Friday, July 16, 2010

Consumer Sentiment

7/16/10 Consumer Sentiment

The largest earthquake ever recorded near the capital rattled Washington, D.C., early Friday, waking many residents but causing no reported damage. The quake hit at 5:04 a.m. ET with a magnitude of 3.6, according to the U.S. Geological Survey. It was centered near Rockville, Md., the USGS said. It could have been the result of an overload of socialism and/or fascism.

July Reuters/UofM Consumer Sentiment: 66.5 vs. 75 expected and 76 in June. Expectations 60.6 vs. 70.7 expected. It's the lowest reading in 11 months, just 2.5 months after peaking. "Income and job prospects were extraordinarily weak and those bleak prospects have made consumers much more cautious spenders," the survey said.

BP PLC said Friday its pressure test continues of the well containment system blocking up the ruptured Macondo oil well in the Gulf of Mexico. After successfully shutting the oil in the well, pressure in the system has risen to 6,700 pounds per square inch. BP Senior Vice President Kent Wells said the company's spill center has measured a "steady build" in pressure, beyond the minimum target of 6,000 pounds per square inch. Preliminary data shows that no breach of the system is taking place, he said. BP has also re-started work on the relief well being drilling to take the pressure off the ruptured well, he said.

Wal-Mart Stores Inc.'s profit and sales estimates were cut by Sanford C. Bernstein & Co. on Friday. Analyst Colin McGranahan cut his second-quarter U.S. same-store sales estimate to a decline of 0.5% from a 1.5% increase and his profit estimate to 96 cents a share from 99 cents. He also lowered his U.S. same-store sales estimate for the year to a 0.3% increase from a 1.1% gain and profit estimate to $3.99 a share from $4.04. He said recent management changes at Walmart U.S., with Eduardo Castro-Wright leaving his position as head of the unit and John Fleming leaving his role as chief merchandising officer, could create some "near-term execution risk." He said he also expects there will be some "notable differences" in management style under the leadership of new chief Bill Simon. The analyst said the chain's string of rollbacks, or price cuts, seemed to have a "limited impact" on traffic. Wal-Mart, which has won some new higher income shoppers during the recession, also may not be able to keep all of them as the economy improves, the analyst said. He also said the company's sales growth tends to be hurt by the rising gasoline prices more so than at almost any other retailer.

The index for U.S. consumer prices fell 0.1% in June, reflecting the third straight monthly decline, the Labor Department reported Friday. Lower gasoline costs mostly accounted for the decline. The closely followed core rate, seen as a better gauge of inflationary trends, rose 0.2% but still remains very low. The core rate excludes volatile food and energy prices. Economists surveyed by MarketWatch had predicted a flat reading in overall consumer prices and a 0.1% increase in the core rate. Over the past 12 months, CPI has climbed 1.1% and the core has risen a scant 0.9%, according to government data.

The European single currency extended its rebound versus the U.S. dollar to temporarily push above the $1.30 level in midday London trade Friday.

WSJ: Apple engineers were aware of the risks of the new antenna design as early as a year ago, but CEO Steve Jobs liked the design so much that Apple went ahead. Apple doesn't plan to recall the iPhone 4.

Corn futures surged to six-month high, and soybeans rose to the highest price since early May on mounting concern that hot, dry weather in the next six weeks may damage crops in the U.S., the world’s biggest producer and exporter. Wheat jumped the most in 19 months on speculation that a prolonged dry spell will widen crop damage in Russia, the world’s fourth-largest exporter.

Foreign investors reduced purchases of long-term U.S. securities in May, reining in their buying of U.S. government and corporate bonds, the Treasury Department said on Friday. Net long-term capital inflows fell to $35.4 billion in May from a downwardly revised $81.5 billion inflow in April.

BP is moving toward a deal with oil and gas explorer-producer Apache to sell assets priced between $10 billion and $11 billion, possibly all in cash, with an agreement to come as soon as next week, Bloomberg News reports Thursday, citing two people familiar with the matter.
Apache has raised between $6 billion and $7 billion in financing for a potential deal, one of the people said, with BP pressing for a conclusion before July 27, when it is to report second-quarter earnings.
A sale of BP assets to Apache would include half of BP's stake in Alaska's Prudhoe Bay field.
Goldman Sachs Group and Bank of America are advising Apache, while Standard Chartered is advising BP.

Citigroup and Bank of America reported lower revenues.

In May 2010, China dumped $33 billion in Treasuries, bringing its total to the lowest since June 2009.

Gold futures fell $20.10, or 1.7%, to $1,188.20 an ounce by the close of floor trading in New York Friday, caught up in in a broader flight from commodities and stocks after consumer sentiment dived and consumer prices dropped. It was the biggest one-day drop since May 21, according to FactSet Research. For the week, gold based on the most active contract has lost 1.8%. Copper for September delivery fell 8 cents, or 2.7%, to close at $2.93 a pound.

