8/26/07 Exempt
Fortune: "The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities."
According to a survey of 258 members conducted by the National Association of Business Economics, 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern. Only 20 percent of members cited defense and terrorism as their biggest immediate worry, down from 35 percent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.
Paul Kasriel: "So, there is no free bailout to the predicament we have gotten into as a result of Greenspan’s cheap credit and moral hazard policies. For those that think there are free bailouts, I suggest that they read the writings of Frederic Bastiat, a 19th century French political economist, who preached that in economic analysis, one must take into account not only what is seen, but what is not seen. In other words, employ general equilibrium analysis, not just partial equilibrium analysis."
Brad Setser: "The recent custodial data from the Fed leaves no doubt that foreign central banks have dramatically reduced their Treasury holdings in August. Thanks to Russ Winter, I realized that the New York Fed reports two numbers for foreign custodial holdings – the average holdings over the course of the week, and the number on the end of the (reporting) week. Using the end of week data, the Fed’s custodial holdings of Treasuries fell by $44.2b from August 1 to August 23. That’s big. Most of the fall came in the past two weeks. Custodial holdings of Agencies rose by $12.6b – offsetting some of the fall in Treasury holdings. But overall central bank custodial holdings still fell significantly – by close to $30b. That hasn’t happened for a while."
LA Times: "With tours extended, multiple deployments and new tactics that put them in bare posts in greater danger, they feel leaders are out of touch with reality...many soldiers are increasingly disdainful of the happy talk that they say commanders on the ground and White House officials are using in their discussions about the war."
Hermann Goering: "Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine 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 to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country."
House prices have been falling in parts of the UK this summer as mortgage costs have become more expensive, according to research from the FT house price index. They include Carmarthenshire, down 11.8 per cent; Hartlepool, down 6 per cent, Monmouthshire, down 4 per cent, and Powys, down 3.7 per cent in the three months to June.
The board of the parent company of Philip Morris USA and Philip Morris International is to meet next week to decide whether to spin off the international arm of its cigarette business, The New York Times reported on Saturday.
Washington Post: "White House officials said they do expect Petraeus and Bush to begin outlining what a "post-surge" strategy might look like. They said the key date is April 2008, when the military will have to begin bringing units home unless it is willing to extend troop rotations from 15 to 18 months. Another senior official, who also spoke on the condition of anonymity to discuss White House thinking more freely, said he expects the U.S. presence to return to pre-buildup levels of 15 combat brigades and about 130,000 troops a year from now, down from about 160,000. "We all know where we want to get to," this official said. "We all know that there will be a long-term robust troop presence that will outlast this president." Aside from lives lost, injured, and emotionally impaired, has any consideration been given to the fact that we do not have the money for this war? Should central banks continue to substantially reduce their treasury holdings, we will soon be in one big headache of a problem.
Rigzone: "Alberta's revenues from selling exploration rights have slumped more than 60% so far this year, knocked by low natural gas prices, rising oil sands development costs and weak equity markets."
The oil-field services industry is directly tied to E&P spending. Worldwide E&P spending is expected to rise 13% to more than $300 billion in 2007, according to the mid-year E&P spending report by Lehman Bros. The vast majority is earmarked for drilling in the Eastern Hemisphere.
Pakistan, a nuclear-armed state, said it successfully tested an air-launched cruise missile that can carry ``all types of warheads.
Yahoo is that it's the only online source of NFL games.
Mike Burk: "During the 3rd year of the Presidential Cycle, in the coming week, returns have been pretty good. The SPX has been up 74% of the time with an average return of 0.5% and the OTC has been up 64% of the time with an average return of 0.71%. Over all years the average returns have been negative...I am uncomfortable drawing comparisons to 1987 and do not mean to imply that a 1987 style crash is likely. 1987 like 2007 was the 3rd year of the Presidential Cycle and there are similarities in many of the indicator and price patterns. Be careful. I expect the major indices to be lower on Friday August 31 than they were on Friday August 24."
Doug Noland: "Total Commercial Paper dropped $90.2bn last week to $2.042 TN, now with a y-t-d gain of $67.9bn (5.3% annualized). Asset-backed commercial paper has declined $120.9bn during the past two weeks to $1.053 TN (up $96.6bn y-o-y). CP has increased $206bn, or 11.2%, over the past 52 weeks..."Banks worldwide have $891 billion at risk in asset-backed commercial paper facilities because of credit agreements that ensure investors are paid back when the short-term debt matures, Fitch Ratings said...With the past couple days of strong stock market gains and the perception that abundant liquidity has returned, scant attention will be paid to Bill Gross commenting yesterday that the asset-backed commercial paper market was likely "history."... I further believe that the vulnerable dollar will prove the proverbial Achilles heel for the upcoming easing cycle. The days of aggressive - and market-pleasing - Greenspan-style rate collapses could prove a luxury of the past...The issue then, as it is today, is not some finite amount of liquidity to keep the banks solvent and markets liquid, but instead the enormous ongoing Credit Creation and Intermediation necessary to sustain levitated asset prices, incomes, corporate earnings and government receipts. I personally believe it is at this point likely impossible to maintain these extremely inflated Credit and Economic Bubbles. The risk intermediation requirements are untenable, especially if trust in Wall Street finance - and, importantly, in contemporary "money" - is waning. Indeed, I expect the current backdrop to prove an absolute Credit and liquidity glutton. Central bankers will be faced with the dilemma of accommodating an insatiable appetite for liquidity injections or, at some point in the not too distant future, attempt to draw a line in the sand and hope for the best."
China's apparent oil demand rose five per cent in July from a year ago, rebounding from June's tepid increase, as refiners stepped up fuel imports to make up for slower growth in refinery output, data showed on Wednesday. Demand from the world's second-largest oil user stood at 7.06 million barrels per day (bpd) last month, and 6.9 million bpd in the first seven months, or 4.5 per cent above a year ago, according to calculations based on official data. Demand rose at a paltry two per cent in June.
According to the NY Times, a Chinese technology company has expressed interest in buying a maker of computer disk drives in the United States. I doubt whether Seagate would be interested in selling to a Chinese company. The CFO of Western Digital, in a Form 4 filed with the SEC, reported he sold 39,784 shares of stock Monday for $20.66 to $20.83 apiece. If he thought the company were to be purchased, I doubt he would have sold the stock.
Thomas Jefferson: “I hope our wisdom will grow with our power, and teach us that the less we use our power the greater it will be.”
I expect King Pharmaceuticals Inc. and Palatin Technologies Inc. to announce the results of their meeting with the Food and Drug Administration concerning the safety data for their erectile dysfunction drug candidate, Bremelanotide, which has completed a midstage, or Phase II, clinical trial. I fully expect the FDA to determine the companies can proceed to a late stage, or Phase III, clinical trial. Final approval should take about 15 months or so. One should recall this drug is both for male and female sexual dysfunction. There is no drug currently on the market for females.
Saturday, August 25, 2007
Friday, August 24, 2007
Durable Goods And New Home Sales
8/25/07 Durable Goods And New Home Sales
Orders for U.S.-made durable goods surged in July, jumping 5.9% on higher demand for airplanes, vehicles, computers, machinery, steel and most other kinds of long-lasting manufactured goods the Commerce Department reported Friday. Excluding the 10.8% increase in transportation goods, orders rose 3.7%, the fastest gain in two years. Shipments rose 3.8% in July, and were up 1.9% excluding transportation goods. Inventories rose 0.1%.
Shares in Singapore's DBS Group Holdings , state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong , all dived after they revealed a combined exposure to the U.S. subprime mortgage market of almost $13 billion.
Nouriel Roubini: "In summary: while the extremes of the investors’ panic have receded in the last couple of days the credit markets remain mostly in a severe credit crunch: money markets, commercial paper, asset-backed commercial paper, SIVs, CDOs, LBOs, leveraged loans, subprime, near prime and prime mortgage markets. In all of them the credit crunch is still severe if less extreme than at the time of the peak of the investors’ panic. Persistent credit problems – rather than just illiquidity ones – will keep a variety of credit markets in a crunch for a persistent period of time.
In the meanwhile the housing recession is becoming more severe, consumer confidence is sharply down, retail sales in August look like falling relative to July and the tightening in credit conditions is likely to slow down an already anemic capex spending by the corporate sector."
The Oil Drum: "Lukoil reportedly cuts oil supplies to Germany by one third."
LA Times: "The chairman of the Joint Chiefs of Staff is expected to advise President Bush to reduce the U.S. force in Iraq next year by almost half, potentially creating a rift with top White House officials and other military commanders over the course of the war.
Administration and military officials say Marine Gen. Peter Pace is likely to convey concerns by the Joint Chiefs that keeping well in excess of 100,000 troops in Iraq through 2008 will severely strain the military. This assessment could collide with one being prepared by the U.S. commander in Iraq, Army Gen. David H. Petraeus, calling for the U.S. to maintain higher troop levels for 2008 and beyond."
North Dakota typically produces about one-third of the nation's dry edible beans, a category that includes everything from pinto and navy beans to garbanzos. The U.S. Department of Agriculture is projecting this year's North Dakota crop at 9.6 million 100-pound bags, up 25 percent from last year and close to the 2002 production record of 10.6 million bags.
In contrast, the U.S. crop is pegged at 23.7 million bags, down 2 percent from last year and 11 percent below two years ago. Planted acres were down about 8 percent and acres for harvest were expected to be down about 6 percent.
Sales of new homes in the U.S. unexpectedly rose for the second time this year in July, suggesting the housing market was stabilizing before the rout in credit markets. Purchases increased 2.8 percent to an annual pace of 870,000 last month from a revised 846,000 rate in June that was greater than previously estimated, the Commerce Department said. Compared with a year earlier, purchases were down 10 percent in July. The median price of a new home rose 0.6 percent to $239,500 last month, according to the report. Inventories of unsold homes dropped to 7.5 months at the current sales pace.
"This is July, before the freezing of the market," Mark Zandi of Moody's Economy.com said on CNBC. "So I'm sure we're going to see much weaker numbers for August, September and October. The housing market is going to go down a whole other level in the next few months."In terms of sales, I think the bottom is going to be the end of this year," he said. "In terms of contruction, I don't think there'll be a bottom 'til the beginning of 2008. And in terms of prices, I think it won't be until the end of '08. And that's nationally. Of course, in California and Florida--the markets that are in disarray--the bottom is well into 2009."
In Chicago, wheat for December delivery surged to an all-time high of $7.54 a bushel. Prices have jumped 110 per cent in the past 12 months and have risen threefold since 2000. Canada, the world's second-largest wheat exporter, warned output might be almost 20 per cent below last year as adverse weather damaged the crop as it had done in Europe and Australia.
Todd Harrison: "Indeed, almost 40% of all US wealth is in the hands of the top 1% of the population, compared to 13% 25 years ago. Further, the top .25% of the population owns more wealth than the other 99¾% combined. As this dichotomy manifests, the implications for consumer spending, real-estate investment and long-term savings will be profoundly impacted."
Japan's corporate service prices rose at the fastest pace in more than 15 years, a sign that inflation is taking hold in the world's second-largest economy. The prices companies pay for services such as rents and transportation climbed 1.6 percent in July from a year earlier, the Bank of Japan said.
In early Friday trading, gold, silver, copper, zinc, aluminum, and oil, as well as wheat and soybeans, were all trading higher.
December gold closed at $677.50 an ounce, its highest level since Aug. 15 -- up $9.10 for the day and up $10.70, or 1.6%, for the week. September silver gained 30 cents to close at $11.94 an ounce, up 1.2% for the week. September copper closed at $3.3375 a pound, up 2.3% for the day, and up 6% for the week. Lead rose 5% on Friday.
The U.K. economy accelerated in the second quarter, driven by consumer spending and business services, putting it on course for the best growth performance in three years.
Nabors Industries Ltd.'s shares rose the most in six months on renewed speculation the world's largest onshore oil and natural-gas driller will be bought. It's Friday and these rumors have generally taken place on a Friday.
Morgan Stanley on Friday cut its forecast for retail sales growth in 2008, saying that the current "turmoil" in the credit markets will lead to declines in consumer wealth and available credit as well as more modest job growth in the U.S. Analyst Gregory Melich said despite an improvement this summer, he now expects retail sales to grow 3 percent in 2008, down from a previous forecast of 4.5 percent, which would put growth at its lowest level since 2003. "Household wealth, credit availability, and jobs growth are key lead components of retail sales," Melich wrote. "We are baking deceleration in each of these areas."
The number of rigs actively exploring for oil and natural gas in the United States rose by 21 this week to 1,816. Of the rigs running nationwide, 1,494 were exploring for natural gas and 316 for oil, Houston-based Baker Hughes Inc. reported Friday. Six were listed as miscellaneous. A year ago, the rig count stood at 1,756.
October crude climbed $1.26 to close at $71.09 a barrel Friday. September natural gas fell 9.9 cents to close at $5.523 per million British thermal units, down more than 21% from a week ago.
The Federal Reserve Bank of New York stated banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit.
Richard Pryor: "I went to Zimbabwe. I know how white people feel in America now; relaxed! Cause when I heard the police car I knew they weren't coming after me!"
Orders for U.S.-made durable goods surged in July, jumping 5.9% on higher demand for airplanes, vehicles, computers, machinery, steel and most other kinds of long-lasting manufactured goods the Commerce Department reported Friday. Excluding the 10.8% increase in transportation goods, orders rose 3.7%, the fastest gain in two years. Shipments rose 3.8% in July, and were up 1.9% excluding transportation goods. Inventories rose 0.1%.
Shares in Singapore's DBS Group Holdings , state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong , all dived after they revealed a combined exposure to the U.S. subprime mortgage market of almost $13 billion.
Nouriel Roubini: "In summary: while the extremes of the investors’ panic have receded in the last couple of days the credit markets remain mostly in a severe credit crunch: money markets, commercial paper, asset-backed commercial paper, SIVs, CDOs, LBOs, leveraged loans, subprime, near prime and prime mortgage markets. In all of them the credit crunch is still severe if less extreme than at the time of the peak of the investors’ panic. Persistent credit problems – rather than just illiquidity ones – will keep a variety of credit markets in a crunch for a persistent period of time.
In the meanwhile the housing recession is becoming more severe, consumer confidence is sharply down, retail sales in August look like falling relative to July and the tightening in credit conditions is likely to slow down an already anemic capex spending by the corporate sector."
The Oil Drum: "Lukoil reportedly cuts oil supplies to Germany by one third."
LA Times: "The chairman of the Joint Chiefs of Staff is expected to advise President Bush to reduce the U.S. force in Iraq next year by almost half, potentially creating a rift with top White House officials and other military commanders over the course of the war.
