Saturday, April 18, 2009

Risk Intermediation

4/18/09 Risk Intermediation

George Ure: "We've had as many banks fail this year in the first 4½ months as were closed in all of 2008. And in 2007 only three banks failed. none in 2006."

Doug Noland: " Capitalism’s Greatest Vulnerability lies with Risk Intermediation....“Credit excess begets Credit excess,” with its subtle but corrosive effect upon pricing mechanisms....the risk intermediation process was self-reinforcing instead of self-adjusting and correcting. Wall Street “alchemy” was the true source of this period’s “easy money.” ....Wall Street “finance” self-destructed in the process of intermediating Trillions of risky loans. It was the quantity of Credit and the nature of resulting spending patterns (resource allocation) that both doomed this endeavor and ensured a deeply maladjusted economic structure. This terribly flawed financial structure has morphed into a system where our government has stepped forward to supplant Wall Street as predominant risk intermediator. Basically, the Fed and Treasury are in the process of intermediating risk on a system-wide basis – to the tune of tens of Trillions – with little possibility of extricating themselves from this endeavor going forward....I don’t expect meaningful structural recovery until there is some semblance of restoration to our Credit system’s mechanism for the pricing and allocation finance. This, I believe, will require our system to wean itself both off of its dependence on enormous Credit expansion and away from Washington’s newfound role of chief system risk intermediator and allocator (the “Government Finance Bubble)."

Eric Savitz: "Thomas Weisel analyst Tim Klasell today asserted that there is risk the company will not meet the Street consensus of $14.12 billion in revenue and EPS of 39 cents a share. Klasell is modelling $13.81 billion and 36 cents."

SF Chronicle: "A San Francisco federal judge rejected on Friday the Obama administration's attempt to derail a challenge to former President George W. Bush's electronic surveillance program by withholding a critical wiretap document.

President Obama's Justice Department had appeared to defy a previous order by Chief U.S. District Judge Vaughn Walker to allow lawyers for an Islamic organization to see the classified document, which reportedly showed that the group had been wiretapped. The document, which the government accidentally sent to the Al-Haramain Islamic Foundation, could establish its right to sue over the legality of the program.

Justice Department lawyers told Walker in February that he had no power to enforce his order, and indicated they would remove the document from his files if he planned to disclose it to Al-Haramain's lawyers. But after a federal appeals court denied the department's request to intervene, Walker told the government Friday to cooperate."

"The United States should now comply with the court's orders," the judge said. He told lawyers for the administration and Al-Haramain to work out a protective order by May 8 that would maintain the document's secrecy after it had been shown to the Islamic group's lawyers.

If the two sides can't agree, Walker said, he will issue his own protective order "under which this case may resume forward progress."

Peter Schiff: "Government does not have any money of its own. It only has what it takes from the rest of us. If individuals repay their debts, but their government takes on additional debt, we are all simply swimming against the tide. All forward progress is lost as private debt is replaced by public debt, which must be repaid by private individuals. Whatever gains individuals hope to achieve are negated by the higher taxes or increased inflation necessary to repay their share of a larger national debt."

Mike Paulenoff: " Looking at the U.S. Natural Gas Fund ETF (UNG), the bottoming pattern (or at least my perception of one) continued to unfold this past week, with the all-time low established Monday at 14.16, which appears to have been successfully retested on Thursday at 14.29. Friday's recovery has not yet inflicted any meaningful damage to the nearest-term downtrend. However, the underlying momentum indicators coupled with the "megaphone" pattern, in addition to the creation of a base-like formation between 14.15 and 15.15, represent a compelling technical argument that a meaningful low is developing in the UNG.
To trigger initial buy signals, the UNG must hurdle and sustain above 15.15."

Patricia Chadwick: "Today the disastrously managed credit card business threatens to be a major impediment in the economic recovery because the only way the banks can extricate themselves from the mess they have created is literally to shut down the industry. They may not view it that way, but their customers do. When you punish your best customers, the ones who pay on time and pay far over the monthly minimum, by (1) forcing them to pay higher interest rates, despite the lowest interest rates in the country in over fifty years, (2) increasing their monthly payments (3) shortening the payment terms and (4) reducing or even cancelling their credit lines, you are saying you don’t want to be in the business.

The excuse the banks are using is that the economy is difficult and everyone has to share in the pain. But who was sharing in the profits for all those years when the business was the most profitable one for the banks? Nobody but the banks reaped those rewards. They should now suffer the losses on their own."

Austria is not on the brink of default and can cope with any risks caused by the exposure of domestic banks to emerging Europe, the Austrian National Bank said.

China's Premier Wen Jiabao said on Saturday that economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system.

His comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the yuan, China's currency.

On April 17, 2009, Great Basin Bank of Nevada, Elko, NV was closed by the State of Nevada Division of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.

Brett Steenbarger: "Now we're seeing that upside momentum has peaked ahead of price."

Newspaper advertising, already in its worst slump since the Depression, suffered by far the sharpest drop in generations during the first quarter of 2009, down 30 percent for some papers, industry executives and analysts say.

Gov't Numbers:

Statutory debt limit 12,104,000

Total public debt outstanding April 16 11,183,899

Operating balance April 16 257,351

Interest fiscal year 2009 thru February 148,762

Interest same period 2008 198,518

Deficit fiscal year 2009 thru February 764,525

Deficit same period 2008 264,541

Receipts fiscal year 2009 thru February 860,877

Receipts same period 2008 967,153

Outlays fiscal year 2009 thru February 1,625,402

Outlays same period 2008 1,231,694

Gold assets in March 11,041

On Friday, Boeing issued about 300 layoff notices companywide.

