Friday, February 13, 2009

Friday The Thirteenth

2/13/09 Friday The Thirteenth

Mike Shedlock: "The important point now is that it is not just the US banks that are insolvent, but banks in the UK, and EU as well....A huge credit event is coming, and it's not just in the US. And that is the message of gold."

Adjusted for items, PepsiCo would have earned 88 cents a share.
Revenue came in at $12.73 billion for the quarter, an increase of 3%.
The average estimate of analysts polled by FactSet Research had been for the company to earn 88 cents a share on sales of $12.8 billion.
"PepsiCo's operating agility and disciplined execution delivered solid results in an extremely difficult year," said Indra Nooyi, chief executive, in the earnings release. "We expect 2009 will present a challenging environment. However, I am confident that we have robust plans and an experienced team in place to navigate capably through the turbulent environment."
PepsiCo expects 2009 core earnings-per-share growth in the mid-to high-single-digits on a constant currency basis. The company anticipates foreign exchange, at current spot rates, would adversely impact constant-currency core EPS by 8%.

Kevin G. Hall McClatchy Newspapers: "The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won't stimulate economic activity, according to a range of respected economists."I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who's usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending."It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits."
Abercrombie & Fitch Co.said it's not providing a profit forecast for this year because it sees a difficult selling environment to persist throughout 2009 and said there may be significant volatility in sales levels.

Johanna Bennett: "Since Christmas, analysts have cut 2009 earnings-per-share estimates for the Standard & Poor's 500 by 20%, abandoned absurdly optimistic hopes, and slashed estimates for every sector.
Still, estimates have not dropped enough, and until they do, companies will keep missing expectations, making a sustained stock-market rally near impossible."

Toyota Motor Corp.will reduce production at its North American manufacturing plants "in the midst of the worst automotive slump in decades." Toyota will take steps including cutting production days in April, reducing paid hours for workers, eliminating executive "and salaried" bonuses, cutting executive pay and offering a "voluntary exit" to employees "who wish to pursue other opportunities." The automaker also said it sees "no wage increases for the forseeable future."

The Oil Drum: "Prime Minister Vladimir Putin agreed on Thursday to consider more incentives to reverse declining oil output, as the energy minister delivered the grimmest outlook yet for the industry.
Crude output will drop by nearly 8 percent from last year's level through 2013 if the government doesn't provide further aid to producers, Energy Minister Sergei Shmatko said at a meeting that Putin convened at a refinery outside St. Petersburg to talk to oil executives.
Any potential incentives would further dent federal revenues, which are already expected to contract drastically this year on the back of low oil prices and the global economic crisis."
The euro zone plunged deeper into recession in the fourth quarter, led by the biggest quarterly fall in German GDP in more than two decades.

New car sales in Europe plummeted 27 percent in January from a year earlier, sinking to the lowest level in two decades as the crisis ravages the auto sector, an industry association said Friday. The European manufacturers’ association ACEA said there were losses in all countries.

Japan's economy likely contracted at an annual pace of more than 10 percent in the fourth quarter, analysts predict, reflecting the collapse in global demand that is battering the world's second-biggest economy.

The Cabinet Office is expected to reveal Monday that gross domestic product in the October-December period plunged an annualized 11.7 percent, according to a consensus of market forecasts. That would mark the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8 percent in the U.S. and an estimated 1.2 percent in the euro-zone.

According to AMG Data Services, including ETF activity, Equity funds report net cash outflows totaling -$2.568 billion in the week ended 2/11/09 with Domestic funds reporting net outflows of -$2.915 billion and Non-domestic funds reporting net inflows of $347 million;
Excluding ETF activity, Equity funds report net cash outflows totaling -$169 million with Domestic funds reporting net outflows of -$132 million and Non-domestic funds reporting net outflows totaling -$37 million;
Exchange Traded (Equity) funds report net outflows of -$2.399 billion with the largest flows:
-$6.173 Bil from the SPDR Tr Series I fund;
$3.068 Bil to the SPDR Gold Shr fund.

Crude oil for March delivery gained 67 cents, or 2%, at $34.67 a barrel in electronic trading on Globex.

Global steel demand may take at least six months to recover when the U.S. job market improves and people resume buying cars and home appliances, said Paul Zuckerman, head of New Zealand’s second-biggest steelmaker.
Production cuts and public works projects should start reducing stockpiles of heavy beams, pipes and other long steel products in the next two to three months, said Zuckerman, the chief executive officer of Fletcher Building Ltd.’s steel unit. Demand for sheet steel may take longer to recover.

Randall W. Forsyth: "The wealthiest suffered the biggest hits to their net worth. Moreover, Americans, especially those aged 55 to 64 -- the peak earnings and wealth-accumulation years -- wound up worse off in 2008 than in 2004....The Fed estimates households' median net worth fell 17.8% in 2008 while the mean net worth plunged 22.7%. Consider what the difference between the two measures means: There were a lot of big hits to wealth that pushed the mean decline above the median drop.
Compared to 2004 levels, the median household net worth is down 3.2% by 2008, so the bull market in stocks and house prices were wiped out. The mean household wealth is down 12.7% during that period, which indicates the big guys and gals took big hits....Debt pumped up Americans' wealth during the bubble years. And after the bubble burst, assets shriveled but the liabilities remain.
That's the problem policymakers face. Americans who are tapped out are reluctant to borrow and spend. Financial intermediaries that face losses are loath to lend and invest. A conundrum, indeed, for both the Obama administration and the Fed."

A consumer sentiment index fell in early February to 56.2 from 61.2 in January, according to a media report of a survey released Friday by the University of Michigan and Reuters.

World oil demand will contract more sharply than expected this year due to the economic crisis, OPEC said on Friday, an outlook that may bolster the case for further supply cuts.
The Organization of the Petroleum Exporting Countries said global demand will fall by 580,000 barrels per day (bpd) in 2009 to average 85.13 million bpd. Its previous forecast was for demand to contract by 180,000 bpd.
Oil use is falling this year and in 2008, the first drop in more than 20 years, as recession triggered by the banking crisis spreads through all continents.

The House voted 246 to 183 for the Stimulus measure, with no Republicans in favor and seven Democrats in opposition.

