Saturday, March 28, 2009

Spend, Debt, and Destroy

3/28/09 Spend, Debt, and Destroy

Omni National Bank of Atlanta was seized by federal regulators, the 21st U.S. bank to fail this year, as foreclosures rise amid the recession and the highest unemployment in a quarter century.

According to the Washington Post, "When Freddie Mac’s executives concluded a few weeks ago that they had to disclose that the government’s management of the… company was undermining its profitability and would cost it tens of billions of dollars, the firm’s regulator urged it not to do so, according to several sources… The clash grew so severe that they threatened to go to the Securities and Exchange Commission… The company’s regulator backed down, the sources said".

Doug Noland: "Today’s financial crisis – and financial crises generally – are defined by a sharp discontinuity of the flow of Credit. Major fluctuations in asset markets – on the upside and downside – are typically driven by changes in the quantity and directional flow of Credit. Central bankers should focus on stable finance and resist the powerful tempation to monkey with asset prices and markets. As common sense as this is, today’s flawed conventional thinkng leaves most oblivious and poised for Mistakes to Beget Greater Mistakes.... When it comes to flawed conventional thinking, few things get my blood pressure rising more than the “global savings glut” thesis....In today’s post-Bubble period, it should be indisputable that the acute financial and economic fragility exposed around the globe was the result of egregious lending, financial leveraging, and speculation. True savings would have worked to lessen fragility – instead of being the root cause of it....How can the dollar remain a respected store of value? Expect increasingly vocal calls for global monetary reform.
“The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.’ Zhou Xiaochuan, head of the People’s Bank of China, March 23, 2009."

Peter Schiff: "Printing money is merely taxation in another form. Rather than robbing citizens of their money, government robs their money of its purchasing power. Many people assume that if government provides the funds we can spend our way back to prosperity. However, it's not money we lack but production. If the government simply prints money and doles it out, we will not be able to buy more stuff; we will simply pay higher prices. The only way to buy more is to produce more. It is production that creates purchasing power, not the printing press!"

The Oil Drum: "The number of rigs drilling for natural gas in the U.S. fell this week as producers continued to scale back exploration and production amid sliding energy prices, but the oil rig tally rose slightly.The number of oil and gas rigs fell to 1,039, down 46 from the previous week, according to rig data from oil-field services company Baker Hughes (BHI). The 1,039 rigs are the fewest in operation since at least January 2004.The number of gas rigs was 810, a drop of 47 rigs from last week, while the oil-rig count roseby 2 to 217. The rig count includes 12 miscellaneous rigs.The number of gas rigs in use peaked at 1,606 in September.The U.S. Energy Information Administration predicted in its most recent short-term energy outlook that natural gas production would peak at 53 billion cubic feet a day in early 2009 and decline during the second half of the year."

Natural gas prices fell more than 16 percent in three days to end the week, settling Friday at $3.631 per 1,000 cubic feet. The last time natural gas was that cheap was Sept. 26, 2002, when it settled at $3.58 per 1,000 cubic feet, analyst and trader Stephen Schork said.

The District, Maryland and Virginia continued shedding jobs at a rapid pace in February, according to government data released yesterday, with D.C.'s unemployment rate rising to nearly 10 percent.

Brian Pretti on the CFO Magazine survey: “This is very troubling. Throughout the history of our survey, CFO’s have shown a remarkable ability to predict future economic conditions. They anticipated the current recession as far back as September of 2007. Given the CFO’s track record, the historic pessimism CFO’s are currently expressing certainly indicates a tough road ahead in 2009....First, only 35% of the CFO’s surveyed expect an economic recovery to begin this year. The average of responses was that an economic recovery would not start for another 14 months. If that’s true and we believe the equity market bottoms four to six months in front of the economy, we should not be looking for an equity market bottom until the end of the year at best. Only 32% of the CFO’s believe the economy will be better off due to the Federal Stimulus plan. Have they told Wall Street yet? Apparently not. 53% say their companies will be worse off if health care were nationalized.
Very importantly, on the employment front, we suggest the news could not be worse. In aggregate, CFO’s expect to layoff 6% of their workforce this year. If they are even near correct with this comment, this translates to 7.6 million additional jobs to be lost. If that’s the case, we are not even half way through the current payroll contraction cycle. Although these are our comments, the impact on consumption of layoffs of this magnitude? You don’t want to know. 60% of companies will impose a hiring freeze in the next twelve months. 57% of the CFO’s say they plan to reduce or freeze wages. 39% of CFO’s say they plan to reduce hours worked for retained employees. Now you know why we have been screaming so loudly about the decline in wage growth that is sure to come directly ahead. No question about it. Their comments are not good news for the domestic labor market."

Brad Setser: "China’s purchases of US Treasuries in 2008 (Setser/ Pandey estimate): $245 billion
US money market funds purchases of US Treasuries in 2008, from the flow of funds: just under $400 billion
China’s purchases of US Agencies in 2008 (Setser/ Pandey estimate): $38 billion. That reflects $85 billion in purchases through July, and $47 billion in sales since then …
US money market fund purchases of US Agency bonds: $542 billion
China’s purchases of Treasuries and Agencies in 2008: $283 billion
US money market funds’ purchase of Treasuries and Agencies in 2008: $942b

I am waiting for a round of stories pondering whether money market funds will continue to buy Treasuries and Agencies at their 2008 pace!

US money market funds holdings of Treasuries and Agencies rose by close to 350% in 2008, as their combined Treasury / Agency portfolio rose from from $392b to $1334b. That pace of growth of growth won’t be sustained. The large rise came from a low base.
But money market funds did hold more Treasuries and Agencies ($1357b) at the end of 2008 than China ($1233b) did."

The U.S. National Debt now exceeds $11 trillion and that excludes Social Security, Medicare, etc. The estimated population of the United States is 305,897,744
so each citizen's share of this debt is $36,131.49. The National Debt has continued to increase an average of $3.74 billion per day since September 28, 2007!

You still want to buy and/or own U.S. Treasury bonds or the U.S. dollar? You still want to buy and/or own dollar-denominated equities or debt instruments? How's your faith? How's your trust? Where's your street smarts? It took just over 5 ½ months for Uncle Sam to go another trillion dollars deeper in debt since hitting $10-trillion last September 30th. It’s the fastest jump in U.S. history. Did you faint yet? Your elected officials are like deer in the headlights. They only know three words: spend, debt, and destroy.

Abraham Lincoln: "If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem. It is true that you may fool all of the people some of the time; you can even fool some of the people all of the time; but you can't fool all of the people all of the time."

The Chinese "are being hurt more than anyone else by the mismanagement of the dollar," said William Overholt, an expert with Harvard University's Kennedy School of Government.

The Consumer

3/27/09 The Consumer

U.S. Feb. real consumer spending down 0.2%. U.S. Feb. real disposable incomes down 0.4%. Current-dollar incomes fell 0.2% in February as wages declined 0.4%. Incomes were at the lowest level since April. After-tax disposable incomes fell 0.1%. After adjusting for inflation, after-tax incomes dropped 0.4% in February after surging 1.4% in January. Consumer prices increased 0.3% for the second month in a row. Core prices rose 0.2%.

Agrium Inc. said Friday that it is increasing its exchange offer to acquire all of the outstanding shares of CF Industries Holdings Inc. CF stockholders will now receive $35.00 in cash, an increase of $3.30, or 10.4%, in the cash consideration, as well as one common share of Agrium for each CF share.

