Saturday, November 28, 2009

A Pimple On An Elephant's Ass

11/28/09 A Pimple On An Elephant's Ass

Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling.
"We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official in the government of the emirate of Abu Dhabi told Reuters by phone. "Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist," said the official, who declined to be identified because he is not authorized to speak to the press.

According to the Dallas Fed, current unfunded liabilities are about $100 trillion dollars. That makes Dubai's problems look like a pimple on an elephant's ass.

Marla Singer: "It occurs to us that, in this respect, and in an admittedly perverse (but deliciously ironic) interpretation, Abu Dhabi is the Anti-Fed/Anti-Treasury that some Americans have been lusting for in the wake of AIG funnel payments to the likes of SocGen: Crushing moral hazard (and bond prices), a dozen foreign investors at a time (and perhaps making money for taxpayers on the bailout in the very short term via careful use of quiet acquisitions of distressed debt and the aggressive use of default protection).
Or maybe the message is simply that sovereigns of all stripes should just stay the fuck out of finance."

Most big U.S. banks may be forced to make public offerings soon if the Treasury demands payback of the funds it issued under the Troubled Assets Relief Program, veteran banking analyst Richard Bove said.
The U.S. Federal Reserve this month asked banks that were part of its "stress tests" to submit plans to repay government money, if they have not already repaid it.
"Virtually all of the banks can easily redeem their TARP preferreds from current cash holdings. However, it may be that only 3 of the top 30 would have an adequate Tier 1 Capital ratio if they redeemed these preferreds," Bove said in a note to clients.

ZeroHedge: "The Federal Reserve's balance sheet hit a new all time record of $2.2 Trillion in assets, after an $11 billion spike in MBS and Agency purchases week over week."

David Rosenberg: "The Conference Board’s consumer confidence index may have improved (48.7 in October to 49.5 in November) and beaten consensus expectations, but it remains firmly in recession terrain. It is so obvious that consumers are tired of the over-borrowing and over-spending days of yesteryear. Despite all the temptations provided by the government, auto buying plans dropped to an eight-month low (from 4.7 in October to 4.4 in November); home buying plans slipped to a new 27-year low of 2.3 (from 2.5 in October and 3.0 in September); and intentions to buy a major appliance stayed at a 14-year low (23.2)."

The Oil Drum: "It is a little early to see how the Dubai situation will play out, but it seems to me that there is a significant chance that the Dubai situation will mark the beginning of the next leg down in the downward recessionary spiral and world debt unwind. Oil prices are likely to drop, so few are likely to notice that oil ultimately plays a major role in the continuing debacle."

According to the WSJ, “the new investments funded by China’s stimulus plan may swamp world markets and lead to a surge in trade conflicts, an international business group said… The European Union Chamber of Commerce in China… said a combination of easy credit and other incentives for Chinese companies to expand has led to the construction of many new factories in areas like steel, aluminum, cement and chemicals. The increase in industrial capacity – at a time of global economic weakness – could drive down profit margins worldwide and lead to a backlash from other countries, the chamber said. ‘The Chinese stimulus package has poured credit into increasingly questionable projects and will almost certainly increase direct and indirect subsidies to investment and manufacturing,’ the report says. ‘China’s growth model requires that external demand - the European Union and the United States - be able to absorb the overcapacity it produces,’ a prospect that is increasingly unlikely given the weak economic recovery in the developed countries.”

Dubai is part of the United Arab Emirates, seven city-states which have separate ruling families, separate budgets, but security, immigration and foreign policies in common. Abu Dhabi has nearly all the UAE’s oil.
An estimated 50% has been wiped off the average price of real estate in the emirate since its peak… Earlier this month, UBS said Dubai property prices could drop a further 30% over the next 18 months.
Bloomberg (Francois De Beaupuy): “French Prime Minister Francois Fillon said Dubai’s request to reschedule debt repayments shows the global financial crisis “is not over” and that stimulus efforts must be maintained to avoid “breaking the weak recovery.’” Unfortunately, government stimulus created through more indebtedness cannot foster positive cash flow that sticks to the bones of its citizens.

According to the NY Times, New York State is running out of cash. Without a budget deal, New York will be left with just $36 million in the bank by the end of December, according to current projections. And the money will last that long, officials say, only if the state chooses to fully exhaust its emergency reserves by tapping several billion dollars’ worth of temporary loans from its rainy-day fund and short-term investments.

New Jersey, which faces an estimated $8 billion deficit, saw tax revenue collections fall last month by $222 million or 11.6% short of projections, the treasurer’s office said.

Vietnam shaved 5% off the value of its currency, the dong… its third devaluation since June 2008.

Reggie Middleton: "In terms of absolute dollar exposure, JP Morgan has the largest exposure towards both Interest rate and Forex contracts with notional value of interest rate contracts at $64.6 trillion and Forex contracts at $6.2 trillion exposing itself to volatile changes in both interest rates and currency movements."

