Saturday, December 25, 2010

Merry Christmas

12/25/10 Merry Christmas

China raised interest rates for the second time in just over two months after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011.
The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective tomorrow, the People’s Bank of China said in a one-sentence statement on its website today. A Morgan Stanley economist notes that today's bump will have more of an effect than a hike after the New Year because of the way adjustable loans are reset in China.

There are no quick fixes for Europe's debt crisis and China must be on the alert for any escalation of the problem, especially in January and February, China's Commerce Minister Chen Deming was quoted as saying on Friday.

“China needs to return to a ‘prudent monetary policy’ to curb prices and control total money supply, the People’s Bank of China said…”.

Air traffic returned to nearly normal in France, the U.K., Belgium and Germany on Saturday, although there were cancellations in Frankfurt and Zurich. A spokeswoman for London's Heathrow Airport said only a handful of flights would be canceled on Christmas Day.

With a rare white Christmas in parts of the Southeast and snow predicted for the nation's capital, airlines canceled hundreds of flights and urged travelers to rethink their plans, while travel authorities warned of potentially dangerous roads.

Bloomberg (Ben Livesey and Ken McCallum): “Bank of England Markets Director Paul Fisher said U.K. interest rates will rise ‘to a normalized position’ of about 5%, the Daily Telegraph reported… The central bank won’t ‘be putting up rates so quickly’ as to cause ‘negative reaction’ and will only tighten policy quickly if the strength of the economy demands it, Fisher said…”

New Jersey's pension gap grew to $53.9 billion in the last fiscal year, up from $45.8 billion, thanks to market losses and a lack of state funding, according to figures released Thursday.

The global economy can withstand an oil price of $100 a barrel, Kuwait's oil minister said on Saturday, as other exporters indicated OPEC may decide against increasing output through 2011 as the market was well supplied.

The Organization of Petroleum Exporting Countries isn't worried about oil prices rising above $90 a barrel as they are largely driven by seasonal forces, Qatar Oil Minister Abdullah bin Hamad Al Attiyah said Friday.
"They are largely affected by the cold snaps in Europe and in some areas in North America," Al Attiyah told Dow Jones Newswires.

Jesse's Cafe Americain: "I hope everyone has the opportunity to see "Inside Job" in the months ahead.

The issue is not settled. As someone who watches the markets closely every day, often tick by tick, and speaks to market participants around the world, I see an accident waiting to happen in the US financial system. And it is surprising, almost shocking, that it receives so little attention while there is so much focus on the relatively trivial.

We have just witnessed one of the greatest financial frauds in modern history. Where are the indictments? Where is the reform?

It concerns me greatly because it is such a important economy. Such a failure would have unsettling collateral damage on the rest of the world not only because of its size, but through the transmission mechanism of the dollar reserve currency which is pervasive in trade and in most central bank holdings.

Like its cronies on Wall Street, the government in Washington thinks it is Too Big To Fail. It may very well be. But propping it up is probably too great of a task for the rest of the world to bear indefinitely. And so we may have an uneasy year or two ahead."

Friday, December 24, 2010

Happy Holidays

12/24/10 Happy Holidays

Prichard, Alabama sought bankruptcy protection twice and is flat broke. It faces a choice of paying to keep city services like police and garbage running or pay pensions. It selected the former.

(Bloomberg) -- China’s government failed to draw enough demand at a bill sale for the second time in a month as seasonal demand for funds and higher reserve-requirement ratios left banks with less cash.

Charles Hugh Smith: "the purchasing power of American wage-earners reached a plateau around 1973 and has been declining ever since."

Floyd Norris: "The year now ending will be the fourth consecutive year in which mutual funds that invest primarily in American stocks experienced net outflows of funds, meaning that investors as a group withdrew more money than they put in."

The National Retail Federation predicts that holiday spending will reach $451.5 billion this year, up 3.3 percent over last year.
That would be the biggest increase since 2006, and the largest total since a record $452.8 billion in 2007. And a strong week after Christmas could make this shopping season the biggest of all time. Final figures won't be available until next week.

It's time to recap my investments in 2010:

Good ones: long gold, silver, soybeans, cotton, and sugar.
Bad ones: short copper and long natural gas.
Good ones: short BP at 50 and long at 27.
Good ones: short and long the dollar; short and long the euro.
Good one: trading the flattening yield curve.

What will take place in 2011? A significant decline in equities and the growing possibility of an upward
spike in interest rates. This will be the year with a window to a depression.

Thursday, December 23, 2010


12/23/10 Rigged

ZeroHedge: "A year after Charles Biderman's provocative post first appeared on Zero Hedge, in which he asked just who is doing all the buying of stocks as the money was obviously not coming from retail investors (and came up with one very notable suggestion), today Maria Bartiromo invited the TrimTabs head once again (conveniently in CNBC's lowest rated show, during Christmas Eve eve, at a time when perhaps 5 people would be watching) in an interview which disclosed that after more than a year of searching, Biderman still has no idea who actually buying. In response to Bartiromo's question if the retail investor, who left after the flash crash (thank you SEC), Biderman responds what every Zero Hedger has known for 33 weeks: "Retail investors are not coming back to the US. Those investors that are investing are buying global equities and are buying commodities. We are seeing lots money going into commodity ETF funds: gold, silver..." and the even more unpleasant summation: "individuals have been selling, companies are net selling, insider selling and new offerings are swamping any buyback and any cash M&A activity since QE 2 was announced. Pension funds and hedge funds don't really have that much cash to invest. So what nobody's asking is what happens when QE 2 stops: if the only buyer is the Fed, and the Fed stops buying, I don't know what is going to happen...When I was on your show a year ago I was saying the same thing: we can't figure out who is doing the buying it has to be the government, and people said I was nuts. Now the government is admitting it is rigging the market."

