Saturday, July 24, 2010

Fiscal Train Wreck

7/24/10 Fiscal Train Wreck

Federal budget deficit to exceed $1.4 in 2010 and 2011!!!! Bloomberg (Roger Runningen): “President Barack Obama’s budget office said this year’s federal deficit will be a record $1.47 trillion, about $84 billion less than forecast in February because of lower spending for unemployment and some government programs. The administration predicted in its mid-session review that the deficit for the 2011 spending year, which begins Oct. 1, will be $1.42 trillion, $150 billion more than estimated at the beginning of this year, mostly because of lagging tax receipts.”

Bloomberg (Andy Fixmer and Christopher Palmeri): “U.S. cities and states may need more than $1 trillion of federal assistance in the next three years to stave off financial failure, former Los Angeles Mayor Richard Riordan said. Local governments are in a ‘race to the bottom’ and U.S. taxpayers will inevitably be called on to bail them out, Riordan said… The federal government should make pension, health-care and school reform a condition of receiving the aid, he said… ‘It’s not just L.A., it’s not just California, it’s all over the country, you’re going to see all these entities become totally insolvent,’ Riordan said. ‘I think the federal government has to come in and have a list of what the states have to do to be saved.’”

Doug Noland: "The title of Mr. Trichet’s remarkable op-ed piece in today’s FT was direct and to the point: “Stimulate No More – It Is Now Time For All To Tighten.” The head European central banker has spoken publicly and in no uncertain terms: unrelenting government stimulus is today fraught with great risk. Mr. Trichet should be commended for courageously taking to the next level one of the most important debates of our time.
From Mr. Trichet: “…Given the magnitude of annual budget deficits and the ballooning of outstanding public debt, the standard linear economic models used to project the impact of fiscal restraint or fiscal stimuli may no longer be reliable. In extraordinary times, the economy may be close to non-linear phenomena such as a rapid deterioration of confidence among broad constituencies of households, enterprises, savers and investors. My understanding is that an overwhelming majority of industrial countries are now in those uncharted waters, where confidence is potentially at stake. Consolidation is a must in such circumstances.”....In the post-Bubble backdrop, private-sector (household and financial sector) Credit has contracted, and there is little prospect for meaningful expansion for some years to come. Unlike the early nineties, there will be no miraculous new type of finance to fuel booms in the economy, asset prices, and government receipts. Financial innovation and the reckless expansion of Wall Street finance will not bail out Washington. We're basically left with a massive expansion of government debt until the markets decide to impose discipline.
Our recovery has been completely dependent upon government spending and ultra-loose monetary policy. This has entailed an incredible increase in Treasury borrowings. The markets assume our rapidly deteriorating fiscal situation will improve as the economy recovers. On the spending side, the economy is now dependent on massive federal stimulus. I don’t expect any self-imposed restraint on government expenditures. And, importantly, it would take renewed expansion of private-sector debt to meaningfully boost the ratio of governmental receipts to expenditures. Washington – or the states – can’t spend its way to fiscal recovery. Instead, we’re witnessing a fiscal train wreck. Our policymakers, economists, and pundits should read Mr. Trichet carefully and contemplate a course other than inflationism."

"...the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations."

Professor Carroll Quigley
Tragedy and Hope: A History of the World in Our Time (1966)

In June, employers took 1,647 mass layoff actions involving 145,538 workers.
Seven banks were seized in seven
U.S. states, marking the second year in a row in which at least
100 lenders have collapsed.Chinese banks may struggle to recoup
about 23 percent of the 7.7 trillion yuan ($1.1 trillion)
they’ve lent to finance local government infrastructure
projects, according to a person with knowledge of data collected
by the nation’s regulator. European Union stress tests are set
to ignore the majority of banks’ holdings of sovereign debt
after regulators decided against testing securities held in
their banking books. “The haircuts are applied to the trading book portfoliosonly, as no default assumption was considered,” the European
Central Bank said in a confidential document July 22 entitled
“EU Stress Test Exercise: Key Messages on Methodological
Issues.” Bloomberg (Christian Vits and Simon Berberich): “German business
confidence unexpectedly surged to a three-year high in July after
exports boomed and economic growth accelerated. The Ifo institute said
its business climate index, based on a survey of 7,000 executives,
jumped to… the highest since July 2007… the biggest monthly increase
since records for a reunified Germany began in 1990.”"Japan's government debts are the highest the world has ever seen, at
219 percent of gross domestic product, according to the International Monetary
White House expects unemployment above 9% until 2012.

Friday, July 23, 2010

Stress-- 2nd post for today

7/23/10 Stress

“Stress is basically a disconnection from the earth, a forgetting of the breath. Stress is an ignorant state. It believes that everything is an emergency. Nothing is that important. Just lie down.”
Natalie Goldberg

The Dow Jones Industrial Average rose 102.32 points, or 1%, to 10,424.62, less than four points shy of where it stood when the year began. Up 3.6% from the week-ago close, the S&P 500 gained 8.99 points, or 0.8%, to 1,102.66, its first finish above 1,100 since June 18. The Nasdaq Composite added 23.58 points, or 1.1%, to 2,269.47, a weekly rise of 4.2%.

Reduced government spending will cut the deficit to $1.47 trillion in 2010, the White House said Friday, revising its February estimate downwards by $84 billion. In its mid-session review, the White House's budget office also predicted that the U.S. jobless rate will average 9.7% in 2010, and that economic growth will rise by 3.1% this year. "The U.S. economy still faces strong headwinds," says the report.

Gold for August delivery declined $7.80, or 0.65%, to $1,187.80 an ounce. On the week gold declined less than 0.1%. Silver tracked gold lower, but copper, platinum and palladium rose. Palladium for September delivery added 2.2%.

Sanofi-Aventis has approached biotech drug maker Genzyme Corp."informally" to pursue a possible acquisition, The Wall Street Journal reported Friday on its online edition, citing unidentified sources familiar with the matter. Shares of Genzyme jumped 20% to $65 in recent activity.