The February gold contract ended Friday $7 lower, or 0.7%, at $941.50 an ounce. Crude for March delivery ended up $3.53, or 10.4%, at $37.51 a barrel on the New York Mercantile Exchange. Despite Friday's gain, the front-month contract lost 6.6% this week. The March contract is expiring on Feb. 20. The April contract, meanwhile, fell 0.5% to $41.97.

The premium on Brent crude over WTI crude dropped to $7 a barrel---still very high but much lower than the $12 premium on Thursday.

The Dow Jones Industrial Average fell 82.35 points, or 1%, to end at 7,850.41, giving the blue-chip index a weekly drop of 5.2%. The S&P 500 fell 8.35 points, or 1%, to 826.84, off 4.8% from the week-ago close. The Nasdaq Composite shed 7.35 points, or 0.5%, to end at 1,534.36, down 3.6% on the week.

The U.S. benchmark for oil prices is largely set by the supply and demand balance in the little town of Cushing, Okla.—where Lipow says supplies have shot up 142 percent in four months.
On the other hand, gasoline supplies are tightening—now below where they were a year ago—as refiners have cut back on production due to slow demand.

President Obama said during an appearance at the Caterpillar tractor factory in East Peoria, Illinois, that the company CEO had promised in the Peoria Journal Star: "If Congress passes our (stimulus) plan, this company will be able to rehire some of the folks who were just laid off."
But after the president left, Caterpillar chief Jim Owens said there actually would be more layoffs coming — in addition to the 22,000 already expected: "We'll probably have more layoffs before we start hiring again. We don't want false expectations. If we sign a stimulus bill, that doesn't mean we'll start hiring right away."
Owens back-tracked today, saying the passage of stimulus packages could — over time — lead to the recall of some employees laid off during this downturn.

Pittsfield, Ill.-based Corn Belt Bank and Trust Company was closed by regulators Friday, marking the 12th bank failure of 2009, the Federal Deposit Insurance Corporation said in a statement. The FDIC earlier Friday had announced the failure of Nebraska-based Sherman County Bank and Florida-based Riverside Bank of the Gulf Coast. Corn Belt Bank marks the 37th bank failure since the start of the credit crisis. Carlinville, Ill.-based Carlinville National Bank will assume Corn Belt Bank's deposits, the FDIC said.

The Deficit

2/12/09 The Deficit

GM is offering retirement incentives to 22,000 of its 62,000 UAW union members.
General Motors bondholders are requesting more money in exchange for forgiving billions in debt and are threatening to push the company into bankruptcy if they don’t get it, according to reports from the Detroit News.
In order to satisfy terms of the government bailout, GM is working with bondholders on a complicated debt exchange to cut its debt by two-thirds to $9.2 billion. To help get there, bondholders would have to accept 30 cents on the dollar, but they are demanding 50 cents on the dollar, which would mirror the value of concessions being negotiated with the UAW.

WSJ: "CBO estimates the 2009 deficit will reach 8.3% of the economy, not including the stimulus or bank bailout cash. Toss in those, and analysts at the Strategas Group estimate the deficit could hit nearly $2 trillion, or 13.5% of the U.S. economy.

We aren't deficit scolds, but these levels are uncharted territory, especially if any economic recovery is weak because the spending doesn't stimulate. The new spending means new federal debt in the trillions of dollars over the next few years, which will test the limits of America's credit-worthiness. To the extent that taxes rise to pay for it all, the U.S. will become less desirable as a destination for the world's capital. Perhaps the Federal Reserve will try to inflate away this growing debt, but the world's bond vigilantes will get a vote on that."

Home prices fell in nearly nine out of every 10 U.S. cities in the fourth quarter of last year as low-cost foreclosures flooded the market and the housing market's decline spread nationwide.

The National Association of Realtors said Thursday that median sales prices of existing U.S. homes declined in 134 out of 153 metropolitan areas compared with the same period in 2007. Sales fell in all but six states.

Nationwide, the median sales price was $180,100, down 12 percent from a year ago. But price declines of 30 percent or more were found in much of California, plus parts of Michigan, Florida, Arizona and Nevada. The biggest drop, of more than 50 percent, was in Fort Myers, Florida.

Facebook Inc. quickly concluded it wasn't worth anywhere near the $15 billion market value implied in a 2007 investment made by Microsoft Corp., according to confidential information obtained Wednesday from court documents. In a transcript of a June court hearing that was closed to the public, lawyers arguing over a legal settlement revealed Facebook's own appraisal had priced its privately held stock at $8.88 per share, giving it a market value of about $3.7 billion. Will Microsoft writedown the value of its investment in Facebook?

The natural gas industry faces low prices, high stockpiles and an onshore rig count that is falling fast — but the head of the nation’s largest natural gas producer is optimistic.

“We only need gas prices to be ‘good’ for three to six months every two-year period,” Chesapeake Energy Chief Executive Aubrey McClendon told reporters Wednesday at the Cambridge Energy Research Association’s annual CERAWeek oil and gas conference in Houston. “Then we’d be happy for them to fall to benefit consumers and affect our competitors.”

During a presentation at the conference, McClendon said his company believes “the fix is in for an oversupply,” referring to the boom in onshore production in natural gas shale plays where his company is among the most aggressive players.

That boom pushed natural gas production up by as much as 6 percent last year, but recession-weakened demand and prices that are down more than 60 percent from 2008 highs led to high stockpiles.

More than a quarter of people applying for unemployment claims have their rights to the benefit challenged as employers increasingly act to block payouts to former workers.

The proportion of claims disputed by former employers and state agencies has reached record levels in recent years, according to the Labor Department numbers tallied by the Urban Institute.

The Oil Drum: "The US will produce about 5 million barrels of oil per day this year, the lowest level since 1948, and only a quarter of what we want. We have to get the balance from the global export pool. Jeffrey Brown has shown, with his extensive analysis of net exports, that when producing nations try to satisfy their own demand first, export levels drop faster than overall production. Since the rate of oil usage is growing faster in the OPEC countries and Russia than in other parts of the world, the outlook for the export pool is not good.

The “export pool” is not a simple concept, either. The top five sources Americans rely on for oil imports include only one of the top five global exporters. Canada’s growth in production is based on the tar sands, where production costs for new projects far exceed current oil prices. Mexico’s production is in sharp decline, and some forecast that the 1.4 million bpd it exports could fall to zero within a few years. Venezuela and Nigeria are both facing major domestic challenges that question their reliability as sources. Saudi Arabia has some excess capacity. However, where are we going to get the oil to replace what we import from Mexico and Venezuela, as well as to supplement our continuing declining production?

