Saturday, July 04, 2009

Snake Oil

7/4/09 Snake Oil

George Ure: "The country is essentially broke. Unbelievable as it is, the people who are trying to monetize misery are still spending far beyond the ability of the country to pay - unless, of course, they plan a massive hyperinflation starting as early as late fall this year. Of course, that would fit nicely, since hyperinflation now won't take as much equity out of the pockets of the PowersThatBe since the weakest of our countrymen have already been foreclosed upon before paying back their mortgages with hyper inflated (thus widely available cheaper money) will be one of those fire exits that's been conveniently chained shut."

Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.
“The major part of Indian reserves is in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday in Aix-en-Provence, France, where he was attending an economic conference.
Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the summit.
As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.
“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing yesterday, highlighting China’s concerns about a global financial system dominated by the dollar.
Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

Interest payments on the debt alone cost $452 billion last year -- the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders. The next time interest rates take off the interest on the debt will be $1 trillion a year. All the hyperinflation won't help.

The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm, according to an analysis performed for The New York Times by Foresight Analytics, an industry research firm based in California. And a third of the failed banks, the analysis shows, had both an unusually high level of brokered deposits and an extremely high growth rate — often a disastrous recipe for banks.
The data also shows that the problem isn’t likely to go away. The 371 still-operating banks on Foresight’s “watch list” as of March held brokered deposits that, on average, were twice the norm. Even this year, in the depth of the recession, a number of struggling banks have been piling up hot money in a desperate effort to survive.
It is the same mix — rapid increases in hot money and heavy lending for risky real estate development — that brought down many of the savings and loans in the late 1980s.

The Oil Drum: "Two years before the invasion of Iraq, oil executives and foreign policy advisers told the Bush administration that the United States would remain "a prisoner of its energy dilemma" as long as Saddam Hussein was in power.
That April 2001 report, "Strategic Policy Challenges for the 21st Century," was prepared by the James A. Baker Institute for Public Policy and the US Council on Foreign Relations at the request of then-Vice President Dick Cheney.
In retrospect, it appears that the report helped focus administration thinking on why it made geopolitical sense to oust Hussein, whose country sat on the world's second largest oil reserves.
"Iraq remains a destabilizing influence to the flow of oil to international markets from the Middle East," the report said."


Summary by David Rosenberg, July 2, 2009

Today’s employment report had deflation thumbprints all over it. And you don’t have to take my word for it – have a read of San Francisco Fed President Janet Yellen’s speech on June 30th when she dared to utter the “D” word. And that was before today’s payroll release which contained disturbing signs of weakness on many fronts.
The headline came in at -467k compared with -350k consensus and the back revisions were negligible (+8k). At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure, not even at the depths of those downturns, and yet we have a whole industry of ‘green shoot’ advocates today telling us that the recovery has already arrived. As always, the devil was in the details. In almost every industry, job losses were deeper in June than they were in May. The diffusion index fell to 28.6 from 31, which means that nearly three-quarters of the corporate sector is still in the process of shedding jobs. The Household Survey showed a 374k job decline, and all centered in full-time jobs. In fact, we have lost a record 9 million full-time jobs this cycle, more than triple what is normal in the context of a post-WWII recession, with over 2 million pushed onto part-time work (and the number of people now working part-time because they have no other choice due to the weak economy has more than doubled).
This in turn has take the total hours worked in the private sector down to a new record low of 33 hours from 33.1 hours in May – in fact, what this means is that if companies had kept hours worked at May’s levels, then to achieve the same labour input that they achieved would have required a 800,000 job slice! Just to put the entire labour market picture into a certain perspective.
When we say that deflation has gripped the labour market, we are not exaggerating. Average weekly earnings – the proxy for wage-based income – fell 0.3% in June and have been flat or down in three of the past four months. During this interval, they have deflated at a 1.6% annual rate – versus a +1.8% trend a year ago and +5.2% two years ago.

When I hear the Administration talk about green shoots, I picture them as sales people pitching snake oil. While selling medical and economic reform
programs, they are stealing individual freedoms and pissing over the constitutional rights of all Americans. When honoring our troops who have fought and continue to fight for our freedoms, also consider your elected officials who trample on your freedoms. Throw them under the bus, under the train, under your feet.

LA Times: "Just how big the foreclosure wave will be is unclear. But loan defaults are up sharply. And with many government and banks' self-imposed foreclosure moratoriums expiring, the biggest lenders indicate that they are likely to move more aggressively to clear up a backlog of troubled mortgages...Chase is proceeding to deal with an additional 80,000 borrowers in default whose foreclosure process had been voluntarily halted by the lender starting late last year.
Bank of America, the nation's largest servicer of home mortgages, also did not release the volume of likely foreclosures. The bank said it had extended offers to modify loans to more than 45,000 borrowers under the Obama plan. Bank of America spokesman Dan Frahm said the company was projecting a "slow increase" in the number of monthly foreclosures, potentially reaching 30% above previous normal levels.."

Edward Harrison: "In the lead-up to next week’s G8 summit, the Chinese have been making yet more noises about setting up a new monetary system without the dollar as its anchor and leading reserve currency. The Chinese, who have maintained a export orientation which has made them the largest holder of U.S. government bonds, are concerned that they are holding depreciating assets. As the U.S. economic and fiscal position deteriorates, the likelihood for a disorderly decline in the U.S. dollar increases. So, China wants a change."

Friday, July 03, 2009

Less Jobs Less Hours Less Wages

7/3/09 Less Jobs Less Hours Less Wages

As many as one in five U.S. hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen.
The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion this quarter, said analyst Jessica Ruderman.
“Hotels without question will have the highest foreclosure rate of any commercial real estate sector,” said Rosen, who runs a real estate hedge fund with $310 million in assets and is chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.

