Saturday, June 27, 2009

Maladjusted Economic Structure

6/27/09 Maladjusted Economic Structure

Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures.

George Ure: "In fact if you look just at the closures since the National Bank of Commerce failing in January (the first of 2009 to bite the dust)( you will find a total of 45 banks have failed this year which doesn't sound too bad until you count up the number of failed offices: 323 to be exact, and since we're just barely 6-months into the year, that pencils out to 53.8 bank offices per month failing.... history doesn't exactly repeat itself; only that it rhymes....As was the case in the 1930's, we're about to run into a major slide in tax revenues to run government. The problem in a nutshell is that property tax revenues and income taxes (Did I mention sales taxes? You get the idea, right?) are all going to fall over the next few years and as they do, the wet dreams of a federal budget anywhere short of hyperinflationary levels becomes unreachable.Housing prices are going to continue to fall."

The dollar index declined 0.5% this week to 79.84.

Wages and salaries actually fell by 0.1% last month. Do you feel it yet?

Doug Noland: "Federal government borrowings surged from 2007’s $237bn to 2008’s record $1.239 TN. Federal borrowings expanded at a $1.440 TN annualized rate during the first quarter. As I did with last week’s analysis of the “flow of funds,” I believe grouping Treasuries with GSE debt and agency MBS issuance today provides a better gauge of the growth in marketable federal debt obligations. This is the current focal point for Bubble analysis.
Combined outstanding Treasury, GSE and MBS obligations surged $1.949 TN, or 15.3%, in 2008 to $14.709 TN. This was a sharp increase from 2007’s $1.165 TN, 2006’s $532bn, and 2005’s $411bn increase. The almost $2.0 TN expansion of “federal” marketable debt compares to 2008’s increase of Total Non-Financial Credit of $1.873 TN. After the breakdown in Wall Street finance (i.e. “private-label” MBS, ABS, CDOs, etc.), it was virtually only “federal” obligations that retained the perception of “moneyness” in the marketplace. And, since the onset of the Credit crisis, this “money” has been issued in unprecedented quantities, in the process stabilizing the system yet setting the stage for a future crisis of confidence in “federal” Credit....I see ominous parallels to the mortgage/Wall Street finance Bubbles with today’s Government Finance Bubble. First, the scope of “federal” government marketable debt issuance – approximately $2.0 TN annually – has quickly reached massive proportions. Especially since little of this (“non-productive”) debt is financing real economic wealth creation, there is a rapid deterioration in the quality of this debt being sold. There are clear Ponzi Finance dynamics in play. I would argue that the massive deficit spending has sustained incomes (May Personal Incomes up 1.3% y-o-y), purchasing power and general confidence in our system. But only ongoing massive fiscal stimulus will sustain the current maladjusted economic structure, while this massive inflation of government Credit will over time have problematic inflationary consequences. Acute underlying systemic fragility is masked only by the massive issuance of government “money-like” Credit. The issue is, at its core, more financial and economic than political....
And with more comments out of China today, there is even greater support for the view that foreign appetite for our debt instruments is waning in the face of the unprecedented inflation in their quantity. Moreover, market perceptions are that Treasuries are bulletproof.
I know better than to try to predict the timing of problems developing in the Treasury and currency markets. But I do see all the makings for the next problematic leg of this financial crisis. As I have written before, our nation’s predicament becomes much more problematic when perceptions turn against the Treasury/agency marketplace."

James Bibbings: "According to the most recent CIA Fact Book figures on Oil consumption the United States currently consumes nearly as much oil per year as the entire European Union and China combined. As a result, based on these figures, when demand from the US is off nearly 5% China's increases don't mean much. When looking at the math a 4.9% decrease in US consumption equates to 1,013,320 (BBL/Day) lost. When that figure is contrasted against China's consumption gain of 6%, an increase of 472,800 (BBL/Day), the disparity is easily recognizable."

Brad Setser: " The US has now borrowed about $4.3 trillion more from the rest of the world than it has lent to the rest of the world. Foreign central banks – setting aside “other foreign assets” a category that includes a lot of equities – hold about $3.5 trillion of US debt. Even after the extension of $530 billion in swap credit, the US government only has about $700 billion in claims on the rest of the world. The net position of central banks on the US therefore mechanically accounts for the majority ($2.8 trillion) of the world’s net holdings of US debt. That is why there is so much focus on the ongoing willingness of central banks to hold US debt."

Gov. Schwarzenegger says state workers may be forced to take a third unpaid day off each month.

Nouriel Roubini: "The process that will lead - in the medium-long term - to a challenge of the US dollar as the major global reserve currency has started. The US creditors - the BRICs, the Gulf states and others - are becoming increasingly alarmed that the US will deal with its unsustainable fiscal path via inflation and debasement of the value of the dollar via depreciation. So they will not sit idly waiting for this to happen: they are already diversifying into gold, into resources (as China purchases mines and energy, mineral and commodity resources all over the world)."

What Me Worry?

6/26/09 What Me Worry?

Consumer spending rose 0.3% in May, while analysts expected a 0.4% gain. Personal incomes jumped 1.4%, much more than the 0.5% anticipated, due to stimulus checks. The dollar was under pressure earlier after China's central bank reiterated a veiled call to lessen the U.S. unit's role as the world's reserve currency.
U.S. personal incomes jumped 1.4% in May due to one-time $250 payments to Social Security beneficiaries as part of the stimulus program, the Commerce Department reported Friday. Consumer spending rose 0.3% in nominal terms. With the boost to incomes, the savings rate rose to 6.9%. Excluding the one-time payments, disposable incomes rose 0.2%, the government said. Wages and salaries fell 0.1%. Real consumer spending (adjusted for inflation) rose 0.2%.
Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April. Goods-producing industries' payrolls decreased $12.9 billion, compared with a decrease of $12.2 billion; manufacturing payrolls decreased $9.8 billion, compared with a decrease of $4.9 billion. Services-producing industries' payrolls increased $0.5 billion, compared with an increase of $11.5 billion. Government wage and salary disbursements increased $3.9 billion, compared with an increase of $5.7 billion.

