Saturday, May 22, 2010

Seth Klarman

5/22/10 Seth Klarman

WSJ: Seth Klarman compared the financial markets to a Hostess Twinkie. "There is no nutritional value," he said. "There is nothing natural in the markets. Everything is being manipulated by the government." He added, "I'm skeptical that the European bailout will work." "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."

"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."

You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.

While both bills provide for increased oversight of the Fed by the Government Accountability Office, the Senate version would continue to exempt interest rate decisions from scrutiny.

The Senate bill includes a provision for proxy access, which would make it easier for investors to nominate candidates for corporate boards using company ballots.

And it would limit interchange fees, which retailers pay to banks when customers swipe credit or debit cards.

The House version does not contain either provision.

“When this bill becomes law, the joyride on Wall Street will come to a screeching halt,” Senate Majority Leader Harry Reid, a Nevada Democrat, said after the vote.

Friday the Dow Jones Industrial Average added 125.38 points, or 1.3%, to 10,193.39, with a 5.9% gain in J.P. Morgan Chase & Co leading the index higher. The S&P 500 added 16.1 points, or 1.5%, to 1,087.69, with a more than 3% surge in financials leading all industry groups higher. The Nasdaq Composite added 25 points, or 1.1%, to 2,229.04. For the week, however, the Dow lost 4%, the S&P 500 fell 4.2% and the Nasdaq slid 5%.

BP Plc may attempt early next week to plug an oil leak 5,000 feet (1,524 meters) below the surface of the Gulf of Mexico by stuffing it with drilling mud, a procedure that has never been tried that deep.

Three drilling rigs and 16 remote-operated vehicles are being positioned for the attempt, which could come as soon as May 25, Doug Suttles, BP’s chief operating officer for exploration and production, said yesterday at a press conference in Louisiana.

One in 10 Americans' credit-card usage is being written off -- also a new record.

“Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, the most in almost two years…EPFR Global said…”

(Bloomberg) -- The top U.S. commodity regulator is poised to impose new rules on oil speculators as Congress and the European Commission attempt to rein in trading in the $615 trillion over-the-counter derivatives market.

A bill by Senate Democrats to overhaul financial regulation would require the Commodity Futures Trading Commission to set limits on the number of contracts a single trader can hold in commodities such as crude oil, natural gas, heating oil and gasoline, including the bilateral contracts known as swaps that are negotiated outside of regulated exchanges.

“Unfortunately (for bulls), there’s much more selling ahead, according to Robert Prechter, president of Elliott Wave International and author of Conquer the Crash. ‘We should be in for [another] week or two of pretty serious selling,” Prechter says. ‘They’ll be bounces along the way…but I think this should last a long time. We should be on schedule for a very, very long bear market period.’

One in four Americans with a mortgage have negative equity in their homes.

Mike Shedlock: "A vote on a new end for unemployment benefits will not come until next week. On Thursday morning, Sen. Max Baucus (D-MT) and Rep. Sandy Levin (D-MI) proposed amending H.R. 4213 to extend benefits until December 31, 2010.
The amended bill, American Jobs and Closing Tax Loopholes Act, would extend COBRA health benefits until the end of the year.
Other plans accompany the benefits extension effort. Rep. Bob Filner (Dist. 51) plans to help San .Diegans in economic trouble by passing George Miller's Local Jobs for America Act. Filner says the city would get 3,263 jobs, with more jobs expected in the other county communities. The bill targets communities with high unemployment.
Rep. Susan Davis (Dist. 53), on Wednesday, was one of three legislators introducing the COBRA Health Benefits Extension Act, H.R. 5324. The unemployed could receive COBRA benefits past the standard 18 months, as long as they needed. At least until Obama's health exchanges arrive.32 States Borrow $37.8 Billion Total to Make Unemployment Payments; CA Tops List at $6.9 Billion

ZeroHedge: "Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant resistance level on May 25, when Timmy issues another $42 billion of 2 Year Notes. The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections, while the statutory debt limit of $14.3 trillion will likely have to be raised in January 2011 by a new Republican majority, an action which will promptly reduce popular republican support following their election victory, thus starting the pointless D->R->D->R etc cycle all over again. Also, at approximately that time headlines that US debt is now 100% of GDP will take the US bond vigilantes out of hibernation and will send US interest rates soaring, assisted by Ben Bernanke's most recent announcement that the Fed will be "forced" to purchase another $1.5 trillion in treasuries and mortgages. Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills."

Paul Goodman: “The organization of American society is an interlocking system of semi-monopolies notoriously venal, an electorate notoriously unenlightened, misled by a mass media notoriously phony”

People always think something's all true.
The Catcher in the Rye

Thursday, May 20, 2010

Rush To The Exits

5/20/10 Rush To The Exits

The number of people applying for unemployment benefits shot up 25,000 in the latest week to 471,000, the highest level in a month, according to the Labor Department. The four-week average of initial claims - a better gauge of employment trends than the volatile weekly number - rose by 3,000 to 453,500. Economists surveyed by MarketWatch predicted initial claims would drop to a seasonally adjusted 440,000 from last week's reading of 446,000. A Labor Department official said there were no unusual factors to explain the increase.

All U.S. stocks will probably be subject to so-called circuit breakers by the end of this year, Duncan Niederauer, chief executive officer of stock exchange operator NYSE Euronext, said on Thursday.

The circuit breakers, a mechanism to halt trading in a stock for five minutes if it falls more than 10 percent within five minutes, will initially apply to stocks in the Standard & Poor's 500 index under a proposal by the Securities and Exchange Commission as regulators try to avoid a repeat of the mysterious May 6 market slide that quickly spiralled out of control.

Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said that while the pace of the euro’s decline is a concern, foreign-exchange intervention isn’t an urgent issue. “I’m a little bit concerned by the rapidness” of the euro’s slide, Juncker said to reporters in Tokyo today. When asked about intervention, he said: “I don’t think this is a matter of immediate action.”

Investors pulled an estimated $14 billion from U.S. stock and bond mutual funds in the week ended May 12, the first net withdrawals since March 2009. Customers took out $12.3 billion from stock funds and $989 million from bonds funds, the Investment Company Institute, a Washington-based trade group, said today in a statement. The last time funds saw net redemptions was in the week U.S. stocks fell to a 12-year low.

-China's shares ended at their lowest level in more than a year Thursday due to continued concerns that Beijing could introduce further tightening measures, despite a front-page editorial in the state-run China Securities Journal saying the government should hold off on doing so.

"More than ever, our customers are living paycheck to paycheck," said Tom Schoewe, Wal-Mart's chief financial officer.

Jeremy Grantham combines his PE forecasts with those for other variables to arrive at projected return for an asset class, as in this example for the S&P 500, for the seven years beginning 4/30/10:

PE Contraction

Margin Increase

Sales Growth








Long-term PE ratios have averaged 14 and they are currently 22.7. Grantham expects them to go to 15, and that translates to a 5.7% reduction in projected return. Similarly, profit margins have averaged 4.5%. They are currently 5.8% and Grantham generously expects them to increase to 6%, giving rise to a 0.4% increase in total return. Sales growth per share has been 1.8% and is now 1.9%; he expects it to increase to 3.6%, contributing 3.8% to total return. Including the dividend yield of 2.3% produces a total return of 0.3%.

via ZeroHedge: The S&P just broke the 200-dma which held as support yesterday and on May 6/7. AUDJPY broke through 76 which was the key support we had bounced off of as well. Put your helmets on if you are long risk here. Unless we have a massive reversal on the day and we close above the key levels mentioned here above: this could open the flood gates for a lot more de-risking. A lot of stops have been triggered when the S&P future crossed 1,100 and anybody still long will probably have to bail out and head for cover. On a side note apparently funding markets in USD remain very difficult to access for most foreign players, and we are going to get to a point where outright FX buying of USD and selling USD denominated assets will be the primary source of funding. This can get very nasty very quickly, especially since corporate flows in FX seem to indicate that corporates are still short USD and keep pushing the amrekt as they try to cover. - Nic Lenoir

Crude oil for June delivery fell $2.15, or 3%, to $67.72 a barrel in electronic trading on Globex. July crude, the most active contract, dropped $2.44 to $70.04 a barrel.

In less than one hour of trading, the Dow has declined over 300 points as the index closes in on the 10,000 level.

EIA: Weekly natural gas storage +76. EIA nat gas increase in lower end of expectations. Working gas in storage was 2,165 Bcf as of Friday, May 14, 2010, according to EIA estimates. This represents a net increase of 76 Bcf from the previous week. Stocks were 73 Bcf higher than last year at this time and 308 Bcf above the 5-year average of 1,857 Bcf. In the East Region, stocks were 120 Bcf above the 5-year average following net injections of 34 Bcf. Stocks in the Producing Region were 107 Bcf above the 5-year average of 707 Bcf after a net injection of 27 Bcf. Stocks in the West Region were 81 Bcf above the 5-year average after a net addition of 15 Bcf. At 2,165 Bcf, total working gas is above the 5-year historical range.

Yields on 10-year notes, which move inversely to prices, fell 15 basis points to 3.22%. Yields fell as low as 3.21% intraday, the lowest since early December. Yields on 2-year notes declined 7 basis points to 0.72%, also touching the lowest in more than five months.

Gold ended moderately lower on Thursday, mirroring losses in U.S. stocks and other commodities such as oil but recovering from steeper losses earlier. Gold for June delivery was off $4.50, or 0.4%, to $1,188.60 an ounce. The contract hit an intraday low of $1,175 an ounce, according to FactSet Research. Palladium led losses among metals, off $50.75, or 11%, to $408.95 an ounce, the lowest level for a most-active contract since February. Platinum also plunged, with the July contract retreating $109.90, or 6.8%, to $1,495.80, also the lowest price for a most-active contract since February.

The euro jumped to $1.2489, from a low of $1.2295 earlier in the session and up from $1.2429 in late North American trading Wednesday. The dollar index also reversed to fall to 85.910 from 86.094 late Wednesday.

Crude oil tumbled below $65 a barrel in New York for the first time since July.

Heralding a new era in biology, scientists for the first time have created a synthetic cell, completely controlled by man-made genetic instructions, which can survive and reproduce itself, researchers at the private J. Craig Venter Institute announced.

Vitacost announced that it is currently identifying and evaluating its strategic and financial alternatives to enhance stockholder value, including the identification of potential business combination partners and purchaser candidates. The Company has engaged Oppenheimer & Co. Inc. as its exclusive financial advisor in connection with this process. The Company can make no assurances that a transaction will occur.

The Dow Jones Industrial Average fell 376.36 points, or 3.6%, to 10,068.01, with all 30 of its components lower. The drop was worse than the triple-digit loss the Dow suffered May 6. The S&P 500 lost 43.46 points, or 3.9%, to 1,071.59, led by financials, industrials and energy. The Nasdaq Composite fell 94.36, or 4.1%, to 2,204.01. All three indexes ended up more than 10% lower than their 52-week highs.

Stocks are likely to continue their aggressive decline and shed another 20 percent as the world economy weakens, economist Nouriel Roubini told CNBC.

Dell reported an adjusted profit that topped analysts' expectations, but shares of the company fell as its gross margin fell short of forecasts and the computer maker warned that it expects components supply to remain tight.

Aussie dollar falls to 10 month low. They can thank the new mining tax. Absolute idiocy.

Wednesday, May 19, 2010

Late Payments and Foreclosure

5/19/10 Late Payments and Foreclosure

One in ten US mortgages is now late on payments and one in twenty is in foreclosure.

Consumer prices in the United States fell 0.1% on a seasonally adjusted basis in April as energy, housing, auto and apparel prices declined, the Labor Department reported Wednesday. It was the first decline in the consumer price index since March 2009. The consumer price index is up 2.2% in the past year. The core CPI -- which excludes food and energy prices in order to get a better view of underlying inflation -- was unchanged in April, lowering the year-over-year increase in core inflation to 0.9%, the lowest rate since January 1966. The report was better than expected.

Target Corp. said Wednesday that its first-quarter profit rose 29% to $671 million, or 90 cents a share, from $522 million, or 69 cents, a year earlier. Sales in the quarter ended May 1 rose 5.5% to $15.2 billion while credit card revenue declined 7.9% to $435 million.

The euro fell sharply against the dollar on Wednesday after German Chancellor Angela Merkel said the single currency was at risk. Merkel made the comments in German Parliament, a day after Germany announced a ban on short-term ban on naked short selling for some financial instruments including 10 financial stocks. "A failure of the euro means a failure of Europe," Merkel said, according to Dow Jones Newswires. She also said there were "unforeseeable risks for the world if the euro fails," but also said the euro will be stronger after the crisis. The euro was buying $1.2194, falling sharply after Merkel spoke from around a session high of $1.2228, according to FactSet Research. In early Asian trading Wednesday, it fell to a four-year low against the U.S. dollar of $1.2143.

Elliott Wave: "As you see from Prechter's chart, the Dow reversed after the rally off the March 2009 low had retraced about 61.8% of the 2007-2009 crash. To be exact, "The Dow met the .618 retracement level when it reached 11,258 at 11:15 a.m. EST on April 26. Then it reversed, as shown in Figure 9," writes Bob in the May Theorist.

The percentage of loans in foreclosure or with at least one payment past due was a non-seasonally-adjusted 14.01% in the first quarter, down from 15.02% in the fourth quarter of 2009, the Mortgage Bankers Association said on Wednesday. But the seasonally adjusted delinquency rate for mortgages on one- to four-unit residential properties, which includes mortgages at least one payment past due but doesn't include those in foreclosure, rose to 10.06%, from 9.47%. Mortgages in the foreclosure process hit a record high at a non-seasonally-adjusted 4.63%, up from 4.58% in the fourth quarter. "The issue this quarter is that the seasonally adjusted delinquency rates went up while unadjusted rates went down," said Jay Brinkmann, MBA's chief economist, in a news release. "Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data. The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement."

In Elliott wave analysis, .618 is a common Fibonacci reversal area for market corrections.

Based on the Dow's 300-year-long Elliott wave pattern, Prechter sees a huge difference now compared to the last two significant tops in 2000 and 2007. In fact, "This massive stock market top is preparation for something big," writes Bob.

The May 8 Theorist shows you two Elliott wave paths that stocks will likely take from here -- and both point in the same direction."

"Sell it all, ricks of 'major crash': Dow Theory's Russell" "If I read the stock market correctly, it's telling me that there is a surprise ahead," Russell wrote. "And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead."

The number of homeowners who missed at least one mortgage payment surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.

More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said Wednesday. That number was up from 9.5 percent in the fourth quarter of last year and 9.1 percent a year earlier.

Read more:

Mike Shedlock: Short Selling Restrictions "A Great Indicator of Imminent Market Crashes"

IMF’s John Lipsky says. "The current level of the euro does not appear to pose problems... It’s perhaps easy to forget the euro, when it was created, debuted at a value of $1.17."

Apr. Real Earnings: +0.1% for real average hourly earnings M/M, -0.6% Y/Y. Real avg. weekly earnings +0.4% M/M, +1.2% Y/Y. Avg. workweek +0.3%.

The French government on Wednesday led European reaction against the German government’s move to ban the naked short selling of eurozone sovereign debt instruments.

Christine Lagarde, French finance minister, ruled out a similar move by France and called for an urgent meeting of European securities regulators to discuss the implications of Germany’s unilateral ban.

Sweden and The Netherlands also dismissed the German move, as European equity markets tumbled and the euro hit a fresh four-year low against the dollar. Yields on US Treasuries approached the lowest levels of the year as investors shunned risky assets.

Footnoted: "BP filed another 6-K update on the oil spill just yesterday to report its efforts to stop the leak, drill “relief wells” (which it says will take “some three months to complete from the commencement of drilling”), and contain and recover the oil that is spreading. It states that over 650 vessels are involved in the recovery effort, that it has recovered 6.3 million gallons of “oily liquid”, and that

“…over 19,000 personnel from BP, other companies and government agencies are currently involved in the response to this incident. So far 15,000 claims have been filed and 2,600 have already been paid. BP has also received almost 60,000 calls into its help lines.”

Demand for loans to buy U.S. homes shriveled to a 13-year low last week, following the expiration of federal tax credits, while near-record low mortgage rates stoked refinancing, the Mortgage Bankers Association said on Wednesday. Mortgage purchase applications sank 27.1 percent to the lowest level since May 1997 in the absence of the popular government support, the group said.