Australia’s economy, which has so far skirted the global recession, may stall after reports showed exports dropped to a 14-month low, bank lending fell and home- building approvals declined by the most since 2002.

The Oil Drum: "A shift of warming patterns in the Pacific Ocean may mean more seasons of increased hurricane activity in the Atlantic and more storms entering the oil-rich Gulf of Mexico, according to a study in the journal Science.
The warming of Pacific waters -- a phenomenon called El Nino -- has been moving toward the central Pacific, meaning more storms will form in the Gulf and Caribbean, researchers at Georgia Institute of Technology said in the study. Traditionally, when the eastern Pacific warms up, hurricane activity in the Atlantic falls."

U.S. housing prices will fall by a double-digit percentage from already beaten-down levels, resulting in an overall 40 percent plunge by the time foreclosures peak in the second half of 2010, Barclays Capital economist Michelle Meyer said.

Unemployment in the 16 countries that use the euro spiked to a 10-year high in May, reinforcing concerns any recovery will take time with so many people out of work.
Eurostat, the statistics office of the EU, said Thursday the seasonally-adjusted unemployment rate for the euro zone in May stood at 9.5 percent, up from April's 9.3 percent.

Stan Leibowitz: "51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)....The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures.
Further, because it is difficult to account for second mortgages in this data, my measurement of negative equity and its impact on foreclosures is probably too low, making my estimates conservative."

George Ure: "The FDIC announced seven bank failures after the market closed Thursday, which brings the number of banks closed this year to 52. But, if you count the number of branch offices closed this week it's 30 branches....the number of banks closed is nominally up to 75, but if you count up branches, the banking system has shuffled ownership of 2,969 branches."

Former Chinese Vice Premier Zeng Peiyan highlighted the nation’s concern at the risks posed by a global financial system dominated by the dollar, urging more oversight of countries issuing reserve currencies.
“There should be a system to maintain the stability of the major reserve currencies,” said Zeng, the head of a research center under the government’s top economic planning agency. Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” he said in a speech in Beijing today.
Premier Wen Jiabao said in March that he was “worried” about his nation’s $763.5 billion of Treasuries as spiraling U.S. debt threatens the value of the dollar.

RGE Monitor: "Russia is a member of the Group of Eight (G8) leading industrial nations, is negotiating a Partnership and Cooperation Agreement with the EU, is in talks to join the WTO, and has won a voice in the West's military affairs via the Russia-NATO Council."

Nouriel Roubini: "The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.
It’s clear that even if the recession were to be over anytime soon – and it’s not going to be over before the end of the year – job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over....the total value of labor income is the product of jobs, hours, and average hourly wages – and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone."

Puru Saxena: "Given the fact that households in the West are repaying their debt and the world faces excess capacity, a robust and sustainable economic recovery is out of the question.
In my view, what is more likely is that governments all over the world will engage in massive fiscal spending over the coming years. In other words, politicians (who aren’t the best allocators of capital) are going to spend trillions of dollars on state-sponsored infrastructure projects. Needless to say, governments will fund these ambitious projects by either borrowing or printing money (or a combination of both). Whatever their source of fund raising, any economic recovery brought about by monetary inflation will be short lived. Once the stimulus kicks in and economic activity picks up, we will witness a tidal inflationary wave in the form of sky-high prices for natural resources. When prices spiral out of control and speculative juices start to flow again, short-term interest rates will rise and the stage will be set for the next colossal bust."

According to the FT, two of China’s biggest oil groups have approached Repsol YPF, the Spanish oil company, over possible asset purchases and joint ventures worth billions of dollars, according to people familiar with the matter.
The Chinese proposals could lead to the largest outward investment deals undertaken by Chinese companies, which are eager to gain access to natural resources to fuel the country’s economic growth.

Including laid-off workers who have given up looking for jobs or have settled for part-time work, the so-called underemployment rate was 16.5  percent in June — the highest on records dating to 1994.

The recession has taken out 6.5 million jobs in a year and a half. All told, nearly 15  million people were considered unemployed in June.

Illustrating how hard it is to land jobs, 29 percent of the unemployed have been out of work six months or longer. That’s the most on records dating to just after World War II. The unemployment rate for teenagers is 24 percent, the highest since 1983.

California is cutting off applications for a tax credit that was designed to promote sales of new homes.
The Franchise Tax Board said it would stop taking applications for the tax credits at midnight Thursday.
The program offered $100 million in credits to about 10,000 consumers who buy homes that have never been occupied. The credit is equal to 5% of the purchase price or $10,000, whichever is less.
Buyers must occupy the homes for at least two years immediately after the purchase.

The tax board expects to have received 12,000 applications.

According to AMG Data Services, for the week ended July 1, Equity Fund Outflows -$3.5 Bil; Taxable Bond Fund Inflows $4.1 Bil
xETFs - Equity Fund Outflows -$278 Mil; Taxable Bond Fund Inflows $2.6 Bil

The state-run China Investment Corp. is going to take a C$1.7 billion ($1.5 billion) stake in Teck Cominco, a deal that will give it a 17% equity stake with 6.7% voting interest in the Vancouver miner, according to a statement released Friday.

In 2008, employer-provided coverage averaged $12,680 a year for a family plan, and $4,704 for individual coverage, according to the Kaiser Family Foundation's annual survey. Senate aides, who spoke on condition of anonymity because they were not authorized to speak publicly, said the cost of the federal plan would be lower but declined to provide specifics.

Thursday, July 02, 2009


7/2/09 Unemployment

Nonfarm payrolls shrank by 467,000 in June higher than the 325,000 decline expected by economists surveyed by MarketWatch and the 322,000 jobs lost in May. The unemployment rate ticked higher to 9.5% in June from 9.4% in the previous month. Economists had expected the unemployment rate to rise to 9.6%. Average hourly earnings were flat at $18.53. Economists had been expecting a 0.2% gain. Earnings are up 2.7% in the past year. The average workweek fell six minutes to 33.0 hours. Hours worked fell 0.8%. The average weekly earnings declined to $611.49 from $613.34. “The U.S. economy is going to be shedding jobs right through into 2010 even after the economy starts growing modestly,” James Shugg, a senior economist at Westpac Banking Corp. in London, said in an interview with Bloomberg Television.