Administration and military officials say Marine Gen. Peter Pace is likely to convey concerns by the Joint Chiefs that keeping well in excess of 100,000 troops in Iraq through 2008 will severely strain the military. This assessment could collide with one being prepared by the U.S. commander in Iraq, Army Gen. David H. Petraeus, calling for the U.S. to maintain higher troop levels for 2008 and beyond."
North Dakota typically produces about one-third of the nation's dry edible beans, a category that includes everything from pinto and navy beans to garbanzos. The U.S. Department of Agriculture is projecting this year's North Dakota crop at 9.6 million 100-pound bags, up 25 percent from last year and close to the 2002 production record of 10.6 million bags.
In contrast, the U.S. crop is pegged at 23.7 million bags, down 2 percent from last year and 11 percent below two years ago. Planted acres were down about 8 percent and acres for harvest were expected to be down about 6 percent.
Sales of new homes in the U.S. unexpectedly rose for the second time this year in July, suggesting the housing market was stabilizing before the rout in credit markets. Purchases increased 2.8 percent to an annual pace of 870,000 last month from a revised 846,000 rate in June that was greater than previously estimated, the Commerce Department said. Compared with a year earlier, purchases were down 10 percent in July. The median price of a new home rose 0.6 percent to $239,500 last month, according to the report. Inventories of unsold homes dropped to 7.5 months at the current sales pace.
"This is July, before the freezing of the market," Mark Zandi of Moody's Economy.com said on CNBC. "So I'm sure we're going to see much weaker numbers for August, September and October. The housing market is going to go down a whole other level in the next few months."In terms of sales, I think the bottom is going to be the end of this year," he said. "In terms of contruction, I don't think there'll be a bottom 'til the beginning of 2008. And in terms of prices, I think it won't be until the end of '08. And that's nationally. Of course, in California and Florida--the markets that are in disarray--the bottom is well into 2009."
In Chicago, wheat for December delivery surged to an all-time high of $7.54 a bushel. Prices have jumped 110 per cent in the past 12 months and have risen threefold since 2000. Canada, the world's second-largest wheat exporter, warned output might be almost 20 per cent below last year as adverse weather damaged the crop as it had done in Europe and Australia.
Todd Harrison: "Indeed, almost 40% of all US wealth is in the hands of the top 1% of the population, compared to 13% 25 years ago. Further, the top .25% of the population owns more wealth than the other 99¾% combined. As this dichotomy manifests, the implications for consumer spending, real-estate investment and long-term savings will be profoundly impacted."
Japan's corporate service prices rose at the fastest pace in more than 15 years, a sign that inflation is taking hold in the world's second-largest economy. The prices companies pay for services such as rents and transportation climbed 1.6 percent in July from a year earlier, the Bank of Japan said.
In early Friday trading, gold, silver, copper, zinc, aluminum, and oil, as well as wheat and soybeans, were all trading higher.
December gold closed at $677.50 an ounce, its highest level since Aug. 15 -- up $9.10 for the day and up $10.70, or 1.6%, for the week. September silver gained 30 cents to close at $11.94 an ounce, up 1.2% for the week. September copper closed at $3.3375 a pound, up 2.3% for the day, and up 6% for the week. Lead rose 5% on Friday.
The U.K. economy accelerated in the second quarter, driven by consumer spending and business services, putting it on course for the best growth performance in three years.
Nabors Industries Ltd.'s shares rose the most in six months on renewed speculation the world's largest onshore oil and natural-gas driller will be bought. It's Friday and these rumors have generally taken place on a Friday.
Morgan Stanley on Friday cut its forecast for retail sales growth in 2008, saying that the current "turmoil" in the credit markets will lead to declines in consumer wealth and available credit as well as more modest job growth in the U.S. Analyst Gregory Melich said despite an improvement this summer, he now expects retail sales to grow 3 percent in 2008, down from a previous forecast of 4.5 percent, which would put growth at its lowest level since 2003. "Household wealth, credit availability, and jobs growth are key lead components of retail sales," Melich wrote. "We are baking deceleration in each of these areas."
The number of rigs actively exploring for oil and natural gas in the United States rose by 21 this week to 1,816. Of the rigs running nationwide, 1,494 were exploring for natural gas and 316 for oil, Houston-based Baker Hughes Inc. reported Friday. Six were listed as miscellaneous. A year ago, the rig count stood at 1,756.
October crude climbed $1.26 to close at $71.09 a barrel Friday. September natural gas fell 9.9 cents to close at $5.523 per million British thermal units, down more than 21% from a week ago.
The Federal Reserve Bank of New York stated banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit.
Richard Pryor: "I went to Zimbabwe. I know how white people feel in America now; relaxed! Cause when I heard the police car I knew they weren't coming after me!"
Thursday, August 23, 2007
Note Of Confidence
8/24/07 Note Of Confidence
Late Wednesday Bank of America, the second-largest U.S. bank, said it bought non-voting preferred stock that yields 7.25 percent and can be converted into Countrywide common stock at $18 per share, 17.5 percent below the shares' Wednesday closing price. Countrywide shares soared 20 percent in after-hours trading.
From my email bag: "PRESIDENTIAL LIBRARY DESTROYED BY FLOOD
Crawford, Texas - A tragic flood this morning destroyed the personal library of President Bush. The flood began in the presidential bathroom where both of the books were kept.
Both books have been lost. A presidential spokesman said the president was devastated, since he was almost finished coloring the second one.
The White House tried to call FEMA, but there was no answer. "
A private equity-led buyout of home-improvement retailer Home Depot Inc's wholesale supply division, due to close on Thursday, could be in trouble because investment banks involved are reluctant to fund the transaction even at a lower price, the Financial Times reported in its online edition, citing people familiar with the negotiations. Home Depot earlier in the month said it was in negotiations with buyers -- Bain Capital Partners, Carlyle Group and Clayton, Dubilier & Rice -- about restructuring deal terms, including lowering the unit's $10.3 billion sale price. But people familiar with the talks said parties hoped to reach a deal for the unit, which supplies materials to home builders and other contractors, the FT said.
Should the Home Depot not close would that dampen the note of confidence from BofA in Countrywide?
The Federal Reserve lent U.S. banks $7 billion in a 14-day repurchase agreement on Thursday, accepting about $6 billion in mortgages as collateral for the loans, the New York Federal Reserve Bank reported. The average yield was 5.07%.
Japan's central bank decided Thursday to keep interest rates unchanged because of recent worries about a U.S. credit crunch that set off roller-coaster fluctuations on global markets. "We need to closely watch developments in international financial markets and the global economy, and tie our assessment to future monetary policy decisions. It is most important that the adjustment process will proceed in an orderly way. I think it will take some time. Re-pricing of risk will probably lead to realization of losses. The process could be painful," BoJ chief Fukui said at his August 23rd press conference.
"Global financial markets need Japan's interest rate to be returned to normal," said Bank of Australia chief Glenn Stevens on August 17th. "It's fundamentally a distortion to have Japan's interest rates as low as they are. The sooner the Japanese interest rates are able to be normal again, the better from the point of view of the global-financial system," he declared.
Jeffrey Cooper: "And if you think emotion has seized the tape, next week sets up as something to behold. For another perspective, next week a lunar eclipse looms on Tuesday, which coincides with the last week of August, a period that is historically is fraught with significant turning points. August 25, which falls on the weekend, is a mirror image of the February 22 peak and the 1987 all-time high. Will it be a high or a low?
If the current rally phase persists into Friday, it may be a superior opportunity for selling and selling short. It will be interesting, to say the least, to observe players' willingness to hold positions over the weekend."
The European Central Bank signaled that it is still inclined to raise interest rates by a quarter of a percentage point on Sept. 6 to 4.25%, provided market turmoil doesn't deepen.
"One of the reasons for the China-US trade imbalance are the American restrictions of exports," Commerce Minister Wang Chao said. "Even when we want to buy products from the United States, we can't buy what we want."
Shell announced reduced production at is Deer Park refinery in the wake of shut in production from Mexico.
Alibaba.com, the business-to-business unit of China's Alibaba Group, submitted an application to list shares on the Hong Kong stock exchange, a person familiar with the situation said Monday. Goldman Sachs and Morgan Stanley will be the lead underwriters of the IPO.
Yahoo owns 40% of this company and its true worth, in my view, is not reflected in the current price for Yahoo. Actionality provides software technology that inserts ads in content for mobile devices, such as mobile phone games. The company claims that it has simplified in-game branding and advertising to the point that it's a one-click process. Yahoo has acquired Actionality, a German mobile advertising technology company, for an undisclosed sum.
Iraqi Prime Minister Nouri Maliki warned the Bush administration after talks with longtime U.S. adversaries in Syria on Wednesday that Iraq "can find friends elsewhere" if Washington doesn't like how he runs his country.
The federal budget deficit is projected to total $158 billion in fiscal 2007, which ends Sept. 30, narrowing from $248 billion in the previous year, the Congressional Budget Office said Thursday in its update of its annual budget projections. "Nevertheless, the budget outlook for the long term remains daunting, primarily because of rising costs for health care," said the nonpartisan agency, which serves as Congress' budget analyst.
FDIC officials acknowledged that more evidence of the housing-market stress will show up in results for the current quarter. The occurrence of what they call "declining credit quality" for banks likely will hit with fuller force in the July-September period, they said.
The amount of U.S. commercial paper outstanding had its biggest weekly percentage drop since 2000 as investors shunned debt that may be linked to mortgages and other risky assets and instead opted for the safety of Treasuries. The amount dropped $90.2 billion, or 4.23 percent, to a seasonally adjusted $2.04 trillion as of yesterday from Aug. 15, according to the Federal Reserve. The percentage drop is the biggest drop since at least November 2000, according to data compiled by Bloomberg.
While U.S. Federal Reserve Chairman Ben S. Bernanke is under pressure from investors to loosen monetary policy, his counterparts in Australia, Chile, China, Norway, South Africa, and South Korea are among those lifting borrowing costs.
Amstar Financial Holdings is closing its mortgage banking subsidiary and transferring the operations to The Money Store, the company said Wednesday. The Money Store has agreed to take over management of 109 Amstar branches across the country, which employ more than 300 people.
Natural-gas inventories rose by 23 billion cubic feet for the week ended August 17, the Energy Department said Thursday, and that was slightly below estimates. Total stocks now stand at 2.926 trillion cubic feet, up 77 billion cubic feet from the year-ago level and 333 billion cubic feet above the five-year average, the government data said.
U.S. intelligence agencies have written a mixed report on Iraq, finding some progress but judging that the Baghdad government may not be able to carry it forward, a defense official said Thursday. Then, the top analysts in the U.S. spy community concluded that Iraqi leaders will be hard pressed to craft a lasting political settlement or improve their security capabilities in the next year and a half. They also found that growing and entrenched polarization between Shiite and Sunni Muslims, inadequate Iraqi security forces, weak leaders and the success of extremists' efforts to use violence to exacerbate the sectarian war all created a situation that would be difficult to improve. "Iraqi political leaders remain unable to govern effectively," the 10-page document, a declassified summary of a more detailed National Intelligence Estimate, concludes.
The chief executive of Countrywide Financial Corp said the housing market was "certainly not getting better" and could push the economy into a recession.
"If we can bail out Chrysler, why can't we support the American homeowner?" Bill Gross wrote in his monthly investment outlook on PIMCO's Web site.
December gold fell 30 cents to close at $668.40 an ounce Thursday. September silver gained 7.5 cents to close at $11.64 an ounce and September copper finished at $3.263 a pound, up 1.6%.
According to Bloomberg, the cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, climbed the most in 20 months and may extend its rally as cargo demand strengthens. September demand is outpacing that of August ``by a long way,'' Tim Coffin, an analyst at London-based Capital Shipbrokers LP, said in an e-mailed note today. Tanker-hire prices are ``firming fast,'' he said, ``we didn't expect it.''
Bookings for supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.
October crude climbed 57 cents to close at $69.83 a barrel Thursday. September reformulated gasoline gained 1.8% to close at $1.9232 a gallon. September natural gas closed higher for the first time since Friday, up 4.4 cents to end at $5.622 per million British thermal units, after a slightly smaller-than-expected climb in last week's supplies.
Gap said it now expects fiscal 2007 per-share earnings of 83 cents to 88 cents, up from its prior outlook of 76 cents to 86 cents.
Because the Fed redeemed $5 billion in Treasuries earlier in the week in anticipation of higher borrowing, the Fed actually added no new net money to the system this week.
Science Applications International Corp. said Thursday it started work on a contract to manage chemicals and packaged petroleum for the Department of Defense. The contract includes a five-year base term, a five-year option period and a top value of $6.2 billion. It was originally awarded May 2, though a protest was lodged. The Government Accountability Office denied that protest and told the company Aug. 15 that work could resume.
Late Wednesday Bank of America, the second-largest U.S. bank, said it bought non-voting preferred stock that yields 7.25 percent and can be converted into Countrywide common stock at $18 per share, 17.5 percent below the shares' Wednesday closing price. Countrywide shares soared 20 percent in after-hours trading.
From my email bag: "PRESIDENTIAL LIBRARY DESTROYED BY FLOOD
Crawford, Texas - A tragic flood this morning destroyed the personal library of President Bush. The flood began in the presidential bathroom where both of the books were kept.
Both books have been lost. A presidential spokesman said the president was devastated, since he was almost finished coloring the second one.
The White House tried to call FEMA, but there was no answer. "
A private equity-led buyout of home-improvement retailer Home Depot Inc's wholesale supply division, due to close on Thursday, could be in trouble because investment banks involved are reluctant to fund the transaction even at a lower price, the Financial Times reported in its online edition, citing people familiar with the negotiations. Home Depot earlier in the month said it was in negotiations with buyers -- Bain Capital Partners, Carlyle Group and Clayton, Dubilier & Rice -- about restructuring deal terms, including lowering the unit's $10.3 billion sale price. But people familiar with the talks said parties hoped to reach a deal for the unit, which supplies materials to home builders and other contractors, the FT said.
Should the Home Depot not close would that dampen the note of confidence from BofA in Countrywide?
The Federal Reserve lent U.S. banks $7 billion in a 14-day repurchase agreement on Thursday, accepting about $6 billion in mortgages as collateral for the loans, the New York Federal Reserve Bank reported. The average yield was 5.07%.
Japan's central bank decided Thursday to keep interest rates unchanged because of recent worries about a U.S. credit crunch that set off roller-coaster fluctuations on global markets. "We need to closely watch developments in international financial markets and the global economy, and tie our assessment to future monetary policy decisions. It is most important that the adjustment process will proceed in an orderly way. I think it will take some time. Re-pricing of risk will probably lead to realization of losses. The process could be painful," BoJ chief Fukui said at his August 23rd press conference.
