Monday, January 03, 2011


1/3/11 Destruction

A magnitude-7.1 earthquake shook southern Chile on Sunday, prompting tens of thousands to flee the coast for higher ground amid fears it could generate a tsunami like the one that ravaged the area last year.
There were no reports of deaths or damage, and Vicente Nunez, head of the National Emergency Office, said no tsunami alert was issued.

John Hussman: "We enter 2011 at a point where investors have pushed risk assets to a speculative extreme, on the belief that the Fed has provided a "backstop" against losses. While there's no assurance that we won't see a further extension of this over the short-term, we've found more often than not that speculative setups in the financial markets are followed by a striking degree of subsequent resolution in the opposite direction....One of the striking features of the market here is the extent to which large-cap, high-quality has underperformed speculative sectors of the market, creating what we view as a multi-year "setup" in favor of high quality issues."

"Another great evil arising from this desire to be thought rich; or rather, from the desire not to be thought poor, is the destructive thing which has been honored by the name of "speculation"; but which ought to be called Gambling."
William Cobbett

The Clorox Co. said Monday it expects second-quarter adjusted earnings in a range of 57 cents a share to 63 cents a share. Wall Street analysts expect the company to earn 74 cents a share, according to a survey by FactSet Research. Clorox said second-quarter sales will fall 3% to 4% from the year-ago period. "Slowing category consumption experienced in the company's fiscal first quarter continued to impact shipments into the second quarter," the company said. Including the impact of a goodwill impairment, Clorox expects to report a second-quarter loss from continuing operations of $1.25 a share to a loss of $1.15 a share. The company expects to report GAAP earnings of a penny a share, to 11 cents a share.

China wants to work with Spain to help it overcome the current financial crisis, and deepen long-term cooperation between the two countries, said the Chinese ambassador to Spain, Zhu Bangzao. The ambassador made the comments in a written interview with state-run Xinhua news agency ahead of Chinese Vice Premier Li Keqiang's visit to Spain from Jan. 4 to 6. Zhu said the visit will raise bilateral trade and economic cooperation between the two countries. Li is scheduled to hold talks with Spanish Finance Minister Elena Salgado and as Prime Minister Jose Luis Rodriguez Zapatero, and will hold a breakfast meeting with Chinese and Spanish entrepreneurs to discuss ways of deepening bilateral trade and economic cooperation. Zhu also reportedly said tehre would be a series of cooperation agreements in finance, energy, telecommunications, tourism and food.

Authorities in Beijing have hiked the minimum wage in the capital by about 20 percent for the second time in six months amid soaring food costs, rising property prices and China's widening wealth gap.
The minimum monthly salary in the city will be increased to 1,160 yuan from 960 yuan on January 1, according to a statement posted on the government's website Tuesday.
In July, Beijing increased the minimum wage by 20 percent to 960 yuan.

The new year hasn't changed the outlook of SocGen's famous bear Albert Edwards.
In a new profile up at The Guardian, Edwards takes aim at China, where he predicts a collapse that will take down markets around the world.
To him the country is a "freak economy" with a ridiculously high and persistent investment-to-GDP ration, and he fears that everyone is just taking Chinese growth for granted in forecasting strong demand helping the rest of the world's economies.

Goldman Sachs Invests $450 Million In Facebook At A $50 Billion Valuation

Devastating flood waters across the Australian state of Queensland may not recede for weeks, the state's Premier Anna Bligh has warned.

At more than 10 million barrels a day, Russian oil production in 2010 was the highest of any year since the collapse of the Soviet Union.

In the early trading oil trades at 92+ and silver at 31+.

Fred Mishkin: "A rising oil price creates economic headwinds via numerous channels particularly if the increase is sudden. A decline in disposable incomes, reduced consumer confidence, lower levels of travel, a decline in demand for gas-guzzling larger autos and an upward bias to inflationary expectations are all spin off effects on the consumer of a rapid ascent in the price of oil."

Dollar General Corp. said Monday it plans to hire 6,000 workers in 2011 as part of its effort to open 625 stores.

The euro fell by the most in more than two weeks against the dollar amid concern the region’s debt crisis will hamper efforts by governments and banks to raise funds this year.

Snow and ice have closed the main highway between Southern and Central California, stranding many motorists overnight, as a winter storm brings chilly weather and treacherous roads.

