Saturday, December 19, 2009

Muni Bonds

12/19/09 Muni Bonds

The Oil Drum: "In February this year, global oil production / demand hit an interim low of 84.0 million barrels per day (mmbpd) and the average price of West Texas Intermediate (WTI) that month was $39.16 / bbl. Since then, demand has recovered to 85.9 mmbpd in November and the average price was $78.08 / bbl. A rise in demand of 2.3% has led to an oil price rise of 99.4%."

While the Senate focused attention Thursday on the defense spending bill until the wee hours of the morning, Senate Republicans began to put pressure on another area to stop the healthcare reform bill. A current GOP governor and four GOP senators, who were once governors (from New Hampshire, Idaho, Nebraska, and Tennessee), said they oppose the "unfunded mandate" of Medicaid expansion included in the bill. In Washington, Mississippi Gov. Haley Barbour said the current proposal in the Senate bill to permit individuals making less than 133% of the federal poverty level [it's 150% in the House bill] to receive Medicaid could lead to big tax increases—especially in those states required to balance their budgets every year. Under the bill provisions, the federal government would pay the states three years to fund the new Medicaid population; the states would then pick up the tab after that.

South Carolina and Florida saw joblessness reach its highest point in 25 years. And economists say most states' unemployment rates will rise as the stimulus programs wind down and seasonal jobs taper off.

Seven new bank failures brings 2009's tally to 140.

The dollar index surged 1.5% this week to close at 77.73.

Jan Hatzius, chief U.S. economist at Goldman Sachs… forecasts that the jobless rate will rise to 10.75% by the middle of 2011 from 10% now.

ZeroHedge: "Wait, wasn't RMBS supposed to be safe now that it is all on the taxpayer's balance sheet? Moody's just said no, and put 4474 jumbo RMBS tranches on downgrade review. Furthermore, the firm raised its loss estimates as follows: 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations."

According to Bloomberg, “The largest U.S. transit agency had its credit outlook on about $11.5 billion of debt reduced on concern New York state may cut more funding from a system already resorting to service cuts to balance its budget.”

"In a world in which nearly all paper money has problems, and in which the sheer supply of paper money is expanding far faster than global GDP, gold has its best claim as a constituent of foreign exchange reserves since Bretton Woods booted it out sixty-five years ago." - Don Coxe

Senate Democratic leaders secured the 60 votes needed to ensure passage of health overhaul legislation after reaching agreement with Sen. Ben Nelson to address his concerns with the bill's handling of abortion.

GM set to close Saab and it would mean 3400 lost jobs at a plant in Sweden.

Tim W. Wood: "The Dow theory bullish trend confirmation that occurred earlier this year remains intact. Cyclically, the higher degree low that began at the March low also still remains intact. Longer term, I maintain, based on my data, that this is nonetheless a bear market rally. Once this rally has run its course the big surprise will be the Phase II decline and history shows us that Phase II declines are the most destructive. One reason for this is because with everyone believing that the bear market has ended, the Phase II decline takes everyone by surprise and as the realization begins to set in so does the panic."

Bill Bonner: "The more we think about it, the more our jaw drops. In Copenhagen this week, a large group of apparatchiks and hacks got together to discuss a ‘climate deal.’ There, Hillary Clinton pledged US support to a plan to spend $1 trillion to try to influence the earth’s climate. Governments can do many things, but can they really improve the weather? There is no evidence for it. Not even a respectable theory.

In Washington, meanwhile, Ben Bernanke is spending trillions to try to improve the economy. Can he really do that? Again, there’s no evidence for it."

Closures of U.S. car dealership this year will be the worst on record going back to at least the 1950s, spurred by the shutdowns at General Motors Co. and Chrysler Group L.L.C., consulting firm Urban Science said Dec. 16.

Through October, 1,467 U.S. auto dealerships have closed, according to the firm, which advises auto manufacturers about their retail networks. That leaves 18,617 stores, but another 200 or so are likely to shut down before the year is over, John Frith, vice president of retail channel solutions, said Dec. 16.

Robert Prechter: "The muni bond market is heading for disaster. Municipalities have borrowed more than they can repay, they have pension liabilities that they cannot meet (up to a trillion dollars' worth, according to Moody's), and tax receipts are falling. The only reason that states haven't failed yet is the so-called "stimulus package," which took money from savers, investors and taxpayers -- thereby impoverishing the people who live in the various states -- and gave it to state governments to spend so they would not have to cease their profligate spending. But political pressures will eventually cut off this gravy train. In the 2010-2017 period, the muni bond market will become awash in defaults. The leap in optimism since March, which has shown up in every financial market, has fueled a retreat in muni bond yields to their lowest level since 1967 and narrowed the spread between muni bond yields and Treasuries.
This rush to buy municipal bonds is occurring right on the cusp of a dramatic decline in their values. While many individuals are loading up right at the peak so they can participate in the next major market disaster, smarter investors, such as insurance companies Allstate and Guardian Life, are getting out."

