Saturday, May 09, 2009

Bear Market Rally

5/9/09 Bear Market Rally

The dollar index dropped 2.4% this week to 82.53 (up 1.5% y-t-d).

Federal regulators on Friday shut down Westsound Bank of Bremerton, Wash., making it the 33rd bank to fail this year.

Alan Abelson: "For that matter, bad as it is, 539,000 doesn't do justice to the severity of the payroll shrinkage. For one thing, it was puffed up by the 72,000 federal census takers signed on by Uncle Sam. And for another, it includes 226,000 supposed jobs, or 60,000 properly adjusted, courtesy of what David Rosenberg calls the Alice-in-Wonderland birth/death model. Ex this pair of extraordinary items, he points out, the headline number would approach 670,000." How could a dismal employment report be viewed positively with 77,000 government workers added to the payroll in April? Since when was government a source of profits? The last time I looked government is resposnible for trillion dollar budget deficits and a continuing loss of the dollar's purchasing power. Welcome to your debt-ridden future and those of your offspring. Say hello to economic fascism.

According to Bloomberg, the Financial Stress Index, which uses 12 components including credit spreads, stock volatility and the price of gold, fell to minus 0.12 today. Values between plus 1 and minus 1 show investors are risk neutral. The measure peaked at 4.68 after Lehman…Inc.’s collapse in September....The system is again rocked by yet another Bubble-related convulsion: today, it’s the self-reinforcing unwind of bearish bets and systemic risk hedges. Washington’s unprecedented measures to intermediate risk and boost marketplace liquidity have spurred a self-reinforcing wave of bearish positions and hedges liquidation. This dynamic has had a major impact in the Credit, equities and, seemingly, more recently in the currency and commodities markets. I would add that this unwinding process tends to generate liquidity throughout the marketplace. And, let’s face it, there is nothing like a big short squeeze to get the animal spirits flowing on the long side. Most will interpret these dynamics bullishly. I would caution that we are witnessing only the latest variant of Acute Monetary Disorder and destabilized markets.

Doug Noland: "From a systemic risk perspective, the unfolding refi boom is anything but inconsequential. By the end of the year, I would not be surprised to see upwards of $1.0 TN of “private” mortgage exposure having been shifted to the various government-related agencies (Fannie, Freddie, Ginnie, FHA, and FHLB). The wholesale transfer of various private sector risks to “Washington” is a key facet of the Government finance Bubble. Nowhere is such redistribution accomplished as effectively and surreptitiously than with a mortgage marketplace incited to refinance by (Fed-induced) collapsing yields. Think in terms of our government placing its stamp of guarantee on hundreds of billions of risky, illiquid and unappealing mortgage securities – transforming them into coveted “money”-like agency securities. Such dynamics work wonders… Previous holders of these mortgages receive cash, while the entire marketplace benefits from higher mortgage prices....In the short-run, I have to presume that major financial sector and market developments will work to stimulate the real economy (as they have repeatedly in the past). At the same time, it’s my view that the economy today is unusually susceptible to an artificial and fleeting recovery. The unwind of bearish hedges will at some point have run its course, concluding a period of major artificial liquidity generation. Moreover, I question the sustainability of the Government Finance Bubble (fiscal and monetary) overall.
The markets are setting themselves up for disappointment. I would posit that the more energized the markets and economy the greater the amount of Credit issuance that will need to be absorbed by the markets (debt and currency). So far, it is mainly Treasury yields that are rising. Government Finance Bubble dynamics would seem to dictate, however, that agency debt and MBS yields could provide the key to both artificial economic recovery and inevitable disappointment. And I would not expect a sinking dollar to support agency securities or Treasuries."

The stress tests are not for the faint of heart. They place stress on your intelligence and carry integrity only for those who believe this Administration supports the rights of individuals. For me, the stress tests are pure bullshit.

According to the WSJ, the Federal Reserve’s initial estimate of capital deficits was much larger than the $75 billion or so reported Thursday. But the agency, toeing a fine line between trying to restore confidence with the tests while also maintaining its credibility, finally agreed to scale back some of the findings "following two weeks of intense negotiations."

Peter Schiff: "Stocks are not rising because the long-term fundamentals of our economy are improving. If anything, the rise in global stock prices is due to investors realizing that cash is even riskier then stocks. The massive inflation that is the source of the stimulus is essentially punishment for those holding cash. To preserve purchasing power, investors must seek alternative stores of value, such as common stock.
It is important to point out that despite an impressive rally, U.S. stocks have substantially underperformed foreign stocks. In the past two months, while the Dow Jones has risen 30%, the Hang Seng and the German DAX have risen by over 50% in U.S. dollars. Commodity prices are also rising, with oil hitting a five-month high. And gold is shining as well, with the HUI index of gold stocks up 30% during the past two months, and 2/3 of those gains occurring in the past month. If this rally really were about improving economic fundamentals, gold stocks would not be among the leaders. Further, during those two months, the U.S. dollar index fell by 7%, with commodity-sensitive currencies such as the Australian and New Zealand dollars surging 20%.
To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off - once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result."

Ludwig von Mises: "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Ty Andros: "The Treasury International Capital Report was released for February, and for the second month in a row, was negative to the tune of $97 Billion, marking the continued retreat of capital from US shores. As outlined above, this RETREAT from capital inflows signals the eventual WATERLOO for the US government; funding requirements will need to be shouldered increasingly by domestic savers and what else: "the printing press", aka Quantitative Easing. US savers are offered virtually NO return and immense capital risk buying the long end. Limitless money printing looms as you can expect the Fed to announce additional treasury purchases above the $300 Billion already announced. When the fed meeting ended without additional purchases being announced, the long end took it on the nose."

AT&T said Friday it will buy the bulk of Alltel Wireless assets being divested by Verizon Communications for $2.35 billion, and will sell some Centennial Communications assets to Verizon Wireless for $240 million.

Jerry Doyle: "Economic fascism can be defined as government control over the four P's: Product, Price, Profit Margin, and People. When the government controls the product created by the market, when it controls the price structure for product and company securities, when it controls how much profit particular companies can make, and when it controls the people who are hired and fired, economic freedom has been banished, and economic fascism reigns supreme.
And economic fascism reigns supreme in Barack Obama's America. Just look at the recent government handling of Chrysler. In a series of press conferences this week announcing Chrysler's bankruptcy, Obama hit on all of the four P's."

Tim Wood: "What we are seeing is a bear market rally. The Obama team thinks their efforts are beginning to save the world and the general public is being lulled to sleep thinking that the worst is behind us. This is not the case. I told my subscribers that there were higher degree cycle lows expected in March and from a Dow theory perspective, I anticipated this to coincide with secondary low points. Regardless of what label we put on the March lows, the rally continues and the longer it does, the more false confidence it will foster....As I see it, the last great Bull market began at the 1974 low and ran into the 2007 high, which was a period of 33 years. Some may argue that the bull market began at the 1982 low, but the actual price low occurred in 1974 so I prefer to use that point. But if we measure from the 1982 low the bull market was still 25 years in duration. If the historical relationships with the bear market running approximately one-third the duration of the preceding bull market is to hold this time around, then the bear market would be expected to run some 8 to 11 years depending on where you want to begin your count. In either case with us just now in the 19th month since the October 2007 top it should be obvious by this measure that the bear market is likely not over. Also, another historical marker of secular bear markets, as expressed by Richard Russell, is value. Historically, the dividend yield will be roughly equal to the price earnings ratio at secular bear market bottoms. I have used the S&P data here because I did not have this data as far back on the Industrials. At the 1932 bear market bottom the yield was 10.50% and the P/E was just under 10. At the 1942 bear market bottom the yield was 8.71% and the P/E was 7.3. At the next great bear market bottom in 1974 the yield was 5.9% and with a P/E of 7.24. If we take this same reading at the 1982 low the yield was 6.2% and the P/E was 6.9. Presently, the yield on the S&P is at 2.62 and the P/E sits at 58.97. Yeah, I know that many of the analysts show the P/E on the S&P to be in the 20 to 21 range. That is bogus. Those numbers are based on the so-called “operating price earnings.” The P/E based on Generally Accepted Accounting Principles is 58.97 and that is the same measure as has been used throughout history. The so-called operating price earnings is a measure that became popular in the 1990’s as we moved into the George Orwellian socialist society of today. In any event, based on the real P/E as is represented by GAAP it is safe to say that the P/E and the dividend yield are nowhere near par, and as a result this data also suggests that the March low was NOT the bear market bottom."

