Friday, April 03, 2009


4/3/09 Unemployment

The U.S. economy lost 663,000 jobs in March, fewer than the 688,000 that analysts surveyed by MarketWatch had expected. Meanwhile, unemployment rate rose to 8.5%, in line with expectations. Payrolls in previous months were revised lower by a total of 86,000.
January's revised job loss of 741,000 was the worst since 1949. In February, 651,000 jobs were lost.
In the past six months, 3.7 million jobs have been lost, or 2.7%, the second-largest percentage loss in 50 years.In March, the number of individuals experiencing long spells
of joblessness rose by 265,000 to 3.2 million. Nearly one in four of the unemployed had been jobless for 27 weeks or more, the highest ratio since mid-1983.
Total hours worked in the economy fell by 1%. The average workweek fell by 6 minutes to a record-low 33.2 hours. Average weekly hours worked by production workers fell to 39.3 hours from 39.5 hours, while overtime was unchanged at 2.7 hours. That brought average weekly earnings down to $614.20 from $615.05.

Since the recession began in December 2007, the economy has lost a net total of 5.1 million jobs, with almost two-thirds of the losses occurring in the last five months.

The number of unemployed people climbed to 13.2 million in March. In addition, the number of people forced to work part time for "economic reasons" rose by 423,000 to 9 million. That's people who would like to work full time but whose hours were cut back or were unable to find full-time work.

If part-time and
discouraged workers are factored in, the unemployment rate would have been 15.6 percent in March, the highest on records dating to 1994.

Job losses were widespread last month.
Construction companies cut 126,000 jobs. Factories axed 161,000. Retailers got rid of nearly 50,000. Professional and business services eliminated 133,000. Leisure and hospitality reduced employment by 40,000. Even the government cut jobs — 5,000 of them.

Education and health care were the few industries showing any job gains. The U.S. Census Bureau began hiring 140,000 temporary employees this month to start conducting the 2010 census. They are the first of more than 1.4 million people it will hire over the next year to poll the population.

The Fed says unemployment will remain elevated into 2011.

Economists say the job market may not get back to normal — meaning a 5 percent unemployment rate — until 2013.

"There's going to quite a long haul before you see the
jobless rate head down," said Bill Cheney, chief economist at John Hancock Financial Services.

In as much as we have a consumer-based economy, I expect spending to be muted for a

very long time.

Euan Mearns: "I was surprised to see that US primary energy production has held steady since 1981 at just over 1.5 billion tonnes oil equivalent per year. Declining oil has been compensated by rising coal and natural gas production. However, despite this abundant wealth of energy, the US has chosen to live beyond its means."

Worldwide sales of semiconductors slumped 30% to $14.2 billion in February, and dropped 7.6% from January levels, the Semiconductor Industry Association said Friday.

Google is in late-stage talks to buy Twitter, the blog TechCrunch reported, citing two sources close to the negotiations.

Venezuelan President
Hugo Chavez ridiculed the G-20 summit's attempts to deal with the global financial meltdown, saying capitalism is in crisis and ''has to end.''Speaking to Venezuelan state television late Thursday, Chavez said the United States and Britain are ''the most guilty'' for the financial crisis sweeping the globe because of the financial model ''they've been imposing for years.''

According to the SF Chronicle, mortgage problems are spreading beyond the troubled subprime category into Alt-A and prime mortgages made to borrowers with better credit, according to the report from the Comptroller of the Currency and the Office of Thrift Supervision. Those two agencies, which oversee the nation's largest banks and thrifts, directed the institutions to provide data on the mortgages they own and service.

The report covers about 34.7 million home loans, representing two-thirds of all outstanding U.S. mortgages. It looks at their performance during the fourth quarter of 2008, as well as the full year.

Of all mortgages covered, at year-end slightly more than 10 percent were nonperforming, meaning behind on payments, compared to about 7 percent nonperforming in September.

Among other findings:

-- Prime and Alt-A mortgages. One of the report's most troubling conclusions was that a larger share of prime borrowers - people with good credit who made substantial down payments and could fully document their income - are becoming delinquent on their mortgage payments.

In the first quarter of 2008 (the earliest period covered), 1.11 percent of all prime borrowers were seriously delinquent - behind by 60 days or more. By the fourth quarter, that had more than doubled, with 2.4 percent of all prime borrowers seriously delinquent. Although on a percentage basis the delinquencies remain low, the comptroller's office underscored that the rapid increase is worrisome.

"Historically speaking, that's the highest we've ever seen prime mortgages (in default)," said John Dugan, comptroller of the currency, in a conference call. "It started at a very low level, unlike subprime mortgages, but it also is where two-thirds of all mortgages are, so we watch it very carefully. To the extent we see problems there, it indicates (problems with) a much wider swath of all mortgages in the United States."

Alt-A loans, made to borrowers whose profiles fell between prime and subprime - often people with good credit, but smaller down payments and/or no proof of their income - also showed rapidly rising delinquencies. Serious delinquencies in Alt-A affected 5.18 percent of borrowers in the first quarter, and reached 9.1 percent in the fourth quarter.

According to AMG Data, in the week ended April 1,
Equity Fund Outflows -$1 Bil; Taxable Bond Fund Inflows $2.8 Bil xETFs - Equity Fund Inflows $297 Mil; Taxable Bond Fund Inflows $2 Bil

The relaxation of fair-value accounting rules won’t prevent bank shares from falling because growth in bad loans is accelerating, according to Goldman Sachs Group Inc.

“Our core view is that banks will not bottom until underperforming asset growth decelerates,”
Richard Ramsden, a New York-based analyst at Goldman Sachs, wrote in a report today. “Loans are going bad faster than banks earn money.”

George Ure: "There has been a very consistent pattern of market tops with varying degrees of significance ranging from short-term to long term. The dates of the previous highs are 231 trading days apart and occurred on August 1st, 2005, June 30, 2006, June 4th, 2007, May 2, 2008, and today, April 2nd, 2009."

