Saturday, October 02, 2010

The Dollar

10/2/10 The Dollar

“The dollar seems to be the ugliest girl at the dance,” said Lane Newman, director of foreign exchange at ING Groep NV in New York. “The main catalyst for dollar weakness would be communication from the Federal Open Market Committee this week that quantitative easing is on the table and the euro has gone from the worst currency to own to the best on the back of ‘anything but the big dollar.’”
The dollar declined 2.2 percent to $1.3790 per euro, the weakest level since March 17, from $1.3492 last week. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against six major counterparts, extended its biggest monthly drop since June 2009. The Dollar Index declined 5.4 percent in September, the biggest monthly decline since May 2009 when it fell 6.2 percent.

HOUSTON—At midnight on the first of the month, a scene unfolds at many Wal-Mart Stores Inc. sites that underscores the deep financial strains that many low-income American consumers still face.
Parking lots come to life after 11 p.m. as customers start to stream into the stores, cramming their shopping carts full of milk, infant formula and other necessities.
Then at midnight, when the government replenishes their electronic-benefit accounts with their monthly allotments of food stamps, nutritional grants for mothers with babies or other aid for needy families, they head for the registers.
"We're not starving or anything, but we come every month at 11:55," said Tyrel Fogle, 26 years old, early Friday morning as he loaded a cart with frozen food at a Wal-Mart here on the northwestern edge of the nation's fourth largest city.

"I think that given the movement in September, October is not going to see as much or as steep an upside move, but we should see upside in October," said Binky Chadha, Deutsche Bank's chief U.S. equities strategist.
He said the mid-term elections should be a positive for stocks. "The risk-reward is skewed massively to the positive side. In 19 of the last mid-term elections, 18 percent of them delivered positive results for stocks," said Chadha.

One in four hedge fund employees have left London to move to Switzerland, where the tax regime is considered more stable, according to the consultancy Kinetic partners.
The cost to the Revenue is difficult to calculate but based on a conservative 28 per cent tax rate paid by the 1,000 or so hedge fund managers that Kinetic said had left, the UK will have forgone nearly £500m in taxes, although it could be much more.

Oct. 3 is expiration date for TARP.

Tim W. Wood: "Let’s now look at value, which is another historical marker of secular bear markets. Historically, the dividend yield will be roughly equal to the price earnings ratio at secular bear market bottoms. I have used the S&P data here because I did not have this data as far back on the Industrials. At the 1932 bear market bottom the yield was 10.50% and the P/E was just under 10. At the 1942 bear market bottom the yield was 8.71% and the P/E was 7.3. At the next great bear market bottom in 1974 the yield was 5.9% and with a P/E of 7.24. If we take this same reading at the 1982 low the yield was 6.2% and the P/E was 6.9. For the record, these P/E ratios are based on Generally Accepted Accounting Principles and not the bogus George Orwellian methods of today. At the 2009 low, the P/E was 26 with a dividend yield of 3.2, which is hardly at par. Therefore, based on this historical measure, there is also no indication that the 2009 low marked the bear market bottom."

The United Nations work agency today warned of a long “labour market recession” and noted that social unrest related to the crisis had already been reported in at least 25 countries, including some recovering emerging economies.

Policy moves by the Chinese government to free the yuan from a dollar peg will help the Chinese currency rise, Dominique Strauss-Kahn, the head of the International Monetary Fund, said on Saturday.

Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.

Friday, October 01, 2010

4th Quarter

10/1/10 4th quarter

Personal income rose 0.5% in August while real consumer spending rose 0.2%, the Commerce Department said Friday. Wall Street economists had expected a 0.3% increase in income and a 0.4% gain in spending. Inflation stayed low. The personal consumption expenditure price index rose 0.2% in August compared with July. Inflation is up 1.5% in the past year, the same pace as July. The core PCE was up 0.1% in August and is up 1.4% year-on-year. Nominal spending rose 0.4%. Real disposable incomes rose 0.5% in August after remaining flat in July. With incomes rising faster than spending, the personal savings rate rose to 5.8% of disposable income from 5.7% in July.

The unemployment rate in the 16-nation euro zone stood at 10.1% in August, unchanged from an upwardly revised reading in July, the European Union statistics agency Eurostat reported Friday. Economists had forecast a reading of 10%, matching Eurostat's initial estimate of the July jobless rate. The number of unemployed in the euro zone totaled 15.869 million in August, Eurostat said, a decline of 20,000 from July.

The Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose only 0.1 percent for a fourth straight month.

In the 12 months through August, the core PCE index increased 1.4 percent for the third consecutive month.

"More quantitative easing is on the way. The Fed may see the track of growth being too slow. It may be too close for comfort for them in terms of deflation. I don't know whether they will do it (QE) in November or December," said John Canally, an economist at LPL Financial in Boston.

Sep. ISM Manufacturing Index: The Institute for Supply Management said its index of national factory activity slipped to 54.4 last month from 56.3 in August. The median forecast of 79 economists surveyed by Reuters was for a reading of 54.5. Prices index 70.5 vs. 61.5 prior. Employment 56.5 vs. 60.4. Inventories 55.6 vs. 51.4. New orders 51.1 vs. 53.1.

Aug. Construction Spending: +0.4% to $811.8B/year vs. consensus -0.5% and -1.4% prior (revised).

Sept. Reuters/UofM Consumer Sentiment: 68.2 vs. 67 expected, 66.6 preliminary, 68.9 prior. Expectations 60.9 vs. 62.9 prior. "It is hardly a surprise that potential reductions in after-tax incomes a few months from now will influence people's current spending decisions."

China’s manufacturing expanded at the fastest pace in four months in September, adding to signs that economic growth is stabilizing even as the government curbs energy use and tries to cool the property market.

The purchasing managers’ index rose to 53.8 from 51.7 in August, China’s logistics federation and statistics bureau said in an e-mail. The median forecast of 15 economists surveyed by Bloomberg News was 52.5, with none forecasting such a large gain. Readings above 50 indicate expansions.

Rob Hanna: "In the past the market has frequently seen a rally following a weak finish to a quarter."

Individual investors increased their holdings of stocks in September to the highest allocation since April, according to the American Association of Individual Investors. Investors held 55.2% of assets in stocks and stock funds, up from 54.7% in August but still below the historical average of 60%, according to a survey by AAII released Friday. The S&P 500 Index had the best September returns since 1939. Assets held in bonds and bond funds also rose, to 24.5% from 21.2% in August and the highest since May. The long-term average allocation to bonds is 15%, according to AAII. Cash allocations declined to 20.3%, while the historic average is 25%.

