Saturday, August 29, 2009


8//29/09 September

Doug Noland: "it is the Credit system driving the real economy - not vice-versa. Only massive fiscal and monetary stimulus was capable of stabilizing the system. Total non-financial Credit expanded $470 billion 1991. It is my view that the maladjusted U.S. “Bubble” economy will require non-financial Credit growth of at least $2.0 TN this year. With the banking system and Wall Street finance severely impaired, “federal” (Treasury, agency, GSE MBS) Credit will account for the vast majority of system Credit growth this year....I also believe it matters greatly to both the U.S. economy and markets that our government has become the predominant source of system finance. Granted, it may not matter so much right now as artificial recoveries flourish in the markets and economy. But those believing the stock market is forecasting a happy ending to this, the latest stage of the Bubble, will again be disappointed. I haven’t forgotten how the Wall Street boom papered over a lot of problems and structural issues."

Mike Burk: "Over all years since 1928, the SPX, in September, has been up 44% of the time with an average loss of 1.2%, making it the worst month of the year. During the 1st year of the Presidential Cycle the SPX has been up only 30% of the time with an average loss of 2.3%, also the worst month of year in the 1st year of the Presidential Cycle....The market is overbought any way you want to measure it and new highs are deteriorating. It is likely to take a while for the momentum to bleed off, on the other hand there is unlikely to be much upside either.

I expect the major indices to be lower on Friday September 4 than they were on Friday August 28."

Three more banks were closed by regulators Friday, bringing the 2009 toll to 84.

Guaranty Financial Group Inc has filed for Chapter 11 bankruptcy protection, less than a week after regulators seized its banking unit and sold most of its assets to the Spanish bank, Banco Bilbao Vizcaya Argentaria SA .

Edmunds predicts that the 1.17 million cars will be sold this month, which is up 18% from last month and down “only” 6% from last year. Thank you clunkers.

Zerohedge: "From January to May the total capital outflows from the U.S. amount to ($314) billion in assets, consisting of central bank purchases of $50 billion, however, matched with private investor dispositions of $364 bonds peaked in October of 2008 at nearly a trillion dollars but have declined by $178 billion since then. Treasuries, on the other hand, have increased by over $500 billion over that same span of time. A half a trillion dollars!
Shell #1: Foreign central banks sell agency debt out of the custody account.

Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction."

Chris Martenson: "The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.
This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt. When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage. "

“India’s future is threatene by shortages of food, water and energy and these should be addressed on a priority basis, the Prime Minister’s security adviser said. ‘These are part of a broad national security plan, and defense is only one aspect of it,’ Shekhar Dutt, India’s deputy national security adviser, said… ‘We think water is going to be a very severe determinant of prosperity and well-being.’”

Brett Steenbarger: "The current 20-day median TRIN is the lowest value we've seen since 2000 at around .75.
I'm not exactly sure what to make of that. What I can tell you with certainty is that two of the past historical occasions in which we've had 20-day price highs and ultra low median 20-day TRIN readings have been March, 2000 and late May/early June, 2007. Both corresponded more or less to bull market peaks."

The European Union signed a temporary trade pact Saturday with Mauritius, Seychelles, Zimbabwe and Madagascar calling for tariffs on European goods would be removed over the next 15 years.
The four countries in southeast Africa have had full access to the EU consumer market -- the world's biggest -- since the start of 2008 for most goods. Trade barriers for rice and sugar, however, are being removed gradually.
The new deal excludes trade on agricultural products such as milk, meat, vegetables, textiles, footwear and clothing.

The Oil Drum: "Declining industrial electricity demand and an abundance of cheap natural gas will threaten coal's status as the dominant U.S. fuel to generate electric power, even after the economic recession ends.
Power companies are reducing use of coal plants because of declining demand from heavy industry, the economic sector hardest hit by the recession. The loss of industrial "baseload" looks long term, analysts and executives say.
Natural gas-fired plants, easier to stop and start, have remained busy serving commercial and household power demand, which varies hour by hour and has been less affected by the recession."

WSJ: "The U.S. recovery is a tale of two economies. At one extreme are big companies with an enviable access to credit; at the other are small, struggling firms that can't borrow."

Peter Goodman: "Even though consumer spending rose in July, many Americans are still watching their pennies, and some said their newfound frugality would not be temporary."

Internet companies and civil liberties groups were alarmed this spring when a U.S. Senate bill proposed handing the White House the power to disconnect private-sector computers from the Internet.
They're not much happier about a revised version that aides to Sen. Jay Rockefeller, a West Virginia Democrat, have spent months drafting behind closed doors. CNET News has obtained a copy of the 55-page draft of S.773 (excerpt), which still appears to permit the president to seize temporary control of private-sector networks during a so-called cybersecurity emergency.
The new version would
allow the president to "declare a cybersecurity emergency" relating to "non-governmental" computer networks and do what's necessary to respond to the threat. Other sections of the proposal include a federal certification program for "cybersecurity professionals," and a requirement that certain computer systems and networks in the private sector be managed by people who have been awarded that license.

The California Building Industry Association says its members reported a significant drop in traffic to their developments in July because the state stopped taking applications for a $10,000 tax credit for new home buyers.
The $10,000 credit was authorized by the state legislature last February as a way to jump start California construction jobs. The credit, coupled with the $8,000 federal new home buyer credit, had been a big reason why builders in California saw a jump in sales this past spring.
Now with the initial funding exhausted, buyers are less eager. “Activity stopped as quickly as it started, which is bad news for housing and the broader economy,” says Robert Rivinius, the builder association’s president. The trade group is lobbying to get the credit extended.