Rigzone: "The economic impact of the Barnett Shale on the Tarrant-area economy is expected to drop about 40 percent in 2009 compared with 2008 but will still be big, according to a new study.
Texas economist Ray Perryman estimates that with natural gas prices expected to be sharply lower this year, the Barnett Shale's economic output will be $6.5 billion. That compares with $11 billion in 2008, a year that saw near-record prices until July and a drilling boom that lasted through October."

Business Week: "In a series of what might be called baby steps, Chinese officials recently have moved to globalize the yuan and promote its influence overseas, with Shanghai designated as command central.
Since last December, China has signed deals with six countries, including South Korea, Malaysia and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow foreign companies to pay for goods they import from China in yuan, bypassing the dollar -- the currency that dominates international trade and finance, including foreign exchange reserves. Beijing is also taking initiatives to use the yuan, also known as the renminbi, to settle trade accounts between some Chinese provinces and neighboring states, starting with Hong Kong."

Reggie Middleton: "Mark to Market will do nothing to aid the economic values of banks and financial institutions. Cash flows are cash flows, and losses are losses. Calling a loan a performing asset (in lieu of a non-performing assets) does not make the borrower pay his bills! As a matter, it very well may damage economic value of the companies in question due to the warped compensation system therein. For instance, many companies will not act in the best interests of the company and raise capital due to its dilutive effects when share prices are low and costs of capital are high. The alternative is that they risk running undercapitalized, which they now have considerably more freedom to do thanks to the punks pundits at the FASB. Management will receive higher bonuses due to higher per share performance metrics when compared to what they would have received had they went the safer route and diluted, but they run much, much higher risk. If, or more accurately when, the stinky brown mushy stuff hits the impeller blades, splat!!! Corporate implosion, ala Bear Stearns, Countrywide, IndyMac, Lehman Brothers, WaMu, etc. style. Let it be known that I warned on all of these companies months ahead of their implosions (save IndyMac)."

Michael Boskin: "Mr. Obama is going to leave a discounted present-value legacy of $6.5 trillion of additional future taxes, unless he dramatically cuts spending. (With interest the future tax hikes would be much larger later on.) Call it a stealth tax increase or ticking tax time-bomb.

What does $6.5 trillion of additional debt imply for the typical family? If spread evenly over all those paying income taxes (which under Mr. Obama's plan would shrink to a little over 50% of the population), every income-tax paying family would get a tax bill for $163,000. (In 10 years, interest would bring the total to well over a quarter million dollars, if paid all at once. If paid annually over the succeeding 10 years, the tax hike every year would average almost $34,000.) That's in addition to his explicit tax hikes. While the future tax time-bomb is pushed beyond Mr. Obama's budget horizon, and future presidents and Congresses will decide how it will be paid, it is likely to be paid by future income tax hikes as these are general fund deficits."

Rep. Ron Paul: "The people that are going around saying that other countries have worse problems than we do here in the U.S. are wrong.”

U.S. non-manufacturing sectors contracted at a faster pace in March, according to a Friday report from the Institute for Supply Management, as the global slowdown continued to take its toll. The ISM non-manufacturing index fell to 40.8% in March from 41.6% in February.

Crude ends down 13 cents, or 0.2%, at $52.51 a barrel. Gold for April delivery fell $11.80, or 1.3%, to end at $895.60 an ounce on the Comex division of the New York Mercantile Exchange. It fell to as low as $894.70 earlier. The more active June contract fell 1.3% to close at $897.30.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, retreated 4.1 percent to 40.31 at 2:03 p.m. in New York. The index measures the cost of using options as insurance against slumps in the Standard & Poor’s 500 Index, which moved 1.3 percent between today’s low and high. That’s the smallest swing since Dec. 26 and about two-fifths of this year’s average of 3.2 percent.

The Dow Jones industrials closed up 40 points, or 0.5%, to 8,018, their first close above 8,000 since Feb. 10.
The Standard & Poor's 500 Index was up 8 points, or 1%, to 843, and the Nasdaq Composite Index was up 19 points, or 1.2%, to 1,622.

Thursday, April 02, 2009

Magic Marking

4/2/09 Magic Marking

The Oil Drum: "On the 24th of March, Frank Biancheri, head of the European think tank
LEAP2020, published in the Financial Times the following open letter directed to the G20 leaders gathering in London on the 2nd of April:
Ladies and Gentlemen, Your next summit takes place in a few days in London; but are you aware that you have less than half a year to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage."

U.S. accounting rulemakers on Thursday agreed to make adjustments to its proposal to change mark-to-market accounting rules concerning when transactions would be considered distressed.

The Financial Accounting Standards Board said its proposed changes would take effect in the second quarter for most U.S. companies, but early adoption would be allowed for most companies' first quarter.

The board, at a meeting in Norwalk, Connecticut, said it would remove a presumption in its original proposal that would have allowed all transactions in an inactive market to be considered distressed unless proven otherwise. It said that particular language could have had unintended consequences.

FASB also said the objective of mark-to-market, or fair value accounting, in inactive markets would be to determine what an asset could fetch in an "orderly" transaction between market participants. It said an "orderly" transaction would not include distressed transactions or fire-sales.

George Bernard Shaw: "Better see rightly on a pound a week than squint on a million."

"The capitalist system dominated by the West is stuck in serious and deep crisis -- and is bringing disaster to the entire world," said Huang Jisu, a sociologist at the Chinese Academy of Social Sciences and co-author of a bestselling book, "Unhappy China," which lashes out at U.S. hegemony and calls for China to take a stronger hand in world affairs.

Wholesale Corp said it plans to close its two Costco Home stores on July 3, citing the current economic slowdown and resulting weakness in the home furnishings business.

The retailer said it expected no layoffs as a result of the closings, adding that there will be no significant impact on operations or financial results.

The Labor Department says initial claims for unemployment insurance rose to a seasonally adjusted 669,000 from the previous week's revised figure of 657,000. That total is above analysts' expectations and is the highest in more than 26 years, though the work force has grown by about half since then.

The tally of laid-off workers claiming benefits for more than a week rose 161,000 to 5.73 million, a 10th straight record-high and also worse than analysts expected.
The insured unemployment rate - the proportion of covered workers who are receiving benefits - rose to 4.3% from 4.2%, reaching the highest level since May 1983.

Canada's Bombardier Aerospace said Thursday it is cutting 3,000 jobs, or about 10 percent of its work force, because the demand for its business aircraft has deteriorated rapidly and is expected to remain weak for the foreseeable future.

The company said it now expects to deliver approximately 25 percent less business aircraft this fiscal year.

Orders for U.S.-made factory goods increased 1.8% in February, the first gain after six months of large declines, the Commerce Department reported Thursday. Excluding transportation goods, orders rose 1.6%. Excluding the 36% increase in defense goods, orders rose 0.9%. Orders for nondefense, nonaircraft capital equipment - the kinds of goods businesses invest in to expand or update their productive capacity - jumped 7.1%, revised up from a 6.6% gain reported last week. Orders for durable goods rose an upwardly revised 3.5% in February, also the first gain in seven months. Orders for nondurable goods rose 0.3% in February, led by big increases in chemicals and plastics.

ConocoPhillips said its domestic refinery utilization rate is expected to be approximately 80%, "reflecting significant planned turnaround activity in the U.S. Gulf Coast and East Coast regions."Refining and marketing results for the first quarter are expected to be lower due to a decrease of more than 50% in worldwide marketing margins, the Houston company said.

The dollar index slipped as low as 84.051, down from 84.539 before Brown spoke and from 85.623 in late North American trading Wednesday. It was last trading at 84.319.

Even with a strong rally on Wed. and Thurs. the VIX still is at the 42 level.

Wednesday, April 01, 2009

Labor Market

4/1/09 Labor Market

The U.S. labor market worsened again in March, as private-sector firms cut 742,000 jobs in March, signaling another terrible employment report on Friday, according to the ADP employment index released Wednesday.
It was the largest job loss recorded by ADP in its nine-year history.
The report comes two days before the Labor Department reports its estimate for nonfarm payrolls. Economists were looking for nonfarm payrolls to fall by 663,000.
In March, the goods-producing sector shed 327,000 jobs, the 27th consecutive decline. Manufacturing lost 206,000 jobs, while construction lost 118,000.
The services sector lost a record 415,000 jobs.
The ADP index does not include government jobs. Adding in the typical 12,000 jobs gained in the public sector, the ADP report points to nonfarm payrolls falling by 730,000, compared with the MarketWatch consensus of 663,000.
"Despite some recent indications that stock prices, consumer spending, and housing activity may be bottoming out, employment, which usually trails overall economic activity, is likely to remain very weak for at least several more months," said Joel Prakken, chairman of Macroeconomics Advisers, the economic consulting firm that computes the ADP index from anonymous payroll data provided by ADP.
The February ADP index was revised down by 9,000 to a loss of 706,000 compared with the 697,000 initially reported.
In March, small businesses (those with less than 50 employees) cut 284,000 jobs.
Large businesses (with more than 500 employees) cut 128,000 jobs, while medium-sized businesses cut 330,000 in March.

The unemployment rate in the 16-nation euro zone rose to 8.5% in February, up from 8.3% the previous month, the statistics agency Eurostat reported Wednesday.

French President Nicolas Sarkozy Wednesday said he can't believe that the summit of G20 leading industrialized and emerging countries in London over the economic and financial crisis will fail. Speaking in an interview with French radio Europe 1, Sarkozy said he wouldn't want to "associate" himself with a G20 that would be concluded by "false compromises." He said the current draft of the final G20 statement doesn't suit France nor Germany. Sarkozy said he spoke to German Chancellor Angela Merkel late Tuesday.

The Bank of Japan's quarterly tankan survey showed that business sentiment among the nation's big manufacturing firms fell to negative 58 in the first quarter, down from the negative 24 seen in the fourth quarter of last year. The negative reading was reportedly the lowest level on record. Consensus expectations were for a reading of minus 55, according to poll conducted by Reuters. The Royal Bank of Scotland's Junko Nishioka expected a fall to negative 50.

Thousands of protesters converged on the Bank of England in demonstrations aimed at bankers and world leaders participating in the Group of 20 summit meetings in the U.K. capital. Marches set off from the four railway stations that serve the city’s financial district at 11 a.m., and arrived outside the bank just before noon.

Four marches, led by representations of horsemen of the apocalypse, converged on the Bank in the Financial Fools’ Day protest as demonstrators chanted “storm the banks”.

President Barack Obama has concluded that a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

The Seattle Federal Home Loan Bank found “material weaknesses” in how management accounted for losses on mortgage bond investments, a flaw that may take as long as six months to fix.

The bank, a lending cooperative whose biggest customers include

JPMorgan Chase & Co. and Bank of America Corp., failed to adequately oversee “significant accounting estimates and assumptions” used to tally losses, according to a March 30 filing with the Securities and Exchange Commission. Connie Waks, a bank spokeswoman, said “rapidly changing market conditions” led to the deficiencies in valuations and accounting controls.

“That’s a problem,” said

Charles Mulford, an accounting professor at the Georgia Institute of Technology in Atlanta. “There is a risk that financial items will be improperly valued” without strong internal controls, he said.

Scheduled job losses fell 19.3 percent in March to 150,411, the lowest since October, but the more than 578,000 cuts so far in 2009 are the most for any quarter since the last one of 2001, outplacement company Challenger, Gray & Christmas said in a monthly report.

"The good news is that job cuts appear to be stabilizing in the financial sector," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, about the relatively low 8,651 job cuts in that sector in March.

"Unfortunately, other sectors are seeing an increase in cuts as the recession works its way through the economy. State and local governments across the country are struggling with falling tax revenues as more and more people lose their jobs and homes."