August gold futures rose $6.20, or 0.7%, to $945.30 an ounce in early North American electronic trading. The metal is set to end the week up about 1%.

Japan’s consumer price index fell 1.1% in May. According to the AP, that is a record drop.

Lear, the world's largest maker of auto seats, is preparing to file for bankruptcy as soon as next week.

The Chrysler bankruptcy didn't matter. The GM bankruptcy didn't matter. Will a California default matter? Maybe they'll provide an IOU on their municipal bonds. Not to worry. Ben and Co. can bail the state out. Can Ben and Co. bail out the dollar? Don't bet on it.

The dollar dropped against all of its most-traded counterparts after China repeated its call for a “super-sovereign” currency.
The greenback headed for its biggest weekly loss against the euro in a month after the People’s Bank of China said the International Monetary Fund should manage part of members’ foreign-exchange reserves. China is the biggest foreign holder of U.S. Treasuries, with $763.5 billion in April.
The Dollar Index, which the ICE uses to track the greenback against the currencies of six leading trading partners, fell 0.8 percent to below 80.
“To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China said in a review of the economy in 2008 released today. In its annual financial stability report, the central bank said it saw serious defects in one currency dominating the global monetary system, a cloaked reference to the dollar.
“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.
President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London.

Chuck Butler: " But one thing that didn’t receive a ton of publicity was the fact that President Obama agreed at an economic summit in London that SDRs should now be used to help stabilize the balance sheets of nations struggling to combat the current crisis.
Now… On the outside that looks harmless, right? Just helping these struggling nations… But! Could this also be a baby step toward a global currency? Could this be a baby step toward a further devaluation of the dollar, and it’s signed-off on by the President?
OK, now here’s the thing that really caught my eye… The IMF is going to issue $300 Billion worth of SDRs. That’s 10 times – that’s right, I said 10 times – the amount of SDRs that CURRENTLY EXIST!
Could this be the facility for China to quietly exchange dollar reserves for SDRs? Come on! Somebody has got to see this the same way I do!"

Australia's Qantas Airways Ltd. said Friday it had canceled orders for 15 Boeing 787s and delayed the delivery of a further 15 aircraft due to turbulent market conditions.

Roubini’s guess is 2011—the recession will end. Banks will want to lend the money; people and businesses will want to borrow and spend it. Then it will be time for what Roubini calls “the exit strategy, of mopping up that liquidity”—pulling some of the money back out of circulation, so it doesn’t just bid up house prices and stock values in a new bubble. And that will be “very, very tricky indeed.”

The University of Michigan and Reuters consumer sentiment index rose to 70.8 from 68.7 in May. The survey is timely but "only matters if it translates into a change in consumer behavior, rather than just with their thoughts," said Peter Bookvar, equity strategist, Miller Tabak.

According to the Washington Post, the nation's long-term budget outlook has darkened considerably over the past six months, and President Obama's plan to extend an array of tax cuts and other policies adopted during the Bush administration has the potential to "create an explosive fiscal situation," congressional budget analysts reported yesterday.
In a new report, the Congressional Budget Office found that extending the Bush administration tax cuts, reining in the alternative minimum tax and canceling a scheduled reduction in payments to Medicare doctors would dramatically slash tax collections at a time when federal spending would be "sharply rising." The resulting budget gap would drive the nation's debt over 100 percent of gross domestic product by 2023, the report says, and past 200 percent of GDP by the late 2030s.

According to AMG Data Services, for the week ended June 24, Equity Fund Outflows -$2.6 Bil; Taxable Bond Fund Inflows $2.9 Bil
xETFs - Equity Fund Outflows -$689 Mil; Taxable Bond Fund Inflows $1.9 Bil

August crude fell $1.07, or 1.5%, to end at $69.16 a barrel on the New York Mercantile Exchange. It fell 1.2% this week. For the month, however, oil is still up more than 3%.

Dow industrials fall 34.24 points to 8,438. Nasdaq Composite gains 8.68 points to 1,838. The S&P 500 shed 1.38 points, or 0.2%, to 918.88.

Neighborhood Community Bank of Newnan, Ga., is the 42nd bank failure of 2009 and the ninth bank to fail in Georgia this year, according to the Federal Deposit Insurance Corp.

The Sheraton see Bay Resort and Spa on the Big Island is going into foreclosure after the resort's owner defaulted on its mortgage, another sign Hawaii's beleaguered tourism industry is suffering during the global recession.

Thursday, June 25, 2009

Window Dressing Rally

6/25/09 Window Dressing Rally

The U.S. economy contracted at a 5.5% pace in the first quarter. In the fourth quarter, real GDP decreased 6.3 percent. Businesses didn't cut stockpiles of goods as much and imports dropped more sharply than previously estimated.

The number of initial claims in the week ending June 20 rose 15,000 to 627,000. It's the highest level since mid-May. The consensus forecast of Wall Street economists was for claims to fall slightly. Claims in the previous week were revised to an increase of 7,000 to 612,000 compared with the initial estimate of a increase of 3,000 to 608,000. A Labor Department official said that some states reported more end-of-school-year claims. Many states allow bus drivers and cafeteria workers to file for unemployment during school breaks. Meanwhile, the number of Americans receiving state jobless benefits held steady rose 29,000 to 6.74 million in the week ending June 13. The four-week moving average of continuing claims fell 3,250 to 6.76 million.

Steelmaker Corus will cut 2,000 jobs at plants across the U.K., the Community Union said Thursday.

Toyota Motor Corp's new president, the grandson of the group's founder, warned on Thursday the auto industry faces another two tough years as he outlined his strategy to return the world's No.1 car company to profit.

