Friday, July 31, 2009

The Voter Czar

7/31/09 The Voter Czar


Real gross domestic product fell at a 1.0% annualized rate in the second quarter, compared with an average 5.9% drop over the past two quarters. However, this is the fourth straight quarter with a contraction in GDP. This has never happened before since records began in 1947. The big story for the second quarter was in the much smaller decrease in business investment, exports and inventories. There was also an upturn in federal and state government spending. Exports fell by 7.0%, while imports were down 15.1%. Federal government spending gave GDP a boost with a gain of 10.9%. Real nonresidential fixed investment decreased 8.9%. Last Quarter’s GDP was revised down from negative 5.5% to negative 6.4%.
According to Bloomberg, decreasing exports subtracted 0.76% from GDP. At the same time, falling imports added 2.14%.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. It was forecast to drop 0.5 percent, according to the survey median. Purchases slid 2 percent since the peak at the end of 2007 -- the most since a 2.4 percent decline in the 1980 recession.
Inventories dropped at a record $141.1 billion annual pace, after a $113.9 billion decline.

The employment cost index rose 0.4% for all civilian workers in the second quarter, slightly more than the 0.3% in the first quarter. In the past year, employment costs are up 1.8%, the slowest increase since the government began tracking the data in 1980. For workers in the private-sector, employment costs rose 0.2% in the second quarter. In the past year, private-sector compensation rose 1.5%, the smallest gain on record.

Chevron Corp said Friday second-quarter net income fell by 71% to $1.75 billion, or 87 cents a share, from $5.98 billion, or $2.90 a share in the year-ago period. Foreign-currency effects reduced earnings by $453 million, compared with a benefit to income of $126 million a year earlier.

The U.S. dollar index is getting creamed for 1.25% at 78.22, a level last seen in December 2008. Your standard of living is dropping with every breath you take. You voted for big government, big government spending, higher taxes, less personal freedom. You are the voter czar. Congratulations. I too am guilty. I too am a schmuck. I voted for Obama. I am a putz.


Euro zone unemployment rose to a 10-year high of 9.4 percent in June.

Agriculture Department is helping struggling dairy farmers by raising the price paid for milk and cheddar cheese through a dairy price support program.
The department estimates the temporary increases, which will be in place until October, will boost dairy farmers' overall revenue by $243 million.
Agriculture Secretary Tom Vilsack said Friday that the price increase will provide immediate relief, helping to keep dairy farmers on the farm while they weather what he called ''one of the worst dairy crises in decades.'' This is too late for many dairy farmers who have been losing at least $4 a day on each dairy cow in the herd.

The Chicago purchasing managers index rose to 43.4% in July from 39.9% in June, according to a survey of corporate purchasing managers released Friday.

ConocoPhillips earned $0.87 per share during the three months that ended on 30 June 2009, down from $3.50 in last year's second quarter.

The restaurant industry’s economic challenges continued to persist in June, as the National Restaurant Association’s comprehensive index of restaurant activity declined for the second consecutive month. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.8 in June, down 0.5 percent from May and its 20th consecutive month below 100.

The “cash-for-clunkers” trade-in program begun this month has spurred 16,351 new-vehicle sales so far, the Transportation Department said on July 29. The plan, which set aside $1 billion, ran through the money six days after it began.


Rising delinquencies among consumer and corporate borrowers are the “next wave” of the financial crisis and may affect banks that have avoided losses so far, said Deutsche Bank AG Chief Executive Officer Josef Ackermann.
“This crisis has consisted of a series of earthquakes, with changing epicenters,” Ackermann said late yesterday at an event in Zurich. “Bad loans are the next wave. Banks that have fared relatively well so far will also be affected by this.”

August gold rises $19.60 to end at $956.90 an ounce. Comex September silver rose 45.5 cents to settle at $13.940 an ounce.
Nymex October platinum rose $25.20 to settle at $1,214.20 an ounce, while September palladium on the exchange gained $5.25 to settle at $264.60 a pound.
Crude gained $2.51 to end at $69.45.

The U.S. House of Representatives voted Friday to transfer $2 billion in emergency funding from the economic-stimulus plan to the "Cash for Clunkers" program, ensuring it has sufficient funds to continue.

Four more banks failed according to the Federal Deposit Insurance Corp. on Friday, bringing the year's total to 68, and to 93 failed banks since the beginning of the recession. First BankAmericano of Elizabeth, N.J., will have its deposits transferred to Crown Bank, Brick, N.J.; Peoples Community Bank of West Chester, Ohio, will have deposits sent to First Financial Bank of Hamilton, Ohio; Integrity Bank of Jupiter, Fla., will transfer deposits to Stonegate Bank of Fort Lauderdale, Fla.; and First State Bank of Altus in Altus, Okla. will transfer deposits to Herring Bank of Amarillo, Texas.

