Saturday, November 07, 2009

Lessons Not Learned

11/7/09 Lessons Not Learned

UCBH Holdings Inc.’s United Commercial Bank, a San Francisco-based lender with $11.2 billion in assets, was seized by regulators, becoming the 120th U.S. bank to fail this year. The year-to-date 120 banks being reorganized has impacted 1,378 branches and since IndyMac last year, we're up to 3,985 branches impacted and 142 banks.

The Pelosi Healthcare Bill: Americans who do not maintain “acceptable health insurance coverage” and who choose not to pay the bill’s new individual mandate tax (generally 2.5% of income), are subject to numerous civil and criminal penalties, including criminal fines of up to $250,000 and imprisonment of up to five years. According to the Congressional Budget Office the lowest cost family non-group plan under the Speaker’s bill would cost $15,000 in 2016.

Doug Noland: "Global yields are mismatched to the reflationary backdrop. This predicament implies ongoing market distortions, a rather extraordinary global mispricing of the cost of finance, along with all the myriad financial and economic costs associated with unrelenting “Monetary Disorder” (i.e. assets Bubbles, imbalances, mal- and over-investment, financial and economic fragilities, etc.)...The sources of acute systemic fragility are generally not easily or commonly recognized during periods of excess. The risks wrought from Fed-induced market distortions and mis-pricings during the Mortgage Finance Bubble were not apparent to most until it was much too late. The perception today is that our post-Bubble systemic backdrop is not vulnerable to either excesses or inflationary pressures. The bulls scoff at the notion that there are domestic risks associated with sticking with ultra-easy monetary policy (any one catch Paul McCulley’s CNBC interview late this afternoon?). The risks are there but not so visible....ultra-low interest-rates are being only further embedded into Credit and economic structures. The Fed has manipulated short-rates and market yields in the most extreme degree. This intervention has amounted to massive distortion throughout the markets, while this process has further spurred the Paradigm shift of power from the Core to the Periphery....Unless global reflationary forces dissipate, this implies a future adjustment period for U.S. interest-rate and risk asset markets. And when the Fed eventually loses command over market yields, the risks associated with today’s policy course will likely manifest into a very problematic financial and economic crisis. The Fed should neither peg interest rates nor telegraph the future course of interest rate manipulations – especially at near zero rates. And the Fed can today ignore global reflationary dynamics at our – and our currency’s - future peril. It’s amazing the lessons somehow not learned."

Fannie Mae to allow borrowers in foreclosure to lease back homes.

According to Bloomberg, “Stores, apartment buildings and warehouses in the U.S. will set new vacancy records before a recovery takes hold in the job and commercial property markets, according to a forecast by CB Richard Ellis… Vacancies at industrial properties will climb to almost 16% in 2011 and apartment vacancies will top out at 8.1% this quarter, CBRE chief economist Ray Torto said… The proportion of empty space at shopping centers and malls will increase to about 13% in 2010… U.S. commercial real estate prices have plunged almost 41% since October 2007, the Moody’s/REAL Commercial Property Price Indices show.”

George Ure: " The Dow hit an intraday high of 11,908.50 in first week of January way back in 2000, which using the Fed's own numbers means that to just break-even on a purchasing power basis, the Dow needs to be at 14,743.86 - but it gets even better! We are almost through with 2009 and throw in another 4% for inflation to ballpark it and the Dow would need to be north of 15,333."

We remain at record lows in weekly hours worked at 33.

Mark Spitznagel: "Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen..... In mid-1929, he stubbornly turned down a lucrative job offer from the Viennese bank Kreditanstalt, much to the annoyance of his fiancée, proclaiming "A great crash is coming, and I don't want my name in any way connected with it."

We all know what happened next. Pretty much right out of Mises's script, overleveraged banks (including Kreditanstalt) collapsed, businesses collapsed, employment collapsed. The brittle tree snapped. Following Mises's logic, was this a failure of capitalism, or a failure of hubris?

Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating. Don't encourage consumption, but rather encourage saving and the repayment of debt. Let all the lame businesses fail—no bailouts. (You see where I'm going with this.) The distortions must be removed or else the precipice from which the system will inevitably fall will simply grow higher and higher."

ZeroHedge: "A few weeks ago we speculated that the Federal Reserve's attempt to conduct a reverse repo test as part of a liquidity drainage failed. In a stunning piece of news, Zero Hedge friend Jim Bianco sent us the following. Little commentary is necessary: the banks are about to unleash the massive leverage ploy all over again, this time with the pretext that they are happy to soak up liquidity, yet in the same time, their stupidity and inability to gauge risk will blow up the financial system once again when Tier One ratios for dealers are allowed to go back to 100:1. Zero Hedge will forward this information to all of our correspondents in Washington as what the Primary Dealer community is doing is extortion, pure and simple, and it is likely to be endorsed by their cronies at the Federal Reserve (which, in turn, has already received a carte blanche to do so by its purported master, Goldman Sachs)."

“We will certainly have very bad payroll numbers in November and December,” said Harm Bandholz, an economist at UniCredit Global Research in New York, whose forecast for a 10.1 percent unemployment rate matched the highest among economists surveyed by Bloomberg. “We don’t foresee businesses going on a hiring spree anytime soon.”

The Natural Gas ETF (UNG) is trading below its 50-day moving average at -13%.

Sen. Tom Coburn, the Oklahoma Republican who developed a close friendship with President Obama when they served together in the Senate, is threatening to have the entire health care bill read on the Senate floor. Senior Senate Democratic aides had heard Coburn was considering having potentially thousands of pages read aloud in effort to stall passage. “If he did this it would be even outrageous for a guy who’s become known as Dr. No around here,” one of them told POLITICO.

The latest deals at Wal-Mart include an HP notebook computer for $298 (normally $448) and a Sharp 52-inch flat-panel television for $898 (normally $1,548).
"They put a stake in the ground and said, 'We will not be beat this holiday season,' " said Joe Feldman, a senior retail analyst at Telsey Advisory Group. "Without question, everyone has to look out for Wal-Mart."

Tim W. Wood: "Nothing has changed with regard to this being a larger degree bear market rally that should ultimately prove to separate Phase I from Phase II of a much longer-term secular bear market. The key to identifying the top of this bear market rally will come from the statistics that I’ve data-mined going back to 1896, which was the inception of the Industrial and Transportation averages. So I know what this top should look like, and between these statistics and the reading of the averages in accordance with orthodox Dow theory, I feel that I will be able to identify this bear market top. For now, the rally officially lives on. But the longer it lasts, the more people it will convince that it’s a new bull market and the more people will ultimately be hurt in the end as the Phase II rally begins. This is why the Phase II declines are the most devastating."

Since 1988, the American confectionery company Hershey has owned a US licence to make and sell Cadbury-branded products ranging from Dairy Milk bars to Fruit and Nut, Creme Eggs and Mini Eggs. And its concept is rather different from Cadbury's.

Greg Weldon: "Moreover, when we combine the monthly change in the number of Unemployed, with the number Not in the Labor Force, we might consider the result to be a proxy for the actual 'change' in the underlying labor market situation ... in which case, October's figure of 817,000 represents the fourth LARGEST yet, behind last month's (September's) second largest figure of 1,021,000 ... for a two-month combined figure of 1.838 million, in newly Unemployed, or no longer 'in' the Labor Force ...
"... the second LARGEST two-month total EVER posted, barely trailing the December-08/January-09 total 1.955 million."

