Saturday, October 16, 2010

Long Term Treasuries

10/16/10 Long Term Treasuries

Two bank failures Friday in Missouri and Kansas brought the total in the U.S.
for 2010 to 131. The Federal Deposit Insurance Corp. said that Chesterfield,
Mo.-based WestBridge Bank and Trust Company and Olathe, Kan.-based Security
Savings Bank were closed by regulators. The two bank failures will cost the
federal deposit-insurance fund a total of $100.9 million, the FDIC said.

Bloomberg (Garfield Reynolds and Wes Goodman): “The Federal Reserve and Japanese investors are poised to pass China and become America’s largest creditors following efforts from U.S. policy makers and the Bank of Japan to stimulate growth. The… U.S. central bank’s Treasury holdings have risen to a record $821.2 billion, approaching China’s $846.7 billion. The figure for Japan is $821 billion, the most ever.”

Doug Noland: "Dr. Bernanke prepares the markets for additional quantitative easing, right as global inflationary forces gather a head of steam....Our system became a Credit glutton – and the amount of new Credit necessary to sustain the system’s maladjusted structure is in the process of inciting dangerous inflationary distortions around the world. In the past, I’ve written about the “Core to Periphery” inflationary bias. There is today a deeply imbedded propensity (“Monetary Process”) for liquidity originating within the U.S. Credit system to flow out to other venues perceived to offer better returns or provide better “stores of value.” The Treasury and Federal Reserve (the “Core”) can create Credit/purchasing power and marketplace liquidity, but the more they inflate (non-productive Credit) the greater the propensity for the flows to flee the dollar (in route to the inflating “Periphery”)....The most recent bout of dollar weakness has incited robust inflationary biases. The Asian region – most notably China and India – is already overheated. Throughout the “developing economies, ” Credit systems are operating in excess. Most commodities have been under intense upward price pressure. This inflationary bias is especially pronounced for the commodities in demand from the booming “Periphery” economies (i.e. copper, sugar, wheat, corn, rice, cotton, rubber, etc.) And as dollar confidence falters, precious metals prices skyrocket. And, in an over-liquefied, speculative financial world, these dynamics feed on themselves....So – in spite of the strengthening “Core to Periphery” inflationary flows bias - dollar weakness has thus far ensured the recycling of excess dollars right back into our Treasury market (guaranteeing at least one powerful U.S. Bubble dynamic). And our politicians have become comfortable blasting the buyers of our debt as “currency manipulators” and the whole dollar-support mechanism as some “beggar thy neighbor” “currency war.” Well, I often ponder how the marketplace will function that seemingly inevitable day when the markets have to start going it on there own – without the comfort of an ever-towering “backstop.” Not easy to envision a winner anywhere in sight."

Jeb Handwerger: "We may be approaching a significant decline in long term treasuries which could send long term rates higher. These higher rates could continue to put pressure on the housing market. Many homeowners are unable to take advantage of record low interest rates to refinance due to negative equity. Now with higher rates this will continue to put pressure on the housing market and bank stocks which have not confirmed this recent rally in the equity. Please see my article where I discussed the potential break down of U.S. Treasuries. Their recent lack of participation in the market rally indicates that housing and the financial crisis is not over yet. Defaults are expected to rise with higher interest rates on adjustable loans."

(Bloomberg) -- Treasury 30-year bonds tumbled, pushing yields to the biggest weekly increase since August 2009, on speculation that Federal Reserve efforts to spur the economy will reignite inflation.
The 30-year yield rose above 4 percent yesterday for the first time in two months after data showed retail sales rose more than forecast and New York area manufacturing climbed. Fed Chairman Ben S. Bernanke said additional stimulus may be warranted, in part because inflation is too low. The Fed will release its regional economic survey next week. The U.S. sold $66 billion of notes and bonds to lower-than-average demand.

Ben Bernanke:"...factors have dictated that the FOMC proceed with some caution in deciding whether to engage in further purchases of longer-term securities."

ECRI Weekly Leading Economic Index 122.40 -1.05%.

Tim Wood: "Based on the longer-term phasing aspects of Dow theory, the rally out of the 2009 low continues to appear to be a long-term bear market rally. At the same time, there is also still no change in that the primary bullish trend change associated with the 2009 low also continues to remain intact. Point being, the advance out of the 2009 low is a counter-trend move within the context of the longer-term bear market. At the same time, according to Dow Theory, once the primary trend is established, that trend is considered to still be intact until it is authoritatively reversed by the averages. Therefore, until we see a joint move by the averages below a previous secondary low point, this bear market counter-trend rally will remain intact in accordance with Dow theory."

Venture Beat: " missed an opportunity when it marketed its collaboration application Chatter, opening the door for collaboration startups like Yammer, a social network for enterprise users, to come in and take over the collaboration sector, said Kevin Spain, a partner with Emergence Capital Partners.
Chatter was marketed more as an add-on to Salesforce’s customer relationship management platform, rather than a new innovation to help its customers with business collaboration, he said. That made it difficult to attract new users and help the service grow into something that could generate a lot of revenue for Salesforce.
“The way you get the most value out of a platform like Chatter or Yammer is in making them as pervasive as you possibly can,” he said. “Salesforce has made it hard for people who are not Salesforce customers to get on the platform, use it, get value out of it.”