March layoffs were led by the government and non-profit sector with more than 25,000 job cuts, and the sector also led in announced hirings with 11,741.

The European Central Bank said Wednesday that it has completed sales of 35.5 tons of gold. The sales were in full conformity with the second Central Banks Gold Agreement, which was signed in 2004 by the ECB and other European major official gold holders.

Delinquent loans at small and medium-sized U.S. businesses continued to rise in February, according to PayNet Inc, a firm that tracks trends in the commercial lending market.
In each of the three broad categories of delinquencies tracked by PayNet, accounts behind in payment hit a new high for the current U.S. economic recession.

Accounts in moderate delinquency, or behind in payment by 30 days or less, rose to 4.45 percent in February from 4.2 percent in January, the firm reported. A year ago that measure stood at 3.48 percent.

Accounts up to 90 days behind, or in severe delinquency, rose to 1.29 percent in February from 1.23 percent and from 1.04 percent a year earlier.

Those 180 days delinquent, or in default, were 0.63 percent against 0.62 percent in January and 0.34 percent in February 2008.

According to World Bank forecasts issued on Mar. 31, the volume of world trade in goods and services will drop 6.1% this year, the biggest decline in 80 years.

Celgene said that it now sees 2009 adjusted earnings coming in at the lower end of its previously issued range of $2.05 to $2.15 a share.

Thornburg Mortgage Inc, which fell victim to the mortgage and credit crises over the last 18 months, said on Wednesday that it expects to file Chapter 11 bankruptcy, discontinue operations and sell off its remaining assets.

The U.S. industrial sector contracted for the 14th consecutive month in March, the Institute for Supply Management reported Wednesday. The ISM manufacturing index rose to 36.3% in March from 35.8% in February. None of the 18 industries surveyed were growing in March. The new orders index jumped to 41.2% from 33.1%, the first time that key index has been above 40% in seven months. The employment index rose to 28.1% from 26.1% in February. The production index was essentially unchanged at 36.4%.

The number of new sales contracts on existing homes rose a seasonally adjusted 2.1% in February amid improved affordability and stimulus incentives, a real estate trade group said Wednesday. The index was down 1.4% from a year earlier, the National Association of Realtors said. "Pending home sales have a way to go for there to be a meaningful increase, but recent increases in shopping activity are hopeful indicators that we'll see additional sales gains," said Lawrence Yun, NAR's chief economist, in a statement. February's pending sales rose in the Midwest by 14.5%, by 10.6% in the Northeast, and by 4.4% in the South. In the West, pending sales fell 13.5%. 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. The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.

Gasoline inventories increased 2.2 million barrels in the week ended March 27, the Energy Information Administration reported. The EIA also reported a rise of 2.8 million barrels in crude inventories and a rise of 300,000 barrels in distillate stockpiles, which include diesel and heating oil.

Silicon Graphics Inc. filed for bankruptcy-court protection and agreed to sell itself to Rackable Systems Inc. for $25 million in cash plus the assumption of some liabilities.

Ford Motor Co. said Wednesday that U.S. March sales fell 40.9% to 131,465 vehicles from 222,337 last year. Sales of sport utility vehicles dropped 73.2% to 5,632 vehicles, and truck and van sales fell 40% to 45,813 units. At the end of March, Ford said that Ford, Lincoln and Mercury inventories totaled 408,000 units, about 27% lower than a year ago. Toyota Motor Corp said Wednesday that U.S. March sales fell 39% to 132,802 vehicles from 217,730 a year ago. General Motors Corp. reported a 44.7% drop in March U.S. light vehicle sales to 155,334 cars and trucks from 280,713 a year ago. The car side fell 41.3% to 68,877 while trucks plunged 47.1% to 86,457. Chrysler LLC on Wednesday reported a 39% drop in March U.S. sales to 101,001 cars and trucks from 166,386 a year earlier. The car side dropped 51% while trucks decline 34%.

Four smaller regional banks on Tuesday became the first financial institutions to return the federal money they had received under the government’s banking bailout, leaving a program that placed restrictions on their executive compensation and other spending.

The banks — Signature Bank of New York; Old National Bancorp of Evansville, Ind.; Iberiabank of Lafayette, La., and Bank of Marin Bancorp of Novato, Calif. — said they had bought back a total of $338 million in their preferred shares, which had been sold to the government in the fall under the $700 billion Troubled Asset Relief Program, or TARP, in exchange for capital.

The Dow Jones Industrial Average gained 152.68 points, or 2%, to 7,761.6. The S&P 500 Index gained 13.2 points, or 1.7%, to 811.07, while the Nasdaq Composite jumped 23.01 points, or 1.5%, to 1,551.6.

Crude for May delivery fell $1.27, or 2.6%, to end at $48.39 a barrel on the New York Mercantile Exchange.

Tuesday, March 31, 2009

End of Quarter Window Dressing

3/31/09 End of Quarter Window Dressing

The Asia Development Bank cuts its 2009 gross domestic product growth outlook for China on Tuesday to 7% from 8.2%, saying that measures such as Beijing's $586 billion stimulus package will take some time to gain traction and offset the global slowdown. The Manila-based international lender also forecast China's current-account surplus would ease to 8.4% of GDP in 2009 from about 10% in each of the two prior years. It said the nation's foreign exchange reserves would rise to $2.2 trillion in 2009 and to $2.5 trillion in 2010.

The Paris-based Organization for Economic Cooperation and Development on Tuesday predicted the economy will shrink by around 2.7% in 2009, while international trade flows will fall by more than 13%. The recession will deepen this year before a "policy-induced recovery" gradually builds momentum through 2010, the think tank for the world's wealthiest countries said in its twice-yearly economic report. The OECD expects the U.S. economy to shrink by 4% in 2009, followed by flat growth next year. Japan is expected to see output fall by 6.6%, followed by a 0.5% decline in 2010, while the euro-zone economy is forecast to shrink 4.1% this year and 0.3% in 2010.

