Friday, August 07, 2009


8/7/09 Disbelief

For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period.

Job losses slowed in July to the lowest total since August as the unemployment rate unexpectedly fell back to 9.4%, the Labor Department estimated Friday. U.S. nonfarm payrolls fell by 247,000 in July, the 19th consecutive month of job losses, about in line with economists' estimates of a 275,000 decline. Most industries continued to shed jobs in July, but at a much slower pace than they did in the autumn and winter. Job losses moderated in many major industries in July. Goods-producing industries shed 128,000 jobs, the fewest since last September. Service-producing industries cut 119,000 jobs. July alternate U6 jobless rate falls slightly to 16.3% and the average hourly wages rose 0.2%.

The government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported. Government employment increased 7,000 after slipping 48,000 in June.

The average work week expanded to 33.1 hours in July from 33 hours in the prior month. Average weekly hours worked by production workers increased to 39.8 hours from 39.5 hours, while overtime held at 2.9 hours for a second month. That brought the average weekly earnings up to $614.34 from $611.49.
Workers’ average hourly wages rose 3 cents, or 0.2 percent, to $18.56 from the prior month. Hourly earnings were 2.5 percent higher than July 2008. the average work week expanded to 33.1 hours in July from 33 hours in the prior month. Average weekly hours worked by production workers increased to 39.8 hours from 39.5 hours, while overtime held at 2.9 hours for a second month. That brought the average weekly earnings up to $614.34 from $611.49.
Workers’ average hourly wages rose 3 cents, or 0.2 percent, to $18.56 from the prior month. Hourly earnings were 2.5 percent higher than July 2008.
The number of people continuing to claim benefits rose by 69,000 to 6.3 million after dropping for three straight weeks.
The number of long-term unemployed (those jobless for 27 weeks or more) rose by 584,000 over the month to 5.0 million. In July, 1 in 3 unemploy- ed persons were jobless for 27 weeks or more. While job loss is slowing, the mass of the previously unemployed are not yet finding work.
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 8.8 million.
Around 34% of the unemployed workers have been so for over six months, while over 53% have been so for more than three months. (U.S. BLS)
In sum, the July household survey showed the civilian labor force shrinking by 422,000 and employment falling 155,000. That translated into 267,000 fewer people listed as unemployed. The labor-force participation rate fell 0.2 percentage point in July to 65.5%
The Manpower Survey shows most employers plan to hold headcount steady in Q3 2009 relative to Q2 2009. The Conference Board Help-Wanted Online Data Series revealed increased vacancies in July after remaining flat in recent months.

George Ure: "OK, so how do you lose more than a quarter million jobs and not see unemployment go up?

Welcome to jiggering numbers 101.


First thing you do is change the divisor. Assert that the labor force shrank by 422,000 people during the month.

Reduce the assumed unemployed by not counting people who have run out of benefits. In other words, since the number of people who have run out of benefits has increased, the number left to count as unemployed dropped 267,000.

But, wait! Employment was down 155-thousand... Right! So the only number we need to 'bury' is the delta from 267K to 155K, so all we need to do is make up 112,000 jobs.

Won't be able to hide all of them in the CES Birth/Death model, but who's going to question 43,000 jobs being statistically created in the summertime in the travel & leisure sector, right?

Then to sort of round things off, all these adjustments will keep the unemployed burger flipping PhD number (more technically the "Total unemployed plus all marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers) at 16.8%. (Table A-12, U-6)

Yeah, yeah, I know: How did 422,000 people just go 'poof!' from the labor force in July, you're asking. Well, best I can deduce from these here numbers? They all went on vacation."

Noam Scheiber: "In fact, the entire drop in the unemployment rate can be explained by the fact that previously unemployed people stopped doing the things they need to do (namely, look for jobs) to be counted as part of the labor force.
In June, by contrast, not only did we lose more jobs, but the number of people who dropped out of the labor force was much lower. That means a higher fraction of people without jobs were counted as unemployed. "

October white-sugar futures surged to a fresh record high of $531 a ton on Liffe in London, continuing their record-breaking streak.

Russia's central bank on Friday cut its key lending rate by a quarter of a percentage point to 10.75% effective Monday, its fifth cut since April.

The European Central Bank, the euro zone's 16 national central banks, the Swedish Riksbank and the Swiss National Bank on Friday released a joint statement announcing a new agreement to limit gold sales over the next five years. Under the plan, annual sales will not exceed 400 tons and total sales over the five-year period, which begins Sept. 27, will not exceed 2,000 tons. "Gold remains an important element of global monetary reserves," the banks said. The central banks also said the International Monetary Fund's intention to sell 403 tons of gold "can be accommodated" under the agreement.

Bud Conrad: "The Federal Deposit Insurance Corporation currently covers each dollar on deposit with a trivial 2/10ths of a penny.
And even that understates the seriousness of the situation: the $4.8 trillion in deposits the FDIC is providing coverage on doesn't include the expansion that now extends insurance coverage from $100,000 to $250,000 for normal bank accounts. That likely brings the exposure of the FDIC closer to $6 trillion. But that's pretty inconsequential at this point: using any reasonable accounting method, the FDIC is already bankrupt and will require hundreds of billions of dollars in government bailouts just to keep the doors open."

The U.S. Congress will consider extending unemployment benefits when it returns to work in September, Senate Majority Leader Harry Reid said on Friday.
"Soon after Congress returns to Washington we'll need to address this matter," Reid said of workers who will exhaust their unemployment benefits soon. "There is an economic case to be made for extending unemployment benefits."

FT:"But the longer that the banking pipes remain partly or fully clogged and the governments keep pouring water into the system, the more that investors and policy makers need to watch what this liquidity “backflow” might do; and not just in the gilts market, but other, less obvious corners of the global asset markets too."

The Organization of the Petroleum Exporting Countries (OPEC) increased crude oil production by 100,000 barrels per day to 28.57 million barrels a day in July, according to a Platts survey of OPEC and oil industry officials and analysts. This is an increase from the 28.47 million barrels a day pumped in June, Platts said in a statement on Friday. OPEC production had already risen in April, May and June after having fallen steadily since August 2008.

Ford Motor Co. plans to cut the number of suppliers it deals with by nearly half by the end of the year. The automaker said it plans to reduce the number of suppliers for new sourcing to 850 from a current list of 1,683 by the end of 2009. Ford said it has a long-term goal to reduce that number to 750.

Reuters looks at the companies leading the midsummer rally and finds them loaded with junk - 81 S&P companies with credit ratings of BB or lower, jumping from 21-29.5% from July 10 to Aug. 4.

Tim Iacono: "But, what doesn't make sense is when we are told that an enduring economic rebound will require these now-thriftier Americans to "regain their confidence" in a system that has failed them so miserably over the last few years and, during a period of declining incomes and rising unemployment, go out and spend more money.
In this instance, the "victims" of the confidence game are not so much "cheated" out of their money as they are coerced to spend it when doing so works against their best interests - in a few months' time, after the thrill of driving a new car has worn off, many "Cash for Clunkers" buyers will wish they could swap their monthly car payment for their old clunker.
The U.S. Government as a Confidence Game and Ponzi Scheme
Nowhere is confidence more important than at the Treasury Department and other government agencies that manage the nation's money. Come to think of it, "managing the nation's money" is probably not a good way to characterize what exactly is going on there since there is very little money to "manage" - it goes out as fast as it comes in and the process is better described as "directing the flow" of money rather than "managing" it.
Here, the U.S. government is playing a very high-stakes confidence game with its foreign creditors, many of whom must realize by now that something is seriously wrong as they grow tired of the endless cycle of American borrowing and money printing in order to make ends meet (is that still considered "making ends meet" if you have to borrow and print money to do so?)."

Fannie Mae will need another $10.7 billion from the government to continue.

-U.S. consumers reduced their debt in June for the fifth consecutive month, the Federal Reserve reported Friday. Total seasonally adjusted consumer debt fell $10.29 billion, or at a 4.9% annual rate, in June to $2.502 trillion. Consumer credit fell in eight of the past nine months. This is the longest string of declines in credit since 1991. In the subcategories, credit-card debt fell $5.04 billion, or 3.8%, to $1.59 trillion. This is the record 10th straight monthly drop in credit card debt. Non-revolving credit, such as auto loans, personal loans and student loans fell $5.04 billion or 3.8% to $1.59 trillion.

At the close, DJIA +1.2% (+113.36) to 9369.62; S&P +1.3% (+13.40) to 1010.48; Nasdaq +1.4% (+27.09) to 2000.25. The Dow gains 2.2% on the week to finish at its 2009 high. The S&P up 2.3% for the week; Nasdaq up 1.1%. Crude -1.6% to $70.78. Gold -0.6% to $956.70.

The 30-year yield +0.07 to 4.61%; 10-year +0.09 to 3.85%; 5-year +0.10 to 2.82%; 2-year +0.09 to 1.3%.

Tyler Durden: "Foreign purchasers are starting to fall far behind in their purchases of US securities relative to the Fed's monetization rate."

The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.

The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.

If China's demand for commodities is overheated, what impact will that have on the world economy? If commodities top out, are global equities far behind? I think not. Buy on dips at your own risk.

The Baltic Dry Index has slumped 35 percent from this year’s high on June 3. The Standard & Poor’s GSCI Index of 24 commodities has climbed 7 percent over the same period.There is a disconnect here and the disconnect will be costly to investors. Be forewarned!

Derivatives betting on the Baltic Exchange’s future assessments fell for a third day, indicating the declining spot market is causing traders’ future expectations to deteriorate.

China’s central bank has told the heads of the largest state-controlled banks to slow the pace of new lending, say people familiar with the matter, after new loan volume in the first half of the year tripled from same period a year earlier.

The pressure from the People’s Bank of China signals an unstated shift in policy and comes as it steps up its open-market operations to control liquidity and slow loan growth.

Berkshire Hathaway's operating earnings came in at $1,147 per share, down 21.7 percent from last year's second quarter, and below the average forecast of $1,238 from the handful of analysts who cover the stock.

David Kilcullen, a counterinsurgency expert who will assume a role as a senior adviser to Gen. Stanley McChrystal, has been highly critical of the war's management to date. He outlined a "best-case scenario" for a decade of further U.S. and NATO involvement in Afghanistan during an appearance at the U.S. Institute of Peace.

Under that timeline, the allied forces would turn the corner in those two years, followed by about three years of transition to a newly capable Afghan force and about five years of "overwatch."

To repeat: The labor-force participation rate fell 0.2 percentage point in July to 65.5%.

Daniel Aaronson and Lee Markowitz: "The stock market has had an impressive rally. The rally has been so large that it is now similar in magnitude to the 52% rally in the DJIA that was seen from the low in November 1930 to the bear market rally top in April 1930. However, after the rally ended in April 1930, the DJIA fell another 86% before bottoming in July 1932. If the Federal Reserve has printed enough money to "save the day" and avoid a 1930-1932 collapse, then the succeeding crisis must be a dramatic loss of the Dollar's purchasing power. A collapsing Dollar will not lead to investor optimism because the standard of living in the US will deteriorate, and with it, the consumer and business environment. Rather, economic strength and prosperity result from an environment in which savings are rewarded, not punished.

Optimism continues to rule the day in America as if we never even faced a crisis. Yet, the facts support being as pessimistic as ever as America faces many economic headwinds and the Government's funding and currency crises still lie ahead."

Two bank failures in Florida raised the number of bank failures to 71 for the year, according to the Federal Deposit Insurance Corp. late Friday. Florida regulators closed Community National Bank of Sarasota County in Venice, Fla., and First State Bank of Sarasota, Fla. Stearns Bank, N.A., of St. Cloud, Minn. will assume all the deposits of First State Bank, and assume the deposits of Community National for a 0.25% premium.

Thursday, August 06, 2009

Jobless Claims

8/6/09 Jobless Claims

U.S. natural gas inventories rose 66 billion cubic feet in the week ended July 31, the Energy Information Administration reported Thursday. Analysts at IHS Global Insight had projected an increase of 50 billion cubic feet. After the data, natural gas for September delivery fell 19.7 cents, or 4.8%, to $3.847 per million British thermal units on Globex.

First-time claims for state unemployment benefits declined by 38,000 to 550,000 last week, while the number of people who continued to collect benefits rose by 69,000 to 6.31 million the prior week, the Labor Department reported Thursday. The four-week average of new claims dropped to 555,250, the lowest level since January.

Costco Wholesale said comparable store sales in July slumped 7%, including an 8% drop in the U.S. and a 5% fall overseas. Total sales fell 5% to $5.41 billion. Excluding gas deflation, U.S. comparable sales fell 2%.

The Bank of England took a far bigger step than expected to boost Britain's recession-hit economy on Thursday, stunning markets by expanding its quantitative easing plan to 175 billion pounds from 125 billion.
The central bank said Britain's downturn appeared to have been deeper than previously thought and, while the trough in output was near and some recovery was on the way, tight credit conditions would remain a considerable drag.

The Dow Jones Industrial Average fell 24.71 points, or 0.3%, to finish at 9,256.26. The S&P 500 index lost 5.64 points, or 0.6%, to 997.08, while the Nasdaq Composite fell 19.89 points, or 1%, to 1,973.16.


8/5/09 Layoffs

U.S. July Challenger layoffs up 31% to 97,373. Through the first seven months of the year, layoff announcements have totaled 994,048, 72% ahead of last year's pace. Layoff announcements had fallen to a 15-month low of 74,393 in June. The figures are not seasonally adjusted, and count only a small fraction of the millions of layoffs that take place each month, mostly in small- and medium-sized firms.

P&G reiterated its fiscal 2010 profit forecast for earnings of $3.65 to $3.80 a share.

Real personal income fell 1.72% in Q2 2009 after falling 2.94% in Q1 2009. (U.S. Bureau of Economic Analysis)

Insider sales now stand at levels not seen since late 2007, right before the current bear market began.

The post office says it lost $2.4 billion from April through June.That brings the year's losses so far to $4.7 billion. And the Postal Service expects to be $7 billion in the red when the fiscal year ends Sept. 30.

Lenders have modified more than 235,000 mortgages under an Obama Administration program, but 1.8 million foreclosures occurred in the first half of 2009.

U.S. non-manufacturing industries contracted for the 10th consecutive month in July, the Institute for Supply Management reported Wednesday. The ISM non-manufacturing index fell to 46.4% in July from 47.0% in June Seven of 18 industries were growing in July. The new orders index fell to 48.1% from 48.6%. The business activity index fell to 46.1% from 49.8%.

Orders for U.S.-made factory goods rose 0.4% in June. Orders for durable goods fell 2.2%, an improvement from the government's prior estimate of a 2.5% drop. Orders for nondurable goods rose 2.7%. Excluding transportation equipment, new factory orders rose 2.3%. Orders for core capital goods, which are used by businesses to expand or update their productive capacity, rose for the second consecutive month, gaining 2.6% in June. Meanwhile, overall shipments rose 1.4%, following 10 consecutive months of declines. Shipments of durable goods fell 0.1% in June, and were down for 11 consecutive months, the longest streak of declines since comparable data were first published in 1992. Inventories decreased another 1.2% to $318B, the sixth straight month of shrinkage.

The Energy Information Administration reported that crude supplies rose by 1.7 million barrels during the week ended July 31. The EIA also said that gasoline stocks fell by 200,000 barrels and distillate inventories dropped by 1.1 million barrels last week. Analysts surveyed by Platts expected the EIA data to show a rise of 1.5 million barrels in crude stocks and a decline of 2 million barrels in gasoline supplies. They also projected a build of 1.1 million barrels in distillate stocks.

ICE October raw sugar futures hit an intraday high of 19.55 cents a pound on Wednesday, marking the highest level for a front-month contract since February 2006.

Tuesday, August 04, 2009

Personal Incomes

8/4/09 Personal Incomes

Personal incomes of U.S. residents fell 1.3% in June, reversing the 1.3% gain in May that was due to a one-time stimulus payment to Social Security recipients, the Commerce Department reported Tuesday. Excluding the one-time payment in May, incomes fell 0.1% in June after a decline of less than 0.1% in May. Real disposable incomes - adjusted for inflation and after taxes - fell 1.8% in June after a 1.5% gain in May. Compensation of workers fell 0.3% in June. The personal savings rate fell back to 4.6% from 6.2%. Real consumer spending dropped 0.1% in June, the third decline in the past four months.

PepsiCo has reached a deal to buy Pepsi Bottling Group for $36.50 a share and PepsiAmericas for $28.50 a share in cash and stock, CNBC reported. In April, PepsiCo offered $29.50 in cash and stock for each share of Pepsi Bottling Group and made a separate offer for PepsiAmericas at $23.27.

Chain-store sales for the week ended Aug. 1 fell 0.7% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales declined 0.2%.

Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.
Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

Since the low set in late 2008, the Shanghai Index is up nearly 100%.

Rep. Ron Paul: "As the healthcare debate rages on, there is one reality that even the proponents of this hostile takeover of healthcare by government cannot ignore ' and that is money. The government simply does not have the money for a new, expansive, public healthcare plan. The country is in a deep recession that will deepen even further with the coming collapse of the commercial real estate market. The last thing we need is for government to increase and expand taxes to pay for another damaging, wasteful program. Foreigners are becoming less enthusiastic about buying our debt, and creating another open-ended welfare program when we cannot pay for what is already in place, will not help. Champions of socialized medicine want to tax the rich, tax businesses that already cannot afford to provide health plans to employees, and tax people who don't want to participate in the government's scheme by buying an approved healthcare plan. Presumably, all these taxes are to induce compliance. This is not freedom, nor will it improve healthcare."

Bill Luby: "I thought it worth noting that yesterday, in addition to closing over the critical 1000 level for the first time since November, the SPX also closed 15% above its simple moving average for the first time since 1999."

Michael Luo: " It can take years for a worker’s earnings to bounce back after a layoff, and that it can take even longer for a layoff during a recession. Economists, in fact, say income losses for workers who are let go in a recession can persist for as long as two decades, a depressing prognosis for the several-million people who have lost their jobs in the current recession.
“On average, most workers do not recover their old annual earnings,” said Till von Wachter, an economics professor at Columbia University, who recently completed a working paper with two other economists that examined the long-term earnings of workers who lost their jobs in the recession of the early 1980s."

"Overall, second-quarter numbers show that things are somewhat better than in a difficult first quarter, but still challenging overall," said Deutsche Bank on quarterly results from Centex and Pulte, which are in a merger agreement. "Investors will be primarily focused on net order growth, which came in significantly below our estimates," added analysts at Barclays Capital.

The NAR's pending-home-sales index rose 3.6% in June after an upwardly revised gain of 0.8% in May. The index is 6.7% above June 2008. Activity is much stronger for lower-priced homes. First-time buyers must see their contracts close by Nov. 30 to get an $8,000 tax credit. The median price dropped 15 percent from a year earlier.

Adam Liptak: "The judge in San Francisco, Vaughn R. Walker, ruled that Congress had indeed overridden the state secrets privilege when it enacted the Foreign Intelligence Surveillance Act of 1978. The judge said that by setting up a secret court to consider requests for intelligence surveillance, and by setting up other domestic regulations of foreign intelligence surveillance, “Congress intended for the executive branch to relinquish its near-total control over whether the fact of unlawful surveillance could be protected as a secret.”
The government’s recent brief cited the leading Supreme Court decision on state secrets, United States v. Reynolds in 1953, but it said nothing about Judge Walker’s reading of it.
“Reynolds itself,” Judge Walker wrote, “leaves little room for defendants’ argument that the state secrets privilege is actually rooted in the Constitution.”
The Reynolds case concerned an Air Force accident report. The government refused to turn it over in an injury lawsuit, saying that disclosure of the report would endanger national security by revealing military secrets. "

Forty-three U.S. soldiers and 31 soldiers from other Western allies were killed in Afghanistan in July, the highest monthly total for both groups in the eight-year-old war.

Moody's Investors Service lowered its outlook on the State of New Jersey, reflecting challenges to the state's financial operations and repeated use of nonrecurring revenue to plug budget gaps. The outlook was lowered to negative from stable. The outlook affects about $2.5 billion in outstanding general obligation bonds and $28.5 billion in annual appropriation debt.

The U.S. recession has zapped U.S. consumers' spending power, and sales at Simon's malls fell 10.5 percent to $442 per square foot. Sales at its outlet centers slid 3.3 percent.

Expeditors International of Washington reported that its second-quarter net income fell 24% to $54.07 million, or 25 cents a share, down from $71.25 million, or 32 cents a share, in the same period a year ago. Total revenue fell 38% to $895 million attributable to an industry-wide shipping slowdown. on the healthcare bill: "Starting with the most controversial provision first, the Democratic plan states that any underage girl (here defined using the legal drinking age of 21, rather than 18) who happens to get pregnant will be forced to undergo a mandatory abortion, with no exceptions. While this might sound like a bad thing, the good news is that abortions will be covered free of charge by government insurance – while the abortions will cost a substantial amount to perform, they’ll still cost less than bearing and raising those “accidental” children. So ultimately the plan passes the savings onto the public, which is a good thing.
As for girls getting pregnant in the first place, buried in page 2,407 is a requirement that public water systems have a tasteless and colorless contraceptive agent added to them to help lower the overall pregnancy rate. Since the young (not to mention, the lower class) don’t drink bottled water, that should keep all those unwanted kids from becoming kids in the first place. And it also encourages the rich to get rid of their bottled water (with its high carbon footprint, due to the petroleum used to make the plastic), by allowing them to indulge in a favorite Democratic pastime: nonstop, consequence-free fucking.
Another much-discussed feature on page 3,092 is the so-called “Logan’s Run” rule. In the book and movie of the same name, citizens were put to death after a number of years (21 in the novel, 30 in the film). Now, don’t worry – there’s nothing so drastic in the Democrats’ health plan; instead the age is 60 years. And you won’t be put to death, either – there is no Carrousel! Just try not to need any medical treatment, because after age 60 you won’t be covered by insurance any longer – if you get sick, I hope you have a useful home remedy. Otherwise, there will be no Renewal for you. (But with everyone living longer and longer, I’d say your odds are good to make it to at least 70 years… any longer and you better run away to Sanctuary!)"

Palatin Technologies, Inc. (NYSE Amex: PTN) announced today that it has received a Notice of Allowance from the U.S. Patent and Trademark Office for its U.S. Patent Application Number 11/694,260, titled "Cyclic Natriuretic Peptide Constructs." Allowed claims cover a family of cyclic compounds that bind to natriuretic peptide receptor A (NPRA), including PL-3994, Palatin's lead heart failure drug candidate. Palatin expects the patent will issue in the second half of 2009; the patent's 20-year term would expire in 2027.

The Dow Jones Industrial Average added 33.63 points to 9,320.19. The S&P 500 rose 3.02 points to 1,005.65, while the Nasdaq Composite gained 2.7 points to 2,011.31.

Monday, August 03, 2009

Declining Optimism

8/3/09 Declining Optimism

Worldwide sales of semiconductors for the second quarter of 2009 were $51.7 billion, the Semiconductor Industry Association said Monday. Sales declined by 20% compared to the same period a year ago but rose 17% from the first quarter.

New tee shirts: "A recession is when your neighbor is laid off. A Depression is when you're laid off. A Recovery is when Obama loses his job."

Small business owners’ optimism recently dropped to its lowest level in the six years of the Wells Fargo/Gallup Small Business Index history. Covering a survey period July 7 – July 14, 2009, the score now stands at negative 21 (-21), down 20 points from the previous survey (April, 2009), and 135 points lower than the Index high of 114 (November, 2006). This is the third consecutive quarter with a negative (below zero) Index score. A score of zero indicates that small business owners, as a group, are neutral -- neither optimistic nor pessimistic -- about their companies’ situations.
The Index is the sum of “present situation” and “future expectations” of small business owners for six key measures, including financial situation, cash flow, revenues, capital allocation spending, job hiring and credit availability. The “present situation” score dropped 12 points to negative 23 (-23), the lowest present situation score in the history of the Index. “Future expectations” dropped eight points to two, the second-lowest score since the survey’s inception.

The U.K. CIPS/Markit manufacturing purchasing manufacturing index rose to 50.8 in July, up from a revised high reading of 47.4 in June and the first leap above the 50 unchanged mark since March 2008. The rise came as manufacturing production rose to the greatest extent since December 2007. New orders rose for the first time since March 2008.

The Markit euro-zone manufacturing purchasing managers index rose to 46.3 in July, up from 42.6 in June, the second strongest rise in point terms in the history of the survey and the highest reading in 11 months.

John Hussman: "Although the stock market's advance since March is taken as evidence that the economy is on the mend, the extent of that advance represents just over one-third of the prior bear market loss, which is somewhat standard (if not reliable or predictable) for bear market rallies. Interestingly, the advance since March has almost exactly matched the size and duration of the rally that followed the initial market plunge in 1929, just before the stocks and the economy suffered fresh deterioration."

Brett Steenbarger: "In sum, while upside momentum has tailed off and we could see a normal pullback following strength, the indicators suggest underlying strength to the market rise. Since the momentum and strength measures tend to top well ahead of price, I expect to see higher prices for stocks before we have to be concerned about a fresh bear market. A move below 950 in the ES futures, accompanied by expanding new 20-day lows, would have me questioning the bull thesis."

The Oil Drum: "The Obama administration is talking with allies and Congress about the possibility of imposing an extreme economic sanction against Iran if it fails to respond to President Obama’s offer to negotiate on its nuclear program: cutting off the country’s imports of gasoline and other refined oil products.
The option of acting against companies around the world that supply Iran with 40 percent of its gasoline has been broached with European allies and Israel, officials from those countries said. Legislation that would give Mr. Obama that authority already has 71 sponsors in the Senate and similar legislation is expected to sail through the House. "

According to the WSJ, sales of low- and moderately priced homes are picking up. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.

Oil prices leapt above $70 a barrel Monday in Asia on investor expectations a recovering global economy will boost crude demand.

The U.S. dollar index lower at 77.58. Gold futures rose Monday, topping $960 an ounce for the first time since June 11 as the U.S. dollar fell to the lowest level this year against a basket of its major rivals, boosting gold's investment appeal.

John Tamny: "The Fed is not an independent body free of political coercion, but rather an institution whose actions have long been dictated by the president and politicians in power. More important, since Congress is empowered through the Constitution "To coin Money, regulate the Value thereof," it's folly for general defenders of central bank independence to presume that this applies to our own Federal Reserve."

The United States, Europe and Japan still face the possibility of a double-dip recession and at the very least will experience below-potential economic growth for the next couple of years, economist Nouriel Roubini told CNBC Monday....If central banks continue to monetize the deficits, "long-term bond yields may go higher, and they may crowd out the economic recovery leading to a double dip," he said.

Marathon Oil Q2 net 58c vs. $1.08. Revenue fell to $13.4 billion from $22.2 billion.

Exxon forecasts that natural gas demand will rise 50 percent by 2030 and outstrip demand for coal.
"Clearly, we anticipate that natural gas will grow much faster than oil or coal. So we see a pretty healthy demand out there in the future for natural gas globally, but even here in North America," chief executive Rex Tillerson said during an analyst meeting earlier this year.

George Ure: "if you had put equal amounts of money into the Dow, the S&P 500, and the NASDAQ Composite at the beginning of 2000, as is shown in my Aggregate Index chart (here), you'd have lost almost one-half of your grub stake, and that's before cranking in the correction for the declining purchasing power of the dollar. When that's done, sorry to report, you've lost more than half. [I exclude commissions if you exclude dividends.] The Street would just as soon you get memory fogging of events prior to 9/11 and forget that huge loss many portfolios experienced in the Tech Wreck. How soon we forget, eh?"

President Barack Obama's treasury secretary said Sunday he cannot rule out higher taxes to help tame an exploding budget deficit, and his chief economic adviser would not dismiss raising them on middle-class Americans as part of a health care overhaul.

Peter Boockvar, equity strategist for Miller Tabak: "Right now everyone is so bullish after a 50% rally. That should be concerning," he says.
He's bearish on the U.S. markets for two primary reasons:
Too much debt both at the consumer and federal level will stunt growth.
The eventual unwinding of our current fiscal policy will be painful. In the meantime, that same fiscal policy has the ability to prop up the market. As he puts it, "when you’re in a money printing world we’re in right now asset prices can lift."
Boockvar favors international markets. "I've been bullish on commodities, emerging markets that produce commodities and Asia - particularly China, that has driven the rally in commodities," he says. Admittedly, China may be due for a pullback after an 87% run up in the Shanghai Composite this year. If that happens Boockvar's confident the "U.S. will be following."

Boeing Co., which has delayed the delivery of its 787 Dreamliner five times, may not get it flying for another six months, said Senior Plc, a British supplier of air ducts and other parts for the plane.
Boeing failed to make good on a June 16 pledge at the Paris Air Show that the 787 would fly before the end of that month. The two-year delay in the plane’s development has allowed Toulouse, France-based rival Airbus SAS to gain ground with orders for its competing A350 model.
“Their credibility is somewhat in question,” Chief Executive Officer Mark Rollins said today in a telephone interview. “We estimate another six-month delay.”

China's manufacturing rose in July to its highest level in a year, helped by record lending and the country's generous stimulus package. If the trend continues, China could overtake the U.S. as the world's largest manufacturer by 2015.

AP: "China's growth accelerated in the latest quarter to 7.9 percent over a year earlier while the United States and Europe struggle with recession. The surge was driven by Beijing's 4 trillion yuan ($586 billion) plan to insulate China by pumping up domestic demand with heavy spending on building highways and other public works.
But the growth — up from 6.1 percent the previous quarter — highlighted China's continued reliance on stimulus spending. The big gains were in construction and other stimulus-fueled areas, while retail spending and other private sector activity lagged.
Bank credit soared to a record 7.1 trillion yuan ($1.1 trillion) in the first half of the year and the rate of lending is accelerating. Loans in June expanded to more than double the May level at 1.5 trillion yuan ($220 billion).
Economists say as much as 15 percent or 1 trillion yuan ($145 billion) of that money has been diverted into stocks and real estate despite government rules that say banks should lend only for productive investment."

Cooper-Standard Holdings Inc., said Monday it filed for bankruptcy protection in an effort to reduce its debt amid a slowdown in vehicle production and sales.
Privately held Cooper-Standard, which is a preferred automotive supplier to Ford Motor Co., makes fluid handling, body sealing and other systems for automakers. Cooper-Standard said in a statement that the Chapter 11 bankruptcy filing in a Delaware court was "voluntary."

ISM Manufacturing Index: 48.9 in July vs. 46.5 consensus, its 18th consecutive month of contraction. Nonmetallic Mineral Products and Paper Products reported growth. Machinery, Plastics & Rubber Products, and Wood Products led the laggards.

June Construction Spending: +0.3% to $966B/year, but 10.2% lower than a year ago. For H1, spending of $456B was 11.4% below last year. Spending on private-sector projects fell 0.1%, while public spending rose 1%. Spending on private housing projects increased 0.5%. Spending on nonresidential private projects fell 0.5%.

Bill King: " We will again utilize basic math to illustrate the scam. If Q4 08 GDP was 100 units, and Q1 09 was reported at -5.5% and Q2 09 GDP was expected to be -1.5%, the expectation was for GDP of 100 units minus 5.5% or 94.5 units, minus 1.5% or 93.08 units.
With the revision of Q1 09 GDP to -6.4% the Q1 GDP units become 100 minus 6.4% or 93.6 units. So Q2 is minus 1% or 92.664. Ergo aggregate GDP was worse than expected!!!!
As we warned, lower imports, a sign of economic weakness, contributed a net 1.4% to GDP.
Once again beancounters ‘fooled’ with inflation to produce higher GDP than warranted.
John Williams: The relatively narrower quarterly contraction in the second quarter reflected the impact of greater weakness being thrown back into the first quarter, in revision, and the use of artificially reduced inflation. The implicit price deflator for the second quarter was 0.2% versus a revised 1.9% (was 2.8%) in the first quarter."

Philip Davis: "Every $10 increase in the price of a barrel of oil rips $25Bn a month out of the hands of global consumers, enough money to employ 6M people a year at $50,000 each. Those jobs are torn away from other sectors as discretionary income goes to commodities and, by the time you add in refining mark-ups and the cascading effects on other raw material cost, the effect of a $10 per barrel rise in oil is doubled to what amounts to about 1M global jobs per dollar."

Ford U.S. July sales rise 2.3% to 165,279 vehicles. Thank you clunker program.

General Motors Co. said Monday that more than 6,000 of its U.S. hourly workers took part in the auto maker's special attrition program. Most of those workers left the company Aug. 1. Clunkers won't help these former employees.

Barry Ritholz: "These days, via the stimulus plan, we have the Emergency Unemployment Compensation (EUC) which is good for 20 weeks. Then, there is the Supplemental EUC, which depending upon what your state thinks of the Federal largesse of handing out money to the recently unemployed, ranges anywhere from 13 to 20 more weeks.
The most recent data run was for the week of July 11. As of that week, the Extendees — which consists of soon-to-be-Exhaustees — gained 25k, raising the total unemployed receiving extended benefits to about 2.66 million people. One year ago, there were only 127 thousand receiving extended benefits.
And, as the NYT noted yesterday, there are another 1.5 million people likely to become Exhaustees over the next few months. "

The U.S. unemployment rate may not peak until the second half of 2010, even as the broader economy shows signs of improvement, U.S. Treasury Secretary Timothy Geithner said.
Another extension in unemployment benefits “is something that the administration and Congress are going to look very carefully at as we get closer to the end of this year,” Geithner said in an interview yesterday on ABC’s “This Week” program.

The head of the president's Council of Economic Advisers, Christina Romer, said Sunday that the administration is already looking ahead at an extension of benefits as that money runs out.
Democratic Rep. Charlie Rangel of New York says people who soon will lose their unemployment benefits deserve an extension. He says they are "the true victims" of the nation's financial disaster.
Republican Sen. Jim DeMint of South Carolina says he also supports an extension of benefits.

Net official gold sales slumped to 39 metric tons in the first half of 2009, down 73% from a year ago, London-based precious metals consultancy GFMS said Monday.

The Dow Jones Industrial Average rose 114.95 points, or 1.3%, to finish at 9,286.56, its highest close since Nov. 4. The S&P 500 index rose 15.15 points, or 1.5%, to end at 1,002.63, also its highest close since Nov. 4. The Nasdaq Composite gained 30.11, or 1.5%, to end at 2,008.61, its highest close since Oct. 1.

Crude for September delivery rose $2.13, or 3%, to end at $71.58 a barrel on the New York Mercantile Exchange.

Sunday, August 02, 2009

Unrestrained Credit

8/2/09 Unrestrained Credit

According to Bloomberg, “The value of shares traded in China surpassed the combined amount in the U.S., U.K. and Japan for the first time on record, a sign of ‘speculative mania’ among investors who pushed the Shanghai Composite Index up 82% this year, according to Grantham Mayo Van Otterloo & Co.’s Edward Chancellor.”

Doug Noland: "Bubbles are first and foremost a Credit phenomenon. Fundamental to the nature of Credit, expansion generally fosters more expansion. Credit excess begets only greater Credit excess. And Credit excess notoriously begets speculative excesses. Importantly, Credit is inherently self-reinforcing – both on the upswing and downswing. In today’s “system” of unrestrained Credit, rising demand for borrowings does not dictate an increasing price for this Credit. Indeed, an unlimited supply of Credit will tend to satisfy rising demand at a lower price. And this gets right to the heart of a huge Bubble – and policymaking - dilemma.
The bottom line is that unrestrained Credit is inherently unstable, and few seem to appreciate the unique nature of today’s unfettered global Credit environment. There is no international gold monetary regime for which to discipline lenders, central banks, governments or economies. The dollar reserve system self-destructed over decades of undisciplined Credit expansion. And the breakdown of U.S. discipline – and the resulting massive dollar devaluation – has unleashed domestic Credit systems from China to Brazil. Never have “developing” Credit systems (and currencies) enjoyed such freedom to inflate financial claims....Central to the analysis of unfolding precarious Bubble Dynamics is my view that few, if any, policymakers anywhere around world will be willing to act decisively to tighten Credit conditions and address increasingly speculative financial markets."

China’s manufacturing expanded for a fifth month as record lending and a 4 trillion yuan ($586 billion) stimulus plan drove a recovery in the world’s fastest- growing major economy.
The official Purchasing Managers’ Index rose to a seasonally adjusted 53.3 in July from 53.2 in June, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement.

Harvey, Ill.-based Mutual Bank was closed by regulators Friday, the 69th U.S. bank to fail this year amid the ongoing credit crunch. Mutual Bank had $1.6 billion in assets and $1.6 billion in deposits as of July 16, the Federal Deposit Insurance Corp. said, and its failure will cost the federal deposit insurance fund $696 million. Garland, Tex.-based United Central Bank has agreed to assume the failed bank's deposits, the FDIC said.

The world’s largest economy contracted 1.9 percent from the fourth quarter of 2007 to the last three months of 2008, compared with the 0.8 percent drop previously on the books, the Commerce Department said.

Avery Goodman: "The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.
Some refreshingly honest reporting has come from, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.
The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government's money. At $3,500, 286,000 vehicles will have been sold.
I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the "cash for clunkers" program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.
If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, estimates that the average cost to the taxpayer will be about $20,000 per vehicle."
Dealers said that while the program lured shoppers back to showrooms, they have had to deal with delays in reimbursements and lack of clarity about its status.

Bill Bonner: "We calculated that during the last 7 years of the Bubble Epoque consumers added $1.4 trillion in debt per year. That was the spending that made the old mare go. But now what? They are now adding no debt – zero. In fact, they are paying off debt. This alone removed $1.4 trillion in private demand from the economy.
The savings rate is up dramatically too – from zero to 7%. This is another way of measuring the same phenomenon: the decline in consumer spending.
The only thing that would cause consumer spending to go would be a substantial increase in real wages. This would allow Americans to buy more – while simultaneously paying down debt. But with 16% unemployment (Rosenberg’s estimate) it will be a long time before real wages increase at all…let alone substantially."

GDP has contracted 3.9% in the last year, the worst fall since at least 1947, when the Commerce Department started keeping track.
First quarter GDP was revised down heavily, from a 5.5% to 6.4% — the biggest quarterly GDP drop in almost 30 years.

Natural gas that traded for nearly $13 per 1,000 cubic feet last summer is now available for less than $4. The spot price for coal is running around $9 a ton, down from about $13 last year.
The number of rigs in Wyoming drilling for coal bed methane dropped to zero in May, down from 19 the previous year, while the number of conventional rigs drilling for natural gas and oil is off by more than half. No coal mines have closed, but annual production could drop as much as 10 percent as the recession stalls the need for electricity nationwide.

According to the NY Times, over the coming months, as many as 1.5 million jobless Americans will exhaust their unemployment insurance benefits, ending what for some has been a last bulwark against foreclosures and destitution. Unemployment insurance is now a lifeline for nine million Americans, with payments averaging just over $300 per week, varying by state and work history. While many recipients find new jobs before exhausting their benefits, large numbers in the current recession have been unable to find work for a year or more.

Obama: "When we receive our monthly job report next week, it is likely to show that we are continuing to lose far too many jobs in this country. As far as I’m concerned, we will not have a recovery as long as we keep losing jobs. And I won’t rest until every American who wants a job can find one." He is going to be one very tired individual.

Mike Burk: "As long as NASDAQ new highs continue to expand there will be little risk in the market.
I expect the major indices to be higher on Friday August 7 than they were on Friday July 31."

Tony Boeckh and Rob Boeckh: "In the short run, huge deficits and growth in government debt are necessary. They will continue to play a crucial role in deleveraging the private sector and in helping to fill the black hole in the economy that has been caused by the sharp increase in household savings. Further out, government deficits will put upward pressure on interest rates. However, much of the economy, particularly housing and commercial real estate, is far too weak to absorb an interest-rate shock. Therefore, the Federal Reserve will have to monetize much of the rise in government debt, making it extremely difficult to unwind the explosion in the Fed's balance sheet and consequent rise in bank reserves - the fuel that could be used to ignite another money and credit explosion.
The bottom line is that the Fed is in a very difficult position. Its room to maneuver is either small or nonexistent, and the markets understand this. That is why there is a sharp divergence between those worried about price inflation and those fearing a lengthy depression."

Payrolls fell by 325,000 workers after dropping by 467,000 in June, according to the median on 56 estimates in a Bloomberg News survey ahead of an Aug. 7 Labor Department report. The jobless rate probably rose to a 26-year high of 9.6 percent. Of course, that number includes the birth/death fictitious number of jobs and does not count those as unemployed where their unemployment benefits ran out. In sum, the real number is probably closer to 525,000+. That is another disaster. Let's not forget the hundreds of thousands of temporary census jobs being created by the government.

Through May, the number of shipping containers moving through U.S. ports dropped 20% from the same five months last year.

The Ports Authority says the global economic crisis has required that ports, their customers and others in the supply chain streamline their operations and reduce expenses to remain on solid financial footing. In South Carolina, numerous other companies and public agencies have reduced staffing in light of declining revenues.

Today, California's general fund spending stands at $84.5 billion and the state's per capita spending is $2,301 - down to what the state was spending per person 11 years ago, when adjusted for inflation, a Chronicle analysis of general fund budgets over the past 20 years found.
Spending is likely to continue to plunge in the coming years. Gov. Arnold Schwarzenegger's administration last week predicted that next year's budget would have a $7 billion to $8 billion deficit, and Moody's Financial Services has projected as much as a $15 billion shortfall in coming years.

"By the end of the year, we will not have a single gas land-rig running," George Kirkland, a Chevron executive vice president, said in a conference call. Other companies will follow Chevron's lead. This has important implications for the price of natural gas going forward. Be patient and consider adding to positions.

In May, the number of rail-freight carloads was down 24.6 percent from a year earlier, when more than 1.4 million packed railcars moved across the nation.
Here is a snapshot: Coal is by far the single biggest commodity shipped by rail, with close to half a million carloads moving in any given month. Coal shipments alone were down 89,000 carloads, or about 16 percent, in May compared with a year earlier. Carloads of motor vehicles dropped 52 percent. Employment at the biggest rail companies dropped 8 percent in that same period, nationally.

I continue to hammer away at the transportation numbers-- ships, rails, trucks--it's all about the movement of goods. It reflects demand from businesses and consumers. The numbers are real.

"Transport is in the tank," said William Hamilton, president of the International Brotherhood of Teamsters' Joint Council 53, an areawide governing body.
"We're the fourth-largest employer in the state of Pennsylvania," said Jim Runk, president of the Pennsylvania Motor Truck Association.
In 2008, he said, 380,661 people - representing one out of 14 Pennsylvania workers - earned $14 billion in salaries working as drivers, warehouse jockeys, secretaries, and salespeople in trucking businesses.
That doesn't count workers in businesses that serve trucking, such as repair shops, or drivers employed by bakeries or newspapers. This is the core of America. I wonder whether the Congress or the Administration realize the real deal. This isn't a new deal. It's the old guard.

Britain's financial-markets regulator said it will meet with representatives of the government and oil industry to discuss how to shed more light on the oil market, amid a growing debate over the influence of speculative investors on oil prices.

Susan Kraemer: "Converting cars to Natural Gas could cost what it actually costs; just a few hundred dollars - an hour's work; a few parts.
We could cut our very hoggy national carbon footprint by switching to natural gas which we now have an abundant supply of if these new natural gas reserve numbers are even remotely accurate. So we could drive less hoggy on somewhat cleaner fuel. And - (supposedly) in the carpool lane.
The VP of The Auto Channel claims that this cost is unnecessary. CNG conversion costs are only high because of an old EPA licensing requirement, says Marc Raush:
"For an individual (or shop) to be licensed to do a conversion, the person must pay $10,000 per year, per engine type, per year of manufacture. So that if a conversion shop wanted to do conversions in 2009 for Camrys for the years 1995 to 2005, the shop owner would have to pay the government $100,000 in licensing fees. "
"Then, if he wanted to do conversions on the same models in 2010, he would have to pay the $100,000 again, even though they are the exact same models and engines that he has been licensed on already. And if there is more than one engine involved, i.e., a 6-cylinder and 8-cylinder, the cost would double."
"Therefore, if a shop owner wanted to do 10 model years of Camrys and Corollas and Celicas, and well as Honda Accords and Civics, unless there were common engines being used in these five models the licensing cost (for just one engine per) would be a half million dollars, which would have to be paid again in 2010."
Licensing fees of a few million dollars every year would certainly dissuade most shops from going into the conversion business!
"The cost of the conversion kits are actually relatively inexpensive. If there was a sensible licensing fee (or no fee) the cost for the work could be just a few hundred dollars."
"These fees are, needless to say, ridiculous and are only there to ensure that many don't get done (thanks to the gasoline lobby)."
The nay-sayers will claim that there's another reason many don't get done. Those who typically poo-poo the possibility of the status quo ever changing say there's not enough trained CNG conversion mechanics.
But how many trained auto mechanics were there when we switched from horses to horsepower? Nada. But, the demand for them created them in due time. I'll bet there's no shortage of mechanics that would be willing to learn conversion if it wasn't a prohibitively expensive line of work to get into."