I got a pair of red, synthetic satin women's pants through the post the other day with a phone number on. That was quite strange. I haven't tried the phone number. In times of stress I may.
Jarvis Cocker


7/23/10 Corporatism

"Cardinal Climax: Saturn opposes Uranus on July 26, 2010, and squares Pluto on August 21, 2010. These will cause dramatic social change.
Powerful Mars also opposes Uranus on July 30, 2010, conjoins Saturn on July 31, 2010, opposes Jupiter on August 3, 2010, and squares Pluto on August 3, 2010, bringing buried aggression to a crescendo. Jupiter also squares Pluto on August 3, 2010, which also will bring long-held discontent of the populace to the surface. Jupiter then opposes Saturn on August 16, 2010, and Uranus squares Pluto, intensifying the disorder – and in conventional
organized social structures. Certain planetary alignments put people under extra stress. And one way this stress manifests itself is in financial markets. After all, financial markets are a mix of fundamentals and emotion. Since astrologic events affect our emotions, I find it profitable to study the planets. I have examined every substantial move in the Dow Jones Industrial Average since 1896, and I find that when planets are at difficult angles, then owning stocks and commodities is riskier." Arch Crawford

BP said Friday that relief-well activities at the MC252 well site in the Gulf of Mexico will be temporarily suspended because of potentially adverse weather associated with Tropical Storm Bonnie, which is projected to track into the Gulf. Duration of the suspension of relief-well activities will be dependent on the weather, BP said. It will continue to monitor the MC252 well, which has been shut in for integrity testing over the past seven days, for as long as weather permits.

McDonald's Corp reported weaker-than expected sales at established restaurants for its second quarter and the month of June, and its shares fell 1.5 percent.
Overall same-store sales rose 4.8 percent for June and the second quarter. Analysts were expecting increases of 5 percent for the quarter and 5.3 percent for June.
The world's biggest hamburger chain said global same-store sales for July were trending in line or better than the second quarter.

Earlier this week BP admitted some of the oil spill photographs posted on its website had been altered by staff using Photoshop, after the website AmericaBlog highlighted discrepancies between BP images and their original.

The victor will never be asked if he told the truth.
Adolf Hitler

The head of the American Association of Professors has accused BP of trying to "buy" the best scientists and academics to help its defence against litigation after the Gulf of Mexico oil spill.
"This is really one huge corporation trying to buy faculty silence in a comprehensive way," said Cary Nelson.
BP faces more than 300 lawsuits so far.
In a statement, BP says it has hired more than a dozen national and local scientists "with expertise in the resources of the Gulf of Mexico".
The BBC has obtained a copy of a contract offered to scientists by BP. It says that scientists cannot publish the research they do for BP or speak about the data for at least three years, or until the government gives the final approval to the company's restoration plan for the whole of the Gulf.

What good fortune for governments that the people do not think.
Adolf Hitler

The stress tests conducted on 91 European banks examine sovereign-debt losses only on bonds traded rather than those held to maturity, Bloomberg reported Friday afternoon. Results of the stress tests are set for official release after the close of European markets. The report cited a document that specifies haircuts are applied only to trading book portfolios "as no default assumption was considered."

Washington Post: a federal judge pushed back Thursday against a contention by the Obama Justice Department that a tough new Arizona immigration law set to take effect next week would cause "irreparable harm" and intrude into federal immigration enforcement.

The emergency alarm on the Deepwater Horizon was not fully activated on the day the oil rig caught fire and exploded, triggering the massive spill in the Gulf of Mexico, a rig worker on Friday told a government panel.

“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power”
Benito Mussolini

Will Corporatism Destroy Democracy in America?

"In a day when special interests already hold our democracy by the throat, the court has helped them tighten their grip...The hypocrisy here is striking. And the impact of this ruling is frightening."
- "Reckless Supreme Court Ruling on Campaign Finance: Special Interests Win, We Lose"
Star Ledger Editorial Board (NJ), January 22, 2010

"The conceit that corporations must be treated identically to natural person in the political sphere is not only inaccurate but also inadequate to justify the Court's disposition of this case. In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. The cannot vote or run for office. Because they may be managed and controlled by nonresidents, their interests may conflict in fundamental respects with the interests of eligible voters. The financial resources, legal structure, and instrumental orientation of corporations raise legitimate concerns about their role in the electoral process. Our lawmakers have a compelling constitutional basis, if not also a democratic duty, to take measures designed to guard agains the potentially deleterious effects of corporate spending in local and national races...
The Court's ruling threatens to undermine the integrity of elected institutions around the Nation. The path it has taken to reach its outcome will, I fear, do damage to this institution.."

British philosopher E.B. Ashton:"Summed up...a Fascist economic structure might read as follows: organization of the national economy into independent bodies along trade or industrial lines; within these bodies equal rights to employers and employees in determining wages and working conditions, with any sort of struggle strictly forbidden and the state installed in every organizations superior authority."

Thursday, July 22, 2010


7/22/10 Congress

Red Skelton: “Congress: Bingo with billions”

The number of people applying for initial state unemployment insurance benefits rose 37,000 to 464,000 in the week ended July 17, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 450,000. The four-week average of initial claims - a better gauge of employment trends than the volatile weekly number - rose 1,250 to 456,000. Continuing claims in the week ended July 10 fell 223,000 to 4.49 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 fell 21,500to 4.57 million. 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 still working on a new extension that could be approved in coming days. The Senate on Wednesday voted to extend federal unemployment until the end of November. The measure goes to the House on Thursday.