The yield on the 2-year U.S. Treasury bond dropped to an all time low of 0.4066%. The dollar index continues to drop, gold rises to $1320, and many treasury yields plummet close to zero percent.

The Mississippi River stood at 18.78 feet at 7:30 a.m., measured at the Dubuque railroad bridge. Flood stage at the railroad bridge is 17 feet.
Forecasters predict the river will crest at 19.9 feet by early Sunday morning before slowly receding. The river should dip below flood stage by Friday, Oct. 8.

After a nearly six-month delay, Milwaukee County Board supervisors Thursday approved a measure to cut pensions of county elected officials - themselves included.

The measure would trim future pension credit by 20% by cutting the pension "multiplier," a factor used in calculating pension benefits. The move means supervisors would be cutting their own pensions to the same level they've previously approved for other county workers.

The change would mean officials now in office would have their time already worked for the county credited at the existing higher pension rate. Pension credit for future time in office would be calculated at the lower rate.

Backers of the move said it was a matter of fairness.

"It's high time that all of us take the (cut) ourselves if we are going to be making decisions to make others take it," said Supervisor Patricia Jursik.

The board a year ago included the pension cut for non-elected employees as part of a concession package in the 2010 budget.

Unions representing many county workers have not agreed to the change, however.

Humana and Wal-Mart say they'll partner to offer a Medicare prescription drug plan that at $14.80/month will have the lowest premiums in the U.S. The low-priced plan may spark concerns that Humana is sacrificing profit margins to gain membership.

Ikea, the world’s largest furniture retailer, has publicly disclosed its profits for the first time in an effort to rid itself of a reputation of being highly secretive.

The family-controlled, unlisted Swedish retailer said on Friday that the group’s net profit had risen 11.3 per cent to €2.5bn ($3.4bn) in the 2009 financial year compared with the previous year. The group’s sales weathered the global economic downturn to rise 1.4 per cent to €21.8bn during the period. Sales recovered strongly in the 2010 financial year, rising 7.7 per cent to €23.1bn.

Net income has consistently stayed between 10 and 13 per cent of revenue over the past 10 years, according to the company. The proportion of sales in North America was 15 per cent last year, in Asia it was 6 per cent while sales in Europe dominated at 79 per cent.

The company, which employs 127,000 people, said it paid €384m in tax in 2009. Operating income rose 4.4 per cent to €2.77bn while its assets totalled €37bn.

The group has 280 stores in 26 countries.

Crawfordville, Fla.-based Wakulla Bank was closed by regulators Friday, marking the 128th U.S. bank failure of the year. Wakulla Bank had roughly $424.1 million in assets and $386.3 million in deposits as of June 30, the Federal Deposit Insurance Corp. said in a statement. The bank's failure will cost the federal deposit-insurance fund $113.4 million, the FDIC said.

Gold for December delivery added $8.20, or 0.6%, to $1,317.80 an ounce on the Comex division of the New York Mercantile Exchange. Silver also kicked off October with a 30-year high, with the November contract vaulting 24 cents, or 1.1%, to $22.06 an ounce.

The Dow Jones industrials rose 42 points to 10,830. The Standard & Poor's 500 Index added 5 points to 1,146, and the Nasdaq Composite Index was up 2 points to 2,371 after being down for much of the day.

Thursday, September 30, 2010


9/30/10 Japan

Japan's industrial production fell a seasonally adjusted 0.3% during August, the Ministry of Economy, Trade and Industry said Thursday, with the result well below analysts' forecasts. A survey of economists reported by Dow Jones Newswires had tipped a rise of 1.1%. The drop in output marked the third straight month of declines, the ministry said. The data also showed a 0.5% month-on-month fall in shipments for the month, and 0.7% rise in inventories.

Japan's New Energy and Technology Development Organization has developed a hybrid vehicle that does not need rare-earth metals, the Nikkei reported Thursday. The new design uses magnets made from iron power "and other easily obtainable materials," rather than magnets made of rare earths neodymium and dysprosium, the report said. The new magnets are 10 to 20 times cheaper than the rare-earth version and reduces dependence on rare earth supplies from China. The news comes after a tense period for relations between China and Japan. The countries were locked in dispute over the arrest by Japanese authorities of a Chinese trawler captain. At the height of the tensions, reports emerged that China cut off rare earth supplies to Japan, although China denied making such a move.

The Bank of Japan is even more likely to ease monetary policy at next week's board meeting, following the release of a September tankan survey showing concern among businesses about the country's economic outlook, according to a report published Thursday. The Nikkei business daily reported that the central bank could "boost its ceiling for the fixed-rate funds it loans to financial institutions from the current level of 30 trillion yen." Further easing of monetary policy has been called for to help stop the yen from strengthening sharply against the U.S. dollar.

Wheat futures fell to an eight-week low on speculation that rains in Russia and Eastern Europe will improve soil moisture for planting.

Doug Kass: ”The market is delivering a potentially toxic combination of low volume, poor breadth and weakening financial stocks. These are classical bearish signals.”
To make matters all the more precarious he believes the September rally is predicated on faulty fundamentals – specifically, confidence that the Federal Reserve will take extraordinary steps to spur economic activity.

JPMorgan Chase is suspending more than 50,000 foreclosures as it reviews the legitimacy of legal documents, the second major company to take such action this month.

"The average level of U.S. government spending as a percentage of GDP from the end of World War II to the present is 19.6 percent," observes the Heritage Foundation. "In the past two years that level has exploded, reaching 24.7 percent in 2009 and an estimated 25.4 in 2010. . . . Without urgent action the U.S. is on course for national bankruptcy."

Americans can still send and receive mail, but the U.S. Postal Service might not have much left in the bank after this week, as it's set to announce billions of dollars in losses as early as Thursday.

It's also waiting for postal regulators to announce Thursday whether they approve of a proposed 5.6 percent postage-rate increase, to start in January. The proposed increase faces stiff resistance from business groups and lawmakers, who say that the USPS should instead make deeper spending cuts to meet its financial obligations.