Six bank failures bring 2010 tally to 96!

U.S. stocks fell sharply Friday and ended with weekly losses of about 1%, dragged lower by tumbling financial stocks as investors gave a thumbs down to the latest big bank earnings and economic reports. The Dow Jones Industrial Average closed off 261.41 points, or 2.5%, at 10,097.90, led by a 9.2% drop in the shares of Bank of America Corp. It was the worst day for the Dow since June 29, and all 30 components closed lower. The S&P 500 ended down 31.6 points, or 2.9%, to 1,064.88, led by a 4.4% drop in financial stocks. The Nasdaq Composite sank 70.03 points, or 3.1%, to 2,179.05. For the week, the Dow lost 1%, the S&P 500 fell 1.2% and the Nasdaq Composite sank 0.8%.

Thursday, July 15, 2010

The Oil Spill

7/15/10 The Oil Spill

The Automatic Earth: "That is, what Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion-, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that's right: US homeowners lost more, by a factor of 26, than they "gained" through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333." Of the 986 bank holding companies in the US last year, a total of 980 of them LOST MONEY.

BP engineers were working early Thursday to fix a leak in a line attached to a new cap for the runaway well so they could resume a crucial test that could stop the rush of oil into the Gulf of Mexico for the first time since the disaster began three months ago. But a BP spokesman said the company had found a hydraulic leak on the line attached to one of the valves, and that they were repairing it before moving forward.

It was not clear how the discovery of the leak would affect the timing of the planned tests on the well.
BP PLC said it will attempt to start a crucial pressure test of its new containment system over the blown-out Macondo well on Thursday, after a delay. In a critical step for BP to tame the massive leak in the Gulf of Mexico, engineers will begin closing off valves and hatches after fixing a leak on a choke line and hub system on the sea bed over night. The fix delayed the start of the pressure test from its earlier target of late Wednesday, when BP received a final OK from U.S. officials to move ahead.
Oil stopped gushing into the Gulf of Mexico for the first time in nearly three months, as BP began testing the cap atop its stricken well, a critical step toward sealing the well permanently.

The Empire state index fell to 5.1 in July from 19.6 in June. Readings over zero indicate growth, with higher numbers indicating more firms were growing. In July, 27% of firms responding to the survey said business had improved, while 22% said conditions had worsened. The new orders index fell to 10.1, while the shipments index fell to 6.3. The prices paid index was little changed at 25.4.

U.S. wholesale prices fell a seasonally adjusted 0.5% in June - the largest decline since February - led by lower food prices, the Labor Department reported Thursday. Food prices fell 2.2%, the largest decline since April 2002, with prices for fresh and dry vegetables down 21.8%. In June energy prices fell 0.5%, with the gasoline index down 1.6%. The core rate in June, which excludes volatile energy and food prices, rose 0.1%, the eighth monthly gain in a row.

The number of people applying for initial state unemployment insurance benefits fell 29,000 to 429,000 in the week ended July 10, hitting the lowest level since August 2008, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 445,000. A Labor Department analyst cited fewer-than-expected manufacturing layoffs. The four-week average of initial claims - a better gauge of employment trends than the volatile weekly number - fell 11,750 to 455,250. Continuing claims in the week ended July 3 rose 247,000 to 4.68 million. Recent volatility in this number is due to seasonal adjustment issues, according to the Labor Department. The four-week average of these continuing claims rose 22,000 to 4.58 million. The total number of people collecting some type of unemployment benefits in the week ended June 26 was about 8.7 million, down about 270,000 from the prior week. A federal extension of benefits has expired, and an estimated 2.5 million people will have been cut off from benefits by July 17. Congress is working on a new extension that could be approved in coming days. ZeroHedge: "Lastly, the Initial Jobless Claims came in at 429,000 from 458,000 the week before, a number made irrelevant after various automakers announced they would continue summer production in autoplants that otherwise get shutdown for the period, thus skewing the seasonal adjustment. Indeed the Non Seasonally Adjusted number for the week surged from 468,492 to 513,347. Perhaps most relevantly for the economy, the collapse in those collecting EUC and extended benefits continues, with both categories coming in lower, at -236,162 and -18,580."

Private-equity firm The Carlyle Group will acquire nutritional supplements company NBTY Inc. in a deal valued at $3.8 billion, NBTY announced Thursday. Under the terms of the agreement, Carlyle will acquire all outstanding NBTY common shares for $55 per share in cash, a premium of around 57% over NBTY's average closing share price during the 30 trading days ended July 14. The deal must be approved by NBTY shareholders. The company said its board unanimously approved the merger agreement. BofA Merrill Lynch and Centerview Partners are acting as financial advisors to NBTY, while Barclays Capital and Credit Suisse are serving as financial advisors to Carlyle.