General Motors said on Thursday that it is buying AmeriCredit for $3.5 billion in cash, in order to expand its ability to provide customer financing. Under the terms of the agreement, which has been approved by both companies' boards of directors, at closing, AmeriCredit shareholders will receive $24.50 in cash for each share of stock held as of the transaction closing date. "This acquisition supports our efforts to design, build and sell the world's best vehicles by expanding the financing options we can offer to consumers who want to buy GM vehicles," GM Chairman and Chief Executive Ed Whitacre said in a press release. AmeriCredit shares rose 22% in preopen trade on Thursday.

Caterpillar Inc. said Thursday its second-quarter profit climbed by 91% to $707 million, or $1.09 a share, from $371 million, or 60 cents a share, in the year-ago period. Revenue at the Peoria, Ill. maker of bulldozers and other earth-moving equipment recorded revenue of $10.4 billion, from $8 billion. Wall Street analysts expected Caterpillar to earn 83 cents a share, on revenue of $9.6 billion, according to a survey by FactSet Research. Caterpillar lifted its 2010 outlook to $3.15 to $3.85 a share, from its earlier view of $2.50 to $3.25 per share. "While there are significant economic concerns around the world that we are watching closely, orders have continued to outpace our shipments, and we expect to increase production in the second half of the year," the company said. Caterpillar forecast worldwide economic growth of about 3.5% for 2010.

Diamond Offshore Drilling Inc. said Thursday its second-quarter net income fell to $224.4 million, or $1.61 per share, from $387.4 million, or $2.79 per share in the year-ago period. Revenue dropped to $823 million, from $946 million. Wall Street analysts expected the oil service firm to earn $1.83 a share on revenue of $884 million, according to a survey by FactSet Research. "The decline in renewal contract dayrates from peak levels is continuing to impact our results," the company said. Diamond Offshore cut its special dividend to 75 cents a share, from $1.38 a share. It also trimmed its regular quarterly dividend to 12.5 cents a share. The company made the dividend cuts to reflect the "lower revenue stream and the continuing uncertainty" surrounding the U.S. drilling moratorium in the Gulf of Mexico.

NYTimes: "A confidential survey of workers on the Deepwater Horizon in the weeks before the oil rig exploded showed that many of them were concerned about safety practices and feared reprisals if they reported mistakes or other problems. In the survey, commissioned by the rig’s owner, Transocean, workers said that company plans were not carried out properly and that they “often saw unsafe behaviors on the rig.”
Some workers also voiced concerns about poor equipment reliability, “which they believed was as a result of drilling priorities taking precedence over planned maintenance,” according to the survey, one of two Transocean reports obtained by The New York Times.
“At nine years old, Deepwater Horizon has never been in dry dock,” one worker told investigators. “We can only work around so much.”

ZeroHedge: "Matt Simmons shares some startling revelations in his latest Bloomberg TV interview, in which he says none of the propaganda matters on TV 24/7 (photoshopped or not) as the ultimate clean up cost will likely be well over $1 trillion, and a result he is unconcerned about his BP short. He ultimately see the stock going down to $1. What Simmons alleges however is far more startling and audacious: that this is a joint cover up effort between the administration and BP, in which both entities keep throwing sand in the eyes of observers while distracting everyone from the matter at hand: "What we don’t know anything about is the open hole which is caused by the drill bit when it tossed the blow-out preventer way out of the hole…and 120,000/day minimum of toxic poison has now covered the floor of the Gulf of Mexico. So what they’re talking about is the biggest environmental cover-up ever. And they knew that that well, that riser, would finally deplete. And then they could say it’s over." On blaming the catastrophe on Transocean: "For two days they kept saying it’s a rig fire. When the rig sank they could no longer call it a rig fire. It’s a riser leak…Because if they said the truth they would all go to jail." The conclusion: "Unfortunately, we now have killed the Gulf of Mexico."

Safeway lowered its profit forecast to $1.50 to $1.70 a share for the year with non-fuel identical-store sales of a decline of 1% to 1.5%. In April, it projected profit of $1.65 to $1.85 a share.

The Energy Department on Thursday is expected to report an increase of 49 billion cubic feet to 53 billion cubic feet in natural gas inventories for the week ended July 16, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
EIA weekly NG storage +51.
The increase compares to the 70-bcf addition in the same week of 2009 and a five-year average increase of 64 bcf.

China's Car Dealers Cut Prices, Hand Out iPods as Sales Slow.

20% of Americans Hit by Major Economic Loss. A new study released Wednesday estimates that 20% of Americans suffered a significant economic loss last year - the highest level in the past 25 years.

According to Labor Department data, about 45 percent of the 14.6 million people unemployed in June had been out of work for six months or more.

Resales of U.S. homes fell 5.1% in June to a seasonally adjusted annual rate of 5.37 million after a federal subsidy for home buyers ended, the National Association of Realtors estimated Thursday. Economists surveyed by MarketWatch were expecting sales to fall about 10% to a 5.10 million annual pace. Inventories of unsold homes increased 2.5% to 3.99 million in June, representing an 8.9-month supply, the highest since August 2009. In coming months, the supply is expected to rise above 10 months, putting downward pressure on prices, said Lawrence Yun, chief economist for the real estate agents' lobbying and advocacy organization.

The index of leading economic indicators declined 0.2% in June, following an upwardly revised increase of 0.5% in May. Economists polled by MarketWatch had expected the index to fall 0.3% in June. Five of the 10 indicators that make up the index rose in June, with the largest positive contribution from the interest rate spread. The largest negative contribution came from average weekly manufacturing hours. Manufacturers' new orders for nondefense capital goods were steady.

Lenny Bruce: “In the halls of justice, the only justice is in the halls”

Airgas Inc. said Thursday that the $65.30 per share acquisition bid received from Air Products & Chemicals Inc. is insufficient. The industrial gas supplier said Air Products' offer "fails to fairly compensate stockholders for the value inherent in Airgas." Air Products had earlier in the day said it sent a letter to Airgas shareholders urging them to tender their shares into the offer, before an Aug. 13 expiration.