The Oil Drum: "The slowdown in investment in oil and gas production could lop off nearly 8 million barrels a day of future oil supply growth, setting the stage for another big crude price spike in the years to come, according to a new study.

The global credit crisis and falling oil prices have squeezed oil companies' finances and forced many of them to cut capital spending and postpone projects. That could have big implications for supply when the global recession ends and demand for energy recovers, the report by Cambridge Energy Research Associates says."

According to AMG Data Services, in the week ended March 25, Equity Fund Outflows -$3.5 Bil; Taxable Bond Fund Inflows $4.2 Bil
xETFs - Equity Fund Inflows $967 Mil; Taxable Bond Fund Inflows $2.1 Bil.

Johnson Controls says it will cut jobs and close 10 plants as part of a restructuring effort that will cost between $200 million and $215 million.

Roubini Says Geithner Plan Won't Stop Nationalizations.

Topolanek, Prime Minister of the Czech Republic and president of the European Union: “The US is repeating mistakes from the 1930s,” he says, “such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign and so on. All these steps, their combination and their permanency, are the road to hell.”

Profits at China's oil producers, steel makers and other major industrial companies fell 37% in January and February as sales were battered by the global economic crisis, data showed Friday.

Retail sales in Japan retreated by the biggest margin in seven years in February, the government said Friday, as growing concerns about jobs and wages deepened the country's shopping slump. Consumer prices, meanwhile, were steady.

California merchants have launched an advertising blitz urging consumers to buy before the statewide hike kicks in April 1.

A couple retiring this year needs $240,000 to cover healthcare expenses, the Fidelity analysis says. That's a 6.7% increase over last year.

Charter Communications Inc. says it filed for prearranged bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York.

The fourth-largest U.S. cable operator, controlled by Microsoft Corp. co-founder Paul Allen, had planned to file for bankruptcy by April 1.

Tyson Foods Inc. said Friday that it is closing its Ponca City, Okla., processed-meats plant and shifting production to other facilities. the move will affect 580 jobs.

Japan’s shipments of aluminum rolled products are forecast to decrease 11 percent next fiscal year to the lowest in 23 years because of a slump in demand from carmakers and machinery producers, an industry group said.

In certain ZIP codes in places like Homestead and Florida City, around 25 percent of the homes are in one stage of foreclosure or another. Countless others were built by developers and sit vacant in ghostly subdivisions, with not a buyer in sight.

Brazil's president blamed "white people with blue eyes" for the world economic crisis and said it was wrong that developing countries should pay for mistakes made in richer countries, sparking accusations of racism.

Randall Forsyth: "It is the proposal to move away from the dollar-centric global monetary system that is most revolutionary of the Chinese criticisms. They were backed up in that Thursday by a United Nations panel that also called for a new global reserve currency....

The key concern of the G20 meeting will, no doubt, be the clear-and-present danger posed by the current crisis. How to stabilize banking and financial systems to restart economic growth is the top of the agenda of the confab and, indeed, every major government in the world. And quite rightly so.

But this gathering of the major economic powers may prove to be a watershed. It may mark the beginning of the end of dollar hegemony, which has benefited America enormously."

Zman on natural gas: "The withdrawal season most likely came to an end with yesterday’s report. While a late blast of cold can still yield an 11th hour withdrawal we have effectively reached trough storage for 2009, some 20% above the five year average. Let me be clear that while that is high for a seasonal trough it’s not the end of the world for gas prices as the velocity of the refill shown in the weekly reports will reflect an inching up of demand and slipping supply and the monthly data should start to yield declining production totals beginning with either next week’s report for January or the one after that."

The Red River rose to a 112-year high early Friday, breaching a dike south of downtown and forcing authorities to order the evacuations of about 150 homes.

The river had risen to 40.32 feet early Friday — more than 22 feet above flood stage and inches more than the previous high water mark of 40.1 feet set April 7, 1897. It was expected to crest as high as 43 feet on Saturday.

Gold for April delivery retreated $16.70, or 1.8%, to end at $923.20 an ounce on the Comex division of the New York Mercantile Exchange. The contract ended the week down about 3.5%.

Seven states have unemployment rates that topped 10 percent last month. That's up from four states in January.
"It's spreading like wildfire," said Richard Yamarone, economist at Argus Research.
Michigan's jobless rate climbed to 12 percent, the highest in the country. South Carolina registered the second-highest at 11 percent and Oregon came in third at 10.8 percent.
North Carolina came in fourth with an unemployment rate of 10.7 percent, the highest there on records dating back to 1976. California and Rhode Island tied for fifth place at 10.5 percent each. That was an all-time high for Rhode Island. The seventh state with a jobless rate above 10 percent was Nevada at 10.1 percent.

Thursday, March 26, 2009

Exit Strategy

3/26/09 Exit Strategy

Pimco, the huge bond house, says that the Fed is underfunded by trillions of dollars.

According to Reuters, “Liabilities on the Fed’s balance sheet should rise to between $5 trillion and $6 trillion later this year amid the financial crisis that roiled global markets, said Brian Baker, chief executive Pimco Asia Ltd.”

Henry Ford: “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

The U.S. economy experienced its most violent contraction in a generation during the fourth quarter, with real gross domestic product plunging at a 6.3% annualized seasonally adjusted rate, the Commerce Department reported Thursday in its third estimate of quarterly growth. Profits declined 16.3%. The slump in the economy was broad based, with declines in every major sector except the federal government. Corporate profits fell at the fastest pace since 1953. Final sales to domestic purchasers - domestic demand - fell at a 5.8% annual rate, the biggest drop since 1980. The big revision came from inventories, where a small increase in stockpiles that was originally reported turned into a small decline in the final revision.

The number of people collecting state unemployment benefits has reached yet another new record, jumping 122,000 to a seasonally adjusted 5.56 million in the week ending March 14, the Labor Department reported Thursday. The four-week average of these claims rose 123,750 to 5.33 million, also a new record. For the week ending March 21, first-time claims for benefits rose 8,000 to 652,000, a level that is 78% higher than the same period in the prior year. The four-week average of these initial claims fell 1,000 to 649,000. The insured unemployment rate - the proportion of covered workers who are receiving benefits - rose to 4.2% from 4.1%, reaching the highest level since May 1983.

S&P 500 companies are projected to report profit decreased 36 percent on average in the first quarter and 30 percent in the next, according to analysts’ estimates compiled by Bloomberg. Forecasts show earnings will decline until at least the third quarter, bringing the total slump to nine straight quarters, the longest since Bloomberg began tracking the data in 1998.

The Federal Reserve's balance sheet increased 0.5% to $2.051 trillion in the week ended March 25, the central bank said on Thursday. By comparison, the Fed's assets and liabilities was only $870 billion in December 2007.

Agilent to cut headcount by 2,700.

Best Buy Co. said Thursday that fourth-quarter profit fell to $570 million, or $1.35 a share, from $737 million, or $1.71, a year earlier. Revenue in the quarter ended Feb. 28 rose to $14.7 billion from $13.4 billion. Excluding items, the company said it would have earned $1.61 a share. The largest U.S. electronics retailer forecast profit of $2.50 to $2.90 a share for fiscal 2010.