This is the last weekend before Christmas. Traditionally, the last Saturday before the holiday has been a major shopping day. The heavy snowfall in many parts of the country will cut into those retail sales. It will mean bigger discounts after Christmas and falling margins.

Friday, December 18, 2009


12/18/09 Ports

George Ure: "Long Beach: Year to date cargo is down 18.7% compared with last year. Let's hear it for the stimulus package!

Port of Los Angeles: Loaded inbound was down 11.84% for November and overall for the calendar year is down 15.13%.

Port of Oakland: Down 9.9% YTD but November say a 3.4% gain.

Port of Seattle: Up 15.1% in November, but still down 9.7% overall year-to-date (YTD). International inbound was up 34.4% in November, but is still down 10.7% YTD - way I figure it is replacement parts for things that are breaking.

Port of Tacoma: Down 19.8% YTD."

ZeroHedge: "Pimco's flagship Total Return Fund released its November data: the fund continues liquidating its MBS holdings, selling another $7 billion in November (after dumping $10 billion in October), and bringing the total to the lowest it has held of this security, at $23.9 billion. Keep in mind TRF held just under $120 billion of Mortgage Securities in February: a nearly $100 billion reduction. Thank you Ben Bernanke Bid. Mortgages are not the only class getting cleansed by Gross: the world's biggest bond fund also sold $20 billion of Treasuries, bringing its govvy holdings to $101.7 billion, down from $121.3 billion in November. The biggest beneficiary: cash, which increased from a net short position of -$13.5 billion to $14 billion. And in the meantime, the fund still made a boatload: total AUM in TRF increased from $192.6 billion to $199.4 Gross is sticking to his pessimistic view and liquidating. Who is buying?"

A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation's housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.

A variety of measures to keep discounted bank-owned properties off the market -- including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford -- has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.
Shadow inventory properties are homes that have not been tallied into official inventory numbers tracked by Realtors and other real estate professionals. They include homes taken back by lenders through foreclosures and similar actions, as well as homes whose owners are at least 90 days delinquent on their mortgage payments.
A year earlier, the pending supply of homes not yet up for sale totaled 1.1 million.

Jim Nelson: " The second wave of ARM resets and foreclosures might come sooner than you think. According to Whitney Tilson and Glenn Tongue of T2 Partners, the experts on this subject, about 80% of option ARMs are negatively amortizing. Meaning these so-called top-tier borrowers are heading further into the hole. Once their rates reset, they could be in serious trouble."

Zale, the second-largest U.S. jewelry retailer, has cancelled some orders with suppliers as it struggles under the weight of mounting debt and sales declines, The Wall Street Journal reported.

The dollar index rose as high as 78.105, the highest on a closing basis since Sept. 4.

Crude oil for February delivery finished with a gain of 38 cents, or 0.4%, at $74.42 a barrel. The less actively traded January contract rose 71 cents to $73.36 a barrel. Gold for February delivery finished with a gain of $4.10, or 0.4%, at $1,111.50 an ounce.

The Dow Jones Industrial Average gained 20.63 points, or 0.2%, to 10,328.89, leaving it down 1.4% from last Friday's close. The S&P 500 Index added 6.32 points, or 0.6%, to 1,102.39, giving it a 0.4% drop for the week. The Nasdaq Composite Index climbed 31.64 points, or 1.5%, to 2,211.69, leaving it up 1% from the week-ago close.

Thursday, December 17, 2009

China, Japan, and UK

12/17/09 China, Japan, and UK

First-time claims for state unemployment benefits rose unexpectedly in the latest week, the Labor Department reported Thursday. The number of initial claims in the week ending Dec. 12 rose 7,000 to 480,000. The consensus forecast of Wall Street economists was for claims to fall to 465,000. Claims in the prior week were revised to 473,000 from the intial estimate of 474,000. The four-week average fell for the 15th straight week. Ian Pollick, economist at TD Securities, said the rise in jobless claims was unsettling, but said he was comforted by the fact that claims remain below 500,000.

Whitney cut her fourth-quarter earnings forecast for Goldman to $6 a share from $6.38, while her full-year view was dropped to $19.57 from $19.95 a share. Goldman's 2010 estimate went to $19.65 from $21.73 a share, and the 2011 outlook was lowered to $20.60 a share from $24.04. Meanwhile, Whitney cut her 2010 estimate for Morgan Stanley to $2.60 from $2.63 a share, and dropped the 2011 forecast to $2.75 a share from $3.28.