RealtyTrac®, the leading online marketplace for foreclosure properties, today released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009. The report also shows that 1.28 percent of all U.S. housing units (one in 78) received at least one foreclosure filing in the first half of the year.

Foreclosure filings were reported on 313,841 U.S. properties in June, a decrease of nearly 3 percent from the previous month and a decrease of nearly 7 percent from June 2009. June was the sixteenth straight month where the total number of properties with foreclosure filings exceeded 300,000.

Foreclosure filings were reported on 895,521 U.S. properties during the second quarter, a decrease of nearly 4 percent from the previous quarter and an increase of less than 1 percent from the second quarter of 2009. Default and auction notices were down on a quarter-over-quarter and year-over-year basis in the second quarter, but bank repossessions (REOs) increased 5 percent from the previous quarter and 38 percent from Q2 2009 to 269,962 — a new quarterly high for the report.

homes lost to foreclosure is tracking to hit one million households this year.

In the week ended July 7, ICI reports that domestic equity mutual funds saw $4.1 billion in outflows, the largest outflow in the past 2 months, and the third biggest weekly redemption in 2010! This is also the tenth sequential outflow, amounts to $34 billion in total outflows YTD.

EIA: Nat gas inventories up by 78 bln cubic feet. Working gas in storage was 2,840 Bcf as of Friday, July 9, 2010, according to EIA estimates. This represents a net increase of 78 Bcf from the previous week. Stocks were 33 Bcf less than last year at this time and 274 Bcf above the 5-year average of 2,566 Bcf. In the East Region, stocks were 47 Bcf above the 5-year average following net injections of 43 Bcf. Stocks in the Producing Region were 134 Bcf above the 5-year average of 852 Bcf after a net injection of 24 Bcf. Stocks in the West Region were 93 Bcf above the 5-year average after a net addition of 11 Bcf. At 2,840 Bcf, total working gas is within the 5-year historical range.
That compares to an increase of 88 billion cubic feet in the same week last year and a five-year average of 89 billion cubic feet.

The Energy Department on Thursday was expected to report an increase of 78 billion cubic feet to 82 billion billion cubic feet of natural gas storage inventories for the week ended July 9, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

ZeroHedge: "After a 0.5% decline overnight, the BDIY is now at exactly 1,700, marking the longest sequential decline since the launch of Windows 95. Little to add here. We anticipate that Tim Geithner will soon suggest stress tests to be conducted on dry bulk shipping vessels to the 5 or so Greek CEOs running the industry, with bailouts to come for those leaked to be in need for financing."

Here is the Philadelphia Fed Index released today: Business Outlook Survey.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 8 in June to 5.1 in July. The index, although still positive and suggesting growth, has fallen for two consecutive months. Indexes for new orders and shipments also suggest a slowing this month: The new orders index fell 13 points, to its first negative reading in 12 months, and the shipments index decreased 10 points but remained positive. Indicating weakness, indexes for both delivery times and unfilled orders fell and were in negative territory this month.

Guest Post: Is the Well Integrity Test Failing? courtesy of ZeroHedge

→ Washington’s Blog

[Videos embedded in my blog]

Read this first, for background.

BP suspended the “top kill” operation for 16 hours – because, according to numerous experts, it was creating more damage to the well bore – without even telling the media, local officials or the public that it had delayed the effort until long afterwards.

BP also admitted – many days after it stopped the top kill attempt – (1) that BP had to stop because mud was leaking out below the seafloor, and (2) that capping the well from the top could blow out the whole well.

Similarly, it took more than 5 hours for BP to publicly announce the delay of the “well integrity test” after the decision to delay was made.

So BP doesn’t have a great track record of promptly informing us of what is happening.

But now that the well integrity test (background here and here) is underway, can we somehow tell if it’s working or not?

The government previously announced that the test would succeed if pressure in the well of 8,000-9,000 psi were observed for a sustained period. As Coast Guard admiral Thad Allen said:

We are looking for somewhere between 8,000 and 9,000 PSI inside the capping stack, which would indicate to us that the hydrocarbons are being forced up and the wellbores are being able to withstand that pressure. And that is good news.

If we are down around in the 4,000 to 5,000, 6,000 range that could potentially tell us that the hydrocarbons are being diverted someplace else, and we would have to try and assess the implications of that. And as you might imagine, there are gradations as you go up from 4,000 or 5,000 PSI up to 8,000 or 9,000. …

We will at some point try to get to 8,000 or 9,000 and sustain that for some period of time, and these will be done basically, as I said — if we have a very low pressure reading, we will try and need (ph) at least six hours of those readings to try to ensure that that is the reading. If it’s a little higher, we want to go for 24 hours. And if it’s up at 8,000 or 9,000, we would like to go 48 hours just to make sure it can sustain those pressures for that amount of time.