The Oil Drum: "There seems to be little doubt that over the next few years, the world's oil supply will be forced into irretrievable decline from a combination of geologic and geopolitical reasons coupled with a lack of adequate investment. Should the demand for oil increase in the next year or so, there will still be some room for increased production without unacceptable prices increases for a while. The longer a recovery is delayed, however, the better the chances that oil prices will quickly surge to recovery-choking levels. While there are long-term solutions to this problem they will take decades to implement."

Kimberly-Clark to cut 1,600 jobs in an effort to save $150M/year.

Nigeria militants say they attacked a Royal Dutch Shell pipeline in the country's restive south and are warning Russia not to invest in the nation's oil sector.

China National Petroleum Corp. has held talks with U.K. oil major BP PLC about a joint offer to develop Iraq's Rumaila field, ahead of the country's first bidding round in 30 years, a person familiar with the matter said Wednesday.

According to the WSJ, GMAC is suspending wholesale financing for certain dealers it considers to be too risky to lend to, a move that could push some dealers out of business and hurt Chrysler sales.

The global population of “ultra high net worth individuals” – defined as those with at least $30m (€22m) to invest – shrank by nearly 25 per cent in 2008 to 78,000, according to the latest World Wealth Report produced by Merrill Lynch and Capgemini. The collective net wealth of these super-rich slumped by 24 per cent after a year of bank crises, government bail-outs and stock market routs.

Prices for Microsoft's Windows 7 computer operating system will be largely in line with those for Vista.

In announcing prices Thursday, Microsoft Corp. says people who buy computers before the new system goes on sale in October will get free upgrades.
To drum up demand among people who aren't in the market for a new PC, Microsoft is taking limited pre-orders, selling some for as little as $50.

John Browne: "While corporate earnings fell by some 38 percent in the first quarter, a dismal performance by just about anyone's reckoning, Wall Street took heart that the results were not as bad as the consensus estimates had predicted. Straws were frantically grasped. Buoyed by the resulting talk of "green shoots" and the hope of a relatively quick economic recovery, the Dow Jones Industrial Average surged nearly 40% from its lows....
Now, three months into our apparent recovery, corporations have continued to issue somber sales outlooks, and insiders are heavy net sellers. When second quarter corporate earnings are announced in July, they will confirm that an economic recovery was likely a Wall Street pipe dream. Not surprisingly, springtime optimism is fading and markets are falling back."

China should buy more gold because the U.S. dollar is poised for a fall and the metal is needed to support the greater international role envisaged for the yuan, a senior researcher with the ruling Communist Party said on Thursday. i Lianzhong, who heads the economic department of the Party's policy research office, said China should use more of its $1.95 trillion in foreign exchange reserves to buy energy and natural resource assets.

Speaking at a foreign exchange and gold forum, Li also said that buying land in the United States was a better option for China than buying U.S. Treasury securities.

The IMF forecast Ireland's economy will contract by 13.5 percent between 2008 and 2010, and start to grow around 1 percent in 2011 before it stabilizes around 2.5 percent for several years.

Ron Paul’s bill to audit the Federal Reserve (HR 1207) now has 243 co-sponsors, and the numbers keep growing! At the same time, HR 1207’s companion bill in the Senate, S 604, is beginning to attract its first co-sponsors!

Moody's has released its Credit Card Index update: charge off rates for May have now surpassed 10%.

EEI reports electricity generation was up 4.6% vs the prior week but was also down 14.6% from year ago levels. No green shoot in sight.

Investor Jim Rogers said on Thursday that he sees prolonged economic problems and while he did not see much worth buying, he is not shorting any assets either.

He repeated a previous comment that he is selling his U.S. dollars and that commodities were the best investment bet.

U.S. natural gas inventories rose 94 billion cubic feet in the week ended July 2, the Energy Information Administration reported Thursday. Analysts surveyed by Platts had expected an increase between 96 billion and 100 billion cubic feet. Natural gas futures remained steady after the data, with the July contract up 3.9 cents, or 1%, at $3.798 per million British thermal units.

The Federal Reserve announced Thursday that it was extending its credit liquidity programs until February 2010.

Gold futures for August delivery gained $5.10, or 0.5%, to end at $939.50 an ounce. Energy shares were boosted by crude oil, which closed up $1.56 a barrel to $70.23 in in New York after Nigerian rebels attacked a Royal Dutch Shell pipeline.

Potash Corp. of Saskatchewan Inc said late Thursday it lowered its second-quarter earnings estimate to about 70 cents a share. The fertilizer company previously estimated earnings of $1.10 to $1.50 a share.

The S&P 500 rose 19 points, or 2.1%, to 920. The Dow Jones Industrial Average gained 172.5 points, or 2.1%, to 8,472. The Nasdaq Composite gained 37 points, or 2.1%, to 1,829.5.

Wednesday, June 24, 2009

Bank Holiday?

6/24/09 Bank Holiday?

Bob Chapman’s influential International Forecaster is reporting on the possibility of a so-called “bank holiday” planned for late August or early September. According to Chapman’s sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.
“Some US embassies worldwide are being advised to purchase massive amounts of local currencies,” writes Harry Schultz, “enough to last them a year.” Schultz publishes the
Harry Schultz Letter, an international investment, financial, economic, and geopolitical newsletter named as “Newsletter of the Year” by Peter Brimelow of Market Watch in 2005 and 2008.
Schultz believes the global elite are in the process of engineering an FDR-style “bank holiday” of undetermined length in order to “sort-out the bank mess” and impose new bank rules. As Schultz notes, another forced “bank holiday” will likely lead to a formal devaluation of the already broadsided U.S. dollar. “But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies,” which he feels is more likely.
Mr. Schultz believes a “bank holiday” would suit the burning desires of the international bankster elite. It will lead to “nationalization,” which is a polite word for brazen thievery. It will allow the government — owned lock, stock and barrel by the global elite and run by their corrupt whores and cronies — to rape secured creditors and bondholders. Nationalization is the unfettered process of grabbing up of insurance companies, mortgage companies, banks, medical care, and car companies and handing them over to the monopoly men.