U.S. economic growth slowed to an annual rate of 1.7% in the second quarter, compared with 3.7% in the first quarter, the Commerce Department said Thursday, reporting a slight upward revision to its prior second-quarter estimate. The deceleration of real gross domestic product in the second quarter was due to a "sharp acceleration" in imports and a "sharp deceleration" in private inventory investment. Consumer spending and nonresidential fixed investment made major positive contributions to growth in the second quarter. Previously, the government had estimated an annual growth rate of 1.6% for the second quarter. The change in the government's estimate is due to upward revisions to inventory investment and consumer spending, which were offset, in part, by an upward revision to imports.

The number of people who filed initial claims for state unemployment benefits fell 16,000 to 453,000 in the latest week, putting new claims back to where they were at the start of 2010, according to U.S. Labor Department data. Economists polled by MarketWatch had expected initial claims to rise to a seasonally adjusted 460,000 in the week ended Sept. 25. Claims for last week were revised up by 4,000 to 469,000. The four-week moving average of new claims fell 6,250 to 458,000, the lowest level since late July. Continuing claims dropped 83,000 to 4.46 million in the week ended Sept. 18. Altogether, 8.89 million people were getting some kind of benefit in the week ended Sept. 11, down from 9.18 million in the prior week. However, those who no longer receive 99 weeks of max claims continues to decline: those on EUC declined by -256,536, while those on extended claims fell by -36,686.

McDonald's has warned federal regulators that it could drop its health insurance plan for nearly 30,000 workers unless regulators waive a new requirement of the U.S. health overhaul.

Charles Hugh Smith:

There's only one little problem with Medicare/Medicaid: there isn't enough treasure in the Universe to pay what's been promised to 45 million (soon to be 60 million) aging/aged citizens, each of whom can burn through $500,000 or more in the waning days of their lives. Medicaid covers another 60 million low-income citizens, and there are few limits on what can be billed to Medicaid.

There are few limits on what Medicare spends on each recipient, most of whom contributed via Medicare taxes and monthly fees perhaps 1-3% of the average outlays expended on them, which are in the neighborhood of $250,000 - $500,000 each.

There is every incentive to bill the system and virtually no incentive to limit medications, tests, surgery, etc."

The Energy Department on Thursday is expected to report an increase of 67 billion cubic feet to 71 billion cubic feet of natural gas in storage for the week ended Sept. 24, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

Working gas in storage was 3,414 Bcf as of Friday, September 24, 2010, according to EIA estimates. This represents a net increase of 74 Bcf from the previous week. Stocks were 166 Bcf less than last year at this time and 202 Bcf above the 5-year average of 3,212 Bcf. In the East Region, stocks were 22 Bcf above the 5-year average following net injections of 48 Bcf. Stocks in the Producing Region were 119 Bcf above the 5-year average of 931 Bcf after a net injection of 21 Bcf. Stocks in the West Region were 61 Bcf above the 5-year average after a net addition of 5 Bcf. At 3,414 Bcf, total working gas is within the 5-year historical range.

The Chicago PMI climbed in September to 60.4%, according to reports, a big jump from 56.7% in August.

Moody's downgrades Spain from AAA to Aa1.

Seeking Alpha: The Dow is on track to tally its best September in 71 years, but are appearances deceiving? Stocks are up only in terms of a declining dollar; in real terms, relative to gold, stocks have gone nowhere, Michael Kahn writes.

The USD has dropped from '88' to '78' in 4 months, a fall of 11.40%.

ZeroHedge: "in about a month the Federal Reserve Bank of the United States will be the single biggest holder of debt issued by the United States of America!"

Hypercom, a payment technology company, said on Thursday that it had rejected an unsolicited offer from a much larger rival, VeriFone Systems,to buy it for $290 million in cash, saying that it “significantly undervalues” the company.

VeriFone has offered $5.25 a share, a premium of 24 percent from Hypercom’s closing stock price on Wednesday.

The cash offer came after VeriFone had initially proposed on Sept. 24 to acquire all the outstanding shares of Hypercom for 0.21 shares of VeriFone, which would have valued the offer at more than $6 a share, or $333 million.

GainsPainsCapital: "In plain terms, the currency war has officially begun. Since Japan’s announcement, numerous other countries have begun intervening in the currency markets including Brazil, Colombia, Peru, Russia, South Korea, Serbia, Romania, and Thailand.

In plain terms, WWIII is already being staged in the currency markets. Predicting exactly how this will all play out is impossible, but the clear result is that market volatility will be increasing and we are absolutely guaranteed heading for a Crash.

Consider that the currency markets trade over $4 trillion in market volume per day. To put that number in perspective, the entire world stock market is about $36 trillion in market capitalization.

The currency markets trade this amount every week and a half.

Moreover, the currency markets permit greater leverage. You average currency trader can leverage a position by 50:1 or even 100:1 at some brokerages."

The Oslo-based bank kept the benchmark deposit rate unchanged at 2 percent in line with all of the 14 economists in a Bloomberg survey.

“They once again confirmed that they still plan to re- activate their hiking campaign in the future,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank A/S in Copenhagen. “That helped the krone.”

Imports of many advanced economies may remain below pre-crisis trends for years to come, according to the summary of an International Monetary Fund study released Thursday. The study was of 169 episodes of banking and debt crises in advanced, emerging and developing economies over the past 40 years. "The recent narrowing of the large current account deficits of crisis countries may thus prove to be quite durable," the study said.

Hewlett-Packard on Thursday named Leo Apotheker as its new chief executive officer. The Palo Alto, Calif.-based tech giant also named Ray Lane, a former president at Oracle Corp. as the company's non-executive chairman of the board. Apotheker, the former CEO of software giant SAP, will also join H-P's board of directors.

U.S. stocks ended the month with their best September performance since 1939 but still fell on Thursday, amid uncertainty over the economy ahead of a key manufacturing report. The Dow Jones Industrial Average fell 47.23 points, or 0.4%, to 10,788.05. The S&P 500 index lost 3.53 points, or 0.3%, to 1,141.20. The Nasdaq Composite dropped 7.94 points, or 0.3%, to 2,368.62. That still barely put a dent on big monthly gains: The Dow industrials rose 7.7% and the S&P 500 gained 8.8%, with both scoring their best September in 71 years. The Nasdaq jumped 12% for the month, its best September since 1998.