Bob Hoye: "The concept of throwing credit at a credit contraction and hoping it will go away has been floated on every severe crisis since the 1618 crash. The esteemed Walter Bagehot argued it elegantly when he was editor of The Economist in 1873. That year's collapse of a great bubble marked the beginning of long contraction that in 1884 prompted the first usage of the term "Great Depression". The long-running contrast between academics and the markets has been one of the best generators of irony in history. The contraction lasted from 1873 to 1895, but as late as 1939, top economists such as Rostow, were still analyzing it as the "Great Depression".

Recently, leading experts have declared that certain manipulations have prevented "Great Depression 2.0" from happening. From their own literature such economists should know that it would be the third one. History counts that the one that started in 1929 was number five in the series."

Marc Faber: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".

"I think eventually there will be a big bust and then the whole credit expansion will come to an end," Faber added.

"Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".

In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war".

"People ask me against whom? Well, they will invent an enemy," Faber said.

"At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly."

Business Week: "With industry sales expected to tumble 8% to $164.9 billion this year, Pioneer dropped out of the plasma HD television market and mobile Internet device innovator OQO shut its doors. Even the supposedly recession-proof video-game industry suffered steep sales declines."

Like many home owners, hotels are starting to drown in debt. They have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights. But all that discounting hasn't stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt. The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It's a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.

The oversupply means room rates should stay low for at least another year, good news for consumers but not so great for hotel owners and the banks that lent them the cash to build or buy.
The rise in delinquencies is sharp. Five times more hotel loans are behind on payments this year than in 2008, according to mortgage data firm Trepp LLC, which tracks those traded by investors. In October, 8.7 percent were distressed, compared with 1.5 percent last year.

The French electricity giant EDF will take a 10 percent stake in the Gazprom natural gas pipeline South Stream, to run under the Black Sea, said the chief executive of Gazprom, Aleksei Miller. Another French utility, GDF Suez, announced progress in taking part in a separate proposed pipeline, Nord Stream, under the Baltic Sea.

Both pipelines would compete with Nabucco, a proposed pipeline backed by the United States and the European Union.

EBay Inc.'s PayPal unit, which processes online sales for a wide swath of shopping sites, said that it recorded a 25% increase in the volume of U.S. payments on Thursday, compared with Thanksgiving last year. A year ago, Thanksgiving Day sales were up just 15% above figures for 2007, the company said.

Hyundai Motor Co. said Saturday it will pull out of the Japanese passenger vehicle market amid sluggish sales, and instead focus on commercial vehicle sales there.

Michael Santoli: "So when Dubai World, the corporate affiliate of the emirate of Dubai, sought to suspend debt payments last week, triggering a spasm of selling in world markets, the natural question is, what will happen to investor confidence in assets that have been lifted by a rising liquidity tide...BCA Research seemed to have it about right in a Friday dispatch, noting that the Dubai tripwire, Greek bond selloff and Vietnam's devaluation all come as equity markets "are technically vulnerable [and] the risk/reward tradeoff has deteriorated. The turbulence gives an excuse to hedge funds to reduce risk and lock in gains as year-end approaches."

Friday, November 27, 2009

Capital Flows

11/27/09 Capital Flows

With the backdrop of the Dubai debt default, in early pre-market trading the Dow was down close to
250 points. On the holiday shortened trading day, we'll see how the damage can be minimized.

Dubai's debt woes may serve as a catalyst for a correction in stock markets but it does not signal a new crisis, investment manager Mohammed El-Erian told CNBC.

China says the U.S. Commerce Department's decision to levy an average of about 13.7 percent anti-subsidy tariffs on its oil well pipes is "discriminatory."
The tariffs, designed to counter China's unfair government subsidies, were announced Tuesday, the state-run Xinhua news agency reported. They will range from 10.36 percent to 15.78 percent, affecting more than $2.5 billion worth of Chinese exports.

The United Arab Emirate (UAE) has total debt amounting to $184 billion at the end of 2009, according to estimates by Bank of America-Merrill Lynch, which said the region faces a heavy redemption schedule until 2013.

Japan and Switzerland intervene in forex markets in an effort to prop up the dollar.

The S&P 500 Index sank 19 points, or 1.7%, to 1,091. The Dow Jones Industrial Average declined 154 points, or 1.5%, to 10,310, and the Nasdaq dropped 38 points, or 1.7%, to 2,138.

Thursday, November 26, 2009


11/26/09 Dubai

European shares slipped 3.2 percent on Thursday to record their biggest one-day percentage drop in seven months as concerns about debt problems in Dubai weighed on the market, with banks the major fallers.

Gold imports by India, the biggest buyer, slumped for the seventh month as jewelers and housewives
shunned bullion because of record prices, a traders’ group said.
Purchases so far this month totaled about 18 tons compared
with 34 tons a year ago, said Suresh Hundia, president of the Bombay Bullion Association Ltd., citing preliminary data.

