Friday, June 05, 2009


6/5/09 News

The government reported payrolls fell by 385,000 in May, while the unemployment rate climbed from 8.9% to 9.4%. Payrolls in March and April were revised higher by 82,000. Details of the report were mixed.

The average work week in May fell to 33.1 hours, the lowest on records dating to 1964.
While the payroll figures from a survey of business sites was much better than expected, a separate survey of households showed unemployment increased more than expected. Unemployment rose by 787,000 in the month to 14.5 million, pushing the jobless rate from 8.9% to 9.4%, the highest since August 1983.

Today’s report showed factory payrolls fell by 156,000 after decreasing 154,000 in the prior month. Economists forecast a drop of 150,000. The decline included a drop of 29,800 jobs in auto manufacturing and parts industries.
The bankruptcies of General Motors and Chrysler LLC may generate more job losses in coming months. AutoNation Inc., the largest U.S. new-vehicle retailer, plans to close seven showrooms, while Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. also filed for bankruptcy.
Payrolls at builders fell 59,000 after decreasing 108,000. Financial firms cut payrolls by 30,000, after a 45,000 drop the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers after reducing 230,000. Retail payrolls decreased by 17,500 after a 36,500 reduction.
Government payrolls declined by 7,000 after rising 92,000 the prior month.

The 9.4 percent May unemployment rate is based on 14.5 million Americans out of work. But that number doesn't include discouraged workers, people who gave up looking for work after four weeks. Add those 792,000 people, and the unemployment rate is 9.8 percent.
The official rate also doesn't include "marginally attached workers," or people who have looked for work in the past year but stopped searching in the past month because of barriers to employment such as child care, poor health or lack of transportation. Add those 1.4 million people, and the unemployment rate would be 10.6 percent.
The official rate also doesn't include "involuntary part-time workers," or the 2.2 million people like Noel who took a part-time job because that's all they could get, plus those whose work hours dropped below the full-time level. Once those 9.1 million workers are added to the unemployment mix, the rate would be 16.4 percent.
All told, nearly 25 million Americans were either unemployed, underemployed or had given up looking for a job in May.
The ranks of involuntary part-timers has increased by 4.9 million in the past year, according to a May study by the Federal Reserve Bank of Cleveland. Many economists now predict unemployment won't peak until 2010. And since employers generally increase the hours of existing workers before hiring new ones, workers could be looking for full-time jobs for some time.

One of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

Crude oil for July delivery rose $1.19, or 1.7%, to $70.02 a barrel in electronic trading on Globex.

10-year Treasury yields rise to 3.89% and the 30-year to 4.64%.

The Semiconductor Industry Association said Friday that it expects worldwide semiconductor sales to fall 21.3% in 2009 to $195.6 billion from $248.6 billion in 2008.

Rio Tinto confirmed the termination of its $19.5 billion deal with Chinalco on Friday, scrapping a deal in which Rio would have sold part of itself to China's Aluminium Corp. Rio also confirmed that it will launch rights issues to raise gross proceeds of about $15.2 billion at a sharp discount to the shares' prior close. "Rio has effectively been talking to BHP behind Chinalco's back and Chinalco is entitled to feel like a two-timed lover this morning," said Paul Bartholomew at Steel Business Briefing in Shanghai. "This is a big slap in the face for China."

But the Al-Haramain case isn't waiting. Judge Walker on Wednesday ordered both sides to put the secrecy debate aside and move on to the case itself. That means the Obama administration has to defend the legality of Bush's warrantless wiretapping program.
For plaintiff's attorney Jon Eisenberg, the situation inspires a kind of glee: "What do they do now? Do they oppose it? Do they support it? Was all that campaign rhetoric just rhetoric? Or are they going to follow through? The day of reckoning is upon us," he says.
Actually, the day of reckoning is Sept. 1. That's when the Obama administration's lawyers are due back in front of the judge to explain just where they stand on the legality of Bush's surveillance program.

China will invest up to $50 billion in new International Monetary Fund bonds, the IMF's first deputy director general John Lipsky told Reuters financial television on Friday.

"The Chinese authorities have indicated that ... (they) would be interested in investing up to $50 billion dollars in these bonds when they are ready and we hope that other countries will follow suit," Lipsky said on the sidelines of the St Petersburg Economic Forum.

According to AMG Data Services, for the week ended June 3, Equity Fund Inflows $4 Bil; Taxable Bond Fund Inflows $5.7 Bil
xETFs - Equity Fund Inflows $1.3 Bil; Taxable Bond Fund Inflows $3.8 Bil

On Friday, June 5, the Indiana State Teachers Retirement Fund, the Indiana State Police Pension Trust, and the Indiana Major Moves Construction Fund will attempt to block Chrysler's structured bankruptcy and sale to Fiat (FIA.MI) in New York's Second U.S. Circuit Court of Appeals. The group argues that the U.S. government's intervention in the bankruptcy is unconstitutional, since the proposed plan will pay back unsecured lenders before those that were secured. The unsecured creditors and the United Auto Workers contend the sale is fair and is supported by a majority of Chrysler's creditors.
The outcome of Friday's hearing could provide a road map for how similar challenges will be handled in the case of much larger General Motors, which filed for bankruptcy on June 1.