I was just thinking. If you need the government to make you feel good, then you truly are a schmuck.

Tyler Durden: "The purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time."

Friday, May 08, 2009


5/8/09 Unemployment

The U.S. economy continued to shred jobs at a horrendous pace in April, with nonfarm payrolls falling by 539,000 and the unemployment rate jumping to a 26-year high of 8.9%. . Since the recession began in December 2007, payrolls have fallen by 5.7 million, or 4.1% of payrolls, the largest percentage decline since the 1958 recession. April's loss of 539,000 jobs was the smallest decline since October's 380,000. Job losses were widespread across industries in April. March's payrolls figure was revised to show a decline of 699,000, compared with a previously reported drop of 663,000. Job losses in February were bumped up to 681,000 from the previously estimated 651,000. The manufacturing sector lost 149,000 jobs in April, after shedding 167,000 the prior month. Construction industries cut 110,000 jobs after losing 135,000 in March.

The service-providing industry slashed 269,000 positions after eliminating 381,000 in March.

I wonder how many census takers were hired by the government in April. It might surprise you because overall, private-sector employment fell by 611,000. Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 571,000 in April to 8.8 million. This group has more than doubled in size over the past 12 months. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 498,000 to 3.7 million over the month and has risen by 2.4 mil- lion since the start of the recession in December 2007. In sum, the real unemployment rate is pushing 16%.

The global financial crisis is still spreading and the world economy is going to get worse before getting better, China's Vice Premier Wang Qishan said in a commentary published Friday.
In an article about cooperation between China and Britain in the Financial Times newspaper, Wang, a top Chinese financial official, said the countries should take stronger measures to stimulate an early recovery of the global economy.
"To overcome the current difficulties, it is essential to convert confidence into credit in the market and quickly recover functions of the financial markets," he wrote in the article.

According to AMG Data Services, for the week ended May 6,
Equity Fund Inflows $2.4 Bil; Taxable Bond Fund Inflows $5.6 Bil
xETFs - Equity Fund Inflows $1.2 Bil; Taxable Bond Fund Inflows $3.9 Bil.
For the month ended May 7, April Equity Fund Outflows -$2.3 Bil; Taxable Bond Fund Inflows $17.3 Bil
xETFs - Equity Fund Inflows $2 Bil; Taxable Bond Fund Inflows $7.3 Bil.

According to Bloomberg, Taiwan’s biggest partsmaker, Tong Yang Industry Co., and TYC Brother Industrial Co., ranked second, both said this week they’re open to deals that may help boost sales in China, Asia’s biggest auto market. China’s push to develop more-advanced cars and warming cross-strait ties may make that possible.

In 2008, according to data from the Kauffman Index of Entrepreneurial Activity, the number of Americans starting businesses each month increased slightly over 2007, moving from 300 out of every 100,000 Americans in 2007 to 320 out of 100,000 last year. As a whole, this means that over half a million new businesses were created each month during 2008.

Toyota Motor Corp. suffered a wider-than-expected net loss for the fiscal year, following a 21.9% drop in revenue. The automaker posted a net loss of 437 billion yen ($4.4 billion) for the fiscal year ended March 31, on net revenue of 20.53 trillion yen. A year ago, it recorded a profit of 1.72 trillion yen and net revenue of 26.29 trillion yen.

McDonald's comparable sales rose 6.9% in April, marking the 72nd consecutive monthly increase. The fastest growing region was Europe where the firm posted a gain of 8.4%.

Paul Krugman: "It’s not at all clear that credit from the Fed, Fannie and Freddie can fully substitute for a healthy banking system. If it can’t, the muddle-through strategy will turn out to be a recipe for a prolonged, Japanese-style era of high unemployment and weak growth.
Actually, a multiyear period of economic weakness looks likely in any case. The economy may no longer be plunging, but it’s very hard to see where a real recovery will come from. And if the economy does stay depressed for a long time, banks will be in much bigger trouble than the stress tests — which looked only two years ahead — are able to capture.
Finally, given the possibility of bigger losses in the future, the government’s evident unwillingness either to own banks or let them fail creates a heads-they-win-tails-we-lose situation. If all goes well, the bankers will win big. If the current strategy fails, taxpayers will be forced to pay for another bailout.
But what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading."

Venezuela's President Hugo Chávez said his government will seize the local assets of some international oil-service companies.

Fannie Mae says it needs $19 billion in additional government aid after posting a loss of $23.2 billion in the first quarter as the taxpayer bill from the housing market bust mounts. As part of Wednesday's request, Treasury's funding commitment to Fannie doubled to $200 billion. "Due to current trends in the housing and financial markets, we expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from the Treasury," said Fannie in a statement.

James Bullard, President, Federal Reserve Bank of St. Louis, in a Feb 2009 speech: "I will consider the Fed’s balance sheet. There I will stress that while the monetary base has expanded at an extraordinarily fast pace during the fall and winter, much of that expansion has been closely related to the Fed’s lender-of-last-resort function, and cannot be counted on to keep expectations of disinflation and deflation at bay. Because of this, the Fed needs a more systematic method of keeping the persistent component of monetary base growth rates elevated in order to combat the risk of a deflationary trap. Two aggressive programs have been put in place that may help to meet this objective: outright open market purchases of agency debt and agency mortgage-backed securities (MBS) and an expanded Term Asset-Backed Securities Loan Facility (TALF). But the strategies behind these programs have often been described in terms of the possible impact on specific markets. While the programs may help, we remain far from the systematic approach I would like to see."

J.P. Morgan analyst raised his profit estimate for Target to $2.82 a share in 2009 and $3.20 in 2010. Previously, he projected $2.40 and $2.65 respectively. Target said Thursday that its first-quarter profit will be "well above" analysts' average estimate of 52 cents a share, after it made moves to reduce discounts more than expected and to control expenses.

China's largest trading partner is the EU not the U.S.

"The economic recession has been tough on the mailing industry, and we have seen an unprecedented decline in mail volumes and revenue that continued to accelerate during the second quarter," Postmaster General John E. Potter said Wednesday, when the Postal Service released its fiscal second-quarter financial results.
These showed that its mail volume in the quarter ended March 31 totaled 43.8 billion pieces, down 7.5 billion pieces, or 14.7%, compared with a year earlier. The Postal Service reported a second-quarter loss of $1.9 billion. The loss brings the total loss for the fiscal year -- which began Oct. 1 -- to $2.3 billion.
On Monday, the Postal Service is increasing the price of a first-class stamp to 44 cents from 42 cents. The cost of the first ounce for a large envelope will rise to 88 cents from 83 cents and the first ounce of a parcel will be $1.22 instead of $1.17.

Japan's top chipmaker Toshiba Corp. tumbled to a record annual loss amid sinking global demand that has forced it to cut thousands of jobs.

Michael Panzer: "According to Bloomberg, increased government spending will likely require Washington to raise a record $3.25 trillion in the current fiscal year -- a tsunami of supply that suggests yields have lots more room on the upside. Also worth noting is the fact that the yield curve is steepening in the U.S. and in other countries where governments are cranking up the printing presses, signaling that investors are losing faith in those who control the public purse strings."