The Dow Jones Industrial Average ended 201.77 points, or 2%, higher at 10,322.3 points. The S&P 500 added 24.08 points, or 2.3%, to 1,093.67, with all sectors higher. The Nasdaq Composite gained 58.56 points, or 2.7%, to 2,245.89 points.

“The secret of happiness is freedom. The secret of freedom is courage.”

Wednesday, July 21, 2010

Lenny Bruce

7/21/10 Lenny Bruce

David Rosenberg (courtesy of Zero Hedge): "The growth rate on the ECRI leading index did it again! It sank further into negative terrain, now at -9.8% during the week ending July 9, down from -9.1% the prior week. This was the tenth deterioration in a row and the growth index is now negative for six straight weeks. We have never failed to have a recession with the ECRI at current levels but there is also inherent volatility in the index that requires acknowledgment. Our reckoning is that in the past few weeks, the index has gone from pricing in even-odds of a double-dip to two-in-three odds. It may take a while, but Mr. Market will figure it out before long."

Take away the right to say "fuck" and you take away the right to say "fuck the government." ~Lenny Bruce

Bloomberg: Payrolls decreased in 27 U.S. states in June, led by California and New York, signaling the slowdown in hiring is broad-based.
Employers in California cut staff by 27,600 workers last month and those in New York reduced employment by 22,500, the Labor Department said today in Washington. Tennessee, Arizona and New Mexico rounded out the five states with the biggest job losses.

US crisis manager Adm Thad Allen said the tunnelling should finally reach BP's broken well by the weekend and he was "pleased with the progress".

Censorship reflects society's lack of confidence in itself. It is a hallmark of an authoritarian regime. ~Potter Stewart

Coca-Cola Co. said Wednesday that its second-quarter profit jumped 16% to $2.37 billion, or $1.02 a share, from $2.04 billion, or 88 cents a share, a year earlier. Revenue rose 5% to $8.67 billion. Excluding non-recurring items, the company said it would have earned $1.06 a share in the latest period. Analysts, on average, estimated profit of $1.02 a share on sales of $8.74 billion, according to FactSet. Shares of Coca-Cola, a member of the Dow Jones Industrials Average, rose 1.4% in pre-market trading.

United Technologies lifted its 2010 earnings target to $4.60 a share to $4.70 a share, from $4.50 a share to $4.65 a share. United Technologies is a component of the Dow Jones Industrial Average.

Apple gained 3.4 percent in pre-market New York trading after forecasting higher-than-estimated fiscal fourth-quarter sales and reporting third-quarter sales and profit greater than analysts’ predictions.

Roughly a million fewer people have jobs this year, compared with last year..

Randall W. Forsyth: "The Fed has fixed short-term rates near zero, reducing the scope of the of the yield curve's possible fluctuation. And as the prospect of an eventual Fed rate hike is pushed further out in the future, the likelihood is for the yield curve's upward slant to flatten.
That's the view of Marcus Krieger, deputy chief investment of officer of Amundi London, part of the eighth-largest global fixed-income manager with €688 billion in assets under management. He sees bets on a further flattening of the U.S. Treasury yield curve as an almost certain winner—regardless of which way interest rates move.
To be sure, the yield curve has flattened in the past three months. Since the beginning of April, when the consensus was that interest rates had nowhere to go but up, the benchmark 10-year Treasury yield has fallen from 4% to just under 3%, to 2.95%.
At the same time, the two-year note yield has tumbled to 0.58%, close to a record low, from a peak of 1.17% in early April. The spread between the two- and 10-year notes thus narrowed to 237 basis points (2.37 percentage points) from 283 basis points at the curve's steepest slope."

The federal estate tax is scheduled to return with a vengeance on Jan. 1, 2011, imposing a levy of up to 55% on estates valued at more than $1 million.

Bloomberg: The Bank of Canada increased its benchmark lending rate for a second month, and said economic growth will be slower through next year, giving policy makers more leeway in deciding how fast to raise rates.
Governor Mark Carney raised the target rate for overnight loans between commercial banks a quarter point to 0.75 percent, a decision expected by all 20 economists surveyed by Bloomberg News. At the same time, he cut the growth forecast to 3.5 percent from 3.7 percent for this year and to 2.9 percent from 3.1 percent for 2011, according to a statement today from the Ottawa-based bank.

China's largest reported oil spill had more than doubled by Wednesday, closing beaches on the Yellow Sea and prompting an environmental official to warn the sticky black crude posed a "severe threat" to sea life and water quality.

"We effectively work for the government here," says Bob Dudley, BP's lead exec in the Gulf of Mexico. From new directives daily to a $75,000 non-itemized bill for a one-day visit by VP Biden, the White House is now in control of both BP's checkbook and resources in the Gulf.

Ambrose Evans-Pritchard: "Is the latest collapse in the BDI a leading indicator of a wilting souffle in China/US/world, or is it just the lagging effect of new ships flooding the market? Or both at once.
The facts are that the BDI index of freight rates for bulk goods such as iron ore, coal, and soybeans, has fallen from 4,200 to 1,720 since the end of May. The Capesize index (ships too big for the Suez Canal, and essentially a proxy for iron ore) has dropped even more sharply from 5,520 to 1,676.
These indexes are highly volatile. They gave a good warning signal before the onset of the Great Recession, but they also gave a false alert when they plunged in the early summer of 2005.
William Lyth from the Baltic Exchange says you need to keep an eye on two twists that are unrelated to the health of the global economy.
1) “There are too many ships. People have over-ordered and it is starting to bite. There are 235 new Capesize vessels hitting the market this year,” he said.
2) More murky is the game being played between China and the big Iron ore companies, Vale, BHP, and Rio. China has stockpiled a near record 70 million of iron ore. If it using this reserve as bargaining tool in its battle with suppliers, that would explain part of the Capesize crash (and Capesize make up a quarter of the BDI index)
That said, I am broadly on the side of the heretics (surprise, surprise). It makes little sense arguing about the BDI without taking into account the blizzard of dire data from the US over recent weeks, and the turn in the OECD leading indicators for China, India, Brazil, France, Italy, the UK, and Canada – ie, the world economy minus Germany (which is a special case with a rigged currency)."

