Saturday, September 04, 2010

Equity Cult

9/4/10 Equity Cult

What can we take on trust
in this uncertain life? Happiness, greatness,
pride - nothing is secure, nothing keeps.
~Euripides, Hecuba

Martin Hutchinson: "Apart from the possibility of collapse, two of the three likely major technological developments of the next 50 years – reaching the limit of Moore's Law and the increase in human lifespan – will slow the pace of change rather than increase it. Only the third, genetically increased intelligence, has the potential to accelerate change, but the systemic opposition to this technology is likely to prevent it appearing until far into the future. The curve of human progress in the 21st Century will therefore be asymptotic [limited], not exponential."

New Zealand’s second-largest city, Christchurch, was placed under night curfew as a storm threatens to exacerbate an estimated NZ$2 billion ($1.44 billion) of damage caused when a magnitude 7.0 earthquake hit the area.

A state of emergency was declared after the quake struck at 4:35 a.m. local time yesterday, cutting power, damaging roads, rupturing sewer lines and water pipes and ripping facades off buildings. Christchurch, suffering aftershocks, is now bracing for possible flooding as gale force winds and heavy rains are expected to reach the city today, the government said.

“It’s a miracle no one lost their life,” New Zealand Prime Minister John Key said as he inspected the damage yesterday. One person received serious injuries when the temblors struck.

via ZeroHedge: "Citi has just pronounced the "Equity Cult" dead: "It has taken 10 years, and two 50% bear markets, to reverse this cult. European and Japanese equities are already trading on dividend yields above government bond yields. US equities are almost there as well. An immediate reincarnation of the equity cult seems unlikely. Global corporates, especially the mega-caps, rushed to exploit cheap financing as the equity cult inflated. They have been slow to redeem equity now that the cult has deflated. Equity oversupply remains a drag on share prices." And as more and more companies and investors shift to a de-equitization theme, the trendline in allocation for the US pension assets will soon revert to that seen when the "Equity Cult" began, or roughly 20% of all assets, with bonds taking on an ever greater precedence of asset allocation (incidentally the UK is already back to the equity/debt relative investment levels of the early 1960s). What does this mean for capital flows? "A reduction in equity holdings back to pre-1959 levels (around 20% of total assets) would indicate considerable selling pressure to come. For US private sector pension funds alone, that would imply a further $1900bn reduction in equity weightings. The evidence suggests that there could still be considerable institutional selling to come."

The Obama administration on Tuesday will launch its latest efforts to rescue the failing housing market, according to a media report Saturday.

The program, first announced in March, will focus on reducing mortgage balances for homeowners who owe more on their homes than their properties are worth, The Wall Street Journal reported in its online edition.

The Journal, citing officials, said between 500,000 and 1.5 million underwater loans could be modified through the program. About 11 million borrowers, or 23% of households with mortgages, were underwater on June 30, said the Journal, citing data from CoreLogic Inc. The paper said that while one in five of the loans might default, the government has set aside $14 billion from the Troubled Asset Relief Program to cover potential losses.

The paper reported that some analysts believe the program could let investors get rid of loans that have been modified and are current again.

Private employers have added only 78,000 jobs per month, on average, in the past three months.There were 14.9 million unemployed Americans last month, the department said. But including people working part-time who would prefer full-time work and those who have given up looking for jobs, 26.2 million people were "underemployed." The underemployment rate rose from 16.5 percent in July to 16.7 percent in August.

Benjamin Franklin: "Without continual growth and progress, such words as improvement, achievement, and success have no meaning."

Juan Cole: "I write in anger. Not blind rage, mind you. A cool, searing, steady anger. I think it is a righteous anger. It is not consequential, but it is my reality. I am angry about the 1,172 US troops dead in the Afghanistan War, and all the other brave NATO and Afghan soldiers who gave their lives for a new Afghanistan. Because they haven’t gotten a new Afghanistan. They have paid the ultimate sacrifice for a ponzi scheme masquerading as a reformist government. And, as usual, you and I may well get stuck with the bill for the economic damage done by the fraud.

The house of cards that is the Hamid Karzai government in Kabul may be falling before our eyes, as vast, globe-spanning webs of corruption, formerly hidden in shadows, have suddenly had a spotlight thrown on them. The crisis raises the severest questions about whether the Obama administration can plausibly hope to stand up a stable government in Afghanistan before US troops depart.
As with the second phase of the Great Depression in the United States, the crisis begins with a run on Da Kabul Bank. Depositors took out $85 million on Wednesday, after a damning story appeared in the Washington Post. They took out another $70 million on Thursday. The bank, which owes $300 million, may now have as little as $120 million left in the kitty, though it had once been worth over a billion. But the problem is not just a run on one bank. Can Afghanistan’s whole financial system and economy emerge unscathed?"

Friday, September 03, 2010


9/3/10 Clueless

Nearly 29 million Americans are still jobless or forced into part-time jobs! You still believe the consumer can pull us out of economic and social unrest? If so, you are as clueless as those at 1600 Pennsylvania Avenue. Nonfarm payrolls decreased by 54 thousand in August. The economy has gained 229 thousand jobs over the last year, and lost 7.6 million jobs since the recession started in December 2007! Temporary Help workers increased by 16,800 and construction workers increased by 19,000 (I should believe the latter is possible.)

Growth slowed in the U.S. non-manufacturing sector in August, hitting 51.5%, compared with 54.3% in July, the Institute for Supply Management reported Friday. Economists polled by MarketWatch had expected the reading to slow to 53.5%. The employment sector read came in at 48.2: the first posted contraction since January 2010. You still believe 67,000 jobs were added in August? If so, you are the schmuck of the month.

Anglo-Australian mining giant BHP Billiton Ltd. is considering making a bid for Anadarko Petroleum Corp., according to a report Friday. The mining giant has the American oil-and-gas independent on its radar as a "second target," an unnamed senior energy-industry figure told The Australian newspaper. Anadarko currently has a market capitalization of $24.9 billion. The report comes as BHP is trying to buy Canadian fertilizer firm Potash Corp. for $38.7 billion in a hostile offer. But BHP has also been looking at making an energy deal for several years, the report said. Last year, it considered but then abandoned a joint bid for Woodside Petroleum Ltd. with Royal Dutch Shell PLC, the report said.

