Friday, April 02, 2010


4/2/10 Jobs

The U.S. economy created 162,000
jobs in March, the largest seasonally adjusted increase in nonfarm
payrolls in three years, the Labor Department reported Friday. Nonfarm
payrolls rose for just the second time in the past 27 months, boosted
by the hiring of 48,000 temporary workers to conduct the Census.
Excluding the Census workers, payrolls rose by 114,000. The
unemployment rate was steady at 9.7%, with the labor force rising by
398,000. The report was largely in line with expectations. Economists
surveyed by MarketWatch were forecasting a 200,000 increase in nonfarm
payrolls, with about half of those coming from temporary hires at the
Census Bureau. Average Hourly Earnings of all employees NFP fell by 2 cents, or 0.1%. Average workweek was up by 0.1 hour to 34.0 hours in March. Long-term unemployed (jobless for 27 weeks+) increased by 414,000 to 6.5 million. 44.1 percent of unemployed persons were jobless for 27 weeks +. Involuntary part-time workers increased to 9.1 million in March.
January 2010 data was revised upwards 40k (from-26k to +14k); February was revised up 22k (from -36k to -14k).
The government’s broader measure of unemployment ticked up for the second month in a row, rising 0.1 percentage point to 16.9%.
The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department,
accounts for people who have stopped looking for work or who can’t find
full-time jobs. Though the rate is still 0.5 percentage point below its
high of 17.4% in October, its continuing divergence from the official
number (the “U-3″ unemployment measure) indicates the job market has a
long way to go before growth in the economy translates into relief for
workers.The agency said it will take on 1.15 million temporary
workers in the first half of the year to conduct the population
count that occurs every 10 years.
For that reason, economists will be excluding workers on
public payrolls for much of the rest of the year in gauging the
state of the labor market.
US companies cut 23,000 jobs in March.

ZeroHedge: "Key data points for March: change in NFP: 162K; of these - Census +48K;
Weather ~+100K; Birth/Death +81: Net -67,000. Underemployment increased
to 16.9%. In the meantime the dollar is surging, and the 10 Year is
approaching 4.00%"

The Federal Reserve may again
increase the discount rate at its meeting on Monday, further widening
the gap to the more closely-watched fed funds rate, analysts said
Friday. The Board of Governors will meet on Monday to consider the
discount rate, now at 0.75%, to be charged by Fed banks to institutions
seeking emergency funds, the Fed said in a release. The discount window
is rarely used now, so has little impact on the economy and a sign of
normalizing financial markets, since the discount rate used to be 1%
above the fed funds rate. It is now 0.5 percentage points. When the
central bank last raised the discount rate, it said it is not an
indication of monetary policy. "With markets closed in Europe on Monday
and holiday induced light trading session in the US, the Fed is well
positioned to increase the discount rate without causing too much
collateral damage in global financial markets," said Joseph Brusuelas
of Brusuelas Analytics.

China's central bank said on Friday that it expected the dollar to
strengthen this year, but it raised the specter of worldwide asset
bubbles and inflation.
In a lengthy report on the global
financial markets, the People's Bank of China also warned that huge,
hidden bank bad loans in the West could pose a threat to the global

A report released Monday by the National Alliance to End
Homelessness projects a 33 percent increase over the next decade in
elderly people who are homeless.
That would mean that today's estimate of 44,172 homeless over age 62 would climb to 58,772.
last year counted only nine homeless people over age 65 in Sedgwick
County. But 39 people ages 55 to 64 reported being homeless, hinting at
the potential for an increase.

Fashion brand Rock & Republic files for Chapter 11 bankruptcy protection.

Closely-watched iSuppli projects iPad (AAPL) sales of 7.1M in 2010, 14.4M in 2011, and 20.1M in 2012.

Obama will host a discussion with employees at Celgard LLC, an
advanced battery technology manufacturer that was able to hire more
workers and expand its operations through an economic stimulus grant,
the White House said.
The White House said Obama will use the plant as an example of the economic progress made since he took office.

In March, the US government issued a massive amount of debt: $332.8
billion - the biggest amount ever since the all time record of $545
billion raised (most of it purchased by the Fed) during the apex of the
financial crisis in October 2008. The US Treasury had $12.717 trillion
in debt subject to limit at the end of March, compared to just $12.384
trillion in the beginning of the month.