The Institute for Supply Management on Monday said its index of factory activity rose to 57.0% in December from 56.6% in November. Prices index 72.5 vs. 69.5 prior. Employment 55.7 vs. 57.5. Inventories 51.8 vs. 56.7. New orders 60.9 vs. 56.6.

Construction spending rose 0.4%, slightly higher than economists' expectations of about a 0.2% gain. Spending on public-sector and private projects increased in November. Outlays are still down 6% compared with a year earlier.

The Dow Jones Industrial Average gained 93.24 points, or 0.8%, to 11,670.75, marking its highest close since August 2008 and its biggest jump since early December. The S&P 500 index rose 14.23 points, or 1.1%, to 1,271.87, led by a 2.3% jump in the financial sector. The Nasdaq Composite gained 38.65 points, or 1.5%, to 2,691.52. The three biggest gains in the past five months -- and 5 of the 25 biggest rallies in 2010 --occurred on the first trading day of the month.

Jack H. Barnes: "The Chinese economy is heading toward an economic hard landing; it will overshoot to the downside and become the economic Black Swan event of 2011-2012. Inflation, yes both types, will be the story in China in the coming months." (via ZeroHedge)

Natural-gas futures made their biggest one-day gain since October on forecasts for colder weather. Natural-gas futures rallied 25 cents, or 5.6% to $4.65 per million British thermal units.

ZeroHedge: "As of December 31, 2010, the US now has $14,025,215,218,708 and 52 cents in debt (incidentally this is an increase of $154 billion in debt on the US balance sheet overnight). As a reminder the debt ceiling is 14,294,000,000,000. Which means at a run rate of $125 billion in net monthly issuance, the US may not even get to the end of March at the current burn rate. Which also means Congress better start the discussion on raising the debt ceiling as soon as February. Which means someone is about to [win/lose] some serious cash on the Feb 28 debt ceiling hike InTrade contracts."

Home prices will continue to decline for several years, Mort Zuckerman, the chairman and CEO of Boston Properties, told CNBC Monday.
“I’m pessimistic about residential real estate,” said Zuckerman.

Sunday, January 02, 2011


1/2/11 Debt

Bo Diddley: "Don't let your mouth write no check that your tail can't cash."

The Baltic state of Estonia early Saturday became the 17th European Union member to adopt the joint European currency, the euro.

Hu Xiaolian, vice-governor of the People’s Bank of China, said: “Once a reserve currency’s value becomes unstable, there will be quite large depreciation risk for assets.”

Central banks cannot include renminbi holdings as official reserves under International Monetary Fund guidelines. Maybe this will change in 2011.

TrimTabs' Charles Biderman: "No amount of QE will be able to keep the current stock market bubble from bursting eventually."

China’s manufacturing grew at the weakest pace in three months in December after the government tightened monetary policy to restrain inflation and closed factories to meet energy-efficiency targets.
The Purchasing Managers’ Index fell to 53.9 from 55.2 in November, the first decline in five months, a report from the China Federation of Logistics and Purchasing showed yesterday. That was less than the median estimate of 55 in a Bloomberg News survey of 13 economists. A measure of manufacturers’ input costs also fell.
Premier Wen Jiabao is seeking to choke off the fastest inflation in more than two years and limit asset bubbles without undermining growth in the economy that led the recovery from the global financial crisis. Central bank Governor Zhou Xiaochuan pledged Dec. 31 to try to keep prices “basically stable” this year, after a second interest-rate increase in three months on Christmas Day.

Mike Burk: "The market is overbought and due for a correction, but seasonality is likely to dominate again next week.
I expect the major averages to be higher on Friday January 7 than they were on Friday December 31."

"If home prices continue on this pace down, I think the economy has serious reasons to worry," Yale economist Robert J. Shiller -- and co-creator of the Case-Shiller Index -- told the Wall Street Journal in a recent interview.

The Automatic Earth: "The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices....Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline, but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders, which will further depress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.
At that point, the remaining home equity of those with mortgages would be wiped out on average. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction."

Bloomberg:"Former Bank of England policy maker Willem Buiter sparked the biggest debate at the Federal Reserve’s annual mountainside symposium, saying the central bank pays too much heed to the concerns of financial institututions“The Fed listens to Wall Street and believes what it hears,” Buiter said yesterday in a paper presented to the Fed’s conference in Jackson Hole, Wyoming. “This distortion into a partial and often highly distorted perception of reality is unhealthy and dangerous.”

John Adams:"All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation."