Saturday, March 07, 2009

Faith, Trust, Confidence

3/7/09 Faith, Trust, Confidence

Doug Noland: "The Greenspan Federal Reserve, in particular, nurtured the market perception that Washington was there to backstop marketplace liquidity. Greenspan pegged the cost of finance and essentially promised liquid and continuous markets. Mr. Greenspan became a leading proponent for securitizations, derivatives and “contemporary finance” more generally. “Liquid and continuous” markets were the lifeblood of these momentous Credit system innovations - and Washington seemingly delivered the goods...
The securitization market’s basic premise was that the Creditworthiness of Trillions of Credit instruments would be supported by the capacity of borrowers to forever refinance and/or increase debt loads (Minskian “Ponzi Finance”). The basic premise of the CDS market was twofold: One, that contemporary securitization markets (backstopped by Washington) would provide borrowers endless quantities of inexpensive finance. And, second, that liquid securities markets would provide an effective means of (“dynamically”) hedging Credit exposures sold into the (“wild west”) CDS marketplace. Today, those on the wrong side of the CDS market (having written Credit insurance) are getting killed and this dynamic is seemingly taking the entire system down with it...
I’ll surmise that the CDS market is now in complete dislocation. I’ll also assume the sellers of CDS (and various Credit insurance) have resorted to shorting equities (individual stocks, ETFs and futures) in a desperate attempt to hedge escalating losses. This has likely placed additional pressure on sickly equities markets – and it goes without saying that it is especially damaging to market confidence when the stocks of our nation’s (and the world’s) major borrowers and financial institutions are all locked together in a death spiral. This dynamic has surely led to another round of forced de-leveraging. And, importantly, this type of market dynamic incites an acute case of “animal spirits.” While perhaps not as gigantic as before, the global pool of speculative finance (that accumulated over the boom) remains a force to be reckoned with. The dynamic of panic liquidations, de-leveraging and market operators seeking to profit from systemic dislocation creates a problematic deluge of selling."

About 1,000 workers in Stanford Financial Group's U.S. offices, or 85 percent of the company's U.S. employees, lost their jobs Friday.

Steel maker ArcelorMittal says a declining market for steel means it will suspend operations at its Cleveland site in May, leaving 950 steelworkers unemployed for an undetermined length of time.

Mike Shedlock: "After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers are back in outer space.
Many small 1-5 person service providing shops in mortgage lending and real estate are throwing in the towel. Those small businesses are not properly accounted for in the Birth-Death Model. At this point in the cycle birth death numbers should be massively contracting.
Month after month, with the exception of January, the BLS is assuming more jobs were created by new businesses than lost by businesses closing shop. The BLS model is horribly wrong....
The official unemployment rate is 8.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
It reflects how unemployment feels to the average Joe on the street. U-6 is 14.8%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.
Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.
Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010."

Daniel Aaronson and Lee Markowitz: "Investors should be buying the assets that will benefit from the Chinese Government's stimulus rather than those artificially supported by the US Government. Certain US stocks will benefit from China's growth such as the ones that rose Wednesday. However, should this occur, the standard of living in the US will be sacrificed and it will be clear that US investors actually need China much more than China needs the US. The best way to capitalize on this situation is through commodities and domestic Asian companies."

Reuters: "With "no end in sight" for U.S. job losses amid a recession that could stretch into 2010, American workers will soon have to contend with another blow to their confidence: stagnant, or even falling wages.
Job seekers—already coping with the highest unemployment rate in a quarter century, their savings mugged by a plunging stock market—can also expect lower pay once they land a new job, labor market experts say, because the current downturn shows no signs of turning around anytime soon.

"There's no end in sight," said Tig Gilliam, chief executive of Adecco Group North America, the third-largest U.S. employer behind Wal-Mart and the postal service.

"March is going to be the same, and I don't see anything that will make April better." Lower wages, in turn, could further erode the outlook for the U.S. economy by hurting consumers' spending power."

WSJ: "The beneficiaries of the government’s bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.Among those institutions are Goldman Sachs Group Inc. and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA.More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document.”

247WallSt.:"The Baker Hughes data showed a massive drop in rig counts. The global rate fell 7% from January to February, and the rate was almost a 20% decline from February 2008 to February 2009. The number of rigs fell to 2,753 rigs in February from 2,974 in January and down from 3,417 in February 2008. Those are global numbers and the U.S. situation looks to be the real bad apple here. In the U.S., the drop was 15% from January and 25% from February 2008."

When investing your money, whether it be in equities or debt instruments, one should ponder the following: do you have faith, trust, and confidence in the CEO and the management team running the company and/or the country. Is there verifiable proof to back up that faith, trust, and confidence? These are very hazardous times. They require intense scrutiny. It's not about picking bottoms. Anyone can pick a number out of their ass.

Tim W. Wood: "As for the current case with equities, we are amidst a very similarly structured market to that of the 1930 to 1932 period just as I first warned about in October 2007 at the New Orleans Investor Conference. That being said, there will be bounces along the way and some of these bounces will be very flashy, tradable and very convincing affairs. As the market advances out of each of these bottoms the talking heads and clueless politicians will say that the low has been seen. We will probably hear that the Obama plan has begun to work and that the bear market is over. Don’t buy their hype. These guys never saw this problem coming in the first place, they don’t understand that they can’t fix it and they wouldn’t know how to identify THE bottom if they had to. My approach is to work within the context of the Dow theory and the long-term cycles work as a backdrop. Then, use the intermediate and short-term Cycle Turn Indicator and statistics as tools to identify more meaningful bounces along the way. But, when you hear the mainstream guys on TV and the politicians telling you that the bear market is over, change the channel and ask yourself this question. Did these guys warn me about the bear market in the first place? No, they did not. So, why would we think they would be able to identify the bottom? They can’t! You have been warned!"

Each year, the American government hands out 65,000 H-1B visas, and Indian engineers receive many of them. However, as part of President Obama's economic stimulus package, Congress passed provisions to bar any U.S. company that receives bailout dollars from directly hiring workers on these H-1B visas.

Nonfarm Payrolls

3/6/09 Nonfarm Payrolls

Nonfarm payrolls shrank by 651,000 in February. The government revised data from the last two months showed 161,000 more job losses than previously estimated. The unemployment rate soared to 8.1% in February from 7.6% in the previous month. This is the highest rate since December 1983. Average hourly earnings increased 3 cents, or 0.2% to $18.47. Earnings are up 3.6% in the past year. The average workweek held steady at 33.3 hours.
``There is not a single sign that points to a bottom yet,'' Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. ``It is the worst recession in the postwar era.''
The payroll drop in January was revised up to 655,000 from 598,000 and December now shows a 681,000 drop, up from the 577,000 previously estimated. The December decline was the biggest since October 1949.
The U.S. economy has now lost almost 4.4 million jobs since the recession began in December 2007, the biggest employment slump of any economic downturn in the postwar period.

Government payrolls increased by 9,000 after a gain of 31,000 the prior month, one of the few areas still hiring. Another 26,000 jobs were added by education and health providers.
Employers are holding the line on hours. The average work week held at 33.3 hours in February. Average weekly hours worked by factory workers dropped to 39.6 hours from 39.8 hours, while overtime also decreased to 2.6 hours from 2.8 hours. That brought the average weekly earnings up by $1 to $615.05.
Workers' average hourly wages rose 3 cents, or 0.2 percent, to $18.47 from $18.44 the prior month. Hourly earnings were 3.6 percent higher than February 2008. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from January and a 3.8 percent gain for the 12-month period.
Bankruptcy filings for individuals and companies surged 37 percent in February to more than 103,000, according to data compiled by Automated Access to Court Electronic Records, a service of Jupiter ESources LLC in Oklahoma City. Slumping sales have caused recent Chapter 11 filings by retailers such as Everything But Water LLC, the largest U.S. retailer of women's swimwear, and Ritz Camera Centers Inc., the largest chain of camera stores.

Among the unemployed, the number of job losers and persons who completed temporary jobs increased by 716,000 to 7.7 million in February. This measure has grown by 3.8 million in the last 12 months.

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 270,000 to 2.9 million in February. Over the past 12 months, the number of long-term unemployed was up by 1.6 million.

Japan's exports declined 46.5% in the first 20 days of February versus the same period last year, according to provisional data released Friday by the Ministry of Finance. Exports shrank to 2.4 trillion yen ($24.35 billion) from 4.47 trillion yen a year earlier. The collapse in exports led to a trade deficit of 130.96 billion yen during the period, compared to a 413.31 billion yen surplus a year earlier. Imports for the 20-day period were down 37.8%.

Wells Fargo is slashing its dividend in an effort to save $5 billion annually.
The company cut its dividend to 5 cents from 34 cents. The company's next dividend is expected to be declared in April.

George Ure: "There are only 19,877,000 goods producers left in America by this report. They are supporting a service sector which employs 113,891,000 workers.
Now stick with me on this because THIS MATTERS: You've got 20-million people making things and you have 114 million selling services to the producers. This just seems to me like it might mean we have a ways more to go on the downside as the economy has to come back into balance."

Swiss conglomerate Roche said Friday that it has raised its offer to acquire the shares of Genentech Inc. that it does not already own to $93 a share from $86.50 a share.

The current government approach to insolvent banks is "ad hoc" and isn't addressing the underlying problems, said Thomas Hoenig, the president of the Kansas City Federal Reserve Bank on Friday. "We...are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis," Hoenig said in a speech in Omaha Nebraska.

Dow Chemical Co.said Friday it is in discussions with Rohm and Haas Co. concerning a recently soured merger deal and a pending lawsuit. The companies said they would not comment further on the discussions. In February, Dow said changes in the chemical business and overall global economy caused it to abandon a $15 billion purchase of Rohm and Haas.

Few industries were spared from losses last month. The manufacturing sector lost 168,000 workers, construction lost 104,000 workers, business services cut 180,000 jobs, retail slashed 40,000 employees and leisure and hospitality lost 33,000.
Temporary workers are also suffering, losing 78,000 jobs last month and employment through temporary help agencies is off by 686,000 since the recession began.
Showing resistance to the recession were healthcare and education, which added 26,000 in February.

Friday's selling extended the losses for the Dow and the broader S&P 500 to levels not seen since 1996. The Nasdaq finished at 6-year lows.

Commerce, Ga.-based Freedom Bank of Georgia was closed by regulators Friday, marking the 17th bank failure of the year, the Federal Deposit Insurance Corporation said in a statement.

A rally in the final 15 minutes of trading Friday pushed the S&P 500 and Dow Jones Industrial Average to a positive close, after the two benchmarks spend most of the day's trading in the red. Materials and health care led advancers on the S&P 500, which closed 0.8 point, or 0.1%, higher at 683.38. The Dow Jones Industrial Average ended 32.5 points, or 0.5%, higher at 6,626.94. The Nasdaq Composite pared its losses and ended the day down 5.7 points, or 0.4%, at 1,293.85, the lowest close since March 2003. The S&P 500 lost 7% for the week, while the Dow-30 and Nasdaq slid about 6%.

Crude oil for April delivery rose $1.91, or 4.4%, to close at $45.52 a barrel on the New York Mercantile Exchange.

U.S. consumers increased their debt in January after three months of sharp declines. Total seasonally adjusted consumer debt rose $1.76 billion, or a 0.8% annual rate, in January to $2.56 trillion, the Federal Reserve reported Friday. Consumer credit fell by an average of $6.98 billion over the past three months. Credit-card debt had the biggest gain in January rising $926.52 billion, or 1.2% to $961.32 billion. Non-revolving credit - such as auto loans, personal loans and student loans - rose $830 million or 0.6% to $1.60 trillion.

Thursday, March 05, 2009


3/5/09 Plunging

Premier Wen Jiabao said China will “significantly increase” investment in 2009, widening efforts to meet the 8 percent economic growth target that it says is needed to protect jobs.
“We face unprecedented difficulties and challenges,” Wen told delegates to China’s parliament in Beijing today. The nation needs to “reverse the economic slide as soon as possible,” he said, without announcing an increase to the government’s 4 trillion yuan ($585 billion) stimulus package.

General Motors said in a 10-K filing that there's substantial doubt over its ability to continue as a going concern. Its auditor, Deloitte & Touche, also expressed those doubts.

Bank of England Cuts Rate to Record Low 0.5%, Will Buy $105 Billion Assets.

European Central Bank President Jean-Claude Trichet indicated policy makers will reduce their benchmark interest rate further to combat a deepening recession after cutting it to a record low of 1.5 percent today.

Ford said it would have to “restructure” its balance sheet.

The contraction in the U.S. deepened in the first two months of the year with no turnaround expected anytime soon, according to the Fed's beige book report.

Seagate said in a regulatory filing Wednesday that it plans to cut five senior vice presidents and 17 vice presidents. A spokesman said the cuts are in addition to the previous layoffs.

Joe's Sports & Outdoor, with 30 retail outlets in the Pacific Northwest, has filed for Chapter 11 bankruptcy protection, the company said Wednesday.
The Wilsonville-based company, formerly G.I. Joe's, said it will operate all of its stores and continue paying wages and benefits during the process.
"This restructuring process will allow us time to address our capital challenges so that we can potentially emerge an even stronger company with a firm financial position," said Hal Smith, chief executive and president, in a statement.
Joe's obtained $50 million from Wells Fargo Retail Finance to fund the restructuring, subject to court approval. The bankruptcy filing was made in the U.S. Bankruptcy Court in Wilmington, Del.

Northrop plans to lay off up to 750 workers.

Norwegian aluminum producer Norsk Hydro said it will cut 250 to 300 jobs this year as part of its effort to reduce annual administrative and staff costs by 700 million to 800 million kroner. In addition the company said that it would slash aluminum production by 400,000 tonnes, or 23%, by the end of April, compared to 2008. The production adjustments will reduce manning by 2,200 people by the end of 2009 compared to the middle of 2008.

