Saturday, October 23, 2010

Bank Failures

10/23/10 Bank Failures

Six banks were closed by regulators on Friday, bringing the total number of U.S. bank failures for the year so far to 138. The Federal Deposit Insurance Corp. said Jacksonville, Fla.-based First Bank of Jacksonville; Tampa, Fla.-based Progress Bank of Florida; Gordon, Ga.-based Gordon Bank; Barnesville, Ga.-based First National Bank of Barnesville; Maywood, Ill.-based First Suburban National Bank; and Overland Park, Kan.-based Hillcrest Bank were all closed. The bank failures will cost the federal deposit-insurance fund a combined $445.2 million, the FDIC said.
First Arizona Savings 139th bank failure of 2010.

BHP Billiton Ltd. isn’t interested in extending a deadline on a government review of its $40 billion takeover bid of Potash Corp. for Saskatchewan Inc., said Andrew Mackenzie, BHP’s head of non-ferrous businesses.
Under the Investment Canada Act, the government can block any transaction valued at C$299 million ($291 million) or more if it finds it doesn’t provide a “net benefit” to the country, based on factors such as economic activity and jobs. Canada has until Nov. 3 to complete a review of the bid, unless BHP, the world’s largest mining company, agrees to an extension.

Group of 20 nations agreed on an overhaul of the International Monetary Fund that gives a larger voice to emerging market nations, IMF Managing Director Dominique Strauss-Kahn said.

The difference between yields on 2- and 10-year Treasuries widened to the greatest amount since September on trader speculation about how much debt the Federal Reserve may buy if it resumes purchases of U.S. securities.

German Economy Minister Rainer Bruederle on Saturday took issue with what he called a U.S. policy of increasing liquidity, saying it indirectly manipulated exchange rates.

Bloomberg (Chris Kay): “Arabica coffee rose to a 13-year high… on concern that output may fall next year in Brazil and Colombia, the world’s two biggest growers of the variety. Robusta coffee reached a two-year high in London.”

Doug Noland: "The Fed is determined to convince the marketplace that ultra-loose monetary policies are here to stay. Such an assurance does wonders for market risk perceptions.....Well, for policies virtually guaranteed to devalue the dollar one would implement near-double-digit fiscal deficits, near-zero interest rates, and a strategy of open-ended monetization of Treasury debt. The G20 ministers clearly want to avoid confrontation and are presenting at least a semblance of a unified front for tackling deep structural issues. While they must think it, they don’t dare address the U.S. as an unmitigated policy “Basket Case.” Perhaps they even believe their policies can successfully rebalance the world. Or has “rebalance” simply become tantamount to “kicking the can.”....I have seen ample confirmation this year of my Global Government Finance Bubble thesis. And from my analytical framework, I would warn that the effects from another year of similar global monetization could prove quite different than what was previously experienced. If, as appears to be the case, Bubble Dynamics have become more deeply entrenched, one could expect heightened price instability throughout global markets. In this same vein, additional QE might end up throwing gas on an increasingly raging fire of destabilizing speculation...Today, inflationism fuels Bubble dynamics on an unprecedented global scale. Policymakers can insist on referring to “global rebalancing,” but the reality is more in line with desperate and universal inflationism.“Monetary policy is about an environment that’s supposed to be stable. When you try to use it in a way that floods the market with liquidity, you can in fact get very bad outcomes.” Kansas City Federal Reserve President Thomas Hoenig, October 21, 2010.

A cache of nearly 400,000 U.S. military documents from the Iraq war has revealed about 15,000 civilian deaths that were not previously documented, the publisher of the documents, the website WikiLeaks said.

Stoneleigh: "Yes, I do expect a crash, and a very large one at that. I expect the larger trend to be down for several years. A lot of investments will fall a very long way in value, and where these investments have been used as collateral for borrowing, there will be knock-on consequences. We will see margin calls as values decline, and outstanding debt is now too high compared to the value of the asset, so that additional debt repayments have to be made. We are going to see a very large number of bankruptcies and many debt defaults. This will be a factor in crashing the money supply, leaving too little lubricant to run the engine of the economy....A massive debt bubble is the at the heart of the problem. It has been building for decades and is now far larger than any previous debt bubble in human history. Humanity periodically rediscovers leverage on a grand scale, after the lessons of the previous episode have mostly passed out of living memory. Expansions of credit and debt create the appearance of great wealth, but it is illusory (virtual). The obligations created are real though. People have expectations of being repaid, and they will not be, which will set up a grab for the underlying real wealth (collateral) which is nowhere near enough to go around. This is deflation, and its effects are very significant. Money will be scarce for a very long time."(Automatic Earth)

Peng Bo, an analyst at Shenzhen, China-based Guosen Securities Co. “China, as a supplier of 97 percent of rare-earth demand, feels a need to control both production and exports and doesn’t want to sell at dirt-cheap prices.”

Fitch, the credit rating agency may downgrade the debt of several of the largest banks in the US. Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies’ Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc. This is due to the fact that both entities’, and their related subsidiaries’, Issuer Default Ratings (IDRs) and their respective senior debt obligations have benefited from support provided by the U.S. government.

Charles Hugh Smith: "That's the downside of pegging to the dollar: the yuan is merely a proxy for the dollar.
The lower the dollar sinks, the more commodities will cost in China--not a good thing for an economy that is heavily dependent on inefficient production and a real estate bubble for its growth.
The only way to decouple the value of the dollar from commodities would be to have two different valuations for the yuan: one for physical-goods commodity trade and one for currency trades. Short of that dual-currency system, China will be forced to swallow massive inflation in commodity prices as the dollar weakens. That inflation threatens its citizens with declining purchasing power and its industries with much higher costs.
The other side of the vise is a much stronger dollar. Were the USD to strengthen against other currencies, then China's export goods would cost substantially more in Europe and Japan--in effect, making Chinese goods less competitive everywhere except the U.S.
If the dollar weakens, China will import inflation and much higher commodity prices, hurting its economy.
If the dollar strengthens, then Chinese goods become much more expensive when priced in Euros, yen, etc. Either way, China's economy suffers negative consequences.
Is being trapped in a vise controlled by another State really being in charge? Who would choose to give the power over commodity prices and one's export prices to another nation? That is not power, that is weakness. the U.S. can do whatever it wants with the USD, and the Chinese will take the consequences. "Inoculating" the surplus dollars piling up in China and adjusting the peg are merely tweaking the side bets in a game owned and controlled by the U.S."