"Global financial markets need Japan's interest rate to be returned to normal," said Bank of Australia chief Glenn Stevens on August 17th. "It's fundamentally a distortion to have Japan's interest rates as low as they are. The sooner the Japanese interest rates are able to be normal again, the better from the point of view of the global-financial system," he declared.
Jeffrey Cooper: "And if you think emotion has seized the tape, next week sets up as something to behold. For another perspective, next week a lunar eclipse looms on Tuesday, which coincides with the last week of August, a period that is historically is fraught with significant turning points. August 25, which falls on the weekend, is a mirror image of the February 22 peak and the 1987 all-time high. Will it be a high or a low?
If the current rally phase persists into Friday, it may be a superior opportunity for selling and selling short. It will be interesting, to say the least, to observe players' willingness to hold positions over the weekend."
The European Central Bank signaled that it is still inclined to raise interest rates by a quarter of a percentage point on Sept. 6 to 4.25%, provided market turmoil doesn't deepen.
"One of the reasons for the China-US trade imbalance are the American restrictions of exports," Commerce Minister Wang Chao said. "Even when we want to buy products from the United States, we can't buy what we want."
Shell announced reduced production at is Deer Park refinery in the wake of shut in production from Mexico.
Alibaba.com, the business-to-business unit of China's Alibaba Group, submitted an application to list shares on the Hong Kong stock exchange, a person familiar with the situation said Monday. Goldman Sachs and Morgan Stanley will be the lead underwriters of the IPO.
Yahoo owns 40% of this company and its true worth, in my view, is not reflected in the current price for Yahoo. Actionality provides software technology that inserts ads in content for mobile devices, such as mobile phone games. The company claims that it has simplified in-game branding and advertising to the point that it's a one-click process. Yahoo has acquired Actionality, a German mobile advertising technology company, for an undisclosed sum.
Iraqi Prime Minister Nouri Maliki warned the Bush administration after talks with longtime U.S. adversaries in Syria on Wednesday that Iraq "can find friends elsewhere" if Washington doesn't like how he runs his country.
The federal budget deficit is projected to total $158 billion in fiscal 2007, which ends Sept. 30, narrowing from $248 billion in the previous year, the Congressional Budget Office said Thursday in its update of its annual budget projections. "Nevertheless, the budget outlook for the long term remains daunting, primarily because of rising costs for health care," said the nonpartisan agency, which serves as Congress' budget analyst.
FDIC officials acknowledged that more evidence of the housing-market stress will show up in results for the current quarter. The occurrence of what they call "declining credit quality" for banks likely will hit with fuller force in the July-September period, they said.
The amount of U.S. commercial paper outstanding had its biggest weekly percentage drop since 2000 as investors shunned debt that may be linked to mortgages and other risky assets and instead opted for the safety of Treasuries. The amount dropped $90.2 billion, or 4.23 percent, to a seasonally adjusted $2.04 trillion as of yesterday from Aug. 15, according to the Federal Reserve. The percentage drop is the biggest drop since at least November 2000, according to data compiled by Bloomberg.
While U.S. Federal Reserve Chairman Ben S. Bernanke is under pressure from investors to loosen monetary policy, his counterparts in Australia, Chile, China, Norway, South Africa, and South Korea are among those lifting borrowing costs.
Amstar Financial Holdings is closing its mortgage banking subsidiary and transferring the operations to The Money Store, the company said Wednesday. The Money Store has agreed to take over management of 109 Amstar branches across the country, which employ more than 300 people.
Natural-gas inventories rose by 23 billion cubic feet for the week ended August 17, the Energy Department said Thursday, and that was slightly below estimates. Total stocks now stand at 2.926 trillion cubic feet, up 77 billion cubic feet from the year-ago level and 333 billion cubic feet above the five-year average, the government data said.
U.S. intelligence agencies have written a mixed report on Iraq, finding some progress but judging that the Baghdad government may not be able to carry it forward, a defense official said Thursday. Then, the top analysts in the U.S. spy community concluded that Iraqi leaders will be hard pressed to craft a lasting political settlement or improve their security capabilities in the next year and a half. They also found that growing and entrenched polarization between Shiite and Sunni Muslims, inadequate Iraqi security forces, weak leaders and the success of extremists' efforts to use violence to exacerbate the sectarian war all created a situation that would be difficult to improve. "Iraqi political leaders remain unable to govern effectively," the 10-page document, a declassified summary of a more detailed National Intelligence Estimate, concludes.
The chief executive of Countrywide Financial Corp said the housing market was "certainly not getting better" and could push the economy into a recession.
"If we can bail out Chrysler, why can't we support the American homeowner?" Bill Gross wrote in his monthly investment outlook on PIMCO's Web site.
December gold fell 30 cents to close at $668.40 an ounce Thursday. September silver gained 7.5 cents to close at $11.64 an ounce and September copper finished at $3.263 a pound, up 1.6%.
According to Bloomberg, the cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, climbed the most in 20 months and may extend its rally as cargo demand strengthens. September demand is outpacing that of August ``by a long way,'' Tim Coffin, an analyst at London-based Capital Shipbrokers LP, said in an e-mailed note today. Tanker-hire prices are ``firming fast,'' he said, ``we didn't expect it.''
Bookings for supertankers sailing from the Middle East to Asia account for 47 percent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP. Shipments to the U.S. and Caribbean, the second-biggest market, account for 14 percent of demand for supertankers.
October crude climbed 57 cents to close at $69.83 a barrel Thursday. September reformulated gasoline gained 1.8% to close at $1.9232 a gallon. September natural gas closed higher for the first time since Friday, up 4.4 cents to end at $5.622 per million British thermal units, after a slightly smaller-than-expected climb in last week's supplies.
Gap said it now expects fiscal 2007 per-share earnings of 83 cents to 88 cents, up from its prior outlook of 76 cents to 86 cents.
Because the Fed redeemed $5 billion in Treasuries earlier in the week in anticipation of higher borrowing, the Fed actually added no new net money to the system this week.
Science Applications International Corp. said Thursday it started work on a contract to manage chemicals and packaged petroleum for the Department of Defense. The contract includes a five-year base term, a five-year option period and a top value of $6.2 billion. It was originally awarded May 2, though a protest was lodged. The Government Accountability Office denied that protest and told the company Aug. 15 that work could resume.
Wednesday, August 22, 2007
The Comfort Zone
8/23/07 The Comfort Zone
The U.S. consumer comfort index fell 9 points last week to negative 20, the sharpest decline in more than 21 years of weekly polling, according to a report released Tuesday by ABC and the Washington Post. It's the lowest reading in the index since Hurricane Katrina hit the Gulf Coast nearly two years ago. "The decline is broadly based among population groups, and there seems not to be a single negative event to blame, but a confluence" of factors, ABC's Gary Langer said, citing the stock market, housing and credit markets, the Fed's warning about the economy, high gas prices, and even the war in Iraq. Fewer than a third of consumers polled said the economy is "good" or "fair."
“I think we are going to see a big increase in bankruptcies in 2007-08,” Mr Wilbur Ross, chairman and chief executive of the private equity group that bears his name, told the Financial Times. “Every time you compound leverage, you cut the margins for error.”
Bill Bonner: "My point is that if you don't appreciate trouble, properly, you will go looking for it. And if you go looking for it, you will sooner or later find it."
Paul Kasriel: "I am confident that the FOMC will lower its federal funds rate target before year-end, but I am not as confident it will occur on or before the September 18 FOMC meeting...I continue to believe that the FOMC's fed funds rate target will not be lowered de jure until its October 30-31 meeting. If I am right, there is going to be severe "disappointment" in the financial markets at 2:15 pm EDT on September 18, which, in turn, will increase the probabilities of an October 31 cut in the target rate."
Richard Daughty: "In the 1950's, every dollar of new debt produced over $4.00 of economic activity. But by Year 2000 it had dropped to 20 cents of GDP growth and only 10 cents by 2005. Last month fell to only a nickel of economic growth for every dollar of debt growth." Hahaha! Nice investing there, dudes!"
Japan's financial watchdog will set limits on how much consumers can borrow from credit firms by the end of the year, according to reports. Consumer credit firms will not be permitted to extend loans that total more than a third of an individual's annual income, according to the Nikkei News Wednesday. The new rules will be enforced by the Financial Services Agency and are in accordance with new laws on money lending that come into effect in 2009, the Nikkei reported.
Japan's trade surplus fell 21.1% in July from a year ago, as growth in imports outpaced that of exports, according to government data released Wednesday. The decline is sharper than the 10.2% drop expected by economists polled in a survey by Dow Jones Newswires and Nikkei News, and comes on top of a 53% jump in Japan's June trade surplus.
Google got 64% of U.S. searches in July, Yahoo! got 22.1% and MSN 8.8%.
BHP Billiton stated that, for fiscal 2008, it expects significant volume growth in oil, copper, iron ore and nickel. BHP rebased its final dividend payment to 27 cents a share, up 46% compared to last year. The firm said that, despite moderating U.S. economic growth, global economic fundamentals remain strong and the ongoing strength shown by emerging Asian economies should support global growth. Recent discussions with customers have indicated that they do not expect the volatility in the U.S. and European credit markets to have a material impact on raw material demand. In the interim, prices are likely to stay high relative to historical levels, albeit with increased volatility, BHP added.
Toyota Motor Corp. aims to sell around 10.4 million vehicles worldwide in 2009 on rising demand in North America as well as emerging countries such as China, reported the Nikkei business daily Wednesday, without citing a source. Toyota will become the first automaker to sell more than 10 million units in a single year, if it manages to achieve the target.
Online brokers TD Ameritrade and E-Trade are in merger talks, according to a report Wednesday in the online edition of The Wall Street Journal.
The Reserve Bank of Australia injected A$2.75 billion ($2.2 billion) into the financial system Wednesday in an effort to bolster market liquidity, according to reports. The central bank bought A$4.68 billion in securities, offsetting a system deficit of A$1.93 billion, according to Dow Jones Newswires.
Accredited Home Lenders said it will cut its work force to 1,000 people -- from 2,600 at the end of June -- and close 65 branches. The company will immediately stop accepting applications for home loans in the U.S., though it will honor the loans it has already committed to finance.
Upper Deck Co., the North Las Vegas sports- and entertainment-publishing company, said it ended its $10.75-a-share offer to acquire Topps Co., the New York producer of sports cards. Topps has urged its holders to approve a $9.75-a-share bid from entities held by the entertainment investor Michael Eisner and Madison Dearborn Partners. Two proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have urged Topps holders to reject the Eisner-Madison deal. Topps has called Upper Deck's $10.75 proposal "not genuine." A special meeting of Topps holders to vote on the Eisner-Madison transaction is set for Aug. 30.
Dubai agreed to pay up to $5.1 billion for a 9.5 percent stake in MGM Mirage Inc and half the casino company's CitiCenter hotels and apartments project in Las Vegas.
Brent Steenbarger: "We've had three straight sessions in which equity put volume has been lower than equity call volume, a sign of some trader relief after the Fed announcement. We haven't had such a string of three days since 7/19. Indeed, we've had equity put volume exceed call volume 13 of the last 20 sessions."
As of Tuesday, at least 3,707 members of the U.S. military had died in Iraq since the beginning of the war in March 2003, according to an Associated Press count.
Deaths continue as the vacation period continues.
China's stock markets are at a record high. On Aug. 22, China's benchmark CSI 300 stock index blasted through the all-important 5000 level, shrugging off an interest-rate hike by the central government announced the previous day, to close up 78.98 points, to 5051.69. The index, which tracks the 300 most important companies listed in Shanghai and Shenzhen, has jumped 147% this year.
Beazer Homes USA Inc. sued U.S. Bank National Association to prevent the bank from declaring Beazer in default on $1.38 billion in loans, the company said in a regulatory filing late Tuesday.
"We, along with many others, are concerned about the dislocation in the secondary mortgage market," Toll Bros. CEO Robert Toll said in a statement. Robert Toll said cancellations had reached their highest rate in more than two decades. Reducing home production until the current oversupply is absorbed is a key step to bringing housing markets back into equilibrium, he added.Toll reiterated that it would not issue any projections, citing uncertainties in the mortgage market, impairments and sales paces. Problems in subprime lending -- loans to those with sketchy credit histories -- have made it even more difficult for potential buyers, even those with good credit, to get a mortgage. "Nevertheless, tightening credit standards will likely shrink the pool of potential home buyers," Robert Toll said. "Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes. "However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles."
``WCI continued to focus on reducing costs and generating cash flow in the second quarter,'' said Jerry Starkey, President and CEO of WCI Communities. ``Year-to-date, WCI has generated $119.8 million in cash flow from operating and investing activities and expects to end 2007 having generated a combined $530 million to $730 million ($520 million to $720 million from operating activities and $10 million from investing activities), in large part as a result of closing ten towers, including our two largest towers ever constructed.'' Starkey continued, ``Land sales and recreational amenity conversions are an important part of WCI's business model and we are actively marketing numerous land parcels, including commercial, mixed/use and residential land, as well as recreational assets. We estimate that the aggregate value of these assets range from about $200 million to $300 million. Many of these assets were acquired or developed more than five years ago and are expected to generate significant profits in addition to cash flow. The upper range of our projected cash flow for this year includes approximately $60 million or so from this pool of assets.'' The Company's expected cash flow from operations assume that about 500 to 600 traditional homes close in the second half of the year. The backlog of almost 700 traditional homes as of June 30, 2007 includes about 500 homes scheduled to close by year end.
H&R Block Inc said its Block Financial Corp. unit tapped working capital credit lines as turmoil in credit markets makes it harder for some companies to raise funds through short-term debt markets. Block said it drew down $200 million from working capital credit lines on August 16, which was then repaid with a second draw of $850 million on Monday. H&R Block has $2 billion available in committed, revolving working capital lines that mature in 2010. "The credit markets have become increasingly constrained and unstable," William Trubeck, Block's chief financial officer, said in a statement. "We have decided to substitute this more stable source of funds to support our short-term needs."
The Fed accepted $2 billion of Agencies as collateral but no mortgages. Wednesday morning the Fed REPOS borrowing was at 5.05% versus Fed Funds at 5.25%.
The American Petroleum Institute reported a rise of 2.5 million barrels in crude supplies for the week ended August 17. The Energy Department had reported a climb of 1.9 million barrels for the latest week. Motor gasoline supplies were down 4.6 million barrels, the API said. The government reported that supplies were down 5.7 million barrels. Distillate supplies fell 1.1 million barrels, the API said. In contrast, the Energy Department said they rose 1.3 million.
Inventories of gas in storage are 2.9 trillion cubic feet, according to Energy Department data and may meet or exceed last year's record supply of 3.461 trillion cubic feet before the winter heating season starts in about 10 weeks.
The European Central Bank said it will lend an extra 40 billion euros ($54 billion) to banks for three months to lower borrowing costs for commercial banks and indicated it may still raise the benchmark interest rate next month.
Banks' troubled real estate loans rose for the fifth consecutive quarter to a total $66.9 billion at the end of the second quarter, the U.S. Federal Deposit Insurance Corporation said on Wednesday. Noncurrent real estate loans -- those overdue by 90 days or more -- were up 36 percent from a year before and up 10.6 percent from the end of the first quarter, the FDIC said. Noncurrent home mortgage loans totaled $27.5 billion, up 47 percent from a year earlier and up 12.6 percent from the end of the first quarter, the FDIC said.
Citibank, on behalf of clients, has accessed $500 million in 30-day term financing under the discount window program announced on Friday by the Federal Reserve Bank of New York. J.P. Morgan Chase & Co., Bank of America Corp.and Wachovia Corp. said Wednesday they have each borrowed $500 million, including some on a term basis, from the discount window facility announced by the Federal Reserve Board late last week.
Bank of America Corp.'s planned acquisition of LaSalle Bank is expected to cost more than 10,500 jobs in the Chicago area, according to a study conducted by the Anderson Economic Group LLC.
General Motors Corp. said Wednesday it has cut overtime shifts at six of its North American plants for full-size pickups and SUVs in response to falling demand for the vehicles amid high fuel prices and a sustained slowdown in the housing market.
With three hours into the trading session, the Dow remains up about 100 points; however, the big money center banks and the big brokers are acting so so. On the other hand, the VIX is down almost 2 points to 23+. Quite a mixed picture. The Dow did finish 145 points higher but the VIX still managed to close around 23. I would be surprised to see a further near term decline in the VIX.
Quantcast is the world's first open internet ratings service. Advertisers can find reports on the audiences of millions of web sites. Publishers can ensure their sites are represented accurately by tagging them for direct measurement. The service is free to everyone.
Delta Financial Corp. has reduced its workforce by 20%, or 300 jobs, to align its operations with the current market conditions. "The rapid deterioration of the credit markets has caused issues in our sector that are beyond our control," said Delta Financial Chief Executive Hugh Miller in a statement.
London-based HSBC, Europe's biggest bank by market value, closed a U.S. mortgage office after failing to finance new loans.
Oil platforms in the Gulf of Mexico remained closed Wednesday after state-owned Petroleos Mexicanos evacuated almost 19,000 workers, shutting 80 percent of the country's oil output.
December gold climbed $2.50 to close at $668.70 an ounce Wednesday. September silver rose 5.5 cents to close at $11.565 an ounce and September copper finished at $3.212 a pound, up 6.2 cents.
Todd Harrison: "If and when investors begin to perceive that central banks are no longer larger than the markets—and this, in my opinion, is simply a matter of time—a crisis in confidence will ensue."
Lehman Brothers Holdings Inc., the biggest underwriter of U.S. bonds backed by mortgages, became the first firm on Wall Street to close its subprime-lending unit and said 1,200 employees will lose their jobs. Shuttering BNC Mortgage LLC will cut earnings by $52 million, Lehman said in a statement today.
Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly rise since 1990, the FDIC said in its Quarterly Banking Profile released today.
Capital Fund Management, a Paris- based hedge-fund manager, said its Discus Master Fund could lose as much as 27 percent of its assets, or $407 million, after the bankruptcy of cash-management firm Sentinel Management Group Inc.
October crude fell 31 cents Wednesday to close at $69.26 a barrel, the contract's lowest level since late June. But September gasoline rose 1.4% to close at $1.889 a gallon on a third-weekly decline in supplies. September natural gas fell 4.1% to close at $5.578 per million British thermal units. It's suffered a 20% drop since Friday.
The Oil Drum: "
1. World total liquids production (Fig 1) remains on a peak plateau since 2006 and is forecast to fall off this peak plateau in 2009. According to the IEA, the current peak production of 86.13 mbd occurred on July 2006 and only one year later, June 2007 total liquids production fell to an unexpectedly low 84.28 mbd. As long as demand continues increasing then prices will also continue increasing.
2. Forecast world crude oil and lease condensate (C&C) production retains its 2005 peak (Fig 2). The forecast to 2100 shows declining C&C production, using a bottom up forecast to 2012 (Fig 3). The forecast to 2012 shows a 1%/yr decline rate to 2009, followed by a 4%/yr decline rate to 2012."
Scottsdale, Ariz.-based 1st National Bank Holding Co. closed its wholesale mortgage unit and cut 541 jobs.
Since the start of the year, more than 38,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.
Paul A. Samuelson: "Politicians like to tell people what they want to hear - and what they want to hear is what won't happen.”
The U.S. consumer comfort index fell 9 points last week to negative 20, the sharpest decline in more than 21 years of weekly polling, according to a report released Tuesday by ABC and the Washington Post. It's the lowest reading in the index since Hurricane Katrina hit the Gulf Coast nearly two years ago. "The decline is broadly based among population groups, and there seems not to be a single negative event to blame, but a confluence" of factors, ABC's Gary Langer said, citing the stock market, housing and credit markets, the Fed's warning about the economy, high gas prices, and even the war in Iraq. Fewer than a third of consumers polled said the economy is "good" or "fair."
“I think we are going to see a big increase in bankruptcies in 2007-08,” Mr Wilbur Ross, chairman and chief executive of the private equity group that bears his name, told the Financial Times. “Every time you compound leverage, you cut the margins for error.”
Bill Bonner: "My point is that if you don't appreciate trouble, properly, you will go looking for it. And if you go looking for it, you will sooner or later find it."
Paul Kasriel: "I am confident that the FOMC will lower its federal funds rate target before year-end, but I am not as confident it will occur on or before the September 18 FOMC meeting...I continue to believe that the FOMC's fed funds rate target will not be lowered de jure until its October 30-31 meeting. If I am right, there is going to be severe "disappointment" in the financial markets at 2:15 pm EDT on September 18, which, in turn, will increase the probabilities of an October 31 cut in the target rate."
Richard Daughty: "In the 1950's, every dollar of new debt produced over $4.00 of economic activity. But by Year 2000 it had dropped to 20 cents of GDP growth and only 10 cents by 2005. Last month fell to only a nickel of economic growth for every dollar of debt growth." Hahaha! Nice investing there, dudes!"
Japan's financial watchdog will set limits on how much consumers can borrow from credit firms by the end of the year, according to reports. Consumer credit firms will not be permitted to extend loans that total more than a third of an individual's annual income, according to the Nikkei News Wednesday. The new rules will be enforced by the Financial Services Agency and are in accordance with new laws on money lending that come into effect in 2009, the Nikkei reported.
Japan's trade surplus fell 21.1% in July from a year ago, as growth in imports outpaced that of exports, according to government data released Wednesday. The decline is sharper than the 10.2% drop expected by economists polled in a survey by Dow Jones Newswires and Nikkei News, and comes on top of a 53% jump in Japan's June trade surplus.
Google got 64% of U.S. searches in July, Yahoo! got 22.1% and MSN 8.8%.
BHP Billiton stated that, for fiscal 2008, it expects significant volume growth in oil, copper, iron ore and nickel. BHP rebased its final dividend payment to 27 cents a share, up 46% compared to last year. The firm said that, despite moderating U.S. economic growth, global economic fundamentals remain strong and the ongoing strength shown by emerging Asian economies should support global growth. Recent discussions with customers have indicated that they do not expect the volatility in the U.S. and European credit markets to have a material impact on raw material demand. In the interim, prices are likely to stay high relative to historical levels, albeit with increased volatility, BHP added.
Toyota Motor Corp. aims to sell around 10.4 million vehicles worldwide in 2009 on rising demand in North America as well as emerging countries such as China, reported the Nikkei business daily Wednesday, without citing a source. Toyota will become the first automaker to sell more than 10 million units in a single year, if it manages to achieve the target.
Online brokers TD Ameritrade and E-Trade are in merger talks, according to a report Wednesday in the online edition of The Wall Street Journal.
The Reserve Bank of Australia injected A$2.75 billion ($2.2 billion) into the financial system Wednesday in an effort to bolster market liquidity, according to reports. The central bank bought A$4.68 billion in securities, offsetting a system deficit of A$1.93 billion, according to Dow Jones Newswires.
Accredited Home Lenders said it will cut its work force to 1,000 people -- from 2,600 at the end of June -- and close 65 branches. The company will immediately stop accepting applications for home loans in the U.S., though it will honor the loans it has already committed to finance.
Upper Deck Co., the North Las Vegas sports- and entertainment-publishing company, said it ended its $10.75-a-share offer to acquire Topps Co., the New York producer of sports cards. Topps has urged its holders to approve a $9.75-a-share bid from entities held by the entertainment investor Michael Eisner and Madison Dearborn Partners. Two proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have urged Topps holders to reject the Eisner-Madison deal. Topps has called Upper Deck's $10.75 proposal "not genuine." A special meeting of Topps holders to vote on the Eisner-Madison transaction is set for Aug. 30.
Dubai agreed to pay up to $5.1 billion for a 9.5 percent stake in MGM Mirage Inc and half the casino company's CitiCenter hotels and apartments project in Las Vegas.
Brent Steenbarger: "We've had three straight sessions in which equity put volume has been lower than equity call volume, a sign of some trader relief after the Fed announcement. We haven't had such a string of three days since 7/19. Indeed, we've had equity put volume exceed call volume 13 of the last 20 sessions."
As of Tuesday, at least 3,707 members of the U.S. military had died in Iraq since the beginning of the war in March 2003, according to an Associated Press count.
Deaths continue as the vacation period continues.
China's stock markets are at a record high. On Aug. 22, China's benchmark CSI 300 stock index blasted through the all-important 5000 level, shrugging off an interest-rate hike by the central government announced the previous day, to close up 78.98 points, to 5051.69. The index, which tracks the 300 most important companies listed in Shanghai and Shenzhen, has jumped 147% this year.
Beazer Homes USA Inc. sued U.S. Bank National Association to prevent the bank from declaring Beazer in default on $1.38 billion in loans, the company said in a regulatory filing late Tuesday.
"We, along with many others, are concerned about the dislocation in the secondary mortgage market," Toll Bros. CEO Robert Toll said in a statement. Robert Toll said cancellations had reached their highest rate in more than two decades. Reducing home production until the current oversupply is absorbed is a key step to bringing housing markets back into equilibrium, he added.Toll reiterated that it would not issue any projections, citing uncertainties in the mortgage market, impairments and sales paces. Problems in subprime lending -- loans to those with sketchy credit histories -- have made it even more difficult for potential buyers, even those with good credit, to get a mortgage. "Nevertheless, tightening credit standards will likely shrink the pool of potential home buyers," Robert Toll said. "Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes. "However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles."
``WCI continued to focus on reducing costs and generating cash flow in the second quarter,'' said Jerry Starkey, President and CEO of WCI Communities. ``Year-to-date, WCI has generated $119.8 million in cash flow from operating and investing activities and expects to end 2007 having generated a combined $530 million to $730 million ($520 million to $720 million from operating activities and $10 million from investing activities), in large part as a result of closing ten towers, including our two largest towers ever constructed.'' Starkey continued, ``Land sales and recreational amenity conversions are an important part of WCI's business model and we are actively marketing numerous land parcels, including commercial, mixed/use and residential land, as well as recreational assets. We estimate that the aggregate value of these assets range from about $200 million to $300 million. Many of these assets were acquired or developed more than five years ago and are expected to generate significant profits in addition to cash flow. The upper range of our projected cash flow for this year includes approximately $60 million or so from this pool of assets.'' The Company's expected cash flow from operations assume that about 500 to 600 traditional homes close in the second half of the year. The backlog of almost 700 traditional homes as of June 30, 2007 includes about 500 homes scheduled to close by year end.
H&R Block Inc said its Block Financial Corp. unit tapped working capital credit lines as turmoil in credit markets makes it harder for some companies to raise funds through short-term debt markets. Block said it drew down $200 million from working capital credit lines on August 16, which was then repaid with a second draw of $850 million on Monday. H&R Block has $2 billion available in committed, revolving working capital lines that mature in 2010. "The credit markets have become increasingly constrained and unstable," William Trubeck, Block's chief financial officer, said in a statement. "We have decided to substitute this more stable source of funds to support our short-term needs."
The Fed accepted $2 billion of Agencies as collateral but no mortgages. Wednesday morning the Fed REPOS borrowing was at 5.05% versus Fed Funds at 5.25%.
The American Petroleum Institute reported a rise of 2.5 million barrels in crude supplies for the week ended August 17. The Energy Department had reported a climb of 1.9 million barrels for the latest week. Motor gasoline supplies were down 4.6 million barrels, the API said. The government reported that supplies were down 5.7 million barrels. Distillate supplies fell 1.1 million barrels, the API said. In contrast, the Energy Department said they rose 1.3 million.
Inventories of gas in storage are 2.9 trillion cubic feet, according to Energy Department data and may meet or exceed last year's record supply of 3.461 trillion cubic feet before the winter heating season starts in about 10 weeks.
The European Central Bank said it will lend an extra 40 billion euros ($54 billion) to banks for three months to lower borrowing costs for commercial banks and indicated it may still raise the benchmark interest rate next month.
Banks' troubled real estate loans rose for the fifth consecutive quarter to a total $66.9 billion at the end of the second quarter, the U.S. Federal Deposit Insurance Corporation said on Wednesday. Noncurrent real estate loans -- those overdue by 90 days or more -- were up 36 percent from a year before and up 10.6 percent from the end of the first quarter, the FDIC said. Noncurrent home mortgage loans totaled $27.5 billion, up 47 percent from a year earlier and up 12.6 percent from the end of the first quarter, the FDIC said.
Citibank, on behalf of clients, has accessed $500 million in 30-day term financing under the discount window program announced on Friday by the Federal Reserve Bank of New York. J.P. Morgan Chase & Co., Bank of America Corp.and Wachovia Corp. said Wednesday they have each borrowed $500 million, including some on a term basis, from the discount window facility announced by the Federal Reserve Board late last week.
Bank of America Corp.'s planned acquisition of LaSalle Bank is expected to cost more than 10,500 jobs in the Chicago area, according to a study conducted by the Anderson Economic Group LLC.
