Friday, December 26, 2008

International News

12/26/08 International News

Japan's industrial output fell a record 8.1% in November from the previous month as Japanese companies produced less automobiles and other machinery on waning demand, official figures showed Friday. The drop reportedly represents the biggest decline in industrial production since the government started releasing the data in 1953.

The Labor Department said the number of U.S. workers filing new claims for unemployment benefits jumped by 30,000 to 586,000 last week, the highest since November 1982, suggesting a steepening drain of jobs is likely into 2009.

India's Reliance Industries Ltd. on Thursday revved up operations at its 580,000-barrel-a-day refinery in western India, a move that will likely raise pressure on refining margins globally, according to a report in The Wall Street Journal. The new refinery will form the world's largest refining complex in Jamnagar in western India, with a capacity of 1.24 million barrels a day. Reliance said it expects the refinery to reach full capacity shortly, but the company will likely have a slow ramp-up owing to a slump in the global demand for oil products and weaker refining margins, the report said.

In the week ending Dec. 19, total US oil imports were 12.780M/day, versus 12.907M/day in the same week a year ago. That's only a 1.0% drop.

Stripping out gasoline sales, the fall in overall retail sales were 2.5% in November and 4% in December. The data showed that a 40% plunge in gasoline prices over the year-earlier period were a key reason for the sharp fall in sales.

Russia's ruble fell to a three-year low against the dollar Friday after the Central Bank allowed a third sharp drop in the currency in five days as the government continues to feel the heat of the global meltdown.

The ruble lost 1.4 percent on the MICEX main foreign currency exchange by 2 p.m. Moscow time (1000 GMT) to reach 34.3 against the euro-dollar basket. It sank to 29 against the dollar — a level that hasn't been seen since 2005 — and 40.8 against the euro — an all-time low.

The 10-year average interest rate for the 10-year bond is 4.68%, while the current rate is 2.18%. The 10-year average rate for the 30-year bond is 5.27%, while the current rate is 2.55%. The statutory debt limit is $11.315 trillion. it's now $10.537 trillion. How long will it take to reach the ceiling? Don't blink

.According to AMG Data Services, in the latest week Equity Fund Inflows $6.3 Bil; Taxable Bond Fund Outflows -$393 Mil

xETFs - Equity Fund Outflows -$1.3 Bil; Taxable Bond Fund Outflows -$314 Mil.

This winter, residents of the Northeast are expected to see their heating costs shrink by almost 25 percent when compared with last winter.

China holds $652 billion in Treasury debt, up from $459 billion a year ago. Add in its Fannie Mae bonds and other holdings, and analysts figure China owns $1 of every $10 of America’s public debt.

S.F. minimum wage rises to $9.79 in 2009.

Chevron Corp.’s Indonesian unit, which accounts for about 42 percent of the nation’s oil output this year, may invest $3 billion to boost production from a Sumatran field, a government official said.

Transocean commands a 20% share of the offshore drilling market and a 35% share of the deepwater market, according to Pritchard Capital Partners analyst Brian Uhlmer. It has one of the youngest fleets so it can hold off making new investments. With its backlog, he says Transocean will earn at least $13 a share in 2009 and $10 in 2010 even in his "bad-case scenario." The shares have plummeted to $42 and is worthy of consideration on a risk/reward basis.

RGE Monitor: "Reports suggest that China's foreign exchange reserves, the world's largest, fell slightly to to less than $1.89 trillion in October. If confirmed, this would mark the first monthly fall since December 2003 and may indicate the reversal of capital inflows as RMB appreciation stalled and Chinese economic indicators worsened. Yet, valuation losses may explain some of the headline losses."

Amazon says 2008 holiday season is its "best ever". It said it sold over 6.3 million items worldwide on its peak day, Dec. 15. The online retailer also said it had Amazon shipped more than 99% of orders in time to meet holiday deadlines.

The average U.S. retail gasoline price resumed its fall after a week of stability, dropping to $1.64 a gallon for regular, according to the AAA Fuel Gauge report Friday. Prices had remained at or near $1.66 per gallon for well over a week prior to the recent drop.

In the latest sign of consumers in distress, online holiday sales registered a first-ever decline in seven years, according to sales tracker ComScore.

The firm said online spending for the first 49 days of the critical November-December gift-buying period fell 1% to $24.03 billion compared to $24.15 billion over the same period last year.

Andrew Lipsman, analyst with ComScore, said this is the first time the firm has recorded a drop in the measure since it started tracking holiday ecommerce sales in 2001.

The dollar index fell 0.1% to 80.814. The euro rose 0.5% to $1.4088.

YRC, the No. 1 U.S. trucking company, also said that up to Nov. 30, its fourth-quarter daily tonnage at its national and regional businesses fell by 11.8 percent and 11 percent, respectively. A number of analysts have questioned YRC's ability to remain in business in the midst of a U.S. recession.

In China, 9% less electricity was consumed this November compared to last.

In addition to Hong Kong, Australia, the UK, Germany and France all have a market holiday today.

Mexico's Cantarell Oil Field is declining more than 33% a year! According to Matt Simmons, Mexico, our 2nd largest oil supplier, will CEASE to export oil by the end of 2009.

The Gold Standard Act of 1900 equated $1 USD ≈ 0.048 troy ounce gold. At today's price of ~$850 per ounce, the dollar in December 2008 is worth a mere 2.4% of its' 1900 value.

Feb. crude ends up $2.36, or 6.7%, at $37.71 a barrel. Gold for February delivery closed up $23.20, or 2.7%, at $871.20 an ounce on the Comex division of the New York Mercantile Exchange.

Store gift cards are expected to generate $61 billion in sales in the fourth quarter, down from $70 billion in 2007, said Brian Riley, senior analyst at research firm The Tower Group. Those from financial institutions, like Visa gift cards, are expected to edge up to $28 billion in sales from $27 billion in last year's fourth quarter. Taubman Centers Inc., which operates 24 malls in 11 states, says gift card sales have been tracking down anywhere from single digit to double-digit declines, according to spokeswoman Karen MacDonald.