Rio Tinto Says China's Steel Demand Recovers; March & April Output Gain

Timothy Geithner: The “stress-test results are an important step forward,” Geithner said in a statement announcing the results. “Americans should know that the government stands behind the banking system and that their deposits are safe.” That and 2 bucks will get you
on the bus.

The Fed said assets it acquired in the Bear transaction lost nearly $1 billion in the quarter ended March 31 , falling to $25.7 billion from $26.5 billion .
The residential mortgage-backed securities the Fed acquired from AIG fell to $ 16.1 billion in the quarter from $18.3 billion . The value of collateralized debt obligations the Fed has acquired from AIG fell to $20.2 billion from $27.4 billion .

From Business Week: " Nouriel Roubini says he doesn’t see much in the way of “glimmers of hope” other economists have noted. Unemployment, capital investment, and exports are all worsening, and while there are a few signs of stability in housing, it’s not much. Overall, he figures, the odds of a prolonged “L-shaped” depression have fallen to less than 20%, from about 30%, thanks largely to the efforts of this administration and, to some extent, the last. He expects global contraction of 2% this year, and expansion of about 0.5% next year, “so small it’s going to feel like a recession still.” Still, he adds: “I don’t worry as much as six months ago about a near depression.”

Technology stocks have come under selling pressure this week.

ABC News made a big splash by reporting that it had obtained intelligence documents proving that Nancy Pelosi was briefed about torture techniques in the fall of 2002, as Republicans have been charging.

The Treasury Department is moving too slowly on new rules to oversee derivatives and credit default swaps, said Sen. Maria Cantwell, Democrat of Washington on Friday. "They are slow walking, thinking we're all going to forget what is needed. My patience is running out with the administration having to take five months to say that some of these things ought to be regulated and how they ought to be regulated," Cantwell told Neil Wolin, President Obama's nominee to take the number-two post at Treasury at his confirmation hearing before the Senate Finance Committee.

Abraham Lincoln: "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavor to prolong it's reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed."

Berkshire Hathaway reported a first-quarter net loss of $1.534 billion, or $990 per class A equivalent share, late Friday. That compares to net income of $940 million, or $607 per class A equivalent share, in the same period a year earlier. The net results are attributable to Berkshire shareholders. The latest result includes investment and derivatives losses of $2,090 per class A equivalent share. Operating earnings, which exclude investment and derivatives gains and losses, came in at $1,100 per class A equivalent share, Berkshire said.

The Dow Jones Industrial Average added 164.80 points, or 2%, to 8,574.65, giving the blue chips a weekly gain of 4.4%. The S&P 500 rose 21.84 points, or 2.4%, to 929.23, up 5.9% for the week. The Nasdaq Composite gained 22.76 points, 1.3%, to 1,739.00, up 1.2% from the week-ago close.

Crude for June delivery rose $1.92, or 3.4%, to $58.63 a barrel on the New York Mercantile Exchange. It ended the week up 10.2%. June gold slid 60 cents, or 0.1%, to end at $914.90 an ounce on the Comex division of the New York Mercantile Exchange.

Thursday, May 07, 2009

Quantative Easing Concerns

5/7/09 Quantative Easing Concerns

Chuck Palahniuk: "When did the future switch from being a promise to being a threat?"

General Motors Corp. lost $6 billion in the first quarter and its revenue was cut nearly in half as car buyers feared the wounded auto giant would enter bankruptcy and no longer honor its warranties.
The Detroit-based company also said it spent $10.2 billion more cash than it took in from January through March, mainly because revenue dropped by a staggering $20 billion, or 47 percent. The company is trying to cut 2,600 dealerships and is in the process of selling or phasing out the Saturn, Saab and Hummer brands. GM has already decided to get rid of Pontiac.

Productivity rose in the first quarter as U.S. firms slashed their workforce, outpacing the drop in output, the Labor Department reported Thursday. Productivity in the nonfarm business sector - output per hour worked - rose at a seasonally adjusted annual rate of 0.8% in the quarter as output fell 8.2%, while hours worked fell 9% -- the largest drop in hours since 1975. Compared with the first quarter in the prior year, productivity was up 1.8%, while unit labor costs rose 2.4%. Within manufacturing, productivity fell 3.4%, while output fell a record 22.4% and hours declined a record 19.7%. The data go back to 1987. Unit labor costs in manufacturing rose 16.7%.

First-time claims for state unemployment benefits fell to the lowest level since late January, the Labor Department reported Thursday, in a sign that a peak may have been passed. The number of initial claims in the week ending May 2 fell 34,000 to 601,000. The four-week average of these initial claims fell 14,750 to 623,500. However, the level of ongoing claims continues to reach record highs, with a gain of 56,000 to reach 6.35 million in the week ending April 25. The four-week moving average of continuing claims also hit yet another record high, rising 125,250 to 6.21 million. The U.S. insured unemployment rate, which represents the portion of all workers covered by unemployment insurance who are collecting benefits, rose to 4.8% -- the highest level since December 1982 -- from 4.7%.

Wal-Mart Stores Inc.said Thursday that its April sales rose 5%, exceeding its own projection and analysts' 2.9% average estimate. Sales at the Wal-Mart chain in the U.S. rose 5.9%, exceeding estimates, helped in part by the Easter calendar shift and an acceleration of traffic and strength in seasonal and discretionary items. Home products had positive sales. The company expects second-quarter to face "challenging comparisons" to the year-earlier quarter, which benefited from the stimulus checks. Sam's Club sales were up 0.3%, missing estimates of a 1.8% gain as jewelry and furniture sales remained soft. The wholesale club chain also was hurt by the closing of stores on Easter Sunday. Meanwhile, the H1N1 swine flu outbreak has affected operations at Walmex in Mexico, Wal-Mart said. Wal-Mart said it will no longer report monthly sales.

Costco Wholesale Corp. said Thursday its April same-store sales dropped 8 percent, hurt by a shift in the timing of the Easter holiday.
Domestic same-store sales fell 7 percent, while international same-store sales slipped 12 percent. Excluding lower gas prices and the stronger dollar, same-store sales were flat. U.S. same-store sales fell 2 percent, excluding gas deflation. International same-store sales climbed 7 percent, excluding the stronger dollar.
Total sales for the period ended May 3 declined 6 percent to $5.18 billion.
The current period included one less sales day due to Easter's shift, which Costco estimated lowered total and same-tore sales by about 2 percent to 3 percent.
Year-to-date same-store sales dropped 3 percent, with U.S. same-store sales off 1 percent and international same-store sales down 10 percent.

DuPont to cut 2,000 jobs.

Sara Lee expects adjusted 2009 earnings of 73-79 cents a share, compared to the Wall Street target of 80 cents a share.

The European Central Bank cut its key interest rate by a quarter point to 1%, a new low for the Frankfurt-based central bank that sets interest rate policy in the euro zone.

The 30-year bond yield rose to the highest since Nov. 18 and the 10-year yield touched the highest point since Nov. 25 before today’s $14 billion bond auction, the last of three sales this week totaling $71 billion. The People’s Bank of China said in a quarterly report central bank policies of buying assets will likely stoke inflation and “cause a sharp adjustment in bond prices.” “The market is reacting to a story out of China over concerns about quantitative easing and the inflation impact,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of the 16 primary dealers that trade Treasuries with the central bank. “It could lead to reduced demand from foreign central banks.”
The 30-year bond yield climbed to 4.28 percent in New York, according to BGCantor Market data. The 3.5 percent security due in February 2039 fell 1 7/32, or $12.19 per $1,000 face amount, to 88 21/32. The 10-year note yield rose eleven basis points to 3.30 percent.

Art Cashin: "You can't forget that we lost about 2 million jobs so far this year and about 3 million last year. You have to wonder if the patient gives enough blood up — even though he's stopped hemorrhaging — that he goes into shock."

"I don't know if it's time to open the bubbly just yet."