- British retail sales volume fell 1.9% in February, for a 0.4% rise compared to the level seen in the same month last year, the Office for National Statistics reported Thursday. The year-on-year figure marked the slowest rate of growth since September 1995.

Japan's Corporate Service Price Index fell 2.6% in February from the year before, the sharpest fall in seven years, the Bank of Japan reported Thursday.

The post office will run out of money this year unless it gets help, Postmaster General John Potter told Congress on Wednesday as he sought permission to cut delivery to five days a week.

"We are facing losses of historic proportion. Our situation is critical," Potter told a House panel.

The agency lost $2.8 billion last year and is looking at much larger losses this year. Reducing mail delivery from six days to five days a week could save $3.5 billion annually, Potter said.

U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.

“The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”

The global equity rebound in March that sent the Standard & Poor’s 500 Index to its best monthly advance in 17 years is a “bear-market rally” and U.S. Treasury yields will “remain relatively low” as investors flock to the safest assets, Roubini said. Treasury Secretary Timothy Geithner’s new plan to remove toxic debt from financial companies won’t be enough for insolvent banks, he said.

Matt Simmons, founder of Houston-based investment bank Simmons & Co, argues the underlying rate of decline of the world's ageing oilfields is as much as 20 percent a year and only high levels of investment can reduce that to single digits. With credit tight and oil prices almost $100 a barrel below their highs last year, oil companies are unable to sustain previous levels of spending and the result is falling production, he said in an interview on Thursday.

Commercial real-estate loans are souring at an accelerating pace, threatening to exceed the commercial downturn of the early 1990s.

US retail investors poured close to $250bn (€184bn) into bank accounts in the first months of this year, sharply accelerating a flight to safety as they continued to flee volatile stock markets.

Bank savings deposits rose by $246bn to a record $4,343bn in the nine weeks to March 9, according to data from the Federal Reserve. This is more than the whole of 2008, in which savings deposits rose by $229bn.

Charles Biderman, chief executive of TrimTabs, a research group, said: “Net flows into savings have gone into only two places – bank savings and US Treasuries. Both . . . offer extremely low yields with a high degree of safety.

“During an economy where equity prices are down about 50 per cent and home prices down about 30 per cent or so, is there any question as to why money is flowing only into the safest bets?”

Moody's cut Wells Fargo's senior debt rating to "A1" from "Aa3." Its senior subordinated rating was lowered to "A2" from "A1," while the junior subordinated debt rating was cut to "A3" from "A1." All those ratings remain investment grade.

Average U.S. retail gasoline prices on Thursday broke through the $2 level for the first time since late last year, according to the AAA Daily Fuel Gauge Report. The current average edged up to $2.01 a gallon in the past day, up from $1.99 a gallon on Wednesday.

New home sales actually fell 41% in February 2009!

Willem Buiter: "For the Fed’s potential $1 trillion exposure to private credit risk through the Term Asset-Backed Securities Loan Facility, for instance, the Treasury only guarantees $100 billion. They call it 10 times leverage. I call it the Fed being potentially in the hole for $900 billion. Similar credit risk exposures have been assumed by the Fed in the commercial paper market, in its purchases of Fannie and Freddie mortgages, in the rescue of AIG, and in a host of other quasi-fiscal rescue operations mounted by the Fed and by the Fed, the Federal Deposit Insurance Corporation, and the US Treasury jointly.

I consider this use of the Federal Reserve as an active (quasi-)fiscal player to be extremely dangerous and highly undesirable from the point of view of the health of the democratic system of government in the US. There are two reasons for this. First, it undermines the independence of the Fed and turns it into an off-budget and off-balance sheet special purpose vehicle of the US Treasury. Second, it undermines the accountability of the Executive branch of the US Federal government for the use of public resources – taxpayers’ money....The opaqueness of the financial operations of the Fed in support of the financial sector (which are expanding in scale and scope at an unprecedented rate) and the lack of accountability for the use of taxpayers’ resources that it entails threaten democratic accountability. Even if it enhances financial stability, which I doubt, democratic legitimacy and accountability are damaged by it, and that is too high a price to pay."

Vietnam will raise import taxes on steel from next month to discourage shipments from overseas and help local manufacturers to clear stockpiles, according to Pham Chi Cuong, chairman of the Vietnam Steel Association.

The Ministry of Finance will lift the tax on steel-billet imports to 8 percent from 5 percent, Cuong said today in a telephone interview from Hanoi. The import tax on so-called finished steel will be raised to 15 percent from 12 percent, he said. The measures will be effective from April 1.

S&P 500 companies spent $48.1 billion in stock repurchases during the fourth quarter of 2008, a decline of 66% from the $141.7 billion spent in the year-earlier quarter, according to preliminary results released Thursday by Standard & Poor's. For all of 2008, S&P 500 buybacks hit $339.6 billion, down 42% from the record $589.1 billion spent during 2007. "This was the fourth and most significant quarter of reductions in stock buybacks. For the first time since the second quarter of 2004, S&P 500 companies have spent more on dividend payments than stock buybacks," Howard Silverblatt, senior index analyst at S&P, said in a statement.

The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 4.85% in the week ending Thursday, setting a new record low dating back to 1971, according to Freddie Mac's weekly survey. That rate is down from last week's 4.98% and the year-ago 5.85%. The 15-year fixed-rate loan averaged 4.58%, a record low dating back to 1991, down from the week-ago 4.61% and the year-ago 5.34%.

As the Red River rises into "uncharted territory," officials Thursday pleaded for thousands of volunteer sandbaggers, readied their evacuation plans, and vowed to build the dikes a foot higher than planned in an effort to hold back the water.
In Fargo, the National Weather Service predicted the Red River would crest at 41 feet — the high end of previous estimates — raising new concern among residents in this city of about 92,000.
Mayor Dennis Walaker described 41 feet as "uncharted territory," noting the Red's record high at Fargo was 40.1 feet in 1897. Walaker said he was still confident the city would beat the flood, but that contingency plans were needed.

Our nation's debt levels are in uncharted territory. All the sandbags won't help. There is no sign of the debt cresting. The National Guard cannot help with evacuation plans. Where is the exit strategy?

The April contract for natural gas expires on Friday and the May contract is trading at $4.42 with the 12 month strip at $5.20. Henry Hub spot prices, which averaged $4.65 per thousand cubic feet (Mcf) in February, are expected to average $4.67 per Mcf in 2009 and $5.87 in 2010.

Natural gas futures plunged more than 7% Thursday after data showed a surprising buildup in U.S. natural gas inventories last week. Inventories rose 3 billion cubic feet in the week ended March 20, the Energy Information Administration reported. Analysts had expected a decline of more than 5 billion cubic feet. After the data, natural gas for April delivery fell 31.9 cents, or 7.4%, to $4.01 per million British thermal units.The fact is a swing of 8 billion cubic feet is immaterial given the storage situation and smacks of manipulation with the front contract expiring tomorrow.

Google to cut just under 200 jobs.

Crude-oil futures rose 3% to end above $54 a barrel Thursday. Gold for April delivery rose $4.20, or 0.4%, to end at $940 an ounce.

Traders opened $15.78 billion in new short positions in stocks in the Russell 3,000 index in the March 2 to March 13 period, said TrimTabs in a release late Wednesday. New positions raised the aggregate short interest to $227 billion, or 2.9% of market capitalization, from $203 billion on February 27, said the publisher. That's the largest rise in short interest since June 2008. Financials and information technology sectors received the largest short-interest inflows. All ten Standard & Poor's sectors experienced net short selling during the period.