Obama: US would go bankrupt without health changes.

Yields on 10-year notes 3.93, +0.07, +1.73%) increased 7 basis points to 3.94%, putting in a third weekly increase. Bond yields move inversely to prices and a basis point is 0.01%.

Yields on 2-year notes 1.10, +0.05, +4.98%) rose 5 basis points to 1.10%, the highest level on a closing basis since late December. Two-year yields have increased for five straight weeks.

Yields on 30-year bonds 4.80, +0.07, +1.44%) rose 7 basis points to 4.80%, the highest level since October 2007.

Natural Gas

4/1/10 Natural Gas

U.S. Energy Information Administration is expected to report that 14
billion cubic feet of gas were added to storage during the week ended
March 26, according to the average prediction of 24 analysts and
traders in a Dow Jones Newswires survey. The survey's median was a
build of 15 bcf, with a high of a 23 bcf build and a low of a 5 bcf
withdrawal. Last year, gas storage levels were unchanged during the
same week. On average, 27 bcf were withdrawn from storage during the
same week over the past five years.
If the storage estimate is correct, inventories as of March 26 will total 1.640 trillion cubic
feet, about 11% above the five-year average and 0.84% below last year's
level for that week.

EIA: Natural gas storage up by 12 billion cubic feet.

The number of people applying for unemployment benefits fell 6,000 in the week ended March 27 to a seasonally adjusted 439,000, the Labor Department reported Thursday.
Economists surveyed by MarketWatch had expected a result of 443,000.
The four-week average of initial claims -- a better gauge of employment
trends than the volatile weekly number - declined by 6,750 to 447,250,
the lowest level since September 2008. For the week ended March 20,
continuing claims fell 6,000 to 4.66 million. The four-week average of
these ongoing claims declined 12,500 to 4.68 million, the lowest level
since January 2009. In the week ended March 13, about 6 million jobless
workers, not seasonally adjusted, were receiving extended federal
benefits, up 264,000 from the prior week. Altogether, 11.4 million
people were collecting some type of unemployment benefits in the week
ended March 13, up about 215,000 from the prior week.

The Dow Jones Industrial Average gained 4.1% or 428.58
points during the first quarter, to 10856.63. That marked the Dow’s
fourth consecutive quarterly gain and the best first-quarter
performance since 1999. The broad Standard & Poor’s 500-stock index
rose 4.9% to 1169.43, but still 25% below its all-time high posted in
October 2007.

Pimco sees Europe's action on Greece as ineffective in fixing the
country's problems, while Britain's sovereign debt rating could be
downgraded within a year, a top executive of the world's largest bond
fund said.

China’s manufacturing expanded for a
13th month, business sentiment in Japan rose to the highest
since 2008 and factories in Britain and the euro region stepped
up output as the global economic recovery strengthened.

Social Security is facing a $28 billion shortfall this year.

Is the Japanese long bond market, with a yield of 1.4%, a disaster waiting to happen?

ZeroHedge: "RealPoint has just released its March CMBS delinquency data, according
to which delinquencies hit an all time high 6%. Not to be ignored,
according to TREPP this number is even worse, at nearly 8%, after the
single biggest monthly spike in 30 day + delinquencies."

"Our forecast of +275k for Friday's report on nonfarm payrolls is based
on this premise (an underlying increase of 50k, including non-Census
government, plus another 100k for a weather rebound and 125k for
temporary Census hires). We have not changed this estimate but will
keep it under review, as we always do, pending more information on
hiring (Conference Board and Monster), claims, and the ISM's mfg
employment index." -Jan Hatzius, Goldman Sachs

Groceries accounted for 51% of Wal-Mart's $258.2 billion in U.S. sales last year, up from 49% the year before.

Oil hit an 18-month high on Thursday, breaking up above previous
trading ranges and drawing in fresh inflows from investors at the start
of the new quarter.

Reporting from Washington and Moscow — U.S. and European officials
considering new sanctions against Iran have decided to set aside some
of the harshest of the measures as they seek broader international
agreement in United Nations Security Council negotiations, said
diplomats involved in the talks.
In particular, U.S. officials
and their allies have decided to drop any attempt to impose a ban on
the export or import of refined petroleum products, concluding that
such a measure would be rejected by Russia, China and possibly other
members of the Security Council, the diplomats said, speaking on
condition of anonymity.

