 40 percent drop in the Standard & Poor’s 500 Index is the steepest since 1931, while the MSCI World’s 45 percent plummet is the biggest since the gauge started in 1970.

Brazil's Vale mining company says it has suspended production of iron ore pellets at two of its plants in the southeastern state of Espirito Santo.

Companhia Vale Rio Doce SA is blaming a "severe global recession" for decreased demand for iron ore pellets from steel makers. The two plants produce 7.3 million metric tons per year.

The company's decision on Monday came just days after Vale announced it will reduce nickel production at its Canadian unit and cut jobs with a voluntary retirement program.

Vale last week said it has cut 1,300 jobs from its work force of 62,000 since the global meltdown began. It has idled 5,500 workers with pay to slow ore production, and 1,200 are being retrained.

Publicis Groupe media agency ZenithOptimedia expects U.S. ad spending to drop 6.2% in 2009 to $161.8 billion. WPP's agency GroupM sees a decline of 3% to $157 billion. Continued growth in emerging markets will help offset declines in North America and Western Europe, according to both firms.

Hungary's central bank surprised investors Monday by cutting its benchmark interest rate by 50 basis points to 10.50% in an unscheduled meeting.

Satyajit Das: " Deterioration in the US economy and the need to issue additional debt to support the financial sector may place increasing pressure on the US sovereign rating and the dollar. US Government support for financial institutions is already approaching 6% of GDP compared to less than 4% for the Savings and Loans crisis.

Deterioration in the credit quality of the United States results in losses on investment through falls in the market value of the debt and a weaker dollar. The credit default swap ("CDS") market for sovereign debt is increasingly pricing in increased funding costs for the US. The fee for hedging against losses on $10 million of Treasuries was about 0.58% pa for 10 years (equivalent to $58,000 annually) in December 2008. This is an increase from 0.01% pa ($1,000) in 2007 and 0.40% pa ($40,000) in October 2008.

It is also not easy to tap this liquidity pool. Given the size of the portfolios, it is difficult for large investors like China to rapidly mobilise a large portion of these funds by liquidating their investments and converting them into the home currency without substantial losses. This means that this money may not, in reality, be available, at least at short notice.

If the dollar assets lose value or cannot be accessed then China must still service its liabilities. It can print money but will suffer the economic consequences including inflation and higher funding costs....The global liquidity process was multi-faceted. There was traditional domestic credit creation system built on the fractional reserve system that underpins banking. The leverage in the system was pushed to extreme levels. Losses and renewed regulation are forcing this system of credit creation to shut down.

The foreign exchange reserve system was another part of the global credit process. Dollar liquidity re-circulation has also slowed as a result of reduced trade flows (driven by falls in US consumption and imports), losses on dollar investments, domestic claims on reserves and the inability to readily mobilise large amount of reserves.

Another credit process - the export of Yen savings via the Yen carry trade and acquisition of foreign assets by Japanese investors) - has also slowed....Markets placed great faith in the volume of money available to support asset prices and assist in alleviating shortages of liquidity. The perceived abundance of liquidity was, in reality, merely an illusion created by high levels of debt and leverage as well as the structure of global capital flows. As the financial system de-leverages, it is becoming clear, unsurprisingly, that available capital is more limited than previously estimated.

As Sigmund Freud once observed: "Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces."

In the first 15 minutes of trading on Monday, the Dow rose 260 points, the Nasdaq by 42 points, and the S&P 500 by 30 points. Google and Apple lead the parade. The VIX remains at a high level of 58+.

The ratio of borrowers 60 or more days past due rose for the seventh straight quarter to a national average high of 3.96 percent, up more than 12 percent from the second quarter and 54 percent from the same period last year, the report showed.

Third-quarter delinquency rates were highest in Florida, with 7.82 percent, and Nevada, with 7.71 percent. The lowest delinquency rate was in North Dakota, with 1.35 percent, the report showed.

The average national mortgage debt per borrower was $192,287, a 3.45 percent drop on a year-over-year basis, the report showed.

