Saturday, June 05, 2010

Government Cpntrols

6/5/10 Government Controls

Bloomberg (Shobhana Chandra): "Unemployed Americans are facing the longest wait on record to find work... The average duration of unemployment jumped to 34.4 weeks in May from 33 weeks the prior month and 16.5 weeks in December 2007... The number of unemployed has almost doubled to 15 million since the start of worst slump since the 1930s."

John Mauldin: "On May 27th the BEA released its first revision to its 1st Quarter 2010 GDP growth rate measurement, lowering the number from a 3.2% annualized growth rate to 3.0% annualized growth. One day later the Consumer Metrics Institute's 'Daily Growth Index' was signaling what we should expect the BEA's measurement of the 3rd Quarter 2010 GDP growth rate to be contracting at about a 2.0% rate.

"The prior BEA estimate of 1st Quarter 2010 GDP growth trailed our 'Daily Growth Index' by 127 days, and because of the rapid rate that the economy was cooling when the measurements were being made the newly adjusted estimate is now trailing our 'Daily Growth Index' by 125 days. Since the 3rd Quarter of 2010 ends 125 days after May 28th (when our 'Daily Growth Index' was recording a 'growth' rate of -1.99%), if the BEA estimates continue to trail our 'Daily Growth Index' in a consistent manner we should expect that the 3rd Quarter's GDP 'growth' rate will be in the -2.0% neighborhood."

TierOne Bank is 81st U.S. bank failure of 2010. TierOne Bank had $2.2 billion in deposits. The failure of TierOne Bank in Lincoln, Neb., means an estimated $297.8M hit to the FDIC's Deposit Insurance Fund. Along with closings in Mississippi and Illinois, that makes 81 failed institutions in 2010.

TierOne was the fourth-largest bank in Nebraska with approximately $2.8 billion in assets as of March 31. It lost $300 million last year on real estate-related loans in Florida, Nevada and other states.

Great Western Bank, of Sioux Falls, South Dakota, agreed to purchase TierOne and assume its $2.2 billion in deposits. TierOne's 69 branch offices will reopen on Saturday as branches of Great Western, said the Federal Deposit Insurance Corp.

Israeli soldiers boarded a ship carrying pro-Palestinian activists, with the military saying there was no violence and the ship was now under Israeli control.

Capital Economics' Paul Dales says that a 39% four-week plunge in mortgage applications signals what's around the corner. With the homebuyers credit now finished, "it is only a matter of time before the underlying weakness of the housing market becomes uncomfortably clear.

Guy Lerner: "I believe natural gas is putting in a bottom, and it has the potential for an extended bullish run. "

Bloomberg (Kate Haywood): "Credit-default swaps on sovereign bonds surged to a record on speculation Europe's debt crisis is worsening after Hungary said it's in a 'very grave situation' because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt jumped 107.5 bps to a record 416... Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 21 bps higher to an-all time high of 174.4."

The dollar index rose 2.0% to 88.239 (up 13.3% y-t-d).

Doug Noland: "When confidence is running high, financial conditions run loose. The marginal borrower - Greece, a highly-leveraged U.S. corporation, or perhaps a private-equity fund - enjoys easy Credit Availability. The tendency of things is for finance to expand, asset prices to inflate and economic "output" to increase. And they all feed merrily on themselves. But - in this unstable financial world - the Credit noose begins a rapid tightening the moment confidence is shaken. And the inevitable reversal of financial flows and attendant speculator deleveraging ensures vicious contagion effects, acute fragility, and destabilizing crises of confidence.

One can say that reflations fueled by marketable-based finance are prone to be dynamic and powerful. Unfortunately, once unleashed, these forces are just as powerful on the downside as during expansionary periods. Payback time comes when greed turns to fear and bull falls victim to bear. Finance proves fickle and unreliable. I fear U.S. financial and economic recoveries were built upon inflated expectations and unjustified confidence. Fleeting confidence now creates myriad risks associated with unmet expectations, disappointment and disillusionment."

Early data suggest home sales dropped far more than expected in May, even accounting for the expiration of the homebuyer tax credit - with some markets showing declines of 25-30%.

BP Plc said it aims to siphon off most of the oil gushing from the ruptured deep-sea wellhead within days.

South Korea's leader on Saturday ruled out going to war with North Korea, hours after his government asked the United Nations to punish the communist nation over the sinking of a warship.

Copper traded down to its lowest level since October 2009.

Barron's: "Barclays Capital analyst Douglas Anmuth this morning trimmed his EPS estimates for Google (GOOG) to reflect the impact of the weakening of the Euro against the dollar, as well as the recent decision to change distribution strategy for the Nexus One smart phone.

For 2010, Anmuth now sees profits of $27.67, down from $27.89; for 2011, he goes to $31.61, from $32.36.
Nonetheless, he maintains his Overweight rating and $650 price target."