The ISM manufacturing diffusion
index rose to 59.6% in March from 56.5% in February, the ISM said. It
was the highest reading since July 2004. Seventeen of 18 industries
were growing in March. The orders and production indexes rose above
61%. The employment index slipped to 55.1%. Economists surveyed by
MarketWatch were looking for the index to strengthen to 57.5%.

Bloomberg: "Prime Minister Vladimir Putin will
pay his first visit to Venezuelan President Hugo Chavez tomorrow
as Russia seeks to regain lost influence in Latin America
through energy and arms deals.
The highlight of the one-day trip to Caracas may be the
formation of a joint venture to pump oil from Venezuela’s
Orinoco Belt. Putin also plans to meet Bolivia’s Evo Morales,
who like Chavez opposes U.S. policy in the region.
Chavez, who visited Russia eight times during his decade in
power, has wooed Putin by signing more than $4 billion in arms
deals and inviting state energy companies OAO Gazprom and OAO
Rosneft to explore for oil. Venezuela was a lone supporter of
Russia during the five-day Georgian war in 2008 and hosted joint
naval war games later that year."

Xstrata Plc, the world’s largest
exporter of coal used for power, raised benchmark prices for the
fuel to an unidentified Japanese utility as much as 40 percent
as a recovery in economic growth in Asia spurs demand.
Zug, Switzerland-based Xstrata agreed to contract prices
for the next 12 months at $98 a metric ton, it said in a
statement. The figure compares with the $70-$72 a ton for the
previous year, cited in the company’s annual report.

Natural gas futures turned
higher Thursday after the U.S. Energy Information Administration
reported a lower-than-expected rise of natural gas in storage. The EIA
reported a net increase of 12 billion cubic feet for the week ended
March 26, while analysts surveyed by Platts expected a net injection of
14 to 18 billion cubic feet to natural gas storage. Prices shot up on
the news, and natural gas for May delivery rose 19 cents, or 4.5%, to
$4.07 per million British thermal units.

U.S. construction outlays fell
1.3% in February on broad-based declines across most types of projects
amid unseasonably strong winter storms in the South, East and Midwest,
the Commerce Department estimated Thursday. Total outlays were down
12.8% from a year earlier at a seasonally adjusted annual rate of
$846.2 billion. Economists surveyed by MarketWatch were expecting the
1.3% decline. Private residential outlays fell 2.1%, private
non-residential spending fell 0.4%, and public construction outlays
dropped 1.7%.

Goldman Sachs lowered its forecast for the March U.S. payrolls report to a gain of 200,000 jobs from its previous expectation of a 275,000 rise, Edward McKelvey, an economist with the firm, said Thursday.


Wednesday, March 31, 2010


3/31/10 ADP

Companies in the U.S. private
sector shed 23,000 jobs in March, according to the ADP employment
report released Wednesday. The report comes two days before the Labor
Department reports on nonfarm payroll growth for March. The decline in
ADP employment was a surprise. Economists had forecast a gain of 40,000
in March ADP. Economists are also expecting a sizable jump in nonfarm
payroll in March. The consensus forecast of Wall Street economists is
for an increase of 189,000 in nonfarm payrolls. The ADP report does not
include federal workers. Many economists expect a surge in federal
workers related to the 2010 Census. Joel Prakken, chairman of
Macroeconomic Advisers LLC that prepares the ADP report said nonfarm
payroll could still jump in March if there is a reversal of the
depressed hiring from the winter weather in February and from hiring of
census workers.

The Obama administration will propose allowing offshore oil and
natural-gas exploration and development in a large swath of the eastern
Gulf of Mexico.

Steve Forbes: "President Obama and Speaker Nancy Pelosi rammed
ObamaCare through the House by unprecedented parliamentary trickery,
bribery and deceit."

Japanese business sentiment approaches pre-crisis levels, Tankan may show.

China may curb purchases of U.S.
Treasuries this year as its first trade deficit in 17 years
leaves it with fewer dollars to invest, causing yields to climb,
according to Societe Generale SA.
The trade gap will reach $100 billion in 2010, driven by a
45 percent climb in imports as China’s demand growth outpaces
that of other major economies, said Glenn Maguire, chief Asia-
Pacific economist at Societe Generale in Hong Kong. He said
yields on benchmark 10-year U.S. notes will hit 4.5 percent by
the end of 2010, capping the biggest two-year increase since

Seventy-eight percent,
including 82 percent of independents, think government spending is out
of control. Eighty-one percent are fed up with the growing deficit and
73 percent with government spending. Sure, deride the poll because it
came from Fox News; ignore the clarity of American anger.