Today’s report showed factory payrolls fell by 136,000 after decreasing 156,000 the prior month.The drop included a decline of 26,500 jobs in auto manufacturing and parts industries. Payrolls at builders fell 79,000 after decreasing 48,000.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 244,000 workers after falling 107,000. Retail payrolls decreased by 21,000 after a 17,600 drop. Financial firms reduced payrolls by 27,000, after a 30,000 drop the prior month. Government payrolls decreased by 52,000, the biggest decline since July 2007, after dropping 10,000 the prior month. The decrease reflects the layoff of workers hired on a temporary basis to prepare for the 2010 census. The U.S. Census Bureau has said it will hire more than 1.4 million people over the next year to conduct the population count that happens once every 10 years.

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 433,000 over the month to 4.4 million. In June, 3 in 10 unemployed persons were jobless for 27 weeks or more. The gap between men’s and women’s unemployment rate is 2.5% — Men are at 10.5% versus women at 8% — is the highest it’s ever been since records were kept in 1948.

In the bullshit department we have the CES Birth/Death Model. This job creation in June was 220,000 and we're led to believe that 77,000 of these jobs were created in leisure and hospitality. Do you believe in the tooth fairy.

The number of initial claims in the week ending June 27 fell 16,000 to 614,000, quite close to the consensus of Wall Street economists. Claims in the previous week were revised to an increase of 18,000 to 630,000 compared with the initial estimate of a increase of 15,000 to 627,000. This increase had surprised analysts. The four-week average of initial claims fell 2,750 to 615,250. Meanwhile, the number of Americans receiving state jobless benefits inched lower by 53,000 to 6.70 million in the week ending June 20. This is only the third weekly drop in continued claims this year. The four-week moving average of continuing claims fell 13,750 to 6.75 million. This is the first decline in the four-week moving average since February 2008.

Electric utility Exelon Corp. has increased its all-stock offer for NRG Energy Inc. The group is offering 0.545 shares of its own stock for every NRG share, a 12.4% increased from the previous offer of 0.485 shares per NRG share. Exelon said the increased offer "represents value of other $3 billion to NRG shareholders." Exelon said it has identified around a further $1.5 billion of additional synergies from the deal, which is the primary reason for the increased offer. It added that the proposal "is our best and final offer."

Lear Corp. plans to file for Chapter 11 bankruptcy protection and will restructure its debt under court supervision.

U.S. natural gas inventories rise 70 bcf last week. IHS Global Insight had projected a buildup of 82 billion cubic feet.

The Oil Drum: "The nation heads into the Independence Day holiday weekend amid the longest and steepest decline in driving since the invention of the automobile.

Since the number of miles traveled by motor vehicles in the USA peaked in November 2007, the nation's 12-month total has dropped by 123 billion miles, or slightly more than 4%. That's a bigger decline than the drop of just above 3% during the 1979-80 Iranian revolution that triggered a spike in gasoline prices in the USA.

The 4% drop is the equivalent of taking between 8 million and 10 million drivers off the road.

"We may be witnessing the beginning of a fundamental shift in American driving habits," says Ed McMahon, senior research fellow at the Urban Land Institute, a non-profit group that promotes innovative development."

The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday.

"You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that's breaking," Taleb said on "Squawk Box."

Manhattan apartment sales plunged more than 50 percent and the average price dropped 21.4 to 24 percent from a year ago, as the U.S. recession forced many who own a piece of the Big Apple to eat humble pie, several reports said.

Homeowners taking part in the Obama administration's housing rescue program through Fannie Mae and Freddie Mac will now be eligible even if their loan-to-value ratio is up to 125 percent. That means they can have up to 25 percent negative equity and still get a refinance.

Carl Mortished: " If the President gets his way in Congress, every bank in the world, or at least every bank that matters, will be forced to become an American bank. It’s a Martini clause for global financial services. Any time, any place, anywhere that banks do business with American content — a US taxpayer, a US security or payment — the US taxman will be informed and, where appropriate, a sum withheld. Every bank will be an agent collecting and reporting for the IRS and any bank that demurs could pay a price. There will be a rebuttable presumption that a US taxpayer who deals with a non-QI institution is seeking to evade tax. We can assume that such non-compliant institutions will come under intense scrutiny.... Banks will be expected to provide not only titular names but also the beneficial owners behind trusts, companies and nominees. The intention is clear - to ensure that Americans who are reluctant to pay all their taxes have nowhere to go. “The IRS would like the entire global financial system to work for them,” quips Stephen Land, a tax partner at Linklaters in New York. The question is why this ambition is greeted with a wall of silence by governments normally quick to challenge excessive American zeal. The answer is obvious - within Westminster, Paris, Berlin, Brussels everywhere, there is excitement over the notion of turning the world’s financial system into a global tax collection net.... Banks don’t start wars, kidnap or murder innocent people. It is governments that do those things. It is time to resist the ambition of these governing people. "

IBD: "President Obama is now expanding federal spending by a whopping 30%.

Privileged Washingtonians forget that real people have had to work, save and invest, often at great sacrifice, to produce the money that government spends so extravagantly. In pursuit of their careers, federal spenders pretend not to know that the taxpayers of America would have been greatly benefited had they not been forced to send their money to Washington...

More than 85% of the personal income tax is paid by a small, overtaxed band of Americans who in number are less than 25% of eligible voters. The total number of income-tax payers is less than 55% of eligible voters. These people also bear the economic burden of nearly all the income tax collected from corporations.