George Ure: "the CES Birth/Death Model. This is where the government gets to 'guesstimate' what jobs were created. While it is portrayed as being a reasonable statistical inference, if you click over here and read it, you'll find that almost 700,000 jobs (694-thousand to be precise here) have been 'estimated into existence' so far this year..... the real "Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers" is running a Depression era kind of number 16.4% - up from the previous month's 15.8%."

Freight volumes are still trending lower. The year-on-year deficit has widened from minus 14 per cent at beginning of March to minus 18 per cent at the beginning of Apr, minus 21.6 per cent at the beginning of May and and then minus 23.5 per cent at the start of June.

A federal appeals court cleared the way for Fiat SPA to buy bankrupt automaker Chrysler, according to media reports late Friday.

U.S. consumers paid down more debt than they took on in April for the seventh time in the past nine months, the Federal Reserve reported Friday. Consumer credit fell by $15.7 billion, or 7.4% at an annual rate, to $2.52 trillion. It was the second largest decline in outstanding debt on record, exceeded by March's $16.6 billion drop. Revolving credit, such as credit cards, fell by $8.6 billion, or an 11% annual rate, to $930.9 billion. Nonrevolving debt, such as auto loans, fell $7.1 billion, or 5.3% annualized, to $1.59 trillion. The figures do not include debt backed by real estate, such as mortgages or home equity lines. Debt can decline if consumers pay down debt or if banks write off debt.

June gold settled at $961.70, down $19.50 an ounce, or 2%. July silver closed at $15.39 an ounce, down 51 cents, or 3.2%. Copper ended nearly flat, losing 2 cents to settle at $2.28 a pound. Platinum for July delivery closed at $1,286 an ounce, off $7.1, or 0.5%. September palladium closed at $259.8 an ounce, up $4.4, or 1.7%. Crude oil for July delivery fell 37 cents, or 0.5%, to end at $68.44 a barrel on the New York Mercantile Exchange.

The Dow Jones industrial average gained 12.89 points, or 0.15 percent, to 8,763.13. The Standard & Poor's 500 Index declined 2.37 points, or 0.25 percent, to 940.09. The Nasdaq Composite Index dipped 0.60 of a point, or 0.03 percent, to 1,849.42.

Thursday, June 04, 2009

Continuing Claims

6/4/09 Continuing Claims

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.
“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”
Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

Goldman Sachs lifted its target on light sweet crude oil to $75 a barrel from $52.

Iceland's central bank on Thursday cut its key lending rate by a full percentage point to 12%. The central bank said inflation has started to ease and the currency has started to stabilize, news reports said.

Costco Wholesale Corp reported that for May, comparable-store sales fell 7% while total sales fell 5% to $5.47 billion from $5.77 billion in the year-earlier month.

As Wal-Mart Stores Inc. opens about 150 new or expanded stores in the U.S. in 2009, the company expects to hire about 22,000 people for new positions.

Productivity in the nonfarm business sector - output per hour worked - rose at an annual rate of 1.6% in the quarter as output fell 7.6%, and hours worked fell 9%, the largest drop in hours since 1975.

After reaching new weekly record highs since January, the number of continuing claims for state unemployment benefits has finally declined, decreasing by 15,000 to 6.74 million in the week ended May 23, the Labor Department reported Thursday. However, the four-week average of these claims rose by 88,750 to 6.69 million, a record-high level. First-time applications for benefits fell 4,000 to 621,000 in the week ended May 30, reaching the lowest level since early May. The four-week average of these first-time claims rose 4,000 to 631,250. The level of initial claims is up 68% from the same period in the prior year, and the level of ongoing claims is more than double last year's level. The insured unemployment rate - the proportion of insured workers who are collecting benefits - remained at 5%.

Retail sales results are largely falling short of analysts' estimates in May as consumers continue to stick to the essentials. Shoppers searched for bargains and basics in May, leading many retailers to miss sales expectations Thursday even though the bar was set pretty low for most chains.

RGE Monitor: "The U.S. economy may run trillion dollar deficits in the next few years despite Obama and Geither's statements recently to reduce the deficit to 3% of GDP by 2013. This is because fiscal stimulus and bailout measures will raise spending while tax revenues boom from the corporate and financial sector will slow sharply. Entitlement burden will increase ahead on aging population and health care reforms being debated by the Treasury and Congress will require large resources as well. Rising debt burden poses risk of higher nominal and real interest rates and crowding out of investment in the medium term. Treasury's stance to raise taxes (on high-income individuals, corporates, fund managers, cap-and-trade) to shore up revenues in the coming years may also stifle recovery in private demand."

Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.
“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken.

Intel says it will acquire all outstanding Wind River common shares for $11.50 each, which represents a premium of 44 percent over Wind River's Wednesday closing price of $8.

Textron Inc's Cessna unit plans another round of job cuts in the face of deteriorating demand for corporate aircraft, the diversified U.S. manufacturer said on Thursday.
"Continued order cancellations and weakness in general aviation markets are forcing further revisions to its aircraft production outlook, which will result in additional reductions in Cessna's workforce," the world's largest maker of business jets said in a filing with the U.S. Securities and Exchange Commission.
It did not say how many jobs would be cut and a spokesman did not immediately return a call seeking a comment.

General Dynamics Corp Inc planned to buy Axsys Technologies Inc, a maker of surveillance and imaging systems, for $643 million.
Axsys shares rose 6 percent in morning trading to $53, below the offer price of $54.

Natural gas inventories rise 124 bcf last week. Analysts surveyed by energy information provider Platts had expected a gain of 120 billion cubic feet. After a rocky start, UNG moved into the plus column and so did natural gas.

Average rates on the 30-year fixed-rate mortgage hit a 25-week high after jumping more than a third of a percentage point this week, according to Freddie Mac's weekly survey of conforming mortgage rates, released on Thursday.

Medical bills are involved in more than 60 percent of U.S. personal bankruptcies, an increase of 50 percent in just six years, U.S. researchers reported Thursday.

More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.

"Using a conservative definition, 62.1 percent of all bankruptcies in 2007 were medical; 92 percent of these medical debtors had medical debts over $5,000, or 10 percent of pretax family income," the researchers wrote. "Most medical debtors were well-educated, owned homes and had middle-class occupations."

Yields on 10-year notes rose 17 basis points to 3.71%.

On the Comex division of the New York Mercantile Exchange, copper for July delivery gained 8.9 cents to end at $2.301 a pound. Gold for June delivery rose $16.70, or 1.7%, to $981.20 an ounce, and July silver gained 58.5 cents, or 3.8%, to $15.895 an ounce. Crude jumps 5%, approaching $70 in afternoon trade.

The Dow Jones Industrial Average gained 74.96 points, or 0.9%, to 8,750.2. The S&P 500 added 10.7 points, or 1.2%, to 942.46, while the Nasdaq Composite rose 24.1 points, or 1.3%, to 1,850.

Mining giant Rio Tinto PLC has walked away from a $19.5 billion deal with China's Aluminium Corp., The Wall Street Journal reported on its Web site Thursday. The deal would have given the state-owned company, also known as Chinalco, an 18% stake in Rio Tinto, according to the Journal.

Wednesday, June 03, 2009


6/3/09 Unemployment

The U.S. private sector eliminated 532,000 net jobs in May, the fewest jobs lost since November, according to the ADP employment index released Wednesday. Goods producing industries cut 267,000 jobs while services cut 265,000. Including government jobs not counted in the ADP report, the ADP index implies total nonfarm payrolls may have fallen by 520,000 in May.

Bill Gross, founder of Pacific Investment Management Co., advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.
The U.S.’s “fortune-producing capabilities seem to be declining, which might suggest that its relative standard of living is doing so as well,” Gross wrote in his June investment outlook posted today on the Newport Beach, California-based firm’s Web site. “If so, the implications are serious.”

NetApp Inc. raised its offer for Data Domain Inc.on Wednesday to $30 a share in cash and stock from $25 to match a bid earlier this week from EMC Corp.

Agrium Inc. on Wednesday reaffirmed its bid for rival fertilizer maker CF Industries Holdings $40 a share in cash and one Agrium share for each CF share. Agrium said the offer represents its "best and final price, absent engagement by CF and demonstration of additional value."

Williams-Sonoma affirmed its estimates for the year, saying that while the first-quarter performance was better than expected, the economy remains volatile and promotions may be required as the industry reduces inventory.

The Markit euro-zone composite purchasing managers index for the 16-nation euro zone released Wednesday rose to 44.0 in May, hitting an eight-month high. While still pointing to a contraction in activity, the index posted a record jump from a reading of 41.1 in April.

Planned job cuts announced by U.S. employers totaled 111,182 in May, down 16 percent from the 132,590 layoffs recorded the previous month, according to a report released on Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc.
May marked the lowest monthly total since 95,094 job cuts announced last September. Since reaching a peak in January, job-cut totals have fallen by an average of 17.5 percent per month, according to the report.
However, the decline in layoffs may not continue for long.
"This decline in job cuts could be short-lived. The second quarter is typically the lowest quarter of the year when it comes to job cuts," John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in the report.
"Corporate downsizing may continue to remain slow during the summer months, but if the past is any indication, we could see the pace accelerate again in the latter half of the third quarter through the end of the year," he said.
Much of the downsizing in coming months may come from state and local governments, which have been hard hit by shrinking tax revenues, according to the report.
The government and nonprofit sector led in job cuts, announcing 22,317 layoffs last month and marking the third straight month the sector was the top job cutter.

Brett Steenbarger: "Since 2000, we've had 160 occasions in which there have been four consecutive rising days in the S&P 500 Index (SPY) such as we've had most recently.
Over the following three days, SPY has averaged a loss of -.37% (71 up, 89 down). By contrast, for the rest of the sample, the three-day return on SPY has been -.01% (1169 up, 1030 down).
It appears that some profit taking after a period of steady gains is normal. Indeed, returns have been negative from 1-5 days out following four days of consecutive gain."

Home builder Toll Brothers reported a loss for its fiscal second quarter Wednesday that was slightly wider than analysts predicted, as revenue halved from the same period a year ago.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 29 decreased 16.2 percent to 658.7.

Michael Brush: "In the housing market, a lot of prime mortgages are becoming subprime as a new wave of foreclosures begins to hit. Mainstream homeowners -- those previously "safe" borrowers with sound credit who have conservative, fixed-rate mortgages -- are getting into trouble at an alarming rate. "

China, the world’s second-biggest energy consumer, won’t buy more oil for stockpiling until additional storage tanks are built, a government official said.

Boeing Co. and General Dynamics Corp. must pay the government $2.8 billion to settle a nearly two-decade dispute over the cancellation of a Navy contract for a stealth aircraft, the U.S. Court of Appeals for the Federal Circuit ruled Tuesday.