Japan's trade surplus for May fell 12.1% from the previous year to 299.8 billion yen ($3.14 billion), the Ministry of Finance said Wednesday. A consensus of analysts surveyed by Dow Jones Newswires called for a a 214.6 billion yen surplus. The nation's exports fell 40.9% on year, as the trade surplus with the U.S., its biggest export market, shrank 52.9% and its surplus with Europe tumbled 75.4%. Those are enormous drops in exports and underscores the domestic spening weakness in the U.S. and Europe.

With the Golden State about to run out of money, legislators are considering a slew of spending cuts, including the closure of 220 state parks -- a reality that bites for many Californians.

The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years as the US slump shows signs of easing.

Monsanto plans to cut 900 employees. Monsanto sees FY ongoing EPS low end $4.40-4.50.

British retailers saw a second consecutive month of falling retail sales volumes in June, the Confederation of British Industry said Wednesday in its monthly distributive trades survey. The survey found 31% of retailers said sales in the first two weeks of June rose from levels seen in the same period a year ago, while 48% said they declined, for a balance of -17. That matched the May reading. The survey found retailers expect a further decline in sales in July, producing a balance of -21.

Canadian oil and gas exploration and production company Addax Petroleum Corp. said Wednesday that it's agreed to a proposed takeover offer from Sinopec Group worth C$52.80 ($46) a share. The 8.27 billion Canadian dollars (US$7.2 billion) deal is the largest overseas takeover ever by a Chinese company.

Brett Steenbarger: " We had more 65- day lows than highs on Tuesday. That's intermediate-term correction material; significant weakness relative to the action of the past two months. Less than half of all S&P 500 issues are now trading above their 50-day moving averages."

Oil markets may face a supply crunch by 2014 if global GDP growth hits 5% in the coming years, the head of the International Energy Agency said Tuesday.

New orders for manufactured durable goods in May increased $2.8 billion or 1.8 percent to $163.9 billion, the U.S. Census Bureau announced today. This was the third increase in the last four months and followed a 1.8 percent April increase. Excluding transportation, new orders increased 1.1 percent. Excluding defense, new orders also increased 1.4 percent. Orders for motor vehicles and parts dropped 8.1 percent in May, the sharpest fall since August.Shipments of manufactured durable goods in May, down ten consecutive months, decreased $3.6 billion or 2.1 percent to $169.9 billion. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 0.5 percent April decrease.

ArcelorMittal shifts its focus to lower-cost developing regions, saying it's time to recognize that the U.S. and EU "are not long-term growth markets."

China on Wednesday rejected claims by the US and the European Union that its export quotas on raw materials were contrary to World Trade Organisation rules, saying the curbs were put in place to protect the environment.

A.P. Moeller-Maersk, owner of the world's largest container shipper, said cargo volumes may drop more than 10 percent this year and show no growth in 2010 as the industry suffers a "completely unprecedented" decline.

"We will have a substantial loss this year and next year will be equally difficult," Eivind Kolding, chief executive officer of the Copenhagen-based company's Maersk Line container unit, said Monday in an interview. "We have been quite disappointed by the market development in April and May."

Last month, the finance chief for the Democratic Party of Japan advised that his nation cease purchases of U.S. debt unless that debt is denominated in yen.

Poland's central bank lowered its benchmark interest rate by 25 basis points to 3.50% on Wednesday as expected by most analysts. Following the announcement, the Polish zloty rose 0.6% against the euro and gained 0.5% against the U.S. dollar.

Citigroup Inc. has halted mortgage applications at a unit that accounted for half the company's residential loans last year after a review found that some appraisals and income-verification documents were missing, Bloomberg reported Wednesday.

The dollar index stood at 79.870.

"The dollar's global status has allowed the U.S. to have a free pass on financing our deficit as opposed to countries like Brazil, who are punished by international currency investors for risky behavior," said Martin Weiss, author of the "Ultimate Depression Survival Guide." "But if the dollar is no longer the currency everybody wants or must have to continue doing business, that is going to be much, much harder to do."

In May, employers took 2,933 mass layoff actions involving 312,880 workers. Mass layoff events and initial claims rose to their highest levels on record. Over the year, manufacturing layoff events and initial claims more than doubled. Thirty states reached program highs for May average weekly initial claims.

G. Allen Brooks: "The average of the four weeks ending June 12th, the United States imported about 12.0 million barrels a day (b/d) of crude oil and refined product out of estimated daily demand of about 21.4 million b/d of consumption. Total imports represent about 56% of the total oil demand in this country. Our total demand estimate includes the volume of refined product exported from the U.S. since it demonstrates our total exposure to imports.
The latest data on crude oil and refined product imports by country is through March 2009. That month's data shows a total import volume of 12.5 million b/d with Canada being our leading supplier with 2.4 million b/d, Mexico second at 1.2 million b/d, Venezuela third at 1.1 million b/d, Saudi Arabia fourth at 1.0 million b/d and Nigeria fifth at 0.9 million b/d. The interesting thing is that these top five countries have remained in our top five suppliers since at least 2000."

The Organization of Petroleum Exporting Countries would like oil to reach a price level of $80 a barrel so that most investments in the industry can go ahead, OPEC President Jose Maria Botelho de Vasconcelos said Tuesday.

According to BW, business bankruptcy filings are up more than 40% from a year ago, and banks are pushing more companies to liquidate....After years of getting Americans hooked on credit, card companies are slashing limits and weaning themselves off all but the safest customers.

In a bid to further unclog credit markets in the euro zone, the European Central Bank said Wednesday it will lend a record euro442 billion ($617.8 billion) to banks for 12 months.

Bill Bonner: "What is more or less predictable is that a severe depression is developing. Our iron law puts it this way: the force of a correction is equal and opposite to the deception that preceded it. The Bubble Epoque was extraordinary in practically every way – with illusions, frauds and absurdities galore. Ergo, so must be the Bust Epoque that follows."

In the first 45 minutes of trading on Wednesday the Dow is up 80+ points but Wal-Mart and Costco remain under selling pressure.