ZeroHedge:"The CEO of Gary Shilling & Co. sees home prices tumbling another 20% over the next few years, and the number of underwater mortgages nearly doubling from 23% to 40% (meaning nearly half of America will likely strategically default as nobody has any initiative to pay down their mortgage when they know there is no equity value left)."

Friday, October 22, 2010

Golden Cross

10/22/10 Golden Cross

ZeroHedge: "Yesterday Netflix reported a quarter which missed EPS, and provided
a guidance that was essentially below the street. Yet for some reason the
stock shot up 10% on what was perceived to be a dramatic pick up in subscribers
and a very low Subscriber Acquisition Cost. We wonder if all those computers
who bid up the stock with impunity, lifting all offers on the way up, were
aware that in fact the subscriber metrics were a major disappointment. To wit
from Bank of America: "without a dramatic lift in free subs as percent of total
(from 2.8% in 2Q and 2.5% in 3Q09 to 6.3% in 4Q), Netflix would not have met
Street expectations, and paying subscribers of 15.9mn (still up an impressive
46% y/y) missed our estimate by 275K." Yes, ladies and gents, it is the AOL
scam all over again. Free subs are subs, the CEO will tell you, and it is all a
matter of converting them. Ah yes. That worked out very well for the
clusterfuck that is the dial up company. In other words, NFLX results were in
reality a disaster across every vertical, and once Q4 is in the books and the
inability to fool the vacuum tubes that free subs will become paying subs is
realized, this overbloated bubble is in for a dramatic reacquaintance with

S&P 500 futures sent a bullish signal as the index's 50-day moving average
crossed above its 200-day moving average, a technical event known as a golden
cross. That upward momentum indicator last occurred in June 2009, and futures
rose about 35 percent in the following 10 months.

WSJ: "A proposal among the Group of 20 industrial and developing nations to
target cuts in current-account imbalances, meant to avert a "currency war," is
running into opposition from big exporting nations."

Ataman Ozyildirim, economist at The Conference Board: “The LEI remains on a

general upward trend, but it is growing at its slowest pace since the

of 2009. There isn’t any indication of a relapse into another downturn

the end of the year.”

"15 of Last 25 Months, Treasury Needed to Borrow Money to Pay Social Security

Standing at the headquarters of the greatest social web company so far,
Facebook, Doerr anointed the social web as the technology wave of the moment
and the future. If the web of the present (or recent past) hinged on web pages
and documents, the web of the future is all about people and their context at
any given moment.
"We are at the beginning of a third wave in technology (the prior two were the
commercialization of the microprocessor, followed 15 years later by the advent
of the web), which is this convergence of mobile and social technologies made
possible by the cloud," Doerr said. "We will see the creation of multiple
multi-billion-dollar businesses, and equally important, tens maybe hundreds of
thousands of smaller companies."

ZeroHedge: "John Noyce, Goldman's arguably best technician, in his weekly
Charts that Matter, has released one (among many) interesting observation on
just how overbought the market currently is, and more specifically just how
desperate the velocity of the pick up in the stocks since August has been, in
order for levered beta players such as hedge funds, as we predicted in the end
of August, to make up as much of their year as possible before seeing
redemptions (even so many will not survive into 2010 as the entire 2/20 model
is now crumbling). Specifically, by looking at where the S&P is relative to its

55 DMA, Noyce notes that every time the market has gotten to above 5% its
trailing average, it has always entered a period of consolidation (read at
least modest selling). Furthermore, compared to the recent trend extreme of 7%
above 55 DMA, the market moved meaningfully above one just one occasion in the
past: in January 2009... just before the crash to the decade lows of 666 on the

S&P occurred."

U.S. prosecutors have dismissed the criminal tax evasion case against Swiss
bank UBS, effectively taking the bank off probation after it paid a huge fine
and agreed to turn over the names of suspected tax cheats.
Papers filed Friday in a Fort Lauderdale federal court formally drop tax
evasion conspiracy charges filed against UBS in February 2009. The charges were
dropped after the bank met several conditions including paying a $780 million
fine, disclosing names of about 250 possible tax dodgers and ending illegal
activities in the U.S.
UBS agreed in a related case to divulge the names of 4,450 other possible tax
cheaters. So far, 10 former UBS clients have been prosecuted for tax violations
and dozens more are expected to be charged.

Nearly half of U.S. states reported drops in their unemployment rates last
month, the best showing since June. But job creation was weak in most areas of
the country. At the end of September, there was a total of 129,699,600 people
employed across the various states, and this represents a decline of 223,800
from August's 129,923,400.

US ECRI Weekly (Oct 22) W/W 122.10 vs. Prev. 122.40 (Rev. to 122.20).

Two bank failures in Florida and one in Georgia have raised 2010's tally to 135, according to the Federal Deposit Insurance Corp. on Friday. The Gordon Bank of Gordon, Ga., Tampa's Progress Bank of Florida, and First Bank of Jacksonville were closed by regulators. The total cost to the FDIC's deposit insurance fund for the three failures is $50.2 million.

The Dow Jones Industrial Average ended down 14.01 points, or 0.1%, at 11,132.56. The S&P 500 added 2.82 points, or 0.2%, to 1,183.08 and the Nasdaq Composite gained 19.72 points, or 0.8%, to 2,479.39.

Thursday, October 21, 2010

No Momentum

10/21/10 No Momentum

In the week ending Oct. 16, the advance figure for seasonally adjusted initial
claims was 452,000, a decrease of 23,000 from the previous week's revised
figure of 475,000. The 4-week moving average was 458,000, a decrease of 4,250
from the previous week's revised average of 462,250.
The advance seasonally adjusted insured unemployment rate was 3.5 percent for
the week ending Oct. 9, unchanged from the prior week's unrevised rate of 3.5
The advance number for seasonally adjusted insured unemployment during the
week ending Oct. 9 was 4,441,000, a decrease of 9,000 from the preceding
week's revised level of 4,450,000. The 4-week moving average was 4,478,000, a
decrease of 23,250 from the preceding week's revised average of 4,501,250.