Russia, Norway, the UAE, and Iran all have existing relationships and infrastructures sending their oil to Europe, China, Japan, and other destinations. Brazil and West Africa have potential to increase their production, but Brazil has indicated that it may want to keep much of its oil for domestic use."

In my view, with the economy in the pits, demand for crude may be down in the

2009; however, there is little focus on supply as we get into summer driving months. I believe those buying crude at the $34+ level will be rewarded nicely. Brent crude is now selling at a $12 a barrel premium to WTI crude or double the spread just this week and represents, in my view, a dynamite hedging opportunity.

Lending has dried up as $171 billion of commercial mortgages come due this year, according to the Mortgage Bankers Association. Issuance of commercial mortgage-backed securities, which supply cash for bankers to make more loans, fell 95 percent in 2008, JPMorgan Chase & Co. reports. Geithner wants to expand an existing federal lending program to buy the securities and spark loan-making.

“CMBS is a four-letter word,” said William Acheson, who tracks apartment real estate investment trusts for the Benchmark Co. LLC in New York. “The Treasury plan gets questionable paper off questionable financial institutions’ books, but it will take an awful lot more confidence for people to come back to securitized mortgage pools.”

Bankruptcies by office, retail and apartment owners occurred in some of the same states hit by residential foreclosures in the fourth quarter, according to data compiled for Bloomberg by commercial broker Marcus & Millichap Co.’s Special Assets Group and research firm RealtyTrac Inc.

Foreclosure filings dropped 9.6% from December, RealtyTrac reports, largely due to the combined mitigation efforts of banks and the government - but remain 18% higher than a year ago. In January, one in every 466 houses was the subject of a foreclosure filing. Yesterday, said completed foreclosures plunged by more than 25% in January from December, to 72,694 from 97,841. Preforeclosure filings - an indicator of future completed foreclosures - also fell 12%. "Efforts last year by government and industry to lay the groundwork for housing recovery finally are yielding the hoped-for slowdown in the foreclosure hemorrhage," president Alexis McGee said.

Japanese electronics company Pioneer Corp. will cut 10,000 jobs globally to cope with sinking sales of car audio equipment and flat-screen TVs. It will also withdraw from its money-losing plasma display business.

A government report said retail sales in January unexpectedly rose 1%. Excluding automobiles, sales unexpectedly rose 0.9%.

George Ure: "Just another example (we can do one of these every day...) of how 'happy-talk' media reports things: Most are saying retail up 1%. BUT if you take the government numbers for January of this year, 344,649-million and divide by January a year ago, 381,673, you'll see that retail is down 10% year-on-year...but it's even worse because you can add in what? 5% inflation, so it's really down 14-15% year-on-year? Shot of el Don, please....who are these finance writers so devoid of numeracy? Can't blame the Obama change artists for this one - still leftovers from the republicorps. Anyone hear from George Bush lately?"

The Labor Department said jobless claims declined by 8,000 to 623,000 in the week ended Feb. 7. Continuing claims, an indication of the difficulty of finding a new job, reached a record 4.81 million.

Nouriel Roubini: " Our latest estimates at RGE Monitor suggest that total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will be, at their peak, about $3.6 trillion. The U.S. banks and broker-dealers are exposed to half of this much, or $1.8 trillion; the rest is borne by other financial institutions in the U.S. and abroad.

The capital backing the banks' assets was just $1.4 trillion (last fall), leaving the U.S. banking system some $400 billion in the hole, or close to zero even after the government and private-sector recapitalization of such banks. Thus, another $1.4 trillion will be needed to bring back the capital of banks to the level it had before the crisis, and such massive additional recapitalization is needed to resolve the credit crunch and restore lending to the private sector.

These figures suggests the U.S. banking system is effectively insolvent in the aggregate; most of the U.K. banking system looks insolvent, too, and many other banks in continental Europe are also insolvent."

The Coca-Cola Co. said Thursday its fourth-quarter profit fell 18 percent as it dealt with the global recession and volatility in the currency markets.

It may soon be possible to distinguish aggressive prostate tumors requiring immediate treatment from those that grow slowly and can be safely ignored, a problem that has vexed oncologists and patients for decades.
Looking at the complete profiles of chemicals produced by prostate tumors, researchers found that levels of sarcosine -- a simple derivative of the amino acid glycine -- are substantially higher in patients with aggressive tumors, they reported Wednesday in the journal Nature.

Eric deCarbonnel: "The dollar is likely to do very poorly as central banks liquidate trillions in US holdings to buy food and appreciate their currencies."

Forbes: "Retailers hoping for a big boost from the Obama-Pelosi stimulus package may find themselves disappointed, regardless of how many billions get spent.

The problem: savings. People are finally scared enough to sock their money away after years of free-spending largess, and tax breaks and job programs don't do much for stores if people won't part with the cash.

"People are going to save until they're confident we're on a plan that will work, not giveaways," says retail expert Howard Davidowitz, of New York-based retail investment bank Davidowitz & Associates.

The industry is poised for thousands more closings, especially for nonessential goods like high fashion and electronic toys, and big items like furniture. Layoffs abound.

The National Retail Federation is forecasting a 2.5% drop in sales for the first half of 2009 compared with a year ago. Some private estimates are worse. A recent industry survey conducted by consumer marketing intelligence firm BIGresearch asking shoppers to name "must-have" items showed that most will not do without cellphones, cable TV, Internet service and fast food, plus basic apparel and shoes. Apparently, everything else is on the table.

Retailers say the stimulus packages being proposed don't do enough to spur spending. The NRF hasn't stopped pitching the Feds its idea for a sales tax holiday, generally a winning formula for drawing shoppers to stores, at least temporarily."

Gerald Celente, founder of the Trends Research Institute: "I’m not exaggerating, the facts are there. I have a saying: when people lose everything and they have nothing to lose, they lose it. You’re going to see people saying, off with their heads. There’s going to be another revolution in this country....It’s going to be a tax revolt. We’re going to start seeing a tax revolt in the United States. People are one job away from losing everything. We’re seeing more and more closures, people are being laid off. People are stretched to the limits. And what do they do in New York State? Some130 new taxes are being proposed, they’re raising sales taxes. There’s going to be a tax revolt in this country from property taxes first and school taxes second. That’s what we’re going to see start to happen."