The Dow Jones Industrial Average posted its best monthly gain since Oct. 2002, rising 8.6%, and finished its best July since 1989. It gained 0.9% for the week and 17 points, or 0.2%, to 9,172 for the day. The S&P 500 rose 7.4% for the month and 0.8% for the week. It ended Friday 0.7 point higher, or 0.1%, at 987. The Nasdaq Composite gained 7.8% for the month and 0.6% for the week. But it closed down 6 points, or 0.3%, at 1,979 on Friday.
The S&P 500 ended its best five-month streak since 1938.

Thursday, July 30, 2009

The Precipice

7/30/09 The Precipice

At 79.18, the U.S. dollar index made another new low for 2009. In early March it was 89.49. When will the dollar collapse become headline news? When will shunning the dollar turn into a racist nightmare? The headline will read Gates Mutiny.

Robert Scheer: "What a hoot. The Chinese Communists invaded Washington on Monday demanding not that we sacrifice our freedoms but rather that we balance our budget. Creditors get to make that kind of call. And the Marxists of Beijing, who have turned out to be the world's most prudent bankers, are worried about their assets invested in our banana republic."

"Attention should be given to the fiscal deficit," China's finance minister, Xie Xuren, warned the U.S.

Realty Trac said there were a record 336,000 foreclosures in June. More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June. That’s a 15 percent increase from the year earlier.

More than 20 percent of areas with above-average foreclosure activity were in Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina in the first half of the year.


Scheduled international freight traffic on airlines improved modestly in June, falling 16.5% from a year ago compared to May's one-year drop of 17.4%, according to a Thursday report from the International Air Transport Association. June passenger traffic fell 7.2%, also a slight improvement when compared to the 9.3% decline in May, IATA said. "While it appears that there is stabilization in some markets, this comes at a steep price...Airlines are seeing international revenue falls of up to 30% at the start of the busy June-August period when airlines traditionally make their money," IATA said.

Initial weekly U.S. jobless claims rose by 25,000 to a seasonally adjusted 584,000 in the week ending July 25, the Labor Department reported Thursday. The climb was about in line with economists' expectations and was the highest level in a month. The four-week average of claims fell by 8,250 to 559,000, and continuing jobless claims also dropped, by 54,000 to 6.19 million. The four-week average of continuing claims fell by 131,750 to 6.41 million. The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.497 million. Due to the dynamic of people no longer collecting the initial 26 week time period and thus weighing on those collecting Continuing Claims (as opposed to seeing a pick up in job growth), those getting emergency unemployment compensation rose almost 25k (not seasonally adjusted). The amount added to extended benefits fell by 37k.

Exxon Mobil Corp said Thursday second-quarter net income fell 66% to $3.95 billion, or 81 cents a share, from $11.68 billion, or $2.22 a share in the year-ago period. Excluding items, earnings fell to 84 cents a share from $2.27 a share.

"Our fiscal 2010 forecasts anticipate that severely negative economic conditions continue," said Gary Butler, ADP's president and chief executive. Along these lines, total revenue is forecast to fall by 1% to 4% on the year, as opposed to 1% revenue growth seen during fiscal 2009. ADP's year-over-year financial comparisons for the first quarter are expected to be "particularly tough," Butler said.

The U.S. Treasury sold $39 billion in five-year debt Wednesday in an auction that drew poor demand, raising worries over the cost of financing the government's burgeoning budget deficit.
It was the second lackluster showing in as many days, convincing analysts that the stellar results of debt auctions just a few weeks ago were a fluke and that Thursday's $28 billion seven-year offering could suffer a similar fate.

With the unemployment rate near a 26-year high and many employers cutting wages, more consumers in areas that were initially spared in the foreclosure explosion are now behind in their home loan payments.
More than 20 percent of areas with above-average foreclosure activity were in Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina in the first half of the year. That shift points to growing unemployment more than to fallout from subprime and adjustable-rate loans, RealtyTrac said in its midyear metropolitan foreclosure market report.
While total foreclosure activity kept rising, "some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, while new markets like Provo, Utah, and Boise, Idaho, have seen large increases," James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.
"As unemployment rates increase in different parts of the country, it's very likely that we'll see similar patterns develop elsewhere," he said.
Home prices through May plunged more than 32 percent from their mid-2006 peak, with losses varying sharply depending on region, according to Standard & Poor's/Case-Shiller indexes.

T. Boone Pickens: "Today’s report substantiates what I’ve been saying for years: there’s plenty of natural gas in the U.S. I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan. On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports.The 2,074 trillion cubic feet of domestic natural gas reserves cited in the study is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves."

In the WSJ poll, only two in 10 people said the quality of their own care would improve under the Obama plan; just 15% of those with private insurance thought it would. Twice as many overall, and three times as many with private coverage, predicted their own care would get worse.
"You can't pass a substantial health reform unless privately insured people see there's a benefit for them," said Bill McInturff, a Republican pollster who conducts the poll with Democrat Peter D. Hart.

