Saturday, January 29, 2011

Monetary Disorder

1/29/2011 Monetary Disorder

The U.S. economy accelerated in the fourth quarter, the Commerce Department reported Friday. Real gross domestic product rose at a 3.2% annualized rate in the fourth quarter, up from a 2.6% rate in the third quarter. The gain was slightly below expectations. Economists polled by MarketWatch expected Q4 GDP to rise at a 3.5% rate. The big story for the fourth quarter was the pickup in consumer spending. Spending rose at a 4.4% annual rate in the final three months of the year, the fastest pace since the first quarter of 2006. Inventories were a big drag on growth in the fourth quarter but this was largely offset by a positive contribution from net exports. For the year, GDP advanced 2.9%, compared with a 2.6% drop in 2009. This is the strongest growth rate in five years.

Moody’s Investors Service said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

ZeroHedge: Jim Grant: "I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution...The Fed is now in the business of manipulating the stock market." Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books. As always, we can't get enough as more and more mainstream figures turn to bashing that biggest abortion of modern capital markets.

U.S. Bancorp, the fifth-biggest U.S. commercial bank by deposits, acquired a failed lender in New Mexico as regulators seized four U.S. banks with combined assets of $3.38 billion.
The collapse of First Community Bank in Taos, New Mexico, gives U.S. Bancorp 38 more branches, as it picks up $1.8 billion in deposits and about $2.1 billion in assets. Based in Minneapolis, U.S. Bancorp has more than 3,000 branches in its retail network operating as U.S. Bank.
“This acquisition is an extension of U.S. Bank’s banking franchise into its 25th contiguous state, and it immediately establishes us as one of the top three banks in terms of market share in the attractive New Mexico market,” John Elmore, executive vice president of community banking, said in a statement.
Banks in Colorado, Oklahoma and Wisconsin were also seized today, according to statements by the Federal Deposit Insurance Corp., which was named receiver in each of the transactions. The closures cost the FDIC’s deposit-insurance fund a total of $545.5 million.

Bloomberg (Pat Wechsler and Christopher Palmeri): “President Barack Obama faces a new challenge from deficit-plagued states over Medicaid costs just as he squares off with Republicans trying to repeal his 2010 health-care law, which extends coverage to 32 million Americans. Arizona Governor Jan Brewer asked for U.S. permission on Jan. 25 to reduce Medicaid eligibility and drop coverage for 280,000 people. That would save $541.5 million for the state, which projects a $1.2 billion budget deficit for the coming fiscal year. U.S. states must confront potential budget gaps of more than $140 billion for fiscal 2012 because tax collections declined by the most on record during the recession… That may prompt more to seek release from some Medicaid obligations, their biggest expense, as federal aid that has helped them cover the costs for the last three years ends. ‘There are other states contemplating” requests for waivers, said Dan Mendelson… former associate director for health in the Office of Management and Budget under President Bill Clinton. ‘Letters are coming from some big states reaching the point of no return.’ Mendelson declined to name them, saying ‘border states’ such as Texas were in ‘fiscally impossible situations.’”

Bloomberg (Carol Wolf): “The federal Highway Trust Fund, which pays for U.S. road and mass transit construction, faces insolvency sometime next year as revenue from fuel taxes declines for the sixth year… The Highway Trust Fund will run a deficit of $7 billion this year, compared with a surplus of $11 billion in 2010… The highway and mass transit portions of the fund will probably be unable to meet their obligations in 2012 and 2013…”

Doug Noland: "In reality, the world is an extraordinarily unstable place: unwieldy finance, extreme economic imbalances and related wealth disparities – along with acute inflation - have created a geopolitical tinderbox.

The unprecedented – and ongoing - global expansion of debt has created myriad risks and vulnerabilities. The ballooning of central bank balance sheets has over-liquefied markets and distorted risk perceptions worldwide. This liquidity backstop has also rejuvenated and emboldened the leveraged speculating community. Ignoring risk has been a fruitful tactic throughout the global market landscape.

