Saturday, May 23, 2009

Anarchy And Tyranny

5/23/09 Anarchy And Tyranny

John Adams: "The moment the idea is admitted into society that property is not as sacred as the laws of God, and there is not a force of law and public justice to protect it, anarchy and tyranny commence."

Justice Louis Brandeis: "Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding."

Daniel Webster: "Good intentions will always be pleaded for any assumption of power. The Constitution was made to guard the people against the dangers of good intentions. There are men in all ages who mean to govern well, but they mean to govern. They promise to be good masters, but they mean to be masters."

Doug Noland: "The issue is not whether the U.S. “inevitably” loses its AAA rating. Rather, the focal point of the current economic debate should be on whether our well-intended policymakers (fiscal and monetary) have charted a course that risks bankrupting the entire economy. I’ll continue to argue that the paramount policy priority should be avoiding such an outcome. And I will add that there is ample confirmation these days of the inherent propensity for inflationary developments to proceed toward the worst-case scenario....I fear the current policy path ensures an especially arduous and protracted adjustment period – along with myriad problems associated with an unwieldy inflation backdrop....Now, more than ever before, “Keynesian” inflationism is THE Bubble. When it eventually bursts Washington policymakers will have little left to offer. "

David Swensen, the top-ranked college endowment manager in the past decade, said individual investors should own inflation-protected Treasuries because U.S. economic recovery efforts may lead to an increase in consumer prices.
“We’ve had this massive fiscal stimulus, massive monetary stimulus, and it’s hard to see how that doesn’t translate into pretty substantial inflation, or at least pretty substantial risk of inflation,” Swensen, Yale University’s investment chief, said in an interview on the “Consuelo Mack WealthTrack” television show that aired yesterday. Treasury Inflation- Protected Securities “should be in every investor’s portfolio," he said. "The Administration is starting to face some resistance in Congress about its plan to put GM (GM) into Chapter 11 using Treasury money to sustain the company as it works it way back to profitability. The government put another $4 billion into the car company yesterday. In the process of a government supported bankruptcy, $27 billion in bondholder capital will probably become worthless, GM workers will be laid off, and hundreds of dealers will be closed."

According to the FT, under the current plan, the US government would cancel most or all of its existing debt in the company and invest in a “new” GM that could emerge from bankruptcy in the autumn, said a person close to the matter.

C.S. Lewis: " Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber barons cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."

Pastor Niemoller: "First they came for the Jews, but I did nothing because I am not a Jew. Then they came for the socialists, but I did nothing because I am not a socialist. Then they came for the Catholics, but I did nothing because I am not a Catholic. Finally, they came for me, but by then there was no one left to help me."

Richard E. Byrd: "A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house.... The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it, men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the taxpayer. An army of federal inspectors, spies, and detectives will descend upon the state."

Friday, May 22, 2009

Treasuries And The Dollar

5/22/09 Treasuries And The Dollar

Crude for July delivery rose 87 cents, or 1.4%, to $61.92 a barrel in early North American trading. Gold for June delivery rose $8.40, or 0.9%, to $959.60 an ounce in early North American electronic trading.

Average retail U.S. gasoline prices rose 3 cents to $2.39 a gallon on Friday, ahead of the 2009 Memorial Day weekend, according to the AAA Daily Fuel Gauge Report.

The Bank of Japan, for the first time in nearly three years, acknowledged Friday that there are signs of improvement in the economy. "The pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy," the central bank's board members said at the conclusion of a two-day meeting.

Red Robin reported a 47 percent decline in first-quarter earnings as sales at stores open at least a year fell 8.1 percent. The company said the same-store sales decline — a key metric of retail health — accelerated to 11.1 percent in the first four weeks of the current quarter.

The Oil Drum: "Mexican oil exports plunged 18.2% in April to levels unseen since 1990 outside hurricane seasons, in more grim news for a key economic motor relied on for a major chunk of government revenues.
Crude export volumes tumbled to 1.177 million barrels per day as yields at Mexico's aging Cantarell field continued to plummet, state oil monopoly Pemex said today.
Oil production declined 4.2% year-on-year to 2.642 million bpd in April, the fourth month in a row that it has been below a targeted level of 2.7 million bpd, according to a Reuters report. "

The FDIC seized BankUnited Financial in the 34th -- and largest -- bank failure this year, at an estimated cost of $4.9 billion to the agency's insurance fund.

The dollar was weaker against both the euro and the Japanese yen, continuing its decline after plunging sharply Thursday on worry that the U.S. could also face a threat to its credit rating.

The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The Treasury Department's watchdog has uncovered improper backdating of cash infusions at six thrifts including IndyMac, in an investigation that already has prompted the removal of the federal thrift agency's acting director.
Federal regulators were aware of the backdating at two of the thrifts, and directed or authorized those institutions to do it, the Treasury's inspector general said in a report Thursday. Pushing back the dates of the infusions can allow banks to meet quarterly government requirements for capital reserves.

The median home price in California declined 0.9% to $221,000 in April from $223,000 in March, MDA DataQuick said in a report released Thursday.

The figures marked a third consecutive month that the median price declined less than 1%. Last year's average month-to-month decline was more than 4%.

Federal Reserve Bank of Boston President Eric Rosengren said the U.S. recovery would be slow and deflation is a bigger threat than inflation. Inflation is a major concern of all bondholders because it erodes the value of fixed payments.

Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show.
While 17 financial institutions have repaid TARP funds, only one has come to terms with the U.S. on the value of the rights to buy stock that taxpayers received for the risk of recapitalizing the industry. That was Old National Bancorp in Evansville, Indiana, which gave the Treasury Department $1.2 million for warrants that may have been worth $5.81 million, according to the data.
If Geithner makes the same deal for all companies in the rescue program, lenders may walk away with 80 percent of profits taxpayers might have claimed.