John Dugan, who oversees national banks as comptroller of the currency, told the Financial Times that the proposals to create a federal consumer protection agency and give states more leeway to crack down on unfair practices would have negative “ramifications for companies operating across state lines”.

Brent crude is selling at a $3 premium to WTI crude.

Mexico, the No. 3 U.S. trading partner behind Canada and China, will see its economy contract as much as 7.5 percent this year as exports fall and migrants abroad send less money home, the country's central bank said today.

The Bank of Mexico said in a report that gross domestic product is expected to shrink between 6.5 and 7.5 percent in 2009 — a more pessimistic outlook than its previous projection of a 4.8 percent decline. It is also worse than government expectations of a 5.5 percent contraction.



Seattle Times: "The wing damage that grounded Boeing's new composite plastic 787 Dreamliner occurred under less stress and is more extensive than previously reported."



Sales of beer — a veritable staple in Germany for centuries — dropped from January to June to their lowest level since the government's Federal Statistics Office began keeping tabs on such figures in 1991.



"Given our view that we are in for seven lean years in which the market will be looking for an excuse to be cheap, we recommend taking some risk units off the table," Jeremy Grantham wrote. This includes lightening up on stocks until the S&P falls back to fair value, which he still pegs at around 880.



“Banks profited from lending to or servicing an overstretched consumer,” notes Dan Amoss. “Today, not only are their customer bases weak, but they all expanded fairly rapidly during the boom years and are now discovering just how bad their loans will be or how few customers will patronize them.
“To top it off, the U.S. government’s policies are acting to starve these companies and their customers even further by hogging most of the available savings to finance its deficit.
“Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.”

Working gas in storage was 3,023 Bcf as of Friday, July 24, 2009, according to EIA estimates. This represents a net increase of 71 Bcf from the previous week. Stocks were 571 Bcf higher than last year at this time and 478 Bcf above the 5-year average of 2,545 Bcf. In the East Region, stocks were 132 Bcf above the 5-year average following net injections of 56 Bcf. Stocks in the Producing Region were 265 Bcf above the 5-year average of 794 Bcf after a net injection of 16 Bcf. Stocks in the West Region were 80 Bcf above the 5-year average after a net drawdown of 1 Bcf. At 3,023 Bcf, total working gas is above the 5-year historical range.

In early trading, WalMart traded at the $50 level and Costco was approaching that too.

Xinhua: "The per capita consumption spending volume of Chinese urban residents stood at 5,979 yuan (875 U.S. dollars) in the first half of this year, up 8.9 percent year on year, the National Bureau of Statistics (NBS) announced Monday. Deducting price factors, the growth reached 10.3 percent. The per capita disposable income of Chinese city dwellers rose 9.8 percent year on year to 8,856 yuan in the first six months. Deducting price factors, the increase reached 11.2 percent, said the NBS."

Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, won’t be able to repay all of the $84.9 billion in federal aid they have received since being seized by the government last year, their regulator said.
“Some assets and senior preferreds will have to be left behind as they come out of conservatorship, and that means some of those losses will never be repaid,” Federal Housing Finance Agency Director James Lockhart said at a speech in Washington today. “Their book is so large, it’s hard for me to see that they will be able to repay all of that.”

How do you think our foreign creditors are viewing this situation? Maybe their loans will be next on the unpaid list. Meanwhile equities keep in a rally mode. Reality is a tough lesson.


Benchmark 10-year note yields rose 5 basis points to 3.71%. Is the risk priced in?


Ryland announced a second-quarter loss of $1.70 per share, compared with a loss of $5.70 per share in the same period a year ago. Revenue fell 44.2 percent to $272.2 million.
Wall Street expected a loss of $1.04 per share on sales of $304.9 million, according to a Thomson Reuters survey.

Merrill Lynch analysts said Thursday they had revised their currency forecasts to reflect a weaker U.S. dollar over the near term, based on the view that a correction in riskier assets -- a category generally including stocks, commodities and emerging markets currencies -- has "already played out." The U.S. dollar and to a greater extent, the yen, have tended to benefit when investors fret about the economic outlook. The greenback edged up as stocks and oil faltered from mid-June to mid-July. Such conditions seem unlikely to reemerge soon, the analysts said. They now see the euro at $1.50 by December versus $1.38 in an earlier forecast. They expect the dollar to buy 105 yen by year-end, compared to 110 earlier.

The Dow Jones Industrial Average was up 83 points, or 1%, at 9,154, well off an intraday high of 9,246, but still its highest close since early November. The S&P 500 index rose 11 points, or 1%, to 986, off an intraday high of 996, but also its highest close since early November. The Nasdaq Composite gained 14 points, or 0.7%, to 1,984, off a high of 2,009. The index hadn't crossed the 2,000 mark since Oct.3.

Crude for September delivery gained $3.57, or 5.6%, to end at $66.92 a barrel on the New York Mercantile Exchange.