U.S. Census Bureau said single-family housing starts in June fell by 0.7%.

Traders are also watching the Gulf of Mexico, where the National Hurricane Center said there is a 60% chance of the formation of a tropical cyclone over the next two days.

The Energy Information Administration reported a rise of 400,000 barrels of oil for the week, while analysts polled by Platts had expected a decline of 1.6 million barrels and a trade group on Tuesday reported a decline of 241,000 barrels for the same week. Meanwhile, gasoline inventories rose 1.1 million barrels, the EIA said, and stockpiles of distillates, which include diesel and heating oil, rose 3.9 million barrels. The analysts surveyed by Platts had expected an increase of 1 million for gasoline stocks and 1.6 million for distillate stocks.

It's been reported that Verizon will launch Droid2 next month.

The test of democracy is freedom of criticism. ~David Ben-Gurion

More than 2 million long-term jobless workers are one step closer to reclaiming federal unemployment-insurance benefits, following a Wednesday evening vote in the U.S. Senate. Senators voted 59 to 39 in favor of the bill to retroactively fund extended federal benefits through November at a cost of about $34 billion. More than 2 million people have lost safety-net support payments since early June after federal benefits for the long-term unemployed started to phase out. The House of Representatives is expected to vote Thursday to approve the bill, and President Barack Obama is expected to sign it soon afterwards.

The Dow Jones Industrials Average lost 109.43 points, or 1.1%, to 10,120.53 by the close of trading. The S&P 500 fell 13.89, or 1.3%, to 1,069.59, with financials and consumer discretionary sectors leading decliners. The Nasdaq Composite lost 35.16 points, or 1.6%, to 2,187.33.
Bernanke called the economic outlook unusually unclear in testimony before Congress.

Tuesday, July 20, 2010

Letters Of Credit

7/20/10 Letters Of Credit

After a federal subsidy for buyers expired, housing starts fell 5% in June to a seasonally adjusted annual rate of 549,000 in June, the lowest level in eight months, the Commerce Department estimated Tuesday. The drop was worse than the 3% decline to 575,000 expected by economists surveyed by MarketWatch. Building permits rose 2.1% on the month, due to a 20% gain in permits for multi-family units. Permits for single-family homes - considered by many to be the most vital number in Tuesday's release - fell 3.4% to a seasonally adjusted annual rate of 421,000, the lowest level since April 2009.

Randall W. Forsyth: "When banks sell more houses than builders, things still are bad."

IBM Corp. and Texas Instruments Inc. failed to quench Wall Street's thirst for signs of revenue growth and prospects for the future. Results from Goldman Sachs Group Inc also disappointed, with shares of the Wall Street firm down 3.2% in premarket trade. Futures for the Dow Jones Industrial Average fell 101 points to 9,959. Those for the S&P 500 were off 11.6 points at 1,052.20. Nasdaq 100 futures declined 18.5 points to 1,787.

Johnson & Johnson revised its full-year estimate of adjusted earnings to $4.65 to $4.75 a share. The new numbers reflect the recalls of some over-the-counter medicines, the suspension of production at a McNeil plant in Fort Washington, Pa., and unfavorable foreign-exchange rates. FactSet's survey was looking for $4.81.

For fiscal 2010, Pepsi is targeting 11% to 13% growth in core constant currency earnings per share, from its 2009 figure of $3.71 a share.

Concerns about oil and gas seepages around BP's newly capped well in the Gulf of Mexico appear to have eased after the US government said they were not "consequential".

Toyota Motor has been subpoenaed by a U.S. federal grand jury in New York to submit documents related to steering problems.

According to research released Monday by Standard & Poor's, since 1900, when the market is negative for both January and the first half, full-year returns have been negative 77 percent of the time, with a median loss of 11.7 percent.

Senate set to extend unemployment benefits.

LA Times:
Reporting from Kenner, La. —
Months before the April 20 explosion on the Deepwater Horizon that killed 11 men, the sophisticated drilling vessel experienced power blackouts, computer glitches and a balky propulsion system, and carried a list of more than 300 deferred maintenance projects.
Under withering questioning during Monday's resumption of the Coast Guard- Interior Department investigation into the well blowout in the Gulf of Mexico, the rig's chief engineer revealed the possibility that alarms and other crucial systems were bypassed or not functioning at the time of the explosion.
His testimony also introduced a sensational detail: As crew members scrambled onto life rafts to abandon the crippled rig, the vessel's captain ordered an injured man to be left behind. The injured worker was eventually loaded onto a life raft and evacuated.....The engineer said the rig had been experiencing mechanical failures for months before the explosion. Bertone, an employee of Transocean, said the vessel's thruster, or propeller system, had been "having problems" for the previous eight months. In addition, the computer station where the rig's driller sits had temporarily lost electrical power days before the blowout, he said. Bertone said on the night of the explosion, he heard no general alarm, there were no internal communications and no power to the engines, and none of the Deepwater Horizon's backup or emergency generators were working.
"We were a dead ship," he said.
Because there was no power, the crew was unable to engage the emergency disconnect system that would have halted the flow of oil from the wellhead.....The Deepwater Horizon was scheduled to be sent to a shipyard for maintenance in early 2011, a point that Mathews bore in on, despite frequent objections from attorneys representing Transocean. A maintenance audit conducted by BP in September 2009 — seven months before the disaster — found 390 maintenance jobs undone, requiring more than 3,500 hours of work. The report referred to the amount of deferred work as "excessive." In questioning Bertone, Ronnie Penton, the attorney for the Deepwater Horizon's chief electronics technician, implied that some of the vessel's safety monitoring systems were regularly bypassed, including a general alarm and a device that purged trapped gas from the drilling shack. Another attorney implied that the gas-purging device, which is designed to expel any unanticipated buildup of natural gas, had not been operating for five years.