States has posted a second aircraft carrier, the USS Abraham Lincoln, in the
Persian Gulf and northern Arabian Sea. The announcement came from the Pentagon
Tuesday, Oct. 19, two days after the vessel put into port at Fifth Fleet
headquarters in Manama, Bahrain. debkafile's sources note that this is the
first time in two years that Washington had deployed two aircraft carriers at
same time - not just one - in waters opposite Iran and Afghanistan.
Facing Iran at the moment therefore is the USS Harry S. Truman which has four
squadrons of Hornet and Super Hornet fighter-bombers plus Squadron 116 of early
warning, surveillance and command craft, Squadron 131 of electronic warfare
craft, two more squadrons of helicopters and one of transports.
The Abraham Lincoln's arrival has raised the number of US fighter-bombers in
Iran's neighborhood to 120.
The carrier was accompanied by the guided missile cruiser USS Cape St. George.
The Pentagon announcement was careful to avoid mentioning Iran: US Secretary of
Defense Robert Gates approved the presence of a second carrier… to provide
surge support for coalition forces in Afghanistan "and to support existing
maritime security operations."

The index of manufacturing activity in the Philadelphia region returned to
positive territory for the first time in three months in October, the Federal
Reserve Bank of Philadelphia reported Thursday. The Philly Fed diffusion index
rose to a positive 1.0 in October from a negative 0.7 in September. The
increase was not as strong as expected. Economists polled by MarketWatch were
expecting the index to rise to 1.4. The index is still well below levels seen
earlier this year. The index was 21.4 as recently as May. Indexes for new
orders and shipments continued to indicate weakness. The new orders index
remained negative for the fourth consecutive month. Firms continue to report
declines in inventories and unfilled orders. The index for employment was
slightly positive.

U.S. economic growth is "slow" and doesn't have momentum, the Conference
Board said Thursday as it reported that its leading economic index rose 0.3% in

September. The leading economic index - a weighted gauge of ten separate
indicators - rose as economists polled by MarketWatch had anticipated. The
six-month change has slowed to 0.8% from 5.1%. The index for August was revised

lower to 0.1%, from the 0.3% rise initially reported, and the July index was
revised higher to 0.2%, from the 0.1% rise initially reported.

Working gas in storage was 3,683 Bcf as of Friday, October 15, 2010, according
to EIA estimates. This represents a net increase of 93 Bcf from the previous
week. Stocks were 48 Bcf less than last year at this time and 286 Bcf above the

5-year average of 3,397 Bcf. In the East Region, stocks were 60 Bcf above the
5-year average following net injections of 51 Bcf. Stocks in the Producing
Region were 176 Bcf above the 5-year average of 985 Bcf after a net injection
of 37 Bcf. Stocks in the West Region were 51 Bcf above the 5-year average after

a net addition of 5 Bcf. At 3,683 Bcf, total working gas is within the 5-year
historical range.
Analysts expected a rise of between 86 billion and 90 billion cubic feet,
according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The American dream appears increasingly elusive to the average citizen, with the

CNBC All-America Economic Survey finding continued high levels of pessimism in
the nation’s outlook for incomes, home values and the future of the economy.
After trillions of dollars were put to work for monetary and fiscal stimulus,
just 8 percent of the nation views the economy as excellent or good and 92
percent see it as fair or poor, little changed from a year ago.
But just 37 percent of the public believes the economy will improve in the
next year, down five points from a year ago. Taken together, the combined
percentage of Americans who are pessimistic about the economy now and for the
next year is at the second highest for the three-year life of the CNBC survey.

Euro-zone Oct. composite PMI falls to 53.4 - fresh one-year low.

Total Federal debt as of last night was $13.7 trillion.

Optimism among individual investors reached a five-week high in the latest AAII

Sentiment Survey. Bullish sentiment, expectations that stock prices will rise
over the next six months, rose 2.5 percentage points to 49.6%. This is the
seventh consecutive week that bullish sentiment has been above its historical
average of 39%.
Neutral sentiment, expectations that stock prices will remain essentially flat
over the next six months, fell 0.9 percentage points to 25.2%. This is the 15th

time in 16 weeks that neutral sentiment has been below its historical average
of 31%.
Bearish sentiment, expectations that stock prices will fall over the next six
months, declined 1.6 percentage points to 25.2%. This is the lowest level of
pessimism in five weeks. It is also the fifth time in six weeks that bearish
sentiment has been below its historical average of 30%.

Charles Hugh Smith: "Currencies are destroyed as a political "unintended
consequence" of saving the Status Quo from losing power.Rather than risk a
decline in power, or an upheaval in the fiefdoms, Elites and State dependents
which support the Status Quo, the Power Elites choose to debauch the currency as

the "short-cut solution" to their inherently unsustainable financial woes...So
the Power Elites in the Fed, Congress and other Central State fiefdoms would
rather destroy the citizenry's currency and wealth rather than risk losing their

own vast powers."

Fannie Mae and Freddie Mac may need as much as $215 billion in additional
capital from the Treasury through 2013 to offset losses and maintain a positive
net worth, their federal regulator said on Thursday.

China's GDP growth slowed down in the third quarter to 9.6 percent from 10.3
percent last quarter, a report by the National Bureau of Statistics
said. Industrial production also fell from the previous quarter to 13.5
percent. However, industrial production rose 16.3 percent during the three
quarters of the year in total, the report stated.

A 6.9 magnitude earthquake struck off Mexico's Baja California coast at 10:53
a.m. Pacific time, according to the U.S. Geological Survey on Thursday. The
quake, centered in the Gulf of California, was at a depth of 6.2 miles, and
located 85 miles northeast of La Paz, Baja California Sur, Mexico. There were
no immediate reports of damage or injury.

Diamond Offshore Drilling Inc. shares fell Thursday as the oil-service company
reported a lower profit and fretted about the permitting process for rigs in
the Gulf of Mexico.

Siemens Energy Inc., a unit of Siemens AG, said Thursday it's introducing
electric car charging stations for commercial, residential and government
applications. One option features a 7.2 kilowatt single-output station. Paul
Camuti, president of Smart Grid Applications for Siemens, said the introduction
of new electric cars in the U.S. market signals a shift in transporation
trends. "Long term, for energy independence, an all-electric vehicle makes a
lot of sense," he said. "Given the huge numbers of people who drive short
distances, there's a real case for electric cars." He said utility companies
should also invest in smart grid technology to accomodate the expected rise in
electric cars in the U.S.