YRC Worldwide Inc., one of the country's largest trucking companies, posted a huge second-quarter loss on Thursday as customers defected amid bankruptcy rumors and the recession continued to depress shipping demand. Revenue sank 45 percent to $1.33 billion.
That's 45% not 4.5%! We are talking a complete collapse. The company also said Thursday it finalized an amendment to a credit agreement with its lenders. It waives a third-quarter earnings benchmark for the company to avoid default and lowers the hurdle for the next two quarters. YRC has made similar deals with creditors in recent quarters.

The government plans to suspend its popular "cash for clunkers" program amid concerns it could quickly use up the $1 billion in rebates for new car purchases, congressional officials said Thursday.
The Transportation Department called lawmakers' offices to alert them to the decision to suspend the program at midnight Thursday.

Japan's core consumer price index fell 0.2% in June, or 1.7% lower than a year earlier, the Ministry of Internal Affairs and Communications said Friday. Japan's unemployment rate rose to 5.4% in June, up from 5.2% in May, the Ministry of Internal Affairs said Friday. The result was the highest in six years.

Wednesday, July 29, 2009

Withering Heights

7/29/09 Withering Heights
Orders for durable goods sank 2.5% in June on weaker demand for autos, airplanes, and computers, the Commerce Department reported Wednesday. It is the largest drop since January and follows two monthly gains. Excluding the 12.8% decrease in transportation goods, orders rose 1.1%. The decrease far exceeded the expected 0.6% fall forecast by economists surveyed by MarketWatch. Orders in May were revised lower to a gain of 1.3% from the previous estimate of a rise of 1.8%. Shipments fell 0.2 % in June, for a record 11th straight decline. Inventories were down 0.9%.

Unfilled orders for manufactured durable goods in June, down nine consecutive months, decreased $6.6 billion or 0.9 percent to $740.1 billion. This followed a 0.3 percent May decrease.

Inventories of manufactured durable goods in June, down six consecutive months, decreased $3.0 billion or 0.9 percent to $318.8 billion. This followed a 1.1 percent May decrease.

ConocoPhillips said Wednesday its second-quarter profit fell by more than $4 billion to $1.3 billion, or 87 cents a share, from $5.4 billion, or $3.50 a share in the year-ago period.

Oil futures extended their losses Wednesday after the American Petroleum Institute reported that crude supplies increased by 4.1 million barrels last week. Light sweet crude for September delivery fell $1.31 to $65.92 a barrel in electronic trading on Globex.

Microsoft will power Yahoo's search tool while Yahoo will become the exclusive sales force for both firms' premium search advertisers. Terms are for 10 years, in which Microsoft will license Yahoo's core search technologies, and Microsoft's Bing will become the exclusive algorithmic search and paid search platform for Yahoo sites. Microsoft will pay traffic acquisition costs at an initial rate of 88% of search revenue generated on Yahoo sites for the first five years. Yahoo sees the deal lifting annual operating income by around $500 million and capital expenditure savings of $200 million. Yahoo sees an annual operating cash flow benefit of $275 million.

BHP Billiton said it has reached agreement on 2009 prices for a range of its iron ore customers. The company has settled 23% of total iron ore volumes at an agreed annual contract price, which will be approximately 33% lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44%lower than the contract prices agreed in the 2008 contract year. A further 30% of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing. Negotiations for the remaining 47% of iron ore volumes are ongoing. The Company believes that current settlements are indicative of continued progress towards transparent market pricing.

Barry Ritholtz: "As Floyd Norris noted, “This was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold. There are twice as many households in America today as there were then, so relative to population this was the worst June ever, by far."
The S&P/Case-Schiller report is down from its July 2006 reading of 206.52 to 139.84, a decline of 32.28% nationally in their 20 sampled markets in a 22 month period.


U.S. mortgage applications fell for the first time in four weeks, driven by a drop in demand for home refinancing loans as interest rates climbed, data from an industry group showed on Wednesday.



Eric Janszen: "Evidence abounds that the U.S. is trapped in a cycle from which a kind of Argentine style default with U.S. characteristics is all but inevitable."

Aaron Elstein: "A review of mortgage delinquencies from the U.S. Government Accountability Office suggests that New York home foreclosures could double in coming months."

The labor force in the southern city of Dongguan -- one of China's biggest manufacturing bases -- shrank 10 percent in the first half of 2009 compared to the same period last year as the global financial crisis slammed the export market, the city's mayor said Wednesday.
Economic growth in Dongguan in Guangdong province has averaged a booming 18 percent each year for the past three decades, but the city's economy only expanded by 0.6 percent in the first half of 2009, the mayor, Li Yuquan, said in a briefing with foreign reporters.
Li said the city's goal this year was to achieve 10 percent economic growth, but it will be difficult to hit that target. "We are really facing great pressure," he said.