MasterCard Inc., the world’s second- largest electronic payments network, will lose more than half of a $59 billion portfolio of debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa Inc., two people familiar with the matter said.

President Hugo Chavez ordered the takeover of at least six metal, ceramic and other companies Thursday, accelerating his push to spread socialism and build "an industrial complex" in Venezuela.

The companies include Venezuelan steelmaker Siderurgica Venezolana SA, ceramic tile-maker Ceramica Carabobo, and iron producer Materiales Siderurgicos SA, or Matesi. Matesi is owned by the Argentine-Italian conglomerate Techint through its Luxembourg-based subsidiary Tenaris.

Also affected is iron producer Complejo Siderurgico de Guayana, whose shareholders include Japanese investment conglomerate Marubeni Corp., Japanese steelmaker Kobe Steel Ltd., and Mexico's Tubos de Acero de Mexico SA.

"I think the time has come when California has to live within its means. We're having some pretty tough financial times back here ourselves," said Rep. Wally Herger (R-Chico). "I'm not sure the federal government has the means to step in. . . . Somewhere along the line, California has to recognize that they've got to cut back on their spending."

Rep. Brad Sherman (D-Sherman Oaks), who said he had tried to put together a delegation letter in support of the federal loan guarantee but got no support from his GOP colleagues, said, "We're in competition with Wall Street for the same money, and Wall Street is not without its supporters."

Recently famous fund manager John Paulson has been piling into gold funds. If you recall, Paulson gained celebrity for his early and aggressive shorting of all things subprime and financial, a move which garnered all sorts of accolades… highest-paid fund manager of last year, Barron’s No. 1 fund, etc.
Paulson has now become the largest holder of the SPDR Gold Trust, better known as GLD. His fund owns a whopping 8.7% stake, worth over $2.8 billion. That’s his No. 1 holding, worth over 30% of his entire portfolio.
According to a recently filed 13-K, he’s also picked up super-sized stakes in the Gold Miners ETF (GDX), Gold Fields, Kinross Gold and AngloGold Ashanti.

For the week ended March 20, AMG Data Services reported Equity Fund Inflows $1.5 Bil; Taxable Bond Fund Inflows $4 Bil
xETFs - Equity Fund Inflows $810 Mil; Taxable Bond Fund Inflows $2.8 Bil.
For 9 to 10 consecutive weeks, there have been inflows for international as well as emerging market funds.

Rob Hanna: "First, trying to buy all 3+ day pullbacks prior to 1987 was a losing strategy. After that it the market showed less tendency to trend and an increased tendency reverse. Buying 3+ day drops became profitable.... Until very recently there was no advantage to buying the third close lower in a row....The further the market drops, the more vicious the snapback is likely to be....The bottom line is that 3 lower closes may indicate the market is getting stretched. The market will likely bounce some time soon. It doesn’t normally offer much of a day 4 edge on its own, though."

Treasury prices declined Friday, pushing yields on the benchmark 10-year note to the highest since November, as investors prepare The Treasury Department will sell $101 billion in 2-, 5- and 7-year notes next week.

The biggest Wall Street crisis since the Great Depression isn’t just a setback for New York or bankers. The finance industry’s contraction may wipe out $185 billion in wages and profits, or $600 for every man, woman and child in the U.S., according to Thomas Philippon, a finance professor at New York University’s Stern School of Business. The trail of reduced income affects car mechanics, waiters, sports teams, hair stylists, jewelers, housecleaners and watch repair shops.
“We’re seeing lots of lives derailed,” said Simon Johnson, professor of entrepreneurship at the Massachusetts Institute of Technology.

The Federal Reserve's myriad emergency programs for the U.S. economy threaten the central bank's independence, raising the risk of future inflation, Philadelphia Federal Reserve President Charles Plosser said on Thursday.


To resolve the problem, Plosser argued the Treasury Department should agree to take on riskier assets like mortgage bonds that have been absorbed by the Fed in an effort to free up credit markets.

Bill Gross, co-chief investment officer of bond giant Pacific Investment Management Co, said he believes the United States will be downgraded in three to four years.

The Australian and New Zealand dollars rose to seven-month highs against the greenback on concern record debt sales will endanger the U.S. government’s credit rating.

Crude for July delivery rose 58 cents, or 1%, to $61.63 a barrel in late afternoon North American electronic trading.

U.S. 10-year Treasury bond yields rose to 3.45%. “We are testing key levels on the long end of the market,” said Hicham Hajhamou, a trader in New York at BNP Paribas, one of the 16 primary dealers that trade with the Federal Reserve. “There’s a lack of confidence in dollar assets and the bond market is repricing itself.”

The U.S. Dollar Index plunged to 80.04.

Champaign, Ill.-based Strategic Capital Bank was closed by regulators Friday, marking the 35th bank failure of 2009, the Federal Deposit Insurance Corp. said Friday.

Macomb, Ill.-based Citizens National Bank was closed by regulators, the 36th bank failure of the year and the second Illinois closure announced on Friday, according to the the Federal Deposit Insurance Corp.

GMAC LLC, an auto finance arm part-owned by General Motors Corp. and Cerberus Capital Management, will need to cut $1 billion in costs by the end of the year, The Wall Street Journal reported late Friday on its Web site, citing people familiar with the matter. The cuts represent 20% of GMAC's expense base.

For the week, though, stocks finished moderately higher, with the blue-chip Dow average up 0.1 percent, the S&P 500 up 0.5 percent and the Nasdaq up 0.7 percent.

