Friday, December 31, 2010

Wishing You a Happy and Healthy New Year

12/31/10 Wishing You a Happy and Healthy New Year

Aisha Elderwyn
"Every new year people make resolutions to change aspects of themselves they believe are negative. A majority of people revert back to how they were before and feel like failures. This year I challenge you to a new resolution. I challenge you to just be yourself."

(Bloomberg) -- South African bonds lured more foreign inflows in 2010 than shares for the first time after the fall of apartheid in 1994 as yields more than double those of 10-year U.S. Treasuries boosted the appeal of the debt. “South African bonds offer some of the highest yields around,” said Leon Myburgh, a fixed-income strategist for sub- Saharan Africa at Citigroup Inc.’s Johannesburg-based unit. “Slowing inflation and declining interest rates made them a very attractive investment.”
The debt-buying spree will continue through 2011, said Jacques Theron, a portfolio manager at Johannesburg-based Absa Asset Management Private Clients, a unit of the nation’s largest retail bank. With its benchmark interest rate at 5.5 percent and inflation near a five-year low, South Africa’s central bank is among a few worldwide that have room to cut rates, he said.

U.S. stocks ended 2010 with strong gains, advancing for the second year in a row, as stimulus measures from the Federal Reserve and the government and recent signs of improvement in the economy encouraged investors' spirits. The Dow Jones Industrial Average closed the year at 11,577.51 on Friday, up 7.8 points for the session, and less than 10 points below a two-year high it reached on Wednesday. The Dow jumped 5.2% in December and is up 11% for the year. The S&P 500 index fell 0.24 point to 1,257.64 on Friday. The broad index still jumped 6.5% for the month and is up 12.8% in 2010. The Nasdaq Composite fell 10.11 points, or 0.4%, to 2,652.87 Friday, leaving it with 6.2% advance in December and a 16.9% gain for the year.

Oil prices hit a 26-month high over $92 a barrel on Friday, closing the year up 15 percent on expectations that the economic recovery will drive demand growth next year and send prices into triple digits.

Bill Gross: "avoid dollar-denominated government debt" (US Treasuries)

Howard Davidowitz

12/31/10 Howard Davidowitz

The Chinese yuan strengthened for a second straight day Friday to hit a fresh record high, with the gain coming in the wake of a high-profile forecast for the currency. The U.S. dollar slipped to 6.6227 yuan, inching down from Thursday's 6.6229 yuan after Beijing lowered the trading band slightly. The advance followed a day after a report that a leaked U.S. diplomatic cable cited China Construction Bank senior economist Hwa Erh-cheng as predicting a 5% rise in the yuan against the dollar for 2011. The news was reported by Agence France-Presse, based on a cable released by the WikiLeaks website.

Disruptions in coal production from Australian floods may help raise the price of coal 20% or more, to the benefit of Canadian miners.

Michael Pento: "The Fed's lucky streak of luring bond investors with low interest rates may be drawing to a close. Nevertheless, the extended period of low borrowing costs has bred a new breed of investor. To the bulls and bears, we can now add the ostriches - those who bury their heads in the sand of declining debt service ratios while refusing to face up to intractable levels of total US government debt. If these ostriches were to actually look at the numbers, they would realize that it is their investments which are made of sand."

The last time sentiment levels were this extreme was 1987.

A foot of snow in Prescott, Arizona!

Money market mutual fund assets rose by $22.4 billion to $2.8 trillion in the week ended yesterday, the Investment Company Institute reported Thursday.

On calendar 2011 shipment potential, Caris forecasts 53.6 million tablets, with 36.1 million Apple iPad's, Samsung targets 8 million Galaxy Tabs, while our November Asia checks showed expectations for 40 million to 60 million units.

China's first round of rare earth export quotas for next year were actually cut by about half from first round quotas for 2010, citing an official.

The Oil Drum: "LA PAZ, Bolivia – Protests against a sharp increase in fuel prices intensified and turned violent in Bolivia on Thursday, as thousands of demonstrators demanded President Evo Morales' government repeal the hike.
Demonstrators filled the streets in La Paz and other cities to protest the higher prices, which were announced suddenly on Sunday. Gasoline prices immediately soared by 73 percent and diesel prices went up by 83 percent, leading to a rapid increases in transport and food prices in the Andean country."

CVS Caremark Corp. agreed to buy the Medicare Part D business of Universal American Financial Corp. for about $1.25 billion, more than doubling the size of its program after pharmacy-benefits.

Alexander Herzen: “This socialism will develop in all its phases until it reaches its own extremes and absurdities. Then once again a cry of denial will break from the titanic chest of the revolutionary minority and again a mortal struggle will begin, in which socialism will play the role of contemporary conservatism and will be overwhelmed in the subsequent revolution, as yet unknown to us.”

Venezuela will devalue its "strong bolívar" currency on New Year's Day, the government said Thursday, the second such devaluation within a year and at least the fifth major devaluation during the decade-long populist government of President Hugo Chávez.

Howard Davidowitz: "If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater."

Thursday, December 30, 2010

Marc Faber

12/30/10 Marc Faber

The 111th Congress left town without passing a 2011 budget that began October 1st 2010. This is the first time a budget has not been passed since 1974.

Summary of Weekly Petroleum Data for the Week Ending December 24, 2010
U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending December 24, 3 thousand barrels per day above the previous week’s average. Refineries operated at 87.8 percent of their operable capacity last week. Gasoline production decreased last week, averaging 9.3 million barrels per day. Distillate fuel production increased last week, averaging 4.7 million barrels per day.
U.S. crude oil imports averaged 8.8 million barrels per day last week, up by 72 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 8.6 million barrels per day, 663 thousand barrels per day above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 775 thousand barrels per day. Distillate fuel imports averaged 251 thousand barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.3 million barrels from the previous week. At 339.4 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.3 million barrels last week and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.2 million barrels and are just above the upper limit of the average range for this time of year. Propane/propylene inventories decreased by 2.4 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 9.2 million barrels last week.
Total products supplied over the last four-week period has averaged 20.3 million barrels per day, up by 6.1 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.3 million barrels per day, up by 2.9 percent from the same period last year. Distillate fuel demand has averaged 3.9 million barrels per day over the last four weeks, up by 4.9 percent from the same period last year. Jet fuel demand is 0.1 percent higher over the last four weeks compared to the same four-week period last year.
Source: EIA

The Dow Jones Industrial Average finished down 15.67 points, or 0.1%, at 11,569.71, with 23 of its 30 components ending lower. The S&P 500 index fell 0.2% to 1,257.88, weighed down by its financials and healthcare sectors. The Nasdaq Composite lost 0.2% to 2,662.98.

Marc Faber: Treasurys Are A "Suicidal Investment"...The worst investment is in U.S. long-term bonds....By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror.”

Seasonally Adjusted

12/30/10 Seasonally Adjusted

Analysts and traders surveyed by Dow Jones Newswires expect this week's storage data to show a decline of 146 bcf, more than the five-year average draw for the week of 118 bcf. The expected draw would leave stockpiles 7.9% above the five-year average.

The number of U.S. workers filing new applications for jobless benefits fell 34,000 to a seasonally adjusted 388,000 in the week ended Dec. 25, hitting the lowest level since July of 2008, the Labor Department reported Thursday. Economists polled by MarketWatch had expected initial claims of 413,000. The four-week average of new claims, which is smoother than the weekly data, fell 12,500 to 414,000, also reaching the lowest level since July of 2008. The level of claims helps observers to analyze the health of the labor market, and economists say claims would have to remain below 400,000 before there's a substantial gain in hiring. Analysts also note that claims are difficult to seasonally adjust near the holidays. In the week ended Dec. 18, the number of people who continued to receive benefits under state unemployment programs rose 57,000 to a seasonally adjusted 4.13 million. The four-week average of these continuing claims fell 37,250 to 4.12 million, the lowest level since November of 2008. Altogether, about 8.87 million people received some kind of unemployment-insurance benefit in the week ended of Dec. 11, on an unadjusted basis. That level was down about 35,000 from the prior week.

The average 30-year fixed mortgage rose to 5.02%, according to's weekly national survey released Thursday. The average 15-year fixed mortgage rose to 4.39% and the larger jumbo 30-year fixed rate rose to 5.64%. Adjustable rate mortgages also went up, with the average 5-year ARM rising to 4% and the average 7-year ARM reaching 4.43%.

Manufacturing activity in China fell to a three-month low in December but soaring raw material costs continued to fan inflationary pressures in the economy, an independent survey said Thursday.
The HSBC China Manufacturing PMI, or purchasing managers' index, slipped to 54.4 in December from 55.3 in November as output and new business increased at the slowest pace in three months, the British banking giant said.

The yuan hit a record high against the dollar on Thursday after the People's Bank of China set a higher mid-point, sparking expectations of more appreciation in the first quarter of next year.
Spot yuan hit an intraday high of 6.6000, the highest level since its revaluation and accompanying forex reforms in July 2005. That was up 0.3 percent from Wednesday's close, the biggest daily percent rise in around seven weeks. The yuan has now risen 1.2 percent from a low hit on Dec. 20, marking one of its fastest series of gains since the currency was depegged from the dollar in mid-June. It has now gained 3.4 percent since the depegging.

Rice futures rose the most allowed by the Chicago Board of Trade on expectations for lower production from Thailand, the world’s biggest exporter, because of flooding. Output from Thailand’s main harvest, which started in October, may drop 5.3 percent, the Office of Agricultural Economics said last week.

After 33 Consecutive Weeks of Outflows, ICI Reports First Inflow into US Equity Funds as Bond Outflows Persist.

The stock market rallied after 1929, but then crashed in a double dip.

Chinese academic Guo Tianyong said the country has room to raise interest rates once or twice in the first half of 2011. Guo is head of the China Banking Research Center at the Central University of Finance and Economics.