The financial stocks in the S&P 500 had more of the riskiest types of assets on their balance sheets at the end of 2008 than they did at the end of that year's first quarter, according to research from market strategist Ed Yardeni and his team. Yardeni's latest research shows that there were $537.4 billion of Level 3 assets at the firms at the end of 2008. "That's actually up to 10.3% of total assets from 8.0% at the end of the first quarter (of 2008)," Yardeni said. "Even uglier is that 80.6%, or $7.4 trillion, of the assets held by the S&P financials companies were Level 2," he said in a research report. Level 2 assets are so-called mark-to-model, which are carried at a value based on assumptions, not true market prices.

The number of workers filing for state unemployment benefits fell by 31,000 to a seasonally adjusted 639,000 last week, while the smoothed average of continuing claims moved higher into record territory, the Labor Department reported Thursday. The smoothed average of new claims over the past four weeks rose to 641,750, the highest since October 1982. The number of people receiving unemployment checks in the week ending Feb. 21 dropped for the first time in seven weeks by 14,000 to a seasonally adjusted 5.11 million from a record high the previous week. The smoothed four-week average increased 76,750 to 5.01 million, a record high. The data go back to 1967.

Wal-Mart Stores Inc.'s February same-store sales rose 5.1 percent.
Groceries and health products remained the best sellers as shoppers turned to the world's largest retailer for necessities. Wal-Mart Stores Inc.said Thursday it is increasing its annual dividend to $1.09 a share, a 15% increase from the 95 cents a share paid during fiscal year 2009. The retail giant said that for the current fiscal year ending Jan. 31, 2010, the annual dividend will be paid in four quarterly installments of 27.25 cents a share, with the first payment set for April 6 to shareholders of record on March 13.

"Productivity growth for the fourth quarter of 2008 was revised down by 3.5 percentage points in the business sector and 3.6 percentage points in the nonfarm business sector from the estimates published February 5. In both sectors output was revised down by 3.2 percentage points and hours were revised up by 0.1 percentage point. Productivity growth during calendar year 2008 was not revised in either sector.

Moody’s Investors Service projects defaults will more than triple this year and exceed the level during the Great Depression.

Nouriel Roubini: "With economic activity contracting in 2009's first quarter at the same rate as in 2008's fourth quarter, a nasty U-shaped recession could turn into a more severe L-shaped near-depression (or stag-deflation). The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging-market economies are on the verge of a fully fledged financial crisis, starting with emerging Europe."

Barry Ritholtz: "The weekly AAII individual sentiment data has showed an extreme reading between bulls and bears today. Going back to July 1987, the bears are the highest on record at 70.3% and the bulls are at the lowest level since 1993 at 18.9%, not including the one time spike lower in April ‘05 when GM lost their investment grade rating."

One in every eight U.S. households, a record share, ended 2008 behind on their mortgage payments or in the foreclosure process as job losses intensified a housing crisis spawned by lax lending practices, the Mortgage Bankers Association said on Thursday.
With unemployment at a 16-1/2-year high and rising, more borrowers will be late paying or fall into foreclosure this year, said the group's chief economist Jay Brinkmann.
"While California, Florida, Nevada, Arizona and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas and Mississippi, signs of the spreading impact of the recession," he said.

In early Thursday trading, Wells Fargo, US Bank, FedEx, MMM, and Citigroup made new 52-week lows.

According to Bloomberg, orders placed with U.S. factories fell in January for a sixth consecutive month, reflecting a pullback in business spending that will probably deepen what may become the worst recession in seven decades.
Bookings declined 1.9 percent, less than forecast, after a revised 4.9 percent drop in December, the Commerce Department said today in Washington. Excluding demand for transportation equipment such as cars and aircraft, which tends to be volatile, orders fell 0.9 percent after a 5.4 percent drop the prior month.

U.S. natural gas inventories fell by 102 billion cubic feet in the week ended Feb. 27, the Energy Information Administration reported Thursday. At 1,793 billion cubic feet, stocks were 270 billion cubic feet higher than last year at this time and 218 billion cubic feet above the five-year average, the EIA reported.

12 percent of all mortgagees are either delinquent or in foreclosure.

Borders to layoff 742 employees or less than 3% of workforce.

Exxon Mobil Chairman and CEO Rex Tillerson said oil and natural gas demand will remain flat in the U.S. and abroad in 2009 as the global recession takes hold. The world's energy infrastructure is currently carrying about four or five million barrels a day of extra capacity in the face of a "weak demand environment," Tillerson said at a press conference at the New York Stock Exchange following the oil giant's annual meeting with Wall Street analysts.

The Dow Jones Industrial Average fell 281.4 points, or 4.1%, to end at 6,594.44. The S&P 500 shed 30.32 points, or 4.3%, to end at 682.55, while the Nasdaq Composite slumped 54.15 points, or 4%, to 1,299.59, its first time since Nov. 21, 2008 it has been below 1300.

Gold for April delivery ended up $21.10, or 2.3%, at $927.80 an ounce on the Comex division of the New York Mercantile Exchange. Crude dropped $1.75 to end at $43.60.

According to AMG Data Services, for the week ending March 4, Equity Fund Outflows -$8.1 Bil; Taxable Bond Fund Outflows -$2.6 Bil xETFs - Equity Fund Outflows -$7.2 Bil; Taxable Bond Fund Outflows -$1.4 Bil.

Magna Entertainment, Operator of Pimlico Racetrack, Files for Bankruptcy.

The Nikkei 225 Average fell 3% to 7,208.23 and the broader Topix lost 2.3% to 724.30. South Korea's Kospi gave up 1.6% to 1,041.74 and Australia's S&P/ASX 200 shed 1.5% to 3,141.50.

BorgWarner Inc. said late Thursday it will temporarily suspend the company's quarterly dividend of 12 cents until global economic conditions improve.

Northern Trust Corp will return $1.6 billion it took from the $700 billion Troubled Asset Relief Program (TARP), House Financial Services Committee Chairman Barney Frank said.
U.S. Bancorp , the eight-largest U.S. bank, will return $6 billion. The bank received $6.6 billion from the fund. Three smaller lenders, TCF Financial Corp , Iberiabank Corp and Sussex Bancorp , have in the last week decided to give back TARP money.

Recreational vehicle maker Monaco Coach Corp., which has seen sales plunge amid the recession, said Thursday it has filed for Chapter 11 bankruptcy protection.

Personal and business bankruptcy filings surged last year as the economy spiraled downward, new data showed Thursday, a trend experts say they expect to continue in 2009.
Personal bankruptcy filings — which represent the bulk of all filings — increased 31 percent, to 1,074,225 from 822,590 in 2007, according to data released by the Administrative Office of the U.S. Courts.
Business filings jumped 54 percent, to 43,546 from 28,322 a year earlier.
The numbers confirm "that bankruptcies are on the rise, and will continue to spike upward in 2009," said Samuel Gerdano, executive director of the American Bankruptcy Institute, a group of bankruptcy judges, lawyers and other experts.
"We expect filings to reach 1.4 million or even more this year, especially if Congress changes the law to permit homeowners to modify home mortgages" in bankruptcy proceedings, he added.

Wednesday, March 04, 2009


3/4/09 Unemployment

ADP Employer Services said U.S. private employers cut 697,000 jobs in February. ADP also revised its January job-loss number to 614,000, compared to the 522,000 originally reported. The February number is the largest since ADP began reporting data in 2001.

