Saturday, October 10, 2009

Structural Maladjustments

10/10/09 Structural Maladjustments

Doug Noland: "Non-productive Credit expansion/inflation is the bane of currency stability. The dollar’s fundamental problem these days lies with the underlying structure of the U.S. economy. As much as near zero interest-rates and Trillion dollar deficits don’t improve the situation, they are symptomatic of much broader systemic issues. Indeed, ultra-loose monetary policy, scary deficits, and ongoing dollar devaluation are all consequences of deep structural maladjustments to the services and consumption-oriented U.S. “bubble” economy.
And I would make the point that this maligned economic structure has been the driver for both policy and dollar weakness. With the collapse of the Wall Street/mortgage finance Bubble, acute structural fragilities required unprecedented stimulus in order to stem implosion. Once stabilized, policy focus turned immediately to short-term performance – positive GDP growth, spending recovery and job creation. Not surprisingly, the focus remains on finding a quick fix, with scant attention to structural issues.....Trillions of dollars of deficits, zero interest rates and a $2 Trillion Fed balance sheet today get less system response than hundreds of billions and a few percent would have achieved previously. This hurts the dollar. And acute financial and economic fragilities ensure extreme policy measures will remain in place for much longer than would have previously been necessary. This also hurts dollar confidence."

For the government's fiscal 2009, tax revenue fell by $420 billion, or 17%, to the lowest level in more than 50 years. Individual income taxes, the biggest source of tax receipts, fell by 20%... Corporate income taxes dropped by 54%. At the same time, federal spending rose by 18%, the CBO said.

According to the WSJ, “Share prices of real-estate investment trusts have climbed so far that according to some analysts, the sector is trading at a premium to the value of the underlying assets -- for the first time since the heyday of the real-estate boom… During the third quarter, REITs posted a 33% return, according to the Dow Jones Equity All REIT Index… The hotel and office sectors both delivered gains of about 45%.”

David Rosenberg: " If the S&P 500 was in a 700-750 range, de facto pricing in zero to 1% GDP growth, we would certainly be interested in boosting our allocations towards equities. But at 1,070 and over 4% GDP growth effectively being discounted, we will be spectators as opposed to participants, understanding that the key to success is to NOT buy at the peaks. So the strategy is to sit on the sidelines, be selective in our equity choices, and wait for the correction to come or for the fundamentals to catch up with this overvalued, overbought, overextended market. Remember, the reason why the tortoise won the race was because the hare got tired."

Kimberly-Clark Corp. said Friday that it would add higher-margin medical devices to its healthcare unit by purchasing healthcare company I-Flow Corp. of Lake Forest for about $276 million.
Kimberly-Clark, maker of Huggies diapers and Kleenex tissues, will start a tender offer to buy all of I-Flow's outstanding stock at $12.65 per share. The per share price represents an 8% premium to I-Flow's Thursday closing price of $11.76.
"I-Flow will increase our medical device sales by more than 50%, add an innovative and successful technology to our growing portfolio of pain management and surgical solution products, and strengthen the depth and breadth of our sales force," Joanne Bauer, president of Kimberly-Clark Health Care, said in a statement.

John Mauldin: "According to the current Office of Management and Budget (OMB) projections, US federal expenditures are projected to be $3.653 trillion in FY 2009 and $3.766 trillion in FY 2010, with unified deficits of $1.580 trillion and $1.502 trillion, respectively. These projections imply that the US will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. To put it simply, roughly 40% of what our government is spending has to be borrowed. ....

And this brings us to our conundrum. You cannot continue to run deficits significantly larger than nominal GDP for too long without risking the demise of the economic system. Ask Argentina or any of the other nations where hyperinflation occurred, as detailed in the study mentioned above. But we are in a deflationary environment, so the Fed can monetize the debt far more than any of us suppose without risking immediate and spiraling inflation.

But there is a limit to the Fed's ability to do so without causing real inflation. First, as long as the Fed is independent, at some point they will simply have to tell Congress we can no longer monetize the debt. While I am sure that some of you doubt they would do so, the Fed officials and economists I have been around are pretty adamant about that. There is a line they will not be pushed past. It may be further than I like, but it is there.

The Fed cannot simply buy up all the debt needed to fund the government. Again, no one on the FOMC would either advocate or allow that. That would in fact start us down a very dangerous path rather quickly. Therefore, they must have a large number of willing bond buyers outside the Fed. The good news, gentle reader, is that we will find someone to buy that debt. That is also the bad news. Let's go back 30 years.

Legend now has it that Paul Volker single-handedly took the inflation bull by the horns and ripped them off. Now, it took fortitude to do that in the face of certain recession and high unemployment. Those were not fun days. But his partner in the deed was the bond market. Bond investors simply demanded higher returns, because they were really worried about inflation.

At some point, if we do not get the government deficit under control, the bond market is once again going to react. Seemingly overnight, real (inflation-adjusted) rates are going to rise, and will do so rapidly. And I am not talking about 1 or 2%. You just cannot have 8% of a $14-trillion GDP go into US government debt every year, forever, at today's low real rates."

Friday, October 09, 2009

Escape Velocity

10/9/09 Escape Velocity

Tom Petruno: "Today is October 9, a date of particular significance to Wall Street in this decade.

On Oct. 9, 2002, the devastating dot-com-led bear market that began in 2000 finally bottomed, as measured by major indexes including the Standard & Poor’s 500 and the Dow Jones industrial average. The S&P closed at 776.76 that day; the Dow ended at 7,286.27.

Exactly five years later, on Oct. 9, 2007, the bull market that followed the 2000-2002 bear peaked, also as measured by the S&P and the Dow. They finished the day at 1,565.15 and 14,164.53, respectively.

So it would be beyond weird if the current seven-month-old bull market (or bear-market bounce, or whatever you prefer to call it) were to peak today. But only in the bizarro world of Wall Street, I suppose, could lightning hit the same unassuming target three times in a row."

The Commerce Department says the trade deficit declined 3.5 percent to $30.7 billion in August, as imports fell on lower oil demand. Economists had been expecting the deficit to rise. August exports were $0.2 billion more than July exports of $128.0 billion. August imports were $0.9 billion less than July imports of $159.8 billion. Imports fell on a big drop in demand for foreign oil.

According to Bloomberg, the U.K. needs to invest as much as 200 billion pounds ($320 billion) in power plants and infrastructure in the next 10 years to secure energy supplies and meet climate-change targets, the industry regulator said.