Individual investors have become more pessimistic about stocks in the past week, according to the latest sentiment survey from the American Association of Individual Investors, released Thursday. Bearish sentiment climbed to 32% of respondents for the week ended Sept. 29, up from 25% in the prior week. Bullish sentiment trended down to 43% from 45% a week earlier and 51% two weeks ago. Fewer investors, 26%, were neutral about stocks, versus 30% a week earlier.

A record number of Americans signed up for Medicaid last year, as the recession wiped out jobs and workplace health coverage.

A report released Thursday by the nonprofit Kaiser Family Foundation found that enrollment in the safety-net medical insurance program jumped to more than 48 million — a record 15.7 percent share of the U.S. population. With the economy barely improving, states are forecasting a 6 percent increase in the rolls next year, meaning another strain on their cash-depleted budgets.

Wednesday, September 29, 2010

Feel Lucky?

9/29/10 Feel Lucky?

Federal Reserve officials have not reached any agreement on whether the central bank should purchase more Treasurys or other assets to pump up the economy, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank on Tuesday. Officials don't agree on pivotal questions like whether growing the Fed's balance sheet will work and how much would be needed to make a difference, Lockhart said in a speech at the University of the South. After the Fed's last policy meeting, the Fed said it is prepared to provide additional accommodation if needed to combat slow growth and too-low inflation. Lockhart said he believes the recent economic slowdown will be temporary but improvement will be "gradual." The risk of deflation also cannot be dismissed, he said.

Household incomes shrank for a second year in 2009, as the recession eroded the share of American families earning more than $100,000 and swelled the ranks of people who are poor or just barely making it.

Income estimates out Tuesday from the American Community Survey, a wide array of census statistics reported annually, show the recession's effect on millions of families.

The median income of $50,221 is down about 4 percent from its peak since the recession began in December 2007. Median household income that year was $52,384. About $1,500 of that loss occurred last year.

The story was no different in the Seattle area. In King County, the median household income was down 4.7 percent, to $67,806. Snohomish County households fared slightly better, slipping 3.1 percent to $64,658.

Between 2008 and 2009, real median household income fell by 2.9 percent nationwide, decreasing in 34 states, including Washington, and increasing in one (North Dakota).

The number of mortgage applications in the U.S. declined last week for a fourth straight time, led by a drop in refinancing even as mortgage rates declined to the lowest on record.

The Mortgage Bankers Association’s index fell 0.8 percent in the week ended Sept. 24 to the lowest level in almost two months, the Washington-based group said today. Refinancing also dropped to a seven-week low, while purchases increased for the first time in three weeks.

The dollar fell to an eight-month low against a basket of currencies including the euro and yen on speculation the Federal Reserve will increase purchases of government debt to spur the economy.

The euro hit a new five-month high against the dollar on Wednesday as persistent worries about a weakening recovery weighed on the U.S. currency, while the European Commission proposed new penalties for overspending countries.

The euro rose as high as $1.3638 in European trading before settling back to $1.3613. That was up from its previous five-month high of $1.3595 on Tuesday.

The Automatic Earth: "The consumer part of the GDP, which is some 70% no matter what, has been showing negative growth for a long time according to the CMI (Consumer Metrics Institute) data. And there doesn't seem to be any way, other than divine intervention, that this will not eventually reflect in the GDP and S&P 500 numbers. Again, it's all just a matter of time.

Here we go, adding in the S&P. First "bare":

And then with GDP projections for Q3 and Q4:

Now where do you think, looking at the correlations between the various data, that the S&P is most likely to go in Q4 2010? How about Q1 2011? The Automatic Earth is not here to dole out investment advice, but all the same, does this look to you like a good time to buy stocks? Sure, there will always remain questions about the above until we see the actual numbers. But by the same token, we're way beyond crystal balls and tea leaves here; the Consumer Metrics Institute are not exactly a bunch of empty coneheads.

And besides, you won't know what really happened until 3-4 months after it did happen. And that, certainly in the case of such relatively powerful swings as we’ve been contemplating, will probably be too late for you to change course.

Simple as that, really. Feel lucky?"

Douglas Adams: “What to do if you find yourself stuck in a crack in the ground underneath a giant boulder you can't move, with no hope of rescue. Consider how lucky you are that life has been good to you so far. Alternatively, if life hasn't been good to you so far, which given your current circumstances seems more likely, consider how lucky you are that it won't be troubling you much longer.”

Gregory White: "Truck tonnage may have increased 2.9% year-over-year in August, but the collapse in month-over-month levels is much more illuminating.

Tonnage fell by 2.7% from July to August, according to the American Trucking Association.

That's the biggest month over month fall since March 2009.

The chief economist at the ATA, Bob Costelo, says this slowdown was expected and that it should be slowing further with the economy for the remainder of the year."

Anti-austerity protests erupt across Europe, including Spain's first nationwide strike in eight years. An Irish cement truck driver slams into the Irish parliament, protesting the Anglo Irish Bank bailout which now includes a fresh €5B, and becomes a folk hero.

Danaher Corp. said Wednesday that it has agreed to buy Keithley Instruments Inc. for $21.60 a share -- a deal valued at about $300 million net of cash to be assumed. Shares of electrical test instruments and systems maker Keithley closed Tuesday at $12.39 each. The stock was up more than 70% in Wednesday's premarket. "Along with Fluke and Tektronix, Keithley further solidifies Danaher's leading position in the test and measurement industry and presents an attractive value creation opportunity," said Jim Lico, executive vice president at Danaher.

"XING, the social network for business professionals, today announced that it has recently passed the ten million registered user mark," the company announced.
"XING currently has more than ten million registered users, 4.2 million of whom are from German-speaking countries where the platform is successfully building on its market leadership," it said.

EIA: Crude oil inventories down 500,000 barrels. Gasoline reserves decreased 3.5 million barrels, while stocks of distillates declined 1.3 million.

House Speaker Nancy Pelosi promised four years ago that Democrats would lead "the most honest, most open, most ethical Congress in history."

But as her party defends its record with its majority in jeopardy, two prominent Democrats await ethics trials. Two other party members gave Congressional Black Caucus Foundation scholarships to relatives. Most importantly, lobbyists, corporations and special interests still have unimpeded ways to buy access to members of Congress.

Kohl's Corp. is opening 21 new stores, creating almost 3,000 jobs in 15 states.

(Bloomberg) -- China will speed up the introduction of a trial property tax in some cities and then expand the levy to the whole country to curb rising real estate prices, the government said, without giving a timetable.