Mike Burk: "The market is in the middle of an upswing that, by recent patterns, should last another week. We should see new highs in the Dow Jones Industrial Average unconfirmed by the breadth indicators and secondaries.

Zenyatta ran one of the greatest races in the history of horse racing and should win horse of the year. Next to Secretariat's win in the Belmont Stakes, this is the greatest horse race I have seen. She is the Rocky Marciano of horse racing.

Friday, November 06, 2009


11/6/09 Unemployment

The U.S. unemployment rate climbed to 10.2% in October, topping the 10% mark for the first time in 26 years, the Labor Department reported Friday. Nonfarm payrolls dropped by 190,000 in October, bringing to total number of jobs lost in the recession to 7.3 million. Economists surveyed by MarketWatch were forecasting a rise in the unemployment rate to 10%, with 150,000 lost payroll jobs. The unemployment rate of 10.2% was the highest since April 1983. An alternative gauge of unemployment, which includes discouraged workers and those forced to work part-time, rose to 17.5%, the highest on record dating to 1995. In October, the number of unemployed persons increased by 558,000 to 15.7 million. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points. The number of long-term unemployed (those jobless for 27 weeks and over) was little changed over the month at 5.6 million. In October, 35.6 percent of unemployed persons were jobless for 27 weeks or more. The employment-population ratio continued to decline in October, falling to 58.5 percent.

A wider measure of labor-market slack, which includes both the officially unemployed and people who want work but who have given up searching, hit a record high of 17.5 percent.
The Labor Department's survey of households showed a loss of 589,000 jobs last month, leading to the big jump in the unemployment rate.
The U.S. imposed duties of as much as 99 percent on steel pipe from China after American producers led by U.S. Steel Corp. complained that the imports were being dumped at below-market prices.

The duties on $2.6 billion in annual imports of the pipe, used in oil and gas wells, will be 36.5 percent for the 37 largest exporters, the Commerce Department said in a preliminary decision announced by e-mail today. Those tariffs will be on top of separate duties announced in September averaging 21 percent to counter subsidies to Chinese producers.

Wheat prices fell the most this week as demand for supplies from the U.S., the world’s largest exporter, slumped to a four-month low. Soybean prices had their biggest drop in almost five weeks and corn dropped on speculation that U.S. farmers will accelerate harvests delayed by excessive rainfall.

At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets, according to a report released Friday by the Congressional Oversight Panel. "The Panel found that Treasury took an aggressive stance in protecting taxpayer interests, and the Panel did not identify any major flaws with their implementation of the guarantee programs. Even so, these programs carried significant risk. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions," the report said.

Fannie Mae, the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses.

The U.S. economic recovery will probably “run out of gas” as it heads toward a “new normal” of lower long-term growth and higher unemployment than over the previous decade, Nobel laureate Edmund Phelps said.

The U.S. economy “is groggy, but it’s getting to its feet,” Phelps, who won the Nobel Prize in 2006, said in an interview with Bloomberg Television today in New York. “We’re already seeing a strong recovery, I just think that it’s going to run out of gas.”

In an unprecedented discounting move that could signal a price war that would benefit the major movie studios and cash-strapped consumers, Wal-Mart has slashed the price of a number of the upcoming DVDs of big-budget summer movies to $10 on its website.

Gold for November delivery gained 1% to $1,100 an ounce on the Comex division of the New York Mercantile Exchange, the highest level for a front-month contract. The more actively traded December contract rose to $1,101.90 an ounce.

Brazil's Petrobras has found natural gas in Peru's Amazon jungle and the discovery of about 1 trillion cubic feet could turn out to be much larger, Peruvian President Alan Garcia said on Thursday.

At least one store isn’t waiting until Black Friday to unleash its deals. Rather than leaking its ads early, Wal-Mart is starting its electronics sales early, plus offering $20 turkey dinners for eight.

Wal-Mart will begin the first of several one-week “electronics savings events” on Saturday, Nov. 7.

General Electric and Comcast are now expected to announce a deal over GE's NBC Universal unit on Nov. 16, not next week as originally thought, people familiar with the situation told CNBC.

Outstanding consumer debt fell at a 7.2% annual rate in September, the eighth consecutive decline, the Federal Reserve reported Friday. Consumer credit fell by $14.8 billion to $2.46 trillion in September, down 4.7% compared with a year ago. Outstanding credit can fall if consumers pay off balances, or if lenders write off bad loans. The decline in September was led by another huge drop in revolving debt, such as credit cards, which fell $9.9 billion to $889 billion, or a 13.3% annual rate. Nonrevolving debt -- such as auto loans, student loans and other personal loans -- fell $4.9 billion to $1.57 trillion, or a 3.7% annual rate.

The Dow Jones Industrial Average added 17.46 points, or 0.2%, to 10,023.42, with the blue chips up 3.2% for the week. The S&P 500 Index rose 2.67 points, or 0.3%, leaving it up 3.2% from the week-ago close. The Nasdaq Composite gained 7.12 points, or 0.3%, to 2,112.44, giving the technology-laden index a weekly rise of 3.3%.

United Security Bank of Sparta, Ga, became the 116th U.S. bank of the year to fail, according to the Federal Deposit Insurance Corp. on Friday. Ameris Bank of Moultrie, Ga. will purchase the bank's assets and assume all of the deposits at a 0.36% premium.

Thursday, November 05, 2009


11/5/09 Pick-a-Pay

The number of people filing initial claims for state unemployment benefits fell by 20,000 to a seasonally adjusted 512,000 in the week ending Oct. 31, the lowest since January, the Labor Department reported Thursday. Initial jobless claims have been above 500,000 for 51 straight weeks. Economists surveyed by MarketWatch expected initial claims to fall to about 520,000. Continuing state claims fell by 68,000 to a seasonally adjusted 5.75 million, the lowest since March. The number of people claiming benefits of any kind in the week ending Oct. 17 was 9.53 million, not seasonally adjusted, up 136,000 from 9.36 million in the previous week.

General Motors said it wanted to cut around 10,000 jobs at its European division Opel a day after the US car maker stunned the auto sector by scrapping plans to sell the German-based unit.

GM wants to slash costs by 30 percent at Opel, which would mean the elimination of about 10,000 jobs from a workforce of 55,000, GM vice president John Smith told European journalists during a telephone news conference.

U.S. companies increased their output in the third quarter even as they slashed working hours, driving productivity up at a 9.5% annual rate in the quarter, the Labor Department estimated Thursday. Unit labor costs -- a key measure of inflation -- dropped at a 5.2% annual rate in the quarter. The 9.5% increase in productivity in the third quarter was the highest in six years, and was better than the 7.3% expected by economists surveyed by MarketWatch. The decline in unit labor costs was also more than the 4.6% expected. In manufacturing, the gains were more impressive, with productivity surging at a record 13.6% annual rate. Unit labor costs in manufacturing fell 7.1%. Output increased 4.0 percent and hours worked decreased 5.0 percent in the third quarter of 2009. From the third quarter of 2008 to the third quarter of 2009, nonfarm business output fell 3.5 percent and hours worked fell faster, 7.5 percent, resulting in a productivity increase of 4.3 percent. The four-quarter decline in hours was the largest in the series, which begins in 1948!