First, Obama wanted to decide on salaries and bonuses. Now, he wants to determine a public corporation's right to declare dividends to its shareowners. When you voted for Obama, did you know a fascist dictator was coming into power in this land of the free and the brave?
Turning to BP's financial position, Svanberg said, "It remains our aim as always to strike the right balance for shareholders between current returns through the dividend, sustained investment for long term growth and maintaining a prudent gearing level. We will do all we can to protect and grow the value of the company in which you have invested.

"We fully understand the importance of our dividend to our shareholders. Future decisions on the quarterly dividend will be made by the Board, as they always have been, on the basis of the circumstances at the time. All factors will be considered and the decision taken in the long term interests of the shareholders."

In commenting on the significant financial costs of the incident, the company pointed out that:

* BP has already spent over $1 billion in gross direct costs for the response, clean up and relief wells.
* Spending at this rate is expected to continue for some time beyond successful completion of work to stop the flow of oil from the damaged well. Any fines and penalties would present additional costs.
* The costs of containment, removal and clean up are likely to be largely complete in 2010.
* The longer-term costs of environmental remediation, claims and litigation are not predictable at this stage, but they will be sizable and are likely to be spread over many years. Hayward assured shareholders that the company was prepared to meet those costs. "We will also meet our obligations to our employees, and to our other stakeholders, including hundreds of thousands of shareholders, and millions more savers in mutual and pension funds, who rely on their investment in BP as part of their financial security and in many cases their retirement income. The financial consequences of this incident will undoubtedly be severe, but BP is a strong company and we have weathered many storms before."

G20 drops support for fiscal stimulus. European officials said today that budget tightening needs to come next year, and German Chancellor Angela Merkel said that growth can’t come at the price of high state budget deficits.

The civilian labor force fell by 322,000 May.

Rebecca Howard: "New Zealand has emerged as an oil-exploration hotspot for some of the world's top energy companies, but the surprise rush of interest is intensifying concerns among environmentalists about a local version of the catastrophic Gulf of Mexico oil spill.

Brazil's state-owned giant Petroleo Brasileiro this week secured a five-year permit to explore the Raukumara Basin, located off the North Island's East Coast.

The move comes a few months after Anadarko of the U.S. acquired acreage off the coast of New Zealand for the first time, while ExxonMobil is hoping to strike oil or gas in the Great South Basin.
"I'm sure that all Petrobras' competitors will be looking with some interest at their involvement here," said Energy and Resources Minister Gerry Brownlee. "It's verification New Zealand is a very prospective country."

Ashok Shah, the CIO at London & Capital: "There is a risk that the sovereign debt crisis could morph into another run on undercapitalized banks in Europe," Shah said. "The IMF can support liquidity but do nothing about solvency."
With swap spreads negative in the U.S., UK and Japan, Shah says this is not just a euro zone problem and is increasingly worried about the politicians' response to the crisis.

Friday, June 04, 2010

Miserable Employment Report

6/4/10 Miserable Employment Report

U.S. nonfarm payrolls expanded by a seasonally adjusted 431,000 in May, but virtually all the new jobs were temporary jobs at the U.S. Census, leaving private-sector hiring very weak in May, the Labor Department reported Friday. Excluding 411,000 temporary Census workers, payrolls rose by 20,000 in May. According to the survey of 400,000 business establishments, private-sector payrolls increased by 41,000, the fifth straight gain. The unemployment rate fell to a seasonally adjusted 9.7% in May from 9.9% in April, according to a separate survey of 60,000 households. 31,000 gain in temp help and 215k birth-death adjustment. This is a miserable report and clearly not surprising on my part. There are now more than 15 million unemployed, including 6.8 million who have been jobless for more than six months.
Off about 60 points before the report, futures for the Dow Jones Industrial Average were down 212 points at 10,046.00. S&P 500 futures were down 24.50 points at 1,079.00. Nasdaq 100 futures were off 40 points at 1,857.75.

The euro drops to 1.1960 vs. the dollar and to an all-time low vs the swiss franc.

Hungary's BUX index fell 3.4% to 21,286.80 on Friday. "Comments from the PM's spokesman, Peter Szijjarto, raised the possibility that Hungary could default on its debts and that the new government would (bizarrely) not implement austerity measures," said analysts at RBC Capital Markets. "The new right-wing government said that the previous administration had lied about the true state of the fiscal accounts and the deficit was double the officially agreed IMF target of 3.8%of GDP," they added.

Leading policymakers were unusually candid on Friday in voicing fears that the euro zone's financial and banking woes could derail the global economic recovery.

ZeroHedge: "Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best."

The troubles of Greece and other heavily indebted European governments dominated conversations ahead of a meeting of finance ministers and central bankers of the Group of 20 of the world's top developed and emerging economies, Canadian Finance Minister Jim Flaherty said.