Obama's promised line-by-line scrub of the federal budget had produced a roster of 121 budget cuts totaling $17 billion -- or about one-half of 1 percent of the $3.4 trillion budget Congress has approved for next year. Those savings are far exceeded by a phone-book-sized volume detailing Obama's generous increases for domestic programs that will accompany the call for cuts.

Confucius: "He who does not economize will have to agonize. "

Platinum may decline toward $800 an ounce, reversing this year’s 23% gain, as the metal slumps into a “bear trend,” Standard Chartered Bank forecast, citing trading patterns. “Spot platinum is resuming the bear trend, with trendline support giving way and a slide below $1,002 and $999 to build,” David Barclay, the bank’s commodity strategist, wrote. “A break down towards $800 should follow.”

- Alumina Ltd., partner in the world’s biggest producer of the material used to make aluminum, said demand for the metal may contract further this year and expects more cuts to production. “Global demand for aluminum is expected to contract by a further seven percent in 2009,” CEO John Bevan said today. “We expect curtailments will continue during this year.”

An administration official confirms that a $4 billion bridge loan and $3.2 billion in bankruptcy financing won't be paid back by Chrysler following bankruptcy.

Nordstrom Inc. said Thursday its April same-store sales fell 10.8%. Analysts had expected a decline of 12.3%. Sales in the four-week period ended May 2 fell to $561 million, down 6.5% from a year ago, the company said. Meanwhile, first-quarter sales dropped to $1.71 billion, down 9.2% from a year ago.

In early Thursday trading, crude oil for June delivery was up $1.36, or 2.4%, at $57.70 a barrel.

China Economist: "China is aware it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects its anxiety over relying on the dollar system. The US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse."

Randall W. Forsyth: "The bullish dollar ETF broke its below its 200-day moving average while the yen ETF has been bobbing above and below the line -- two indications of less risk aversion in the currency market. The euro ETF, while rising, is still below its 200-day moving average.

But the "other dollar" ETFs -- the Canadian and the Australian -- both have moved decisively above their 200-day moving averages. Commodities have benefited from the lower U.S. dollar, which in turn is boosting these commodity currencies.

A lower dollar traditionally boosts stocks of U.S. multinationals, but with the Obama Administration seeking to end tax breaks for foreign earnings, that textbook move may not work as well."

U.S. natural-gas inventories rose 95 billion cubic feet in the week ended May 1, the Energy Information Administration reported Thursday. Analysts surveyed by Platts had expected a buildup of 89 billion cubic feet to 94 billion cubic feet. Stockpiles were 491 billion cubic feet higher than last year at this time and 362 billion cubic feet above the five-year average. On the New York Mercantile Exchange, natural gas for June delivery fell 3.7 cents, or 1%, to $3.85 per million British thermal units. Later in the morning natural gas reversed to the upside and rose to $4.06 per million British thermal units.UNG closed up $1.04 at $16.21 on 30 million shares. The average daily volume runs about 7 million shares.

Federal Reserve Chairman Ben Bernanke called for increased regulation of U.S. banks.

Perrigo raised its fiscal 2009 forecast for income from continuing operations to $1.80 to $1.90 as share, up from $1.75 to $1.90 a share.

The Obama administration today unveiled details of a $3.4 trillion federal budget for the fiscal year beginning in October. The budget documents, totaling more than 1,500 pages, fill in the details of a broad outline that President Obama released in February. They include a massive appendix listing program-by-program information on the roughly 40 percent of the fiscal 2010 budget that constitutes discretionary spending, which will be set by Congress in what is expected to be a contentious appropriations process.

Consumers' debts fell a record $11.1 billion in March, sending outstanding debt levels dropping at a 5.2% annual pace, the fastest decline since 1990, the Federal Reserve reported Thursday. Consumer debts are up 0.1% in the past year, the slowest growth in 17 years.

Gold for June delivery gained $4.50, or 0.5%, to end at $915.50 an ounce on the Comex division of the New York Mercantile Exchange.

The Dow dropped 102 points, the S&P declined 12 points, and the Nasdaq took a 42 point hit.

The Federal Reserve on Thursday reportedly told GMAC, the lending unit of General Motors Corp., to raise $13.1 billion in capital to ensure the company's stability amid heavy losses. The amount is among the biggest required for any U.S. financial institution, the Washington Post reported, and could be difficult for GMAC to raise.

California was the center of the mortgage meltdown that led to the nation's current economic crisis, as lenders in the state issued a majority of all recent subprime loans, says a nonprofit journalism group based in Washington.
The study published Wednesday on the Center for Public Integrity's Web site analyzed government data on $1.38 trillion worth of subprime mortgages made from 2005 to 2007.
The analysis found that about 56 percent of those loans were originated by 15 lenders from California.
"The size of the industry in California was massive," said John Dunbar, lead reporter on the six-person team that spent more than six months analyzing millions of mortgages.

Mark Sunshine: "Recovery of the securitization market is important because, according to Treasury, before the credit crisis began more than half of small business lending was funded in the shadow banking system. And, it was the securitization market that funded the shadow banking system. But, so far in 2009, the securitization market has managed to only get $21 billion of new securitizations sold to investors and that amount is down more than 94% from 2007. As loans to Main Street made in 2006 and 2007 come due, businesses are having a tough time finding refinancing and TALF hasn’t helped their plight.
So far in 2009, TALF has only managed to purchase a little more than $6 billion of securitized debt. Even worse, in the latest TALF application round there was only a little greater than $10 billion of new demand for funding which given the size of the U.S. economy, is a drop in the bucket."

Gold producers are up 9% in 2009, while gold prices are up just 3% - a reversal from 2008 in which gold gained 5% but producers shares declined 17%.

Mad Magazine: "The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments."

The Central Bank of Chile late Thursday cut its benchmark interest rates by 50 basis points -- 25 more than expected -- to 1.25%.

Wednesday, May 06, 2009

The Wheels Have Come Off

5/6/09 The Wheels Have Come Off

ADP employment index said private-sector employment fell by 491,000 jobs in April, less than some analysts were bracing for.

Crude-oil futures rose Wednesday after the American Petroleum Institute reported U.S. inventories of crude and gasoline fell last week. Crude stockpiles dropped by 1 million barrels, while gasoline inventories declined by 2.9 million barrels, industry group API said after crude's floor trading closed Tuesday. Crude for June delivery rose 80 cents, or 1.5%, to $54.64 a barrel in early North American electronic trading.
Crude inventories increased by 600,000 barrels in the week ended May 1, the Energy Information Administration reported. Analysts at Platts had expected a buildup of more than 2 million barrels. Gasoline inventories fell by 200,000 barrels, while distillate stockpiles, which include heating oil and diesel, increased by 2.4 million barrels, the EIA reported.

Transocean Ltd. said Wednesday first-quarter net income fell to $942 million, or $2.93 a share, from $1.15 billion, or $3.58 a share in the year-ago period. Excluding 82 cents a share in charges, earnings totaled $3.75 a share in the latest period. Revenue fell 4.6% to $3.1 billion.

The rate of planned job cuts in the U.S. decelerated for a third month in April, according to data released Wednesday from outplacement services provider Challenger, Gray & Christmas. Planned workforce reductions in April were 132,590, 12% less than the more than 150,000 layoffs recorded in the previous month, the agency said in a release. "While job cuts have been trending downward, the pace is still well ahead of last year," the agency said, with the April total 47% higher than the same month in 2008. The government and non-profit sector saw the most job cuts with 27,624, led by New York City. One out of ever seven of the recent job cuts are in the automotive sector, Challenger, Gray & Christmas said.

Garmin Ltd. said first-quarter net income fell to $50.5 million, or 24 cents a share, from $151 million, or 67 cents a share in the year-ago period. Excluding foreign exchange adjustments, net income in the latest period totaled 25 cents a share. Revenue fell 34% to $437 million.

