Saturday, January 09, 2010

Bipolar Outcomes

1/9/10 Bipolar Outcomes

The Census hiring this year is going to be very large and may add up to 1.2 million workers over the first half of the year.

The failure of Horizon Bank, the 12th-largest in Washington state, will cost the FDIC an estimated $539 million. It's the first U.S. bank to fail in 2010.

Doug Noland: "Because of the Fed’s words and deeds, the marketplace is dysfunctional when it comes to pricing risk. These days the price of government Credit has no relationship to the interaction of its supply and demand. If Washington seeks to borrow a couple hundred billion - or a few Trillion - it really has little impact on yields. In an ominous replay of the Mortgage Finance Bubble, government intervention has severely distorted the capacity of the marketplace to properly price risk, allocate resources, and discipline market participants (borrowers and speculators)....Until proven otherwise, I’ll project 2010 as a year of escalating Monetary Disorder – disorder globally across a broad spectrum of markets. A global Bubble would seem to ensure unsettled currency markets. Dollar optimism runs surprisingly high to begin the New Year. Yet the scenario of a dollar problem leading to a jump in U.S. borrowing costs still doesn’t seem all that nutty to me. Another spike in energy and commodities wouldn’t surprise me, but the best bet is numbing volatility. The emerging markets are poised for a wild year. And, of course, all eyes on interest rates. As I mentioned above, a Bubble Year suggests the likelihood of bipolar outcomes. I’ll conclude by admitting that I get that uneasy feeling that our central bank is quite determined to avoid learning lessons. "

Venezuela devalued its currency late on Friday, introducing a multi-tiered exchange rate regime in a surprise move aimed at kickstarting a stagnating economy but which risks fueling already high inflation.

Hugo Chavez, Venezuela’s president, announced that the official value of the dollar, which has remained at 2.15 bolivars since March 2005, will now be fixed at 2.6 bolivars, a rate which will be reserved for the import of essential goods. He also announced the introduction of the “oil dollar”, pegged at 4.3 bolivars, which will be made available for non-essential goods.

NY Times: "The administration will consider itself free to disregard new laws it considers unconstitutional, especially in cases where it has previously voiced objections elsewhere, officials said.

The White House disclosed its shift when asked why it had not put out a signing statement last month, when Mr. Obama signed a $447 billion spending bill for 2010. It contained several provisions that restricted executive power in ways that the administration had previously asserted were unconstitutional — including in signing statements attached to similar bills and in policy statements it issued about the spending bill as lawmakers drew it up.

“The administration’s views about certain provisions in the omnibus spending bill had previously been publicly communicated,” said Ben LaBolt, a White House spokesman, “so it wasn’t necessary to duplicate them in a signing statement.”

Mr Chavez also acknowledged the existence of a third floating rate – until now known as the parallel rate – that he said will be managed through central bank intervention to avoid excessive speculation.

“This is to boost the productive economy, to reduce imports that aren’t strictly necessary and to stimulate exports,” Mr Chavez said during a televised meeting with ministers. “We need to stop being a country that only exports oil.”

In Friday’s New York Times the paper reiterated something billionaire hedge fund manager Jim Chanos first told the Fast Money desk, on the December 15th Halftime Report – that China has the potential to be as much of a watershed event for world markets as subprime was a few years back.
A celebrated short-seller, Chanos isn’t the first person to turn bearish on China, but his commentary is widely followed because he has a knack for spotting looming problems, including Enron, Tyco, and the housing crisis.

And speaking of housing, Chanos thinks China’s troubles will stem from a real estate crisis – much like our own troubles did.

The Oil Drum: "A cold spell facing the United Kingdom has caused anxiety over the security of the country's natural gas supplies. The Conservative Party warns that a gas shortage is about to hit the UK due to a lack of storage capacity. In response, National Grid, owner of the UK gas transmission system, states that there is "no danger of the UK running short of gas".

Anxiety increased when National Grid gave a gas balancing alert, asking power suppliers to use less natural gas, a message which was repeated again last Thursday."

Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.

“The actual unemployment rate is higher than shown by the official numbers,” Bandholz said yesterday after a Labor Department report released in Washington showed the economy unexpectedly lost 85,000 jobs in December while the jobless rate was unchanged.

About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, the Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years.

The main lenders to Japan Airlines plan to accept a restructuring package that would require the carrier to file for bankruptcy, sources said, increasing the likelihood of a state bailout this month.

Friday, January 08, 2010

Duration of Unemployment

1/8/09 Duration of Unemployment

The average duration of unemployment has surged to 29.1 weeks, from 28.6 weeks in November, and 19.5 a year ago.
U.S. job losses resumed in December after revisions showed payrolls rose in November for the first time in nearly two years, the Labor Department estimated Friday. Nonfarm payrolls fell by a seasonally adjusted 85,000 in December following a revised 4,000 gain in November. During 2009, payrolls fell by 4.2 million. Since the recession began two years ago, payrolls have fallen by 7.3 million. The official unemployment rate remained at 10% in December. An alternative gauge of unemployment, which includes discouraged workers and those forced to work part-time, rose to 17.3% from 17.2%. Details of the report were weak, with few signs of further improvement in labor conditions. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs. Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in 10 unemployed workers were jobless for 27 weeks or longer. In December 153.059 million were in the labor force, 15.267 million were unemployed and 83.865 million were not in the labor force: a 64.6% participation rate. In December, the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.2 hours. The employment-population ratio declined to 58.2 percent. This is the worst recession in terms of employment and jobs lost, both in actual numbers, and as a percentage of all jobs, of any cycle since World War II was ending in 1944-45.

Simon Johnson: "The conventional wisdom is you can't have back-to-back major financial crises. I think we're going to push that, we're going to have a look and see whether that's true. And the next 12 months could really be exciting. People could be very positive, but we are setting ourselves up for an enormous catastrophe."