Crude supplies up 2.9 million barrels: EIA. Gasoline stocks down 0.2 million barrels. Distillate stocks up 1.6 million barrels.

Valero said it would lose 50 cents a share in the second quarter. Wall Street analysts expected Valero to earn 41 cents a share, according to a survey by FactSet Research. Valero also said it would issue 40 million shares of stock in a bid to raise about $755 million.

Federal Reserve Chairman Ben Bernanke told Congress the pace of economic contraction is slowing and he sees several factors behind the latest rise in yields.

A federal judge has tossed out more than three dozen lawsuits filed against the nation's telecommunications companies for allegedly participating in the government's e-mail and telephone eavesdropping program done without court approval.
The dismissals were widely expected after Congress in July agreed on new surveillance rules that include immunity from lawsuits for telecommunications companies that allegedly helped the U.S. spy on Americans.
U.S. District Judge Vaughn Walker on Wednesday upheld the constitutionality of the new surveillance rules and dismissed the lawsuits.
But the judge did allow the losing attorneys a chance to revise their lawsuits to include new allegations, if any, that aren't covered by the immunity rules.

The weak labor market is hurting U.S. cities -- centers of many industries and large housing markets -- with 93 metropolitan areas registering an unemployment rate of at least 10 percent in April, according to Labor Department data released on Wednesday.
That is more than 13 times the number of cities that notched the same high levels a year earlier, the Department said.
Currently, the national unemployment rate is 8.9 percent, but in nearly 150 cities a higher proportion of residents were out of work this spring.
At the same time, the number of cities posting unemployment rates below 7 percent was 117, which was less than half of the 347 cities recording lower rates just a year earlier.
The Labor Department said nine of the 13 metropolitan areas with jobless rates of at least 15 percent were in California.

The Dow Jones Industrial Average ended off 64.63 points, or 0.7%, to 8,676.2. The S&P 500 Index dropped 12.91 points, or 1.4%, to finish at 931.82. The Nasdaq Composite fell 10.88 points, or 0.6

Tuesday, June 02, 2009


6/2/09 Housing

"The month of May has been a rollercoaster ride for retailers and unfortunately ended on a negative note," said Michael Niemira, ICSC chief economist. "The good news is that the year-over-year pace remains positive which may indicate some rebounding of sales." He forecast May sales, excluding the results from Wal-Mart Stores Inc., to be down by 2% because of the absence of the year-earlier federal tax rebates. Wal-Mart said last month it will stop reporting its monthly same-store sales.

The unemployment rate in the 16-nation euro zone jumped to 9.2% in April, its highest reading since September 1999, the European statistics agency Eurostat reported Tuesday.

Australia's current-account deficit widened in the first quarter to a seasonally adjusted 5.08 billion Australian dollars ($4.1 billion) from the revised 4.18 billion Australian dollars deficit seen in the fourth quarter of 2008, data from the Australia Bureau of Statistics showed Tuesday.

Cameron International Corp. has agreed to acquire Natco Group in an all-stock transaction that values Natco at about $780 million, according to a joint press release from two oil and gas services companies late Monday. Natco shareholders will get 1.185 shares of Cameron's common stock for each of Natco's 20.3 million outstanding shares. The boards of both companies have unanimously approved the deal, which is expected to close during the third quarter. When the deal is completed, Natco will own about 10% of Cameron's outstanding common shares.

Global consumer confidence is stabilizing after falling for 18 months, providing a glimmer of hope for a shattered world economy in which three quarters of households cut spending, a survey showed on Tuesday.
Some 40 percent of consumers blame the banking and finance industry for the worst economic downturn since the Great Depression, while 19 percent also hold former U.S. President George W. Bush's administration and their own governments responsible, the Ipsos/Reuters poll of 23 countries found.
The survey of 23,000 people, conducted between April 14 and May 7, showed 29 percent thought that the economic situation in their country is very good or somewhat good, only a slight dip from 31 percent in November 2008, but well down on 43 percent in April 2008 and 54 percent in October 2007

The bulk of China’s total international investment position is held in US dollar assets and only 6 per cent is in the form of direct investment.

"A few months ago, the U.S. was in the throes of the most severe recession since the 1930s," said Paul Ashworth, a senior economist at Capital Economics. "We've had some improvement, but . . . we're still nowhere near a meaningful recovery or even a slight recovery."

The dollar depreciated to $1.4281 per euro as of 7:57 a.m. in New York, the lowest level since Dec. 29, from $1.4159 yesterday. It fell to 95.42 yen, from 96.59. The yen strengthened to 136.15 per euro, from 136.78 yesterday. The pound advanced to $1.65 for the first time since Oct. 30, before trading at $1.6489, from $1.6443.
Medvedev may discuss his proposal to create a new world currency when he meets his counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the presdident, told reporters by phone today. Medvedev first proposed seeking alternatives to the U.S. dollar as a reserve currency in March.

"The reality is the Fed is totally out of control here and it's causing all kinds of unintended consequences as a result or this monetization of US debt and the debasement of the US dollar," says Mike Larson, analyst at Weiss Research. "The market's going to extract it's pound of flesh somewhere--whether that's the currency market, the bond market, or if it's some sort of tag-team."

Dollar General Corp. said Tuesday that its first-quarter profit surged to $83 million from $5.9 million a year earlier. Sales rose 16% to $2.78 billion with same-store sales climbing 13%, helped by higher customer traffic and average transaction.

The dollar index at 78.45, which measures the performance of the greenback against a basket of global currencies, declined for a fourth straight session. Gold for June delivery rose $3.60, or 0.4%, to $982.20 an ounce in early North American electronic trading. The more active August contract also rose, up 0.4% to $983.50 an ounce.

The National Association of Realtors said sales climbed 2.9 percent to an annual rate of 4.68 million, but applications for home loans fell to their lowest level since early March last week as mortgage costs rose.
Multi-family units -- the hardest-hit sector -- jumped 6.4 percent to a 500,000-unit annual pace. Sales were up in three of four regions. However, the number of unsold homes swelled 8.8 percent to 3.97 million, the highest since November. At the current sales pace, it would take 10.2 months to clear that supply.
The median home price fell 15.4 percent from a year ago to $170,200 in April, the second biggest percentage decline on record. The Realtors group blamed distressed sales, which accounted for 45 percent of all transactions, for depressing prices.
A separate home price measure from the Federal Housing Finance Agency showed prices fell 7.3 percent over the 12 months through March, contrasting with an 18.7 percent drop seen in the Standard & Poor's/Case-Shiller survey Tuesday.

Ford Motor Co. said Tuesday that total U.S. May sales fell 24.2% to 161,531 vehicles from 213,238 a year ago. General Motors Corp. on Tuesday reported a 29% drop in May U.S. light vehicle sales. Toyota Motor Corp.said Tuesday that May U.S. sales declined 40.7% to 152,583 vehicles from 257,406 a year ago. There were 26 selling days this past May compared with 27 days in May 2008. Bankrupt automaker Chrysler said Tuesday that U.S. May sales dropped 47% to 79,010 vehicles from 148,747 a year ago.

The Obama administration is warning lawmakers that the trust fund that pays for highway construction will go broke in August unless Congress approves an infusion of as much as $7 billion.
Sen. Barbara Boxer, chairman of the Senate Environment and Public Works Committee, said at a hearing the administration has told senators the Federal Highway Trust Fund will need an estimated $5 billion to $7 billion to keep current construction projects going.
The California Democrat said another $8 billion to $10 billion will be needed to keep the fund solvent through the year ending Sept. 30.

The S&P 500 added nearly 2 points, or 0.2%, to 944.7 by the close of trading. The Dow Jones Industrial Average advanced 19 points, or 0.2%, to 8,740.9. And the Nasdaq Composite gained 8 points, or 0.4%, to 1,836.8.

Monday, June 01, 2009


6/1/09 GM

Dwight David Eisenhower: “Unlike presidential administrations, problems rarely have terminal dates.”

Senior officials in the Obama administration said Sunday the U.S. government will provide $30 billion in financing to General Motors Corp. to allow it to continue to operate through a historic Chapter 11 bankruptcy proceeding that will last an estimated 60 to 90 days.

A U.S. bankruptcy judge on Sunday approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA. Judge Arthur Gonzalez approved the $2 billion sale of the assets to a new company that will be 68 percent controlled by a healthcare trust aligned with the United Auto Workers union.

John Hussman: "You simply cannot have an economy lend out trillions of dollars in bad debt, and then make the lenders whole with public funds (while still facing a massive second wave of probable mortgage defaults) without destructive repercussions....For our part, the average return-to-risk profile of the market, given current conditions, does not justify much risk taking. Moreover, in view of the larger picture of economic and credit conditions, the risks are lined up clearly to the downside. The stock market features unimpressive valuation, overbought conditions, and a reliance on positive surprises and easing risk aversion. That sort of market certainly can continue higher, but the potential for further return comes with a great deal of potential risk."

Peter Cooper: "Around 40,000 jobs will go as an immediate consequence of the bankruptcy of General Motors due to be announced by President Obama tomorrow: 30,000 across the United States and another 10,000 in the connected sale of GM’s European operations....The 40,000 job losses are just the opening shot of the consequences of the GM insolvency. There will be secondary rounds as suppliers and subcontractors fail. Nothing can make up for the consequences of the massive collapse in GM auto sales this year."

According to Bloomberg, the dollar fell after a report showed China’s economy, the world’s third-largest, may be recovering from its deepest slump in almost a decade, sparking demand for commodities and higher-yielding assets.
The Russian ruble rose to its strongest level since January as manufacturing in China expanded for a third month. The dollar weakened against all but one of the 16 most-traded currencies, led by a 1.6 percent drop against the Norwegian krone and a 1.5 percent decline versus the Australian dollar.

Mike Shedlock: "Think that leverage is coming back? I don't. The Effect of Household Deleveraging on Housing, Consumption and the Stock Market is going to be far greater than most realize. This bubble will not be reblown, just as the Nasdaq bubble was not reblown after the tech crash.
Peak Credit and her twin sister Peak Earnings have arrived....There Are $2.4 Trillion of Alt-A Mortgages and Their Resets Are Mostly Ahead of Us....24% of Homeowners With a Mortgage Owe More Than the Home Is Worth, Making Them Far More Likely to Default....The dip in initial claims from the March peak of roughly 650,000 is not accelerating very fast, if indeed at all. Those looking for a recovery in jobs soon are going to be disappointed. Economists expect to see unemployment by 10% at the end of the year. I expect to see it at 9.8%+- by August and approaching 11% by the end of the year. Bear in mind the "stress-free tests" conducted by the Fed had an adverse scenario of 10.3% at the end of 2010.....The Alt-A and Option ARM defaults are going to be massive.
Think this leads to inflation? Think again."