"It is essential to ensure continued recovery that Europe fix its banks. It is essential that certain vulnerable European nations follow through with major fiscal consolidation, and get the job done," Flaherty told reporters in Busan, South Korea.

Rob Hanna: 'Thursday’s market action was marked by low volume and a narrow range. Both came in at the lowest levels in over a month, Such uninspired action has often led to pullbacks in the past. "

Crude oil futures for July delivery fell $1.58, or 2.1%, to $73.03 a barrel. Gold for August dropped $7, or 0.6%, to $1,203.10 an ounce.

A report by Reuters that a growing number of Chinese exporters turn down euro payment.

Rumors have been spreading this morning that French bank Societe Generale SA is having some problems with its derivatives situation, the Financial Times’s Neil Dennis reports. SocGen declined to comment, notes Dennis. SocGen shares fell 8% in Paris.

The Federal Reserve said that U.S. commercial paper outstanding fell to the lowest on record. The U.S. market for short-term IOUs, commercial paper, declined $10.2 billion to $1.06 trillion in the week ended June 2, the lowest since at least 1999, data compiled by Bloomberg show.

Wal-Mart Stores Inc. said it plans to buy back as much as $15 billion of shares in a new program announced Friday at its annual shareholders meeting. The plan replaces the existing $15 billion program, which had about $5 billion remaining, Chief Financial Officer Tom Schoewe said. Wal-Mart has bought back $18.5 billion of shares the past three years and said it plans to pay more than $4.5 billion in dividends this year. Its annual dividend rose 11% to $1.21 a share this year from $1.09 a share last year.

The Dow Jones Industrial Average fell 323 points, or 3.2%, to end at 9,931.97, its worst one-day drop since May 20. The S&P 500 index fell 37.95 points, or 3.4%, to 1,064.88. Of the S&P's 10 sectors, industrials fell the hardest, off 4.6%, followed by financials and materials, both down 3.9%. The Nasdaq Composite fell 83.86 points, or 3.6%, to 2,219.17. For the week, the Dow fell 2%, the S&P was down 2.3%, and the Nasdaq dropped 1.7%.

Crude for July delivery lost $3.10 to $71.51 a barrel - the largest-single day drop for a most-active contract since February 4, when prices dropped 5%. Gold for August delivery added $7.70, or 0.6%, to settle at $1,217.70. Other metals ended lower, with palladium and copper the worst hit.

David Rosenberg: "Real organic income is still not growing and down nearly $500 billion from pre-recession levels."

Thursday, June 03, 2010


6/3/10 ADP

ADP said U.S. companies hired 55,000 additional workers in May, short of the 100,000 forecast by economists.
The report comes one day before the government releases its estimates of nonfarm payrolls and the unemployment rate. The MarketWatch concensus looks for a gain of 513,000 in May, including about 400,000 workers hired temporarily to conduct the 2010 Census. Service-producing industries added 78,000 jobs, the fifth straight increase, ADP said. Goods-producing industries shed 23,000 jobs, despite a gain of 15,000 in manufacturing.

Costco reported. Excluding higher gasoline prices and stronger foreign currencies, comparable-store sales rose 5% in May, reflecting increases of 5% in the U.S. and 9% internationally, Costco reported.

BP said Thursday that it supports the U.S. government's decision to construct six sand barriers to protect Louisiana marshes and that the company will fund the estimated $360 million cost of the project. "BP is committed to implementing the most effective measures to protect the coastline of Louisiana and reduce the impact of the oil and gas spill in the Gulf of Mexico," said CEO Tony Hayward. BP said it has already provided $170 million to Louisiana, Alabama, Mississippi and Florida to help with their response costs and has paid around $42 million in compensation to people and companies affected by the spill.

Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.

The number of Americans receiving food stamps in March topped 40 million for the first time as the jobless rate hovered near a 26-year high.

"In the week ending May 29, the advance figure for seasonally adjusted initial claims was 453,000, a decrease of 10,000 from the previous week's revised figure of 463,000. The 4-week moving average was 459,000, an increase of 1,750 from the previous week's revised average of 457,250.

The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending May 22, unchanged from the prior week's unrevised rate of 3.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending May 22 was 4,666,000, an increase of 31,000 from the preceding week's revised level of 4,635,000. The 4-week moving average was 4,654,000, an increase of 9,750 from the preceding week's revised average of 4,644,250.

Marty Chenard: "Institutional Distribution levels are decreasing. If they converge more, with Institutional selling dropping below the 9000 level, then the market's bias will start shifting to short term positive."