A purchasing managers index of the British services industry rose to an eight-month high of 48.7 from 45.5 in March.

reports that real estate reporting service Zillow says that “declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter.” In California, 32% percent of homes are worth less than what’s owed on them.
Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.”

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”

Jumbo loans are larger than what government-controlled Fannie Mae and Freddie Mac will buy or guarantee, currently $417,000 in most areas. Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.

Subprime loans were made available to borrowers who never proved they could make monthly payments on time. The loans accounted for more than 20 percent of the U.S. mortgage market in 2005, up from less than 8 percent in 2003, according to Inside Mortgage Finance.

Dr. Stan Humphries, Zillow vice president of data and analytics: "Unfortunately, given the magnitude of the current rates of decline, we're still many months away from a bottom even as depreciation slows. Moreover, the additional information we have this quarter on 'shadow inventory,' with one-third of homeowners indicating they would like to put their home on the market if conditions improve, confirms our earlier fears that a bottom in home values could be quite protracted. By our calculations, this could translate into as many as 20 million homes that could seep into the market as prices stabilize, maintaining a constant stream of supply that far outpaces demand, thus keeping prices flat. I'm doubtful that we'll see the bottom until 2010, and thereafter it's increasingly clear that we're likely to have a long bottom before we see meaningful recovery in home values."

Pulte CEO Richard Dugas: "We are not ready to call a bottom in housing."

Airbus cut its planned production of A380 superjumbo jetliners this year to 14 planes from 18, blaming the global economic crisis and its impact on airlines.

Oakland Mayor Ron Dellums on Tuesday proposed laying off 140 police officers, cutting hundreds of other city jobs and shuttering offices for nearly a month in an effort to balance a budget deficit that could eclipse $100 million.

Bill Bonner: "As predicted, the world markets are enjoying a bounce. People who had no idea there was anything wrong with the world financial system two years ago, now say the problem has been fixed.
Who fixed it? The people who had no idea what was wrong with it, of course.
What did they fix it with? The same thing that caused the problem they didn’t see – debt.
Who makes sure it won’t break again? The people who didn’t notice the wheels coming off the last time."

Alan Meltzer: "Under Bernanke, the Fed has sacrificed its independence and become the monetary arm of the Treasury."

Current low natural gas prices are setting the stage for a dramatic price rebound that should begin this fall or winter, Chesapeake Energy Corp.’s chief executive officer told analysts Tuesday.
"Today’s gas prices are clearly not strong enough to support a North American rig count that is high enough to prevent a very severe and unprecedented decline in North American gas production,” Aubrey K. McClendon said.
"This will set the stage for a dramatic reversal of natural gas prices sometime this fall or winter,” he said.
"How high will gas prices go in the recovery and rebound phase in the next cycle? Obviously, we don’t know. But clearly, gas prices were too high one year ago at $12 to $13 per thousand cubic feet, and today they are far too low at $3.50 per thousand cubic feet,” he said. "So my guess is the rebound will overshoot on the high side, just as it has overshot on the low side.” McClendon said he considers $6 to $7 per thousand cubic feet to be the low end range of normalized pricing and $8 to $9 per thousand cubic feet to be mid-range of normalized pricing.

Cisco Systems reported a fiscal third-quarter of $1.35 billion, or 23 cents a share, compared with a profit of $1.77 billion, or 29 cents a share, for the year-earlier period. Revenue was $8.16 billion, down from $9.79 billion, for the same period last year. Adjusted income was 30 cents a share. Analysts had expected the San Jose, Calif.-based networking giant to report earnings of 25 cents a share on revenue of $8.15 billion, according to a consensus survey by FactSet Research.

During the fiscal year that ends June 30, Massachusetts will likely end up collecting about $3 billion less in revenues than originally predicted.

Nonpartisan legislative budget analysts warned Tuesday that New Jersey's revenue shortfall "may exceed, perhaps significantly" the $2 billion gap Gov. Jon S. Corzine talked about last week.

Wells Fargo & Co. will need about $15 billion in capital following a U.S. government-led stress test, Bloomberg reported Wednesday on its Web site, citing a person familiar with the matter.

Lawmakers on Wednesday approved a broad housing bill that would allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury for the agency's deposit insurance fund. The legislation, S. 896, which was approved by 91-5, was introduced by Senate Banking Committee Chairman Christopher Dodd, D-Conn. The legislation also makes it easier for a borrower to qualify for the Hope for Homeowners program that was approved by Congress last year. The program, which seeks to help homeowners refinance, failed to attract sufficient interest last year. This modified program streamlines the process and provides incentive payments to loan servicers to participate. Another provision would allow renters of foreclosed properties to stay through their lease, or be given 90 days to vacate.

Crude for June delivery gained $2.50, or 4.6%, to end at $56.34 a barrel on the New York Mercantile Exchange, the highest closing level for a front-month contract since Nov. 14. Oil has gained more than 10% this month.

No inflation. Check the size of the items you purchase. For example, certain vitamins were $10.99 for 100 tablets a few months ago. Now they are the same price for 60 tablets.

The Nasdaq gained 0.4% to 1,761. The S&P 500 rose 1.8% to the 920 level. The Dow Jones Industrial Average rallied 1.3%, or 101 points, to 8,505.

Gold for June delivery climbed $6.70, or 0.7%, to end at $911.00 an ounce on the New York Stock Exchange. Copper for July delivery gained 10 cents, or 5%, to $2.187 a pound.

The Hang Seng Index jumped 2.4% to 17,231.72, rising above the 17,000-point level for the first time since October, while the Hang Seng China Enterprises Index rose 2.7% to 10,009.56. The Nikkei 225 Average gained 3.4% to 9,280.13, moving above the 9,000 level for the first time in four months, while the broader Topix Index jumped 3.4% to 876.

Wells Fargo freezes pension plan, cuts 548 jobs.

Toyota is expecting a 350 billion yen ($3.67 billion) net loss for the fiscal year ended March as plunging global demand and a strengthening yen batter earnings. The projected red ink for the fiscal year through March would mark its first such annual net loss since 1950, and a sharp contrast from the record 1.72 trillion yen profit it racked up the previous year.

Tuesday, May 05, 2009


5/5/09 Overbought

For 2009 Kraft sees revenue growth of approximately 3% and earnings per share of $1.88.

Emerson Electric held onto its earnings view of $2.40 to $2.60 a share on sales between $21 billion and $21.7 billion for the fiscal year.

Industrial producer prices across the 16-nation euro zone fell 0.7% in March, the statistics agency Eurostat reported Tuesday. Compared to March 2008, prices were down 3.1%.

The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, a move that officials hope will quell fears about the solvency of the financial sector, The Wall Street Journal reported Monday.

GM's sales in China rose 50% in April to 151,084.

Jürgen Hambrecht, chief executive of
BASF, the world’s biggest chemicals maker, said: “We don’t consider temporary topping up of inventories in some regions and industries to be signs of a sustainable upturn.”

Chris Williamson, chief economist of Markit, which compiles purchasing manager data from around Europe, said recent surveys had pointed to record rates of destocking but also a belief that it would soon end.
He added: “There is a turning point for destocking in sight and there should be a rise in demand. But whether beyond that inventory correction there is anything more sustainable is unknown and questionable.”

More of New York City’s middle-class tenants, their jobs gone, are falling behind on rent, straining legal and financial services once used mostly by lower-income New Yorkers.

Tata Motors received more than 203,000 fully paid bookings for its new Nano subcompact car in just two weeks,
the company reported in a statement on Monday.

Oil production in the Gulf of Mexico could peak at more than 1.8 million barrels per day by 2013 under the industry’s best-case scenario, but natural gas production will likely continue its decadelong decline, according to a government study released Monday at the Offshore Technology Conference.

About 1.1 million barrels of oil per day were produced in the Gulf in 2008, according to the Minerals Management Service, with about 829,000 coming from deep-water fields — those drilled in more than 1,000 feet of water. Natural gas production was about 6.43 billion cubic feet per day, with about 2.6 bcf coming from the deep water.