The Chicago purchasing managers
index fell to 58.8% from 62.6% in February. Economists had been
anticipating a retreat but this was a bigger decline than expected.
Forecasters surveyed by MarketWatch had expected the index to fall to
59.9%. Economists expect the March ISM manufacturing
composite to increase to 57.0 from a February reading of 56.5.

U.S. stocks are holding near recovery highs, but the potential for a pullback is extremely high, Standard & Poor's market strategists said late Wednesday. "Any gains from here will likely be given back in a hurry," S&P said. "It is way too late to chase the market."

Oil has gained 5.1% in March and 5.5% for the quarter, its fifth-straight quarterly increase. Natural gas ended Wednesday's session down 10 cents, or 2.6%, at $3.869 per million British thermal units. The most-active contract has fallen 20% this month and 31% for the quarter.

The Dow closed down 51 points to 10,857. The Nasdaq Composite Index was off 13 points at 2,398, and the S&P 500 was down 4 points to 1,169.

Tuesday, March 30, 2010


3/30/10 Ireland

China displayed new divisions on Tuesday over how to respond to mounting U.S. pressure to let its exchange rate rise.
new advisers to the central bank called for the yuan to resume its
gradual appreciation, but they were slapped down by Commerce Minister
Chen Deming, who said a stronger currency would not wipe out China's
trade surplus with the United States.
"It has been proved both in
theory and practice that the appreciation of a nation's currency
provides little help for improving the balance of payments," Chen said
in a detailed defense of China's trade policy.

Greek seven-year notes fell in the
first day of trading and an auction of 12-year bonds garnered
demand for less than half the debt offered on concern Europe’s
most indebted nation will keep struggling to fund itself.
The drop drove yields on the 5 billion euros ($6.7 billion)
of seven-year notes to 6.3 percent at 1:15 p.m. in London, up
from 6 percent when issued. The yield premium to comparable
German debt widened about 33 basis points to 367 basis points,
ABN Amro Bank NV prices show. Ten-year bonds also fell, while
the cost to insure Greek debt using credit-default swaps rose.

John Crudele: "The experts are expecting that March's growth could have been as
much as 180,000 jobs. But they also think the unemployment rate will
rise modestly to 9.8 percent. But before you get too excited, this is
mostly the result of more than 1 million people being hired to conduct
the 2010 US Census, as well as statistical tricks.
statistical razzmatazz is most interesting, because it created a huge
error in 2009 figures that is likely to be repeated this year.
In March 2009, for instance, this assumption -- for what the Labor
Department calls the Birth/Death Model -- added 114,000 jobs to the
overall count. And these assumptions get more optimistic as the spring
The jobs that the government assumed existed last
year really didn't. And the Labor Department will probably be wrong
about its guesses this year as well.
But there's a bigger
problem than just errors produced by Washington and the politicians who
will try to use them to their advantage.
While the job growth
that'll likely be reported on Friday may not be trustworthy, any
resulting rise in interest rates will be all too real."

"New Book by MIT Sloan Professor Warns of Next Financial Meltdown In 13 Bankers, Simon Johnson calls for breakup of nation’s biggest banks..." In 13 Bankers, Johnson, a former chief economist for the International Monetary Fund, and co-author James Kwak cite historical precedents and offer financial analysis to conclude that a second financial shock is inevitable unless the financial and political stranglehold held on Washington by the nation’s biggest banks is broken. “The best defense against a massive financial crisis is a popular consensus that too big to fail is too big to exist,” the authors write. “This is at its heart a question of politics, not of economics or of regulatory technicalities.”

Home prices in 20 major U.S.
cities fell a not-seasonally adjusted 0.4% in January compared with
December, according to the Case-Shiller home price index released
Tuesday by Standard & Poor's. Prices were down 0.7% in the past
year. David Blitzer, chairman of the index committee for Standard &
Poor's, which compiles the Case-Shiller index, said the rebound in
housing prices seen last fall is fading. On a seasonally adjusted
basis, prices rose 0.3% in January.