Rob Hanna: "The CBI closed Wednesday at 10, which is as low as it has been lately. This is now the 9th trading day in a row with a close of 10 or higher - a very long stretch for such an extreme reading. This raises the question of whether having such strongly oversold stocks take so long to bounce suggests anything. Is this failure of the CBI to drop back down a sign of more market weakness to come? Or does it suggest that perhaps it is just taking some time to carve out a meaningful bottom?
I ran some tests and frankly there weren’t enough instances to tell. The only two other instances where the CBI managed to stay above 10 for at least 9 days were 12/16/96 and 9/28/01. In both cases we saw strong rallies that lasted at least a couple of months. If I loosen the requirement to only requiring the CBI to remain at 10 or above for at least 6 days rather than 9, then two more instances arise. They were on 9/4/98 and 7/25/02. These didn’t mark bottoms but they were followed by powerful 1-month rallies.
This isn’t decisive proof that a rally is about to emerge. Still, the stubbornly high CBI certainly doesn’t appear to be bad news."

The U.S. economy is almost strong enough to allow the Fed to begin raising interest rates, but we're not quite there yet, Atlanta Fed President Dennis Lockhart says. "As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability."

Natural gas is poised for a rally to $4.80 per million British thermal units this month, according to a technical analysis by Chris Kostas, a senior analyst at Energy Security Analysis Inc.

A momentum indicator known as MACD suggests the July gas contract on the New York Mercantile Exchange is in a “bullish divergence” that will send the futures higher, according to Kostas, based in Wakefield, Massachusetts.

Buffett Expects ‘Terrible Problem’ for Municipal Debt.

“‘The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,’ said Li Daokui, a member of the bank’s monetary policy committee.

“‘It is more than (just) a bubble problem,’ he told the Financial Times in an interview published Tuesday. The property market in the United States collapsed as too many people were unable to repay their high-risk, or sub-prime mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up…

“…He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home. ‘When prices go up, many people, especially young people, become very anxious,’ he said. ‘It is a social problem.’”

China warns US over a decision to slap duties on imports of Chinese steel gratings.

Natural-gas futures added to gains on Thursday after a report showed a smaller-than-expected increase in the nation's stockpiles. Natural gas for July delivery rose 9 cents, or 2.1%, to $4.52 per million British thermal units. The Energy Information Administration reported Thursday an increase of 88 billion cubic feet in natural gas in storage. Analysts polled by Platts had predicted an increase between 90 and 94 billion cubic feet.

Orders for U.S.-made factory goods increased a seasonally adjusted 1.2% in April, led by a tripling in orders for civilian airplanes and parts, the Commerce Department estimated Thursday. Excluding transportation goods, orders fell 0.5%. Shipments rose 0.6%. Orders for core capital equipment goods fell 2.6% after rising 6.7% in March. Inventories declined 0.2%. The inventory-to-sales ratio remained at 1.24, the lowest since July 2008 and a sign that inventories may be too low. Economists surveyed by MarketWatch were expecting factory orders to rise 1.8%. March orders were revised higher to a 1.7% gain from 1.1% earlier.

Services industries in the United States were growing for the fifth straight month in May, the Institute for Supply Management reported Thursday. The ISM non-manufacturing index was unchanged at 55.4% in May. Economists surveyed by MarketWatch were looking for the index to slide to 55.2% in May. Readings over 50% indicate more firms were expanding than contracting. In May, 16 of 18 industries were growing. The new orders index fell 1.1 percentage points to 57.1%, and the employment index rose above 50% for the first time in 29 months.

EIA: Oil inventories decrease by 1.9 mln barrels. Crude oil for July delivery added $1.75 to settle at $74.61 a barrel on the New York Mercantile Exchange. Natural gas prices jumped 6% as a separate report showed a smaller-than-expected increase in natural gas in storages. Natural gas for July delivery added 27 cents to $4.69 per million British thermal units.

The Dow Jones industrials closed up 6 points to 10,255. Trading was volatile: The blue chips had been up as many as 66 points during the day -- and down as many as 74 points. The Standard & Poor's 500 Index was up 4 points to 1,103. The Nasdaq Composite Index was up 22 points to 2,303.

ZeroHedge: "The Fed lent out $6.6 billion in liquidity swaps this week to foreign banks, of which the biggest beneficiary was the ECB, with a 1 week swap of $5.4 billion and an 84 day swap of $1.0 billion. The only other bank receiving Fed aid was the Bank of Japan, which got $210 million. What is funny is that the ECB is now an example of just how large the FX imbalance in Europe is: the ECB has had to lend out $6.4 billion in dollars even as banks have hoarded €320 billion in euro deposits with the ECB, a new all time record. In other words, nobody wants euros, and everybody is dying to get their hands on dollars. But somehow the market is supposed to believe the funding situation in Europe is ok. Lastly, the $6.6 billion in total Fed liquidity swaps $5.4 billion greater than the prior week's $1.2 billion. We wonder what spin will be applied to explain the 500% increase in world dollar funding requirements."