The global economy is expected to contract in 2009 for the first time since World War II and the recovery next year is likely to be very fragile, the World Bank said Tuesday in its latest economic outlook. The global economy is expected to shrink by 1.7% in 2009 and grow 2.3% in 2010 after 1.9% growth in 2008. The economies of high-income countries are expected to contract 2.9%, while developing economies are expected to grow 2.1%, only about a third as fast as they grew in 2008.

Toyota Motor Corp is planning to cut this year's annual dividend significantly from levels in the prior fiscal year, the Nikkei newspaper reported in its Tuesday evening edition, citing unnamed company sources. Last fiscal year, Toyota declared a year-end dividend of 75 yen per share, bringing dividends for the full year to 140 yen per share. Toyota's expected dividend cut will be the first for the automaker since close of books in the fiscal year ending March 1995, the report said.

According to Bloomberg, the U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the
Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose.

S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001. Prices are down 29% from the peak in mid-2006, according to Case-Shiller.

Sun-Times Media Group Files for Voluntary Bankruptcy.

Gottchalk's to liquidate their stores.

Ford said Tuesday it will cover payments of up to $700 each month for up to a year on any new Ford, Lincoln or Mercury vehicle if consumers lose their jobs. The program runs until June 1. GM said it will make a similar offer. GM's new CEO, Fritz Henderson, said the company will make up to nine car payments of $500 each for customers who have lost their jobs through no fault of their own.

Customers must qualify for state unemployment to be eligible for the program. The program starts April 1 and runs until April 30.

Russia plans to coordinate with OPEC on oil production, the country's Energy Minister Igor Sechin told The Wall Street Journal in an interview published today.

Russia cannot join OPEC, Sechin explained, because the government cannot directly manage the oil companies which are privately held.

But the government can encourage the oil companies to cut production in step with OPEC moves.
The Russian government would like to see the price of oil at $60 to $100 per barrel, a range that is similar to OPEC's declared target price.

Drugstore operator Walgreen will offer free clinic visits to the unemployed and uninsured for the rest of the year, providing tests and routine treatment for minor ailments through its walk-in clinics — though patients will still pay for precriptions.

Walgreen said patients who lose their job and health insurance after March 31 will be able to get free treatment at its in-store Take Care clinics for respiratory problems, allergies, infections and skin conditions, among other ailments. Typically those treatments cost $59 or more for patients with no insurance.

Business Week: "Self-employed or freelance workers aren't counted as laid off even if they lose most of their income. Over the past decade or so, many companies staffed up using more such outside workers to cut their costs for health-care and retirement benefits and to give them more flexibility to expand or contract with business. "Involuntary" part-time workers are also missing from the headlines. This category includes those who would like to work full time but are working fewer hours because their work has been cut back or because they have been unable to find full-time jobs. While these workers haven't been laid off per se, they are losing a big part of their pay. In February, the number of people classified as working part time for economic reasons rose by 787,000, reaching 8.6 million. The number of such workers has risen by 3.7 million in the past year, almost doubling."

"The numbers are astounding," says Beth Schulman, an economic analyst with the Russell Sage Foundation. "These workers—often at the lower end of the pay scale— are losing hours, income, and benefits. That only worsens the recession."

The Government Accountability Office says freelancers make up about 10% of the workforce, and advocates are campaigning for them to get counted—and to receive assistance when they lose work.

Business conditions in the Chicago region deteriorated in March at the worst pace since 1980, according to the NAPM-Chicago's business barometer released Tuesday. The index fell to 31.4% in March from 34.2% in February. That's the lowest since July 1980. The new orders index was roughly flat at 30.9%. The employment index improved by about three points to 28.1%. “Difficulties in the financial sector ultimately signal trouble ahead for everyone else, particularly manufacturing,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said before the report. “Weakness in the Chicago number is likely to be maintained for some time, with the possibility of further declines well into 2009.”

Lennar Corp. slipped more than 10% after the company announced a wider quarterly loss as new-home orders continued to fall.

The March consumer confidence index rose to 26 from an upwardly revised 25.3 in February. Economists surveyed by MarketWatch had expected a March reading of 28. "Apprehension about the outlook for the economy, the labor market and earnings continues to weigh heavily on consumers' attitudes," said Lynn Franco, director of the Conference Board's Consumer Research Center. "Looking ahead, consumers remain extremely pessimistic."

Riviera Holdings Corp., the operator of Nevada and Colorado casinos, missed a $4 million interest payment and said it may have to seek bankruptcy protection as Las Vegas endures the worst gambling slump on record.

French President Nicolas Sarkozy will walk out of this week’s Group of 20 summit if his push for stricter financial regulation flops, Finance Minister Christine Lagarde told the British Broadcasting Corp.

Sarkozy will refuse to sign any statement if he feels “the deliverables are not there,” Lagarde said in the interview. “I think he is very determined.”

Frankfurt-based Deutsche Bank AG, Germany’s biggest bank, told students at the Frankfurt School of Finance and Management: “The credit crisis is far from over.”

It won't be easy for the Federal Reserve to shrink its balance sheet of loans to banks once they are no longer needed, said Philadelphia Fed President Charles Plosser. In a speech in Chicago, he said he feared that pressure from special interests might delay the unwinding. Some will argue that same markets are too fragile to go alone, or that the economy's "headwinds" are too strong. "We will need to have the fortitude to make some difficult decisions about when our policies must be reversed or unwound," he said.

Cardinal Health Inc. said Tuesday its clinical and medical products unit will eliminate 1,300 jobs, with most of the cuts made over the next six months, as hospitals cut back on equipment purchases.