Domestic energy bills in the U.K. may rise as much as 25 percent by 2020 to help fund the spending, the London-based Office of Gas & Electricity Markets said today in a statement distributed by the Regulatory News Service.

“These are big challenges,” Ofgem Chief Executive Officer Alistair Buchanan said in the statement. “Consumers are already enduring high energy prices.”

The troop request for Afghanistan sent to Obama includes three options, the largest totaling over 60,000.

Chevron Corp. expects its third-quarter earnings to be significantly higher than the second quarter on higher crude oil prices and gains from asset sales and tax items.

The second-largest U.S. oil company said late Thursday it expects about $400 million in gains related to asset sales and tax items.

But the San Ramon, Calif.-based company said results from its downstream businesses such as refining and marketing are expected to be relatively flat.

Chevron previously reported it earned $1.75 billion, or 87 cents per share, in the second quarter, down 71 percent from $5.98 billion, or $2.90 per share, a year earlier.

The company didn't offer a specific third-quarter earnings estimate. But analysts surveyed by Thomson Reuters expect Chevron to earn $1.40 per share on revenue of $46.2 billion.

Thanks to some aggressive snowmaking efforts at Donner Summit, Boreal Ski Resort is opening on Friday — the earliest opening in the resort's history.

There is a real risk of a double-dip recession and the market is acting in a "schizophrenic" way, which could cause a "bloodbath" for investors, billionaire investor Carl Icahn told CNBC Friday.

The number of job openings at U.S. companies declined slightly in August to 2.38 million, the lowest on record dating to 2000, the Labor Department said Friday. With unemployment at 14.9 million, there were a record 6.25 unemployed people for each job opening. Hiring fell to 4.03 million in August, and separations fell to 4.27 million, also the lowest on record, the government said in its monthly job openings and labor turnover summary. Job openings are down 50.4% from the peak of 4.82 million in June 2007.

The Obama administration's effort to help homeowners avoid foreclosure may not achieve its goal of helping 3 million to 4 million borrowers and may simply delay mortgage defaults for many, a government watchdog group says.

But the oversight panel, chaired by Harvard law professor Elizabeth Warren, concluded that the foreclosure crisis has now moved beyond the subprime mortgage market that ensnared many homeowners, particularly low-income families. The program, the report states, was not designed to deal with foreclosures caused by unemployment.

"Serious concerns remain about the program's scope, scale and permanence," Warren told reporters in a conference call. "In particular it isn't clear that 500,000 modifications will be enough to put a serious dent in the foreclosure crisis or to dampen the impact of foreclosure on the broader economy."

Foreclosures, the report said, are now stalking families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.

Treasury's program, known as the Home Affordable Modification Program, "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the report says.

Treasury spokeswoman Meg Reilly said Thursday that while the mortgage relief program is available to the jobless, "we continue to study further ways to help unemployed homeowners."

Oil demand is likely to average 86.1 million barrels a day next year, 350,000 barrels a day more than the IEA estimated in September, a monthly report showed.

Alan Blinder: "Roughly speaking, 25% of US jobs are offshorable. "

In a report released Friday, the National Agricultural Statistics Service forecasts record yields for corn and record production for soybeans.

Corn production is estimated at 13 billion bushels, up 8 percent from 2008. If true, it will be the second highest production since 2007, when 13.04 billion bushels were harvest.

Yields are forecast to average a record 164.2 bushels per acre, up more than 10 bushels from 2008.

A record 3.25 billion bushels is forecast for soybeans, up 10 percent from 2008. Yields are expected to average 42.4 bushels per acre, the third highest on record.

Clusterstock: "Asia Will Ambush Dollar Shorts Over And Over .Thursday's coordinated currency intervention by South Korea, Taiwan, the Philippines, and Thailand is just the start of what will happen should the dollar keep sliding. Most export-heavy countries around the world are far from ready to address the hard changes at home required to deal with a weak-dollar world. Their economies are growing fast. Yet for many leaders, this speedy growth is the only real legitimacy they have with their citizens, without which they could be in deep trouble.Thus they'll fight tooth and nail to forestall any change from the status quo whereby Americans consume, while they produce and grow......While dollar shorts probably have long-term trends in their favor, many will be made into unfortunate examples by aggressive central banks along the way. Traders beware."

The Dow Jones Industrial Average gained 78.07 points, or 0.8%, to 9,864.94, giving the blue chips a weekly rise of 4%. The S&P 500 Index climbed 6.01 points, or 0.6%, to 1,071.49, up 4.5% from the week-ago close. The Nasdaq Composite rose 15.35 points, or 0.7%, to 2,139.28, leaving the technology-laden index ahead 4.5% from last Friday's close.

October gold ended down $7.60 at $1,047.80 an ounce, and gained 4.3% from last Friday's close. On Thursday, the contract rose as high as $1,060.40 an ounce, the highest ever for a front-month contract. Gold for December delivery finished down $7.70, or 7.3%, at $1,048.60 an ounce. The contract still gained 4.5% for the week.

California's finances are in worse shape than expected three months into the fiscal year. State Controller John Chiang says income is nearly $1.1 billion below the most recent budget estimates. California's finances are in worse shape than expected three months into the fiscal year. State Controller John Chiang says income is nearly $1.1 billion below the most recent budget estimates. The news comes the same week California failed to sell all of a $4.5 billion general obligation bond offering.

"I urge lawmakers and the Governor to prepare for more difficult decisions ahead," Chiang said.

Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said White House adviser Lawrence Summers is wrong to expect the economy to return to pre-crisis strength because consumer spending is unlikely to sustain growth.

El-Erian likened Summers’s view of the economy to a three- stage rocket attempting to escape Earth’s gravity to reach space, with government spending programs marking the first boost to economic growth, inventory reductions the second, and consumer demand the final booster stage.

Summers “has this concept of ‘escape velocity,’” El-Erian said at a meeting of financial market professionals in Toronto today. “We don’t have enough to achieve escape velocity.”

U.S. wheat supplies before the next harvest will be larger than forecast a month ago as exports declined and global livestock and poultry herds contracted, the Department of Agriculture said.

Unsold supplies on May 31 are forecast at 864 million bushels, the USDA said today, up 16 percent from a September forecast of 743 million and up from 657 million this year, the USDA said today in a report. The consensus of 20 analysts surveyed by Bloomberg News was for 804 million bushels.