Working gas in storage was 3,368 Bcf as of Friday, December 17, 2010, according to EIA estimates. This represents a net decline of 184 Bcf from the previous week. Stocks were 56 Bcf less than last year at this time and 264 Bcf above the 5-year average of 3,104 Bcf. In the East Region, stocks were 27 Bcf above the 5-year average following net withdrawals of 117 Bcf. Stocks in the Producing Region were 204 Bcf above the 5-year average of 934 Bcf after a net withdrawal of 56 Bcf. Stocks in the West Region were 33 Bcf above the 5-year average after a net drawdown of 11 Bcf. At 3,368 Bcf, total working gas is within the 5-year historical range. Weather last week was 3% colder than a year earlier and 13% colder than normal, triggering a run on storage gas to meet heating demand, according to Jefferies & Co.

Oil for February delivery recently traded up 92 cents, or 1%, at $91.40 a barrel. Every $1 rise in oil reduces US GDP by $100 billion. Every penny increase in gas prices lowers disposable income by $600 million.

Fitch Ratings lowered its ratings on Portugal's debt to A+ from AA-. The agency also downgraded Portugal's short-term currency rating to F1 from F1+. The Associated Press said that Fitch cited a slow reduction in Portugal's deficit and a tougher financing environment as reasons for the downgrade.

Sugar jumped to a 30-year high as Pakistan said it may import 700,000 metric tons to ease domestic shortages. Coffee and cocoa gained, while orange juice declined.
Sugar production in Asia’s third-largest user “will reach 3.3 million tons,” in the year ending June 30, short of demand of 4.2 million tons, Farm Minister Nazar Muhammad Gondal said. Record rainfall in Australia, the third-largest exporter, will curb production and shipments next season for a second year, according to Queensland Sugar Ltd.

the Dow Jones Industrial Average managed a small session gain. The S&P 500 lost 2.07 points, or 0.2%, to 1,256.77. The Nasdaq Composite fell 5.88 points, or 0.2%, to 2,665.60 for the session.

Package bombs exploded at the Swiss and Chilean embassies in Rome, injuring two employees, according to police and government officials.

Online retail sales during the 2010 holiday season rose a healthy 15.4 percent from last year to $36.4 billion, with strength across all categories, according to MasterCard's SpendingPulse eCommerce Index, which monitors actual spending across the entire spectrum of online transactions.


12/23/10 Mish

Mish Shedlock’s 10 Themes for 2011 include a major U.S. municipal bankruptcy creating a "huge stir" in the muni bond market, a worsening eurozone debt crisis, property bubbles bursting in Australia and Canada, and China overheating. "2010 was a lull in the global economic crisis," Mish warns. "Don't expect 2011 to be the same."

The number of U.S. workers filing new applications for jobless benefits fell slightly last week to 420,000, the Labor Department reported Thursday. Economists polled by MarketWatch had expected initial claims in the week of Dec. 18 to total about 421,000 on a seasonally adjusted basis. The prior week's number was revised up by 2,000 to 423,000. The four-week average of new claims rose 2,500 to 426,000. The moving average is considered a more accurate barometer of employment trends because it smoothens out quirks in the weekly data. In the week of Dec. 11, meanwhile, the number of people who continued to receive benefits under state unemployment programs dropped 103,000 to a seasonally adjusted 4.06 million. Altogether, 8.88 million people received some kind of state or federal benefits in the week of Dec. 4, on an unadjusted basis. That was down 308,338 from the prior week.

Orders for U.S.-made durable goods declined 1.3% in November, led down by transportation-equipment orders, the Commerce Department reported Thursday. Economists polled by MarketWatch had expected a decline of 0.5%. Excluding transportation, new orders rose 2.4%. Core durable-goods orders, which are orders for capital goods excluding defense and aircraft, rose 2.6% in November after a 3.6% decline in October. Shipments of durable goods fell 0.3% in November, while inventories rose 0.6%. Durable-goods orders in October were revised to a decline of 3.1% from a prior estimate of a 3.4% drop. Durable goods are expensive items designed to last three years or longer, and while the data is volatile from month to month, analysts see a trend in orders as a valuable leading economic indicator.

Year-over-year core inflation remained at 0.8% in November, matching the record low reached in the prior month, the Commerce Department reported Thursday. The data go back to 1960. The core personal consumption expenditure price index excludes food and energy. This core gauge of inflation rose 0.1% in November, as expected by economists polled by MarketWatch. The overall inflation gauge rose 0.1% in November, after a 0.2% gain in October. This overall inflation is up 1% in the past year, the lowest since October of 2009. The government's inflation gauges are broad based, and consumers may be more sensitive to price changes of particular items that are frequently purchased, such as gasoline. Also Thursday, the Commerce Department reported that personal incomes rose 0.3% in November, compared with 0.2% expected by economists. Spending gained 0.4%, while Wall Street had expected a gain of 0.5%. Real disposable incomes rose 0.2% in November.

Shares of Jo-Ann Stores Inc. soared 34% in premarket trade Thursday on news that the fabrics and crafts retailer will be acquired by an affiliate of private-equity firm Leonard Green & Partners LP for about $1.6 billion, or $61 a share, in cash. Jo-Ann's board has approved the deal and is recommending that shareholders adopt the agreement. The acquisition is expected to close in the first half of calendar 2011, subject to customary closing conditions. Under terms of the agreement, the retailer's board will also be allowed to solicit other proposals through Feb. 14. Shares of Jo-Ann Stores closed Wednesday at $45.63.