Hope does not put food on the table nor does it put a roof over one's head nor does it prevent layoffs or foreclosures or bankruptcies.

The worst drought in nearly 100 years is racking three-quarters of Texas. Much of the state has not had a significant rainfall since August. Winter wheat crops have failed. Ponds have dried up. Ranchers are spending heavily on hay and feed pellets to get their cattle through the winter. Some wonder if they will have to slaughter their herds come summer. Farmers say the soil is too dry for seeds to germinate and are considering not planting.

“The last time we had a drought this bad was in January 1918,” said John Nielsen-Gammon, the state climatologist. “The droughts in the 1950s in individual years were not as bad as this.” Mr. Nielsen-Gammon, a professor at Texas A&M, said the weather had been unusually dry for the last year and a half, but since August, much of the central part of the state — a broad swath from just south of Dallas, through Austin and San Antonio and down to Corpus Christi — had gotten little or no rain. Even last year’s hurricanes, Dolly and Ike, did not help, he said.

Famine can turn a recession into a depression. The countries that make up two thirds of the world's agricultural output are experiencing drought conditions---

China, Australia, Africa, South America, the US, and Middle Eastern and Central Asian nations.

Holdings in SPDR Gold Shares, the largest exchange-traded fund backed by gold, hit a new record above 900 tons Wednesday, according to latest data from the fund. SPDR gold holdings reached 935.09 tons, climbing above 900 tons for the first time. That's up more than 40 tons from a day ago, and nearly 150 tons higher than a month ago.

President Barack Obama’s stimulus plan will be insufficient to avert the biggest U.S. economic decline since 1946 as consumer spending posts its longest slide on record, according to a monthly Bloomberg News survey.

The world’s largest economy will contract 2 percent this year, half a percentage point more than last month’s forecast, according to the median of 50 projections in the survey taken Feb. 2 to Feb. 10. Even as Obama aims to create 3.5 million jobs with a stimulus plan, economists foresee an unemployment rate exceeding 8 percent through next year.

Suppose the contraction is closer to 5% in 2009?

Economists estimated odds that the economy will be out of the recession in the next 12 months at 53 percent, down from 55 percent in January, the survey showed. The slump began in December 2007, according to the National Bureau of Economic Research in Cambridge, Massachusetts.How often are economists correct?

Wayne Gretzky: "You miss 100% of the shots you never take."

In the first 30 minutes of trading on Thursday, the Dow Jones Industrial Average was down 207.96 points at 7,731.57.

Ecolab continues to see 2009 earnings per share of $1.95 to $2.05.

The current recession will last at least three years and possibly longer absent a revival in credit markets, according to investors who specialize in distressed debt and bankruptcy.

"This is going to be a three- to four-year disaster," said Michael Psaros, managing partner at KPS Capital Partners, at a restructuring conference in New York.

The United States is going through a "Great Recession," which will provide investors in distressed assets with unprecedented opportunities, he said.

The VIX has spiked above the 47 area.

Natural gas inventories dropped by 159 billion cubic feet in the week ended Feb. 6, the Energy Information Administration reported. Analysts surveyed by Platts had expected a reduction between 165 and 170 billion cubic feet. At 2,020 billion cubic feet, stocks were 44 billion cubic feet higher than last year at this time and 24 billion cubic feet above the five-year average. After the data, March natural gas futures fell 2.6% to $4.415 per million British thermal units.

After 3 1/2 hours of trading, the Dow was down only 129 points.

Gold futures for April delivery rose $4.70, or 0.5 percent, to $949.20 an ounce at 12:03 p.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $952, the highest for a most-active contract since July 22.

Silver futures for March delivery fell 4.5 cents, or 0.3 percent, to $13.475 an ounce. The metal fell 24 percent last year, while gold gained 5.5 percent.

Charter Communications Inc said on Thursday that it reached an agreement in principle with a debt holders committee on terms of a financial restructuring, to be done under Chapter 11 bankruptcy protection, to reduce Charter's debt by about $8 billion.The cable operator, controlled by Microsoft co-founder Paul Allen, said in a statement it would file for Chapter 11 on or before April 1.

Crude for March delivery fell $1.96, or 5.5%, to end at $33.98 a barrel on the New York Mercantile Exchange, the lowest closing level for a front-month contract since Dec. 19, when the expiring January contract ended at $33.87, the lowest since July, 2004.

Dow Chemical Co.said it is lowering its quarterly dividend to 15 cents from 42 cents it paid in the previous quarter.

Terex said it may default on its loan covenants - in fact, it said it ”probably” violated the terms of its financing agreements - which could, under the worst-case scenario, push it into default, and wipe out equity holders.

Judd Gregg withdraws as commerce post nominee.

Reuters reported the Obama administration is hammering out a program to subsidize mortgage payments for troubled homeowners who have gone through a standardized re-appraisal and affordability test, sources familiar with the plan said on Thursday.

The program would be a major break from existing aid programs, which are triggered once homeowners fall into arrears.

At the close, the Dow was off 7 points to 7,933. The Standard & Poor's 500 Index was up 1 point to 835. The Nasdaq Composite Index rose 11 points to 1,542.

The Dow had been down as many as 246 points before Reuters broke the story on the possible mortgage plan. That was just 3.3% above its Nov. 21 intraday low of 7,449.38. At the close, the gap had increased to 6.5%. It's interesting that the story was released only a short time prior to the close of trading.

"The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications," National Intelligence Director Dennis Blair said in a written statement.

Starbucks Corp. said Thursday it will unveil a new instant coffee as part of its attempt to turn around sluggish sales and shed its reputation for pricey lattes.

The company has been working on the product for more than 20 years and has a patent pending on the technology that will allow it to "absolutely replicate the taste of Starbucks coffee in an instant form," spokesman Vivek Varma said in an e-mail to employees.

The Federal Reserve says the recession has cut many Americans' net worth by about 20 percent as the value of homes, stock portfolios and businesses plummet.

Midway Games filed for Chapter 11 bankruptcy protection because it doesn’t expect to be able to pay back accelerated debt obligations stemming from media mogul Sumner Redstone’s sale of a majority stake in the company.