U.S. Bancorp said Wednesday that it cut its quarterly common dividend by 88%, to five cents a share from 42.5 cents a share previously.

BJ'S Wholesale Club sees 2009 profit at $2.26-$2.36 a share.

Venezuela said it will seek to renegotiate contracts with oil-service companies and force food producers to make basic items covered by the government's price-control policies -- moves that point to increased economic strain.

More than 90% of Venezuela's hard currency comes from its oil production, which populist President Hugo Chávez has used to fund a splurge in consumer imports and underwrite social spending programs.

China announced plans Wednesday to boost spending on its increasingly potent military 14.9 percent this year, maintaining nearly two decades of annual double-digit defense hikes that have stirred concern in Washington and among Beijing's neighbors.

Joy Global Inc.still expects fiscal 2009 earnings of $3.60 to $4.00 a share and revenue of $3.5 billion to $3.7 billion.

U.S. Steel will suspend operations in the coming weeks at finishing and coking operations at its Hamilton Works in Hamilton, Ontario, and steel making and finishing operations at its Lake Erie Works near Nanticoke, Ontario.

The Mortgage Bankers Association's seasonally adjusted mortgage applications index, made up of both purchase and refinance loans, fell 12.6 percent to 649.7 last week.

Robert Barro, a professor of economics at Harvard and a fellow at Stanford University's Hoover Institution: "The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s....we may follow the path recently sketched by Federal Reserve Chairman Ben Bernanke, with the economy recovering by 2010. On the other hand, the 59 nonwar depressions in our sample have an average duration of nearly four years, which, if we have one here, means that it is likely recovery would not be substantial until 2012."

Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

Frank Barbera: "According to the Peter G. Peterson Foundation, the Real National Debt is presently 56.40 Trillion dollars or the equivalent of $483,000 dollars per US household, or $184,000 dollars per person. Prior to this collapse, it was already growing at the rate of $7,000 to $10,000 per person and with what has happened in the last few months, the growth rate may now be too difficult to actually calculate."

HSBC bought America’s “Household Finance” for $15 billion in 2003. Now, it wishes it hadn’t. The U.S. unit ‘destroyed’ $10 billion in capital, says the bank.

Rachel Ziemba: "The UAE central bank reserves fell to just under $35 billion at the end of November (the most recent available data.) That represents a decline of about $6 billion in the month of November and an average decline of $5 billion a month since July. The reduction in UAE central bank reserves came significantly before the central bank agreed to buy $10 billion of bonds issued by Dubai last week and even before it stepped up dollar/dirham swaps in December in its effort to provide new liquidity to the banks.

The UAE isn’t the only central bank in the region reporting a decline in reserve holdings. Qatar’s reserves have fallen by a third from March to December 2008 and Oman’s slightly less. (see below). But the UAE does account for most of the change in the GCC reserves (excluding Saudi Arabia whose central bank has a large stock of nonreserve assets). Ex Saudi Arabia, GCC central bank reserves almost halved from March to December 2008, falling from $125 billion to around $70 billion. Just as it registered the sharpest increase in reserves in 2007 and early 2008 when GCC revaluation bets were in vogue, the UAE has witnessed the sharpest outflows. UAE reserves are now almost 2/3 lower than they were at the peak in February."

The Reserve Bank of India reduced the repurchase rate to 5 percent from a record low of 5.5 percent and the reverse repurchase rate to 3.5 percent from 4 percent, according to a statement on its Web site today.

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a 4 trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world’s third-biggest economy. Wen will announce “a new stimulus package” in his annual address to the nation’s legislature tomorrow, former statistics bureau head Li Deshui told reporters in Beijing today.

Sony Pictures Entertainment will cut 300 jobs, or about 4% of its workforce through layoffs and the elimination of open positions, the Los Angeles Times reports, citing “a person familiar with the situation.”

Liz Claiborne Inc.forecast a "meaningful" loss in the first quarter.

The ISM non-manufacturing index fell to 41.6% in February from 42.9% in January.

Will 2009 be a year where Google disappoints from a revenue and cash flow basis?

How much will the strong dollar hurt multinational outfits in 2009?

WTI crude has begun to outperform Brent crude.

Saks owns 30 of its 53 Saks Fifth Avenue locations, including stores in Chicago, Beverly Hills, Las Vegas and Atlanta.

GE traded below $6 and it's market cap has dropped to $64 billion. GE Capital's credit default swaps hit a record 20 percent upfront, reports CNBC's David Faber.

Meanwhile, Wells Fargo is pennies away from a new 52-week low at $8+.

Government data showed a surprise decline in U.S. crude inventories. Inventories fell by 700,000 barrels in the week ended Feb. 27, the Energy Information Administration reported. After the data, April crude was up 7.2% to $44.72 a barrel on the New York Mercantile Exchange. The EIA also reported gasoline inventories rose by 200,000 barrels, and distillate stockpiles, which include diesel and heating oil, rose 1.7 million barrels.

According to R.L. Polk, the average American now owns their vehicle for 46 months, the longest ownership period Polk has seen since it began tracking that data more than a decade ago. Not surprisingly, Polk is also seeing the median age for cars on the road rising to 9.4 years in 2008. That is an all time high. For some comparison, back in 1999, the median age for cars was 8.3 years. In other words, we are driving our cars and trucks longer before they head to the scrap heap.

Crude surges $3.73, or 9%, to end at $45.38 a barrel. Gold for April delivery was last down $2.80, or 0.3%, at $903.40 an ounce in electronic trading.

U.S. economic conditions worsened in January and February and businesses do not expect improvement until late this year or early 2010, a Federal Reserve survey published on Wednesday said.
"National economic conditions deteriorated further," the Fed said in its Beige Book summary gathered from districts around the country. "The deterioration was broad based," the Fed added.

Via UK Reuters

Russian potash miner Uralkali said on Wednesday its Belarusian export joint venture has cut the price of supplies of the soil nutrient to Brazil by about 25 percent from March to May 2009.
Belarusian Potash Co, a joint venture between Uralkali and Belaruskali, will charge $750 per tonne for potash deliveries to large Brazilian importers and $765 per tonne for shipments to smaller customers. The previous prices, applied since July 1, were $1,000 and $1,010 per tonne, respectively.

According to Bloomberg, - The cost of protecting against default by Warren Buffett’s Berkshire Hathaway Inc. soared to record levels more typical of junk-rated companies amid concern the firm faces losses on derivatives.
Credit-default swaps used to guard against losses on Berkshire’s debt climbed 29 basis points to 529 basis points at 12:55 p.m. in New York, according to CMA DataVision. The contracts yesterday traded as if the company, rated Aaa by Moody’s Investors Service, was 11 grades lower at Ba2, according data from Moody’s capital markets research group.

The Dow Jones Industrial Average added 149.82 points, or 2.2%, to 6,875.84. The S&P 500 Index gained 16.53 points, or 2.4%, to 712.86, while the Nasdaq Composite climbed 32.73 points, or 2.5%, to 1,353.74.