The U.S. Government Accountability Office said on Tuesday that its review shows that the Treasury has had disbursed $303.4 billion of the $700 billion in Troubled Asset Relief Plan (TARP) funds. Most of the funds, almost $199 billion, went to purchase preferred shares of 532 financial institutions under the Capital Purchase Program (CPP), the GAO said. The agency said the Treasury is becoming more transparent with the TARP plan but Treasury, "should provide additional important information about how the capital investments are impacting participants' lending activities and capital levels."

The great recession of 2008 and 2009 is likely to be not only the longest downturn since World War II, but also the most geographically widespread recession since at least the 1970s.
For the first time on record, all 50 states were contracting at the same time, according to the state coincident indicators for February released by the Federal Reserve Bank of Philadelphia on Tuesday. The state-by-state indicators have been tracked by economists at the bank since 1979.

Crude for May delivery ended up $1.05, or 2.2%, at $49.66 a barrel on the New York Mercantile Exchange. Gold for April delivery rose $7.10, or 0.8%, to end at $922.60 an ounce on the Comex division of the New York Mercantile Exchange.

Automotive supplier Visteon Corp. says its auditors are raising "substantial doubt" about the company's ability to continue as a "going concern."

Alex Dumortier: "Indian households hold over $440 billion worth of gold -- about $380 for every inhabitant. Compare that to India's per-capita GDP of $1,078, and it's equivalent to the average American family of four hoarding over $65,000 of the yellow stuff."

Monday, March 30, 2009


3/30/09 GM

Rep. Ron Paul: "The Federal Reserve was brought into existence in 1913 because they said they needed a “lender of last resort” and they needed a “stable currency”. Now, I don’t think it is a lender of last resort, I think it’s become a spender of first resort....The Federal Reserve was created by a Congressional act, and we can get rid of it by a Congressional act, and we should."

Economic sentiment in the 16-nation euro-zone fell to a new record low in March, led down by deteriorating sentiment in the industry and services sectors, the European Commission reported Monday. The commission's monthly Economic Sentiment Indicator fell to 64.6 in March from 65.3 in February, marking the lowest level since the survey began in 1985. The sentiment gauge for the industry sector fell to -38 from -36 in February, while the services gauge dropped one point to -25. Consumer sentiment also fell a point to -34, while the retail-trade gauge rose one point to -18 and the construction indicator was steady at -32.

One in 10 workers in advanced economies will be without a job next year, “practically with no exceptions”, the head of the Organisation for Economic Co-operation and Development said on Monday.

In a graphic indication of the global recession’s transmission from the financial sector to the rest of the economy, Angel GurrĂ­a warned that the ranks of the unemployed in the 30 advanced OECD countries would swell “by about 25m people, by far the largest and most rapid increase in OECD unemployment in the postwar period”.

Shares in Swiss bank UBS fell 7.5% in early trading Monday after reports over the weekend that the group could cut a further 8,000 jobs and take further write-downs.

The broader Topix Index gave up 0.1% to 823.79, reversing gains. Australia's S&P/ASX 200 lost 1.4%, New Zealand's NZX 50 Index fell 0.6%, and South Korea's Kospi rose 0.1% to 1,238.07.

The Hang Seng Index was down 3%, or 427.51 points, at 13,691.99. The China H-share index, which covers large mainland Chinese firms listed in Hong Kong, was off 4.9%, or 416.74 points, at 8,064.48.

With an entourage of 500 staff, an armour-plated limousine and a fleet of decoy helicopters,
Obama will arrive for his first visit to Britain. He is the biggest spender to ever live in the White House. How many names of the 500 might he even know?

Oil prices could reach $75 per barrel in 2009 despite a the economic crisis, OPEC president Angola said on Monday, adding that compliance by the 12-member group with the agreed cuts remained at around 80 percent.

General Growth Properties has ended its effort to get an nine-month reprieve from its bondholders after its proposal failed for the third consecutive week.

Russia's economy will probably shrink 4.5% this year, the World Bank forecasts, as oil prices fall and unemployment rises. In November, the World Bank expected 3% growth based on $75/barrel oil and global expansion.

John Hussman: "Attempting to avoid the need for debt restructuring by wasting trillions in public funds increases the likelihood that the current economic downturn will be prolonged, places a massive claim on our future production in order to transfer our nation's wealth to the bondholders of mismanaged financial companies, and raises the likelihood that any nascent recovery will be cut short by inflation pressures. We are nowhere near the completion of this deleveraging cycle...Note that gross private debt currently stands at about 350% of GDP, about double the historical norm. Meanwhile, many of the assets underlying this debt are being marked down in value by 20-30% or more. Given that GDP itself is about $14 trillion, a continued policy of bailouts will eventually require a commitment of public funds amounting to a significant fraction of $14 trillion. The “real” burden of the mounting federal debt will have to be devalued through inflation, or it will place an onerous claim on the nation's future production and capital investment (which might otherwise be able to provide for the needs of an aging population)....From the beginning of the recent crisis, starting with Bear Stearns, I have emphasized that nearly all of the financial institutions at risk of insolvency have enough liabilities to their own bondholders to fully absorb all probable losses without any loss to customers or the American public. The sum total of the policy responses to this crisis has been to defend the bondholders of distressed financial institutions at public expense..... As a result of the intervention by the Federal Reserve and the U.S. Treasury, even the bondholders of Bear Stearns stand to receive 100% repayment of both interest and principal on their bond investments. This is absurd. "

“Agrium’s offer is grossly inadequate, substantially undervalues CF Industries and is not in the best interests of CF Industries and its stockholders.”

Sales of vacation and investment homes in the United States slipped to 30 percent of all transactions of existing and new homes in 2008, the National Association of Realtors said on Monday.

However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision, the NAR said in a report.

The market share of homes purchased for investment was 21 percent last year, unchanged from 2007, while another 9 percent were vacation homes, compared with a 12 percent market share in 2007, the NAR said.

The total share of second homes declined from 33 percent of all transactions in 2007, while in 2005, the peak year for home speculation, 40 percent of sales were second homes, the NAR said.