Shipping company FedEx reported quarterly earnings in line with earlier guidance Thursday, but its projections for profit in the current quarter was well below Wall Street expectations.

China, Japan, and UK were, for the first time in 2009, net sellers of Treasury, with a $74 billion decline MoM, to $29.5 billion in October.

Lehman had sought approval from US Judge James Peck last month to pay bonuses to about 230 employees, noting their efforts had recovered $8bn in cash and “the preservation of significant additional value for the benefit of creditors”.

“However, only 17 per cent of the derivatives contracts are considered to be final settled,” the bank wrote in a Nov. 25 filing. “Additionally, 39 per cent of the derivatives contracts have not yet been reconciled, and valuation must be completed for 50 per cent.”

The index of leading economic indicators rose for the eight straight month, pointing to an improved economy in 2010, the private Conference Board said Thursday. The index increased 0.9% in November after a 0.3% gain in October, the research group said. Six of the 10 leading indicators were positive. For the first time since December 2007, employment did not make a negative contribution to the index, potentially a good sign for future job growth, the board said.

The Philly Fed diffusion index rose to 20.4 in December from 16.7 in November.

The average Prius owner makes $84,000 a year and half of them earn more than $100,000 annually.

Chris Puplava: "The current secular bear market is the fourth one since the early 1900s and has so far been comparable in terms of magnitude, though not duration. The prior three secular bear markets lasted on average 191 months, or nearly 16 years, and witnessed an average decline of 68.60%. The current secular bear market is 108 months old, just over half the average life a secular bear market, though it witnessed a 65.54% decline from the 2000 top to the March 2009 low."

Working gas in storage was 3,566 Bcf as of Friday, December 11, 2009, according to EIA estimates. This represents a net decline of 207 Bcf from the previous week. Stocks were 381 Bcf higher than last year at this time and 433 Bcf above the 5-year average of 3,133 Bcf. In the East Region, stocks were 179 Bcf above the 5-year average following net withdrawals of 93 Bcf. Stocks in the Producing Region were 197 Bcf above the 5-year average of 923 Bcf after a net withdrawal of 75 Bcf. Stocks in the West Region were 57 Bcf above the 5-year average after a net drawdown of 39 Bcf. At 3,566 Bcf, total working gas is above the 5-year historical range. Natural gas for January delivery was recently up 40 cents, or 7.3%, at $5.86 per million British thermal units.

Americans are the most pessimistic they've been since the beginning of this year, when the US was mired in a deep recession, while confidence in President Obama and Congress is at the lowest level of 2009, according to the latest NBC/Wall Street Journal poll. Of those surveyed by telephone during the past weekend, 55 percent feel the nation is headed in the wrong direction, compared with 33 percent who felt the US was headed in the right direction. That's the worst showing since January.

Officially, Detroit's unemployment rate is just under 30 percent. But the city's mayor and local leaders are suggesting a far more disturbing figure -- the actual jobless rate, they say, is closer to 50 percent.

This week's AAII survey of investor sentiment showed that 42.1% of respondents were bullish while only 28.4% were bearish (lowest since May 2008). The bull to bear ratio of 1.48:1 is the highest since July.

Sen. Richard Shelby, R-Ala., the ranking minority member of the Senate Banking Committee announced Thursday that he will vote against Federal Reserve board chairman Ben Bernanke's nomination for a second four-year term. While Bernanke is still expected to win the support from the entire panel, Shelby's opposition means the Fed won't be able to count on Republican support to fend off sweeping changes to the Fed's regulatory powers put forward by Sen. Christopher Dodd, D.-Conn., the chairman of the panel. Dodd has said that the Fed's oversight of the biggest banks prior to the financial crisis was an "abysmal failure." Dodd has proposed stripping the oversight power from the Fed and giving it to a new single banking regulator to oversee the financial sector.

Fifty percent of Americans in this ABC News/Washington Post poll approve of the president's work overall, down 6 points in the last month; nearly as many, 46 percent, now disapprove. On the economy, 52 percent disapprove, a majority for the first time. On the deficit, his worst score, 56 percent disapprove.

The Energy Information Administration said the country's supply of natural gas dropped by 207 billion cubic feet last week, the most ever for this time of year, according to analyst Stephen Schork.

"It was brutally cold," Schork said. "People have been saying for so long that natural gas is due for a rally and they've been wrong all year long. But with a big draw, I expect prices to move higher."

Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.”

