Saturday, January 01, 2011


1/1/11 Disconnect

According to the latest Rasmussen poll, almost 2/3 of Americans polled are pessimistic about 2011 and believe
the recession will not end in 2011. By comparison, the sentiment on Wall Street for 2011 is the most bullish
it's been in years. Quite a disconnect. They cannot both be right. Take your pick.

Bloomberg (Charles Penty): “Spain has between 700,000 and 1.1 million unsold homes, an amount that will drag on a recovery in the housing market as prices will probably keep falling in 2011, the Bank of Spain said.” This sounds like the U.S.

Sigmund Freud: "Just as no one can be forced into belief, so no one can be forced into unbelief."

Doug Noland: "The CRB commodities index closed the year at the high since 2008. And by the end of the year it was clear that China, India and greater Asia had serious inflation and “hot money” issues. Cautious little baby step policy moves aren’t going to get the job done....From my bearish perspective, the marketplace has been disregarding some important developments. For starters, despite the massive $4 trillion increase in government liabilities in just nine quarters, an extended period of near zero interest rates, and unprecedented Federal Reserve quantitative easing, the unemployment rate will end the year near 9.8%. And despite extremely low mortgage yields, our nation’s housing market is barely treading water. Developments – or lack of them – in the real economy are disconcerting and support the secular bear thesis.
There is also the important issue of rising global yields. Moreover, the debt markets have become increasingly discriminating. A few months back – in the heat of the euphoric “endless liquidity for everybody forever” backdrop – the markets were content to readily finance just about any borrower. More recently, in somewhat of a return to sobriety, the marketplace has looked increasingly askance at borrowers such as Ireland, Spain and U.S. municipalities. This is a serious development for the global government finance Bubble – but perhaps not as serious in the short-term.
The U.S. financial system these days is being completely dominated by the expansion of federal borrowings. This creates different financial and economic dynamics than we’re used to analyzing. In contrast to when mortgage Credit was playing a predominate role during that Bubble period, a rise in market yields today will have virtually no near-term impact on the quantity of (government) Credit being issued. And especially with the extension of Bush era tax cuts along with additional stimulus measures – the speculative U.S. stock market has taken great comfort from the seeming sustainability of the tepid (government-dominated) U.S. economic recovery...The Bernanke Fed certainly ensured that financial speculation gained at the expense of savers. And the municipal debt market now confronts the dilemma resulting from Bubble-related risk distortions, misperceptions and investor disappointment – and a problematic flow reversal out of the sector."

“There Will Be Head Fakes”
-chessNwine 12/31/10
Accordingly, please use caution headed into the next several weeks. There is nothing wrong with taking a wait-and-see approach to start the year."

Robert Fritz: "If you limit your choices only to what seems possible or reasonable, you disconnect yourself from what you truly want, and all that is left is compromise."

Friday, December 31, 2010

Wishing You a Happy and Healthy New Year

12/31/10 Wishing You a Happy and Healthy New Year

Aisha Elderwyn
"Every new year people make resolutions to change aspects of themselves they believe are negative. A majority of people revert back to how they were before and feel like failures. This year I challenge you to a new resolution. I challenge you to just be yourself."

(Bloomberg) -- South African bonds lured more foreign inflows in 2010 than shares for the first time after the fall of apartheid in 1994 as yields more than double those of 10-year U.S. Treasuries boosted the appeal of the debt. “South African bonds offer some of the highest yields around,” said Leon Myburgh, a fixed-income strategist for sub- Saharan Africa at Citigroup Inc.’s Johannesburg-based unit. “Slowing inflation and declining interest rates made them a very attractive investment.”
The debt-buying spree will continue through 2011, said Jacques Theron, a portfolio manager at Johannesburg-based Absa Asset Management Private Clients, a unit of the nation’s largest retail bank. With its benchmark interest rate at 5.5 percent and inflation near a five-year low, South Africa’s central bank is among a few worldwide that have room to cut rates, he said.

U.S. stocks ended 2010 with strong gains, advancing for the second year in a row, as stimulus measures from the Federal Reserve and the government and recent signs of improvement in the economy encouraged investors' spirits. The Dow Jones Industrial Average closed the year at 11,577.51 on Friday, up 7.8 points for the session, and less than 10 points below a two-year high it reached on Wednesday. The Dow jumped 5.2% in December and is up 11% for the year. The S&P 500 index fell 0.24 point to 1,257.64 on Friday. The broad index still jumped 6.5% for the month and is up 12.8% in 2010. The Nasdaq Composite fell 10.11 points, or 0.4%, to 2,652.87 Friday, leaving it with 6.2% advance in December and a 16.9% gain for the year.

