Saturday, July 31, 2010

Doug Noland

7/31/10 Doug Noland

Mike Burk: "Most of the indicators are strong, but, seasonally the first few days of August during the 2nd year of the Presidential Cycle have been weak. I expect the major averages to be lower on Friday August 6 than they were on Friday July 30."

Bloomberg (Shamim Adam): “China sees little need for an imminent increase in interest rates, standing apart from Asian counterparts that are raising borrowing costs… People’s Bank of China officials said ‘that with a benign inflation outlook there was less need for higher nominal interest rates at this point,’ the International Monetary Fund said…after annual consultations with the Chinese government. ‘Also, they were concerned that higher interest rates could risk fueling capital inflows.’”

Regulators have shut banks in Florida, Georgia, Oregon and Washington, lifting to 108 the number of U.S. banks to fail this year as the industry has struggled to cope with mounting loan defaults and recession.
The Federal Deposit Insurance Corp. took over the banks: Bayside Savings Bank in Port Saint Joe, Fla., with $66.1 million in assets; Coastal Community Bank, based in Panama City, Fla., with $372.9 million in assets; NorthWest Bank and Trust, based in Acworth, Ga., with assets of $167.7 million; Cowlitz Bank in Longview, Wash., assets of $529.3 million; and LibertyBank, based in Eugene, Ore., assets of $768.2 million.

Doug Noland: "Reading Dr. Bullard’s paper - and listening carefully to his comments – recalls Dr. Bernanke’s historic speeches back in late-2002: “Asset-Price ‘Bubbles’ and Monetary Policy”; “On Milton Friedman’s Ninetieth Birthday”; and “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” Dr. Bernanke fashioned the backdrop – erudite academic justification for aggressive “activist” monetary management - and today the Federal Reserve appears poised to embark only farther into perilous uncharted waters. Last week, I presumed that Mr. Trichet’s stark warning against further stimulus was in response to market clamoring for additional quantitative easing from the Fed. It would now appear his comments may have been directed squarely at our central bank.
“The Peril” in Dr. Bullard’s title is in reference to a 2001 academic article “The Perils of Taylor Rules.” In simple terms, many accept the thesis that there is potential “peril” confronting a monetary management regime at the point when policymakers have lowered rates to near zero – yet the inflation rate remains stuck in negative territory (“deflation”). Japan is used as a contemporary example of how policymakers failed to act convincingly to ensure operators throughout the markets and real economy understood that deflationary pressures would not be tolerated.
From Bullard: “The policymaker is completely committed to interest rate adjustment as the main tool of monetary policy, even long after it ceases to make sense (long after policy becomes passive), creating a second steady state for the economy. Many of the responses to this situation described below attempt to remedy this situation by recommending a switch to some other policy in cases when inflation is far below target. The regime switch required has to be sharp and credible. Policymakers have to commit to the new policy and the private sector has to believe the policymaker.”....I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit - or else risk a financial crash.
Most regrettably, Washington policymaking (fiscal and monetary) is on a trajectory that will inevitably destroy the creditworthiness of our nation’s vast liabilities. With ominous parallels to the mortgage/Wall Street finance Bubble, Federal Reserve policies have fostered Bubble dynamics throughout our Treasury, agency and debt markets, more generally. Instead of market dynamics working to discipline Washington’s profligate debt expansion, Federal Reserve interventions ensure that a distorted marketplace again accommodates perilous Credit excess. Our central bankers should heed Mr. Trichet’s warning. Additional quantitative ease will only fuel the Bubble and risk calamity."

Thousands of hackers will be able to break into the Google (NASDAQ: GOOG) Android mobile OS. The new software will allow experts to break into Android-powered phones to steal personal information from people who own smartphones which run the OS.
Google will probably offer a patch to protect handsets which use run Android and downloads which will patch software on phones already in the market. That works if people who use Android-based smartphones find out about the problem and take the time to download the patch.
Douglas A. McIntyre

JPMorgan Chase & Co. lowered by 5.5 percent its forecast for New York oil prices this year on speculation a slowdown in global economies will limit crude’s potential to rise.
The bank cut to $77.25 a barrel its estimate for the average price of West Texas Intermediate crude on the New York Mercantile Exchange during the rest of 2010, from a forecast of $81.75 a barrel made last month, according to a monthly report e-mailed today. It lowered its forecast for 2011’s average price to $79.25 a barrel from $90.

J. Anthony Boeckh: "Economic recovery in the U.S. and elsewhere has slowed rapidly and private and some public forecasts are being downgraded accordingly. The Federal Reserve is sounding much more cautious, although they are not yet prepared to talk of further monetary easing. The most optimistic observers are now having to face reality. The massive stimulus packages did the job of stopping a self-feeding downward spiral but they have given us an artificial recovery.
Growth is now gravitating back towards 1% in the U.S. and Europe, close to what final demand has been. In the U.S. the inventory cycle has stopped adding growth, state and local governments are slashing expenditures and jobs, the nascent housing recovery has gone into reverse, and deleveraging continues. Realistically, it is difficult to picture where any new growth surge may come from."

BP plans to claim almost $10 billion in U.S. tax credit as a direct result of the Gulf oil spill, in accordance of the U.S. tax code.

Friday, July 30, 2010

Monthly Gains

7/30/10 News-- part 2-- Monthly Gains

Oil futures gained 4.4% in July, oil's best month since March and its second consecutive monthly gain. Natural gas futures notched a 6.5% gain in July, which follows gains of 7.2% in June. Natural gas for September delivery added 10 cents Friday, or 2%, to settle at $4.92 per million British thermal units.

Copper futures notched their best month since April 2009, rising 12% in July as concerns about the pace of the global recovery eased. Copper for September delivery added 2 cents, or 0.7%, to $3.31 a pound on Friday. Copper's July run contrasts with gold's 5% loss in the month, gold's worst since December. Gold for December delivery, the most-active contract, ended Friday adding $12.70, or 1.1%, to $1,183.90 an ounce on the Comex division of the New York Mercantile Exchange.

Peter Morici: "The White House is pumping sunshine—the economy is in tough shape.
Second quarter GDP numbers show the economy is not growing fast enough to create jobs and bring down unemployment.
Of the 2.4 percent growth reported, 1.1 percent was an increase in inventories—essentially businesses rebuilding and adjusting inventories from recession lows and to accommodate more price-conscious consumers.
This indicates actual demand in the economy is growing a scant 1.3 percent a year. Businesses can accommodate up to 2 percentage points through higher productivity and without adding workers.
Unless spending picks up (and indicators are that is not happening), once businesses stop piling up unsold goods, layoffs will outnumber hires, unemployment will rise with a vengeance, and the economy will head into a second dip. That will not likely happen until after the election. It will show up in fourth quarter data."

David Rosenberg: "The government sector added 0.9 percentage points to second-quarter GDP growth with an apparent seasonal skew from defense spending and there was a rare increase in state & local spending, which is hardly going to be repeated this quarter as the budgetary cutbacks deepen. The housing tax credits triggered – get this – a 28% annualized surge in residential construction in the second quarter and while a tiny share of the economy now, this still added 0.6 percentage points to the headline. All the incoming data point to a huge reversal in the real estate sector in the current In the final analysis, it is the consumer that is key. With a 70% share of GDP, even a tepid 1.6% annualized growth rate in Q2 – the consensus was looking for 2.4% – can end up adding 1.2 percentage points to GDP growth (which is almost as much a contribution as a 22% surge in capital spending)."

Acworth, Ga.-based NorthWest Bank and Trust was closed by regulators Friday, marking the 104th U.S. bank failure of 2010. NorthWest Bank and Trust had $167.7 million in assets and $159.4 million in deposits as of March 31, the Federal Deposit Insurance Corp. said in a statement. The Georgia bank's failure will cost the deposit-insurance fund $39.8 million, the FDIC said.
Two bank closures in Florida on Friday brought the total number U.S. failures for the year to 106. The Federal Deposit Insurance Corp. said in a statement that Port Saint Joe, Fla.-based Bayside Savings Bank, and Panama City Beach, Fla.-based Coastal Community Bank were closed. The two banks had combined deposits of $415.6 million, and their failures will cost the deposit-insurance fund $110.7 million, the FDIC said.

On Friday, the Dow Jones Industrial Average fell 1.22 points to 10,465.94. The S&P 500 index rose 0.07 point, or 0.01%, to 1,101.60 and the Nasdaq Composite gained 3.01 points, or 0.1%, to 2,254.70. For the week, the Dow rose 0.4%, the S&P 500 fell 0.1%, and the Nasdaq was down 0.7%. For the month, the Dow still gained 7.1%, and both the S&P and Nasdaq rose 6.9%.


7/30/10 Imports

The U.S. economy lost momentum in the second quarter of the year. Real gross domestic product -- the inflation-adjusted, seasonally adjusted value of all goods and services produced in the United States -- rose at a 2.4% annualized rate in the second quarter, well below the average 4.4% increase over the last six months. The rate of expansion in the first quarter was revised up to a 3.7% rise compared with the prior estimate of a 2.7% increase. Much of the deceleration in the second quarter was due to the trade sector. Imports increased at their fastest pace since the first quarter of 1984. Growth in the last quarter was held back by 28.8 percent surge in imports, which eclipsed a 10.3 percent rise in exports. That created a trade deficit, which lopped off 2.78 percentage points from growth, the largest subtraction since the third quarter of 1982. Business investment rose at a 17 percent rate, the largest increase since the first quarter of 2006, after a 7.8 percent pace during the prior period. Spending on equipment and software was the largest since the third quarter of 1997, while investment on structures rose for the first time since the third quarter of 2008, likely boosted by a rise in oil and gas drilling.

The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.

ZeroHedge: "The ECRI Leading Indicator has just moved further into certain recession territory, hitting -10.7 for the most recent week (the previous revised number is -10.5)."

Facebook Said to Put Off IPO Until 2012 to Buy Time for Growth

On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

Three U.S. troops died in blasts in Afghanistan, bringing the death toll for July to at least 63 and surpassing the previous month's record as the deadliest for American forces in the nearly 9-year-old war.