General Motors Corp. said Wednesday it has cut overtime shifts at six of its North American plants for full-size pickups and SUVs in response to falling demand for the vehicles amid high fuel prices and a sustained slowdown in the housing market.
With three hours into the trading session, the Dow remains up about 100 points; however, the big money center banks and the big brokers are acting so so. On the other hand, the VIX is down almost 2 points to 23+. Quite a mixed picture. The Dow did finish 145 points higher but the VIX still managed to close around 23. I would be surprised to see a further near term decline in the VIX.
Quantcast is the world's first open internet ratings service. Advertisers can find reports on the audiences of millions of web sites. Publishers can ensure their sites are represented accurately by tagging them for direct measurement. The service is free to everyone.
Delta Financial Corp. has reduced its workforce by 20%, or 300 jobs, to align its operations with the current market conditions. "The rapid deterioration of the credit markets has caused issues in our sector that are beyond our control," said Delta Financial Chief Executive Hugh Miller in a statement.
London-based HSBC, Europe's biggest bank by market value, closed a U.S. mortgage office after failing to finance new loans.
Oil platforms in the Gulf of Mexico remained closed Wednesday after state-owned Petroleos Mexicanos evacuated almost 19,000 workers, shutting 80 percent of the country's oil output.
December gold climbed $2.50 to close at $668.70 an ounce Wednesday. September silver rose 5.5 cents to close at $11.565 an ounce and September copper finished at $3.212 a pound, up 6.2 cents.
Todd Harrison: "If and when investors begin to perceive that central banks are no longer larger than the markets—and this, in my opinion, is simply a matter of time—a crisis in confidence will ensue."
Lehman Brothers Holdings Inc., the biggest underwriter of U.S. bonds backed by mortgages, became the first firm on Wall Street to close its subprime-lending unit and said 1,200 employees will lose their jobs. Shuttering BNC Mortgage LLC will cut earnings by $52 million, Lehman said in a statement today.
Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly rise since 1990, the FDIC said in its Quarterly Banking Profile released today.
Capital Fund Management, a Paris- based hedge-fund manager, said its Discus Master Fund could lose as much as 27 percent of its assets, or $407 million, after the bankruptcy of cash-management firm Sentinel Management Group Inc.
October crude fell 31 cents Wednesday to close at $69.26 a barrel, the contract's lowest level since late June. But September gasoline rose 1.4% to close at $1.889 a gallon on a third-weekly decline in supplies. September natural gas fell 4.1% to close at $5.578 per million British thermal units. It's suffered a 20% drop since Friday.
The Oil Drum: "
1. World total liquids production (Fig 1) remains on a peak plateau since 2006 and is forecast to fall off this peak plateau in 2009. According to the IEA, the current peak production of 86.13 mbd occurred on July 2006 and only one year later, June 2007 total liquids production fell to an unexpectedly low 84.28 mbd. As long as demand continues increasing then prices will also continue increasing.
2. Forecast world crude oil and lease condensate (C&C) production retains its 2005 peak (Fig 2). The forecast to 2100 shows declining C&C production, using a bottom up forecast to 2012 (Fig 3). The forecast to 2012 shows a 1%/yr decline rate to 2009, followed by a 4%/yr decline rate to 2012."
Scottsdale, Ariz.-based 1st National Bank Holding Co. closed its wholesale mortgage unit and cut 541 jobs.
Since the start of the year, more than 38,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.
Paul A. Samuelson: "Politicians like to tell people what they want to hear - and what they want to hear is what won't happen.”
Tuesday, August 21, 2007
The Cost For Less Risk
8/22/07 The Cost For Less Risk
Capital One, best known as a credit card issuer, said it will cut 1,900 jobs and take $860 million in charges as it closes its GreenPoint Mortgage unit, which it acquired last December when it paid $13.2 billion for North Fork Bancorp Inc.
McLean, Virginia-based Capital One plans to close GreenPoint's headquarters in Novato, California as well as 31 offices in 19 states, and will stop offering mortgages through brokers. "Over the past few months, we have experienced an unprecedented disruption in the secondary mortgage markets," Capital One Chairman and Chief Executive Officer Richard Fairbank wrote in a memo to employees. "I made the decision to wind down the business with a heavy heart."
Lee Adler: "There really is a liquidity crisis out there. There’s simply too much bad paper not paying the claims against it, and not being worth what the mark to model fairy tale said it was worth...The fact is that the Fed remains shockingly tight in terms of the monetary base, which they have maintained at ZERO growth for the past 8 months, and LESS THAN ZERO in the past week when the sheet was hitting the fan. Sure that can all change next week, but you wouldn’t know it from the actions they took on Friday. At this point, the cut at the discount window looks like nothing more than throwing a bone to a starving dog. Big freaking deal. Watch what they do, not what they say. It seems to me that they either don’t yet have a handle on the magnitude of the crisis, or they think that smoke and mirrors will fool everyone into thinking that happy days are here again and that the credit markets will “unfreeze” as a result. But so far, they haven’t “done” anything."
According to the WSJ, the ECB allotted 275 billion euros (US$370.84 billion) in one-week funds, which is 46 billion euros more than it estimated banks need for routine business. Other central-bank injections Tuesday also aimed to calm money markets. The U.S. Federal Reserve injected $3.75 billion, following the $3.5 billion it put into markets Monday. The Bank of Japan put 800 billion yen (US$6.96 billion) into their system.
The People's Bank of China made its fourth rate hike of the year on Tuesday, saying it wanted to stabilize inflation expectations and control credit. It is raising its deposit rate by 27 basis points to 3.6% and its lending rate by 18 basis points to 7.02%. Meanwhile, rate cuts are on the horizon for the U.S. What does that tell you about these two economies?
China has taken a significant move to ease further its foreign-exchange controls with a pilot program that allows citizens to buy hard currency to invest in overseas securities, according to an announcement by the State Administration of Foreign Exchange (SAFE).
U.S. foreclosure filings totaled 179,599 last month, up 9% from June and 93% higher than in July 2006, according to data compiled by RealtyTrac. Five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation's July foreclosure filings, said James Saccacio, chief executive of Irvine, Calif.-based RealtyTrac.
The Bank of England's facility for lending to banks, similar to the U.S. Federal Reserve's discount window, was tapped for the first time since July 17. A total of 314 million pounds ($621 million) was used, borrowed at a rate of 6.75%, which is one percentage point over the base rate of 5.75%.
The three-month bill yield climbed 0.39 percentage point to 3.59 percent at 2:47 p.m., rising for the first day since Aug. 13. The increase is the biggest since Dec. 26, 2000. Yields fell 0.66 percentage point yesterday, the most since the stock market crash of October 1987 as money-market funds dumped asset-backed commercial paper for the shortest-maturity government debt.
The New York Federal Reserve Bank lowered the fee it charges banks for borrowing Treasury securities overnight from 1% to 0.5%, the bank announced Tuesday. The securities lending program is designed to increase liquidity in the Treasury market.
Irwin Kellner: "The credit squeeze represents a re-pricing of such risks. Unless and until these risks are reduced, the credit squeeze will continue, thereby threatening not just the housing industry - but the rest of the economy as well.
You can see the effects of this squeeze in the rates on Treasury bills. Reflecting a collective refusal to invest in anything other than the safest instruments, investors yesterday piled into short-dated Treasuries, sending their yields down by the most for any day since the stock market crash of 1987."
Unbeknownst to most investors, some of the largest money-market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations (CDOs) backed by subprime mortgage loans. CDOs are packages of bonds and loans, and almost half of all CDOs sold in the U.S. in 2006 contained subprime debt, according to a March report by Moody's Investors Service. U.S. money-market funds run by Bank of America, Credit Suisse, Fidelity Investments and Morgan Stanley held more than $6 billion of CDOs with subprime debt in June, according to fund managers and filings with the U.S. Securities and Exchange Commission (SEC). Money-market funds with total assets of $300 billion have invested in subprime debt this year. There are 38.4 million money-market fund accounts in the U.S., according to the Investment Company Institute (ICI). Assets in money market funds total about $2.5 trillion. This year, CDOs have sold more than $11 billion in the form of investment-grade commercial paper to money-market funds, SEC filings show.
Accredited Home Lenders Holding Co. agreed to trade about $1 billion in loans with an investor at an advance rate in order to reduce the company's exposure to margin calls. Under the 90-day purchase agreement, the San Diego-based mortgage company said it didn't anticipate the transaction to produce or use any significant liquidity.
Nouriel Roubini: "The key issue ahead is whether the Fed discount rate operation will re-liquify totally frozen credit markets. My view is that it will not be successful as credit problems that are creating the market turmoil cannot be solved by liquidity injections. Why should banks aggressively use the discount window to reliquify the ABCP and other constipated credit markets when the exposure of these markets to toxic waste subprime, subslime and other uncertain value mortgage securities (RMBS, CDOs) is potentially widespread and risky. So the Friday actions by the Fed may soon fail and a cut in the Fed Funds rate – even before the September FOMC – may turn out to be necessary."
To dodge the rising fees that credit card companies tack on to transactions, both no-name and big-brand stations are charging drivers less when they buy with cash. In California, the savings range from 3 cents to 15 cents a gallon.
Zman: "Pemex literally runs for the hills. According to Upstream, Pemex has evacuated 407 platforms (>14,000 men in a day!) in the Campeche Sound area (southern Gulf) including the entire Cantarell field (the world’s third largest oil field). In aggregate, production is down a staggering 2.65 million bpd or roughly 80% of total Pemex. Of note, the U.S. imports approximately 1.46 million bopd from Mexico (making it the U.S.’s third largest source behind Canada and Saudi Arabia). That breaks out to roughly 15% of total U.S. imports so the storm has the potential of quickly boosting WTI. While natural gas was obviously affected as well Mexico remains a net importer of gas from the U.S...According to the FreeMarket News, China is expected to suffer coal shortages by 2010."
Pemex, has shut in about 3% of total world oil production as Hurricane Dean impacts production. The 407 wells shut-in by Pemex produce 2.65 million barrels of crude oil and 2.63 billion cubic feet of natural gas per day, while U.S. production from the Gulf of Mexico is roughly 1.3 million (crude) and 7.7 billion (natural gas),
Washington Post: "Vice President Cheney's office acknowledged for the first time yesterday that it has dozens of documents related to the administration's warrantless surveillance program, but it signaled that it will resist efforts by congressional Democrats to obtain them.The disclosure by Cheney's counsel, Shannen W. Coffin, came on the day that the Senate Judiciary Committee had set as a deadline for the Bush administration to turn over documents related to the wiretapping program, which allowed the National Security Agency to monitor communications between the United States and overseas without warrants."
Target continues to expect August comps to increase in the range of 4-6% versus 2.8% last year.
David Merkel: "Anytime the spread between Treasury bill yields and Eurodollar yields (offshore dollar bank lending rates) gets too great, there is a lack of confidence in the banking system. The discount rate will do something to help here, but only a cut in Fed funds will get the speculative juices going, for good and for ill. As it stands, yesterday, at 2.40%, the TED [Treasury-Eurodollar] spread is the highest it has been since the crash in 1987, when it hit nearly 3%...5.75% is inadequate compensation for many of the risks taken on by the Federal Reserve through the discount window. It may rescue some marginal entities, but it will promote inflation and moral hazard."
Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about 3 billion euros ($4 billion) in investments linked to U.S. subprime mortgages, according to a person with knowledge of the matter.
The ETF, The U.S. Natural Gas Fund, began trading on 4/18/07. It made a new low on Tuesday. In spite of the high natural gas supplies, I believe these levels represent an attractive long-term opportunity. The ETF was $53 in June and now trades at the $37+ level. Natural gas traded as low as $5.77, a level not seen since mid-February of 2005.
Fortune: "A recent spike in rates on so-called jumbo mortgages is raising the cost of buying an expensive home. The combined effect of psychology and higher rates is simple but brutal: A theoretical buyer is likely to offer you less -- maybe 10% to 15% less -- than he might have just one month ago."
Google and Yahoo are consumers' favorite online brands, according to a new report from Jupiter Research.
Ballmer said Microsoft has no plans to do another massive deal like the aQuantive one to build out its advertising strategy. Instead, the company will focus on a combination of making smaller acquisitions and building new infrastructure where it is necessary to help Microsoft compete with advertising and search giant Google Inc. So far, Microsoft has done a poor job of competing with Google. Without a purchase of Yahoo, I don't see their results improving.
According to Bloomberg, uranium tumbled 14 percent last week as supply beat demand and the U.S. Department of Energy prepared to sell inventories of the metal used to fuel nuclear reactors, said industry pricing service Ux Consulting LLC. The radioactive metal for immediate delivery fell $15 to $90 a pound, Roswell, Georgia-based Ux said yesterday in its Ux Weekly report. The weekly decline is the biggest-ever recorded by Ux. The price has dropped 35 percent since trading at a record $138 a pound in June.
TheConservativeVoice: "In short, Bush intends to help Iran's crisis-ridden oil and gas sector with advanced US technology, easy credits,and easy access to export markets. The US policy is not to impose sanctions on Iran but to offer bribes. Do not be mislead by Bush's rhetoric against Iran, which is the new US partner in the Middle East. "
Tribune Co. shareholders overwhelmingly approved the company's $8.2 billion acquisition, according to media reports Tuesday. Preliminary results showed that 97% of those casting votes approved the leveraged buyout deal led by billionaire Sam Zell, the Associated Press reported.
Egypt bought 240,000 metric tons of U.S. soft red-winter wheat for delivery in October and November. Overseas orders for U.S. supplies are up 86 percent since June 1 from a year earlier, Department of Agriculture data show.
Vestas Wind Systems A/S, the world's biggest windmill maker, rose 5.3 percent on the Copenhagen exchange after profit surged on increasing demand for alternatives to fossil fuel. Second-quarter net income climbed to 51 million euros ($69 million), or 28 cents a share, from 10 million euros, or 5 cents, a year earlier, Randers, Denmark-based Vestas said today in a statement. Sales rose 19 percent to 1.07 billion euros.
David Fortenberry, drilling manager for Devon Energy's company's central division, said FlexRigs built by Helmerich and Payne save time and money.
Devon will typically spend $30,000 to $50,000 per day on a rig, so reducing the number of days can result in real savings for the company.
This year, Devon plans to drill about 500 horizontal wells in the Barnett Shale.
Fortenberry estimated that FlexRigs save the company about $200,000 per well.
As the markets bounced around during the first 4 hours of trading, the VIX dipped another point to 25+.
Walter Bagehot: "Poverty is an anomaly to rich people; it is very difficult to make out why people who want dinner do not ring the bell."
December gold fell 30 cents to close at $666.20 an ounce Tuesday. September silver fell 1.9%, or 22.5 cents, to close at $11.51 an ounce and September copper lost 0.95 cent to end at $3.15 a pound.
ExxonMobil, Chevron, Conocophillips, and Schlumberger have each dropped 10+ points from their July highs, while Valero has dropped 15+ points. Meanwhile, since last week, many of the big homebuilders have seen their shares rise close to 10% in price.
Mike Shedlock: "But while the Fed can encourage or discourage borrowing via interest rate policy, it cannot force banks to lend or consumers or businesses to borrow. The point of no return is when it becomes impossible to pay back what has been borrowed, and there is no funding available to service the debts. That is what happened in Japan. And that is just now starting to happen in the U.S...But when Bernanke tries hard to inflate (and he will) ... that's when gold is likely to resume its rightful role as money and begin a powerful run-up to new all time highs. Perhaps we get a deflation scare first (people over-leveraged in gold for the wrong reasons are forced out) but the long term beauty of gold is that Bernancke does not have to succeed, he merely has to try."
Natural gas closed at a 2 1/2 year low at $5.82 and crude dropped to $69.47 a barrel.
First Magnus Financial Corp., the second-largest privately held U.S. mortgage company, filed for bankruptcy, less than one week after it shut down its lending operations.
Residential Capital LLC, the biggest privately held mortgage lender, has more than a 40 percent chance of defaulting on its debt in the next year, trading in credit- default swaps suggest.
The National Association of Realtors expects membership rolls to decline this year for the first time in a decade. The group ended 2006 with nearly 1.4 million members — almost double the roughly 716,000 it had in 1997 — but expects 2007 to close with 1.3 million, a drop of more than 4 percent.
Will Rogers: “There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.” Are they building an electric fence at 1600 Pennsylvania Ave.?
Capital One, best known as a credit card issuer, said it will cut 1,900 jobs and take $860 million in charges as it closes its GreenPoint Mortgage unit, which it acquired last December when it paid $13.2 billion for North Fork Bancorp Inc.
McLean, Virginia-based Capital One plans to close GreenPoint's headquarters in Novato, California as well as 31 offices in 19 states, and will stop offering mortgages through brokers. "Over the past few months, we have experienced an unprecedented disruption in the secondary mortgage markets," Capital One Chairman and Chief Executive Officer Richard Fairbank wrote in a memo to employees. "I made the decision to wind down the business with a heavy heart."
Lee Adler: "There really is a liquidity crisis out there. There’s simply too much bad paper not paying the claims against it, and not being worth what the mark to model fairy tale said it was worth...The fact is that the Fed remains shockingly tight in terms of the monetary base, which they have maintained at ZERO growth for the past 8 months, and LESS THAN ZERO in the past week when the sheet was hitting the fan. Sure that can all change next week, but you wouldn’t know it from the actions they took on Friday. At this point, the cut at the discount window looks like nothing more than throwing a bone to a starving dog. Big freaking deal. Watch what they do, not what they say. It seems to me that they either don’t yet have a handle on the magnitude of the crisis, or they think that smoke and mirrors will fool everyone into thinking that happy days are here again and that the credit markets will “unfreeze” as a result. But so far, they haven’t “done” anything."
According to the WSJ, the ECB allotted 275 billion euros (US$370.84 billion) in one-week funds, which is 46 billion euros more than it estimated banks need for routine business. Other central-bank injections Tuesday also aimed to calm money markets. The U.S. Federal Reserve injected $3.75 billion, following the $3.5 billion it put into markets Monday. The Bank of Japan put 800 billion yen (US$6.96 billion) into their system.
The People's Bank of China made its fourth rate hike of the year on Tuesday, saying it wanted to stabilize inflation expectations and control credit. It is raising its deposit rate by 27 basis points to 3.6% and its lending rate by 18 basis points to 7.02%. Meanwhile, rate cuts are on the horizon for the U.S. What does that tell you about these two economies?
China has taken a significant move to ease further its foreign-exchange controls with a pilot program that allows citizens to buy hard currency to invest in overseas securities, according to an announcement by the State Administration of Foreign Exchange (SAFE).
U.S. foreclosure filings totaled 179,599 last month, up 9% from June and 93% higher than in July 2006, according to data compiled by RealtyTrac. Five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation's July foreclosure filings, said James Saccacio, chief executive of Irvine, Calif.-based RealtyTrac.
The Bank of England's facility for lending to banks, similar to the U.S. Federal Reserve's discount window, was tapped for the first time since July 17. A total of 314 million pounds ($621 million) was used, borrowed at a rate of 6.75%, which is one percentage point over the base rate of 5.75%.
The three-month bill yield climbed 0.39 percentage point to 3.59 percent at 2:47 p.m., rising for the first day since Aug. 13. The increase is the biggest since Dec. 26, 2000. Yields fell 0.66 percentage point yesterday, the most since the stock market crash of October 1987 as money-market funds dumped asset-backed commercial paper for the shortest-maturity government debt.
The New York Federal Reserve Bank lowered the fee it charges banks for borrowing Treasury securities overnight from 1% to 0.5%, the bank announced Tuesday. The securities lending program is designed to increase liquidity in the Treasury market.
Irwin Kellner: "The credit squeeze represents a re-pricing of such risks. Unless and until these risks are reduced, the credit squeeze will continue, thereby threatening not just the housing industry - but the rest of the economy as well.
You can see the effects of this squeeze in the rates on Treasury bills. Reflecting a collective refusal to invest in anything other than the safest instruments, investors yesterday piled into short-dated Treasuries, sending their yields down by the most for any day since the stock market crash of 1987."
Unbeknownst to most investors, some of the largest money-market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations (CDOs) backed by subprime mortgage loans. CDOs are packages of bonds and loans, and almost half of all CDOs sold in the U.S. in 2006 contained subprime debt, according to a March report by Moody's Investors Service. U.S. money-market funds run by Bank of America, Credit Suisse, Fidelity Investments and Morgan Stanley held more than $6 billion of CDOs with subprime debt in June, according to fund managers and filings with the U.S. Securities and Exchange Commission (SEC). Money-market funds with total assets of $300 billion have invested in subprime debt this year. There are 38.4 million money-market fund accounts in the U.S., according to the Investment Company Institute (ICI). Assets in money market funds total about $2.5 trillion. This year, CDOs have sold more than $11 billion in the form of investment-grade commercial paper to money-market funds, SEC filings show.
Accredited Home Lenders Holding Co. agreed to trade about $1 billion in loans with an investor at an advance rate in order to reduce the company's exposure to margin calls. Under the 90-day purchase agreement, the San Diego-based mortgage company said it didn't anticipate the transaction to produce or use any significant liquidity.
Nouriel Roubini: "The key issue ahead is whether the Fed discount rate operation will re-liquify totally frozen credit markets. My view is that it will not be successful as credit problems that are creating the market turmoil cannot be solved by liquidity injections. Why should banks aggressively use the discount window to reliquify the ABCP and other constipated credit markets when the exposure of these markets to toxic waste subprime, subslime and other uncertain value mortgage securities (RMBS, CDOs) is potentially widespread and risky. So the Friday actions by the Fed may soon fail and a cut in the Fed Funds rate – even before the September FOMC – may turn out to be necessary."
To dodge the rising fees that credit card companies tack on to transactions, both no-name and big-brand stations are charging drivers less when they buy with cash. In California, the savings range from 3 cents to 15 cents a gallon.
Zman: "Pemex literally runs for the hills. According to Upstream, Pemex has evacuated 407 platforms (>14,000 men in a day!) in the Campeche Sound area (southern Gulf) including the entire Cantarell field (the world’s third largest oil field). In aggregate, production is down a staggering 2.65 million bpd or roughly 80% of total Pemex. Of note, the U.S. imports approximately 1.46 million bopd from Mexico (making it the U.S.’s third largest source behind Canada and Saudi Arabia). That breaks out to roughly 15% of total U.S. imports so the storm has the potential of quickly boosting WTI. While natural gas was obviously affected as well Mexico remains a net importer of gas from the U.S...According to the FreeMarket News, China is expected to suffer coal shortages by 2010."
Pemex, has shut in about 3% of total world oil production as Hurricane Dean impacts production. The 407 wells shut-in by Pemex produce 2.65 million barrels of crude oil and 2.63 billion cubic feet of natural gas per day, while U.S. production from the Gulf of Mexico is roughly 1.3 million (crude) and 7.7 billion (natural gas),
Washington Post: "Vice President Cheney's office acknowledged for the first time yesterday that it has dozens of documents related to the administration's warrantless surveillance program, but it signaled that it will resist efforts by congressional Democrats to obtain them.The disclosure by Cheney's counsel, Shannen W. Coffin, came on the day that the Senate Judiciary Committee had set as a deadline for the Bush administration to turn over documents related to the wiretapping program, which allowed the National Security Agency to monitor communications between the United States and overseas without warrants."
Target continues to expect August comps to increase in the range of 4-6% versus 2.8% last year.
David Merkel: "Anytime the spread between Treasury bill yields and Eurodollar yields (offshore dollar bank lending rates) gets too great, there is a lack of confidence in the banking system. The discount rate will do something to help here, but only a cut in Fed funds will get the speculative juices going, for good and for ill. As it stands, yesterday, at 2.40%, the TED [Treasury-Eurodollar] spread is the highest it has been since the crash in 1987, when it hit nearly 3%...5.75% is inadequate compensation for many of the risks taken on by the Federal Reserve through the discount window. It may rescue some marginal entities, but it will promote inflation and moral hazard."
Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about 3 billion euros ($4 billion) in investments linked to U.S. subprime mortgages, according to a person with knowledge of the matter.
The ETF, The U.S. Natural Gas Fund, began trading on 4/18/07. It made a new low on Tuesday. In spite of the high natural gas supplies, I believe these levels represent an attractive long-term opportunity. The ETF was $53 in June and now trades at the $37+ level. Natural gas traded as low as $5.77, a level not seen since mid-February of 2005.
Fortune: "A recent spike in rates on so-called jumbo mortgages is raising the cost of buying an expensive home. The combined effect of psychology and higher rates is simple but brutal: A theoretical buyer is likely to offer you less -- maybe 10% to 15% less -- than he might have just one month ago."
Google and Yahoo are consumers' favorite online brands, according to a new report from Jupiter Research.
Ballmer said Microsoft has no plans to do another massive deal like the aQuantive one to build out its advertising strategy. Instead, the company will focus on a combination of making smaller acquisitions and building new infrastructure where it is necessary to help Microsoft compete with advertising and search giant Google Inc. So far, Microsoft has done a poor job of competing with Google. Without a purchase of Yahoo, I don't see their results improving.
According to Bloomberg, uranium tumbled 14 percent last week as supply beat demand and the U.S. Department of Energy prepared to sell inventories of the metal used to fuel nuclear reactors, said industry pricing service Ux Consulting LLC. The radioactive metal for immediate delivery fell $15 to $90 a pound, Roswell, Georgia-based Ux said yesterday in its Ux Weekly report. The weekly decline is the biggest-ever recorded by Ux. The price has dropped 35 percent since trading at a record $138 a pound in June.
TheConservativeVoice: "In short, Bush intends to help Iran's crisis-ridden oil and gas sector with advanced US technology, easy credits,and easy access to export markets. The US policy is not to impose sanctions on Iran but to offer bribes. Do not be mislead by Bush's rhetoric against Iran, which is the new US partner in the Middle East. "
Tribune Co. shareholders overwhelmingly approved the company's $8.2 billion acquisition, according to media reports Tuesday. Preliminary results showed that 97% of those casting votes approved the leveraged buyout deal led by billionaire Sam Zell, the Associated Press reported.
Egypt bought 240,000 metric tons of U.S. soft red-winter wheat for delivery in October and November. Overseas orders for U.S. supplies are up 86 percent since June 1 from a year earlier, Department of Agriculture data show.
Vestas Wind Systems A/S, the world's biggest windmill maker, rose 5.3 percent on the Copenhagen exchange after profit surged on increasing demand for alternatives to fossil fuel. Second-quarter net income climbed to 51 million euros ($69 million), or 28 cents a share, from 10 million euros, or 5 cents, a year earlier, Randers, Denmark-based Vestas said today in a statement. Sales rose 19 percent to 1.07 billion euros.
David Fortenberry, drilling manager for Devon Energy's company's central division, said FlexRigs built by Helmerich and Payne save time and money.
Devon will typically spend $30,000 to $50,000 per day on a rig, so reducing the number of days can result in real savings for the company.
This year, Devon plans to drill about 500 horizontal wells in the Barnett Shale.
Fortenberry estimated that FlexRigs save the company about $200,000 per well.
As the markets bounced around during the first 4 hours of trading, the VIX dipped another point to 25+.
Walter Bagehot: "Poverty is an anomaly to rich people; it is very difficult to make out why people who want dinner do not ring the bell."
December gold fell 30 cents to close at $666.20 an ounce Tuesday. September silver fell 1.9%, or 22.5 cents, to close at $11.51 an ounce and September copper lost 0.95 cent to end at $3.15 a pound.
ExxonMobil, Chevron, Conocophillips, and Schlumberger have each dropped 10+ points from their July highs, while Valero has dropped 15+ points. Meanwhile, since last week, many of the big homebuilders have seen their shares rise close to 10% in price.
Mike Shedlock: "But while the Fed can encourage or discourage borrowing via interest rate policy, it cannot force banks to lend or consumers or businesses to borrow. The point of no return is when it becomes impossible to pay back what has been borrowed, and there is no funding available to service the debts. That is what happened in Japan. And that is just now starting to happen in the U.S...But when Bernanke tries hard to inflate (and he will) ... that's when gold is likely to resume its rightful role as money and begin a powerful run-up to new all time highs. Perhaps we get a deflation scare first (people over-leveraged in gold for the wrong reasons are forced out) but the long term beauty of gold is that Bernancke does not have to succeed, he merely has to try."
Natural gas closed at a 2 1/2 year low at $5.82 and crude dropped to $69.47 a barrel.
First Magnus Financial Corp., the second-largest privately held U.S. mortgage company, filed for bankruptcy, less than one week after it shut down its lending operations.
Residential Capital LLC, the biggest privately held mortgage lender, has more than a 40 percent chance of defaulting on its debt in the next year, trading in credit- default swaps suggest.
The National Association of Realtors expects membership rolls to decline this year for the first time in a decade. The group ended 2006 with nearly 1.4 million members — almost double the roughly 716,000 it had in 1997 — but expects 2007 to close with 1.3 million, a drop of more than 4 percent.
Will Rogers: “There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.” Are they building an electric fence at 1600 Pennsylvania Ave.?