Taxpayers pay government's bills — but they have little control over how much of their money government spends or for what....we estimate that a majority of people who vote in the next election will be nontaxpayers, fully able to tax an oppressed minority with impunity, without themselves paying any income tax at all."

According to Yu Dongming of China’s National Development and Reform Commission, over the last quarter, China has accumulated 235,000 tons of copper, 590,000 tons of aluminum, 159,000 tons of zinc and 5,000 tons of titanium. Because of this commodity grab, “nonferrous metals prices have rebounded,” he said. “Given these circumstances, we don’t expect the state will continue to build its reserves.”

Thomas DiLorenzo: "The purpose of government is for those who run it to plunder those who do not. Throughout history, governments have used violence, intimidation, coercion, and mass murder to enforce this system. But governments’ first line of “defense” is always a blizzard of lies – about its own alleged benevolence, altruism, heroism, and greatness, along with equally big lies about the “evils” of the civil society, especially the free market.

The current economic crisis, which was instigated by the government’s central bank and its boom-and-bust monetary policies, among other interventions, has once again been blamed on “too little regulation” and too much freedom."

California State Controller John Chiang expects to disburse $3.36 billion in IOUs and $10.9 billion in regular payments this month. The IOUs probably won't be cashed by the state for 90 days - and then only if the treasury has the money to cover them. Sounds like bankruptcy to me.

Bank of America said it will accept IOUs from existing customers until July 10, with no dollar limits. Wells Fargo and Bank of the West have not yet decided whether to accept them. About 19 California credit unions will accept the IOUs, including Chabot in Dublin, Contra Costa in Martinez, SRI in Menlo Park, Provident in Redwood City, San Francisco in San Francisco and Kaiperm Diablo in Walnut Creek.

Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability do so, much to the irritation of Congress and consumer advocates.

Excluding transportation equipment, new factory orders were up just 0.8% in May.

Brett Steenbarger: "During 2007, the median absolute change from open to close was .61%; the median absolute change from the prior day's close to the current day's open was .37%. Day movement exceeded overnight movement by about 63%.
2008 was a more volatile year, so we saw more absolute movement during both time segments. The median absolute change from open to close was 1.06%; the median absolute change from the prior day's close to the current day's open was .58%. Day movement exceeded overnight movement by about 83%.

2009, however, has given us a different look. The median absolute change from open to close has been .93%; the median absolute change from the previous day's close to the current day's open has been .86%. Day movement has only exceeded overnight movement by about 9%.
Stated otherwise, we've seen less movement during the day session from 2008 to 2009, but more movement overnight."

The oil market is over-supplied, said Joe Petrowski, the CEO of Gulf Oil on Thursday. As oil stocks approach a 29-year high, the fundamental supply-side of the market has never been more bearish, he said.

"It will be almost impossible for gasoline prices to go up," he said. “We’re seeing a lot of resistance as prices get to $3." The company’s Cumberland Farms, which serve over one million customers a day, for instance, saw their average gallon go from 11 to 8 in addition to declining inside ticket sales.

"The consumer is stressed here," said Petrowski. “Things on the retail level: switching to lower price products; going away from premium products; the average amount of gallons you sell per fill-up dropping."

Yara International ASA, the world’s largest fertilizer maker, is interested in buying companies or assets in countries with access to cheap natural gas, a major component in its products.

“We would very much like to take up assets in low-cost gas countries,” Chief Executive Officer Joergen Ole Haslestad said in an interview at the company’s Oslo headquarters yesterday. “Africa, Middle East, Saudi, Iraq, Iran, Uzbekistan, some of the eastern European places. Those are the areas where you will be able to find cheap gas.”

August gold ends down 1.1% at $931 an ounce.

August crude futures dropped $2.23, or 3.2%, to $67.08 a barrel on the New York Mercantile Exchange. It fell to $66.54 earlier, the lowest intraday level for a front-month contract since June 3.

The Federal Deposit Insurance Corp. added three more failed banks to their tally late Thursday, bringing the day's total to six, and the year's total to 51.

The Dow average closed down 223 points, or 2.6%, at 8,281. The S&P 500 sank 27 points, or 2.9%, to 896 points. The Nasdaq Composite fell 49 points, or 2.7%, to 1,797. For the week, the Dow closed off 1.9%, the S&P 500 sank 2.5%, and the Nasdaq fell 2.3%. Markets are closed Friday for the Independence Day holiday.

Wednesday, July 01, 2009

Household Deleveraging Cycle

7/1/09 Household Deleveraging Cycle

Companies in the U.S. private sector shed 473,000 jobs in June, according to the ADP employment report released Wednesday. The report comes one day before the Labor Department reports on nonfarm payroll growth for June. The decline in employment was close to the consensus forecast of Wall Street economists of a decline of 498,000. Over the past three months, monthly employment losses have averaged 492,000.

Corporate layoff announcements dropped to their slowest pace in 15 months during June, Challenger Gray & Christmas said. The monthly tally of 74,393 was 33% lower than the 111,182 announced in May and 9% less than June 2008, the outplacement firm's data showed. Announced job cuts have exceeded the 100,000 mark for every month going back to last September. But in a vivid reflection of the toll taken by the U.S. recession, the six-month tally of 896,675 job cuts is the largest since Challenger Gray started tracking such announcements in 1989. Since they account for only announced layoffs, the job cuts in the Challenger Gray survey represent a fraction of the workers who actually lose their jobs each month. The figures are not seasonally adjusted.

Newspaper publisher Gannett Co. will cut more than 1,000 jobs, according to a media report published Tuesday.

U.S. mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30 percent, data from an industry group showed on Wednesday.

Dow Chemical is closing three Louisiana plants which will cost about 2,500 jobs.
The company is shifting away from basic chemicals and more toward the lucrative business of specialty chemicals.
The job cuts were previously announced.