Consumer spending rose for a fifth straight month in November and incomes rose slightly more than expected, government data showed on Thursday, reinforcing views of a solid economic growth pace in the fourth quarter.
The Commerce Department said spending rose 0.4 percent after increasing by an upwardly revised 0.7 percent in October.
Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month after a previously reported 0.4 percent gain in October.
The report also showed the Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose 0.1 percent after being flat for four straight months.
In the 12 months through November, the core PCE index rose 0.8 percent, the same margin as in October and still the smallest year-on-year gain since records started in 1960.

The Irish Government takes over Allied Irish Banks, the country's second largest bank.

In November employers took 1,586 mass layoff actions involving
152,816 workers. Layoff events decreased by 65 from the prior month,
while initial claims increased by 4,757. Manufacturing accounted for
354 events, resulting in 39,465 initial claims.

A jump in crude oil prices has pushed gasoline to $3 a gallon nationwide. The Gulf Oil CEO says the physical gasoline market is "tight."

John Browne: "2011 likely will open with a deepening recession, increasing austerity, and falling asset prices. If this is met by a new round of inflation creation and yuan revaluation, then investors should weigh whether to redeploy assets in anticipation of potential rising commodity prices. I expect these developments not to happen gradually, but to come in great waves. Smart investors will tie their fate to an investment vessel with a solid hull, because in these seas, even a hint of rot could tear a ship asunder."

The Energy Department on Thursday is expected to report a decline of 178 billion to 182 billion cubic feet of natural gas in storage for the week ended Dec. 17, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

David Rosenberg of Gluskin-Sheff is on Bloomberg this morning. He's keying off comments from Barclays' Bomb Diamond about the possibility of a Euro breakup, which Rosenberg sees as perfectly possible.
It's a matter of "when" not "if" noting that it was actually Germany that first breached its debt limits, and pointing out that the history of monetary unions is horrible, with the exception of the United States. All others have failed.

(Bloomberg) -- Soybeans jumped to a two-year high on concern that dry weather may threaten crops in Brazil and Argentina as Chinese demand increases.
Dry weather caused by a La Nina event, which has already hurt crops, will return to Argentina from Dec. 25 and persist through next week, according to a report from Brazil and Argentina are the top suppliers of soybeans and corn after the U.S., data from the U.S. Department of Agriculture show.

Hungary was just downgraded by Fitch to BBB-, and still kept its rating outlook negative.

Bob Bronson: "The headline on the Chicago National Activity Index (CFNAI) a composite measure that closely tracks real U.S. GDP – thus it is a coincident economic indicator – came in at -0.46 (consensus was 0.00) and the prior monthly reading was at -0.25.
The index is now down four months in a row, something not seen since mid-2009 when the U.S. economy was hitting the recession’s depth. On a three-month basis, the more “smoothed” index remains at -0.4 for the past two months (-0.41 in November and -0.42 in October).
This has now been negative since May, portraying a pace of economic activity that is well below potential and therefore continues to be consistent with both (a) a continuing ultimately deflationary economic Supercycle Bear Market Period, or Winter, and (b) our working model for after-shock, double double-dip business cycle contractions over the next four years."

Baltic Dry Index Drops Another 1.9%, Hits 1,795.

A gauge of U.S. consumer sentiment rose to 74.5 in late December from 71.6 in November, according to media reports on Thursday of the Reuters/University of Michigan index. The December reading matched expectations of economists polled by MarketWatch. Despite the gain in December, the gauge is below pre-recession levels of more than 80. While there have been some signs of improvement in the economy, consumers remain concerned about jobs.

Italy has the second-highest public debt ratio after Greece.

ZeroHedge: "According to the December 23 AAII sentiment survey, the bullish mood soared from 50.23% to 63.28%, the highest reading since November 18, 2004. Bearish sentiment plunges from 27.15% to 16.41%, the lowest since November 24, 2005. The difference between bullish and bearish sentiment is 46.87%: the highest since April 15, 2004."

Sales of new single-family homes climbed 5.5% in November, a government report said Thursday, as the housing market continues to show stability at weak levels. The Commerce Department said new-home sales rose to a seasonally-adjusted annual rate of 290,000, from a downwardly revised 275,000 in October. The sales level missed the MarketWatch-compiled economist estimate of 295,000, and the initial government report said October sales were 283,000. The pace of sales is 21.2% below that of November 2009. The median sales price of new houses sold in November was $213,000, up 8% on October but 2.6% below year-earlier levels.

(Bloomberg) -- Rio Tinto Group, the world’s third- biggest mining company, offered A$3.9 billion ($3.9 billion) for Australian coking coal developer Riversdale Mining Ltd. to gain reserves in Mozambique, splitting Riversdale's board.
Rio offered A$16 a share, the London-based company said today in a statement. Riversdale shares climbed 1.6 percent to close A$16.57 in Sydney, 3.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, bar the director appointed by Tata Steel Ltd., its largest shareholder.

South Korea's president said on Thursday the military should launch a "merciless counterattack" if the North tries to repeat the kind of surprise aggression on the South as shelling on an island in November.
Lee Myung-bak also told troops at a forward Army unit near the military border with the North that the South must never loosen vigilance against the North, adding: "We had believed patience would ensure peace on this land, but that was not the case."

Wednesday, December 22, 2010

Wed Afternoon Notes

12/22/10 Wednesday Afternoon Notes

The Energy Department may report a larger-than-average reduction in gas inventories this week because of cold weather last week in the eastern and central U.S., analysts predict.
The department may say Dec. 23 that 180 billion cubic feet of gas were withdrawn from storage during the week ended Dec. 17, according to the median of seven analyst estimates compiled by Bloomberg. The five-year average withdrawal from inventories is 136 billion.