John Taylor: "We see the health of world economy as being driven by the implied strength of three economic centers: the US, China, and the Eurozone...Each of these three centers has a problem in that the amount of debt is too high and the assets against that debt are unable to throw off enough cash to support it, much less retire it."

More banks failed in 2010 than any year since the savings-and-loan crisis ended in 1992. So far this year, the 157 banks that failed had total assets of $92.1 billion compared to 140 bank failures with total assets of $169.7 billion in 2009.

The Chicago PMI climbed to 68.6 in December, compared to November's reading of 62.5.

Pending home sales rose 3.5% in November, according to an index released Thursday. The National Association of Realtors said its pending home sales index rose to 92.2 from a downwardly revised 89.1 in October. The index is still 5% below November 2009 levels. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales.
NAR chief economist Lawrence Yun last week estimated there were about 4.5 million distressed properties that could potentially reach the market in coming months.
Housing permits fell in November to the third-lowest level on record.

The American Petroleum Institute late Wednesday said crude-oil inventories rose 3.1 million barrels in the week ended Dec. 24. Gasoline stocks fell 3.1 million barrels, while distillate stocks gained 1.38 million barrels, the trade group estimated.

Natural Gas Storage Report

week ending: 12/24/2010
east 1671
west 444
producing 1117
total 3232
change -136

Wednesday, December 29, 2010


12/29/10 Foreclosures

BJ's Wholesale Club Inc., the Natick, Mass., warehouse retailer, may face a hostile takeover attempt from the private-equity firm Leonard Green & Partners in the next few weeks if it does not auction itself, the New York Post reported, citing sources. Leonard Green recently agreed to acquire Jo-Ann Stores and it partnered with TPG on a bid for J. Crew. The sources told the Post that Leonard Green still was looking to invest about $5.3 billion that it had raised for a buyout fund. The Post had earlier reported that BJ's in November had hired Morgan Stanley to explore strategic alternatives for the retailer, including a possible sale

The People's Bank of China has raised the interest rate it charges banks on some funding facilities, after the central bank increased bank deposit and lending rates by a quarter-point over the weekend, according to reports Wednesday. The PBOC raised its one-year refinancing rate, or the interest rate at which it lends to banks, by 0.52 percentage points to 3.85%, Dow Jones Newswires reported. The central bank also lifted the rediscount rate -- or the rate banks pay when they borrow from the central bank by selling commercial bills -- by 0.45 points to 2.25%, the PBOC said. The adjustments were made on Sunday, and were announced in a statement dated Monday, the report said.

The yuan is fixed to the dollar, but floats against most other currencies. Citing the real's 37% gain against the yuan as causing a surge in Chinese imports, Brazil nearly doubles tariffs against China on several different toys.

Taiwan may increase interest rate to damp prices after countering inflows.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 17, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 18.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 20.0 percent compared with the previous week The Refinance Index decreased 24.6 percent from the previous week. The Refinance Index has declined six straight weeks and is at its lowest level since the week ending April 30, 2010. The seasonally adjusted Purchase Index decreased 2.5 percent from one week earlier. The unadjusted Purchase Index decreased 4.9 percent compared with the previous week and was 8.4 percent lower than the same week one year ago.

Billed as the world's biggest defense deal, India and Russia signed a $30 billion agreement for the development of fifth-generation warplanes.

Charles Hugh Smith: "Cash may yet be king, and his reign may last a lot longer than many think possible. When one asset class in a highly correlated group rolls over, then maybe the entire group rolls over with it. Maybe not, but the possibility of losing 25% in being wrong makes me cautious.
I don't know what will happen, but I can sleep being in cash in Q1 2011. If I miss all the spectacular rallies that everyone sees as sure things, so be it. I prefer to let things settle out before making any bets or predictions."

A spending splurge from upper-income Americans led the way to strong self-reported consumer spending during Christmas week 2010, Gallup says - $183/day on average during the week ending Dec. 26, up from $126 Y/Y.

(Bloomberg) -- At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.
The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.
What nobody’s saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free.

(Reuters) - China has raised fresh international trade concerns after slashing export quotas on rare earths minerals, risking action from the United States at the World Trade Organization.
China, which produces about 97 percent of the global supply of rare earth minerals, cut its export quotas by 35 percent for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves, but warned against basing its total 2011 export quota on the first half figures.
The U.S. Trade Representative's office was "very concerned" about China's export restraints on rare earths and had raised its concerns with China, a spokeswoman said on Tuesday.
A European Commission spokesman said the European Union "notes the latest quota figures and expects China to respect its recent assurance of a guarantee of rare earth supplies to Europe."
U.S. makers of high-tech products such as Apple Inc's iPads, along with Japanese companies have been scrambling to secure reliable supplies of the minerals outside of China as Beijing steadily reduces export allocations.

According to DigiTimes, the house of Jobs has ordered 65 million 9.7-inch iPad screens for 2011. If true, this means Apple is confident that 2011 will be a banner year for the iPad. Most estimates put iPad sales in the neighborhood of 45-48 million units for 2011.

Snowstorms that pounded the Northeast and much of the East Coast hurt retailers’ sales by an estimated 10% on Sunday and Monday, likely postponing about $1 billion that otherwise would have ended up in their cash registers, according to mall-traffic tracker ShopperTrak. The two days after Christmas generally account for about $10 billion in sales, ShopperTrak estimated.

The Treasury Department sold $29 billion in 7-year notes on Wednesday at a yield of 2.83%, the highest since April. Bidders offered to buy 2.86 times the amount of debt sold compared to an average of 2.96 times at the last four monthly sales. Indirect bidders, a group which includes foreign central banks, bought 64.2% of the sale, the highest allotment since June 2009 and well above the average of 49.9% of recent sales. Direct bidders, a class which includes domestic money managers, purchased 4.6%, down from 9.1%, on average. Primary Dealers were left with just 31.2% of the take down.

Newly initiated foreclosures increased to 382,000 in the third quarter, a 31.2 percent jump over the previous quarter and a 3.7 percent rise from a year ago, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in their quarterly mortgage report.
The number of foreclosures in process increased to 1.2 million, a 4.5 percent increase from the second quarter and a 10.1 percent increase from a year ago, according to the regulators.

Italy's 10 yr yield is rising to the highest since Jan '09, Greece is just shy of a new record high and French yields are just below the highest since April. Also, Australia's 10 yr yield is rising to the highest since May.

The recent runup in Treasury yields is just the tip of the iceberg, according to Russ Koesterich, global chief investment strategist at BlackRock's iShares Group.

The weather will be “colder-than- normal” in January, according to Matt Rogers, a forecaster with Commodity Weather Group LLC in Bethesda, Maryland.

Silver closed near its highest levels in almost 30 years on Wednesday, while gold and industrial metals also gained as the dollar lost ground. Silver for March delivery rose to end at $30.70 an ounce, up from $30.32 on Tuesday and near its highest levels since 1980, according to news reports. Gold for February delivery closed at $1,413.50 an ounce, up $7.90 and the highest since Dec. 6. January platinum rose to $1,754.20 an ounce, the highest since early November. Palladium for March delivery rose to $793.40 an ounce, the highest level since 2001. March copper closed at $4.31 a pound, down slightly from Tuesday's record close.

The Dow Jones Industrial Average rose 9.84 points, or 0.09%, to 11,585.38, while the S&P 500 Index added 1.27 points, or 0.1%, to 1,259.78. The Nasdaq Composite Index rose 0.15%.

"I am one of those who do not believe the national debt is a national is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country." —Andrew Jackson, letter, April 26, 1824

Tuesday, December 28, 2010


12/28/10 Treasurys

Newark Liberty International Airport in New Jersey has arrival delays of more than eight hours, and New York City’s John F. Kennedy International Airport has delays of more than five hours because of snow and ice, the U.S. Federal Aviation Administration said on its website.

An overnight freeze hit several central Florida citrus growing areas, icing up fruit and raising fears of damage to the leaves and small twigs of trees, growers said Tuesday.

The Treasury Department sold $35 billion in 5-year notes on Tuesday at a yield of 2.149%, the highest since April. Bidders have offered to buy 2.61 times the amount of debt sold, compared to an average of 2.82 times at the last four sales of the securities. Indirect bidders, a group which includes foreign central banks, purchased 35.6%, versus an average of 43% of recent sales. Direct bidders, a group which includes domestic money managers, bought another 6.2%, compared to 11.2%, on average. After the auction, the broader bond market moved sharply lower, pushing yields higher. Yields on 10-year notes rose 11 basis points to 3.45%, after trading at 3.39% before the auction.

China and Russia have already cut their US Treasury holdings by 3% and 9% respectively year over year.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data. He said 'Housing Prices Can Only Move Down'.

S&P 500 short interest at 4.15%, lowest since December 2007.

The dollar set a record low against the Swiss franc and hit a 6-1/2-week low against the yen on Tuesday after Japan reported its factory output rose in November for the first time in six months. A 1 percent jump in Japanese factory output, the first rise in six months, "certainly has provided a bid to the yen across the board," said Dean Popplewell, chief strategist of FX brokerage OANDA in Toronto

The Dow ended at 11.575.5, up 0.18%, while the Nasdaq lost 0.16% to end at 2,622.88. The S&P 500 crept up 0.08%, to end at 1258.51.

Gold for February delivery closed at $1,405.60 an ounce, gaining $22.70 -- its biggest one-day rise since early November. Sugar climbed to a 30-year high.
Silver jumped 1.06 to $30.315. Copper rose 4.45 to $432.450.