The Auto Sales

3/3/09 Auto Sales

Toyota Motor asks for an emergency $2 billion loan from the Japanese government. Toyota U.S. sales down 39.8% to 109,583 units in February.

The global economic downturn will be considerably deeper than even the International Monetary Fund forecast a month ago, the Organization for Economic Co-operation and Development's chief economist Klaus Schmidt-Hebbel told Reuters.

More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.

An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.

“We have way too much supply and not enough demand,” Sam Khater, senior economist for First American, said in an interview. “People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either.”

Niels C. Jensen: "There is a real risk that investors will demand much higher risk premiums on government debt. Only a few days ago, Ireland issued 3-year bonds at almost 250 basis points over corresponding Bunds. As more and more debt is transferred to sovereign balance sheets, we will likely see the spreads between good and bad paper rise further but we will also witness increasingly desperate measures being applied by the men in power. If they could prohibit short-selling of banks on the stock exchange (which didn't work), why wouldn't they consider prohibiting short-selling of government bonds? Not that it would necessarily work any better, but desperate people do desperate things."

International Game Technology said Tuesday that it lowered its quarterly dividend to 6 cents a share from 14.5 cents a share, which will save about $100 million annually.

The Obama administration is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, The Wall Street Journal reported, citing unnamed people familiar with the matter. One leading idea on the administration's previously announced plan to buy up to $1 trillion in distressed assets is to establish separate funds to be run by private investment managers, the report said. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss, the report added.

Across South Korea, workers at companies from banks to shipbuilders are joining to slash wages and other costs with the goal of avoiding layoffs.

US investors are facing the worst year for dividend cuts since 1938, Standard & Poor’s has forecast, as a growing tally of blue-chip companies across the globe slash pay-outs for investors.

According to the NY Times, President Obama sent a secret letter to Russia’s president last month suggesting that he would back off deploying a new missile defense system in Eastern Europe if Moscow would help stop Iran from developing long-range weapons, American officials said Monday. Russian President Dmitry Medvedev said no quid pro quo is possible in talks with the U.S. on Washington’s plans to deploy a missile-defense system in Europe.

“No one preconditions these issues on some sort of exchanges, especially where Iran is concerned,” Medvedev told reporters in Madrid today. “We are already working in full contact with our American colleagues on the issue of Iran’s nuclear program.”

BP said it may “adjust the scale and pace of some projects” in Alaska because of lower oil prices.

One analyst says crumbling consumer confidence has replaced tight credit markets as the biggest hurdle to selling cars. With housing values continuing to tumble, consumers are more cautious about how they spend their money.

The number of people who were late making their mortgage payments shot up 53 percent in the fourth quarter of 2008 from the same period in 2007, according to data provided by TransUnion LLC.

The credit reporting agency said its database shows delinquencies — or the percentage of mortgage holders at least 60 days behind on payments, considered a precursor to foreclosure — jumped to 4.58 percent nationally, from 2.99 percent for the 2007 fourth quarter.

That was 16 percent above the 3.96 percent rate seen in the third quarter, TransUnion said, and marked the eighth straight quarter that deliquency rates rose.

The states that have shown the highest delinquency and foreclosure rates remain the same. Florida is on top, with a 9.52 percent rate for the fourth quarter, while Nevada is second with 9.01 percent. Arizona came in at 6.93 percent and California right behind at 6.88 percent. Carson said there is a glut of homes in those states, which is combining with increasing economic woes and declining home values to keep the rates high.

North Dakota, at 1.21 percent, remains the state with the lowest delinquency rate.

The Organization of Petroleum Exporting Countries, implementing its biggest ever supply cut, will devise a “solution” to boost oil prices when it meets on March 15, Iran’s oil minister said.

Brent crude oil for April settlement was at $43.04 a barrel, up 83 cents, on London’s ICE Futures Europe exchange at 11:43 a.m. London time. It declined 8.9 percent yesterday. Crude for April delivery rose $1.05, or 2.6%, to $41.20 a barrel in early North American electronic trading.

Gold for April delivery, the most active contract, fell $13.10, or 1.4%, to $926.90 an ounce in early North American electronic trading. Gold is now about $80 lower than its recent high above $1,000 hit on Feb. 20.

Rep. Ron Paul: "Why start a business, when businesses could face the brunt of an increase in future taxation? Similarly, why hire a new employee if tax policy will just force you to fire them later on to stay afloat? Why buy a house, when you have no idea how future government meddling in the housing market will affect its value? Why spend at the shopping mall, or buy a new car when you don't know how tax policy will affect your family budget, or if your job will come under the axe because your employer's tax burden is increased?
I argue these kinds of questions and concerns contribute to the weakening economy. This type of tax policy keeps capital out of third world nations, and now is keeping capital in hiding here in the US. People are concerned about security and savings again, retrenching their household and business budgets. The economy could be helped if the government would just get out of the way and restore sound monetary and fiscal policies."

Eric Savitz: "Online shopping activity in February slowed by almost every measure compared with January, according to new data from Coremetrics, a provider of Web analytics software:

* Web site sessions in which shoppers added items to carts fell 4.3% sequentially from January, and declined 4.9% year over year.
* Sessions in which orders were completed fell 3.1% sequentially, and 9.3% year over year.
* Page views per sessions fell 1.2% sequentially and 9.9% year over year.
* Product views per session fell 2.6% sequentially, and 17.1% year over year.
* Average time on site fell 4.5% and 21.9% year over year.
* Items per order among those who did buy things fell 13% sequentially, and 7.5% year over year.
* Average order value, however, increased 3.5% sequentially, but fell 5.5% year over year.
* Shopping cart conversion rate rose 1.5% sequentially, but fell 5.4% year over year."

Walgreens said Tuesday that its February sales rose 3.4% to $5.09 billion. Comparable-store sales decreased 1.9%. Comparable non-pharmacy sales fell 3.5%. Comparable pharmacy sales decreased 0.9 percent.

Canada's central bank reduced its benchmark overnight rate by one-half of a percentage point to 0.5% on Tuesday, meeting market expectations and bringing the cumulative monetary policy easing to 400 basis points since December 2007.

Jim Rogers: "If I'm right, agriculture is going to be one of the greatest industries in the next 20 years, 30 years."

Food inventories are at their lowest in 50 years, Rogers said, while the oil and mining sectors are also good bets.

"Even if demand goes flat or down, as it did in the 30s, as it did in the 70s, you can still have a nice market," he told CNBC."

According to rigzone, Saudi Arabia, the world's largest oil exporter, is expected to cut the number of oil rigs by as much as 20% until year-end amid lower crude output.

U.S. Jan. pending home sales down 7.7%, realtors say. The index is now down 6.4% from a year earlier, the National Association of Realtors said. "We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit" in the stimulus package, said Lawrence Yun, NAR's chief economist. January's pending sales rose in the West, and fell in the Northeast, South and Midwest. In December, the pending home sales index rose 4.8%, compared with a prior estimate of a 6.3% gain. The index is based on signed sales contracts, which usually occur a month or two before the sale is closed, when sales are reported in the NAR's existing-home sales report.