The Dow Jones Industrial Average gained 47 points, or 0.6%, to end at 8,515, with 17 of its 30 components rising. The S&P 500 index rose 7 points, or 0.8%, to 872, while the Nasdaq Composite advanced 5 points, or 0.3%, to 1,530.

Mexico suspended imports of meat from 30 U.S. processing plants on Wednesday and Friday including those operated by Cargill Inc., Tyson Foods Inc., and Smithfield Foods Inc., according to media reports, citing the U.S. Department of Agriculture. Affected plants, which are located in 14 states, include processors of beef, lamb, pork, and poultry.

Thursday, December 25, 2008

The Retail Slump

12/25/08 The Retail Slump

It's official: This was a rotten holiday season for retailers.
A weak economy and strong winter storms brought total retail sales down between 5.5 percent and 8 percent from a year ago, according to preliminary data from SpendingPulse.
When gas and auto sales are excluded from the holiday period from Nov. 1 to Dec. 24, overall sales were down somewhere between 2 percent and 4 percent, according to SpendingPulse, a division of MasterCard Advisors that tracks total sales paid for by credit card, checks and cash. Sales of women's clothing dropped 22.7 percent, according to SpendingPulse. Men's clothing sales dropped 14.3 percent and footwear sales fell 13.5 percent.

GMAC got federal approval to be a bank holding company. Cerberus controls GMAC. The taxpayers should provide Cerberus with money when taxpayers have trouble getting car loans? We should give money to Cerberus when they won't let their fund investors withdraw all their monies? This is pure bullshit.
GMAC finances about three-quarters of GM dealers’ inventory, and last year handled about 35 percent of their retail customers.

The Nikkei rose 1% to 8,600.

Brett Steenbarger: "Interestingly, over the past five trading sessions, the S&P 500 Index ($SPX) has been down about 1.9%, but the VIX has also been down 8.8%. I went back to the start of 2004 (N = 995 trading days) and found that the average VIX change when the five-day $SPX has been down more than 1% has been +16.46%. We've only had six occasions during that time in which $SPX has been down more than 1% over a five-day period and VIX has also been down. The S&P 500 Index was lower five days later on four of those six occasions, for an average loss of -.77%.
Indeed, when $SPX has been down more than 1% over a five-day period and VIX has been up less than 4% during that same time (N = 29), the S&P 500 Index has been higher only 7 times and lower 22 times over the next five trading days (average loss = -.84%). When stocks have been lower but options participants are displaying relative complacency, short-term returns have been subnormal."

The Bank of Japan may consider “extraordinary steps” to counter financial-market turmoil and a deepening recession, policy board member Hidetoshi Kamezaki said.

“The Bank of Japan is committed to doing its utmost to contribute to stabilizing financial markets,” Kamezaki, 65, said today at a business meeting in Takamatsu, western Japan. “Extraordinary times demand extraordinary steps.”

The central bank lowered the overnight lending rate on Dec. 19 to 0.1 percent from 0.3 percent, the second cut in two months, and decided to buy corporate debt for the first time to pump money into the ailing economy. Kamezaki later told reporters that room for cutting the rate further is “limited” and the bank’s next policy steps should focus on improving funding for companies and influencing longer-term borrowing costs.

“The sense of crisis about the economy and financial markets mounted drastically within the central bank over the past month,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “We expect the bank to start buying corporate bonds, and it may resume purchasing stocks and even go further if credit markets face a crisis.”

The average price of 380 Centistoke marine bunker fuel used by ships, has fallen 7.5 percent in Singapore in the past two days.

People have long turned to pawnshops as a source of ready cash during the holidays. Patrons bring in items of value and exchange them for money. Collateral Lender has seen a 20% surge in customers over the last three months or about the same period the stock market tanked.

Traditional lenders have seized up, and people of all walks of life are handing over their diamonds, purses and golf clubs to make their next mortgage payment or, in some cases, pay their employees for the holiday season, pawnshop workers say.
"This whole period now is nuts," said Tal Shmargal, owner of Collateral Lender. "We have people taking loans just to keep their business afloat."

"For a lot of people, we're the only source for money," said Dave Adelman, president of the National Pawnbrokers Assn. and owner of Jerry's Pawn Shop in Atlanta. "They can't go to a bank and get money because they won't lend. . . . Most definitely pawnshops are more busy. This time of year we're doing very well."

"The new consumer mantra for this coming year is: If I don't need it, I won't buy it," said C. Britt Beemer, chairman of America's Research Group. "America has going from a consuming society to a planned-buying society. Everything is focused on saving more money."

The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.

Finlay Fine Jewelry, which operates stores such as Bailey Banks & Biddle, warned a week ago that it may not have enough cash to operate through the end of its fiscal year on Jan. 31, and may have to "significantly curtail" its business.

For the last weekend before Christmas, total retail sales fell 5 percent from a year earlier as winter storms kept people home, according to research firm ShopperTrak RCT.

Oil climbed above $36 a barrel on Friday, after the UAE joined Saudi Arabia in deepening oil supply curbs to comply with OPEC's biggest-ever output cut last week, telling refiners it would stiffen shipping limits on exports of its main grades.Crude for February delivery was trading up 82 cents at $36.17 a barrel by 9:03 p.m. ET. London Brent crude was up 75 cents at $37.36.

Wednesday, December 24, 2008

Happy Holidays

12/24/08 Happy Holidays

China faces serious challenges in stabilizing prices as economic growth slows amid international financial turmoil, according to a Cabinet report to the legislature cited by the state-run Xinhua news agency. "Generally speaking, the pressure of price surges has greatly eased, and problems caused by slumping prices of certain key commodities are becoming outstanding," Zhang Mao, vice minister of the National Development and Reform Commission, said while delivering a Cabinet report to the National People's Congress Standing Committee. China's consumer price index inflation rate marked its seventh straight easing in November, slowing to an annual rate of 2.4%.