By the end of 2010, about half of all commercial real estate
mortgages will be underwater, said Elizabeth Warren, chairperson of the
TARP Congressional Oversight Panel, in a wide-ranging interview on
Monday. “They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have
these dangerous concentrations in commercial real estate lending."

China's finance ministry may require banks to set aside more of their risk-weighted assets as reserves. The
Ministry of Finance is soliciting banks' feedback on raising the
general reserve requirement to 1.5% of their new risk-weighted assets,
up from the current 1%, the report said.The
Industrial & Commercial Bank Ltd. and China Construction Bank Co.
reduced their discounts on mortgage rates, forcing borrowers to pay
more in down payments for their home loans.

U.S. Treasury to sell $73 bln in bills.

McDonald's inaugurated its first Hamburger University in China on
Tuesday to train new generations of managers as foreign companies step
up efforts to develop and keep Chinese talent.

Financial Times: "Think back, for a moment, to the summer of
2007, or just before the start of the subprime meltdown. Back then, it
was not the equity and credit markets that signalled disaster. Instead,
the main sign of spreading investor alarm was that prices started to
swing in the more obscure world of credit derivatives indices (such as
ABX) and asset-backed commercial paper (ABCP).
time round, is the swaps market another version of, say, ABX? Perhaps
not yet. Personally, I will be astonished if countries such as the UK
and US entirely avoid a government bond market shock; but I also
suspect that this will occur some time down the road.
if nothing else, the swaps spread swing does suggest that some
investors are getting jittery. It also serves to underline that we do
not live in "normal" markets right now. While the surface may look
calm, the inner cogs of the financial system have been distorted by
government intervention in ways that are still barely understood."

Marshall & Ilsley Extends Foreclosure Moratorium Through June
Monday, March 29th, 2010, 4:49 pm
largest bank with $57.2bn in assets, Marshall & Ilsley, extended
its foreclosure moratorium another 90 days through June 30, 2010

Vale SA, the world’s largest iron
ore producer, and BHP Billiton Ltd. ended a 40-year system of
setting annual prices by signing short-term contracts with Asian
mills, with the Brazilian company winning a 90 percent increase.
Sumitomo Metal Industries Co., Japan’s third-biggest
steelmaker, agreed to pay Vale $100 to $110 a metric ton for the
quarter starting April 1, spokesman Toshifumi Matsui said. BHP,
the largest mining company, today said it will sell the majority
of its production to Asian steel mills on shorter-term contracts
without giving pricing.

The Conference Board, an industry group, said its index of consumer
attitudes rose to 52.5 in March from an upwardly revised 46.4 in

Ireland's National Asset
Management Agency said it will accept 16 billion euros of risky loans
from Irish lenders at an average discount of 47%, including taking on
3.29 billion euros from Allied Irish Banks at a 43% haircut and 1.93 billion euros from the Bank of Ireland
at a 35% discount. NAMA, which eventually will buy 81 billion euros of
loans, said 4.9 billion euros of the loans it's taking are from Ireland
and 3.2 billion euros from Britain. AIB separately will need 7.4
billion euros of fresh capital and the Bank of Ireland will need 2.7
billion euros. State-owned Anglo Irish Bank will require another 8.3
billion euros as an interim measure.

The Dow Jones Industrial Average gained 11.56 points, or 0.1%, to finish at 10,907.42. The broad S&P 500 index barely advanced, rising 0.05 points to 1,173.27, while the technology-heavy Nasdaq Composite ended up 6.33 points, or 0.3%, at 2,410.69.

Monday, March 29, 2010


3/29/10 Greece

Real consumer spending
increased a seasonally adjusted 0.3% in February after having risen
0.2% in January, the Commerce Department estimated Monday. After
adjusting for inflation, the Commerce Department reported that
after-tax incomes were unchanged in February. After-tax incomes fell
0.4% in January, after adjusting for inflation. With spending rising
faster than incomes, the personal savings rate fell to 3.1% of
disposable income, down from 3.3% in January and 4.2% in December 2009.

Hungary's central bank decided on Monday to lower its base rate by 25 basis points to 5.50%, effective from March 30.

Greece on Monday launched a
seven-year, euro-denominated bond issue, news reports said. Guidance
for the sale was at 310 basis points over mid-swaps, equal to a yield
of around 6%, Dow Jones Newswires reported. The Greek government is
looking for a benchmark size of around 5 billion euros ($6.7 billion),
reports said. The sale marks the first test of the market by Greece
after euro-zone leaders last week backed a joint standby
European-International Monetary Fund aid plan for Greece.