The U.S. Coast Guard said the slick from the BP oil spill in the Gulf of Mexico is nearing the Loop Current, a stream of ocean water that moves around the south side of Florida and into the Atlantic Ocean. "Satellite imagery indicates that the main bulk of the oil is dozens of miles away from the Loop Current, but that a tendril of light oil has been transported within close proximity," the Coast Guard said in its update late Tuesday. "NOAA is conducting ongoing aerial observations to determine with certainty whether or not the oil has actually entered the Loop Current, and continues engage experts within and outside government to develop long-term oil movement forecasts." The area now close to fishing represents 45,728 square miles, which is slightly less than 19% of Gulf of Mexico federal waters.

Robin Landry: "We are in the beginnings of P3 down to levels below the lows of March ’09."

With few industries able to raise prices, and the money supply shrinking despite the Fed's liquidity moves, deflation could become a concern if the economy falters." David Bogoslaw

China stocks have suffered 25 bear markets since 1990, with drops averaging 35 percent, according to Bespoke.

The growth of China's exports to Europe may slow by six to seven percentage points in May, June, and in the third quarter of the year as Europe's debt crisis deals a "severe" blow to foreign trade, citing Huo Jianguo, a researcher at the Asian country's Ministry of Commerce. China's exports to Europe rose by 25% in April.

EIA: Gasoline inventories decrease 300,000 barrels. The Energy Information Administration reported an increase of 200,000 in oil inventories, whereas analysts polled by Platts had expected an increase close to a million barrels.

Credit-default swaps soared as German Chancellor Angela Merkel’s curb on using the contracts to speculate on European sovereign debt sparked concern among investors about increasing government regulation.

The Markit iTraxx Crossover index of swaps on 50 European companies surged 50 basis points to 582, according to Markit Group Ltd., while the Markit iTraxx Asia index on investment- grade borrowers outside Japan climbed 10 basis points to 131.5, Royal Bank of Scotland Group Plc prices show. The jump in the indexes signals a deterioration in investor perceptions of credit quality.

Gold for June delivery declined $21.50, or 1.8%, to $1,193.10 an ounce on Comex.

The Fed's quarterly "central tendency" forecasts showed considerably greater optimism among policymakers, who predicted gross domestic product growth would come in around 3.2 percent to 3.7 percent this year. In January, officials thought the U.S. economy would grow between 2.8 percent and 3.5 percent.

Despite the rosier predictions, the minutes indicated the Fed does not see inflation as a near-term risk, and is unlikely to begin tightening monetary policy any time soon.
If anything, inflation was beginning to look a bit too low.

A government official announced Tuesday at a China Gas Association Meeting that the National Energy Commission has large-scale liquefied natural gas (LNG) and natural gas storage projects in the works, as it looks to improve urban energy security.

"At present, the city gas supply system has not been under full development. It is necessary to improve the gas supply system to ensure urban energy security and public safety," said Liu Heming, deputy director of the Urban Construction Division with the Ministry of Housing and Urban-Rural Development. "(China) should establish natural gas reserves for national strategic and city emergency purposes."

The current domestic capacity of natural gas storage is far from enough to meet the country's needs. China only has six natural gas storage facilities with a total of 3 billion cubic meters in gas reserves, compared with 400 underground natural gas reserve facilities in the US, and over 60 storage sites in the European Union.
PetroChina plans to build 10 gas storage facilities from 2011 to 2015, with 22.4 billion cubic meters of storage capacity, according to the 21st Century Business Herald.

The Dow Jones industrials, which had been down as many as 186 points, finished down 67 points at 10,444. The S&P 500 was down 6 points at 1,115. And the Nasdaq Composite Index was off 19 points to 2,298.

Tuesday, May 18, 2010


5/18/10 Germany

ZeroHedge: "And the government keeps on chugging along in its merry Keynesian way (and to those who believe that just because the USD is the reserve currency for the time being and have yet to hear about a country called China, we have one thing to say: just keep buying Treasuries). After burning through $91.1 billion in operating cash in the first 14 days of May, the government is down to just $7.2 billion in cash (ex the $200 billion in the untouchable, for now, SFP account). Not only that, but the little problem of ever increasing rolls in Bills just keeps on reminding about itself, although with $253 billion redeemed so far in May, we don't think little quite captures it. But once again, do not be concerned: the deflationists out there will say that this is all good as the government can just print infinite amounts of reserve pieces of paper (all the while deflation still paradoxically rages, with gold, oil and the Dow all rushing to hit 36,000 first). Back to facts: in the 7 months since the beginning of fiscal 2010, the US has redeemed $3.6 trillion bills, $400 billion notes, and $5 billion bonds. This 150% roll in sub 1 year debt when we are just 7 months into the fiscal year is also nothing to write home about, you may occasionally hear. But at least today's DTS still has not logged the $100 billion or so in yet unsettled debt (and the $120 billion in upcoming issues that will be announced tomorrow). When that happens we will solidly push right past $13 trillion in total debt subject to limit. This, is the last thing that you should not be concerned about. Because worry about unsustainability is merely an artifact of a simplistic Austrian school of economics, which as Greenspan and Bernanke have demonstrated so well, is nothing but a total joke to those sophisticated enough to grasp all the nuances of Keynesianism."

U.S. housing starts increased for the second straight month in April to an 18-month high, the government estimated, but building permits fell sharply, casting doubts on the momentum of the housing recovery. Housing starts rose an estimated 5.8% in April to a seasonally adjusted annual rate of 672,000 from an upwardly revised 635,000 in March, the Commerce Department reported Tuesday. However, building permits fell 11.5% to a seasonally adjusted annual rate of 606,000, the lowest in six months. Permits for single-family homes, considered by many analysts to be the number in the housing release, fell 10.7% to a 484,000 annual rate.

U.S. wholesale prices fell a seasonally adjusted 0.1% in April, as the cost of energy and food eased, government data showed. The more closely followed core rate, which excludes volatile energy and food prices, rose 0.2%, the Labor Department reported Tuesday. Economists surveyed by MarketWatch had predicted a 0.2% decline in overall produce prices and a 0.1% increase in the core rate. Meanwhile, the core intermediate PPI, which is viewed as a leading indicator of inflation, jumped 1.1%, the largest one-month gain since July 2008. On an unadjusted basis, prices for finished goods advanced 5.5 percent for the 12 months ended April 2010, their sixth consecutive 12-month increase. "

Wal-Mart Stores Inc., the world's largest retailer, said Tuesday that its first-quarter profit rose to $3.32 billion, or 88 cents a share, from $3.02 billion, or 77 cents, a year earlier. Sales in the quarter ended April 30 rose 6% to $99.1 billion while membership and other income declined 2.6% to $751 million, the Bentonville, Ark.-based retailer said. Wal-Mart was expected to report first-quarter adjusted profit of 84 cents a share on sales of $98.3 billion, according to the average estimate of analysts surveyed by FactSet. The company forecast second-quarter profit of 93 cents to 98 cents a share, adding the projection factored in the "continuing challenging sales environment" in the U.S. Analysts surveyed by FactSet estimated profit of 98 cents a share. Sees Q2 WMT US comp store sales without fuel to be -2.0% to -1.0%. Ended Q1 with negative free cash flow of approximately $1.6Bn.

The Home Depot said fiscal first-quarter to May 2 net income rose to $725 million, or 43 cents a share, from $514 million, or 30 cents a share, with sales up 4.3% to $16.86 billion and comparable-store sales up 4.8%. Excluding one-time items, the Atlanta home retailing giant said it would have earned 45 cents a share. Analysts polled by FactSet had expected earnings of 40 cents a share on sales of $16.36 billion. The company expects annual earnings of $1.88 a share, a rise of 21%, on sales growth of approximately 3.5%. Analysts had expected earnings of $1.86 on sales growth of 2.9%.

The ECB revealed that it has bought €16.5bn government bonds, the FT reports. The scale of intervention is at the low end of market expectations. The ECB said that it will sterilise tomorrow the liquidity from bond purchases through a quick tender in which banks will offer a maximum rate of 1% for deposits. After the ECB´s explanations the euro rebounded from 1.2235, its lowest level in four years. On Tuesday, the euro is under pressure again.

The euro’s fall is hurting Chinese exports to Europe and making it harder to break its currency’s peg to the dollar.

"There are still no guarantees the euro can pull through intact from this crisis," said Jane Foley, research director at in London. "No matter how this goes, the euro is likely to suffer looking ahead."

“There was a beam of light come down and it got
that calf and that calf went up in that beam of light
and was gone!” - Montana Rancher

Obama to name panel to investigate the oil spill. This is a cover your ass move. What has the Coast Guard been doing or the NOAA etc etc ?

FDIC has inherited CDOs with a face value of more than $400M from failed lending institutions.

Rocky Vega: "International Business Editor Ambrose Evans-Pritchard has changed his stance on Greece. Previously, he’s supported the Greek bailout and wanted to avoid a “sovereign Lehman.” Today, he sees the “moral hazard rescue” for what it is, and now chooses to “flagellate” himself and “wear a dunce’s hat....Urlich Leuchtmann from Commerzbank said the IMF share of $320bn was the only genuine money on the table, the rest being largely euro smoke and mirrors, or plain bluff.”

Austerity measures to correct fiscal imbalances in the Greek economy are in our view likely to further depress Greece's medium-term economic growth prospects. Our assessment of these economic prospects is factored into the current 'BB+' long-term sovereign rating on the Hellenic Republic. Under our revised assumptions, we expect real GDP to be nearly flat over 2009-2016, while the level of nominal GDP may not return to the 2008 level until 2017. While we believe that this would be the case for Greek structured finance transactions we rate, we also consider that risks affecting these transactions have increased materially due to heightened country risk that is in part reflected in the 'BB+' sovereign rating on the Hellenic Republic. As a result, the likelihood that these transactions could experience an unusually large adverse change in credit quality has also increased in our view. Therefore, we are limiting the maximum achievable rating for structured finance transactions backed by Greek assets to 'A'. - Standard And Poors

Pfizer Inc. said early Tuesday that it plans to either close or reduce operations at several of its facilities worldwide by the end of 2015, a move that could result in the elimination of about 6,000 jobs over the next several years.

Investors should "avoid financials at all costs, particularly in the banking sector" because the Senate's financial reform bill will end up restricting credit and hurt bank earnings, well-known banking analyst Meredith Whitney told CNBC.
Meredith Whitney
"Politicians have proven far worse than our worst expectations," she said in an interview. "It could be very bad for banks."

Current could carry oil into Atlantic.

Investors should get out of gold immediately as the metal reaches a technical top and is due for a pullback, says Dennis Gartman, hedge fund manager and author of The Gartman Letter.

Europe could be headed for a period of stagflation as governments struggle to reform their fiscal policies and growth weakens, investor Wilbur Ross told CNBC. Debt will continue to hurt economies in the PIIGS nations—Portugal, Italy, Ireland, Greece and Spain—and contribute to a pattern of higher unemployment coupled with high inflation, said Ross, chairman of the W.L. Ross private equity firm.