ABC News on Tuesday released
its weekly index on consumer confidence in the United States.

The Consumer Comfort Index fell in the latest report to
-53 from -49 the prior week.

The index is now just one point above its all-time low of
-54, which was reached in the week ended Jan. 25, 2009, and
before that in the week ended Dec. 1, 2008.

New home sales dropped 0.6% to a seasonally adjusted annual rate of 342,000 in May from a revised 344,000 in April. The numbers in April were revised to 344,000 from a prior target of 352,000 originally reported. Economists surveyed by MarketWatch expected the pace of sales to accelerate to a 363,000 rate in May. Once a home is completed, it is taking a record 11.5 months to sell it. The median sales prices fell 3.4% compared with a year earlier. “Homebuyers are seeing better opportunities, more attractive opportunities, in the existing market than they are in the new-home market,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who projected sales would drop. “Builders are less inclined to offer discounts and throw in amenities now that inventories are better under control.”

Charge-offs on U.S. credit cards gauged by a Moody's index surpassed 10% in May for the first time in the benchmark's history of more than 20 years. "We expect the charge-off rate index to continue to rise in the coming months but at a slower pace, as it peaks at around 12% in the second quarter of 2010," said William Black, Moody's senior vice president, in a press release Wednesday. May was the sixth consecutive month the charge-off rate rose to a record high, Moody's said.

Ford Motor Co. says the number of its suppliers that are under distress, bankruptcy protection or under observation has more than doubled in the last year, as slumping auto sales force automakers to slow production and order fewer parts.

Gasoline stockpiles increased to 211.4 million barrels in the week ended June 19, while crude supplies fell 72,000 barrels to 356.6 million, according to the API report. Distillate fuel stockpiles rose 2.3 million barrels to 153.9 million, the reports said.
Gasoline inventories increased by 3.9 million barrels last week, the Energy Information Administration reported. Analysts surveyed by Platts had expected a buildup of 1 million barrels. The EIA also reported a 2.1 million barrels gain in distillate inventories. Crude inventories, however, fell 3.8 million barrels, a bigger-than-expected decline.

Metals prices may decline in the next three months as China, the world’s biggest user, begins to run down inventories that were built up earlier this year, according to Francisco Blanch at Merrill Lynch & Co.
“China has been accumulating inventories of commodities for the last six months or so,” Blanch, head of global commodity research at Merrill, said today in an interview. “This accumulation of inventories now needs to be cleared off. End-user demand in China has not really picked up.”

The new U.N. Security Council resolution requires member states to seek permission to inspect suspicious cargo. North Korea has said it would consider interception a declaration of war and on Wednesday accused the U.S. of seeking to provoke another Korean War.
"If the U.S. imperialists start another war, the army and people of Korea will ... wipe out the aggressors on the globe once and for all," the official Korean Central News Agency said.
The warning came on the eve of the 59th anniversary of the start of the three-year Korean War, which ended in a truce in 1953, not a peace treaty, leaving the peninsula in state of war.
The U.S. has 28,500 troops in South Korea to protect against an outbreak of hostilities.

Supervalu Inc. shares fell 11% Wednesday after the nationwide supermarket chain warned its fiscal first-quarter earnings will be "substantially below" analyst expectations.
Supervalu said identical store sales and net earnings for the quarter ended June 20 were undercut by tighter consumer budgets and promotional offers.
"Consumers have become more value focused and cautious in their spending which has pressured sales and margins greater than anticipated," Supervalu Chief Executive Craig Herkert said in a statement.

The head of Nucor Corp., the top domestic steel maker, on Wednesday dismissed recent price increases as nothing more than a bump from falling inventories and suggested steel makers face as many as six more years in the doldrums.

Berkshire Hathaway Chairman Warren Buffett told CNBC Wednesday that he has trouble seeing so-called green shoots of economic recovery in the U.S. The risk of a collapse in the financial system has past, but "we haven't got the economy moving again," he explained.

General Motors Corp. plans to close its assembly and stamping plants in Shreveport no later than June 2012, a union official said Wednesday.
Doug Ebey, the president of United Auto Workers Local 2166, said the company filed bankruptcy court documents late Tuesday saying the plants, which employ 950 people in the two operations, won't be part of the new General Motors when it emerges from bankruptcy.
Ebey said the plants could close sooner, depending on market demand for GM vehicles. In the meantime, the plants will continue to put together the Chevrolet Colorado and GMC Canyon pickup trucks, along with the Hummer H3 and H3T pickup truck.

August gold closes at $934.40, up $10.10. July silver ended at $13.91 an ounce, a gain of 7 cents. July copper rose 7 cents to $2.268 a pound.

The U.S. financial system remains vulnerable with unemployment rising, house prices falling and commercial real estate problems continuing to build, a key bank bailout fund overseer said Wednesday. "This is why we must remain vigilant," said Herbert Allison, the Treasury's point man for the $700 billion Troubled Asset Relief Fund, in testimony to the Congressional Oversight Panel.

Nike Inc. reported fiscal fourth-quarter net income fell 30% to $341.4 million, or 70 cents a share, compared to net income of $490.5 million, or 98 cents a share, a year ago. Excluding items, Nike said it earned 99 cents a share. Sales fell 7% to $4.7 billion. Nike said worldwide futures orders for Nike brand athletic footwear and apparel, scheduled for delivery from June 2009 through November 2009, was $7.8 billion, down 12% from a year ago. Nike shares fell 4.9% in late trading.

The Dow industrials dropped 23.05 points, or 0.3%, to 8,299.8. The S&P 500 ended well off its earlier highs at 900.94, up 5.84 points, or 0.7%. The Nasdaq Composite gained 27.42 points, or 1.6%, to 1,792.3.

Tuesday, June 23, 2009

Downward Move

6/23/09 Downward Move

Moody's Investors Service said on Tuesday that the U.S. government's triple-A credit rating was safe but added that it could be at risk if Washington were unable to bring its public debt back to a downward trajectory. What are the chances of a downward move? Don't bet your job and your house on it.