Costco Wholesale Corp. reported that for October, comparable-store sales rose 5% while total sales rose 7% to $5.68 billion from $5.3 billion in the year-earlier month. A survey of analysts by Thomson Reuters produced a consensus estimate of same-store sales up 4.7% for the month. The same-store sales reflect increases of 2% in the U.S. and 17% internationally. Foreign currencies' strength against the U.S. dollar benefited October comparable sales, "in contrast to the previous 14 months, during which time" the impact had been negative, Costco said. Excluding the effect of forex and lower prices of gasoline, total company same-store sales rose 4%, reflecting rises of 3% in the U.S. and 7% internationally.

Abercrombie & Fitch said sales at stores open more that a year fell 15% in October. Gap Inc., the largest U.S. clothing chain, said its October same-store sales rose 4%. Macy's Inc.said Thursday that its October sales at stores open at least one year fell 0.8%. J.C. Penney Company said Thursday that its October sales at stores open at least one year fell 4.5%.

Agrium Inc raised its hostile takeover offer for rival CF Industries Holdings Inc. (CF) to $92.99 a share, based on the closing price of Agrium stock on Wednesday. Agrium raised the cash portion of the deal to $45 a share, up $5, or 13% from its earlier offer. "This offer provides a premium of over 67% to CF's closing price on Feb. 24, the day before Agrium announced its initial proposal, and about 84% to CF's 30-day volume weighted average price through that date," Agrium said. Shares of CF Industries closed at $86.39 on Wednesday.

The Bank of England said Thursday that the world economy has shown signs of recovery, with a number of emerging markets economies experiencing a strong rebound, but that financial conditions remain fragile.

The global speculative-grade default rate rose to 12.4 percent in October, the highest proportion of defaults since the Great Depression, according to Moody’s Investors Service.

The annual rate at which companies worldwide fail to meet their commitments may peak at 12.5 percent next month, Moody’s said in a report today. The New York-based firm revised its September figure to 12.3 percent, also higher than the 12.2 percent rate reached in 1991. The total number of defaults declined to eight in October, the lowest monthly count this year and down from 19 in September, Moody’s said.

Michael Pento: "The sad truth is that this recent market rally has been produced on the back of a weakening dollar and the slashing of corporate overhead. Cutting payrolls and research and product development projects are not a prescription for sustainable growth. As I like to say, you can't burn your furniture to keep your house warm forever. Eventually, top-line revenue growth must emerge or Wall Street's game of beat-the-expectations will be short lived.

It's also worth noting that a country cannot devalue itself to prosperity and that a bull market cannot survive an inflationary environment for long. In the short run, nominal gains in the averages can occur since everything priced in dollars tends to increase in value. However, the rally will be truncated unless the Fed provides consumers and corporations with a stable currency."

Rigzone: "In its third quarter report, Statoil confirmed that it has signed an agreement with China's CNOOC for a number of stakes in its Gulf of Mexico (GOM) leases. Significantly, the deal opens the U.S. Gulf of Mexico to Chinese oil companies for the first time.

In the farm-down agreement with the Norwegian oil firm, CNOOC will secure equity stakes in four GOM fields in exchange for bearing some of the fields' development costs."

Venezuelan Energy and Oil Minister Rafael Ramirez said on Tuesday that his country does not agree to increase the oil production of the Organization of Petroleum Exporting Countries (OPEC) despite a rise in world oil prices.
"We think that the market situation must be followed with caution and we should not rush to introduce not demanded volumes to the market," Ramirez told the press after attending the 3rd World Congress of Heavy Oil in Margarita Island, Venezuela.

Toyota Motor Corp. announced Thursday a surprise profit last quarter and trimmed its projected red ink for the year, underlining the gradual recovery under way for Japan's giant automakers.

The U.K.'s central bank increased its bond-buying program by $41.41 billion as it kept rates steady, while the ECB left its benchmark interest rate unchanged at 1.0%.

The US, European Union and Mexico have asked for a World Trade Organisation dispute panel to investigate Chinese restrictions on exports of specialised raw materials used in industry, the latest indication that the global slowdown is leading to greater international action against China’s trade policies.

The request to the WTO claims that China’s restraints on exports of bauxite, magnesium and other raw materials, which are used to make steel, aluminium and some chemicals, is driving up the price of those end products.

The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 30% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-nine percent (39%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -9 (see trends). Thirty-four percent (34%) say the U.S. is generally heading in the right direction.

If health care passes, 72% say it’s likely companies would drop insurance coverage for employees. Most also think that being pushed onto the government option would be bad for workers.

The Federal Reserve will continue to foster a U.S. dollar-funded carry trade with its near-zero interest rate policy, Mohamed El-Erian, chief executive of Pacific Investment Management Inc., said on Wednesday,

The so-called carry trade refers to borrowing at low short-term rates -- in this case, in the U.S. dollar -- to buy high-yielding, long-dated securities in other markets. The intention is to profit from the rate differential, although rising short-term rates make this strategy riskier and less profitable.

North America has 12 LNG terminals with a capacity of 145bcm a year and five more under construction, plus one being extended. This will bring its import capacity to 214bcm.

The United Nations says it is temporarily relocating more than half of its 1100 international staff members in Afghanistan because of security concerns.

Goldman Sachs: "Los Angeles and Seattle remained the weakest markets with rental rate declines of -11.5% and -8.5%, respectively."

"Credit performance for CMBS worsened at an accelerated pace this month versus the recent trend. Thirty-plus day delinquencies across the fixed rate universe increased by 41bp, to 5.50%, partly owing to the deterioration of loans that were current but transferred to the special servicer last month. This compares with the trailing three month average of 34bp. The trend of accelerating delinquencies is expected to continue throughout 2009 and early 2010, given the long lag times associated with commercial real estate." - Barclays

Diana Olick: " Pay option ARM's or Wells' particular version called "Pick-a-Pay."

Whatever you call them, these are the loans where you decide what you want to pay each month, and whatever is left over is tacked on to your principal.

Pay option ARMs are the new subprime, defaulting at high rates now thanks to adjustments as well as good ol' unemployment. According to its Q3 earnings report, Wells Fargo, the fourth largest U.S. bank by assets, has $79.2 billion in debt on these loans alone, down from $101 billion a year ago, in addition to other ARMs and fixed-rate loans and full-term loan modifications. Wells didn't make the Pick-a-Pay loans, they just inherited them when they bought Wachovia at the beginning of this year. Wachovia relished in selling these risky products in the most overheated housing markets. Suffice it to say, many many many of these borrowers are way way way underwater on their loans. Enter the interest-only product, which will allow borrowers to defer their balances from 6 to 10 years. This keeps the borrowers in their homes, paying a little every month. I called over to Wells Home Mortgage and spoke with CFO Franklin Codel. He told me that Wells has written down principal on the "vast majority of these loans." Yep, just given that debt away, written down so far the tune of $2 billion, or about $46,000 per modified loan. So far Wells has turned about 43,500 Pick-A-Pays into interest-only ARMs."

Working gas in storage was 3,788 Bcf as of Friday, October 30, 2009, according
to EIA estimates. This represents a net increase of 29 Bcf from the previous
week. Stocks were 379 Bcf higher than last year at this time and 414 Bcf above
the 5-year average of 3,374 Bcf. In the East Region, stocks were 123 Bcf above
the 5-year average following net injections of 27 Bcf. Stocks in the Producing
Region were 227 Bcf above the 5-year average of 962 Bcf after a net injection of
1 Bcf. Stocks in the West Region were 64 Bcf above the 5-year average after a
net addition of 1 Bcf. At 3,788 Bcf, total working gas is above the 5-year
historical range.