Seattle Times: "

Two brand new Boeing wide-body freighter jets painted all white are parked at Paine Field outside the Everett assembly plant.

Two more freighters freshly painted in the colors of China Southern and worth another $300 million flew this week not to Asia, but to a jet parking lot in the Arizona desert.

Meanwhile at Boeing Field, three 737 single-aisle jets have been parked outside for many weeks awaiting delivery to Arik Air, of Nigeria. Next to them is a completed but idle AirTran 737.

And in Renton, outside Boeing's single-aisle assembly plant, two 737s originally ordered for a Chinese airline are now repainted in the livery of a Dubai-based airline that doesn't start service until June.

Because of a global downturn in air traffic, with the airfreight sector particularly hard-hit, many airlines don't need new jets. In some cases, they can't use the planes they have committed to take from Boeing."

Seattle plans to close the library system for a week this summer and cut a variety of other costs. About 100 city employees will take a week of unpaid furlough, not counting the library employees who will be off the last week of August when the library is closed.

"It's no secret that we are in the worst economic crisis in decades here in Seattle," Nickels said during a news conference.

"Up to 19 million southern Californians this summer will feel the impact of a new water reality that has been in the making for years, if not decades," said MWD board chairman Timothy Brick in a statement.

In the Central Valley, meanwhile, tens of thousands of farmers, farm workers, and local officials protested federal and state water cuts during a series of marches this march.

Between 70,000 and 80,000 farm workers are out of work this year as a result of water shortages, according to a study from the University of California, Davis. California ordinarily supplies America with half of its fruits and vegetables.

David Altig: " The fact is that a turnaround in consumption generally comes well before a recession ends. In the long and relatively severe recessions of 1973–75 and 1981–82, consumer spending bottomed out a full year before the economy turned around in general. (The bottom was eight months before the end of the recession in the 1969–70 and 2001 recessions and two months before the end in the 1960–61, 1980, and 1990–91 recessions.) For lots of reasons, then, I wouldn't want to overweight good (or even benign) news from the consumer spending front."

The United States may not be in a Great Depression but it is "in a great recession for sure," following the economy's unprecedented tumble in late 2008, Volcker said at a financial markets conference at Vanderbilt University in Nashville, Tennessee...."The lack of a good strong recovery works against a strong financial system," he said. The financial system "is not quite comatose, but it's on life support."..."For better or worse, we are at a point where the Federal Reserve Act is going to be reviewed," said Volcker.

Friday, April 17, 2009


4/17/09 Financials

"Credit costs of $10.3 billion, up 76%, consisted of $7.3 billion in net credit losses, a $2.7 billion net loan loss reserve build, and $332 million of policyholder benefits and claims," Citi said in a statement. The net interest margin widened half a percentage point from a year earlier, to 3.30%. Citi said it pared 13,000 jobs since the fourth quarter, leaving it with 309,000 workers.

General Electric Co.reported first-quarter net income of $2.9 billion, or 26 cents a share, down from $4.47 billion, or 43 cents, earned in the comparable period last year. Quarterly revenue amounted to $38.41 billion, down from the prior year's $42.23 billion.

According to Reuters, banks may be hard hit by the bankruptcy of General Growth and future commercial real estate defaults.

“No company is recession proof, Google is feeling the impact,” said Eric Schmidt, chief executive officer.

According to the Energy Information Administration (EIA), the consumption of natural gas for 2009 is expected to fall to approximately 1.4% and rise about .6% in 2010. Moreover, 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.

The Chinese government "sold more U.S. debt in the first two months of 2009 than they bought."

In March, for our treasury "Receipts for the month fell 28 percent to $128.96 billion from $178.82 billion a year earlier"!

According to AMG Data Services, "
Tech funds report the fifth consecutive week of net cash inflows for the first time since 11/7/07 and fewer funds report net cash outflows (64) than any week since 1/24/2001; almost 8 years. This declining negative sentiment toward the Tech sector, trending investor inflows, imply that those stocks bought or held in Q4 by Investment Management Companies, will continue to see upward price pressure as Tech funds add to positions with investor inflows. Mindful of positive market action in the Tech sector for six consecutive weeks for the first time since 11/22/05.....For the week ended April 15, Equity Fund Outflows -$2.1 Bil; Taxable Bond Fund Inflows $3.5 Bil
xETFs - Equity Fund Inflows $521 Mil; Taxable Bond Fund Inflows $1.7 Bil."

According to rigzone, Chesapeake Energy has elected to curtail approximately 400 million cubic feet (mmcf) per day of its gross natural gas production due to continued low wellhead prices. The reduction includes the 200 mmcf per day curtailment of natural gas production previously announced on March 2, 2009. Chesapeake has resumed 7,000 barrels per day of oil production from previously curtailed oil wells.
The company's 400 mmcf per day curtailment represents approximately 13% of Chesapeake's current gross operated
natural gas production capacity.

According to the API, a total of 11,071 oil and gas wells were drilled in the first quarter of 2009, down 22% from 1Q08 and 35% sequentially. The numbers include dry holes.