“China can stand up and say, ‘Our policies have worked, we have stabilized our economy first,’” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China is positioning itself to have a much more significant role and influence at this G-20 meeting than it has at any other international forum in the past.”

The Standard & Poor’s 500 Index added 2.3 percent to 832.86, up 13 percent in March. The Dow Jones Industrial Average added 174.75 points, or 2.3 percent, to a six-week high of 7,924.56. The Nasdaq Composite rallied 3.8 percent, erasing its loss for the year. Stocks extended gains as an auction of seven- year Treasuries eased concern that demand for government debt is dwindling.

The dollar is down 4.5 percent this month against a basket of six major currencies.

Amazon to shut three warehouses and 215 workers to lose their jobs.

The VIX closed down 1.89 at 40.36.

With quarter end window dressing, short covering, and buyers behaving like sheep, I would consider taking advantage of this strength in equities and government bonds and scale back portfolio holdings.

The Nikkei 225 Average rose 1.4% to 8,758.39, and the broader Topix climbed 1.5% to 838.98. Australia's S&P/ASX 200 rose 1.2% and South Korea's Kospi gained 0.4%, while New Zealand's NZX 50 slipped 0.2%.

Wednesday, March 25, 2009


3/25/09 Specifics

Exports from Japan, the world's second-largest economy, sank by a record 49.4%, while imports fell 43% in February, according to data released Wednesday by the Ministry of Finance. The nation saw its February trade balance swing to a surplus of 82.35 billion yen ($839 billion) from a deficit in the previous month.

A top European Union politician on Wednesday slammed U.S. plans to spend its way out of recession as "a way to hell." Czech Prime Minister Mirek Topolanek, whose country currently holds the EU presidency, told the European Parliament that President Barack Obama's massive stimulus package and banking bailout "will undermine the stability of the global financial market."

DryShips said that after reaching agreement under which certain lenders would waive breaches of loan covenants, it remained in talks with its other lenders on current breaches. Pending the outcome of those talks, DryShips has reclassified $1.8 billion of debt as short-term, the company said.

Many bargain hunters these days are trading supermarket aisles for the auction circuit in search of deep discounts on everything from cereal to spare ribs. Past the sell-by date? Bidders are happy to ignore that detail if they're getting a good deal.

FedEx may cancel plans to buy as many as 30 new Boeing planes should Congress pass a bill that would remove truck drivers, couriers and other employees at FedEx's Express unit from the jurisdiction of the federal Railway Labor Act of 1926, the paper cited the company spokesman as saying.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 32.2 percent to 1,159.4 for the week ended March 20. Refinancing accounted for 78.5 percent of all applications. "A troubling wrinkle about how the Treasury’s plan to buy toxic asset from banks could cause huge losses and the need for more capital comes from premier bank analyst Richard Bove at Richard Bove. According to the FT, he wrote “[The plan] will not happen because it would destroy bank capital. It might cause a bank to fail the new stress tests under way. Banks will not take this risk.”
His premise is simple. If private equity will only buy assets at prices well below the value that banks have assigned to them on their balance sheets, the financial firms will have to write-off the difference."

German business confidence fell to its lowest level in more than 26 years in March, a further sign of the country's deepening recession.

Orders for U.S.-made durable goods rose in February, rising 3.4% on weaker demand for machinery and defense goods, the Commerce Department reported Wednesday. This is the first increase after six monthly declines and the biggest gain since December 2007. Excluding the 2.0% increase in transportation goods, orders rose 3.9%, the sharpest rise since August 2005. Excluding defense, new orders increased 1.7 percent. Offsetting the gain somewhat, orders in January were revised sharply lower. Orders fell a revised 7.3% in January, compared with the previous estimate of a fall of 4.5%. Unfilled orders for manufactured durable goods in February, down five consecutive months, decreased $10.5 billion or 1.3 percent to $773.7 billion. This followed a 2.0 percent January decrease. Shipments fell 0.5% in February and were down 0.4% excluding transportation goods. Inventories fell 0.9%.

Nouriel Roubini: "We need an orderly system to wind down systemically important financial institutions and bank holding companies as many assets and CDS and bonds of banks are at the holding company level rather than the bank level."

Gary Dorsch: "How should investors react to the latest 20% recovery in the S&P-500 Index from its lowest levels set just two weeks ago? There have been several powerful rallies over the course of this 17-month old bear market, such as last October, when the Dow Industrials mounted a 1900-point rally in 48-hours, and a second 1,500-point rally after France, Germany, Italy, Spain, Holland, Austria and the United States joined forces to launch a $4-trillion bank bail-out, the biggest in history, with guarantees and fresh capital in a “shock and awe” blitz to halt the market meltdown.

Both rallies and many others since then were nothing more than Bull-traps. Stunning one-day rallies of 500-points or more in the Dow Industrials tend to be the signature of bear market rallies, in which the PPT engineers vicious short squeezes. Typically, it’s an ominous sign when a powerful 500-point+ rally simply stalls out the next day, then fizzles-out, and begins to turn lower. It means the retail investor hasn’t been duped by Wall Street pros, - who are anxious to book a quick profit."

The Houston Chronicle is laying off approximately 12 percent of its employees in an effort to reduce costs amid unprecedented change in the newspaper industry, Chronicle Publisher and President Jack Sweeney announced Tuesday.
“As our newspaper continues to report the condition of the economy, we read about companies in all business categories adjusting their size to match current and projected revenues,” Sweeney wrote to Chronicle employees. “The Houston Chronicle must do the same in spite of your diligent efforts.” The layoffs include about 90 people in the Chronicle newsroom.

U.S. Navy researchers claimed to have experimentally confirmed cold fusion in a presentation at the American Chemical Society's annual meeting.
"We have compelling evidence that fusion reactions are occurring" at room temperature, said Pamela Mosier-Boss, a scientist with the Space and Naval Warfare Systems Center (San Diego). The results are "the first scientific report of highly energetic neutrons from low-energy nuclear reactions," she added.

Jefferies & Co.: "FOOD-AT-HOME SPENDING turned negative in February after seeing a modest rebound in January. The metric, reported by the USDA, was down approximately 0.2% when adjusted for leap year (down 3.6%, unadjusted).
Food-at-home did continue to outperform restaurants, which saw sales down approximately 1.3% (down 4.7%, unadjusted)."

Randall W. Forsyth: "Next week, the Group of 20 nations will discuss the unprecedented stresses facing the world's economy. President Obama may not be able to dismiss calls for a new monetary order as easily as he did at Tuesday's press conference, even if the dollar is unlikely to be supplanted for some years to come."

Jeff Emmanuel from"Sooner or later the press will begin asking Mr Obama why he seems almost allergic to specifics in anything he says, be it answer, speech, or policy proposal."This was not that night." "Secretary Tim Geithner designed a plan to assist the largest banks to rid themselves of toxic mortgage assets, but now Citigroup (NYSE: C) and Bank of America (NYSE: BAC) are aggressively buying up those same securities in the secondary market, according to The NYPost.
Both Citi and Bank of America each have received $45 billion in federal rescue cash to help prop up the economy and increase their lending to businesses. But the banks’ purchase of mortgage-backed securities, including some that use alt-A and option ARM as collateral, is having some traders question why they are buying those bad assets. Alt-A and option ARMs are widely recognized as the next mortgage type to see large increases in defaults."