The federal government is threatening to take possession of several of California's most prominent state parks - including Angel Island and Mount Tamalpais - if Sacramento lawmakers close them to balance the budget.
That's the message from the National Park Service, which also has told Gov. Arnold Schwarzenegger that California will be blocked from receiving future money from the Land and Water Conservation Fund, the leading federal source of funding for parks, if it closes state parks now.

The U.S. economy will grow for a few quarters and then contract again, said Martin Feldstein, a professor of economics at Harvard University.
“I think were going to see a temporary substantial improvement,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Radio. “I emphasize the words temporary and substantial.”
After the economy shrank at a 5.5 percent annual pace in the first quarter of the year, the change in gross domestic product will be “closer to zero” or “even a small plus” for the April-to-June period, Feldstein said.

Crabtree & Evelyn, a specialty retailer known for its soaps and other personal care products, filed for Chapter 11 bankruptcy as the tough economy led to falling sales and rising losses.

Bing, launched on June 3 but available to some users a few days earlier, took 8.23 percent of U.S. Web searches in June, up from 7.81 percent for Microsoft search just prior to its rollout and 7.21 percent in April, said Internet data firm StatCounter.

California's $24.3 billion deficit is roughly a quarter of the general fund, which is the state's main bank account for paying its daily expenses. For perspective, lawmakers could eliminate all funding for state prisons and the higher education system and still not save nearly enough money to address the shortfall.
It would be only the second time since the Great Depression that California, a state with the eighth-largest economy in the world, has issued IOUs instead of paying its bills. The state’s bond investors and credit rating companies are watching closely. California has the lowest debt rating of all U.S. states.
“It’s an embarrassment that you have to issue IOUs,” said Paul Brennan, who manages $12 billion of municipal bonds for Nuveen Asset Management in Chicago. “This continues to fuel investors’ nervousness.”

California is poised to issue more than $3 billion in IOUs to pay some bills after lawmakers failed to reach an agreement to close a $24 billion budget deficit facing the most-populous U.S. state. Roughly $3 billion worth of IOUs will be issued in July unless a compromise on closing the deficit is reached quickly. They will be sent to state contractors, college students, welfare recipients, low-income seniors, the disabled and others who depend on or deliver state services. Counties will not get paid for social programs they administer.

Citigroup Inc has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.
Citigroup had upped rates on 13 million to 15 million credit cards it co-brands with retailers such as Sears, the paper said.

Vibe Magazine, which focused on hip hop news and trends, is “closing immediately” according to a report in The New York Times.

Mozilla’s Firefox 3.5 is already approaching one million downloads.

The U.K. Gross Domestic Product report showed that during the first quarter the economy suffered its biggest contraction since 1958. Weakness was seen across the board in the economy as everything from construction to services showed some sort of weakness.

The Institute of Supply Management said its index rose to 44.8% in June from 42.8% in May, but economists polled by MarketWatch on average expected the index to reach 45.6%. The production index jumped to 52.5% in June, while the new orders index slipped below 50.

The pending home sales index rose 0.1% in May after an upwardly revised gain of 7.1% in April, the National Association of Realtors said. The index is 6.7% above May 2008. Pending homes sales in May were mixed regionally, up 3.1% in the Northeast and 2.2% in the West. Pending home sales were down 1.7% in the South and 1.3% in the Midwest. The index is based on sales contracts on existing homes. The NAR reports on sales of existing homes once the sales closes, usually six to eight weeks later.

Foreclosure filings, including default and auction notices as well as property seizures, climbed 18 percent in May from a year earlier, according to Irvine, California-based RealtyTrac Inc. Distressed sales accounted for about 33 percent of existing homes sold in May, according to the agents’ association on June 23.

Crude stocks down 3.7 mln barrels: EIA. Analysts expected a decline of 2.2 million barrels in crude stockpiles, according to a Platts survey. The EIA also reported an increase of 2.3 million barrels in gasoline inventories and a build of 2.9 million barrels in distillate supplies. Analysts projected increases of 2.1 million barrels for gasoline and 1.4 million barrels for distillates, according to the Platts survey.

The dollar index was weak at 79.53.

The Commerce Department said Wednesday that construction spending dropped 0.9 percent in May, nearly double the 0.5 percent decline that economists expected. Adding to the signs of weakness, activity in the past two months was revised lower.

Construction rose 0.6 percent in April, down from the 0.8 percent increase originally reported. A March increase of 0.4 percent was replaced with a decline of the same amount. That left the April gain as the only increase in the past eight months.
For May, the only strength came in nonresidential activity. Residential construction dropped sharply, and spending on federal, state and local projects also declined.
Residential building fell 3.4 percent after a flat reading the month before. Spending on private home building dropped 33.9 percent from a year ago amid the steepest slump in housing in decades.
Nonresidential construction rose 0.5 percent with spending on transportation, power projects and manufacturing all growing.
Total public construction dropped 0.6 percent, the biggest decline since a 1.7 percent fall in January. Spending on federal projects fell 0.3 percent, while spending on state and local projects dropped 0.7 percent.

Toyota Motor Corp. reported its U.S. sales fell 32% to 131,654 cars and trucks in June. Sales of cars declined 36% last month to 84,212 while light truck sales slumped 23% to 47,442. Chrysler Group LLC on Wednesday reported a 42% decline in U.S. sales to 68,297 vehicles in June from 117,457 a year ago. Car sales were down 48% to 15,504 while truck sales fell 40% to 52,793. Ford Motor Co. reported a 10.9% drop in June U.S. car sales to 155,195 cars and trucks, down from 174,091 a year ago. Ford, Lincoln and Mercury brand cars slipped 17% to 54,040 while truck sales fell 7.7% to 94,113. Ford said it expects its year-over-year decline to be the lowest among major automakers, leading to a 3% market-share gain vs. the same month in 2008. Ford also announced plans to increase third-quarter production by 25,000 vehicles to 485,000, a 16% jump from a year ago. GM June U.S. sales fall 33.6% to 176,571 units.