The state also asked commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers, according to a statement posted on the government website. The down payment level previously applied only to homes larger than 90 square meters (969 square feet).

I go from stool to stool in singles bars hoping to get lucky, but there's never any gum under any of them.
Emo Philips

Minneapolis Fed president Narayana Kocherlakota: "The Fed cannot literally eliminate the exposure of the economy to the risk of fluctuations in the real interest rate. It can only shift that risk among people in the economy. So, where did that risk go when the Fed bought the long-term bond? The answer is to taxpayers."

The Dow Jones Industrial Average fell 22 points, or 0.2%, to 10,835.28. The S&P 500 index dropped 2.98 points, or 0.3%, to 1,144.72. The Nasdaq Composite lost 3.03 points, or 0.1%, to 2,376.56.

Tuesday, September 28, 2010

Quite Grim

9/28/10 Quite Grim

Consumer confidence in the economy remains "quite grim," with a monthly gauge falling to 48.5 in September, hitting the lowest level since February, the Conference Board reported Tuesday. "September's pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook," said Lynn Franco, director of Conference Board's consumer research center, in a statement. "With so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months." Economists polled by MarketWatch had expected a September level of 51.5. Confidence for August was downwardly revised to 53.2 from a prior reading of 53.5. A barometer on consumers' expectations dropped to 65.4 in September - also hitting the lowest level since February -- from 72 in August. Consumers' assessment of current conditions fell to 23.1 - also the lowest since February -- from 24.9. The percent of respondents expecting more jobs to become available in the next six months dropped to 14.5 from 14.7 the previous month. The proportion who expect their incomes to rise over the next six months fell to 10.2, the lowest since February, from 10.6 percent.

The Business Roundtable’s economic outlook index fell to 86 in the July-to-September period, the first decrease since the beginning of 2009 when the gauge dropped to a record-low of minus 5, the Washington-based group said today. Readings higher than 50 coincide with an economic expansion. The gauge fell from a second-quarter reading of 94.6, the highest since 2006.
Sixty-six percent of respondents said they expect sales will grow in the next six months, down from 79 percent in the second quarter, while 31 percent said they will add to payrolls, a decrease of 8 percentage points. At the same time, companies are taking the opportunity to invest in new equipment, signaling capital spending will be a source of strength for the U.S. economy.
“Sales forecasts are down from last quarter, prompting CEOs to remain cautious,” Ivan G. Seidenberg, chairman of the Business Roundtable and chief executive officer of New York- based Verizon Communications Inc., said in a statement. “However, they are preparing for future demand by increasing investment in capital.”
Forty-nine percent of executives said they plan to spend more on equipment, up from 43 percent, the survey showed.
The executives reduced their economic growth forecasts to 1.9 percent for 2010 from 2.7 percent in the previous survey. That compares with the 2.7 percent median estimate of economists surveyed by Bloomberg News from Sept. 1-8.

Gonzalo Lira: "A collapse in the currency is why the government and the central bank are kept separate from one another—the fear of monetization, and what could happen, keeps the two apart.
However, now, in the good ol’ U.S. of A., monetization is taking place—and it is happening right before our eyes, even though no one is realizing it. This monetization is invisible to sophisticated analyses, but obvious to anyone looking at the situation. Like one of those stealth fighter jets that are visible to the naked eye of a goat herder, but invisible to the radar and infrared and other sophisticated equipment of the professional military? Same thing:
It’s what I call stealth monetization.
What happened in the Fall of 2008? Essentially, banks found themselves holding debts that would never be repaid—which meant the banks could never pay back the money that they in turn owed to depositors and other creditors.
The bad debts the banks owned—the so-called “toxic assets”—were bonds made from the real-estate and commercial real-estate mortgages, as well as other collateralized debt obligations. Since the properties underlying these bonds had fallen in price—because their prices had been a speculative bubble to begin with—the bonds made from these bundles of loans would never be fully paid off.
In other words, they were bad loans. Therefore, the banks which had made the loans—the banks which owned these toxic assets—would lose so much money that they would go bankrupt. If they did go broke, the U.S. and world economies would take a massive hit.
So in order to avert this fate, the Federal Reserve bought these toxic assets from the banks—but the Fed didn’t pay the market value for these toxic assets, which were pennies on the dollar: Instead, the Federal Reserve paid full nominal value for the toxic assets—100¢ on the dollar. The banks the Fed bought these toxic assets from became known as the Too Big To Fail banks—for obvious reasons.
How did the Fed buy these dodgy assets? Simple: In 2008 and ‘09, the Fed “expanded its balance sheet”. That’s fancy-speak for, “The Federal Reserve created about $1.5 trillion out of thin air.” That’s essentially what they did. The Fed just decided, “We’re going to create $1.5 trillion”—and lo and behold, $1.5 trillion came to be.
What did the Fed do with this $1.5 trillion it conjured out of thin air? Why, it used it to buy up all the toxic assets and other dodgy assets from the TBTF banks."

McClatchy Newspapers WASHINGTON — Congress is deadlocked over virtually every major issue still pending this year, including key economic matters such as a detailed federal spending plan and extending Bush-era tax cuts, yet lawmakers still hope to leave Washington by Friday and not return until mid-November. Chances are they'll approve a stopgap budget to keep the government running, maybe vote on extending the Bush administration tax cuts and call it a day. This desire to punt on the day's biggest issue could be one more reason for voters to turn against incumbents of both parties in November.
Refineries produced 9.02 million barrels a day of gasoline compared with demand of 8.85 million. Supplies of the fuel in the week ended Sept. 17 were 15 percent higher than the five-year average for the period, the department said. U.S. fuel demand will drop 9 percent to average 18.93 million barrels a day this year, from a record 20.8 million in 2005, the Energy Department said on Sept. 8.

Bullard Confirms Quantitative Easing Over $1 Trillion Would Result in Outright Debt Monetization.

July Case-Shiller index up 3.2% in past year. U.S. July Case-Shiller home price index up 0.6%. "While we could still see some residual support from the homebuyers’ tax credit, which covers purchases closing through September 30th, anyone looking for home price to return to the lofty 2005-2006 might be disappointed." “Now that we’re getting data that’s starting to show some post-tax-credit information, we’re beginning to see some weakness on the surface,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in Washington. “Sales have come off and the concern is that you’re going to see prices follow.”