Bain Capital LLC is seriously considering joining private-equity firms TPG
Capital and Kohlberg, Kravis Roberts & Co. in their talks to take Seagate
Technology PLC private in what could be a $10 billion to $12 billion deal,
people familiar with the matter said.
Seagate, a big maker of computer disk drives, said Thursday it is in
preliminary discussions with an unnamed suitor interested in taking the company
The company had a $6 billion market capitalization before it disclosed it was
exploring a sale, which sent its stock up 22% Friday. Seagate's share were at
$15.51 at 4 p.m. on the Nasdaq Stock Market giving it a market value of about
$7.3 billion.
Silver Lake Partners and TPG—which took part in a 2000 transaction that took
Seagate private—were in recent buyout discussions with Seagate that collapsed
over differences in valuation, people familiar with the matter said. Silver
Lake isn't involved in the current talks, these people said.
Because private equity deals currently require at least a 30% equity
contribution, a buyout of Seagate would likely require at least three firms to
contribute up to $4 billion. Seagate has about $2.5 billion of debt.
Obtaining financing to support a Seagate deal will likely not be an issue,
especially since the high-yield debt market has been robust in recent weeks,
and banks are vying to participate in the financing.
Seagate, based in Scotts Valley, Calif., said its board has hired Morgan Stanley
& Co. and Perella Weinberg Partners to evaluate strategic alternatives, noting
that there was no assurance it would receive a formal offer or any transaction
would take place. It declined additional comment.
The company's decision to disclose the discussions at such a preliminary stage
surprised some analysts. But Richard Kugele, who follows the company for
Needham & Co., said the company's recent reincorporation in Ireland subjected
Seagate to rules requiring early disclosure of such developments.

The yield curve steepens: 2-year at .36%, 10-year at 2.56%, and the 30-year at

Friday, October 15, 2010

John Williams

10/15/10 John Williams

Federal Reserve Board Chairman Ben Bernanke on Friday said he thought the
current high unemployment and low inflation environment would linger into 2011
and as a result there is a "case for further action" on the monetary policy
front. Bernanke did not provide many details on the nonconventional policies
that the Fed might take beyond saying the Fed might expand its holdings of
longer-term securities. He backed a cautious approach, saying that the Fed has
little experience in judging the economic effects of more asset purchases.
Bernanke said another step the Fed might consider is to strengthen its pledge
to keep rates low for an extended period. The Fed may stress that it expects to
keep rates "low for longer than markets expect," Bernanke said.

U.S. retail sales in September grew 0.6% as consumer bought more autos,
electronics, appliances and assorted goods from Internet retailers, the federal
government reported Friday. In addition, August sales were revised up to 0.7%
growth from an initial reading of 0.4%, according to data from the U.S
Commerce Department. Excluding motor vehicles, retail sales retail sales rose 0.4% in
September. August sales minus autos were revised up to a 1.0% gain from 0.6%
originally. Economists surveyed by MarketWatch had forecast total sales to rise
0.5% in September, or 0.4% excluding the volatile auto segment.

The U.S. dollar extended losses versus major rivals, temporarily dropping back
below 80 yen versus the Japanese currency and trading at 81.01 yen in recent
action, a fall of 0.7% on the day. The euro rose 0.7% versus the dollar to
trade at $1.4131.

The index for U.S. consumer prices rose 0.1% in September, supported by gains
in food and gasoline, the Labor Department reported Friday. The food index
rose 0.3% in September, its largest gain since October 2008. Meanwhile, the
energy index rose 0.7%, with gasoline up 1.6%. Core prices, which exclude
volatile food and energy, did not change in September, with a growth rate of
0.0%. Over the last 12 months, overall consumer prices are up 1.1%. Core prices
rose 0.8% for the year, the lowest 12-month gain since 1961, with shelter down

Conditions for New York state manufacturers improved markedly in October,
according to a report released Friday morning. The New York Fed's Empire State
manufacturing survey jumped nearly 12 points to 15.7. Economists polled by
MarketWatch expected the gauge to climb to 6.5 from 4.1 in September. The New
York Fed said it's a clear gain over the relatively low but positive readings
seen from July through September. Fewer respondents said conditions had
worsened, and the new orders index moved higher. The shipments index rose above
zero, climbing 20 points to 19.4.

In the month of September real average weekly earnings fell 0.1%.

Cotton prices soared to a nominal record high on Friday amid heavy buying in
China, the world’s largest importer, and disappointing crops in major producing
nations including Pakistan.

The preliminary Reuters-University of Michigan consumer sentiment index edged
lower in October, falling to 67.9. Economists polled by MarketWatch expected
the index to rise to 69.8 in October from 68.2 last month.

U.S. Senator Charles Schumer on Friday criticized the White House for not
publishing a report on currency manipulation, saying by investigating China's
subsidizing of the clean-energy industry it's "treating the symptom, but not
the disease." The Treasury Department hasn't confirmed that it has pushed back
publication of the report, though Reuters cited a Senate aide as saying the
government will wait until after the Group of 20 meets in November.

Google Inc shares climbed above $600 Friday for the first time since January.

Let's see: the real estate business is 20% of our GDP and the medical industry
is 15%. Then there is the consumer accounting for 65%. Of course, no mention of
tech and Wall St.

The Obama administration said Friday the federal deficit hit a near-record $1.3 trillion for the just-completed budget year.
That means the government had to borrow 37 cents out of every dollar it spent as tax revenues continued to lag while spending on food stamps and unemployment benefits went up as joblessness neared double-digit levels in a struggling economy.
While expected, the eye-popping deficit numbers provide Republican critics of President Barack Obama's fiscal stewardship with fresh ammunition less than three weeks ahead of the midterm congressional elections. The deficit was $122 billion less than last year, a modest improvement.
The government's tax intake rose 2.7% in fiscal 2010, to $2.16 trillion. Outlays fell 1.8% to $3.46 trillion.

Oil for November delivery ended Friday's session down $1.44, or 1.7%, at $81.25 a barrel, amounting to a 1.7% loss for the week. Natural gas fell 12 cents, or 3.3%, to $3.535 per million British thermal units. Gold failed to post a new record settlement on Friday with the contracts for December delivery falling $5.60, or 0.4%, to $1,372.00 an ounce on the New York Mercantile Exchange. Gold hit a record high settlement of $1,377.60 an ounce Thursday. Silver also finished down 15 cents, or 0.6%, to $24.29 an ounce.

High rates of mortgage foreclosures and falling housing prices mean that the housing industry likely won’t improve until 2012, Illinois Tool Works CEO David Speer predicts.