Thursday, May 21, 2009

"Dollar Is Dirt"

5/21/09 "Dollar Is Dirt"

Mark Gilbert: "The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.
While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”
Several policy missteps suggest that investors should stop trusting -- and lending to -- the U.S. government. These include the state’s pressure on
Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets. "

First-time claims for state unemployment benefits fell by 12,000 to a seasonally adjusted 631,000 in the week ending May 16, the Labor Department reported Thursday. The four-week average of initial claims fell by 3,500 to 628,500, data show. Meanwhile, the number of continuing claims hit a record high, climbing by 75,000 to a seasonally adjusted 6.66 million the week ending May 9. The four-week average of those claims also hit a record, of 6.48 million.

For the full year, Hormel forecast earnings in the range of $2.15 to $2.25 a share.

Standard & Poor's cut its credit-rating outlook on the U.K. to negative from stable though it affirmed the country's AAA sovereign credit rating. "We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term," Standard & Poor's credit analyst David Beers said. "We base our opinion on our updated projections of general government deficits in 2009-2013. These projections reflect our more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow."

WSJ: "For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier."

The Oil Drum: "Fatih Birol, The IEA's advisor to 28 industrialized countries, said in an interview he expected oil and gas upstream investment to fall 21%, or about US$100-billion ($113.8-billion), in 2009 from 2008 due to the global recession.
"Energy investment is plunging," Mr. Birol said. "If these two come together --a further cut down in the investment and a quick and strong recovery in the economy -- we may have difficulties in the oil market in a few years' time."

Financial Post: "The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.
"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

GM cuts 240 Canadian dealers.

The Treasury is poised to inject more than $7 billion into GMAC, the first installment of a new aid package that could reach $14 billion.

AAA projects that a little more than 4 million Californians will take trips of more than 50 miles this weekend - a decline of 2.3 percent from last year, when travel also declined.
The number of Californians expected to travel by air, the AAA says, is down 5.8 percent, to 343,000. Driving remains the most popular way to get out of town, with 3.2 million Californians expected to hit the road. But that's down by 2.1 percent.

The government says Taiwan's economy contracted by a record 10.2 percent year-on-year in the first quarter of 2009. Singapore's gross domestic product fell an annualized, seasonally adjusted 14.6 percent in the first quarter from the previous quarter and slid 10.1 percent from a year earlier, the Trade and Industry Ministry said Thursday.
The ministry said last month that GDP plunged 19.7 percent from the previous quarter and 11.5 percent from a year earlier based on preliminary data largely from January and February.

Speaking at the National Archives, a backdrop chosen because it is the home of the U.S. Constitution, Bill of Rights and Declaration of Independence, the president will say that America must continue to see those documents as the "foundation of liberty and justice in this country, and a light that shines for all who seek freedom, fairness, equality and dignity in the world," a senior administration official said early this morning.

Maya MacGuineas: "On two separate issues -- health-care and the budget -- the president has promised savings of $2 trillion. A total of $4 trillion dollars -- now that's real money. Unfortunately, the claims are completely exaggerated."

“We’ve moved away from the abyss,” said
David Semmens, an economist at Standard Chartered Bank in New York. Still, “the economy is going to stay very anemic. The labor market is just very weak, and people aren’t going to have the access to credit that they previously had.”

RGE Monitor: "Commodity prices seem to be getting ahead of fundamentals again. As of May 13, 2009, the Rogers International Commodity Index rose 7.6% since the start of 2009 on the belief that putative ‘green shoots’ around the world validated a V-shaped economic recovery in 2009. However, these 'green shoots' might still be a signal of the stabilization of economic activity at low levels, rather than a return to trend growth. Even if GDP growth around the world has bottomed, growth may continue to be negative or sluggish until 2011. As such, commodity price gains might reveal a false sign of economic recovery – and so might the recent spate of bear market rallies in stock markets and inflows into emerging markets. The strong uptrend in commodity prices since February has been propelled more by technicals (investment demand, opportunistic stockpiling at low prices) than fundamentals (real growth in physical demand and production). Commodity prices could snap back to reality before resuming a more moderate uptrend in line with a U-shaped global growth path. "

The index of leading economic indicators rose 1% in April - the first increase in seven months -- following a revised dip of 0.2% in March. "The question is how long before declines in activity give way to small increases. If the indicators continue on the current track, that point might be reached in the second half of the year," said Ken Goldstein, economist at the Conference Board. Of the 10 indicators that comprise the index, seven rose in April, with the largest positive contribution from stock prices. The largest negative contribution came from the real money supply.

U.S. May Philly Fed index -22.6 vs. -24.4 April.

Discount retail chain Ross Stores Inc. said Thursday its first-quarter profit rose 15 percent as consumers were attracted to its bargain prices amid the recession. The company raised its full-year profit forecast.

The National Archives lost a computer hard drive containing massive amounts of sensitive data from the Clinton administration, including Social Security numbers, addresses, and Secret Service and White House operating procedures, congressional officials said Tuesday.

Brent Steenbarger: " When SPY has been down for two consecutive days since 2000 and then opens the next day lower, the day session averages a gain of .14% (105 up, 77 down). Across all other sessions, the day trade has averaged a loss of -.03% (1086 up, 1089 down). "

Gold for June delivery added $13.80, or 1.5%, to finish at $951.20, its highest close since March 23, on the Comex division on the New York Mercantile Exchange. Light, sweet crude fell 99 cents to settle at $61.05 a barrel, after closing at $62.04, a six-month high, on Wednesday.

China, the second biggest oil consumer, increased oil consumption by 4% in April, the first year-on-year gain in six months, according to a report released by energy information provider Platts on Thursday.

BankUnited Financial, the largest lender based in Florida, was shut down by banking regulators and sold to a group of private-equity firms, the Federal Deposit Insurance Corp. said late Thursday.