Contrary Investor: " We continue to believe and emphasize that THE most important watch point in the current cycle is the character of the household balance sheet recession. And as we have maintained for many a moon now, the household deleveraging cycle is still in its early stages. Unfortunately labor market and wage pressure of the moment make it very tough for households to "hurry" the needed deleveraging process. The longer the labor markets remain weak, the more drawn out will be the household deleveraging process, and by default the longer it will take for the rate of change in consumption to recover adequately to spur self-sustaining macro economic growth. Throwing in an increased household savings rate does nothing to brighten the consumption picture....
First, the more the government crowds out the private sector, we have to seriously ask ourselves just what type of appropriate valuation multiple do equities deserve? The 1980-2000 period was all about multiple valuation expansion in terms of equity performance. More government involvement in the economy suggests to us macro multiple valuation contraction tendencies. Exactly the opposite of economic and financial market circumstances and character experienced during the 1980's and 1990's.
Secondly, as we look forward, we believe it will be very hard to make the case that government borrowing will wind down any time soon. Above and beyond the stimulus initiatives of the moment, the US is facing wildly rising social transfer payment obligations (SSI and Medicare). So here's the important point. IF the US economy can recover and private sector borrowing (bank lending) turns north while US government borrowing needs remain high, then we will really see the private and public sectors compete for funds. We're not there yet. Absent the influence of global capital flows, this is a scenario where we would expect domestic interest rates to really be pressured upward. Yes, government borrowing of a magnitude we now see is not warming our hearts and it sure seems to be awakening the long asleep bond market vigilantes. But we promise you that if private sector borrowing picks up any time soon and government borrowing does not subsidy virtually immediately, you ain't seen nothin' yet from the proverbial vigilantes. A certain outcome? Far from it. Using the relationships from the Flow of Funds report, we simply hope to anticipate and then benchmark potential forward outcomes, of which higher interest rates due to increased and real "crowding out" by the government is one. If the year over year rate of change in Federal borrowing AND bank lending (private sector borrowing) rise together, the fixed income markets will be in hot real water. For now, they are just luke warm."

The Dow Jones Industrial Average gained 57.06 points, or 0.7%, to 8,504. The S&P 500 advanced 4.01 points, or 0.4%, to 923.33, while the Nasdaq Composite rose 10.68 points, or 0.6%, to 1,845.7.

Tuesday, June 30, 2009

End of the Quarter

6/30/09 End of the Quarter

Annual inflation in the 16-nation euro zone turned negative for the first time on record in June, falling 0.1%, the statistics agency Eurostat said Tuesday in a preliminary estimate.

Britain's economy contracted more sharply than previously estimated in the first quarter, with gross domestic product showing a quarterly decline of 2.4%, the Office for National Statistics said Tuesday. The ONS had initially estimated a 1.9% quarterly decline.

California has begun to issue IOUs to many state vendors as it grows low on cash. The largest state in America as measured by GDP is up against a $24 billion deficit. According to the FT, “Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.” If no plan is adopted by 12:01 a.m. Wednesday, the state plans to issue IOUs to contractors, vendors, local governments and taxpayers expecting refunds beginning Thursday. The governor plans to force 220,000 state workers to take a third unpaid day off beginning in July; and the state will forfeit more than $3 billion in budget savings through cuts to education that had to be made in the fiscal year ending today.

The Oil Drum: "In 2008, the world pumped 31 billion barrels of oil but discovered fewer than 9 billion barrels of new oil. World reserves of conventional oil are in a free fall, dropping every year....This prospect of peaking oil production has direct consequences for world food security, as modern agriculture depends heavily on the use of fossil fuels. Most tractors use gasoline or diesel fuel. Irrigation pumps use diesel fuel, natural gas, or coal-fired electricity. Fertilizer production is also energy-intensive. Natural gas is used to synthesize the basic ammonia building block in nitrogen fertilizers. The mining, manufacture, and international transport of phosphates and potash all depend on oil."

Iraqi forces assumed formal control of Baghdad and other cities after American troops handed over security in urban areas in a defining step toward ending the U.S. combat role in the country.

BP and CNPC have won the right to help Iraq develop the Rumaila field. The UK and Chinese companies beat ExxonMobil, the US oil company, which had partnered with Petronas, the Malaysian oil company. BP clinched the contract when it agreed to reduce its fee per barrel from $3.99 to $2.

Hyundai is offering to guarantee gas at $1.49 a gallon for consumers who buy its vehicles during the next two months, as it looks to assure customers uncertain about the direction of fuel prices.

The Standard & Poor's/Case-Shiller index released Tuesday showed home prices in 20 major cities tumbled by 18.1 percent from April 2008. The 10-city index fell 18 percent from the year before.

Deere & Co. says about 800 salaried workers will leave the farm machinery maker under a voluntary separation program announced in April.

Chip designer Broadcom Corp. has boosted its hostile takeover offer for network gear maker Emulex Corp. to about $912 million from $764 million.
The original offer, which was made in April, amounted to $9.25 per share in cash. The new bid made late Monday raises that amount to $11 per share. The new offer is a 1 percent premium to Emulex's closing stock price on Monday.

ICSC forecast June sales, excluding Wal-Mart Stores Inc., will be down by about 5%. Wal-Mart has stopped reporting its monthly sales results.

Japan's jobless rate rose to a five-and-a-half year high in May, the government said Tuesday, possibly delaying a recovery for the world's second-largest economy even as manufacturers enjoy a nascent rebound. The unemployment rate jumped to 5.2 percent from 5 percent in April as the number of jobless rose to nearly 3.5 million.

Iran is the third largest supplier of crude oil to China. It makes up 12% of China’s total annual oil consumption. As Ilan Berman notes in a recent issue of the Far Eastern Economic Review: “Iran has become an engine of Chinese economic growth, and an indispensable part of Beijing’s energy plans.”