Bill Gross: "The most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living.....A much slower rate of real growth will mean no 12% returns for stocks or 8% returns for pension funds anymore, said Bill Gross, the manager of the world's biggest bond fund at Pacific Investment Management Co. "The unmistakable fact is that future investment returns will be far lower than historical averages," Gross wrote in a commentary distributed on Tuesday. Investors are "faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. "The most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living." Without leverage and with regulation increasing again, the best route to prosperity is "good old-fashioned investment in production. If we are to earn it - the best way is to utilize technology and elbow grease to make products that the rest of the world wants to buy. Perhaps we can, but it would take a long time and an increase in political courage not seen since Ronald Reagan or FDR," Gross said. However, what's more likely is a resort to reflating the economy with quantitative easing, low interest rates, and high government deficits and ultimately, inflation, he said."

Joining a string of other pessimistic regional manufacturing indexes, the Richmond Fed's seasonally adjusted composite index of manufacturing activity fell to -2 in September from +13 in August. Shipments fell fifteen points to -4, new orders lost ten points to finish at 0, and the jobs index declined fifteen points to -3.

The cost of insuring against default on Ireland’s government debt surged to a record as Standard & Poor’s said the price of bailing out nationalized lender Anglo Irish Bank Corp. could exceed $47 billion.

At least half of U.S. equity mutual fund investors lost at least 25% over the past decade and that withdrawals are prevalent even as the market rallies, according to TrimTabs Investment Research report released Monday. TrimTabs said retail investors pulled out $55.4 billion from U.S. equity funds in 2010 even though the average fund is up 36.4% since the beginning of 2009. "The past decade was a lost one for U.S. mutual fund investors," said Vincent Deluard, executive vice president at TrimTabs, in a statement. "Most investors are so deep in the red that rallies matter little to them, and some might be selling just to harvest tax losses."

Crippling debts and deficits are about to make individual states the next casualty of the credit crisis, analyst Meredith Whitney told CNBC. "The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically," she said. "Municipal debt has doubled since 2000, spending has grown way faster than revenues."
Whitney also offered another warning about banks, saying a sharp dropoff in trading revenue and a double-dip in housing would hammer at fourth-quarter earnings.

“We expect a very, very competitive and aggressive Christmas and holiday selling season, price-focused,” William Simon, head of Wal-Mart’s U.S. stores, said at an analyst presentation on Sept. 15. “Customers are focused on their savings,” and “challenged” by unemployment close to a 26-year high, he said.
While “nobody knows what the consumer’s going to do,” retailers, with leaner inventories this year, “are in a better place,” Li & Fung’s Rockowitz said.

Less than half the 50 state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled by Bloomberg. The U.S. recession and stock-market collapse drained about $835 billion of value from the 100 largest public funds, according to U.S. Census Bureau data.

Hewlett-Packard Co. on Tuesday said it expects revenue in its fiscal year 2011 in the range of $131.5 billion to $133.5 billion, Chief Financial Officer and interim chief executive Cathie Lesjak said at the company's meeting with analysts. H-P also expects adjusted earnings in the range of $5.05 a share to $5.15 a share. On a GAAP basis, the company said it expects earnings in the range of $4.35 a share to $4.45 a share.

The Dow Jones Industrial Average gained 46.10 points, or 0.4%, to 10,858.14, with 22 of its 30 components rising. The S&P 500 index rose 5.54 points, or 0.5%, to 1,147.70, led by healthcare, up 0.9%, as well as the energy, consumer discretionary, and consumer staples sectors, all up about 0.8%. The Nasdaq Composite rose 9.82 points, or 0.4%, to 2,379.59.

Gold for December delivery added $9.70, or 0.8%, to $1,308.30 an ounce. Silver ended at a fresh 30-year high, rising 24 cents, or 1.1%, to $21.70 an ounce.

South Africa's largest labor group came out against Wal-Mart Stores Inc.'s $4.6 billion offer to buy Massmart Holdings Ltd.

The Economist: "Global public debt for 2010 is close to $40 trillion and is predicted to rise to over $42 trillion in 2011. In 2009, global debt was just under $37 trillion(via Barry Ritholz)
-US public debt is currently at $8.5 trillion, 58 % of GDP. It is predicted to rise to $9.5 trillion in 2011, which will be 63.1% of GDP.
-Japan’s public debt is currently $10.6 trillion, 196.1% of its GDP
-Greece’s public debt is currently $374.6 billion, 127.8% of its GDP.
-Chinese public debt is approximately $949 billion, 17.3% of its GDP."

Monday, September 27, 2010

Risk Profile

9/27/10 Risk Profile

Boombustblog: "According to latest research by Gartner (Sep 2010), helped by service providers’ marketing and vendor support for Android-based smartphones, Android with 17.7% share would become the second-largest platform, following Symbian (40% share), by year-end 2010 while at the end of 2014 the number one spot will be contested by Android. Gartner predicts that by 2014, open-source platforms will dominate more than 60% of the market for smartphones and expects that single-source platforms, such as Apple’s iOS and RIM’s OS, will increase in unit terms, but their growth rate will be below market average and not enough to sustain share increase."

John Hussman: "The present overall return-to-risk profile is not favorable, on average. But again, despite our present defensive position, we would prefer - hands down - to be wrong about oncoming economic weakness. In our view the market is already fully priced for an economic recovery anyway, so the challenges are steep for investors even without a further downturn.
As I've noted before, risk management is forgiving. During the past decade of rich valuations, and based on our analysis, throughout history, the temporary returns that investors have missed during periods of hostile valuations and overbought conditions have been more than compensated by the avoidance of subsequent - often profound - losses that correct those valuations. But this is a long term, average tendency. We aren't market timers - we are risk managers. For now, conditions continue to stack on the defensive side."

Southwest Airlines Co. agreed to acquire AirTran Holdings Inc. (AAI) for $1.4 billion in cash and stock, the first major merger among healthy U.S. discount carriers.

ZeroHedge: "For all those who thought last week's "dramatic" improvement in the ratio of insider selling to buying from 650:1 to "just" 290:1 was a sign things are turning and insiders may soon be selling only 100 or so times more stock per week than buying, we have some bad news. According to Bloomberg, the latest ratio of insider selling to buying was 1,411 to 1. Let us repeat: 1,411 to 1. Needless to say, corporate insiders are totally buying the Fed reflation story, and the economic recovery. Like, totally."