U.S. bankruptcy filings rose 33 percent in the
third quarter to the highest number since 2005, government data show,
as rising unemployment and tight credit made it more difficult for
consumers and businesses to stay current on their debts.
unemployment surpassing 10 percent and credit to businesses remaining
tight, consumers and businesses are increasingly turning to the
financial relief of bankruptcy," said Samuel Gerdano, executive
director of the nonpartisan American Bankruptcy Institute, in a

Online advertising revenue in the U.S. fell
5.4 percent in the third quarter from a year ago, as the sputtering
economy kept its tight grip on even the fastest growing segment of
industry, according to a report released Wednesday.
But there's a
glimmer of hope: Revenue was up 1.7 percent from the second quarter,
the first sequential increase since late 2008, the industry trade group
Interactive Advertising Bureau said in a report prepared by
PriceWaterHouseCoopers LLP.

The extremely high search volume on Wednesday means many people were making menu and shopping decisions at the last minute.
“As a snapshot of America,” said Tanya Wenman Steel, the editor in chief of Epicurious, “it shows that people aren’t planning.”

According to the Christian Science Monitor, “the shadow economy makes
up a larger portion of the economies of countries like Greece (25
percent) or Mozambique (more than 40 percent) than it does in the US.
But because America’s economy is so much bigger, its shadow economy
amounts to nearly 8 percent of its gross domestic product (GDP) — in
the ballpark of $1 trillion, estimates Friedrich Schneider, an
economics professor at Johannes Kepler University in Linz, Austria.
That’s bigger than the GDP of Turkey or Australia.”

Starting Dec. 12, the automated system that Fannie Mae uses to approve
loans will reject borrowers who have at least a 20% down payment but
whose credit scores fall below 620 out of 850. Previously, the cutoff
was 580.
Also, for borrowers with a 20% down payment, no more than 45% of their gross monthly income can go toward paying debts.
declined to disclose the previous threshold, except to say that it was
higher. The company will raise the level to 50% in cases with "strong
compensating factors."

Chris Puplava: "Since the start of the decade gold has been in a strong secular bull
market in which it has had only one negative year (2001) while the
S&P 500 has had four. Gold’s strong performance has produced a
cumulative return of 311.54% for an annualized return of 15.18% per
annum this decade. In stark contrast, the S&P 500 has been in a
secular bear market in which its cumulative return has been a negative
24.52% for a negative 2.77% annualized return."

Rocky Vega: " According to a recent Thomson
Reuters/Ipsos poll, many Americans consider the US relationship with
China the most important one it has. That’s despite uncertainty about
whether or not that’s a good thing… most thought it was bad.
According to the write-up,
“Thirty-four percent of Americans chose China as the ‘most important
bilateral relationship’ — ahead of Britain and Canada. Yet when asked
to characterize China, 56 percent saw it as an adversary while only 33
viewed it as an ally.”

According to Reuters, offshore crude storage, which has declined sharply from record
levels in April, may rise again in the U.S. Gulf as front-month U.S.
oil futures trade at a steep discount to barrels for later delivery.
The volume of crude oil stored in tankers globally has dipped to
between 32 million and 42 million barrels, according to estimates from
several shipbrokers. Floating crude storage likely fell more than 60
percent from peaks above 100 million barrels in April.
Offshore storage plays may now regain popularity near the U.S. Gulf
Coast, a key refining region and hub for seaborne oil imports, several
shipbrokers and industry sources said. A U.S. oil market contango -
when prompt crude trades at a discount - is encouraging new storage

Wednesday, November 25, 2009

Happy Thanksgiving

11/25/09 Happy Thanksgiving

Crude oil futures slipped below
$76 a barrel in electronic trades after the American Petroleum
Institute late Tuesday reported a surprise jump in oil inventories last
week. The industry group said crude stocks rose by 3.347 million
barrels in the week ended Nov. 20. Analysts polled by Platt's had
expected a rise of 1.4 million barrels. Gasoline stocks rose 1.7
million barrels, and distillate stocks fell 2.4 million barrels.
Analysts expected a rise of 500,000 barrels in gasoline inventories and
unchanged distillate stocks. Crude oil for January fell to $75.73 a
barrel, down 0.4% from the floor close of $76.02 a barrel. Oil ended
the floor session 2% lower.

Orders for U.S.-made durable
goods fell in October, declining 0.6% on weaker demand for machinery,
the Commerce Department reported Wednesday. Excluding transportation
goods, orders fell 1.3%. Unfilled orders for manufactured durable goods in October, down thirteen consecutive months, decreased $3.0 billion or 0.4 percent to $730.4 billion. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent September decrease. Transportation equipment, down twelve of the last thirteen months, had the largest decrease, $2.2 billion or 0.5 percent to $424.3 billion.

Real (inflation-adjusted)
consumer spending rose a seasonally adjusted 0.4% in October after a
0.7% drop in September. Real disposable incomes rose a seasonally
adjusted 0.2%, following a gain of 0.1% in September. In current-dollar
terms (not inflation-adjusted), spending rose 0.7% in October,
following a drop of 0.6% in the prior month. Current-dollar personal
income rose 0.2% in October.