Images from BP’s Oly Rov1 camera show the gauge for the input on the blowout preventer has been 2,000 psi for quite some time. "Apollo 13 was launched at 13:13 CST on April 13th, 1970, 40 years later BP tapped a Methane/Oil pocket under 175,000 psi, replaced drill mud with seawater in the drill casing allowing expanding Methane a path to the well head and 7 independent valves then failed on Deepwater Horizon. Cappping the well is not an option since the well casing ruptured, allowing Oil/Methane into the surrounding seabed; a secondary well shaft, required internationally would have prevented this but was not drilled."

More than 39% of investors feel bullish about the market, compared to about 37% feeling bearish and nearly 23% feeling neutral. Last week, 21% of investors felt bullish, 22% felt neutral and 57% felt bearish. The latest week markst the strongest bullish sentiment since May 20, when 41% of investors told AAII they felt bullish.

Goldman Sachs agreed Thursday to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse three years ago.

Google CEO Eric Schmidt said the company saw solid growth in its core business during the second quarter, with revenues jumping 24 percent to $6.82 billion. Net income also rose to $1.84 billion. Even so, the results missed analysts' targets and the stock fell more than four percent in after hours trading.

But Schmidt offered a word of optimism about the business going forward. "We saw strength in every major product area, as more and more traditional brand advertisers embraced search advertising and as large advertisers increasingly ran integrated campaigns across search, display, and mobile," he said in a press release. "We feel confident about our future, and plan to continue to invest aggressively in our core areas of strategic focus."

Wednesday, July 14, 2010

Retail Sales

7/14/10 Retail Sales

ZeroHedge: "The record slaughter of shippers continues as the BDIY posts the largest overnight drop of 4.5% in the most recent 34-consecutive day trounce in dry bulk shipping rates. Short term Capsize and Panamax charters for Pacific delivery have hit $29k and $19k, respectively, both approximately 30% lower than comparable Atlantic delivery rates as the Chinese transit corridor is now massively oversupplied. At this point it is not a question of if but when the bulk of shipping companies, especially levered ones, start going bankrupt and flood the seas with yet more anchored rusting dry bulk hulls."

The government reported U.S. retail sales fell 0.5% in June, while U.S. import prices dropped 1.3% for the month.

U.K. consumer confidence fell further in June, according to a poll by lender Nationwide. After dropping 10 points in May, the index fell another 3 points to 63, the worst reading in a year.

Those in Florida affected by the Gulf of Mexico oil spill may now access the poison hotline, sponsored by the American Association of Poison Control Centers, with questions and concerns. Many throughout the state are confused and frustrated regarding the health impact of the oil spill.
American Association of Poison Control Centers have answered calls across the nation regarding the impact of the Gulf of Mexico oil spill. Their official website provides updates regarding the number of calls the poison hotline has received.

BP Plc delayed testing a new cap placed over its leaking Gulf of Mexico oil well to give scientists more time to study the procedure used to measure pressure levels.
BP and government officials said they still intend to conduct the assessment, which BP and the Obama Administration will use to determine whether the leak can be safely sealed with a 40-foot (12-meter) stack of valves bolted to the top of the well on July 12.

The Energy Information Admnistration reported a decline of 5.1 million barrels in crude inventories in the week ended July 9, whereas analysts polled by Platts expected a drop of 2.6 million barrels. The EIA also reported an increase of 1.6 million barrels for gasoline stocks and a rise of 2.9 million barrels for stocks of distillates, which include heating oil and diesel. The analysts surveyed by Platts had projected increases of 950,000 barrels in gasoline supplies and 800,000 barrels in distillate supplies. Refineries operated at 90.5% of their operable capacity last week, the EIA said. Analysts had forecast a drop by 0.4 of a percentage point to 89.4%.

More than 7 out of 10 Americans say the economy is mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll.

Charles Hugh Smith: "Chinese citizens have poured their life savings into speculative real estate. This is not just misallocation, it is an inescapable capital trap."

Rob Hanna: "Large gaps up like yesterday that reach new highs, go unfilled and finish above the open don't often follow through over the short-term."

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 9, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9 percent on a seasonally adjusted basis from one week earlier. This week’s results include an adjustment to account for the Independence Day holiday. On an unadjusted basis, the Index decreased 12.6 percent compared with the previous week.
The Refinance Index decreased 2.9 percent from the previous week and the seasonally adjusted Purchase Index decreased 3.1 percent from one week earlier. This was the lowest Purchase Index observed in the survey since December 1996. The unadjusted Purchase Index decreased 12.7 percent compared with the previous week and was 43.0 percent lower than Independence Day week one year ago.