The Chicago purchasing managers index rose to 39.9% in June from 34.9% in May, according to a survey of corporate purchasing managers released Tuesday.

Simon Johnson: "Buried in the late wire news on Friday – and therefore barely registering in the newspapers over the weekend – Treasury announced the rules for pricing its option to buy shares in banks that participated in TARP.
The Treasury Department said the banks will make the first offer for the warrants. Treasury will then decide to sell at that price or make a counteroffer. If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.
This is a mistake.
The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part – e.g., people could submit sealed bids and the highest price wins."

The Conference Board said its consumer confidence index fell to 49.3 from a slightly downwardly revised 54.8 in May, as worries grew about jobs and the economy. The present situation index declined to 24.8 in June from 29.7 in May, while the expectations index fell to 65.5 from 71.5.

Companies announced $773 billion of takeovers in the first half, the slowest period for mergers since 2003, data compiled by Bloomberg show. Xstrata’s 24 billion-pound ($40 billion) bid for miner Anglo American Plc, and takeovers by companies such as Cisco Systems Inc. may be among second-half deals.
The S&P 500 has moved by more than 3 percent on 23 trading days this year. That’s the third-most volatile period in the benchmark’s 81-year history after 1932 and 1933, said Howard Silverblatt, senior index analyst at S&P in New York. The VIX, the Chicago Board Options Exchange Volatility Index, returned yesterday to levels that prevailed before the collapse of Lehman Brothers Holdings Inc. in September.

The first international bidding process in more than 30 years for development rights to some of Iraq's oil fields has finished, with only one field being awarded.

Government data showed prime mortgages 60 days or more past due climbed to 2.9 percent through March 31 from 1.1 percent at the same time last year.

Rep. Ron Paul: "The Cap and Trade Bill HR 2454 was voted on last Friday. Proponents claim this bill will help the environment, but what it really does is put another nail in the economy's coffin. The idea is to establish a national level of carbon dioxide emissions, and sell pollution permits to industry as the Catholic Church used to sell indulgences to sinners. HR 2454 also gives federal bureaucrats new power to regulate a wide variety of household appliances, such as light bulbs and refrigerators, and further distorts the market by providing more of your tax money to auto companies."

Chrysler Financial said Tuesday it is restructuring its business operations which will result in reducing its staff by about 350, or 9% of its workforce.

The Dow Jones industrial average shed 100.82 points, or 1.18 percent, to 8,428.56. The Standard & Poor's 500 Index lost 9.60 points, or 1.04 percent, to 917.63. The Nasdaq Composite Index slipped 11.44 points, or 0.62 percent, to 1,832.62.
Since its 12-year closing low on March 9, the S&P 500 is up 35.6 percent.

Crude oil futures fell 2.2 percent or $1.60 to settle at $69.89 a barrel.

Monday, June 29, 2009

China and Brazil

6/29/09 China and Brazil

The central bank governors of China and Brazil have agreed in principle to allow trade between the two countries to be settled in their respective currencies, reports said Sunday.
People's Bank of China Gov. Zhou Xiaochuan and Banco Central do Brazil President Henrique Meirelles met on the sidelines of the Bank for International Settlement's annual general meeting in Basel and said they would study how to implement the plan, the reports said.

China plans to increase its strategic crude-oil reserves by 160% to 270 million barrels over the next five years, according to a report Monday.
As part of the plan, it will begin building a second group of stockpiling bases as early as this year, at a cost of 30 billion yuan ($4.39 billion), Japanese business daily Nikkei reported, citing an official from China's National Energy Administration.

A top Chinese official told state-run Caijing magazine that the government has halted its metal-stockpiling program, as the policy has achieved its aims of raising market confidence, reducing stocks and stabilizing prices, Dow Jones Newswires reported Monday. The report cited the published comments by Yu Dongming, chief of the metallurgical division in the National Development and Reform Commission's industry department, who added that China has so far amassed 590,000 metric tons of aluminum, 159,000 tons of zinc, and 235,000 tons of copper.

IEA slashes its medium-term outlook for global oil demand by 3.7%, forecasting demand of 87.9M b/d in 2013, down from a previous 90.25M, and 6.25M lower than its original forecast last July. "The global financial crisis has turned the economic landscape upside down, with huge implications for the oil and gas sector," IEA's Nobuo Tanaka says.

John Hussman: "Unfortunately, by late this year, we will begin a monstrous second-wave of adjustable mortgage rate resets, which will likely result in greater foreclosures, debt losses, and housing market pressures. The key fact is that we have significant economic headwinds before us, and we should be careful to take our green shoots with a grain of salt. No piece of economic news, even a strong employment figure here or there, is likely to flip the switch that makes the problems all go away. It would be one thing if stock valuations were at a level that deeply discounted significant and ongoing negative news, but on the basis of normalized earnings, the S&P 500 is actually slightly overvalued here, and is likely to deliver long-term returns over the coming decade of only about 7.8% annually. An economy that is prone to disappointments, coupled with a market that requires a lack of them, is not a good combination."

The number of Southern Californians seeking bankruptcy protection nearly doubled in 2008 from 2007 in the U.S. Bankruptcy Court's seven-county California Central District, by far the biggest increase in the nation.
Personal filings from January through April, the most recent month available, rose 75% in the Central District compared with the year-earlier period.
Bankruptcy experts attribute the growth mainly to the mortgage meltdown, which hit the region's adventuresome borrowers particularly hard. Add soaring credit card debt and medical expenses, and people who never thought they'd see a bankruptcy courtroom are lining up with petitions in hand.

Enterprise Products will acquire Teppco Partners in an all-stock deal worth about $3.3 billion, forming a new energy company that will run nearly 48,000 miles of crude and natural gas pipelines and control one of the largest liquid natural gas terminals in the nation, the companies announced Monday.