Wednesday, June 02, 2010

Gulf of Mexico

6/2/10 Gulf of Mexico

BP hopes to place a cap on a fractured oil pipe and contain the Gulf of Mexico spill within the next 24 hours, a top company official said Tuesday.

"If everything goes well, within the next 24 hours, we could have this contained," BP's chief operating officer Doug Suttles told reporters in Louisiana.

The U.S. Food and Drug Administration approved on Tuesday the sale of Amgen Inc's osteoporosis drug Prolia to help prevent fractures in postmenopausal women just days after the medicine received European approval.

US Mint has run out of American Eagle silver coins and is also out of gold American Eagles.

FT: "The events of May 6 revealed that while getting rid of old-style “specialist” market makers has reduced the cost of trading by narrowing bid-ask spreads, the benefit has come at a cost. Now, no one has an obligation to provide prices for all shares all the time during a trading day, as trading has fragmented across an array of electronic trading venues and traders. The moment the markets grow too risky, many new electronic market makers appear only too willing to head for the exit.”

Martin Hutchinson: "In its simplest form as understood by leftist politicians and many of the dozier members of the general public, Keynes' theory is nothing more nor less than a fallacy. It fails to recognize that the stimulus money has to come from somewhere, and that withdrawing it from circulation will have an opposing effect on jobs that may cancel out the Keynesian effect of the spending. The Congressional Budget Office's scoring of the jobs created by the stimulus, for example, estimates the Keynesian multiplier for each item of spending and from this estimates job creation. It neither corrects its estimates by reference to newly released unemployment data, nor takes account of the economic effect of the government borrowing that funds the stimulus spending.
Keynes himself, a subtler economist than many of his followers, did not take account of the effect of interest rates on conditions generally, but he also did not recommend “stimulus” spending in every downturn. In his view, only when the economy had become trapped in a suboptimal equilibrium, with some available resources unused and output below the full employment level, should a burst of government spending be used to get it out. Such a suboptimal equilibrium is theoretically impossible under classical economics, but Keynes, recognizing the real world in the labor market if not the capital market, postulated that in a world with strong unions wages might be sticky on the downside, in which case the labor market could equilibrate at less than full employment."

Japanese Prime Minister Yukio Hatoyama will announce his resignation at an emergency meeting of ruling Democratic Party of Japan lawmakers later Wednesday, national broadcaster NHK reported. NHK said Hatoyama conveyed his intent to resign to DPJ leaders.

Employers announced 38,810 job cuts in the month, slightly more than the 38,326 unveiled in April, according to the report from global outplacement consultancy Challenger, Gray & Christmas.

Iran's central bank has announced it will sell 45 billion euros from its foreign exchange reserves to buy dollars and gold, Reuters reported Wednesday, citing China's official Xinhua news agency.

The market for corporate bond sales closed as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt.

No companies issued bonds in the U.S. yesterday, compared with $2.2 billion on the corresponding day following the Memorial Day weekend in 2009, according to data compiled by Bloomberg. In Europe, 1.35 billion euros ($1.66 billion) was raised from two sales of covered bonds, versus 6.5 billion euros a year earlier, Bloomberg data show.

China's Stocks Decline to 13-Month Low.

China Daily: "A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.

With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.

Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.

That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.

It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble."

Stephen Schork: " Last week spot Nymex Henry Hub futures traded up through and closed above (positively sloped) 14, 30 and 50 day moving averages. What’s more, as of Friday the RSI, 58.1, was also sloped to the upside. These are indeed bullish events, but with one caveat… volume was very weak last week.

Nevertheless, here at The Schork Report we remain cautiously bullish in gas as we approach the dog days of summer."

Americans make up 5 per cent of the world's population but guzzle 25 per cent of the oil supply. Were our demand for oil considerably less, then companies would not be drilling one mile down in the ocean. All Americans are responsible for this oil spill.

The pending home sales index rose 6% in April after an upwardly revsed 7.1% increase in March, the National Association of Realtors reported Wednesday. The index covers signed contracts, not final sales, which usually lag by a month or two. The federal government has been subsidizing home sales with tax credits of up to $8,000 for qualified buyers who signed a sales contract by the end of April. The sale must close by June 30 to qualify. The index is up 22% compared with April 2009.

UK insurer Prudential has abandoned its plan to buy AIG's Asian life unit for $35.5 billion, leaving management under fire and the company facing a $659 million bill for failure.

BP Plc successfully cut the riser pipe at the ruptured well in the bottom of the Gulf of Mexico, but the diamond wire blade got stuck during the second cut on Wednesday, Coast Guard Admiral Thad Allen said in a press conference. BP will attempt to work the blade out of the pipe or possibly lower a second saw down to the pipe. Allen said BP remains confident that it will make the cut in order to put a cap over the leaking pipe. The results of the effort should be known by the end of the day, he said. If it's a clean cut, BP will put a cap with a rubber seal on it to capture the leaking oil; if not, it'll use a looser-fitting top hat cap to capture the oil, he said.