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet big on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

“It’s not surprising this deal ran into trouble,” Michael Knott, senior analyst at Green Street Advisors in Newport Beach, California, said in an interview. “It was eye-opening among a group of eye-opening deals. There was almost no price too high in 2007 for office space in top gateway markets.”

Venezuela, site of the biggest refinery complex in the Americas, may process less oil as a drought reduces power generation, said the chief executive officer of Curim Capital Advisors LLC.

“We could lose about 200,000 barrels a day in the global market, which would most likely affect heating oil, and China in particular,” Curim CEO Colin Fenton said today in an interview on Bloomberg Television. “It would affect products.”

The Dow Jones Industrial Average dropped 132.86 points, or 1.3%, to 10,308.26. The S&P 500 Index declined 13.06 points, or 1.2%, to 1,096.12. The Nasdaq Composite Index was off 26.86 points, or 1.2%, to 2,180.05.

Wednesday, December 16, 2009


12/16/09 Time

The API estimated crude inventories rose by 924,000 barrels last week. Analysts polled by Platts forecast crude-oil inventories fell by 2 million barrels in the week ended Friday. The Energy Information Administration will release its more closely followed report Wednesday morning.

General Electric Co. Chairman and CEO Jeff Immelt told investors on Tuesday that earnings in 2012 "will be a lot higher" than the 99 cents a share Wall Street currently expects the conglomerate to report for 2009. "We plan to generate a lot of cash and to be very thoughtful about how we allocate that capital," he said.

The Austrian government has nationalized the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 40 billion Euros in assets, is the country’s sixth largest bank. David Smick: “To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290 billion. Austria’s GDP is only $370 billion.”

Bernanke: "The ratio of government debt to GDP does not have a direct bearing on the appropriate stance of monetary policy. Rather, the stance of monetary policy is appropriately set in light of the outlook for real activity and inflation and the relationship of that outlook to the Federal Reserve’s statutory objectives of maximum employment and price stability. Of course, government indebtedness may exert an indirect influence on monetary policy through its potential implications for the level of interest rates consistent with full employment and low inflation. But in that respect, fiscal policy is just one of the many factors that influence interest rates and the economic outlook."

The Illusion of Prosperity: "JPMorgan, now holds 200 million ounces net short in COMEX silver futures, fully 40% of the entire net short position on the COMEX (minus spreads). As I have previously written, JPMorgan accounted for 100% of all new short selling in COMEX silver futures for September and October, some 50 million additional ounces. As extreme as JPMorgan’s position is, there is a total true net short position of 500 million ounces (100,000 contracts) in COMEX silver futures. Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production, much higher than seen in any other commodity."

In a poll on Fox News, with over 163 thousand people voting, the vast, vast majority, or 99% of poll respondents are against raising the debt ceiling, claiming "This out-of-control spending is outrageous and irresponsible."

Norway's central bank decided Wednesday to increase its key policy rate by 0.25 percentage point to 1.75%, surprising the market.

The Czech central bank lowered its benchmark two-week repo rate by 25 basis points to 1% on Wednesday.

Greece has sold 2 billion euros ($2.9 billion) of floating-rate notes to five banks as the country attempts to shore up its finances, Bloomberg reported Wednesday citing two bankers familiar with the deal.

Australia's gross-domestic-product growth slowed to a seasonally adjusted 0.2% in the September quarter from growth of 0.6% the June quarter on the heels of a fall in private investment and a hefty decline in net exports, the Australian Bureau of Statistics reported Wednesday.

The U.S. current account deficit widened to $108 billion in the third quarter, or 3.0% of gross domestic product, the Commerce Department reported Wednesday.

U.S. consumer prices rose a seasonally adjusted 0.4% in November, as energy prices surged in the month, the Labor Department reported Wednesday. Taking out volatile food and energy prices, consumer prices were flat in November. In the past year, the consumer price index has risen 1.8%, while the core CPI has climbed 1.7%.

FDIC in 2010 plans to add more than 1,600 staffers, mostly to handle bank failures.

New construction of U.S. houses rebounded in November from a sharp drop in the prior month, the Commerce Department estimated Wednesday. Starts rose 8.9% in November to a seasonally adjusted 574,000 annualized units stronger than the 563,000 pace expected by economists surveyed by MarketWatch. This is the biggest percentage increase in starts since May. It comes after a sharp 10.1% decline in October. Starts of new single-family homes rose by 2.1% to 482,000 in November, while starts of large apartment units jumped 67.3% to 92,000. Building permits, a leading indicator of housing construction, rose 6.0% to a seasonally adjusted annual rate of 584,000. This is the highest level of permits in the past year.