The Oil Drum: "Compared to previous years, this heating season in the U.K. has
called for record withdrawals of natural gas from U.K. storage to
balance demand. This drawdown will result in increased demand for
natural gas for refilling of the U.K. storage facilities this
Apart from a colder than normal winter, a considerable contributor
to the growing use of storage withdrawals to balance demand this winter
has been an accelerated decline rate in indigenous U.K. marketable
natural gas supplies--recently as high as 17% on an annual basis.The decline rate and colder weather have also contributed to a
noticeable growth in U.K. LNG (Liquefied Natural Gas) imports and a
decline in natural gas supplies sent from the U.K. to Continental
Europe. This pattern of increasing LNG imports and declining exports to
Continental Europe is expected to continue."

John Hussman: "As of last week, the S&P 500 was priced
to achieve an average annual total return of just 5.83% over the coming
decade, based on our standard methodology. Prior to 1995, the lowest
implied 10-year total returns priced into the S&P 500 in post-war
data were:
November 1961: Implied 10-year total return 6.26%.
Actual 10-year subsequent return 6.16%
October 1965: Implied 10-year total return 5.89%.
Actual 10-year subsequent return 3.11%
November 1968: Implied 10-year total return 6.19%.
Actual 10-year subsequent return 2.51%
August 1987: Implied 10-year total return 6.29%.
Actual 10-year subsequent return 13.85%.
that in the 1987 case, the unusually strong 10-year return reflects a
move to the extreme bubble valuations in the late 1990's, which have in
turn been followed by 13 years of market returns below Treasury bill
yields. Once the market becomes overvalued, further gains are
ultimately paid for by a period of sorry returns later. To expect
normal or above-average long-term returns from current prices is to rely on the market bailing out the rich overvaluation of today with extreme bubble valuations down the road.
investors can hope that today is similar to August 1987, a moment's
reflection about the market crash that occurred shortly after August
1987 might dampen that hope a bit, particularly because that instance
also featured overbought, overbullish and rising-yield conditions.
I emphasized last week, even if we had no concern at all about a second
wave of credit strains, we would still be fully hedged here based on
the present combination of rich valuations, overbought conditions,
overbullish sentiment, and hostile yield pressures. Presently, we are
also at the peak of concern about the potential for fresh credit
difficulties to emerge, as we move into the first portion of the Alt-A
/ Option ARM reset schedule."

March 29 (Bloomberg) -- Exxon Mobil Corp. is making a $28.5
billion bet on natural gas, this year’s worst-performing energy
commodity, just as hedge funds amass their biggest wager on
prices falling.
If history is a guide, the acquisition of XTO Energy Inc.
may make Irving, Texas-based Exxon the winner. Its purchase of
Mobil Corp., announced in December 1998, came three weeks before
crude bottomed at $10.35 a barrel and then surged to $25 a year
later. While speculators have helped drive gas down 31 percent
this year, everyone from Goldman Sachs Group Inc. to
ConocoPhillips says prices are headed higher.
The combination of faster economic growth, demand for
cleaner-burning fuels and higher coal prices may spur demand
from factories, power plants and chemical makers, which account
for 60 percent of gas consumption. Goldman Sachs, which cut its
forecast this month, projects a price of $6 per million British
thermal units in 12 months, up more than 50 percent from $3.872
on the New York Mercantile Exchange March 26.
Demand will rebound with the economy, ConocoPhillips Chief
Executive Officer Jim Mulva told investors and analysts March 24
at a conference in New York. “We see natural gas prices in the
short term somewhere in the neighborhood of around $5, but
ultimately longer term, we see it more in $6 to $8,” he said.
This year, the only Reuters/Jefferies CRB Index commodity
that has fallen more is sugar, down 37 percent. Speculators had
sold a net 186,983 futures contracts worth about $7 billion in
the week ended March 16, based on Commodity Futures Trading
Commission data and April futures prices. Inventories rose 11
billion cubic feet to 1.626 trillion in the week ended March 19,
8 percent more than the five-year average, according to the
Energy Department.