Dow industrials down 31 points at 11,062 at close. S&P 500 index up 0.2% at 1,176. Nasdaq Composite up 1.4% at 2,468.

John Williams: "Euphoric Inflation Insanity. Buying U.S. stocks because the Fed says it will proactively debase the U.S. dollar is like sitting on the beach in order to get a great view of an incoming tsunami. Any pleasure so derived should be short-lived, when the terror of underlying reality quickly takes hold.

If one were to view movement in the price of gold as a surrogate for anticipated inflation, for example, the issues begin to come into focus. Consider that last night's (October 14th) respective S&P 500, Dow Jones Industrial Average and NASDAQ Composite closing levels were up by 7.5%, 10.8%, 12.1% from a year ago, but the price of gold was up by 29.6% in the same period. Relative to gold, which tends to hold its purchasing power over time -- albeit sometimes in an anticipatory manner -- the S&P 500, Dow Jones Industrial Average and NASDAQ Composite have declined respectively by 22.1%, 18.8% and 17.5% year-to-year. This is against the prospective inflation environment being discounted by the gold market.

While stock prices do tend to rise in an inflationary environment -- where revenues and profits are inflated -- rising stock prices do not always stay ahead of inflation. On a constant-dollar or real, inflation-adjusted basis, stocks go through bull and bear markets, just as they do otherwise. If prices do not stay ahead of inflation, investors lose value in terms of the purchasing power of their assets. The equity markets may rally in the upcoming inflation, but the systemic implications and current gold behavior suggest that the circumstance will not give investors a positive real return, as discussed in the Hyperinflation Special Report.

Given the current systemic distortions and extreme irrationality in the equity markets, a severe and violent sell-off in stocks would not be a shock, and it could come with minimal, if any, warning. It also might be coincident with a U.S. dollar-selling panic." (via ZeroHedge)

Thursday, October 14, 2010


10/14/10 Google

Gold futures rose Thursday, allowing the precious metal to notch its 17th
record-high settlement in a little more than five weeks. Benefitting from
weakness in the U.S. dollar, gold for December delivery closed up 0.5% at
$1,377.60 an ounce on the Comex division of the New York Mercantile Exchange.
Gold had reached an intraday high of $1,388.10 an ounce.

Macroeconomic Advisers, an independent economics research firm, slashed its
third-quarter GDP forecast to 1.2%, a downward revision of four-tenths of a
percentage point. "Exports were weaker than expected, while imports were
stronger than expected, implying lower net exports in the third quarter than
previously estimated," the group said. The U.S. trade deficit widened 8% to
$46.3 billion in August.

The number of people who signed up for state unemployment benefits jumped
13,000 to 462,000 in the latest week, the U.S. Labor Department reported
Thursday. Economists polled by MarketWatch had expected initial claims to fall
to a seasonally adjusted 444,000 in the week ended Oct. 9. Claims for last week

were revised up by 4,000 to 449,000. The four-week moving average of new
claims, a more accurate gauge of employment trends than the volatile weekly
number, rose 2,250 to 459,000. Continuing claims, which reflect workers already

receiving unemployment checks, dropped 112,000 to 4.4 million in the week ended

Oct. 2. The number of jobless workers receiving extended federal benefits
declined 340,000 to about 4.8 million in the week ended Sept. 25, the latest
data available. Altogether, 8.65 million people were getting some kind of
benefit in the week ended Sept. 25, down from 9.02 million the prior week.

The U.S. trade deficit widened by 8.8% in August to $46.3 billion, the

Department said Thursday. The trade deficit was higher than the consensus
forecast of Wall Street economists of a deficit of $44.1 billion. Imports rose
much faster than exports in August. The U.S. trade deficit with China widened
to a record $28 billion in compared with $20.3 billion in the same month last
year. The deficit for the first eight months of the year now totals $334.9
billion, up from $235 billion in the same period in 2009.

U.S. wholesale prices rose 0.4% in September, mainly because of higher meat
and natural gas costs, the government reported Thursday. Core producer prices,
which exclude the volatile food and energy categories, rose a lesser 0.1%. The
MarketWatch poll of economists had forecast a 0.1% increase in both the overall

and core producer price indexes. Intermediate prices jumped 0.5% last month,
but the price of crude goods dropped 0.5%.

Working gas in storage was 3,590 Bcf as of Friday, October 8, 2010, according
to EIA estimates. This represents a net increase of 91 Bcf from the previous
week. Stocks were 118 Bcf less than last year at this time and 247 Bcf above
the 5-year average of 3,343 Bcf. In the East Region, stocks were 40 Bcf above
the 5-year average following net injections of 43 Bcf. Stocks in the Producing
Region were 156 Bcf above the 5-year average of 968 Bcf after a net injection
of 42 Bcf. Stocks in the West Region were 51 Bcf above the 5-year average after

a net addition of 6 Bcf. At 3,590 Bcf, total working gas is within the 5-year
historical range.

U.S. crude oil refinery inputs averaged 13.9 million barrels per day during the

week ending October 8, 231 thousand barrels per day below the previous week’s
average. Refineries operated at 81.9 percent of their operable capacity last
week. Gasoline production decreased last week, averaging 8.7 million barrels
per day. Distillate fuel production increased last week, averaging 4.2 million
barrels per day.
U.S. crude oil imports averaged 8.1 million barrels per day last week, down by