The emerging markets are the next phase of the crisis, Johnson predicted, as large banks look to unload risk on frothy foreign investments. The banks' risk-taking, Johnson argues, is fueled by their belief that the government has shown it will bail out huge financial institutions.....For the six major banks of the United States, their total balance sheet is over 60 percent of U.S. GDP. [The banks] got bigger during the crisis. All the big guys are out there looking to take risk. So would you -- and so would I -- if we felt we were immune. If you had a 'get out of jail free card,' wouldn't you go take a lot risk right now?"

George Ure: "Aha! This loops me back to the Employment Situation report which alleges that the civilian workforce in December dropped by 661,000...with no explanation of where they went! Did they go back to Mexico? Was there a partial Rapture I missed (that'd be understandable, I suppose...) or WTF? "

Harsh winter weather across the Midwest and Northeast on Friday resulted in flight cancellations and delays in Chicago, Philadelphia and Atlanta, according to the Federal Aviation Administration.

Reliance Industries Ltd. increased its offer to buy a stake in LyondellBasell Industries AF, valuing the bankrupt chemicals maker at $13.5 billion compared with $12 billion in a November bid, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Unemployment in the 16 countries that use the euro reached 10 percent in November for the first time since the currency was adopted in 1999, with sharp differences in individual countries' jobless rates underlining the stress the recession has put on Europe's monetary union.

Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades. The Federal Reserve said Friday that total borrowing dropped by $17.5 billion in November, a much bigger decline than the $5 billion decrease economists had expected.

Americans are borrowing less for a number of reasons. They remain fearful about their job prospects and they are also trying to replenish depleted investments. The government reported Friday that employers cut an additional 85,000 jobs in December, bringing total job losses to more than 8 million since the recession began in December 2007. November's $17.5 billion drop in total credit was the biggest amount in dollars terms since records began in 1943. That represents an 8.5 percent fall from the October borrowing level. That was the biggest percentage drop since total credit declined 9 percent in May 1980.

The number of California hotels that are in default or in foreclosure continued to increase in 2009 because of slumping travel demand and declining real estate values, according to a new hospitality report.

The report by Atlas Hospitality Group said the number of hotels that were in foreclosure rose 313%, from 15 in 2008 to 62 in 2009. More than half of the foreclosed hotels have filed for bankruptcy. The number of hotels in default on their loans jumped 479%, from 53 in 2008 to 307 in 2009.

The largest hotel to be foreclosed is the 469-room Marriott in downtown Los Angeles. Other troubled properties include the St. Regis Monarch Beach in Dana Point, the Sheraton Universal and the W hotel in San Diego.

Chinese authorities on Thursday took the latest in a series of steps to cool the country's supercharged economy amid worries over inflation, engineering a minor tightening of credit that unnerved global markets.

For the first time in nearly five months, the central bank edged up the interest rate on its three-month treasury bills by about 0.04 point, to 1.3684% from the 1.3280% yield that has prevailed since August.

UPS expects a fourth quarter beating guidance, with an EPS of $0.73-0.75 vs. $0.58-0.65, and says it will cut 1,800 jobs in management and administrative functions as it streamlines its small package operation.

Matt Taibbi: "AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee."

Schork on natural gas: "Molecules are currently being withdrawn from underground storage at an unprecedented rate and we are just now entering what is historically the coldest part of the heating season. Therefore, the mean reverting nature of vol notwithstanding, there is no telling how long it will take for vol to revert lower; assuming it reverts at all, i.e. the trend in both implied and historical vols is up and time is running out.

The Producing Area is bleeding molecules. Deliveries are averaging a blistering 6.2 Bcf/d. That is more than 3× last year’s pace and 1.5× the average from 2004 to 2008. Given this week’s strong implied furnace demand in both market and producing areas, the table is set for a huge delivery for next Thursday’s report...Bottom line, total deliveries are averaging 20.4 Bcf/d so far this season. That is 50% above a year ago and 73% above the average of 2004 to 2008. Next week we could see a delivery in excess of 250 Bcf. That will pull current storage from 3.12 Tcf to below 2.9 Tcf."

The recovery in the labor market is likely to be slow coming out of the recession, said Eric Rosengren, the president of the Boston Federal Reserve Bank on Friday. Rosengren said that experience shows that economies that experience significant banking problems have been slow to recovery "and that is likely to be true this time in the U.S." Consumers are likely to remain cautious, he said. In this weak environment, there is little risk of inflation pressure, Rosengren said. This gives the Fed room to keep interest rates low. "In my view, this should allow for accommodative monetary policy to continue to support the economy until the underlying demand of consumers and businesses becomes self sustaining," Rosengren said.

Huffington Post: "An arm of the Federal Reserve, then led by now-Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG to withhold key details from the public about overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs.

The sordid tale unfolds in a series of e-mails between the company and the New York Fed obtained by Rep. Darrell Issa (R-CA), the ranking member of the House Committee on Oversight and Government Reform, and first publicly disclosed by Bloomberg News.

The matter is the subject of an "ongoing review" by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), communications director Kristine Belisle said in an e-mail to the Huffington Post. SIGTARP is headed by Neil M. Barofsky, a former federal prosecutor.

Taxpayers have committed about $182 billion to AIG. The under-regulated firm developed and sold complicated derivatives products without having adequate capital in place if those bets went bad, which they eventually did. The firm nearly single-handedly wrecked the entire financial system."

At $6.47 per MMBtu in trading on January 6, prices at the Henry Hub were 9 percent, or 37 cents per MMBtu, above year-ago levels. Natural gas spot prices at the Henry Hub consistently have traded below year-earlier levels since October 6, 2008. Next-day gas prices at the US benchmark supply point Henry Hub NG-W-HH in Louisiana climbed Thursday to over $7.50 per million British thermal units.

The VIX slips to a 19-month low of 18.39, suggesting options traders don't think news like today's jobs numbers are reducing market complacency.