The Automatic Earth: "The most ephemeral critical factor for trade is the availability of letters of credit. These became scarce during the first phase of the credit crunch in 2008, and the result was goods stuck in port even though there was robust demand for them elsewhere. Goods simply do not move without letters of credit, and these can dry up extremely quickly as a systemic loss of confidence results in a systemic loss of liquidity. In a very real way, confidence IS liquidity.
The Baltic Dry shipping index fell 96% in 2008 as a result, meaning that shipping companies were suffering. Although the index has recovered slightly during the recent long rally, it is still very depressed in comparison with its previous heights. Now that the rally appears to be over, on the balance of probabilities, letters of credit for shipping will come under renewed pressure, and goods will once again have difficulty moving. As demand also starts to fall, due to the loss of purchasing power in the depressionary era we are moving into, this will get far worse. "

As expected, the Bank of Canada raises its key interest rate to 0.75%, while noting a more gradual economic recovery in the country and slightly weaker growth prospects for the global economy. It's the second quarter-point rate increase from Canada's central bank.

US commercial bank lending has been declining since H2 2008. In the first half of this year, Chinese bank lending was 28 percent higher than official numbers suggest, Fitch says. The reason: more and more loans are being repackaged into investment products, distorting the data.

China sounded a gloomy note on Tuesday about its export prospects, warning in particular that belt-tightening by deeply indebted European Union governments would dampen demand for the country's goods.

Ronald Reagan: “In the present crisis, government is not the solution to our problem; government is the problem”

The Oil Drum: "An area of thunderstorms and clouds is becoming more likely to develop into a tropical cyclone in the next two days, the U.S. National Hurricane Center said.
The weather system over the northern Leeward Islands, the Virgin Islands, Puerto Rico and the Dominican Republic has a 40 percent chance of becoming a cyclone, the Center said today in an advisory posted on its website at about 7:45 a.m. Miami time. That’s up from a 30 percent chance six hours earlier.
The tropical wave is moving west-northwest at 5 miles (8 kilometers) to 10 miles an hour. That puts the system on a track of heading toward the Gulf of Mexico, where BP Plc is trying to clean up the worst oil spill in U.S. history."

RadioShack Corp shares tumbled 10% after media reports said buyout firms TPG and Blackstone plan to drop out of bidding for the electronics retailer.

Charles Hugh Smith: "The $787 billion stimulus package, "cash for clunkers," the credit for new home buyers, the $1.2 trillion in mortgages the Federal Reserve purchased--all of these programs stabilized employment at around 131 million jobs. Now that these programs have ended or been reduced, employment is set to undergo a new decline which could be characterized as a "phase shift."....According to Gallup, spending by upper-income consumers — defined as those earning $90,000 or more — surged to an average of $145 a day in May, up 33 percent from a year earlier.
Then in June, that daily average slid to $119. "I think a lot of that feeling that the worst was over has sort of abated," said Dennis J. Jacobe, Gallup’s chief economist.

Apache Corp. said Tuesday it agreed to buy a handful of BP's oil and natural-gas fields across North America and Egypt for $7 billion, though the oil giant's Prudhoe Bay, Alaska, operations were not part of the deal. Included are BP properties in Alberta and British Columbia, as well as the Permian Basin of West Texas and New Mexico and Egypt's Western Desert. All told, the Houston oil and gas company will add estimated proved reserves of 385 million barrels of oil equivalent to its portfolio.

The American Petroleum Institute on Tuesday reported a decline of 241,000 barrels of crude oil in the nation's stockpiles for the week ended July 16. That countered expectations of a decline around 1.6 million barrels, according to analysts surveyed by Platts. The API reported a decline of 412,000 barrels of gasoline in inventory, and an increase of 979,000 in the stockpiles of distillates.

Apple Inc. reported a sharp jump in earnings for its third fiscal quarter on Tuesday, thanks in large part to booming demand for the company's iPhone and iPad devices. For the quarter ended June 27, Apple reported earnings of $3.25 billion, or $3.51 per share, compared to earnings of $1.83 billion, or $2.01 per share, for the same period the previous year. Revenue jumped 61% to $15.7 billion. Analysts were expecting earnings of $3.11 per share on revenue of $14.75 billion, according to consensus forecasts from Thomson Reuters. For the fourth fiscal quarter, Apple said it expects revenue of $18 billion with earnings of $3.44 per share. Analysts had been expecting earnings of $3.82 per share on revenue of $17.03 billion.

The Dow Jones Industrials Average closed up 75.53 points, or 0.7%, to 10,229.96, rebounding from a triple-digit loss intraday. The S&P 500 closed up 12.23 points, or 1.1%, at 1,083.48. The Nasdaq Composite closed up 24.26 points, or 1.1%, to 2,222.49 points.

Monday, July 19, 2010

Death Cross

7/19/10 Death Cross

Robert McHugh: "The 50 Day Moving Average crossed below the declining 200 Day Moving Average, which is not good, and is known as the Death Cross. It means a plunge could be coming. Since this crossing occurred last week, I have heard a number of pundits dismiss this event as overblown, and not something for investors to worry about.
Not sure what data they are looking at, but the charts we study clearly show that historically, stock prices are down substantially after this crossing occurs."

Nokia Siemens Networks said Monday that it would buy Motorola’s telecommunications network equipment business for $1.2 billion, a move that gives it a stronghold in the North American market and the No. 2 position in the cutthroat mobile gear market.

Halliburton Co. said Monday its second-quarter net income climbed to $480 million, or 53 cents a share, from $262 million, or 29 cents a share, in the year-ago period. Earnings from continuing operations totaled 52 cents a share. Revenue rose to $4.39 billion, from $3.49 billion. Wall Street analysts expected the Houston oil service giant to earn 36 cents a share on revenue of $4.08 billion, according to a survey by FactSet Research. Looking ahead, Halliburton said the current deepwater drilling suspension will negatively impact its earnings by 5 cents a share to 8 cents a share in each of the next two quarters.

National Incident Commander Adm. Thad Allen on Monday authorized BP PLC to continue its well integrity test, keeping the lid on the company's spill in the Gulf of Mexico. A federal science team asked BP about the possible observation of oil seep near the well and possibly methane, the government said in a recent statement. Allen, who is the U.S. government's lead official on the containment effort, said the test "will only continue if they continue to meet their obligations to rigorously monitor for any signs that this test could worsen the overall situation." The government issued the 24-hour extension late on Sunday.

BP's talks to sell a stake in Alaska's Prudhoe Bay oil field stalled over the weekend, Bloomberg reported on Monday citing a person with knowledge of the situation. The oil giant is reportedly in talks to sell up to $11 billion of assets to Apache Corp.

China is now the world's biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency.

National Association of Home Builders/Wells Fargo Housing Market Index update for July came in at 14, below expectations of a 16 reading, and a drop from downward revised 16 in June (prior 17). It's the lowest since April 2009, the NAHB said. All three components of the index fell in July.

Ireland had its credit rating cut one level at Moody’s Investors Service, which cited a “significant loss of financial strength” and the cost of bank bailouts.
The company lowered Ireland to Aa2 from Aa1 and moved the country to a “stable” from a “negative” outlook, it said today in a statement. Ireland lost its top rating at Moody’s in April 2009. Irish bonds fell after the downgrade.

John Hussman: "Investors who allow Wall Street to convince them that stocks are generationally cheap at current levels are like trout - biting down on the enticing but illusory bait of operating earnings, unaware of the hook buried inside."

LATimes: President Obama on Monday is set to create a national stewardship policy for America's oceans and Great Lakes, including a type of zoning that could dramatically rebalance the way government regulates offshore drilling, fishing and other marine activities.

Bloomberg: Hedge funds and other large speculators raised bets that oil would gain by the most in more than three years just as it began to slide, the second straight week money managers lined up on the wrong side of the market.
So-called net long positions on the New York Mercantile Exchange rose 67 percent the week ended July 13, the most since February 2007, according to the weekly Commitments of Traders report from the Commodity Futures Trading Commission. Oil fell on four out of five days on the Nymex last week, ending down 0.1 percent at $76.01 a barrel as of July 16, and extended that decline today. It rose 5.4 percent the previous five days, the biggest weekly gain since May.
“Just like last week, when they were short when prices were up, now they were long when prices were down,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania.

Admiral Allen has sent a letter to BP about seeps which have been detected "a distance from the well", and indicates that BP needs to develop a plan for opening the choke valve as quickly as possible without damaging the well, in the event that hydrocarbon seepage near the well head is confirmed. This is what the letter says:
Dear Mr. Dudley,
My letter to you on July 16, 2010 extended the Well Integrity Test period contingent upon the completion of seismic surveys, robust monitoring for indications of leakage, and acoustic testing by the NOAA vessel PISCES in the immediate vicinity of the well head. Given the current observations from the test, including the detected seep a distance from the well and undetermined anomalies at the well head, monitoring of the seabed is of paramount importance during the test period. As a continued condition of the test, you are required to provide as a top priority access and coordination for the monitoring systems, which include seismic and sonar surface ships and subsea ROV and acoustic systems. When seeps are detected, you are directed to marshal resources, quickly investigate, and report findings to the government in no more than four hours. I direct you to provide me a written procedure for opening the choke valve as quickly as possible without damaging the well should hydrocarbon seepage near the well head be confirmed.

Wes Jackson: "Across the farmlands of the U.S. and the world, climate change overshadows an ecological and cultural crisis of unequaled scale: soil erosion, loss of wild biodiversity, poisoned land and water, salinization, expanding dead zones, and the demise of rural communities. The Millennium Ecosystem Assessment (MEA) concludes that agriculture is the “largest threat to biodiversity and ecosystem function of any single human activity.”1 Up to 40 percent of global croplands are experiencing soil erosion, reduced fertility, or overgrazing.2 It is likely that agricultural acreage worldwide will expand over the next two to three decades, especially as the human population increases to eight to 10 billion people. The same thing that drives climate change helps drive the agricultural crisis—cheap fossil fuel."

Chinese authorities are battling to contain a 50 sq km oil slick after two crude oil pipelines exploded in the northeastern port of Dalian, state media reported on Monday.
Hundreds of firefighters battled for more than 15 hours to extinguish the blaze that started late on Friday when a pipe transporting crude oil from a ship to a storage tank blew up, causing a second pipeline nearby to explode.
There were no casualties, but state television said oil had contaminated the ocean off the port city in Liaoning Province.

Charles Smith: "Right now would be the perfect time to jab a big fat needle in the market because sentiment is almost universally bearish. Hobby Bears are piling in, grinning with delight at the prospect of such an "easy" trade (piece of cake profits, just go all in short!), while weak long hands are folding their cards and selling.
Nothing would stun this market more than a nice little 50-point rally in the SPX that forced overly-confident shorts to cover. Countering a massive wave of selling is almost impossible, but if the Powers That Be can nip this decline in the bud, so to speak, and force Bears to cover their shorts, then a more orderly decline can be arranged after the election.
Is it really too much to imagine Geithner et al. getting private calls from the White House along the lines of, "Guys, we could really use a hand here with the stock market." After all, propping up the market as a proxy for the U.S. economy has been the strategy all along, and the worst time for the strategy to collapse in a heap is right before the mid-term elections.
The key target, if it were my job to engineer a rally that would last longer than a few days, would be the 1,110-1,130 level of the SPX. Juicing the market above those levels would cause all but the hardiest Bears to cover, and it would trigger gigantic waves of black-box buying as the key levels of resistance would be broken.
If you could print unlimited sums and intervene at will in the market via proxies, how hard would it be to engineer a 50-point rally in the SPX in low-volume July? If you waited until the market fell to new lows, it would be too late and the momentum would gather on the downside. SPX 1,040 to 1,060 is the Rubicon; now is the moment to call in the legions and defend the market with everything you have.
We know intervention is a reality, and we know these key technical levels are in danger of being breached. Put those facts in an election context which is looming as a disaster for the party in power and you get a scenario which should give overly enthused Bears pause."