798 thousand barrels per day from the previous week. Over the last four weeks,
crude oil imports have averaged 8.8 million barrels per day, 444 thousand
barrels per day below the same four-week period last year. Total motor gasoline

imports (including both finished gasoline and gasoline blending components)
last week averaged 708 thousand barrels per day. Distillate fuel imports
averaged 188 thousand barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) decreased by 0.4 million barrels from the previous week. At
360.5 million barrels, U.S. crude oil inventories are above the upper limit of
the average range for this time of year. Total motor gasoline inventories
decreased by 1.8 million barrels last week and are above the upper limit of the

average range. Both finished gasoline inventories and blending components
inventories decreased last week. Distillate fuel inventories decreased by 0.3
million barrels and are above the upper boundary of the average range for this
time of year. Propane/propylene inventories increased by 0.3 million barrels
last week and are in the lower half of the average range. Total commercial
petroleum inventories decreased by 4.7 million barrels last week.
Total products supplied over the last four-week period has averaged 18.9
million barrels per day, up by 0.8 percent compared to the similar period last
year. Over the last four weeks, motor gasoline demand has averaged 9.0 million
barrels per day, down by 1.1 percent from the same period last year. Distillate

fuel demand has averaged 3.8 million barrels per day over the last four weeks,

up by 8.8 percent from the same period last year. Jet fuel demand is 1.7
percent higher over the last four weeks compared to the same fourweek period
last year.
Source: EIA

Yahoo Inc , up 4.2 percent at $15.89 after a source said several private equity

firms had approached Internet and media companies, including News Corp and AOL

Inc , to gauge their interest in buying the company.

The number of homes taken over by banks topped 100,000 for the first time in
September, though foreclosures are expected to slow in coming months as lenders

work through questionable paperwork, real estate data company RealtyTrac said
on Thursday.

The Reuters-Jefferies CRB index, a key benchmark for global commodities, surged
to its highest level since 2008.

Gapsales are running in negative territory in the third quarter, CEO Glenn
Murphy implied during the company's investor meeting taking place in New York

Murphy said the goal is for same-store sales to fall between flat to up 5%.
"Q3 isn't over yet, but comps are not in that bend," he said.

The Business Council, a group that counts 150 chief executives of the largest
U.S. corporations as its members, said that only a third of the CEOs who
participated in its latest survey believe their own industry will improve over
the next six months—down from two-thirds back in May, when it last polled them.

"After sharp and continuous improvements in business confidence during the
past 18 months, the current survey indicates that members of The Business
Council believe the acceleration phase of the recovery is over," the group

On the outlook for the broader U.S. economy, the CEOs are almost evenly split,

with about half predicting it will grow between 2.1 percent and 3.0 percent
between now and the end of the year and the other half saying it could be
somewhere between 0.1 percent and 2.0 percent.

Google posted third quarter earnings after the bell on Thursday, showing net
profit of $2.2 billion and earnings per share of $7.64, excluding one-time
items. Earnings topped analysts' expectations of $6.69 by almost a full dollar.
The Internet search behemoth reported revenues of $7.3 billion, a 23% increase
over the same quarter a year ago. Subtracting the $1.8 billion traffic
acquisition costs (TAC), the portion of revenues shares with partners, net
revenues stood at $5.5 billion.
Google is benefitting from increased spending on search- based ads as it pursues
opportunities in mobile communications and display advertising. Online spending
is expected to account for 15 percent of total U.S. advertising this year, up
from 12 percent in 2008, according to EMarketer Inc. in New York.

“The underlying strength in the core search business basically means advertisers
are spending healthily on search,” said Clayton Moran, an analyst at Benchmark
Co. in Boca Raton, Florida, who recommends buying the shares. “They beat on the
top line and also on the bottom line.”

Seagate Technology PLC said late Thursday that it has received a proposal for a
going-private transaction and is holding preliminary talks with the party in
question. Its board of directors is evaluating the proposal as well as other
strategic alternatives and has retained Morgan Stanley & Co. and Perella
Weinberg Partners LP for financial advice. "There is no assurance that the
company will receive a formal offer or that any transaction will take place,"
the hard drive maker said in a statement.

The Dow Jones Industrial Average ended down 1.51 points at 11,094.57. The S&P
500 index fell 4.29 points, or 0.4%, to 1,173.81, weighed down by its financials
and materials sectors. The Nasdaq Composite eased 5.85 points, or 0.2%, to

China’s trade surplus with the U.S. jumped to $28 billion in August, reaching a
record for the first time since the financial crisis began two years ago.

Wednesday, October 13, 2010

Rally On

10/13/10 Rally On

Prices of goods imported into the United States fell 0.3% in September, led by a decline in fuel-import prices, the Labor Department reported Wednesday. Fuel-import prices fell 3.1% in September. Meanwhile, prices for non-fuel imports rose 0.3%. Import prices are up 3.5% in the past year, the smallest 12-month gain since November 2008-2009. Export prices rose 0.6% in September, with prices for agricultural exports up 2.4%, and prices for non-agricultural exports up 0.3%. For the year, export prices are up 5%. In August, overall import prices rose 0.6%, while export prices gained 0.8%.

The four largest health insurance companies in the US denied coverage to more than half a million individuals because of their pre-existing conditions from 2007 to 2009, according to a congressional investigation.

Further Fed easing will not help the economy, Niall Ferguson warns. "All that liquidity ends up not where it is supposed to be, which is magically creating jobs for American workers in Michigan... It ends up pumping up commodity prices on the other side of the world, with lots of unforeseen consequences."

Mortgage rates on 30-year fixed mortgages, the most widely used loan, were 4.13 percent Tuesday afternoon, down from 4.16 percent at the same time last week, according to Zillow Mortgage Marketplace.

Bloomberg reports China to put more reserves in gold.

China said Wednesday that its exports continued to surge in September and that the nation’s foreign exchange reserves ballooned last month, data that is likely to keep pressure on Beijing to appreciate its currency.
The government said its monthly trade surplus reached $16.9 billion in September, with exports up 25 percent and imports climbing 24 percent.
The surplus narrowed from August, when it had reached $20 billion, but it was still an enormous figure, analysts said.
Also Wednesday, Beijing said its foreign exchange reserves soared $194 billion in September to a record $2.65 trillion, far more than economists had forecast. China already had, by far, the world’s largest currency reserve holdings.

In an effort to rush through thousands of home foreclosures since 2007, Bank of America, JPMorgan Chase and Goldman Sachs hired anyone from hair stylists to assembly line workers who barely knew what a mortgage was and installed them in “foreclosure expert” jobs with little training, depositions say.