Real average hourly earnings fell 0.5 percent from October to November 2009.

My trade for 2010: The yield curve to flatten.

The recession hit the Port of Houston this year, washing ashore in a wave of sobering statistics that port commissioners reviewed Tuesday before passing next year's budget.

On the docks, 25,000 fewer cars rolled ashore in 2009. Steel imports fell 57 percent. Empty cargo containers are flooding back to Houston, while loaded container traffic has dropped. Fewer ships are sailing in — 2,948 so far this year, a 10 percent drop from 2008.

“All in all, this has been a very difficult year,” said the Port Authority's new executive director, Alec Dreyer, who took the helm earlier this fall. While cargo volumes are starting to pick up, 2010 will be another tough year, he added, because volumes of steel and machinery are expected to stay low.

It is most fitting that Bernanke is Time's Man of the Year. He won't provide an accounting of the bailout funds and he is fighting a audit of the Fed. He is my loser of the year.

Crude oil futures jumped 3% to trade near $73 a barrel on Wednesday, after the Energy Information Administration reported crude inventories fell by 3.7 million barrels last week. Analysts polled by Platts expected a decline of 2 million barrels. Crude oil for January delivery was last up $2.22, or 3%, at $72.91 a barrel, after briefly rising as high as $73.13 in electronic trade.

The governments of Brazil and Bolivia will sign an addendum to their natural gas supply deal on Friday that will pay Bolivia about $1.2 billion through 2019, the local Estado news agency reported.

The two countries had haggled over a deal on so-called "net fractions" of propane, butane and natural gas as called for in a renegotiated supply agreement reached in 2007.

Bolivia is in dire need of additional revenue from its primary export, which has suffered with the economic slowdown that sapped natural gas demand in Brazil. Before the crisis, Brazil imported 31 million cubic meters of natural gas a day from Bolivia. In 2009, the average will be 22.5 million cubic meters a day.

Brazil is bound by its "take-or-pay" supply agreement with Bolivia to pay for at least 21 million cubic meters of natural gas a day.

The addendum will pay Bolivia a minimum of $100 million a year for net fractions retroactive to 2007. Future payments will depend on a complicated formula, but will likely be about $100 million, Estado said.

Bolivia also exports natural gas to Argentina, which has agreed to purchase a minimum of 27.7 million cubic meters a day through 2010.

Russia's Gazprom rejected requests from European costumers to change the pay-or-take clauses in natural gas contracts, The Moscow Times reports.

First Solar Inc. said late Wednesday that it sees earnings of $6.05 to $6.85 a share for fiscal 2010. The solar panel maker said it also estimates 2010 sales of $2.7 billion to $2.9 billion.

By a vote of 218-214, the House approved a $290 billion increase in the U.S. debt ceiling, bumping the debt limit up to $12.4 trillion. The debt increase now goes to the Senate for a vote.

The Dow Jones Industrial Average fell 10.88 points to 10,441.12. The S&P 500 Index gained 1.26 points to 1,109.19, and the Nasdaq Composite Index rose 5.86 points to 2,206.91.

Tuesday, December 15, 2009

John Williams

12/15/09 John Williams

"The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year." - John Williams, ShadowStats

The dollar index, which measures the greenback against a basket of currencies, rose to 77.
Yields on 10-year notes rose 5 basis points to 3.60%.

Wholesale prices rose a larger-than-expected 1.8% in November after seasonable adjustments, with energy prices accounting for about three-fourths of the increase, the Labor Department reported Tuesday. The producer price index has risen 2.4% in the past year, the government said. This is the first rise since November 2008. The core PPI - which excludes food and energy prices - rose 0.5% in November, more than expected. Leading the advance were higher truck and cigarette prices. Core prices are up 1.2% in the past year. Economists surveyed by MarketWatch expected a 1.0% rise in the November headline PPI and a 0.3% gain in the core rate. The PPI had risen 0.3% in October, while the core rate was down 0.6%.In November, at the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.4 percent, and the crude goods index rose 5.7 percent.

Best Buy raised its full-year profit forecast excluding items to $3 to $3.15 a share. It had projected $2.70 to $3 a share previously but said gross margins in the current holiday quarter would be lower than it had expected.

The world's airlines are facing another tough year in 2010 with rising fuel costs and declining average ticket prices, the International Air Transport Association said Tuesday. The trade group widened its projected 2010 industry loss to $5.6 billion from $3.8 billion, despite expected revenue, passenger and cargo volume growth.

For December, ICSC projects retail sales to rise about 2%.