In the August edition of the ‘The Gloom, Boom & Doom Report’ Marc Faber questions whether the Dow could hit 1,000 as predicted by Robert Prechter, based on his interpretation of Elliot Waves, Fibonacci numbers and socioeconomic trends.
Prechter, who has written 13 books on finance (external link), believes that the stock market is historically overvalued in terms of dividends and earnings, because of a "great rise in positive social mood." But the mood changed in 2000 and the "trend toward negative social mood will lead to an economic contraction," according to Prechter.
"Small bear markets lead to recessions, big bear markets lead to depressions. The current bear market will be the biggest in nearly 300 years, so the depression will be correspondingly deep," Prechter said.
Prechter goes onto to suggest the bear market is of super-cycle degree, the biggest since 1720-1784 and will therefore see a decline for equities deeper than the decline during the great depression, which saw the Dow fall 89 percent.
"The trend toward negative social mood that has been in progress since 2000 and which is about to accelerate will continue to curtail lending and lead to a tidal wave of defaults and a terrific deflation," he said.
"The amount of outstanding credit today is so large that system-wide defaults could lead to as much as an 80 percent –90 percent decline in the volume of dollar-denominated credits worldwide," according to Precther.
"In such an environment, surviving dollars and dollar credits, representing the denominator of the DJIA, will rise in value, and the Dow —along with everything else not used as money — will fall in dollar price," he added.
Faber's Response
Marc Faber says before dismissing Prechter as a lunatic you should look at his record. In 1978 when he predicted the Dow would reach 2,300 in his book Elliot Wave Principle no one believed it possible.
"Prechter is right when says that when manias come to an end, prices tend to retreat to where the mania started. So from this point of view, a Dow Jones at 1,000 should not be excluded," Faber said. (courtesy of CNBC)

North American railcar leasing fleets, shippers and railroads pulled 3,064 cars out of storage during June but still had 23.7 percent of their freight hauling equipment sitting idle.
That’s the latest estimate from the Association of American Railroads, which said that as of July 1 it figured 365,279 freight cars had gone without a revenue load for at least 60 days.

CBO: "A growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response."

The U.S. Department of Justice filed a lawsuit Thursday alleging that Oracle Corp. defrauded the government in a software deal that involved hundreds of millions of dollars.
The contract with the General Services Administration, in effect from 1998 to 2006, required the Redwood City software giant to disclose and extend any commercial discounts to government customers, the government said Thursday. The suit claims that Oracle misrepresented its sales practices in several ways, forcing the government - and by extension taxpayers - to overpay.
"We take seriously allegations that a government contractor has dealt dishonestly with the United States," Tony West, assistant attorney general for the department's civil division, said in a statement. "When contractors misrepresent their business practices to the government, taxpayers suffer."

Foreclosure filings climbed in three-quarters of U.S. metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc.

Rigzone: The federal moratorium on deep-water offshore drilling has caused Baker Hughes to move hundreds of employees out of the Gulf of Mexico, said CEO Chad Deaton, and could prompt companies to move operations from Houston.
Baker Hughes has moved 300 of its 2,100 Gulf employees overseas and is moving 25 percent of its assets, Deaton said.

Chicago PMI: 62.3 vs. 56 expected, 59.1 prior. Employment 56.6 vs. 54.2 prior. New orders 64.6 vs. 59.1 prior. Prices paid 58.1 vs. 61.9 prior.

July Reuters/UofM Consumer Sentiment: 67.8 vs. 67 expected, 66.5 preliminary. Expectations 62.3 vs. 60.6 prior.

Thursday, July 29, 2010


7/29/10 Unemployment

The number of people applying for initial state unemployment insurance benefits fell 11,000 to 457,000 in the week ended July 24, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 460,000. The four-week average of initial claims -- a better gauge of employment trends than the volatile weekly number -- fell 4,500 to 452,500, reaching the lowest level since early May. Continuing claims in the week ended July 17 rose 81,000 to 4.57 million. The four-week average of these continuing claims fell 18,000 to 4.55 million, hitting the lowest level since late December 2008. The total number of people collecting some type of unemployment benefits in the week ended July 10 was about 8.3 million, down about 82,000 from the prior week. Although Washington has approved extending some federal jobless benefits it will take some time before the weekly payments resume for some workers.

Bloomberg:Sanofi-Aventis SA Chief Executive Officer Chris Viehbacher has support from his board of directors to offer as much as $70 a share for Genzyme Corp., or about $18.7 billion, said three people with knowledge of the situation.

The Federal Reserve said U.S. economic growth slowed in some areas over the past two months, dragged down by commercial real estate and the expiration of a tax credit for homebuyers.
“Economic activity has continued to increase, on balance, since the previous survey,” the central bank said today in its Beige Book business survey, while noting that two of the Fed’s 12 districts reported the economy “held steady” and two said the pace of expansion slowed.

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.
“The second quarter was a tale of two trends,” said James J. Saccacio, chief executive officer of RealtyTrac. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.
“The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions,” Saccacio continued. “The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market.”

Avis Budget Group Inc.’s $1.33 billion offer for Dollar Thrifty Automotive Group Inc., which topped Hertz Global Holdings Inc.’s agreement to buy the rental- car company, may signal a bidding war is under way.
The $46.50-a-share offer includes $39.25 in cash and 0.6543 of an Avis share for each Dollar Thrifty share, Parsippany, New Jersey-based Avis said yesterday in a statement. The proposal is 4.5 percent less than Dollar Thrifty’s closing price yesterday.

Iran shipped just over 9 million barrels of oil to China to the end of last month, making it China’s third-largest crude supplier, according to fresh Chinese customs data. That was down from 13.1 million barrels in the first half of last year, even as Chinese imports from Angola, Saudi Arabia and other major exporters rose significantly.

The euro reached its highest level in nearly three months against the dollar Thursday amid mounting concerns about the state of the U.S. economy at a time when the European indicators are improving.
By mid morning London time, the euro was up 0.6 percent at $1.3071, just shy of the $1.3076 it hit earlier. That is its highest level since May 4.

If U.S. government budget projections for debt as a percentage of national output and interest payments as a percentage of revenue are realized in coming years, the country's Aaa rating would come under scrutiny, Steve Hess, a senior credit officer in the sovereign risk group at Moody's told Dow Jones Newswires in an interview.
Such a scenario, however, wouldn't lead to an automatic downgrade, Hess said. The analyst said the United States appears to have "no plan" to deal with its fiscal situation and that much will depend on the domestic political reaction to recommendations by President Barack Obama's fiscal responsibility commission in December.

via ZeroHedge: For FX Concepts, this is a big day and a very scary one as well. Because our market view is now very precise, but at odds with the accepted wisdom, we are putting ourselves out on a limb. The euro is going to be hit again and commodity currencies will come under increasing pressure. Our cyclical analysis argues that the currency markets are making a major reversal right now, today, and that this will be at least a medium term reversal in equities and credit as well. Although it is more likely that the equity and credit markets will not begin their major decline until the last week of August, the odds favor an unimpressive month ahead which means that we are at the end of the exciting part of the rally of the past two months. By the end of next month, equities will be headed lower, credit spreads will widen sharply, and government bonds will begin a rally to new all time highs. Our completely technical cyclical work implies that there will be a return to dark times in September and October, with a sharp decline driven by liquidity and solvency issues likely to set the world back on a recessionary course. - John Taylor, FX Concepts

Japan's Panasonic Corp said it would buy out subsidiaries Sanyo Electric and Panasonic Electric Works for up to $9.4 billion in cash and shares to accelerate its push into greener businesses.

This morning’s EIA underground natural gas storage report is expected to show a build of 34 bcf, according to DJN, with a range of expectations falling between 22 bcf and 51 bcf. The five-year average of similar Friday reports is a build of 49.4 bcf, including the 2006 draw of 7 bcf. Last year, there was a build of 70 bcf on the same date and 76 bcf on the corresponding Friday. Using dates, the five-year average comes in at a build of 50 bcf.
The Energy Information Administration reported an increase of 28 billion cubic feet to natural gas inventories for the week ended July 23. Analysts polled by Platts had expected an injection of 31 to 35 Bcf. The increase compares to a 70-Bcf build in the same week of 2009 and the five-year-average of 50 Bcf.

The Dow Jones Industrial Average fell 30.72 points, or 0.3%, to end at 10,467.16. The S&P 500 index dropped 4.60 points, or 0.4%, to 2,251.69. The Nasdaq Composite fell 12.87 points, or 0.6%, to 2,251.69.

In the week ended July 21, domestic equity mutual funds saw a 12th sequential outflow of $1.5 billion.

Wednesday, July 28, 2010

Durable Goods

7/28/10 Durable Goods

Orders for U.S.-made durable goods sank in June, falling 1.0% on weaker demand for airplanes, electronics, and machinery, steel and other long-lasting manufactured products, the Commerce Department reported Wednesday. The decrease far exceeded the expected 1.0% rise forecast by economists surveyed by MarketWatch. It was the largest drop in total orders since August 2009. Excluding transportation, orders fell 0.6%. Shipments fell 0.3% in June and were down 1.3% excluding transportation goods. Inventories rose 0.9% for the sixth straight monthly gain. New orders of non-defense aircraft plunged by -25.6%, while the ever critical to the global economy Computers and Electronic products, dropped across both shipments (-4.1%) and New Orders (-1.9%). Overall, this was the largest Durable Orders decline since August 2009.

Boeing Co. said Wednesday its second-quarter profit fell 21% to $787 million, or $1.06 a share, from $998 million, or $1.41 a share, in the year-ago period. Revenue fell 9% to $15.57 billion from $17.15 billion. Analysts polled by FactSet Research were looking for earnings of $1.04 a share, on average, with sales of $16.4 billion. The Chicago manufacturer reaffirmed its full-year guidance of $3.50 to $3.80 a share, versus the Wall Street expectation of $3.88 a share. Shares of Boeing slipped a fraction in premarket trading to $68.40.

According to the Washington Post, the squad at the FBI offices includes investigators from the Environmental Protection Agency, the U.S. Coast Guard and other federal agencies investigating BP, Transocean, which leased the Deepwater Horizon rig to BP, and engineering giant Halliburton, which had finished cementing the well only 20 hours before the rig exploded April 20, sources said.

Jones Apparel Group Inc. expects to close an additional 80 money-losing locations by the end of 2010.

Moody's on Tuesday changed its outlook on Bank of America , Citigroup and Wells Fargo to negative, from stable, citing lessened government support for the institutions under new U.S. regulations.

The Massachusetts Legislature has approved a new law intended to bypass the Electoral College system and ensure that the winner of the presidential election is determined by the national popular vote. "What we are submitting is the idea that the president should be selected by the majority of people in the United States of America," Senator James B. Eldridge, an Acton Democrat, said before the Senate voted to enact the bill. Under the new bill, he said, "Every vote will be of the same weight across the country."

Google is in talks with several makers of popular online games as it seeks to develop a broader social-networking service that could compete with Facebook.

Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,725,000 barrels versus a +360,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +275,000 barrels versus a +1,118,000 barrel gain the prior week. Distillate inventories are expected to rise by +2,000,000 barrels versus a +3,935,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.0% increase the prior week.

EIA: Oil inventories up by 7.3 mln barrels.

Wednesday marks the 100th day of the worst oil disaster in US history.