Former Bank of England policy maker David G. Blanchflower said another euro-region rescue package “inevitably is going to come” and the euro’s “unstoppable” decline may lead to parity with the U.S. dollar.
In an interview with Bloomberg Television, Blanchflower also slammed the European Central Bank’s “too-tight” focus on controlling inflation, saying it was based on outdated “German dogma” that must change or “the markets will do it for them.”
“What we really have to think about are rescuing the banks, dealing with this credit crisis, giving confidence back to the euro area, which they’ve not done,” he said today from Hanover, New Hampshire, where he is a professor of economics at Dartmouth College. “And let’s think about how we can organize the next rescue package, which inevitably is going to come.”

Reuters states Germany to ban short selling ban on stocks and euro government bonds. “You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”

The American Petroleum Institute said late Tuesday crude-oil inventories decreased by 794,000 barrels in the week ended May 14, a surprise decline as most analysts expected another increase. The Washington-based trade group also said gasoline stockpiles increased by 981,000, and distillates stocks declined by 331,000. Refineries operated at 85.9% of their capacity, the group said.

The Dow Jones Industrial Average fell 114.88 points, or 1.1%, to 10,510.95, with all components lower except Wal-Mart Stores, Inc. (WMT). The S&P 500 fell 16.14 points, or 1.4%, to 1,120.80, led a by drop in the financial sector as credit-card stocks sank on fears of new bank legislation. The Nasdaq Composite slid 36.97 points, or 1.6%, to 2,317,26. The U.S. dollar index rose to 87.14. The euro fell about 1.4% to $1.2209, from $1.2384 in North American trading late Monday. It fell as low as $1.2159, its lowest level since 2006.

Crude-oil futures ended lower Tuesday as a budding rebound was nipped by a rising dollar. Crude-oil for June delivery lost 67 cents, or 1%, to $69.41 a barrel. That's the lowest settlement for a most-active oil contract since Sept. 29, when oil closed at $66.71 a barrel, according to FactSet Research.

Never in history has the world been in a situation when virtually all industrialised countries are bankrupt. Therefore there is no precedent for what will happen in the next few years. What we can be quite certain about is that events will happen in a seemingly random pattern and that it will be impossible to forecast where the next crises will start. - Egon von Greyerz, Matterhorn Asset Management

Monday, May 17, 2010

Empire State Mfg Index

5/17/10 Empire State Mfg Index

John Hussman: "We're certainly not inclined to "buy the dip" to a material extent, and I continue to anticipate a second wave of credit difficulties in the months immediately ahead. But I also believe that if we can move through 2010 without a second "crisis-level" wave of credit strains, we'll be more able to rely on post-1940 criteria in setting our investment positions, with less concern about the more hostile "post-crash" dataset."

Manufacturing activity in the New York region improved at a slower pace in May, the New York Federal Reserve Bank said Monday. The bank's Empire State Manufacturing index decelerated to 19.1 in May from 31.9 in April. The drop suggests the pace of growth slowed in May. New orders and shipments moved lower but remained in positive territory. The index for the number of employees rose to its highest level since 2004.

The housing market index rose three points in May to 22 after a four-point increase in April, the National Association of Home Builders reported Monday.

Lowe's expects earnings in the range of $1.37 to $1.47 a share. Shares of Lowe's fell 2% premarket to $25.50.

Shanghai's main share benchmark ended 5.1% lower on Monday, closing at its lowest level in more than a year, led down by weakness in insurers, natural resources and property companies. The Shanghai Composite Index closed at 2,559.93, giving up 136.7 points during the session, bringing its performance during the past year to negative 3.2%.

The cost of insuring non-core euro-zone government debt against default rose again Monday on growing fears about the depth of the region's financial crisis. The spread on Greek credit default swaps widened to 625 basis points, up from 600 basis points at Friday's close, according to Markit. That means it would cost $625,000 a year to insure $10 million of Greek debt against default, up $25,000 from Friday. The Spanish CDS spread rose to 185 basis points from 179, while the Portuguese spread widened to 255 from 242, Markit reported. Italy was 2 basis points higher at 142. CDS spreads for European banks widened in tandem with sovereign debt, Markit said.

A rogue Thai army commander that worked with Thailand's Red Shirt movement died after being shot, threatening to crank up tensions as a deadline for protesters to disperse nears.

The 2010 Wisconsin winter wheat crop experienced little winter kill across portions of the state. As of May 2, winter wheat conditions were rated 83 percent good to excellent, 15 percent fair, and two percent poor to very poor, according to the latest USDA crop production report.
Total winter wheat for grain production is forecast to be 15.6 million bushels in Wisconsin, a decrease of 27 percent from 2009. State yield is currently forecast at 68 bushels per acre, same as last year. The 230,000 acres to be harvested for grain or seed this year is down 27 percent from last year.
Nationally, winter wheat production is forecast at 1.46 billion bushels, down four percent from 2009. The expected area for harvest as grain or seed totals 31.8 million acres, down eight percent from last year.
Based on May 1 conditions, the U.S. yield is forecast at 45.9 bushels per acre, up 1.7 bushels from the previous year.

Thailand’s bond risk climbed the most in two months and the baht weakened after at least 35 people were killed in fighting between the military and anti-government protesters. The cost of insuring Thai government debt from default jumped 20 basis points to 175 basis points as of 9:15 a.m. in Singapore, according to Royal Bank of Scotland Group Plc prices.

* Europe may face a so-called double-dip recession as a consequence of the Greek crisis, Robert Skidelsky said in an interview. Skidelsky, an economics professor who sits in the U.K.'s House of Lords, told the German newspaper the world economy is currently on unstable footing.
* German Chancellor Angela Merkel said stabilizing the euro is about stabilizing "the European idea" as a failure of the currency may lead to a worse situation, citing an interview. European countries need to consolidate their budgets and impose stricter rules with regards to short-selling and credit-default swaps.

Second-hand home transactions in Beijing fell 81.7% in the first half of this month as compared with the same period of April, citing property brokers. Prices in some areas of the Chinese capital have fallen by 25%.

Net foreign purchases of long-term securities hit a record high in March, the Treasury Department said Monday. Total holdings of equities, notes and bonds increased a net record $140.5 billion in March.

Beginning in May, more and more banks are now relying on the ECB for overnight liquidity.

Meredith Whitney: "Unless real focus is afforded to re-engaging small businesses in this country, we will have a tragic and dangerous unemployment level for an extended period of time. Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines."

ZeroHedge: "The March TIC data was released. We will provide a longer analysis later in the day, but there is just one thing that readers need to know: UK has now gone exponential in its holdings of Treasuries, with total US Treasuries "held" by the UK increasing by $45.5 million over February, or 20%, to a new total of $279 billion. As we now know that the UK is essentially running out of money, to assume that the UK government is buying up our debt when it itself needs to restart QE any minute, is childish at best. Total foreign holdings increased by $134.2 billion to $3,885 billion, with both China and Japan once again buying openly. And since China is now no longer bashful about disclosing its official increase in UST holdings, this leaves the only possibility for the UK ramping up UST purchases as being 1) either a proxy for hedge funds, which however are traditionally represented by Caribbean Banking Centers (which also increased from $144.5 billion to $148.3 billion in March), or 2) a shadow Fed purchasing operation, which also implicates the surge in Direct Bidder interest which we have been focusing on for many months now."

The euro sank as low as $1.2237 in overnight trading, its weakest point since April 2006. In morning trading in New York, it bounced back up to $1.2350, still down from $1.2385 late Friday.

The faltering euro dragged down other European currencies. British pound tumbled to $1.4253, the weakest point since March 2009, in Asian trading before recovering to $1.4437 in the morning in New York, still down significantly from $1.4560 late Friday. The dollar traded at 1.1321 Swiss francs, up from 1.1308 francs late Friday. It had earlier climbed as high as $1.1445 francs, its strongest level since April 2009.

The European Central Bank on Monday announced it would launch a special seven-day tender on Tuesday to re-absorb the liquidity created by the program of euro-zone government bond purchases it began last week. The ECB said it intends to withdraw 16.5 billion euros ($21 billion) through the operation. The central bank said the amount corresponded to "size of the Securities Market Program, taking into account transactions with settlement at or before Friday, May 14."

Trader demand for insurance against a slide in the euro is the highest in more than seven years as they bet European plans to fix the region’s debt crisis will worsen the currency’s slide.

Demand for one-month options giving investors the right to sell the 16-nation currency rose last week to the most since before 2003 relative to those that allow for purchases. The premium traders pay to swap one-year euro loans for those in dollars was the widest this month since February 2009.

The pain of the European debt crisis is spreading, with the plummeting euro making Chinese companies less competitive in Europe, their largest market, reports the New York Times.

Man Group will pay $1.6 billion in cash and shares to acquire GLG Partners, creating a hedge-fund giant managing $63 billion.

Ron Paul: "You can't correct the problem of debt with creating more debt, expecting the Fed to endlessly create more money and credit. We are in for a lot more trouble as far as I can see....You'd have to cut taxes drastically and cut spending drastically. Politically you can't do that. People will resort to more spending, more deficits and more inflation of the money supply. If you see a GDP number go up, it is about equivalent to the money we have created - you don't have any more growth than the artificial stimulus of the money that we put in. We have not allowed the liquidation of debt, we have not allowed the elimination of the malinvestment still in the system."

The Dow Jones industrial average edged up 5.67 points, or 0.05 percent, to end at 10,625.83. The Standard & Poor's 500 Index added 1.26 points, or 0.11 percent, to 1,136.94. The Nasdaq Composite Index rose 7.38 points, or 0.31 percent, to close at 2,354.23.

Sunday, May 16, 2010

Second Sunday Posting

5/16/10 Second Sunday Posting

The Australian dollar - a high-yield, a higher-risk currency linked to the global growth story due to the export of the nation's mineral resources - was 1.23 per cent lower against the US dollar from Friday's local close.

The domestic unit reached 71.8 euro cents in early Monday trade, however, its highest level against the 16-member currency since the introduction of the euro in January, 1999.

The latest COT data out on Friday showed that futures speculators have increased their long bets for the U.S. dollar against the euro to a new record high as of May 11th, according to the Commitments of Traders (COT) data released by the Chicago Mercantile Exchange.
Non-commercial futures positions, those taken by hedge funds and large speculators, were net short the euro against the U.S. dollar by a new record high of -113,890 contracts.

BP said it was able to reroute some oil gushing into the Gulf of Mexico through a siphon system, a rare success in the company's struggle to control the spill.

The head of the WTO said he's worried that the G-20 leading economies has not yet demonstrated its ability handle international financial regulation, leaving a big gap in efforts to prevent another major banking crisis.

Heathrow and Gatwick were due to be shut down from 1am on Monday following closures that hit most of the rest of the country on Sunday. Manchester, Liverpool, Doncaster, Carlisle, Humberside and East Midlands airports were closed as were all airports in Northern Ireland and some in Scotland. Dublin was shut between 7pm on Sunday and at least 9am on Monday.