U.S. airline passenger revenue fell 23% in March from a year ago, the fifth consecutive month of decline on softening demand, the Air Transport Association said late Thursday.

Over the last week we have seen an on-going decline in the VIX and it's now dropped below the 35 level.

A.O. Smith Corp., which makes water-heating equipment and electric motors, on Friday chopped its full-year profit outlook, citing a big drop in demand for its products.
The company lowered its outlook for fiscal 2009 to between $1.80 and $2.10 per share, down from its previous estimate of $2.40 to $2.60 per share.

The Reuters/University of Michigan Surveys of Consumers said its preliminary April reading of consumer sentiment rose to a level of 61.9, up from 57.3 in March and was the highest since 70.3 recorded in September.
The index of current economic conditions rose to 66.6 in April from 63.3 in March and was the highest reading since December.
The index of consumer expectations rose to 58.9 in April from 53.5 in March and was the highest since September.
"While consumers believe the economy may have hit bottom, most consumers believe that when the rebound starts the economy will gain ground very slowly," said survey director Richard Curtin in a press release.
The stock market may be banking on a V recovery. Maybe the market should listen to the consumer. It's quite possible that, if there is a recovery, it may look like an L. This is a

consumer driven economy. The consumer is on a non-paid vacation.

The global economy will emerge from recession in the first half of 2010, but only if banks are "cleansed" of bad assets, the head of the International Monetary Fund said Thursday.
In an interview with the BBC, IMF Managing Director Dominique Strauss-Kahn also said it is difficult to envisage a set of circumstances in which a major developed economy such as the U.K. would have to turn to the fund for financial help.
Earlier Thursday, the IMF released a chapter from its forthcoming World Economic Outlook in which it said that the "the current recession is likely to be unusually long and severe, and the recovery sluggish."
Strauss-Kahn said it is possible that a recovery will start in the first six months of next year, with the U.S. economy likely to show the first signs of a revival, "providing the right policies are implemented."

The rapid pace of the eurozone's economic contraction shows scant sign of slowing, with industrial production down almost 20 per cent year-on-year in February and inflation dissipating, official data showed yesterday.
The 18.4 per cent fall in output in the 16-country region - the largest since records began in 1990 - highlighted the scale of the impact the global slowdown is having. Monthly comparisons offered little sign of stabilisation, with the 2.3 per cent drop recorded compared to January only slightly lower than the 2.4 per cent fall reported a month earlier.
Compared with the US or UK, the "glimmers of hope are less prevalent in the eurozone", said Colin Ellis, European economist at Daiwa Securities SMBC.

Mexico's central bank cut its benchmark interest rate by 75 basis points to 6.0%, exceeding market expectations of a 50 basis points reduction. The Mexican peso fell 0.6% against the U.S. dollar in the wake of the decision. "We remain confident in our current forecast profile that envisions two more rate cuts of 50 basis points at the next two meetings to take the overnight rate to 5.00% by mid-year, marking the cycle low," said Nick Chamie, global head of emerging markets research at RBC Capital Markets.

General Motors Corp. Chief Executive Fritz Henderson said Friday that a bankruptcy filing is "probable" because of the restructuring goals GM must meet to get more government loans, but that isn't the company's preferred option.
In a conference call with reporters, Henderson said GM is working on two parallel plans: one that involves bankruptcy and one that doesn't.
"Contingency planning is under way," he said. "We are on several tracks."

Gold ends down $11.90 at $867.90 an ounce.

Sugar Creek, Mo.-based American Sterling Bank was closed by regulators Friday, marking the 24th bank failure of the year as the credit crunch continues to spread through the economy. American Sterling Bank had $181 million in total assets and $171.9 million in total deposits as of March 20, according to the Federal Deposit Insurance Corporation.

The Dow Jones Industrial Average rose 5.90 points, or 0.1%, to end at 8,131.33, its highest close since Feb. 9. The S&P 500 added 4.3 points, or 0.5%, to 869.60, a 1.5% rise from last week's finish. The technology-laden Nasdaq Composite advanced 2.63 points, or 0.2%, to end at 1,673.07, up 1.2% for the week.

Thursday, April 16, 2009

Charge Offs

4/16/09 Charge Offs

General Growth Properties Inc (GGP.N), the second largest U.S. mall owner, filed for bankruptcy protection on Thursday in one of the biggest real estate failures in U.S. history.

AbitibiBowater Inc., North America’s biggest newsprint maker, sought bankruptcy protection after U.S. lenders refused to accept a proposed debt restructuring.

A day after rival credit card firm Capital One said its chargeoffs topped 9%, outpacing the unemployment rate, J.P. Morgan Chase said Thursday that chargeoffs at it core Chase card operations would likely hit 9% to 9.5% soon.

Nokia Corp.said first-quarter net profit fell 82% to 122 million euros, or 0.03 euro a share, from 1.22 billion euros, or 0.32 euro a share, earned in the year-earlier quarter. Excluding one-time items, adjusted profit came in at 0.10 euro a share. Sales fell 27% to 9.3 billion euros. Nokia said it expects the telecoms-equipment market to decline 10% this year, worse than the 5% contraction initially forecast.

RealtyTrac, an online marketplace for foreclosure properties, said foreclosure filings, including default notices, auction sale notices and bank repossessions, on U.S. properties reached 341,180 in March. The figure represents a 17% increase from February and is up 46% from a year earlier. The group said the March reading is the highest monthly total since it began issuing its report in Jan. 2005, although it added bank repossessions dipped 3% from February's total. "Since much of this activity was in new foreclosure actions, it suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays," said CEO James Saccacio.