Steven Sears: "We still think this market is severely overbought and could be subject to a sharp, and possibly swift, correction," told Larry McMillan, one of the options market's most respected practitioners, to clients in Tuesday's Daily Volume Alert.

To be sure, doubting the rally is very much in vogue in the options market. On institutional trading desks, the talk is about how "skew," or the implied volatility difference between out-of-the-money calls and puts, is declining for S&P 500 puts. This means that traders are more concerned about speculating on advances than hedging declines."



The Energy Information Administration reported that crude supplies rose by 5.1 million barrels last week, much more than the 1.1 million barrels expected by analysts surveyed by Platts. The EIA also reported that total motor gasoline inventories decreased by 2.3 million barrels last week and distillate supplies rose by 2.1 million barrels. Analysts polled by Platts had projected a decrease in gasoline stocks of 1.1 million barrels and a rise in distillate supplies of 1 million barrels. After the data, crude for September delivery fell $2.75, or 4%, to $64.50 a barrel on Globex.



After a 100% run from the early Nov ‘08 lows, the Shanghai index took its biggest one day hit since the rally began, by 5%.



Have you noticed the recent declines in the price for corn, soybeans, and wheat? What is keeping copper at $250 a pound? Hope springs eternal. If the commodity run turns over into a decline, what does that mean for equities? Better to be too early out the door.



The stock market spent July on a "sugar high," rising to levels not justified by an economy that is still limping along, Pimco's Mohamed El-Erian told CNBC.



Albert Einstein: “The strength of the Constitution lies entirely in the determination of each citizen to defend it. Only if every single citizen feels duty bound to do his share in this defense are the constitutional rights secure.”

Beige Book: While still weak, some regions reported that the pace of the downturn had moderated.


Gold for August delivery slipped $11.90 to $927.20 an ounce on the Comex.


The U.S. Treasury Department's sale of $39 billion in 5-year notes fetched less demand than in past auctions, particularly from the category that includes foreign central banks.



Sept. oil ends down $3.88, or 5.8%, to $63.35/brl.

The Dow Jones industrials, which had been down as many as 82 points at 1:30 p.m. ET, finished down only 26 points to 9,071.
The Standard & Poor's 500 Index was off 4 points to 975, despite a decline of 2.7% or so in energy stocks.
The Nasdaq Composite Index, despite Yahoo's 12.1% decline to $15.14, fell only 8 points to 1,968.

Tuesday, July 28, 2009

Trucking

7/28/09 Trucking

Last year, the economy grew at a nearly 3% annual rate in the second quarter, but that turned out to be a short-term sugar rush. This year the figures will reflect less of a decline in business investment and a slowdown in inventory reduction. In addition,
the Commerce Department will be including so-called benchmark revisions to much of the data used to calculate GDP, particularly to the savings rate and personal income.
This revision is the first since the end of 2003 and the changes could very well wind up showing that the economy was in worse shape a year ago than originally reported.

Bank of America Corp is planning to reduce its 6,100-branch network by about 10 percent, the Wall Street Journal cited the bank's chief executive Kenneth Lewis as telling investors.

American Truckers Association's Chief Economist, Bob Costello:“While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently. The consumer is still facing too many headwinds, including employment losses, tight credit, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term. As a result, this is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession. Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”
United States Steel Corp.had a loss of $392 million, or $2.92 a share, in the second quarter, compared to profits of $668 million, or $5.65, in the year-ago period. Net sales were $2.1 billion in the latest quarter, compared to $6.7 billion in the second quarter of 2008. John Surma, chairman and chief executive, said he expects the firm to report operating losses for the third quarter "due to continued low operating rates, idled facility carrying costs and lower average realized prices."
Paccar earned $27 million, or 7 cents a share, in the second quarter compared to $314 million, or 86 cents a share, in the same quarter last year. During the second quarter, Paccar discontinued certain subsidies for post-retirement health care plans and recorded a one-time benefit of $30 million. Revenues were $1.85 billion compared to $4.11 billion in 2008. The company attributed the decline to falling truck purchases and freight activity during the quarter. In a statement, Chairman and CEO Mark Pigott said lower margins, plant idlings and lower build rates hurt quarterly results as well.
"The challenging market conditions are continuing as we enter the second half of 2009," Pigott said. "Paccar has reduced operating expenses, capital expenditures and dividends to proactively position its business with current market conditions."
Valero Energy Corp.lost $254 million, or 48 cents a share in its second quarter, compared to net income of $734 million, or $1.37 a share in the year-ago period. The San Antonio, Texas refining giant posted an operating loss of $317 million, compared to year-ago net income of $1.2 billion. Operating revenue fell to $17.9 billion from $36.6 billion. "The decline in operating income was primarily due to lower diesel and jet fuel margins and lower sour crude oil differentials versus the same quarter last year," the company said.
IBM will acquire SPSS Inc. for $50 a share in cash, or about $1.2 billion, according to a joint statement Tuesday from the two companies. Shares of SPSS, a Chicago-based company that provides predictive analytics software, closed Monday at $35.09. The companies said the deal is expected to close later in the second half of 2009.
The dollar fell to the lowest level this year against the currencies of six major U.S. trading partners as speculation the global economy is emerging from the recession reduced demand for a refuge.
Mark Twain: "Suppose you were an idiot and suppose you were a member of Congress. But I repeat myself."
U.S. home prices rose on a monthly basis for the first time since July 2006, according to the national Case-Shiller home price index released Tuesday. "This could be an indication that home price declines are finally stabilizing," said David Blitzer, chairman of the index committee for Standard & Poor's, which compiles the Case-Shiller index. Sales slipped 0.9% in April. On a year-to-year basis, prices in 20 selected cities fell 17.1%. This is a slower pace of decline than the 18.1% drop in April. All of the 20 cities in the index showed a year-over-year price decrease in May, led by a 34 percent drop in Phoenix and a 32 percent decrease in Las Vegas. Dallas showed the smallest decrease at 4.1 percent.