Thursday, October 08, 2009


10/8/09 Unemployment

Early September reports from retailers show weak sales as shoppers cut back on fall clothing purchases amid worries about jobs and tight credit.

The number of initial claims for state unemployment benefits fell by 33,000 to a seasonally adjusted 521,000 in the week ending Oct. 3, the Labor Department reported Thursday. It's the fewest initial jobless claims since the first week of January. The number of people continuing to claim regular state jobless benefits fell by 72,000 to 6.04 million in the week ending Sept. 26, the lowest since late March. The number of people collecting extended federal benefits rose by 68,000 to 3.79 million, not seasonally adjusted. Including those federal programs, the number of people claiming benefits of any kind in the week ending Sept. 19 was 9.36 million, not seasonally adjusted, down from 9.42 million in the previous week.

The cost of insuring workers will rise 7% next year, a Towers Perrin survey finds. Workers will bear a greater share of soaring premiums.

U.S. national debt at $11.9+ trillion and rising each second.

U.S. DOLLAR INDEX weak at 75.90. It made a new 52-week low at 95.77.

Donald Marron: "There is a difference between the cost of the Baucus bill ($904 billion) and the cost of its provisions to expand coverage ($829 billion). It is understandable that most commentary focuses on the health insurance provisions. But we should not forget the other $75 billion in spending on other initiatives. Dollar-for-dollar they deserve as much scrutiny as the coverage expansions."

Diana Furchtgott-Roth: "The Baucus bill would be paid for in two major ways-an excise tax on expensive plans and savings from Medicare. CBO underestimates the true cost of both components.
Take the excise tax increase, for instance. The more expensive health care plans would face an excise tax of 40% on premiums above $8,000 for singles and $21,000 for families, bringing in $201 billion from 2013 through 2019. Today health insurance premiums cost on average $4,824 for singles and $13,375 for families.

What CBO doesn't tell Americans is that their health insurance premiums would increase substantially in the decades ahead. The level of health insurance premiums does not have to be incorporated in CBO estimates, because it is not a tax and it is not paid by the federal government. In 2019, in addition to $46 billion in excise taxes, Americans would be paying over $100 billion in higher premiums.

Since CBO forecasts increases in excise tax revenues of 10% to 15% annually after 2019, health insurance premiums must also rise by the same percent annually. This government mandate will amount to a steady drain on Americans' pocketbooks, a tax under another name.

Turning from taxes to savings, nearly 90% of the $404 billion Medicare and Medicaid savings would be from Medicare in the period 2013 to 2019. Thereafter, savings would be expected to continue at the rate of 10% to 15%. Of all demographic groups in America, the elderly would be the biggest losers under the Baucus plan.

CBO estimates that Medicare Advantage plans, popular bundled health maintenance organizations serving 20% of Medicare patients, would be cut by $117 billion.

Under "Ensuring Medicare Sustainability," more than $200 billion would be cut from payments to hospitals, elder care, doctors, and hospices. Payments to Medicare doctors would be cut by 25% in 2011.

Another $55 billion would be saved by "Improving Payment Accuracy," as if one can magically reduce government spending by increasing accuracy. A Medicare Commission would propose further cuts.

The government would persuade doctors to cut Medicare costs by associating more tests with lower reimbursements. Ranked in order of spending per patient, every year the top 10% of physicians would have their reimbursements cut. Since by definition there would always be 10% of physicians in the top 10%, they would have an incentive to avoid the sickest patients or the specialties with the most tests.

America's elderly might soon discover that if they were sick they would be shunned by many doctors, if the bill operated as planned.

But it's more likely that the $360 billion of Medicare savings would not materialize, and that the Baucus bill would add to the deficit rather than reducing it. After all, Congress regularly overrides an existing law requiring Medicare payments to doctors to be cut when the program is in deficit, as it is today. Why should the new law be any different?

As CBO director Douglas Elmendorf so aptly wrote in his letter to Mr. Baucus yesterday, the "mechanism governing Medicare's payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments...The long-term budgetary impact could be quite different if those provisions were ultimately changed and or not fully implemented."

Should some version of the Baucus bill pass, Medicare spending could decline as projected, with catastrophic consequences for seniors' health care. Or, Congress could back away from cuts as it has in the past, with catastrophic consequences for the deficit. Either way, it's no treat for America."

China car sales growth will slow in 2010: China Auto Logistics Chief says.

ECB's Trichet sees unemployment rising.

Halloween spending is expected to be lower this year.

Consumers are expected to spend on average $55.31 on Halloween, compared with $66.54 a year ago, according to a survey conducted by BIGresearch that was commissioned by the National Retail Federation. Total spending on the holiday is expected to reach $4.75 billion. A good chunk of that spending goes toward costumes, with an estimated 47 million adults and 58 million children across the country plan to dress up for Halloween this year.

The U.S. Energy Information Administration is expected to report that 62 billion cubic feet of gas were added to storage during the week ended Oct. 2, according to the average prediction of 17 analysts and traders in a Dow Jones Newswires survey.
The survey's median was also 62 billion cubic feet, with a high of an 72 bcf injection and a low of a 50 bcf build. The storage estimate falls short of last year's 87 bcf build in storage and the five-year average injection, which was 70 bcf.
If the storage estimate is correct, inventories as of Oct. 2 will total a record 3.651 trillion cubic feet, 15% above both the five-year average and last year's level. Gas in U.S. storage stands at an all-time record of 3.589 tcf as of Sept. 25.

Working gas in storage was 3,658 Bcf as of Friday, October 2, 2009, according to EIA estimates. This represents a net increase of 69 Bcf from the previous week. Stocks were 473 Bcf higher than last year at this time and 480 Bcf above the 5-year average of 3,178 Bcf. In the East Region, stocks were 138 Bcf above the 5-year average following net injections of 37 Bcf. Stocks in the Producing Region were 272 Bcf above the 5-year average of 897 Bcf after a net injection of 24 Bcf. Stocks in the West Region were 70 Bcf above the 5-year average after a net addition of 8 Bcf. At 3,658 Bcf, total working gas is above the 5-year historical range.

Jennifer Hattam: "Making a roll of toilet paper uses 1.5 pounds of wood, 37 gallons of water and 1.3 KWh of electricity."

Natural gas imports from Canada reduced to new lows of under 6 bcf/day.