Russia's worsening economic situation may spark popular unrest, the interior ministry was quoted as saying Wednesday, in the first high-level admission that unpaid wages and job losses could lead to protests. Underlining the country's economic woes, a Kremlin official said falling oil prices meant that Russia would run a budget deficit in 2009 after years of surpluses, according to an Agence France-Presse report. Economic discontent could create a "protest mood," AFP reported Deputy Interior Minister Mikhail Sukhodolsky as saying, citing a Russian media account.

The Oil Drum: "Russia is in trouble. Its much-ballyhooed $600 billion cash reserve base dropped by a quarter by Dec. 1, to about $450 billion, and even further since. Much of that has gone to bailing out banks, select oligarchs and propping up the ruble. But with no sign of an end to the global recession, Putin is allowing the ruble’s value to decline rather than pouring limitless reserves into the currency."

The U.K. FTSE 100 index declined 0.3% to 4,244.23, while the French CAC-40 index rose 0.6% to 3,148.13. The German stock exchange is closed.

Japan's leading car parts maker Denso Corp. said Wednesday its full-year net income would be just 1/10 of its earlier forecast due to the poor performance of the auto industry and a strong yen, Agence France-Presse reported. Denso, a major supplier to Toyota Motor Corp.

Confidence among Japanese manufacturers deteriorated at a record pace in the recent quarter, according to a survey released Wednesday by the Cabinet Office. The sentiment index for large manufacturers was negative 44.5 compared to negative 10 in the July-to-September period, the data showed. Sentiment among large firms of all types was negative 35.7 compared to negative 10.2 in the preceding quarterly survey. Large firms were more upbeat about the outlook, with the sentiment index at negative 22.2 for the January-to-March quarter, and negative 10.3 in the April-to-June quarter.

Durable Goods Orders decreased by 1.0% ($1.8B) in November. Inventories increased $1.6B to $342.9B. Shipments were down 2.6% to $195.9B following October's 3.4% dip. Orders for transportation goods fell 7.4%. Excluding transportation, orders rose 1.2%. New orders for durable goods in October were revised to a decline of 8.4%, compared with a prior estimate of a 6.9% drop.

Personal Spending fell 0.6% in November. Personal income was down 0.2% ($20.7B) vs. 0% consensus. Personal saving was up 2.8%. Hence, income fell with spending falling more.

First-time applications for state unemployment benefits jumped by 30,000 to a seasonally adjusted 586,000 in the week ending Dec. 20, the government said. That's the highest since November 1982. The four-week average of new claims rose by 13,750 to 558,000, the highest since December 1982. Meanwhile, the number of people collecting benefits fell by 17,000 to 4.37 million in the week ending Dec. 13. The four-week average of continuing claims rose by 93,000 to 4.32 million, the most since December 1982.

A measure of consumer inflation excluding energy and food prices was flat in November, as predicted.

WSJ Opinion: "The bad policy vicious circle probably has a long way to run. While it's still possible to entertain wild hopes about an Obama administration, such hopes are partly self-liquidating on closer inspection -- they exist in the first place only because Mr. Obama has given us so little to go on, except campaign boilerplate.

Bottom line: Politics is in charge -- in a way that makes a lost decade of subpar prosperity more likely than not.

Happy Holidays."

PMorgan Chase is notifying landlords it will pull out of all the downtown Seattle office space rented by Washington Mutual by the end of March.

The New York bank is laying off 80 percent of WaMu's Seattle work force and consolidating the 800 remaining office workers into the WaMu Center headquarters building it owns downtown.

It also decided WaMu's Cedarbrook corporate-training center in SeaTac is "not a core asset for us, and we are looking at options for it," said JPMorgan spokesman Thomas Kelly.

WaMu leased about 700,000 square feet in Seattle, according to brokers and building owners.

CellCyte Genetics, whose market value briefly put it among the region's biggest biotech firms last year, has shut down — and hasn't been able to pay rent on its Bothell headquarters.

"We presently do not have sufficient cash to fund our operations, and have curtailed substantially all activities," the company said in a delayed quarterly report, filed Monday with the Securities and Exchange Commission.

CellCyte said it had $5,734 in cash at the end of September, and for the duration of the third quarter, it couldn't pay the lease on its facility.

The company said it was talking with the landlord to renegotiate the lease and to find subtenants to take over parts of the building. The landlord is holding on to a $44,000 security deposit.

It's been a hard fall for CellCyte. The fledgling stem-cell- research company, whose shares traded over the counter and in the Frankfurt Stock Exchange, saw its value soar past $400 million last year after a spamming campaign paid for by one of its main shareholders.

Americans now pay as much as $8 billion a year to borrow at least $50 billion from payday lenders, by various estimates.
That's more than 10 times the level of a decade ago, according to a report by the California Department of Corporations. In California alone, customers now borrow about $2.5 billion a year from payday lenders, the report said.
Nationwide, the number of payday outlets has exploded from zero in 1990 to some 25,000 today, running the gamut from mom-and-pop outfits to national chains

Rachel Ziemba: "The Saudi Arabian government released its 2009 budget – one of the first glimpses of how key oil exporters may respond to the changed oil price outlook for 2009. At current (sub $40/b oil, most will run fiscal deficits and some will run large ones. Saudi Arabia’s budget takes such concerns in stride, projecting a budget deficit for the first time since 2004. While Saudi Arabia (and most of its GCC neighbors) maintained conservative budgeted oil price estimates, expenditures have been rising significantly since 2006. Yet, despite increasing spending, Saudi Arabia’s revenues (which are primarily from hydrocarbons) were almost double that of expenditures in 2008. Yet past history warns that spending catches up and the big question is whether the oil price slump will cause a spending slump as was the case in the 90s. So far, the answer seems to be not yet."