The 10-year yield rose 16 basis points to 3.49 percent at 4 p.m. in New York. The two-year Treasury yield climbed seven basis points to 0.75 percent and the yield on the existing five-year note increased 14 basis points to 2.16 percent. The 30-year yield rose to 4.53%.
Seven-year notes were last down 26/32 in price to yield 2.85 percent, up from 2.72 percent late Monday. The notes traded at yields of 2.88 percent in the
"when-issued" market which indicates where traders expect the new debt to price.

Credit cards that give cash back prompt consumers to spend more and accrue more debt, according to researchers at the Federal Reserve Bank of Chicago.

Prime Minister Nouri al-Maliki ruled out any U.S. troops in Iraq after the end of 2011, saying his new government and the country's security forces were capable of confronting any remaining threats to the country's security.

Conference Board Consumer Confidence: "Those saying jobs are "plentiful" decreased to 3.9 percent from 4.3 percent, while those stating jobs are "hard to get" edged up to 46.8 percent from 46.3 percent."

CSM: "The Stuxnet malware has infiltrated industrial computer systems worldwide. Now, cyber security sleuths say it's a search-and-destroy weapon meant to hit a single target. One expert suggests it may be after Iran's Bushehr nuclear power plant."

Home Prices and Consumer Confidence Suck

12/28/10 Home Prices and Consumer Confidence Suck

Prices of single-family homes fell almost double the expected pace in October, the fourth straight decline.
October home prices dropped 1.3% on a non-seasonally-adjusted monthly basis, according to the S&P/Case-Shiller report releaed Tuesday. Home prices decreased in all 20 metropolitan areas followed by the report. Six cities made new lows, the report said. Home prices are dropping in the nation's largest cities and are expected to fall through next year, with the worst declines coming in areas with high numbers of foreclosures. The 20-city index has risen 4.4 percent from their April 2009 bottom. But it remains 29.6 percent below its July 2006 peak. Six cities set new lows for the period since the 2006 peaks.
“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.” Housing permits fell in November to the third-lowest level on record.

An index of U.S. consumer confidence declined to 52.5 in December on concerns about jobs in the present and future, the Conference Board reported Tuesday. Economists polled by MarketWatch had expected confidence to rise to 56.9. "Consumers' assessment of the current state of the economy and labor market remains tepid, and their outlook remains cautious," said Lynn Franco, director of Conference Board's consumer research center, in a statement. However, she added that signs suggest a continuation next year of the economy's expansion, "but that the pace of growth will remain moderate." Confidence for November was revised higher to 54.3 from a prior estimate of 54.1. A barometer of consumers' expectations fell to 71.9 in December from 73.6 in November, while consumers' assessment of the present situation decreased to 23.5 from 25.4.

(Bloomberg) -- China cut its rare earths export quotas by 11 percent in the first round of permits for 2011, threatening to worsen a global shortage of the minerals needed for smartphones, hybrid cars and guided missiles.
The government allotted 14,446 metric tons of rare earth exports split among 31 companies, the Ministry of Commerce said in a statement. That compares with the first round this year of 16,304 tons and the second round of 7,976 tons, according to previous ministry statements. The government usually issues two rounds of export quotas every year.
China, which accounts for more than 90 percent of world supplies, slashed export quotas by 72 percent in the second half of this year, sparking a surge in prices. Japan, the biggest user, has sought alternate supplies with companies including Hitachi Metals Ltd. and Toyota Motor Corp. seeking cooperative ventures at home and abroad to secure the minerals.
“This is in line with government officials’ comments that we need to protect the environment and resources,” said Chen Jiazuo, an analyst at metals researcher Beijing Antaike Information Development Co. “Controlling domestic production capacity, output and exports will continue to be the theme.”

The national price for regular gasoline increased 7 cents from the previous week to an average of $3.05 per gallon, as rising crude oil prices bolstered fuel costs. This is the highest price since October 2008.

Ron Paul: "Courage begins with a commitment to see things as they are, rather than how we wish they were. When it comes to Social Security, we must understand that the system does not represent an old age pension, an "insurance" program, or even a forced savings program. It simply represents an enormous transfer payment, with younger workers paying taxes to fund benefits. There is no Social Security trust fund, and you don't have an "account." Whether you win or lose the Social Security lottery is a function of when you happened to be born and how long you live to collect benefits. Of course young people today have every reason to believe they will never collect those benefits."

The Automatic Earth: "Large swaths of unproductive private and public debt will not be repaid, and sovereign countries will default on their obligations. International monetary, political or strategic unions that rely on economic stability, mutual trust and confidence will not be preserved in any meaningful form. Citizens of the developed world will not stand in a single-file line and receive their bitter dose of austerity in an orderly fashion. These things are almost 100% certain, and no amount of conscious planning or top-down decision-making will make them less likely to occur."

China central bank adviser Li Daokui said more adjustments in China's deposit rate, lending rate, and reserve requirement ratio are "very necessary" in 2011, especially in the first half, citing an interview.

China's consumer price increases may exceed 5% in 2011, citing Liu Yuhui, a researcher with the Chinese Academy of Social Sciences.

About 40% of the additional dollars issued by the Federal Reserve through its purchases of U.S. Treasuries, or quantitative easing, may have flown into China, increasing inflationary pressure for the nation, citing Zheng Xinli, deputy director of China Center for International Economic Exchanges.

PetroChina agreed on Tuesday to sell its stake in a gas pipeline operator to the Kunlun Energy Company for $2.85 billion, the latest in a flurry of energy deals.

Calculated Risk: "The post-Depression record for consecutive months with the unemployment rate above 9% was 19 months in the early '80s. That record will be broken this month, and it is very possible that the unemployment rate will still be above 9% in December 2011. This high level of unemployment - and the number of long term unemployed - is an economic tragedy."

Chris Whalen: "
"We understand what the problem is for Bank of America. They are insolvent. They still have huge losses to take on their mortgage book, and balance sheet. They also have to deal with everyone wanting them to buy-back mortgages."
"By this time next year the majority of home sales will be involuntary - more foreclosure sales than normal sales."
"We haven't seen the peak of foreclosures yet. That will come 12 months from now."
"California will default on its debt."
"A whole slew of sovereign defaults in Europe. There is no growth."
"QE and QE2 are just hidden subsidies for the big banks."
"Bank of America is in the worst shape of any U.S. bank."
"Bank of America senior bondholders will have to take a hit, convert debt into equity."
"There is no doubt they will have to be restructured."
"Ireland is small. Wait until we get to Spain."
Charles Hugh Smith: "The conventional wisdom is that boosting consumer borrowing and spending (same old, same old) will magically create millions of new jobs. As usual, the conventional wisdom is dead-wrong: America's job-creation machinery is hollowed out."

The City of Beijing will limit the number of new license plates issued in 2011 to 240,000 to help control traffic congestion. Xinhua reported that car buyers in Beijing will have to draw lots before obtaining a vehicle license plate. This is truly bad news for GM.

ZeroHedge: "1 out of 3 Americans has zero in any retirement account (not one slowly eroding dollar). Half of Americans have $2,000 or less which puts them one month away from needing government assistance. With the volatile job market and turbulent Wall Street middle class Americans are feeling the once prided stability being slowly washed away."

The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute's senior international economist.
"There's a huge difference between what is good for American companies versus what is good for the American economy," says Scott.

Monday, December 27, 2010

2-year treasury notes

12/27/10 2-year treasury notes

The U.S. Treasury awarded $35.00 billion in two-year notes at Monday's auction at a high rate of 0.740%, the highest level since June.
The Treasury received bids totaling $129.87 billion and accepted $35.00 billion. Primary dealers were awarded $20.00 billion, while indirect bidders--a category that includes foreign central bankers--were awarded $7.84 billion.
Indirect bidders got 23% of the total competitive amount accepted; direct bidders received 20%.
The bid-to-cover ratio, an indication of demand, was 3.71, Treasury said.
Tenders submitted at the high yield were allotted 68.25%.

Russian central bank raises deposit rates by 25 bps, leaves REFI rate on hold.

Ahead of tomorrow’s S&P/Case-Shiller home price index data, at least one prominent economist is warning that the housing market could suffer a double-dip next year, in stark contrast to bullish expectations for the overall economy in 2011. David Rosenberg, chief economist at Gluskin Sheff, said that investors are not being realistic about the likelihood of a major price declines next year. In a recent research note, Rosenberg, who correctly predicted the housing collapse of 2007-2008, wrote that “the potential for a significant down-leg in home prices is being underestimated. The unsold existing inventory is still 80 percent above the historic norm at 3.7-million.”

The Dow Jones Industrial Average was down 18.88 points to 11,554.61. The Standard & Poor's 500 Index was up nearly 1 point at 1,257.62. The Nasdaq Composite added 3.95 points to 2,669.55.

Mish: "China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5% to 6% but that's nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing."

Governor Mitch Daniels (R-Indiana) says he supports a plan that would allow local governments to declare bankruptcy and allow for a state takeover.

Municipal bankruptcy is a rare phenomenon, spurned by state and local leaders as an admission of failure that could wreak havoc on the municipal bond markets, the Times reports. Some states have laws that require an elaborate approval process before a city can head to bankruptcy court and at least one state, Georgia, bans municipal bankruptcies.
All told, fewer than 250 cities, towns, and counties have filed for bankruptcy in the last 30 years, the Times reports, quoting Chapman & Cutler bankruptcy lawyer James Spiotto.
But with tax revenue likely to remain pinched in the coming year many localities may have no choice but to consider filing for bankruptcy.
“We can make it until March 1 — maybe,” said William Cooper, the city manager for Hamtrack, Mich., a city near Detroit that has pleaded with the state to let it declare bankruptcy, according to the Times.
Cooper said that bankruptcy could allow the city to “start over” with its labor contracts.
While no city in Michigan has ever filed for bankruptcy that could change, said Rick Snyder, who is due shortly to be sworn in as governor of Michigan. “We could have a large number of jurisdictions facing insolvency,” he said.