Oil prices hit a 26-month high over $92 a barrel on Friday, closing the year up 15 percent on expectations that the economic recovery will drive demand growth next year and send prices into triple digits.

Bill Gross: "avoid dollar-denominated government debt" (US Treasuries)

Howard Davidowitz

12/31/10 Howard Davidowitz

The Chinese yuan strengthened for a second straight day Friday to hit a fresh record high, with the gain coming in the wake of a high-profile forecast for the currency. The U.S. dollar slipped to 6.6227 yuan, inching down from Thursday's 6.6229 yuan after Beijing lowered the trading band slightly. The advance followed a day after a report that a leaked U.S. diplomatic cable cited China Construction Bank senior economist Hwa Erh-cheng as predicting a 5% rise in the yuan against the dollar for 2011. The news was reported by Agence France-Presse, based on a cable released by the WikiLeaks website.

Disruptions in coal production from Australian floods may help raise the price of coal 20% or more, to the benefit of Canadian miners.

Michael Pento: "The Fed's lucky streak of luring bond investors with low interest rates may be drawing to a close. Nevertheless, the extended period of low borrowing costs has bred a new breed of investor. To the bulls and bears, we can now add the ostriches - those who bury their heads in the sand of declining debt service ratios while refusing to face up to intractable levels of total US government debt. If these ostriches were to actually look at the numbers, they would realize that it is their investments which are made of sand."

The last time sentiment levels were this extreme was 1987.

A foot of snow in Prescott, Arizona!

Money market mutual fund assets rose by $22.4 billion to $2.8 trillion in the week ended yesterday, the Investment Company Institute reported Thursday.

On calendar 2011 shipment potential, Caris forecasts 53.6 million tablets, with 36.1 million Apple iPad's, Samsung targets 8 million Galaxy Tabs, while our November Asia checks showed expectations for 40 million to 60 million units.

China's first round of rare earth export quotas for next year were actually cut by about half from first round quotas for 2010, citing an official.

The Oil Drum: "LA PAZ, Bolivia – Protests against a sharp increase in fuel prices intensified and turned violent in Bolivia on Thursday, as thousands of demonstrators demanded President Evo Morales' government repeal the hike.
Demonstrators filled the streets in La Paz and other cities to protest the higher prices, which were announced suddenly on Sunday. Gasoline prices immediately soared by 73 percent and diesel prices went up by 83 percent, leading to a rapid increases in transport and food prices in the Andean country."

CVS Caremark Corp. agreed to buy the Medicare Part D business of Universal American Financial Corp. for about $1.25 billion, more than doubling the size of its program after pharmacy-benefits.

Alexander Herzen: “This socialism will develop in all its phases until it reaches its own extremes and absurdities. Then once again a cry of denial will break from the titanic chest of the revolutionary minority and again a mortal struggle will begin, in which socialism will play the role of contemporary conservatism and will be overwhelmed in the subsequent revolution, as yet unknown to us.”

Venezuela will devalue its "strong bolívar" currency on New Year's Day, the government said Thursday, the second such devaluation within a year and at least the fifth major devaluation during the decade-long populist government of President Hugo Chávez.

Howard Davidowitz: "If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater."

Thursday, December 30, 2010

Marc Faber

12/30/10 Marc Faber

The 111th Congress left town without passing a 2011 budget that began October 1st 2010. This is the first time a budget has not been passed since 1974.

Summary of Weekly Petroleum Data for the Week Ending December 24, 2010
U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending December 24, 3 thousand barrels per day above the previous week’s average. Refineries operated at 87.8 percent of their operable capacity last week. Gasoline production decreased last week, averaging 9.3 million barrels per day. Distillate fuel production increased last week, averaging 4.7 million barrels per day.
U.S. crude oil imports averaged 8.8 million barrels per day last week, up by 72 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 8.6 million barrels per day, 663 thousand barrels per day above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 775 thousand barrels per day. Distillate fuel imports averaged 251 thousand barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.3 million barrels from the previous week. At 339.4 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.3 million barrels last week and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.2 million barrels and are just above the upper limit of the average range for this time of year. Propane/propylene inventories decreased by 2.4 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 9.2 million barrels last week.
Total products supplied over the last four-week period has averaged 20.3 million barrels per day, up by 6.1 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.3 million barrels per day, up by 2.9 percent from the same period last year. Distillate fuel demand has averaged 3.9 million barrels per day over the last four weeks, up by 4.9 percent from the same period last year. Jet fuel demand is 0.1 percent higher over the last four weeks compared to the same four-week period last year.
Source: EIA

The Dow Jones Industrial Average finished down 15.67 points, or 0.1%, at 11,569.71, with 23 of its 30 components ending lower. The S&P 500 index fell 0.2% to 1,257.88, weighed down by its financials and healthcare sectors. The Nasdaq Composite lost 0.2% to 2,662.98.