ZeroHedge: "Most troubling, this implies that the Personal Savings Rate declined by
0.3% from 3.4% to 3.1%, the lowest this metric has been in over a year.
Keep in mind, the primary reason why Goldman sees that 10 Year at 3.25%
(as opposed to Morgan Stanley's 5.5% call) is because of the
"increased" savings by US consumers. Now that these same consumers have
decided to put their money in iMaxiPad pre-orders, maybe Goldman will
consider reevaluating their Treasury forecast."

Mike Burk:"Since 1928 the SPX has been up 59% of the time in April with an average gain of 1.2%, helped considerably by a 41.5% gain in 1933 (the largest monthly gain ever recorded for that index). During the 2nd year of the Presidential Cycle the SPX has been up 60% of the time with an average gain of 0.3%....
All of the major indices hit new highs last Tuesday, but breadth indicators were weaker than during previous highs. This is just exhaustion following a remarkable 6 week run. There is likely to be some short term weakness, but new highs should be expected longer term.
I expect the major averages to be lower on Friday April 2 than they were on Friday March 26."

BWAY Holding (BWY), which makes metal containers such as the kind that hold coffee, SPAM, or even bullets, said this morning it is getting taken private by private equity firm Madison Dearborn Partners for $915 million, including the assumption of debt.
The deal values each BWY share at $20; hence, BWY stock is up $2.87, or 17%, at $20.22.
BWY is free to solicit competing offers for 30 days, the company said.
BWY is ” a world class packaging business with leading market
positions, outstanding customer relationships, and a proven and
exceptional management team,” said Thomas Souleles, managing director
of Madison Dearborn.

Industry group The World Gold
Council Monday estimated gold demand in China could double from current
levels over the next decade, on rising jewelry and investment demand.
Demand for gold in China reached 423 metric tons (466 short tons) last
year; domestic mine supply contributed only 314 metric tons (346 short
tons) during the same year. The shortfall creates a 'snowball' effect
as China's gold industry has to be rely on imports, the council said in
a report. "Today, gold is regarded as a sign of prosperity, an
ornament, a currency and an integral part of Chinese religion," the
council added. Chinese demand and the country's reliance on imports
"should support the gold price in the long term," analysts at
Commerzbank said. Gold futures for April delivery gained $3.20, or
0.3%, to $1,107.40 an ounce.

About 10.5% of the U.S. economy is exports. Compare that with Germany’s, which is about 47% exports.

Jim Rogers: "I like to buy what's cheapest. Silver is cheaper than gold, on a historical basis; natural gas is cheaper than oil."
"We see more and more speculation in oil and gold. And in these times, it's usually best to step back and let others speculate."
Rogers reiterated his take on the "two biggest bubbles in the world" right now — US Treasurys and Chinese real estate:
"There's no question that the United States government's long bond is a bubble."
"In particular, Hong Kong real estate is nuts," he added."

The Dow Jones Industrial Average added 45.5 points, or 0.4%, to 10,895.86. The S&P 500 Index rose 6.63 points, or 0.6%, to 1,173.22. The Nasdaq Composite Index climbed 9.23 points, or 0.4%, to 2,404.36.

Sunday, March 28, 2010

Swap Spreads

3/28/10 Swap Spreads

ZeroHedge: "All of Bernanke's posturing about prudent monetary control is total
garbage as his entire policy is merely predicated by making sure that
banks have found enough "grater fools" to cushion the blow from curve

Bonds had been under pressure earlier as massive amounts of
corporate issuance flipped 10-year swap spreads -- a metric of how
issuers adjust their interest-rate exposure -- from positive to
negative for the first time ever. The about-face was a result of rising
issuance of corporate and sovereign debt as investors clamor for better
"We view the inversion in 10-year swap spreads as a harbinger [of] the
massive supply of U.S. Treasury debt that will ultimately drive yields
higher," said James Caron, head of U.S. interest-rate strategy at
Morgan Stanley.