Monday, August 20, 2007
Reducing Risk
8/21/07 Reducing Risk
Mortgage lender Thornburg Mortgage Inc sold $20.5 billion of assets and reduced its borrowings to cut its risk amid a difficult market for home loans. The real estate investment trust said the actions will stabilize the company's ability to meet its financing obligations and continue its mortgage lending operations.But the risk reduction will also result in a realized capital loss of about $930 million. That's one big chunk of capital.
Luminent Mortgage Capital will sell a majority of itself at a deep discount to shore up its financial condition. Arco Capital Corp., a San Juan, Puerto Rico-based holding company, will have the right to buy up to 51 percent of the company at a price 76 percent below Friday's closing price.
"Although macro economic factors pressure the home improvement industry, we continue to capture market share in this challenging sales environment," Robert A. Niblock, Lowe's chairman and chief executive said in a statement. That may be so but their same-store sales declined 2.6% and they lowered their full year outlook.
John Hussman: "Unfortunately, there is nothing even close to a one-to-one relationship between earnings yields and interest rates in long-term historical data. Why doesn't Wall Street know this? Because data on forward operating earnings estimates has only been compiled since the early 1980's. There is no long-term historical data, and for this reason, the “normal” level of forward operating P/E ratios, as well as the long-term validity of the Fed Model, has remained untested."
The Oil Drum: "There is now a good likelihood that Dean will impact significantly the Cantarell and the KMZ oil complex which constitute the backbone of the Mexican production." Pemex, Mexico's state oil company, said Monday it was evacuating all 18,000 workers from rigs in the southern Gulf of Mexico, in the storm's path.
Brad Setser: "The problem: the higher-yielding assets that the US financial system has produced recently currently don't look so good. Once things settle down, I personally suspect that it will be a bit harder to convince the rest of the world – even previously generous official creditors – to finance the US on quite the same terms."
Dendreon Corp. said it has published promising Phase I clinical data for its oncology drug Neuvenge, a proposed treatment for a type of breast cancer known as HER2/neu. The data will appear in the Aug. 20 edition of the Journal of Clinical Oncology.
KKR Financial agreed to sell 16 million shares to institutional investors at $14.40 each -- its closing price on Friday -- to raise $230 million, and will offer $270 million worth fo shares to existing holders, also at $14.40 each. Each existing holder will be able to buy 0.19430 rights for each share they own. Kohlberg Kravis Roberts will buy up to $100 million of the shares if they aren't sold.
Countrywide is laying off loan originators and support staff as applications are down and to cut costs.
Solent Capital Partners LLP, the London-based hedge-fund manager, may be forced to sell assets in a mortgage-backed securities unit after the rout in credit markets hampered its ability to repay debt. Solent's Mainsail II Ltd. unit is drawing on its emergency finance after failing to raise short-term debt in the commercial paper market, the company said today in a statement on Regulatory News Service. Mainsail is one of $6.7 billion of collateralized- debt obligations managed by Solent, according to Fitch Ratings.
Dick Morris: “But Bush faces a stark choice: If he doesn’t begin pulling out, his party will lose the White House, lose Congress by stunning and likely filibuster-proof margins, and his tax cut and education reforms will be repealed. His footsteps will be obliterated from history. It will be as if he never served.”
Bill Gross: "Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios."
U.S. leading economic indicators increased by 0.4% in July, pointing to slow growth for the rest of the year, the Conference Board reported Monday. The index, designed to forecast economic trends six to nine months ahead, has risen in three months so far this year. It's up 0.1% in the past six months, with half of the 10 indicators growing over that time. The leading index "continues to suggest that the economy is likely to grow in the near term, albeit at a slow pace," the private research group said in a statement. Six of the 10 leading indicators advanced in July.
Australia's Macquarie Bank has secured an A$8 billion ($6.38 billion) loan facility from a syndicate of international and Australian banks. The securities firm said it plans to use the loan for a restructuring proposal aimed at improving its international presence.
SunTrust Banks Inc. expects to eliminate about 7 percent of its workforce by the end of next year as profit from retail and commercial banking declines. The company said it will cut 2,400 of its 33,000 jobs.
London house prices fell for the first time in a year this month, a sign higher interest rates are cooling Britain's property boom, a Rightmove Plc report showed.
``If Fukui can't raise rates from 0.5 percent by March, he would probably feel that he didn't do what he set out to do,'' says Masaaki Kanno, a former central-bank official who is now chief economist at JPMorgan Securities Japan Co.
Buyout firms including Blackstone Group LP, Carlyle Group and CCMP Capital Asia may bid for South Korea electronics retailer Himart Co., said three people with direct knowledge of their plans.
According to the WSJ, closed-end mutual funds are trading at the deepest discounts to their underlying assets in two years.
London's Sunday Telgraph: "The public finances rely on a strong, vibrant stock market to pull in billions of pounds in tax. As our graph shows, there is a quite astonishing correlati on between the performance of the FTSE and corporation tax receipts. Take a look at previous Budget documents and it's possible to get a good idea of just how damaging stock market slumps can be to the public finances."
In the U.S., year to date, individual income-tax receipts are up 11.3%, while corporate-tax receipts are also up 11%. I figure the recent market turmoil will impact these receipts going forward.
``There is a lot to rollover in the commercial paper market and that has people getting nervous,'' said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut at primary dealer RBS Greenwich Capital.
National Bank of Canada has agreed to buy nearly $1.9 billion in asset-backed commercial paper held by the company's mutual funds and investors to eliminate its customers' exposure to that market. The proposed move comes as "market conditions have become extremely abnormal," the company said.
According to the FT, Deutsche Bank tapped the Fed's discount window on Monday.
December gold fell 30 cents to close at $666.50 an ounce Monday.
U.K. mortgage lender Northern Rock sold 465 million pounds ($920 million) of commercial secured loans to a unit of Lehman Brothers. This sale is made in accordance with Northern Rock's previously stated strategy of removing higher risk weighted assets from its balance sheet, the bank said.
In Monday's trading, Blackstone made a new low for the year. The stock has dropped from $38 to $23 with the IPO priced at $31.
Relentless thunderstorms dropped up to a foot of rain on parts of Minnesota and Wisconsin, setting off mudslides and causing flooding that forced evacuations of entire towns.
Phil Davis: "It’s hard to see a bottom except in retrospect. I prefer to call tops because you can cash out of a top with a profit (one would hope), but a bottom requires you to make a commitment, to put your precious cash back in play, putting a large leap of faith in a market that has been handing out naught but suffering to its followers." Calling tops is at best a crap shoot.
A two-day outage that left millions of Skype users unable to use the popular Internet phone service was caused by an abnormally high number of restarts after people had downloaded a Windows security update, the company said Monday.
After 4 hours of trading on Monday, and with the Dow down over 70 points, the VIX had declined about 1.60 points to 28.40. Volatility is still alive and kicking--- despite the recent drop from the 35-36 level. In the late afternoon the Dow reversed itself and showed a gain of 70 points and the VIX declined another 2 points to 26+.
Vizio in the second quarter shipped 606,402 LCD-TVs in North America, up a stunning 76.4 percent increase from 343,704 in the first quarter, according to iSuppli Corp. This caused Vizio's North American unit market share to rise to 14.5 percent, up from 9.4 percent in the first quarter. The sales surge also caused Vizio to rise four positions in the North American rankings, going from the fifth-placed brand in the first quarter to No. 1 in the second quarter—passing by Samsung, Philips, Sharp and Sony on the way.
Natural gas for September delivery finished the session with a loss of 13.8%, or 97 cents, at $6.04 per million British thermal units on the New York Mercantile Exchange. It's the biggest one-day decline since the price fell 18 percent on Feb. 27, 2003. September crude oil fell by 86 cents to close at $71.12 a barrel. The contract, which expires at the close of Tuesday's trading session, had gained 51 cents last week. The "collective sigh of relief in Texas and the Gulf Coast region may be short lived as a good 101 days of tropical storm activity is still pending," said Kevin Kerr, editor of Global Resources Trader, a newsletter service of MarketWatch, the publisher of this report.
The yield on the three-month Treasury bill fell about 0.8 percentage point to 2.96 percent as of 1:57 p.m. in New York. It's the biggest drop since Oct. 20, 1987, when the yield fell 85 basis points, or 0.85 percentage point, on the day the stock market crashed, and more than the decline of 39 basis points on Sept. 13, 2001, the day the Treasury market reopened after the attacks. The yield has fallen from 4.69 percent on Aug. 13.
Homebuilder WCI Communities added Carl Icahn and two of his nominees to its board Monday, ending for now the billionaire's attempts to replace the board with 10 of his own candidates. WCI Communities also said its lenders agreed to amend the company's revolving credit facility, term loan agreement and tower facility. The amendments include a waiver or consent to any default arising from the board changes. The company's borrowing capacity under the revolving credit facility was reduced to $700 million, with future reductions planned.
Iraqi Prime Minister Nuri al-Maliki and his government should be voted out of office by the country's parliament because he is incapable of bringing about political unity, U.S. Senate Armed Services Committee Chairman Carl Levin said.
Mortgage lender Thornburg Mortgage Inc sold $20.5 billion of assets and reduced its borrowings to cut its risk amid a difficult market for home loans. The real estate investment trust said the actions will stabilize the company's ability to meet its financing obligations and continue its mortgage lending operations.But the risk reduction will also result in a realized capital loss of about $930 million. That's one big chunk of capital.
Luminent Mortgage Capital will sell a majority of itself at a deep discount to shore up its financial condition. Arco Capital Corp., a San Juan, Puerto Rico-based holding company, will have the right to buy up to 51 percent of the company at a price 76 percent below Friday's closing price.
"Although macro economic factors pressure the home improvement industry, we continue to capture market share in this challenging sales environment," Robert A. Niblock, Lowe's chairman and chief executive said in a statement. That may be so but their same-store sales declined 2.6% and they lowered their full year outlook.
John Hussman: "Unfortunately, there is nothing even close to a one-to-one relationship between earnings yields and interest rates in long-term historical data. Why doesn't Wall Street know this? Because data on forward operating earnings estimates has only been compiled since the early 1980's. There is no long-term historical data, and for this reason, the “normal” level of forward operating P/E ratios, as well as the long-term validity of the Fed Model, has remained untested."
The Oil Drum: "There is now a good likelihood that Dean will impact significantly the Cantarell and the KMZ oil complex which constitute the backbone of the Mexican production." Pemex, Mexico's state oil company, said Monday it was evacuating all 18,000 workers from rigs in the southern Gulf of Mexico, in the storm's path.
Brad Setser: "The problem: the higher-yielding assets that the US financial system has produced recently currently don't look so good. Once things settle down, I personally suspect that it will be a bit harder to convince the rest of the world – even previously generous official creditors – to finance the US on quite the same terms."
Dendreon Corp. said it has published promising Phase I clinical data for its oncology drug Neuvenge, a proposed treatment for a type of breast cancer known as HER2/neu. The data will appear in the Aug. 20 edition of the Journal of Clinical Oncology.
KKR Financial agreed to sell 16 million shares to institutional investors at $14.40 each -- its closing price on Friday -- to raise $230 million, and will offer $270 million worth fo shares to existing holders, also at $14.40 each. Each existing holder will be able to buy 0.19430 rights for each share they own. Kohlberg Kravis Roberts will buy up to $100 million of the shares if they aren't sold.
Countrywide is laying off loan originators and support staff as applications are down and to cut costs.
Solent Capital Partners LLP, the London-based hedge-fund manager, may be forced to sell assets in a mortgage-backed securities unit after the rout in credit markets hampered its ability to repay debt. Solent's Mainsail II Ltd. unit is drawing on its emergency finance after failing to raise short-term debt in the commercial paper market, the company said today in a statement on Regulatory News Service. Mainsail is one of $6.7 billion of collateralized- debt obligations managed by Solent, according to Fitch Ratings.
Dick Morris: “But Bush faces a stark choice: If he doesn’t begin pulling out, his party will lose the White House, lose Congress by stunning and likely filibuster-proof margins, and his tax cut and education reforms will be repealed. His footsteps will be obliterated from history. It will be as if he never served.”
Bill Gross: "Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios."
U.S. leading economic indicators increased by 0.4% in July, pointing to slow growth for the rest of the year, the Conference Board reported Monday. The index, designed to forecast economic trends six to nine months ahead, has risen in three months so far this year. It's up 0.1% in the past six months, with half of the 10 indicators growing over that time. The leading index "continues to suggest that the economy is likely to grow in the near term, albeit at a slow pace," the private research group said in a statement. Six of the 10 leading indicators advanced in July.
Australia's Macquarie Bank has secured an A$8 billion ($6.38 billion) loan facility from a syndicate of international and Australian banks. The securities firm said it plans to use the loan for a restructuring proposal aimed at improving its international presence.
SunTrust Banks Inc. expects to eliminate about 7 percent of its workforce by the end of next year as profit from retail and commercial banking declines. The company said it will cut 2,400 of its 33,000 jobs.
London house prices fell for the first time in a year this month, a sign higher interest rates are cooling Britain's property boom, a Rightmove Plc report showed.
``If Fukui can't raise rates from 0.5 percent by March, he would probably feel that he didn't do what he set out to do,'' says Masaaki Kanno, a former central-bank official who is now chief economist at JPMorgan Securities Japan Co.
Buyout firms including Blackstone Group LP, Carlyle Group and CCMP Capital Asia may bid for South Korea electronics retailer Himart Co., said three people with direct knowledge of their plans.
According to the WSJ, closed-end mutual funds are trading at the deepest discounts to their underlying assets in two years.
London's Sunday Telgraph: "The public finances rely on a strong, vibrant stock market to pull in billions of pounds in tax. As our graph shows, there is a quite astonishing correlati on between the performance of the FTSE and corporation tax receipts. Take a look at previous Budget documents and it's possible to get a good idea of just how damaging stock market slumps can be to the public finances."
In the U.S., year to date, individual income-tax receipts are up 11.3%, while corporate-tax receipts are also up 11%. I figure the recent market turmoil will impact these receipts going forward.
``There is a lot to rollover in the commercial paper market and that has people getting nervous,'' said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut at primary dealer RBS Greenwich Capital.
National Bank of Canada has agreed to buy nearly $1.9 billion in asset-backed commercial paper held by the company's mutual funds and investors to eliminate its customers' exposure to that market. The proposed move comes as "market conditions have become extremely abnormal," the company said.
According to the FT, Deutsche Bank tapped the Fed's discount window on Monday.
December gold fell 30 cents to close at $666.50 an ounce Monday.