Matthew Simmons: "BP has been lying and covering up the incident in the Gulf of Mexico from day one, because of the risk of criminal prosecution for gross negligence. People who live in the Gulf states are still in danger because of lethal methane gas. A hurricane may bring up a poisonous lake of toxic oil from the bottom of the Gulf. "

FT: The yen’s surge to its highest level of the year against the dollar has put investors on alert for possible currency intervention by the Japanese authorities this week.
If Japan acts to shield its stock markets and exporters from the rising yen, it will be the first time Tokyo has intervened in the foreign exchange markets since April 2004.

John Williams of Shadow Government Statistics on the Economy: US is in the structural change of an Economic Depression and is starting the next leg down. Heavy dumping of US dollar assets is coming which will inhibit the Fed's ability to monetize and the Treasury's ability to issue new debt; this will trigger very serious inflation problems leading to genuine hyperinflation.

Kent Wells, a senior vice president for BP, said the company was studying the possibility of a “static kill,” in which heavy mud would be pumped into the recently capped well. Also known as bullheading, the procedure would force the oil and gas back down into the reservoir.
“The static kill does give us a new option,” he said at a briefing in Houston. A decision to proceed could be made in several days, Mr. Wells said.
He said that the procedure could speed the process of sealing the well and that the digging of a relief well, which has been seen as the ultimate solution and could be completed by August, might be needed only to confirm that the technique had worked.

The Dow Jones Industrial Average closed up 56.53 points, or 0.6%, to 10,154.43. The S&P 500 gained 6.37 points, or 0.6%, to 1,071.25.The Nasdaq Composite rose 19.18 points, or 0.9%, to 2,198.23 points.

Sunday, July 18, 2010


7/18/10 Uncertainty

Doug Noland: "With the yen trading to a one-year high against the dollar today and the Euro rallying back to 130, some reality is returning to the marketplace. It is unlikely the U.S. will provide much of a safe harbor in a world of ongoing uncertainty and financial tumult. Indeed, there are indications that the markets are beginning to discount a backdrop heavily impacted by a weaker dollar and U.S. economic fragility. And it is worth noting that the week ended with ominous declines in U.S. financial stocks....Our financial system has created an unimaginable amount of non-productive debt, with our nation owing much of it to foreign creditors. Our maladjusted Bubble Economy depends on uninterrupted huge quantities of Credit creation. Today, this (non-productive) Credit expansion/inflation originates almost entirely from our government sectors. The underlying economic structure is too services-based and ill-suited to enjoy a major beneficial ramp-up in production. This may not be a new development, except that the world is increasingly focused on structural debt issues and associated fragilities.
At the same time, there is little impetus domestically or internationally to finance U.S. capital investment. Financial and economic power has shifted to Asia, and the global Credit Bubble continues to finance massive additional productive capacity throughout the region. Global imbalances – financial and economic – only worsen. Here at home, we now face a situation where our system is dependent upon ongoing confidence from both Asian central banks and the global speculating community.
To some, our recovery may look intact and stocks cheap. But our entire system is extraordinarily vulnerable to any number of potential shocks. And we’ll surely face great ongoing uncertainty and market instability, as global markets struggle with how this all may play out."

The Droid X is sold out until July 27 when handsets ordered now will be shipped.

BP Plc was ordered by U.S. officials to open its sealed Macondo gusher in the Gulf of Mexico and resume capturing the escaping oil after it concludes tests on the well.
BP, based in London, stopped the flow of oil and began testing on July 15 to look for damage. After reviewing more than two days of data, BP found no evidence of hidden leaks, Kent Wells, BP’s senior vice president for exploration and production, said on a conference call with reporters yesterday.
National Incident Commander Thad Allen ordered the London- based company yesterday to do at least another 24 hours of monitoring, including additional seismic mapping intended to detect oil leaking from the seafloor.
“The test has provided us with valuable information which will inform the procedure to kill the well and a better understanding of options for temporary shut-in during a hurricane,” Allen said in an e-mailed statement.
BP is bringing ships to the area with the capacity to collect up to 80,000 barrels per day; more than the US government’s highest estimate of the possible rate at which oil is escaping.
The only long-term solution to the leak is for a relief well to intersect the Macondo well about 18,000ft below sea level, allowing cement to be pumped in to seal it near the oil reservoir.

Mike Burk: "The market has been swinging from one extreme to another while it has been following the average seasonal pattern quite closely all year. That pattern suggests, at least, the early part of next week will be down.
I expect the major averages to be lower on Friday July 23 than they were on Friday July 16."

"Vacancy will go up nominally through the end of the year," said Joe Vargas of real estate brokerage Cushman & Wakefield. "I certainly think the worst is behind us, but we are going to continue to see job losses."
Overall vacancy in Los Angeles, Orange, San Bernardino and Riverside counties rose to nearly 20% from 17% a year earlier, while average asking rents dropped to $2.37 a square foot per month from $2.52, according to the brokerage.
The weakest market was the Inland Empire, where vacancy surpassed 25% in the second quarter. Orange County was also weak, with 22% of its office space unleased. Both areas suffer from oversupply, Vargas said, because during the last decade's real estate boom, developers gambled that growth in the region would continue to raise demand.

Steig Larsson’s Girl with the Dragon Tattoo: “Armageddon was yesterday – Today we have a serious problem.”