Prashant Gopal: "2009 Real Estate Forecast: Troubles Spread. Wealthier neighborhoods that avoided subprime borrowing will be hurt in the new year as the downturn weakens even healthy markets."

"We are in the midst of the worst recession in the post-war period, even factoring in a massive stimulus program," said Nariman Behravesh, chief economist at IHS Global Insight.

The Richmond Federal Reserve's manufacturing survey echoed the gloom, falling to -55 in December from -38 the previous month. Its services sector survey declined 8 points to -30.

The New York Times Co. said Wednesday that advertising revenue dropped 20.9 percent in November from a year ago, as the financial crisis prompted steep declines in classified and national ad spending.

U.S. crude-oil stockpiles fell 3.1 million barrels to 318.2 million in the week ending Dec. 19, U.S. Energy Information Administration reported on Wednesday. Analysts surveyed by energy information provider Platts expected an increase of 1.5 million barrels. Gasoline supplies rose by 3.3 million barrels in the latest week, while distillate stocks rose by 1.8 million barrels, EIA reported.

Cushing stockpiles rose to 28.7 million barrels in the week ended Dec. 19, the EIA reported. It was the highest since at least April, 2004, when the government started collecting Cushing data.

Transocean, Schlumberger, and U.S. Oil Fund made new 52-week In the shortened trading session, the Dow rose 49, the S&P 5, and the Nasdaq 3 points.

Crude for February delivery dropped $3.63 to end at $35.35 a barrel on the New York Mercantile Exchange. Gold rose by $10.40 to $848.50 an ounce. Silver rose 10.5 cents to $10.365. Copper and aluminum bot dipped slightly. Kansas City wheat had a big jumpt to $6 a bushel and soybeans popped $14 to $919. Corn rose $2.50 to $3.9725.

Jim Rogers plans to short long U.S. bonds and buy yen.

Tuesday, December 23, 2008

The Ultimate Ponzi Scheme

12/23/08 The Ultimate Ponzi Scheme

Rep. Ron Paul has the following sign on the front of his desk: "DON'T STEAL. The
Government hates competition."

The United States faces "as much as $2 trillion in borrowing needs this year," and warns us that they "may introduce new financing methods to sell a record amount of government debt", requiring them to use "novel approaches to debt management." Madoff's ponzi scheme was ONLY for $50 billion. He had nothing on the U.S. Treasury Dep't, who issue more debt to pay off old debt. Without the on-going Ponzi scheme the gov't would shut down. Maybe pay as you go is the way to go!

The U.S. economy shrank in the third quarter at a 0.5 percent annual pace as the now year-old recession began to intensify.

The contraction in gross domestic product from July through September, which matched the median forecast in a Bloomberg News survey, was the worst since 2001, according to revised figures from the Commerce Department today in Washington. Consumer spending fell the most in almost three decades.

Chain-store sales for the week ended Dec. 20 fell 0.6% from the year-ago period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. ICSC Research expects December monthly same-store sales will be down 1% or slightly more.
Just 38.7 percent of Americans went shopping during the final weekend before Christmas, the lowest turnout in at least six years, according to a survey released on Tuesday.

The traffic was especially weak in the U.S. Northeast and Midwest, which were hit by winter storms from Friday through Sunday. People who did shop flocked to stores offering deep discounts, led by Wal-Mart Stores Inc .

The percentage of Americans shopping this past weekend is down from 41.6 in 2007, according to the survey by America's Research Group and UBS.

Wal-Mart was the big winner of the weekend, with 69 percent of shoppers saying they visited its stores, up from just 33 percent during the same weekend last year.

Rob Hanna: "The next 1 to 5 days have been especially bullish. If you decided to buy the close 3 sessions before Christmas and then sell the 1st profitable close after entry then 18 of 21 trades would have been winners within 2 days and 20 of 21 within 5 days."

Brett Steenbarger: " With Treasuries offering near-zero interest rates and one-year bank certificates of deposit currently averaging 2.86%, compared with the prior week's 3.22%, the search for yield is gradually taking investors further out on the risk curve--particularly retirees and baby boomers who need to replace the income they had been getting from riskless instruments. As the Fed seems unlikely to unwind its zero interest rate policy (ZIRP) any time soon, I'll be watching for signs of growing risk appetites in credit markets."

Petroleos Mexicanos, the state-owned oil company, said crude oil output fell 6.5 percent in November from the year-earlier period as production at its Cantarell field declined at a faster-than-expected rate.Cantarell’s output fell 33 percent, more than twice as fast as government estimates, to 862,060 barrels a day from a year earlier. Declining pressure at Cantarell has made it more expensive and harder to continue pumping oil from the offshore deposit.

Cantarell accounted for 32 percent of Pemex’s total output, half of the 65 percent it once represented at its peak.

Oil exports fell 20 percent to 1.511 million barrels a day, according to a chart on Pemex’s Web site.

Wal-Mart launched on Tuesday its $2.66 billion tender offer for all of the issued and outstanding shares, including American Depositary Shares, of Chile's leading supermarket D&S.

The offer, published in local media in Chile, was for 40.8 cents a share of D&S, and $24.48 per ADR, equivalent to 60 D&S shares each.
Holders of stock will have from midnight local time (10 p.m. EST on December 23) on December 24 through midnight on January 22, 2009, to accept the offer.

General Motors Corp. and Ford Motor Co., the two largest U.S. automakers, had their debt cut further below investment status by Standard & Poor’s and Moody’s Investors Service.

GM’s unsecured debt was trimmed one level to C, or 11 grades below investment quality, by S&P. Moody’s lowered its rating on $26 billion in Ford debt by two grades to Caa3, or nine below investment quality.

The dollar weakened for a second day against the euro before a government report that economists estimate will show sales of new U.S. homes declined to the lowest level in more than 17 years. South Korea’s won declined the most in a month versus the U.S. currency and India’s rupee fell for a third day on concern the global economy will slow further, hurting demand for Asian exports. The Japanese yen headed for its largest annual gain against the dollar in more than two decades on speculation the credit crisis will deepen.