In the week ending Nov. 21, the advance figure for seasonally adjusted initial claims was 466,000, a decrease of 35,000 from the previous week's revised figure of 501,000. The 4-week moving average was 496,500, a decrease of 16,500 from the previous week's revised average of 513,000.
The advance seasonally adjusted insured unemployment rate was 4.1 percent for the week ending Nov. 14, a decrease of 0.2 percentage point from the prior week's unrevised rate of 4.3 percent.
The advance number for seasonally adjusted insured unemployment during the week ending Nov. 14 was 5,423,000, a decrease of 190,000 from the preceding week's revised level of 5,613,000. The 4-week moving average was 5,613,750, a decrease of 98,500 from the preceding week's revised average of 5,712,250.
The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.866 million.
For the fiscal year Tiffany
lifted its earnings guidance to a range of $1.88 to $1.98 a share, from
a range of $1.65 to $1.75 a share and said total worldwide sales would
drop around 8%.

Deere & Co
said Wednesday its fiscal fourth-quarter net loss was $222.8 million,
or 53 cents a share, versus net income of $345 million, or 81 cents a
share, in the year-ago period. On an adjusted basis, the agricultural
equipment company said it earned 23 cents a share. Total net sales fell
30% to $4.7 billion. Analysts polled by FactSet Research were looking
for sales of $4.6 billion, on average. For 2010, Deere predicted net
income of about $900 million, versus the Wall Street consensus of $1.1

Greek banks fell sharply on
Friday amid worries about how the lenders will fund themselves once
European Central Bank support is wound down.

Half of the losses suffered by banks could still be hidden in their
balance sheets, more so in Europe than in the United States, the
International Monetary Fund's chief, Dominique Strauss-Kahn, was quoted
as saying on Tuesday.

The U.S. dollar traded at a new 16-month low.

An index of consumer sentiment
in November rose to 67.4 from an earlier reading of 66, said the
University of Michigan and Reuters Wednesday, according to media
reports. Economists polled by MarketWatch were expecting a reading of
67. The November report is a drop from 70.6 in October, marking the
survey's second straight monthly drop.

U.S. new home sales rose 6.2% in
October on strong results in the South, the Commerce Department
estimated Wednesday. The rise in new-home sales to a seasonally
adjusted annual rate of 430,000 was well above the 390,000 pace
expected by economists surveyed by MarketWatch. Sales rose 23.2% in the
South. Sales fell 20% in the Midwest, and 5.1% in both the Northeast
and the West. The pace of new-home sales in September was revised
slightly higher to a level of 405,000. New-home sales are up 5.1%
compared with a year ago. The supply of homes on the market fell to
239,000 in October, representing a 6.7-month supply. The median sales
price in October hit $212,200, compared with $213,200 in the prior

China's energy firms are reducing gas supplies to industry to avoid
having to cut off households during winter, but risking more factory
shutdowns, dampening production and raising costs as shortages may
The shortfalls began this month when early, heavy snow hit northern
China, spiking up heating demand and forcing PetroChina to divert south
China's supplies northwards. The cold spell then hit the south, adding
to demand and slowing supplies.
PetroChina (601857.SS),
the country's leading gas supplier, said on Tuesday it would make a
second cut of 3 million cubic meters (mcm) in the daily amount it
delivers to industrial users in northern China, reducing their volumes
by another 10 percent.
PetroChina has also cut 3 mcm per day, or 8 percent, from supplies
to firms in the Yangtze River delta and the provinces of Hunan and
Hubei, as well as trimming flows to industries in the southwest and
northwest, the main gas producing regions.

Financial Chronicle of India:"India
is open to buying more gold from the International Monetary Fund (IMF).
It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy
IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are
now under negotiation."

ZeroHedge: "According to the FDIC's just released report, there was $784 billion
borrowed between credit card loans and securitization receivables. The
U.S. consumer is not only retrenching, but banks continue to limit
credit card purchases, which further constrains spending, creating a
vicious deleveraging, and thus deflationary, loop....According to Meredith Whitney: Considering that $1.2 trillion has been cut since 2Q08, we believe that by the end of 2010, $2.7 trillion of lines will be expunged from the system. We believe unused lines will be reduced by $2 trillion, to an estimated $2,700B by 4Q09, and nearly $2.7 trillion toan estimated $2,011B by 4Q10. Concurrently, we believe the utilization rate will increase from 17% at 4Q08 to 23% by 4Q09 and 30% by 4Q10."

Crude inventories rose 1 million
barrels in the week ended Nov. 20, the Energy Information
Administration reported Wednesday. Gasoline inventories rose 1 million
barrels and distillate stockpiles, which include heating oil and
diesel, fell 500,000 barrels. After the data, crude futures remained
little changed at $75.99 a barrel. Industry group American Petroleum
Institute reported late Tuesday an increase of 3.4 million in crude
inventories, and analysts polled by Platts had expected a buildup of
1.4 million barrels.