Warren Buffett's Berkshire Hathaway Inc reduced staffing last year in half of its nearly 80 operating units, and said more job cuts were coming in an economy unlikely to recover before 2010. Many of the deepest cuts came in businesses tied closely to the housing market. Clayton Homes Inc, a manufacturing housing unit, eliminated 2,290 jobs, or 16 percent, to end the year with 11,998 workers. Carpeting maker Shaw Industries shed 1,900 jobs, or 6.2 percent, to end with 28,974 workers.

Other units tied to housing that cut jobs last year include brick maker Acme Building Brands, paint producer Benjamin Moore, recreational vehicle maker Forest River Inc, real estate brokerage HomeServices of America, and furniture makers Star Furniture and R.C. Willey Home Furnishings.

Berkshire detailed the operating unit cuts in a Monday filing with the U.S. Securities and Exchange Commission.

It said the units "will continue to take cost reduction actions in response to the current economic situation, including curtailing production, reducing capital expenditures, closing facilities and reducing employment to partially compensate for the declines in demand for goods and services."

Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said today in testimony prepared for the Senate Budget Committee. “Although progress has been made on the financial front since last fall, more needs to be done.” Have Bernanke, Summers, and Geithner ever managed a business, owned a business, and/or had their own money at risk? It's easy to be generous with another's money.

General Motors expects weak sales in the US for February, which will be an "exceptionally weak" fleet month for automakers due to production cuts, Fritz Henderson, GM chief operating officer, told CNBC.

"February will be weak in the US, we expected it to be weak, it will be weak," Henderson told "Worldwide Exchange."

"Our concern about the selling environment is not that buyers aren't looking for homes, but that they will continue to gravitate to foreclosures and bypass the new-home premium," analyst Dan Oppenheim wrote in a research note.

Bernanke said recent economic indicators indicate "little sign of improvement" in the economy. The rising number of workers filing for state unemployment have moved higher "suggesting that labor market conditions may have worsened further in recent weeks," he said.

Armenia devalued its currency by 21 percent against the dollar as part of an agreement with the International Monetary Fund for a $540 million bailout of the former Soviet republic. The IMF expects the dram to weaken as much as 30 percent as the country moves toward a free-floating exchange rate, the central bank said in a statement today, citing the IMF’s permanent representative to Armenia, Nienke Oomes.

Australia, the world’s largest iron ore exporter, may ship 13 percent more of the steelmaking material in fiscal 2010 as mining companies bet that Chinese demand will recover.Could this be a time to consider Cliffs Natural Resources at $12? The shares are down from $112.

Ford Motor Co.said Tuesday that U.S. light vehicle sales for February fell 48.5% to 99,050 units from 192,178 a year ago. Ford brand U.S. light vehicle sales, excluding Lincoln, Mercury and Volvo sales, dropped 48.8% in February to 84,082 units from 164,294 a year ago. At the end of February, the auto maker said that Ford, Lincoln and Mercury inventories totaled 405,000 units.

GM's Feb sales plummeted 51% and Chrysler's dropped 41%.

The cost of protecting high-risk, high-yield corporate bonds from default soared 20 basis points to a record 1,130, according to JPMorgan Chase & Co prices for credit-default swaps at 12 p.m. in London.

Berkshire Hathaway shares made another 52-week low along with GE, United Technologies, Johnson and Johnson, Lowe's Cos, Textron, and Gannett.

The S&P closed down 4 points to 696, the first close below 700 since October 1996. The Dow dropped 37 points to 6726 and the Nasdaq dipped about 2 points to 1321.

Crude rallied $1.18 to $41.33 a barrel and gold dropped $23 to end at $916.

The Markit purchasing managers index for the euro-zone services sector fell to a record low of 39.2 in February, down from 42.2 in January.

Costco Wholesale Corp. reported that fiscal second-quarter earnings fell 27% on 0.8% lower sales and 0.7% lower total revenue. For the quarter ended Feb. 15, earnings were $239.7 million, or 55 cents a share, compared with $327.9 million, or 74 cents, in the year-earlier quarter.

Google stated they are not immune to the business cycle.

Monday, March 02, 2009

The Equity Debacle

3/2/09 The Equity Debacle

In early Monday trading, the DOW Industrials were BELOW the 7,000 mark for the first time since OCT. 28, 1997. Then they dropped below the 6800 level, and finally closed down a total of 300 points at 6763, a level last seen in April 1997. Meanwhile the S&P closed at 700, a level last seen in October 1996.The Nasdaq closed down 4% or 55 points to 1322.

HSBC launched Britain's biggest rights issue on Monday, to raise 12.85 billion pounds ($18.3 billion) to help it overcome big losses in the United States and exploit the woes of weaker rivals. Goldman Sachs Group Inc., JPMorgan Chase & Co. and the eight other banks underwriting HSBC Holdings Plc’s record rights offer will share about $500 million in fees during the slowest year for European stock sales since 2003.
Europe's biggest bank said it would shut most of its U.S. consumer lending business, cutting 6,100 jobs, but that it was ready for acquisitions in its traditional stronghold of Asia where many banks are pulling out to focus on their core markets.
HSBC said it would sell 5.1 billion shares at 254 pence each which is a 48 percent discount to Friday's close.

The cost of protecting corporate bonds from default rose on concern that banks and insurers will need to raise more capital as the recession worsens.
Credit-default swaps on HSBC Holdings Plc’s U.S. consumer finance unit jumped to a record as the London-based bank said it will shut almost all of its 800 bank branches in the U.S. and close consumer lending units. Contracts on HSBC Holdings, which is raising $17.7 billion in a rights offer to boost capital, climbed to a near-record, and benchmark credit-default swaps indexes in Europe and North America rose.

The U.S. government's new bailout plan for American International Group, including up to $30 billion in new preferred share investments, brings the total government assistance to AIG to $163 billion, with investments coming from the U.S. Treasury and the Federal Reserve, a government official said Monday.This represents averaging down in a cesspool.

Crude oil for April delivery was last down $3.82, or 8.5%, to $40.94 a barrel on Globex. Gold for April delivery was last up $6.70, or 0.7%, at $979.40 an ounce in early North American electronic trading. On the day crude closed at $40.05. Gold ended down $15 at $927.

Iran's oil minister said Sunday that the Organization of the Petroleum Exporting Countries has no plans to cut its oil production again at its March 15 meeting, Dow Jones Newswires reported, citing Iranian media.
The comments differ from statements from other OPEC members that have indicated recently more production cuts are coming. The cartel already has announced an output reduction of 4.2 million barrels a day since September, equivalent to about 5% of global oil demand.

Chesapeake Energy Corp.said Monday it'll curtail about 240 million cubic feet of natural gas equivalent per day, or about 7% of its gross natural gas and oil production due to low wellhead prices.

Worldwide semiconductor sales fell 29% in January to $15.3 billion, compared to the year-earlier period, the Semiconductor Industry Association said Monday.

British manufacturing activity contracted more sharply than expected in February, according to a monthly survey of purchasing managers. The purchasing managers index for the sector declined to 34.7, news reports said, after a reading of 35.8 in January.