JPMorgan Chase & Co said on Thursday first-quarter profit fell, as the deepening recession and rising unemployment forced it to set aside more money against losses in its consumer banking business.

Net income fell to $2.14 billion, or 40 cents a share, from $2.37 billion, or 68 cents a share a year earlier, for the three months ended March 31, for the same period a year ago. Revenue increased 45 percent to $25 billion from $16.9 billion.

China’s economy grew 6.1 per cent in the first quarter, the lowest year-on-year reading since quarterly GDP data was first published in 1992 as Beijing struggled to prop up growth that has deteriorated in the face of the global crisis.

The increase was down from 6.8 per cent in the fourth quarter and 9 per cent for the whole of 2008.

Harley-Davidson Inc. said Thursday it expects to cut up to 400 more jobs as its first-quarter profit tumbled 37 percent due to a sluggish motorcycle market.

But the company beat
Wall Street expectations and stood by its full-year forecast for motorcycle shipments, sending shares higher in premarket trading.

Harley, which is in the midst of a restructuring effort announced three months ago, said it planned to cut between 300 and 400 additional factory jobs over the next two years. That brings the total expected cuts to between 1,400 and 1,500 over that period.

According to the NY Times, in recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a
hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.

Housing Construction Plunges to Second-Lowest Level on Record. Housing starts fell to 10.8% in March to a seasonally adjusted annual rate of 510,000 from 572,000 in February. It's the second-lowest rate since the 1940s. January's 488,000 pace remains the post-war low. It was much weaker than the 550,000 annual rate expected by economists surveyed by MarketWatch. Building permits, a sign of future construction, fell 9 percent to 513,000. Work on multi-family homes, such as townhouses and apartment buildings, fell 29 percent to an annual rate of 152,000 after surging in February.

The decrease in starts was led by a 26 percent drop in the West and a 17 percent decline in the South. Starts rose in the Midwest and Northeast.
All this with record low mortgage rates!

Southwest Airlines Co. posts a surprisingly large loss in the first quarter as traffic fell. CEO Gary Kelly says the results were disappointing, adding that the low-fare airline faces “the toughest revenue environment” ever. Southwest said Thursday it lost $91 million, or 12 cents per share, including $71 million due to the falling value of its fuel hedges.

Thousands of Best Buy store employees will see pay cuts and others will lose their jobs as the consumer electronics chain reorganizes.

Best Buy Co. Inc. would not disclose the number of people affected. A spokesman said the move will put more sales people in front of customers. Many store managers and senior-level sales people will go to jobs where they'll interact more directly with shoppers.

New York investment firm Sanford Bernstein said in a research note Wednesday that as many as 1,000 assistant store managers would lose their jobs. Up to another 8,000 senior sales associates would be demoted to jobs paying 25 percent to 50 percent less.

The numbers are estimates by Sanford Bernstein. Best Buy won't confirm or deny them.

First-time claims for state unemployment benefits fell to their lowest level since the end of January in the latest week, the Labor Department reported Thursday, even as continuing jobless claims remained at a record high. Initial claims dropped by 53,000 to a seasonally adjusted 610,000 in the week ending April 11, the lowest since Jan. 24. The four-week average of initial claims fell by 8,500 to 651,000. For the week ending April 4, 6.02 million people were collecting state unemployment benefits, 172,000 more than the previous week. The four-week average of continuing claims also rose and hit a new record, climbing by 146,000 to 5.79 million.

Illinois Tool Works "has limited visibility due to ongoing broad-based weakness in worldwide end markets." This means more to me than Obama's, Geithner's reading of the economy.

Industrial production fell 1.5 percent in March after a similar decrease in February. For the first quarter as a whole, output dropped at an annual rate of 20.0 percent, the largest quarterly decrease of the current contraction. At 97.4 percent of its 2002 average, output in March fell to its lowest level since December 1998 and was nearly 13 percent below its year-earlier level. Production in manufacturing moved down 1.7 percent in March and has registered five consecutive quarterly decreases. Broad-based declines in production continued; one exception was the output of motor vehicles and parts, which advanced slightly in March but remained well below its year-earlier level. Outside of manufacturing, the output of mines fell 3.2 percent in March, as oil and gas well drilling continued to drop. After a relatively mild February, a return to more seasonal temperatures pushed up the output of utilities. The capacity utilization rate for total industry fell further to 69.3 percent, a historical low for this series, which begins in 1967.

Michael Kahn: "THANKS TO MOUNTING bearish technical evidence, the stock market is in a precarious position despite Wednesday's strength. The stage has been set for the bears to take over, and while they have not done so yet, the risk for investors jumping in now is just too high."

RGE Monitor: " February TIC (Capital flows to and from the US): Net foreign purchases of U.S. long-term U.S. securities were $20.8bn ($18.8bn sales in January and -$56bn in Nov). private foreign investors bought $25.9bn (sold $10.2bn in January), and foreign official institutions had net sales of $5.1bn, extending the $8.5bn in sales in January....BNY: The net selling of USD deposits and short dated securities in January from a revised $51.5B in December, $86.9Bin November, $ 273.5B in October and $90.6B in September, suggests that foreign purchase of USD-denominated deposits fully reversed in January following the safe-haven surge during October and November. official net purchase of US agency bonds are being undermined by selling on behalf of Asian countries previously engaged in regular currency intervention. However, since the Lehman collapse in mid-September, all long-term US asset classes are being sold.