The combination of massive debt growth and central bank monetization has nurtured an enormous pool of speculative finance that fuels boom and bust dynamics across virtually all risk markets and economies. This backdrop has created what I have often referred to as “Monetary Disorder.” One current facet of this monetary phenomenon is acute price pressures globally for food and energy. This inflation exacerbates unrest and social instability. Today’s developments in Egypt demonstrate how social instability has engendered political instability in a most volatile region of the world.....Associated fragilities are an inescapable downside to Monetary Disorder and attendant speculative excess. "

Thursday, January 27, 2011

h Unemployment

1/27/2011 Unemployment

- New applications for unemployment benefits jumped last week by 51,000 to 454,000, partly because poor weather caused administrative backlogs in four Southern states, the Labor Department reported Thursday. A labor spokesman said snowstorms earlier in the month forced unemployment offices in Alabama, Georgia, North Carolina and South Carolina to open fewer hours and process fewer claims. A reduction in the backlog contributed to the sharp increase in new claims, the spokesman said. Economists polled by MarketWatch had expected initial claims in the week ended Jan. 22 to rise to a seasonally adjusted 408,000 from a revised 403,000 the week before. Continuing claims, which reflect the number of people already receiving unemployment compensation, rose 94,000 to a seasonally adjusted 3.99 million in the week ended Jan. 15. About 9.41 million Americans were getting some kind of state or federal benefit in the week ended Jan. 8, down 223,826 from the prior week.

Moody's Investors Service said late Thursday that it continues to rate the U.S. government's bonds at Aaa with a stable outlook. However, it added that recent trends and the outlook for government financial metrics "indicate that the level of risk, while still small, is rising and likely to continue to rise in the next several years." The agency added that, although it's not contemplating action on the U.S. rating at this time, the time frame for possible future actions "appears to be shortening" and the probability of assigning a negative outlook in the coming two years is rising. The agency made the comments after rival Standard & Poor's downgraded Japan's long-term sovereign-credit rating AA minus from AA but reaffirmed the country's short term rating. The dollar index traded at 77.72, compared with 77.707 in late North American trading.

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said.

Federal Reserve held its key interest rate at a record low 0% to 0.25% range and said it will continue its $600 billion Treasury-buying program.

Bearishness among retail stock investors rose in the week through Wednesday, according to the American Association of Individual Investors. The latest AAII Sentiment Survey released Thursday shows that 34.3% of investors are wary of the stock market over the next six months, up 5.2 percentage points and above the long-term average of 30%. Meanwhile, 42% of investors say they're bullish about the market, a sharp decrease of 8.7 percentage points but still above the long-term average of 39%. The percentage of investors describing themselves as neutral toward stocks rose 3.5 percentage points to 23.7%.

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

The U.S. budget deficit will hit nearly $1.5 trillion in 2011, the Congressional Budget Office estimated Wednesday. In its budget and economic outlook for fiscal years 2011 to 2021, the CBO also said the U.S. economy will grow by 3.1% this year. Unemployment, meanwhile, will fall to 9.2% in the fourth quarter of 2011, the report said.

Sales of new single-family homes rose in December to an annual rate of 329,000 on a seasonally adjusted basis, the highest level since April when a federal tax credit gave the market a temporary boost. The Commerce Department reported on Wednesday that about 85% of the new sales took place in the South and West. Nationwide sales in November, however, were revised down to 280,000 from an initial reading of 290,000. Economists polled by MarketWatch had forecast new home sales to rise to 299,000 in the final month of 2010. For the full year, new home sales totaled 321,000, down 14.4% compared to 2009. The median price of new homes climbed to $241,500 in December from $215,500 in November. The supply of new homes available fell to 6.9 months at the current sales rate from 8.4 months in the prior month, the lowest level since April.