Oil and gas producers will cut spending more sharply than expected this year because of the slump in North American natural gas prices, analysts at Barclays Capital said on Monday.
Spending globally on exploration and production is expected to shrink by 15 percent in 2009 from the previous year, compared to the 12 percent drop the companies had expected in December, Barclays' analysts James Crandell and James West said in a report on their semi-annual survey of 402 energy companies.

Chain-store sales for the week ended June 20 fell 0.9% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales were unchanged. "June sales continued to face strong headwinds from the economy's recessionary forces to Mother Nature," said Michael Niemira, ICSC's chief economist. "On the weather front, nationwide precipitation was 93% above a year earlier and 43% above its long-term average-according to Weather Trends International. The good news on the weather front is that the weeks leading up to Independence Day will be warmer and drier than last year, which should provide a late month spur to seasonal goods." ICSC forecast June sales, excluding Wal-Mart Stores Inc., will be down by about 5%.

An FBR Capital Markets analyst said Tuesday that although mall traffic rose as students headed to the malls at the start of summer break, buying trends remain weak.
"Shoppers cannot shake the macro overhang and teen unemployment continues to creep upwards," analyst Adrienne Tennant told investors in a research report.
Tennant said retailers were offering 50 percent to 70 percent off merchandise prices, but consumers seemed to have saturated their appetites for buying necessities, leaving discretionary buying to languish.
"As consumers have filled the 'need' for summer purchases, we believe that the 'want' remains on the back burner," Tennant said.
"We could see incremental pressure to second-quarter 2009 results," the analyst wrote.

The rising number of jobless Texans has generated more claims than the Texas Workforce Commission can handle.

The Energy Department is expected to announce today it is lending money to the Ford Motor Co. and two other automakers from a $25 billion fund to develop fuel-efficient vehicles.

According to the LA Times, businesses that depended on credit cards to make purchases and manage monthly cash flow are paying higher interest, having trouble opening new lines or seeing existing ones canceled.

Mortgage originations in the U.S. may total $2.03 trillion this year, 27 percent less than earlier forecast, as rising interest rates reduce home refinancings, the Mortgage Bankers Association said.

Today's forecast cuts $700 billion from the Washington- based group's March estimate, a change MBA Chief Economist Jay Brinkmann said came because the Federal Reserve's pledge to buy as much as $300 billion in U.S. Treasuries hasn't been enough to keep Treasury yields and mortgage rates down.

Boeing Co.said Tuesday it's postponing the first flight of the 787 Dreamliner. The aerospace company cited a need to reinforce an area within the side-of-body section of the aircraft. Boeing's financial guidance will be updated to reflect any impact of these changes when the company issues its second quarter 2009 earnings report in July.

Kroger confirmed its full-year 2009 earnings outlook of $2.00 to $2.05 a share.

MySpace, the social networking website owned by Rupert Murdoch's News Corp, said on Tuesday it plans to cut about two-thirds of its international workforce and close at least four of its offices outside the United States.
The proposed restructuring plan would reduce MySpace's international staff to about 150 people from 450, the company said in a statement.

Mexico's oil production down 7.9% to 2.65 mm bopd for the first five months of 2009. Exports were down 15% for the period to 1.24 mm bopd. Mexico is the U.S.’s 2nd largest imported source of crude behind Canada. Venezuela, Saudi Arabia and Nigeria rank 3rd, 4th, and 5th respectively.

Tony Allison: "At present, we import 65-70% of our energy needs. Beyond the obvious political threat, the sheer cost of paying for over 9.2 million barrels per day of foreign oil is staggering. Imagine how staggering it would be if the U.S. couldn’t just print the money to pay for it (but be forced to convert dollars to another reserve currency first) and the price is the equivalent of $300-$500 per barrel. That would clearly be an unsustainable situation. We would have to import much less oil, severely damaging our economy in the process. Nothing seems to get done in this country without a crisis. Well, we have one now."

Falling prices boosted sales of pre-owned homes in May to the highest level since October, the National Association of Realtors estimated Tuesday. Existing-home sales rose 2.4% to a seasonally adjusted annual rate of 4.77 million, the trade group said. Sales have risen in three of the past four months, and are down 3.6% in the past year. The sales increase was less than the 4.85 million rate expected by economists surveyed by MarketWatch. The median sales price fell 16.8% in the past year to $173,000, the third largest year-over-year decline on record. Inventories of unsold homes fell 3.5% to 3.80 million, representing a 9.6-month supply at the May sales pace.
U.S. home prices fell 0.1% in April, the Federal Housing Finance Agency reported Tuesday, and declined 6.8% in the past year. Out of nine regions, prices fell in five, and rose in four. For March, the decline was revised to 1.4%, from a prior estimate of a 1.1% drop.

The Obama administration has filed its first trade case against China with the World Trade Organization, accusing the Asian power of restricting exports of certain raw materials to give Chinese manufacturers "unfair advantages."
Trade Representative Ron Kirk says the U.S. is "deeply troubled at what appears to be a conscious policy to create unfair advantages for Chinese industries" by restricting exports of raw ingredients used in steel, aluminum and chemicals.

Americans' confidence in President Barack Obama's $787 billion economic stimulus plan is waning, a new Washington Post-ABC News poll found, even as his overall approval rating remains high.
Fifty-two percent of respondents said that the stimulus package has succeeded or will succeed in restoring the economy, down from 59% two months ago, the poll found. The poll was taken June 18-21 and has a margin of error of plus or minus three percentage points.
Obama's approval rating, meanwhile, remains relatively high, at 65%. Thirty-one percent disapprove of the way he's handling his job. The approval rating is only slightly lower than it was in April, but the disapproval rating is up by five percentage points.

The U.S. dollar extended losses versus the euro and Japanese yen Tuesday after a report showed existing home sales rose less than expected last month. The dollar index fell to 80.116 from 80.784 in late North American trading Monday.