On Thursday, Shui On Land Ltd., a Hong Kong-based company controlled by businessman Vincent Lo that develops real estate in China, said it raised three billion yuan ($450.8 million) through an issue of three-year bonds denominated in China's currency. It is the largest yuan-denominated corporate bond issued outside of mainland China.
Except that it isn't, really: Investors are paying for the bonds in dollars, they receive their coupons in dollars, and the bonds will ultimately be redeemed for dollars when they come due. Any coupon payments and redemptions are done at the prevailing exchange rate, which means investors benefit if the yuan—widely known as the renminbi—rises in value against the dollar over the period in which they hold the bonds.
"They're appealing to an investor base that wants the upside of the [yuan]," said Sundeep Bhandari, regional head of global markets for Northeast Asia at Standard Chartered PLC, one of the bond's three underwriters. The others were Deutsche Bank AG and UBS AG.

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New Zealand's gross domestic product declined 0.2% in the quarter ended Sep. 30, Statistics New Zealand reported Thursday. Economists had expected a reading of 0.1%, according to data compiled by Dow Jones Newswires. "The decline in GDP this quarter was due to weakness in the primary and goods-producing industries," the statistics agency said. In the June quarter, GDP rose 0.1%. On an annual basis, GDP rose 1.4%.

The Dow Jones Industrial Average closed up 26.33 points, or 0.2%, at 11,559.49, its highest close since Aug. 28, 2008. The S&P 500 rose 4.24 points, or 0.3%, to 1,258.84, its highest close since Sept. 8, 2008, and its fifth straight day of gains. The Nasdaq Composite ended up 3.87 points, or 0.2%, to 2,671.48.

(Reuters) - France wants all 16 euro zone governments and any other interested European Union members to coordinate their economic policy more closely in the future, Economy Minister Christine Lagarde told a German newspaper.
"The crisis showed us that it is not sufficient to limit public debt as foreseen in the Maastricht Treaty. Ireland stuck to these criteria and finds itself nevertheless in difficulty," Lagarde said in an interview with the Sueddeutsche Zeitung.
"The EU must not look just at the budgets, it must monitor how the economies in the member states develop."

ZeroHedge: "ICI has just reported that in the week ended December 15, not only was there another massive outflow, the 33rd in a row, from domestic equity mutual funds to the tune of $2.4 billion, but taxable and municipal bonds saw a stunning $8.6 billion in outflows, including another record $4.9 billion in muni outflows....NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat."


12/22/10 Oil

According to ValuEngine's Richard Suttmeier, looking out into 2011, he warns residential housing could fall another 15-30%. "The housing market is still overpriced relative to where we began the new millennium," he tells Aaron in this segment. "Prices are still about 50% higher than where we were at the end of 1999."

Adolph Hitler: "The size of the lie is a definite factor in causing it to be believed, for the vast masses of a nation are in the depths of their hearts more easily deceived than they are consciously and intentionally bad. The primitive simplicity of their minds renders them a more easy prey to a big lie than a small one, for they themselves often tell little lies, but would be ashamed to tell big lies."

"The law has been perverted, and the powers of the state have become perverted along with it. The law has not only been turned from its proper function, but made to follow an entirely contrary purpose. The law has become a tool for every kind of greed. Instead of preventing crime, the law itself is guilty of the abuses it is supposed to punish. If this is true, it is a serious matter, and moral duty requires me to call the attention of my fellow-citizens to it."
Frederick Bastiat, The Law, 1853

Garth Turner: "[TD bank] is registering all its new home loans as collateral mortgages, rather than conventional ones. If you have no idea what that means, you’re normal. A collateral mortgage is a loan which is backed by a promissory note which is in turned backed by security. A conventional mortgage, as you know, is just a loan secured by a house. Normally the only people who are asked to sign collateral mortgages are folks who use their houses to arrange lines of credit with balances that can balloon, not a regular mortgage with a fixed amount owing and a standardized payment.
With a conventional mortgage there are strict rules about how much you can borrow determined by the value of the property when you take the loan. Not so with a collateral mortgage, because it’s actually a loan which is backed by your promissory note. That means you can borrow more than your house is worth.
Yes, just like those old fast-talking TV commercials offering American homeowners mortgages worth 125% of their home’s value – the ones we used to snicker at. Well, giggle no longer. TD is now shopping 125% collateral mortgages.
In fact, bank customers (I’m told) are being encouraged to 'register' for 125% mortgages when they sign up, even if they don’t need all that money. It’s just there, the pitch goes, if you ever need it. Kinda like a built-in line of credit you don’t need to reapply for. (Of course, it should be lost on nobody that the bank just found a way around guidelines on loan-to-value ratios.)" (via The AutomaticEarth).

After days of relentless rain, Southern California is awaiting the most intense storm system yet, with evacuations ordered, rescue crews on standby and residents anxiously eyeing already saturated mountainsides denuded by wildfires.
Forecasters expected more rain across the state Wednesday, but the focus clearly was on Southern California where a monster storm was expected to bring torrential rain, thunderstorms, flooding, hail and possible tornadoes and water spouts. Forecasters warned of possible rainfall rates of .75 inch to 1 inch an hour and thunderstorm rates of 2 inches an hour in the region.
Steady rain began falling late Tuesday and was expected to intensify into early Wednesday.

The U.S. economy expanded at a 2.6% pace in the third quarter, slightly faster than previously reported, mainly because of a higher inventory buildup, the Commerce Department said Wednesday. The government previously reported third-quarter growth of 2.5% on an annualized basis. The final report released Wednesday incorporates data not immediately available in two earlier readings of the economy. The MarketWatch survey of economists had expected growth to be revised up to 3.0%, but an upward revision in imports partly explains the smaller increase in the final third-quarter report. Imports subtract from GDP. Importantly, there was a
downward revision to personal consumption expenditures and corporate profits were up a slim 0.2%. The latter two points should be a red flag for 2011 estimates.