Bloomberg reports: "Tishman Speyer Properties LP and BlackRock Inc. will miss a bond payment today on debt from their $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village in 2006, according to a spokesman for New York City Councilman Daniel Garodnick."

The number of rigs drilling for natural gas in the United States rose 22 this week to 781, according to a report on Friday by oil services firm Baker Hughes in Houston. The U.S. natural gas drilling rig count has rebounded after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating. But the rig count is still down sharply since peaking above 1,600 in September 2008. It currently stands at 458 below the same week last year.

The Dow Jones industrial average rose 11.33 points, or 0.11 percent, at 10,618.19. The Standard & Poor's 500 Index climbed 3.29 points, or 0.29 percent, at 1,144.98. The Nasdaq Composite Index added 17.12 points, or 0.74 percent, at 2,317.17.

Thursday, January 07, 2010

Excessive Risk Taking

1/7/09 Excessive Risk Taking

The Bank for International Settlements has asked top central bankers and financial executives to attend a meeting at its headquarters in Basel, Switzerland, this weekend to discuss concerns about a return of the "excessive risk taking" that triggered the financial crisis, the Financial Times reported Thursday.

The Federal Reserve should start tightening monetary policy "sooner rather than later," said Kansas City Federal Reserve Bank president Thomas Hoenig on Thursday. "The Federal Reserve must curtail its emergency credit and financial market support programs, raise the federal funds rate target from zero back to a more normal level, probably between 3.5 and 4.5% and restore its balance sheet to pre-crisis size and configuration," Hoenig said in a speech at the Central Exchange in Kansas City.

The number of initial claims for state unemployment benefits was essentially unchanged in the week of Jan. 2, rising 1,000 to a seasonally adjusted 434,000 after dramatic declines the previous two weeks, the Labor Department reported Thursday. The total number of people collecting unemployment benefits of any kind, including extended federal benefits, rose by 518,100 in the week of Dec. 19 to 10.6 million, not seasonally adjusted. The number of people collecting regular state benefits fell by 179,000 in the week ending Dec. 26 to a seasonally adjusted 4.8 million, the lowest in nearly a year. Compared with a year ago, initial claims are down 15%, while state continuing claims are up 13%.

Costco Wholesale Corp. reported that for December, same-store sales rose 9% as total sales climbed 11%. A survey of analysts by Thomson Reuters produced a consensus estimate for the month of same-store sales up 7.9%. Total sales reached $8.26 billion from $7.41 billion in the year-earlier month. The same-store sales reflect increases of 5% in the U.S. and 25% internationally, Costco reported on Thursday. Excluding higher gasoline prices and the effect of stronger foreign currencies, Costco's same-store sales rose 4% in the month, while analysts were looking for a 5% increase. The adjusted same-store sales reflected increases of 2% in the U.S. and 10% internationally.

Japan's finance minister Thursday, Naoto Kan sent his nation's currency plunging against its U.S. counterpart, by saying many companies firms are in favor of the dollar trading around 95.00 yen, and that he will work with the Bank of Japan to get the currency to "appropriate" levels. The dollar rose to 92.63 yen, from 92.15 yen before Kan spoke.

Apartment vacancies hit a 30-year high of 8% last year, and landlords cut rents 3% to attract tenants.

China's central bank surprised markets on Thursday by raising the interest rate on its three-month bills for the first time since mid-August, intensifying its grip on liquidity a day after it promised to keep credit growth in check. “It’s definitely a signal that the central bank is tightening liquidity,” said Jiang Chao, a fixed-income analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The rising yield is used to prevent excessive growth in bank lending.”

Alice Rivlin: "Suddenly, the nation’s public debt, which was 37 percent of GDP in 2007, has risen to about 67 percent in 2010 and is projected to continue rising if we don’t change course. The built-in deficits caused by aging and medical spending for seniors are no longer looming far ahead of us. They will affect our crisis-damaged budget within the decade.

If we don’t want a continuous drain on our standard of living and growing vulnerability to the demands of our creditors, especially the Chinese -- both of which will undermine our influence in the world -- we must stabilize the debt by moving the federal budget back toward balance."

Iraqi and Iranian officials will meet next week to try to solve their border issues, including the dispute over a southern Iraqi oil well which Iranian forces occupied last month, foreign ministers of the two neighboring countries said Thursday.

Iranian Foreign Minister Manouchehr Mottaki made the announcement after meeting his Iraqi counterpart, Hoshyar Zebari, in Baghdad.

"Everything will be solved," Mottaki told a joint news conference. "Joint technical committees will start meetings in a week from now, and the borders between the two brotherly countries will be marked," he added.

"We have agreed to normalize the situation on the two countries' borders and bring it back to where it was standing before," Zebari said. The issue of the oil well and all other issues can be solved bilaterally between the two countries, he added.

Tom Iacono: "There were net outflows from U.S. stock funds since March of last year as investors plowed hundreds of billions of dollars into bond funds. This is one of the many troubling aspects of the recent stellar performance of equity markets that becomes all the more puzzling after former Fed chief Alan Greenspan recently cited the rise in stock market capitalization as one of the major factors in the nascent economic "recovery".

"As we look to December data (reported this Friday) if the seasonal adjustment multiple returns to anything in the range of historical norms it should provide a huge lift to the reported m/m change. In quantitative terms a return to the 1996–2008 average would create a seasonal lift of 431K to the as-reported m/ m change. In comparison the 1996–2007 actual December m/m change (unadjusted) was 116K. Put differently, if this was an average December for job creation and the adjustment factor returns to a historical average we would see a non-farm payroll print of +316K on Friday." - Stifel Nicolaus

Bill Bonner: " For the most part, there is no recovery happening. And the part of the recovery that is actually happening is a fraud."

This week’s sustained Arctic cold front likely will push Oklahoma Natural Gas customers to using near-record volumes to keep their homes heated, an ONG spokesman said Wednesday.
The utility’s analysts predict that customers will use more than 1.5 billion cubic feet of natural gas during the 24-hour period beginning Thursday morning. Weather forecasts call for low temperatures close to zero degrees in the next few days.
“Since the blizzard moved in we’ve had only one day in which the daily throughout did not exceed 1 billion cubic feet,” ONG spokesman Don Sherry pointed out. “On a typical winter day, the daily throughout is more in the range of 700 million and 800 million cubic feet.”

Temperatures in New York City are forecast to be as much as 13 degrees below average by Jan. 10, according to MDA Federal Inc.’s EarthSat Energy Weather of Rockville, Maryland. The U.S. Northeast is responsible for about four-fifths of the country’s heating oil use.

Temperatures will be 25 degrees below average in Houston and St. Louis on Jan. 9, EarthSat said. About 72 percent of households in the Midwest use natural gas for heat.

European transport was hindered by heavy snows while China curbed power use because of coal shortages. Florida growers worked to keep their groves warm overnight as freezing weather threatened to damage citrus crops.

Avalanches in Switzerland’s Bernese Alps and near Verbier have left eight people dead, including a rescue party of three found two days ago, while in the U.S. seven fatalities have been blamed on icy roads or cold-related accidents.
The U.K.’s longest cold snap since 1981 persisted as temperatures fell as low as minus 18 degrees Celsius (0 Fahrenheit) in Benson.

The cash price of iron ore delivered to China, the world’s biggest buyer, rose to the highest in more than a year amid what Goldman Sachs JBWere Pty said was “panic buying” by steel mills.

The cost of 62 percent iron-content ore delivered to Tianjin port increased 2.9 percent to $124.80 a metric ton yesterday, according to The Steel Index. The so-called spot price has surged 24 percent in four weeks and has more than doubled from its 2009 low on March 27.

The U.S. Energy Information Administration is expected to report Thursday that 151 billion cubic feet of gas were withdrawn from storage during the week ended Jan. 1, according to a Dow Jones Newswires survey. The storage estimate is well above last year's 47-bcf pull from storage and the five-year-average draw of 83 bcf, according to data provided by the EIA.
If the storage estimate is correct, inventories as of Jan. 1 will total 3.125 trillion cubic feet--about 11% above the five-year average and about 10% above last year's level.

U.S. natural gas inventories fall 153 bcf: EIA.

The Dow Jones Industrial Average rose 33.18 points, or 0.3%, to 10,606.86. The S&P 500 Index gained 4.55 points, or 0.4%, to 1,141.69. The Nasdaq Composite Index fell 1.04 points, or less than 0.1%, to 2,300.05.

Wednesday, January 06, 2010

Trim Tabs

1/6/09 Trim Tabs

The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.

"We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement.

The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds.

"We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?"
The Federal Reserve or the Treasury, Biderman said, could have easily manipulated the stock market by purchasing $60 to $70 billion worth of futures of the S&P 500 Index (INDEX:SPX) on a monthly basis.

The API said crude oil inventories fell by 2.3 million barrels in the latest week. That was far more than the 300,000 drop expected by analysts polled by Dow Jones Newswires. But the API revised its previous week's estimate up by 689,000 barrels. The API also reported a 5.6 million-barrel increase in gasoline stocks and a 1 million-barrel increase in distillate inventories. Gasoline stocks were expected to rise by 300,000 barrels and distillates were expected to drop by 2 million barrels.

Private-sector firms in the U.S. eliminated 84,000 jobs in December, the 23rd decline in a row, according to the ADP employment report. Embedded in that figure was an actual increase of 12,000 jobs in the services sector, which according to our colleagues at Dow Jones, marks the first positive ADP print in services since March 2008.

Monsanto predicted earnings in a range of $2.85 to $3.11 a share, and ongoing earnings of $3.10 to $3.30 a share. Wall Street projected fiscal 2010 earnings of $3.35 a share, on average.

ZeroHedge: "

On December 24, the Senate passed a vote by a razor thin margin (with not a vote to spare) to raise the Federal debt ceiling from $12,104 billion to $12,394 billion. The actual debt ceiling increase took effect on December 28. And as the chart below shows, the Treasury's cash flow projections were spot on: 3 days later, and the debt subject to limit surged to $12,254, a jump of over $200 billion in 2 days, and a whopping $150 billion over the old debt ceiling. Three days is all the buffer the administration's reckless spending spree has afforded this country to avoid bankruptcy. Had one more Democratic vote dissented from the stopgap measure, the US would now be in technical default. There is just $140 billion left before the revised debt ceiling is breached. We hope for the country's sake that Bill refunding in January is massive, because as we already pointed out, on January 7th we expect another ~$130 of new Treasuries to be announced for auction by January 15th. And then there are two more weeks in January... Which is why the Treasury better be using that TARP money to pay down all it can, because if the general population understands how close this nation was to the fiscal brink, many more answers may be demanded out of the ruling party as to how it could allow things to get so out of hand."

In December, according to the Financial Management Service, the US Treasury dispensed a stunning 69.5% more in Social Security Outlays and Unemployment Insurance on a year over year basis: the administration knew all too well it could not afford to let this holiday season go to waste. So, after averaging at $43.6 billion in monthly outlays, Social Security withdrawals from the UST surged by a unprecedented 48.6% in December to a whopping $69.5 billion.

Employers announced 45,094 planned job cuts last month, the fewest since December 2007, according to global outplacement consultancy Challenger, Gray & Christmas, Inc.

That marked a 73 percent decline from 12 months ago, when 166,348 job cuts were reported, the report showed.

Exxon Mobil Corp. and state- controlled Qatar Petroleum agreed to build a $6 billion plant in the Middle East country to produce chemicals for export to Asia.

Microsoft CEO Steve Ballmer will announce a multimedia tablet computer on Wednesday to be made by Hewlett-Packard, according to a news report, just as hype about a rumored similar device from Apple peaks.

Gold held by euro zone central banks was worth 266.9 billion euros at the start of the year, the European Central Bank said on Wednesday, after a quarterly revaluation added 28.8 billion euros to its value. Net foreign exchange reserves in the Eurosystem of central banks rose by 3.3 billion euros to 162.7 billion euros, also after quarterly revalution, the ECB said in its regular weekly consolidated financial statement. It added that its balance sheet now totalled 1.9 trillion euros up from 1.85 trillion previously.

"It was a holiday season of modest sales gains but healthy profits," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "The question is, what kind of momentum do we have in the next few weeks? There is no reason for shoppers to buy."

Commentary by Stephen Roach

Jan. 5 (Bloomberg) -- "Where there was despair a year ago, today there is hope. Policy makers have been successful in putting in a bottom to the most wrenching crisis and recession of the post-World War II era. Yet the outlook remains uncertain. That’s because the bottoming process, however encouraging, does little to inform us about the character of the coming economic recovery.

There are four key reasons to remain skeptical about the vigor and sustainability of any rebound in the global economy:

First, the financial crisis itself is far from over. The latest International Monetary Fund estimates put the potential for worldwide writedowns of toxic assets at approximately $3.4 trillion; so far, realized markdowns have been only about half that amount. This points to further earnings impairments for financial institutions and concomitant restraints on their lending capacity.

Second, the breadth of this global recession was staggering. At its low point in March 2009, 75 percent of the world’s economies were contracting. Typically, the figure is closer to 50 percent. This means it will be much harder to turn around this recession-torn world.

Third, the demand side of the global economy is likely to be restrained by a protracted pullback of the over-extended American consumer. In the face of a massive labor market shock to jobs and wage earnings, together with the bursting of property and credit bubbles, the consumption share of the U.S. economy is likely to fall by five full percentage points of gross domestic product -- from its current record of 71.2 percent to the pre-bubble norm of 66 percent.

Weak U.S. Consumer

This should reduce trend growth of real consumption from the almost 4 percent pace of the pre-crisis decade to 1.5 percent to 2 percent over the next three to five years. No other consumer in the world is capable of filling this void.

Fourth, the supply side of the global economy suffers from massive imbalances, especially China-centric developing Asia. While, on the surface, post-crisis resilience of the Chinese economy has been impressive, it turns out that 95 percent of the 7.7 percent GDP growth realized in the first three quarters of 2009 was concentrated in the fixed investment sector, which already accounts for an unheard of 45 percent of GDP.

By compounding its existing imbalances, to say nothing of funding this stimulus by a record surge of state-directed bank lending, China risks a serious misallocation of capital and a worrisome deterioration of bank loan quality.

Vulnerable Recovery

Considering these powerful headwinds, I expect trend growth in world GDP to average about 2.5 percent over the next three years -- the weakest recovery of the modern era. Significantly, such an outcome would be very close to the “stall speed” for a $70 trillion global economy, meaning that a shock could easily trigger a relapse, or the dreaded double dip."

John Browne: "Now that 2009 has passed into history, analysts have flooded the public with their opinions on how the events of the past year will impact the coming years. While most are optimistic, I feel that last year's developments have greatly exaggerated the imbalances in the U.S. economy. Although we may see a temporary respite from the turbulence, these mistakes will hinder our long-term viability. I fear that we have gone down a road that will destroy the value of the dollar and may even threaten the political stability of the United States."

Robert McHugh: "The S&P 500 rose decisively above previous resistance at 1,120 Monday, January 4th, 2010, which means there is a good chance it will rise sharply toward its 1,200 upside targets from two different Bullish patterns we have been showing for weeks, the Bullish Head & Shoulders bottom, and a Bullish Flag pattern. This means that 1,120, formerly powerful resistance has become strong support. It means that a decisive decline below 1,120 would signal the rally from March 2009 is likely over."

Recent signs of an improving economy did not sway Federal Reserve officials from the belief that the recovery would be gradual relative to past recoveries and inflation would remain tame, according to minutes of the latest policy meeting released Wednesday. Although the November employment report was better than expected, Fed officials observed that "more than one good report would be needed to provide convincing evidence of recovery in the labor market." There was a sharp divide among officials about the forecast for inflation longer-term. The argument was so intense that the discussion about the price outlook continued long after the formal vote on policy, which usually signals the end of the closed-door gatherings. There was not a lengthy discussion of the Fed's purchases of mortgage-backed securities that are scheduled to end in late March. Only a few Fed officials pushed to expand the plan and only one thought it should be scaled back. The FOMC put off a discussion of "alternative approaches to implementing policy in the longer-run" until this year. The committee will next meet on Jan 26-27.

Gold for February delivery gained $17.80, or 1.6%, to $1,136.50 an ounce on the Comex division of the New York Mercantile Exchange, after rising to $1,138.40 an ounce earlier in the session.

Natural gas has rallied above $6. Crude for February delivery rose $1.41, or 1.7%, to end at $83.18 a barrel on the New York Mercantile Exchange, the highest settlement since October 2008.

The ISM Service Index for December came in at 50.1, which is slightly below the 50.5 that many had forecast, but up from the 48.7 that was registered in November. The ISM's closely-watched employment index rose to 44.0% in December from 41.6% in November. The employment index has been below 50 since May 2008. It hit a low of 31.1 in November 2008.

Lockheed Martin to cut 1,200 workers.

Equities closed pretty much unchanged.

EIA Petroleum Inventories: Crude +1.3M vs. consensus of -300K. Gasoline +3.7M vs. consensus of +300K. Distillate -0.2M vs. -1.8M. Henry Hub Natural Gas Cash - 6.552/6.610

Tuesday, January 05, 2010


1/5/09 Bankruptcy

Berkshire Hathaway Inc. said Tuesday it has voted "no" on Kraft's proposal to authorize the issuance of up to 370 million shares to facilitate the acquisition of Cadbury. Berkshire, the holding company controlled by billionaire Warren Buffett, believes that the 138,272,500 Kraft shares it owns make it the company's largest shareholder. "The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury -- in any way it wishes -- from the transaction presented to shareholders in the proxy statement," Berkshire said. "And we worry very much that, indeed, there will be an additional change from the revision announced this morning."

Chain-store sales for the week ended Jan. 2 rose 2.5% from the year-earlier period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales were up 1.5%.

Mesa Air Group Inc. said Tuesday it filed for Chapter 11 bankruptcy to help eliminate excess aircraft and reach a faster a resolution in its lawsuit against Delta Air Lines.

International Aluminum Corp., the closely held Monterey Park, Calif., producer of windows, doors, frames and related products for residential and commercial applications, said late on Monday that it filed to reorganize under Chapter 11 of U.S. bankruptcy law.

Kraft Foods Inc. said Tuesday it has agreed to sell the assets of its North American pizza business to Nestlé for $3.7 billion. In a statement on Tuesday, Kraft said that the pizza business to be sold -- including DiGiorno and Tombstone and two others, the California Pizza Kitchen trademark license, manufacturing facilities, and other assets -- generated an estimated $1.6 billion of revenue in 2009. As part of the pizza-business sale, Kraft said it would transfer about 3,400 employees to the Vevey, Switzerland, foods giant. Kraft said Cadbury holders who choose the alternative would be able to get about an additional 60 pence (97 cents) a share (or 240 pence per American depositary share) of cash from the proceeds of the pizza sale instead of stock. Kraft also extended the deadline for Cadbury holders to take up its offer until 1 p.m. London Time on Feb. 2. The original deadline was later Tuesday.

Bill Bonner: "So there is our Trade of the Decade:

Sell US Treasury debt/Buy Japanese stocks."

US public pensions face $2,000bn deficit.

Over 43 million square feet of office space stands vacant in California's Silicon Valley, adding to the technology hub's biggest property glut since the dot-com bust.

Even Americans who are lucky enough to have work in this economy are becoming more unhappy with their jobs, according to a new survey that found only 45% of Americans are satisfied with their work.

That was the lowest level ever recorded by the Conference Board research group in more than 22 years of studying the issue. In 2008, 49% of those surveyed reported satisfaction with their jobs.

Overall, personal bankruptcy filings hit 1.41 million last year, up 32% from 2008, according to the National Bankruptcy Research Center.

Factory orders increased 1.1% in November, faster than the 0.8% rise expected by economists surveyed by MarketWatch. Orders for durable goods increased 0.2% in November, unrevised down from the estimate late last month. Orders for nondurable goods rose 1.8%. Core capital equipment orders rose 3.6% in November, revised up from 2.9% estimated a week ago, the government said.

Pending home sales plunged 16% in November as a highly popular tax credit for first-time buyers was set to expire on Nov. 30, the National Association of Realtors reported Tuesday. The pending sales index -- which measures contracts signed but not closed on previously owned homes -- was 15.5% higher than in November 2008. The tax credit was ultimately extended until April and expanded to repeat buyers.

For the first time in more than a decade, Canada plans to sell 10-year bonds denominated in euros.

SHIVERING Britain faces the prospect of gas supply shortages as the worst cold spell in 30 years keeps a stranglehold on the country.

The National Grid yesterday issued only its ­second-ever warning that demand for energy is threatening to outstrip available supplies unless industry quickly slashes its consumption and more gas is rushed in from abroad.

The alert prompted the wholesale cost of gas to rocket by 70 per cent and raised fears that businesses and households could soon be hit by power cuts if the freezing weather persists as forecast for the rest of the month.

After adjusting for population, U.S. auto sales suffered their deepest decline since World War Two in 2009. Full-year sales are expected to be just over 10.3 million vehicles, down 40 percent from where the industry began the decade in 2000.

Macy's Inc. said Tuesday it will close five stores as part of its annual process to "prune" underperforming locations. The stores affected are located in downtown Boise, Idaho; Summit Place Mall, Waterford, Mich.; Northwest Plaza, St. Ann, Mo.; downtown Missoula, Mont.; and Burlington Center Mall, Burlington, N.J. About 300 employees will be affected by the closures and when possible, they will be offered positions in nearby stores.

Well-known banking analyst Meredith Whitney on Tuesday cut her earnings estimates for Wall Street bank Goldman Sachs for the second time in less than a month.

US retail gasoline demand down 3.5% vs. Prev. week, down 0.4% vs. yr ago, says Mastercard SpendingPulse.

The Dow Jones Industrial Average fell 11.94 points to 10,572.02. The S&P 500 Index added 3.53 points to 1,136.52. The Nasdaq Composite Index held a fractional gain to end at 2,308.71.

Monday, January 04, 2010

Cold Weather

1/4/09 Cold Weather

Cold, windy weather enveloping the U.S. from the northern Plains to the East Coast may continue to break temperature records today. In south Florida, orange growers may escape most crop damage.

The National Weather Service issued hard-freeze warnings for last night and this morning for southern Alabama and Georgia and the northern part of Florida, including the panhandle. Such warnings alert growers of temperatures that may fall below 32 degrees Fahrenheit (zero Celsius) for more than three consecutive hours.

A low of 20 degrees was forecast for Jacksonville, Florida, overnight, which would break the existing record of 22 degrees, said Dave Samuhel, a meteorologist for Inc. in State College, Pennsylvania. Typical temperatures for Jacksonville this time of year are 42 degrees, he said.

In Florida, citrus-growers will likely avoid major crop damage since below-freezing temperatures wouldn’t last long enough, Samuhel said.

“I don’t expect widespread damage,” he said.

Speculation of a bidding war for British candy maker Cadbury mounted on Monday after Swiss food group Nestle agreed to sell off its majority stake in eyecare unit Alcon and announced a smaller-than-anticipated share buyback program.

Severe delinquencies by small and medium-sized U.S. businesses on the loans, leases and lines of credit to finance capital equipment rose again in November as lenders remained reluctant to extend fresh financing, PayNet Inc reported on Monday.

Accounts behind 180 days or more, and unlikely ever to be paid, rose to 0.91 percent in November from 0.87 percent in October, according to PayNet, which provides risk-management tools to the commercial lending industry.

"For interest rate exposure, or duration, we are currently cutting back in the U.S. and U.K. because, as mentioned before, supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines...With corporate bonds, we are becoming a bit more cautious than we have been. In the third and fourth quarters of 2009, we believed the massive narrowing of spreads we saw in the second quarter wouldn’t go much further. We weren’t necessarily selling credit on any scale, but we’d reduced buying....In agency MBS, we are underweight, having reduced our exposure as the Fed’s buying programs have dramatically tightened spreads...we are underweight TIPS versus the benchmark, reflecting our view that risks are currently weighted toward a disinflationary environment." Pimco's Paul McCulley

John Hussman: "Every dollar of bad mortgage debt that should have been written off is now enshrined as two dollars of government-backed debt. One dollar as the original debt, which will now be made whole, and one dollar of new Treasury securities, which must be issued to make that original debt whole. Accordingly, the holders of both securities will have claims against our national assets and future wealth. A similar two-for-one obligation holds true for bailed-out bank losses.....

What we do know is that stocks are overvalued even on the basis of normalized earnings, to an extent that exceeds nearly every pre-1995 level except 1929. Intermediate term conditions are strenuously overbought, investors (with advisory sentiment now down to 15.6% bearishness) are clearly overbullish, and interest rate trends are pushing higher. This situation does not always resolve itself into market declines, and indeed, given that market internals remain reasonably firm, we may continue to observe marginal new highs for some amount of time. But the statistical regularity from overvalued, overbought, overbullish, rising yield environments is one of steep, abrupt market losses generally within a period of about 10-12 weeks.

This time window coincides with a period over which we would expect to acquire some amount of additional clarity about the true state of the credit markets, as FASB rules now require off-balance sheet entities to come onto balance sheets (undoubtedly one of the reasons for the Treasury's pre-emptive commitment), and we discover the extent to which the “shadow inventory” of delinquent but not foreclosed homes will be modified or finally put into foreclosure."

Peter Goodman says the government's $75B program to protect homeowners from foreclosure is worse than a failure - it's actually making things worse. "Desperate homeowners have sent payments to banks in often-futile efforts to keep their homes... wasting dollars they could have saved in preparation for moving to cheaper rental residences."

U.S. Nov. construction spending down 0.6%.

The ISM manufacturing index rose to 55.9% from 53.6% in November. It was the highest in nearly four years. In December, nine of 18 industrial sectors were growing, ISM said. The new orders index rose to 65.5% from 60.3% in November. The employment index rose to 52% from 50.8% in November. The production index rose to 61.8% from 59.9% in November.

Drug maker Novartis AG said Monday it plans to take over Alcon Inc. by paying $38.5 billion for the 77 percent stake it does not already own in a deal that would make it one of the biggest players in the global market for eye-care products.

The Swiss pharmaceutical company will purchase Nestle SA's 52 percent stake for $28 billion before carrying out a merger with Alcon that would give it control of the remaining 23 percent held by minority shareholders.

The Basel-based drug maker had already purchased 25 percent of Alcon from Nestle in April 2008 for $11 billion, with the option of buying the food and drinks company's remaining stake at a later date.

Novartis will finance the deal using a combination of cash reserves, loans of up to $16 billion, and by issuing 98 million new shares in its own stock -- a move that will require approval at an extraordinary shareholders meeting.

If successful, the takeover will have cost about $50 billion in all, making it the biggest in Swiss corporate history.

According to a survey from ChangeWave in which 4,068 consumers were polled between December 9 and December 14, 21% of people who plan to buy a smartphone in the next 90 days will buy one which runs the Android OS. The number is up from 6% in the September survey.

The Schork Report: "Bottom line, the sharp production swing from last August to September to October has put the U.S. gas market on notice, i.e. producers might have attained their dy/dx moment. That is to say, it took them all of 2009 to figure it out, but they now have a better grasp on the correct proportion between the growing of production and the growing of output. That is important. As discussed an analyzed in many past issue of The Schork Report, last year was brutal for a lot of producers. They are obviously not in the mood to see a repeat this year."

Nobel Prize-winning economist Paul Krugman said he sees about a one-third chance the U.S. economy will slide into a recession during the second half of the year as fiscal and monetary stimulus fade.

“It is not a low probability event, 30 to 40 percent chance,” Krugman, an economics professor at Princeton University, said today in an interview in Atlanta, where he was attending an economics conference. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even.”

Gold for February delivery rose $22.10 to settle at $1,118.30 an ounce on the Comex division of the New York Mercantile Exchange, after rising as high as $1,124.60 earlier.
Crude for February delivery ended up $2.15, or 2.7%, at $81.51 a barrel on the New York Mercantile Exchanger, the highest settlement level since Oct. 22.

The Obama administration's $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Finishing at its highest level since early October 2008, the Dow Jones Industrial Average added 155.91 points, or 1.5%, to 10,583.96. The S&P 500 Index climbed 17.89 points, or 1.6%, to 1,132.99, and the Nasdaq Composite Index rose 39.27 points, or 1.7%, to 2,308.42.