Anglo Irish Bank Corp.’s senior debt was cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the government guarantees bondholders against losses.

Unilever said Monday it has agreed to acquire U.S.-based Alberto Culver Co for $3.7 billion in cash. The acquisition makes Unilever the world's leading company in hair conditioning, the second largest in shampoo and the third largest in styling, the Anglo-Dutch firm said in a statement. Alberto Culver's Alberto Culver beauty-care brands include TRESemme, Alberto VO5, Nexxus, St. Ives, Simple and Noxzema. Unilever will acquire all of the outstanding shares of Alberto Culver for $37.50 per share in cash, valuing the company at about $3.7 billion. The $37.50 per share price represents a 33% premium to Alberto Culver's 12-month volume weighted average share price.

Wal-Mart Stores Inc. made a non-binding proposal to acquire Massmart Holdings Ltd. [ZA:MSM], the Johannesburg consumer-products retailer, for 148 rand ($21.13) a share, the companies said in Monday statements. Massmart shares last traded at 134.75 rand a share, indicating that the Bentonville, Ark., retailer is proposing a 9.8% premium. Wal-Mart said that acquiring Massmart would be "a compelling growth opportunity." Massmart said the proposal is "the beginning of the process and it is difficult to say how long it will take or whether it will lead to an offer." And Massmart Chief Executive Grant Pattison said that Wal-Mart's interest "represents a vote of confidence" in South Africa, the firm and its employees. Massmart operates 290 stores in 13 African countries, mostly in South Africa. The deal is subject to conditions including a due-diligence financial review as well as regulatory clearances and a vote of Massmart holders.

Japan's government is considering a supplementary spending bill of up $55 billion to help pay for fiscal programs to offset the stronger yen and help boost the sluggish economy, according to a report Monday by the Financial Times. The ruling Democratic Part of Japan is seen as bowing to pressure from opposition parties calling for emergency stimulus funds in the range of 4 trillion yen to 5 trillion yen, ($47 billion to $59 billion), the report said. During the weekend, officials from the DPJ said it would be possible to fund a supplementary budget of up to ¥4.6 trillion yen without selling new debt, using surplus funds from higher-than-expected tax revenues, savings from unexpectedly low payment rates on current government debt, and unused funds from the 2009 budget, the report said.

White House reportedly plans to submit Internet wiretaps bill. In an effort that raises fresh questions about privacy, officials are preparing to seek sweeping new Internet regulations, arguing that they are losing their capability to track suspects. Essentially, officials want Congress to require all services that enable communications — including encrypted e-mail transmitters like BlackBerry, social networking Web sites like Facebook and software that allows direct “peer to peer” messaging like Skype — to be technically capable of complying if served with a wiretap order. The mandate would include being able to intercept and unscramble encrypted messages.

Wolseley, the builders’ merchant, has become the latest British company to seek to change its corporate structure for tax reasons, proposing to redomicile to Switzerland as it disclosed a narrower annual pre-tax loss.
The FTSE 100 group said on Monday it planned to create a new holding company, New Wolseley, that would be listed in London but incorporated in Jersey, with a tax residence in Switzerland.

The market for tablets is expected to grow from virtually nothing last year to 11 million units in 2010, according to forecasts from ABI Research.

China will impose an anti-dumping duty as high as 105.4 percent on U.S. broiler chicken products, effective tomorrow, the Ministry of Commerce said today.

Nouriel Roubini spoke to CNBC this morning about the state of the global economy, most notably about the threat of a double-dip recession. He said it was going to feel like a double-dip recession, even if we don't technically enter into one, due to weak labor markets and falling home prices. The real chance of a double-dip is 40%, according to Roubini.
Roubini also said quantitative easing would be unable to trigger any growth as the problem in the marketplace wasn't too little money, but too little demand.
But it's not just the near term Roubini was negative about. He also felt that the weak reforms made by the U.S. government would be unable to stop more financial crises over the next decade.

A significant majority of voters are considering voting against President Barack Obama in the 2012 election, expressing sour views of his new health care law and deep skepticism about his ability to create jobs and grow the sluggish economy, according to the latest POLITICO / George Washington University Battleground Poll.
Only 38 percent of respondents said Obama deserves to be reelected, even though a majority of voters hold a favorable view of him on a personal level. Forty-four percent said they will vote to oust him, and 13 percent said they will consider voting for someone else.

Detroit Free Press reports:
Election 2010 is shaping up to be a much more normal undertaking, which is to say, a low-turnout, off-year election. Election analysts say 1.5 million or more of those 2008 voters — predominantly young people, minorities and unmarried women — aren’t likely to help decide who runs Michigan for the next four years. That spells trouble for Democrats.
EPIC/MRA pollster Bernie Porn says Michigan Democrats need at least 500,000 of the 2008 surge voters back to keep a bad year from turning into a disaster.
“A lot of them never voted or participated in politics” before 2008, he said. “Trying to get them out again is going to be hard.”

Dr. Marc Faber: You would be out of your mind, with health care reforms and with the government interventions and the uncertainty about future taxes in the US, to even consider expanding in the US and this is a problem. I mean people say that loan demand is down because banks are not lending, but maybe nobody wants to borrow any money in the US and nobody wants to expand in the US but they are expanding in China, India, Vietnam, Bangladesh, Africa and Brazil. The business world is an international place today, and if you run a corporation, whether you employee 50 people or 10,000, you can choose where you invest your money in terms of capital spending. Where do you want to expand factories? If I employed people in the US, I would rather think of reducing the 50 employees maybe to only 20.

ZeroHedge:"Takefuji Corp., the third largest Japanese consumer lender, was limit down on the Nikkei, and was subsequently halted, on reports the company is preparing to file bankruptcy as reported by Nikkei newspaper earlier. The news was also confirmed by the Jiji and Kyodo news agencies. According to Reuters, "Takefuji had 430 billion yen ($5.11 billion) in liabilities as of the end of June, the Nikkei business daily reported, adding that president Akira Kiyokawa would step down."

"Investors have turned bearish on the greenback as speculation mounts that the Fed will increase the monetary base to stimulate the U.S.'s lackluster economic recovery," said Brian Dolan, chief currency strategist at

The Dallas Fed Manufacturing Index came at -17.7, on expectations of -6.0 and compared to -13.5 previously.