Oil production from projects the industry has currently or is committed to starting up could peak at 1.6 million barrels by 2011, according to the agency’s forecast, but if announced discoveries and undiscovered resource estimates are included, the peak could reach 1.8 million barrels by 2013.

Europe is suffering “a deep and widespread recession,” the EU said today, estimating that unemployment in the 16 countries that use the euro currency will rise to a postwar record of 11.5 percent by the end of next year.

The EU’s executive said both the 27-nation EU and the 16 countries that use the euro currency will shrink by 4 percent this year, more than double its January estimates, when it forecast a 1.8 percent contraction for the EU and a 1.9 percent decline for the euro-zone area.

As some 3,000 officials wrapped up the Asian Development Bank's annual meeting Tuesday held in Bali, Indonesia, there was no shortage of exhortations for Asia to boost domestic consumption -- or risk remaining captive to the economic fortunes of the U.S. and Europe.
Declaring the era of rich Western countries having unlimited appetite for exports "has passed," ADB president Haruhiko Kuroda urged Asia's governments to reduce dependence on trade. Japan's Finance Minister Kaoru Yosano said the region must lift consumer spending to "avoid economic meltdown."

GMAC LLC, the auto and home lender that received a $6 billion government bailout, reported a first- quarter loss of $675 million as surging loan defaults eclipsed an increase in new mortgages.
The loss compares with a deficit of $589 million a year earlier, the Detroit-based company said today in a statement sent by PR Newswire.

“Leverage is what causes people real trouble in this world,” Mr. Buffett said. “You don’t want to be in a position where someone can pull the rug out from under you or, emotionally, where you pull it out from under yourself.” Ask yourself. Is the U.S. balance sheet over leveraged? Is the leverage level apt to undermine your financial stability?
Can the future be changed as expectations change?

Alan Blinder: "The last duty of a central banker is to tell the public the truth."

Richard Daughty: " As of April 27, 2009, currency in circulation was $903.3 billion, up $90.4 billion from this time last year!"

Weyerhaeuser said on Tuesday that its first quarter loss grew to $264 million, or $1.25 a share, compared to a loss of $148 million, or 70 cents a share a year ago. Revenue fell to $1.28 billion, from $2.04 billion last year.

Chain-store sales for the week ended May 2 fell 0.8% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales rose 0.7%.

Matthew Richardson and Nouriel Roubini: "The International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak -- $2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate. With the U.S. banks and broker-dealers accounting for more than half these losses there is a huge disconnect between these estimated losses and the regulators' conclusions.
The hope was that the stress tests would be the start of a process that would lead to a cleansing of the financial system. But using a market-based scenario in the stress tests would have given worse results than the adverse scenario chosen by the regulators. For example, the first quarter's unemployment rate of 8.1% is higher than the regulators' "worst case" scenario of 7.9% for this same period. At the rate of job losses in the U.S. today, we will surpass a 10.3% unemployment rate this year -- the stress test's worst possible scenario for 2010.
The stress tests' conclusions are too optimistic about the banks' absolute health, although their relative assessment is more precise, because consistent valuation methods were used. Still, with Thursday's announcement of the results, it shouldn't be a surprise when the usual suspects emerge. We fear that we are back to bailout purgatory, for lack of a better term."

Natural gas rigs are down 50% from a year ago and down 45% year to date.

The ISM non-manufacturing index improved to 43.7% from 40.8% in March. Seven of 18 industries were growing in April. The new orders index improved to 47.0% from 38.8%. Employment improved to 37% from 32.3%.

"We are currently in an economic recession which has negatively affected substantially all businesses, including ours," Vornado said in a regulatory filing. "During the past year, real estate transactions have diminished significantly and capitalization rates have risen."

The dollar index, a measure of the greenback against a trade-weighted basket of currencies, traded at 83.703, down from around 84.000 in late North American trading Monday.

JPMorgan Chase & Co., the second- largest U.S. bank by assets, is the only lender among 12 commercial banks being stress-tested by the government that probably won’t need more capital, Friedman, Billings, Ramsey Group Inc. analyst Paul Miller wrote to clients today.

Rob Hanna: "I’m seeing some breadth measures again hitting all-time extremes. Worden Bros. measures the % of stocks trading at least 1 and 2 standard deviations above their 40-day moving average. I mentioned the 1-standard deviation indicator (T2110) in the blog a couple of weeks ago. At the time it was hitting an all-time high of nearly 81%. Tonight it broke that record registering over 83%. The number of stocks closing 2-standard deviations above their 40-day ma (T2112) also hit a new extreme Monday - and in a big way. Before Monday this indicator had never reached 40%. Monday it spiked up to 52.14%. This suggests the market is incredibly overbought. As I went over a couple of weeks ago, this doesn’t necessarily mean we’ll see a sharp selloff. At such incredible levels, though I’d certainly be careful taking long positions. These overbought levels will be worked off at some point. A selloff is one way to accomplish that."

McDonald’s is launching its new McCafe menu today, a line of specialty coffees that include espressos, cappuccinos and lattés.
“This is a very large market and opportunity for us at McDonald’s,” said Thompson. “Customers are saying that this is the kind of drinks that we would like to have.”
The beans come from Central and South America as well as Indonesia, he said. “What we want to do is talk about the quality,” said Thompson.

Microsoft Corp.notified a second round of employees on Tuesday that they will lose their jobs as part of a previously announced plan, according to media reports, citing an internal Microsoft email. In January, Microsoft said it would trim about 5,000 jobs, or about 5% of its workforce, by June 2010. In the email, Microsoft Chief Executive Steve Ballmer said the company will "closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure, including additional job eliminations," according to media reports.

Boeing Co.said Tuesday that its workforce has decreased about 2% from Jan. 31 to 159,161 employees as of April 30. The Chicago-based manufacturer reported employee reductions in all six segments, but its financial arm saw the greatest cut with personnel down 6% to 9,226. Boeing shrank its commercial aircraft workforce by about 2.4% to 65,972 and its engineering, operations and technology unit's personnel by 5% to 11,729. Washington state, home of its commercial aircraft business, saw its Boeing workforce fall 2.7% to 74,277, while its Pennsylvania personnel showed a small gain, adding 1.5% to 5,633.

Walt Disney Co. said Tuesday that its fiscal second-quarter profit fell 46% on restructuring charges, decreased advertising sales at its owned-and-operated television stations and a decline in DVD sales, the latest indications that the economy is taking a toll on the major media conglomerates. Disney said it earned $613 million, or 33 cents a share, in the quarter ended March 28, compared with a profit of $1.13 billion, or 58 cents a share, in the same quarter a year earlier. Disney said that excluding items, it would have earned 43 cents a share in the latest three months. Revenue fell 7% to $8.1 billion.

The Dow Jones Industrial Average ended down 16 points, or 0.2%, at 8,410, with 18 of its 30 components ending in negative territory. The S&P 500 index finished down 3 points, or 0.4%, at 903. The broad index remains up 0.1% for the year so far, after closing in positive territory Monday for the first time since January. The Nasdaq Composite lost 9.4 points, or 0.5%, to close at 1,754.

New York Times will hike the newsstand price for its Monday-Saturday edition to $2 from $1.50 starting on June 1, the newspaper company said Tuesday. The price of its Sunday edition will also increase to $5 for the New York metropolitan region and $6 for other areas. New York Times is exploring various ways to generate funds amid a decline in advertising revenue.

Crude for June delivery ended down 63 cents, or 1.2%, at $53.84 a barrel on the New York Mercantile Exchange.

Banks that want to repay Troubled Asset Relief Program funds will have to meet certain conditions, including demonstrating their ability to raise funds on their own, The Wall Street Journal reported late Tuesday in its online edition.

General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.
The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.

Bank of America to need an additional $34 billion in capital.