Brad Setser: "In February, China bought Treasuries. $4.64b by my count. It bought $5.61b of bills, while reducing its long-term Treasury holdings by $0.96 billion.

But China also reduced its US bank deposits by $17.24 billion.
Consequently, by my count, China’s total US holdings fell by $13 billion. Short-term claims fell by $11.3b, and long-term claims fell by $2b."
With China's growth slowing to 6%, one can project their trade surplus will slow as well and this will contribute to less cash flow to invest. The impact on the U.S ability to raise cash through the sale of treasuries could be significant.

Chris Puplava: "The high level of economic and investment uncertainty is matched by record volatility levels. The magnitude and scope of the fiscal and monetary actions by the U.S. government and Federal Reserve testify that this is no ordinary recession, more akin to depression economics."

The Philly Fed index increased to negative 24.4 from negative 35 in March.

U.S. consumers will spend $123.89 on average on Mother's Day, down more than 10 percent from a year ago, according to a survey released Thursday by the National Retail Federation.

That follows a dip to $138.63 in 2008 from $139.14 in 2007, according to the survey, which was conducted by market research firm BIGresearch.

Crude ends up 73 cents, or 1.5%, at $49.98 a barrel. Gold for June delivery is down $13.70 to $879.80 an ounce on the New York Mercantile Exchange.

Fitch Ratings said Thursday it lowered its outlook of American Express Co. to negative from stable on expected rising credit costs and declining business volume.

The Dow Jones Industrial Average rose 95.81 points, or 1.2%, to 8,125.43. The S&P 500 Index climbed 13.24 points, or 1.6%, to 865.30. The Nasdaq Composite added 43.64 points, or 2.7%, to 1,670.44.

Google said net revenue for the period ended in March came in at $4.07 billion. Excluding special items, Google said earnings for the quarter were $5.16 a share. Analysts on average had expected Google to post earnings excluding special items of $4.93 a share, and $4.08 billion in net revenue, according to data from Thomson Reuters.

Regions Financial Corp. reduced its quarterly dividend to 1 cent from 10 cents to preserve capital.

Wednesday, April 15, 2009


4/15/09 IRS Day

The output of the nation's factories, mines and utilities fell 1.5% in March despite higher production of motor vehicles and boost from utilities, the Federal Reserve reported Wednesday. Industrial production is down 13.3% since the recession began in December 2007, the largest percentage decline since the end of World War II. Output fell at a 20% annual rate in the first quarter, and is now at the same level as December 1998. Factory production fell 1.7% in March. Factory output has fallen 15.7% during the recession, also the largest decline since 1945-1946. Capacity utilization fell by a full percentage point to 69.3%, the lowest since the data series begins in 1967.

March unemployment in the state of Washington zoomed to 9.2%. In December 2008,
it was 6.5%.

The Empire State index improved to negative 14.7 in April from negative 38.2 in March. Readings below zero indicate more firms said business was getting worse. New orders and production improved markedly, while inventories continued to fall.

Led down by lower energy prices, overall U.S. consumer prices fell a seasonally adjusted 0.1% in March, matching analysts' expectations, the Labor Department reported Wednesday. Energy prices decreased 3% in March, with declines in fuel oil, gasoline and natural gas. Meanwhile, food prices fell 0.1%. The core CPI, which excludes food and energy prices, rose 0.2% for the third consecutive month, boosted by higher prices for tobacco and smoking products, and new vehicles.The index for all items less food and energy has risen 1.8 percent over the past year.

Gold for June delivery rose $6.30, or 0.7%, to $898.20 an ounce in early North American electronic trading.

Abbott confirmed its previously issued 2009 financial forecast of earnings per share between $3.65 and $3.70.

UBS said it's planning to cut costs by 3.5 billion francs to 4 billion francs by the end of 2010, which will include cutting the workforce to 67,500 from 76,200 at the end of March. The bank also said that, despite some positive signs at the start of the quarter, there was a further outflow of client money, with a net outflow of 23 billion francs from its wealth management and Swiss bank unit.

According to The Wall Street Journal, “Some of the nation’s largest mortgage companies are stepping up foreclosures on delinquent homeowners. That will likely lead to more Americans losing their homes just as the Obama administration’s housing-rescue plan gets into gear.”

State and local sales taxes, among the largest sources of revenue for municipalities, fell 6.1% in the fourth quarter of last year, as consumers bought fewer clothes, ate out less and canceled vacations. Revenue from personal income taxes was down 1.1% in the fourth quarter; corporate income taxes dropped 15.5%, reflecting weaker profits.
The declines have continued through the beginning of this year. In the first two months of 2009, the 41 states that have reported tax revenue saw total receipts decline 12.8%, versus the same period a year ago.
States have so far been hit harder than towns and cities. Overall, states' taxes declined 4% in the final three months of 2008 versus the same period in 2007, the first decline in six years, according to the analysis of state data by the Rockefeller Institute. Local tax collections rose 3.2%, as gains in property taxes offset falling sales taxes.

The Organization of Petroleum Exporting Countries Wednesday lowered its forecast for this year's global oil demand, citing the ongoing economic recession. Oil demand is expected to drop 1.4 million barrels a day in 2009, OPEC said in a monthly report, a downward revision of 400,000 barrels from a month ago.