Norway's central bank cut its benchmark interest rate by 50 basis points to 2.00%.

The lack of rain in the state is quickly becoming no laughing matter as a drought has a firm grip on most of Texas, and there appears to be little or no relief in sight, contends a Texas A&M University professor who says conditions could even get worse.

Steve Quiring, a professor in the Department of Geography who specializes in Texas weather patterns, said 88 percent of the Lone Star State is experiencing abnormally dry conditions, and 18 percent of the state is in either extreme or exceptional drought conditions.
“Drought conditions for most of the state have gone from bad to worse over the past few months,” Quiring said this week. “Many counties that were experiencing moderate drought are now in either extreme or exceptional drought conditions. We’re seeing more and more of the state becoming drier and drier.”
He noted that “exceptional” drought conditions are those that usually occur only once every 50 years.The hardest hit areas are counties in and around Austin and San Antonio
At present, more than 170 Texas counties have issued outdoor burn bans, he said.

U.S. new home sales rose 4.7% in February, the first increase since last July, the Commerce Department estimated Wednesday. The increase in new-home sales amounted to a seasonally adjusted annual rate of 337,000. New-home sales are still down 41.1% compared with a year ago. The months' supply of homes on the market fell slightly to 12.2 months in February from 12.9 months in January. This is still well above the 9.7 month supply in February 2008. Median sales prices have fallen 18.1% in the past year to $200,900, the lowest since December 2003. Existing home sales make up 90 percent of the housing market.

The dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, fell 1.1% to 83.39, down from 84.120 late Tuesday. "A few minutes after saying the U.S. is open to an SDR [Special Drawing Right] linked currency, Geithner clarified his comments by saying that there is 'no change in dollar as world's reserve currency and likely to remain so for long time,'" said Kathy Lien, director of currency research at GFT. The dollar fell sharply on Geithner's initial comments, then pared its losses after his clarification.
Speaking in New York, Geithner said that Zhou was "a sensible man" and that "everything he said deserves consideration."

The Metropolitan Transportation Authority was voting Wednesday on fare increases that would raise the cost of a single ride on New York City buses and subways to $2.50 from
$2. Under the plan, a 30-day MetroCard will cost $103, up from $81.

U.S. crude inventories rose 3.3 million barrels in the week ended March 20, the Energy Information Administration reported Wednesday. Analysts surveyed by Platts had expected an increase of 1.4 million barrels. The EIA also reported gasoline inventories fell by 1.1 million barrels and distillate stockpiles, which include heating oil and diesel, declined by 1.6 million barrels. Analysts had expected a decline of 900,000 and 200,000 barrels, respectively.

China's economy has touched bottom but further interest rate cuts remain an option, a Chinese central bank adviser said on Wednesday.

Fan Gang, who sits on the Chinese central bank's monetary policy advisory committee, said a 25 percent rise in car sales and accelerating investment in China indicated the economy was showing signs of improvement.

Peter Boockvar: "The MBA said the average 30 yr mortgage rate fell another 26 bps to 4.63%, the lowest in at least 20 years as the Fed’s purchases of MBS is working in impacting this metric. However, the response remains predominantly in the huge increase in refi’s with barely a ripple in purchases. Refi’s for the past week rose 41.5% and are 400% off the lows of mid Nov right before the Fed announced their purchase plan. Purchases though while rising 4.2% for the week, are just back to where they were in mid Nov, thus there has been ZERO net impact on the buying of homes as the Fed spends billions.
Price has been the main driver of activity as evidenced by the level of foreclosures and not the cost of money. While refi’s are very helpful, the Fed embarked on this path to spur demand for buying homes."

Even though the equity indexes have had a massive up move, the VIX stays range-bound in the 40 to 50 area and now rests around 41-42.

Fed bought $7.5 billion in Treasurys in first operation.

Janet Yellen: "Jobless rate will remain elevated until the end of 2011."

The British government's auction of 1.75 billion pounds ($2.6 billion) of 40-year Treasury bonds, or gilts, failed to attract full coverage Wednesday, drawing bids for only 93% of the total supply, the U.K. Debt Management Office announced. That marked the first failure of a conventional gilt auction since 1995, news reports said.

“This is an end-run around Democracy,” Rep. Brad Sherman (D-Calif.) told “No one even imagined we would see trillions of dollars shifted from Washington to Wall Street that no member of Congress ever voted for.”

Sherman is referring to the PPIP and other recent Fed lending programs, including the recently launched Term Asset Lending Facility.

Sherman, who voted against the TARP, calls the Fed’s balance sheet “the endless multiplier”, while Baker says the once all-important TARP money (not to mention its original sticker shock) has been reduced to “almost a fig leaf” in the effort to rescue the financial sector.

For the initial hours of the trading session, equities had moved strongly to the upside and at one point the Dow had risen over 200 points. After 4 1/2 hours, the Dow was in the minus column. In the meantime, gold did a different 180. Gold for April delivery ended up $12, or 1.3%, at $935.80 an ounce on the Comex division of the New York Mercantile Exchange. It fell to $916 earlier.

Moody's Investors Service said Wednesday it downgraded Wells Fargo & Co. Moody's lowered Wells Fargo's senior debt rating to A1 from Aa3, the senior subordinated debt rating to A2 from A1, and the junior subordinated debt rating to A3 from A1. Moody's also cut the preferred stock rating to B2 from A2, and Wells Fargo Bank N.A.'s rating for deposits to Aa2 from Aa1.

According to the WSJ, IBM was expected to chop a large number of U.S.-based jobs in its global-services business and move them to India. The company had no comment about reports that it will cut 5,000 jobs in the U.S.
The cuts "show that even companies that are successfully navigating the global recession are continuing to slash costs--some of them by taking advantage of cheaper Asian labor," The Journal noted.
Later in the day, there were reports IBM will cut about 5,000 jobs in the United States, adding to similarly large cuts in the past few months, sources with knowledge of the matter told Reuters on Wednesday.The job cuts will account for over 4 percent of IBM's U.S. workforce, which totaled around 115,000 at the end of 2008.

U.S. stocks staged a dramatic about face in the final minutes of trading recovering nearly half of the sesssion's early gains. The Dow Jones Industrial Average gained 89.84 points, or 1.2%, to end at 7,749.81. The S&P 500 Index added 7.63 points, or 1%, to finish at 813.88, while the Nasdaq Composite advanced 12.43 points, or 0.8%, to 1,528.95.

Tuesday, March 24, 2009

The Reserve Currency

3/24/09 The Reserve Currency

Joseph Stiglitz: “The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak.”

One might ask-- is the Fed too big to fail?

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund. In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China. “This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC. A number of people including Columbia University’s Joseph Stiglitz, are supportive of the idea, arguing that the status of the US dollar as the world’s reserve currency creates unnecessary problems for both the US and the rest of the world.

The Chicago Fed's National Activity Index edged up to -2.83 in February from -3.74 in January, bringing the three-month average up to -3.48. Despite the small improvement, employment, production, consumption and housing all made negative contributions to the index.

Schlumberger cutting another 6,000 jobs. This company is the cream of the crop in the global oil services business.