Working gas in storage was 3,835 Bcf as of Friday, November 20, 2009,
according to EIA estimates. This represents a net increase of 2 Bcf
from the previous week. Stocks were 404 Bcf higher than last year at
this time and 442 Bcf above the 5-year average of 3,393 Bcf. In the
East Region, stocks were 145 Bcf above the 5-year average following net
withdrawals of 2 Bcf. Stocks in the Producing Region were 229 Bcf above
the 5-year average of 982 Bcf after a net injection of 3 Bcf. Stocks in
the West Region were 69 Bcf above the 5-year average after a net
addition of 1 Bcf. At 3,835 Bcf, total working gas is above the 5-year
historical range.

Gold for December delivery rose as high as $1,185.90 an ounce in electronic
trade on Globex. That's a $20.1 an ounce, or 1.7%, gain from the prior day's

Hershey Trust Co., the philanthropic entity overseeing Hershey Co., is seeking the blessing of
the Pennsylvania attorney general for a potential bid for Cadbury PLC to avoid political issues
that sidelined previous deals, The Wall Street Journal reported in its online
edition, citing people familiar with the matter. Among the people that the trust
has reached out to are Attorney General Tom Corbett, a Republican who is running
for governor, the newspaper said. Corbett reportedly has not commented on the
deal as of yet. Under state law, Pennsylvania's attorney general has broad
powers to regulate charitable trusts, according to the Journal.

GM presents a reorganization plan to Opel workers, which may include closing its Belgium plant and cutting 5,400 German jobs. While Opel's four German sites will keep operating, they'll suffer most of the planned job cuts.

Dubai asks for a six-month freeze on debt payments as it restructures investment company Dubai World, which owes $59B.
Contracts to protect the emirate from default surged to 434 basis
points - the most since beginning trading in January, and higher now
than Iceland's.

The Dow Jones Industrial Average rose 30.69 points, or 0.3%, to 10,464.4. The S&P 500 Index climbed 4.98 points, or 0.5%, to 1,110.63. The Nasdaq Composite added 6.87 points, or 0.3%, to 2,176.05.

The dollar traded at almost a 14- year low against the yen and declined beyond $1.51 per euro as the Federal Reserve’s signal that it will tolerate a weaker greenback encouraged investors to buy higher-yielding assets outside America.

Tuesday, November 24, 2009

Under Water

11/24/09 Under Water

The proportion of U.S. homeowners who owe more on their mortgages
than the properties are worth has swelled to about 23%, threatening
prospects for a sustained housing recovery.
Nearly 10.7 million households had negative equity in their homes in
the third quarter, according to First American CoreLogic, a real-estate
information company based in Santa Ana, Calif.
The dollar extended losses
versus the Japanese yen and remained slightly lower versus the euro on
Tuesday after a government report showed the U.S. economy grew at a
2.8% pace in the third quarter, slower than previously reported but in
line with economists' expectations. Compared with a year ago, real GDP is down 2.5%.
Surging imports, which outpaced the growth in exports, restrained
the economic growth rate in the third quarter. Imports jumped 20.8
percent, the biggest gain since the second quarter of 1985, instead of
16.4 percent. They knocked 2.53 percentage points off real GDP, the
department said.
Another drag on GDP came from the construction of nonresidential
structures, which dropped 15.1 percent in the last quarter rather than
9.0 percent, highlighting the problems in the commercial property
market. That shaved just over half a percentage point off GDP.

Thomas Jefferson: "It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world."

Fitch Ratings downgraded Mexico's credit rating Monday, saying
dependence on a flagging oil sector has weakened the country's ability
to weather financial problems.
Mexico's rating remained at investment grade, but the downgrade will bring a rise in the government's borrowing costs.

U.S. states tax collections fell for
the fourth consecutive quarter as job losses and the economic
recession cut revenue from income and sales levies, according to
the Nelson A. Rockefeller Institute of Government.
The decline of 10.7 percent in the period that ended in
September, compared with a year earlier, was less than the
previous quarter’s 16.6 percent drop, which was the biggest
since 1963, the Albany, New York-based institute said today. The
report covered 44 states for which comparable data was
“Despite indications that the national recession may be
over, the revenue situation remained gloomy in virtually every
state in the third quarter,” according to the report. A number
of states are collecting less than they projected, and “further
revenue shortfalls and more spending cuts are most likely on the
way for many,” the institute said.

The S&P/Case-Shiller home-price index increased 0.27
percent from the prior month on a seasonally adjusted basis,
after a 1.13 percent rise in August, the group said today in New
York. The gauge fell 9.36 percent from September 2008, more than
forecast, yet the smallest year-over-year decline since the end
of 2007.

In an interview last week, Raul Vazquez, the president and CEO of,
asserted the site was growing faster than Amazon's; suggested that
Amazon Prime, a two-day-shipping service that costs $80 a year, was too
expensive; and said it was "only a matter of time" before Wal-Mart
dominated Web shopping.

Nov. clothing sales weaken vs. 2008's clearance sales, but electronics, online rise.