Forty-nine state attorneys general announced a coordinated probe Wednesday into improper foreclosures performed by the nation's largest loan servicers.

The Energy Information Administration on Wednesday raised its outlook for the increase in world oil demand this year to 1.7 million barrels per day, citing strong first-half demand from China and developed countries. The statistics arm of the Department of Energy said it expects global oil demand to rise 1.4 million barrels a day next year, unchanged from its prior forecast. The EIA said it expects OPEC production to rise by 300,000 barrels per day this year and 600,000 barrels per day in 2011, keeping prices in check. The agency raised its supply projection from non-OPEC countries, largely due to near-record crude oil output in Russia.

JPMorgan, the country’s second-biggest bank by assets, said revenue fell to $23.8 billion from $26.6 billion a year earlier. Managed revenue, which includes the effect of some tax-exempt securities, was $24.3 billion, compared with $28.8 billion.

"Bank of Japan Governor Masaaki Shirakawa said on Wednesday the central bank will consider expanding a new scheme for buying assets ranging from government bonds to exchange-traded funds when deemed necessary." Harakiri Shirakawa continued: "We have taken a very bold measure ... If the need arises in the future, making further use of the new fund as part of monetary policy is one of our strongest policy options."

Wal-Mart Stores Inc. said Wednesday that it lowered the high end of its capital spending forecast for fiscal 2011 by $1 billion. The retailer now expects capital spending for the fiscal year to range from $13 billion to $14 billion while fiscal 2012 capital spending is projected at $13.5 billion to $14.5 billion. "Overall sales growth is forecasted between 4% and 6%. In the United States, we will shift more capital toward new stores, including supercenters and smaller formats," said Charles Holley, executive vice president, in a statement.

The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.

The American Petroleum Institute said late Wednesday inventories of crude oil declined 4 million barrels on the week ended Oct. 8, a surprise decline. The Washington, D.C.-based trade group also reported gasoline stocks falling 1.9 million, and stocks of distillates down 254,000. The report came a day later than usual due to Monday's Columbus Day and ahead of Thursday's more closely watched data from the Department of Energy, also delayed a day due to the holiday. Analysts expect an increase of 1.5 million barrels for crude-oil inventories, a decrease of 1.6 million barrels for gasoline stockpiles, and a decline of 1.5 million barrels for stocks of distillates.

Gold prices settled at their 16th record high in five weeks Wednesday, as the December contract finished the day up $23.80, or 1.8%, at $1,370.50 an ounce on the Comex division of the New York Mercantile Exchange. The previous record settlement was $1346.70 an ounce on Monday. Silver also finished the day higher with December orders settling up 78 cents, or 3.4%, at $23.93 an ounce.

The Dow rose 75.68, or 0.7 percent, to 11,096.08. The broad Standard & Poor's 500 index rose 8.33, also 0.7 percent, to 1,178.10, while the Nasdaq composite index rose 23.31, or 1 percent, to 2,441.23.

Tuesday, October 12, 2010


10/12/10 Volatility

Pfizer Inc said Tuesday that it is buying fellow drug maker King Pharmaceuticals for $3.6 billion, or about a 40% premium to the Bristol, Tenn., firm's recent share price. Pfizer is paying $14.25 a share in cash for King, the companies said. Pfizer said the acquisition will add 2 cents a share to its 2011 and 2012 earnings, and 3 cents to 4 cents a share per year in 2013 through 2015. Pfizer said the King buy will help it expand its offerings in the pain-relief and pain-management sectors.

Treasury prices rose early Tuesday, pushing yields down, before the government's auction of $32 billion in 3-year notes and minutes from the Federal Reserve's meeting last month, which investors will parse for any hints about individual officials' willingness to restart a bond-purchase program and what that program may look like. Treasurys gained some support overnight as stocks weakened after reports said Chinese authorities raised reserve requirements on some banks and more complications surrounding Ireland and Greece, said Andrew Brenner, head of emerging markets at Guggenheim Securities. "Market sentiment is decisively negative today," he said. Yields on 10-year notes, which move inversely to prices, fell 5 basis points to 2.35%. Bond markets were closed Monday for Columbus Day.

The Organization of the Petroleum Exporting Countries on Tuesday revised upward by 100,000 barrels a day its forecast for 2010 world oil demand growth, which is now expected at 1.1 million barrels a day. The revision is driven by the stronger-than-expected, stimulus-led economic growth in the first half of the year, OPEC said in its monthly oil-market report released on Tuesday. "Despite some turbulence and setbacks, the global economic recovery continues to provide support for oil consumption," OPEC said. "While oil demand in the third quarter has been supported by warm summer weather along with the driving season, however, it is not expected to be as strong as in the previous two quarters." In 2011, global oil demand is forecast to grow by 1.0 million barrels a day, unchanged from last month's forecast, with demand growth anticipated to be stronger in the second half of the year, according to OPEC.

Growth in India's industrial production sagged to a 15-month low of 5.6 percent in August as capital goods output, known for its extreme volatility, shrank during the month, government figures showed Tuesday.

Low interest rates may give companies an incentive to take excessive risks that could be bad for the economy, the Federal Reserve's new vice chairwoman, Janet Yellen, warns.

China should set up a forward market for rare-earth elements to help boost prices, Guo Chaoxian, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, wrote. The government should also set up a mechanism to purchase and store rare-earth commodities to "strike a balance between demand and supply," Guo wrote. The Chinese government should encourage mergers of rare-earth companies with the goal of setting up an oligarchy of three to five "giant enterprises," Guo said.

Richard Lee: "Central bankers and finance ministers from around the world are converging on Washington, DC this weekend to discuss, among other things, the global wave of currency devaluations. But the most likely thing the meetings will accomplish is to propel the major and emerging market currencies even higher against the US dollar.
This all comes amid what some have called a “currency war,” efforts by central banks to manipulate home currencies regardless of their effects on other currencies. Everyone is doing it – either passively or actively."

Don Miller, Associate Editor, Money Morning
"The U.S. dollar is on the way out as the world's top reserve currency. And as Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted more than a year and a half ago, the yuan could be set to replace it.
The greenback has served as the world's benchmark reserve currency since the mid-20th century, but soaring deficits and the U.S. Federal Reserve's loose monetary policy have drained the dollar's value. Meanwhile, emerging markets - many of which are vibrant manufacturing hubs, net creditors, and have rich caches of commodities - are more fiscally sound than the United States, which has a $1.3 trillion budget deficit.
"If you look at the fundamentals of a lot of these emerging markets, they are considerably better than developed markets," Kenneth Akintewe, a Singapore-based investment manager at Aberdeen Asset Management PLC told Bloomberg in an Oct. 11 interview. "Who wants to be holding U.S. dollars at this stage?"
China, which leads the world with more than $2 trillion in currency reserves held mostly in U.S. Treasuries, is chief among the countries seeking respite from the dollar's decline. Beijing has long bemoaned the depreciation of the dollar, stating outright that it should be replaced as the world's main reserve currency."

The Financial Times warns of a global food crisis.

Charles Hugh Smith: "Debt-serfdom and zero assets does not equate to middle class. When "membership" in the middle class ceases to mean owning meaningful wealth, it is no longer a middle class. It is instead a superficial consumption pattern of "aspirants" to what was once a true middle class."

The downside risk for stocks is nearing its highest level in a year, Doug Kass writes, given the sharp rise in equities and "especially if I am correct that QE2 will be a dud." Quantitative easing, he says, "will not meaningfully move the needle of domestic economic growth" and will have only limited impact on jobs, housing and confidence.

Global markets are heading for an “important turning point” as interest rates begin to rise within about three months and the U.S. dollar gains, according to investor Marc Faber.
Investors should buy stocks and sell cash and bonds because governments are continuing to print too much money and may create a new “credit bubble,” Faber, publisher of the Gloom, Boom & Doom report, told reporters during a forum in Seoul today.

ZeroHedge: "The ratio between VIX (implied vol as determined by 1 month out SPX options) and VXV (3 month Implied Vol) has just dropped to the lowest it has been since the end of 2006. After hitting a post-Lehman high of just under 1.3, VIX/VXV has plunged to 0.7917, a steep drop of 0.07 in just one day, as near-term equity vol is being aggressively sold, even as forward implied vol remains resistant to day to day changes in the market. Whether or not this is predicated by the QE2 event occurring somewhere inbetween the 2 term points is unknown, and irrelevant, but traders certainly seem to be far more comfortable with 1 month volatility and are selling much more of it than its longer-dated cousin. However, as Chris Cole pointed out earlier, this could be a very dangerous underestimation of the possibility for an exponential jump in near-term vol, in a time when correlations are near all time highs."

Sweden's Finance Ministry on Tuesday raised its forecast for economic growth in 2010. The ministry now expects the nation's gross domestic product to expand 4.8% in 2010, up from a previous estimate of 4.5%. The forecast for 2011 was trimmed, however, to 3.7% from a previous estimate of 4%. "Sweden has come through the crisis better than most countries. The recovery in the Swedish economy is broad and moving ahead fast," the ministry said, in a statement accompanying its budget proposal. The government said the economic outlook still faced "great uncertainty" and warned that "large-scale problems" in government finances in other countries could affect the economic trend.

Intel Corp. reported a third-quarter profit of $2.96 billion, or 52 cents a share, compared with a profit of $1.86 billion, or 33 cents a share, for the year-earlier period. Revenue was $11.1 billion, up from $9.4 billion. Analysts had expected the Santa Clara, Calif.-based Intel to post earnings of 50 cents a share, on revenue of $11 billion, according to a consensus survey by Thomson Reuters. For the current quarter, Intel expects revenue of $11.4 billion, plus or minus $400 million.

The Dow Jones Industrial Average gained 10.06 points, or 0.1%, to end at 11,020.40. The S&P 500 index rose 4.45 points, or 0.4%, to end at 1,169.77. The Nasdaq Composite advanced 15.59 points, or 0.7%, to 2,417.92.

Several Federal Reserve officials thought that it would "soon" be appropriate for a second round of quantitative easing to boost the economy, according to a summary released Tuesday of the discussion at their Sept. 21 meeting. Fed officials said the statement released after their meeting included an indication that easing may be needed "before long." They held off easing in September to gather more data and discuss how best to communicate about any new stimulus, the minutes show. The discussion about easing focused primarily on further Treasury purchases and also on steps to lift inflation expectations. A few novel approaches were discussed, including being more specific about an inflation target, targeting a path for the price level rather than the rate of inflation or targeting a path for the level of gross domestic product without inflation adjustment. Fed officials did not prepare forecasts at this meeting but the Fed staff trimmed their growth estimates for 2010 and 2011.

Monday, October 11, 2010


10/11/10 Currencies

As if voters don't have enough to be angry about this election year, the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits. It would mark only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year. The cost-of-living adjustments, or COLAs, are automatically set each year by an inflation measure that was adopted by Congress back in the 1970s. Based on inflation so far this year, the trustees who oversee Social Security project there will be no COLA for 2011.

Microsoft unveils a new mobile phone operating system on Monday in what is being seen as a potentially make-or-break effort by the US software giant to remain a player in the hotly competitive niche.
Microsoft chief executive Steve Ballmer is to take the wraps off a new line of smartphones powered by Windows Phone 7 (WP7) at an event in New York and the devices are expected to hit stores around the world in the next few weeks.
Though mobile makes up only one percent of Microsoft's revenue, Morgan Stanley analyst Adam Holt said WP7 is a "pivotal release" for the Redmond, Washington-based company.

Rob Hanna: "While the stock market is open on Monday, banks, schools, government offices, and the bond market are closed. In past years with the bond market closed, the stock market has done quite well on Columbus Day. Of course the most famous Columbus Day rally was in 2008 when the market gained over 11% after having crashed the week before. This year circumstances are much different and the market has put in some nice gains this week. In the Subscriber Letter last year I showed research that suggested an up week prior to Columbus Day typically made for a good Columbus Day."