An explosion and fire aboard a Mariner Energy Inc. platform in the Gulf of Mexico may delay an end to President Barack Obama ’s ban on deep-water drilling, imposed after the BP Plc blowout in April.

The unemployment rate rose in August for the first time in four months as weak hiring by private employers wasn't enough to keep pace with a large increase in the number of people looking for work. Birth Death adds 115K!
The Labor Department says companies added a net total 67,000 new jobs last month, down from July's upwardly revised total of 107,000. Wall Street analysts expected a smaller gain, according to Thomson Reuters.
Overall, the economy lost 54,000 jobs as 114,000 temporary census positions came to an end. State and local governments shed 10,000 positions. The jobless rate rose to 9.6 percent from 9.5 percent in July.
Average hourly earnings increased 3 cents, or 0.2% to $19.08. Economists had been expecting a 0.1% gain. Earnings are up 1.7% in the past year. The average workweek was unchanged at 34.2 hours. In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more. In August, the civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. Manufacturing lost another 12,000 jobs.

Chinese and other investors have approached at least one big Canadian pension manager about a bid for Canada's Potash Corp to rival BHP Billiton's $39 billion hostile offer.
The disclosure by Alberta Investment Management Corp, which manages some C$70 billion ($67 billion) in public sector pension funds, is one of the first pieces of hard evidence to back up speculation that China is looking for a way to derail a takeover of Potash Corp by the powerful Anglo-Australian miner.
AIMCo said it was not interested, because the economics did not work.

Four of China's five biggest banks reported a jump in "special-mention loans" in Q2, fresh evidence of potentially high credit risk in the local banking system. Chinese banks issued a record 9.6 trillion yuan worth of loans last year, triggering concerns about a potential surge in bad-loan ratios.

The Automatic Earth: "The soon-to-be-former chairman of President Obama's Council of Economic Advisers says there is no solution to the economic crisis we're in. Well, okay, no "inexpensive magic bullet". You think there'll be an expensive magic bullet? An inexpensive "non-magic" bullet?

What I think Romer is saying is that she found out that all of the economic theories she learned all through her life have come up empty and wanting. And now she'll return to university to pass them on to a whole new generation of students. Because she still can't admit to herself that the theories she based her entire life upon are worth less than the paper they're written on. But still, completely clueless, and that's what she admits, if you listen closely. No idea what went on, no idea what to do about it.

This woman had daily meetings with Larry Summers and Tim Geithner, and often Obama, for like 19 months. That's almost 400 meetings. And now she comes out and says she hasn't got the faintest idea what to do. And if she doesn't, after sitting through all those meetings, there can be no doubt that means neither do the rest of them. Not a single bleeping clue. Not one of them. Theories abound, but not a clue. Infinite taxpayer fortunes to spend, but your pet hamster could do the same job. Not a clue.

These are the people who determine White House policies, who get to decide which trillion dollars of your children’s potential tax revenues will be spent today, and on this banker, and which trillion tomorrow on the next one."

Wheat futures rose after Prime Minister Vladimir Putin indicated that Russia, a leading global exporter, may extend a ban on grain exports by as long as 11 months.

Gallup's job data show that 28% of Americans aged 18 to 29, 24% of those with no college education, and 22% of women were underemployed in August. This is not good news for retailers hoping that Christmas holiday sales will be better than those of back-to-school, or for politicians hoping to be re-elected in November.

(Bloomberg) -- President Barack Obama may include a permanent extension of the research and development tax credit among the tax breaks for businesses he is contemplating to spur job growth, two congressional aides said.
The White House also has been considering payroll tax relief to encourage new hiring, more tax breaks for small businesses and new infrastructure spending, according to people familiar with the discussions who spoke on condition of anonymity because the discussions are preliminary.

What do we manufacture? What is more important the ISM for MFG or the ISM for NON-MFG? Is this a no-brainer? Beware of the spinners. They are professionals at spinning. Beware the decline in factory orders and the build-up of inventories.

A powerful earthquake that struck New Zealand on Saturday caused "a lot of damage," though there are no reports of serious injuries or major damage, an emergency official said.
"It was like a freight train running through the house," said Chris Monroe, operations manager for the New Zealand Fire Service.
The quake had a magnitude of 7.0, down from an initial assessment of 7.4, the U.S. Geological Survey said. It struck about 35 miles from Christchurch, a city of about 386,000 people.
An aftershock with a magnitude of 5.7 struck not far from the epicenter about 20 minutes later, the survey said.
Power was out to much of Christchurch "because of extensive damage there," Radio New Zealand reported.

Silver closed at a two-year high Friday, rallying 1.4%. Gold closed lower, although the metal came off session lows. Silver for December delivery added 28 cents to $19.95 an ounce on the Comex division of the New York Mercantile Exchange. Gold for December delivery declined $2.30, or 0.2%, to $1,251.10 an ounce; the metal had lost more than $10 at times. Copper settled at $3.50, a multi-month high for the metal.

Even if the US and European economies manage to avoid a double dip, it will still feel like a recession, while more than half of the 800-plus US banks on the "critical list" are likely to go bust, according to renowned economist Nouriel Roubini of Roubini Global Economics.

Goldcorp Inc., the second-biggest Canadian gold producer, agreed to buy Andean Resources Ltd. for C$3.6 billion ($3.5 billion), exceeding a rival offer to gain control of an Argentinean mine.
The cash bid values the Perth-based miner at C$6.50 a share, or 2.2 percent more than an offer from Eldorado Gold Corp. based on yesterday’s close in Toronto trading. Goldcorp’s bid has the approval of Andean’s board, Vancouver-based Goldcorp said in a statement.

Dow industrials up 128 points at 10,448 at close and up 2.9% for the week. S&P 500 index up 3.8% for the week. Nasdaq Composite up 3.7% for the week

Thursday, September 02, 2010

Mistaken Identity= Lying

9/2/10 Mistaken Impression= Lying

First-time claims for unemployment benefits fell by 6,000 to 472,000 in the week ended Aug. 28, the federal government reported Thursday. The four-week average of initial claims -- a better gauge of employment trends than the volatile weekly number -- declined 2,500 to 485,500, according to data from the Labor Department. The number of jobless workers who continue to receive unemployment checks fell 23,000 to stand at 4.46 million in the week ended Aug. 21. Altogether, 9.7 million people were collecting some type of unemployment benefits in the week ended Aug. 7, down from 10.1 million on an unadjusted basis.
The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 4.994 million.

David Rosenberg: "You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on $1.3 trillion of cash and yet there is no lending going on to the private sector. It's otherwise known as a liquidity trap.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today....If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $60 or $65 in the coming year as opposed to the current consensus view of almost $90. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 12x was actually buying the market with a 17x multiple."

The productivity of American businesses fell a revised 1.8% in the second quarter, twice as much as the government initially reported. Last month, the Labor Department originally estimated that productivity fell 0.9% to mark the first decline in five quarters. Yet worker output grew at a slower pace based on newly revised data. Real output grew just 1.6% in the second quarter, compared to the prior estimate of 2.6%. Hours worked rose at a 3.5% annualized rate - the fastest in four years. Unit labor costs in nonfarm businesses rose 1.1 percent in the second quarter of 2010, as the 1.8 percent decline in productivity was partially offset by a 0.7 percent decline in hourly compensation. Unit labor costs decreased 2.8 percent over the last four quarters, as output per hour increased faster than hourly compensation

Burger King Holdings Inc. will be bought out by private equity firm 3G at $24 a share, or about $4 billion total, according to CNBC's David Faber. The deal, which offers a 46% price premium, according to Faber, could be announced shortly. Burger King shares jumped more than 20% in preopen trade on Thursday morning.

On Thursday, analysts polled by Platts expect the Energy Department will show a net injection of 53 billion to 57 billion cubic feet to natural gas storage.

Working gas in storage was 3,106 Bcf as of Friday, August 27, 2010, according to EIA estimates. This represents a net increase of 54 Bcf from the previous week. Stocks were 208 Bcf less than last year at this time and 169 Bcf above the 5-year average of 2,937 Bcf. In the East Region, stocks were 18 Bcf above the 5-year average following net injections of 53 Bcf. Stocks in the Producing Region were 83 Bcf above the 5-year average of 873 Bcf after a net injection of 7 Bcf. Stocks in the West Region were 68 Bcf above the 5-year average after a net drawdown of 6 Bcf. At 3,106 Bcf, total working gas is within the 5-year historical range.

The European Union plans to limit so-called naked short sales of shares and government debt which it says can cause a “disorderly market and possible systemic risks.”

Petroleo Brasileiro SA, Latin America’s largest company by market value, agreed to pay the Brazilian government $42.5 billion in new stock for the right to develop 5 billion barrels of offshore oil reserves.
Petrobras, as the state-run company is known, will pay an average of $8.51 a barrel for the oil after almost two weeks of negotiations with the government, according to a regulatory filing yesterday. More than half the oil will come from the Franco field in the offshore Santos Basin, the company said.

Bonds of the former TXU Corp., the largest leveraged buyout in history, are tumbling as a plunge in natural gas prices raises concern the company may have a harder time meeting its debt payments.
Notes of Energy Future Holdings Corp., renamed after KKR & Co. and TPG Capital paid $43.2 billion for the electricity provider in 2007, lost 10.1 percent last month, the largest decline among the 50 biggest issuers of junk-rated corporate debentures in the U.S., according to Bank of America Merrill Lynch data. That followed a 3.66 percent drop in the second half of July.
Investors are speculating the 22 percent decline in natural gas prices in August, the most since July 2008, will curb the Dallas-based company’s revenue. Moody’s Investors Service says Energy Future already faces a “very weak financial profile, untenable capital structure, questionable long-term business plan and material operating headwinds.”

Rob Hanna: "The worse August was the worse September was. Below I’ve listed the 7 instances where, like now, August finished down over 4%. What stands out to me here is the size of the drawdowns. Four of seven instances saw September swoons of over 8%. While not statistically significant, I do think this is worth considering."

Royal Bank of Scotland is axing another 3,500 jobs, taking to almost 27,000 the number of staff cut since Stephen Hester took over as chief executive of the troubled UK bank less than two years ago.

Hewlett-Packard raises its bid for 3Par to $33/share, again staying ahead of Dell.

Car rental company Avis Budget Group said Thursday it is raising the cash portion of its bid for Dollar Thrifty as it battles Hertz for the potential buyout. Avis said that it will increase the cash component to $40.75 per share from its previous offer of $39.25 per share. The bid also includes 0.6543 shares of Avis Budget Group stock.

(Reuters) – A federal judge on Wednesday rejected the U.S. government's request to dismiss an industry lawsuit challenging its deepwater oil and gas drilling moratorium, dealing another blow to the Obama administration.
Hornbeck Offshore Services Inc and other drilling companies sued the administration on June 7 after it first ordered a halt to deepwater drilling in the Gulf of Mexico following BP Plc's well rupture that killed 11 workers and caused the world's worst offshore oil spill.
As a result of Louisiana-based Hornbeck's lawsuit, U.S. District Court Judge Martin Feldman in New Orleans blocked implementation of the drilling ban on June 22.

China’s CFLP Manufacturing PMI for August increased slightly to 51.7 from 51.2 – the first increase in 4 months.

Pending home sales in July rose 5.2% from downwardly revised June levels, the National Association of Realtors reported Thursday, though the indicator shows the market for existing homes is still depressed after the expiration of a key tax benefit. As the availability of a home buyer tax credit worth as much as $8,000 expired at the end of April, the pending home sales index plunged 29.9% in May and another 2.8% in June. The NAR had initially reported a 2.6% drop for June. The July index came in better than the 1% monthly drop that economists had forecast, though sales in July were nonetheless 19.1% below those during the same month in 2009.

BP is looking to divest $30 billion in assets during the next 18 months.Selling its assets is one way for the company to raise the money needed to cover its expected liabilities.

“It is now clear that the record low temperature and density
were primarily caused by unusually low levels of solar radiation at the
extreme-ultraviolet level. If it is indeed similar to certain patterns in the past,
then we expect to have low solar cycles for the next 10 to 30 years.”
- Thomas Woods, Ph.D., University of Colorado
The Sun's energy output declined to unusually low levels from 2007 to 2009,
during the recent prolonged solar minimum of scarcely a sunspot. At the same time,
Earth's thermosphere (55 to 300 miles altitude) shrank more than at any time in the
43-years of space exploration. The results showed the thermosphere cooling in
2008 by 41 kelvin (about 74° Fahrenheit) compared to 1996, with just 2 K attributable
to the carbon dioxide increase. The results also showed the thermosphere's density
decreasing by 31 percent, with just 3 percent attributable to carbon dioxide.

From the Financial Times:
US universities are producing too few engineers to meet industry demand, Indian outsourcing companies say, leaving such businesses little choice but to hire foreign skilled workers to fill jobs in America.

ZeroHedge: "In the meantime, ICI reports we have just recorded the 17th consecutive weekly outflow from domestic equity mutual funds, and what's worse for mutual funds' depleted liquidity ratios, it is now accelerating, hitting a total of $4.3 billion, a more than 50% increase from last week's $2.7 billion. YTD outflows have now hit $54 billion, as ever more capital is going into far safer fixed income instruments. And even as mutual funds are now staring outright liquidations point blank in the face, their actual capital keeps declining courtesy of endless redemptions. As a reminder, here is what Rosenberg said on the issue yesterday: "As for liquidity ratios, equity funds portfolio manages have theirs at an all-time low of 3.4%, down from 3.8% in June. Tack on the fact that there are really not very many shorts to be covered – since the market peaked in April, short interest is 4.3% of the S&P 500 market cap (in August 2008 it was 6%) and there’s not a whole lot of underlying fund-flow support for the stock market here." As for this being a contrarian signal, hopefully all those who see this as a buying opportunity can also find a way to make the now retiring baby boomers about 10 years younger and force them away from fixed income capital reallocation. Oh, and fix the broken market and restore investor confidence that the casino is only modestly rigged."

Dell Inc. said Thursday morning that it will not revise its latest bid for 3Par Inc., effectively ending the month-long bidding war for the small data storage company.

Federal Reserve Chairman Ben Bernanke said he was partly to blame for leaving the wrong impression that the central bank could have saved Lehman Brothers from failure in 2008.
Bernanke, testifying on Thursday before a congressional commission examining the causes of the worst financial crisis in 80 years, said he thought it "very likely" the investment bank was insolvent and lacked sufficient collateral to borrow enough from the central bank to avert collapse.
But he said he kept that view to himself in congressional testimony given just days after Lehman's September 2008 bankruptcy because he was worried that such comments might have spooked already panicky financial markets.
"I regret not being more straightforward there because clearly it has supported the mistaken impression that in fact we could have done something we could not have done," he said.

ZeroHedge: "How can people with a straight face come out and extrapolate anything from a market where the Federal Reserve is buying the debt of its own government! The Fed is merely the fiat drug dealer to a government addicted to spending and false promises. The equity market is the second most useless market in my opinion. There is no doubt in my mind that a huge part of the government’s “strategy” to build confidence is to keep this thing from doing what it should be doing. Thus, I am not surprised at all that since I last wrote the S&P500 was +1.6%, -1.5%, flat, and then +3.0%. So what you have seen is high volatility with no real direction. How can anyone have confidence this that thing is for real?"

The Dow Jones Industrial Average rose to finish on a gain of 50.63 points, or 0.5%, at 10,320.10. The S&P 500 index gained 9.81 points, or 1%, to 1,090.10. The Nasdaq Composite rose 23.17 points, or 1%, to end at 2,200.01.

Crude for October delivery added $1.11, or 1.5%, to $75.02 a barrel on the New York Mercantile Exchange. Oil had posted modest gains before the incident, which prompted fears of a more stringent, or longer, ban on offshore drilling. Natural gas for October delivery lost a penny, or 0.3%, to $3.75 per million British thermal units. A government report earlier Thursday showed an increase within market expectations for natural gas in storages.

Gold for December delivery added $5.30, or 0.4%, to close at $1,253.40 an ounce on the Comex division of the New York Mercantile Exchange, a fresh two-month high. Meanwhile, silver closed at its highest level since mid May and copper at its highest since late April.

Wednesday, September 01, 2010


9/1/10 ADP

The Chinese yuan is set to hit a 16-year low on international currency markets this month, under pressure from signs of slowing growth and a rising dollar.
Data compiled by Bloomberg shows the currency has fallen 0.5 per cent this month and is continuing to slide this morning.
Speaking to reporters yesterday, central bank governor Zhou Xiaochuan resisted calls for the People's Bank of China to allow the currency to rise more quickly, pointing to slower industrial output figures to suggest that the country's economy is cooling.
Guan Jiaying, a Beijing-based currency analyst at China Citic Bank, said policymakers were unwilling to allow the yuan to appreciate while industrial output is growing at its slowest pace in almost a year.
"The central bank also seeks to maintain the yuan's relative stability versus the currency basket and the dollar index rose this month," he said.

U.S. private-sector employment fell 10,000 in August, according to the ADP employment report released Wednesday. "The decline in private employment in August confirms a pause in the recovery already evident in other economic data," said Joel Prakken, chairman of Macroeconomic Advisers, which produces the report from anonymous payroll data supplied by ADP, in a statement. On Friday, the government is scheduled to report nonfarm payrolls for August, and economists polled by MarketWatch are looking for an overall decline of 105,000, including an expected increase of 25,000 jobs in the private sector.
The median estimate of 35 economists surveyed by Bloomberg News called for a gain of 15,000. Forecasts ranged from a decline of 50,000 to a 55,000 increase.
A loss of jobs raises the risk that consumer spending, the largest part of the economy, will retrench and halt the recovery. A Labor Department report in two days will show companies added 42,000 workers last month, economists projected.
"These numbers are important, because earlier in the year employment was moving positive and I think a lot of people thought the numbers would continue strengthening," Joel Prakken, chairman of Macroeconomic Advisors, told CNBC. "But it's clear that what's happened is the firing has stopped and the hiring has not begun."
Indeed, the number of planned layoffs at U.S. firms fell 17 percent in August from the prior month.
Employers announced 34,768 planned job cuts last month, down from 41,676 in July, outplacement consultancy Challenger, Gray & Christmas said.

Burger King Holdings Inc , the No. 2 U.S. hamburger chain, has been considering a possible sale and has held talks with potential buyers, a source familiar with the situation said on Wednesday.
The company, which has a market capitalization of about $2.3 billion, has been public since May 2006.
Famed for its flame-broiled Whopper, Burger King had previously been owned by private equity, which still hold a stake in the company. TPG, Bain Capital and Goldman Sachs had owned it; after buying Burger King from British drinks company Diageo in 2002 for about $1.5 billion.
The Wall Street Journal previously reported the news, saying that Burger King has been in talks with private equity firms in recent weeks about a possible sale, and one interested firm was 3i Group Plc.

Census Bureau: "The nation’s 89,526 state and local governments employed 16.6 million full-time equivalent employees in 2009, statistically unchanged from 2008, according to government employment data released by the U.S. Census Bureau. Part-time employees numbered 4.7 million, not statistically different from 2008.
Local governments accounted for 12.2 million full-time equivalent employees, and state governments had 4.4 million. (Local governments include counties, cities, townships, special districts and school districts.)
Most full-time equivalent state and local employees worked in education (8.9 million), hospitals (1.0 million), police protection (963,139) and corrections (759,513). Education included employment in elementary and secondary education, employment in higher education, and employment in support of special programs primarily for adult, vocational or special education that operate outside school systems."
There were138,960,000 civilians working at jobs of one sort or another and about 20 million working in government today.

George Ure: "Government isn't shrinking, but the workforce paying for it continues to shrink."

EU PMI came in at 55.1 compared to 56.7 previously and the lowest since February 2010.

China’s official Purchasing Managers’ Index (PMI), co-compiled by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP), rose to 51.7% in August from 51.2% in July.

Gov. Arnold Schwarzenegger has issued a message to top officials in his administration: Stop hiring.

SEC Declines to Sue Moody’s Over Inflated Ratings. Corruption is spreading.

Prakken expects Friday's Non-Farm payrolls number to be solidly in negative territory.

Construction spending slipped 1% in July compared to June, the Commerce Department said, marking a 10.7% year-on-year decline. June's construction outlays were revised down to show a 0.8 percent fall, instead of the previously reported 0.1 percent gain.

The ISM index rose to 56.3% in August from 55.5% in July. This was much stronger than expected. The consensus forecast of estimates collected by MarketWatch was for the index to fall to 53.2%. The key employment index improved to 60.4% in August from July's 57.8%. Production also jumped. New orders slipped to 53.1% in August from 53.5 in the prior month. Manufacturing has expanded every month since August 2009, though the pace of growth had slowed in recent months amid signs that a broader U.S. economic recovery was faltering.

Bill Francis: "As of right now in 2010 we have currently filled up 68% of the designed capacity of all of our natural gas storage. Last year this week we were sitting at 75% capacity. So with the mix of new capacity coming online to hold reserves and a rather weak injection season due to hot weather and a recovering manufacturing complex we are sitting well below last year.
The five year storage capacity average is actually sitting at 72%. So all the pundits that are screaming from the fences that storage is higher than ever are really only looking at the gross numbers. I feel as if they are not taking into account how the midstream industry has planned ahead for the extra demand that comes along with the growth of an economy and the emergence of different gas markets.
In fact the only other times in the 5 year average where the percentage of capacity filled was below 75% at this time was in ’05 and ’08. Of course this was when we were ravaged by two hurricanes seasons that took out 600 bcf and 400 bcf of production respectively.
As of right now there is 110 bcf of storage capacity pending FERC’s decision and over 130 bcf in the pre-filing process or on the horizon. So I don’t see any slowdown in our countries ramp up in storage facilities. This leads me to believe our demand will continue to grow regardless of what production or price does."

The Energy Information Administration reported oil inventories in the latest week climbed more than expected, but product stockpiles dropped. Crude oil inventories for the week ended Aug. 27 increased 3.4 million barrels, less than a trade group estimated late Tuesday but more than the 1.9 million addition expected by analysts polled by Platts. Gasoline stocks fell 200,000 barrels vs. expectations of a drop of 1 million barrels. Inventories of distillates, which include heating oil, fell about 700,000 barrels. Analysts had expected an increase of 1 million barrels. Oil traded up $1.91, or 2.7%, to $73.85 a barrel.

GM August U.S. sales down 24.9% to 185,176 units.

The decision by Harrisburg, Penn., to default on some of its general obligation bonds coming due raises questions for bond insurers more than municipal-bond investors, said Domenic Vonella, a municipal-bond analyst at Thomson Reuters. The city has well-known financing issues so it wasn't a surprise that caused waves in Wednesday's muni market, he said. Also, the bonds were insured, meaning investors will get paid anyways. But it could raise questions about how issuers choose which debt to default on -- and if they favor defaulting on insured debt, he said. "The market wants some clarity on whether there will be some repercussions from insurances agencies," though it's unclear what those may include, Vonella said.