Mortgage applications tumbled to their lowest level in nearly a year as a six-week-long rise in interest rates took a significant toll on demand, an industry group said on Wednesday.
The Mortgage Bankers Association on Wednesday said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended December 17 decreased 18.6 percent, reaching its lowest level since the week ended January 1.
The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.8 percent.

Microsoft Corp is working on a version of its core Windows operating system for devices such as tablets, according to media reports on Tuesday, and the company said its Windows Phone 7 software is making headway in the booming smartphone market.
Microsoft plans to unveil a version of its operating software that runs for the first time on processors designed by UK-based ARM Holdings PLC, the Wall Street Journal and Bloomberg reported. ARM's processors dominate the tablet and handheld device market.

(Bloomberg) -- Treasuries fell, extending their biggest monthly loss in a year, on speculation data showing the recovery is gaining momentum will fuel concern that debt supply will overwhelm demand as inflation accelerates.

George Ure:The
number of people in the workforce and holding a job, is 138.888 million and the amount of federal debt per worker is: $97,011."
Since we know that M2 at the Federal Reserve is going up 3.3 percent on a 12-month annualized basis, 2.6% up for GDP while M2 is up 3.3 means 1.3% deflation may be in the works, so the CPI should continue to be constrained."

Agence Press France is reporting:
Assange also confirmed that WikiLeaks was holding a vast amount of material about Bank of America which it intends to release early next year.

More on Airgas' rejection of Air Products' $70/share offer: Airgas believes the company is worth at least $78/share. Investors may not agree: ARG shares are -2.9% premarket to $61.40.

Mike Shedlock: "The big problems are military spending, public unions, and entitlements. However, problems big and small are everywhere you look, and the process of buying votes and seeking special favors is generally smack in the midst of it all.
Republicans keep campaigning for "small government". It certainly would be nice if they delivered for a change. Unfortunately, Republicans will not give in on military spending (nor will Obama quite sadly), and Democrats won't budge on entitlements.
Compromise in D.C. most often means taxpayers get the worst of what each party has to offer."

China is riding to Portugal's rescue with plans to buy up to €5 billion (£4.2 billion) of the troubled country's sovereign debt in the first quarter of next year, a report in the Jornal de Negocios said today.
China already owns more than $900 billion (£582 billion) of US government debt but this would be the first time it has taken such a significant stake in a European country's debt.

Europe’s spreading sovereign debt crisis is making it tougher for Spain to pay electricity bills, and that’s infecting corporate bonds beyond its borders.

The price of fuel is up 13.6% from last December and 76% higher from December 2008, according to a new study from the Oil Price Information Service. Nationwide, drivers are estimated to spend $305 on gasoline in December.

Telegraph: New START Treaty: The Obama Administration is Dancing to Moscow's Tune. Moscow has every reason to like it. As I noted in a previous post, the treaty fundamentally undercuts US national security by giving Russia a huge say over American plans for a global missile defense system:

If property sales decline 20% in China, how will that impact their weakening banking system?

The Baltic Dry Index has plunged close to 1800. Yet crude sits at $90.

The EIA said oil inventories fell 5.3 million barrels for the week ending Dec. 17. Gasoline inventories rose 2.4 million barrels, while distillate fuel inventories fell 600,000. Analysts polled by Dow Jones Newswires were expecting a 2.3 million-barrel-drop in crude inventories and a 900,000 barrel gain in gasoline inventories.

ZeroHedge: "every $1 rise in oil decreases U.S. GDP by $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year. The move in oil in the past week alone has almost entirely wiped out the most recent stimulus."

Platts - China's apparent oil demand* in November surged to an all-time high of 38.09 million metric tons (mt), or an average 9.3 million barrels per day (b/d), according to a just-released Platts analysis of official data from the People's Republic of China. This analysis is based on a data series of Chinese oil demand which Platts has been reporting since 2005.

Sales of existing homes rose 5.6% to a seasonally-adjusted annualized rate of 4.68 million, the National Association of Realtors said Wednesday, a figure that was pretty close to the MarketWatch-compiled economist poll of 4.66 million. Even so, sales were still 27.9% below prior-year levels and below the 5.26 million in June when a homebuyer tax credit existed. In November 2009, activity was sparked by anticipation - incorrect, as it turned out - that the tax credit was due to expire. Lawrence Yun, the NAR's chief economist, said current sales are back to levels before the existence of the tax credit but said they won't be "sustainable" until they get back to 2000 levels of about 5.2 million. The median price edged up 0.4% to $170,600.

Nine Swiss insurers fail Swiss solvency test to be introduced by market regulator Finma in January.

Tuesday, December 21, 2010

Credit Ratings

12/21/10 Credit Ratings

Aristotle: "The three aims of the tyrant are, one, the humiliation of his subjects; he knows that a mean-spirited man will not conspire against anybody; two, the creation of mistrust among them; for a tyrant is not to be overthrown until men begin to have confidence in one another -- and this is the reason why tyrants are at war with the good; they are under the idea that their power is endangered by them, not only because they will not be ruled despotically, but also because they are too loyal to one another and to other men, and do not inform against one another or against other men -- three, the tyrant desires that all his subjects shall be incapable of action, for no one attempts what is impossible and they will not attempt to overthrow a tyranny if they are powerless."

ICSC forecast December same-store sales to rise 3% to 3.5%. Given the strong November performance and promising trends in early December, ICSC has raised its November-December holiday-season sales forecast by 0.5 percentage points to a range of 3.5% to 4% or potentially a tad above that range. It sees holiday store-sales growth to be the strongest since at least 2006.

Portugal was put on notice on Tuesday that its credit rating could be cut and fellow euro zone debtor Spain had to pay more to issue new debt, suggesting the currency bloc's crisis will rage unabated in 2011.
China, the world's new economic powerhouse, urged European policymakers to demonstrate as a matter of urgency that they can contain the euro zone's debt problems and pull the bloc around.
Ratings agency Moody's said it may cut Portugal's credit rating by one or two notches within three months, citing weak growth prospects as the government seeks to cut its debt, and climbing borrowing costs, although it said its solvency was not in question.

Italy’s finance police seized 22 million euros ($29 million) from six lenders including Bank of America Corp. amid allegations of fraud in a probe focusing on the sale of derivatives to five municipalities in central Italy.
Police said they took 15 million euros from Bank of America, and 1.7 million euros each from Deutsche Bank AG and UBS AG, according to an e-mailed statement. The remainder was seized from Natixis SA, Dexia Crediop SpA and Banca Monte Paschi di Siena SpA.

China urged European authorities to back their tough talk with action on Tuesday by showing they can contain the euro zone's simmering debt problems and pull the bloc out of its crisis soon.
China, which has invested an undisclosed portion of its $2.65 trillion reserves in the euro, said it backed steps taken by European authorities so far to tackle the region's debt problems, but made clear it would like to see the measures having more effect.
China offers help to debt-hit Lisbon China offers EU a hand on financial reform

(Bloomberg) -- Lower state and local spending, which accounts for 12 percent of the national economy, may reduce U.S. gross domestic product growth by about half a percentage point next year, Goldman Sachs Group Inc. said.
Municipal budgets will likely increase by no more than 1 percent in 2011 after adjusting for inflation as local governments receive less state aid and home-price declines put a drag on property-tax collections, the bank said in a note to clients. That is about 2 percentage points less than average.

The number of food stamp recipients increased 16% over last year. This means that 14% of the population is now living on food stamps. That's about 43 million people, or about one out of every seven Americans.

The UK Guardian: "Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble. $2 billion debt crisis threatens to bring
down 100 U.S. cities."

Meredith Whitney: "at least- between 50 and 100 municipal and county defaults in the US within the next year. "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults...."The lack of transparency with the state disclosure is the worst I have ever seen." "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

Debt protection costs rise across eurozone peripherals. The cost of insuring against a German government default on its debt has reached a new high for the year, with credit default swaps (CDS) rising from 56 basis points at end of trading on Friday, December 17 to 57bp at 1.00pm London time today. Greece saw its CDSs fall from 989bp to 952bp, but otherwise CDSs on peripheral eurozone debt rose over the weekend. Five-year CDSs on Portugal increased from 469bp on Friday to 479bp today. The cost of insuring against an Irish default rose marginally from 581bp to 583bp over the same period. Meanwhile CDSs on Italian sovereign debt widened from 204bp to 212bp. The cost of default insurance against Spanish debt increased from 333bp on Friday to 345bp today, while CDSs on Hungary crept up from 375bp to 378bp, according to data provider Markit. Today, Moody's announced its decision to downgrade the ratings of several Irish financial institutions, including Allied Irish Bank and Bank of Ireland. This follows its downgrade of Irish government bond ratings from Aa2 to Baa1 on December 17.

Dutch group DSM, the world's largest vitamins maker, is buying U.S. baby food ingredients maker Martek Biosciences Corporation for an agreed $1.1 billion. DSM said on Tuesday the offer price of $31.50 per Martek share was a 35 percent premium to its Dec. 20 closing price.

Nearly one in three working families earned less than 200% of poverty line last year, as a bad economy pushed 250,000 families below that threshold, according to a new analysis of Census Bureau data.
The recession’s effects extended beyond the millions who lost jobs, according to a report released Tuesday by the Working Poor Families Project, which researches and advocates for working families. Among those who were working, more than 10 million families earned less than 200% of the poverty level, which the researchers considered “low income.” The low-income threshold for a family of four with two children last year was $43,512.
“Working families are taking it hard during the great recession,” said Brandon Roberts, one of the report’s authors. “We’ve got a whole lot of middle-income families, middle-class families that have now fallen back into low-income working families.”

Charles Hugh Smith: "The global fantasy that euphoric stock markets reflect the real economy is about to be tested by its nemesis, reality.
Beneath the surface, all central banks and governments have pursued a single fantasy the past two years: that massive injections of borrowed capital to "extend and pretend" and inflate new asset bubbles will magically restart global growth...Global markets have returned to their pre-global meltdown levels. Too bad the same can't be said of the real economies."

Toronto-Dominion Bank will buy Chrysler Financial from private equity firm Cerberus Capital Management for $6.3 billion.

The Federal Open Market Committee of the U.S. Federal Reserve on Tuesday said it's extending through Aug. 1, 2011 its U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. The swap arrangements, established in May, had been authorized through Jan. 2011. The swap lines with the ECB, BOE, SNB and BOJ will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed local rates for full allotment, similar to arrangements that had been in place previously. They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, the Fed says.

Copper futures hit a record high on Tuesday, which analysts attributed to reports that one of the world's largest copper mines, Collahuasi in Chile, has declared force majeure and can't export its goods. "Copper has continued to rise this morning on supportive Chinese trade data and news that Collahuasi had called force majeure on concentrate shipments," analysts at Barclays Capital wrote in a note. High-grade copper for March delivery rose 1.5%, or 6 cents, to $4.27 a pound. It touched $4.29 a pound early in the U.S. trading session, according to FactSet Research.