The Dow rose 38.60, or 0.4 percent, to close at 11,146.57. It briefly eclipsed its highest closing level of 2010, which it reached on April 26.
The Standard & Poor's 500 index rose 2.09, or 0.2 percent, to 1,180.26, while the Nasdaq rose 2.28, or 0.1 percent, to 2,459.67.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.54 percent from 2.48 percent late Wednesday.

Oil for December delivery was off $1.98 to $80.56 a barrel. Natural gas skidded nearly 5% as a weekly government report showed a larger-than-anticipated increase in supplies. Natural gas for November delivery lost 17 cents to settle at $3.37 per million British thermal units.

Gold for December delivery retreated $18.60, or 1.4%, to $1,325.60 an ounce on the Comex division of the New York Mercantile Exchange.

Mike Shedlock: "Pension plans in general are at least $3 trillion in the hole. Changing demographics seal the fate. Few are prepared for the sacrifices that must be made to bring the system back into fiscal soundness."

Wednesday, October 20, 2010


10/20/10 Consumers

China pledged to maintain supplies of rare earths and signaled exports of the
ingredients used in electronics, wind turbines and smart bombs may rise next
The Commerce Ministry denied reports in the New York Times and China Daily that
the government plans further export cuts and has extended an embargo of Japan to
include the U.S. and Europe. “China will continue to supply rare earth to the
world,” the ministry said in a faxed response today.
“China might raise the production cap and export quota slightly next year,” said
Wang Caifeng, until last week the deputy director at the Ministry of Industry
and Information Technology who oversaw the sector, adding that it was her
personal opinion. She is now in charge of setting up the ministry-affiliated
China Rare Earth Industry Association.

U.S. mortgage applications slumped last week as interest rates on 15- and
30-year fixed-rate mortgages rose for the first time in six weeks, data from an
industry group showed on Wednesday. The Refinance Index decreased 11.2
percent from the previous week. The seasonally adjusted Purchase Index decreased
6.7 percent from one week earlier. The unadjusted Purchase Index decreased 6.6
percent compared with the previous week and was 29.4 percent lower than the same
week one year ago.

U.S. consumers will spend about 2 percent less on gifts this holiday season
as shoppers remain concerned about a weak economy, the Consumer Electronics
Association estimated, citing an annual survey. The average consumer will
spend $750 on holiday gifts, the industry trade group said today in a
statement. A third of the survey’s respondents said they planned to reduce
spending for reasons related to unemployment, the association said.

The U.S. May Have to Sell Some Assets to Get Out of Its Debt Mess. Check the
national debt clock: Our federal debt is $13.3 trillion, next year’s budget
is $1 trillion in the red, and we have unfunded commitments for Social
Security, health care and other programs as far as the eye can see.

LA Times: "Obama Spending Stimulates the National Debt by $3,039,000,000,000.
The United States of America now owes someone(s) $13,665,000,000,000. By 2012,
when Hillary Clintonnext challenges Barack Obamafor their party's presidential
nomination, the national debt will be even larger than today's record --
$16,500,000,000,000, according to current federal estimates. That's more
money than the entire United States economy produces in a complete year.
Obama prefers to lay the blame or credit for this gargantuan spending
increase at the cowboy-booted feet of his Lone Star Republican predecessor.
During George W. Bush's Oval Office tenure, the national debt increased more
-- by $4.9 trillion, in fact. However, Bush took 96 months to do that. Obama
has accomplished his spending feat in less than 21 months. Under his
spendership the national debt has grown about $4.8 billion every day since he
took the oath of office twice, just to be safe."

Saskatchewan has rejected the proposed takeover of Potash Corp. of
Saskatchewan Inc. after BHP Billiton Ltd. refused to meet the province’s
demands, putting the $40-billion offer in jeopardy and leaving the federal
government with a difficult decision. For weeks, the Saskatchewan government
has expressed doubt that BHP’s bid for Potash Corp. would provide a “net
benefit” to the province. But Tuesday, a source familiar with the
transaction confirmed that Saskatchewan will recommend that Investment
Canada reject the bid, citing concerns about loss of tax revenue.

China's banking regulator issued a notice to the nation's lenders ordering a
halt of real estate loans to developers found to be hoarding land or property.
Banks were also told not to accept applications for real estate loans from the
78 central government owned enterprises ordered in March to exit the property
market as real estate development isn't their core business. The China Banking
Regulatory Commission also ordered banks not to accept loan applications from
developers that don't put up the projects they're borrowing for as collateral
for the loans.

Britain’s Chancellor of the Exchequer unveiled the country’s steepest public
spending cuts in decades on Wednesday, sharply reducing welfare benefits and
eliminating almost half a million public sector jobs over the next four years
as the country seeks to free itself of crushing debt from the global financial
“Today is the day when Britain steps back from the brink,” George Osborne, the
Chancellor, told Parliament.
“It is a hard road but it leads to a better future,” he said, but “to back
down now would be the road to economic ruin.”

madhedgefundtrader: "The statistics that the government pumps out have been
meaningless for decades. The true number of unemployed is closer to 30 million,

or about one in five working age Americans. The economy is obliterating jobs
far faster than anyone realizes. As many as 25 million jobs were exported to
China and other low waged emerging markets." (via ZeroHedge)

Microsoft in an attempt to compete with Google Apps, is ready with Office 365.
Microsoft Office 365 is a subscription service and will feature cloud
computing. An analyst Jeffry Mann at Gartner Inc. said, Google Apps "was really

the primary competitive target for this."

The dollar dropped to a 15-year low against the yen as a Federal Reserve
regional survey showed the economy expanded in September at a “modest pace,”
fueling speculation the central bank will increase quantitative easing. The
U.S. economy grew unevenly in early fall, with more than half the regions of the

country expanding modestly while others are struggling to grow. A survey by the
Federal Reserve released Wednesday found that seven of the Fed's 12 regions
reported moderate improvements in business activity. Three regions --
Philadelphia, Richmond and Cleveland -- described economic activity as mixed or
steady. Only two regions -- Atlanta and Dallas -- suggested economic growth was
slow. The survey indicated that the economy isn't weakening but is growing too
sluggishly to drive down high unemployment, now at 9.6 percent. The jobless rate
has been at or above 9.5 percent for more than a year."Hiring remains limited,
with many firms reluctant to add to permanent payrolls given economic softness,"
the Fed survey concluded.