A disappointing Consumer Confidence Index for July has pushed stocks lower. The index came in at 46.6, which is below the 49.0 that was widely expected and down from the 49.3 that was posted in June. July's reading marks the second straight decline in the series.

Light sweet crude for September delivery dropped $1.15 to $67.23 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average fell 11.79 points, or 0.1%, to end at 9,096.72. The S&P 500 index lost 2.56 points, or 0.3%, to 979.62, while the Nasdaq Composite rose 7.62 points, or 0.4%, to 1,975.51.

For the second quarter of 2009, Norfolk Southern Corporation reported net income of $247 million, or $0.66 per diluted share, compared with $453 million, or $1.18 per diluted share, for the second quarter of 2008.

Monday, July 27, 2009

Delevergaing Pressures

7/27/09 Deleveraging Pressures

Honeywell expects 2009 earnings of $2.85 a share, compared to the analyst target of $2.82 a share. "Economic conditions, however, remain challenging and we are not planning for any recovery in 2009," the Morris Township, N.J.-based company said.

Aetna cut its 2009 operating earnings view to a range of $2.75 to $2.90 a share, from a previous estimate of $3.55 to $3.70.

The largest homebuilders are mothballing communities across the U.S., signaling they have little confidence that a market rebound is imminent. Builder shares have rallied 76 percent from the lows in November. They may fall more than 20 percent in the next four months unless home prices and property writedowns stabilize, said Anna Torma, a former Merrill Lynch & Co. analyst who tracks the industry at Soleil Securities Corp. in New York.
“Until we see job losses abate and foreclosures begin to decline, rather than increase as we expect, there is unlikely to be a catalyst for the builders,” Torma said. “It’s going to continue to be a challenging environment.”

John Hussman: "The case for an economic recovery is based largely on mean reversion from the early 2009 extremes (not on improvements in jobless claims or other measures to a level that is on par with prior recoveries). The recovery argument also relies strongly on the idea that this is a run-of-the-mill post-war recession.

That said, I can only describe our investment stance here as “uncomfortably defensive.” That is, the measures that have guided the performance of the Strategic Growth Fund over time are still holding to a defensive stance, which is admittedly uncomfortable with the market pressing strenuous but persistent overbought levels. It's a lot like watching people scale across a tenuously secured rope bridge and get a nice meal at the center. You'd like to climb across and join them, but you know that too many things aren't right with the bridge, and it's not clear that the people who are eating will ultimately survive.

Our defensive stance here is driven by a combination of poor price-volume sponsorship, moderate overvaluation, strenuous overbought conditions, Treasury yield and commodity price pressures, as well as a variety of other factors that have historically combined to produce a weak overall return-to-risk tradeoff. Moreover, from a fundamental standpoint, the ebullience about an economic recovery is based on what I've frequently called the “ebb and flow” of short-term economic information that very well can turn hostile again – particularly given that there is no reason to assume that deleveraging pressures have seriously abated."


Last month, videogame sales plunged by a record 29% year over year and sales of consoles like Microsoft's Xbox 360 and Nintendo's Wii dropped 38%.


Agilent Technologies Inc., a provider of life sciences technologies, said Monday that it has entered into an agreement to acquire Varian Inc for $1.5 billion in cash. Agilent will pay $52 per share in a deal that represents a 35% premium to Varian's closing price last Friday.


In the first half of 2009, China's crude oil output was 93.49 million tons, seeing a slightly dip of 1.0 percent compared with the same period of 2008.


The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows.


The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 29% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Forty percent (40%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -11. That’s the first time his ratings have reached double digits in negative territory.