Rick the Bond Trader: "If
you are JPM, there is a way in which they can achieve lower borrowing
costs than the US government. According to JPM's latest balance sheet,
they issue about $97 billion of short term debt (including Libor loans
and commercial paper) which float at the Libor rate. If JPM entered into a swap agreement to pay the 10 year rate (at 9 bps lower than 10 year treasury rates)
and receive libor, then effectively JPM is borrowing cheaper than the
US. The big IF revolves around JPM's ability to continue to borrow at
the Libor rate which is prevalent in the market place. Assuming that
JPM continues to be a bank in good standing, and their short term
borrowing costs continue to mimic the LIBOR rate, then JPM will be able
to achieve a lower rate than the US government. And if you are an
investor who lends at the LIBOR rate, then you will achieve a return
lower than on US treasuries if you swap your floating rate for fixed.
The fact that the swap rate is a series of 3 month short term borrowing
rates also means that the basis for the swap rate could turn on a dime.
The markets allow investors in JPM Libor agreements to decide they no
longer like JPM as a borrower, and to move their money elsewhere in the
heat of a financial crisis."

On Tuesday, the 10-year US swap spread turned negative for the first time ever on record, according to Bloomberg data.
The wire put it down to rising demand for higher-yielding assets such as corporate and emerging market securities. As they explained it:
A negative swap spread means the Treasury yield is
>higher than the swap rate, which typically is greater given the
>floating payments are based on interest rates that contain credit risk,
>such as the London interbank offered rate, or Libor. The 30-year swap
>spread turned negative for the first time in August 2008, after the
>collapse of Lehman Brothers Holdings Inc. triggered a surge of hedging
>in swaps. The difference narrowed to negative 20.5 basis points today.
According to Barclays Capital, however, it’s a trend that’s unlikely to reverse any time soon.
The fiscal situation in the US, they argue, supports a 10-year swap
trading range of between -10 and -15 basis points at least for the
medium term.

Among its many effects, the new healthcare law eliminated a tax deduction that companies used to cut the cost of drug-benefit programs for retired workers. President Obama signed the healthcare overhaul into law this week, a big victory for Democrats.
Yet companies that still offer retiree drug benefits, mostly older industrial concerns or those with unionized employees, say the end of the deduction could force them to change their benefit plans. In other words, they might curtail or even cancel them.
"As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree healthcare benefits offered by the company," AT&T said Friday in a government filing.

The number of U.S. troops killed in Afghanistan has roughly doubled in the first three months of 2010 compared to the same period last year as Washington has added tens of thousands of additional soldiers to reverse the Taliban's momentum.
Those deaths have been accompanied by a dramatic spike in the number of wounded, with injuries more than tripling in the first two months of the year and trending in the same direction based on the latest available data for March.

John Mauldin: "Why is Greece important? Because so much of their debt is on the books of European banks. Hundreds of billions of dollars worth. And just a few years ago this seemed like a good thing. The rating agencies made Greek debt AAA, and banks could use massive leverage (almost 40 times in some European banks) and buy these bonds and make good money in the process. (Don't ask Dad why people still trust rating agencies. Some things just can't be explained.)

Except, now that Greek debt is risky. Today, it appears there will be some kind of bailout for Greece. But that is just a band-aid on a very serious wound. The crisis will not go away. It will come back, unless the Greeks willingly go into their own Great Depression by slashing their spending and raising taxes to a level that no one in the US could even contemplate. What is being demanded of them is really bad for them, but they did it to themselves.

But those European banks? When that debt goes bad, and it will, they will react to each other just like they did in 2008. Trust will evaporate. Will taxpayers shoulder the burden? Maybe, maybe not. It will be a huge crisis. There are other countries in Europe, like Spain and Portugal, that are almost as bad as Greece. Great Britain is not too far behind."

Zhejiang Geely Holding Co. reached a definitive agreement to buy Volvo Cars from Ford Motor Co. in the biggest overseas acquisition by a Chinese automaker.

Volvo spokesman Per-Aake Froeberg today said a deal was signed and that further details will be given later at a press conference. The companies previously said they planned to close the sale by June 30. Volvo will be sold for $1.8 billion, three people briefed on the negotiations said March 23.

Washington Mutual filed a Chapter 11 plan on Friday, sketching out how it plans to distribute more than $7 billion accumulated in the wake of the largest banking failure in U.S. history, that of its former subsidiary Washington Mutual Bank, or WaMu.

Greece's debt deal could help the struggling euro zone country avoid a "refinancing crisis," but Greece still needs to cut its budget deficit to resolve its long-term problems, economist Nouriel Roubini said Friday.

The latest Fox News poll finds that 79 percent of voters think it’s possible the economy could collapse, including large majorities of Democrats (72 percent), Republicans (84 percent) and independents (80 percent).