San Francisco Federal Reserve Bank President Janet Yellen said Tuesday the Fed and Treasury Department suffered from a "shortage of tools" in preventing the collapse of Lehman Bros. in September.

Monday, May 04, 2009

The Flight To Risk

5/4/09 The Flight To Risk

Emulex Corp. said Monday that its board has unanimously rejected the unsolicited bid from Broadcom Corp., saying it "significantly undervalues Emulex." On April 21, Broadcom unveiled an unsolicited offer to buy Emulex for $9.25 a share, or about $764 million, about three months after talks between the two companies on a possible combination collapsed. Shares of Emulex closed Friday at $10.37.

Walter Anderson: “Our lives improve only when we take chances and the first and most difficult risk we can take is to be honest with ourselves.”

Satellite TV provider DirecTV Group Inc. and Liberty Entertainment will be combined, Liberty Media said Monday, in a move that allows mogul John Malone to have more direct control over both operations. Liberty Entertainment will be spun off from Liberty Media, as previously announced, and will now include 54% of DirecTV stock; Liberty Sports Holdings; a 65% interest in Game Show Network; Fun Technologies; about $30 million in cash and $2 billion in debt.

Filene's Basement on Monday filed for Chapter 11 bankruptcy protection and said it agreed to sell 17 of its 25 stores, including its flagship locations in Boston and Manhattan's Union Square, to real estate and asset management firm Crown Acquisitions.

According to the WSJ, Wal-Mart is offering businesses low-priced drugs if they sign up to buy directly from Wal-Mart’s network of in-store pharmacies, rather than contracting to buy drugs through third parties known as pharmacy-benefit managers.

President Barack Obama on Monday will propose changing provisions in the tax code that he says encourage U.S. companies to move jobs overseas, as part of a broader package aimed at saving $210 billion over 10 years.
Obama vowed in a February address to the U.S. Congress to make the tax code more fair by "finally ending the tax breaks for corporations that ship our jobs overseas."
Currently, U.S. firms are allowed to defer paying taxes on profits earned overseas if they plow those profits back into their foreign subsidiaries.
Critics say those rules encourage businesses to bolster their foreign operations instead of creating jobs at home.

China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday. Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.
"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.
"I'm not sure too many people on Capitol Hill realize that this is now happening," he said.
"There will come a time where the lack of Chinese participation may have a significant impact," Kirk said.
"We should track that, because up until last month they were the number one provider of currency to the United States and now they're gone."

The EU is in its
worst recession since WWII, the European Commission announced today, and will contract 4% this year. Ireland and Germany are expected to be the worst-performing economies in the euro zone, shrinking 9% and 5.4% respectively.

Pepsi Bottling Group has turned down soft drink maker PepsiCo's acquisition proposal, calling the offer "grossly inadequate."
The $6 billion proposal for Pepsi Bottling and PepsiAmericas would have let PepsiCo control about 80 percent of its total North American beverage volume.
Pepsi Bottling says its board's decision was based on the unanimous recommendation of a special committee.
The company stated in a letter that it values its relationship with PepsiCo, but would not agree to a deal that doesn't reflect its "true value."

Bank of America is working on plans to raise fresh capital, even as it and Citigroup try to convince the government they do not need to bolster their balance sheets, the Financial Times reported.

A record 19 million homes stood
empty at the end of 2008.

John Wasik: "One of the reasons the housing mania was so damaging was that median home prices rose to about three times average household incomes as opposed to double income levels in 1950. "

John Hussman: "From an economic standpoint, the main argument for an oncoming recovery is simply that the knuckles of investors and consumers are no longer absolutely white. A backing-off from extreme risk aversion is certainly helpful, since it puts banks at less risk of customer flight, but the underlying assets of banks are still deteriorating. For the time being, the recent revision in accounting rules has prevented balance sheets from showing negative capital and revealing insolvency, but the reality is that the mortgages underlying bank assets are still defaulting. If this was simply a temporary problem of fluctuating asset values that would recover over time, the problem would not be serious. As T. Boone Pickens once said, “I have been broke three or four times, but fortunately for me I'm not an MBA, so I didn't know I was broke.” But the assets Pickens owned moved in cycles, and regularly recovered in step with the price of oil. In the case of mortgages, once the loan goes into foreclosure, there's an asset sale, the loss is taken, and the game is over.

Overall, then, the fundamentals of the market and the economy are not nearly as positive as they are being spun by analysts. Stocks are at best only moderately undervalued if one assumes that profit margins will recover to the historical extremes we saw in 2007, and are otherwise mildly overvalued. The financial system is in cosmetic remission, looking better on the surface, but still deteriorating internally. Still, we can't discard the fact that the extreme risk aversion of recent months has eased. Breadth has been quite strong, but is also overbought (with over 80% of stocks above their 20-day and 50-day averages). The mixed picture offers neither certainty that the bear market will resume, nor that a bull market will emerge. "

Copper inventories in London Metal Exchange fell below 400,000 tons Friday, down more than 100,000 tons, or 21%, from a month ago.

10-year Treasury yield at 3.19% and 30-year at 4.10%.
"When you start to see high yield rally from very distressed levels, the flight to safety is over," T. Rowe's Brennan said. From a low of under 2.5%, 10-year Treasury yields are now over 3%. At the long end of the yield curve, 30-year Treasuries have seen rates rise from under 2.5% to over 4%—and an investor who held onto the 30-year would have lost nearly 30%.

Spending on U.S. construction projects unexpectedly rose in March for the first time in six months as increases in commercial and government projects overshadowed an ongoing drop in home building.
The 0.3 percent gain followed a revised 1 percent drop the prior month, the Commerce Department said today in Washington. The advance in non-residential projects was led by building of power plants, hotels and factories. In March, spending on residential projects fell 4.2%. Spending on nonresidential construction projects rose 2.7% in March, while spending on public projects rose 1.1%.

The housing market improved in March, a trade group said Monday. The pending home sales index rose 3.2% compared with February and was up 1.1% compared with a year earlier, the National Association of Realtors reported. The pending home sales index is based on sales contracts signed on existing homes. "This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit," said Lawrence Yun, chief economist for the real estate group. Sales typically close within six weeks of a signing. At that point, they are included in the existing-home sales report.
The National Association of Realtors Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent to 84.6. February's pending home sales index was slightly revised down to 82.0 from 82.1. The affordability index was at 166.7 in March, 2009, down from a revised 174.4 in February, 2009 but up over 30 percentage points year over year.

Soybeans Jump Above $11 a Bushel for First Time in Seven Months.

"We have a shortfall in the amount of foreign buyers able to buy Treasuries vs. the amount of debt we're offering," says Dory Wiley, CEO of Commerce Street Capital.

Tim McMahon: "Yes, risk taking is inherently failure-prone. Otherwise, it would be called sure-thing-taking. "

Chrysler LLC, which filed for bankruptcy protection last week, is expected to lose $4.7 billion this year following a $16.8 billion loss in 2008, The Wall Street Journal reported.

Regulators have told Wells Fargo & Co. to raise funds following "stress tests" that indicated that the bank may experience difficulties in a deeper recession, the Associated Press reported Monday.

Michael Panzer: "The technology-laden Nasdaq-100 Index has had a winning streak of more than eight weeks on only five occasions, or 3% of the total, since 1985 (when the NDX began trading)."

June gold climbed $14, or 1.6%, to end at $902.20 an ounce on the Comex division of the New York Mercantile Exchange. Copper for July delivery rose 4.3 cents, or 2%, to $2.144 a pound.

The S&P 500 is now up 34 percent from its 12-year closing low on March 9. The KBW Bank index leaped nearly 15 percent and is up 88 percent since early March.
The Dow Jones industrial average rose 214.33 points, or 2.61 percent, to 8,426.74. The Standard & Poor's 500 Index gained 29.72 points, or 3.39 percent, to 907.24 -- its first close above the 900 level since early January. The Nasdaq Composite Index climbed 44.36 points, or 2.58 percent, to 1,763.56.
The broad S&P 500 turned positive for the year 2009, but it is still off 42 percent from its October 2007 record high.
All but one of the Dow's 30 stocks ended in positive territory.