Abbott Laboratories said early Wednesday that it plans to eliminate 1,900 jobs, or about 2% of its workforce. The company employs around 90,000 worldwide, according to an Abbott spokeswoman. In a statement issued in conjunction with the release of its 2010 earnings report, Abbott attributed the restructuring to "changes in the healthcare industry, including healthcare reform and the challenging regulatory environment."

Microsoft Corp. said Thursday its fiscal second-quarter net income fell to $6.63 billion, or 77 cents a share, from $6.66 billion, or 74 cents a share in the same period a year earlier. The Redmond, Wash. software giant said revenue for the period ended Dec. 31 rose to $19.95 billion from $19 billion. Analysts polled by FactSet Research had expected Microsoft to report second-quarter earnings of 68 cents a share, and $19.2 billion in revenue.

- Pending home sales rose 2.0% in December for the fifth increase in the past six months, according to an index released Thursday. The National Association of Realtors said its pending home sales index rose to 93.7 from a downwardly revised 91.9 in November. The index is still 4.2% below the level in December 2009, however. 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.

Orders for U.S.-made durable goods sank in December, falling 2.5% on weaker demand for airplanes, vehicles, and computers, machinery, the Commerce Department reported Thursday. Excluding transportation, orders rose 0.5%. The decrease was unexpected. Economists polled by MarketWatch expected a 1.0% rise in durables. This is the fourth drop in durables in the last five months. Transportation orders had the largest decline, falling 12.8%. Shipments rose 1.4% in December. Orders for core capital goods rose 1.4% in the month.

Tuesday, January 25, 2011


1/25/2011 Commodities

Crude-oil futures settled at an eight-week low on Tuesday, pressured by ongoing concerns of more supply from the Organization of the Petroleum Exporting Countries and a stronger dollar for most of the day. Crude for March delivery was off $1.68, or 1.9%, to settle at $86.19 a barrel on the New York Mercantile Exchange, oil's lowest finish since Nov. 30. Natural-gas for February declined 11 cents, or 2.3%, to $4.47 per million British thermal units.

Gold futures retreated 0.9% on Tuesday as investors preferred to bet on equities and other investments considered riskier, and the dollar was stronger. Gold for February delivery lost $12.20 to $1,332.30 an ounce, the metal's lowest settlement since Oct. 27.

President Barack Obama is expected to propose an overall budget freeze and call on lawmakers to stop earmarking funds for pet projects during his State of the Union address late Tuesday, ABC News reported. Obama is also expected to propose spending for innovation, education and infrastructure but those increases will be constrained within the broader budget freeze, ABC said.

An index of U.S. consumer confidence jumped to 60.6 in January, reaching the highest level since May, with more consumers optimistic about income and jobs, as well as current business conditions, the Conference Board reported Tuesday. Economists polled by MarketWatch had expected a confidence reading of 54.8. "Consumers rated business and labor-market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead," said Lynn Franco, director of Conference Board's consumer research center, in a statement. "Although pessimists still outnumber optimists, the gap has narrowed." Confidence in December reached an upwardly revised 53.3, compared with a prior estimate of 52.5. A barometer of consumers' expectations rose to 80.3 in January from 72.3 in December. Meanwhile, consumers' assessment of the present situation increased to 31 - the highest level in more than a year -- from 24.9. The Conference Board's index helps analysts compare fluctuations in confidence, with a reading of 100 for the base year of 1985. Generally when the economy is growing at a good clip, confidence readings are at 90 and above.

Google to hire more than 6,200

Home prices are falling across most of America's largest cities, and average prices in eight major markets have hit their lowest point since the housing bust.
The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday fell 1.6 percent in November from October. All but one city, San Diego, recorded monthly price declines.
Eight others sank to their lowest levels since prices peaked in 2006 and 2007: Atlanta, Charlotte, N.C., Las Vegas, Miami, Portland, Ore., Seattle, Tampa, Fla., and Detroit, which saw the largest drop at 2.7 percent from the previous month.
Millions of foreclosures are forcing prices down, and many people are holding off making purchases because they fear the market hasn't hit bottom yet. Many analysts expect home prices to keep falling through the first six months of this year.
"With these numbers, more analysts will be calling for a double-dip in home prices," said David Blitzer, chairman of S&P's Index Committee.