President Barack Obama's top housing official says lenders are within their
rights to resume foreclosures this month despite allegations that they erred in
processing documents.Two big lenders -- Bank of America Corp. and Ally Financial
Inc.'s GMAC Mortgage unit -- are resuming foreclosures after halting them for
two weeks. The companies say they're fixing problems in legal documents used to
complete foreclosures. Whether to restart foreclosures is a decision every
lender is entitled to make independently, says Housing and Urban Development
Secretary Shaun Donovan. "We're committed to forcing institutions to change the
way they conduct business," Donovan says. "We will force the changes to make
sure that these types of problems don't happen again."

Crude for November delivery, the expiring contract, rose $2.28, or 2.9% to
$81.77 a barrel on the New York Mercantile Exchange. December crude advanced
$2.38, or 3%, to $82.54 a barrel.

Gold for December delivery settled $8.20 higher at $1,344.20 an ounce. Other
metals tracked bullion, with December silver advancing 8 cents, or 0.4%, to
$23.86 an ounce.

S&P 500 index up 1% at 1,178. Nasdaq Composite up 0.8% at 2,457. Dow up 129 at

Tuesday, October 19, 2010


10/19/10 China

China unexpectedly lifted its deposit and lending rates by a quarter point --
its first policy tightening since December 2007. "The move by the Chinese has
drawn capital out of risk and reaffirmed the recent long dollar trend, leading
to a pronounced sell-off in high-beta currencies, like the Australia dollar,
Canadian dollar and New Zealand," said strategists at Brown Brothers
Harriman. The surprise policy move brought the one-year yuan lending rate to
5.56% from 5.31% and the one-year deposit rate to 2.5% from 2.25%, Dow Jones
Newswires reported, citing a statement issued by the central bank.

John Hussman: "Throwing a trillion U.S. dollars against the wall to see what
sticks is not sound monetary policy. By pursuing a policy that relaxes
constraints that are not even binding, depresses the U.S. dollar, threatens to
destabilize international economic activity, encourages a "boom-bust" cycle,
provokes commodity hoarding, and pops off the Fed's last round of ammunition
absent an immediate crisis, the Fed threatens to damage not only the U.S.
economy, but its own credibility."

New construction of U.S. houses expanded for the third straight month in
September, the Commerce Department estimated Tuesday. Starts rose 0.3% in
September to a seasonally adjusted 610,000 annualized units, much stronger than
the 578,000 pace expected by economists surveyed by MarketWatch. This is the
highest level of starts since April. Starts of new single-family homes rose by
4.4% to 452,000 in September, while starts of large apartment units fell 9.7%
to 158,000. Building permits, a leading indicator of housing construction, fell
5.6% to a seasonally adjusted annual rate of 539,000. This is the lowest level
of permits since April 2009.

Chain-store sales for the week ended Oct. 16 rose 1.7% from the year-earlier
period, the slowest rate in at least four weeks, according to a survey released
Tuesday by the International Council of Shopping Centers and Goldman Sachs. On
a week-over-week basis, sales fell 0.7%. "National temperatures soared
relative to last year and its historical record making it the warmest
comparable week in 15 years, which unfortunately was not good news for
retailers selling seasonal goods," said Michael Niemira, ICSC's chief
economist. He forecast October sales to rise about 2.5%.

Massey Energy Co. is exploring the possible sale of the company, The Wall
Street Journal reported on Tuesday. Options include taking the company private
or selling it to another coal company, according to unnamed sources cited by
the newspaper. Other options on the table for the Richmond, Va. company include
a merger, or remaining independent. Massey Energy's market capitalization
totaled $3.7 billion as of Monday's close.

Brazil’s real dropped the most in two weeks after Finance Minister Guido
Mantega raised taxes on foreign inflows for the second time this month to
prevent appreciation and protect exports from what he called a global “currency
The Brazilian currency fell 0.8 percent to 1.6875 per U.S. dollar at 9:17 a.m.
in Sao Paulo (7:17 a.m. New York time), the biggest decline since Oct. 6. In the
overnight interest-rate futures market, the yield on the contract due in January
2012 rose five basis points to 11.33 percent.

Boeing will require 90,000 nonunion workers to pay significantly more for their
health plan next year.
However, the changes for nonunion employees will not apply to Boeing workers in
Charleston, S.C., who will retain a plan equivalent to that of union workers in
the Puget Sound-area factories.For the affected employees, deductibles — the
share of medical costs that employees pay annually before their plan kicks in —
will go up to $300 for individuals, an increase of $100. For families, the new
deductible will be $900, an increase of $300..

Unemployment, as measured by Gallup without seasonal adjustment, is at 10.0% in
mid-October -- essentially the same as the 10.1% at the end of September but up
sharply from 9.4% in mid-September and 9.3% at the end of August. This
mid-month measurement confirms the late September surge in joblessness that
should be reflected in the government's Nov. 5 unemployment report.

The World Bank lowered its outlook for growth next year in China and across
East Asia, urging officials in the region to curb inflation and ward off asset
bubbles to avoid a repeat of the Asian financial crisis. “Larger inflows
combined with ample domestic liquidity and rising confidence have boosted stock
markets, real-estate prices and other asset valuations in some countries,
precipitating fears of a new bubble,” the report said. “Authorities in East
Asia need to take adequate precautions to ensure that they do not repeat the
same mistake twice in slightly over a decade.”

VMware Inc's sluggish software sales growth and disappointing quarterly cash
flow pummeled shares, casting a shadow on one of the technology sector's most
richly valued stocks.

The Oil Drum: "Like a high-stakes game played with barrels of oil, Tehran told
Baghdad last week: "I see your 143 billion and raise you 150 billion."
The Iranian minister of petroleum Masoud Mir Kazemi topped the Iraqi oil
minister Hussein al Shahristani's earlier increase in proved reserves. But Iran
is bluffing. Mr Mir Kazemi might hold good cards but he cannot play them.
Iraq's announcement, that its proved reserves had increased by a quarter, was
an early move in a contest that will engage OPEC during the next few years.
Other OPEC members somehow have to find room to accommodate Iraq's ambitions
which, taken literally, would make it a rival to Saudi Arabia. And Iraq is not
the only challenger.
Other states, particularly Nigeria, are looking for the organisation's
acquiescence in higher output."