Economists say excess inventories may not be cleared until the middle of this year. That could mean more layoffs at companies as they scale back production and try to reduce stockpiles of goods to bring them in line with weaker sales.

But even with the stimulus, many economists predict a net loss of 2 million, 3 million or even more jobs this year. The recession already had cost 3.6 million through January. The unemployment rate, now at 7.6 percent, highest in more than 16 years, will probably hit at least 9 percent by next year.
"The stimulus package is not going to turn the economy around right now," said William Gale, director of economic studies at the Brookings Institution.
"The best-case scenario is that it mitigates the depth and the severity of the downturn. That's not a bad thing. It's just not the magic bullet that fixes everything."

Thursday, February 12, 2009

Earnings On The Decline

2/11/09 Earnings On The Decline

These banks received the first allocation of $125 billion in a $700 billion bank bailout program approved in October. Chief executives from Bank of America, J.P. Morgan Chase & Co. Citigroup Inc., Bank of New York, State Street Corp., Wells Fargo, and Morgan Stanley.

U.S. gross domestic product likely fell at a 5% annual pace in the fourth quarter of 2008, not the 3.8% annual decline reported two weeks ago, economists said Wednesday after the government reported the December trade figures.

Genzyme said it expects adjusted earnings of about $4.70 a share in 2009, rising to about $7 a share by 2011. As I have suggested, this is one company to consider for the long-term.

The International Monetary Fund may not need to sell part of its gold reserves because the global economic crisis has renewed demand for the organization’s loans, London-based researcher VM Group said.

Tim Quinlan: "Wholesale inventories fell for a fourth consecutive month in December – the longest run of consecutive declines in more than five years. The 1.4 percent decline was more than the consensus expected and suggests that wholesalers are doing everything they can to decrease stockpiles even as the decline in sales outpaces the decline in inventories."

Stephen Rosenman: "Boeing goes into 2009 with a weak balance sheet. It needed its cash, investments, and pension plan assets, all victims of strikes, production misteps, and a falling stock market. Those cushions are now gone. It faces a large $7 billion debt.

Moreover, it now faces a whole new problem in the form of an $8.4 billion pension liability that dwarfs its debt. So far this year, Boeing has lost $9.5 billion in tangible equity. That's not how you want to enter one of the most trying times in our nation's economic history."

U.S. Gold for February delivery was last up $30.20, or 3.3%, at $943.90 an ounce on the Comex division of the New York Mercantile Exchange. It rose to $945 earlier, the loftiest intraday level for a front-month contract since July. Trading more actively, the April contract rose 3.2% to $943.20 an ounce.

U.S. crude inventories rose for a seventh straight week, up 4.7 million barrels to an 18-month high of 350.8 million barrels in the week ended Feb. 6, the Energy Information Administration reported Wednesday.The EIA also reported that inventories at Cushing, Okla., the delivery point of Nymex futures, rose to a new record level of 34.9 million barrels. Meanwhile, gasoline inventories fell by 2.6 million barrels and distillate stockpiles fell by 1 million barrels in the same week, the EIA reported.

Nokia Corp. said Wednesday it will close a research center in Finland and ax up to 320 jobs in a move to save costs as the global economic downturn hit the mobile phone industry. It also announced temporary layoffs.

Nokia will close the research and development center in Jyvaskyla, southern Finland by the year-end, the world's largest mobile phone maker said. All 320 people working there will be affected, it said.

The Finnish company is also planning to temporarily lay off some 2,500 workers at a plant in Salo, on the southern coast, although production there will continue.

RGE Monitor: "Renowned distressed debt experts such as Edward Altman and Martin Fridson note that the best time to invest in distressed debt is when default rates peak. Mind that
high-yield default rates are set to rise to 15-20% sometime in 2010 from currently 4-5% due to very bad credit quality at the outset of the cycle."

The government reported a deficit of $84.0 billion in January. This compares with a surplus of $17.84 billion in the same month one year ago. Lower corporate taxes are dragging receipts lower, while spending has jumped given the financial rescue plan. Experts are forecasting a deficit above $1.6 trillion in the fiscal year ending Sept. 30.

Gold for February delivery ended up $30.10, or 3.3%, at $943.80 an ounce on the Comex division of the New York Mercantile Exchange, the loftiest closing level for a front-month gold future since July. Trading more actively, the April contract rose 3.3% to $944.50 an ounce.

Crude for March delivery ended down $1.61, or 4.3%, at $35.94 a barrel on the New York Mercantile Exchange, the lowest since Jan. 15.

The Nikkei 225 Average fell 2.1% to 7,781.56, catching up with broad regional losses the previous day, while the broader Topix index lost 1.8% to 763.88. Australia's S&P/ASX 200 gained 1.7% and New Zealand's NZX 50 rose 0.4%, while South Korea's Kospi dropped 0.8%.

NetApp said it would cut about 6% of its workforce, or about 530 jobs, and record a fourth-quarter charge of $30 million to $35 million as a result.

The Dow Jones industrial average gained 50.65 points, or 0.64 percent, to 7,939.53. The Standard & Poor's 500 Index climbed 6.58 points, or 0.80 percent, to 833.74. The Nasdaq Composite Index added 5.77 points, or 0.38 percent, to 1,530.50.

Rio Tinto will sell $12.3 billion in assets to Aluminum Corp. of China, also known as Chinalco, and raise an additional $7.2 billion through convertible bonds, Reute's reported.

South Korea's central bank Thursday cut a key interest rate by a half-percentage point to a record low of 2% - its sixth rate cut since October - in response to a rapid slowdown in the country's economy and inflation rate.

After a 14-week impasse, California leaders are close to reaching a deal on a massive budget deficit, the state's Senate majority leader said Wednesday.

Democratic Sen. Darrell Steinberg said he expects lawmakers to vote on a budget in the "next couple of days." He also gave the most specific details yet of the closed-door budget negotiations.

The final budget will include most of Republican Gov. Arnold Schwarzenegger's proposals, Mr. Steinberg said, including an equal balance of new taxes and spending cuts, as well as a plan to borrow against future lottery revenue.

Mr. Steinberg confirmed reports that the deal would raise sales taxes, vehicle-license fees and income taxes.