Health care data company IMS Health Inc. said Thursday it is being bought by investment funds TPG Capital and CPP Investment Board for $4 billion.
IMS shareholders are getting $22 per share under the deal, marking a 31 percent premium to the stock's closing price of $16.81 on Wednesday.

The Dow industrials added 203.82 points, or 2.1%, to end at 10,005.96. The S&P 500 Index rose 20.13 points, or 1.9%, to end at 1,066.63. The Nasdaq Composite climbed 49.80 points, or 2.4%, to 2,105.32.

Wednesday, November 04, 2009

Less Employment

11/4/09 Less Employment

The dollar remained under pressure on Wednesday after ADP Employment Services said private employers cut 203,000 jobs in October, after a revised 227,000 in September that was fewer than initially reported. Last month's tally was close to what some analysts forecast. In September, a revised 227,000 jobs were lost compared with the 254,000 originally reported, ADP said. Goods-producing jobs fell by 117,000in October, including 65,000 in manufacturing and 51,000 in construction. Services-producing jobs fell by 86,000.

Job cut announcements by U.S. employers fell to 55,679 in October, 16% fewer than in September, according to outplacement firm Challenger, Gray & Christmas Inc. It was the third consecutive monthly decline.
"While there are still some trouble spots, the continued decline in job cutting activity across most industries is a positive sign that the economy is slowly improving," said John A. Challenger, chief executive of Challenger, Gray & Christmas, in a statement.
October's total was 51% lower than in October 2008, when nearly 113,000 layoffs were announced. But even though the pace is abating, almost 1.2 million planned layoffs have been announced so far this year -- 36% more than during the same period in 2008.
Challenger said the nation is only about 30,000 planned job cuts away from surpassing the total tally of 2008, which was 1,223,993.

Terra Industries Inc. said Wednesday that it has reviewed CF Industries Holdings Inc.'s latest proposal to acquire Terra for the equivalent of $24.50 in cash and 0.1034 of a share of CF common stock and found it inadequate and not in the best interests of Terra and its shareholders.

September producer prices in the 16-nation euro zone were down 7.7% from the same month last year, the statistics agency Eurostat reported Wednesday. Compared to August, prices fell 0.4%. Both figures were in line with expectations. The euro saw little reaction to the data and remains up 0.3% versus the U.S. dollar at $1.4754. The drop was driven in large part by declines in energy prices. Energy prices were down 17.6% compared to September last year and fell 1.9% from August, Eurostat said. Excluding energy and construction prices, PPI fell at a year-on-year rate of 4.3%, while posting no change from August.

Baker Hughes Inc.,the Houston energy-drilling giant, reported that third-quarter net income fell 87% on 26% lower revenue. Earnings were $55 million, or 18 cents a share, compared with $429 million, or $1.39, in the year-earlier quarter. The latest share figure includes 8 cents of restructuring costs and higher allowance for doubtful debt. Revenue fell to $2.23 billion from $3.01 billion.

Gold futures surged to a new record high on Wednesday, extending their recent strong gains. Gold for December delivery, the most actively traded contract, hit an intraday high of $1,093.70 an ounce in electronic trading on Globex, a new record high for the contract surpassing Tuesday's peak of $1,088.50 an ounce.

The real estate market for homes has deteriorated for years in north-central Ohio. But you'd never know it when dealing with the tax man.
Even as the average sales price of a home sold in the Sandusky area has fallen year after year, the Ohio Department of Taxation has kept up pressure on Erie County to keep home valuations steady, correspondence between a state official and Erie County auditor Tom Paul shows.
MLS sales listings compiled by the Firelands Association of Realtors, which includes Erie, Ottawa, Huron, Sandusky and Seneca counties, show the average sales price in its service area was $141,505 in 2005. The price has fallen every year since then. So far in 2009, the average sales price is $108,090.
Those sales figures do not include foreclosure sales, such as the sheriff sale auctions, said Ruth DeHenning, chief executive officer for the group.
"We have no way of tracking those sales," she said. "If it's not listed and sold by a realtor, we don't have the figures."
Although the values of homes sold in the area have fallen, valuations for real estate have remained essentially flat, and in some areas even risen.

Bloomberg: "Crude oil, which has risen 80 percent this year, is causing the U.S. dollar to weaken, driving metals and other commodities higher, according to Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc.
While oil has risen, the U.S. currency has weakened, leading to speculation that the dollar’s depreciation is driving investors to buy oil as an inflation hedge, thereby pushing up the price of crude.
“I would argue the other way,” Currie said in an interview yesterday in London. “I would argue that higher oil prices drive the dollar down and then the weaker dollar drives the metals and soft commodities up.”
...“Oil represents 40 to 50 percent of the U.S. current account deficit, so a higher oil price represents an outflow of dollars that pushes the currency lower,” Currie said in the interview, after attending a Chatham House conference on food security."

American homeownership, once considered a path to wealth, is now leading to disillusionment. Home prices in the last four years have been the most volatile on record, swinging from a gain of 12 percent in 2005 to an estimated 13 percent loss this year, according to the National Association of Realtors. Those gyrations have embittered many property owners and potential buyers, said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts.
“We always talk about homeownership as being the American dream, but during the last decade people forgot it’s shelter and started thinking of it as a fast way to make or lose money,” said Retsinas. “The quicker we move back to seeing real estate as a place to live, a place to put down roots, the quicker the housing recovery will strengthen.”

Goldman Sachs lost money on just one trading day in Q3, making money on all the other 64. As a reminder, even in Q2 Goldman lost money on two trading days.

Chinese CNOOC buys US oil assets for the first time.

Meredith Whitney: "normalized" earnings for banks is a fallacy, that it's more likely we will see protracted consumer deleveraging, fewer consumers who qualify for credit, and dramatic regulatory change, which will negatively impact earnings for a protracted period."

Walmart has stepped up efforts to mobilise local political support for new store openings in US cities and urban areas that were last month identified as a growth priority for the retailer by Mike Duke, its chief executive.
In addition to a renewed drive to open a second Supercenter store in Chicago, the retailer is also raising its political profile in Philadelphia and continuing to cultivate the ground for a potential move into New York City.

Transocean Ltd., the world's largest offshore oil driller, reported a smaller decline in third- quarter profit than analysts estimated as the company reduced costs in response to slumping demand for floating rigs.

Markets, be they stocks, emerging markets, or commodities, have rallied too far, too fast because the global economy will experience an anemic recovery and not the hoped-for V-shaped recovery, New York University economist Nouriel Roubini said on Wednesday. Speaking at a commodities conference at the New York Stock Exchange, Roubini said "the party" can continue for another six months thanks to the effect of easy monetary policies and stimulus programs. But he warned it would eventually end badly as much of the rise in asset prices since March is yet another bubble fueled by a wall of global liquidity.

The dollar remained lower versus major rivals on Wednesday after the Institute for Supply Management's index on the non-manufacturing sector unexpectedly fell to 50.6 in October, from 50.9 in September. Analysts surveyed by MarketWatch expected the gauge to rise to 51.5. The dollar index ($DXY), which tracks the U.S. currency against a trade-weighted basket of major rivals, traded recently at 75.861, down from 76.369 in North American trade late Tuesday.
The employment index fell to 41.1% from 44.3%.