Conditions for Chinese manufacturers deteriorated in February, marking the seventh straight month of weakness, although the pace of contraction eased from the preceding month, according to data released Monday by Hong Kong-based brokerage CLSA Asia-Pacific Markets. The CLSA China Manufacturing PMI was 45.1 in February, up from 42.2 in January.

PNC cuts the dividend to 10 cents from 66 cents.

Berkshire Hathaway lost 4.6 percent in Germany as the company posted its fifth straight earnings decline. Caterpillar Inc., the world’s largest maker of construction equipment, and General Motors Corp. retreated more than 1 percent before a report that may show manufacturing contracted.

According to Bloomberg, options investors are paying twice this decade’s average to protect against losses in U.S. stocks through 2011, signaling the bear market that already wiped out $10.4 trillion of equity value may last two more years.
“There’s a real panic in the markets, with some people wanting to buy long-term insurance at any price,” said Peter Sorrentino, who helps manage $16 billion, including $130 million in options at Huntington Asset Advisors Inc. in Cincinnati. “People have lost hope.”
Contracts to protect against a decline in the Standard & Poor’s 500 Index for two years cost $15,160 on the Chicago Board Options Exchange, compared with $6,875 in 2007, according to price-adjusted data compiled by Bloomberg. Today’s level shows traders expect the benchmark gauge for U.S. equities to fluctuate twice as much in the next two years as it has since 2000.

"If anything, our respondents appear to be less convinced of the near-term effectiveness of fiscal policy in turning the economy around," said NABE President Chris Varvares, president of Macroeconomic Advisers LLC.
A third of the forecasters said current fiscal policy is too stimulative and another third believe it isn't enough. Looking ahead, nearly half want more stimulative efforts, while 41 percent prefer more restrictive measures. But 83 percent agreed that fiscal policy will be more stimulative in the next two years.
Sixty percent think the recently passed stimulus plan will modestly help the economy overcome recession. Infrastructure improvements, unemployment expansion and personal tax-rate cuts were seen as the most effective parts of the plan. Social spending for the arts and public housing, income transfers and lump-sum tax rebates ranked as the least effective.
A solid majority, 64 percent, believes government purchases of toxic assets under the $700 billion Troubled Asset Relief Program would have the greatest impact on restoring credit flows. While nearly 60 percent thought TARP-funded foreclosure relief would have the biggest effect on relieving the housing market, more than a third said the money shouldn't be used that way.

Forecasters overwhelmingly favor setting up a "bad bank" to hold the toxic assets on banks' books. But most of them believe executive bonuses and dividends should be limited by those institutions who take government aid.

Joseph Calhoun: "Our leaders are now working feverishly to construct a "recovery" plan that is built on the sands of further deception. We are expected to believe that the path to redemption can be softened by enacting policies that perpetuate the very causes of the present crisis. If our economy is functioning poorly because we have borrowed and spent too much, how can recovery be manufactured by the borrowing and spending of the political elite? The implied message is that they know better than us how to spend our future earnings, that they are wiser than the collective wisdom of the citizens they presume to rule."

President Barack Obama will break a campaign pledge against congressional earmarks and sign a budget bill laden with millions in lawmakers' pet projects, administration officials said.

The global financial crisis is the worst economic downturn in living memory and some new European Union members have been hit particularly hard, EU officials said on Monday.

U.S. households socked away most of the extra income they got in January from annual cost-of-living raises, boosting the personal savings rate to a 14-year high, the Commerce Department said Monday.
Disposable real incomes rose in January at the fastest pace since May as annual pay raises and cost-of-living increases took effect, the Commerce Department said. Real disposable incomes (adjusted for inflation and after taxes) increased 1.5%, despite the third straight decline in income from wages and salaries.
Meanwhile, real (inflation-adjusted) consumer spending increased 0.4% in January, the largest increase since November 2007 and only the second increase in the past eight months.Prices increased 0.2% in January, the first increase since September. Core consumer prices - which strip out food and energy prices to get a better view of underlying inflation - rose 0.1%. Consumer prices are up 0.7% in the past year, while core prices are up 1.6%.
With disposable incomes rising faster than spending, the personal savings rate rose to 5%, the highest since March 1995. At an annual rate, personal savings rose to a record $545.5 billion.
Much of the surprise in incomes came from how the government accounts for one-time payments or increases. Pay raises for government workers and cost-of-living increases for those receiving government benefits or pensions were booked in January, boosting incomes.
Private-sector wages and salaries fell for the third straight month, held back by a subtraction for smaller-than-normal year-end bonuses. Wages and salaries fell 0.2%.
Incomes from most sources fell in January, with income from transfer payments the notable exception. Supplements to wages and salaries increased 0.7%. Income from assets fell 0.3%. Proprietors' incomes fell 0.7%. Income from rents fell 0.4%. Income from transfer payments increased 3.5%.
Real spending on durable goods rose 0.2% in January, spending on nondurable goods rose 0.7%, and spending on services increased 0.3%.
In the past year, real disposable incomes have risen 3.3%, while real spending is down 1.6%.
Private residential spending, at the heart of the U.S. economic contraction, fell 2.9 percent in January after December's 4.4 percent drop. Compared to the same period last year, spending was down 28 percent.
The level of spending, at a $291.5 billion rate, was the lowest in over 10 years.
Spending in the non-residential private sector on a range of structures from factories, lodging, offices, and power plants fell 4.3 percent in January, versus a 1.2 percent decline the previous month.

Timken Co.said Monday that it expects to cut its salaried workforce by as many as 400 positions in 2009.

Canada's real gross domestic product (GDP) declined 0.8% in the fourth quarter, 3.2% annualized, weakening progressively each month and marking the sharpest quarterly decline since 1991. Declines in exports, capital investment and personal expenditures all contributed to the economic contraction while government current and capital expenditure rose. Final domestic demand fell 1.2%. Real GDP declined 1.0% in December.

International Paper cuts the dividend to 2.5 cents from 25 cents.

Iran’s Foreign Ministry said a U.S. official’s claim that the Persian Gulf country has enough nuclear material to eventually develop a bomb is “baseless.”
“These are baseless talks that have a propaganda nature,” Iran’s Foreign Ministry spokesman Hassan Qashqavi said when asked about a comment made yesterday by Admiral Michael Mullen, chairman of the U.S. Joint Chiefs of Staff.

TPG, the private equity firm, is stirring controversy on Wall Street by offering to provide bankruptcy financing for a company that it owns, a strategy that could put it in the ironic position of being paid before some other creditors.
If successful, TPG might be able to recover some of its investment in Aleris, a maker of aluminium products that it acquired in 2006.

The February ISM Manufacturing Index inched up to 35.8 from 35.6 in January.Employment sentiment dropped to 26.1%, the lowest reading in the 61-year history of the index. Meanwhile, the ISM Prices Paid Index for February came in at 29.0, unchanged from the prior month.

Mexico's battered peso has weakened to a new record low of 15.3 against the dollar. Mexico sends 80 percent of its exports to the United States and has been pummeled by the U.S. downturn. Mexico's central bank has sold more than $18 billion dollars since October to try to stop the peso's fall.