Only 47% of working age Americans have full time jobs

John Hussman: "In any event, it is clear that with regard to risky securities, the enthusiasm and rhetoric about QE2 has caused a reduction in the willingness of sellers to sell, and an increase in the eagerness of buyers to buy. That imbalance of eagerness between buyers and sellers has clearly affected prices of risky assets, but it does not generate new cash flows - it simply raises the valuation that the market places on existing streams of future cash flows, and thereby lowers the subsequent rate of return on holding those securities. I suspect this will end badly, but that's not the topic of this discussion.....In any event, it is clear that with regard to risky securities, the enthusiasm and rhetoric about QE2 has caused a reduction in the willingness of sellers to sell, and an increase in the eagerness of buyers to buy. That imbalance of eagerness between buyers and sellers has clearly affected prices of risky assets, but it does not generate new cash flows - it simply raises the valuation that the market places on existing streams of future cash flows, and thereby lowers the subsequent rate of return on holding those securities. I suspect this will end badly, but that's not the topic of this discussion."

Monday, January 24, 2011

Part Time Employed

1/24/2011 Part Time Employed

Facebook today announced that its widely-reported deal with Goldman Sachs, which values the company at $50 billion, has closed. The funding included $500 million raised from Goldman and previous investor Digital Sky Technologies in December, as well as another $1 billion raised from Goldman clients outside the United States.

Doug Noland: "For now, QE2 reliably generates additional liquidity for the liquidity-dependant markets. Somewhat ironically – yet altogether Bubble-like - rising bond yields and unfolding problems in municipal finance have bolstered flows into equities. And on the back of ongoing federal spending excess, economic prospects look ok and earnings appear swell. Yet recent developments do beckon for heightened diligence when it comes to monitoring for fissures developing below the surface of our fragile financial system. At least from my perspective, one can now discern unsettling parallels to early 2008."

The Automatic Earth: "108.616 million people in America are either unemployed, underemployed or "Not in the labor force". This represents 45.5% of working age Americans.

If you count the "Part time employed for non-economic reasons", you get 126.8 million Americans who are unemployed, underemployed, working part time or "Not in the labor force". That represents 53% of working age Americans.

So only 47% of working age Americans have full time jobs. While the official unemployment rate is 9.4%. Something's missing somewhere."

The amount of U.S. debt subject to the country's legal maximum has topped $14 trillion for the first time.

Crude-oil futures ended lower Monday on fears of increased production by the Organization of the Petroleum Exporting Countries. Oil for March delivery retreated $1.24, or 1.4%, to $87.87 a barrel on the New York Mercantile Exchange. Saudi Arabia's oil minister said Monday OPEC could ramp up production to meet increased global demand.

Hungary's central bank said Monday it raised its base rate by 25 basis points to 6.00%. The move will be effective from Jan. 25. The rate hike was in line with market expectations.

Venture capitalists came raging back in 2010, putting $26.2 billion into 2,799 venture deals, a spike of 11 percent from 2009 and a major sign that formerly wary VCs have begun to come off the sidelines, according to a study by Dow Jones VentureSource released today.

ZeroHedge: "the US stock market is about to become awash with another $25 billion in suddenly free cash every single week, until the entire $200 billion SFP buffer is depleted. In other words, take the liquidity impact of POMO, which is roughly $25-30 billion a week, and double it! We are confident the US Treasury will announce that beginning with the week of February 14, it will no longer roll maturing 56-Day Cash Management Bills, which means that for the ensuing 8 weeks, one on every single Thursday, there will be a total of $200 billion in incremental liquidity flooding the market, and probably sending stocks, commodities, and everything else that is not nailed down into the stratosphere all over again."