Julio Quintana, TESCO's Chief Executive Officer, commented "The continued depressed drilling markets, particularly in North America, have reduced our revenue streams across all our business lines. However, our competitive positioning and balance sheet continue to improve. During the quarter, we generated positive cash flow and reduced our net debt outstanding to a net cash position of $11.9 million. We have taken measures to right size the Company to meet the current economic circumstances and market demands. In addition, we have reduced capital spending by 70% year over year. Longer term, we believe the fundamentals driving the growth of our global business remain intact, which we believe will give us the ability to maintain our core strengths and take advantage of opportunities as the market recovers."

German sportswear company Adidas AG said Wednesday its net income fell 30 percent in the third quarter as it saw sales decline, especially at its sport performance division.
Adidas, based in Herzogenaurach, said net income fell to euro213 million ($315 million) in the July-September period from euro302 million in the third quarter of 2008.
Revenue for the period fell 7 percent to euro2.9 billion from euro3.1 billion.
Adidas, which also owns the Reebok brand, said it expected sales to decline at a low to mid-single-digit rate in 2009, assuming unchanged currency values, due to weaker consumer confidence and rising unemployment in many major markets.

Crude inventories fell 4 million barrels in the week ended Oct. 30, and gasoline inventories decreased 300,000 barrels, the Energy Information Administration reported. Analysts surveyed by Platts had expected a modest gain in both fuels. The EIA also reported a 400,000 decline in distillate inventories, which include heating oil and diesel. Demand for gasoline rose 1.8% to 9 million barrels a day, EIA data showed. After the data, December crude futures rose 1.5% to $80.75 a barrel. Futures were up less than 1% before the data.

The U.S. and the global economy will experience massive deflationary forces through 2012, said Nouriel Roubini, economist at New York University, Wednesday. At a conference, Roubini said that although easy monetary policies have fueled another asset bubble, the deflationary forces coming from industrial overcapacity, falling labor costs and a still damaged financial system will prevail over the next two years. But inflation expectations could rise well before that, especially if global central banks take too long to remove their massive liquidity and other stimulus measures. Removing those measures too soon, however, would risk creating "a double dip" recession, Roubini said.

Randall W. Forsyth: "According to a Web site,, the true misery index consists of five indicators: food stamps, bankruptcies, long-term unemployment, foreclosures and credit-card defaults.
For the first time, bankruptcy filings are on a pace to match divorce filings in 2009, the Web site asserted. Bankruptcies could top 1.4 million this year, the highest since 2005, when 2 million filed to beat a more stringent bankruptcy law. That would put bankruptcies back to the levels seen under the old law.
Meanwhile, 38 million people -- 11% of all Americans -- are receiving food stamps, half again as many as in mid-2006. A record 5 million-plus people have been out of work for 27 weeks or more, far above the previous post-World War II peak of less than 3 million in the 1980-81 double-dip recession. Meantime, record home foreclosures and credit-card delinquencies aren't news at this point. But the impact is a sharp, unprecedented contraction in consumer credit."

If the Fed is going to keep interest rates exceptionally low for a long period of time, then why is the yoeld on 10-year Treasury bonds rising. Today the rate, still historically low, is up to 3.55%. Interest-rate futures on Wednesday indicated traders expect the Federal Reserve to keep its target overnight borrowing cost for banks, known as the federal funds rate, at record lows at least until June, after central bank policy makers repeated they expect to keep interest rates low "for an extended period."

Crude for December delivery rose 0.7% to $80.13 a barrel on the New York Mercantile Exchange.

The U.S. Federal Reserve on Wednesday expressed growing confidence that an economic recovery was building, even though it stuck to its commitment to keep borrowing costs near zero for "an extended period."

Natural gas in U.S. storage for the week ended Oct. 23 stood at an all-time high of 3.759 trillion cubic feet - 11% higher than last year and 12.4% above the five-year average.
The U.S. Energy Information Administration is expected to report on Thursday that 31 billion cubic feet of gas were added to storage during week ended Oct. 30, according to the average prediction of 16 analysts and traders in a Dow Jones Newswires survey.
"The shift in weather patterns from colder than normal to warmer than normal should extend the injection season to the middle of November," Kent Bayazitoglu, director of market analytics for Houston-based Gelber & Associates, wrote in a note to clients.

Cisco Systems on Wednesday reported a fiscal first quarter profit of $1.8 billion, or 30 cents a share, compared with a profit of $2.2 billion, or 37 cents a share for the year-earlier period. Revenue was $9 billion, down from $10.3 billion for the same quarter last year. Adjusted income was 36 cents a share. Analysts had expected the San Jose, Calif.-based networking-gear maker to report earnings of 31 cents a share, on revenue of $8.75 billion, according to a consensus survey by FactSet Research.

After rising 140 points earlier, the Dow only closed up 30 points and the Nasdaq reversed to a small loss and the S&P ended almost unchanged.

The Senate voted overwhelmingly Wednesday night to approve legislation extending unemployment benefits and maintaining an $8,000 tax credit for first-time home buyers.
By a vote of 98-0, senators approved a bill that would extend jobless benefits in all states for 14 weeks and extend the $8,000 home-buyer credit through April 30, 2010.
The bill also gives workers in especially hard-hit states up to 20 weeks of extra unemployment benefits. Unemployed workers in states where the jobless rate is above 8.5% are eligible.

Tuesday, November 03, 2009


11/3/09 Buffett

The International Monetary Fund said Monday it's selling 200 metric tons of gold to the Reserve Bank of India, to help shore up the fund's finances. The sale is part of a total of 403.3 metric tons of gold approved for sale in September, the IMF said.

A Senate bill to extend jobless benefits and expand a popular homebuyer tax credit cleared a key procedural step on Monday afternoon, paving the way for a final vote later in the week. By a vote of 85 to 2, senators agreed to cut off debate on a bill that would grant an extra 14 weeks of benefits to those who have exhausted them. The bill would also extend an $8,000 tax credit for first-time home buyers through April 30 of next year and expand the credit to repeat buyers.

While CIT senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer.

Warren Buffett, the second-richest American, agreed to acquire Fort Worth-based Burlington Northern Santa Fe Corp. for $34 billion, in what would be his largest acquisition ever.
Buffett’s holding company, Berkshire Hathaway Inc., agreed to pay $100 a share for the 77.4 percent of BNSF it doesn’t already own. The cash and stock offer represents a 31 percent premium over BNSF’s closing price Monday.
Berkshire Hathaway would also assume $10 billion in debt from BNSF, the nation's No. 2 railroad.
Buffett is paying 18.2 times Burlington’s estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey. On March 9, Burlington fetched 7.8 times next year’s profit projection. In my view, BNSF is not a growth company. Buffett is paying growth numbers for a company that has exhibited a lack of managerial expertise.

Chain-store sales for the week ended Oct. 31 rose 1.9% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales climbed 0.1%. "Sales momentum slowed at the end of the fiscal month of October as weather turned warmer and wetter," said Michael Niemira, ICSC's chief economist. "However, for the month, as a whole, sales performed reasonably well and were helped by favorable weather and easy sales comparisons." ICSC sees October sales to be flat to up about 1%. That compared against its original projection of flat sales.

Johnson & Johnson plans to take a fourth-quarter restructuring charge of about $1.2 billion as part of a cost-cutting program to reduce its global work force by 6% to 7%. This means cutting some 7,000 to 8,000 positions.

St. Louis conglomerate Emerson said fiscal fourth-quarter net income dropped 26% to $506 million, or 67 cents a share, as sales fell 21% to $5.32 billion. Analysts polled by FactSet had expected a profit of 60 cents a share on sales of $5.38 billion. It announced a 1.5% increase in the dividend to 33.5 cents a share, payable on Dec. 10 to holders on record on Nov. 13. Underlying sales, which strips out currency swings and asset sales, are expected to drop 5% to 7% in fiscal 2010 with a flat to slightly down operating profit margin.

The European Commission on Tuesday said it expects the 27-nation European Union to return to growth in 2010 after emerging from recession in the second half of this year. In its quarterly forecast, the commission said it expects 2010 gross domestic product growth of 0.75%, followed by growth of around 1.5% in 2011. For 2009, the economy is expected to post a contraction of 4%.

The Reserve Bank of Australia on Tuesday raised its policy cash-rate target 25 basis points, or a quarter of a percentage point to 3.5%, on the heels of an equal rate-hike last month.

"The market has turned from buying on dips to selling on rallies," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the U.K. taxpayer as the two banks agreed to cap bonuses.

Best-selling author Daniel Estulin states that the key issue to be discussed this week at the G20 Finance Ministers and Central Bank Governors Meeting, being held in St. Andrews, Scotland, is how to bring down the present world financial system through dumping the US dollar. Estulin first reported on this initiative as being deliberated at the most recent Bilderberg meeting held in Greece in May 2009. Estulin says that the success or failure of this callous plan hinges on the ability of the US and UK representatives to convince the Russian, the Chinese and other national governments to go along with their scheme.
Estulin maintains that if the co-conspirators succeed, such sudden devaluation of the US dollar would result in the sinking of the world economy through a chain-reaction collapse of the entire world’s financial system. As discussed during the Bilderberg Group’s super-secret conclave back in May, this breakdown would then be used as an excuse to launch a new world monetary system. G20 leaders are aware that those who run the monetary markets, the monetary system, control the world. That is why today, the world is run through a dominant one-currency monetary system and not by national credit systems.

Developing-nation stocks fell, heading for their lowest level in seven weeks and pushing Russia’s Micex Index toward a correction, as commodity prices dropped and concern deepened governments may rein in stimulus policies.
The MSCI Emerging Markets Index dropped 1.6 percent to 896.71 as of 1:01 p.m. in London, poised for the lowest close since Sept. 15. JPMorgan Chase & Co.’s EMBI+ Index of developing- nation debt fell for a second day, losing 0.4 percent. India’s rupee and the Turkish lira lost 0.8 percent against the dollar, while Hungary’s forint weakened 1.1 percent versus the euro.

China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fueling excessive gains in property prices, a person familiar with the matter said. Australia raised its benchmark interest rate for the second straight month. Oil sank below $78 a barrel, helping drag down Russia’s Micex Index by 3.8 percent and the Dubai Financial Market General Index by 5 percent, the biggest drop among 89 indexes tracked by Bloomberg worldwide.

The Philadelphia transit system's largest union went on strike early Tuesday, stalling the city's bus, subway and trolley operations a day after the World Series shifted to New York and forcing thousands of commuters to find other ways to work.
The strike by Transport Workers Union Local 234 all but crippled a transit system that averages more than 928,000 trips each weekday. The union represents more than 5,000 drivers, operators and mechanics of the Southeastern Pennsylvania Transportation Authority.

Earthfiles: "Record October Rainfall Floods Midwest Crops.
Delayed harvests and rotting crops - what's economic impact?
“Typically during the fall, it's our driest portion of the year.
To see such astronomically high amounts of precipitation, where
we got several inches above the previous record levels, is very abnormal.”
- Benjamin Sittrell, Meteorologist, National Weather Service, St. Louis, Missouri

Economic Disconnect: "The improving data will have to go head to head against what is happening on a daily basis on the ground. Is it possible to have GDP growing at 4% while commercial real estate crumbles? We may soon see such a moment. If unemployment hits 12% can you really see rising home sales?
I think going forward we will see many such opposing metrics. Expect a volatile situation."

Mort Zuckerman: Forget inflation, deflation is a bigger danger.

ZeroHedge: "The US Treasury today announced a preliminary estimate of borrowing needs in the Q4 2009 and Q1 2010 quarters. The October-December borrowing need has been revised lower to $276 billion from the $485 billion announced in July 2009. The primary reason for the decline, aside from the need to stay below the $12.1 trillion debt ceiling which would have already been breached had this number been in line with prior expectations, is due to the $185 billion refunded from the Supplementary Financing Program announced earlier, which as of October 28 has been completed. Yet, like everything else with the current administration, current peace of mind comes at a magnified future cost: the US Treasury now expected to issue $478 billion in Treasurys in Q1, and coupled with a net cash decline of $40 billion from Q4, implies that in Q1 2010 over half a trillion in debt will be issued net, if not more."

More than 25 tax measures will appear on local ballots in Alameda, Contra Costa, San Mateo, Santa Clara and Marin counties. They range from hotel taxes on the Peninsula to parcel taxes in Marin to a cardroom tax in Emeryville. When will they put a tax on breathing in CA?

Marathon Oil said Tuesday that its third quarter profit plunged from a year ago when record-high prices sent gasoline prices over $4 per gallon.
Yet the company, based in Houston, says production rose this quarter and for the entire year compared with 2008.
The rising production numbers are in line with what other major oil and gas producers are reporting this quarter, as companies report major new finds and cut costs.
Rebounding prices for crude have helped.
Marathon said it made $413 million, or 58 cents per share, for the quarter ended Sept. 30, down from profit of $2.1 billion, or $2.90 per share, in the year ago quarter.
Discounting charges, Marathon said it made 61 cents per share in the quarter. Not including a $101 million gain, the year-ago profit would have been $2 billion, or $2.76 per share.
Revenue for the quarter was $14.5 billion, down 38 percent from revenue of $23.3 billion in the year ago quarter.

Best Buy Inc. is partnering with online video provider CinemaNow to create a new a movie downloading service that will be integrated into most Internet-connected electronics -- including televisions, DVD players, computers and phones – sold at the store.
Facing an industry-wide decline in physical media, Best Buy has recently been making an aggressive push into digital. Last year it acquired online music service Napster for $121 million. The partnership with CinemaNow, which is expected to launch late this year or in early 2010, marks a companion move in online movies and comes as DVD sales are down about 13% so far this year.

Frank Shostak, an adjunct scholar of the Mises Institute, observes, “The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the ‘economy.’ However, at no stage does the so-called ‘economy’ have a life of its own, independent of individuals. The so-called economy is a metaphor – it doesn’t exist.”

Rep. Ron Paul: "I have introduced legislation to keep politicians in Washington from ever raiding the Social Security trust fund again. HR 219 The Social Security Preservation Act would assure that all monies collected by the Social Security Trust Fund would only be used in payments to beneficiaries, or be placed in interest bearing certificates of deposit. This would at least stop the bleeding of the fund, and take away some incentive to tease and torture the numbers in order to give seniors the minimal amount. This would also cut off a source of funding for government growth, so it is not likely to get easy support from many politicians.
It is bad enough that Washington imposes high payroll taxes on American workers. The least Congress could do is use the tax dollars for their stated purpose. Instead, seniors will have a harder and harder time trying to survive on a fixed income in an economy based on variables and deception. For them, it is too late to start over. Today's young people will be forced to pay into the system for years to come. The first step towards solving the impending crisis facing Social Security is to stop politicians from raiding the trust fund and to significantly cut federal government spending."

Orders for durable goods, which make up just over half of total factory demand, increased 1.4 percent after a 2.7 percent drop the previous month. Bookings for non-durable goods, including food, petroleum and chemicals, rose 0.6 percent.
The increase in demand for long-lasting goods was propelled by a 7.9 percent surge in bookings for machinery, the biggest gain since March 2008. Bookings for vehicles and parts climbed 0.6 percent.
Orders placed with U.S. factories rose in September for the fifth time in six months, reinforcing signs that manufacturing will drive the economic recovery.
Bookings increased 0.9 percent, exceeding the median forecast of economists surveyed by Bloomberg News, after dropping 0.8 percent in August, figures from the Commerce Department showed today in Washington. Excluding demand for transportation equipment which tends to be volatile, orders climbed 0.8 percent after a 0.3 percent August gain. Orders and shipments for nondurable goods increased 0.6%. Inventories fell 1%, the 13th consecutive decline.

Banking group HSBC Holdings will cut 1,700 jobs over the next year as part of a restructure of its U.K. retail banking business.

Voter confidence in America’s conduct of the War on Terror has fallen to its lowest level since the first week of January in 2007. Voters are also much less optimistic about the course of the war in Iraq.
New Rasmussen Reports national telephone polling finds that just 34% of voters say the United States and its allies are winning the War on Terror. That’s down nine points from a month ago and 21 points from when Barack Obama first took office.

“The market is ignoring anything positive and it’s getting obsessed with anything negative or modestly negative,” said David Katz, chief investment officer at Matrix Asset Advisors in New York, which manages $1.2 billion. “The overall banking group, most have reported in line to better-than-expected numbers. UBS did not, and a month ago, the market would have overlooked it and said it was UBS-specific and Europe- specific.”

UBS said its third-quarter net loss was 564 million Swiss francs ($552 million), compared with a 283 million-francs profit a year earlier. Analysts surveyed by Bloomberg estimated a loss of 337 million francs.

Consumer spending accounted for 70 percent of the U.S. economy before last year's economic meltdown, a level that Volcker said was sustained only by "the magic of financial engineering."
"We cannot rebuild the economy to the tune of 70 percent consumption or housing booms. It will just break down again," Volcker said.

Gold for December delivery ended the New York floor session $30.90, or 2.9%, higher at $1,084.90 an ounce, a closing high for the contract.

The Dow Jones industrial average slipped 17.53 points, or 0.18 percent, to end at 9,771.91. But the Standard & Poor's 500 Index added 2.53 points, or 0.24 percent, to finish at 1,045.41. The Nasdaq Composite Index advanced 8.12 points, or 0.40 percent, to close at 2,057.32.

Monday, November 02, 2009

Home Values

11/2/09 Home Values

Deutsche Bank believes continued declines in home values will increase the number of US mortgagors with negative equity from 14m in Q109 to 25m in Q111.

According to a report Deutsche released this week, the 25m represents a projected 48% of all US mortgages. While subprime and option adjustable-rate mortgages (ARM) are the biggest source of underwater borrowers in the current market, Deutsche said a larger percentage of prime conforming and prime jumbo borrowers will join the fray.

Prime conforming and prime jumbo will make up 79% of all US mortgages and Deutsche estimates 41% of conforming and 47% of jumbo will be underwater, up from current levels of 16% and 29%, respectively.

This rapid influx of underwater borrowers will have a significant impact on default rates. In addition to future underwater borrowers being forced into default from a “life event” — unemployment, divorce, disability, etc. — Deutsche warned others may “ruthlessly” or strategically default.

CF Industries Holdings Inc. announced Sunday its latest bid for Terra Industries Inc., offering $32 in cash and 0.1034 CF share for each Terra share. The total value, based on Friday's closing level for CF, totals $40.61 a share. The Deerfield, Ill.-based fertilizer producer has made repeated unsolicited offers for Terra -- most recently in September -- with all such bids rejected. This most recent offer came in at a 28% premium to Terra's Friday closing price, CF said.

How is it possible that heating oil has now moved above $2 a gallon and the price for natural gas has moved below $5 per million cubic feet? Does winter only mean usage for heating oil? What is the risk in buying one and shorting the other?

Ford made about a $1 billion profit in the quarter thanks to cash for clunkers.

Clorox sees earnings per share for 2010 in the range of $4.05-$4.20. FactSet analysts see 2010 earnings of $4.21 a share, on average.

As expected, CIT filed for bankruptcy. CIT is an important source of capital, working with 2,000 vendors that supply merchandise to more than 300,000 stores. About 60 percent of the apparel industry depends on CIT for financing.

Humana said 2010 earnings are seen between $5.05 and $5.25 a share, compared to its 2009 EPS view of $6.15, and it expects revenue next year growing to between $32 billion and $34 billion, compared to $31 billion in 2009.

Human Genome Sciences Inc said its experimental lupus drug Benlysta was successful in a second large clinical trial, paving the way for approval of the first new treatment for the disease in 50 years.

Shares in Human Genome jumped 40 percent in pre-market trading.

The Institute for Supply Management's index of business activity rose much more than expected in October to a reading of 55.7, from 52.6 the previous month. Yields on 10-year notes rose 5 basis points to 3.44%.

An index that tracks pending sales of existing homes rose a seasonally adjusted 6.1% in September, the eighth consecutive increase, the National Association of Realtors reported Monday. Pending sales are up 19.8% compared with September 2008. Buyers were rushing to beat the expiration of an $8,000 federal tax credit for first-time buyers, according to Lawrence Yun, chief economist for the real estate lobbying and advocacy group. Sales activity typically drops in the fall. On a non-seasonally adjusted basis, pending sales fell 7.8% in September.

Nouriel Roubini: "So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March....So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

While this policy feeds the global asset bubble it is also feeding a new US asset bubble. Easy money, quantitative easing, credit easing and massive inflows of capital into the US via an accumulation of forex reserves by foreign central banks makes US fiscal deficits easier to fund and feeds the US equity and credit bubble. Finally, a weak dollar is good for US equities as it may lead to higher growth and makes the foreign currency profits of US corporations abroad greater in dollar terms.

The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy. Near-zero policy rates and quantitative easing were already in place in the UK, eurozone, Japan, Sweden and other advanced economies, but the dollar weakness is making this global monetary easing worse. Central banks in Asia and Latin America are worried about dollar weakness and are aggressively intervening to stop excessive currency appreciation. This is keeping short-term rates lower than is desirable. Central banks may also be forced to lower interest rates through domestic open market operations. Some central banks, concerned about the hot money driving up their currencies, as in Brazil, are imposing controls on capital inflows. Either way, the carry trade bubble will get worse: if there is no forex intervention and foreign currencies appreciate, the negative borrowing cost of the carry trade becomes more negative. If intervention or open market operations control currency appreciation, the ensuing domestic monetary easing feeds an asset bubble in these economies. So the perfectly correlated bubble across all global asset classes gets bigger by the day...But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments....This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall."

Spending on U.S. construction unexpectedly rose in September as residential builders rushed to finish projects in anticipation of a possible end to the first- time home-buyers tax credit.

The 0.8 percent increase, the biggest since September 2008, followed a revised 0.1 percent drop in August that was previously reported as a 0.8 percent gain, Commerce Department figures today showed. Spending on residential and government projects climbed, while outlays on private commercial construction slumped for a fifth consecutive month.