Newell Rubbermaid Inc. said Tuesday that it will cut its quarterly dividend by more than half to 5 cents a share from 10.5 cents a share to help maintain its current investment grade rating.

Domestic automobile sales in Japan for fiscal 2009 are expected to drop 8.0% from the previous year to a 32-year low of 4,297,600 units, according to a Kyodo News report Tuesday, citing a statement by Japan Automobile Manufacturers Association. Japan's fiscal 2009 runs from April 1 of this year to March 31, 2010.

Rep. Ron Paul: " Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.
Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again."

Russia should not become complacent about the recent rise in oil and stock prices, the finance minister said Tuesday, calling the increase "temporary."

Vietnam has widened its daily exchange-rate trading band to plus or minus 5 percent from 3 percent against the U.S. dollar, effectively allowing the country's currency to depreciate more quickly and helping boost exports, the state bank and officials said Tuesday.

Global trade will shrink by 9 percent this year in the most devastating collapse since World War II, the World Trade Organization said Monday.

The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system.

The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a "superreserve currency accepted by the whole of the international community," the Kremlin said in a statement issued on its web site.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries.

The Dow rose 500 points on Monday but the VIX only dropped 2.66 to 43+.

Williams-Sonoma says its fourth-quarter profit fell 90 percent as it closed underperforming stores and laid off workers amid the recession.
The San Francisco-based retailer of high-end house wares earned $12.2 million, or 12 cents per share, down from $124.6 million, or $1.15 per share, in the same quarter a year earlier.
Revenue for the period ended Feb. 1 fell 27 percent to $1.01 billion from $1.37 billion.
Excluding one-time costs for store closures, severance and lease terminations, Williams-Sonoma Inc. recorded profit of 31 cents per share in the latest quarter.
Analysts polled by Thomson Reuters, whose estimates usually exclude one-time charges, expected profit of 16 cents per share on revenue of $976 million.

Treasury secretary to argue for new power to initiate seizure of non-bank financial companies at a hearing this morning on Capitol Hill.

Swarm of small quakes in the Salton Sea area has scientists wondering if faults there are transferring energy to the larger San Andreas, where a major temblor could occur. "According tothe FT, hedge funds investors surveyed recently are expecting big withdrawals this year. “A survey of investors by Deutsche Bank found a third expect more than $200bn to be withdrawn, after a net $155bn was taken out last year.” To add insult to injury, the poll also found that investors expect 20% of existing hedge funds to close in 2009. That means fewer firms to take money from the Treasury to buy toxic bank assets."

In February, employers took 2,769 mass layoff actions involving
295,477 workers. Mass layoff events increased by 542 from January, and
initial claims increased by 57,575. Layoff events for all industries
and for the manufacturing sector rose to their highest levels on record.
Thirty states reached program highs in average weekly initial claims.

American workers -- whose taxes pay for massive government health programs -- are getting squeezed like no other group by private health insurance premiums that are rising much faster than their wages.
While just about all retirees are covered, and nearly 90 percent of children have health insurance, workers now are at significantly higher risk of being uninsured than in the 1990s, the last time lawmakers attempted a health care overhaul, according to a study to be released Tuesday.
The study for the Robert Wood Johnson Foundation found that nearly 1 in 5 workers is uninsured, a significant increase from fewer than 1 in 7 during the mid-1990s.
The problem is cost. Total premiums for employer plans have risen six to eight times faster than wages, depending on whether individual or family coverage is picked, the study found.

Chain-store sales for the week ended March 21 fell 1.4% from the year-earlier period, hurt by a calendar shift in Easter, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales dropped 0.4%. ICSC forecast March sales to be flat to down 1%.

The Zimbabwe government has chosen the rand as the country's reference currency but will not "randify" the economy, the Herald reported on Friday.

"The multiple currency system adopted last month remains in force," it said.
Citing Finance Minister Tendai Biti, the report said the government had chosen the rand because South Africa was Zimbabwe's biggest trading partner and the most competitive country for assessing prices and wages.
"Given the United States dollar price structure we are starting with, and the impossibility of restoring competitiveness through currency devaluation when we are using foreign currencies, it is important that we link ourselves to a currency that is more proximate to us," Biti was quoted as saying.

Congressman Ron Paul says we’re headed into a 15-year depression. Ron Paul’s bill to audit the Federal Reserve continues to gain momentum. H.R. 1207 now has 33 co-sponsors (as of 3/19/2009)!

Contract iron ore prices will drop for two years, undermined by a “whopping oversupply” of the steelmaking raw material, Citigroup Inc. said.
Global demand may decline 7.5 percent this year, while supply rises 7 percent, Citigroup analyst Alan Heap told a conference in Perth, Australia. Contract iron ore prices may drop 30 percent this year and 20 percent in 2010, he said.

China ’s inventories of gasoline, diesel and kerosene rose by about 36% at the end of last month from a year earlier, citing a report by the China Petroleum and Chemical Industry Association. Fuel stockpiles reached 14.85 million metric tons at the end of February, an in increase of 11.4% from January, citing “weak” demand.

Wyoming shut down a 290-mile stretch of Interstate 25 from Cheyenne to Buffalo and a 165-mile section of Interstate 90 between Sheridan and the Wyoming state line because of snow. South Dakota closed the gates on a 250-mile stretch of I-90 from the Wyoming state line to Chamberlain. Parts of I-80 in southeast Wyoming also were closed.
"There were places of maybe one-vehicle length visibility, just absolutely whiteout conditions," said David King, emergency management coordinator for Campbell County in northeast Wyoming.

The McKinsey Global Institute: "Global energy demand growth will experience a short-term lull in 2009," a summary of the report said. "But with economic recovery, demand could snap back more quickly than many observers project, driven by strong demand growth from developing countries."

Average U.S. retail gasoline prices edged up a penny to $1.97 a gallon in the last day, according to the AAA Daily Fuel Gauge Report. A week ago, gasoline sold for $1.91 a gallon. A month ago the average selling price was $1.92 a gallon. A year ago, gasoline cost $3.26 a gallon.

Analysts expect a build of 1.4 million barrels in U.S. crude stocks to be reflected in this week's oil inventory data from the U.S. Energy Information Administration and the American Petroleum Institute, a Platts survey showed Monday.

John Taylor: " When the Fed purchases public or private securities or makes loans to banks or to other private firms, it must finance them. The Fed can borrow the funds, or it can ask the Treasury to borrow the funds, or it can do it the old-fashioned way: create money. The Fed creates money in part by printing it but mostly by crediting banks with deposits at the Fed. Those deposits are called reserve balances and are the key component – along with currency – of base money or central bank money which ultimately brings about changes in broader money supply measures.
These deposits or reserves have been exploding as the Fed has made loans and purchased securities. Six months ago reserves were $8bn, in a range appropriate for its interest rate target at the time. As of last week, reserves were nearly 100 times larger at $778bn, the result of creating money to finance loans to banks, investment banks, AIG, central banks and purchases of private securities. Before last week’s federal open market committee meeting, I projected these would increase to $2,215bn by the end of this year if the new Consumer and Business Loan Initiative of the Treasury were to be financed by money creation. With last week’s dramatic announcement, the Fed will have to increase reserves by another $1,150bn to $3,365bn by the end of the year if the securities purchases are financed by money creation. Quantitative easing or credit easing means that the growth rate of the quantity of money increases, but there is no monetary principle or empirical evidence supporting such an explosion There is no question that this enormous increase from $8bn to $3,365bn will lead to higher inflation unless it is reversed.."