U.K. mortgage lender Northern Rock sold 465 million pounds ($920 million) of commercial secured loans to a unit of Lehman Brothers. This sale is made in accordance with Northern Rock's previously stated strategy of removing higher risk weighted assets from its balance sheet, the bank said.
In Monday's trading, Blackstone made a new low for the year. The stock has dropped from $38 to $23 with the IPO priced at $31.
Relentless thunderstorms dropped up to a foot of rain on parts of Minnesota and Wisconsin, setting off mudslides and causing flooding that forced evacuations of entire towns.
Phil Davis: "It’s hard to see a bottom except in retrospect. I prefer to call tops because you can cash out of a top with a profit (one would hope), but a bottom requires you to make a commitment, to put your precious cash back in play, putting a large leap of faith in a market that has been handing out naught but suffering to its followers." Calling tops is at best a crap shoot.
A two-day outage that left millions of Skype users unable to use the popular Internet phone service was caused by an abnormally high number of restarts after people had downloaded a Windows security update, the company said Monday.
After 4 hours of trading on Monday, and with the Dow down over 70 points, the VIX had declined about 1.60 points to 28.40. Volatility is still alive and kicking--- despite the recent drop from the 35-36 level. In the late afternoon the Dow reversed itself and showed a gain of 70 points and the VIX declined another 2 points to 26+.
Vizio in the second quarter shipped 606,402 LCD-TVs in North America, up a stunning 76.4 percent increase from 343,704 in the first quarter, according to iSuppli Corp. This caused Vizio's North American unit market share to rise to 14.5 percent, up from 9.4 percent in the first quarter. The sales surge also caused Vizio to rise four positions in the North American rankings, going from the fifth-placed brand in the first quarter to No. 1 in the second quarter—passing by Samsung, Philips, Sharp and Sony on the way.
Natural gas for September delivery finished the session with a loss of 13.8%, or 97 cents, at $6.04 per million British thermal units on the New York Mercantile Exchange. It's the biggest one-day decline since the price fell 18 percent on Feb. 27, 2003. September crude oil fell by 86 cents to close at $71.12 a barrel. The contract, which expires at the close of Tuesday's trading session, had gained 51 cents last week. The "collective sigh of relief in Texas and the Gulf Coast region may be short lived as a good 101 days of tropical storm activity is still pending," said Kevin Kerr, editor of Global Resources Trader, a newsletter service of MarketWatch, the publisher of this report.
The yield on the three-month Treasury bill fell about 0.8 percentage point to 2.96 percent as of 1:57 p.m. in New York. It's the biggest drop since Oct. 20, 1987, when the yield fell 85 basis points, or 0.85 percentage point, on the day the stock market crashed, and more than the decline of 39 basis points on Sept. 13, 2001, the day the Treasury market reopened after the attacks. The yield has fallen from 4.69 percent on Aug. 13.
Homebuilder WCI Communities added Carl Icahn and two of his nominees to its board Monday, ending for now the billionaire's attempts to replace the board with 10 of his own candidates. WCI Communities also said its lenders agreed to amend the company's revolving credit facility, term loan agreement and tower facility. The amendments include a waiver or consent to any default arising from the board changes. The company's borrowing capacity under the revolving credit facility was reduced to $700 million, with future reductions planned.
Iraqi Prime Minister Nuri al-Maliki and his government should be voted out of office by the country's parliament because he is incapable of bringing about political unity, U.S. Senate Armed Services Committee Chairman Carl Levin said.
Sunday, August 19, 2007
Financial Fragility?
8/20/07 Financial Fragility?
"That's the problem," says John Taylor, chief investment officer at FX Concepts, a New York hedge fund that specializes in currencies and manages $13 billion. "We're basically out of [the carry trade] now and it gets more complex and harder to make money." Free lunches are not forever.
According to Bloomberg, a doubling in currency volatility since June has knocked the ``carry trade'' off its perch as the most profitable strategy in foreign exchange, hurting investors from John W. Henry & Co. to Campbell & Co. In one of the more popular carry trades, a U.S. investor who borrowed in yen to buy high-yielding Australian dollars enjoyed a return of 11 percent this year through June 5, data compiled by Bloomberg show. The gains have since been wiped out. Campbell's biggest fund, with $9 billion in assets, lost 10.8 percent in July, the most since 1990. John W. Henry's $122 million Financial and Metals Portfolio fell 11.7 percent in July, its worst month since March.
Hyman Minsky: “Those that supply financial resources live in the same expectational climate as those that demand them.”
About 1.7 million households will lose their homes to foreclosure this year and next, according to estimates by Moody’s Economy.com. That would be nearly double the number of the previous two years.
Brett Steenbarger: " Much of the market's short-term swings consists of counter-movement once markets become too one-sided. When bulls are trapped in positions no longer rising, they become sellers, exaggerating the subsequent decline. When bears are caught in positions no longer falling, they cover shorts, exaggerating the rise.
The key to short-term trading is to be one of the ones trapping the longs and shorts, not to be one of the trapped." Since I am not a trapper, short-term trading is not for me. I have a feeling there are few good trappers on a day to day basis. I prefer to wait for the the good pitch to hit, and getting on base is a good asset-building foundation.
Sentinel Management Group Inc., a U.S. futures commission merchant whose decision to freeze client accounts on Tuesday helped roil global financial markets, filed for Chapter 11 bankruptcy protection late on Friday. The cash management company, which managed about $1.6 billion of assets, said its board decided it was in "the best interests of the corporation, its creditors and other interested parties that a voluntary petition be filed ... in an effort to restructure the indebtedness of the corporation," according to a filing in the bankruptcy court for the Northern District of Illinois.
Mike Shedlock: "There are going to be ripple effects from this, perhaps lots of them. For starters, anyone that had cash parked at Sentinel can now kiss that cash goodbye. Small to medium size hedge funds with money parked at Sentinel are now likely to be facing margin calls they have no way to meet. Worse yet, this is just the beginning of disasters like these. When total disaster strikes (and it will), the battle cry will undoubtedly be "No one could possibly have seen this coming. It's too late to sell now."
Gulf of Mexico oil and natural gas producers were evacuating offshore workers and shutting small amounts of production on Saturday as they watched powerful Hurricane Dean storm across the Caribbean Sea toward an entry into the Gulf next week. National Weather Service projections show Hurricane Dean, a Category 4 hurricane, could impact the Texas coast by the middle of next week.
More than 900,000 people were evacuated along China's southeast coast as a typhoon roared toward the mainland Saturday after killing at least one person on Taiwan, state media said.
Wal-Mart shares were down a penny on Friday and now trade at levels last seen in 1999. At $43, I feel confident that long-term investors will be rewarded. As the premier global retailer, I would rather invest my money in Wal-Mart than the U.S. dollar. I feel confident that Wal-Mart will provide a positive return to share owners over time. That's more than I can say for the greenback.
In the second quarter of this year, according to Thomson Financial, U.S. companies announced plans to buy back $124.8 billion of their own shares, a 16.3 increase from the first quarter. With tighter credit conditions, it will be interesting to see whether these buyback plans are scaled back time wise during these volatile market conditions.
Japan's mobile-advertising expenditures are expected to reach $1 billion by 2011 - more than three times the $328 million last year, according to an April report from media and communication think tank Dentsu Communication Institute Inc.
Yahoo 's mapping service combines search- and location-based mobile technology. All one has to do is to enter a keyword to search, and advertisers registered on Yahoo's database pop up on a digital map.
Barron's had a bullish piece on Nabors. In fiscal 2007 the company will earn around $3.40 and maybe 10% higher in 2008. At the $28 level, the risk/reward appears favorable.
Starbucks Corp. will open its first cafe in Russia next month after a decade of delays that included losing trademark rights. The first shop will open in September in the Mega Mall north of Moscow, Starbucks spokeswoman Kate Bovey said.
Jeffrey Cooper: "If the smartest guys in the room lose $1.4 bln in six trading days, what does that say about Joe Hedge Fund? If the most powerful platforms, the best brains, and the most moolah gets crushed, what does that say about the propensity to panic on the Street?
Algorithms? Here's an algorithm for ya. Heightened returns = heightened risk.
Or a law of physics: heightened risk squared by leverage, divided by hubris, multiplied by the diameter of other people's money is the circumference of what could become a real conundrum for the real economy." Obviously, these aren't the smartest guys in the room. The first rule of successful investing is not to lose money. Now you can rightly observe that everyone will lose money. One cannot be successful 100% of the time. However, capital preservation must be a paramount focus.
Hyman Minsky: "An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash [at the same time]."
In these times, increased attention should be placed on consistent positive cash flow as well as consistently high returns on equity. The times to bullshit the market with financial engineering has passed.
J.P. Morgan: " I made all my money by selling too soon."
The Italian economy ministry may revise down its estimates for the 2007 growth in gross domestic product to 1.8 pct from a previous 2.0 pct due to the crisis that hit global financial markets over the past few weeks, according to an unsourced report on Sunday's Corriere della Sera.
Jeremy Grantham: "People always look at P/E and take great comfort. Often it's perfectly fine to do that. But today it's horribly misleading because the main pain is in profit margins. In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist."
"That's the problem," says John Taylor, chief investment officer at FX Concepts, a New York hedge fund that specializes in currencies and manages $13 billion. "We're basically out of [the carry trade] now and it gets more complex and harder to make money." Free lunches are not forever.
According to Bloomberg, a doubling in currency volatility since June has knocked the ``carry trade'' off its perch as the most profitable strategy in foreign exchange, hurting investors from John W. Henry & Co. to Campbell & Co. In one of the more popular carry trades, a U.S. investor who borrowed in yen to buy high-yielding Australian dollars enjoyed a return of 11 percent this year through June 5, data compiled by Bloomberg show. The gains have since been wiped out. Campbell's biggest fund, with $9 billion in assets, lost 10.8 percent in July, the most since 1990. John W. Henry's $122 million Financial and Metals Portfolio fell 11.7 percent in July, its worst month since March.
Hyman Minsky: “Those that supply financial resources live in the same expectational climate as those that demand them.”
About 1.7 million households will lose their homes to foreclosure this year and next, according to estimates by Moody’s Economy.com. That would be nearly double the number of the previous two years.
Brett Steenbarger: " Much of the market's short-term swings consists of counter-movement once markets become too one-sided. When bulls are trapped in positions no longer rising, they become sellers, exaggerating the subsequent decline. When bears are caught in positions no longer falling, they cover shorts, exaggerating the rise.
The key to short-term trading is to be one of the ones trapping the longs and shorts, not to be one of the trapped." Since I am not a trapper, short-term trading is not for me. I have a feeling there are few good trappers on a day to day basis. I prefer to wait for the the good pitch to hit, and getting on base is a good asset-building foundation.
Sentinel Management Group Inc., a U.S. futures commission merchant whose decision to freeze client accounts on Tuesday helped roil global financial markets, filed for Chapter 11 bankruptcy protection late on Friday. The cash management company, which managed about $1.6 billion of assets, said its board decided it was in "the best interests of the corporation, its creditors and other interested parties that a voluntary petition be filed ... in an effort to restructure the indebtedness of the corporation," according to a filing in the bankruptcy court for the Northern District of Illinois.
Mike Shedlock: "There are going to be ripple effects from this, perhaps lots of them. For starters, anyone that had cash parked at Sentinel can now kiss that cash goodbye. Small to medium size hedge funds with money parked at Sentinel are now likely to be facing margin calls they have no way to meet. Worse yet, this is just the beginning of disasters like these. When total disaster strikes (and it will), the battle cry will undoubtedly be "No one could possibly have seen this coming. It's too late to sell now."
Gulf of Mexico oil and natural gas producers were evacuating offshore workers and shutting small amounts of production on Saturday as they watched powerful Hurricane Dean storm across the Caribbean Sea toward an entry into the Gulf next week. National Weather Service projections show Hurricane Dean, a Category 4 hurricane, could impact the Texas coast by the middle of next week.
More than 900,000 people were evacuated along China's southeast coast as a typhoon roared toward the mainland Saturday after killing at least one person on Taiwan, state media said.
Wal-Mart shares were down a penny on Friday and now trade at levels last seen in 1999. At $43, I feel confident that long-term investors will be rewarded. As the premier global retailer, I would rather invest my money in Wal-Mart than the U.S. dollar. I feel confident that Wal-Mart will provide a positive return to share owners over time. That's more than I can say for the greenback.
In the second quarter of this year, according to Thomson Financial, U.S. companies announced plans to buy back $124.8 billion of their own shares, a 16.3 increase from the first quarter. With tighter credit conditions, it will be interesting to see whether these buyback plans are scaled back time wise during these volatile market conditions.
Japan's mobile-advertising expenditures are expected to reach $1 billion by 2011 - more than three times the $328 million last year, according to an April report from media and communication think tank Dentsu Communication Institute Inc.
Yahoo 's mapping service combines search- and location-based mobile technology. All one has to do is to enter a keyword to search, and advertisers registered on Yahoo's database pop up on a digital map.
Barron's had a bullish piece on Nabors. In fiscal 2007 the company will earn around $3.40 and maybe 10% higher in 2008. At the $28 level, the risk/reward appears favorable.
Starbucks Corp. will open its first cafe in Russia next month after a decade of delays that included losing trademark rights. The first shop will open in September in the Mega Mall north of Moscow, Starbucks spokeswoman Kate Bovey said.
Jeffrey Cooper: "If the smartest guys in the room lose $1.4 bln in six trading days, what does that say about Joe Hedge Fund? If the most powerful platforms, the best brains, and the most moolah gets crushed, what does that say about the propensity to panic on the Street?
Algorithms? Here's an algorithm for ya. Heightened returns = heightened risk.
Or a law of physics: heightened risk squared by leverage, divided by hubris, multiplied by the diameter of other people's money is the circumference of what could become a real conundrum for the real economy." Obviously, these aren't the smartest guys in the room. The first rule of successful investing is not to lose money. Now you can rightly observe that everyone will lose money. One cannot be successful 100% of the time. However, capital preservation must be a paramount focus.
Hyman Minsky: "An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash [at the same time]."
In these times, increased attention should be placed on consistent positive cash flow as well as consistently high returns on equity. The times to bullshit the market with financial engineering has passed.
J.P. Morgan: " I made all my money by selling too soon."
The Italian economy ministry may revise down its estimates for the 2007 growth in gross domestic product to 1.8 pct from a previous 2.0 pct due to the crisis that hit global financial markets over the past few weeks, according to an unsourced report on Sunday's Corriere della Sera.
Jeremy Grantham: "People always look at P/E and take great comfort. Often it's perfectly fine to do that. But today it's horribly misleading because the main pain is in profit margins. In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist."
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