“If you ask me where the silver lining is for President Obama, I have to say I cannot see one,” says Bill Galston, a former Clinton official, who has been predicting for months the Democrats could lose the House. “Just as BP’s failure to cap the well has been so damaging, Obama’s failure to cap unemployment will be his undoing. There is nothing he can do to affect the jobless rate before November.”

Nigeria's state-run oil company is "insolvent" and needs $6.6 billion to cover its debts and fund future oil exploration in the West African nation, a government minister said Tuesday.

May Business Inventories: +0.1% to $1,355.7B vs. +0.2% expected and +0.4% last month. Sales -0.9% to $1,090.2B. Inventory/sales ratio rises to 1.24 from 1.23 prior, and vs. 1.41 a year ago.

The funded ratio of the typical corporate U.S. pension plan fell 6 percentage points in June to 74%, its lowest level since February 2009, when the funded ratio was 73%.

ZeroHedge: "As we reported earlier, the June US budget deficit came in around as expected, at $68.4 billion. Yet an interesting observation that we have touched upon previously, is that over the same period, the US borrowed a whopping total of $210.9 billion. Once again, as has been the case over the past four years, the US borrowed far more in any deficit month, then it needed simply to close the deficit. Case in point, the June differential was $142.5 billion more borrowed than "needed", the YTD (fiscal) differential is $290 billion, and the cumulative differential since the beginning of the 2007 Fiscal year (October 2006), is a whopping $1.5 trillion. Over the past 3 years and 9 months, the US has accumulated an incremental $4.7 trillion in new debt, even as the budget deficit has grown by "only" $3.2 trillion. One wonders just what the reason for this differential is, which amounts to half the cumulative budget deficit over the same time period?"

If BP's well passes the integrity test, the new cap could contain most -- if not all -- of the leak that's been gushing into the Gulf for more than two months.
BP engineers will slowly close valves on the 75-ton capping apparatus and measure the buildup of pressure.
BP hopes the well can withstand internal pressure of 8,000 to 9,000 pounds per square inch for roughly six hours after the valves are closed.
While the containment cap could stem the flow of oil, the best way to stop the leak permanently will be by drilling a relief well, an effort expected to wrap up in a few weeks.
If the well casing flunks its integrity test, BP plans to return to siphoning oil from the well pipe on the sea floor via collection vessels on the surface.

China Loans Are `Distorted,' 28% Higher Than Official Numbers, Fitch Says.

Florida banks are seeking capital-requirement waivers because of the oil spill's impact on business in the state.

Magellan Midstream Partners to buy BP Plc storage at Cushing, Oklahoma, delivery point for U.S. crude futures for $289 million.

The Dow Jones Industrial Average finished up 3.70 points at 10,366.72. The S&P 500 index fell 0.17 point to 1,095.17, weighed down by a 0.9% drop in its financials sector. The Nasdaq Composite rose 7.81 points, or 0.4%, to 2,249.84.

Tuesday, July 13, 2010

Chinese Credit Agency

7/13/10 Chinese Credit Agency

The U.S. trade deficit widened by 4.8% in May to $42.3 billion, the Commerce Department said Tuesday. The widening of the trade deficit was unexpected. The consensus forecast of Wall Street economists was for the deficit to narrow to $38.8 billion from $40.3 billion in April. Imports rose faster than exports in May. The deficit for the year now totals $197.8 billion, up from $143.8 billion in the same period last year. The U.S. trade deficit with China widened to $22.3 billion in compared with $17.5 billion in the same month last year.

The International Energy Agency said 2011 global oil demand will climb by 1.6%, or 1.3 million barrels of oil equivalent a day, to 87.8 million barrels a day, the first time the agency estimated 2011 demand. That forecasts assumes the IMF is right in predicting 4.3% economic growth, $79.40 average per-barrel prices and a 2.6% drop in oil intensity. The 2010 view of 86.5 million barrels a day, a rise of 2.1% from 2009, was a mild upgrade of roughly 50,000 barrels a day.

Rob Hanna: "Monday marked the 5th higher close in a row. This kind of persistence coming off a low has almost always led to further upside over the intermediate-term."

Public confidence in President Obama has hit a new low, according to the latest Washington Post-ABC News poll. Four months before midterm elections that will define the second half of his term, nearly six in 10 voters say they lack faith in the president to make the right decisions for the country, and a clear majority once again disapproves of how he is dealing with the economy.

Small Business Optimism Index drops 3.2 points to 89 after posting modest gains for several months. "The U.S. economy faces hurricane force headwinds, and the government is at the center of the storm," NFIB chief economist William Dunkelberg says. The index typically bounces back quickly following a recession, but not this time.

A Chinese credit rating agency downgraded the U.S. sovereign debt rating to AA with a negative outlook, along with other major Western nations, while slamming its Western counterparts.

The Baltic Dry has plumbed to a fresh 14 month low, continuing its longest drop in 9 years, down for a 33rd sequential day to 1,790 from 1,840.

The U.S. government ran a budget deficit of $68 billion in June, the Treasury Department reported Tuesday, and said that the deficit was a little more than $1 trillion for the first nine months of fiscal year 2010. Income was $251 billion in June, the Treasury said, about $36 billion higher than receipts in June 2009. Spending was $319 billion in June, versus $309 billion a year ago. The monthly deficit is the 21st consecutive budget shortfall but is well below the year-ago figure of $94 billion. 2010 Federal individual income tax collections are running 4.4% lower, or $31 billion below 2009 levels.

Intel reported 51 cents a share in earnings on revenue of $10.8 billion. Earnings were up from a loss of 7 cents a share a year ago; revenue was up 35% from a year ago's $8 billion. Analysts had expected earnings of 43 cents and revenue of $10.25 billion. Intel boosted third-quarter revenue guidance to $11.6 billion; the consensus estimate had been $10.9 billion.

Dow Jones industrials closed up 147 points, or 1.4%, to 10,363. The Nasdaq Composite Index was up 44 points, or 2%, to 2,242, and the Standard & Poor's 500 Index was up 17 points, or 1.5%, to 1,095.

Monday, July 12, 2010

Census Workers

7/12/10 Census Workers

Aon Corp. on Monday agreed to acquire consulting and outsourcing group Hewitt Associates Inc. in a $4.9 billion cash and stock deal. Aon will pay $25.61 a share in cash and 0.6362 of its own shares for every Hewitt share, valuing the deal at $50 a share, or a 41% premium to Hewitt's closing price on Friday, the two companies said. Aon said it intends to integrate Hewitt with its existing consulting and outsourcing operations and operate the business under the newly created Aon Hewitt brand. The deal is expected to generate around $355 million in annual cost savings by 2013. It is expected to dilute reported earnings by 8.4% in 2011 before providing a lift to earnings in the following year.

BP said Monday that the cost of the response to the Gulf of Mexico oil spill has reached around $3.5 billion. The group also said that the installation of a new sealing cap that is intended to capture more of the leaking oil is proceeding as planned. BP is developing further containment systems that should be able to capture between 60,000 and 80,000 barrels of oil a day and the group said it expects these projects to begin operations towards the end of July. On Saturday, a total of 15,200 barrels of oil were collected or flared and 35.2 million cubic feet of gas were flared. The company said it has so far received 105,000 claims and has made payments on roughly 52,000 of them.

John Hussman: "There is little question that we have, for more than a decade, squandered our productive resources in the pursuit of bubbles. Almost unbelievably, real private gross domestic investment is lower today than it was 12 years ago, and much of the gross domestic investment that we have made in the interim has been destroyed in mispriced speculative activity such as residential construction and commercial real estate development....On a valuation basis, the S&P 500 remains about 40% above historical norms on the basis of normalized earnings. The disparity between our valuation assessment and the putative undervaluation being touted by Wall Street analysts is so great that a few remarks are in order. First, virtually every assessment that "stocks are cheap" here is based on the ratio of the S&P 500 to year-ahead operating earnings estimates, and often comes with a comparison of the resulting "earnings yield" with the depressed 10-year Treasury yield. What's fascinating about this is that this is the same basis on which analysts deemed stocks to be about 40% undervalued just prior to the 2007 top, following which the market plunged by more than half."

NYT: "Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.
U.S. banks must refinance about $1.3 trillion through 2012."

Iron ore imports by China, the largest buyer, fell for a third month as steel prices slide amid weakening demand from automakers and builders. Exports of steel products gained to the highest level since September 2008. Imports dropped 9 percent to 47.2 million metric tons in June from 51.9 million tons in May, according to data provided by the General Administration of Customs today. Imports fell 15 percent from 55.3 million tons a year earlier. Chinese steel prices have fallen 17 percent from an 18- month high on April 15 following government moves to curb property speculation.

China set to consume 50% of global coal production this year.

NYT: "When the Census Bureau hired upward of 700,000 Americans over the last two years -- most in the last six months -- it landed more experienced workers with more sophisticated skills than any time in recent memory. This was the unintended upside of the nastiest recession of the last 70 years.
Now, its decennial work largely done, the Census Bureau is shedding hundreds of thousands of workers -- about 225,000 in just the last few weeks, enough to account for a jot or two in the unemployment rate, say federal economists. Most of those remaining will be gone by August; a few will last into September."

Jennifer Feaals: "According to most recent data, which is being retrieved and analyzed daily, the sonar as Mayer proposed has detected oil approximately 4,000 feet below the water's surface.
Starting in late May, sonar equipment was installed on two NOAA vessels — the Thomas Jefferson and Gordon Gunter — conducting research in the area of the spill. Instead of using multi-beam sonar, as Mayer originally anticipated, UNH scientists installed fisheries sonar that was better suited for the oil research. In addition to the sonar, other equipment was added like a flourometer, which illuminates oil or other matters.
"Our concern and focus was the deep oil. You can see oil on the surface and keep track of it," Mayer said. "But below, where is it, how much is there and where is it going?"....In two specific areas, Mayer and his crew believe they have found the presence of oil 3,700 to 4,000 feet below the water's surface.
"There are high fluorescent values, in many cases we believe are associated with oil," he said. "The other thing we found is a lot of natural gas seeps we can see quite nicely coming out of the sea floor."
Just two days after these high fluorescent values were found, a subsequent look showed they were no longer there. It is unclear what this means, Mayer said, and a question the center continues to search for the answer to.
"Oil should float to the surface, but something is keeping it deep. This is a very intriguing scientific question," he said.

Ignore the uber-low yields on U.S. government debt. It's only a matter of time before markets lose confidence in the U.S. government argues Harvard professor Niall Ferguson.
Right now Washington is benefiting from global worries, such as those being seen in Europe, but that won't last for long. If you want to look for a pivotal moment: Watch for when debt interest payments begin to eclipse defense payments. In fact, this will happen inevitably, even if there's no imminent spike in Treasury yields. It's inevitable, until and unless, lawmakers show the political will to put the country on a "credible path" of fiscal responsibility, Ferguson says.

The Baltic Dry Index dropped 3.3% to 1840 from 1902, a 32nd sequential decline and a the longest drop in 9 years. Can the trend continue? Joe D
hit in 56 consecutive games.

Shares of Playboy Enterprises Inc. soared more than 35% Monday after founder Hugh Hefner offered to take the adult-entertainment company private for $5.50 a share. The parent company of Penthouse Magazine, FriendFinder Networks, plans to make an offer for Playboy Enterprises Inc.

The Treasury Department sold $35 billion in 3-year notes on Monday at a yield of 1.055%, the lowest level on record.

A monopoly abuse lawsuit against Apple and AT&T's mobile-phone unit can continue as a class action against the two companies, a U.S. judge ruled.

Microsoft CEO Steve Ballmer today said there are Windows 7-based tablets on the way from 20 manufacturers, including Acer, Dell, Samsung, Toshiba and Sony. Ballmer made the remarks at the company’s annual partner conference today in Washington, D.C., Reuters notes.

As of Wednesday, 407 oil exposure complaints had been reported to the American Association of Poison Control Centers. In Louisiana, more than 100 oil spill-related illnesses were reported, 74 of them from workers hired by BP. With $10 million set aside for tracking and surveillance of oil spill-related illnesses in states along the Gulf Coast, officials at the Department of Health and Human Services admit that little is known about the health impacts of oil spills on humans.
In the last 50 years, at least 400 spills have occurred around the world, yet only seven of them have been studied to date. Perhaps that’s why health officials on both the federal and local levels are now clamoring to implement health surveillance systems in Louisiana, Alabama, Mississippi and Florida.

The Dow Jones industrials closed up 18 points to 10,216. The Nasdaq Composite Index was up 2 points to 2,198, and the Standard & Poor's 500 Index was up 1 point to 1,079.

Sunday, July 11, 2010

Oil Spill

7/11/10 Oil Spill

Mike Burk: "After setting some negative records the previous week most of the major indices were up every day last week leaving the market over bought for the short term...New lows declined sharply last week falling into single digits on the NYSE for the first time since June 21. NYSE downside volume has been in an downward trending pattern for nearly 2 months....The market has been swinging from one extreme to another, but has been following the average seasonal pattern quite closely all year and that pattern suggests the next week and a half will be down.
I expect the major averages to be lower on Friday July 16 than they were on Friday July 9."

China’s trade surplus widened to the highest this year and exports climbed more than estimated to a record in June, adding pressure on the government to let the currency gain after the U.S. said the yuan “remains undervalued.”
The gap increased 140 percent to $20.02 billion from a year earlier, the nation’s customs bureau said yesterday. That compares with the $15.6 billion median estimate of 24 economists Bloomberg News surveyed. Exports surged 44 percent and import growth moderated for the third month, rising 34 percent.

China’s foreign-exchange reserves, the world’s largest, rose at the slowest pace in 11 years in the second quarter as expectations for a yuan appreciation diminished and the European sovereign debt crisis saw capital move out of emerging markets.
The nation’s holdings rose by $7.2 billion to $2.454 trillion yuan at the end of June from the end of March, the People’s Bank of China said today, the smallest increase since the second quarter of 2001. Reserves dropped 2 percent in May, according to data posted on the central bank’s website, the first monthly decline since February 2009.