The United States has lost its perch as the global financial center of the world, something economist Nouriel Roubini attributes to the lingering effects of the 2008 credit collapse. In a survey released Thursday morning, the World Economic Forum lists the US third behind the United Kingdom and Australia as the world's top centers. The US is followed on the list by Singapore and Hong Kong.

Roubini also repeated his contention that the US economy is facing a U-shaped recovery of prolonged slow growth, saying "there's still a significant amount of damage in the financial system."

Andrew Busch: "Alcoa beat Q3 estimates today (ex-items), but revenue was $4.62 billion from $7 billion in the year-ago period, but still above street estimates of $4.55 billion forecast. Here's my point: the company had overhead and procurement savings totaling some $375 million and $1.61 billion. At some point, companies are going to have to derive better earnings from increases in revenue rather than decreases in costs."

"The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses," Roubini of RGE Global Monitor told reporters after a presentation for a World Economic Forum report on the global financial system.

An Obama Administration loan modification program has met its goal of having 500,000 mortgages modifications started as part of its program seeking to help three to four million troubled homeowners avoid forclosure over the next three years, the Treasury Department reported on Thursday. The Treasury had sought to have 500,000 home loan modifications started by Nov. 1, but had accomplished that goal roughly one month earlier. Loan servicers had begun modifying more than 487,081 loans for troubled homeowners on the verge of foreclosure as of Sept. 30, according to the report. More than 757,955 modification offers have been extended by loan servicers as part of the program known as the Home Affordable Modification Program, or HAMP.

Global natural gas markets will likely already be constrained by the time possible production at Russia's giant Shtokman field starts in 2015, the CEO of French oil major Total SA said Thursday.

"I cannot tell you what the price of gas will be at that time, but it will be much higher than today," Total's Christophe de Margerie said on the sidelines of the World Gas Conference.

Russia's OAO Gazprom (GAZP.RS) is developing Shtokman, in the icy waters of the Barents Sea, together with Total and Norway's StatoilHydro (STO). Total and StatoilHydro hold 25% and 24%, respectively, in the company developing the first stage of the field.

"The problem today is much more the valuation of the cost of the project, and that's what we have to do in the next 12 months," de Margerie said.

Under Gazprom's original plan to develop phase one the Shtokman field, it would produce 23.7 billion cubic meters of natural gas a year starting 2013 and up to 7.5 million metric tons of liquefied natural gas, or LNG, a year starting in 2014.

De Margerie, however, said that if a final decision on the project was made by the end of next year, initial production would be unlikely to start until 2015 or 2016.

Despite the bright outlook for Shtokman's massive reserves, de Margerie conceded that the project was not economically feasible at current natural gas prices. Natural gas prices have plummeted under the weight of the global financial crisis and economic meltdown, sitting at about half what they were last year.

Treasury 30-year bonds fell after the government’s auction of $12 billion of the securities was met with lower-than-average demand.

The bonds drew a yield of 4.009 percent, compared with a forecast of 3.994 percent in a Bloomberg News survey of six of the Federal Reserve’s 18 primary dealers that underwrote the sale. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.37, compared with 2.92 at the September auction and an average of 2.42 at the last 10 auctions.

“A worse-than-expected auction brings into question the benign inflation expectation that investors have,” said Anshul Pradhan, an interest-rate strategist in New York at primary dealer Barclays Plc, before the auction. “It reignites concerns about the strength and sustainability of the rally we’ve seen lately.”

Crude ends up 3% at $71.69 a barrel.

Unemployment benefits would be expanded by up to 20 additional weeks under a proposal unveiled by Democratic leaders in the Senate on Thursday. Under current law, extended federal benefits for those who've been out of work longer than six months would begin to expire after Jan. 1. The Senate proposal would extend benefits for 14 more weeks in all 50 states, and for 20 weeks in states with high unemployment. As many as 1.5 million people will exhaust all their jobless benefits by the end of the year, according to one private estimate. In the most recent data, more than 9.36 million people were collecting some form of unemployment benefits, including 3.79 million collecting federal benefits.

The Dow Jones Industrial Average gained 61.29 points, or 0.6%, to finish at 9,786.87, with 21 of its 30 components ending higher, including Alcoa, whose shares rose 1%. The S&P 500 index was up 7.91 points, or 0.8%, at 1,065.48, and the Nasdaq Composite was up 13.60 points, or 0.6%, at 2,123.93.

Wednesday, October 07, 2009

Follow The Money

10/7/09 Follow The Money

U.S. consumers reduced their debt for the seventh straight month in August, the Federal Reserve reported Wednesday. Total seasonally adjusted consumer debt fell $11.98 billion, or at a 5.8% annual rate, in August to $2.46 trillion. Consumers have retrenched since the financial crisis hit in full force last September. Credit has fallen in every month except January. In the subcategories, credit-card debt fell $9.91 billion, or 13.1%, to $899.41 billion. This is the record 11th straight monthly drop in credit card debt. Non-revolving credit, such as auto loans, personal loans and student loans fell $2.10 billion or 1.6% to $1.56 trillion.

Costco Wholesale Corp.reported fiscal-fourth-quarter net income fell 6% as net sales fell 3.3%, total revenue fell 3.1%, and same-store sales fell 5%. For the quarter ended August 30, net income was $374 million, or 85 cents a share, compared with $398 million, or 90 cents, in the year-earlier quarter. The latest quarter reflected a LIFO-related credit of 2 cents a share, while the year-earlier period reflected charges totaling 7 cents a share. The quarter's comparable sales reflected declines of 6% in the U.S. and 3% internationally, Costco reported on Wednesday. For September, same-store sales rose 1%, including a decline of 1% in the U.S. and a rise of 6% overseas. The results were hurt because sales in the U.S. continue "soft" while employee-benefit costs -- mainly higher health-care eligibility and use -- climbed, Chief Financial Officer Richard Galanti said in a statement. Weaker foreign currencies hurt international profit, he said.

Family Dollar Stores Inc.said Wednesday that fourth-quarter earnings were $60 million, or 43 cents a share, compared to $53 million, or 38 cents a share, in the same period a year ago. Sales were $1.81 billion, compared to $1.77 billion a year ago. Analysts polled by FactSet Research estimated earnings per share of 41 cents and sales of $1.81 billion. For fiscal 2010, the company expects net sales will increase 5% to 7% and same-store sales to grow 3% to 5%.