"We saw a seasonal increase in sales activity in the March quarter, with our net sales increasing 50% from our December quarter. However, market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence," said Donald Horton, chairman of the board.

Crude for June delivery gained $1.27, or 2.3%, to end at $54.47 a barrel on the New York Mercantile Exchange, the highest closing level for a front-month contract since Nov. 24.

Greed Then Fear

5/3/09 Greed Then Fear

State and federal regulators late Friday closed America West Bank, of Layton, Utah. It was the third financial institution closed Friday and the 32nd failure of the year.

Paul Miller: "Okay, so the effect of imports declining more than exports was to add $56.1 billion to GDP, compared with a $11.4 billion negative effect in the 4Q 2008, making a total swing of $67.5 billion. That was the single largest positive for GDP in the first quarter. Interestingly, because the prices of our imports fell more than the prices of our exports (think oil), the effect on nominal GDP growth was even greater, making a positive contribution of $108 billion, equal to over 3% of GDP at an annual rate.
Which reminds of of some comments I made about two years ago, that as we entered a recessionary period, the considerable outsourcing of U.S. production to foreign factories would serve to make imports an unemployment shock absorber. That’s exactly what has happened.
Meanwhile, certain parts of the economy that have been weak continued to be weak, notably residential construction, and nonresidential investment in structures and equipment which together knocked $183 billion off GDP and were the biggest negatives."

The delay in the release of the stress test results comes after some troubled banks, including Citigroup and Bank of America, contested the governments’ findings that they needed billions of dollars in extra capital.

"On any major policy -- on finance at Treasury or national-security efforts -- the White House is going to play a major role," said David Axelrod, a White House senior adviser. "This is no different. We face in essence an economic emergency. It's an all-hands-on-deck situation."

NYC mayor Bloomberg plans to cut the city’s work force by 13,541 employees, mostly through attrition.

Chrysler said Friday that its sales fell 48 percent in April, the steepest drop in the industry, as the company descended into bankruptcy.

U.S. Rig Count is down 10 from last week at 945; down 894 year over year.

Canadian Rig Count up 2 from last week at 67; down 28 year over year.
The U.S. Offshore rig count is 51, unchanged from last week; down 18 year over year.

Almost 30 California water districts around the state have enacted some form of mandatory rationing, up from just over 20 last week.

As of 06:00 GMT, 2 May 2009, 15 countries have officially reported 615 cases of influenza A(H1N1) infection.

S tephanie Pomboy: "Bear-market rallies come and go, but what makes this one so noteworthy is just how far removed perception is from reality."

Doug Noland: "Conventional analysis of monetary policymaking still focuses on “inflation” and “deflation” risks. I would strongly argue that our contemporary world has already validated the analysis that acute financial and economic fragility are major costs associated with market pricing distortions....I see ample support for my view that Bubble dynamics have taken root throughout government finance. This unprecedented inflation includes Federal Reserve Credit, Treasury borrowings, Agency debt, GSE MBS guarantees, FHA and FDIC insurance, massive pension and healthcare obligations, the myriad new market support programs, etc. This Government Finance Bubble is domestic as well as global. Amazingly, the scope of the unfolding Bubble dwarfs even the Mortgage Finance Bubble. And, importantly, it is reasonable to presume that the Federal Reserve will find itself in the familiar position of being trapped by the risk of bursting a historic Bubble.
So I see the probabilities as very low that the Fed will reverse course and impose tightened liquidity conditions upon the marketplace. Actually, reflationary pressures may force the Fed to increase its Treasury holdings in an effort to maintain artificially low interest rates. At the same time, I don’t see higher inflation as the greatest cost associated with this predicament. Much greater risk lies with the acute systemic fragility that I believe is inherent to major Bubbles. Similar to mortgage finance 2002-2007, the marketplace is significantly mispricing the cost - and failing to recognize the risks - of a massive inflation of government finance. And while every Bubble has its own dynamics and nuances, the unfolding Government Finance Bubble has even more precarious Ponzi Finance dynamics than the Mortgage Bubble...At the end of the day, a system is made or lost on the soundness of its underlying economic structure. I posit that a sound economic structure is reliant upon only moderate Credit growth and risk intermediation. Our system requires massive Credit expansion and intensive risk intermediation. I would also posit that there are no benefits – only escalating costs – to throwing massive Credit inflation upon an unhealthy economic structure. And, returning to Ponzi Dynamics, one of the major costs to such inflationism is a massive expansion of non-productive Credit – obligations that are created without a corresponding increase in real economic wealth producing capacity. The debt can only be serviced by the creation of more debt obligations...But at some point and out of the Fed’s control, as Wall Street learned, greed inevitably turns to fear and a reversal of speculative flows marks the onset of the bust. And it’s the massive inflation of non-productive Credit that ensures the unavoidable crisis of confidence. Can the underlying economic structure service the mounting debt load or, instead, is it the massively inflating debt load that is sustaining a vulnerable economy? And it is in this vein that I fear the Government Finance Bubble is on track to destroy the Creditworthiness of the entire economy. And this Ponzi Dynamic is The Greatest Cost to what I fear is a continuation of unsound policymaking."

Berkshire generated first-quarter operating earnings of $1.7 billion, down from $1.9 billion a year earlier. Book value per share declined 6% in the latest quarter, mostly because of a decline in the value of Berkshire's investments. Berkshire ended the quarter with $22.7 billion in cash and cash equivalents. The company made a $3 billion investment the following day, so that left it with less than $20 billion in cash, Buffett said. Warren Buffett acknowledged Saturday that Berkshire Hathaway Inc. would probably lose money on some of the derivatives contracts that have prompted some criticism from analysts.

The U.S. Agriculture Department said swine in Canada have tested positive for H1N1.

Workers' earnings are stagnating or even declining as employers big and small resort to slashing hours and wage cuts.
The forecasts, by the Obama administration and the Congressional Budget Office, indicate Social Security beneficiaries will not receive any cost-of-living increase in 2010 or in 2011. The COLA is intended to preserve the purchasing power of Social Security, by increasing benefits to keep pace with consumer prices. In the past year, overall inflation has been low, largely because of the economic downturn and a decline in energy prices.
A freeze in Social Security benefits would have major implications for Medicare because the COLA, in effect, puts a cap on premiums for Medicare Part B, which covers doctors' services.
If there is no cost-of-living adjustment for Social Security, about three-fourths of beneficiaries will not see any change in their basic Part B premiums, federal officials said. But some beneficiaries could face substantial increases in their Part B premiums.

"It is now absolutely his economy," said Paul Light, a New York University professor who specializes in presidential transitions. "I don't think that the public will continue to believe that this was all George W. Bush's doing. And every day that goes by, it becomes more Obama's than Bush's."

John Mauldin: "To be long this market going into summer you need to be brave or have very serious stops on your portfolio. I think the possibility of missed expectations at the end of the second quarter is high. It could be ugly."

Mike Burk: "The time and magnitude of the rally off the March lows has been impressive, but it has failed to generate a significant number of new highs and new highs deteriorated as the market rose during the last half of the week.
I expect the major indices to be lower on Friday May 8 than they were on Friday May 1."

Warren Buffett said all four candidates to replace him as chief investment officer of Berkshire Hathaway Inc. failed to beat the 38 percent decline of the Standard & Poor’s 500 Index last year.
“In terms of 2008 by itself, you would not say that they covered themselves with glory,” Buffett, 78, said yesterday during the annual meeting of Omaha, Nebraska-based Berkshire. “But I didn’t cover myself in glory either in 2008.”

"Asian countries must restructure their economies and focus more on domestic demand," Japanese Finance Minister Kaoru Yosano said.