Venezuela Nationalizes Koch, Eni Fertilizer Plant. Venezuela's President Hugo Chavez nationalized a large U.S. and Italian-owned fertilizer factory on Sunday, just days after vowing to radicalize his state-led revolution in the aftermath of elections last month. The government will take over Fertinitro, one of the world's main producers of nitrogen fertilizer and part-owned by private U.S. company Koch and Saipem (SPMI.MI), a subsidiary of Italy's Eni (ENI.MI), Chavez said. During 12 years in power, the 56-year-old former soldier has put large swathes of the OPEC member country's economy into state hands. On Sunday, he also announced the nationalization of Venezuelan motor lubricants company Venoco.

Cnooc, one of the largest Chinese state-run oil companies, has agreed to buy a third of Chesapeake Energy’s oil and gas assets in a south Texas shale deposit for $1.1 billion, in a deal that will ultimately be worth double that amount. It is the largest Chinese purchase of United States energy assets ever and the latest in a string of similar deals by Beijing around the world.
As part of the agreement, China National Offshore Oil Corporation, as the company is formally known, will also finance most of Chesapeake’s drilling costs for another $1.1 billion. The deal, announced Sunday, is expected to close by the end of the year.
“Cnooc has struck a good deal given the assets are liquid-rich,” Neil Beveridge, a Sanford C. Bernstein analyst, wrote in a research note, saying the company “continues to ‘Go Global.’

Brett Arends: "Forget the 9.6% official unemployment figure; there are 3.3 million fewer jobs than when Obama took office.
The nonfarm payrolls, at 130 million, are down 2.5% from where they were in January 2009. Also the Labor Department has just revealed that under its new revised estimates, the economy lost 366,000 more jobs in the year to March. According to TrimTabs, that means job losses over that period were actually 16.5% higher than previously thought."

Pragmatic Capitalism: "Christopher Whalen makes a remarkably convincing case for why we’ve simply kicked the can down the road and why the banks could be in for a repeat of their 2008 nightmares in 2011. If Mr. Whalen is right the banking sector is in for a whole new round of government intervention, takeovers, likely nationalizations and general disaster:The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.
Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy. "

(Bloomberg) -- Meat prices are poised to extend a 14 percent rally this year that drove U.S. retail costs to the highest levels since the 1980s as surging corn futures prevent livestock producers from expanding their herds.
The U.S. cattle herd in July was the smallest since 1973 and the number of breeding hogs last month was near the lowest ever, government data show. Corn futures jumped to a two-year high today and the price of the main feed ingredient is more than 70 percent above the 10-year average.
U.S. per-capita beef supplies next year will be the lowest since 1952 and pork the smallest since 1976, industry researcher CattleFax said. Hog futures will rise 14 percent by July and cattle may gain 3.6 percent by April, according to a Bloomberg survey of analysts. Wendy’s/Arby’s Group Inc., the maker of the 1,360-calorie Baconator Triple burger, and CKE Restaurants Inc., owner of the Hardee’s chain, have warned investors they are contending with higher commodity costs.
“If grain prices go up, then meat prices are going to have to move up,” said Mark Greenwood, a vice president at AgStar Financial Services Inc. in Mankato, Minnesota, who oversees $1 billion in loans and leases to the hog industry. Corn costs “tempered any enthusiasm there was on expansion,” he said.

China sold 2.02 trillion yen worth of Japanese treasury bonds during August, recording the largest single month sell-off since 2005, reports Shanghai Securities News, citing statistics published by Japan's Ministry of Finance.
China's net purchases of Japanese treasury bonds totaled 2.3 trillion Japanese yen in the first seven months of 2010.
An unnamed analyst indicated that China’s decision to decrease its holdings of Japanese treasury bonds is consistent with standard market behavior as the yen strengthened against dollar in August.
China sold off $56.5 billion in U.S treasury bonds during May and June, but subsequently increased holdings by $3 billion in July.
As of the end of August, China become the third largest investor in Korean treasury bonds with holdings of 4.7435 trillion Korean won, trailing behind only the U.S. and Luxembourg.

After going through a record dip, the Chinese Yuan has shot upwards leaving the U.S dollar behind. The rise happened on Monday, after the Governor of the Central Bank, Mr. Zhou Xiaochuan said that one could be optimistic about the strengthening of the Yuan if the economy remains stable and the inflation is kept under check. As far as the “over the counter market” is concerned, the dollar experienced a fall from CNY6.6706 to CNY6.6678.
According to a trader who deals in foreign banks in Shanghai, they are following the signal which has been given out by the Central Bank. This he said in reference to Mr. Xiaochuan’s comments regarding the Yuan. His comments were made with regards to the meetings which were held between the World Bank and the International Monitory Fund.
The statements made by Zhou have also made it very evident that China would be appreciating the Yuan, but the process will be slow and gradual. According to other traders, the value of the U. S dollar could end up reaching CNY6.6600 and there are chances that the Central bank would fix the parity higher on the scale on Tuesday as compared to Monday.
The ICE dollar index which makes a comparative study of the U.S dollar with other currencies also saw a decrease from 77.255 on Friday to a 77.189 today at around 9.30 in the morning as per the GMT.

Gymboree Corp. said Monday that private-equity firm Bain Capital Partners LLC agreed to buy the San Francisco retailer in a deal valued at $1.8 billion. Bain Capital will pay $65.40 a share, a premium of 24% over Gymboree's closing price on Friday and 57% above its Sept. 30 price. Shares of Gymboree vaulted 31% to $69.18 after the deal was announced. Gymboree may solicit acquisition proposals from third parties up to Nov. 20.