12/27/10 Seasonality

About 75 percent of the $85.5 billion that people saved in taxes from the mortgage-interest deduction in 2008 went to individuals or couples making $100,000 or more, according to an analysis by the congressional Joint Committee on Taxation of the latest data available.
Based on those numbers, taxpayers who took the mortgage deduction saved, on average, $2,330 in 2008. But the average savings were nearly triple that amount for those reporting incomes of at least $200,000.

The WSJ: nearly 100 U.S. banks that got TARP funds from the federal government in Q4 2008 are in danger of going bankrupt.

John Hussman: "The problem with this outcome is that the speculative factors being rewarded over the short-term have nothing to do with the characteristics that have historically been rewarded over the long-term. Despite various periods where valuation is out-of-favor, value has been the clear winner over time. Moreover, it has been destructive to discard valuation in preference for chasing momentum and relative strength after the fact. In contrast, chasing high beta or momentum has conferred no durable benefit for investors."

Mike Burk: "Seasonality is likely to dominate next week.
I expect the major averages to be higher on Friday December 31 than they were on Friday December 24."

The Oil Drum: "Most of China's resource production bases, including coal and and oil, are either concentrated in the northern or western provinces, away from the key demand areas located in the southern and eastern region, such as Shanghai and Guangdong. Any supply shortfall could prompt a surge in import demand as utilities and firms seek alternative fuel supplies to feed their power plants."

The yield on the 2-year treasury rises to 0.72% and that's up from 0.33% about one month ago. At that time I discussed the risk/reward on this debt instrument. I took the view that the short side on the 2-year was the most attractive risk/reward in the bond, equity, commodity, and currency markets at that time.

The Treasury Department is expected to sell $35 billion in 2-year debt, ending at 1 p.m. Eastern.

More people than ever before received unemployment benefits this year in Washington state, a dismal and costly record.
The state’s Employment Security Department expects by New Year’s Eve, that more than 500,000 people will have collected unemployment benefits throughout the year. A total of 475,000 people received benefits in 2009 while 290,000 received benefits in 2008.
The state expects to pay about $4.7 billion in unemployment benefits by the end of the year, compared to the $4 billion that was paid out in 2009 and the $1.2 billion that was distributed in 2008, according to the Employment Security Department. Those who are out of work will have collected unemployment benefits for an average of 41 weeks, up from an average of 28 weeks in 2009.

There is a risk of another recession next year, protectionism could cause major problems in 2011 and recent stock market strength could be curtailed, Roger Nightingale, strategist at Pointon York, told CNBC Monday. Many parts of the world are beginning to tighten liquidity in a bid to tackle inflation, Nightingale said after China raised its key interest rate over the weekend.
"That which has been fueling the rally is going to be withdrawn … the capacity for the market to rise will be diminished," he said.

Guy Lerner: "It doesn't take a rocket scientist (or Wall Street analyst ~ a downgrade?) to figure out that investors are extremely bullish on the equity markets. Such extremes in sentiment will usually (85% of the time) lead to better risk adjusted buying opportunities in the future. In other words, the next best time to be a buyer of equities will be when investors are bearish not bullish as they are now. The markets don't have to go down just because everyone is bullish, but if you are a "believer" and buyer at these levels, then you will need to identify a market top and get to the exits before the next guy to extract profits. This is a very crowded trade and identifying the top is a tall order."

Hu Xiaolian, a deputy governor, said China had been normalizing policy and will explore new ways to manage excess cash, which is seen as a major driver behind 28-month high inflation.
Her remarks reinforced statements from China's top leaders that the task of taming inflation will be a priority for Beijing next year.
"An implementation of prudent monetary policy is helpful in strengthening the management of inflationary expectations and in fending off asset bubbles," Hu said.

The Dallas Fed's December Texas Manufacturing Index came at 12.8, down from expectations of 17, and a drop from the November print of 13.1.

Julian Assange has signed book deals worth more than £1 million ($1.5 million) in the US and UK.

Apple is telling component suppliers it wants 20-21 million iPhones for the first quarter of 2011, DigiTimes reports. This is an increase over its original request, says DigiTimes.

Saturday, December 25, 2010

Merry Christmas

12/25/10 Merry Christmas

China raised interest rates for the second time in just over two months after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011.
The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective tomorrow, the People’s Bank of China said in a one-sentence statement on its website today. A Morgan Stanley economist notes that today's bump will have more of an effect than a hike after the New Year because of the way adjustable loans are reset in China.

There are no quick fixes for Europe's debt crisis and China must be on the alert for any escalation of the problem, especially in January and February, China's Commerce Minister Chen Deming was quoted as saying on Friday.

“China needs to return to a ‘prudent monetary policy’ to curb prices and control total money supply, the People’s Bank of China said…”.

Air traffic returned to nearly normal in France, the U.K., Belgium and Germany on Saturday, although there were cancellations in Frankfurt and Zurich. A spokeswoman for London's Heathrow Airport said only a handful of flights would be canceled on Christmas Day.

With a rare white Christmas in parts of the Southeast and snow predicted for the nation's capital, airlines canceled hundreds of flights and urged travelers to rethink their plans, while travel authorities warned of potentially dangerous roads.

Bloomberg (Ben Livesey and Ken McCallum): “Bank of England Markets Director Paul Fisher said U.K. interest rates will rise ‘to a normalized position’ of about 5%, the Daily Telegraph reported… The central bank won’t ‘be putting up rates so quickly’ as to cause ‘negative reaction’ and will only tighten policy quickly if the strength of the economy demands it, Fisher said…”

New Jersey's pension gap grew to $53.9 billion in the last fiscal year, up from $45.8 billion, thanks to market losses and a lack of state funding, according to figures released Thursday.

The global economy can withstand an oil price of $100 a barrel, Kuwait's oil minister said on Saturday, as other exporters indicated OPEC may decide against increasing output through 2011 as the market was well supplied.

The Organization of Petroleum Exporting Countries isn't worried about oil prices rising above $90 a barrel as they are largely driven by seasonal forces, Qatar Oil Minister Abdullah bin Hamad Al Attiyah said Friday.
"They are largely affected by the cold snaps in Europe and in some areas in North America," Al Attiyah told Dow Jones Newswires.

Jesse's Cafe Americain: "I hope everyone has the opportunity to see "Inside Job" in the months ahead.

The issue is not settled. As someone who watches the markets closely every day, often tick by tick, and speaks to market participants around the world, I see an accident waiting to happen in the US financial system. And it is surprising, almost shocking, that it receives so little attention while there is so much focus on the relatively trivial.

We have just witnessed one of the greatest financial frauds in modern history. Where are the indictments? Where is the reform?

It concerns me greatly because it is such a important economy. Such a failure would have unsettling collateral damage on the rest of the world not only because of its size, but through the transmission mechanism of the dollar reserve currency which is pervasive in trade and in most central bank holdings.

Like its cronies on Wall Street, the government in Washington thinks it is Too Big To Fail. It may very well be. But propping it up is probably too great of a task for the rest of the world to bear indefinitely. And so we may have an uneasy year or two ahead."

Friday, December 24, 2010

Happy Holidays

12/24/10 Happy Holidays

Prichard, Alabama sought bankruptcy protection twice and is flat broke. It faces a choice of paying to keep city services like police and garbage running or pay pensions. It selected the former.

(Bloomberg) -- China’s government failed to draw enough demand at a bill sale for the second time in a month as seasonal demand for funds and higher reserve-requirement ratios left banks with less cash.

Charles Hugh Smith: "the purchasing power of American wage-earners reached a plateau around 1973 and has been declining ever since."

Floyd Norris: "The year now ending will be the fourth consecutive year in which mutual funds that invest primarily in American stocks experienced net outflows of funds, meaning that investors as a group withdrew more money than they put in."

The National Retail Federation predicts that holiday spending will reach $451.5 billion this year, up 3.3 percent over last year.
That would be the biggest increase since 2006, and the largest total since a record $452.8 billion in 2007. And a strong week after Christmas could make this shopping season the biggest of all time. Final figures won't be available until next week.

It's time to recap my investments in 2010:

Good ones: long gold, silver, soybeans, cotton, and sugar.
Bad ones: short copper and long natural gas.
Good ones: short BP at 50 and long at 27.
Good ones: short and long the dollar; short and long the euro.
Good one: trading the flattening yield curve.

What will take place in 2011? A significant decline in equities and the growing possibility of an upward
spike in interest rates. This will be the year with a window to a depression.

Thursday, December 23, 2010


12/23/10 Rigged

ZeroHedge: "A year after Charles Biderman's provocative post first appeared on Zero Hedge, in which he asked just who is doing all the buying of stocks as the money was obviously not coming from retail investors (and came up with one very notable suggestion), today Maria Bartiromo invited the TrimTabs head once again (conveniently in CNBC's lowest rated show, during Christmas Eve eve, at a time when perhaps 5 people would be watching) in an interview which disclosed that after more than a year of searching, Biderman still has no idea who actually buying. In response to Bartiromo's question if the retail investor, who left after the flash crash (thank you SEC), Biderman responds what every Zero Hedger has known for 33 weeks: "Retail investors are not coming back to the US. Those investors that are investing are buying global equities and are buying commodities. We are seeing lots money going into commodity ETF funds: gold, silver..." and the even more unpleasant summation: "individuals have been selling, companies are net selling, insider selling and new offerings are swamping any buyback and any cash M&A activity since QE 2 was announced. Pension funds and hedge funds don't really have that much cash to invest. So what nobody's asking is what happens when QE 2 stops: if the only buyer is the Fed, and the Fed stops buying, I don't know what is going to happen...When I was on your show a year ago I was saying the same thing: we can't figure out who is doing the buying it has to be the government, and people said I was nuts. Now the government is admitting it is rigging the market."

Working gas in storage was 3,368 Bcf as of Friday, December 17, 2010, according to EIA estimates. This represents a net decline of 184 Bcf from the previous week. Stocks were 56 Bcf less than last year at this time and 264 Bcf above the 5-year average of 3,104 Bcf. In the East Region, stocks were 27 Bcf above the 5-year average following net withdrawals of 117 Bcf. Stocks in the Producing Region were 204 Bcf above the 5-year average of 934 Bcf after a net withdrawal of 56 Bcf. Stocks in the West Region were 33 Bcf above the 5-year average after a net drawdown of 11 Bcf. At 3,368 Bcf, total working gas is within the 5-year historical range. Weather last week was 3% colder than a year earlier and 13% colder than normal, triggering a run on storage gas to meet heating demand, according to Jefferies & Co.

Oil for February delivery recently traded up 92 cents, or 1%, at $91.40 a barrel. Every $1 rise in oil reduces US GDP by $100 billion. Every penny increase in gas prices lowers disposable income by $600 million.

Fitch Ratings lowered its ratings on Portugal's debt to A+ from AA-. The agency also downgraded Portugal's short-term currency rating to F1 from F1+. The Associated Press said that Fitch cited a slow reduction in Portugal's deficit and a tougher financing environment as reasons for the downgrade.

Sugar jumped to a 30-year high as Pakistan said it may import 700,000 metric tons to ease domestic shortages. Coffee and cocoa gained, while orange juice declined.
Sugar production in Asia’s third-largest user “will reach 3.3 million tons,” in the year ending June 30, short of demand of 4.2 million tons, Farm Minister Nazar Muhammad Gondal said. Record rainfall in Australia, the third-largest exporter, will curb production and shipments next season for a second year, according to Queensland Sugar Ltd.

the Dow Jones Industrial Average managed a small session gain. The S&P 500 lost 2.07 points, or 0.2%, to 1,256.77. The Nasdaq Composite fell 5.88 points, or 0.2%, to 2,665.60 for the session.

Package bombs exploded at the Swiss and Chilean embassies in Rome, injuring two employees, according to police and government officials.

Online retail sales during the 2010 holiday season rose a healthy 15.4 percent from last year to $36.4 billion, with strength across all categories, according to MasterCard's SpendingPulse eCommerce Index, which monitors actual spending across the entire spectrum of online transactions.


12/23/10 Mish

Mish Shedlock’s 10 Themes for 2011 include a major U.S. municipal bankruptcy creating a "huge stir" in the muni bond market, a worsening eurozone debt crisis, property bubbles bursting in Australia and Canada, and China overheating. "2010 was a lull in the global economic crisis," Mish warns. "Don't expect 2011 to be the same."

The number of U.S. workers filing new applications for jobless benefits fell slightly last week to 420,000, the Labor Department reported Thursday. Economists polled by MarketWatch had expected initial claims in the week of Dec. 18 to total about 421,000 on a seasonally adjusted basis. The prior week's number was revised up by 2,000 to 423,000. The four-week average of new claims rose 2,500 to 426,000. The moving average is considered a more accurate barometer of employment trends because it smoothens out quirks in the weekly data. In the week of Dec. 11, meanwhile, the number of people who continued to receive benefits under state unemployment programs dropped 103,000 to a seasonally adjusted 4.06 million. Altogether, 8.88 million people received some kind of state or federal benefits in the week of Dec. 4, on an unadjusted basis. That was down 308,338 from the prior week.

Orders for U.S.-made durable goods declined 1.3% in November, led down by transportation-equipment orders, the Commerce Department reported Thursday. Economists polled by MarketWatch had expected a decline of 0.5%. Excluding transportation, new orders rose 2.4%. Core durable-goods orders, which are orders for capital goods excluding defense and aircraft, rose 2.6% in November after a 3.6% decline in October. Shipments of durable goods fell 0.3% in November, while inventories rose 0.6%. Durable-goods orders in October were revised to a decline of 3.1% from a prior estimate of a 3.4% drop. Durable goods are expensive items designed to last three years or longer, and while the data is volatile from month to month, analysts see a trend in orders as a valuable leading economic indicator.

Year-over-year core inflation remained at 0.8% in November, matching the record low reached in the prior month, the Commerce Department reported Thursday. The data go back to 1960. The core personal consumption expenditure price index excludes food and energy. This core gauge of inflation rose 0.1% in November, as expected by economists polled by MarketWatch. The overall inflation gauge rose 0.1% in November, after a 0.2% gain in October. This overall inflation is up 1% in the past year, the lowest since October of 2009. The government's inflation gauges are broad based, and consumers may be more sensitive to price changes of particular items that are frequently purchased, such as gasoline. Also Thursday, the Commerce Department reported that personal incomes rose 0.3% in November, compared with 0.2% expected by economists. Spending gained 0.4%, while Wall Street had expected a gain of 0.5%. Real disposable incomes rose 0.2% in November.

Shares of Jo-Ann Stores Inc. soared 34% in premarket trade Thursday on news that the fabrics and crafts retailer will be acquired by an affiliate of private-equity firm Leonard Green & Partners LP for about $1.6 billion, or $61 a share, in cash. Jo-Ann's board has approved the deal and is recommending that shareholders adopt the agreement. The acquisition is expected to close in the first half of calendar 2011, subject to customary closing conditions. Under terms of the agreement, the retailer's board will also be allowed to solicit other proposals through Feb. 14. Shares of Jo-Ann Stores closed Wednesday at $45.63.

Consumer spending rose for a fifth straight month in November and incomes rose slightly more than expected, government data showed on Thursday, reinforcing views of a solid economic growth pace in the fourth quarter.
The Commerce Department said spending rose 0.4 percent after increasing by an upwardly revised 0.7 percent in October.
Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month after a previously reported 0.4 percent gain in October.
The report also showed the Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose 0.1 percent after being flat for four straight months.
In the 12 months through November, the core PCE index rose 0.8 percent, the same margin as in October and still the smallest year-on-year gain since records started in 1960.

The Irish Government takes over Allied Irish Banks, the country's second largest bank.

In November employers took 1,586 mass layoff actions involving
152,816 workers. Layoff events decreased by 65 from the prior month,
while initial claims increased by 4,757. Manufacturing accounted for
354 events, resulting in 39,465 initial claims.

A jump in crude oil prices has pushed gasoline to $3 a gallon nationwide. The Gulf Oil CEO says the physical gasoline market is "tight."

John Browne: "2011 likely will open with a deepening recession, increasing austerity, and falling asset prices. If this is met by a new round of inflation creation and yuan revaluation, then investors should weigh whether to redeploy assets in anticipation of potential rising commodity prices. I expect these developments not to happen gradually, but to come in great waves. Smart investors will tie their fate to an investment vessel with a solid hull, because in these seas, even a hint of rot could tear a ship asunder."

The Energy Department on Thursday is expected to report a decline of 178 billion to 182 billion cubic feet of natural gas in storage for the week ended Dec. 17, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

David Rosenberg of Gluskin-Sheff is on Bloomberg this morning. He's keying off comments from Barclays' Bomb Diamond about the possibility of a Euro breakup, which Rosenberg sees as perfectly possible.
It's a matter of "when" not "if" noting that it was actually Germany that first breached its debt limits, and pointing out that the history of monetary unions is horrible, with the exception of the United States. All others have failed.

(Bloomberg) -- Soybeans jumped to a two-year high on concern that dry weather may threaten crops in Brazil and Argentina as Chinese demand increases.
Dry weather caused by a La Nina event, which has already hurt crops, will return to Argentina from Dec. 25 and persist through next week, according to a report from Brazil and Argentina are the top suppliers of soybeans and corn after the U.S., data from the U.S. Department of Agriculture show.

Hungary was just downgraded by Fitch to BBB-, and still kept its rating outlook negative.

Bob Bronson: "The headline on the Chicago National Activity Index (CFNAI) a composite measure that closely tracks real U.S. GDP – thus it is a coincident economic indicator – came in at -0.46 (consensus was 0.00) and the prior monthly reading was at -0.25.
The index is now down four months in a row, something not seen since mid-2009 when the U.S. economy was hitting the recession’s depth. On a three-month basis, the more “smoothed” index remains at -0.4 for the past two months (-0.41 in November and -0.42 in October).
This has now been negative since May, portraying a pace of economic activity that is well below potential and therefore continues to be consistent with both (a) a continuing ultimately deflationary economic Supercycle Bear Market Period, or Winter, and (b) our working model for after-shock, double double-dip business cycle contractions over the next four years."

Baltic Dry Index Drops Another 1.9%, Hits 1,795.

A gauge of U.S. consumer sentiment rose to 74.5 in late December from 71.6 in November, according to media reports on Thursday of the Reuters/University of Michigan index. The December reading matched expectations of economists polled by MarketWatch. Despite the gain in December, the gauge is below pre-recession levels of more than 80. While there have been some signs of improvement in the economy, consumers remain concerned about jobs.

Italy has the second-highest public debt ratio after Greece.

ZeroHedge: "According to the December 23 AAII sentiment survey, the bullish mood soared from 50.23% to 63.28%, the highest reading since November 18, 2004. Bearish sentiment plunges from 27.15% to 16.41%, the lowest since November 24, 2005. The difference between bullish and bearish sentiment is 46.87%: the highest since April 15, 2004."

Sales of new single-family homes climbed 5.5% in November, a government report said Thursday, as the housing market continues to show stability at weak levels. The Commerce Department said new-home sales rose to a seasonally-adjusted annual rate of 290,000, from a downwardly revised 275,000 in October. The sales level missed the MarketWatch-compiled economist estimate of 295,000, and the initial government report said October sales were 283,000. The pace of sales is 21.2% below that of November 2009. The median sales price of new houses sold in November was $213,000, up 8% on October but 2.6% below year-earlier levels.

(Bloomberg) -- Rio Tinto Group, the world’s third- biggest mining company, offered A$3.9 billion ($3.9 billion) for Australian coking coal developer Riversdale Mining Ltd. to gain reserves in Mozambique, splitting Riversdale's board.
Rio offered A$16 a share, the London-based company said today in a statement. Riversdale shares climbed 1.6 percent to close A$16.57 in Sydney, 3.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, bar the director appointed by Tata Steel Ltd., its largest shareholder.

South Korea's president said on Thursday the military should launch a "merciless counterattack" if the North tries to repeat the kind of surprise aggression on the South as shelling on an island in November.
Lee Myung-bak also told troops at a forward Army unit near the military border with the North that the South must never loosen vigilance against the North, adding: "We had believed patience would ensure peace on this land, but that was not the case."

Wednesday, December 22, 2010

Wed Afternoon Notes

12/22/10 Wednesday Afternoon Notes

The Energy Department may report a larger-than-average reduction in gas inventories this week because of cold weather last week in the eastern and central U.S., analysts predict.
The department may say Dec. 23 that 180 billion cubic feet of gas were withdrawn from storage during the week ended Dec. 17, according to the median of seven analyst estimates compiled by Bloomberg. The five-year average withdrawal from inventories is 136 billion.

On Thursday, Shui On Land Ltd., a Hong Kong-based company controlled by businessman Vincent Lo that develops real estate in China, said it raised three billion yuan ($450.8 million) through an issue of three-year bonds denominated in China's currency. It is the largest yuan-denominated corporate bond issued outside of mainland China.
Except that it isn't, really: Investors are paying for the bonds in dollars, they receive their coupons in dollars, and the bonds will ultimately be redeemed for dollars when they come due. Any coupon payments and redemptions are done at the prevailing exchange rate, which means investors benefit if the yuan—widely known as the renminbi—rises in value against the dollar over the period in which they hold the bonds.
"They're appealing to an investor base that wants the upside of the [yuan]," said Sundeep Bhandari, regional head of global markets for Northeast Asia at Standard Chartered PLC, one of the bond's three underwriters. The others were Deutsche Bank AG and UBS AG.

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New Zealand's gross domestic product declined 0.2% in the quarter ended Sep. 30, Statistics New Zealand reported Thursday. Economists had expected a reading of 0.1%, according to data compiled by Dow Jones Newswires. "The decline in GDP this quarter was due to weakness in the primary and goods-producing industries," the statistics agency said. In the June quarter, GDP rose 0.1%. On an annual basis, GDP rose 1.4%.

The Dow Jones Industrial Average closed up 26.33 points, or 0.2%, at 11,559.49, its highest close since Aug. 28, 2008. The S&P 500 rose 4.24 points, or 0.3%, to 1,258.84, its highest close since Sept. 8, 2008, and its fifth straight day of gains. The Nasdaq Composite ended up 3.87 points, or 0.2%, to 2,671.48.

(Reuters) - France wants all 16 euro zone governments and any other interested European Union members to coordinate their economic policy more closely in the future, Economy Minister Christine Lagarde told a German newspaper.
"The crisis showed us that it is not sufficient to limit public debt as foreseen in the Maastricht Treaty. Ireland stuck to these criteria and finds itself nevertheless in difficulty," Lagarde said in an interview with the Sueddeutsche Zeitung.
"The EU must not look just at the budgets, it must monitor how the economies in the member states develop."

ZeroHedge: "ICI has just reported that in the week ended December 15, not only was there another massive outflow, the 33rd in a row, from domestic equity mutual funds to the tune of $2.4 billion, but taxable and municipal bonds saw a stunning $8.6 billion in outflows, including another record $4.9 billion in muni outflows....NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat."


12/22/10 Oil

According to ValuEngine's Richard Suttmeier, looking out into 2011, he warns residential housing could fall another 15-30%. "The housing market is still overpriced relative to where we began the new millennium," he tells Aaron in this segment. "Prices are still about 50% higher than where we were at the end of 1999."

Adolph Hitler: "The size of the lie is a definite factor in causing it to be believed, for the vast masses of a nation are in the depths of their hearts more easily deceived than they are consciously and intentionally bad. The primitive simplicity of their minds renders them a more easy prey to a big lie than a small one, for they themselves often tell little lies, but would be ashamed to tell big lies."

"The law has been perverted, and the powers of the state have become perverted along with it. The law has not only been turned from its proper function, but made to follow an entirely contrary purpose. The law has become a tool for every kind of greed. Instead of preventing crime, the law itself is guilty of the abuses it is supposed to punish. If this is true, it is a serious matter, and moral duty requires me to call the attention of my fellow-citizens to it."
Frederick Bastiat, The Law, 1853

Garth Turner: "[TD bank] is registering all its new home loans as collateral mortgages, rather than conventional ones. If you have no idea what that means, you’re normal. A collateral mortgage is a loan which is backed by a promissory note which is in turned backed by security. A conventional mortgage, as you know, is just a loan secured by a house. Normally the only people who are asked to sign collateral mortgages are folks who use their houses to arrange lines of credit with balances that can balloon, not a regular mortgage with a fixed amount owing and a standardized payment.
With a conventional mortgage there are strict rules about how much you can borrow determined by the value of the property when you take the loan. Not so with a collateral mortgage, because it’s actually a loan which is backed by your promissory note. That means you can borrow more than your house is worth.
Yes, just like those old fast-talking TV commercials offering American homeowners mortgages worth 125% of their home’s value – the ones we used to snicker at. Well, giggle no longer. TD is now shopping 125% collateral mortgages.
In fact, bank customers (I’m told) are being encouraged to 'register' for 125% mortgages when they sign up, even if they don’t need all that money. It’s just there, the pitch goes, if you ever need it. Kinda like a built-in line of credit you don’t need to reapply for. (Of course, it should be lost on nobody that the bank just found a way around guidelines on loan-to-value ratios.)" (via The AutomaticEarth).

After days of relentless rain, Southern California is awaiting the most intense storm system yet, with evacuations ordered, rescue crews on standby and residents anxiously eyeing already saturated mountainsides denuded by wildfires.
Forecasters expected more rain across the state Wednesday, but the focus clearly was on Southern California where a monster storm was expected to bring torrential rain, thunderstorms, flooding, hail and possible tornadoes and water spouts. Forecasters warned of possible rainfall rates of .75 inch to 1 inch an hour and thunderstorm rates of 2 inches an hour in the region.
Steady rain began falling late Tuesday and was expected to intensify into early Wednesday.

The U.S. economy expanded at a 2.6% pace in the third quarter, slightly faster than previously reported, mainly because of a higher inventory buildup, the Commerce Department said Wednesday. The government previously reported third-quarter growth of 2.5% on an annualized basis. The final report released Wednesday incorporates data not immediately available in two earlier readings of the economy. The MarketWatch survey of economists had expected growth to be revised up to 3.0%, but an upward revision in imports partly explains the smaller increase in the final third-quarter report. Imports subtract from GDP. Importantly, there was a
downward revision to personal consumption expenditures and corporate profits were up a slim 0.2%. The latter two points should be a red flag for 2011 estimates.

Mortgage applications tumbled to their lowest level in nearly a year as a six-week-long rise in interest rates took a significant toll on demand, an industry group said on Wednesday.
The Mortgage Bankers Association on Wednesday said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended December 17 decreased 18.6 percent, reaching its lowest level since the week ended January 1.
The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.8 percent.

Microsoft Corp is working on a version of its core Windows operating system for devices such as tablets, according to media reports on Tuesday, and the company said its Windows Phone 7 software is making headway in the booming smartphone market.
Microsoft plans to unveil a version of its operating software that runs for the first time on processors designed by UK-based ARM Holdings PLC, the Wall Street Journal and Bloomberg reported. ARM's processors dominate the tablet and handheld device market.

(Bloomberg) -- Treasuries fell, extending their biggest monthly loss in a year, on speculation data showing the recovery is gaining momentum will fuel concern that debt supply will overwhelm demand as inflation accelerates.

George Ure:The
number of people in the workforce and holding a job, is 138.888 million and the amount of federal debt per worker is: $97,011."
Since we know that M2 at the Federal Reserve is going up 3.3 percent on a 12-month annualized basis, 2.6% up for GDP while M2 is up 3.3 means 1.3% deflation may be in the works, so the CPI should continue to be constrained."

Agence Press France is reporting:
Assange also confirmed that WikiLeaks was holding a vast amount of material about Bank of America which it intends to release early next year.

More on Airgas' rejection of Air Products' $70/share offer: Airgas believes the company is worth at least $78/share. Investors may not agree: ARG shares are -2.9% premarket to $61.40.

Mike Shedlock: "The big problems are military spending, public unions, and entitlements. However, problems big and small are everywhere you look, and the process of buying votes and seeking special favors is generally smack in the midst of it all.
Republicans keep campaigning for "small government". It certainly would be nice if they delivered for a change. Unfortunately, Republicans will not give in on military spending (nor will Obama quite sadly), and Democrats won't budge on entitlements.
Compromise in D.C. most often means taxpayers get the worst of what each party has to offer."

China is riding to Portugal's rescue with plans to buy up to €5 billion (£4.2 billion) of the troubled country's sovereign debt in the first quarter of next year, a report in the Jornal de Negocios said today.
China already owns more than $900 billion (£582 billion) of US government debt but this would be the first time it has taken such a significant stake in a European country's debt.

Europe’s spreading sovereign debt crisis is making it tougher for Spain to pay electricity bills, and that’s infecting corporate bonds beyond its borders.

The price of fuel is up 13.6% from last December and 76% higher from December 2008, according to a new study from the Oil Price Information Service. Nationwide, drivers are estimated to spend $305 on gasoline in December.

Telegraph: New START Treaty: The Obama Administration is Dancing to Moscow's Tune. Moscow has every reason to like it. As I noted in a previous post, the treaty fundamentally undercuts US national security by giving Russia a huge say over American plans for a global missile defense system:

If property sales decline 20% in China, how will that impact their weakening banking system?

The Baltic Dry Index has plunged close to 1800. Yet crude sits at $90.

The EIA said oil inventories fell 5.3 million barrels for the week ending Dec. 17. Gasoline inventories rose 2.4 million barrels, while distillate fuel inventories fell 600,000. Analysts polled by Dow Jones Newswires were expecting a 2.3 million-barrel-drop in crude inventories and a 900,000 barrel gain in gasoline inventories.

ZeroHedge: "every $1 rise in oil decreases U.S. GDP by $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year. The move in oil in the past week alone has almost entirely wiped out the most recent stimulus."

Platts - China's apparent oil demand* in November surged to an all-time high of 38.09 million metric tons (mt), or an average 9.3 million barrels per day (b/d), according to a just-released Platts analysis of official data from the People's Republic of China. This analysis is based on a data series of Chinese oil demand which Platts has been reporting since 2005.

Sales of existing homes rose 5.6% to a seasonally-adjusted annualized rate of 4.68 million, the National Association of Realtors said Wednesday, a figure that was pretty close to the MarketWatch-compiled economist poll of 4.66 million. Even so, sales were still 27.9% below prior-year levels and below the 5.26 million in June when a homebuyer tax credit existed. In November 2009, activity was sparked by anticipation - incorrect, as it turned out - that the tax credit was due to expire. Lawrence Yun, the NAR's chief economist, said current sales are back to levels before the existence of the tax credit but said they won't be "sustainable" until they get back to 2000 levels of about 5.2 million. The median price edged up 0.4% to $170,600.

Nine Swiss insurers fail Swiss solvency test to be introduced by market regulator Finma in January.

Tuesday, December 21, 2010

Credit Ratings

12/21/10 Credit Ratings

Aristotle: "The three aims of the tyrant are, one, the humiliation of his subjects; he knows that a mean-spirited man will not conspire against anybody; two, the creation of mistrust among them; for a tyrant is not to be overthrown until men begin to have confidence in one another -- and this is the reason why tyrants are at war with the good; they are under the idea that their power is endangered by them, not only because they will not be ruled despotically, but also because they are too loyal to one another and to other men, and do not inform against one another or against other men -- three, the tyrant desires that all his subjects shall be incapable of action, for no one attempts what is impossible and they will not attempt to overthrow a tyranny if they are powerless."

ICSC forecast December same-store sales to rise 3% to 3.5%. Given the strong November performance and promising trends in early December, ICSC has raised its November-December holiday-season sales forecast by 0.5 percentage points to a range of 3.5% to 4% or potentially a tad above that range. It sees holiday store-sales growth to be the strongest since at least 2006.

Portugal was put on notice on Tuesday that its credit rating could be cut and fellow euro zone debtor Spain had to pay more to issue new debt, suggesting the currency bloc's crisis will rage unabated in 2011.
China, the world's new economic powerhouse, urged European policymakers to demonstrate as a matter of urgency that they can contain the euro zone's debt problems and pull the bloc around.
Ratings agency Moody's said it may cut Portugal's credit rating by one or two notches within three months, citing weak growth prospects as the government seeks to cut its debt, and climbing borrowing costs, although it said its solvency was not in question.

Italy’s finance police seized 22 million euros ($29 million) from six lenders including Bank of America Corp. amid allegations of fraud in a probe focusing on the sale of derivatives to five municipalities in central Italy.
Police said they took 15 million euros from Bank of America, and 1.7 million euros each from Deutsche Bank AG and UBS AG, according to an e-mailed statement. The remainder was seized from Natixis SA, Dexia Crediop SpA and Banca Monte Paschi di Siena SpA.

China urged European authorities to back their tough talk with action on Tuesday by showing they can contain the euro zone's simmering debt problems and pull the bloc out of its crisis soon.
China, which has invested an undisclosed portion of its $2.65 trillion reserves in the euro, said it backed steps taken by European authorities so far to tackle the region's debt problems, but made clear it would like to see the measures having more effect.
China offers help to debt-hit Lisbon China offers EU a hand on financial reform

(Bloomberg) -- Lower state and local spending, which accounts for 12 percent of the national economy, may reduce U.S. gross domestic product growth by about half a percentage point next year, Goldman Sachs Group Inc. said.
Municipal budgets will likely increase by no more than 1 percent in 2011 after adjusting for inflation as local governments receive less state aid and home-price declines put a drag on property-tax collections, the bank said in a note to clients. That is about 2 percentage points less than average.

The number of food stamp recipients increased 16% over last year. This means that 14% of the population is now living on food stamps. That's about 43 million people, or about one out of every seven Americans.

The UK Guardian: "Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble. $2 billion debt crisis threatens to bring
down 100 U.S. cities."

Meredith Whitney: "at least- between 50 and 100 municipal and county defaults in the US within the next year. "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults...."The lack of transparency with the state disclosure is the worst I have ever seen." "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

Debt protection costs rise across eurozone peripherals. The cost of insuring against a German government default on its debt has reached a new high for the year, with credit default swaps (CDS) rising from 56 basis points at end of trading on Friday, December 17 to 57bp at 1.00pm London time today. Greece saw its CDSs fall from 989bp to 952bp, but otherwise CDSs on peripheral eurozone debt rose over the weekend. Five-year CDSs on Portugal increased from 469bp on Friday to 479bp today. The cost of insuring against an Irish default rose marginally from 581bp to 583bp over the same period. Meanwhile CDSs on Italian sovereign debt widened from 204bp to 212bp. The cost of default insurance against Spanish debt increased from 333bp on Friday to 345bp today, while CDSs on Hungary crept up from 375bp to 378bp, according to data provider Markit. Today, Moody's announced its decision to downgrade the ratings of several Irish financial institutions, including Allied Irish Bank and Bank of Ireland. This follows its downgrade of Irish government bond ratings from Aa2 to Baa1 on December 17.

Dutch group DSM, the world's largest vitamins maker, is buying U.S. baby food ingredients maker Martek Biosciences Corporation for an agreed $1.1 billion. DSM said on Tuesday the offer price of $31.50 per Martek share was a 35 percent premium to its Dec. 20 closing price.

Nearly one in three working families earned less than 200% of poverty line last year, as a bad economy pushed 250,000 families below that threshold, according to a new analysis of Census Bureau data.
The recession’s effects extended beyond the millions who lost jobs, according to a report released Tuesday by the Working Poor Families Project, which researches and advocates for working families. Among those who were working, more than 10 million families earned less than 200% of the poverty level, which the researchers considered “low income.” The low-income threshold for a family of four with two children last year was $43,512.
“Working families are taking it hard during the great recession,” said Brandon Roberts, one of the report’s authors. “We’ve got a whole lot of middle-income families, middle-class families that have now fallen back into low-income working families.”

Charles Hugh Smith: "The global fantasy that euphoric stock markets reflect the real economy is about to be tested by its nemesis, reality.
Beneath the surface, all central banks and governments have pursued a single fantasy the past two years: that massive injections of borrowed capital to "extend and pretend" and inflate new asset bubbles will magically restart global growth...Global markets have returned to their pre-global meltdown levels. Too bad the same can't be said of the real economies."

Toronto-Dominion Bank will buy Chrysler Financial from private equity firm Cerberus Capital Management for $6.3 billion.

The Federal Open Market Committee of the U.S. Federal Reserve on Tuesday said it's extending through Aug. 1, 2011 its U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. The swap arrangements, established in May, had been authorized through Jan. 2011. The swap lines with the ECB, BOE, SNB and BOJ will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed local rates for full allotment, similar to arrangements that had been in place previously. They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, the Fed says.

Copper futures hit a record high on Tuesday, which analysts attributed to reports that one of the world's largest copper mines, Collahuasi in Chile, has declared force majeure and can't export its goods. "Copper has continued to rise this morning on supportive Chinese trade data and news that Collahuasi had called force majeure on concentrate shipments," analysts at Barclays Capital wrote in a note. High-grade copper for March delivery rose 1.5%, or 6 cents, to $4.27 a pound. It touched $4.29 a pound early in the U.S. trading session, according to FactSet Research.

The Fed has now monetized $1 trillion of U.S. debt!

AP - Parliament swore in a new Iraqi government Tuesday after nine months of bitter political haggling, solidifying the grip that Shiites have held on political power since Saddam Hussein's ouster while leaving open the question of whether the country's disgruntled Sunni minority will play a meaningful role.

Demographers believe the official 2010 count will be 308.7 million or lower, putting U.S. growth at around 9 percent, the lowest since the 1940 census. That is the decade in which the Great Depression slashed the population growth rate by more than half, to 7.3 percent.

Fitch Ratings on Tuesday placed Greece's BBB-long-term foreign- and local-currency issuer default ratings on downgrade review, raising the possibility that Greece's sovereign rating may be cut to junk in the near future. "A Rating Watch Negative indicates that there is a heightened probability that Greece's sovereign ratings will be downgraded," said Fitch in a statement. The review is expected to be completed in January and will focus on Greece's fiscal sustainability, the country's economic outlook and the political will of the government to carry out reforms, Fitch said.

Genzyme Corp is more willing to discuss price with Sanofi-Aventis SA , which is trying to acquire the U.S. biotechnology company for $18.5 billion, or $69 a share, according to the Wall Street Journal.