Railroad operator CSX Corp. said Wednesday it predicts double-digit declines in shipping volume to continue through the second quarter, and expects to furlough more employees as a result.

Peabody said it sold 59.6 million tons of coal during the quarter, down slightly from 60.9 million tons a year earlier, reflecting previously announced production cuts, weather impacts in Peabody's Powder River Basin operations in Wyoming and deferred customer shipments in Australia.
Citing "continued uncertainty around the economy, steel demand and electricity generation," Peabody said it was paring its 2009 production estimates to 185 million to 190 million tons in the United States and 20 million to 23 million tons in Australia, with total sales of 225 million to 245 million tons. The company earlier had expected output of 190 million to 195 million tons in the U.S. and 22 million to 24 million tons in Australia.
Peabody also said it would hold off on offering its full-year financial outlook, saying such results will be affected by issues including the length of the global economic slump, Australian seaborne coal pricing, volumes and the potential for more customer shipment delays.

Qantas Airways Ltd., Australia’s largest carrier, will cut about five percent of its staff in anticipation of a record loss caused by a drop in business class travel. Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. may be next. Qantas may have a record pretax loss of as much as A$188 million ($137 million), in the second-half, according to figures derived from the airline’s full-year forecast released yesterday and confirmed by the company. The Sydney-based carrier will also defer the delivery of four Airbus SAS A380s, the world’s largest commercial aircraft, and 12 Boeing Co. 737-800 aircraft.

Zinc advanced for a fourth day to the highest level in six months on speculation demand is increasing in China, the world’s largest producer and consumer of the metal used to galvanize steel.
Stockpiles in Shanghai warehouses dropped last week for a third week to 73,318 metric tons, according to exchange data. The global surplus of zinc, the third-best performer on the London Metal Exchange this year, narrowed in February, according to an International Lead and Zinc Study Group report.

Crude inventories rose by 5.6 million barrels, the Energy Information Administration reported. The EIA also reported gasoline inventories fell by 900,000 barrels as refineries reduced production, and distillate stockpiles, which include diesel and heating oil, fell by 1.2 million barrels.

The Fed's so-called Beige Book of economic conditions was generally in line with comments by top policymakers that there are some signs that the economy may be getting worse, but at a slower pace.

The U.S. dollar extended its gains against most other major currencies Wednesday after the Fed's Beige Book said that the economy continued to worsen all across the United States in March and early April, amid scattered signs that the pace of the decline was lessening in some regions.

"Overall economic activity contracted further or remained weak," the Fed said, based on reports from thousands of business sources across the country. "However, five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level."

Sales of PCs fell 7.1% during the first quarter compared to the same period the previous year, according to a report Wednesday from IDC.

The Dow Jones Industrial Average added 109.44 points, or 1.4%, to end at 8,029.62, with 25 of its 30 components advancing. The S&P 500 Index climbed 10.56 points, or 1.3%, to end at 852.06, while the Nasdaq Composite, down most of the session, finished at 1,626.80, up 1.08 points, or 0.1%.

June gold was last down $1, or 0.1%, at 892.50 an ounce, and May crude rose 19 cents, or 0.3%, at $49.60 a barrel.

Bank lending to consumers and businesses for many types of loans fell in February despite the billions of dollars in government support the banks received.
The Treasury Department said Wednesday its latest monthly survey of lending activities at the nation's biggest banks showed nine reported increases and 12 posted declines. The median, or midpoint, for lending activity dipped 2.2 percent in February.

An index of builders' confidence released Wednesday posted its biggest one-month jump in five years in April as many homebuyers seized on lower prices and incentives and took advantage of lower interest rates and tax credits.
The National Association of Home Builders/Wells Fargo housing market index climbed five points to 14. While still near historically low levels, the latest index reading is the highest since October.

Tuesday, April 14, 2009

Goldman Sachs

4/14/09 Goldman Sachs

J&J reported moderately lower first-quarter earnings early Tuesday. For the quarter ended March 31, J&J posted a profit of $3.5 billion, or $1.26 a share, compared with $3.6 billion, or $1.26 a share, for the same quarter last year. Revenue came in at $15 billion, down 7% from $16 billion last year, due in part to a stronger U.S. dollar abroad. J&J also confirmed its 2009 adjusted earnings forecast of $4.45 to $4.55 a share.

Barry Ritholtz: "Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February. The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March?
Truly astounding . . . the word Chutzpah simply does not do it justice . . ".

U.S. retail sales dropped a seasonally adjusted 1.1% in March, the Commerce Department reported Tuesday.

Singapore's central bank eased monetary policy by effectively devaluing its currency to counter a record economic slump while also keeping a lid on domestic interest rates.

Friedman Billings Ramsey: “Based on everything we know about credit deterioration, we are skeptical…under-provisioning may come back to haunt Wells Fargo in later quarters.”

Producer Prices declined 1.2% in March, vs. consensus of 0.0%, and after gaining 0.1% in Feb. and 0.8% in Jan. Core PPI 0.0% vs. consensus of +0.1%. Year-over-year, prices dropped 3.5% vs. consensus of -2.2% and February's -1.3%. At the earlier stages of processing, prices received by producers of intermediate goods fell 1.5 percent after decreasing 0.9 percent a month earlier, and the crude goods index declined 0.3 percent following a 4.5-percent drop in February.