Prieur du Plessis: "The key moving average levels for the major US indices are given in the table below. The indices are all trading above the 50-day moving average, but whereas the S&P 500 Index, Nasdaq Composite Index and Russell 2000 Index are also trading above their respective 200-day lines, the Dow Jones Industrial Average and the Dow Jones Transportation Index are still below this key line. In order for a major uptrend to manifest itself, an upturn in the 200-day average itself also needs to take place."

Bill Bonner: "In a nutshell, the meddlers believe they can borrow their way out of debt. If you say that the key problem in America is debt, they won’t argue with you. But they think that they can overcome that problem by borrowing trillions more.
Many times have we argued that they will fail. We laugh at building dog walks …bailing out businesses that have lost their way…and paying huge bonuses to Wall Street execs. But those are just the obvious flaws. Down deeper, in the dark, corroded heart of the government economist is a fatal conceit.
We know from the experience of the 20th century that Friedrich Hayek was right. He called it the “Fatal Conceit”: the idea that central planners working for the government are free from sin and error. He wrote early in the century…when National Socialism and Communism were still popular.
Now we know; central economic planning doesn’t work."

Militants in Nigeria attacked an offshore oil platform belonging to Royal Dutch Shell PLC.

Chinese President Hu Jintao will attend next month's meeting in Italy between leaders of the Group of Eight nations and those of emerging economies, the Foreign Ministry said Monday.
Hu will attend the July 8-10 meeting in L'Aquila, Italy, at the invitation of Prime Minister Silvio Berlusconi, it said in a statement.

Nouriel Roubini: "So 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) and into shorter term maturity US Treasuries that have less market risk than longer term Treasuries. With two-thirds of US Treasuries, being held by non-residents and the average maturity of such government debt down to 4.5 years, the risk of a refinancing crisis and disorderly fall in the dollar will increase over time unless the US presents a credible plan for medium term fiscal consolidation.
Increasingly it is clear that unless such reduction in fiscal deficits occurs the incentive to continue monetizing them will increase. In the short run such massive monetization has not been inflationary as money velocity has collapsed and as the slack in goods and labor markets is still rapidly rising."

Zhou, addressing reporters at a central bankers’ meeting in Basel, Switzerland, said China’s reserve policy isn’t one of “any sudden changes.” China holds $763.5 billion of the $6.45 trillion in U.S. marketable debt.

The Chicago Fed said its National Activity Index was minus 2.30 in May, down from a revised minus 2.27 in April, originally reported at minus 2.06.The index has been negative, indicating below-trend growth, for 21 straight months dating back to August 2007.

The U.S. economy isn't likely to recover until "well into 2010," Wilbur Ross, chairman and CEO of WL Ross & Co., said Monday.

"The consumer still has not been rehabilitated" and that's the big problem halting the return to growth, given that the consumer used to be almost 70 percent of the U.S. economy, Ross told "Squawk Box."

Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last year's financial meltdown, the world's central bankers said on Monday. The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.

U.S. states obligated to pay benefits to the swelling ranks of jobless Americans are piling debt onto strained budgets. Fifteen states have depleted their unemployment insurance funds so far, forcing them to borrow from the U.S. Treasury.

A record 30 of the country's 50 states are expected to have to borrow up to $17 billion by next year, said Rick McHugh of the National Employment Law Project, a nonpartisan advocacy group.

"We are setting the stage for big pressures for states to restrict eligibility and benefit levels," McHugh said. "Those type of restrictive actions undercut the (Depression-era program's) economic and social stability purposes." Nine million Americans are receiving jobless benefits, triple the number who got checks at the beginning of the year. Experts predict the number of recipients will peak sometime this summer as long-term unemployed run out of benefits, which were recently extended and last for 59 weeks in most cases.

August gold ends up $1.50, or 0.2%, at $941. Crude rose $2.54 to $71.70 a barrel.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, lost as much as 1.5 percent to 25.53, putting it below the Sept. 12 close of 25.66. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which added up to 1 percent.
“People are a lot less worried,” Dominic Salvino, a specialist at Group One Trading, the primary market maker for VIX options, said in an interview from the CBOE floor. “Insurance is getting cheaper, and that’s what the options market represents at this level.”
To play the possibility of second half volatility, I suggest thinking about going long the VIX.

Rob Hanna: "Low QQQQ volume in an uptrend has often signalled at least a short-term drying up of buying interest. Historically this has created negative expectations over the next several days and weeks.
Much of the net negative thrust has often been found in the 1st two days following the setup."

General Motors Corp. will end its 25-year joint venture with Toyota Motor Corp. in California as the two companies could not agree on what products to make at the plant in the future, the Wall Street Journal reported Monday in its online edition. The joint venture, known as New United Motor Manufacturing Inc., was started in 1984 as an experiment. "For Toyota, the joint venture was an opportunity to test its ability to use its production methods in an American setting. For GM, it provided a way to learn how to build cars more efficiently using Toyota's 'lean' production system," Nummi said on its Web site. Located in Fremont, Calif., the plant manufactures the Pontiac Vibe and the Toyota Corolla and employs about 5,440 workers.

The Dow Jones Industrial Average closed up up 91 points, or 1.1%, to 8,529. The Nasdaq Composite Index gained 6 points, 0.3%, to 1,844, and the Standard & Poor's 500 Index added 8 points, 0.9%, to 927. With today's close, the S&P 500 is up 16.2% for the quarter. The Dow is up 12.1%, with the Nasdaq up 20.6%.

The yield on the 10-year Treasury note, on which mortgage rates key, fell to 3.47% this afternoon from 3.51% on Friday and over 4% on June 11.

Ford expects June auto sales to fall 10% to 20% in June, comparatively better than the steep declines it had reported in recent months, according to media reports Monday.