The yield on 10-year Treasury bonds rose to 3.37%.

Autodesk said it has begun a cost-cutting plan that would involve the elimination of about 430 jobs.

The Dow Jones Industrial Average slid 130 points, or 1.5%, to close at 8,292. The Nasdaq Composite Index shed 33 points, or 1.9%, to 1,695, and the Standard & Poor's 500 Index lost 15 points, or 1.7%, to close at 888.

The dollar continued to lose ground today, sliding to a six-month low against the euro.

Wednesday, May 20, 2009


5/20/09 The VIX

Mike Shedlock: "Think the US stock market is going to come roaring back if consumer deleveraging plays out as it must? Think again.
Expect another "Lost Decade" when it comes to housing and the stock market. It's the deflationary payback for the greatest credit binge in world history."

Japanese Finance Minister Kaoru Yosano warned Wednesday that the nation's economy faces further downside risks due to the deteriorating job market, according to remarks reported by Kyodo News. "We need to keep in mind the risk of further downward pressure on the economy as significant adjustments in the job market continue to be a concern," he was quoted as saying following the Wednesday release of data showing a record drop in gross domestic product during the January-March period. Japan's economy contracted by a 15.2 percent annual pace in the first quarter — its sharpest drop on record — as exports plunged, companies slashed production and families cut back on spending, the government said Wednesday.

Ann Taylor Stores Corp.swung to a first-quarter loss of $2.31 million, or 4 cents a share, from profit of $25.9 million, or 43 cents, a year earlier. Sales fell to $426.7 million from $591.7 million. The company sees second-quarter sales to "again remain under significant pressure," primarily at its Ann Taylor chain.

Deere & Co. said Wednesday its fiscal second-quarter earnings fell to $472 million, or $1.11 a share, from $764 million, or $1.74 a share, in the year-ago period. Sales plunged 17% to $6.8 billion. For the fiscal year through October, Deere forecast net income of $1.1 billion with downside risk. Deere projected sales to be down about 19% for fiscal 2009 and down about 26% for the third quarter.

Toll Brothers Inc., a luxury-home builder, estimated second-quarter home-building revenue fell 51% from the year-earlier quarter to $388.3 million while units sold fell 47% to 648. The backlog at April 30 was $944.3 million, down 55%, and 1,581 units, down 48%. Net signed contracts for the quarter were valued at $298.3 million, down 40%, covering 582 units, down 37%.

The Oil Drum: "World oil production peaked in July 2008 at 74.82 million barrels/day (mbd) and now has fallen to about 71 mbd. It is expected that oil production will decline slowly to about December 2010 as OPEC production increases while non-OPEC production decreases. After 2010 the resulting annual production decline rate increases to 3.4% as OPEC production is unable to offset cumulative non-OPEC declines. "

Target said profit fell to $522 million, or 69 cents per share for its fiscal first quarter ended May 2, from $602 million, or 74 cents per share, a year earlier.
Sales edged up to $14.4 billon from $14.3 billion.

Mahmoud Ahmadinejad said Iran test-fired a new advanced missile Wednesday with a range capable of reaching Israel and U.S. Mideast bases.

BJ's Wholesale Club Inc. said Wednesday that its first-quarter profit rose 42 percent, narrowly beating Wall Street expectations, and raised its 2009 profit guidance.

Today, Albertsons will announce a plan to lower prices for thousands of goods at its 222 Southern California supermarkets. The initiative is aimed at regaining budget-minded customers both from its rivals and those lost to discounters such as Wal-Mart Stores Inc. and Target Corp.

California voters rejected a package of budget-balancing measures that Governor
Arnold Schwarzenegger said were needed to keep a $15 billion deficit from widening to $21 billion. A proposal to limit lawmaker pay passed.
“I respect the will of the people who are frustrated with the dysfunction in our budget system,” Schwarzenegger said in a statement from Washington conceding defeat. “In order to prevent a fiscal disaster, Democrats and Republicans must collaborate and work together to address this shortfall.”

Federal Reserve Bank of San Francisco: "In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased."

The federal agency that backs up pension plans of failed companies saw its deficit balloon to a record $33.5 billion in the first half of the fiscal year, acting director Vince Snowbarger will tell Congress on Wednesday. About half of the $22.5 billion increase came from plan terminations, and another third came from the drop in interest rates. The Pension Benefit Guaranty Corp. lost $3 billion on its investments. As of March 31, 68% of the PBGC portfolio was in bonds and 30% was in equities. In the past year, the PBGC moved to boost the percentage of equities in its portfolio, a controversial move that went against the recommendations of the Government Accountability Office.

The number of confirmed cases of the new Influenza A (H1N1) flu has risen to 10243 and the death toll has edged up to 80, the World Health Organization (WHO) said on Wednesday.

Architects reported lower billings again in April, but new inquiries about building projects rose, the American Institute of Architects said Wednesday. "A growing number of architecture firms report potential projects arising from federal stimulus funds," said Kermit Baker, chief economist for the industry group. "Still, too many architects are continuing to report difficult conditions to feel confident that the economic landscape for the construction industry will improve very quickly." The billing index fell to 42.8 in April after rising by eight points to 43.7 in March. The new inquiries index rose to 56.8.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman filed the biggest bankruptcy in U.S. history.
“Volatility fell off a cliff,” said Carl Mason, head of U.S. equity derivatives strategy at BNP Paribas in New York. “I don’t get the sense that many investors are putting on new hedges, but if they are they’re not hedging against a complete meltdown.”

The stock market may hit new lows this year or the next as the current rally has been largely caused by the money printed by central banks and fundamental problems remain unsolved, legendary investor Jim Rogers told CNBC Wednesday. Governments have not solved the essential problems that caused the crisis but instead they "flooded the world with money," according to Rogers. Trying to solve the problem of too much consumption and too much debt with more consumption "defies belief" and will not work, he said.