Oil is once again flowing freely into the Gulf of Mexico, and will continue to do so for at least two days, after BP removed its containment cap as the first step to placing a tighter-fitting dome. If all goes well, BP will be able to completely contain the leak by Monday.

Randall W. Forsyth: "Market Semiotics, Woody Dorsey's Castleton, Vt.-based advisory, early last week found that the preponderance of bullish opinion on bonds over bullish opinion on stocks had moved to the high end of the range he's observed going back to the late 1990s. Similarly, the percentage of equity bulls in the American Association of Individual Investors polling hit 21%, the lowest since March 5, 2009, one day before the market's low, observes Richard Ross, global technical strategist at Auerbach Grayson.
From a contrarian standpoint, conditions were ripe for a reversal, as deflationary trends seem to have fully discounted. That also held in the currency markets, with the euro continuing to recover against the dollar."

BP PLC is talking with Apache Corp. about possibly selling 12 billion pounds ($18 billion) worth of assets including a stake in Alaska's Prudhoe Bay oil field, The Sunday Times reported.
BP spokesman Robert Wine and Apache spokesman Bill Mintz both said their companies would not comment on "speculation."
The Sunday Times said Apache, based in Houston, was discussing the possibility of acquiring BP assets. The newspaper did not cite a source for its report.

The Oil Drum: "In one of the country’s biggest infrastructure projects in its history, Australia’s five largest cities are spending $13.2 billion on desalination plants capable of sucking millions of gallons of seawater from the surrounding oceans every day, removing the salt and yielding potable water. In two years, when the last plant is scheduled to be up and running, Australia’s major cities will draw up to 30 percent of their water from the sea."

Washington’s Blog courtesy of ZeroHedge
"As I previously pointed out, the Gulf oil spill is very similar to 9/11, because - in both cases - the responders helping with rescue and clean up were getting sick ... but were told they don't need any safety gear. And see this.
In addition, the government is keeping scientists away from "ground zero" of the oil spill and - for that reason - scientists cannot accurately measure the size of the oil spill.
BP has also tried to cover up its blunders by lowballing spill estimates, keeping reporters out of areas hardest hit by the oil (and see this, this, this and this) and threatening to arrest them if they try to take pictures (and see this), hiding dead birds and other sealife, and using dispersants to hide the amount of spilled oil (the dispersants are only worsening the damage caused by the spill).
The government is complicit in all of these cover-ups. Indeed, the Obama administration has made it a felony to get near enough to oiled wildlife and beaches to film them.
Similarly, the official 9/11 investigators were themselves largely denied funding, access to the site and the evidence contained there, or even access to such basic information as the blueprints for the world trade center.
Indeed, just as the government and BP have consistently underestimated the amount of oil gushing out of the Gulf, the blueprints for the World Trade Center are still to this day being withheld from reporters and the public, and the government agency in charge of the investigation has grossly mischaracterized the structure of the buildings.
How are we supposed to improve building safety regulations if the blueprints are still being hidden from engineers and scientists investigating the collapse of world trade center buildings 1, 2 and 7 on September 11th?......

The second section of drill pipe is key to the oil leak story for another reason. As the Times-Picayune notes, it has contributed to problems in securely capping the leak from the point where it's leaking so that more oil can be captured:
The presence of two pipes could have also contributed to BP's failure to make a clean cut on the riser when securing the existing containment dome, inhibiting its ability to collect the maximum amount of oil.


Allen said the second pipe also led to a jagged cut on the larger riser pipe, forcing the response team to use the loose cap with a rubber seal. And now, the two pieces are forcing the team to spend several days tying them together and clearing the way for a new, hopefully more solid connection.
Finally, the two sections of drill pipe are important because they may have been one of the reasons that the blowout preventer failed in the first place.

As the Times-Picayune notes:
Some experts say a second piece of drill pipe in the riser could have prevented shear rams on the rig's blowout preventer from sealing the well and permanently cutting off the flow of oil after the April 20 explosion.
Even if it turns out that this is one of the causes of the BOP's failure, it might not be the only cause. As I pointed out in May:
[Mike Williams, the chief electronics technician on the Deepwater Horizon, and one of the last workers to leave the doomed rig] claimed that the blowout preventer was then damaged [Several weeks before the Gulf oil explosion] when a crewman accidentally moved a joystick, applying hundreds of thousands of pounds of force. Pieces of rubber were found in the drilling fluid, which he said implied damage to a crucial seal. But a supervisor declared the find to be “not a big deal”, Mr Williams alleged."