The FT reported strains in pensions systems, in both private and public provision, threaten to turn the financial crisis over the past two years into a social crisis lasting decades, the Organisation for Economic Cooperation and Development warned on Tuesday.
In its annual analysis of the health of the pensions systems around the world, the Paris-based international organisation, found that private pensions plans lost 23 per cent of their value last year while higher unemployment “leaves little room for more generous public pensions”.

Richmond Fed Manufacturing Index: 6, from May's 4. Activity in Central Atlantic advanced "somewhat faster" on expanded new orders, factory shipments that grew at slightly slower rate and moderate weakness in unemployment. Manufacturers softened outlook for next six months, expecting slowdown in shipments, new orders and utilization.

The White House says double-digit unemployment is coming sooner than previously acknowledged.
White House spokesman Robert Gibbs says the president expects the nation will reach 10 percent unemployment within the next few months.

Moody's economist Mark Zandi estimates the U.S. must create 150,000 new jobs each month just to break even.

WSJ: "There is no evidence that Mr. Bernanke and his Fed colleagues have changed their thinking. They still ignore a falling dollar and rising commodity prices, even as oil has climbed to $70 a barrel from $40 six months ago. They also continue to be slaves to the output gap, which means they are unlikely even to begin to tighten as long as the jobless rate remains high. With that rate now at 9.4% and likely to rise, the monetary spigots will probably remain wide open for a long time to come."

August gold ends up $3.30, or 0.4%, at $925.60.

Standard & Poor's Ratings Services said Tuesday that it downgraded several securities backed by large, higher-quality mortgages, a sign the housing crisis has spread well beyond its subprime origins.
S&P said it lowered ratings on 102 classes from 33 U.S. prime jumbo residential mortgage-backed securities that were issued from 1998 to 2004. The rating agency also affirmed ratings on 669 classes from 32 of the downgraded deals, as well as 34 other deals.
"The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," S&P said in a statement.

The Dow Jones Industrial Average fell 16 points, or 0.2%, at 8,322. Shares of Boeing slipped more than 6% after the company delayed the first flight of its 787 Dreamliner. The S&P 500 index rose 2 points, or 0.2%, to 895, while the Nasdaq Composite slipped 1.3 points, or 0.1%, to 1,764.

Harvard University will cut 275 jobs as a result of its declining endowment, according to media reports Tuesday. Also, the university reportedly will reduce the work hours of 40 other employees. Harvard's endowment, the nation's largest, is expected to lose about 30% from its high of about $37 billion last year by the end of the fiscal year June 30.

Crude oil rose $1.70 a barrel and gasoline climbed for the first time in five days after a weaker dollar bolstered the appeal of commodity futures as an alternative investment.

General Motors has notified its U.S. white-collar workers that it plans to cut about 4,000 more jobs by the end of the year.

The WSJ is reporting that Red Roof Inns has defaulted on $332 million of mortgage debt.

Deutsche Bank AG set a July 15 deadline to accept new bids for Manhattan’s Worldwide Plaza office tower after a deal to sell the property fell apart, three people familiar with the plan said.
The bank notified potential bidders that the property is back up for sale after deciding not to complete a June 3 deal with RCG Longview and George Comfort & Sons, said the people, who declined to be identified because they weren’t authorized to speak publicly.
Deutsche Bank will change the terms of the transaction with the new buyer, the people said. While it will still finance the sale, the bank will no longer retain an equity stake in the 47- story tower at Eighth Avenue and West 49th Street, the people said. Worldwide Plaza was one of seven Midtown skyscrapers Germany’s biggest bank took possession of 16 months ago when developer Harry Macklowe defaulted on about $7 billion in debt.

Monday, June 22, 2009

Sharp Drop

6/22/09 Sharp Drop

The World Bank predicted Monday that the global economy will shrink 2.9%, a deeper fall than the 1.7% contraction it predicted in March. It also warned that international capital to developing nations will continue to slow, with flows projected to fall to $363 billion in 2009 from their peak of $1.2 trillion in 2007. The world has entered an era of slower growth that will require tighter and more effective oversight of the financial system, the bank said in a statement.

Anglo American rejected rival mining group Xstrata's "merger of equals" proposal on Monday, knocking a no-premium marriage and a combination with what it regards as Xstrata's inferior mines.

The snub came a day after Xstrata unveiled its plan and after top Anglo shareholders pressed for a big premium to create a giant to compete in a consolidating mining sector.

"We are disappointed by Anglo American's rapid rejection of our proposal for an all-share merger of equals," a spokesman for Xstrata said following the Anglo rejection.

The Dow Jones industrial average dropped 200.72 points, or 2.35 percent, to end at 8,339.01. The Standard & Poor's 500 Index was down 28.19 points, or 3.06 percent, at 893.04. The Nasdaq Composite Index was down 61.28 points, or 3.35 percent, at 1,766.19.

European shares also slid, with the FTSEurofirst 300 index of top European shares hitting its lowest closing level since mid-May.
It was the worst day for the three indexes since April 20 when results from Bank of America reignited concerns about the banking industry.
The S&P financial index fell 6.2 percent, while the energy index dropped 4.6 percent.


Crude-oil futures tumbled nearly 4% Monday to the lowest level in nearly three weeks as the World Bank forecast the global economy will contract more than expected, rekindling worries about oil demand. On the New York Mercantile Exchange, July crude futures dropped $2.62, or 3.8%, to $66.93 a barrel, the lowest closing level since June 3.

Russia's ruble-denominated Micex stock index has fallen more than 20% since June 1, a decline typically considered an entry into a bear market. The Micex index tumbled 7.8% on Monday to end at 937.98 points. Since June 1, when the index closed at 1,206 points, the Micex has fallen by 22%, according to data from the Web site of the Micex stock exchange. At Moscow's other stock market on Monday, the dollar-denominated RTS stock index fell 5% to 961 points, down 18% since June 1.

August gold fell $10, or 1.1%, to $926.20 an ounce in early North American trading.