It's been widely publicized that honey bees, too, are facing a severe crisis due to Colony Collapse Disorder (CCD), characterized by silent, empty hives. Over the past two years, more than a third of all honey bee colonies in the United States have died, with some commercial beekeepers reporting losses of up to 90 per cent. Worse, no one has any idea why: the possible culprits include viruses, parasites, pesticide poisoning, genetic modification or simply overwork (every year 1.2 million honey bees are trucked from Massachusetts to Florida; other colonies are flown in from Australia to fertilise commercial orchards).
Whatever the cause, the decline of honey bees has far-reaching implications: we won't just lack honey on our toast, but could lose every crop pollinated by them, as well as most animal products (since the majority of domestic livestock are fed on bee-pollinated food), all plant-derived medicines and clothes made from cotton. That's before you get to the effect on ecosystems.

South Africa cuts rates by 100 basis points to 9.5%.

General Motors Corp., Chrysler LLC and Ford Motor Co. may get 10,100 United Auto Workers union members to accept buyouts after the elimination this year of benefits related to job security and unemployment pay.

Goldman Sachs Group Inc. reduced its 2009 and 2010 earnings estimates for Walt Disney.

While most mortgage rates head lower, buying or refinancing a more expensive house is getting harder. "I don't see the situation for jumbo rates improving for more than a year or two," says one economist.

The recession in the United States will stretch well into next year, probably raising the need for another fiscal stimulus package at least as large as the first one, prominent economist Martin Feldstein said on Tuesday.

George Ure: "There are something like 27 levels of security classifications above even the President of these United States. "

U.S. commercial equipment finance saw its worst month yet in February as new-business volume plunged 37.7% from a year ago on the back of deteriorating customer credit quality and delays in corporate capital spending, according to a Tuesday report from the Equipment Leasing and Finance Association. "After finishing the fourth quarter of 2008 down, the first quarter of 2009 continues on a downward trend as businesses pull back from making new investments in plant and equipment," said ELFA President Kenneth Bentsen, Jr. In January, new business declined 23.7%, an improvement from December's 13% drop. November new business fell 33%. The $650 billion commercial equipment finance sector contributes about 4.5% to the U.S. gross domestic product.

Crude-oil stocks rose by 4.57 million barrels during the week ended March 20, the American Petroleum Institute reported Tuesday. Motor gasoline stocks fell by 805,000 barrels, and distillate stocks dropped by 1.57 million barrels, API also said. In electronic trading on Globex, oil futures fell 57 cents, or 1%, to $53.41 a barrel.

The Dow Jones Industrial Average fell 115.25 points, or 1.5%, to 7,660.61. The S&P 500 Index shed 16.49 points, or 2%, to stand at 806.43, while the Nasdaq Composite dropped 37.12 points, or 2.4%, to 1,518.65.

Gold for April delivery fell $28.70, or 3%, to end at $923.80 an ounce on the Comex division of the New York Mercantile Exchange.

William L. Jenkins: "Throughout his life, Ronald Reagan believed America is capable of great things and its people could and would lead the way if left unburdened by taxation and regulation."

Senate Budget Committee Chairman Kent Conrad, D-N.D., promises to reduce the deficit from a projected $1.7 trillion this year to a still-high $508 billion in 2014. Along the way, the Senate plan would have Obama's "Making Work Pay" tax credit delivering $400 tax cuts to most workers and $800 to couples expire at the end of next year. Those tax cuts were included in Obama's stimulus package.

Monday, March 23, 2009


3/23/09 Surreal

Suncor Energy and Petro-Canada agreed to merge. In a statement on Monday, the Calgary, Alberta, companies said that terms of the transaction call for Petro-Canada holders to receive 1.28 shares and Suncor holders 1 share for each of their shares. The exchange ratio means that Petro-Canada holders get a 25% premium to the 30-day weighted-average closing price of their stock. At closing, the new company will be held 60% by Suncor's holders and 40% by Petro-Canada's. The boards of both companies have approved the terms.

Tiffany & Co. forecast a full-year sales decline of about 11% and per-share profit from continuing operations of $1.50 to $1.60.

CF Industries Holdings Inc. said Monday that its board of directors has recommended that CF Industries' stockholders reject Agrium Inc.'s offer to acquire all outstanding shares of CF Industries. Fertilizer-maker CF has reaffirmed its intention to pursue a business combination with Terra Industries Inc.

John Hussman: "The largest purchasers of U.S. Treasury bonds at present are foreign central banks. So what the Fed is really doing is printing enough money to crater the exchange value of the U.S. dollar, while leaving foreigners with a trillion dollars of savings that they would otherwise have invested in Treasury bonds, which they will now use, not to buy our lousy, toxic assets, but to acquire our productive assets, and at a steep discount thanks to the currency depreciation. So yes, the extra trillion in dollar bills will ultimately end up as bank reserves (and currency in circulation), but only by encouraging Beijing to go on a shopping spree to acquire a claim on our future production.... Ultimately, funding the bailout of lousy assets comes at the cost of debasing our currency and selling our good assets to foreigners.Ultimately, funding the bailout of lousy assets comes at the cost of debasing our currency and selling our good assets to foreigners. Make no mistake - we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own. All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. "

Daimler said an Abu Dhabi investment firm will pay $2.65 billion for a 9.1% stake, making it the auto maker's biggest shareholder.

China’s central bank chief on Monday proposed a sweeping overhaul of the global monetary system, outlining how the dollar could eventually be replaced as the world’s main reserve currency by the Special Drawing Right.
The SDR is an international reserve asset created by the International Monetary Fund in 1969 that has the potential to act as a super-sovereign reserve currency, Zhou Xiaochuan, governor of the People’s Bank of China, said in remarks published on Monday on the bank’s website.

Houston Chronicle: "The U.S. biodiesel industry will suffer from new trade barriers that threaten to end its lucrative export business to Europe, and in Texas the measure could be devastating.

As the largest U.S. producer of the alternative fuel, Texas has a number of companies that relied heavily on selling biodiesel in Europe and now face gaping holes in their businesses that may prove difficult to fill.

In addition, the Port of Houston has been a major hub for storing, handling and shipping biodiesel overseas, and companies in those businesses also stand to lose.

“The impact on Texas is going to be pretty great,” said Dan du Plessis, marketing and supply chain manager for GreenHunter Biofuels, which operates a 105 million gallon per year biodiesel plant at the Houston Ship Channel that had been exporting more than 90 percent of its product to Europe.

Last week, the European Commission said U.S. biodiesel exporters will now have to pay additional anti-dumping tariffs of up to 29 percent, and anti-subsidy duties of up to 41 percent. The tariffs are temporary for the next six months, but the commission will decide by this summer whether to extend them for five years.

The tariffs came after complaints last year that U.S. biodiesel producers were collecting both U.S. and European subsidies and then selling huge quantities of fuel in Europe at prices that undercut domestic producers.

European officials estimated that 80 percent of U.S. biodiesel production was exported in 2008."