CVS Caremark Corp reported lower second-quarter earnings and cut its 2010 profit forecast, hurt by a decline in revenue from its pharmacy services segment, sending its shares down 5 percent.

SocGen's Albert Edwards: "We still call for sub-2% 10y bond yields and equities below March 2009 lows."

Arizona is barred from enforcing part of its law cracking down on illegal immigrants, a federal judge said, while denying the U.S. government’s request for a preliminary injunction.
The government and American Civil Liberties Union had asked U.S. District Judge Susan Bolton in Phoenix to bar the state from enforcing the law, which the ACLU claims would allow unconstitutional racial profiling by police. The statute takes effect today. Bolton granted an injunction requested by the Obama administration to strip the law of provisions requiring officers to check a person's immigration status while enforcing other laws, and requiring immigrants to carry their papers at all times, according to reports.

Nvidia Corp. on Wednesday lowered its sales outlook for its fiscal quarter ending Aug. 1. The chip company said it now expects revenue of $800 million to $820 million, compared with a previous range of $950 million to $970 million. The company said "revenue shortfall occurred primarily in the consumer GPU [graphics chips] business, resulting from increased memory costs and economic weakness in Europe and China."

The Dow Jones Industrial Average closed down 39.81 points, or 0.4%, at 10,497.88. The S&P 500 fell 7.7 points, or 0.7%, to 1,106.12, extending the prior session's drop. The Nasdaq Commposite fell 23.69 points, or 1%, to 2,264.56.

The NRDC report said the oil spill affected 49 of 253 beach segments it monitors in Louisiana, Alabama, Mississippi and Florida. Texas beaches haven't had any advisories or closings so far.

Tuesday, July 27, 2010

Consumer Confidence

7/27/10 Consumer Confidence

BP Plc appointed U.S.-born Robert Dudley as chief executive officer and pledged to accelerate asset sales to as much as $30 billion after the Gulf of Mexico oil spill led to a record loss. BP has taken a pre-tax charge of $32.2 billion for the Gulf of Mexico oil spill, including the $20 billion escrow compensation fund previously announced.
The company will also tell analysts later that it plans to sell assets for up to $30 billion over the next 18 months, primarily in the upstream business, and selected on the basis that they are worth more to other companies than to BP. This portfolio high grading will leave the company with a smaller but higher quality Exploration & Production business.

Consumer confidence fell in July on concerns about jobs and business conditions, following a sharp decline in June, the Conference Board reported Tuesday. July's consumer confidence index fell to 50.4 - the lowest level since February -- from an upwardly revised 54.3 in June. "Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves," said Lynn Franco, director of Conference Board's consumer research center, in a statement. "Given consumers' heightened level of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season." Earlier this month the government reported that nonfarm payrolls fell 125,000 in June, with weak private-sector hiring.

The Defense Department is unable to properly account for $8.7 billion out of $9.1 billion in Iraqi oil revenue entrusted to it between 2004 and 2007, according to a newly released audit that underscores a pattern of poor record-keeping during the war.
Of that amount, the military failed to provide any records at all for $2.6 billion in purported reconstruction expenditure, says the report by the Special Inspector General for Iraq Reconstruction, which is responsible for monitoring U.S. spending in Iraq. The rest of the money was not properly deposited in special accounts as required under Treasury Department rules, making it difficult to trace how it was spent.

DuPont Co., the third-biggest U.S. chemical maker, reported second-quarter profit that beat analysts’ estimates and raised its full-year earnings forecast amid improving global demand.
Second-quarter profit excluding some items was $1.17 a share, topping the 94-cent average estimate of 10 analysts surveyed by Bloomberg. Earnings excluding some items will be $2.90 to $3.05 a share in 2010, exceeding a previous prediction of $2.50 to $2.70 and the $2.64 average estimate of 14 analysts in the Bloomberg survey.

Greece sold 1.95 billion euros of 13-week bills at a yield of 4.05 percent, the debt agency said today. Investors bid 3.85 times the amount of securities offered.

New Zealand’s dollar rose the most in two weeks after the central bank increased interest rates from a record low. Australia’s currency gained on better-than- forecast employment data.
The kiwi climbed for the first time in four days against the Australian dollar on speculation Reserve Bank of New Zealand Governor Alan Bollard will boost borrowing costs at a faster pace than Australian policy makers. The South Pacific currencies also advanced as reports showed China’s trade surged, boosting demand for higher-yielding assets.
“We’re embarking on a process where rates will be gradually increased back toward neutral” in New Zealand, said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd. “We’re going to see support for the currency from a widening yield advantage in New Zealand and that will help offset some of the effects from lower risk appetite in a global sense.”

Sterne Agee & Leach took Diamond Offshore Drilling's 2010 and 2011 earnings-per-share estimates down to $6.90 and $6.22, respectively. Prior estimates had been $7.65 and $7.42, respectively.

Clif via George Ure: "Within the immediacy data sets there are clear indications of a major [damaging] earthquake on west coast of america (MOST likely north america due to angular momentum issues of planetary alignment) and more probably than not, in the PNW perhaps down to mid CA. This quake shows as being completed with problems, *such as yet more [wedding interruptions] by August 3, however the data accretion patterns point to the last two days of July as the point of impact and largest number of after shocks. Damages are indicated to include [roadways] and [bridges] such that [transportation/movement] is [restricted (in some places)] for months afterward. Water flows are also to be affected and even altered for long time (months/years) which is how i found it. By noting the odd number of longer term indicators for [water pathways change] in the data accretion patterns for November and onward in 2010. A significant majority of these traced back to something in the immediacy data that turned out to be this pending earthquake in very late July. "...The astrological Cardinal Climax starts in the Thursday-Friday period.