Soybeans in Chicago advanced to the highest in more than seven months on speculation that output of the crop from a Chinese province and from South America may decline, potentially boosting demand for U.S. supplies. Soybeans are approaching $12 a bushel.

Japan’s output of copper and copper- alloy fabricated products may total 700,000 metric tons this fiscal year, 17 percent more than initially forecast on higher Chinese demand, the Japan Copper and Brass Association said.

First-quarter sales of handsets fell to 269 million units, down 14.5% from the fourth quarter of 2008 and 9.4% from a year earlier.
However, smart-phone sales increased 12.7% to 36 million units, and represented 13.5% of all mobile-device sales in the first quarter, up from 11% a year earlier, Gartner said.
"Much of the smart-phone growth during the first quarter of 2009 was driven by touch-screen products, both in midtier and high-end devices," said Roberta Cozza, principal analyst at Gartner.

Lack of demand and lack of credit will keep the U.S. commercial real estate market weak for the remainder of the year, the National Association of Realtors said Wednesday. The NAR's quarterly leading indicator for commercial real estate fell 4.8% in the first quarter compared with the fourth and is down 12.9% compared with a year ago.

Brett Steenbarger: "
A defining feature of the market rally to this point is that higher prices have attracted less total participation. At some point--the point at which the narrowing participation translates into a narrowed participation of stocks--the rally loses enough steam that its upside potential becomes severely limited. While the Dow stocks are near their bull highs, I just posted to Twitter that new 20-day highs yesterday were only 1117. That is less than half of the levels of new highs seen earlier this month. That has me questioning the bull's legs."

The Oil Drum: "The energy equivalence of natural gas to oil is about 6 to 1, so $7 natural gas would be similar to $42 oil and $10 natural gas would be similar to $60 oil, at least for transportation purposes.
Natural gas in the US usually trades at a substantial discount (as much as 50%) to the Btu equivalent of oil, though, because of the high cost of transporting the gas, and because it is not as highly valued as oil. For these reasons, for electricity and heating, most users would find $8 to $10 natural gas quite expensive. If prices were this high, homeowners would find it necessary to cut back on other purchases to pay their heating and electricity bills.
Getting a balance on natural gas is very tricky. Pipelines and built infrastructure are inflexible. Building only a few too many vehicles could tip the balance the other direction again. Changes in natural gas for electrical use could have an almost immediate effect, and would need to be considered in the balance.
It seems like natural gas has the potential to do more than it is now doing, if we could only figure out how to harness the capabilities of what we have. To do this, we will need to keep the price high enough and get the right amount of new end use infrastructure built."

Crude inventories decreased by 2.1 million barrels in the week ended May 15, the Energy Information Administration reported. Analysts surveyed by Platts had expected a gain of 1.5 million barrels. Meanwhile, gasoline inventories fell by 4.3 million barrels and distillate stockpiles rose by 600,000 barrels.

The Dollar Index, used by Intercontinental Exchange Inc. to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, dropped as much as 1.2 percent to 81.129, the lowest level since Jan. 2, on reduced demand for safety.

Gold for June delivery rose $10.70, or 1.2%, to end at $937.40 an ounce on the Comex division of the New York Mercantile Exchange, the highest level since March 26.
Crude for July delivery, the new front-month contract, gained $1.94, or 3.2%, to end at $62.04 a barrel on the New York Mercantile Exchange, the highest closing level for a front-month contract since Nov. 10.

Peter Eliades: "We believe this market is in danger, perhaps even great danger, once again. We know that sounds dramatic, but the fact that the indexes and averages stopped where they did has deepened the analogy between 1930-1931 and the current time zone. Until or unless new recovery highs are established, it will be our contention that this market could be headed to new lows for the year much sooner than most believe possible."

"Hell would have to freeze over for us to get out of this," said Cincinnati Council member Leslie Ghiz. "There will be layoffs. There will be cuts. And it will be painful."

Bill Luby: "First, the historical average of the VIX for 20 years of data extending back to 1990 is 20.12 (dotted black line in the chart below.) The mean VIX for all of 2008, which includes a relatively calm April through August, is 32.68. Looking back at the five year period of 1998-2002, which included the Long-Term Capital Management debacle and the end of the 1990s bull market, the average VIX during this period was 25.27. Current data show S&P 500 historical volatility for the 10, 20 and 30 day lookback periods at 30.88, 27.24 and 30.53, respectively.
The bottom line: 25.00 is a low number for a volatile period."

The Dow Jones Industrial Average shed 53 points to close at 8,422. The Nasdaq Composite Index lost 7 points to 1,728, and the Standard & Poor's 500 Index slid 5 points to end the session at 903.

Tuesday, May 19, 2009

The Yuan's Status

5/19/09 The Yuan's Status

Optimism that the housing slump had hit bottom was damaged Tuesday when the government reported that construction on new housing projects slowed to a record low pace in April. The Commerce Department says construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century.
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 494,000.
This is 3.3 percent (±2.3%) below the revised March rate of 511,000 and is 50.2 percent (±1.4%) below the revised April 2008 estimate of 991,000.

Home Depot still sees fiscal 2009 sales down 9% with negative comparable-store sales in the high-single-digit area and earnings per share from continuing operations down 7%. “Our markets, and the consumer in general, remain under pressure,” Chairman and Chief Executive Frank Blake said in a statement. In the latest quarter, the average ticket dropped 8.2 percent to $52.67.