The boards of Chrysler and Fiat have given executives approval to complete an alliance that now hinges on the terms for additional aid for Chrysler, people with knowledge of the discussions have said.

April gold ends down $7.70, or 0.8%, at $915.50 an ounce. Crude got crushed for about $4 to $48.40 a barrel. As the Dow moved to minus 300 points, the VIX jumped about 5 points to the 46 level.

Ireland had its AAA credit rating removed by Standard & Poor’s in the fourth downgrade of a euro- region government this year as the global financial turmoil fueled borrowing costs and swelled the budget deficit.

The rating was lowered one step to AA+ with a “negative” outlook, S&P said in a statement today from London, indicating the rating company is more likely to lower the classification again than raise it or leave it unchanged. Ireland received the top rating in October 2001.

The cost of protecting Irish government bonds from default rose 31 basis points to 252, according to CMA DataVision prices for credit-default swaps. It reached a record 396 basis points on Feb. 17.

Lincoln National Corp. had the biggest drop in the S&P 500, declining 39 percent to $6.31. The insurer seeking $3 billion in U.S. capital withdrew an application for the right to sell debt with a government guarantee because it doesn’t meet federal qualifications.

Manitowoc Co. slumped the second most in the S&P 500, losing 32 percent to $3.16. The Wisconsin-based company withdrew its 2009 per-share profit and sales forecast amid falling demand, especially in its crane operations.

The agreement between the Fed and Treasury last week included a pledge that “in the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate” the assets the central bank has acquired from rescues of Bear Stearns Cos. and American International Group Inc.

Nearly 70 percent of the Pentagon's 96 major weapons-buying programs were over budget in 2008 for combined cost growth of $296 billion above original estimates, congressional auditors said in an annual report released on Monday.

Kinetic Concepts Inc.said Monday afternoon it will cut 4% of its workforce, or 300 employees.

KLA-Tencor Corp. on Monday said it would cut 10% of its global workforce as part of a broad cost-cutting measure.

The S&P 500 lost 28 points, or 3.5%, to trade at 787.53. The Dow Jones Industrial Average sank 254 points, or 3.3%, to 7,522.02. And the Nasdaq Composite fell 43 points, or 2.8%, to 1,501.8.

A bankruptcy by an automaker would put an estimated one million people out of work, adding a percentage point to Deutsche Bank's estimates for the peak U.S. unemployment rate, currently at 10.5%, said Deutsche Bank Chief U.S. Economist Joseph LaVorgna Monday.

The San Francisco Bay Area was shaken by a 4.3 magnitude quake at 10:40 a.m. Pacific time. The epicenter of the quake was 11 miles north of Morgan Hill, Calif., and 16 miles east-southeast of San Jose, Calif., according to the U.S. Geological Survey.

Japan’s Jobless Rate Rises to 4.4% as Exporters Fire Workers.

General Motors's new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling auto maker.

Census Workers

3/29/09 Census Workers

Seeking Alpha: "Although GM has stated repeatedly that bankruptcy is a non-option and could force a liquidation, sources say top execs are growing more open to the idea of a speedy government-financed bankruptcy reorganization.... credit-default swaps are now pricing in a 22.5% chance of GE going bankrupt within the next 12 months.... Representative Barney Frank said U.S. Bancorp (USB) and Northern Trust (NTRS) will return TARP funds. Frank didn't specify a timeline but said Northern Trust will return $1.6B and U.S. Bancorp, which received $6.6B, will return $6B for now. Three smaller lenders - TCF Financial (TCB), Iberiabank (IBKC) and Sussex Bancorp (SBBX) - all decided in the last week to give back TARP money as well. As far as Frank is concerned, "it shows that things are beginning to stabilize. The more money that comes back in the Treasury, the better I like it."

The U.S. Treasury estimates that there is about $134.5 billion left in its financial-rescue fund, which would mean that about 81% of the $700 billion program has been committed.

Willem Butier: "The Fed can deny and has denied information to the Congress and to the public that US government departments like the Treasury cannot withhold. The Fed has been stonewalling requests for information about the terms and conditions on which it makes its myriad facilities available to banks and other financial institutions. It even at first refused to reveal which counterparties of AIG had benefited from the rescue packages (now around $170 billion with more to come) granted this rogue investment bank masquerading as an insurance company. The toxic waste from Bear Stearns’ balance sheet has been hidden in some SPV in Delaware.

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."

Thousands of people marched through European cities Saturday to demand jobs, economic justice and environmental accountability, kicking off six days of protest and action planned in the run-up to the G-20 summit next week in London.
At least a dozen of the 52 Washington State-based banks examined are carrying heavy loads of past-due loans, defaults and foreclosed properties.

“There is a direct challenge under way to the paradigms that America has been trying to sell to the rest of the world,” said Eswar S. Prasad, a former China division chief at the International Monetary Fund. The American banking collapse, which precipitated the global meltdown, has led to a fundamental rethinking of the American way as a model for the rest of the world.

"Russia is fully capable of becoming the biggest energy supplier for China in upcoming 15 years," Russian Deputy Prime Minister Alexander Zhukov said. "A 30 day challenge: don't spend. Start by cutting out the luxuries. Don't eat out. Drive less. The benefits can include more savings, less debt and a bigger emergency fund. Hey, it's only for a month, right?

You can significantly improve your personal balance sheet in as little as 30 days. The key is what personal-finance experts call a no-spend month. Also called a buy-nothing month, it's a 30-day period of superfrugality in which you cut out all extras, buy only basic necessities and spend as little money as possible.

In 2008, Americans lost $7 trillion in wealth because of a plummeting stock market and an additional $1.2 trillion through tanking home values. To top it off, 2.6 million Americans were handed pink slips last year. The Conference Board, a nonprofit business research group, estimates 2 million more people will lose their jobs by mid-2009."

U.S., Iranian officials reportedly met for Afghanistan talks.