The Dow Jones Industrial Average rallied 254.75 points, or 2.5%, to end at 10,269.47. The S&P 500 index rose 30.96 points, or 3%, to 1,080.29, led by the industrials and financials sectors, both up 3.9%. The Nasdaq Composite gained 62.81 points, or 3%, to 2,176.84.

Tuesday, August 31, 2010


8/31/10 Zhou

Google Inc.continued to build its social-networking efforts by acquiring Social Deck, a producer of social games and platform technology for mobile devices. Terms weren't disclosed. Social Deck, which says its key staffers split their time between Toronto and San Francisco, announced the deal Monday on its website. "The company has launched several titles for the iPhone, Facebook, and BlackBerry," and Social Deck technology enables multiple players using different mobile devices to play simultaneously, the company said. Media reports say that last week, Google acquired Angstro, which the company's website says enables the "ability to [home] in on highly focused, relevant news across professional networks." And Google recently bought Slide, a developer of social-networking software.

China on Tuesday denied rumours that the country's central bank governor Zhou Xiaochuan had fled after the bank posted huge bond losses, a report said.
Several Chinese websites reported Monday that the People's Bank of China had incurred a 430-billion-dollar loss on bonds from US mortgage giants Fannie Mae and Freddie Mac and that Beijing might punish some people including Zhou.

(Bloomberg) -- U.S. auto sales in August probably were the slowest for the month in 28 years as model-year closeout deals failed to entice consumers concerned the economy is worsening and they may lose their jobs.
Industrywide deliveries, to be released tomorrow, may have reached an annualized rate of 11.6 million vehicles this month, the average of eight analysts’ estimates compiled by Bloomberg. That would be the slowest August since 1982, according to researcher Ward’s AutoInfoBank. The rate would be 18 percent below last year’s 14.2 million pace, when the U.S. government’s “cash for clunkers” incentive program boosted sales.

World markets sank Tuesday as investors fretted about the pace of the global economic recovery ahead of a raft of economic news over the coming days.
The pessimism was most pronounced in Japan, where the Nikkei 225 stock index tumbled 325.20 points, or 3.6 percent, to close at 8,824.06. As well as worrying about the slowdown in the U.S., Japanese investors are clearly concerned that the continued rise in the value of the yen and falling prices will push the world's third-largest economy back into recession.

The prices of single-family homes in 20 major cities rose a seasonally unadjusted 1.0% in June, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Prices have moved up 4.2% in the past year. Prices rose in 17 of the 20 metropolitan areas tracked by Case-Shiller in June compared with May. This is the third monthly increase in prices after six straight declines. At the same time the effective homeownership rate has declined to 61.6%. The non-seasonally adjusted index came in at a far more somber 2.3% increase.

China and Iran will sign a $2 billion contract to build railway networks in western Iran on Sept. 12, citing Iran's Roads and Transportation Minister Hamid Behbahani.

Luxury retailer Saks Inc. may soon be on the receiving end of a $1.7 billion cash bid from a group of U.S. and U.K. private-equity firms, according to a media report.
Shares of Saks surged 26% in premarket trading Tuesday, after closing at $6.60 on Monday.

A Bloomberg survey sees gold rallying to $1,500/oz. by next year, with gains likely regardless of economic recovery or decline. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven," an analyst says. Gold is near its record high, now at $1,235.

David Rosenberg: "Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000."

The Chicago August PMI just came out at a new 2010 low of 56.7, missing expectations of 57.0, and a plunge from the prior read 62.3. The decline was across all key subindices, with Employment (55.5), New Orders (55.0), Prices Paid (57.2), and Production (57.6) all coming in below the prior prints.

India's GDP grew 8.8% in April-June qtr, driven by the manufacturing sector.

The Conference Board says its consumer confidence index for August jumped to 53.5. That's above the 50.5 economists had predicted.
Those claiming business conditions are “good” fell to 8.7% from 8.8%. Those stating business conditions are “bad” also fell, to 41.9% from 43.3%.
Those saying jobs are “hard to get” rose to 45.7% from 45.1%, while those claiming jobs are “plentiful” fell to 3.8% from 4.4%. In short, jobs stink, even for the best of the optimists.
Those anticipating an improvement in business conditions over the next six months increased to 17.0% from 15.8%, while those anticipating conditions will get worse fell to 13.4% from 15.3%.
Future employment prospects are slightly less pessimistic as those expecting more jobs in the months ahead increased to 14.6% from 14.2%; those anticipating fewer jobs fell to 19.4% from 20.9%. Those expecting an increase in their incomes remained flat at 10.6%.

FDIC: Problem banks reached 829 in Q2. Still expect more than 140 failures in 2010.

Russia's biggest privately owned oil producer, Lukoil Holdings, won't execute in full its option to buy back its shares from ConocoPhillips, the oil company's vice president told reporters Tuesday.
Leonid Fedun said the company won't take a new debt for the purchase of its shares, and regards the shares it has already bought as a financial reserve.
He added that the company is also considering a possible cancellation of the stake.

(Bloomberg) -- The American Civil Liberties Union sued the U.S. government over an alleged policy of killing American citizens who are suspected of terrorism.
The lawsuit, filed today in federal court in Washington, argued that such targeted assassinations by the government are unconstitutional.
“A program that authorizes killing U.S. citizens, without judicial oversight, due process or disclosed standards is unconstitutional, unlawful and un-American,” ACLU Executive Director Anthony Romero said in a statement announcing the filing of the case against U.S. President Barack Obama, the Defense Department and the Central Intelligence Agency.

Genzyme Corp. Chief Executive Officer Henri Termeer said the Cambridge, Mass.-based biotech company would consider a sale if the price were right, according to The Boston Globe. On Monday, Genzyme formally rejected a $69 a share offer from Sanofi as too low. "This is not a fixer-upper, this is beachfront property," Termeer said in an interview with the Globe published Tuesday. Termeer added that the situation with Sanofi could drag on for months and that other significant bidders might also emerge.