The Office for National Statistics revealed that British gross domestic product during the July-September quarter fell by 0.6 percent from the previous three-month period, faster than the previous estimate for a 0.5 percent contraction.

Rep. Ron Paul: "The government itself runs a fraud much bigger than Madoff's. Our Social Security system is the very definition of a Ponzi, or pyramid scheme. If the government truly had an interest in protecting people's savings, they would allow people to opt out of Social Security altogether. We would cut wasteful spending, such as our overseas empire, to honor current obligations to seniors, and eventually phase the program out. Instead, as with Enron and Sarbanes Oxley, I expect new, unrelated legislation to be proposed that further damages freedom in the name of protecting us, amidst loud proclamations that they have made the world safe.

Merely passing a law does not fix any problems, just as throwing paper at a recession does not stop it. How can a government so complicit in mandatory public fraud effectively pre-empt private fraud? I see no reason to believe that any new law, or regulatory agency will solve anything. But I do see liberty slipping away every time Congress decides to "do something". We already have an oversight agency, the SEC, which did a poor job overseeing and preventing this, but does a great job hamstringing honest, productive businesses and driving them overseas.

Total trust in government solutions only creates moral hazard, and amplifies risky behavior. Trust in government got us here. We trusted government to eliminate risk, but it just made risk more creative and dangerous. We trusted the Federal Reserve, a supra-governmental cabal of private banks, to know better than the free market what interest rates should be, and how to stabilize the business cycle, but like a spinning top that loses its balance, it has instead spun the business cycle and the economy wildly out of control.

No governmental activity can negate market forces or nullify the cardinal rule of caveat emptor. Government can however, use our fears against us and promise unrealistic outcomes as a means to consolidate power and erode our liberties. Liberty comes with risk. This is a fact of life. But life without liberty is not much of a life at all."

Thacher Proffitt & Wood, the 160 year- old New York-based law firm whose work in structured finance has slowed because of the subprime crisis, became the fourth U.S. firm to dissolve this year after more than half of its attorneys departed for a competitor.

Thacher Proffitt will wind down operations after Dec. 31, the firm said yesterday in a statement, following the departure of 100 lawyers to Chicago-based Sonnenschein, Nath & Rosenthal. Thacher Proffitt’s planning committee had unsuccessfully tried to negotiate a merger with an unnamed law firm over the past six months, according to the statement.

The first half of next year will be very bad for the world economy, but investors will find value in stock markets as some deeply discounted shares will stage a rebound, Marc Faber, editor and publisher Gloom, Boom and Doom Report, told CNBC.

January natural-gas futures rose 1.8% to $5.39 per million British thermal units. Crude for February delivery was last up 5 cents, or 0.1%, at $39.96 a barrel in electronic trading. Gold for February delivery was last down $1.90, or 0.2%, at $845.30 an ounce in electronic trading.

The benchmark Shanghai Composite Index slid 4.55 percent on Tuesday to a three-week closing low, as investors had expected a much bigger rate cut.

"I think China must move quickly and continue to cut interest rates by a large margin in order to avoid deflation next year or stagflation over a bit longer time," said Lu Zhengwei, chief economist with Industrial Bank in Shanghai.

Mark Thoma: The balance sheets of financial institutions are no longer trusted—assessing a firm's solvency is largely a guess at this point. People are not going to part with their money until they are confident that the information about potential investments, and about the firms managing those investments, is reliable. That is true for both depositors and potential equity holders who could help with recapitalisation. We can take toxic assets off the books, but how will investors know for sure that new financial assets are safe, or that the firms doing the investing won't repeat the mistakes of the past and take huge losses yet again? How will investors know that the mathematical models used to assess these assets in terms of risk and return are reliable?"

Nouriel Roubini, Professor of Economics at Stern School of Business at NYU and chairman of RGE Monitor, expects 2009 to be a year of stagflation and recession for most of the global economic stagflation and recession for most of the global economy. He expects a severe, global recession. Whether or not it persists in 2010 will depend on how aggressive and effective policy actions are: monetary policy and fiscal policy and efforts to recapitalize financial institutions in the US and elsewhere. He believes there could be a return to positive economic growth by 2010. The European Central Bank should follow the Federal Reserve and cut interest rates further. The US needs a plan to reduce the debt burden to US households. The remedies will cost tax payers a lot of money.

U.S. new home sales fell to their lowest level in over 17 years in November, the Commerce Department estimated Tuesday. New home sales fell 2.9% to a seasonally adjusted annual rate of 407,000. This is the lowest level since 401,000 in January 1991. New home sales are 35.3% below their level in November 2007. The drop was slightly above the 400,000 pace expected by economists surveyed by MarketWatch. New-home sales in October were revised to a 419,000 level compared with the previous estimate of 433,000. The months' supply of homes on the market fell slightly to 11.5 months in November from 11.8 months in October. Median sales prices have fallen 11.5% in the past year to $220,400.

The pace of existing home sales plunged a record 8.6 percent in November to a 4.49-million-unit annual rate, while the median home price dropped for a fifth straight month to $181,300, a National Association of Realtors report showed on Tuesday.

The median home price fell 13.2 percent on an annual basis, the largest drop since NAR began keeping records in 1968 and probably the largest since the Great Depression, Lawrence Yun, NAR chief economist told reporters.

Stockpiles of copper monitored by the London Metal Exchange are up 66 percent this year to 328,000 metric tons, the highest since February 2004. The world’s mines and scrap yards produced 120,000 tons more than was used in the first nine months of the year, the Lisbon-based International Copper Study Group said.

“Continued builds in the LME copper stocks are keeping prices capped and setting the stage for another leg down,” said Ralph Preston, a commodity analyst at Heritage West Futures Inc. in San Diego.

Copper for delivery in three months fell $60, or 2 percent, to $2,900 a ton at 3:30 p.m. on the LME, after earlier dropping as low as $2,860. The metal, down 57 percent this year, reached $2,850.15 on Dec. 19, the lowest since Nov. 2, 2004.

The VIX has now slumped to the 43 area.

Feb. gold ends down $9.10, or 1.1%, at $838.10 an ounce. Crude for February delivery closed down 93 cents, or 2.3%, at $38.98 a barrel on the New York Mercantile Exchange. Natural-gas surged as much as 9% as Russia and other major producers gathered in Moscow to seek closer ties. Russia Prime Minister Vladimir Putin said that the era of cheap gas is coming to an end, and gas producers will cooperate more closely to try and make the gas market more predictable, according to media reports.

The Treasury Department sold $22 billion in four-week bills at a yield of 0% on Tuesday, as investors still seem keen on the safety of short-term government debt. Bidders offered more than 4.41 times the amount of debt being sold. There are suckers born every single day. I never knew schmucks were piled 22 billion high.

A safe decision for me is shorting all denominations of U.S. treasury bonds. How can you go wrong shorting government manipulators? It just requires patience.

The Dow Jones Industrial Average shed 100.28 points, or 1.2%, to 8,419.49. The S&P 500 dropped 8.48 points, or 1%, to end at 863.15, while the Nasdaq Composite fell 10.81 points, or 0.7%, to 1,521.54.

Cocoa prices on Tuesday surged to a 23-year high as speculative investors poured into the market amid concerns about dwindling supplies from Ivory Coast, by far the world’s largest producer.

Prices for cocoa have risen 70 per cent in the past year, bucking the weakness in overall commodities prices.

Monday, December 22, 2008

More Layoffs

12/22/08 More Layoffs

John Hussman: "In the next several months, we're likely to observe one of two things. If the dollar holds steady, Treasury bond prices are likely to plunge; if Treasury prices hold steady, the value of the dollar is likely to plunge. Either way, foreign holders of Treasury securities are facing probable losses, and they know it....As I noted earlier this year, a continued flight to safety in Treasury bonds, coupled with a continued massive current account deficit, “ places the U.S. in the difficult position of having to finance an enormous volume of capital needs from foreigners, particularly for Treasury debt, yet without being able to offer competitive yields or strong prospects for additional capital gains. My impression is that the markets will respond to this difficulty with what MIT economist Rudiger Dornbusch referred to in 1976 as “exchange rate overshooting.” In the present context, that means a dollar crisis. Specifically, if there is a weak prospect that foreign lenders will achieve a total return on U.S. Treasuries competitive with what they can earn in their own country, and every prospect that short-term interest rates in the U.S. will remain depressed or fall even further, the only way to attract capital is to immediately drive the value of the U.S. dollar to such a sharply depressed level that it will be expected to appreciate over time.”

"We continue to see further weakening in demand for our services in most of our markets due to the deteriorating economic environment," said Manpower's Chairman and CEO Jeffrey Joerres.

China's central bank said late Monday it will cut its key lending and deposit rates by 0.27-percentage points each from Tuesday, as part of efforts to bolster the economy. The People's Bank of China said in a statement it will reduce the one-year lending rate to 5.31% from 5.58% and the one-year deposit rate to 2.25% from 2.52%. The PBOC said it would also lower the ratio that banks must set aside as deposits by a half-point from Thursday.

The U.K. FTSE 100 index fell 0.5% to 4,265.28, the German DAX 30 index lost 0.8% to 4,656.62 and the French CAC-40 index dropped 0.9% to 3,196.80.

Toyota Motor Corp. slashed its profit, revenue and unit sales forecasts for the year ending March 31, blaming a shocking slump in the global automobile market and a sharp appreciation in the Japanese yen against major currencies. The automobile giant cut its net profit forecast by 91% to 50 billion yen ($556 million) from 550 billion yen, adding it will now make an operating loss of 150 billion yen, as compared with its previous projection of operating profit of 600 billion yen. The company also lowered its full-year unit sales forecast to 7.54 million vehicles from its reduced estimate of 8.24 million units in November.

Japan warned on Monday it was sliding deeper into recession after exports and business sentiment tumbled, and British central bankers said interest rate cuts alone would not cure global economic ills.

This year, Americans worked 74 days to pay their federal taxes and 39 days more to cover state and local levies, the Tax Foundation calculated.

AIG continued to shed assets on Monday by selling the Hartford Steam Boiler Company to Munich Re, the German reinsurer, for $742m.

According to the NY Times, to limit layoffs, more employers are using four-day workweeks and unpaid vacations, along with wage freezes and flexible work schedules.

"Regardless of what the state does, we're going to have a hard time," said Paul McIntosh, executive director of the California State Association of Counties. "Counties adopted budgets last June that reduced expenses, and now they're having to reopen those budgets to make even more cuts."

San Francisco already plans to lay off 409 workers, and Mayor Gavin Newsom and the Board of Supervisors are talking about asking employee unions to accept a wage freeze and slashing deeply into health and social service programs.

In Contra Costa County, reductions in state funding have forced a $16.5 million cut in the Employment and Human Services Department, forcing the loss of 203 positions, including about 80 layoffs, said County Administrator David Twa.

The county already has chopped $111 million from its $1.2 billion budget, with more trims coming.

The ruble fell to the lowest in almost three years against the dollar as Russia devalued the currency against its dollar-euro basket and tumbling oil prices battered the economy.
The ruble weakened as much as 1 percent to 28.4567 versus the dollar, the lowest level since January 2006, and was at 28.3525 at 3:15 p.m. in Moscow. Bank Rossii today allowed the ruble to decline for the second time in three working days and the ninth time since Nov. 11, according to a central bank official who declined to be identified. The currency fell 17 percent against the dollar since the beginning of August.