Jim Letourneau: "While things are looking pretty grim for the Gulf of Mexico, it's no stranger to having oil contaminate its ecosystem. Indeed natural processes are responsible for more than 60% of the petroleum entering North American waters, according to the National Academies. I'm not saying the BP (BP) disaster is excusable but sometimes having some sense of proportion can lead informed discussion instead of a media circus. The NASA Earth Observatory scientists estimated in 2000 that oil seeps from the sea floor at more than 600 locations. In aggregate, the annual volume of natural seepage in the Gulf of Mexico is conservatively estimated to equal that of two Exxon (XOM) Valdez spills every year. The issue with the BP disaster is that all the oil is coming from a single source like a fire hose instead of hundreds of leaking faucets. The use of dispersants may help mitigate the damage and give hydrocarbon-degrading microbes a better chance to chow down on some of the spill."

The Financial Times on Monday reported that, according to several Google employees, Windows is on its way out in the company as a result of security concerns.

The Dow Jones industrials jumped 226 points, or 2.3%, to 10,250. The Nasdaq Composite Index added 59 points, or 2.6%, to 2,281. The Standard & Poor's 500 Index was up 28 points, or 2.6%, to 1,098.

Crude-oil stockpiles declined 1.4 million barrels in the week ended May 28, The American Petroleum Institute reported Wednesday. The trade group based in Washington. Analysts polled by Platts had predicted a decline of 1 million barrels. Gasoline inventories declined by 962,000 barrels, the API reported. That compared to expectations of a decrease around 750,000, according to Platts. Crude oil settled marginally higher on Wednesday, at $72.86 a barrel, and traded at $73.42 a barrel in after-hours electronic trading.

Tuesday, June 01, 2010

Oil Sector Losses

6/1/10 Oil Sector Losses

HP to cut 9,000 jobs.

BP shares down 19% in London.

The euro traded at $1.2118 versus the dollar in recent action.

Rob Hanna: "we’ve reached an area where risk has pretty much maxed out in the past under similar conditions – at least temporarily. "

Euro buying power is down over 10% against the yuan so far through this 2010 crisis.

Fadel Gheit, an analyst at Oppenheimer Research, notes Exxon originally set aside $5.4 billion to cover legal settlements and paid $3.4 billion in cleanup costs. The Exxon legal settlement was eventually reduced to just $507.5 million with $500 million in interest payments.

In a potentially early indicator of an economic slowdown in China, the country's purchasing managers' index fell more than expected in April. Hang Seng -1.4%, Nikkei -0.6%. China’s Purchasing Managers’ Index dropped to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists.

John Hussman: "My impression is that the main struggle of the stock market here is not about Europe, but rather centers on the likelihood that the U.S. will experience a second wave of credit strains. Clearly, the level of credit strains will be a function of mortgage delinquencies and foreclosure losses, both realized and anticipated. I've noted that we entered the primary window for these strains to emerge only a few months ago. Alt-A and Option-ARM mortgage resets will hit their stride between now and November, with a second, even higher peak in 2011, before finally trailing off in early 2012. I am most concerned about the "recognition phase" in which the current, very low estimates of credit strains are revised by investors....

I tend to get particularly concerned when the market begins to exhibit extremely large fluctuations at ten-minute intervals. This sort of increasing "micro-volatility" is troublesome, particularly when in the context of a leadership reversal coming off of overvalued, overbought, overbullish extremes. The last time we observed similar internal dispersion coupled with a leadership reversal was at the 2007 market peak.

As I noted in the July, 30 2007 comment (Market Internals Go Negative), "This is much like what happens when a substance goes through a “phase transition,” for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its “critical point,” you start to observe larger clusters as one phase takes precedence and the particles that have “made a choice” affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market's tendency to experience increasing volatility at 5-10 minute intervals prior to major declines."

The Bank of Canada raised its key interest rate from a record low today, the first Group of Seven country to do so since last year’s global recession, and said further moves will be “weighed carefully” against future growth in Canada and elsewhere.

The target rate on overnight loans between commercial banks rose to 0.5 percent from 0.25 percent, as predicted by 25 of 27 economists surveyed by Bloomberg News. It was Mark Carney’s first increase as governor and the bank’s first since July 2007.

Advanced economies face years of anemic growth and the risk of a double-dip recession as their citizens cope with sluggish employment and highly indebted governments, economist Nouriel Roubini said on Monday.

ately off nearly $2 a barrel, as worries about Europe's debt troubles had investors flocking to the U.S. dollar, helping push the euro to a four-year low. "A stronger U.S. dollar is undermining demand for oil as a hedge against inflation," noted analysts at Action Economics. The contract for July delivery fell $1.84, or 2.5%, to $72.13 a barrel on the Comex division of the New York Mercantile Exchange.