The number of distressed banks
in the U.S. rose to the highest level in sixteen years, according to a
report released by the Federal Deposit Insurance Corp. Tuesday. The
FDIC said that the number of troubled banks rose to 552 at the end of
September from 416 at the end of June and 305 at the end of March. This
is the largest number of banks on its "problem list" since the end of

The Conference Board reported
modestly higher consumer confidence in November. The New York-based
research organization's confidence index came to 49.5, up from a
revised 48.7 for October. "The moderate improvement in the short-term
outlook was the result of a decrease in the percent of consumers
expecting business and labor market conditions to worsen," noted Lynn
Franco, the Conference Board's director of consumer research. "Income
expectations remain very pessimistic and consumers are entering the
holiday season in a very frugal mood." Confidence had been expected to
lessen to 45.5 as opposed to October's original reading of 47.7,
according to a MarketWatch survey of economists.

Local-phone company Windstream
Corp. on Tuesday said it will buy Iowa Telecommunications Services Inc.
in a deal worth $1.1 billion, including the assumption of debt. Under
the agreement, Windstream (WIN) will issue 0.804 shares and $7.09 in cash for each share of Iowa Telecom (IWA),
which reflects a total price of about $16.14 a share or a 26% premium.
Iowa Telecom, which closed Monday at $12.69, leaped as much as 24% to
$15.71 in early Tuesday trades. As part of the deal, Windstream will
also assume $598 million in Iowa Telecom debt.

The typical black family owns 10 cents to the white family's dollar,
and the typical Latino family owns 12 cents, according to a 2007 survey
in Insight Center for Economic Development's report.

David Rosenberg, who used to be Merrill Lynch's chief economist and now
works for Gluskin Sheff of Canada, told CNBC Tuesday that the US
economy is mired in an economic crisis that shows only scant signs of
abating. "We're in a form of Depression," Rosenberg said in a live interview.
"Depressions...typically happen after a prolonged period of credit
excess morphs into a collapse and you get asset deflation. We had asset
deflation and we had a contraction in private-sector credit."

Calculated Risk: "The price-to-rent ratio is currently almost as high as during the late '80s housing bubble....Using national median income and house prices provides a gross overview
of price-to-income (it would be better to do this analysis on a local
area). However this does shows that the price-to-income is still too
high, and that this ratio needs to fall another 10% or so. A further
decline in this ratio could be a combination of falling house prices
and/or rising nominal incomes....It appears that house prices - in general - are still too high. However
prices depend on the local supply and demand factors. In many lower
priced bubble areas supply has declined sharply (because of the loan
modification efforts and local moratoria), and demand was very strong
in Q3 from the first-time home buyer frenzy and cash flow investors.
This has pushed up prices at the low end, and suggests price might fall
some again at the low end - although probably not to new lows.
in the mid-to-high end of the bubble areas - with significant supply
and little demand - prices are still too high. And I expect further
declines in those areas and probably nationwide (although this isn't as
obvious as it was in 2005 since most of the price declines are over). "

The fund used to safeguard U.S. bank deposits dropped to a negative
balance of $8.2 billion in the third quarter, the first shortfall since
1992, the Federal Deposit Insurance Corp said Tuesday.

Crude oil for January delivery lost $1.54, or 1.9%, to end at $76.02 a barrel on the New York Mercantile Exchange. Gold for December delivery finished up $1.10 at $1,165.80 an ounce on the New York Mercantile Exchange.

Federal Reserve officials
believe the recovery is going to expand at a slow rate while
unemployment will continue to remain high, according to the minutes of
their closed-door Nov. 3 and Nov 4 meetings released Tuesday.The Fed
forcast that the unemployment rate could stay elevated in 2010 at 9.7%
and would only drop modestly to 8.6% in 2011, according to the summary
of the latest meetings.

The Dow Jones Industrial Average fell 17.24 points to 10,433.71. The S&P 500 Index declined less than 1 point to 1,105.65, while the Nasdaq Composite shed 6.83 points to 2,169.18.

Monday, November 23, 2009


11/23/09 Gold

The European Central Bank's extraordinary monetary stimulus measures are set to phase out by design, but governments also need to begin putting together detailed plans to exit fiscal stimulus measures once economic conditions improve, ECB President Jean-Claude Trichet said in a speech delivered Monday in Madrid. "The additional fiscal costs that governments have shouldered will be carried forward in terms of higher debt for years to come," Trichet said. "This is why there is an increasingly pressing need for ambitious and realistic fiscal exit strategies and for fiscal consolidation." Without naming any individual nations, Trichet said some countries are in a "relatively favorable position" due to "wise and prudent" past management, while "others are already very close to losing credibility."

John Hussman: "We are now largely beyond the peak of the sub-prime mortgage crisis, and have just begun the second wave of Alt-A and Option-ARM resets. That's important, because what we saw in the third quarter, then, was still part of the relatively tame and predictable March-November 2009 lull in the reset schedule. In that context, the surge in delinquencies and foreclosures on prime fixed-rate loans is disturbing, because that wasn't even part of the reset equation, and represents a relatively pure effect of the weakness in employment conditions.