The Japanese government's primary budget deficit is set to hit a record 34.204 trillion ($384.92 billion) in the current fiscal year ending March, Parliamentary Secretary of Finance Hiroshi Ogushi was quoted as saying Tuesday by Dow Jones Newswires. That exceeds the 13.1 trillion-yen deficit initially estimated during last year's budget-making process.

Oct. International Capital Flow: Net foreign purchases of long-term securities $20.7B vs. $37.1B expected and $40.7B in Sept. Foreign demand for long-term U.S. financial assets slowed in October and China's holdings of U.S. Treasury securities were unchanged.

Continued strong demand for U.S. debt is critical to financing America's soaring budget deficits and keeping domestic interest rates low enough to support a broad economic recovery.

Foreigners purchased $20.7 billion more in assets than they sold in October, down from a $40.7 billion increase in September, the Treasury Department said Tuesday.

China, the largest holder of U.S. Treasury securities, maintained its holdings at $798.9 billion in October.

China's foreign holdings of Treasury securities are a direct result of the huge trade deficits the U.S. runs with China. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities and other dollar-denominated assets.

Japan, the second largest holder of Treasury securities, had a total of $746.5 billion in October, down slightly from September's $751.5 billion.

The Treasury securities held by the United Kingdom dropped to $230.7 billion, from $249.3 billion, while the holdings of Hong Kong rose to $142 billion, from $132.2 billion.

Treasury securities held by oil exporting countries totaled $188.4 billion, up slightly from $185.3 billion in September. Russia's holdings totaled $122.5 billion, little changed from September's $121.8 billion.

Sales growth at discount stores continued to be strongest in basic consumables, food, toys and electronics. Online shopping remained strong.

Output at factories, mines and utilities climbed 0.8 percent, after no change in October, the Federal Reserve said today in Washington. Manufacturing and mining rose, while warmer weather restrained utility demand. Capacity utilization, which measures the proportion of plants in use, increased.

Improving global sales and leaner inventories are prompting companies such as Ford Motor Co. to rev up assembly lines, giving the expansion a lift. The pickup has yet to boost hiring, one reason why Fed policy makers tomorrow may reiterate a pledge to keep lending rates near zero for “an extended period.”

“We’re seeing rising production to meet consumer demand and increased business spending,” said John Herrmann, chief economist at Herrmann Forecasting in Summit, New Jersey. “Businesses are beginning to incrementally increase their inventories, and that means ramping up production.”

At 99.4 percent of its 2002 average, total industrial production was 5.1 percent below its level of a year earlier. Capacity utilization for total industry moved up 0.7 percentage point to 71.3 percent, a rate 9.6 percentage points below its average for the period from 1972 through 2008.

Refining margins, or the profit from turning oil into fuels such as gasoline and diesel, will remain weak in 2010 as demand stays subdued and new capacity starts, according to the Organization of Petroleum Exporting Countries.

Tiernan Ray: "Moody’s has created a “misery index” of how countries are doing with respect to deficits and unemployment. The U.S. ranks eighth worst, behind Iceland, the U.K., Greece, Ireland, Lithuania, Latvia, and Spain. Moody’s analysts write that in 2010, states will not have the luxury of a leisurely exit from their public investments as they try to unwind public debts."

Factories in the New York region unexpectedly expanded at the slowest pace in five months in December, indicating manufacturing may provide less of a thrust for the economy in coming months. The Federal Reserve Bank of New York’s general economic index fell to 2.6 from 23.5 in November, the bank said today.

According to Bloomberg, the City of Johannesburg, South Africa’s biggest metropolitan district, had its long-term national credit scale rating lowered to from by Moody’s Investors Service because of increasing debt levels.

“The rating action reflects the impact of the deteriorating liquidity position of Johannesburg and its already high level of gearing,” Moody’s said in a statement today. “Higher expenditures have eroded the city’s cash position.”

The ratings company maintained a ‘stable’ outlook on Johannesburg’s rating, saying the city “will be able to deal with the fiscal challenges” it faces, according to the statement. The city of four million reported revenue of 23 billion rand ($3.1 billion) in the 2009 fiscal year, Moody’s said.

A 36 percent increase in Johannesburg’s infrastructure investment to 5.7 billion rand in 2009 has eroded the city’s cash position, according to Moody’s. Johannesburg has a long- term debt burden of 53 percent of operating revenue excluding one-off earnings, the highest of all the metropolitan districts monitored by Moody’s, the statement added.

“The downgrade simply reflects adverse market conditions rather than any lack of fiscal discipline and does not reflect a sudden deterioration in the City of Johannesburg’s credit strength,” Simon Howie, a credit portfolio manager at Investec Asset Management in Cape Town, said in an e-mail. Johannesburg still has “an exceptionally strong rating,” said Howie.

Venezuela has overtaken Ukraine as the country with the world's riskiest debt, and the chance either economy will default on its debt is above 50 percent, credit default swap monitor CMA DataVision said on Tuesday.

Most U.S. credit card companies reported charge-offs rose in November after two months of declines in a sign that consumers remain under stress, sending shares down industrywide.

Exxon expects the demand for natural gas, which emits half as much carbon dioxide as coal when burned, will rise as the United States looks to pare its global warming emissions and the world seeks greener sources of energy.

"This is not a near-term decision; this is about the next 10, 20, 30 years," Rex W. Tillerson, the chairman and chief executive of Exxon, said in a conference call on Monday. "We think there will be significant demand for natural gas in the future."

The National Association of Home Builder's sentiment index declined to 16 this month from 17 in November.

The Dow Jones Industrial Average fell 49.05 points, or 0.5%, to 10,452.00. The S&P 500 Index shed 6.18 points, or 0.6%, to 1,107.93. The Nasdaq Composite Index declined 11.05 points, or 0.5%, to 2,201.05.

Crude for January delivery gained $1.18, or 1.7%, to close at $70.69 a barrel in floor trading on the New York Mercantile Exchange.

Monday, December 14, 2009


12/14/09 ExxonMobil

Abu Dhabi bailed out neighboring Dubai on Monday with $10 billion in surprise aid for debt-laden Dubai World, driving stock markets higher, but Dubai said creditors still needed to approve a standstill on outstanding debt.

Cadbury said it has received interest from other bidders after raising its growth targets and reporting upbeat trading, as it dismissed a 10 billion pound ($16.5 billion) bid from Kraft Foods .The Dairy Milk chocolate maker on Monday warned shareholders not to let Kraft "steal" Cadbury.

The Dubai government and affiliated firms owe non-financial Japanese companies about $7.5 billion in credit as of Oct. 31, the Nikkei business daily reported, citing a study by the Japanese government. The study covered 18 projects that involved Japanese general contractors, trading companies and electric machinery manufacturers, though none was cited by name in the weekend report. About $1 billion of the accounts receivable went unpaid past their due dates, with some more than a year overdue, the report said. Disagreements between Japanese firms and their clients about who should shoulder cost overruns due to design modifications have contributed to the unpaid claims, the report said.

Exxon Mobil says it will acquire Fort Worth-based XTO Energy in an all-stock transaction valued at $31 billion.

Exxon has moved recently to pick up valuable natural gas fields and now it is snapping up XTO, which claims about 45 trillion cubic feet of natural gas.

The world’s largest publicly traded oil company will issue 0.7098 common shares for each common share of XTO, representing a 25 percent premium to XTO stockholders. Exxon will also assume $10 billion in XTO debt.

Rob Hanna: "This week is options expiration. Over the last 25 years December options expiration week has been the most consistently positive week of the year for the SPX."

Japan's top toymaker Bandai has released paper-thin, rose-scented bath soap that looks like the American $100 bill and dissolves to create a bubble bath.

Terra Industries Inc. on Monday said its board rejected CF Industries Holdings Inc.'s latest sweetened hostile buyout bid, saying it "continues to substantially undervalue Terra."

John Hussman: "Any virtue of stocks here is decidedly speculative. Stocks are overvalued to a level from which uninspiring returns have always followed. That fact is true regardless of whether or not the economy is in a sustainable recovery."

A lot of Americans will be cutting back on spending for their families and others this holiday season, and will be more practical with the gifts they give, according to a CNN/Opinion Research poll released Monday.

According to the poll, 49% of those surveyed said they'll spend less on holiday gifts this year than they did last year. Another 39% said they'll spend at 2008 levels, while 12% indicated they'll spend more.

The poll also found that 51% of those surveyed will cut back in what they'll make in charitable contributions due to economic conditions this year, while 44% said the economy will have no impact on their giving.

A landmark .pipeline from Central Asia to China began pumping natural gas Monday.

According to El Paso Natural Gas Company, maintenance will continue through December 20 at its Pecos River Compressor Station located in Eddy, New Mexico. The maintenance is resulting in a reduction in capacity of 385 million cubic feet (MMcf) per day. As a result, operating capacity through the compressor station is projected to remain at 825 MMcf per day.

The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-two percent (42%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -18.

Inflows into U.S. mutual funds were $34.6 billion in November, Morningstar Inc. said in a statement released Monday. Inflows into exchange-traded funds reached $14 billion last month, the ninth consecutive month of net inflows for the industry. Inflows into ETFs from the start of the year through November have reached $77.8 billion, and total inflows into U.S. mutual funds were $350.4 billion through November.