The problems in China's housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, said recent state measures to cool the property market needed to be part of a long-term push to bring high prices under control . He added there were still signs the economy was overheating and urged modest increases in interest rates and the level of the currency. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he said in an interview. "It is more than [just] a bubble problem."

ECB expects additional $239.26B in write-downs by European banks.

The Institute for Supply Management said its index of national factory activity slipped to 59.7 in May from 60.4 in April. The median forecast of 73 economists surveyed by Reuters was for a reading of 59.0. A reading above 50 indicates expansion in the sector.

The report's employment component rose to 59.8, the highest since May 2004, from 58.5, while new orders held steady at 65.7, suggesting slower growth in the euro zone has yet to have much effect on U.S. manufacturing.

Upward revisions to earnings estimates for the S&P 500 have been overly optimistic, said Adam Parker, chief investment strategist at BernsteinResearch, in a report Tuesday. Consensus estimates for 2010 imply 30% growth in earnings per share to $82 a share in 2010, and 18% growth to $97 a share in 2011. In contrast, Parker predicts 25% EPS growth for 2010, to $79 a share, and 9% growth in 2011 to $86 a share. "Our view is that the EPS estimates embedded in consensus are too high for 2011 and perhaps for the second half of this year," wrote Parker. The "record pace" of upward revisions has fueled too much optimism, he said. "The challenge is that you will likely not see any evidence of this in the first half of the year," he said. He recommended owning companies with lower EPS growth expectations.

The five key companies connected to the spill over the last six weeks--- BP, Anadarko Petroleum, Transocean Ltd., Cameron, and Halliburton--combined, the five companies have lost 36.6% of their market capitalization since the week in which Deepwater Horizon exploded and later sank, spewing millions of gallons of crude oil into the Gulf of Mexico. The market loss to date approximates $40 billion. That does not take into account the losses reflected in other companies within the oil service and oil-related sector.

The Dow Jones Industrial Average fell 112.61 points, or 1.1%, to 10,024.02, after it rose up to 10,218 during the session. The S&P 500 index fell 18.70 points, or 1.7%, to 10,024.71, pressured by a 4.3% drop in its energy sector. The Nasdaq Composite dropped 34.71 points, or 1.5%, to 2,222.33.

Reuters reports that "The U.S. mint sold 190,000 1-ounce American Eagle gold coins in May, the largest number since January 1999, and the most in any month so far in 2010, according to a spokesman for the U.S. agency."

Monday, May 31, 2010

Memorial Day

5/31/10 Memorial Day

Although no sculptured marble should rise to their memory, nor engraved stone bear record of their deeds, yet will their remembrance be as lasting as the land they honored. ~Daniel Webster

China warned on Monday that Europe's struggle to contain ballooning debt posed a risk to global economic growth, raising the specter of a double-dip recession.
Premier Wen Jiabao, addressing business leaders during an official visit to Japan, issued his warnings a day after France admitted it will struggle to keep its top credit rating and days after a downgrade of Spain's credit status again jolted financial markets.

BP shares dropped more than 8% in Frankfurt trade, with more than 1 million shares changing hands.

Bloomberg: Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating.

Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings Ltd., Country Garden Holdings Co. and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage- point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan.

Israeli commandos stormed Gaza-bound aid ships on Monday and at least 10 pro-Palestinian activists on board were killed, unleashing a diplomatic crisis and charges of a "massacre" from the Palestinian president.

France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.

"Most of BP's fuel oil team, including the global head and the heads of the three trading centers, have left in the past month," a U.S.-based source said.

BP has been a major player over the past 15 years in the fuel oil market. In Asia, it regularly trades 500,000-600,000 tonnes of physical cargoes monthly.

The departures in the U.S. of fuel oil leader, Tim Gawne, another physical trader and the third who traded derivatives, left the team with one derivatives trader, the sources said.

German President Horst Koehler said on Monday he was resigning with immediate effect due to widespread criticism of comments he made about the country's military action and commercial interests.

The euro looks set to end the month of May around 7.5 percent lower against the dollar as ongoing debt problems in euro zone countries have rocked confidence in the euro system.

BP told regulators six weeks before its well in the Gulf of Mexico exploded that workers were having trouble maintaining control, according to e-mails.

The patriot's blood is the seed of Freedom's tree. ~Thomas Campbell

Interior Department Secretary Ken Salazar said Thursday a moratorium in place for 33 rigs in the Gulf only applies to exploratory, deepwater wells in 500 feet of water or more, not those that currently are producing oil.

Are they dead that yet speak louder than we can speak, and a more universal language? Are they dead that yet act? Are they dead that yet move upon society and inspire the people with nobler motives and more heroic patriotism? ~Henry Ward Beecher

Rigzone: The relief well is estimated to cost $100 million. The relief wells, in 5,000 ft of water, will be drilled to 16,000 ft below the seabed to seal the leak. The second well is intended to serve as a backup should BP encounter problems reaching the target with the first. BP anticipates that it will take approximately three months to complete each well from the commencement of drilling.