The Dow Jones Industrial Average closed up 55.03 points, or 0.5%, at 11,533.16. The S&P 500 ended up 7.52 points, or 0.6%, to 1,254.6. The Nasdaq Composite ended up 18.05 points, or 0.7%, to 2,667.61.

A new nuclear-arms treaty with Russia cleared a procedural hurdle when the Senate voted 67-28 to end debate on the matter, setting the stage for a ratification vote Wednesday.

Hermann Goering: "Why of course the people don't want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country."

Monday, December 20, 2010


12/20/10 Flee

Peter Morici: "With the new tax cuts, rating agencies should downgrade U.S.
government debt to junk....As Washington spends and borrows, the Treasury will
have to offer higher rates on new 20 and 30 year bonds, making comparable
securities issued in 2010 and earlier worth less in the resale market.
That interest rate risk makes U.S. Treasury securities lousy investments.
For rating agencies, Washington’s monopoly on printing dollars makes difficult
assigning a conventional rating between AAA and D on its bonds. Those can’t
default but investors’ capital is still at grave risk...Perhaps a special
grade: “F” –flee now before you get stuck—is appropriate for the junk sold by
the U.S. Treasury."

John Hussman: "Investors dangerously underestimate the risk of an abrupt and
possibly severe equity market plunge....Downside risk tends to be elevated
precisely when risk premiums and volatility indices reflect the most
complacency....We did not avoid a second Great Depression because we bailed out
financial institutions. Rather, the collapse in the economy and the surge in
unemployment were the direct result of a gaping hole in the U.S. regulatory
structure that prevented the rapid restructuring of insolvent non-bank
financials. Policy makers then inappropriately extended the "too big to fail"
doctrine to ordinary banks. Following a striking loss of public confidence that
resulted from arbitrary policy responses, coupled with fear-mongering by
exactly those who stood to benefit from public handouts, the self-fulfilling
crisis was contained by a change in accounting rules that effectively disabled
capital requirements for all financial companies. We are now left with a Ponzi
scheme. "

Bloomberg News reported that Sara Lee recently rejected a JBS offer as too
low. The report cited two unnamed people with knowledge of the situation.
Bloomberg said neither company would comment on the report.

(Bloomberg) -- France risks losing its top AAA grade as Europe’s debt crisis
prompts a wave of downgrades that threatens to engulf the region’s highest-rated

borrowers, with Belgium also facing a possible cut.

After a wait of 372 years, sky gazers are in for a special celestial treat as
winter solstice coincides with total lunar eclipse on Tuesday.

The last time the two astronomical events coincided was on December 21, 1638,
Geoff Chester of U.S. Naval Observatory said.

Swathes of Britain skidded to a halt today as the big freeze returned -
grounding flights, closing rail links and leaving traffic at a standstill.
And tonight the nation was braced for another 10in of snow and yet more
sub-zero temperatures - with no let-up in the bitterly cold weather for at
least a month, forecasters have warned.

The Arctic conditions are set to last through the Christmas and New Year bank
holidays and beyond and as temperatures plummeted to -10c (14f) the Met Office
said this December was ‘almost certain’ to become the coldest since records
began in 1910.

China's stocks plunge most in month.

Hungary's central bank on Monday increased the base rate by 25 basis points to
5.75%, effective from Tuesday.

The European Commission on Monday said its preliminary consumer-confidence
indicator for the 16-nation euro zone fell to -11.0 in December from -9.4 in
November, ending six months of rising readings. Economists surveyed by Dow
Jones Newswires had forecast a rise in the indicator to -9.0.

Applied Signal Technology saw its shares jump nearly 8% Monday morning after
the company announced that Raytheon Co.agreed to acquire the company for $38 per
share, or about $490 million, net of Applied's cash on hand. The price
represented a premium of 37% compared to Applied's market value prior to Oct.
21, the date at which the company announced that it was evaluating strategic
options. The transaction is expected to close in the first quarter of 2011.

The Federal Reserve said it will limit purchases to 70 percent of any single
Treasury security as part of its plan to expand its balance sheet that’s known
as quantitative easing.

Danaher, Thermo Fisher considers bid for Beckman Coulter, Bloomberg reports.

Moody's downgrades various Irish covered bonds Monday.

“We’re in a period where uncertainty seems to be going on forever,” said David
Autor, an economist at the Massachusetts Institute of Technology. “So this
period of temporary employment seems to be going on forever.”

The European Central Bank released data showing it sharply reduced its
purchases of European government bonds in the latest week, according to media

The Dow Jones Industrial Average ended lower, however, dragged down by a 3.4% drop in American Express Co. shares. The S&P 500 ended up 3.17 points, or 0.3%, at 1,247.08, led by rising energy and homebuilding stocks. The Nasdaq Composite gained 6.59 points, or 0.3%, to 2,649.56. The Dow fell 13.78 points, or 0.1%, to 11,478.13. The Nasdaq hit a 3-year high.

ZeroHedge: "If anyone thought that $14 trillion in 2010 debt is bad, just wait until we hit $24.5 trillion in total US national debt in 2015. And it gets even more surreal: total US Unfunded Liabilities are estimated at $144 trillion, roughly $1.2 million per taxpayer."

Sunday, December 19, 2010

Total Global Exposure

12/19/10 Total Global Exposure

(Bloomberg) -- The extra yield Treasury investors demand to hold 10-year notes
over 2-year securities touched the widest since February on speculation an
extension of tax cuts will spur growth and increase deficits.

Travellers are being warned to expect severe travel disruptions all day
Saturday across Europe because of heavy snow and freezing temperatures.

China and Pakistan concluded nearly 15 billion US dollars' worth of deals on
Saturday, as Chinese Premier Wen Jiabao said Beijing would "never give up" on
the troubled nuclear-armed Muslim country.

Mike Burk: "Seasonality is likely to dominate the rest of the year. Monday and
Tuesday could be weak, but, after that, the pattern is likely to be a modest
upward bias on very low volume.
I expect the major averages to be higher on Friday December 24 than they were
on Friday December 17."

Seeking Alpha: "In Barron's 2011 stock market outlook, strategists expect to see an average 10% rise in the S&P 500 and a sustainable economic recovery taking root. Stocks will outperform bonds, especially Treasurys. Companies sitting on cash piles will look towards M&A, R&D and shareholder-friendly moves."

Martin Hutchinson: "When bond traders come to view U.S. Treasury bonds as a serious default risk, the U.S. economy may well enter not merely a second dip but a chasm."

South Korea is pushing ahead with a U.S.-backed artillery test in a rare direct challenge to North Korean threats, prompting an emergency session of the U.N. Security Council and calls for calm from Asian neighbors. Russia calls for a U.N. Security Council meeting to prompt both sides to tone down the rhetoric.

Dominic Gates Seattle Times aerospace reporter: "As Boeing prepares to announce yet another delay for the 787 Dreamliner — at least three months, possibly six or more — the crucial jet program is in even worse shape than it appears.
The problems go well beyond the latest setback, an in-flight electrical fire last month that has grounded the test planes.
A year after the airplane's first flight, the cascade of systems failures caused by that fire, as well as two major problems since summer with the 787's Rolls-Royce engine, have raised red flags with aviation regulators.
A top Federal Aviation Administration (FAA) official 10 days ago warned Boeing that without further proof of the plane's reliability, it won't be certified to fly the long intercontinental routes that airlines expect it to serve."

Harry Wilson at the Daily Telegraph:
"Lloyds writes off half of Irish loan. Lloyds Banking Group and Royal Bank of Scotland shares tumbled on Friday after Lloyds said it had effectively written-off more than half of its outstanding loans to Irish borrowers. Lloyds shares closed down 3.6pc at 66.5p, while RBS's fell 5.7pc to 37.82p as the market."

John Mauldin: "The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets."

The Automatic Earth: "It is derivative exposure to European banks that is a very major concern for the world and the US in particular. It is not just a European problem.....If we add Portuguese and Greek debt to the mix, and we look at total exposure to the four biggest EU problem cases, and potential losses from it, we see that German banks' exposure totals $512.7 billion, and losses at 54% write-offs $276.8 billion, French banks' exposure totals $410.2 billion, with losses at 54% write-offs $221.5 billion, British' banks exposure totals $370 billion, losses at 54% write-offs $199.8 billion, US banks' exposure total $352.9 billion, with losses at 54% write-offs $190.6 billion.
Is there anyone out there who wishes to claim that German banks can absorb $276.8 billion in losses, French banks $221.5 billion, and British $199.8 billion, and still the whole shebang can live happily ever after? If there is, please let us know who you think lives at the North Pole.
Total global exposure to Ireland, Portugal, Spain and Greece is $2.281 trillion. A 54% write-off would mean a $1.23 trillion loss for the international banking system. And that's for the exposure to the debt of just four countries, which have a total population of no more than 75 millon people! Let that sink in! And let's not forget the timeframe, either: as quoted above from the Telegraph: "German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion [of that] by Portugal, Ireland, Spain, and Greece by the end of June, 2010". Also, once again, keep in mind that Lloyds already sees a further 10% downgrade before the end of 2010 (!!), and dark prospects going forward."

Koch Pipeline Co. LP will build a new pipeline into Karnes County to connect refineries in Corpus Christi with Eagle Ford shale producers.
The company said Thursday it received shareholder approval for the new 16-inch line, which will create the capacity to move an additional 120,000 barrels per day in 2012.
The Eagle Ford shale of South Texas is considered one of the hottest oil and gas prospects in the country.
“It not only allows us to ship more crude oil to Corpus Christi refiners and to the Flint Hills Resources waterborne terminal at Ingleside, but it also improves our efficiency and reliability as this project includes new tanks and a new truck station,” Kim Penner, president of Koch Pipeline, said in a prepared release.
The new line will have future expansion capability of more than 200,000 barrels per day and will include direct connections to producer tank batteries in Karnes and DeWitt counties.