“The fact that European leaders have failed to restore confidence in the single currency is worrying,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington, in a note to clients today. “Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro zone economy.”

The euro weakened to as low as $1.2338, the least since October 2008, and traded at $1.2362 as of 6:21 a.m. in Tokyo, from $1.2358 on May 14 in New York. It slid to 114.11 yen from 114.38 last week. The dollar was at 92.31 yen from 92.47 yen.

The cost to hedge against losses on European bank bonds is 63 percent higher than a month earlier. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the prior period, according to data compiled by Bloomberg.

The rate banks say they charge each other for three-month loans in dollars is the highest in nine months, even after a government-led rescue designed to prevent Greece from defaulting on its debt and a new financial crisis. The euro is trading at its weakest level versus the dollar since the aftermath of Lehman Brothers Holdings Inc.’s collapse, and stocks tumbled.

The chief economist for the World Bank said on Saturday that if China were to revalue its currency it would actually hurt rather than help the U.S. economy.

Bloomberg reports trades
as low as $1.2338 in early Japanese trading.

Japan’s Kokusai Asset Management, the world’s second-biggest bond fund after PIMCO, has cut euro exposure in its Global Sovereign fund by 4.8 percentage points since the end of March to 29.6 per cent on May 10 as the euro zone’s debt crisis intensified.

The fund also cut its exposure to the British pound and the yen, its managers said, but its increased its weightings of U.S. dollar and Canadian dollar bonds.


5/16/10 Europe

Greece may investigate U.S. investment banks and their role in the run-up to the Greek debt crisis which has shaken faith in euro zone economies, Prime Minister George Papandreou said in comments broadcast on Sunday.

German Chancellor Angela Merkel Sunday denounced speculation against the euro but said the EU could overcome the problem only by tackling the yawning gap between Europe's strongest and weakest economies.

"French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union bailout plan at a summit last week in Brussels, El Pais newspaper said.

"According to El Pais, which didn't say how it obtained the information, Spanish Prime Minister Jose Luis Rodriguez Zapatero said (in a private meeting of his Socialist politicians) that Sarkozy demanded 'the commitment of everyone, that everyone should help Greece, everyone according to their means, or France would reconsider the situation of the euro.'

John Mauldin: "All of Europe will be making cuts. And in the short term that is going to be a drag on growth and a headwind for the euro....The reality is that the coming austerity measures are going to reduce the ability of the PIIGS to buy products from outside their countries. Germany's surplus will thereby suffer....The euro is on its way to parity with the dollar. So is the pound. That is going to help their exports vis-à-vis the US. Watch the yen fall rather sharply over the next few years. "

Robert McHugh: "China's stock market is crashing. If its stock market is crashing, and stock markets are leading indicators for economies, it means China is about to fall into a deep recession. Further, a huge Head & Shoulders top pattern we show below warns that if the SSEC drops below 1,750ish, China's SSEC could drop to zero, that an economic depression, economic calamity, is coming to China.

China's largest export partner is Europe, not America. With sovereign debt problems threatening the economy of Europe, with programs of spending austerity necessary and mandated, China's economy is about to take a huge hit. Europe's troubles are going to lower aggregate demand world-wide. Stock Index patterns are warning us about this coming threat.

The SSEC topped on August 4th, 2009 at 3,478.01. It fell to 2,604.19 this week, on May 12th. That is an 873 point, 25.1 percent crash in 9 months (We define a crash as a 15 percent decline, some people insist on a drop over 20 percent for a crash. This decline meets both standards). The SSEC was at 3,361.38 as recently as November 2009, and has since fallen 757 points, or 22.5 percent over the past 6 months. And so far in 2010, the SSEC has crashed 673 points from 3,277 on December 31st, 2009, or 20.5 percent.

Yet nobody is talking about this. A contagion of economic woes is starting, and will soon be manifest all across the globe. Gold sees this, and is becoming the safehaven currency for the wise, the world's reserve currency."

Airports in parts of Britain and Scotland are closed on Sunday as another volcanic ash cloud sweeps south from Iceland.

Manchester, Liverpool, Doncaster, Carlisle, Humberside and East Midlands airports fall within the no-fly zone, as do all airports in Northern Ireland, the National Air Traffic Service said in a statement. The no-fly zone will operate between 1200 and 7pm on Sunday, but may be extended.

Scientists have found huge plumes of oil lurking under the surface of the water in the Gulf of Mexico, as BP hit a snag in its latest effort to slow down the oil blasting out of a broken undersea pipe. The strategy to thread a tube into a leaking riser pipe failed, but the company says it's not giving up on capping the oil leak. Despite a temporary setback, BP says its latest efforts to stem the Gulf of Mexico leak could be operational overnight. If successful, the inserted tube will carry 5,000 bpd of oil to a tanker on the surface.

When does this pattern change?----sell Friday and buy Monday. When Monday turns into selling, then look below. Way below.

Olivier Pouteau: "It is high time for a serious dose of austerity"

Arizona Republic: "From 1912 until 1997, general-fund expenditures grew from zero to $6.086 billion. Ten years later, they skyrocketed to $13.961 billion. The meteoric rise in Arizona expenditures under Gov. Janet Napolitano was especially onerous, with a $6 billion increase in just six short years. What did we get with all of that "investment" in state government? A $900 million debt to Bank of America, a mortgaged state capital, a deficit of more than $2 billion, a loss of 300,000 private-sector jobs, an education system whose students are less prepared to enter the job market than at any time in our history, tens of thousands of home foreclosures, and an empty "rainy day" fund."