George Ure: "March finished goods dropping 1.2% means an annualized rate of deflation of 15.4%."

Dendreon Corp.said Tuesday that its Provenge treatment prolonged the survival of men who had advanced prostate cancer in a Phase III trial of the drug. The company said the successful trial means Provenge may represent the first in a new class of active cellular immunotherapies designed to engage the patient's own immune system against cancer. Because the data meet the criteria and specifications outlined in Dendreon's Special Protocol Assessment (SPA) agreement with the U.S. Food and Drug Administration, the company intends to move forward in the fourth quarter of this year to gain licensure of Provenge.

According to rigzone, Shell is in advanced talks with China's two biggest state-owned companies on a possible joint bid to develop the Kirkuk oil field in northern Iraq.

Bill Bonner: "The total committed to this bailout campaign is now said to be about $13 trillion. Let’s see, that’s more than $100,000 per family. Better start working on your own ‘personal bailout’ sooner, rather than later.
It’s the “Theft of a Nation” says Stewart Dougherty:
“The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people’s gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America’s gold asset. Fort Knox has been robbed…”
They’re squandering $13 trillion…or nearly 49 times the U.S. gold supply. But heck, it’s worth it. The whole thing is very entertaining now…and will be hugely instructive in the future. When this is over, the next two are three generations are sure to say: well…we won’t do THAT again!"

The Commerce Department says business inventories dropped 1.3 percent in February, matching the January decline.

The global slowdown and lower demand will cut summer fuel prices to the lowest level in at least four years and increase inventories, said the Department of Energy on Tuesday. The agency forecast gasoline to average $2.23 per gallon this summer, down from an average of $3.81 last summer.

Hallmark Cards Inc. is cutting up to 750 jobs, or 8 percent of its U.S. work force, as the nation's largest greeting cards maker struggles with falling sales.

Discover Financial Services plans to cut 500 jobs, or about 4% of its workforce, in May, according to media reports Tuesday.

For February, airlines jet fuel consumption fell 17% to 847.9 million gallons, the agency said. Airlines have been rolling back seat capacity, flying less and benefiting from lower jet fuel prices as it deals with falling demand.

Arena Pharmaceuticals made a new 52-week low.

Rep. Ron Paul: "The income tax is one of the most egregious encroachments on our liberties today. It is a form of involuntary servitude, which was supposed to have been outlawed by the 13th Amendment....I can think of no better economic stimulus than letting people keep their money and spend it how they see fit. For this reason, I am an original cosponsor on a bill that would give Americans a two month employment and income tax holiday, while taking unused TARP money back from the Secretary of the Treasury and putting it in the Social Security trust fund instead.
In addition, I have recently introduced the Child Health Care Affordability Act. If passed this legislation would provide parents with a tax credit of up to $500 for health care expenses of dependent children. I have also re-introduced the Tax Free Tips Act, which would make tips exempt from federal income and payroll taxes. I am also an original cosponsor of a bill that would make permanent the deduction of state and local sales taxes. My bill HR 162 exempts Social Security benefits from income tax."

Crude oil for May delivery ended down 64 cents, or 0.6%, at $49.41 a barrel on the New York Mercantile Exchange.

the Dow Jones industrials closed down 138 points, or 1.7%, to 7,920. The Standard & Poor's 500 Index was off 17 points, or 2%, to 842, and the Nasdaq Composite Index was down 28 points, or 1.7%, to 1,626.

Intel posted gross margins 45.6% rather than estimates of 43% in the mid-range for gross margins. For a second period in a row, Intel gave less detailed sales and profitability forecasts than it usually does, though Chief Executive Officer Paul Otellini said PC sales reached a trough last quarter.

A key advertising forecaster sharply lowered its global ad spending outlook Tuesday, saying the ad market took a substantial turn for the worse in the past few months as companies tightened their belts in the face of an economic slump.
ZenithOptimedia, a unit of French advertising conglomerate Publicis Groupe, now expects a year-over-year decline of 6.9 percent to $453 billion this year, a pace that is worse than the 0.2 percent dip for 2009 it had projected in December.

Proctor & Gamble raised the quarterly dividend by 4 cents to 44 cents.

Monday, April 13, 2009

Tax Freedom Day

4/13/09 Tax Freedom DAY

Express Scripts Inc. plans to purchase Wellpoint Inc.'s pharmacy benefits management subsidiaries for $4.68 billion, the companies announced Monday. The deal includes a 10-year contract for Express Scripts to provide pharmacy benefits management to Indianapolis-based WellPoint. Express Scripts, headquartered in St. Louis, is buying the business with a mixture of cash and up to $1.4 billion in stock, The Wall Street Journal reported. The companies plan for the transaction to close in the second half of 2009.

According to Reuters, GM has been told by Treasury to begin work on a bankruptcy.

John Hussman: "Could the final low of the bear market be in place? Sure. But even if that were the case, it does not follow that the markets will recover their lost ground quickly, and it is particularly dangerous to believe that the major indices will not meaningfully retest (if not substantially break below) the prior lows.
On the basis of market action, one of the features of the recent advance that has me concerned is the unimpressive, waning trading volume that we've observed. A strong advance on heavy trading volume is a measure of determined sponsorship in the face of disagreement. A strong advance on waning volume is probably a short-squeeze – forced purchases in the face of sellers who have temporarily backed off. Moreover, stocks are currently overbought to the same extent that they were near the end of the bear market rallies we observed during the 2000-2002 decline. "

The president of New York City Health & Hospitals Corp. wrote Friday to community organizations as well as employees and unions at its 11 hospitals and four nursing homes, saying the agency will lay off more workers even after slashing 400 jobs last month.