The Fed has now monetized $1 trillion of U.S. debt!

AP - Parliament swore in a new Iraqi government Tuesday after nine months of bitter political haggling, solidifying the grip that Shiites have held on political power since Saddam Hussein's ouster while leaving open the question of whether the country's disgruntled Sunni minority will play a meaningful role.

Demographers believe the official 2010 count will be 308.7 million or lower, putting U.S. growth at around 9 percent, the lowest since the 1940 census. That is the decade in which the Great Depression slashed the population growth rate by more than half, to 7.3 percent.

Fitch Ratings on Tuesday placed Greece's BBB-long-term foreign- and local-currency issuer default ratings on downgrade review, raising the possibility that Greece's sovereign rating may be cut to junk in the near future. "A Rating Watch Negative indicates that there is a heightened probability that Greece's sovereign ratings will be downgraded," said Fitch in a statement. The review is expected to be completed in January and will focus on Greece's fiscal sustainability, the country's economic outlook and the political will of the government to carry out reforms, Fitch said.

Genzyme Corp is more willing to discuss price with Sanofi-Aventis SA , which is trying to acquire the U.S. biotechnology company for $18.5 billion, or $69 a share, according to the Wall Street Journal.

The Dow Jones Industrial Average closed up 55.03 points, or 0.5%, at 11,533.16. The S&P 500 ended up 7.52 points, or 0.6%, to 1,254.6. The Nasdaq Composite ended up 18.05 points, or 0.7%, to 2,667.61.

A new nuclear-arms treaty with Russia cleared a procedural hurdle when the Senate voted 67-28 to end debate on the matter, setting the stage for a ratification vote Wednesday.

Hermann Goering: "Why of course the people don't want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country."

Monday, December 20, 2010


12/20/10 Flee

Peter Morici: "With the new tax cuts, rating agencies should downgrade U.S.
government debt to junk....As Washington spends and borrows, the Treasury will
have to offer higher rates on new 20 and 30 year bonds, making comparable
securities issued in 2010 and earlier worth less in the resale market.
That interest rate risk makes U.S. Treasury securities lousy investments.
For rating agencies, Washington’s monopoly on printing dollars makes difficult
assigning a conventional rating between AAA and D on its bonds. Those can’t
default but investors’ capital is still at grave risk...Perhaps a special
grade: “F” –flee now before you get stuck—is appropriate for the junk sold by
the U.S. Treasury."

John Hussman: "Investors dangerously underestimate the risk of an abrupt and
possibly severe equity market plunge....Downside risk tends to be elevated
precisely when risk premiums and volatility indices reflect the most
complacency....We did not avoid a second Great Depression because we bailed out
financial institutions. Rather, the collapse in the economy and the surge in
unemployment were the direct result of a gaping hole in the U.S. regulatory
structure that prevented the rapid restructuring of insolvent non-bank
financials. Policy makers then inappropriately extended the "too big to fail"
doctrine to ordinary banks. Following a striking loss of public confidence that
resulted from arbitrary policy responses, coupled with fear-mongering by
exactly those who stood to benefit from public handouts, the self-fulfilling
crisis was contained by a change in accounting rules that effectively disabled
capital requirements for all financial companies. We are now left with a Ponzi
scheme. "

Bloomberg News reported that Sara Lee recently rejected a JBS offer as too
low. The report cited two unnamed people with knowledge of the situation.
Bloomberg said neither company would comment on the report.

(Bloomberg) -- France risks losing its top AAA grade as Europe’s debt crisis
prompts a wave of downgrades that threatens to engulf the region’s highest-rated

borrowers, with Belgium also facing a possible cut.

After a wait of 372 years, sky gazers are in for a special celestial treat as
winter solstice coincides with total lunar eclipse on Tuesday.

The last time the two astronomical events coincided was on December 21, 1638,
Geoff Chester of U.S. Naval Observatory said.

Swathes of Britain skidded to a halt today as the big freeze returned -
grounding flights, closing rail links and leaving traffic at a standstill.
And tonight the nation was braced for another 10in of snow and yet more
sub-zero temperatures - with no let-up in the bitterly cold weather for at
least a month, forecasters have warned.

The Arctic conditions are set to last through the Christmas and New Year bank
holidays and beyond and as temperatures plummeted to -10c (14f) the Met Office
said this December was ‘almost certain’ to become the coldest since records
began in 1910.

China's stocks plunge most in month.

Hungary's central bank on Monday increased the base rate by 25 basis points to
5.75%, effective from Tuesday.

The European Commission on Monday said its preliminary consumer-confidence
indicator for the 16-nation euro zone fell to -11.0 in December from -9.4 in
November, ending six months of rising readings. Economists surveyed by Dow
Jones Newswires had forecast a rise in the indicator to -9.0.

Applied Signal Technology saw its shares jump nearly 8% Monday morning after
the company announced that Raytheon Co.agreed to acquire the company for $38 per
share, or about $490 million, net of Applied's cash on hand. The price
represented a premium of 37% compared to Applied's market value prior to Oct.
21, the date at which the company announced that it was evaluating strategic
options. The transaction is expected to close in the first quarter of 2011.

The Federal Reserve said it will limit purchases to 70 percent of any single
Treasury security as part of its plan to expand its balance sheet that’s known
as quantitative easing.

Danaher, Thermo Fisher considers bid for Beckman Coulter, Bloomberg reports.

Moody's downgrades various Irish covered bonds Monday.

“We’re in a period where uncertainty seems to be going on forever,” said David
Autor, an economist at the Massachusetts Institute of Technology. “So this
period of temporary employment seems to be going on forever.”