The Obama administration on Monday introduced a proposal that would significantly expand the amount of reporting about cross-border financial transactions certain banks would be responsible to provide regulators as part of an effort to combat money laundering and terrorism. The proposal would require that certain money services businesses and depository institutions must report international transactions equal to or in excess of $1,000. The Financial Crimes Enforcement Network, a division of the Treasury Department, estimates that fewer than 300 banks and about 700 money services businesses will be subject to the requirement. Banks are currently required to report to FinCEN transactions in excess of $10,000 that are deemed suspicious.

The Dow Jones industrials closed down 48 points to 10,813. The Standard & Poor's 500 Index was off 1 point to 1,147, and the Nasdaq Composite Index had slipped 11 points to 2,380.

Harvest Natural Resources up 14.3% to $9.06. The oil and natural-gas producer with output from Venezuela and Utah has hired Bank of America (BAC) to review a possible sale of the company.

A federal judge won't dismiss a case accusing American International Group of misleading investors about its involvement in subprime mortgages.

FT: "An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness."

Sunday, September 26, 2010

Know For Sure

9/26/10 Know For Sure

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." Mark Twain

With the lowest net debt to GDP ratio among G7 nations, Nassim Taleb says he's bullish on Canada (EWC). Meanwhile, likening America's bulging debt burden to a tumor, Taleb says spending its way out of recession has only exacerbated the problem: "When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse."

Not only was Henry Paulson's decision to let Lehman fail a massively misguided display of bravado, Lawrence McDonald says, it also led directly to the run on AIG - which cost taxpayers a cool $60B.

Robert McHugh: "Prices have risen decisively above key resistance at the top of a Declining Trend-channel from the April 26th, 2010 top in the Industrials. This is a very important trend-channel, as both the top and bottom boundary lines are defined by at least three touch points, and the decisive breakout could mean a significant rally leg has started.
However, there is key resistance from another trend-channel, this one rising from July 1st, shown in red boundary lines. Prices could be setting an upside target of the upper boundary of this channel, 11,100ish in the Industrials. If prices rise next week, this scenario is the most likely one.
However, there is another possibility this weekend, that prices have topped precisely at key resistance at the blue rising trend-line drawn from the tops in June and August. This line has four touch points and Friday's rally took prices precisely to this line and stopped - a fifth touch point. This argues that prices have topped and the start of a decline to at least 10,200ish is imminent.
Should prices fall decisively below the lower rising boundary line from the July 1st, 2010 low, below 10,200ish, that would be very Bearish, and suggest stocks are crashing."

Mike Burk: "The market remained overbought while the breadth indicators deteriorated last week.
I expect the major averages to be lower on Friday October 1 than they were on Friday September 24."

Completed short sales have more than tripled since 2008, and 400,000 of these deals are projected to close this year, according to mortgage research firm CoreLogic. The giant mortgage financier Fannie Mae approved short sales on 36,534 home loans it owned in the first half of the year, nearly triple the number in 2007 and 2008 combined. Freddie Mac, its sister company, approved 22,117 in the first half of 2010, up from a mere 94 in the first half of 2007.

The Automatic Earth: "If the statistics a government produces don't reflect a nation’s reality, you'd think that nation would demand different statistics. But in an admittedly kind of funny twist, the government insists the statistics are fine, and therefore there must be something wrong with reality. And voters don't want a gloomy reality either, so things stay as they are. Until they don't."

Eric Savitz: "With earnings season a few short weeks away, there are signs that September-quarter results won't be as strong as expected—and that could mean a stormy October for tech shares."

Joe Weisenthal: "The stimulus is frequently derided for not doing enough to fight unemployment, but one program that did nothing but create jobs is coming to an end.
According to NYT, a subsidized jobs program is coming to an end. The program allowed employers at the government, non-profit, and small business levels to get direct help paying worker salaries. It was modeled after a New Deal jobs program, and even GOP Governor Haley Barbour supported it.
But 26,000 jobs could be lost in Illinois alone. Another 12,000 will go in Philadelphia.
The problem with stimulus was that unless it created an actual sustainable recovery, it was never going to do much good in the long-term, and then when the money ran out, we'd be back to where we were before it started. Well, it didn't create a sustainable recovery, and now the money is running out."

The Institute for Supply Management’s factory index fell to 54.5 from 56.3 in August, according to the median of 63 forecasts in a Bloomberg survey ahead of the Oct. 1 report. Household purchases rose 0.4 percent last month, the same as in July, Commerce Department figures may show.

ZeroHedge: "We were stunned to realize that over the next 6 months the Fed may be the net buyer of nearly $3 trillion in Treasurys, an action which will likely set off a chain of events which could result in rates dropping all the way to zero, stocks surging, and gold (and other precious metals) going from current price levels to well in the 5 digit range....If we are correct in our assumption that on November 3, the Fed will announce a $1.5 trillion new asset purchase program, the implications of the previous observation will be dramatic. We additionally believe, that unlike QE1, the Fed will be far less specific as to the composition of purchases this time around, specifically for the aforementioned resion. As the Fed adds an additional $1.5 trillion in total assets, and as 10 Year rates, and thus 30 year cash mortgage rates, drop, the prepayment frequency of the Fed's existing MBS/agency book will surge, until it approaches and surpasses BofA's estimated 90% in a very short period of time. And courtesy of its QE Lite mandate, the Fed will purchase not only $1.5 trillion of US Treasurys as part of its new QE2 mandate, but will actively be rolling those MBS and Agencies put to it by the general public. As a result, it is our belief that over the six months beginning on November 3, the Fed will end up purchasing almost $3 trillion in US Treasurys in total."

Black Swan Insights: "Corporations don't feel confident enough to hire full time workers. Instead they prefer temporary workers who can be laid off quickly if demand drops." As the holiday season approaches, retailers will hire temp workers.

Credit unions in the U.S. may absorb as much as $9.2 billion in losses over the next decade as the industry strives to recover from sour investments in real estate and consumer loans, U.S. regulators said today.

President Barack Obama received the lowest approval rating of his 20 month presidency, a new CNN Opinion Research Corportation poll finds. The president's approval rating now stands at 42 percent, down 8 points from just three weeks ago. Also 56 percent of those surveyed feel the president has fallen short of their expectations. The president's sagging numbers couldn't come at a worse time for congressional Democrats facing a nine point deficit in the generic ballot heading into mid terms. Even worse for Democrats, likely voters say they are more likely to vote for a candidate the president opposes than one he supports.