John Mauldin: "Starting at any time from 1980 up to 2008, an investor in 20-year treasuries, rolling them over every year, beats the S&P 500 through January 2009! Even worse, going back 40 years to 1969, the 20-year bond investors still win, although by a marginal amount. And that is with a very bad bond market in the '70s."

Mike Burk: "On March 6 there were 827 new lows on the NYSE and 567 on the NASDAQ. Those numbers are big enough to suggest a high likelihood of a retest of the March 9 lows....Between the low of March 9 and the high of last Thursday:

The Russell 2000 (R2K) was up 29.7% in 13 days.

The NASDAQ composite (OTC) was up 25.1% in 13 days.

The S&P 500 (SPX) was up 23.1% in 13 days.

The Dow Jones Industrial Average (DJIA) was up 21.0% in 13 days.

It is possible the market could go higher next week, but pretty soon it is going to have to take a rest.

I expect the major indices to be lower on Friday April 3 than they were on Friday March 27."

The per-pack tobacco tax climbs from 39 cents to $1.01 on April 1.

Janet Yellen: "Congress could give the Fed the authority to issue interest-bearing debt in addition to currency and bank reserves. Issuing such debt would reduce the volume of reserves in the financial system and push up the funds rate without shrinking the total size of our balance sheet."

The Census Bureau will launch a massive operation on March 30 to verify and update more than 145 million addresses as it prepares to conduct the 2010 Census. Nationwide, more than 140,000 census workers will participate in the address canvassing operation. The countdown to the 2010 Census is officially one year out on April 1.These 140,000 new government workers will impact the outcome of the new employment data. Managers are paid up to $28.75 an hour, while "enumerators" -- those who go door-to-door tracking down surveys -- are paid $16.75 per hour. The address canvassing operation will be conducted out of 151 local census offices across the U.S., with most offices beginning on April 6.The hiring of 140,000 census workers will skew the new employment data.

A study by the Boston Consulting Group estimated that $7.3 trillion is stashed in offshore banking centers by people either taking advantage of low taxes or simply evading notice of tax authorities back home. Curbing havens is one of the issues facing the Group of 20 summit on the world economic crisis, which gathers rich and leading developing countries in London on April 2.

Ahead of the Group of 20 summit starting Thursday in London, the Obama administration has decided to strike a more accommodative posture twoard Europe on the sticky issue of how much multilateral emphasis should be placed on economic stimulus, the Washington Post reported Sunday. In particular, administration officials made it known that they no longer have any desire to insist on targets for how much the G20 countries should be spending to revitalize their economies.

A draft G20 communique shows Britain wants the group of leading economies to pledge $2 trillion in stimulus when they meet in London next week, German magazine Der Spiegel reported. It was unclear how much if any of the $2 trillion figure would represent new spending from the G20, whose individual members have already pledged total stimulus measures close to that amount. In the draft communique it cited, the magazine also said the $2 trillion was in brackets, showing that it is a proposal by G20 president Britain that has not been approved by the broader group.

OPEC members Kuwait and Qatar are comfortable with current oil prices of about $50 a barrel as the global recession saps energy demand.

“Of course, yes,” Kuwait’s Oil Minister Sheikh Ahmed al- Abdullah al-Sabah told reporters today when asked if he was happy with current crude prices, which rose above $50 a barrel last week. “It goes with the economic situation.”

Industrial production in Japan fell for a fifth month in a row, down 9.4% in February from the previous month, to stand at 68.7, according to data released Monday from Japan's Ministry of Economy, Trade and Industry. The seasonally adjusted index was down 38.4% from the previous year. Shipments were at 70.9, down 6.8% from a month ago. However, production is expected to increase 2.9% in March and to rise 3.1% in April, according to the Survey of Production Forecast in Manufacturing, the ministry said.

"By the end of 2010 the unemployment rate could be approaching double digit figures in all G8 countries with the sole exception of Japan, as well as in the OECD area as a whole," the OECD forecast in a background paper to G8 labor and employment ministers gathering in Rome.

General Motors Corp Chief Executive Rick Wagoner resigned under pressure from the Obama administration on Sunday. The last time I looked GM shareholders elected the board of directors and the latter oversee the company's officers. Maybe Obama believes he is GM's chairman of the board of directors. When was the last time Obama ran a company?

Who is going to bailout the U.S. with Obama the CEO? Don't hold your breath.

The Bank of Spain will bail out regional savings bank Caja Castilla la Mancha, the government said on Sunday, as a slumping property market forced the first banking rescue in Spain since the financial crisis began.

Reuters: "Cerberus controls 80.1 percent of Chrysler with German automaker Daimler AG -- Chrysler's former owner -- holding the other 19.9 percent. Daimler has written its stake down to zero.

Cerberus has also written down its stake. Chrysler and GMAC now represent about 7 percent of the $27 billion under management at Cerberus, down from about 12 percent before.

* Chrysler has so far received $4 billion in emergency loans from the U.S. government. Chrysler Financial, its affiliated finance arm, received $1.5 billion in loans.

Chrysler has asked for $5 billion in additional loans but has indicated that it could need up to $9 billion if U.S. auto demand stayed weak through 2012.

*Cerberus also took a controlling 51 percent stake in lender GMAC from General Motors Corp in a $7.4 billion deal completed in 2006.

In late December, the U.S. Treasury provided a cash infusion of $6 billion to GMAC in a deal that also forced Cerberus to reduce its stake to 33 percent of total equity.
At the same time, GMAC also won approval to operate as a bank holding company.
*Cerberus led a consortium of investors in the GMAC deal that included Citigroup Inc, and PNC Financial Services Group.
Japan's Aozora Bank, majority owned by Cerberus, was also a co-investor in GMAC. The bank invested $500 million in GMAC, a stake it estimates has lost 97 percent since."

Russia supports expanding the IMF's Special Drawing Rights (SDR) to include the rouble, the yuan and gold, but sees no chance of the G20 Summit accepting a new reserve currency, a Kremlin aide said on Saturday, agencies reported.