The European Central Bank released data showing it sharply reduced its
purchases of European government bonds in the latest week, according to media

The Dow Jones Industrial Average ended lower, however, dragged down by a 3.4% drop in American Express Co. shares. The S&P 500 ended up 3.17 points, or 0.3%, at 1,247.08, led by rising energy and homebuilding stocks. The Nasdaq Composite gained 6.59 points, or 0.3%, to 2,649.56. The Dow fell 13.78 points, or 0.1%, to 11,478.13. The Nasdaq hit a 3-year high.

ZeroHedge: "If anyone thought that $14 trillion in 2010 debt is bad, just wait until we hit $24.5 trillion in total US national debt in 2015. And it gets even more surreal: total US Unfunded Liabilities are estimated at $144 trillion, roughly $1.2 million per taxpayer."

Sunday, December 19, 2010

Total Global Exposure

12/19/10 Total Global Exposure

(Bloomberg) -- The extra yield Treasury investors demand to hold 10-year notes
over 2-year securities touched the widest since February on speculation an
extension of tax cuts will spur growth and increase deficits.

Travellers are being warned to expect severe travel disruptions all day
Saturday across Europe because of heavy snow and freezing temperatures.

China and Pakistan concluded nearly 15 billion US dollars' worth of deals on
Saturday, as Chinese Premier Wen Jiabao said Beijing would "never give up" on
the troubled nuclear-armed Muslim country.

Mike Burk: "Seasonality is likely to dominate the rest of the year. Monday and
Tuesday could be weak, but, after that, the pattern is likely to be a modest
upward bias on very low volume.
I expect the major averages to be higher on Friday December 24 than they were
on Friday December 17."

Seeking Alpha: "In Barron's 2011 stock market outlook, strategists expect to see an average 10% rise in the S&P 500 and a sustainable economic recovery taking root. Stocks will outperform bonds, especially Treasurys. Companies sitting on cash piles will look towards M&A, R&D and shareholder-friendly moves."

Martin Hutchinson: "When bond traders come to view U.S. Treasury bonds as a serious default risk, the U.S. economy may well enter not merely a second dip but a chasm."

South Korea is pushing ahead with a U.S.-backed artillery test in a rare direct challenge to North Korean threats, prompting an emergency session of the U.N. Security Council and calls for calm from Asian neighbors. Russia calls for a U.N. Security Council meeting to prompt both sides to tone down the rhetoric.

Dominic Gates Seattle Times aerospace reporter: "As Boeing prepares to announce yet another delay for the 787 Dreamliner — at least three months, possibly six or more — the crucial jet program is in even worse shape than it appears.
The problems go well beyond the latest setback, an in-flight electrical fire last month that has grounded the test planes.
A year after the airplane's first flight, the cascade of systems failures caused by that fire, as well as two major problems since summer with the 787's Rolls-Royce engine, have raised red flags with aviation regulators.
A top Federal Aviation Administration (FAA) official 10 days ago warned Boeing that without further proof of the plane's reliability, it won't be certified to fly the long intercontinental routes that airlines expect it to serve."

Harry Wilson at the Daily Telegraph:
"Lloyds writes off half of Irish loan. Lloyds Banking Group and Royal Bank of Scotland shares tumbled on Friday after Lloyds said it had effectively written-off more than half of its outstanding loans to Irish borrowers. Lloyds shares closed down 3.6pc at 66.5p, while RBS's fell 5.7pc to 37.82p as the market."

John Mauldin: "The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets."

The Automatic Earth: "It is derivative exposure to European banks that is a very major concern for the world and the US in particular. It is not just a European problem.....If we add Portuguese and Greek debt to the mix, and we look at total exposure to the four biggest EU problem cases, and potential losses from it, we see that German banks' exposure totals $512.7 billion, and losses at 54% write-offs $276.8 billion, French banks' exposure totals $410.2 billion, with losses at 54% write-offs $221.5 billion, British' banks exposure totals $370 billion, losses at 54% write-offs $199.8 billion, US banks' exposure total $352.9 billion, with losses at 54% write-offs $190.6 billion.
Is there anyone out there who wishes to claim that German banks can absorb $276.8 billion in losses, French banks $221.5 billion, and British $199.8 billion, and still the whole shebang can live happily ever after? If there is, please let us know who you think lives at the North Pole.
Total global exposure to Ireland, Portugal, Spain and Greece is $2.281 trillion. A 54% write-off would mean a $1.23 trillion loss for the international banking system. And that's for the exposure to the debt of just four countries, which have a total population of no more than 75 millon people! Let that sink in! And let's not forget the timeframe, either: as quoted above from the Telegraph: "German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion [of that] by Portugal, Ireland, Spain, and Greece by the end of June, 2010". Also, once again, keep in mind that Lloyds already sees a further 10% downgrade before the end of 2010 (!!), and dark prospects going forward."

Koch Pipeline Co. LP will build a new pipeline into Karnes County to connect refineries in Corpus Christi with Eagle Ford shale producers.
The company said Thursday it received shareholder approval for the new 16-inch line, which will create the capacity to move an additional 120,000 barrels per day in 2012.
The Eagle Ford shale of South Texas is considered one of the hottest oil and gas prospects in the country.
“It not only allows us to ship more crude oil to Corpus Christi refiners and to the Flint Hills Resources waterborne terminal at Ingleside, but it also improves our efficiency and reliability as this project includes new tanks and a new truck station,” Kim Penner, president of Koch Pipeline, said in a prepared release.
The new line will have future expansion capability of more than 200,000 barrels per day and will include direct connections to producer tank batteries in Karnes and DeWitt counties.