The average price of regular gasoline at U.S. filling stations fell to $1.66 a gallon as the nation’s recession sapped demand.
Gasoline slipped 9 cents, or 5.1 percent, in the two weeks ended Dec. 19, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide. Motorists bought an average 9.098 million barrels of gasoline a day, down from 9.617 million a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report.

Hog prices are poised to jump 46 percent by June to the highest since May 1996 as producers slaughter more breeding sows to limit losses from rising feed costs, said Jason Britt, president of Central States Commodities Inc. in Kansas City, Missouri. Fewer pigs may boost the cost of everything from Hormel Foods Corp.’s Spam to Sara Lee Corp.’s Jimmy Dean sausage.

In the worst year for commodities in at least five decades, hogs rose 6.6 percent, the second-biggest gains on the Reuters/Jefferies CRB Commodity Index, behind cocoa. The same global economic slowdown that halted six years of rising demand for gasoline, cotton and copper also set the stage for cutbacks in hog supplies.

“We’re going to have 3 to 4 percent less pigs next year, and that should be very supportive to higher pork prices,” said Mark Greenwood, who manages about $1 billion of loans and leases to swine producers for AgStar Financial Services in Mankato, Minnesota. “There is the potential for producers to have a better year in 2009.”

Hog futures reached a 15-month high of 79 cents a pound on June 23 and may rise to 90 cents within a year, the highest since May 1996, Britt said. The most-active contract closed at 61.7 cents on Dec. 19 on the Chicago Mercantile Exchange.

Tony Crescenzi: "In Friday's release, cash balances held by commercial banks topped $1 trillion for the first time, reflecting cash balances held at the Fed. Pre-Lehman, cash balances tended to hover around $300 billion, with an annual growth rate of less than 1% per year.

The Federal Reserve's curse on cash, hexed as it was last week with the Federal Reserve's Zero Interest Rate Policy (ZIRP), will eventually pressure banks to use the cash, as net interest margins on loans are far more attractive than the return on cash. Of course, banks need to feel safe that default rates will be low enough to make the foray seem attractive. In due time."

China may lose as many as half of its shipbuilders next year as the global financial crisis forces companies to close down, citing Ren Yuanlin, chairman of Yangzijiang Shipbuilding Holding Co.

According to Business Week, Honda has been cutting production to match its plummeting U.S. sales, and its leaders in Japan are sending ominous signals that things are expected to get worse in 2009. On Dec. 17, Honda CEO Takeo Fukui said the company probably will earn 62% less this fiscal year than what it had projected just six weeks earlier. That sense of alarm was reflected in the latest November results, which showed Honda's U.S. sales were down 32%, roughly in line with declines at other companies.

The transplant factories have responded by chopping work hours and production. In October, Mercedes-Benz offered buyouts at its Vance, Ala., plant, which makes SUVs and crossovers. Earlier this year, Nissan offered buyouts to white collar workers at its Tennessee headquarters, as well as to line workers. On Dec. 15, Toyota announced it would delay the opening of a factory in Blue Springs, Miss., where it was to start U.S. production of the Prius hybrid gas-electric car. Toyota workers at the company's brand-new San Antonio pickup truck plant were idle from August to November.

Honda says it will sharply cut the number of vehicles it produces in the U.S. and Canada in the coming year. While no layoffs have yet been announced in Lincoln, Honda has pulled back on production several times: In January it plans to reduce the number of vehicles built there, from 1,300 a day to 1,150. The plant was closed for two days in August and in the fall a second Friday shift of workers was eliminated.

Gold futures rose Monday, following their 2% gain in the last week, as buying of the metal as a safe haven continued. Gold for February delivery was last up $11.10, or 1.3%, at $848.50 an ounce on the Comex division of the New York Mercantile Exchange. Crude for February delivery was last up 70 cents, or 1.7%, at $43.06 a barrel in early electronic trading. OPEC President Chakib Khelil said on Sunday that OPEC was willing to further cut production as much as was necessary to stabilize oil prices, the Associated Press reported.

Walgreen Co. said Monday that its first-quarter profit dropped to $408 million, or 41 cents a share, from $456 million, or 46 cents a share, in the year-earlier period. Sales rose 6.6% to $14.9 billion with comparable-store sales increasing 1.7%. Analysts, on average, estimated the company would earn 46 cents a share on sales of $15.03 billion, according to FactSet. The company said it's cutting its store openings to a rate of between 4% and 4.5% in 2010 and as much as 3% in 2011. That would reduce capital spending through 2011 by about an additional $500 million.

Steelcase Inc.said Monday that its third-quarter profit fell to $0.4 million, or break-even on a per-share basis, from $31.3 million, or 22 cents a share, in the year-earlier period. For the quarter ended Nov. 28, revenue declined to $811.3 million from $885.9 million. The Grand Rapids, Mich., office-furniture maker said it expects to report a fourth-quarter net loss of 4 cents to 10 cents a share, including restructuring costs.

General Motors Corp's equity may be largely if not entirely wiped out as it complies with the restructuring targets laid out in the federal auto bailout, an analyst at Credit Suisse said, cutting his price target to $1 and his rating to "underperform."

The labor market faces persistent weakness in 2009, with more than 1 million jobs cuts expected due to weak spending among consumers and businesses, according to a Monday report from Challenger, Gray & Christmas Inc. "It will take time for any stimulus measures to work their way through the economy," said John Challenger, chief executive of the outplacement firm. "Even if the measures work, it could take several more months for consumers and corporate America to regain confidence and begin spending again."

Light, sweet crude for February delivery fell $2.45, or nearly 6 percent, to settle at $39.91 a barrel on the New York Mercantile Exchange. Crude prices have tumbled 70 percent since peaking above $147 in July.

Gold for February delivery, the most active contract, closed up $9.80, or 1.2%, at $847.20 an ounce on the Comex division of the New York Mercantile Exchange.

PPG Industries Inc. sees fourth-quarter earnings of 35 cents to 45 cents a share. Analysts surveyed by Thomson Reuters estimate 67 cents a share.