Marc Faber: Treasurys Are A "Suicidal Investment"...The worst investment is in U.S. long-term bonds....By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror.”

Seasonally Adjusted

12/30/10 Seasonally Adjusted

Analysts and traders surveyed by Dow Jones Newswires expect this week's storage data to show a decline of 146 bcf, more than the five-year average draw for the week of 118 bcf. The expected draw would leave stockpiles 7.9% above the five-year average.

The number of U.S. workers filing new applications for jobless benefits fell 34,000 to a seasonally adjusted 388,000 in the week ended Dec. 25, hitting the lowest level since July of 2008, the Labor Department reported Thursday. Economists polled by MarketWatch had expected initial claims of 413,000. The four-week average of new claims, which is smoother than the weekly data, fell 12,500 to 414,000, also reaching the lowest level since July of 2008. The level of claims helps observers to analyze the health of the labor market, and economists say claims would have to remain below 400,000 before there's a substantial gain in hiring. Analysts also note that claims are difficult to seasonally adjust near the holidays. In the week ended Dec. 18, the number of people who continued to receive benefits under state unemployment programs rose 57,000 to a seasonally adjusted 4.13 million. The four-week average of these continuing claims fell 37,250 to 4.12 million, the lowest level since November of 2008. Altogether, about 8.87 million people received some kind of unemployment-insurance benefit in the week ended of Dec. 11, on an unadjusted basis. That level was down about 35,000 from the prior week.

The average 30-year fixed mortgage rose to 5.02%, according to's weekly national survey released Thursday. The average 15-year fixed mortgage rose to 4.39% and the larger jumbo 30-year fixed rate rose to 5.64%. Adjustable rate mortgages also went up, with the average 5-year ARM rising to 4% and the average 7-year ARM reaching 4.43%.

Manufacturing activity in China fell to a three-month low in December but soaring raw material costs continued to fan inflationary pressures in the economy, an independent survey said Thursday.
The HSBC China Manufacturing PMI, or purchasing managers' index, slipped to 54.4 in December from 55.3 in November as output and new business increased at the slowest pace in three months, the British banking giant said.

The yuan hit a record high against the dollar on Thursday after the People's Bank of China set a higher mid-point, sparking expectations of more appreciation in the first quarter of next year.
Spot yuan hit an intraday high of 6.6000, the highest level since its revaluation and accompanying forex reforms in July 2005. That was up 0.3 percent from Wednesday's close, the biggest daily percent rise in around seven weeks. The yuan has now risen 1.2 percent from a low hit on Dec. 20, marking one of its fastest series of gains since the currency was depegged from the dollar in mid-June. It has now gained 3.4 percent since the depegging.

Rice futures rose the most allowed by the Chicago Board of Trade on expectations for lower production from Thailand, the world’s biggest exporter, because of flooding. Output from Thailand’s main harvest, which started in October, may drop 5.3 percent, the Office of Agricultural Economics said last week.

After 33 Consecutive Weeks of Outflows, ICI Reports First Inflow into US Equity Funds as Bond Outflows Persist.

The stock market rallied after 1929, but then crashed in a double dip.

Chinese academic Guo Tianyong said the country has room to raise interest rates once or twice in the first half of 2011. Guo is head of the China Banking Research Center at the Central University of Finance and Economics.

John Taylor: "We see the health of world economy as being driven by the implied strength of three economic centers: the US, China, and the Eurozone...Each of these three centers has a problem in that the amount of debt is too high and the assets against that debt are unable to throw off enough cash to support it, much less retire it."

More banks failed in 2010 than any year since the savings-and-loan crisis ended in 1992. So far this year, the 157 banks that failed had total assets of $92.1 billion compared to 140 bank failures with total assets of $169.7 billion in 2009.

The Chicago PMI climbed to 68.6 in December, compared to November's reading of 62.5.

Pending home sales rose 3.5% in November, according to an index released Thursday. The National Association of Realtors said its pending home sales index rose to 92.2 from a downwardly revised 89.1 in October. The index is still 5% below November 2009 levels. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales.
NAR chief economist Lawrence Yun last week estimated there were about 4.5 million distressed properties that could potentially reach the market in coming months.
Housing permits fell in November to the third-lowest level on record.