Gross domestic product in the 16-nation euro zone shrank by a larger-than-expected 0.2% in the second quarter, the statistics agency Eurostat said Wednesday, in its second estimate. Economists had expected Eurostat to leave its estimate unchanged at -0.1%. Second-quarter GDP fell 4.8% year on year, compared to an earlier estimate of a 4.7% decline.

Gold futures hit a fresh record intraday high of $1,047.40 an ounce in electronic trading on Wednesday.

Monsanto Co. posted a wider fiscal-fourth quarter loss on restructuring charges, while revenue dropped and overhead costs were slashed 35%.
Shares rose 2.2% to $77 as earnings excluding charges edged analysts' expectations, though sales fell short. The company also reiterated its recently issued downbeat forecast.
The company in June unveiled plans to separate its struggling Roundup and other herbicides into a new division. Last month, Monsanto doubled its job-cut plans to 8% of its work force. Monsanto is focusing on biotechnology research for future growth as Roundup revenue weakens amid tough competition from generic herbicides and lower global farm incomes.
However, last month the company said it could double its gross profit by 2012 from 2007 as it rolls out new genetically modified corn and soybean seeds. Genetically modified-seed projects have met resistance from environmental groups and scientists in a number of countries.
For the quarter ended Aug. 31, the company reported a loss of $284 million, or 43 cents a share, compared with a prior-year loss of $172 million, or 31 cents. Excluding restructuring-related and other charges, Monsanto had a 2-cent profit in the latest quarter, compared with a prior-year loss of 3 cents.
Revenue decreased 8.3% to $1.88 billion. Free cash flow for the year is expected to be in the range of $900 million to $1 billion, including an after-tax restructuring charge of $250 million. Monsanto is also cutting the price of its Roundup herbicide as it faces down rising competition among lower-cost producers, Casale said.

Billionaire hedge-fund manager T. Boone Pickens said Chinese purchases will help push up crude-oil prices to as much as $90 a barrel next year as output declines and the global economy rebounds.
Next year’s average oil price will be $80 a barrel, 39 percent more than the average so far this year, Pickens said today in an interview on CNBC.
China has spent $200 billion on forward purchases, “tying up” the world’s oil supply, Pickens said. The U.S. “can’t compete” with China-owned oil companies because it lacks state- owned oil companies to pursue its economic interests, he said.

Jenny Anderson: "The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up.
But now the Federal Reserve has put these markets on notice that it plans to withdraw its support for them. Policy makers hope private investors will return to the markets, which imploded during the financial crisis. "

Andrew Ross Sorkin: "Stanford is selling stakes in funds run by the biggest names in private equity at deeply discounted prices.
While no one will confirm the names aloud, they are of the caliber of Henry R. Kravis, Stephen A. Schwarzman and Leon D. Black.
During the boom times, Stanford Management, joined other endowments in a rush to plow increasingly large percentages of their funds into private equity, real estate and other illiquid investments — committing some $12.6 billion of the university’s endowment.
But then the market soured, and Stanford’s endowment lost $4.6 billion in value in its last fiscal year, a decline of 27 percent. So it now seems to be suffering from investor’s remorse."

WSJ: U.S. banks are slow to take losses on battered commercial real-estate loans, said a Fed report, and with low loan-loss reserves risk a replay of the bust in the housing market now hitting the sector.

Boeing unexpectedly announced that the first new 747-8 jumbo jet, slated to fly in November, now won't leave the ground until next year. The postponement contrasts sharply with confident assertions made by the head of the program just six weeks ago, declaring that three of the massive, 250-foot-long jets would be flying by year end.
Coupled with the ongoing series of delays for the new mid-size 787 Dreamliner, the latest setback has company observers looking for a pattern.

Experian® Hitwise® announced today that Google accounted for 71.08 percent of all U.S. searches conducted in the four weeks ending Oct. 3, 2009. Yahoo! Search, Bing and received 16.38 percent, 8.96 percent and 2.56 percent, respectively. The remaining 52 search engines in the Hitwise Search Engine Analysis Tool accounted for 1.04 percent of U.S. searches.

Harry Long: "I would argue that extremely low interest rates suck investment funds and liquidity out of nations. You heard it here first, and the evidence is clear. Money has flowed out of U.S Equity ETFs and into Global ETFs.
Many argue that the U.S. could never share Japan's experience of a quarter century bear market in which stocks dropped over 75% with interest rates at or near 0%.
If we do not wish to share such an experience, why are we repeating the same policies which led to such results? What policies did Japan pursue? Near zero interest rates, the propping up of zombie banks, and the arbitrage of replacing of managerial competence at financial institutions with political competence aimed at securing taxpayer charity.
Does this sound familiar? Money flowed out of Japan starting in the early 90's and into economies such as ours. The tech boom was supercharged by a massive Japan-funded carry trade. We may be funding such a boom in emerging markets and commodities right now to our detriment. Liquidity and investment funds will continue to flow out of the U.S., as they have, if we do not change policies which are contradicted by logic and clear evidence.
The public needs to understand that good policies are not about slogans, or personalities--they are about sound quantitative practices based upon clear arithmetic. As Keynes said of inflation, less than 1 person in 100 may understand it, but turning the dollar into a carry trade currency is unsound, procyclical, and will suck liquidity and investment funds out of the U.S. to our long term detriment."

Rigzone: "Royal Dutch Shell plans to increase its natural gas production in North America, said Marvin E. Odum, head of the company's U.S. unit.
Though gas prices are now very low, Mr. Odum said in a Monday interview with The Wall Street Journal, Shell believes long-term prices will recover, justifying the company's interest.
He said the growth in gas production would come from the company's deepwater discoveries in the Gulf of Mexico as well as from giant shale formations in western Canada, the Rockies and the Gulf Coast.
Shell's natural gas production in the U.S. has fallen to 1.05 billion cubic feet a day in 2008, down 9.5% from two years earlier, according to company filings. Its Canadian production has been flat. Still, North American natural gas currently accounts for about 7.8% of Shell's global oil and gas production.
Mr. Odum declined to say how much he expected North American gas production to grow, but said it "could be much more than what we're producing now."

Mike Shedlock: "The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending."

Edward Harrison: "Sweden prepares for financial collapse in Latvia and major bank losses at home." Latvia was only able to sell 1.039 million lats of debt maturing in January 2010 as well as 1 million lats of debt maturing in October 2010. Lavia is battling to emerge from a deep financial crisis. Sweden on Tuesday put pressure on Latvia to fulfill required spending cuts, threatening to withhold payments due at the turn of the year from a 7.5 billion euro rescue loan put together by Nordic countries, news reports said.