China is moving to add more emerging-market currencies to its foreign-exchange reserves, a strategy central banks around the world are following to diversify their $8.7 trillion in holdings.
“We can diversify more the foreign reserves, to consider not only smaller countries, but some emerging-market economies,” central bank Governor Zhou Xiaochuan said at an event during a meeting of the International Monetary Fund in Washington yesterday. With increased assets, “you can shift some to riskier, but higher-return investment instruments,” said Zhou.

The bond market is at an "extreme danger level" since too many investors have piled into a market vulnerable to even a small rise in inflation, Calamander Capital's Roman Scott says. "Investors continue to buy these and it only makes sense if you are holding these to maturity," which he believes few actually do.

John Hussman: "I remain concerned about the likelihood of a second economic downturn, and find little in the recent economic evidence (including last week's employment report and the negligible shift in the ECRI Weekly Leading Index to -7%) to reverse that view. That said, we do not rule out the potential for an improvement in economic tone, and will respond to that evidence if and when it emerges.
More importantly, however, investors should recognize that the presence or absence of immediate economic pressures does nothing to change the likelihood that stocks, from their current valuations, will achieve negligible returns in the coming 5-7 years. To understand this, investors need to ground themselves in exactly how reliable valuations - based on smooth, low-variability fundamentals - have been in explaining subsequent market returns throughout history."

6-month U.S. treasury bill drops to 0.15%. The Fed has eliminated the return on safety. Meanwhile, there is no cost of living adjustment again in 2011 for those on Social Security. What is the future for the standard of living
for the aging of the population in the U.S.?

Corn futures soared Monday, hitting a fresh two-year high as investors continue to worry about the government's dimmer view of the 2010-2011 corn crop. Corn for December delivery, the most active contract, rose 45 cents, or 8.5%, to $5.73 a bushel on the Chicago Board of Trade.

China National Offshore Oil Corp. and Norway’s Statoil ASA announced separate deals, both valued at more than $3 billion, to develop the Eagle Ford shale in southern Texas.

Gold closes at $1,354.40, a fresh record.
December silver added 19 cents, or 0.8%, to $23.30 an ounce, a new 30-year high for the metal. Copper for December delivery advanced a penny, or 0.3%, to $3.79 a pound, the metal's best showing since July 2008.

A group of top business economists cut their forecast for U.S. growth through 2011, saying high debts and a decline in the nation's wealth would inhibit spending and investing. The National Association of Business Economists on Monday reduced its forecast for annual growth in 2010 to 2.6% from a springtime estimate of 3.2%. The group also cut projected 2011 growth to 2.6% from 3.2%. NABE also said the U.S. unemployment rate is likely to remain above 9% till the end of 2011. The biggest concern among business economists is the U.S. deficit. They expects the deficit to fall slightly in fiscal 2011 to $1.2 trillion.

ZeroHedge: "In this week's update of "insiders selling to idiots", we find that the ratio of shares sold to bought by insiders is once again in the four digit range: 1,169 to 1 to be specific. In the past week, insider buying in S&P 500 companies amounted to only $286,000, the bulk of which was in MEMC (WFR). As for the selling: well, it appears ORCL insiders just can't wait to dump as much as they can as fast as possible. Oracle was promptly followed by such overpriced stalwarts as Google, Marriott, Autozone and Salesforce. We wonder if these insiders provide direct or indirect kickbacks to the HFTs who keep bidding the stock up at incremental penny losses, yet are fully compensated for "providing liquidity" by the exchanges in the good ole' liquidity rebate system. The silver lining: this certainly is an improvement on last week's 2,341-1 ratio. Perhaps even the idiots are getting skittish about owning stocks without having access to the Fed's backstop facilities."

The Dow Jones Industrial Average closed up 4 points at 11,010.34, with the slight gain marking the index's second close above 11,000 points since early May. The S&P 500 Index finished up 0.17 point at 1,165.32, while the Nasdaq Composite Index edged up 0.42 point at 2,402.33.

Sunday, October 10, 2010

Potash Corp.

10/10/10 Potash Corp

Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.
Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises protectionist barriers to imported goods.
The International Monetary Fund wrapped up two days of talks with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.
The communique essentially papered-over sharp differences on currency policies between China and the United States.

Considering many Chinese manufacturers have profit margins of just 2-3%, economists say Premier Wen's warning last week that a sharp yuan revaluation could trigger widespread unemployment and destabilize global economies is no empty threat.

Bankers to Canadian chemical company Potash Corp. of Saskatchewan Inc. are working on a potential breakup plan to fend off a $39 billion bid from Australia's BHP Billiton Ltd. the U.K.'s Sunday Telegraph newspaper reports.
Without citing sources, the paper says the strategy would see a dividend of up to $70 a share being paid to investors from the possible sale of its nitrogen and phosphorus assets. It also includes increasing Potash's debt by up to $6 billion, the paper adds.

Canada's Ontario Teachers' Pension Plan is plotting a bid to spoil BHP Billiton's $39-billion (U.S.) hostile offer for Potash Corp , British newspaper The Sunday Times said.
The newspaper said the pension fund was talking to Temasek, Singapore's sovereign wealth fund, about launching a rival offer. The report said the two also had an industrial partner, thought to be Teck Resources , a Canadian mining group.
The discussions are at an early stage but the two funds are considering an outright takeover or buying a minority stake at a higher price than that offered by BHP.

The number of persons employed part time for economic reasons increased 612,000 during September, raising the level to 9.5 million. During the August-September period this tally has risen by 943,000. The broad measure of unemployment increased to 17.1% in September from 16.7% in August. In the third quarter, private sector hiring has risen 91,000, on average vs. an increase of 118,000 private sector jobs in the second quarter. The total number of people over 65 who are employed has risen by 318,000 over the last year.

Wal-Mart Stores Inc., the nation's largest private employer, plans to end automatic profit-sharing contributions for its employees in a revamp of its benefits package that it says will give workers more chance to share in its financial success.
The discounter will replace profit-sharing starting in February with retirement plan contributions of up to 6 percent of pay -- as long as workers sign up and contribute an equal amount, Wal-Mart said in a memo it provided The Associated Press late Friday.