Construction spending dropped in January to its lowest level in more than four years, dragged down by the residential slump.
The Commerce Department said spending on construction projects dropped 3.3 percent to a seasonally adjusted annual rate of $986.2 billion, the lowest since June 2004, after tumbling 2.4 percent the prior month.

The FTSE 100 Index dropped 157.34, or 4.1 percent, to 3,672.75 at 12:12 p.m. in London, poised for its lowest close since March 2003. The FTSE All-Share Index lost 3.9 percent, while Ireland’s ISEQ Index retreated 2.9 percent.

Nickel fell for a third day in London as the highest stockpiles in almost 14 years signaled weak demand for the metal used to make stainless steel. China, the world’s largest metals consumer, won’t buy nickel for its strategic reserves for now, according to the China Nonferrous Metal Industry Association.

U.K. house prices fell the most since at least 2001 last month as rising unemployment and a dearth of loans discouraged buyers, Hometrack Ltd. said.
The average cost of a home in England and Wales declined 10 percent from a year earlier to 157,000 pounds ($223,000), the London-based property market researcher said in a report today. Prices slipped 0.8 percent from a month earlier, led by Wales.

The U.K. central bank will this week bring the benchmark interest rate to 0.5 percent from 1 percent, the lowest since it was founded in 1694, according to the median of 60 economists’ forecasts.

Genentech forecast 2009 earnings, excluding items, of $3.85 per share, growing to $12.86 per share by 2018. Genentech expects U.S. sales this year of $10.7 billion, rising to $22.1 billion by 2018.

In Monday trading, the VIX popped 6.30 to 52.65. Fear is alive and well.

Some of the companies making new yearly lows, Alcoa, American Express, Boeing, Boston Properties, Burlington Northern, Caterpillar, Citigroup, Coca Cola, Conoco Phillips, CSX, Deere, GE, Heinz, Kimberly Clark, MMM, Microsoft, Norfolk Southern, P&G, Pfizer, Simon Properties, Union Pacific, U.S. Steel, and Vornado Realty.

Entertainment retail chain Virgin Megastores is "very likely" to close all of its North American stores by the summer, according to a Wall Street Journal interview with Chief Executive Simon Wright. Wright said the chain, owned by Vornado Realty Trust since 2007, will certainly close its iconic Times Square flagship store and two other locations this spring. Virgin Megastores, which are not related to the Virgin Records label, currently has around 1,000 employees, all of whom are likely to be let go, the report quoted Wright as saying.

The benchmark Nikkei 225 stock average tumbled 178.64 points, or 2.45 percent, to 7,101.51 at 9:50 am (0050 GMT), extending further losses after a 3.8-percent drop Monday. The broader Topix index also fell 2.52 percent to 716.11.
"Investors are becoming nervous about the state of the U.S. financial sector. They were worried about deteriorating assets in the U.S. financial sector," said Kazuhiro Takahashi, equity strategist at Daiwa Securities SMBC Co. Ltd.

Sunday, March 01, 2009

Oversold Continues

3/1/09 Oversold Continues

Brett Steenbarger: "What makes this market notable is that oversold levels are remaining oversold from week to week, rather than leading to significant rallies. The 785-790 area in the S&P 500 Index (ES) futures represents intermediate-term resistance; as long as we cannot sustain rallies above that level, the market will need to probe lower price levels to find significant buying interest and perceived value."

The Chicago Tribune: "“It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card. The median price of a home sold in Detroit in December was $7,500, according to Realcomp, a listing service."

About 1.7 million people, however, were working part time in January because they could not find full-time work, a 40 percent jump from December 2007, when the recession began, according to the Bureau of Labor Statistics. One must keep an eye on the growing number working 24-hour as well as 32-hour workweeks. Few working 32 hours receive benefits.

Mike Burk: "The market is extremely oversold and followed the average seasonal pattern for February during the 1st year of the Presidential cycle very closely. Seasonally, next week has been, on average, strong. A bounce over the next week or so would fit the seasonal pattern and relieve the oversold condition. After that the seasonal pattern and the high level of new lows make new index lows likely.

I expect the major indices to be higher on Friday March 6 than they were on Friday February 27."

The yields on U.S. treasuries do not reflect the following: China will not support US Treasury Issues like it has in the Past!

Premier Wen Jiabao warned that the impact of the global financial crisis was still spreading in China and the country faces the long and arduous task of combating its effects.

The official Xinhua News Agency quoted Wen as saying Saturday that China "must strengthen confidence in the face of the crisis and be ready to take firmer and stronger actions when necessary." He did not go into specifics.

Kimberly-Clark Corp., which makes Huggies diapers and Kleenex tissues, on Friday said its board raised its quarterly dividend by 3.4 percent to 60 cents per share.

It paid a 58-cent dividend it in the prior quarter.

The dividend is payable April 2 to shareholders of record on March 6. At $47, the yield is generous and the shares may offer potential for patient investors.

Over the last three years, I have not suggested any investor consider bank shares. At this time it might be appropriate to investigate BB&T Corporation. Their board declared the 2009 second quarter dividend of $0.47 per share, a 2.2 percent increase over the $0.46 paid in the second quarter of 2008.

The dividend will be paid May 1 to shareholders of record as of April 10.

The 10-year compound growth rate for BB&T's quarterly dividend payment is 10.4 percent. BB&T has paid a cash dividend to shareholders every year since 1903. The corporation has increased its quarterly cash dividend payments for 37 consecutive years.
With $152 billion in assets, BB&T Corporation is the nation's 11th largest financial holding company. Founded in 1872, it operates more than 1,500 financial centers in 11 states and Washington, D.C. At $16, the yield is 11.7% and appears well-covered.

Crude output in Mexico, a top U.S. supplier, dropped 9.2 percent year-on-year in January to 2.685 million barrels per day, its lowest level since November 1995 and just below state oil company Pemex's 2009 target of 2.7 to 2.8 million bpd.
The U.S. should not figure on Mexico exporting very much oil to our country in 2009 and beyond. Who will make up the shortfall? It's not reflected in the current price for crude.

Kellogg Co. has reportedly put on hold plans to build a new $22.5 million office building in downtown Battle Creek.

Construction on the six-story building near its headquarters was expected to begin this spring. But the Battle Creek Enquirer reports Saturday the economic downturn has put those plans on hold for at least a year.

The Nikkei 225 Average lost 2.8% to 7,357.88 and the broader Topix fell 2.2% to 739.89. South Korea's Kospi dropped 2.5%, Australia's S&P/ASX 200 shed 2.6% and New Zealand's NZX 50 slid 1.3% to 2,490.79.

HSBC Holdings PLC plans to curtail its disastrous foray into U.S. consumer lending by pulling back from key businesses, The Wall Street Journal reported, citing people familiar with the matter.

American International Group Inc. will receive additional federal assistance of up to $30 billion as part of a revamped government bailout, The Wall Street Journal's online edition reported Sunday, citing unnamed sources.

Spansion Inc , a U.S. maker of flash memory chips, sought bankruptcy protection on Sunday, becoming the latest chip maker to succumb to falling prices in the memory chip market and a deepening recession.