Wal-Mart Stores Inc.was cut to hold from buy by Stifel, Nicolaus & Co. on Tuesday. Analyst David Schick said the company's U.S. namesake chain's strategic change, accompanied by recent management turnover, will likely take some time to work. He said Wal-Mart is making its pricing more consistent through its everyday-low-price strategy, and is decreasing the "volatility" through its rollbacks, or temporary price cuts. He also said Wal-Mart is focusing on smaller stores among other changes. Wal-Mart's U.S. chain has had three noteworthy management changes in the past month, led by its U.S. Chief Eduardo Castro-Wright, who's leaving his post to take care of his wife, who's ill. Wal-Mart shares were down slightly in pre-market trading.

The prices of single-family homes in 20 major cities rose a seasonally-unadjusted 1.3% in May, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Prices have moved up 4.6% in the past year. Prices rose in 19 of the 20 metropolitan areas tracked by Case-Shiller in May compared with April. This is the second increase after six straight declines. David Blitzer, chairman of the index committee at Standard & Poor's, said the positive May report is a bit misleading. "A broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery," Blitzer said.

ZeroHedge: "Euribor is again spiking by 0.4 bps overnight, from 0.889% yesterday to 0.893% today. In the context of the massive (and insolvent) European banking system, this is yet another indication that all is unwell with Europe's banks, even as the Goebbels brigade goes into overdrive.The interbank lending market does not lie, unlike every single European and American politician. And just to make things worse, the ECB withdrew another E11 billion in liquidity via a reduced 7 Day MRO. From Market News: "The European Central Bank on Tuesday allotted E189.9864 billion in its main seven-day refinancing operation at a fixed rate of 1.0%. The ECB satisfied all of the 151 bids received. Today's operation resulted in a net drain of E11.2996 billion after the ECB allotted E201.286 billion in its 7-day MRO last week."

SeekingAlpha: "Sales of new homes are abysmal, yet the supply of new and existing homes is expected to grow. Home builders, which began buying up lots late last year in anticipation of a rebound, are stuck with thousands of acres that are prone to lose value as the market struggles. Many will build homes on the land, rather than write off its value and wait for the market to improve."

Tim Price, Director of Investment at PFP Wealth Management, a London-based fund manager
“More than half of all workers have experienced a spell of unemployment, taken a cut in pay or hours or been forced to go part-time. The typical unemployed worker has been jobless for nearly six months. Collapsing share and house prices have destroyed a fifth of the wealth of the average household. Nearly six in ten Americans have cancelled or cut back on holidays. About a fifth say their mortgages are underwater. One in four of those between 18 and 29 have moved back in with their parents. Fewer than half of all adults expect their children to have a higher standard of living than theirs, and more than a quarter say it will be lower.. for many Americans the great recession has been the sharpest trauma since the second world war, wiping out jobs, wealth and hope itself.”

David Rosenberg, in his Monday note to clients, the chief economist and strategist at Gluskin Sheff + Associates said he has raised the odds of a double-dip recession in the United States from 45% a month ago to 67%, based on his firm’s in-house economic modelling.
In his note, he cited yet another decline in the Economic Cycle Research Institute’s index of weekly leading indicators (or ECRI WLI). The index — a composite of economic factors ranging from industrial prices to housing — is designed to pick up swings in economic activity ahead of other indicators. And for the week of July 16, ECRI reported that its growth 
rate, which is designed to minimize monthly fluctuations, fell 10.5%. That marks the seventh consecutive week that the growth rate has dropped.

July Richmond Fed Mfg. Survey: 16 vs. 23 last month. Among the index's components, shipments -9 to 22, new orders -12 to 13, jobs +6 to 15.

The number of occupied apartments increased by 215,000 in the 64 largest U.S. markets in the first half of the year, according to MPF Research, almost twice the units added in all of 2009 and the most since the firm began tracking the data in 1992. The vacancy rate declined to 6.6 percent last month from 8.2 percent in December.

About 18.9 million homes in the U.S. stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade.

Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller home price indexes, told Reuters Insider he does not know where home prices may be headed, but believes the economy may be on a precarious path.
"For me a double-dip is another recession before we've healed from this recession ... The probability of that kind of double-dip is more than 50 percent," Shiller said. "I actually expect it."
Shiller said he is unclear where home prices are headed.
"I don't know," he said. "I am taking a "wait-and-see" attitude," he said.

Local government revenue has dwindled so severely that U.S. cities and counties will have to cut hundreds of thousands of jobs in the coming months, leaving communities without basic services and pressuring jobless rates, according to a new survey. "Local Governments Cutting Jobs and Services: Job losses projected to approach 500,000", showed local governments moved to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. As a result of local government cutbacks, almost 500,000 people will lose their jobs, and the total will likely rise.

Gold futures were routed Tuesday, losing 2.1% as they slid below a key support level and a wave of selling ensued. Gold for August delivery retreated $25.10 to $1,158 an ounce. It was gold's biggest one-day decline since July 1 and the lowest level since April 26. Silver for September delivery retreated 3.2% to $17.63 an ounce.