Japan's government said on Tuesday that the economy was now at a standstill,
highlighting the growing gulf between developed and emerging countries at the
heart of global currency tensions.
In a monthly report, the government downgraded its assessment of the economy
for the first time since February 2009. A senior Japanese official said further
pressure on the economy, which is mired in stubborn deflation, could tip it
into recession.

New York Fed President William Dudley said the situation in housing remains
"uncertain" for the foreseeable future, as does the extent of the documentation
problem and its wider ramifications. Housing starts are "extremely low" by
standards of last 50 years, there are roughly 3 million vacant housing units
more than usual, lending standards are tight, there's a weak job market and
continued uncertainty over prices, he said. The large decline in home prices
between 2006 and 2008 also is impacting because it reduced the amount of equity
owners have in their homes. The Fed as well as the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corp. are conducting a review of
the foreclosure practices, governance and documentation at the major bank
mortgage servicers. Dudley also touched on New York-area economic conditions,
saying there's signs of a modest recovery in New York but unemployment remains
unacceptably high.

FT: "Corporate America appears to be hoarding cash. But the reality is that
much of the almost $1,000 billion on non-financial company balance sheets is
parked overseas and destined to stay there for use on foreign acquisitions.
Treasurers do not much like the idea of bringing profits home if it comes at a
35 percent tax rate....
The Homeland Investment Act confronted the issue in 2004 and provided a fix –
an effective tax rate of just 5.25 percent would be levied on repatriated cash.
According to the Internal Revenue Service, 843 companies took advantage and
repatriated $362 billion.
The legislation was passed in a stronger economy than today and advocates of
another “tax holiday” believe the sluggish recovery is even more deserving.
“A trillion dollars is hard to turn your back on,” said Dean Garfield,
president of the Information Technology Industry Council. “If we can come up
with a solution that allows companies to bring it back at a non-punitive rate
they would likely bring it back.”

The American Petroleum Institute late Tuesday reported an increase of 2.3 million barrels of crude oil in the nation's inventories for the week ended Oct. 15, slightly above expectations. Gasoline stocks declined 83,000, while distillates inventories decreased 854,000, the trade group said. More closely watched government data is scheduled for Wednesday. Analysts polled by Platts expect an increase of 2.1 million barrels for the week ended Oct. 15. Stockpiles of gasoline are seen declining 1.2 million, while stockpiles of distillates are expected to decline 1.3 million. Crude-oil futures remained lower in electronic trading late Tuesday, trading at $79.45 a barrel. Oil settled 4.3% lower on Tuesday, its biggest one-day drop since February, as equities suffered and the dollar strengthened after a surprise interest-rate increase in China.

U.S. stocks fell sharply Tuesday with the market spooked by an unexpected rate hike in China, disappointing earnings and fresh concerns about the impact bad mortgages could have on banks. The Dow Jones Industrial Average sank 165.07 points, or 1.5%, to 10,978.62. Blue-chip losses were led by Bank of Amerca , down 4.4%, after a report it might be forced to repurchase bad mortgages. The S&P 500 index dropped 18.81 points, or 1.6%, to 1,165.90. The Nasdaq Composite fell 43.71 points, or 1.8%, to 2,436.95.

Gold futures stumbled 2.6% Tuesday, their worst one-day drop since early July, as the dollar strengthened after a surprise interest-rate increase in China and late-Monday comments from the U.S. Treasury Secretary supporting the U.S. unit. Gold for December delivery retreated $36.10 to $1,336 an ounce, its lowest close since Oct. 7. December silver also dropped 2.6% to $23.78 an ounce, its lowest settlement since Oct. 12.

Mall-traffic tracking firm ShopperTrak on Tuesday forecast holiday sales in November and December to rise 2.9% after two straight years of declines. The firm projected traffic to dip 0.1% this holiday season, following a 3.4% drop in 2009 and a 15.4% plunge in 2008. Consumers have adjusted to economic conditions by making fewer trips to malls and stores and spending more during each visit, ShopperTrak said, adding consumers over the last 10 months have visited an average of 3.32 stores per shopping trip, down from between 4 and 5 stores visited prior to the recession. While the economy remains at the top of minds for consumers, a survey from trade group National Retail Federation on Tuesday also showed a small pick-up in spending expected this holiday season with consumers showing more willingness to loosen up their purse strings.

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday.
The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle. The New York Times is reporting that China has stopped shipments of some REEs bound for the US and Europe. The halt to US and European shipments is presumably a Chinese reaction to a US announcement that it would investigate whether or not China was violating international trade rules in the way it supports its clean-tech industries.
China is expected to increase REE production to about 100,000 tons in 2011. A 30% cut in exports would reduce the amount of REEs available to the rest of the world to about 20,000 tons.

The China Investment Corporation is opening a Hong Kong office, the fund’s first ever business operation outside of mainland China, Reuters reported, citing people with direct knowledge of the matter.

Monday, October 18, 2010

Loss of Trust

10/18/10 Loss of Trust

Saudi Arabian authorities have informed France about a new threat from
al-Qaeda, French Interior Minister Brice Hortefeux disclosed on Monday.

St. Jude Medical Inc. it agreed to purchase AGA Medical Holdings Inc. for $1.3
billion to expand its product line of devices used to care for structural heart
defects through minimally invasive treatments. The deal values AGA at $20.80 a
share, a 32% premium to its 6-month price average. The deal is expected to
close before the end of the year and add to St. Jude's earnings in 2011. With
$199 million in sales last year, AGA manufactures a line of transcatheter
treatments, and is expected to compliment similar products at St. Jude. Bank of
America and Piper Jaffray & Co. acted as financial advisors on the deal. Shares
of AGA jumped 40% premarket to $20.65. Shares of St. Jude closed Friday at
$39.90, up less than 1%.