Taliban fighters have a “permanent presence” in almost three quarters of Afghanistan and are tightening a noose around the capital, Kabul, according to a Paris-based research organization.

The International Council on Security and Development, which has fulltime offices in Afghanistan, said in a report that Taliban fighters have advanced out of their bases in the south and east and are infiltrating Kabul at will.

“The Taliban are now dictating terms in Afghanistan, both politically and militarily,” Paul Burton, ICOS Director of Policy, said. “There is a real danger the Taliban will simply overrun Afghanistan.”

Job losses in the United States could easily reach 3 million by the middle of next year, said Gad Levanon, a senior economist for the Conference Board. The private research group said Monday that its employment trends index fell 1.6% in November and is down 13% in the past year. The index looks at eight labor market indicators to judge the path of employment. Since the recession began a year ago, the economy has lost 1.9 million jobs, including 533,000 in November alone. "The continued deterioration in the labor market will exert significant downward pressure on wages," Levanon said.

Detronius Arbiter: "I was to learn later in life that we tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization."

Mine operator Cliffs Natural Resources says it's cutting production at its six North American iron ore mines and one coal operation in the face of lower demand from the steel industry.

The Cleveland-based company said the rate of iron ore production is being dropped to approximately 15 million tons, from expectations of 23 million tons, at its mines in Michigan, Minnesota and Canada. Cliffs says it's also idling pellet furnaces.

Separately, Cliffs says it's cutting expected U.S. coal production by 100,000 tons to about 3.5 million tons. About 100 workers at the Pinnacle Complex in West Virginia were scheduled to be laid off Monday. The Wyoming County mine produces metallurgical coal used to make coal for firing steel blast furnaces.

Banks have cut back their lending in recent weeks after a surge earlier in the fall, said Donald Kohn, the Federal Reserve's vice-chairman on Monday. "In recent weeks, bank lending appears to have dropped back, consistent with the significant tightening of terms and standards reported by bank loan officers in recent quarters as well as the weakening of economic activity," Kohn said at a housing conference sponsored by the Office of Thrift Supervision.

Gold for February delivery rose $17.10 to end at $769.30 an ounce on the New York Mercantile Exchange. January crude ends up $2.90, or 7.1%, at $43.71 a barrel

Anheuser-Busch InBev will cut about 1,400 U.S. jobs in its beer-related divisions, or around 6% of the company's U.S. workforce.

I find it interesting that, with the Dow up 4%, the two strongest retailers, Wal-Mart and Costco, both have their stocks down with only one hour left in the trading day.

Level 3 Communications Inc.said late Monday that it will trim about 450 jobs in North America, or about 8% of its workforce, by the end of December.

Texas Instruments Inc.on Monday lowered its revenue and earnings projections for the fourth quarter.

Altera Corp.said late Monday it now projects fourth-quarter sales to fall 9% to 12% from the third quarter compared with its previous outlook of 1% growth to 3% decline.

Con-way said it cut its workforce by 8%, or about 1,450 positions, in response to the steep drop in demand.

The Dow Jones industrials jumped 299 points, or 3.5%, to 8,934, its highest close since Nov. 7. The Standard & Poor's 500 Index closed up 3.8% to 910, its first close above 900 since Nov. 13. The Nasdaq Composite Index was up 62 points, or 4.1%, to 1,572, its best close since Nov. 13.

Japan's economy contracted at a steeper-than-anticipated 1.8% in the July to September period, or 0.5% against the preceding quarter, confirming the government's earlier assessment that the world's second-largest economy fell into recession in the third quarter, according to revised gross domestic product data released by the Cabinet Office Tuesday.

Chip maker Broadcom Corp. said late Monday that it's lowering guidance for its current fourth quarter, citing "significant pushouts and cancellations" by customers.

FedEx Corp.late Monday cut its full-year profit outlook to $3.50 to $4.75 a share as demand for its package-delivery services has weakened in the global economic slowdown. FedEx, of Memphis, Tenn., had expected to earn between $4.75 to $5.25 a share for its fiscal year that ends in May.