China's oil refineries processed a record 31.19 million tons (233.9 million barrels) of crude oil in May, a 10.7% rise over the same period a year earlier, according to a Xinhua report Monday, which cited data from the China Petroleum and Chemical Industry Association.

Large Japanese companies were less gloomy in the April-June quarter compared with the January-March quarter, an index jointly compiled by the Ministry of Finance and the Cabinet Office suggested Monday. The business sentiment index for large companies was minus 22.4, improving from the previous survey's minus 51.3. Looking ahead, the outlook index for big companies stood at minus 2.6 for the July-September, and plus 8.7 for the October-December, indicating companies expect further improvement.

Brett Steenbarger: "After today's sharp drop, new 20-day lows across the NYSE, NASDAQ, and ASE are now outpacing new highs rather handily. On Monday, the new lows hit a level they haven't seen since the March bottoming period. I notice that new 65-day highs and lows are now about even. This fits with the pattern of market weakness--and the trend shift--noted in the recent indicator review and update of the sectors. Seeing the market weakness setting up early in the morning, as noted in the intraday Twitter comments, and placing that weakness in the context of a trend shift was helpful in anticipating our break of last week's lows. It's a nice example of how placing short-term strength/weakness in the context of longer-term market activity is useful in anticipating moves to and through key price levels."

Sunday, June 21, 2009


6/20/09 Debt

In the first quarter federal government borrowings surged at a 22.6% annualized rate. Over the past year, Treasury debt expanded at a pace of 28.4%.

Doug Noland: "It is a primary theme of current Credit Bubble analysis that the unfolding Government Finance Bubble-driven global reflation will be of an altogether different nature than previous Fed/Wall Street-induced reflations. For one, the major reflationary monetary mechanism has shifted from Wall Street finance (securities firms’ balance sheets and securitizations, “repo” finance, hedge funds, etc. - to various avenues of government finance. As such, we are expecting a lasting shift in the flow of finance away from the asset markets, with important ramifications for household wealth and spending....Despite incredible government stimulus, Household sector Assets declined a further $1.444 Trillion during the quarter. This brought the one-year drop to an unrivaled $10.075 Trillion (13.5%). At $64.517 TN, Household Assets have returned to year-end 2005 levels.....No one will step up and reign in a Bubble. There’s always an excuse – masterful justifications and rationalizations. And, of course, the intellectual frameworks operating in Washington and elsewhere would adamantly insist that now is the absolute worst time to reign in government borrowing.
So disciplining Washington will be left to the marketplace. On the one hand, the markets were content to accommodate Wall Street’s self-destruction for far too long. On the other, the markets were burned and would seemly now be heedful of “Ponzi Finance” dynamics."

Banks in Georgia, North Carolina and Kansas with total assets of $1.5 billion were closed yesterday, bringing this year’s tally of failures in the U.S. to 40 amid the highest unemployment in a quarter century.

The American Academy of Family Physicians predicts that, if current trends continue, the shortage of family doctors will reach 40,000 in a little more than 10 years, as medical schools send about half the needed number of graduates into primary medicine.

The overall shortage of doctors may grow to 124,400 by 2025, according to a study by the Association of American Medical Colleges. And, the report warns, "if the nation moves rapidly towards universal health coverage" -- which would be likely to increase demand for primary care and reduce immediate access to specialists -- the shortages "may be even more severe."

GM suspended operations for at least three months at its auto assembly plant in Venezuela's central Carabobo state, affecting 1,600 full-time employees who will see their salaries cut to minimum wage during the shutdown. A smaller plant that produces trucks will continue operating in a nearby town.

According to a recent CBS News/New York Times poll, Americans’ views on the general state of the country have hit an all-time low, with 81% saying the nation is on the “wrong track” – the worst-ever number for this barometer.

Paul van Eeden: "It is interesting to note that the average rolling 12-month inflation rate averages 8.25% for the past 15 months. To put that in context, the average inflation rate from 1970 to 1979 was 8.32%. We are, absolutely, in a highly inflationary environment. Deflation is not only unlikely given the structure of the US banking system, but nowhere to be seen in the data either....Our greatest concern should not be with the current falling prices of goods and services, but with the rate at which they will rise in the future vis-à-vis our capital and income. I suspect there are very few people out there whose income and investments are keeping up with the inflation rate, which means their wealth is eroding in real terms."

The Los Angeles Times reports the pet industry is expected to generate $51.6 billion this year -- 1.3 percent more than in 2008, according to Los Angeles-based research firm IBISWorld. Even the number of cats and dogs as pets is expected to increase this year, by 2.4 percent to 169 million.
The veterinary services sector is branching into a wider range of services, offering chiropractics, ophthalmology, dentistry and dermatology, among others. Researchers anticipate that the segment will grow at an average annual rate of 4.3 percent over the next five years and pull in $22.3 billion this year alone in revenue.
Pet food producers also will grow steadily, making $15.2 billion this year as they experiment with natural and organic products. Demand for premium pet foods, with more owners asking for breed-specific brands and diet ideas, is helping to bolster the section.
Revenue from food, supplies and medicine will help pet stores earn $11.45 billion, with a minor contribution from sales of live animals as controversy builds over puppy mills and an increasing number of homeless animals ending up in shelters.

There is no room for governments that have borrowed billions to fight the economic crisis to accumulate more debt, European Central Bank President Jean-Claude Trichet said on Sunday.

"There is a moment where you can't spend anymore and you can't accumulate any more debt. I think we are at that moment," Trichet told Europe 1 radio.

David Rosenberg: "What really struck us in the employment report of a few weeks ago was the fact that the only segment of the population that is gaining jobs is the 55+ age category. This group gained 224,000 net new jobs in May while the rest of the population lost 661,000. In fact, over the last year, those folks 55 and up garnered 630,000 jobs whereas the other age categories collectively lost over six million positions. This is epic."

Mike Burk: "The market is oversold and seasonally it has done ok once it gets past the Monday following options expiration.
I expect the major indices to be higher on Friday June 26 than they were on Friday June 19."