Crude -1M barrels vs. consensus of +2M. Gasoline +2.9M vs. +1M. Distillate +0.7M vs. -0.4M. Capacity utilization 85% vs. 84.3%.

According to Bloomberg, ConocoPhillips, the third-largest U.S. oil company, plans to sell $10 billion of assets in the next two years and cut capital spending in 2010 to reduce debt and increase returns on capital.
The divestitures may include oil and natural-gas properties and refineries, Houston-based ConocoPhillips said today in a statement. Proceeds will be used to help the company achieve its target debt-to-capital ratio of 20 percent to 25 percent, according to the statement.
ConocoPhillips, which said it will cut capital spending 12 percent to $11 billion in 2010, is still grappling with debt taken on with its 2006 acquisition of gas producer Burlington Resources Inc. The company’s debt-to-capital ratio was 34 percent as of June 30. It’s trying to end a two-year slide in output as slumping gas prices drag down profits.
ConocoPhillips also said it raised its quarterly dividend to 50 cents a share from 47 cents. The dividend is payable Dec. 1 to stockholders of record at the close of business on Oct. 30. The increase is the company’s first since February 2008.

(Bloomberg) -- Blackstone Group LP, the world’s biggest buyout firm, agreed to buy Anheuser-Busch InBev NV’s amusement park business for as much as $2.7 billion in the largest private-equity deal this year.
Blackstone, based in New York, agreed to purchase the parks unit that includes SeaWorld and Busch Gardens, the companies said today in a joint statement. Anheuser-Busch will get $2.3 billion in cash and a right to participate in Blackstone’s return on investment capped at $400 million.

The Senate approved a $625.6 billion Pentagon budget Tuesday, ending a weeklong debate reflecting very different but related wars: one in Afghanistan and the other among aerospace giants vying to keep production lines open.
Adopted 93-7, the measure includes $128.6 billion for U.S. military operations overseas, a number that will almost certainly grow in 2010 as the administration revamps its strategy in the Afghanistan-Pakistan region. Meeting with top lawmakers prior to the Senate action, President Barack Obama warned that the annual costs would approach $1 billion for every 1,000 troops added, and Afghanistan is now driving efforts to channel military spending more toward the immediate needs of soldiers and Marines in the field — and not the high-priced aircraft of the past.

The Senate approved a $625.6 billion Pentagon budget Tuesday.
One version of an employment tax credit proposal will be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, which would give employers a two-year tax credit if they increased the size of their work force or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker’s salary.

U.S. mortgage applications surged last week to their highest since mid-May as consumers sought to take advantage of the lowest interest rates in months, data from an industry group showed Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low.

Demand for home refinancing loans was the highest since mid-May.

DuPont says it does not expect to match last year's profit levels until at least 2012, according to a filing with U.S. regulators on Wednesday.

"Because of unprecedented demand for American Eagle Gold and Silver Bullion Coins, the United States Mint suspended production of 2009 proof and uncirculated versions of these coins." - US Mint

Dell Inc. will close its Winston-Salem, N.C. desktop computer manufacturing plant by January to simplify operations. About 905 employees will be affected by the closure, and 600 will be released next month. Affected employees will receive severance packages, but Dell did not specify a charge for the packages.

Gold for October delivery ended up $4.70, or 0.5%, at $1,043.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing level ever for a front-month contract. It surged to an intraday high of $1,048.20 an ounce earlier.

The Dow fell 5.67 points to 9,725.58. The S&P 500 added 2.86 points to 1,057.58. The Nasdaq Composite climbed 6.76 points to 2,110.33.

The federal budget deficit tripled to a record $1.4 trillion for the 2009 fiscal year that ended last week, congressional analysts said Wednesday.

Tuesday, October 06, 2009


10/6/09 Gold

The Reserve Bank of Australia Tuesday surprised by raising its policy rate by a quarter-point to 3.25% in response to stronger-than-expected economic conditions. The increase in the cash rate marks the RBA's first rate increase since March 2008 and makes it the first central bank in a major developed economy to hike rates. Several analysts had expected the RBA to commence rate hikes a few months later. Governor Glenn Stevens wrote in a statement that the "basis for such a low interest rate setting has now passed" and that it was now prudent to "begin gradually lessening the stimulus provided by monetary policy." The Australian dollar rose to 88.26 U.S. cents recently, from 87.94 cents in New York.

Emerson Electric Co. said Tuesday it has agreed to buy Avocent Corp. for about $1.2 billion in cash, a move the company says will offer customers better management of their data centers.
The manufacturing and technology services company said it will offer $25 per share for Avocent, a 22 percent premium over Monday's closing price.
Huntsville, Ala.-based Avocent makes network equipment and software and had sales of about $657 million last year.
St. Louis-based Emerson expects the deal to close around Jan. 1.

China is holding talks with the International Monetary Fund concerning the management of global currency reserves, EmergingMarkets magazine reported, citing Liu Mingkang, chairman of China Banking Regulatory Commission.

Rep. Ron Paul: "Sadly, one thing that has entirely escaped modern American foreign policy is empathy. Without much humility or regard for human life, our foreign policy has been reduced to alternately bribing and bombing other nations, all with the stated goal of "promoting democracy". But if a country democratically elects a leader who is not sufficiently pro-American, our government will refuse to recognize them, will impose sanctions on them, and will possibly even support covert efforts to remove them. Democracy is obviously not what we are interested in. It is more likely that our government is interested in imposing its will on other governments. This policy of endless intervention in the affairs of others is very damaging to American liberty and security.
If we were really interested in democracy, peace, prosperity and safety, we would pursue more free trade with other countries. Free and abundant trade is much more conducive to peace because it is generally bad business to kill your customers. When one's livelihood is on the line, and the business agreements are mutually beneficial, it is in everyone's best interests to maintain cooperative and friendly relations and not kill each other. But instead, to force other countries to bend to our will, we impose trade barriers and sanctions. If our government really wanted to promote freedom, Americans would be free to travel and trade with whoever they wished. And, if we would simply look at our own policies around the world through the eyes of others, we would understand how these actions make us more targeted and therefore less safe from terrorism. The only answer is get back to free trade with all and entangling alliances with none. It is our bombs and sanctions and condescending aid packages that isolate us."