The Oil Drum: "As Congress debates climate and energy legislation, Asian challengers are moving rapidly to win the clean-energy race. China alone is reportedly investing $440 billion to $660 billion in its clean-energy industries over 10 years. South Korea is investing a full 2 percent of its gross domestic product in a Green New Deal. And Japan is redoubling incentives for solar, aiming for a 20-fold expansion in installed solar energy by 2020.
In contrast, the United States would invest only about $1.2 billion annually in energy research and development and roughly $10 billion in the clean energy sector as a whole under the Waxman-Markey bill - less than 0.1 percent of U.S. GDP. A group of 34 Nobel laureates recently wrote a letter to President Obama decrying the lack of investment and calling on him to uphold his promise to invest $15 billion annually in clean-energy R&D."

Hello Ben

Given that you failed miserably to see what was coming, how can giving the Fed more regulatory power possibly fix anything? I have a better idea, let’s get rid of the Fed totally along with its micro-mismanagement of interest rates that repetitively blows bubbles of increasing amplitude. Face the facts Ben, you no more know where interest rates should be than you know where the price of orange juice should be. The housing bubble and subsequent collapse that you failed to see coming is proof enough of your ineptitude. Only the free market knows what the price of money should be at any given time. Regardless, you sure don’t know. How about coming up with a 5 year plan to abolish the Fed?

Mike “Mish” Shedlock


White sugar rose to its highest in three years in London on speculation reduced global supplies will buoy prices. Coffee and cocoa also gained.
German research company F.O. Licht last week cut its forecast for global sugar output by 1.5 percent for the 12 months through September, citing lower output in India, Mexico, Thailand and Pakistan. Brazil’s harvest also slowed last month because of rain, according to the Unica industry group.

Oil demand is predicted to rise by 900,000 barrels per day (bpd) to 84.9 million bpd in 2010, the poll of nine forecasters found. World demand has fallen by 2.5 percent since hitting 86.2 million bpd in 2007, as the dual impact of high prices and the economic crisis cut consumption.

The Dow has had a big move up but the U.S. dollar index has had a big move down and now approximates 78.40. Meanwhile, oil has climbed close to $69 a barrel.

US Treasury Secretary Timothy Geithner said on Monday China can play a major role in restoring global growth by continuing to encourage more consumption at home and exporting less. We're great at telling other countries how to run their economies.

According to the WSJ, advertisers are getting cheaper rates than a year ago on television commercials for the coming TV season, putting more pressure on networks already reeling from the economic downturn.
The rate cuts have come in the annual negotiations between networks and advertisers to buy TV ads that will run through the following summer.

Rob Hanna: "New highs contracted substantially while the S&P made a 50-day high. The percentage of stocks hitting new 52 week high dropped from a little over 7% on Thursday to under 5% on Friday. I looked at other times the SPX made a 50-day high while the drop in new highs equaled 2% or more of the total issues. 95% of all instances closed lower than the trigger bar close within the next week."

The index of coincident indicators is down for eight consecutive months and is down 17 of the last 19 months. Make the trend your friend.

Barry Ritholtz: "Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.
Thus, we in fact know that Sales fell from last year. They were down 21.3%, a number greater than the margin of error.
The monthly data, on the other hand, is not statistically significant. Therefore we DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.
The usual suspects got it wrong, as they do every month."

Ten-year note yield rose 9 basis points to 3.75%.

Bank of America Merrill Lynch Monday raised its forecast for this year's China economic growth rate to 8.7% from 8.0%.

Almost $165 billion in U.S. commercial real estate loans will mature this year and need to be sold or refinanced as rents and occupancies fall, according to First American CoreLogic.
The U.S. South has the most maturing loans with 60,893 mortgages valued at $96 billion coming due on shops, offices, hotels, apartment buildings and land, Santa Ana, California- based First American said in a report. The West is second with 20,549 mortgages maturing for a value of $35 billion.

Verizon will be cutting more than 8,000 employee and contractor jobs before the end of the year in the wireline business, speeding up its efforts to keep costs in line, according to chief financial officer John Killian.

The National Association of Realtors (NAR) reported that distressed properties accounted 31 percent of sales in June.

About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives.

The Dow Jones industrial average rose 15.27 points, or 0.17 percent, to 9,108.51. The Standard & Poor's 500 Index gained 2.92 points, or 0.30 percent, to 982.18. The Nasdaq Composite Index added 1.93 points, or 0.10 percent, to 1,967.89.


Amgen added it now sees 2009 adjusted earnings per share of $4.80 to $4.95, up from its previous outlook of $4.55 to $4.75.

Sunday, July 26, 2009

The Rails

7/26/09 The Rails


The yuan, after rising in value about 22 percent since 2005, has scarcely budged in the past year. Beijing had begun to fear that a stronger yuan could threaten its exports. Chinese exports already were under pressure from the global recession.


A British newspaper reported Sunday that a group of eminent economists have apologized to Queen Elizabeth II for failing to predict the financial crisis.

The Observer newspaper reported that a letter has been sent to the Queen after she demanded, during a visit to the London School of Economics last November, to know why nobody had anticipated the credit crunch.