The VIX declined about one-half point to 44.50.

The Dow fell 59.34, or 0.69 percent, to 8,519.77. Monday's retreat was the fourth straight daily loss for the Dow. The Standard & Poor's 500 index fell 16.25, or 1.83 percent, to 871.63, and the Nasdaq composite index fell 31.97, or 2.04 percent, to 1,532.35.
The Russell 2000 index of smaller companies fell 11.19, or 2.30 percent, to 475.07.
On the New York Stock Exchange, declining issues outnumbered advancers by more than 2 to 1. Consolidated volume came to 4.31 billion shares, down from 6.04 billion shares on Friday.

Textron says it plans to cut about 2,200 jobs as it exits nearly all of its commercial finance business, in an effort to improve its liquidity position in the tightening credit markets.The defense contractor also is lowering its fourth-quarter earnings outlook.

Caterpillar Inc, the world's largest maker of heavy construction and mining equipment, said Monday it is cutting white-collar pay by up to 50 percent and offering buyouts to as many as 25,000 U.S. employees as it looks to cut costs during what it characterized as "uncertain times." Analyst Eli Lustgarten at Longbow Research, who thinks Caterpillar's earnings may fall as much as 33 percent next year.

According to the employment consulting firm Watson Wyatt, 11 percent of all the companies it recently surveyed either already had cut wages or planned to do so over the next 12 months, and 10 percent either have reduced their employer 401(k) match or planned to do so.
"Companies are trying to do things that are much more thoughtful as opposed to just, let's take 10 percent of the work force off," Jeffrey Joerres, chief executive of Manpower Inc, the world's No. 2 staffing company, said in a phone interview.

Australia's S&P/ASX 200 index fell 0.4% to 3,544.80 and South Korea's Kospi shed 0.7% to 1,171.12, while New Zealand's NZX 50 index gave up 0.5% to 2,665.64.

Unisys Corp.said Monday evening that it plans to take "agressive actions" to reduce costs, which will include laying off about 1,300 workers. In a statement, the IT services company said it will also seek reductions in third-party expenses, facility consolidations and a suspension of company matching contributions to the U.S. 401(k) plan.

Sunday, December 21, 2008

Happy Hanukkah, The 8-Day Festival Of Lights

12/21/08 Happy Hanukkah, The 8-Day Festival of Lights

General Motors Corp.'s financial woes have GM workers around the country worrying about what life without GM might be like. The 1,080 hourly workers at the automaker's sport utility plant in this Dayton suburb are about to find out. For them, life without GM begins Tuesday.
hat's when the automaker pulls the plug on the plant that over the past 27 years has spit out cars, trucks and SUVs, helped pay mortgages and college educations, and provided a security blanket in turbulent times.

The Oil Drum: "Global spending on oil and gas exploration and production will shrink 12 percent to $400 billion in 2009 as the steep slide in energy prices and tight credit markets reverse a six-year trend of rising budgets, analysts at Barclays Capital said on Friday.

Spending in the United States is expected to show the sharpest drop, falling 26 percent to $79 billion from the 2008 mark of $106 billion, Barclays analysts James Crandell and James West said in their semiannual report based on a survey of oil and gas companies."

Robert McHugh: "We are approaching a window of time where our phi mate and Fibonacci cluster analysis suggests a multi-week trend change is likely, starting this week and lasting into year end."

Mike Burk: "The second and third days prior to Christmas are often a little weak, but the day prior to Christmas is usually strong. This year, Friday, the day after Christmas, is likely to be a very low volume day that drifts upward, similar to the day after Thanksgiving....
New lows have remained at benign levels and the secondaries have been stronger than the blue chips.I expect the major indices to be higher on Friday December 26 than they were on Friday December 19."

Richard Fisher, President of the Federal Reserve Bank in Dallas:"Price pressures now are in the other direction...[and] we have to do everything we can to lift the economy up and prevent deflation from taking [hold].... We are well aware that at some point, God willing, we'll have to tighten and we'll have to act; and I'm here to tell you that my voice will be very loud at that juncture, but right now that's not the issue." The Fed wants to prevent deflation?

Obviously, they have trouble looking out the window. Hello! Is anyone home?

In early trading, the Nikkei 225 Average rose 0.2% to 8,605.52, while the broader Topix index advanced 0.7% to 840.23. South Korea's Kospi added 0.7% to 1,189.09, and New Zealand's NZX 50 index gained 0.5% to 2,667.22. Australia's S&P/ASX 200 fell 0.8% to 3,588.30.

The Irish government said Sunday it is investing 5.5 billion euros ($7.68 billion) in three of Ireland's major banks as part of its financial rescue package, according to news reports.

Japan’s exports plunged in November, signaling more factory shutdowns and job cuts are likely as the recession deepens.
Exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted a 22.3 percent decline. The gap between imports and exports increased to 223.4 billion yen ($2.48 billion) during the month, compared with a deficit of 67.7 billion yen in October. Demand for Japanese goods and services in the U.S. slumped by more than one-third during the month, while exports to China decreased by nearly a quarter.

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s crude, is “determined to bring stability to the oil market” after prices plunged more than $100 from a high in July, Saudi Oil Minister Ali al-Naimi said.
All members of OPEC share the goal, Naimi told reporters at a conference in Doha, Qatar, today.

New Zealand’s recession probably extended into a third quarter as consumers and businesses reined in spending and exports of milk, timber and wool eased. Gross domestic product shrank 0.5 percent last quarter from the previous three months, prolonging the nation’s first recession since 1998, according to the median estimate of 13 economists surveyed by Bloomberg.

Belgium's King Albert consulted political leaders on Saturday after the government collapsed for the third time in a year following its botched attempt to bail out financial group Fortis.

Fuji Electric Holdings Co. plans to cut about 2,000 part-time positions by Sept. 30 to cope with a dramatic decline in orders, according a report published in the Monday morning edition of the Nikkei newspaper.