The world's oil producers will continue using the U.S. dollar as the currency for buying and selling crude, high-ranking oil and finance officials in the Gulf said on Tuesday, denying a report in a British newspaper.
Earlier, The Independent reported that Gulf Arab states, as well as China, Russia, Japan and France, are in secret talks to end the use of the U.S. dollar to trade oil, causing the American currency to fall in overseas trading Tuesday.
Qatar's oil minister, Kuwait's finance minister and sources in the United Arab Emirates and Saudi central banks all denied the report.
The Independent report is “absolutely incorrect” and there has been “absolutely nothing” of that nature discussed between Saudi Arabia, the world’s biggest oil exporter, and other countries, Saudi Central Bank Governor Muhammad al-Jasser told reporters in Istanbul.


U.S. dollar index at 76.18.

Gregor Macdonald: "Asset reflation therefore, in equities and especially in gold, should be seen not as exuberance but merely as part of the same chaos in pricing unleashed by The Federal Reserve, starting earlier this decade. As so clearly outlined in the recent data on employment, credit demand, consumer spending, and our (in)ability to save there is little to no prospect for a sustained economic recovery for one simple reason: Americans are now trapped by their debt.
For those who recognize a rising stock market as evidence of disarray, what we should anticipate now is the recognition phase where the wider public finally comes to understand the nature of our inflationary depression. My marker has been 100 dollar oil and 15% unemployment in California. That should finally get the message across. But other combinations will do: 1300 dollar gold, 1300 on the SPX, and more problems with Commercial Real Estate will also suffice. Like the prestige-performance gap, the divergence between the economy and asset prices apparently has to become even more grotesque before people will understand."

Boeing said it expects to take a third-quarter charge of $1 billion because of higher costs in its 747-8 freighter program and market conditions.

U.S. apartment vacancies rose to 7.8 percent in the third quarter, the highest since 1986, as rising unemployment reduced rental demand, Reis Inc. said.
Actual rents paid by tenants, known as effective rents, declined 2.7 percent from a year earlier, the New York-based property research firm said in a report today. Asking rents, or what landlords sought, fell 1.8 percent from a year earlier.

Rocky Vega: "Joseph Stiglitz, who won the 2001 Nobel Prize in Economic Sciences, has come out to say that investors are “irrationally exuberant” about recovery given US unemployment, which he believes will continue to rise.
His perspective on “big bumps” ahead includes the still-weak housing market, commercial real estate, and too much consumer debt considering the current level of joblessness.
According to a survey of economists conducted by Bloomberg News, the unemployment rate is likely to hit 10 percent by the end of 2009. Stiglitz considers it “pretty clear” that any economic growth this year or next will not be able to “stop unemployment from growing.”

Dominick's supermarkets announced in late August that prices on a range of items in its 81 stores would fall by as much as a third. Included in the cuts were both private-label goods and national brands, such as Coffee Mate creamers, Bumble Bee tuna and Tombstone frozen pizza.

U.S. holiday sales may decline for the second year as consumers stick to budgets and retailers cut prices to encourage spending, according to an industry group.
Sales for the last two months of the year will probably fall 1 percent to $437.6 billion from the same period in 2008, the National Retail Federation said today in a statement. That’s not as steep as last year’s decline of 3.4 percent, the first drop since the NRF started tracking holiday sales in 1995.

Karen Pollitz, project director of the Georgetown University Health Policy Institute, said she understands a feeling of "trillion-dollar fatigue" in the wake of the financial bail-out and stimulus package aimed at reviving a moribund economy. At the same time, the goals of health reform can't be met with $1 trillion, she said.
"All the bills that are on the table are too small. Everybody's kind of in the ball park of a trillion dollars. That's what the Clinton plan cost 15 years ago," she said of the last attempt at comprehensive reform in 1994, when per-person health-care spending was about half of the $7,300 it is today and the U.S. had 38 million uninsured compared with today's 46 million.

Bloomberg News files a brief opposing the Fed's request for a stay delaying the release of public records containing information about banks' lending activities during the financial crisis. Last week, the Fed filed for a stay, saying disclosure could cause "irreparable harm" to borrowers.

The U.S. dollar fell to the lowest in just over a year to $1.0557, down 1.1% from late Monday, according to FactSet. "Elevated risk appetite on the back of the second day of solid stock rallies, along with rebounding commodities and gold prices has been behind the Canadian dollar's gains," said analyst at Action economics. "The bank of Canada surely will not be happy with the latest Canadian dollar strength, and it would not be surprising for the bank to soon fire a verbal warning shot across the bow of loonie bulls."

The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal. This is the highest vacancy rate in 23 years.
Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record.
This is good news for renters and bad news for landlords. It's also bad news for anyone who owns and would like to sell a house.

The US Treasury auctioned $39 billion in 3-year notes with a high yield of 1.445 percent and a bid to cover 2.76 percent.

Gold for December delivery gained $21.90, or 2.2%, to end at $1,039.70 an ounce, a new record closing level. It earlier reached a high of $1,045.0 an ounce, topping the previous record of $1,033.90 in March 2008.

Sunoco Inc. said late Tuesday it was cutting its quarterly dividend in half and idling its Eagle Point refinery in Westville, N.J., because of because of poor margins in the face of weak fuel demand and growing competition from refineries overseas. About 400 employees will be furloughed because of the idled refinery. Sunoco also said its board lowered the quarterly dividend to 15 cents from 30 cents to preserve additional capital. With Eagle Point idled, Sunoco said it will shift production to its refineries in Marcus Hook, Penn. and Philadelphia.

The Dow Jones Industrial Average ended at 9,731.25, up 131.50 points, or 1.4%. The S&P 500 rose 14.26 points, or 1.4%, to 1,054.72, while the Nasdaq Composite surged 35.42 points, or 1.7%, to 2,103.57.

Oil for November delivery rose 47 cents, or 0.7%, to $70.88 a barrel by the close of New York floor trading. Earlier, the contract had topped $71 a barrel in but it pared gains as the U.S. dollar came off its lows and U.S. stock indexes eased their climb. Gasoline and heating oil also rose but natural gas slipped. The November contract ended 11 cents, or 2.1%, lower at $4.88 per million British thermal units.

Gold for December delivery gained $21.90, or 2.2%, to end at $1,039.70 an ounce, a new record closing level. It earlier reached a high of $1,045.0 an ounce, topping the previous record of $1,033.90 in March 2008.

Monday, October 05, 2009


10/5/09 Collapse

Nouriel Roubini: “Markets have gone up too much, too soon, too fast…” More importantly, in the expected U-shaped recovery that is expected in Q4-2009 or Q1-2010, the markets are anticipating much more than what the reality is. He further noted, “Eventually markets are going to flatten out and correct to valuations that are justified.”

John Hussman: "Our assessment of current conditions is defensive, but we also have to have some equanimity about possible market direction until we observe further deterioration in market internals."

Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should consider making secured creditors carry more of the cost of bank failures.
“This could involve potentially limiting their claims to no more than, say, 80 percent of their secured credits,” Bair said in a speech to a banking conference in Istanbul yesterday. “This would ensure that market participants always have some skin in the game, and it would be very strong medicine indeed.”

Richard Koo: "The economy will collapse again and the second collapse is usually far worse than the first. And the reason is that, after the first collapse, people tend to blame themselves. They say, ‘I shouldn’t have played the bubble. I shouldn’t have borrowed money to invest – to speculate on these things."

Downtown Seattle vacancies have hit a two decade high: 18.5 percent.

The Wall Street Journal, citing "people familiar with the matter," reported Monday that Brocade is getting looks from other large technology companies such as Hewlett-Packard Co.

"No, I'm not optimistic about the government getting anything right. And I think that they are very much responsible for the situation which we are in and which, to me, the most damning part of it is the dependence on the Chinese and Japanese lenders for our very existence. And I think it is a tragedy that that is happened to the United States. And I think that has been done by a group of politicians over long period of time, you know, 30 years. And they've encouraged leverage. They thought it was a good idea for everybody to own a great home." - Julian Robertson

The dollar index fell to 76.868 from 77.09 in late trading on Friday.

The service sectors of the U.S. economy expanded for the first time in a year in September, the Institute for Supply Management reported Monday. The ISM non-manufacturing index rose to 50.9% from 48.4% in August. This is the highest level since May 2008.

The Conference Board, a private research group, said its Employment Trends Index edged up to 88.5 in September from an upwardly revised 88.2 in August, originally reported at 88.1.
The index is now down 15.6 percent from one year ago, the group said.
"While the employment numbers reported by the government last Friday were certainly disappointing, The Conference Board Employment Trends Index suggests that the trend of declining job losses will continue," said Gad Levanon, senior economist at The Conference Board.
"But the road to recovery is definitely going to be bumpy and may last unusually long, given the depth of the recession we have experienced."

Mark Anthony: "A number of sources claim that we have hundreds of years worth of natural gas reserves remaining in the USA. Is that really so?
The most authoratative natural gas information is available from EIA.
Based on data from EIA, the annual US consumption of natural gas is about 23 TCF (23 trillion cubic feet). The proven natural gas reserve, as shown here, is 237.726 TCF.
So that's roughly 10 years worth of natural gas left in the USA."

Christopher Whalen, managing director at Institutional Risk Analytics:"Why is liquidity going into the financial sector? It's because the real economy is dying [and] everyone is fleeing into the stocks and bonds because they're liquid at the moment," Whalen says. "That's not a good sign."

Crude oil for November delivery finished up 46 cents, or 0.7%, at $70.41 a barrel on the New York Mercantile Exchange. Elsewhere in the energy complex, November natural-gas futures rose 28 cents, or 6%, to $4.99 per million British thermal units.

The Dow Jones industrial average was up 112.15 points, or 1.18 percent, at 9,599.82. The Standard & Poor's 500 Index was up 14.79 points, or 1.44 percent, at 1,040.00. The Nasdaq Composite Index was up 21.10 points, or 1.03 percent, at 2,069.21.

Mosaic Co.said late Monday that its fiscal first-quarter profit fell to $100.6 million, or 23 cents a share, from $1.18 billion, or $2.65 a share, in the year-ago period. Revenue fell to $1.46 billion from $4.32 billion last year.

Conde Nast will close four magazines -- Modern Bride, Elegant Bride, Gourmet, and Cookie -- following a review the publisher undertook to find ways to reduce costs and staff in the face of a slump in advertising.

Sunday, October 04, 2009

Interest Rate Prediction

10/4/09 Interest Rate Prediction

Mad Hedge: "TBT (the Proshares Ultra Short Treasury Trust ) is a 200% leveraged bet that long Treasury bonds will go down. While the Fed keeps short rates low, it doesn’t directly control long rates. As the supply of government bonds increases exponentially, their eventual collapse is inevitable. All Ponzi schemes must come to an end, and the US government is no exception. We currently have the greatest liquidity driven market of all time, and the ten year is eking out a mere 3.30% yield, pricing in near zero inflationary expectations. The average yield on this paper for the last ten years is 6.20%. If the yield goes back to 5%, that will take the TBT from $45 to $70. The TBT could perform even better if Treasuries lose their triple “A” rating, which I think is a real possibility.
Historically, bonds are not a good buy in a low interest rate, deflationary environment. If long rates move from 3% back to the 12% we saw in the early eighties, bond holders will get slaughtered, and the TBT could exceed $200. Even if inflation stays low, the sheer weight of supply and credit concerns will crater government bond prices."

David Rosenberg: "We still marvel at the shills who believe that the market is fairly valued and that somehow it is not fair to compare how far the market has ballooned over the March lows since those lows were “artificial”. Excuse me. The 676 closing low on March 9th was any more of an egregiously oversold low than the October 9th/02 low of 776? Or the August 12th/82 low of 102 when the S&P 500 was trading at an 8x P/E multiple, a 6 1/2% dividend yield and below book value? It always appears to be an oversold low at the trough, with the benefit of perfect hindsight. But the stock market, at the lows, was merely pricing in reality, a -2.5 GDP growth trajectory which is exactly what we will see posted for 2009 when the books are closed for the year. The market was down 60% from the highs, but guess what? So were operating earnings. And reported “unscrubbed” profits tumbled 90%. To think we can have a 60% rally from the lows in six months and believe that somehow this is normal – please. By the time the market is up 60% from any low, it usually is up that amount in three years, not six months; and over 2 million jobs have been created. This is the first time the market has rallied this much with the economy shedding 2.5 million jobs."

Mike Burk: "After 3 consecutive down days and 2 consecutive down weeks the market is oversold. There is still no sign of a developing top.
I expect the major indices to be higher on Friday October 9 than they were on Friday October 2."