Sunday, January 03, 2010

Martin Hutchinson

1/3/10 Martin Hutchinson

Martin Hutchinson: "Turning now to the future, it seems pretty clear that the unpleasant changes in the U.S. economy have not yet finished playing themselves out. In particular, the following further nasty things seem likely to happen:

First, the unwinding of the current monetary stimulus will cause all kinds of trouble, and take several years. The excess reserves in U.S. banks now total over $1.2 trillion, and at some stage the banks will want to do something stupid with that money. Since the Bernanke Fed is incapable of raising interest rates to proper levels except at gunpoint, we’re likely to see inflation embed itself in the U.S. economy at worrying levels before Fed policy even begins to remove it. As a corollary, commodity and energy prices will be allowed to rise to levels that provide huge windfalls to some of the world’s nastiest regimes, impoverishing the American people (and the hard-working British, European, Chinese, Indian and other people who don’t live off unearned commodity income).

Second, the unwinding of the current fiscal stimulus will also take several years, and will involve an equally unpleasant process. The U.S. economy has never been subjected to budget deficits of 10% of Gross Domestic Product in peacetime, and there’s no reason to suppose it will benefit from them. Further, the current president and Congress have policy ambitions that will permanently increase the presence of government in the U.S. economy, lowering its long-term growth rate and making it uncompetitive against less overburdened polities.

As country after country in Europe has shown over the past 40 years, sharp increases in government’s share of the economy depress growth rates both short-term, as government sucks resources out of the productive sector, and long-term, as the size of the productive sector in relation to the economy is permanently decreased. What’s more, the U.S. government at all levels is far more corrupt than that of Germany or Scandinavia, for example, so its drag on resources will be correspondingly greater.

Third, the drainage of economic activity that was in any case bound to happen as the Internet and modern telecommunications reduced by an order of magnitude the costs of manufacturing in a location distant from the market, has been exacerbated by a decade and a half of super-low interest rates and bubbly global stock markets. That has sped the transfer of economic activity to low wage countries. It has also almost certainly made U.S. wage levels very uncompetitive on a global basis, probably by as much as 25-30%.

Fourth, through 15 years in which rent seeking was encouraged, the U.S. and British financial systems have developed oversized trading operations that are largely parasitic on the economy as a whole. That will eventually correct itself, or if necessary be corrected by legislation, but its correction will itself impose costs on the system.

Finally, U.S. corporate earnings appear to have peaked in 2006, and have declined substantially since. The stock market at its current levels is pricing stocks as though earnings will quickly return to and surpass 2006 levels. That is very unlikely, since those levels represented a record share of profits in GDP. It is much more likely that earnings will revert closer to their average historic levels in terms of GDP, in which case the stock market will inevitably fall.

For the above reasons, the stock market is likely to be in difficulty for at least the next five to seven years. Were the question whether at the end of 2014 stocks would be lower than today, one could be pretty sure that the answer would be yes, probably by a considerable margin. By 2019, the position is a little less clear, because with good policy and a following wind, the U.S. economy could by then have re-emerged into a period of substantial economic growth."

A free-trade agreement between China and South-East Asia comes into force on Friday, consolidating a sixfold surge in economic activity over the past decade between countries representing a quarter of the world’s population.

The pact expands a limited 2005 trade area between China and the 10-member Association of Southeast Asian Nations (Asean), scrapping tariffs on around 90% of goods. By 2015, duties must be cut to no more than 50% on highly sensitive items.

Trade volume in the China-ASEAN Free Trade Area (FTA) "will jump," and the yearly rate of growth will be "40 to 50 percent or more for a certain period of time," a Thai embassy official said during a press conference held by the Ministry of Commerce (MOFCOM). The China-ASEAN FTA, which is operational from Jan 1, 2010, will be the largest of its kind, covering a population of 1.9 billion. It will encompass a region with the "largest GDP worth $2 trillion" annually.

Mike Burk: "There are no intermediate term danger signs. The markets overbought condition was relived a little last week and the coming week has been seasonally strong.

I expect the major averages to be higher on Friday January 8 than they were on Thursday December 31."

Security services in Great Britain knew three years ago that the Detroit plane bomber had "multiple communications" with Islamic extremists in the U.K., according to officials.

Counterterrorism officials said Umar Farouk Abdulmutallab was "reaching out" to extremists whom MI5 had under surveillance while he was studying at University College London.

An Afghan Taliban commander involved in the suicide bombing against the CIA said the attack was retaliation for U.S. drone strikes in the region.

The Times of London reported on Sunday that Irene Rosenfeld, chairman and chief executive of the Northfield, Ill., foods giant, is preparing to raise the bid to try to persuade Cadbury holders. The paper did not say where it got its information.

Kraft's current offer expires Jan. 5. The company has until Jan. 19 to boost the terms, after which it can make a higher offer only if a rival takeover bid comes from another suitor, the Times of London reported.

Iran will hold a "large-scale military exercise" next month in order to prepare its forces to repel an offensive by the nation's enemies, government-funded Press TV reported, citing a top military official.

Brig. Gen. Ahmad-Reza Pourdastan, commander of Iran's ground forces, told a meeting of servicemen in Tehran Saturday the joint drill will be conducted by ground forces and some units of the Islamic Revolution Guards Corps and aimed at improving "the force's defensive capabilities," Press TV said. The exercise will also "boost the region's security," he said.

"Both the United States and its close ally Israel have refused to rule out the possibility of a military attack" against Iran, Press TV reported. "Iran has not initiated a war with any country for more than a century."

Richard Koo: "When people are minimizing debt because of their balance-sheet problems, monetary policy is largely useless. If your balance sheet is under water, in negative equity, you are not going to borrow money at any interest rate, and no one will lend you money, either."

Federal Reserve Vice Chairman Donald Kohn said tight bank credit and caution among households and businesses may impede spending amid an improvement in financial markets.
“Lingering credit constraints are a key reason why I expect the strengthening in economic activity to be gradual and the drop in the unemployment rate to be slow,” Kohn said today in a speech to the American Economic Association in Atlanta.