The American Petroleum Institute late Wednesday said crude-oil inventories rose 3.1 million barrels in the week ended Dec. 24. Gasoline stocks fell 3.1 million barrels, while distillate stocks gained 1.38 million barrels, the trade group estimated.

Natural Gas Storage Report

week ending: 12/24/2010
east 1671
west 444
producing 1117
total 3232
change -136

Wednesday, December 29, 2010


12/29/10 Foreclosures

BJ's Wholesale Club Inc., the Natick, Mass., warehouse retailer, may face a hostile takeover attempt from the private-equity firm Leonard Green & Partners in the next few weeks if it does not auction itself, the New York Post reported, citing sources. Leonard Green recently agreed to acquire Jo-Ann Stores and it partnered with TPG on a bid for J. Crew. The sources told the Post that Leonard Green still was looking to invest about $5.3 billion that it had raised for a buyout fund. The Post had earlier reported that BJ's in November had hired Morgan Stanley to explore strategic alternatives for the retailer, including a possible sale

The People's Bank of China has raised the interest rate it charges banks on some funding facilities, after the central bank increased bank deposit and lending rates by a quarter-point over the weekend, according to reports Wednesday. The PBOC raised its one-year refinancing rate, or the interest rate at which it lends to banks, by 0.52 percentage points to 3.85%, Dow Jones Newswires reported. The central bank also lifted the rediscount rate -- or the rate banks pay when they borrow from the central bank by selling commercial bills -- by 0.45 points to 2.25%, the PBOC said. The adjustments were made on Sunday, and were announced in a statement dated Monday, the report said.

The yuan is fixed to the dollar, but floats against most other currencies. Citing the real's 37% gain against the yuan as causing a surge in Chinese imports, Brazil nearly doubles tariffs against China on several different toys.

Taiwan may increase interest rate to damp prices after countering inflows.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 17, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 18.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 20.0 percent compared with the previous week The Refinance Index decreased 24.6 percent from the previous week. The Refinance Index has declined six straight weeks and is at its lowest level since the week ending April 30, 2010. The seasonally adjusted Purchase Index decreased 2.5 percent from one week earlier. The unadjusted Purchase Index decreased 4.9 percent compared with the previous week and was 8.4 percent lower than the same week one year ago.

Billed as the world's biggest defense deal, India and Russia signed a $30 billion agreement for the development of fifth-generation warplanes.

Charles Hugh Smith: "Cash may yet be king, and his reign may last a lot longer than many think possible. When one asset class in a highly correlated group rolls over, then maybe the entire group rolls over with it. Maybe not, but the possibility of losing 25% in being wrong makes me cautious.
I don't know what will happen, but I can sleep being in cash in Q1 2011. If I miss all the spectacular rallies that everyone sees as sure things, so be it. I prefer to let things settle out before making any bets or predictions."

A spending splurge from upper-income Americans led the way to strong self-reported consumer spending during Christmas week 2010, Gallup says - $183/day on average during the week ending Dec. 26, up from $126 Y/Y.

(Bloomberg) -- At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.
The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.
What nobody’s saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free.

(Reuters) - China has raised fresh international trade concerns after slashing export quotas on rare earths minerals, risking action from the United States at the World Trade Organization.
China, which produces about 97 percent of the global supply of rare earth minerals, cut its export quotas by 35 percent for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves, but warned against basing its total 2011 export quota on the first half figures.
The U.S. Trade Representative's office was "very concerned" about China's export restraints on rare earths and had raised its concerns with China, a spokeswoman said on Tuesday.
A European Commission spokesman said the European Union "notes the latest quota figures and expects China to respect its recent assurance of a guarantee of rare earth supplies to Europe."
U.S. makers of high-tech products such as Apple Inc's iPads, along with Japanese companies have been scrambling to secure reliable supplies of the minerals outside of China as Beijing steadily reduces export allocations.

According to DigiTimes, the house of Jobs has ordered 65 million 9.7-inch iPad screens for 2011. If true, this means Apple is confident that 2011 will be a banner year for the iPad. Most estimates put iPad sales in the neighborhood of 45-48 million units for 2011.

Snowstorms that pounded the Northeast and much of the East Coast hurt retailers’ sales by an estimated 10% on Sunday and Monday, likely postponing about $1 billion that otherwise would have ended up in their cash registers, according to mall-traffic tracker ShopperTrak. The two days after Christmas generally account for about $10 billion in sales, ShopperTrak estimated.

The Treasury Department sold $29 billion in 7-year notes on Wednesday at a yield of 2.83%, the highest since April. Bidders offered to buy 2.86 times the amount of debt sold compared to an average of 2.96 times at the last four monthly sales. Indirect bidders, a group which includes foreign central banks, bought 64.2% of the sale, the highest allotment since June 2009 and well above the average of 49.9% of recent sales. Direct bidders, a class which includes domestic money managers, purchased 4.6%, down from 9.1%, on average. Primary Dealers were left with just 31.2% of the take down.

Newly initiated foreclosures increased to 382,000 in the third quarter, a 31.2 percent jump over the previous quarter and a 3.7 percent rise from a year ago, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in their quarterly mortgage report.
The number of foreclosures in process increased to 1.2 million, a 4.5 percent increase from the second quarter and a 10.1 percent increase from a year ago, according to the regulators.

Italy's 10 yr yield is rising to the highest since Jan '09, Greece is just shy of a new record high and French yields are just below the highest since April. Also, Australia's 10 yr yield is rising to the highest since May.

The recent runup in Treasury yields is just the tip of the iceberg, according to Russ Koesterich, global chief investment strategist at BlackRock's iShares Group.

The weather will be “colder-than- normal” in January, according to Matt Rogers, a forecaster with Commodity Weather Group LLC in Bethesda, Maryland.

Silver closed near its highest levels in almost 30 years on Wednesday, while gold and industrial metals also gained as the dollar lost ground. Silver for March delivery rose to end at $30.70 an ounce, up from $30.32 on Tuesday and near its highest levels since 1980, according to news reports. Gold for February delivery closed at $1,413.50 an ounce, up $7.90 and the highest since Dec. 6. January platinum rose to $1,754.20 an ounce, the highest since early November. Palladium for March delivery rose to $793.40 an ounce, the highest level since 2001. March copper closed at $4.31 a pound, down slightly from Tuesday's record close.

The Dow Jones Industrial Average rose 9.84 points, or 0.09%, to 11,585.38, while the S&P 500 Index added 1.27 points, or 0.1%, to 1,259.78. The Nasdaq Composite Index rose 0.15%.

"I am one of those who do not believe the national debt is a national is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country." —Andrew Jackson, letter, April 26, 1824

Tuesday, December 28, 2010


12/28/10 Treasurys

Newark Liberty International Airport in New Jersey has arrival delays of more than eight hours, and New York City’s John F. Kennedy International Airport has delays of more than five hours because of snow and ice, the U.S. Federal Aviation Administration said on its website.

An overnight freeze hit several central Florida citrus growing areas, icing up fruit and raising fears of damage to the leaves and small twigs of trees, growers said Tuesday.

The Treasury Department sold $35 billion in 5-year notes on Tuesday at a yield of 2.149%, the highest since April. Bidders have offered to buy 2.61 times the amount of debt sold, compared to an average of 2.82 times at the last four sales of the securities. Indirect bidders, a group which includes foreign central banks, purchased 35.6%, versus an average of 43% of recent sales. Direct bidders, a group which includes domestic money managers, bought another 6.2%, compared to 11.2%, on average. After the auction, the broader bond market moved sharply lower, pushing yields higher. Yields on 10-year notes rose 11 basis points to 3.45%, after trading at 3.39% before the auction.

China and Russia have already cut their US Treasury holdings by 3% and 9% respectively year over year.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data. He said 'Housing Prices Can Only Move Down'.

S&P 500 short interest at 4.15%, lowest since December 2007.

The dollar set a record low against the Swiss franc and hit a 6-1/2-week low against the yen on Tuesday after Japan reported its factory output rose in November for the first time in six months. A 1 percent jump in Japanese factory output, the first rise in six months, "certainly has provided a bid to the yen across the board," said Dean Popplewell, chief strategist of FX brokerage OANDA in Toronto

The Dow ended at 11.575.5, up 0.18%, while the Nasdaq lost 0.16% to end at 2,622.88. The S&P 500 crept up 0.08%, to end at 1258.51.

Gold for February delivery closed at $1,405.60 an ounce, gaining $22.70 -- its biggest one-day rise since early November. Sugar climbed to a 30-year high.
Silver jumped 1.06 to $30.315. Copper rose 4.45 to $432.450.

The 10-year yield rose 16 basis points to 3.49 percent at 4 p.m. in New York. The two-year Treasury yield climbed seven basis points to 0.75 percent and the yield on the existing five-year note increased 14 basis points to 2.16 percent. The 30-year yield rose to 4.53%.
Seven-year notes were last down 26/32 in price to yield 2.85 percent, up from 2.72 percent late Monday. The notes traded at yields of 2.88 percent in the
"when-issued" market which indicates where traders expect the new debt to price.

Credit cards that give cash back prompt consumers to spend more and accrue more debt, according to researchers at the Federal Reserve Bank of Chicago.

Prime Minister Nouri al-Maliki ruled out any U.S. troops in Iraq after the end of 2011, saying his new government and the country's security forces were capable of confronting any remaining threats to the country's security.

Conference Board Consumer Confidence: "Those saying jobs are "plentiful" decreased to 3.9 percent from 4.3 percent, while those stating jobs are "hard to get" edged up to 46.8 percent from 46.3 percent."

CSM: "The Stuxnet malware has infiltrated industrial computer systems worldwide. Now, cyber security sleuths say it's a search-and-destroy weapon meant to hit a single target. One expert suggests it may be after Iran's Bushehr nuclear power plant."

Home Prices and Consumer Confidence Suck

12/28/10 Home Prices and Consumer Confidence Suck

Prices of single-family homes fell almost double the expected pace in October, the fourth straight decline.
October home prices dropped 1.3% on a non-seasonally-adjusted monthly basis, according to the S&P/Case-Shiller report releaed Tuesday. Home prices decreased in all 20 metropolitan areas followed by the report. Six cities made new lows, the report said. Home prices are dropping in the nation's largest cities and are expected to fall through next year, with the worst declines coming in areas with high numbers of foreclosures. The 20-city index has risen 4.4 percent from their April 2009 bottom. But it remains 29.6 percent below its July 2006 peak. Six cities set new lows for the period since the 2006 peaks.
“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.” Housing permits fell in November to the third-lowest level on record.

An index of U.S. consumer confidence declined to 52.5 in December on concerns about jobs in the present and future, the Conference Board reported Tuesday. Economists polled by MarketWatch had expected confidence to rise to 56.9. "Consumers' assessment of the current state of the economy and labor market remains tepid, and their outlook remains cautious," said Lynn Franco, director of Conference Board's consumer research center, in a statement. However, she added that signs suggest a continuation next year of the economy's expansion, "but that the pace of growth will remain moderate." Confidence for November was revised higher to 54.3 from a prior estimate of 54.1. A barometer of consumers' expectations fell to 71.9 in December from 73.6 in November, while consumers' assessment of the present situation decreased to 23.5 from 25.4.

(Bloomberg) -- China cut its rare earths export quotas by 11 percent in the first round of permits for 2011, threatening to worsen a global shortage of the minerals needed for smartphones, hybrid cars and guided missiles.
The government allotted 14,446 metric tons of rare earth exports split among 31 companies, the Ministry of Commerce said in a statement. That compares with the first round this year of 16,304 tons and the second round of 7,976 tons, according to previous ministry statements. The government usually issues two rounds of export quotas every year.
China, which accounts for more than 90 percent of world supplies, slashed export quotas by 72 percent in the second half of this year, sparking a surge in prices. Japan, the biggest user, has sought alternate supplies with companies including Hitachi Metals Ltd. and Toyota Motor Corp. seeking cooperative ventures at home and abroad to secure the minerals.
“This is in line with government officials’ comments that we need to protect the environment and resources,” said Chen Jiazuo, an analyst at metals researcher Beijing Antaike Information Development Co. “Controlling domestic production capacity, output and exports will continue to be the theme.”

The national price for regular gasoline increased 7 cents from the previous week to an average of $3.05 per gallon, as rising crude oil prices bolstered fuel costs. This is the highest price since October 2008.

Ron Paul: "Courage begins with a commitment to see things as they are, rather than how we wish they were. When it comes to Social Security, we must understand that the system does not represent an old age pension, an "insurance" program, or even a forced savings program. It simply represents an enormous transfer payment, with younger workers paying taxes to fund benefits. There is no Social Security trust fund, and you don't have an "account." Whether you win or lose the Social Security lottery is a function of when you happened to be born and how long you live to collect benefits. Of course young people today have every reason to believe they will never collect those benefits."

The Automatic Earth: "Large swaths of unproductive private and public debt will not be repaid, and sovereign countries will default on their obligations. International monetary, political or strategic unions that rely on economic stability, mutual trust and confidence will not be preserved in any meaningful form. Citizens of the developed world will not stand in a single-file line and receive their bitter dose of austerity in an orderly fashion. These things are almost 100% certain, and no amount of conscious planning or top-down decision-making will make them less likely to occur."

China central bank adviser Li Daokui said more adjustments in China's deposit rate, lending rate, and reserve requirement ratio are "very necessary" in 2011, especially in the first half, citing an interview.

China's consumer price increases may exceed 5% in 2011, citing Liu Yuhui, a researcher with the Chinese Academy of Social Sciences.

About 40% of the additional dollars issued by the Federal Reserve through its purchases of U.S. Treasuries, or quantitative easing, may have flown into China, increasing inflationary pressure for the nation, citing Zheng Xinli, deputy director of China Center for International Economic Exchanges.

PetroChina agreed on Tuesday to sell its stake in a gas pipeline operator to the Kunlun Energy Company for $2.85 billion, the latest in a flurry of energy deals.

Calculated Risk: "The post-Depression record for consecutive months with the unemployment rate above 9% was 19 months in the early '80s. That record will be broken this month, and it is very possible that the unemployment rate will still be above 9% in December 2011. This high level of unemployment - and the number of long term unemployed - is an economic tragedy."

Chris Whalen: "
"We understand what the problem is for Bank of America. They are insolvent. They still have huge losses to take on their mortgage book, and balance sheet. They also have to deal with everyone wanting them to buy-back mortgages."
"By this time next year the majority of home sales will be involuntary - more foreclosure sales than normal sales."
"We haven't seen the peak of foreclosures yet. That will come 12 months from now."
"California will default on its debt."
"A whole slew of sovereign defaults in Europe. There is no growth."
"QE and QE2 are just hidden subsidies for the big banks."
"Bank of America is in the worst shape of any U.S. bank."
"Bank of America senior bondholders will have to take a hit, convert debt into equity."
"There is no doubt they will have to be restructured."
"Ireland is small. Wait until we get to Spain."
Charles Hugh Smith: "The conventional wisdom is that boosting consumer borrowing and spending (same old, same old) will magically create millions of new jobs. As usual, the conventional wisdom is dead-wrong: America's job-creation machinery is hollowed out."

The City of Beijing will limit the number of new license plates issued in 2011 to 240,000 to help control traffic congestion. Xinhua reported that car buyers in Beijing will have to draw lots before obtaining a vehicle license plate. This is truly bad news for GM.

ZeroHedge: "1 out of 3 Americans has zero in any retirement account (not one slowly eroding dollar). Half of Americans have $2,000 or less which puts them one month away from needing government assistance. With the volatile job market and turbulent Wall Street middle class Americans are feeling the once prided stability being slowly washed away."

The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute's senior international economist.
"There's a huge difference between what is good for American companies versus what is good for the American economy," says Scott.

Monday, December 27, 2010

2-year treasury notes

12/27/10 2-year treasury notes

The U.S. Treasury awarded $35.00 billion in two-year notes at Monday's auction at a high rate of 0.740%, the highest level since June.
The Treasury received bids totaling $129.87 billion and accepted $35.00 billion. Primary dealers were awarded $20.00 billion, while indirect bidders--a category that includes foreign central bankers--were awarded $7.84 billion.
Indirect bidders got 23% of the total competitive amount accepted; direct bidders received 20%.
The bid-to-cover ratio, an indication of demand, was 3.71, Treasury said.
Tenders submitted at the high yield were allotted 68.25%.

Russian central bank raises deposit rates by 25 bps, leaves REFI rate on hold.

Ahead of tomorrow’s S&P/Case-Shiller home price index data, at least one prominent economist is warning that the housing market could suffer a double-dip next year, in stark contrast to bullish expectations for the overall economy in 2011. David Rosenberg, chief economist at Gluskin Sheff, said that investors are not being realistic about the likelihood of a major price declines next year. In a recent research note, Rosenberg, who correctly predicted the housing collapse of 2007-2008, wrote that “the potential for a significant down-leg in home prices is being underestimated. The unsold existing inventory is still 80 percent above the historic norm at 3.7-million.”

The Dow Jones Industrial Average was down 18.88 points to 11,554.61. The Standard & Poor's 500 Index was up nearly 1 point at 1,257.62. The Nasdaq Composite added 3.95 points to 2,669.55.

Mish: "China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5% to 6% but that's nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing."

Governor Mitch Daniels (R-Indiana) says he supports a plan that would allow local governments to declare bankruptcy and allow for a state takeover.

Municipal bankruptcy is a rare phenomenon, spurned by state and local leaders as an admission of failure that could wreak havoc on the municipal bond markets, the Times reports. Some states have laws that require an elaborate approval process before a city can head to bankruptcy court and at least one state, Georgia, bans municipal bankruptcies.
All told, fewer than 250 cities, towns, and counties have filed for bankruptcy in the last 30 years, the Times reports, quoting Chapman & Cutler bankruptcy lawyer James Spiotto.
But with tax revenue likely to remain pinched in the coming year many localities may have no choice but to consider filing for bankruptcy.
“We can make it until March 1 — maybe,” said William Cooper, the city manager for Hamtrack, Mich., a city near Detroit that has pleaded with the state to let it declare bankruptcy, according to the Times.
Cooper said that bankruptcy could allow the city to “start over” with its labor contracts.
While no city in Michigan has ever filed for bankruptcy that could change, said Rick Snyder, who is due shortly to be sworn in as governor of Michigan. “We could have a large number of jurisdictions facing insolvency,” he said.


12/27/10 Seasonality

About 75 percent of the $85.5 billion that people saved in taxes from the mortgage-interest deduction in 2008 went to individuals or couples making $100,000 or more, according to an analysis by the congressional Joint Committee on Taxation of the latest data available.
Based on those numbers, taxpayers who took the mortgage deduction saved, on average, $2,330 in 2008. But the average savings were nearly triple that amount for those reporting incomes of at least $200,000.

The WSJ: nearly 100 U.S. banks that got TARP funds from the federal government in Q4 2008 are in danger of going bankrupt.

John Hussman: "The problem with this outcome is that the speculative factors being rewarded over the short-term have nothing to do with the characteristics that have historically been rewarded over the long-term. Despite various periods where valuation is out-of-favor, value has been the clear winner over time. Moreover, it has been destructive to discard valuation in preference for chasing momentum and relative strength after the fact. In contrast, chasing high beta or momentum has conferred no durable benefit for investors."

Mike Burk: "Seasonality is likely to dominate next week.
I expect the major averages to be higher on Friday December 31 than they were on Friday December 24."

The Oil Drum: "Most of China's resource production bases, including coal and and oil, are either concentrated in the northern or western provinces, away from the key demand areas located in the southern and eastern region, such as Shanghai and Guangdong. Any supply shortfall could prompt a surge in import demand as utilities and firms seek alternative fuel supplies to feed their power plants."

The yield on the 2-year treasury rises to 0.72% and that's up from 0.33% about one month ago. At that time I discussed the risk/reward on this debt instrument. I took the view that the short side on the 2-year was the most attractive risk/reward in the bond, equity, commodity, and currency markets at that time.

The Treasury Department is expected to sell $35 billion in 2-year debt, ending at 1 p.m. Eastern.

More people than ever before received unemployment benefits this year in Washington state, a dismal and costly record.
The state’s Employment Security Department expects by New Year’s Eve, that more than 500,000 people will have collected unemployment benefits throughout the year. A total of 475,000 people received benefits in 2009 while 290,000 received benefits in 2008.
The state expects to pay about $4.7 billion in unemployment benefits by the end of the year, compared to the $4 billion that was paid out in 2009 and the $1.2 billion that was distributed in 2008, according to the Employment Security Department. Those who are out of work will have collected unemployment benefits for an average of 41 weeks, up from an average of 28 weeks in 2009.

There is a risk of another recession next year, protectionism could cause major problems in 2011 and recent stock market strength could be curtailed, Roger Nightingale, strategist at Pointon York, told CNBC Monday. Many parts of the world are beginning to tighten liquidity in a bid to tackle inflation, Nightingale said after China raised its key interest rate over the weekend.
"That which has been fueling the rally is going to be withdrawn … the capacity for the market to rise will be diminished," he said.

Guy Lerner: "It doesn't take a rocket scientist (or Wall Street analyst ~ a downgrade?) to figure out that investors are extremely bullish on the equity markets. Such extremes in sentiment will usually (85% of the time) lead to better risk adjusted buying opportunities in the future. In other words, the next best time to be a buyer of equities will be when investors are bearish not bullish as they are now. The markets don't have to go down just because everyone is bullish, but if you are a "believer" and buyer at these levels, then you will need to identify a market top and get to the exits before the next guy to extract profits. This is a very crowded trade and identifying the top is a tall order."

Hu Xiaolian, a deputy governor, said China had been normalizing policy and will explore new ways to manage excess cash, which is seen as a major driver behind 28-month high inflation.
Her remarks reinforced statements from China's top leaders that the task of taming inflation will be a priority for Beijing next year.
"An implementation of prudent monetary policy is helpful in strengthening the management of inflationary expectations and in fending off asset bubbles," Hu said.

The Dallas Fed's December Texas Manufacturing Index came at 12.8, down from expectations of 17, and a drop from the November print of 13.1.

Julian Assange has signed book deals worth more than £1 million ($1.5 million) in the US and UK.

Apple is telling component suppliers it wants 20-21 million iPhones for the first quarter of 2011, DigiTimes reports. This is an increase over its original request, says DigiTimes.