Individual investors' cash holdings in October fell to the lowest since July 2007 and Americans became more willing to invest in higher-returning assets as the economy improved, according to a new survey by the American Association of Individual Investors. The proportion of holdings in cash fell to 19% of assets last month. Investors increased both equity and fixed-income holdings, with individual stocks holdings rising about 1 percentage point to 29% of assets, and stock mutual fund holdings also up about 1 point to 28%. The organization, with about 165,000 members, surveys its members monthly. On Monday, the Standard & Poor's Index rose about 1% on better-than-expected manufacturing data, after falling 1.9% in October, the first monthly decline since February.

Stanley Works and Black & Decker on Monday announced that they will merge in an all-stock deal valued at $4.5 billion. Under the terms of the deal, Black & Decker shareholders will receive 1.275 shares of Stanley for each share they own of Black & Decker. That represents a 22.1% premium to Black & Decker's closing price Friday. Stanley will own 50.5% of the newly created company and Stanley Chairman and CEO John Lundgren will take over as CEO. Nolan Archibald, CEO of Black & Decker for 24 years, will become executive chairman for three years.

The Dow Jones Industrial Average added 76.71 points, or 0.8%, to 9,789.44. The S&P 500 Index gained 6.7 points, or 0.7%, to 1,042.88, while the Nasdaq Composite rose 4.09 points, or 0.2%, to 2,049.20.

Sunday, November 01, 2009

Technical Destruction

11/1/09 Technical Destruction

Aiming to dramatically slash costs, Time Inc. will lay off roughly 540 employees starting next week, company insiders say.

Mike Paulenoff: "Friday's action could have been one of the more destructive technical sessions in recent memory. Not only did the day's weakness totally reverse Thursday's upside reversal gains, it closed on the low for the day and for the week. Furthermore, let's notice that on the enclosed weekly chart that this week's close broke and sustained beneath 1) the Aug-Oct support line;
2) the 10-week (or 50-day) MA; and 3) the major up trendline that originated off of the March 2009 low at 666.79. Finally, let's notice the very negative juxtaposition of the weekly slow stochastics and the weekly RSI.
The composite picture that we are left with this evening is ominous for the SPX, and should result in a relatively nasty correction that is similar, but more intense than the 88-point decline during the June-July period. Even so, if such a decline emerges and equals the 10% June-July decline, the SPX will press to 990 next. However, if the magnitude of the correction is commensurate with the much more dramatic tops in the oscillators, I will be expecting a decline to 960-930 before the dust settles."

Robert New/Jack Steiman: "I've been talking quite a bit lately about the very nasty negative divergences across the major indexes on the daily charts. In many cases, quadruple negative divergences. That's not something you see very often. When it takes place, at some point in time there will be a price to pay for that type of set up. We are seeing that take place now. The sad things is, if you're a bull, is that these set ups often end a bull market. Once the wedges go, there's no looking back. The wedges are not only broken on the major index charts but also on many key sector charts such as the banks, transports, etc. Conversely, we now have a wedge breakout on the Uup (dollar) which makes the situation that much more dire for this recent bull market. With the market trading inversely to the dollar, a stronger dollar does not bode well at all for the bulls. What was unknown was when the divergences would finally kick in. One negative divergence after another and up we went. It was a fun ride and staying with that trend was the only way to play. We enjoyed seven fun months of trading. We never went against the trend. It paid off nicely. You simply wait for the bearish rising wedge to break and that's when you know the overall up move has ended. It's called a bearish rising wedge even as we go higher due to the negative divergences that form as we rise higher and higher. The market has made the turn. We are in a bull market no longer. Things can change again in time but for now the bullish trend is a memory."

Last week, for the first time since early July, new lows exceeded new highs on the NASDAQ.

Mike Burk: "The market is at an oversold extreme and the first 3 days of next week (month) have been seasonally strong.
I expect the major indices to be higher on Friday November 6 than they were on Friday October 30."

China's exports face a "hard and tortuous" path to recovery as uncertainties dog the global economy's gradual return to health, with this year's trade surplus set to shrink from last year's record, the Commerce Ministry said.
Commerce Minister Chen Deming told a conference on Saturday that China's trade surplus was expected to fall to $180 billion to $190 billion this year from last year's record $295.5 billion.
The surplus was $136.4 billion in the first nine months of the year.

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers on falling home prices, completed at the brink of the housing market meltdown, enabled one of the nation's premier investment banks to pass most of its potential losses to others before a flood of mortgage loan defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman promoted as triple-A investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy Newspapers investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

More than 1,000 American troops have been wounded in battle over the past three months in Afghanistan, accounting for one-fourth of all those injured in combat since the U.S.-led invasion in 2001.
The U.S. has invaded Iraq and Afghanistan and let's not forget the invasion of American freedoms gained through centuries of fighting. No one counts the casualties resulting from that invasion. They are too numerous and the press turns a blind eye. Since when did Americans not fight to keep our freedoms? While some play golf, others do the dirty work in Congress and in the West Wing.

Nearly two-thirds of consumers said the economy would affect their holidays, according to a National Retail Federation survey, with 84.2% of those respondents saying they would spend less.
A more generous measure is to spend no more than 1% to 2% of your annual income on the holidays, said Morris Hamm, a personal finance expert and professor at the University of Phoenix. That's down from the 2% to 3% he recommended before the recession.

Sol Palha: "Multiple trend line analysis indicates that the intensity of each downward move is picking up steam. As such events occur in sets of 3; we have at the least one more downward move to contend with. It also states that eventually the main up trend line has to be tested. As this is a very long term chart, it does not mean it has to occur right now. However, if consumer spending drops as we think it will drop then in several years, there is a possibility that this could come true. Now there is a big outside factor; this is what trips most individuals for they seem to focus on absolutes. We believe that the dollar is going to lose a huge amount of its value in the years to come. Thus in present dollars the Dow might actually hit the 1400-1600 ranges, but if the dollar starts losing its value at a very rapid pace then the Dow would have to compensate for this loss. In other words, one would have to adjust the value of the Dow to take inflation into consideration to get the true value of the Dow....If by some miracle the Dow traded into the 1400-2000 ranges, it would be screaming buy of all screaming buys, and it would be prudent to jump in with both feet and start loading up like a madman on shares. This is the opportunity that 100% look for but 99.9% miss. Please do not fixate or dream about this target for it will cloud your vision of what is going on now. No one thought that the Dow would fall from 14000 to 6449 so one should remember that nothing is impossible.
As we stated several times in the last 2 months, there are subtle but not fully confirmed indications that the Dow could potentially trade to 12000 and in doing so will probably offer a perfect set up for a horrendous correction and a repeat of what took place in the 1929-1930's era."

This week I expect the Fed to maintain interest rates at their current irrationally low levels and that will put a lid on any dollar enthusiasm. The employment rate will approximate 10% but the underemployment rate reflected in U6 will be at least 18%. As for the birth/death syndrome as I called it, this continues to be pure
bullshit. The only new jobs are for census workers and the team of 30+ czars. In other words, jobs that are a figment of Obama's imagination. Those jobs are not lasting.

Bruce Krasting: "The deep thinkers at the Richmond Fed have come up with an analytic report on mortgages. The scary conclusion is that when the government is the provider of mortgages there is a significantly higher probability that the loan will default versus a private sector lender. In other words, Uncle Sam is a "soft touch" lender, no need to pay.That conclusion will not sit well with Congress, so it is unlikely that this report will see the light of day. I doubt that many in Congress could read it anyway. The report breaks down each individual State's rules on defaulting on a mortgage. A must read for those thinking of going down that path."