According to The Association of American Railroads, carloads originated on U.S. railroads in June 2009 were down 19.5% (252,078 carloads) from June 2008 to 1,037,928 carloads. June 2009 was the eighth straight double-digit monthly carload decline, but it was a smaller decline than the previous two months. Average weekly carloads in June 2009 (259,482) were 10,311 carloads higher than in May 2009.





This week I have provided statistics on the ports and the rails. Recently Paccar had a big cut in their quarterly dividend and that is the best truck manufacturer in the U.S. The movement of goods in and out of this country is in the pits. You want to focus on tech-- do it at your own peril. I prepared you for the big drop last year and into the Spring. We saw the bubbles coming. We saw 1987 coming. Listen to Obama and watch CNBC and lose your money.




The Oil Drum: "It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent complex – long term funds have been lending money to producers – effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.

A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup which that company's management subsequently blamed mainly on Goldman Sachs.....The manipulation in the oil market is taking place at a different “meta” level to the Leesons and Hamanakas. The Goldman Sachs and J P Morgan Chase's of this world do not break rules: if rules are inconvenient to their purpose they have them changed.

The Market is the Manipulation.


The dysfunctional nature and inherent instability of today's market is a combination of the profit motive of trading intermediaries, and the “deficit-based” nature of money created as interest-bearing credit.

I believe that the solution lies in the evolution of a new – dis-intermediated – market architecture and a simple but radical approach to the financialisation of oil and energy through what I call “unitisation”. This is the simple expedient of the creation and issue by producers of Units redeemable in energy, whether carbon-based or otherwise.

The evolution to such an architecture will in my view be a consequence of the direct instantaneous connections of the Internet. But that emergence is another story."




Mike Burk: "You would expect a run up like we have seen in the past 2 weeks to be caused by an avalanche of buyers, increasing volume. That has not been the case....

Last week confirmed the old adage "Don't short a dull market". As an initiation of a new leg up the past two weeks have left something to be desired, volume. I think it is likely to continue higher because, right now, no one wants to sell it.

I expect the major indices to be higher on Friday July 31 than they were on Friday July 24."

Actually, no one is inaccurate. I want to sell it.




Wen Jiabao, China's premier: "We should hasten the implementation of our "going out" strategy and combine the utilization of foreign exchange reserves with the "going out" of our enterprises."

Stewart Dougherty: "The United States has already reached the point where it is arithmetically impossible for it to pay its debts or keep its promises, unless it devalues its currency to the point where it impoverishes its citizens and creates international financial chaos. And even devaluation as a means of ending the country's budget nightmare will be difficult, given that so many government programs have cost-of-living escalators, making inflation a “No Exit” horror story. This is not subjective opinion, but rather objective, arithmetic fact, now supported even by government agencies themselves, such as the CBO. As John Williams of shadowstats.com has observed, even if personal incomes were taxed at 100%, the United States still could not pay its bills."

Bubbles

7/25/09 Bubbles

The six bank subsidiaries of Security Bank Corporation, Macon, Georgia, were closed Friday by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with State Bank and Trust Company, Pinehurst, Georgia, to assume all of the deposits of the six bank subsidiaries of Security Bank Corporation.

Doug Noland: "Actually, Dr. Bernanke did worse than ignore Bubble risk. The markets were promised the Fed would maintain its current ultra-loose monetary policy stance for an “extended period.” This is the same type of policy commitment that fostered speculative Bubbles in mortgages, housing, private-label MBS and CDOs. The Fed today is determined to peg short rates and market yields. Sure, there are obvious short-term reflationary benefits to such an approach. But such an endeavor also nurtures speculation and leveraging, especially in the Bubbling Treasury, agency and MBS markets. From my perspective, this is the most dangerous Bubble yet. It is addressed by no one....The Fed has, once again, delegated itself to the role of Bubble enabler....As I see it, the Fed is now locked into permanent monetary ease; they’ve let another Bubble get away from them. Resulting dollar devaluation traps the U.S. economy into a more inflationary backdrop. Meanwhile, the dynamic of massive flows of outbound dollar liquidity, coupled with unconstrained developing-economy Credit systems create powerful inflationary dynamics globally.
It would make sense to me that global forces increasingly tug U.S. yields upward. And we’ll have to wait and see how much the Fed is willing to use its balance sheet to try to tug them back down. Bernanke would clearly prefer to talk rates lower. It will be interesting to see how long talk suffices."

“The real theme is the divergence between earnings and revenues,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “We know companies are cutting costs at a record pace, and that is helping earnings. But you can’t keep on shrinking your way to profitability. Eventually, you do damage to your end users. You have to get revenues up to have a sustainable upturn.”

Deutsche Bank CEO Josef Ackermann has told Porsche's owner families of the urgency to stump up cash in order to pay down the company's debts, which have risen to 14 billion euros ($19.88 billion), a German magazine said on Saturday.