The dead soldier's silence sings our national anthem. ~Aaron Kilbourn

The Sunday Times reports that "three German-built Israeli submarines equipped with nuclear cruise missiles are to be deployed in the Gulf near the Iranian coastline."

The House of Representatives voted Friday to freeze looming Medicare physician payment cuts until 2011 as part of a two-piece benefits package.
The so-called "doc fix" section, separated from the rest of the bill amidst Democratic in-fighting, cleared by a 245-171 vote mostly split down party lines, with only a handful of Republicans supporting it.

The legacy of heroes is the memory of a great name and the inheritance of a great example. ~Benjamin Disraeli

Sunday, May 30, 2010

Oil Spill

5/30/10 Oil Spill

The Oil Drum: "Top Kill Fails To Plug Oil Spill, BP Now To Try LMRP Cap

The oil giant immediately began readying its next attempted fix, using robot submarines to cut the pipe that's gushing the oil and cap it with funnel-like device, but the only guaranteed solution remains more than two months away.

The company determined the "top kill" had failed after it spent three days pumping heavy drilling mud into the crippled well 5,000 feet underwater. It's the latest in a series of failures to stop the crude that's fouling marshland and beaches, as estimates of how much oil is leaking grow more dire.

BP said preparations have been made for the possible deployment of the lower marine riser package (LMRP) cap containment system, which would be complex because of the depth of the oil leak.Deployment would first involve removing the damaged riser from the top of the failed BOP to leave a cleanly-cut pipe at the top of the BOP's LMRP.The cap, a containment device with a sealing grommet, will be connected to a riser from the Discoverer Enterprise drillship, 5,000 feet above on the surface, and placed over the LMRP with the intention of capturing most of the oil and gas flowing from the well. Mr Suttles said it should capture "most of the oil" and was expected to last at least four days but "we cannot guarantee success at this time."

Gretchen Morgenson: "Glass-Steagall was a 34-page document.

The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined.

Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises."

Mike Burk: "Indicators derived from downside volume and new lows offer the most timely indications of bottoms. Last week new lows all but disappeared but downside volume did not. When there is a discrepancy like this it is usually the other way around....Since 1963, over all years the OTC in June has been up 53% of the time with an average return of 0.3%. However, during the 2nd year of the Presidential Cycle June has been has been up only 27% time with an average loss of -1.4% (the last up June during the 2nd year of the Presidential Cycle was 1998)....

The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. That pattern calls for a rally through the end of next week followed by a resumption of the decline.

I expect the major averages to be higher on Friday June 4 than they were on Friday May 28."

Arnold Bock: "The magnitude of current private and government debt, coupled with massive unfunded contingent liabilities for promises of future services to their citizens, will prove to be impossible for many nations to fund. Massive inflation in the money supply will become the preferred vehicle to deflect the default monster and will result in vastly devalued currencies and price inflation as a prelude to default. Such action will be a desperate attempt to buy time to stave off the inevitable and will result in social unrest caused by persons whose comfortable lifestyle and elevated standard of living is about to disintegrate before their very eyes."

Guy Lerner: "The "Dumb Money" indicator is bearish and this is a bullish signal. This is the first bullish signal since March 8, 2009."

Payrolls climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years.

Seeking Alpha: "Thousands of Americans expecting to keep their homes after starting trial mortgage modifications could still wind up in foreclosure thanks to a technicality known as investor-based denial - which allows the final owner of the debt, usually invisible to the homeowner, to veto the conversion from trial to permanent mod."

“The technical damage that has been done to the charts is quite formidable," Gijsels said. "A lot of indices have turned the corner and are trading below their 200-day moving average. In many case we are not too far from a death cross," a bearish sign where a 50-day moving average drops below the 200-day moving average.

Tobacco company Reynolds American said Friday it will close two cigarette plants as it adjusts to declining demand for cigarettes.

Barry Ritholtz: "Matt Simmons says “Top Kill” is a sideshow, misses the big problem of a second leak 5 to 7 miles away releasing up to 120,000 barrels/day. Simmons goes on to say we might need nukes to seal the leak.


Today Matt Simmons, one of the largest investment bankers in the energy industry appeared on Bloomberg. The chairman of Simmons & Co. INTL went on to explain that there is much more to the oil leak than the news has been reporting. Last Sunday, NOAA confirmed reports of a second fissure about 5-7 miles from the original. This new fissure appears to be releasing a plume the size of Delaware and Maryland combined! He went on to state that “the plume from the riser is minor thing… the best estimate is about 120,000 barrels of oil per day”.

"The evil of the world is made possible by nothing but the sanction [that] you give it." ('John Galt Speech' 1957)