Satyajiy Das: "Benefits of CDS contracts must be balanced against any additional risks to the financial system from trading in these instruments. CDS contracts may create additional risks within the financial system. While CDS contracts did not cause the current financial crisis (excessive reliance of debt did), they may have exacerbated the problems and complicated the process of dealing with the issues.
As John Kay noted (in "The Long and the Short of It" (2008) Erasmus Press at 222): "The academic cheerleaders were, in the main, innocent dupes…they provided philosophical justification for greed and rightist ideology, through a Panglossian message of [efficient] markets…"....The spectre of banks, some of whom have needed capital injections and liquidity support from governments to ensure their own survival, offering to insure other market participants against the risk of default of sovereign government (sometimes their own) is surreal....As the global economy slows and the risk of corporate default increases, it remains to be seen whether CDS contracts act as instruments of risk reduction or amplify risk. Recent debates about and regulatory proposals to regulate CDS markets show a disappointing and limited awareness of these issues, most worryingly amongst people who claim to know!"

Single-family home sales rose 4.4% to a seasonally adjusted annual rate of 4.23 million in February. They fell 4.6% from the 4.95 million-unit level of February 2008. Distressed properties accounted for 45% of all sales. Home foreclosures were up 30% in February from a year earlier. The national median existing-home price for all housing types was $165,400 in February, down 15.5 percent from a year ago.
“The decline in home prices and presence of deeply discounted foreclosures has increased affordability and enticed bargain hunters,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “However, rising unemployment, depressed confidence and expectations of home-price depreciation serve as powerful offsets.”

“This is a historic moment -- the start of debasement of the world’s reserve currency,” wrote Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “It feels to many participants that in the grand sweep of history we are witnessing the end of ‘Rome’ on the Potomac.”

Republican leaders of the Oklahoma House are pushing an ambitious program to use taxpayer dollars to encourage motorists to fuel their cars and trucks with compressed natural gas, a plentiful fuel that is more economical and produces less emissions than traditional motor fuels.
The idea has received bipartisan support in the House, which has overwhelmingly approved several energy-related measures and sent them to the Senate for consideration. But some lawmakers question whether state government should be meddling in the CNG business and believe the investment may actually discourage private operators.

The 174-year-old Ann Arbor News will cease to exist as a daily and will shut down the presses in July, the company said Monday. The newspaper will be replaced with a Web-based, media company called which will produce a twice-a-week newspaper, published on Thursday and Sunday, and a total-market coverage product once a week.

Israel's central bank reduced its benchmark interest rate by 25 basis points to 0.5% on Monday, meeting market expectations.

Crude for May delivery rose $1.73, or 3.3%, to close at $53.80 a barrel on the New York Mercantile Exchange. Gold for April delivery lost $3.70, or 0.4%, to end at $952.50 an ounce on the Comex division of the New York Mercantile Exchange.

Moody's Investors Service on Monday cut General Electric Co. and General Electric Capital Corp.'s senior unsecured debt ratings to Aa2 from Aaa and affirmed their Prime-1 short-term ratings. In lowering the companies' ratings, Moody's noted that GE's primary credit risks are centered on its position as a major financial institution through GE Capital.

The last time the S&P was up 5% in one month was in December 2003. It appears we have a reasonable chance for that to occur in March 2009. U.S. stocks rallied, capping the market’s steepest two-week gain since 1938. The Standard & Poor’s 500 Index extended its rebound from a 12-year closing low on March 9 to 22 percent as all 10 of its main industry groups advanced. The S&P 500 gained 7.1 percent to 822.92, its biggest increase since Oct. 28. The Dow Jones Industrial Average jumped 497.48 points, or 6.8 percent, to a five-week high of 7,775.86. The Nasdaq gained 98 points or 6.76% to 1,555. The MSCI World Index climbed for the ninth time in 10 days, adding 5.4 percent. Twenty-one stocks rose for each that fell on the New York Stock Exchange, the broadest rally since at least July 2004.

"The only reason someone who bought a Treasury can get their money is that the government is able to borrow more money to pay them off," said Peter Schiff, president of brokerage firm Euro Pacific Capital. "It's impossible for us to just keep going deeper and deeper into debt."

"Anyone who buys a lot of [long-term Treasurys] now might be crazy," said Brian Wesbury, chief economist at First Trust Portfolios. "It's the biggest the bubble in the world."

Daniel Webster: “The contest, for all ages, has been to rescue Liberty from the grasp of executive power”

Sunday, March 22, 2009

Natural Gas

3/22/09 Natural Gas

The Oil Drum: "The Public Service Commission just made a big bet on natural gas, overruling consumer advocates and its own staff, by ordering utilities to buy much of next winter's gas at today's cost rather than waiting for prices to possibly fall even further. Natural gas prices have plunged along with all energy costs. PSC staff, the Office of People's Counsel and Maryland utilities all wanted to buy gas as usual, filling pipes month by month between now and October and paying the spot price each time. Locking in now, they argued, would prevent utilities "from buying at even lower prices in the months to come," according to a PSC order filed Tuesday.
But the commissioners, having witnessed last summer's natural-gas spike, ordered BGE and other utilities to lock in 40 percent of next winter's needs at today's price. Consumers will still save a ton compared with this winter's cost, they said, and they'll be partly protected if another hurricane disrupts supplies this summer and fall."
With natural gas prices hitting a 6 1/2 year low this week, this directive sounds like a very smart idea.

Mike Burk: "The market should retest the March lows, but, that may take a few weeks. Much of the overbought condition was relieved Thursday and Friday.
I expect the major indices to be higher on Friday March 27 than they were on Friday March 20."

Gary Shilling: "We believe that if nothing is done to eliminate surplus housing, prices will fall another 20% between now and the end of 2010 for a total peak-to-trough decline of 37% (Chart 1 below). The resulting further negative effects on the economy will be devastating. At that point, almost 25 million homeowners, or almost half the 51 million total with mortgages, will be underwater... That's also a third of the 75 million total homeowners, with the remaining 24 million owning their houses free and clear. It would take a little over $1 trillion to reduce their mortgages to the value of their houses, compared to $449 billion for the almost 14 million currently underwater."

Canadian rig counts have dropped 28% since the beginning of this year.

Consider our housing crisis: mortgage rates have plummeted. Home prices have dropped significantly. The typical monthly mortgage for a medium-priced home in the U.S. in February was $1090, according to Data Quick, down from $1940 in February 2007. Yet, housing demand still sucks.

May crude up 1.1% at $52.66/brl on Globex after $52.90 high. April gold falls $2.50, or 0.3%, to $953.70/oz on Globex.

Nikkei regains the 8000 level.

Sen. Susan Collins, a Maine Republican who sided with Obama on his $787 billion economic stimulus plan, said she couldn't support the White House plan this time.
"It would double the public debt in 5 years, triple it in 10 years. ... That is not sustainable. It poses a threat to the basic health of our economy," Collins said.
Sen. Richard Shelby of Alabama, the top Republican on the banking committee, said Obama would have to scale back his budget, given a Congressional Budget Office report Friday that the president's budget would produce $9.3 trillion in deficits over the next decade — more than four times the deficits of Republican George W. Bush's presidency.
Shelby predicted that number could reach $20 trillion in coming years as Obama guides the country to "the fast road to financial destruction."
North Dakota Democrat Kent Conrad, chairman of the Senate budget committee, acknowledged, "We cannot have debt pile on top of debt." He added: "In the short term, yes, we have got to have added deficits and debt to give lift to this economy, but longer term, we have got to pivot."