Professional online social-networking service LinkedIn Corp. has been valued at roughly $2 billion by a sale of shares to hedge fund Tiger Global Management LLC, according to a report published Tuesday. Bloomberg News, citing unnamed sources, reported that Tiger paid $21.50 a share for a roughly 1% stake in closely-held LinkedIn, which is widely expected to undertake an initial public offering. Tiger previously acquired shares in closely-held Zynga Game Network Inc. in December, according to the report.

Walt Disney Co. said Tuesday afternoon that it has agreed to acquire Playdom Inc., a maker of social games, in a deal worth as much as $763 million. In a statement,

The Dow Jones Industrials Average ended 12.26 points, or 0.1%, higher at 10,537.69. But the broader S&P 500 closed off 1.17 points, or 0.1%, at 1,113.84, dragged lower by a drop in a consumer confidence survey. The Nasdaq Composite ended down 8.18 points, or 0.4%, to 2,288.25.

Monday, July 26, 2010


7/26/10 Suckers

Bloomberg: "U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today."

John Hussman: "If you exclude the bubble valuations of 1995-2007, the current valuation of the S&P 500 is near the highest level ever observed in history. To expect valuations to expand from here is to rely on the sustained resumption of bubble valuations that have ultimately been devastating to investors. Meanwhile, the evidence from our Recession Warning Composite is already on the table, and would strengthen considerably if the ISM Purchasing Managers Index declines to 54 or less (the ISM services index already dropped to 53.8 last month). Again, no indicator in our composite is decisive on its own, but the combination of factors has always and only been observed during or immediately prior to recessions."

Some 92,000 U.S. military records released by Wikileaks site amount to a blow-by-blow account of war.

The Automatic Earth: "The US government is looking at possible solutions for the mess that Fannie Mae and Freddie Mac have long since become. There is, however, no solution available. Period. Simple as that. The government has dug itself into a hole when it comes to mortgages and mortgage-based securities that it cannot find a way out of.
If the government had any sense left, it would get out of the mortgage market by, let's say, yesterday morning. Take apart Freddie, Fannie and Ginnie Mae, along with the Federal Housing Administration, sell off all of their assets at whatever price is being offered (if any), and be done with it already.
But the government has no such sense."

WSJ: "Democrats are simply spending much more, sending outlays as a share of GDP above 25% for the first time since World War II. The White House now says outlays will be higher in 2011, at 25.1% of GDP, than at the height of the stimulus in 2009 and 2010.
This is an ironic tribute to the degree to which Democrats on Capitol Hill have been increasing spending willy-nilly below the media radar. The 111th Congress is the most spendthrift in a century outside of World Wars I and II."

During the 31 months from December 2007 through June 2010, the total number of mass layoff events (seasonally adjusted) was 61,852, and the associated number of initial claims was 6,213,880.

Arch Crawford: "The most exacting and powerful alignment of planets in ALL of Human History takes place from July 26- Aug. 3."
Astrologers are calling it the Cardinal Climax being ALL near Zero degrees of ‘Cardinal’ signs.

Nicolas Taleb: "You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers."

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20.

For the full year, FedEx said it expects earnings of $4.60 to $5.20 a share, up from the prior view of $4.40 to $5.

Led by deterioration in production- and employment-related indicators, the Chicago Fed National Activity Index declined to –0.63 in June, down from +0.31 in May. Three of the four broad categories of indicators that make up the index made negative contributions in June, while the sales, orders, and inventories category made the lone positive contribution.

Economic Disconnect: "The FDIC must sell assets to continue the closings. It has about $37 billion of bad-bank assets to sell, but the stockpile would bring only 10 to 50 cents on the dollar. Enter the FDIC's Securitization Pilot Program, the sale of U.S.-guaranteed FDIC senior certificates. This enables the FDIC to push much of the losses off its books, thanks to the U.S. guarantee of principal and interest. The program starts with a $500 million issue."They aren't really selling the bad assets. They're selling the equivalent of a Treasury bond without congressional approval," says William Black, a former thrift regulator. "It hides the economic substance of what's really happening—an unlimited taxpayer bailout." The FDIC contests the characterization, saying it doesn't expect a claim on the guarantee because of an equity cushion to absorb the losses, and the use of only performing mortgages in the pools. The agency says a lot of resources stand between it and the taxpayer.
Of course this will get a total of ZERO discussion or review."

U.S. new home sales rebounded in June after falling to all-time low in May, the Commerce Department estimated Monday. The increase in new-home sales to a seasonally adjusted annual rate of 330,000 was well above the 316,000 pace expected by economists surveyed by MarketWatch. New-home sales in May fell a revised 36.7% in May to a record low 267,000 level compared with the previous estimate of a 32.7% fall to 300,000. New-home sales are down 16.7% compared with a year ago. The months' supply of homes on the market fell to 7.6 months in June from 9.6 months in May. Median sales prices have fallen 0.6% in the past year to $213,400.

ZeroHedge: "So June new home sales come in at 330,000 on expectations of 310,000: a decent beat by 20k or so, and a "record" increase from the May revised 267k. However, this "beat", and massive 23.6% MoM surge only occurred due to prior downward (of course) revision which took away 57k from the past two months! The May number was revised down from 300k, or by 33k, to the lowest sales number on record of 267k. And April, not to be undone, two months after the initial release, has received its second downward adjustment, this time down by 24k from 446k to 422k. So let's get this straight: this was the worst June on record, following the worst month on record in new home sales ever, the beat was completely drowned out by 57k worth of prior revisions, the average new home price slid another 1.4% to $213,400, yet just because the new home supply is down to "just" 7.6 month from 9.6 in May it is enough to push stocks to the moon (of course this completely ignores that existing homes sales are back to 9 months, and shadow inventory is more than double that. Who cares - machine language does not add, it only multiples). Another day, another insane day in stocks, which are now programmed toignore reality, and just focus on the propaganda headline spin."