Core prices - which exclude food and energy prices - rose 0.3%. The U.S. personal savings rate jumped to a 14-year high of 5.7% in April. Real consumer spending fell 0.1%, the second consecutive decline and the 8th decline in the past 11 months.

June gold rose $5.90, or 0.6%, to $984.70 an ounce. Oil topped $68.

World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.
“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday with Bloomberg Television’s “Political Capital with Al Hunt.” “When unemployment increases, that’s probably the most political combustible issue.”

Elizabeth Wurtzel: "I wonder if any of them can tell from just looking at me that all I am is the sum total of my pain, a raw woundedness so extreme that it might be terminal. It might be terminal velocity, the speed of the sound of a girl falling down to a place from where she can't be retrieved. What if I am stuck down here for good?" I wonder if she is talking about the auto shareholders and bond holders, auto dealers, auto parts companies, and the taxpayers? Clearly, she is not referring to bankruptcy lawyers.

Cisco to replace GM in DJIA. Travelers to replace Citigroup in DJIA.

Auto-parts supplier Lear Corp.said Monday that it has chosen not to make semi-annual interest payments of about $38 million due Monday with respect to its 8.50% senior notes due in 2013 and 8.75% senior notes due in 2016. Instead, the company said it's utilizing the 30-day grace period applicable to the interest payments while it continues discussions regarding a capital restructuring with its lenders and others. Under the terms of the debt, the use of the grace period does not constitute a default, Lear said.

The dollar index, stood at 78.851, down from near 79.226 in late North American trading on Friday. The euro rose to $1.4200, its highest level against the dollar since December, up from $1.4156 late Friday. The dollar index has returned to the level last seen in January.

Over the past three decades GM's U.S. workforce has fallen from a high of 620,000 in 1979 to about 120,000 now.
The company already has plans to temporarily shut 13 plants to reduce inventories, affecting about 25,000 GM workers and a comparable number who work for suppliers.
The statistical treatment of those workers, which determines when and where they show up in unemployment data, is complicated.
Furloughed workers show up in weekly jobless claims data, but won't be counted in the monthly payroll survey. Because they remain on the payroll while they receive severance payments, the company will report them as employed. However, they may show up in the unemployment figures, which are based on a separate survey of households.

Art Cashin: "Just because you know something's going to happen doesn't mean you should be calm about it: 'Gee, I see that iceberg. Wow, we just hit it. I think that means the ship's going to sink.'"
"We need to fund a huge, huge deficit. And we need cooperation from outside [the U.S.] to do it."

"This is a very, very dangerous period we're going through."

Soybeans jumped to an eight-month high and corn climbed to more than a seven-month peak.

U.S. May ISM factory index 42.8% vs 40.1% April, the highest level since September.

Rachael Granby: "In the short-run, the estimated losses from quick bankruptcy restructurings at GM and Chrysler are 63,200 jobs this year and 179,400 jobs next year."

Ten-year note yields rose 16 basis points to 3.62%.

Private builders increased spending on housing projects by 0.7 percent, contributing to the overall improvement in April. It marked the first time since August that private home builders boosted such spending. At that time, they increased it 5.5 percent.
Private spending on all other construction projects other than residential ones went up 1.8 percent in April, following a 2.6 percent gain in March. Builders increased spending in April on projects including hotels and motels, factories, power plants and health care facilities. That more than offset reductions in spending on office buildings, amusement and recreation projects and on other projects.
Spending by the government, however, dipped 0.6 percent in April.

Lending from TARP banks went down 0.8% in March.

After climbing above $990 an ounce, gold fell 30 cents to end at $980 an ounce. Copper for July delivery rose 12 cents to finish at $2.32 a pound on the Comex division of the New York Mercantile Exchange. Crude for July delivery rose $2.27, or 3.4%, to end at $68.58 a barrel on the New York Mercantile Exchange, the highest settlement price for a front-month contract since Nov. 4.

The difference between two- and 10- year yields widened to 2.74 percentage points, approaching the record 2.76 percentage points set on May 27.
“Money is rotating out of Treasuries and into other areas,” said Thomas Roth, head of U.S. government-bond trading in New York at Dresdner Kleinwort, one of 16 primary dealers that trade with the Federal Reserve. “There has been a tremendous flight into Treasuries over the past year and if things get better we will see a flight out.”
The yield on the benchmark 10-year note rose 25 basis points, or 0.25 percentage points, to 3.72 percent at 2:40 p.m. in New York, according to BGCantor Market Data.

The Dow Jones Industrial Average gained 221 points, or 2.6%, to end at 8,721. The S&P 500 index rose 23 points, or 2.6%, to 942, while the Nasdaq Composite gained 54 points, or 3%, to 1,828.

China’s former central bank adviser Yu Yongding will meet Treasury Secretary Timothy Geithner today and tell him the U.S. shouldn’t be complacent about China continuing to buy Treasuries.
“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,’’ Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.’’ Yu is scheduled to meet Geithner at the Grand Hyatt Hotel in Beijing today.

U.S. District Judge Thomas Hogan sided with the detainees' attorneys and the media, saying the public has a right to access the records.
"The issue of what to do with the detainees at Guantanamo Bay remains a source of great public interest and debate," Hogan wrote.
"Providing the public with access to the charges levied against these detainees, as detailed in the factual returns, ensures greater oversight of the detentions and these proceedings," he said. "As long as public access does not come at the expense of the litigation interests of petitioners or national security, the court believes the public has a common law right to access the returns."
The judge ordered the Justice Department to publicly file its unclassified records or request what specific information it wants to keep protected, marking the exact words with a colored highlighter, by July 29.

Sunday, May 31, 2009

Counter-trend Moves

5/31/09 Counter-trend Moves

James Glassman: "In return for money G.M. owes its health trust, the auto workers’ union would get 17.5 percent of its stock, warrants to raise that share to 20 percent, along with a $2.5 billion cash payout over eight years and $6.5 billion in preferred stock paying a 9 percent dividend. I agree with bondholders who feel the union is getting at least four times as much of G.M. in return for claims that are, at best, equal to those of the creditors.
Even if the courts were to reject the plans for G.M. and Chrysler, the administration’s actions in trying to force the deals may damage the credit markets for years to come. The treatment of the bondholders is a warning to investors that the federal government won’t hesitate to push them aside in a crisis.
Perhaps it’s no coincidence that in the wake of the Chrysler deal we have seen a decline in prices for long-term Treasury bonds and a sinking dollar. "

Tim Wood: "The danger that I see with these counter-trend moves is that they have fostered false hopes. These rallies have offered people the opportunity to recoup some of their losses. But, the longer a particular market rallies the more the false hopes set in. This in turn allows the wish to begin to father the thought. It is the greed to recover the losses that will ultimately cost the average investor even more in losses. As the advance continues the greed sets in and people wish for more and more of an advance as they hope to further recoup their losses. In the end, the bear market will take the gift that is has given by these counter-trend rallies back. Yes, in the end most investors will find themselves with even larger losses than they had at the previous bottom. The greedy public does not recognize these moves as counter-trend and they will sit on their wishes as the market turns back down and their recovered losses turn into yet bigger losses. One does not have to be blindsided by the coming downturns. It is indeed possible to identify the pending downturn out of these counter-trend moves with the proper technical tools, such as the time proven intermediate-term Cycle Turn Indicator. Sound unbiased technical methods are the only way I know to navigate the ongoing financial disaster that we are dealing with. The politicians, Republican or Democrat, nor the mainstream media warned you of the previous declines because they did not know they were coming and even if they did they would not have told you. Do you really think they would tell you anything any different this time around?"

Mike Burk: "I think there were (are) too many of us looking for a correction in or an end to the recent up move so the final high will be delayed.
I expect the major indices to be higher on Friday June 5 than they were on Friday May 29."

Weatherford International, based in Switzerland with major operations in Houston, has agreed to give TNK-BP $450 million to $490 million in stock for the Russian company’s oil field services division, both companies announced Friday.

In the deal, Weatherford will give TNK-BP 24.3 million shares of common stock for more than 75 drilling rigs, 180 workover rigs, 7,000 employees and other equipment and infrastructure in western Siberia and the Volga-Ural region southeast of Moscow.

“From a replacement value alone, this looks like an economically rational if not attractive deal,” Simmons & Company International said in a note to investors.

India will consider imposing an additional duty on steel imports and ensure all capacity expansion undertaken by state-run companies is completed in time, the newly appointed federal steel minister, Virbhadra Singh, said Friday.
"An immediate key challenge is the disparity between Indian and global steel prices consequent to the recent economic slowdown," Mr. Singh told reporters.
"The question of instituting requisite fiscal measures in the context of the Indian steel industry demand has to be immediately addressed," he added.

Bharti Wal-Mart Private Ltd., a joint venture between India's Bharti Enterprises and Wal-Mart Stores Inc., opened its first wholesale outlet called "Best Price Modern Wholesale," in Amritsar in the northern state of Punjab on Saturday.

The product of a joint development programme between IVAX Corporation and Serono, Mylinax, a proprietary oral formulation of cladribine, is a novel therapy for the treatment of multiple sclerosis (MS).
Mylinax has now entered advanced-stage development, which if successful could see the introduction of the first oral disease-modifying treatment for patients with MS.

GM wants to shed its Hummer, Saturn and Saab brands and plans to wind down the Pontiac line.

The Australian and New Zealand dollars traded near eight-month highs on concern the U.S. budget deficit will quadruple to about $1.8 trillion, prompting investors to buy currencies of commodity-exporting nations.

Loan Quality

5/30/09 Loan Quality

Floyd Norris: "“OVERALL loan quality at American banks is the worst in at least a quarter century, and the quality of loans is deteriorating at the fastest pace ever, according to statistics released this week by the Federal Deposit Insurance Corporation."

The dollar index declined 0.9% this week to 79.29 (down 2.5% y-t-d).

The CRB index jumped 3.7% (up 10.2% y-t-d). The Goldman Sachs Commodities Index (GSCI) surged 5.5% (up 26.9% y-t-d).

The Baltic Dry Index has risen for 19 consecutive days. It was only 90 days ago that I suggested the upside potential in this index.

Doug Noland: "I believe The Core to Periphery Dynamic is supportive of a more rapid than expected global economic recovery. I definitely expect global inflation to surprise on the upside. Adherents to the global deflationary spiral thesis may be left wondering what the heck happened. The backdrop seems to be set for surprising revival in energy and commodities markets. And I would not be surprised if the global equities rally has some legs.
Yet I view The Core to Periphery Dynamic as profoundly bearish for the U.S. At its core, this historic redirection of global flows and inflationary pressures is the consequence of a breakdown in the dollar standard. Failed policies, a resulting deeply impaired economic structure, and massive ongoing devaluation have ended the dollar’s reign as the globe’s premier reserve currency and perceived stable store of value. There is today no sound currency to replace the dollar, so the global financial system operates rudderless and with great uncertainties.
It is more certain, however, that the great benefits commanded to our economy and markets over the decades from governing the world’s reserve currency are drawing to an end. Our policymakers still believe they can inflate Credit and manipulate interest rates - and not have to pay a price for it. But the new global reality may be that currency markets protest massive U.S. fiscal deficits and activist monetary policy, while global markets come to dictate U.S. market yields. Over the past two weeks we have seen the dollar and U.S. Treasuries/MBS come under significant pressure. Is this the beginning of global markets disciplining Washington?
A robust Core to Periphery Dynamic and the re-emergence of dollar vulnerability are a potent combination. U.S. markets to this point remain sanguine with the prospect of an expanding Federal Reserve balance sheet rectifying any spike in interest rates. But currency markets are no doubt increasingly fixated on our propensity to monetize current and prospective stimulus. At some point, increasingly unwieldy flows out of our currency may force the Fed’s hand. The scenario where the Fed is forced to choose between loose monetary policy and currency crisis sits out there as a potential big negative surprise for U.S. markets."

Daniel Aaronson and Lee Markowitz: "Today most people know that the policies of the US government's stimulus and bailout plans, not to mention Social Security and Medicare, are problematic for the US fiscal situation and US Dollar yet have not accepted that the US Dollar is a bubble. When the market fully recognizes the Dollar bubble, the outcome will prove disastrous for anyone holding US Dollars.
The losses that foreigners are suffering on their US Dollar and Treasury holdings are rapidly accumulating. Even more so, the Fed is now trapped. The Fed was hoping to hold down Treasury rates by announcing the purchase of $300 billion of Treasuries. However, Treasuries are falling despite the Fed's intervention. If the Fed increases its buying there is no telling how far the US Dollar may fall. If the Fed does not increase its purchases, Treasuries may fall even further, sending home prices spiraling downwards. When combining the Fed's precarious position with recent fears about the credit rating of the US, the unlimited downside potential of all US assets is becoming clear even to the greatest of bulls. Despite waiting for so long for these events to unfold, it now seems as if the end is near."

Jerrry Flum, Founder and CEO of Credit Risk Monitor: "So, when I look at what the President's plan is now, and what the Congress and everybody's trying to do, I am astounded by it. At the end of the day, here's what they are trying to do: we've got the American consumer, with no savings and who has, for the most part, been wiped out in real estate - because if he has a $160,000 mortgage on a house he purchased for $200,000, but is now worth $160,000, he has very little, if any, equity left in the house. And to top it all off, his 401k and his pension and everything else is down 30 to 40 percent.
So, this consumer has no savings; his assets have shrunk, and the President of the United States, and everybody, has an economic policy which, for the most part, is trying to force banks to lend money to that consumer, so he can go out and buy another TV set or another car.
It's ethically and morally bankrupt, and it's an atrocious policy for our government to try to get that person to borrow more money to consume when that person should be saving. It's insane. The fundamental policy of the government is to come in and get the banks to lend to a consumer, who represents 70 percent of the GDP, who's nearly busted... you know, sometimes I wonder if I'm on the same planet with everybody."

World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.
“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday with Bloomberg Television’s “Political Capital with Al Hunt.” “When unemployment increases, that’s probably the most political combustible issue.”

London luxury-home prices fell about 20 percent in May from a year ago as job cuts in the financial- services industry reduced demand, Knight Frank LLP said.

About 6.7 million people were working fewer than 35 hours a week in April because of “slack work or business conditions,” nearly double the number a year earlier, according to the Bureau of Labor Statistics. A recent survey of 518 large companies by Hewitt Associates, a human resources consulting firm, found 16 percent had cut pay and 20 percent had cut hours or imposed furloughs, far more than the firm has seen in previous recessions.

The number of rigs drilling for natural gas in the United States fell by 8 this week to 703, the lowest level in 6-1/2 years, according to a report issued Friday by oil services firm Baker Hughes in Houston.
U.S. natural gas drilling rigs have been in a steady decline since peaking above 1,600 in September, and now stand at about 776 below the same week last year, at the lowest level since November 2002, when there were 695 gas rigs operating.

Zman Energy Brain: "The Administration has imposed a 1 year moratorium on building roads on 58 million acres of U.S. national forest land. The edict takes effect immediately and supercedes any State laws passed regarding road building. These roads are used for logging, mining and um, drilling, etc. So if you have a federal less in BFE National Park and no road, good luck to you, I’m guessing you’re not going to be getting an extension. "

According to the FT, the European arm of General Motors will be shielded from the expected insolvency of the US group after an 11th hour deal reached on Saturday morning that will see Magna International, the Canadian parts supplier, take over the business with financial backing from the German government.
After a day of drama following Fiat’s withdrawal from talks with Berlin, GM and the US Treasury to acquire the operations, which include the Opel and Vauxhall brands, exhausted negotiators announced the breakthrough at shortly after 2 am, after six hours of talks at the office of chancellor Angela Merkel.