Now, we face a coupling of those weak employment conditions with a mountain of adjustable resets, on mortgages that have to-date been subject to low teaser rates, interest-only payments, and other optional payment features (hence the “Option” in Option-ARM). These are precisely the mortgages that were written at the height of the housing bubble, and therefore undoubtedly carry the highest loan-to-value ratios.

The inevitability of profound credit losses here is unnervingly similar to the inevitability of profound losses following the dot-com bubble. In that event, it wasn't just that people were excited about dot-com stocks in a way that might or might not have worked out depending on how fast the economy grew. Rather, it was a structural issue that related to the dot-com industry itself – those bubble investments couldn't have worked out in a competitive economy, because market capitalizations were completely out of line with what could possibly be sustained in an industry that had virtually no cost to competitive entry. If you understood how profits evolve in a perfectly competitive market with low product differentiation, you understood that profits would not accrue to the majority of those companies even if the economy and the internet itself grew exponentially."

Edmund Andrews: "With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan."

Despite the long-held assumption that MS is an autoimmune disorder, new research suggests it is actually a vascular disease triggered by a buildup of iron in the brain due to problems in blood flow.

“Savers are getting killed by these low rates,” banking analyst Bert Ely said. “They're getting next to nothing.”

Clusterstock: "As the NYT reports, hedge funds are buying up big pools of distressed mortgages, modifying the loans with the homeowners, and then wrapping them in FHA insurance, so they can flip them for a higher price.

For instance, a fund might offer to pay $40 million for a $100 million block of mortgages from a bank in distress. Then the fund could arrange to have some of those loans refinanced into mortgages backed by an agency like the F.H.A and then sold to an agency like Ginnie Mae. The trick is to persuade the homeowners to refinance those mortgages, by offering to reduce the amounts the homeowners owe.

The profit comes when the refinancings reach more than the $40 million that the fund paid for the block of loans.

So it's good for the homeowner, and great for the hedge fund, but the taxpayer bears the burden. Why?

We suppose you could think of the hedge fund as merely a service provider in this case -- and certainly finding proper loans to modify and doing so costs money. There's the risk that they won't be able to modify and get FHA insurance on enough of the loans to make a profit.

But however you boil it down, it's still a case of the public taking a risk, and the private sector collecting a profit.

But then, how's that new at all?"

For the first time in 7 decades, Treasury bills are paying no interest.

"All of our indications suggest that consumers will shop but will be more cautious in their approach," saiys Marshal Cohen, chief industry analyst at market researcher the NPD Group. "The study's results show consumers will be doing their homework a bit more carefully this year."

According to a recent NPD survey, about 45 percent of consumers plan to comparison shop before they make a purchase.
That's a five-year high, according to Cohen.

Driven by the first-time buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, while inventories continue to decline, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.

Purchases of existing homes rose 23.5 percent in October compared with a year earlier. The median price fell 7.1 percent from a year ago to $173,100.

The number of previously-owned unsold homes on the market fell 3.7 percent to 3.57 million. At the current sales pace, it would take 7 months to sell those houses compared with 8 months at the end of the prior month. The months’ supply is the lowest since February 2007. The biggest gains were found in the cheapest homes – especially condominiums and co-ops. Their sales surged 13.2% (seasonally adjusted) and were up an astonishing 40.8% above a year ago. Median prices for condos fell 10.4% below October 2008.

Pragmatic Capitalist: "Insider selling surged in the latest week from $960MM in sales to over $1.39B. Buying made a drastic improvement from $29MM to over $166MM. The improvement in buying is a positive sign, but the vast discrepancy in selling continues to overshadow the buying.

Insiders are clearly viewing the run-up as a selling opportunity. This is consistent with the very tepid recovery we’ve seen in organic revenue growth thus far during the economic rebound. Executives are still unlikely to invest their personal fortunes in the companies they run due to the fact that they aren’t seeing the organic growth that so many equity buyers are hoping will develop once the government steps aside and stops propping up the economy.

Thus far, there are little to no signs of this occurring and this is perhaps most evident in the personal use of insider buying and selling."

Gold futures will fall below $1,000 an ounce by year-end and fall as low as $800 an ounce next year, said U.K. forecasting firm Capital Economics Monday. New York gold futures Monday hit a new high of $1,174 an ounce. Economist Julian Jessop attributed bullion's recent surge to a desire for insurance against the risks of inflationary bubbles in other assets and a U.S. dollar collapse. "These risks are probably much lower than generally supposed," he wrote, adding his forecast depends "crucially" on at least a partial recovery for the U.S. dollar. "While we do not think that gold is yet in a bubble, the weakness of underlying demand at these record price levels is at least a warning sign," he wrote.

After three days of losses, the Dow added 132.79 points, or 1.3%, to 10,450.95. The S&P 500 Index rose 14.86 points, or 1.4%, to 1,106.24. The Nasdaq Composite climbed 29.97 points, or 1.4%, to 2,176.01.