According to the NY Times, with Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.
The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.

Muzak Holdings, the company that has filled waiting rooms, shopping malls and elevators with syrupy sweet background music for decades, filed for Chapter 11 bankruptcy protection Tuesday in Delaware.

For 2009 as a whole Marriott said it can't forecast results with any certainty, but earnings could be in a range of 86 cents to $1.04 a share.

Aetna expects 2009 operating earnings per share of $3.85 to $3.95.

Industrial production across the euro zone saw a monthly fall of 2.6% in December for an annualized decline of 12%, the statistical agency Eurostat reported.

General Motors Corp has held talks with China's SAIC Motor Corp about selling part of its stake in their joint venture or other assets as the U.S. automaker races to raise cash, two sources familiar with the discussions said.

Wednesday, February 11, 2009

The Music Has Stopped

2/10/09 The Music Has Stopped

Occupancy rates at some of Tokyo's most prestigious hotels fell to never-before-seen lows last month as business and tourism visits declined, according to a Japanese media report. The Imperial Hotel Tokyo saw its occupancy rate fall to 59.6% in January, its lowest level since December 1986, the Nikkei newspaper reported in its Tuesday morning edition.

A special committee of Genentech Inc.'s board wanted Roche Holding AG to pay $112 a share to acquire the remainder of the biotechnology company -- $23 a share more than the Swiss drug giant offered to pay when it announced its bid last July.

Swiss bank UBS AG reported Tuesday it lost a larger-than-expected 8.1 billion Swiss francs ($7.57 billion) in the fourth quarter and announced it would cut another 2,000 jobs as it refocuses on its home market.

Mike Burk: "Last weeks rally from a deeply oversold condition coincided with a period of seasonal strength. The market is now overbought entering a seasonally weak period.

I expect the major indices to be lower on Friday February 13 than they were on Friday February 6."

Investors will have to short government bonds at some point despite their current attraction, as the amount of debt issued is "staggering" and inflation risks are down the road, Jim Rogers, CEO of Jim Rogers Holdings, told CNBC Tuesday. The low rates policy promoted by central banks is likely to pop a fresh bubble in government bonds sometime in the future, Rogers said.

"I was short long-term government bonds in the US, I had to cover a little loss because the head of the central bank said he was going to buy US long-term bonds, and he's got more money than I do," he told "Squawk Box Europe."

"I plan to sell short US government long bonds sometime in the foreseeable future… I don't know when, whether it this quarter or this year," Rogers said.

The University of Chicago Medical Center says the tough economy is forcing it to eliminate 450 jobs. And hundreds are to be cut through attrition.

It's all part of a $100 million cost-cutting plan recently announced by the South Side hospital.

As China's GDP growth rate dropped to 6.8% during the October-December quarter and is expected to go down further, the Indian government has become hyper-active to achieve at least a 6.5% growth in Q4 to register a win over China.
If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in wooing foreign capital, waiting to chase growth stories.

The Anglo-Saxon model of supervision and regulation of the financial system has failed, Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, told the Financial Times on Monday.

Answering questions from readers, Prof Roubini, who is widely credited with having predicted the current financial crisis, said the supervisory system “relied on self-regulation that, in effect, meant no regulation; on market discipline that does not exist when there is euphoria and irrational exuberance; on internal risk management models that fail because – as a former chief executive of Citi put it – when the music is playing you gotta stand up and dance.”

“All the pillars of Basel II have already failed even before being implemented,” he added, referring to the internationally agreed set of banking regulations that are forcing banks to set aside more capital to maintain their existing lending.

Prof Roubini also predicted that it was possible another large bank could fail, saying: “In many countries the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system”.

Dr. Ron Paul: "Money is the Trojan horse that government uses to infiltrate and infect organizations. Funding that, on the outset, is designed to strengthen and support, will bureaucratize and regulate in the end. It is sad to see charities now having reason to focus on lobbying, regulatory compliance and paper pushing to get and retain money taken by force, rather than beefing up private, voluntary fundraising activities. Those tempted to join Washington's ongoing bailout bonanza should instead take the famed advice of former First Lady Nancy Reagan on the acceptance of harmful and addictive substances and "Just Say No" to government money. This is the best protection from government control."

Alex Jones: "Giant flames engulf every floor of China's 44-story building and it remains standing, yet limited fires across just 8 floors of WTC 7 brought down building within 7 seconds on 9/11."

General Motors Corp. will slash 10,000 jobs, or 14% of its salaried workforce, in 2009 as part of its plan to get funding from the federal government, according to a report Tuesday in The Wall Street Journal.

Monsanto on Tuesday said it's targeting 2009 operating earnings at $4.40 to $4.50 a share, up from $3.64 a share in 2008.

Brent crude is now selling at a $7 a barrel premium to WTI crude.

The National Federation of Independent Business said its index of small business optimism fell 1.1 points to 84.1, the second-lowest reading in the organization's 35-year history.

"The failure of the index to rebound from historic low readings as it did in 1980 indicates that the recession will encompass the first quarter, with little chance for a bottom before the second quarter," said NFIB Chief Economist William Dunkelberg.

"Right now critical parts of our financial system are damaged," Geithner said in unveiling the new plan. "Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change."

Obama said he saw the possibility of diplomatic openings with Iran in the months ahead.

Nike Inc.said late Tuesday it may reduce its workforce of nearly 35,000 by up to 4% as part of its restructuring effort.

U.S. crude-oil stocks fell by 1.996 million barrels to stand at 344.25 million barrels during the week ended Feb. 6, the American Petroleum Institute reported Tuesday. Motor gasoline stocks fell by 2.9 million barrels, while distillate stocks rose by 853,000 barrels, API said.

The crude oil output of OPEC's 12 members declined by 930,000 barrels a day to average 28.97 million barrels per day in January, according to a Platts survey released Tuesday.

Crude oil for March delivery fell $2.01, or 5.1%, to close at $37.55 a barrel on the New York Mercantile Exchange. It surged 5.7% to an intraday high of $41.80 a barrel earlier. Gold futures extended gains in electronic trade, up $13.60 to $927.80 an ounce.

Wal-Mart Stores Inc will cut 700 to 800 jobs at its headquarters in northwestern Arkansas, the Associated Press reported Tuesday.

The Dow finished down 382 points, or 4.6%, to 7,889. The Standard & Poor's 500 Index was off 43 points, or 4.9%, to 827, and the Nasdaq Composite Index was off 67 points, or 4.2%, to 1,525.

Schwarzenegger threatens to lay off up to 10,000 state workers.

MMM said late on Tuesday that it has suspended buying back shares in an effort to conserve capital and strengthen its balance sheet.

Many "potential buyers still lack the confidence to commit and are waiting for a sign, whether from the government or the market, that home prices have stabilized," Chairman and Chief Executive Robert I. Toll said.

Sweden's Riksbank on Wednesday cut its repo rate by a full percentage point to 1% and said the key lending rate may need to be "cut slightly further" in 2009.

China's exports contracted at the fastest rate in more than 10 years in January from the corresponding month a year earlier, while imports fell by an even wider margin. Exports declined 17.5% to $90.45 billion after declining 2.8% in December, according to data released Wednesday from the General Administration of Customs. The decline was the biggest in percentage terms since October 1998, according to calculations by J.P. Morgan. Imports retreated 43.1% to $51.34 billion, following a 21.3% decline in the previous month. The trade surplus widened to $39.1 billion from $38.98 billion in December.

Tuesday, February 10, 2009


2/9/09 Defaults

Satyajit Das: "Ultimately, commodity prices will depend on recovery in growth, consumption, housing markets, durable goods (especially motor cars) and stability in financial markets and resumption of more normal financing activity. None of this seems likely in the short term.

A key dynamic is whether deflationary pressures (falling prices) emerge. In a deflationary environment, commodities will be hit hard as demand falls further. The lack of income and high real rates of interest will affect prices. In contrast, inflation would be supportive of prices as investors switch from monetary to real assets. Despite strenuous rhetoric and monetary actions by central banks, it is not clear whether debt deflation can be avoided....

A known unknown is the performance of the US dollar. There is a complex and unstable relationship between commodity prices and the dollar. An IMF study noted that a 1% increase in the value of the dollar results in a decrease in oil and gold prices of greater than 1%. This means the elasticity is around 1. It appears to be higher for gold than oil prices. Continued volatility in currency markets, reflecting pressures as sovereigns attempt to finance their budget and financial system bailout requirements, will be mirrored in commodity prices.The impact of lower shipping costs on individual commodities is also a factor.... Pigs and food may be well be where the smart money heads in these troubled times.Fundamental demand for food and energy may emerge as key investment drivers – everybody needs to eat and we are still a fossil fuel driven society."

Robert A. Heinlein: "Love your country, but never trust its government"

Dow Chemical Co. is facing a shortfall in capital and will likely slash its dividend by more than half to preserve about $1 billion in cash annually, according to a Monday research note from HSBC Global Research. HSBC reduced its rating for the chemical giant's stock to underweight from neutral, and lowered its target price to $8 from $11. The bank predicted a 70% reduction to Dow's annual dividend to 50 cents a share from $1.68, representing a yield of around 4.6% -- slightly better than the Standard & Poor's chemical index and in-line with the company's 25-year average.

Rohm and Haas Co , which is locked in a merger dispute with suitor Dow Chemical Co , said on Monday its fourth-quarter profit fell as the global economic slowdown hurt demand for its paints, coatings and electronic materials.

Net income in the quarter was $32 million, or 17 cents a share, compared with a year-ago profit of $180 million, or 91 cents a share.

Excluding items, the company posted earnings of 69 cents a share, down from 90 cents a share, a year earlier.

McDonald's Corp.said Monday that global comparable sales rose by 7.1% in January. Systemwide sales for McDonald's worldwide restaurants were up 2.6% for the month, or 9.1% in constant currencies. "2009 is off to a good start for McDonald's as our Plan to Win is working in every area of the world," said Chief Executive Officer Jim Skinner.

Whirlpool Corp. expects to generate earnings from continuing operations of $3.00 to $4.00 a share for 2009. This would compare to earnings of $5.50 a share that the appliance manufacturer reported for 2008. Analysts' consensus profit forecast for 2009, as compiled from estimates in a FactSet Research survey, stands at $3.95 a share. "We expect 2009 economic conditions to be among the most challenging that we have faced," said Jeff Fettig, Whirlpool's chairman and chief executive. "To succeed in this environment we are aggressively taking additional steps, beyond actions previously announced, to further reduce all areas of cost, production capacity, working capital and capital expenditures."

Nissan Motor Co. is planning 20,000 layoffs in Japan and abroad by the end of the fiscal year ending in March 2010, trimming its overall staffing levels by around 8.5% to 215,000 employees.

DryShips Inc. reached a preliminary agreement with Nordea Bank Finland Plc to obtain a covenant waiver in connection with an $800 million Primelead loan. The agreement is preliminary and is subject to formal approvals by the company and the syndicate banks including Nordea Bank, DnB NOR Bank ASA and HSH Nordbank AG.

Gene Chan: "As long as banks refuse to lend, we are going to see destruction of liquidity, which is deflationary in nature. And the best asset class to hold during a deflation cycle is cash - which means as long as the financial system is in trouble, the bubble in the US dollar and its equivalent (e.g. treasury bills) will likely to continue.

Ironically, the eventual recovery of our economy will set the stage for its ultimate collapse. Firstly, the up-tick in the general economy will eventually cause institutions to start lending again, which will reverse the conditions from credit contraction to credit expansion, and turn deflation into inflation. Secondly, investors will have less need for safety, thus selling off safe-haven asset classes such as US treasuries and gold, putting pressure on the debt that US Government owes. Both of these are pillars that are currently supporting the US dollar, and as they disappear, we will suddenly realize that the US owes tens of trillions and it has no way of repaying. The US government will not default on its debt, but it will try to print its way out of trouble, which will likely burst the USD bubble, drive the dollar towards zero, and trigger hyperinflation."

Brett Steenbarger: "In sum, this is a Missouri market: I need to see the market bulls "show me" their hand by following strength with further strength. Continued strength in the Cumulative TICK line and continued expansion of 20-day new highs among stocks are two things I'll be looking for in this "show me" mode, as we see if the market can break above significant resistance in the low 900 area. Without such follow-through strength around our current level of trading, a fall back to the longer-term VWAP level of 839 in the ES futures would be a reasonable intermediate-term expectation."

According to Bloomberg, the stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged to provide up to $5.7 trillion more if needed. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps. The Senate is to vote early this week on a stimulus package totaling at least $780 billion that President
Barack Obama says is needed to avert a deeper recession. That measure would need to be reconciled with an $819 billion plan the House approved last month.

Only the stimulus package to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients’ names have not been disclosed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator
Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.

“A problem that was created by building up of too much debt will not be solved with yet more debt,” Gov. Mark Sanford said Sunday, making a reference to the federal deficit spending that will likely finance the federal stimulus package.“We’re moving precipitously close to what I would call a savior-based economy,” Sanford also said Sunday on CNN’s State of the Union."

Statistics from Zagat indicate that 33% of restaurant patrons across the country are paying more attention to prices and that 28% of diners are switching to cheaper restaurants. Here's a bigger blow to restaurants' bottom lines: Approximately 20% of diners polled are cutting out booze, appetizers and desserts. Technomic analysts expect 12,000 to 18,000 restaurants to close this year, ending a decade-long expansion of the business.

Starbucks Corp.will launch selected discounted deals on March 3 in response to "the economic pressures facing its customers." The coffee giant's discounts will pair a tall caffe latte or brewed coffee with some of its breakfast items, including two new artisan sandwiches, for $3.95. The company said that the pairings will be available all day in company-operated stores in the continental U.S.

Feb. gold falls $21.50, or 2.4%, to end at $892.40 an ounce. Crude for March delivery lost 61 cents, or 1.5%, to end at $39.56 a barrel on the New York Mercantile Exchange, ending below $40 for the first time since Jan. 20.

Ten-year yields, which slid to a record low of 2.04 percent on Dec. 18, averaged 4.55 percent this decade. They will be at 2.57 percent by June 30, according to a Bloomberg survey of strategists and analysts that gives a heavier weighting to the most recent forecasts. At the moment they are at 3.04%, the first time it has been above 3% since Nov. 28. This continues to be my best idea for 2009--- being short 10-year and 30-year treasuries.

“We have to reach a point where investors and consumers have greater confidence in our financial system,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview. “Without that, these institutions will not be able to attract new capital or be able to fully resume their important role in providing credit.” Would you invest money in a 10-year treasury bond at 3%? Do you believe you are receiving adequate compensation offsetting the top heavy debts of the U.S. government?

Merrill Lynch Global Wealth Management, a unit of Bank of America Corp, plans to cut less than 1,000 support staff positions, the Wall Street Journal reported in its online edition Monday.

More than 1,000 U.S. banks, or one in eight lenders, may fail in the next three to five years as commercial loan losses rise, compounding problems from record mortgage delinquencies and soaring home equity loan defaults, RBC Capital Markets said on Monday.

That rate of failures would recall the height of the savings and loan collapse, when 1,386 lenders failed from 1988 to 1990, according to Federal Deposit Insurance Corp data.
RBC had previously said 200 to 300 lenders might fail over three years.

Qwest cut 1,700 jobs, or 11% of workforce in Q4.

Defaults by speculative-grade corporate bond issuers will likely rise sharply in 2009 and peak in the fourth quarter, ratings agency Moody's Investors Services said Tuesday. The firm said the default rate on global speculative-grade debt was 4.8% in January, up from a revised 4.1% at the end of 2008 and 1.1% a year ago. Moody's said its forecasting model now predicts that the global default rate will rise for most of 2009, peaking at 16.4% in November and then falling slightly to 15.5% by January 2010.

Monday, February 09, 2009


2/8/09 Values

John Mauldin: "If the S&P 500 were to close where it is today, and using the estimates for the first two quarters of 2009, the P/E ratio would be 36.4 on July 1.
But what if earnings merely fall to where they were in the last recession, or about 55-60% of where the projections are today? That would drop the 12-month trailing earnings for the four quarters ending June 30 to $15.90 and result in a nose-bleed P/E of 54.7 by the middle of the year.
If earnings don't come in dramatically better for the first quarter as opposed to last quarter, we could be setting up for a nasty summer bear market. Even in the bear market of 2001-2, the P/E did not get above 47. Which, by the way, at a 47 multiple would correspond to a range for the S&P of either 1111 if the earnings come in as projected or 731 if they come in at the lower range.
I see nothing on the horizon which suggests the economy is going to get manifestly stronger in the next two quarters. The real risk is that earnings come in weak for both quarters and investors simply despair this summer, throwing in the towel and bringing about a vicious bear market. I would seriously consider hedging any long positions you have before earnings season this next April. If they come in stronger, then we will see."

In Lehigh Acres in Fort Myers, homes are selling at 80 percent off their peak prices. Only two years after there were more jobs than people to work them, fast-food restaurants are laying people off or closing. Crime is up, school enrollment is down, and one in four residents received food stamps in December, nearly a fourfold increase since 2006.

US President Barack Obama on Saturday called on senators to complete passage of the $827bn stimulus package that was struck behind close doors late on Friday. US Senate Democrats agreed to cut their hopes for a larger economic stimulus package and support a compromise that would give Mr Obama an important but narrow victory.

According to the LA Times, with personal, sales and corporate income tax revenue plummeting, state governments -- which recently trimmed their budgets to cover a cumulative $40.3-billion shortfall for the current fiscal year -- are now watching in horror as a $47.4-billion gap opens for 2009.
And for fiscal year 2010, they will face a $84.3-billion hole, according to the National Conference of State Legislatures. The total shortfall through fiscal 2011 is estimated at $350 billion, according to the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington.
Unlike the federal government, nearly all states must balance their budgets. So legislatures either have to raise taxes, borrow money from dwindling rainy-day funds, or cut. The last option is becoming increasingly common.
"The easy budget fixes are long gone," Corina Eckl, fiscal program director for the National Conference of State Legislatures, said in a statement. "Only hard and unpopular options remain."
State lawmakers can expect some relief from the federal stimulus package -- but it is far from a cure-all. The version passed by the House of Representatives would cover only about 45% of the projected state deficits. A Senate version of the bill, which has yet to be approved, would, in its present form, offer even less relief.

Mick P. " Until economic conditions are conducive to the deployment of savings to allow profitable investment then the hoarding of cash and cash like assets will continue. I very strongly suspect we will have to live through a global depression before such economic conditions appear."