The Dow Jones Industrial Average gained 29.55 points, or 0.3%, to end at 10,501.05, closing above the 10,500 mark for the first time since Oct.1, 2008. The S&P 500 index rose 7.70 points, or 0.7%, to 1,114.11, also its highest close since early October of last year. The Nasdaq Composite gained 21.79 points, or 1%, to 2,212.10.

Crude for January delivery ended down 36 cents, or 0.5%, at $69.51 a barrel on the New York Mercantile Exchange. The nine-day loss was the longest such streak since July 2001.

Sunday, December 13, 2009

Matt Taibbi

12/13/09 Matt Taibbi

Nakheel PJSC’s possible non-payment of its Islamic bond due tomorrow will trigger defaults on two other securities, bringing the total of affected securities to $5.25 billion, bond documents show.

Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said on Nov. 25 that state- run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit.

John Mauldin: "There are 5.16 million on the continuing-claim rolls. But when you add in the extended benefits rolls, it increases to over 10 million. Average length of unemployment is now over 26 weeks, and the median length is over 33 weeks!"

Mike Burk: "The Santa Clause rally is not scheduled to begin for another week and a half, in the mean time there is not much pushing the market either way.

I expect the major indices to be higher on Friday December 18 than they were on Friday December 11.

Last week the blue chips were up less than 1% and the secondaries were down less than 1% so I am calling last week's negative forecast a tie."

Floyd Norris: "“Figures released this week by the Federal Reserve showed that Americans owed $10.8 trillion on home mortgages at the end of the third quarter, down 2.2 percent from a year earlier and the lowest level since mid-2007. Similarly, the Fed said that outstanding credit card bills in October totaled $888 billion, down 8.5 percent from a year earlier. That number was the lowest since March 2007. Those trends do not, however, necessarily indicate that Americans have paid down their debts and are starting to lead the more frugal lives that some financial planners have been recommending for years. There has undoubtedly been some of that, but the declines also indicate that banks have been forced to write off a lot of bad debts and have grown more stingy in granting credit . . .”

Erick Schonfeld: "Last night, we started seeing some Tweets from Google employees and others about a new Android-powered Google (GOOG) phone that was apparently handed out at an “all hands” meeting. Now Google is confirming that it is indeed “dogfood” testing a new Android device with employees around the world.
But this isn’t just another Android phone. Very trustworthy sources who have seen the phone say that it is the Google Phone we first wrote about last month (despite the uninformed saying we were dreaming). It will be branded Google and sold by Google as an unlocked phone, which could change everything. As we wrote in our original post."

Even as job losses in the U.S. mount, employers have stepped up the hiring of skilled workers from abroad, according to data from the U.S. Citizenship & Immigration Services. The acceleration in recent weeks has put companies close to exhausting the 65,000 visas allotted each year for foreign hires under what's known as the H-1B program. Some 61,500 visas had been used as of Dec. 8, and the last visas are likely to be claimed within weeks. Once that happens, companies won't be able to use the program to bring in additional workers until October, the start of the government's fiscal year.

Hershey and the charitable trust that controls the chocolate maker is still considering whether it will make a bid that is likely to include a higher cash element than Kraft's, said the report, which added that any bid was unlikely to materialize before the New Year.

Cadbury is due to release a defense document, which is likely to reveal plans for growth beyond 2011 on both revenues and margins, on Monday.

Senate Democrats overcame a Republican filibuster to clear the way for a vote Sunday on a huge end-of-year $1.1 trillion spending bill that gives budget increases far exceeding inflation to much of the government.

Matt Taibbi: "Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?

Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

How did we get here? It started just moments after the election — and almost nobody noticed.

Frank Shostak: "Despite massive pumping — in December last year the yearly rate of growth of the Fed's balance sheet jumped to 153% — economic activity remains depressed. We suggest that the key here is commercial-bank lending. Without support from commercial banks, the Fed will find it difficult to revive economic activity. As a result of past and present loose monetary and fiscal policies, the process of real-wealth generation has been severely damaged. This, we suggest, has increased the risks that banks would incur in lifting the supply of credit.

As long as the pool of real savings — the key for the process of real-wealth formation — is under pressure, bank lending is also likely to remain paralyzed. On account of a strong rebound in the money-supply rate of growth between August last year and August this year, the economy in terms of GDP is likely to strengthen in the months ahead. However, a collapse in the money supply since October raises the likelihood of a fall in the GDP rate of growth from the second half of next year. Various measures to revive the economy are likely to make things much worse because they only weaken the pool of real savings."