Sunday, November 22, 2009

Bear Market Rally

11/22/09 Bear Market Rally

Tim Wood: "Again, the best example of this bull market top and the rally we are seeing is the 1966 to 1974 period. I believe that the ongoing rally is synonymous with the 1966 to 1968 bear market rally, which should ultimately prove to separate Phase I from Phase II of the ongoing secular bear market. I have analyzed the Dow Jones Industrial Average since its inception in 1896 and I have discovered a common thread that has occurred at major market tops, in both bull and bear markets. Based on that discovery, I know what this top will ultimately look like because I have the statistical parameters to identify it. That data is not something that I can make public, as this is data that is only available in my monthly research letters. However, I can tell you that nothing has developed to change my perspective about the bigger picture. To clarify a point , please understand that I'm not saying this rally will last as long as the bear market rallies during the 1966 to 1974 period did. It could last longer, or it could end much sooner. But, I am confident that in having identified the common thread of all major market tops, that I will be able to identify the top as it develops. My market research also continues to tell me that this is a bear market rally. I also know that the longer this rally last, the more convincing it will become to more and more people. As a result, the longer this rally last, the more dangerous and further reaching the Phase II decline is likely to be."

Mike Burk: "The market is oversold going into the weakest part of Thanksgiving week so there should not be much, if any, decline early in the week while the end of the week should be up modestly on minimal volume.

I expect the major indices to be higher on Friday November 27 than they were on Friday November 20."

Reliance Industries Ltd., owner of the world’s largest oil-refining complex, made a cash offer to buy a controlling stake in closely held LyondellBasell Industries AF, the bankrupt chemicals and fuels maker.

Terms weren’t disclosed. The buyout would be coordinated with emergence from bankruptcy and represents a “potential alternative” to its reorganization plan, Rotterdam-based LyondellBasell said in a statement. The offer is subject to due diligence and sufficient creditor support, Mumbai-based Reliance said in a news release yesterday.

Bloomberg: " Wal-Mart Stores(WMT) sank to the cheapest valuation relative to the S&P 500 in at least 19 years. The ratio between Walmart’s price relative to reported earnings and the S&P 500’s valuation fell to .68 last month, the lowest since at least 1990. It never fell below .85 before July and touched that level just twice previously. The first time, in January 1997, Walmart surged 74% in the next year, more than the S&P 500’s 30% rise. The second time, in November 2007, it rose 26% as the index lost 36%. “The stock is exceptionally cheap,” said Gary Bradshaw, who helps manage $800 million including 400,000 Walmart shares at Hodges Capital Mgmt. “The fact Buffett doubled his position may get the stock going.”

Seeking Alpha: " Is Gold in a Bubble? Courtesy of Elliott Wave, we get another measure of gold sentiment: The Daily Sentiment Index ( has been at, or above 90 percent gold bulls since November 3, a string of 10 straight days. The only other comparable streak of optimism over the past 22 years of data is leading up to the December 2, 2004 gold high when the DSI was at, or above 90 percent for 20 consecutive days. At that time, prices made a high at $458.70, declined over 10 percent, and did not exceed the December 2004 high again for the next 10 months. But during this entire 20 day stretch, optimism never reached the single day extreme that today did, with fully 97 percent of traders optimistic on gold’s future prospects. This time, we expect a larger decline, one that lasts longer too."

The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 29% 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 -10.

Mike Whitney: " Geithner and Co. see the US economy languishing in a low-grade Depression for the foreseeable future, therefore, Wall Street must progressively move its base-of-operations eastward.

This is the real reason behind Obama’s trip to China. There’s no truth to the rumor that US policymakers care about “currency manipulation” or the ongoing looting of the American middle class. That’s rubbish. China’s “dollar-peg” essentially serves the interests of the giant multinational corporations and Wall Street speculators who own the media, the courts, the congress, the White House and most of the country."

Swiss food giant Nestle may consider a bid for Britain's Cadbury to challenge a hostile 9.9 billion pound ($16.3 dollars) bid by Kraft Foods Inc and a potential move by Hershey, Bloomberg reported on Sunday.

Nestle is still weighing its options and may decide against a bid, Bloomberg said, citing two unnamed people with knowledge of the matter.

“If Fannie and Freddie can’t sell to an end buyer, i.e. the U.S. government steps back, the mortgage market at minimum contracts, rates go higher, and banks are poised with more writedowns,” said Whitney, founder of Meredith Whitney Advisory Group. “This is probably the issue that scares me most across the board.”

An investment company owned by Qatar's sovereign wealth fund on Sunday signed a $26 billion deal with Germany's national railway operator to build a railroad network, a key part of the natural gas-rich Gulf sheikdom's expansion plans.

Under the deal, the Qatari Diar Real Estate Investment Company and Deutsche Bahn AG will set up a joint venture to develop a metro system in Qatar's capital, as well as a national rail network and a long-distance connection to neighboring Bahrain.

Qatar will hold a 51 percent stake in Qatar Railways Development Company and the German state-held railway will have a 49 percent stake.