Friday, August 28, 2009


8/29/09 Benchmark

A benchmark for the mid- Atlantic region, power fell $3.68, or 10 percent, to $32.31 a megawatt-hour on the Atlanta-based Intercontinental Exchange. That’s the lowest for the region, which stretches from Washington to Chicago, since Dec. 31, 2003.
Mild summer weather and a weak economy have reduced industrial and residential demand for electricity as offices and factories shut and consumers cut back spending.

Meanwhile, consumers reported the worst assessments of their finances since the surveys began in 1946.

Tiffany said sales trends in August are meeting its expectations. It raised its profit forecast for the year to $1.65 to $1.75 a share from a previous projection of as much as $1.60. It forecast a sales decline of about 10%.

German gross domestic product is on track to shrink by 5% or 6% in 2009, Chancellor Angela Merkel said Friday, according to Dow Jones Newswires. Merkel said the economy may have reached bottom but warned that the crisis isn't over.

The UK economy shrank by 0.7 per cent in the second quarter, marginally less than the 0.8 per cent initially estimated, according to official figures published on Friday.

"Personal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent. In June, personal income decreased $133.4 billion, or 1.1 percent, DPI decreased $119.9 billion, or 1.1 percent, and PCE increased $60.9 billion, or 0.6 percent, based on revised estimates. Real disposable income decreased 0.1 percent in July, compared with a decrease of 1.6 percent in June. Real PCE increased 0.2 percent, compared with an increase of 0.1 percent." US consumer spending was lifted by the government's "cash-for-clunkers" program that fueled demand for autos.
"Personal saving -- DPI less personal outlays – was $458.5 billion in July, compared with $486.8 billion in June. Personal saving as a percentage of disposable personal income was 4.2 percent in July, compared with 4.5 percent in June. "

Newspapers' financial woes worsened in the second quarter as advertising sales shrank by 29 percent, leaving publishers with $2.8 billion less revenue than they had at the same time last year.

Japan’s consumer prices fell at a record pace in July, adding to signs that deflation will hamper a rebound from the nation’s worst postwar recession.
Consumer prices excluding fresh food declined 2.2 percent from a year earlier after dropping 1.7 percent in the previous month, the statistics bureau said today in Tokyo. It was the sharpest decrease since the survey began in 1971.

The president slips to 50% in the Gallup Poll, reaching that point more quickly than most of his predecessors did.

Copper rose to the highest in almost 11 months in New York on speculation revived economic growth will spur demand. Lead jumped to a one-year high.

Chinese shares fell Friday amid concerns about a possible decline in liquidity, ending the week down 3.4 percent.

Japan's unemployment rate rose to an all-time high in July, deflation intensified and families cut spending — a triple dose of bad news for Prime Minister Taro Aso as his party heads for almost certain defeat in Sunday's parliamentary elections.

The jobless rate hit a seasonally adjusted 5.7 percent, the highest level in Japan's post-World War II era and worsening from 5.4 percent in June, the government said Friday.
The previous record was 5.5 percent, last hit in April 2003.

In some geographic areas, it is currently cheaper to use natural gas than coal. Shocking, right?

U.S. consumer confidence fell to its lowest in four months in August on worries over high unemployment and dismal personal finances, though the mood managed to improve from earlier this month, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for August fell to 65.7 from 66.0 in July.
That was the lowest since 65.1 in April.

Consumers rated the current economic conditions the worst since March, when the stock market hit 12-year lows. This index fell to 66.6 from 70.5 in July.

Fannie Mae, Freddie Mac, AIG, Citi, and Vonage show big gains in August. Insanity is back in force. The U.S. doolar index remains weak while oil is at $73, gold at $958, and natural gas is at the rear at $3.06.

intel issued a forecast calling for revenue of $8.8 billion to $9.2 billion in the current quarter, up from a previously forecast $8.1 billion to $8.9 billion.

Whirlpool Corp. said Friday it will cut 1,100 jobs and close a refrigerator factory in Evansville, Ind., to cut excess production capacity.The jobs will be eliminated in mid-2010.

An Obama administration plan to cut Medicare payments to heart and cancer doctors by $1.4 billion next year is generating a backlash that’s undermining the president’s health-care overhaul.

Xebec Adsorption Inc, a global leader in the drying and purification of natural gas for NGV refueling stations, announced today that the U.S. Department of Energy's (DOE) Clean Cities program has awarded US$300 million in funding to build more than 9,000 alternative fuel and energy efficient vehicles and 542 refueling stations.
"Xebec believes that natural gas as a transportation fuel in the United States has a bright future and the decision by the DOE is an important step in the direction of making the U.S. energy independent while at the same time significantly reducing green house gas admissions," said Kurt Sorschak, President and CEO of Xebec. "Xebec has been in the natural gas vehicle refueling market for over 25 years and enjoys a market share of over 90% in the dehydration of natural gas for refueling stations in the United States."

Raymond James' Buck Horne:"A large part of the completed spec inventory the builders are still holding is simply the wrong product for this environment -- an many of those homes are only getting older. Notice the jump in the median months for sale from 11.8 to 12.4. The newly designed, simplified, downsized product is selling well. All those older homes with lots of bells and whistles are still sitting out there collecting dust."

Apple will sell somewhere between five and seven million iPhones in China in 2010 as a result of its deal with the country's second-largest mobile carrier, a Wall Street analyst said today.
The Chinese market will account for about 15% to 20% of Apple's worldwide iPhone sales next year, said Brian Marshall, an analyst with Broadpoint AmTech. "The upside for Apple is great."
Earlier today, China Unicom, the country's No. 2 carrier, announced a three-year agreement with Apple to sell the latter's iPhone, confirming rumors and reports that the two were nearing a deal. Last March, Web sites and bloggers reported that China Unicom had confirmed it would start selling the iPhone the following month, something that did not happen.

The S&P 500 Index slipped 2.05 points, or 0.2%, to 1,028.93, leaving the broad market gauge up 0.3% for the week. The technology-laden Nasdaq Composite added 1.04 points, or 0.1%, to rest at 2,028.77, leaving it with a weekly gain of 0.4%. The Dow Jones Industrial Average fell 36.43 points, or 0.4%, to 9,544.20, up 0.4% from the week-ago close.

Art Cashin:"The employment situation is hanging tough. Even though I know unemployment is a lagging indicator, with the severe layoffs we've had recently, you find people looking and saying, 'okay, I've still got my job, but the guy down the block lost his, and those two guys over there lost theirs' — and that's beginning to rain down further on housing."

Thursday, August 27, 2009

Exhausting Benefits

8/27/09 Exhausting Benefits

Despite repeated extensions of the unemployment compensation program — up to a record 79 weeks in many states, compared to the standard 26 weeks in normal times — some 1.5 million people are expected to exhaust their benefits by year’s end.
In the first big wave, some 540,000 are expected to fall out of the program by the end of September, according to the nonprofit National Employment Law Project.
“Every state is going to experience a substantial increase in people exhausting their benefits,” says Chris Owen, executive director of the Washington, D.C.-based worker advocacy group. “That means more people who will not be able to pay their mortgages, and who will not be able to shop and buy things. It will be a blow for the national economy, and for state and local economies.”

The FDIC on Thursday will disclose how much is left in its insurance fund, and update the number of banks on its list of troubled institutions. That number shot up to 305 in the first quarter — the highest since 1994 and up from 252 late last year.
FDIC Chairman Sheila Bair may also use the quarterly briefing to discuss how the agency plans to shore up its accounts.
Small and midsize banks across the country have been hurt by rising loan defaults in the recession. When they fail, the FDIC is responsible for making sure depositors don't lose a cent.
It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.
The U.S. added 111 lenders to its list of “problem banks” in the second quarter, a 36 percent increase that pushed the group to a 15-year high.
A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.

Since February, default and foreclosure rates on option ARMs have passed those of subprime mortgages, according to the research firm First American CoreLogic, in part because so many subprime mortgages have already failed.
“Everyone’s been focused on subprime, but we’re more concerned about this,” said Todd Jadlos, managing director of
LPS Applied Analytics, which analyzes data for the financial industry. “By the time subprime defaults had increased 200 percent, in June and July of 2007, option ARMs had gone up 400 percent. People just didn’t notice because the overall numbers weren’t as high.”
First American CoreLogic anticipates 600,000 option ARMS will reset within four years.

Toll Brothers Inc. says it lost $472.3 million in its fiscal third quarter, as the luxury homebuilder took a large tax hit.
But while Toll Brothers' results were worse than analysts expected, the company is seeing signs of improvement in the industry.
The builder said Thursday it lost $2.93 a share in the three months ended July 31. That compares with a loss of $29.3 million, or 18 cents a share, the same period last year.
Toll Brothers sold 792 homes with revenue totaling $461.4 million. Those results were down 36 percent and 42 percent, respectively, from the third fiscal quarter last year.

First-time claims for state unemployment benefits fell for the first time in three weeks, the Labor Department reported Thursday. The number of initial claims in the week ending Aug. 22 fell 10,000 to 570,000. The consensus forecast of Wall Street economists was for claims to fall to 565,000. Claims in the previous week were revised to an increase of 19,000 to 580,000 compared with the initial estimate of a increase of 15,000 to 576,000. Claims had risen 26,000 in the past two weeks. The four-week average of initial claims fell 4,750 to 566,250. Meanwhile, the number of Americans receiving state jobless benefits fell 119,000 to 6.13 million in the week ending Aug. 15. This is the lowest level since early April. The four-week moving average of continuing claims fell 27,000 to 6.24 million.

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead.
Rather than summarize, let me just highlight some of his best one-liners:
On retail:
"The retail business is terrible... It's almost all negative." "We're going to close hundreds of thousands of stores."
On the consumer:
"They’re still over leveraged, they're losing jobs, their credit has been cut back."
On America:
"We are in the tank forever. As a country we are out of control, we're in a death spiral."

Boeing Co said on Thursday that its 787 Dreamliner would make its first flight by the end of this year, with the first delivery expected in the fourth quarter of 2010.
The plane maker said it has concluded that the initial test-flight planes of the long-delayed 787 have no commercial market value because of necessary modifications that have been made.
It added that costs previously recorded for the first three test planes would be reclassified as research and development expense, resulting in an estimated pretax charge of $2.5 billion, or $2.21 a share, against results for the third quarter.
The aircraft, already two years behind its original schedule, was to fly in the second quarter of 2009, but the flight was delayed so Boeing could address a structural problem.

Working gas in storage was 3,258 Bcf as of Friday, August 21, 2009, according to EIA estimates. This represents a net increase of 54 Bcf from the previous week. Stocks were 516 Bcf higher than last year at this time and 500 Bcf above the 5-year average of 2,758 Bcf. In the East Region, stocks were 153 Bcf above the 5-year average following net injections of 43 Bcf. Stocks in the Producing Region were 271 Bcf above the 5-year average of 808 Bcf after a net injection of 5 Bcf. Stocks in the West Region were 76 Bcf above the 5-year average after a net addition of 6 Bcf. At 3,258 Bcf, total working gas is above the 5-year historical range.
Analysts surveyed by Platts expected an addition of between 48 and 52 billion cubic feet, while IHS Global Insight projected a build of 52 billion cubic feet.

Wyoming's unemployment rate climbed to 6.5 percent in July, its highest rate in more than 20 years.
According to the Wyoming Department of Employment, the state has lost about 8,900 jobs from July 2008 through last month. The main losses over the year included 4,400 jobs in the construction sector and 4,200 jobs from natural resources and mining.

The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May.

“We’ve already lost 81 this year,” he told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They're smaller companies.”

The USDA says American farm profits will decline more than expected, falling 38% this year to $54B vs. an earlier forecast of $71.2B. While input costs for energy and feed are falling, product sales are falling faster, and swine flu and a dairy surplus aren't helping.

Nouriel Roubini: "Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong."

Oil futures end up $1.06 at $72.49/brl on Nymex.

Toyota Motor Corp.'s board voted to close the automaker's Fremont, Calif.-based plant by March, according to media reports Thursday. The plant housing New United Motor Manufacturing Inc., a joint venture with General Motors Co., employs about 4,600 workers, according to reports.

U.S. dollar index weak at 77.90.

The Dow Jones Industrial Average added 37.11 points, or 0.4%, to 9,580.63. The S&P 500 Index gained 2.86 points, or 0.3%, to stand at 1,030.98, while the Nasdaq Composite added 3.3 points, or 0.2%, to 2,027.73.

Wednesday, August 26, 2009

Moving Averages

8/26/09 Moving Averages

Rob Hanna: "Some extreme readings are appearing in a few Worden Bros. indicators that look at stocks relative to their 200 day moving averages. One is T2107, which simply looks at the percentage of stocks trading above their 200ma. The other is T2109, which looks at the percentage of stocks trading at least 1 standard deviation above their 200ma. Both indicators are near all time highs (dating back to 1986). In fact, the only period of time in which these indicators registered higher readings was in the beginning of 2004....the last time these levels were reached in 2004, the market continued to trudge higher for about 2 ½ months before finally beginning a meaningful correction."

Japan's provisional trade surplus for July more than quadrupled on year, rising 364% from the same month in 2008, according to data released Wednesday by the Ministry of Finance. The surplus totaled 380.2 billion yen ($4.05 billion), below expectations reported by Dow Jones Newswires for a 396.9 billion yen surplus. Exports for the month fell 36.5% on year, while imports lost 40.8%. Shipments to China, which just recently became Japan's largest trading partner, were down 26.5% from the year before, while those to the U.S. fell 39.5%, the ministry said.

Colonial BancGroup Inc., the Montgomery-based real estate lender whose banking unit was shut down by the government and sold to BB&T Corp. earlier this month, has filed for Chapter 11 bankruptcy protection.

Shipments for durable goods rose 2% in July after a 0.7% increase in June. Inventories fell 0.8% in July. Orders are down 26% in the first seven months of 2009 compared with the same period last year.

Orders for transportation equipment, which rose 18.4 percent, drove the overall increase. Commercial aircraft orders, a volatile category, more than doubled after falling 30 percent in June. Motor vehicle orders increased 0.9 percent.

Excluding transportation goods, orders rose 0.8 percent. That was the third straight increase, but just below analysts' expectations of a 0.9 percent rise.

The API said late Tuesday that crude supplies rose by 4.3 million barrels last week, according to media reports. The Energy Information Administration is due to release its more closely watched report on Wednesday morning, with analysts surveyed by Platts expecting a drop of 2.7 million barrels in crude inventories in the week ended Aug. 21.

China said it’s studying curbs on overcapacity in industries including steel and cement, adding to concern policy makers may seek to rein in growth fueled by record credit expansion this year.
The government will increase “guidance” of industries including steel, cement, glass and power equipment, the State Council, China’s cabinet, said in a statement on its Web site today. The government will strengthen controls on approval of stock and bond sales by companies in these industries, according to the statement.
China’s benchmark stock index has dropped 15 percent from its Aug. 4 high on concern economic growth will falter as banks rein in lending. China’s economy expanded 7.9 percent in the second quarter, rebounding from the weakest growth in almost a decade, after banks extended a record $1.1 trillion of new loans in the first six months.

Brett Steenbarger: "It also raises the possibility that we saw a momentum high in July, a stiff pullback last week, and now price highs on lower participation. If this is, indeed, a larger timeframe transition pattern in the making, we should fail at these highs and begin a sharp pullback that would take us below the lows of last week.
While I stick with my short-term indicators, such as Cumulative TICK and Demand/Supply, and those are bullish, the larger picture non-confirmations leave me nervous and ready to reverse views. We need to see day-over-day strength here, confirming the bull move. Expanding new 20-day lows would be an important indication that all is not well for the bull. Expanding 20-day highs would be important support for the bulls."

Crude-oil futures reduced their losses Wednesday after government data showed a small increase in crude inventories last week, in contrast with an earlier report released by an industry group that showed a big buildup. U.S. crude inventories rose by 200,000 barrels in the week ended Aug. 21, the Energy Information Administration reported. The American Petroleum Institute had reported late Tuesday that inventories rose by 4.3 million barrels. The API and the EIA use different methodologies to calculate stockpiles. After the EIA report, December crude futures fell 56 cents, or 0.8%, to $71.52 a barrel. They were down more than 1% before the data. The EIA also reported a drop of 1.7 million barrels in gasoline inventories and an increase of 800,000 barrels in distillate fuels, which include heating oil and diesel. Analysts surveyed by Platts had expected a drop of 2.7 million barrels in crude inventories, a decline of 1.5 million barrels for gasoline, and a drop of 700,000 barrels for distillates.

Paper and packaging producer International Paper Co said demand for its products has stagnated, and it sees no immediate signs of the U.S. economy
improving. "I don't think we've seen anything that could be called a
trend other than the flat market," Chief Financial Officer
Timothy Nicholls told the Reuters Paper and Packaging Summit on

The rise of emerging economies such as China and Russia will prevent the U.S. dollar from remaining the world's only reserve currency, French President Nicolas Sarkozy said Wednesday, according to Dow Jones Newswires. "The political and economic reality of a multipolar world will have to find sooner or later a translation on the monetary level," Sarkozy said at a yearly reception for foreign ambassadors in Paris, the report said. Sarkozy also said he won't let the euro alone bear the weight of adjustments in the foreign exchange market, a phenomenon he said has occurred in the past.

Swiss private bank Wegelin & Co. said Tuesday it was pulling out of the United States in response to stricter U.S. measures against tax dodgers.

“Goodbye to America,” the bank said in a letter to investors, which cited increased regulatory requirements for foreign banks and planned changes to the estate tax as the reasons for its pullout.

The U.S. Internal Revenue Service has cracked down on suspected tax evaders recently.

A high-profile court case in Florida involving Swiss banking giant UBS was settled last week when Switzerland and the U.S. signed an agreement that will see details on almost 4,500 suspected tax dodgers handed over to the IRS.

Dollar Tree, which operated 3,717 stores as of Aug. 1, said quarterly sales rose 12 percent to $1.22 billion, while sales at stores open at least a year, a key retail gauge known as same-store sales, rose 6.8 percent.

The Consumer Comfort Index rose to a summer high of -45 in
the week to Aug. 23 from -46 the previous week, according to
ABC.The gauge first hit an all-time low of -54 in the week to
Dec. 1, 2008, and again in the week to Jan. 25, 2009.

Brown Shoe Co. lowered its full-year sales forecast Wednesday, after reporting a second-quarter revenue decline.
The footwear company now expects sales of $2.18 billion to $2.2 billion for 2009, with Famous Footwear same-store sales down in the low- to mid-single digits during the second half of the year. Its prior forecast was for sales of $2.2 billion to $2.3 billion.

Investors should buy an exchange- traded fund tracking natural gas futures while selling shares of the fuel’s producers, to boost returns after the companies outperformed the commodity, Societe Generale SA said.
A basket of 10 natural-gas producer stocks rose 26 percent this year before today, beating the 14 percent gain for the Standard & Poor’s 500 Index and 54 percent loss for the S&P GSCI Natural Gas index of returns from owning gas futures, equity derivatives strategist Rebecca Cheong wrote.
Investors should bet on a potential convergence between natural-gas producer stocks and gas futures, which moved in opposite directions this year after tracking one another in 2008, New York-based Cheong wrote yesterday.
Cheong advised buying the SPY, an ETF tracking the S&P 500, and the UNG, which tracks natural gas futures, while short- selling shares of Chesapeake Energy Corp., Apache Corp., Devon Energy Corp., and seven other producers. In a short sale, investors sell borrowed securities and agree to buy and return them to the shareholder later, profiting from any drop in the stock.

Dec. gold ends slightly lower at $945.80 an ounce.

The Investors Intelligence Advisors Sentiment Index, which gauges the stock advice of about 150 newsletters and other paid market-advice outlets, said bulls jumped to 51.6% in the recent week, the highest since the end of 2007. Bears fell to 19.8%, the first time since October 2007 that the percentage fell below 20%.

Tuesday, August 25, 2009

Cure Rate

8/25/09 Cure Rate

China's benchmark Shanghai Composite Index took another sharp dive Tuesday, falling 5.3% to 2,832.76 in late action.

James Hagerty: "Homeowners who fall behind on their mortgage payments have become much less likely to catch up again, a new study shows.

The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month.

Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2%. In the subprime category, the rate has declined to 5.3% from 19.4%.

"The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch."

Aon Consulting, a subsidiary of Chicago-based Aon Corp., surveyed about 60 health insurers around the country earlier this year. The study found that, on average, insurers expect to pay out 10.5 percent more in claims costs in the next year — slightly less than the 10.6 percent increase forecast last year.
The expected increase doesn't necessarily mean the premiums employees pay will grow at the same clip.

TransUnion expects the percentage of California home loans that are at least 60 days late or are in foreclosure to skyrocket to more than 14% by year-end.

"New orders for manufactured goods in June, up four of the last five months, increased $1.4 billion or 0.4 percent to $349.0 billion, the U.S. Census Bureau reported today. This followed a 1.1 percent May increase. Excluding transportation, new orders increased 2.3 percent. Shipments, up following ten consecutive monthly decreases, increased $4.9 billion or 1.4 percent to $358.3 billion. This followed a 0.8 percent May decrease. Unfilled orders, down nine consecutive months, decreased $6.5 billion or 0.9 percent to $740.2 billion. This was the longest streak of consecutive monthly decreases since November 2001-July 2002. This followed a 0.3 percent May decrease. The unfilled orders-to-shipments ratio was 6.04, down from 6.15 in May. Inventories, down ten consecutive months, decreased $4.2 billion or 0.8 percent to $508.3 billion. This was the longest streak of consecutive monthly decreases since March 2003-January 2004 and followed a 0.8 percent May decrease. The inventories-to-shipments ratio was 1.42, down from 1.45 in May.

New orders for manufactured durable goods in June, down following two consecutive monthly increases, decreased $3.6 billion or 2.2 percent to $159.1 billion, revised from the previously published 2.5 percent decrease. This followed a 1.3 percent May increase.

New orders for manufactured nondurable goods increased $5.0 billion or 2.7 percent to $190.0 billion.

Shipments of manufactured durable goods in June, down eleven consecutive months, decreased $0.1 billion or 0.1 percent to $168.3 billion, revised from the previously published 0.2 percent decrease. This also was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 2.7 percent May decrease.

Unfilled orders for manufactured durable goods in June, down nine consecutive months, decreased $6.5 billion or 0.9 percent to $740.2 billion, unchanged from the previously published decrease. This followed a 0.3 percent May decrease.

The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled.

Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real- estate crisis that triggered the worst recession since the 1930s is dissipating.

The S&P/Case-Shiller home-price
index declined 15.4 percent from a year earlier, the smallest drop since April 2008, the group said today in New York. The gauge rose from the prior month by the most in four years. All of the 20 cities in the S&P/Case-Shiller index showed a year-over-year price decrease in June, led by a 32 percent plunge in Las Vegas. Dallas showed the smallest decline at 2.2 percent.

Chain store sales fell 0.7% in the first three weeks of August, Redbook says, slightly worse than the -0.6% expected. According to ICSC, weekly sales fell 0.2% Y/Y but rose 0.6% from the previous week.

The head of SunTrust Banks Inc., Georgia’s biggest lender, said U.S. financial institutions probably will report further credit losses as commercial real estate falters through next year.

“The industry is a long way from declaring any sort of victory, especially regarding credit issues,” Chief Executive Officer
James Wells III said today in a speech to the Rotary Club of Atlanta. “This credit cycle has yet to play itself out. We do not expect things to improve for the banking industry in the very near future.”

Figures released by the White House budget office foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May. Moreover, the figures show the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy.

Obama economic adviser Christina Romer predicted unemployment could reach 10 percent this year and begin a slow decline next year. Still, she said, the average unemployment will be 9.3 in 2009 and 9.8 percent in 2010.

"This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter," Romer said.

The revised estimates project that the economy will contract by 2.8 percent this year, more than twice what the White House predicted earlier this year. Romer projected that the economy would expand in 2010, but by 2 percent instead of the 3.2 percent growth the White House predicted in May. By 2011, Romer estimated, the economy would be humming at 3.6 percent growth.

The Conference Board said its consumer confidence index rose to 54.1 in August from 47.4 in July.

U.S. home prices rose 0.5% in June, the second increase in a row, the Federal Housing Finance Agency reported Tuesday. However, prices fell 0.7% in the second quarter, the agency said. Prices are down 6.1% in the past year, according to the FHFA index, which tracks sales of the same properties over time. Prices fell in six of the nine regions and in 38 states in the second quarter.

Toyota Motor Corp. plans to cut its global capacity production by 10%, or by 1 million vehicles, as early as this fiscal year, Nikkei reported on its online edition Tuesday in a story dated for Wednesday.

Irwin Kellner: "Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy -- it now appears to be in the process of making a sizable withdrawal.

A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis.

For example, the monetary base -- the raw material for the money supply -- has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months."

The US Postal Service will offer buyouts to as many as 30000 employees under agreements with two unions that could save the government agency up to $500 million next year.

Obama aide Romer: 10% unemployment by year end.

The Dow industrials gained 30.01 points, or 0.3%, to 9,539.29. The S&P 500 Index added 2.43 points, or 0.2%, to finish at 1,028.01, while the Nasdaq Composite climbed 6.25 points, or 0.3%, to end at 2,024.23.

U.S. crude oil dropped $2.32 to settle at $72.05 a barrel, down from a high of $75, in the biggest percentage loss since August 14. Brent crude dropped $2.44 to $71.82. In a Dow Jones survey, analysts gave an average forecast for a 1.6 million-barrel drop in oil inventories, in data due out from the American Petroleum Institute later Tuesday, and the U.S. Department of Energy on Wednesday.

In October 2008 the Baltic Dry Index was decimated for a 72% loss. It would not be surprising to see a loss of 30% this month. China's commodity imports are slowing down
dramatically from the surge that took place this Spring.

More than half the employers in a new poll say they plan to hire full-time employees in the next 12 months, according to research released on Tuesday that could spell relief for unemployed U.S. workers.
Four in 10 employers plan to hire contract, temporary or project workers, and another four in 10 will be hiring part-time employees, according to the survey conducted for Robert Half International, a staffing company, and, an online career site.
The study found 53 percent of employers said they expect to hire full-time employees over the next 12 months.

Monday, August 24, 2009


8/24/09 Layaway

Premier Wen Jiabao cautioned against being "blindly optimistic" despite improvements in the economy, according to a statement on the Cabinet's Web site.
The economy "still faces many new difficulties and problems," Wen was quoted as saying during a visit to southeastern China that ended Monday. "There are still a lot of unstable and uncertain factors ahead and the economic situation ahead is still very grave, although both the world economy and the national economy are making positive changes now."
The premier cautioned that the effects of some government measures might fade while others would take time to show results, the Cabinet statement said. It gave no other details of potential problems.

John Talton: "The real unemployment rate nationally is nearly 17 percent, instead of the official 9.4 percent, when discouraged workers and part-timers who want full-time employment are factored in. Other workers have seen their hours cut or been forced to take furloughs.
Meanwhile, the number of Americans out of a job for six months or more is at a 70-year high."

Demand from China, the world’s fastest-growing major economy, is helping pull Japan out of its deepest postwar slump, a top Japanese government economist said.
“There’s no mistake that China’s economic recovery is contributing to a rebound in Japan and other economies in the region,”
Tomoko Hayashi, director for overseas economies at the Cabinet Office in Tokyo, said in an interview on Aug. 21.

Liechtenstein’s Crown Prince Alois said his country will push ahead with moves to bolster adherence to global tax rules at the risk of losing bank clients.
The principality of 35,000, on the Organization for Economic Cooperation and Development “gray list” of tax havens that haven’t yet implemented OECD standards, will seek to be removed from the list by signing 12 tax-information exchange agreements in the coming months, the prince said in an interview on Aug. 21.
“If you move forward faster than other financial centers, there could be clients that perhaps don’t see the advantage for themselves in the process and then turn to another financial center,”
Prince Alois said, speaking by phone from the capital, Vaduz. “The majority of our clients will appreciate the direction we are taking in tax matters while still keeping very strong banking secrecy.”
The 12 tax-information exchange agreements, or TIEAs -- which the OECD has identified as one step toward removal from the “gray list” -- may be signed “as early as September or October,” the prince said.
“In any case it is likely to happen during the fall of this year,” he said. “We are in relatively advanced talks with some.”

Pacific Investment Management Co.’s
Paul McCulley said we’re at the bottom of a secular bull market in bonds.
The big gains in our lifetime in bonds have been made, McCulley said in an interview today with Bloomberg Radio.
Pimco has called for a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy. U.S. growth rates will slow around 2 percent over the next several years, according to the firm.

The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 27% of the nation's voters Strongly Approve of the way that
Barack Obama is performing his role as President. Forty-one percent (41%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -14. These figures mark the lowest Approval Index rating yet recorded for this President. The previous low of -12 was reached on July 30.

PFC Energy, a consultancy, estimates advancements made by the independents – which carry out exploration and production of the natural gas but not refining – in developing natural gas from shale could, if taken abroad,
more than quadruple gas resources, increasing supplies of this alternative option to greenhouse-intensive oil, coal and oil sands fuels.
US is now believed to have 100 years’ worth of resources, at today’s usage rates, up from about 30 years just three years ago.
Given political concerns over carbon, the industry believes natural gas will have a major role in the energy future of the US and the world. This belief has stoked interest in spite of the drop in the natural gas price to about $3 per million British thermal units, down from last year’s record high of $13.694 per mBtu.
Yet the companies recognise that working shale gas is different from conventional production. The shale rock must be fractured with high-pressure water to produce the gas, which has been absorbed in the rock, trapped in the pore spaces and confined in fractures. And new wells must constantly be drilled to maintain production.
Aubrey McClendon, chief executive of independent
Chesapeake Energy, said there was an “enormous worldwide interest’’ in US shale resources. “There are acquirers from all parts of the globe currently kicking tyres on US shale plays.’’

Rob Hanna: " On Friday the CBOE reported the lowest relative equity put/call ever. It came in at 0.39, which is nearly 45% below its 200-day moving average. This is only the 2nd time it has closed as much as 40% below the 200. The other time was 11/15/04. The SPX dropped 0.7% the next day but that was basically the end of the selloff. A few more days of chop was followed by a further market rally."

John Mauldin: " Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage. And only a third of the remaining one-third – roughly 10% of overall sales – comes from something we could call a normal selling process.”

China central bank adviser Fan Gang predicts economic growth will stay at 8% next year, as property and corporate investment and rising exports take up the slack from waning government investment. While growth will be steady, the composition of the recovery will be more diverse and healthier than this year's, Gang says.

John Dalt: "According to the Energy Information Agency (EIA), we imported approximately four tcf of natural gas last year. Ninety percent of this imported gas came from Canada. Most of this natural gas comes from the Western Canada Sedimentary Basin, where production peaked in 2001. Production has decreased 8.1% since then. Natural gas well production declines much quicker than crude oil. It takes constant exploration and discoveries to replace the depletion. According to Baker Hughes (BHI), a drilling company, there are 688 rigs drilling for natural gas in the U.S. That is 56% less than a year ago. This is the future we face: natural gas is abundant, but we are not replacing the reserves to meet our future needs."

Struggling Japan Airlines Corp., which is in the midst of major restructuring, is considering slashing 5,000 jobs in three years, a news report said Monday.

Andy Xie: "The US will enter this second dip in the first quarter of next year. Its economic recovery in the second half of this year is being driven by inventory restocking and fiscal stimulus.
However, US households have lost their love for borrow-and-spend for good. American household demand won’t pick up when the temporary growth factors run out of steam. By the middle of the second quarter next year, most of the world will have entered the second dip. But, by then, financial markets will have collapsed...The final crash will come when the Fed raises the interest rate to 5 per cent or more. Most think that when the Fed does this, the global economy will be strong and, hence, exports would do well and bring in money to keep up asset markets. Unfortunately, this is not how our story will end this time. The growth model of the past two decades - Americans borrow and spend; Chinese lend and export - is broken for good. Policymakers have been busy stimulating, rather than reforming, in desperate attempts to bring growth back. The massive increase in money supplies around the world will spur inflation through commodity-market speculation and inflation expectations in wage setting. We are not in the midst of a new boom. We are at the last stage of the Greenspan bubble. It ends with stagflation."

Taylor, Bean & Whitaker Mortgage Corp on Monday filed for Chapter 11 bankruptcy protection, fewer than three weeks after it closed its mortgage lending business and was suspended by a federal agency.
The Ocala, Florida-based company, which was the nation's 12th-largest U.S. mortgage lender from January to June, filed for protection with the U.S. bankruptcy court in Jacksonville.

A record number of shoppers, shut off from credit and short on cash, are relying on Kmart's layaway program to pay for all of their kids' school needs, said Tom Aiello, a spokesman for Kmart's parent Sears Holdings Corp. Layaway allows shoppers to pay over time, interest- free, and pick up their merchandise when it's paid in full.

"It's a sight. In the past, we would see layaway start to pick up around Halloween" as people get a jump start for Christmas, said David Travis, manager of a Kmart store in Conover, N.C.

Burlington Coat Factory Warehouse Corp. said its layaway business is stronger than a year ago. And, which offers online layaway services for about 1,000 merchants, has seen its business double from the same time last year. Customers are setting aside even $25 calculators and $30 backpacks. Layaway has its roots in the Great Depression. Kmart's Travis predicts this Christmas will be a "record-setting" layaway season.

According to the WSJ, In Texas, revenue from gas-production taxes has fallen 43% from last year, costing the state more than $1 billion in lost revenue. Plus, when drilling slows, employment slows. Unemployed people don't pay taxes, and they don't spend much money, either, hurting the retail sector.

Equities closed flat on the day.

Existing Home Sales

8/23/09 Existing Home Sales

The Oil Drum: "Refining one gallon of ethanol requires four gallons of water. This turns out to be a drop in the bucket compared with how much water it takes to grow enough corn to refine one gallon of ethanol: as much as 2,500 gallons."

Clif Droke: "The 10-year cycle told us to expect a strong recovery in 2009 and to date it has performed according to the historical script. The analysis of prior 10-year cycle peaks also gives us reason for an overall positive performance in the fourth quarter, notwithstanding the bumpiness which is always felt by the actual peaking of the 10-year cycle near the end of the third quarter."

Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise. The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975. By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.
That tells me that the economy will take a further hit in consumer spending. Seniors will cut back. Government numbers show that about 50 million citizens get payments from the fund.

Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 percent since last summer, the biggest such decline since the government began keeping records in 1959.

Existing home sales (ex-Condos) were down 10% from July 2007, flat from July 2008, and off 5% from June 2009. Mark Hanson: “If not for a surprise and suspect 16k increase in Northeast condo sales, Existing Home Sales would have been lower month-over-month and only up 12k units from July 2008, which was the worst year on record for housing.”

John Hussman: "Ben Bernanke (like Tim Geithner and his predecessor Hank Paulson), shows no hesitation in diverting the real resources of the American public to defend and compensate the bondholders of mismanaged financial companies who made reckless loans and who should have (and equally important, could have) been expected to write down principal or swap debt for equity as an alternative to receivership. This is not decisiveness. It is timidity and poor stewardship. Worse, the underlying problems are not healed - only band-aided temporarily by a flood of public money.

Unfortunately, the resources used in the recent bailout were not just free money tossed out of a helicopter. Only a partial-equilibrium economist thinks that way. No, this was an allocation of trillions of dollars of real resources that could be spent improving access of poor families to health care, finding cures for life-changing diseases, providing better education, and reversing the crowding-out of productive private investment. A public servant willing to act this carelessly with the resources entrusted to him, and so strongly in defense of fellow bankers, frankly does not deserve the job. Most likely, we will face the same credit issues a few quarters from now, given that the lull in the adjustable-rate reset schedule is near its end. We continue to expect a fresh acceleration of credit losses as we enter 2010. It would be best if we faced these challenges with more thoughtful leadership."