China must make a "major breakthrough" in its industry-heavy growth and advance
"vigorous but steady" political reform to keep the world's second-biggest
economy from faltering, Communist Party leaders said on Monday.
China's map for a new phase of growth driven by spending by hundreds of
millions of workers and farmers was issued at the end of a Party Central
Committee meeting, which settled on the nation's next five-year development
plan starting in 2011.
Over that time, the Chinese economy is forecast to grow by about 50 percent to
$7.5 trillion, powering past Japan and moving closer to the biggest economy by
far, the United States.

Research firm Zenith Optimedia raises its forecast for 2010 global ad spending
a much-watched barometer of economic confidence - to a stronger than expected
+4.8% (from +3.5%), or $450B. U.S. ad spending is seen up 2.2%, to $151.5B,
double Zenith's earlier forecast of +1.1%.

Quicksilver Resources surges premarket after saying its board received a
letter from Quicksilver Energy LP expressing interest in "in exploring
strategic alternatives for Quicksilver." KWK's board has set up a committee of
independant directors to assess any proposal.

The business-jet industry’s recovery may take a year longer than forecast,
picking up in late 2011 and accelerating in 2012, as companies defer purchases
amid doubts about the economy, Honeywell International Inc.said.

Tablet Sales to Nearly Triple in 2011: Gartner.

EMC Corp. is in exclusive talks to buy computer-storage company Isilon for more
than $2 billion, The Post has learned. "The deal will be done this year," a
source close to the situation said. It's the latest big deal in the tech world,
where few areas are hotter than computer storage.

Northeast Utilities said on Monday that it had agreed to acquire NStar for $4.3
billion in stock in a merger that would create one of the biggest power utility
companies in the country.
The deal is among the largest utility mergers this year, as energy producers
seek to combine to help lower costs and gain scale. The new company, which will
keep the Northeast name, will have about 3.5 million customers in New England.
Under the terms of the agreement, Northeast will issue 1.312 new shares for
each NStar share, worth about $40.28 a share at Friday’s closing price.
Northeast shareholders would end up owning about 56 percent of the combined
company, while NStar shareholders would own 44 percent.

Charles Hugh Smith: "Anyone who believes the foreclosure crisis can be contained
is deluded, because the real issue in play is the citizens' trust in their
government's ability to govern the nation's Financial Elites according to the
rule of law. Clearly, our government has failed its citizens--utterly,
completely, totally, at every level of governance (Federal, State, local) and at
every level of oversight and regulation.The bitter truth is that the nation's
Financial Power Elites are not constrained by rule of law, and as a result of
this revelation Americans' trust in their government and political class has
been shattered....The people have lost their trust in their government for good
reason: it has betrayed their trust. The emotions being raised are beyond the
understanding of the cowards and brown-nosers pulling the levers of governance:
why are people so angry about some botched paperwork?The emotions will be
familiar to anyone who has been cheated on by a spouse or business partner: the
Federal government has betrayed its people in the most profound way.
The Foreclosure crisis is only one moving part in a much larger machine bent on
impoverishing the citizenry for the benefit of the Power Elites."

David Rosenberg: "The Fed’s intent is not to create consumer inflation, but rather asset inflation — primarily in the equity market. By pulling longer-term bond yields lower, the Fed hopes that this will alter how investors value equities relative to the fixed-income market. Moreover, the Fed will be actively pushing up the value of bonds that exist in investor portfolios, and as such the intent is to induce these investors to rebalance their asset mix towards equities in order to maintain their current allocation. The Fed is also trying to incentivize fund flows into the equity market. This in turn would theoretically boost household wealth and as such make consumers, who now feel richer, to go out and spend more. So the theory goes — we shall see how it works in practice.
The Fed’s intent is also to lower both the debt and equity cost of capital so that companies will, at the margin, compare that to expected returns on newly invested capital and begin to spend more on new plant and equipment. The hope here is that the investment spending multiplier will kick in and that stepped-up job creation would occur in tandem with the renewed capex growth."

FT: "South Korea, holder of the world’s fifth-biggest foreign exchange
reserves, is considering expanding its small holdings of gold to diversify its
dollar-heavy portfolio."

Industrial production slipped in September, the first drop after six months of
gains, according to data released by the Federal Reserve on Monday. Production
slipped 0.2% compared to August, though it's up 5.4% from the prior-year
September. Economists polled by MarketWatch expected a 0.2% monthly increase.
Indexes of production from April to August also were each revised lower by
marginal amounts. Capacity utilization slipped to 74.7% in September from 74.8%
in August -- and well below the 80.6% average between 1972 and 2009. For the
third quarter as a whole, production rose at an annualized 4.8% rate, slower
than the approximately 7% growth in the first and second quarters of the year.

Foreign investors bought a net $128.7 billion of long-term U.S. assets in
August up from $61.2 billion in July, the Treasury Department said Monday.
International demand for Treasurys accelerated to an increase of $117.2 billion
in August from a gain of $30 billion in July. But foreign investors bought less
corporate bonds, agency debt and equities in September. Including short-term
securities and bank lending data, foreigners purchased a net $38.9 billion of
U.S. assets compared with net purchases of $63.3 billion a month earlier.
According to the report, China, Japan and the United Kingdom all increased
their Treasury holdings in September.

J.C. Penney Co. said Monday that it's adopted a shareholder rights plan, or
so-called poison pill, in light of "recent rapid accumulations of a
significant percentage of the company's outstanding common stock." The plan has a term of
one year. The rights have a 10% trigger. Activist investor Bill Ackman's
Pershing Square Capital Management and real estate firm Vornado Realty Trust
recently disclosed a 16.5% and 9.9% stake each in the Plano, Texas-based

Builder confidence rose for the first time in October in five months, according
to a report released Monday that nonetheless showed conditions at a weak level.
The National Association of Home Builders/Wells Fargo housing market index rose
3 points to 16 in October to bring the gauge to the same level as June.
Economists polled by MarketWatch expected the gauge to remain stuck at 13. All
three of the index's components -- current sales conditions, sales expectations
and traffic of prospective buyers -- rose. The report measures confidence in
the market for newly built, single-family homes, and any number over 50
indicates that more builders view conditions as good than poor. The housing
market index hasn't been above 50 since April 2006.

The Federal Reserve Bank of New York purchased $6.26 billion in Treasury bonds
on Monday, part of officials' pledge to reinvest cash from maturing
mortgage-backed securities and housing agency debt back into the bond market to
support the economic recovery. Dealers offered to sell the Fed $21.836 billion
in debt maturing from 2016 to 2020. Analysts expected the central bank to buy
about $6.2 billion. After the results, the broader bond market remained higher,
pushing yields down. Yields on 10-year notes fell 7 basis points to 2.50%.

Apple Inc. blew past Wall Street's forecasts for its fourth-fiscal quarter as earnings soared on strong sales of the company's iPhone 4 and iPad. For the quarter, Apple reported net income of $4.31 billion, or $4.64 per share, compared to net income of $2.53 billion, or $2.77 per share, for the same period the previous year. Revenue jumped 67% to $20.34 billion. Analysts were expecting earnings of $4.10 per share on revenue of $18.9 billion, according to consensus estimates from FactSet Research. Apple sold 3.27 mln iPads in Q4. Apple sold 8.4 mln iPhones in Q4, up 68%. Sees FQ1 EPS of $4.80 vs. consensus of $5.04. Revenue of $23B vs. consensus of $22.2B.

International Business Machines Corp. said Monday its third-quarter net income rose to $3.6 billion, or $2.82 a share, from $3.2 billion, or $2.40 a share in the same period last year. The Armonk, N.Y.-based technology giant said revenue for the period ended in September rose 3% to $24.3 billion. Analysts polled by FactSet Research had expected IBM to report third-quarter earnings of $2.76 a share, and $24.2 billion in revenue. Gross margin of 45.3% fell short of the 46% consensus, and free cash flow of $3.2B was down $200M year-on-year.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said it was important to monitor U.S. farmland values for signs of instability like the price bubbles in the housing and stock markets that burst with disastrous consequences for many investors.

The Dow Jones Industrial Average gained 80.91 points, or 0.7%, to 11,143.69. The S&P 500 index was up 8.52 points, or 0.7%, at 1,184.71. The Nasdaq Composite advanced 11.89 points, or 0.5%, to 2,480.66.

A sharp drop in Chinese exports of rare-earth metals has fueled a rally in global prices, and Asian miners of these commodities are poised to benefit.
And while Japanese manufacturers that use the metals have managed to hold off the brunt of the price pain for the now, shortages of the metals are possible next year, strategists said.

Sunday, October 17, 2010

Printing Press

10/17/10 Printing Press

End tax breaks that reward some U.S. companies with overseas subsidiaries and
encourage those businesses to create jobs in other countries, President Barack
Obama is telling Congress.Yet it's an idea that has raised concerns even among
some lawmakers in the president's own party.At issue is a bill, now stalled in
the Senate, that would do away with some tax credits and deferrals for U.S.
companies for operations abroad."There is no reason why our tax code should
actively reward them for creating jobs overseas," Obama said in his weekly radio
and Internet address Saturday. "Instead, we should be using our tax dollars to
reward companies that create jobs and businesses within our borders."Though
Obama singled out Republican opposition, the bill also failed to get support
from some Democrats, including the chairman of theSenate Finance Committee, Sen.

Max Baucus, D-Mont. He has expressed concern that the change would put the U.S.
at a competitive disadvantage.The ending of the tax provisions has run into
opposition from business groups, including
the National Association of Manufacturers.

Regulators on Friday seized three banks in Kansas and Missouri, raising to 132
the number of U.S. banks that have been brought down this year by mounting loan
defaults and the sputtering economy.
The Federal Deposit Insurance Corp. on Friday took over the banks: Premier
Bank, based in Jefferson City, Mo., with about $1.18 billion in assets and
$1.03 billion in deposits; WestBridge Bank and Trust Co. of Chesterfield, Mo.,
with $91.5 million in assets and $72.5 million in deposits; and Security
Savings Bank, based in Olathe, Kan., with $508.4 million in assets and $397
million in deposits.

Mike Burk: "Looking over broad market and sector charts, everything but the
financials are heading sharply upward.
I expect the major averages to be higher on Friday October 22 than they were
on Friday October 15."

The Bank of England will increase its emergency bond-purchase plan by 100
billion pounds ($160 billion) to aid the economy as the government cuts
spending, the Centre for Economics and Business Research said.

European Central Bank President Jean-Claude Trichet rebuffed Bundesbank
President Axel Weber’s call to terminate the bond purchase program, saying the
“overwhelming majority” of the bank’s 22-member Governing Council still backs
the buys.

Robert McHugh: "QE2 is simply a fancy name for the Federal Reserve printing
U.S. Dollars and buying fixed income securities from large Wall Street firms,
buying junk bonds, corporate bonds, mortgage backed securities or Treasuries.
It is essentially a fraud on U.S. Dollar holders, is a fraud on the taxpaying
U.S. Consumer and Small Business, a fraud on the working person who has to get
his money through hard labor. We will discuss this further later, and why this
policy will destroy what is left of this fragile economy, and will eventually
help drive stock market values down toward zero, and drive the U.S. Dollar
down toward 40ish. QE2 is wonderful for large Wall Street firms' short-term
profits. They love it. Imagine having a business where the Federal Reserve is
interested in helping you make as much money as possible at the expense of
everyone else? That is QE2....If the intent of QE2 fails to include the
household, it should not be allowed to happen. Congress must put a stop to
QE2 immediately, and require a full explanation of the intended program
before Bernanke destroys our economy. There should be an open debate in
Congress on the merits of QE2, with testimony from all interested parties,
in front of television cameras, for the American public to study before
QE2 is effectuated. This is not something the Fed should conduct in
secret. This is new turf, new territory for the Fed, and warrants careful
scrutiny. The Justice Department needs to study if in fact the Fed is
legally empowered to conduct QE2. This is serious stuff, an intentional
devaluation of the U.S. Dollar, and thus needs to be treated as such.
Intelligent, thoughtful contemplation is essential in an open public
forum. Households and small businesses need to be able to weigh in by
calling their congressional representatives before QE2 happens. QE2 should
require an act of Congress. The Fed should not be allowed to do this on
their own."

BHP Billiton and Rio Tinto have scrapped their proposed $116 billion iron-ore joint venture 16 months after opposition from regulators, steelmaking customers and some major investors.

Forty-five percent of Potash’s production is sold to farmers in North America. The big worry, in part, is that the Chinese could seek to redirect that supply to China, starving other countries of a much-needed commodity.