Gold for December delivery ended floor trade on the New York Mercantile Exchange up $11.10, or 0.9%, to $1250.30 an ounce. For the month, gold gained 5.6%, rebounding from a 5% loss in July. In electronic trade, the contract was up 20 cents to $1250.50 vs. $1251.70 ahead of the 2 p.m. Eastern time minutes, which showed several Fed officials think the central bank should consider taking more steps to aid the economy. Gold has gained as data showing economic weakness has lured investors to assets known as safe-havens.

Several officials on the Federal Reserve's policy committee think the Fed should consider taking additional steps to provide more support if the economy weakens further, according to a summary of the debate at the Aug. 10 policy meeting released on Tuesday. At the meeting of the Federal Open Market Committee, the policymakers agreed to one step to support the economy after a contentious debate. They agreed to reinvest the proceeds of mortgage-backed securities into Treasurys to maintain an accommodative policy. A few members argued against the reinvestment, saying the impact would likely be small and that it could send the wrong message about the Fed's commitment to ultimately normalize its policy.

JP Morgan Chase & Co. will begin to shut down its proprietary trading as part of its effort to comply with new regulations on investment banks, Bloomberg News reported Tuesday on its website, citing a person briefed on the matter. The bank will shut its propriety trading desk for commodities and then fixed-income and equities later, the news agency said. Those affected by the decision will be given a chance to apply for jobs within the company, Bloomberg said.

U.S. stocks ended Tuesday's session little changed but still finished the month with their worst August performance since 2001 amid growing concerns about the economy. The Dow Jones Industrial Average on Tuesday rose 4.99 points to end at 10,014.72. The S&P 500 index gained 0.41 point to 1,049.33, helped by the telecoms sector, up 1.1%, also the best performing sector in August, up 2.3% for the month. Also helping the S&P 500 on Tuesday, financials were up 0.9%, although the sector was the worst in August, down 7.9%. The Nasdaq Composite fell 5.94 points to 2,114.03 on Tuesday. The Dow industrials, the S&P 500 and the Nasdaq all posted their first down August in five years and saw their worst August since 2001.

Oil for October delivery finished lower on Tuesday, with losses accelerating at the close of the session. Crude futures closed down 3.7% at $71.92 a barrel. Oil closed the month of August with a drop of 8.9%, its first monthly decline since May. Natural-gas for October delivery edged up Tuesday to $3.816 per million British thermal units from Monday's close at $3.812 per million British thermal units. But natural gas slid 23% in August, with prices dogged by confusion over production.

10-year Treasury yields dropped to 2.465%.

Monsanto says it's cutting about 650 to 700 more jobs as it continues to restructure its business.

Monday, August 30, 2010

Blue Monday

8/30/10 Blue Monday

France's Sanofi-Aventis on Sunday publicly disclosed its $18.5 billion, $69-per-share cash offer for Genzyme Corp in a bid to rouse shareholders after failing to engage the U.S. biotechnology company in merger talks.
Sanofi said it is considering all options to complete the transaction, hinting it would consider a hostile takeover bid.
The so-called "bear hug" letter aims to pressure Genzyme to respond to the offer or justify to its shareholders why it has not held negotiations.
"It is our preference to work together with you and the Genzyme board to reach a mutually agreeable transaction," Sanofi Chief Executive Chris Viehbacher wrote to his counterpart at Genzyme, Henri Termeer.
"Your continued refusal to enter into constructive discussions will serve only to further delay the ability of your shareholders to receive the substantial value represented by our all-cash offer," the letter said.
Viehbacher said he did not expect the process to conclude quickly and said he was in no hurry, but hinted that if Genzyme did not enter talks and open its books, Sanofi could take a hostile offer directly to shareholders.Sanofi wants to buy Genzyme, a leading maker of drugs for rare diseases, to fuel sales growth as some of its drugs lose patent protection.

Genzyme Corp rejected an $18.5 billion takeover offer from French drugmaker Sanofi-Aventis, saying it dramatically undervalues the company.
The Cambridge, Massachusetts-based biotechnology company said its board of directors met Sunday night and unanimously affirmed a previous rejection of Sanofi's proposal.
In a letter to Sanofi's chief executive, Chris Viehbacher, Genzyme said Sanofi's proposal to acquire Genzyme for $69 a share is the same as an offer it made last month.
"It provides no new information and no improvement in price, and therefore fails to establish a basis for engagement by the Genzyme board," Genzyme said. Genzyme said that in its first response letter to Sanofi, dated July 29, the board said it was not the right time to sell the company "because your opportunistic takeover proposal does not begin to recognize the significant progress underway to rectify our manufacturing challenges or the potential for our new-product pipeline."

Consumer spending outpaced income growth in July leading to a decline in the personal savings rate, the Commerce Department reported Monday. Consumer spending rose 0.4% in July. Personal income rose 0.2%. Wall Street economists had expected a 0.3% increase in incomes and a 0.3% gain in spending. The savings rate fell to 5.9% from 6.2% in June. Real disposable incomes fell 0.1% in July after rising 0.1% in June. The personal consumption expenditure price index rose 0.2% in July compared with June and is up 1.5% in the past year. Personal saving -- DPI less personal outlays -- was $673.4 billion in July, compared with $699.7 billion in June. Personal saving as a percentage of disposable personal income was 5.9 percent in July, compared with 6.2 percent in June.

3M said Monday it would pay $10.50 a share to buy Cogent Inc. in a deal that values the biometric identification firm at $943 million. 3M's payment price is about 18% above Cogent's closing level of $8.92 a share on Friday. Cogent's products capture fingerprint and palm print images electronically, encode prints into searchable files, and compare a set of prints to a database.