HSBC Holdings Plc and Bank of East Asia Ltd. won approval to be the first foreign banks to sell yuan bonds in Hong Kong from Chinese regulators, who want to boost the currency’s international role. The Financial Times reports China and Brazil have discussed using their own currencies for trade. The U.S. has been replaced by China as Brazil's biggest trading partner. Brazil is a key supplier of soybeans, iron ore and other raw materials to China. China promised to loan $10b to Petrobras, the state oil company which is seeking new funds to finance its extensive investment program especially as it plans to exploit the n
ew pre-salt layer oil finds which could be quite costly.

Medtronic Inc. issued its fiscal 2010 financial forecast early Tuesday, stating it sees revenue growing 5% to 8% on a constant currency basis. Adjusted earnings per share should come in between $3.10 and $3.20.
Medtronic to cut 1,500 to 1,800 jobs.

Woody Brock: "There is a genuine risk that the huge amount of debt that accrues and must be serviced in the future could transform the US into a "banana republic" in the much longer run. This risk is heightened by the need to fund soaring Social Security and Medicare "entitlements," as record numbers of baby-boomers retire during the next two decades. Moreover, as time goes on, it is precisely these longer-term risks that will matter most to the market, and will increasingly be discounted. Investors of every stripe will be impacted."

As Rob Hanna pointed out, " Monday wasn’t just a 5-day low in Nasdaq volume, it was the lowest level in over a month accompanying a 3% Nasdaq index rise...Indications are for weakness in the days following such an occurrence."

China's outline for the oil refining sector calls for raising crude oil processing capacity by about 18 percent from last year to 405 million tons a year by 2011.

By then, China plans to build three or four major refineries in the Yangtze River Delta, near Shanghai, and the Pearl River Delta, near Hong Kong in southern China, the notice by the State Council said.

Saks said it lost $5.1 million, or 4 cents per share, in the first quarter ended May 2. That compares with a profit of $17.3 million, or 12 cents per share, a year earlier.
Revenue fell 27 percent to $621.3 million, from $850 million a year earlier. Sales at stores open at least a year, known as same-store sales, dropped almost 28 percent.

The EIA expects total U.S. marketed natural gas production to drop by 1.0% in 2009 and by another 2.8% in 2010.

Auto sales continue to be week this month as consumers struggle with lack of confidence and lack of credit, General Motors CEO Fritz Henderson said Tuesday.

Richard Duncan: “The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century...Its demise is imminent. The only question is, will it be death by fire – hyperinflation – or death by ice – deflation? Fortunes will be made and lost, depending on the answer to that question.”

Michael Martin, Speaker of the U.K. House of Commons, resigns over the expenses scandal. He's the first Speaker to resign in 300 years.

Nouriel Roubini: "But while the rate of economic contraction is now lower than the free fall and near-depression experienced by many economies in Q4 of 20008 and Q1 of 2009 the recent optimism that “green shoots” of recovery will lead to the recession to bottom out by the middle of this year and that recovery to potential growth will rapidly occur in 2010 appears to be grossly misplaced. A careful assessment of the data suggests that rather than green shoots there are plenty of yellow weeds both in the short term and in the medium term."

The average price a domestic flier pays to fly one mile, excluding taxes and fees, fell nearly 11% in April to 13.4 cents, the Air Transport Association said Tuesday. International April yields also fell dramatically, with trans-Atlantic yields down 22% to 9.9 cents and trans-Pacific yields down 17% to 10.3 cents, the trade group said. Flights to Latin American saw yields fall just 8% to 12.8 cents, ATA said.

Paul Krugman: "Job losses were likely to continue into 2011, meaning "the period of a depressed economy" could last until 2013 or 2014, he said.

The Chicago Board Options Exchange Volatility Index Wall Street's favorite measure of investor concern, pierced the psychological 30 level Tuesday for the first time in eight months, indicating the perceived need for portfolio insurance is diminishing.

The so-called VIX fell 0.73 percent to 30.02 after notching a session low of 29.95, its lowest level since Sept. 19, 2008.

With Congress moving to limit penalties on riskier borrowers, the New York Times reports that credit-card companies may try to offset the lost revenue by ending benefits for those who pay on time.

Volkswagen AG said Tuesday it and Porsche Automobil Holding SE have resumed discussions to form an integrated auto company.

Gold futures end 0.5% higher at $926.70 an ounce. Analysts surveyed by energy information provider Platts expect a 1.5-million-barrel drop in crude inventories. Crude for June delivery ended up 62 cents, or 1.1%, at $59.65 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average down 29 points, or 0.3%, at 8,474. The S&P 500 index lost 1.6 points, or 0.2%, to finish at 908, while the Nasdaq Composite ended in the green, up 2 points, or 0.1%, at 1,734.

For the quarter ended April 30, H-P reported earnings of $1.7 billion, or 70 cents a share, compared to earnings of $2.1 billion, or 80 cents a share, for the same period the previous year. On a non-GAAP basis, the company said it would have earned $2.1 billion, or 86 cents a share, for the recent period. Sales fell 3% to $27.4 billion. For fiscal 2009, the company still expects an adjusted profit of $3.76 to $3.88 a share, but now expects revenue to fall 4 to 5 percent. It had previously forecast revenue to fall 2 to 5 percent. H-P also disclosed plans to lay off another 6,000 workers -- on top of previously announced job cuts.

Monday, May 18, 2009


5/18/09 Delinquencies

Lowe's forecast second-quarter profit of 51 cents to 55 cents a share with comparable sales expected to decline in a range of 4% to 8%. For the year, the company sees profit of $1.13 to $1.25 a share with comparable sales falling as much as 8%.

After cutting rates a total 3.75 percentage points since September, Israel's central-bank will raise its benchmark interest rate 0.25 percentage point to 0.75% at the end of the year, Citigroup said in a report dated Monday.

India's stocks soared out of the open Monday, with the benchmark Sensex 30 rising 10.7%, triggering market circuit-breakers to halt trading for one hour. The leap came amid optimism that the Congress Party's alliance victory in the just-concluded general election will result in a more market-friendly economic policy. India's rupee surged the most since 1986.

New research by Sandler O'Neill also suggests as many as 500 more banks could close.

John Hussman: "The Fed has turned its balance sheet into a garbage dump, in order to accommodate all of the additional Treasury issuance required to finance the rescue of bank bondholders....The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I've noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges....As long as we have a set of economic policies aimed at running massive government deficits at the same time individuals are encouraged not to save, we will risk driving this economy into the ground for a very, very long time. "

The average price for a gallon of gasoline in the United States increased nearly 25 cents in the past three weeks on a rise in
crude oil prices, according to the Lundberg survey released on Sunday.
The average national price for self-serve, regular, unleaded gasoline was $2.3010 a gallon on May 15, up from $2.0549 a gallon on April 24, according to a nationwide survey of 5,000 gas stations.

Pacific Ethanol Inc. said Monday its subsidiaries, which own its four wholly-owned ethanol production facilities, have filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware in an effort to restructure their debt.

China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline, according to the Royal Bank of Canada.
“It’s part of an overall desire to decrease its exposure to dollar assets,” said
Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong, in an interview today. China fears the hundreds of billions of dollars the U.S. is spending on bank bailouts and stimulus will cause “higher inflation and a weaker dollar,” he said.

"I've always been of the theory that if you get the consumer right, you're going to get U.S. GDP right and you'll get the trend in global GDP right," Jim Keegan says.

The Australian: "THE heated debate about the Treasury's rapid growth forecasts beyond 2011 overlooks the fact that we really don't know what is happening to the economy now.
It is still not clear whether the pattern of the global downturn resembles Japan's lost decade, the Great Depression or, as Treasury believes, something much more benign.
The data that is emerging from the world economy is all over the place. Some measures show improvement, some show things are getting worse, while many economists are pinning their hopes on statistics showing the rate at which things are getting worse has itself stopped getting worse. "

A report on homebuilder confidence from the National Association of Home Builders showed more improvement in the battered housing sector. The association's Housing Market Index, which measures industry confidence, rose to a reading of 16 in May, up from 14 in April and the ugly reading of 9 in March. It was the highest reading since September, when it came in at 17. In sum, the reading in May is till below a dismal reading in September. That's reality. Housing is in the toilet.

"The slump will not bottom out until foreclosures slow," Richard Dugas Jr., CEO of Pulte Homes, told the Detroit Free Press in a recent interview. The fact is the employment picture sucks. Not far behind is the income picture. Foreclosures will not slow any time soon.

"We think the season's modest uptick is fueled by spring euphoria," said John Burns, CEO of Irvine, Calif.-based John Burns Real Estate Consulting, who conducts his own survey of builder attitudes. He acknowledged the positive influence of mortgage rates, tax credits and improved affordability, but he said the future isn't as bright as some think.
"Further improvement is tempered by the ongoing competition from foreclosures, limited credit for both buyers and builders, and rising unemployment. Concerns over escalating REOs [bank-owned real estate] and further price erosion still weigh heavily," Burns wrote in a Monday note.

Oil ends up $2.69, or 4.8%, at $59.03 a barrel after a Nigerian militant group threatened to block key waterways in the Niger Delta to try to prevent crude exports, according to Reuters.
A fire at a Sunoco refinery also impacted operations in the northeastern U.S., adding to crude's gain.

June gold ends down $9.60, or 1%, at $921.70.

The Centers of Disease Control said Monday that the agency is seeing an unseasonably high rate of reported flu-like symptoms around the U.S., with highest activity in the Pacific Northwest and Southwest. CDC official Anne Schuchat told reporters that the number of confirmed cases of the H1N1 virus is "just the tip of the iceberg," as it takes time to confirm the cases through laboratory testing. She said that while there was no evidence the current strain was mutating into a more deadly virus, "we do not think the U.S. is out of the woods yet." So far, the CDC has received 1,523 reports of confirmed and suspected cases of the illness in 47 states and the District of Columbia. Six people have died in the U.S. since the illness was first identified last month, including a New York City school administrator over the weekend.

The Supreme Court rules that former Atty. Gen. John Ashcroft and FBI Director Robert Mueller can't be sued by more than 700 Muslim men sent to maximum security prison in the wake of the 2001 attacks.

Americans conducted 14.8 billion core searches in April, a 3% improvement from March, as Google Inc.'s sites continued to dominate the search market, according to comScore Inc.
Some 64% of searches conducted in the month of April were on Google sites, with Yahoo Inc. and Microsoft Corp. having market share of 20.4% and 8.2%, respectively. IAC/Interactive Corp.'s Ask network and Time Warner Inc.'s AOL rounded out the top five, each with results under 5%.

John Bogle: “Our nation’s system of retirement security is imperiled, headed for a serious train wreck.That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system.”

Any senior who makes less than $75,000 is going to get the stimulus check and the Making Work Pay tax credit. But getting both is against the rules, so as impolite as it is to give only to take back, millions of seniors are going to find that $250 gift from the government deducted from their tax credit next spring.

American Express to eliminate 4,000 jobs.

The Federal Reserve said on Monday that delinquency rates on all loans jumped to their highest level since 1991, with delinquencies on credit cards hitting the highest rate on record. In addition, the Fed said, all consumer loans hit a delinquency rate of 4.7%, also the highest rate on record, while delinquencies on residential real estate hit the highest rate on record as well. Delinquencies on commercial real estate hit 6.4%, the highest rate since 1993, the Fed said.

The Dow Jones Industrial Average added 235.44 points, or 2.9%, to 8,504.08. The S&P 500 Index rose 26.83 points, or 3%, to 909.71. The Nasdaq Composite advanced 52.22 points, or 3.1%, to 1,732.36.

Sunday, May 17, 2009

High End Housing

5/17/09 High End Housing

SF Chronicle: "After 14 months on the market and about a $1.2 million price cut, a large, newly built home in the Oakland hills is on the verge of selling, assuming the bank allows it to trade for less than what's due on the loan.
The approximately $950,000 "short sale" is a prominent example of something brokers don't like to talk about, at least not brokers who represent owners: High-end properties are increasingly coming under the sort of pressure once reserved for moderate homes. In fact, as slowing price declines fuel hope that the real estate bottom is near, other signs suggest the worst is on its way for the region's upscale market.
"The high end, they're hurting more, actually, and you can bargain more," said Pinky Sohal, a Realtor with Legacy Real Estate & Associates, who is representing the purchaser of 1055 Amito Drive in Oakland, a hedge fund manager whom she declined to name. "They're begging for buyers to come in."
The seller's agent didn't respond to inquires....In the Bay Area, the months of unsold inventory of existing single-family homes priced above $1 million reached 14 months in March, more than double where it stood a year ago, according to the California Association of Realtors. The statistic estimates the time it would take to sell all the homes on the market based on the current rate of transactions.
In contrast, inventory of homes priced below $500,000 fell to just 2.6 months, a nearly 80 percent decline. The same general trends were seen on the state level as well.....In addition, notices of default sent to delinquent borrowers in the Bay Area in the first quarter of this year were up 65 percent from a year earlier in ZIP codes where the median price was $800,000 or more, according to DataQuick data analyzed by The Chronicle. That compares with just 17.6 percent for the region as a whole."

"How serious is the present economic mess?" Charlie Munger asks. "Deadly serious. The worst mess since the Great Depression. You can't tell what happens when people get discouraged enough...."I don't see any reason why a major bank that was 'too big to fail' should be anything but a very boring business," he said. "I don't see any reason why you should have a system where every bright young man fresh out of college should have $8 billion to play with."

Barron's Andrew Bary says the bear market in U.S. Treasurys is just getting started, as markets struggle to digest massive bond issuance, and because the huge government stimulus could eventually lead to much higher inflation.

Jordan and Royal Dutch Shell PLC signed a concessionary agreement Sunday to explore for oil in the country's vast oil shale deposits.

In a consortium announced in Sharjah, United Arab Emirates, Austria's OMV AG and Hungary's MOL said they will each take a 10 percent stake in an Iraqi gas production site operated by the sheikdom's Dana Gas and Crescent Petroleum.
The deal gives the European companies a share of an $8 billion project to extract natural gas from the Khor Mor and Chemchemal fields in Iraq's northern Kurdish region.
Having a guaranteed supply source should jump-start efforts to build the 2,000-mile (3,300-kilometer) Nabucco pipeline linking Turkey to central Europe. Moscow opposes the project, as it would bypass Russian export routes.

The Nikkei 225 Average was down 2.2% at 9,059.54 in early action, and the broader Topix Index gave up 2% at 864.30.

The Primary Trend

5/16/09 The Primary Trend

The National Automobile Dealers Association, an industry group, says the GM and Chrysler cuts combined could wipe out 100,000 jobs. Even the Administration cannot
hire enough census workers to offset that loss of jobs.

Rob Hanna: "The market is starting to show some weakness in ways it hasn’t since the March bottom. This doesn’t necessarily mean a sharp or sustained pullback will ensue (although there are some clues that it could). It does suggest caution is warranted and traders may need to examine long positions with a more discerning eye than has been necessary in the last 2 months. "

According to Bloomberg, “Middle East economies are ‘doing a lot better’ than other emerging markets as oil producers maintain spending on infrastructure projects, International Monetary Fund Mideast Director Masood Ahmed said… ‘Oil producers have continued to spend during the down turn.’”

Before considering the possibility of a recovery, will it occur from personal consumption, finance, and/or residential real estate ? I think the chances are slim for those being engines of future growth. There has been too much damage in those areas. If you are depending on our government, forget it. The government is broke and getting more broke by the day.

The commercial use of oil from US oil shale deposits is likely at least 10 years away and will require technological advances to get past hurdles standing in the way of its commercial use, Interior Secretary Ken Salazar said Wednesday.
"Oil shale needs to be on the table," Salazar said. "But it needs to be on the table in a realistic way."

Tim Wood: "At the core, the basis of Dow Theory has to do strictly with the price movement of the Industrials and the Transports above and below previous secondary high and low points. Yes, values, as Richard Russell often speaks of is a factor, but even then it all comes down to the price movement of both averages.
Robert Rhea wrote, “Dow’s theory holds that the primary trend, once established, must always be considered to be in force until some indication in the averages nullify or reverses their earlier implication.” In light of this quote, the bearish primary trend that was established on November 21, 2007 when both averages closed below their previous secondary low points, still remains intact and to date, nothing has occurred to nullify or reverse that primary trend change."

Tadashi Yanai, the Japanese entrepreneur behind Fast Retailing Co., owner of the Uniqlo clothes brand, has helped fuel speculation that it will bid for Gap saying that this was not "a crazy idea," The Times reported Saturday, citing Yanai.

John Mauldin: "It's been 50 years since we have seen unemployment drop as rapidly as it has in the current recession. Given that we have a much smaller percentage of manufacturing jobs now, that volatility is breathtaking."

Mike Burk: "I think the market is likely to consolidate for a week or two with the blue chips holding up better than the secondaries, followed by a run to new highs by the blue chips, but not the secondaries.
I expect the major indices to be lower on Friday May 22 than they were on Friday May 15."