Fifty-four percent of those receiving refunds said they intend to pay off credit card, utility, housing and other bills, according to an Associated Press-GfK poll released Monday. That compares with 35 percent who said the same thing a year ago.
Only 5 percent, about the same as a year ago, said they planned to go on a shopping spree.

Tax Freedom Day, the made-up holiday when the average American starts working for him- or herself, is today -- eight days earlier than last year, thanks to a slowing economy and the stimulus package in the American Recovery and Reinvestment Act of 2009. By April 13, says the Tax Foundation, a research group, Americans will have earned enough, on average, to pay all of their federal, state and local tax obligations for the year.
The more you earn, of course, the later your freedom comes. Residents of Connecticut will toil away on government behalf until April 30, but those in Louisiana began earning real money on March 28.

SPX Corp, which makes products ranging from cooling towers used in power plants to tools for repairing cars, said on Monday it now expects to report profit from continuing operations of $4.40 to $4.80 per share this year, down from a prior forecast of $5.40 to $5.80 per share.

Goldman Sachs Group Inc. swung to a profit in the first-quarter compared to the prior period, and announced it has commenced a public offering of $5 billion of its common stock. Goldman Sachs said net earnings for the period ended in March were $1.8 billion, or $3.39 a share, compared to $1.5 billion, or $3.23 a share in the same period a year earlier.

The Dow Jones Industrial Average recovered from an early triple-digit slide to end at 8,057.81, down 25.57 points, or 0.3%. The S&P 500 Index added 2.17 points, or 0.3%, to 858.73, while the Nasdaq Composite rose fractionally to end at 1,653.31.

Oil for May delivery lost $2.19, or 4.2%, to end at $50.05 a a barrel. Gold for April delivery finished up $12.50, or 1.4%, at $894.70 an ounce. The more active June contract rose $12.50, or 1.4%, to $895.80 an ounce.

Singapore's advance economic growth figures turned in a worse-than-expected performance in the first quarter of the year, contracting 19.7% on an annualized, seasonally adjusted basis, and falling 11.5% from the same quarter of 2008

Sunday, April 12, 2009


4/12/09 China

New Frontier Bank in Greeley, Colorado, with $2 billion in assets and $1.5 billion in deposits, and Cape Fear Bank in Wilmington, North Carolina, with $492 million in assets and $403 million in deposits, were shut today by state regulators.

China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace.
M2, the broadest measure of money supply, grew 25.5 percent, the central bank said on its Web site today. That’s the fastest since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.
Hu Jintao said April 1 that China’s 4 trillion yuan stimulus plan was taking effect, after urban fixed-asset investment surged 26.5 percent in the first two months. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

The mounting US National debt, growing by billions every day, is approximately 13 times the amount of US currency in circulation, according to the Treasury bulletin, which lists the amount at $853.6 billion as of December 31, 2008.

China's central bank said Saturday that its foreign exchange reserves rose 16 percent year-on-year to $1.9537 trillion by the end of March.
China's reserves, already the world's largest, increased by $7.7 billion in the first quarter _ $146.2 billion less than the same period last year, the People's Bank of China said in a notice on its Web site.
That rise was substantially less than the fourth quarter increase of almost $45 billion, according to China's official Xinhua News Agency, showing the impact of slowing exports due to the financial crisis.
In March, the reserves increased by $41.7 billion, it said, $6.7 billion more than the same period last year.

Monthly mortgage-rate resets declined markedly in 2009 from 2008, but are expected to rise again in 2010 and 2011. There is still some heartburn in the mortgage market.monthly mortgage-rate resets declined markedly in 2009 from 2008, but are expected to rise again in 2010 and 2011.

Swiss bank Credit Suisse has started closing down the offshore accounts of U.S. clients who have not declared the money to the U.S. authorities, a newspaper reported on Sunday.

Word out of Japan is that Toyota (TM) will loss $5 billion in the next fiscal year.

Thai Prime Minister Abhisit Vejjajiva declared a state of emergency in the capital and surrounding areas Sunday as his government tried to restore order after antigovernment protesters stormed the venue of the ASEAN summit the day before.

Easter is the last big chocolate holiday for the sugary domed wonders that became a San Francisco tradition after confectioner Joseph Schmidt opened his shop in 1983. The Hershey Co., which bought Joseph Schmidt Confections in 2005, is discontinuing the brand and closing its two Bay Area stores - in San Francisco's Castro neighborhood and San Jose - by June 30.

Easter is the last big chocolate holiday for the sugary domed wonders that became a San Francisco tradition after confectioner Joseph Schmidt opened his shop in 1983. The Hershey Co., which bought Joseph Schmidt Confections in 2005, is discontinuing the brand and closing its two Bay Area stores - in San Francisco's Castro neighborhood and San Jose - by June 30.

Analyst Trilby Lundberg says the average U.S. price of regular grade gasoline was $2.05 a gallon Friday, when the survey was completed.
That's up from $1.95 a gallon recorded on March 20, but down $1.27 from the price at this time last year.