Charles Hugh Smith:
"The core of quantitative easing is this: by expanding bank credit and lowering interest rates, a central bank (in the U.S., the Federal Reserve) stimulates more borrowing and thus more spending by businesses and households.
The problem with this policy is that none of the funds goes directly into consumers' accounts. If consumers are tapped out or wary of taking on more debt, then bank credit can be expanded to the moon and households will not borrow more money.
So while the Fed, Treasury and the FDIC have shoveled about $4 trillion dollars into the nation's banking sector in various bailouts and guarantees, these actions have not actually distributed any cash to consumers or businesses. The Fed's operations in the recent crisis have been loans to banks and other financial institutions and purchases of financial assets, not helicopter drops of cash into households' accounts.
The problem with quantitative easing is fairly obvious to all: it hasn't really stimulated the economy, which despite the trillions of dollars spent on bank bailouts, is still tanking.
Put another way: the popular conception of Fed policy as a "helicopter drop" of money is misleading; a real helicopter drop would put money directly into households' bank accounts, rather than expand bank credit."

John Hussman: "Given that GDP growth over the past year has amounted to $563 billion, while Federal government debt has increased by $1.6 trillion, there appears to be little evidence that the positive economic growth of recent quarters was driven by much else but the deficit spending of government and to a lesser extent, the aggressive purchase of mortgage securities by the Federal Reserve. Private sector demand, income less government transfer payments, employment growth, housing activity and other measures of “intrinsic” economic activity remain remarkably weak. With the impact of stimulus spending trailing off, and little evidence that debt has been restructured in proportion to the cash flows available to service that debt, expectations for economic expansion appear to be based more on hope than on a careful reading of economic history."

Aug. Dallas Fed Manufacturing Outlook: Business Activity Index -13.5 vs. previous -21. Mfg. Production Index -0.1 vs. previous 4.9. New Orders -9.3 vs. previous -9.6. Shipments -3.4 vs. previous -1.1.

Intel Corp., the world’s largest chipmaker, agreed to buy Infineon Technologies AG’s wireless unit for about $1.4 billion, gaining a foothold in the mobile- phone business it has struggled to crack for more than a decade.

ZeroHedge: "Today's stunning if true news comes from Stratfor which has just issued a blast notifying of circulating rumors "in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country." If proven true, this will be the proverbial first rat bailing on the sinking ship. It gets scarier vis-a-vis prospects of US bonds: "The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou." Um, $430 Billion in losses? Hopefully this explains why next month's TIC report won't show any incremental increase in Chinese holdings of Treasuries (and most likely quite the opposite). Stratfor continues: "Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China." Even if Zhou is safe and sound in Beijing, the fact that China has experienced nearly half a trillion in losses on its UST holdings is shocking, and means that the US Treasury bubble may be approaching the popping phase."

Schork: "since the start of the month gas for delivery this winter has shifted from a 13 cent premium (backwardation) over next summer, to a 14½ cent discount (contango)! Why is the market not concerned regarding the meager increase in gas rigs? Analysts at The Schork Report suggest that it is likely because horizontal gas rigs (those associated with shale drilling) are up by 7%, while vertical rigs are down by 13%. As such, the next supply glut is only a couple of fracs away."

Rob Hanna: "AAII Investors Survey Reaching Extreme Bearishness
One indicator I thought it was worth taking a closer look at this weekend was the AAII Investor Sentiment survey. In general the survey is viewed by technicians as a contrary indicator when it reaches extremes.
This past week the number of bears rose to 49.5% and the bulls dropped to 20.7% so it is now at fairly extreme levels. The last time the Bull-Bear Spread was this low was in early July as the July rally was just beginning. Prior to that is was the first week of November of ’09 just as that rally was kicking off, and the time before that was early March of ’09 just before that rally began."

The Bank of Japan said “uncertainty” regarding the American economy is growing, reviving demand for safety.

Oil fell 0.6% to $74.70 a barrel from Friday's close at $75.17 a barrel. In the previous week, oil prices advanced nearly 2%. The most anticipated of the reports, the August unemployment report, will arrive Friday. Natural-gas for October delivery, however, ended 2.9% higher at $3.812 per million British thermal units.

One in six Americans are now receiving government aid.

The Dow dropped 141 points, the S&P 500 index down 1.5% at 1,048, and the Nasdaq Composite down 1.6% at 2,119.

Sunday, August 29, 2010

Hurricane Season

8/29/10 Hurricane Season

The European Union thinks China has made only limited progress in allowing its yuan currency to move more rapidly, and swifter action would help safeguard a fragile economic recovery, according to a draft G20 document obtained by Reuters on Saturday.
The document outlines EU positions ahead of a Group of 20 deputy finance leaders meeting in Gwangju, South Korea, September 4-5. South Korea will host a G20 leaders summit in November.

BP Plc’s internal investigation of the Deepwater Horizon rig disaster found company engineers misinterpreted pressure data that indicated a blowout was imminent, according to a person familiar with the report.

(Bloomberg) -- Hiring and manufacturing probably cooled in August, showing companies are scaling back as the U.S. recovery shows signs of stumbling, economists said before reports this week.
Private payrolls that exclude government agencies rose by 47,000 this month after a 71,000 July gain, while the unemployment rate rose to 9.6 percent, according to the median estimate of 33 economists surveyed by Bloomberg News. Factories expanded at the weakest pace in almost a year, an Institute for Supply Management report is forecast to show.

Mike Burk: "The market appears to have put in a short term bottom last week. New lows diminished sharply and the secondaries outperformed the blue chips.
I expect the major averages to be higher on Friday September 3 than they were on Friday August 27."

John Mauldin: "We are still in a secular bear market. Valuations, while lower, are still not at what could be called historical cyclical bottoms. Patience is the order of the day. We will get there.
And for the record, I will probably become a bull way too early and have to endure some pain on the way to profit. Such is life.
And we risk that ultimately positive scenario if we do not get our federal fiscal house in order. If that does not happen, all bets are off. ALL BETS."

"History says you don't want to stick your head out there. If you're going to rent a boat and go sailing in the Caribbean, you don't do it in the hurricane season, and that's kind of what the equities market is like. We're entering hurricane season. Be careful," said Doug Cliggott, U.S. Equity Strategist at Credit Suisse.

According to Bloomberg, China is cutting back 72% of its exports of Rare Earth metals. China has said that environmental issues are the reason for the cutbacks.