Liz Claiborne is closing all 87 of its Liz Outlet stores around the country because of slow sales.

Top executives with the owner of KFC hinted that some U.S. outlets of the ubiquitous chicken chain could close if that’s what it takes to make it more profitable overall. “I’d rather have 4,500 great-looking KFCs than 5,000 with 500 looking at being drive-by assets,” Yum Brands Inc. Chairman and CEO David C. Novak said during a conference call with industry analysts.

A number of death crosses - the 50-day moving average cutting the 200-day moving average from the upside - are still in place and only a golden cross - the 50 day cutting the 200 from the downside - can negate the bearish signals being sent by the technical picture, according to Gijsels, the head of global markets research at BNP Paribas Fortis.

The ECRI reading is at a level that is more negative now than in the worst point of the 1990-91 recession.

BP PLC Chief Executive Tony Hayward will step down from his post in October and be reassigned to BP's joint venture in Russia, The Associated Press reported Monday, citing an unidentified official close to the matter.

The Dow Jones Industrial Average closed up 100.81 points, or 1%, at 10,525.43 points, up 0.9% for the year. The S&P 500 gained 12.35 points, or 1.1%, to 1,115.01, still off 0.01% for the year. The Nasdaq Composite closed up 26.96 points, or 1.2%, at 2,296.43.

Biotechnology company Genzyme Corp is weighing an informal takeover approach from France's Sanofi-Aventis , but has no current interest in selling the company, a source familiar with the situation said on Monday.
Genzyme had already been studying the sale of three non-core businesses -- genetic testing, diagnostic products and pharmaceutical materials -- but is not interested in selling the company as a whole, said one source, who declined to be identified because he was not authorized to speak with media.
Sources told Reuters on Friday that Sanofi had approached Genzyme two weeks earlier with an informal bid to buy the company and was awaiting a response.

Sunday, July 25, 2010

Boston Tea Party

7/25/10 Boston Tea Party

John Adams: "All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation."

Darryl W. Perry is Boston Tea Party National Committee Chair: "I’m a proud member of the FREEDOM MOVEMENT! That group of people working throughout the grassroots across the country spreading the message of freedom; personal liberty, lower (or no) taxes, no central bank, less (or no) government, an end to corporatism and an end to the military industrial complex."

Tim Wood: "My read is that the Dow theory bullish primary trend change that occurred in conjunction with the advance out of the March 2009 low still remains intact in accordance to orthodox Dow theory. Reason being, once a trend change occurs, it must still be considered to be in force until it is authoritatively reversed. According to orthodox Dow theory, the decline into the July low was not an authoritative reversal because in reality price held above the previous secondary low points. I also continue to believe that the advance out of the March 2009 low is one large counter-trend move that will serve to separate Phase I from Phase II of the ongoing secular bear market. It is for this reason that I continue to refer to the advance out of the March 2009 low as a bear market rally. Once the proper DNA Markers are all in place and confirmed, the Phase II decline will assert its deflationary forces far and wide."

Mike Burk: "New highs are the only thing missing from the rally off the early July lows. The strong finish last week left the market a little over bought.
I expect the major averages to be lower on Friday July 30 than they were on Friday July 23."

John Mauldin: "It is not just that taxes will go from 35% to just under 40%. It is the increase in Medicare taxes coming down the pike, too. We are taking money from private hands, where it has the potential to increase productivity, and putting it into government hands, where it will do nothing for growth of the economy. There is no multiplier for government spending. And tax increases reduce potential GDP by a multiplier of at least 1 and maybe 3, depending on which study you want to cite.
I understand that taxes have to go up. I get it. But we would be better off having a discussion of where we want to tax dollars to come from before we risk hurting an economy that will barely be growing at 2% in the 4th quarter, and may be well below that. It is the increase in taxes that has me concerned about a double-dip recession."

British energy giant BP is holding up payments to economic victims of the Gulf of Mexico oil spill, Kenneth Feinberg, administrator of a $20 billion compensation fund, said Saturday. "I have a concern that BP is stalling claims. Yes, BP is stalling. I doubt they are stalling for money. It's not that. I just don't think they know the answers to the questions (by claimants)," Feinberg told reporters.

A top Chinese central bank official suggested switching away from the U.S. dollar as a benchmark for the yuan's foreign-exchange rate, switching instead to a basket of currencies, according to remarks published Thursday.

The OMB estimates that mandatory spending will make up 71% of government expenditures by 2016.

Geithner: "“We also think it's responsible to let the tax cuts expire that just go to 2 percent to 3 percent of Americans, the highest earning Americans. We think that's the responsible thing to do because we need to make sure we can show the world that they're willing as a country now to start to make some progress bringing down our long -- our long-term deficits… I do not believe it will have a negative effect on growth."

61 percent of Americans "always or usually" live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

Gross domestic product rose at a 2.5 percent annual pace after increasing at a 2.7 percent rate in the first three months of the year, according to the median estimate of 68 economists surveyed by Bloomberg News before a July 30 Commerce Department report.