9/9/07 Libor
Randall Forsyth: "Why the divergent action between Libor and the two-year Treasury, both of which typically track the funds rate? It's a matter of trust, says Robert Kessler, who heads the eponymously named Kessler Investment Advisors, a Denver-based manager of Treasury securities for institutions and wealthy individuals. Unlike interbank lending, Treasuries are free of credit risk. And even though Libor is based on rates from the world's largest banks, confidence is so fragile that the market demands a premium to lend past overnight. Moreover, "tiering" has returned to the money market, with Barclays and Credit Suisse posting three-month rates of 5.80%, eight basis points above Libor, as calculated by the British Bankers' Association. All of which would be largely academic except that Libor will determine the rate on billions of dollars' worth of American adjustable-rate mortgages. ARM resets are set to climb sharply, to over $50 billion per month starting last month through year end, reaching a crescendo over $100 billion by next March. Cumulatively, some $1.3 trillion of ARMs will reset over the two years through December 2008. Most of those ARMs will be reset at a spread of several points over Libor, meaning some of those borrowers may face mortgage rates of close to 10%. The recent rise in Libor will exacerbate this squeeze. Indeed, a 25-basis-point cut in the funds rate would merely offset the rise in Libor, leaving actual borrowing costs unchanged for much of the economy."
July job growth was revised down to 68,000 from 92,000. June gains were revised to 69,000 from 126,000. This is why I stopped wasting my time predicting employment. Revisions make the effort meaningless.
Yves Smith: "Those who have been following the job creation story weren't surprised at the weak BLS employment (the so-called "non-farm payroll") report today, or by the fact that it revised the results for the last three months downward by 81,000. Various commentators (see here, here, and here) have observed that the rises reported in recent months have been due almost entirely to a "voodoo calculation, the "birth/death model" a plug to allow for business creation and failure (one we've commented on before). Note this feature was added in 2001.And where had these jobs supposedly been created? In construction. Need we say more?"
Wells Fargo & Co. will help borrowers struggling to make payments and, in some cases, will change loan terms rather than foreclose on properties, the company's chief executive said Friday.
The Daily Reckoning: "The problem is that even though the feds are making money available, lenders are becoming reluctant to lend and borrowers are becoming reluctant to borrow. That's why we see the London Inter-Bank Lending Rate - LIBOR - so far above the central banks' base rates. The government, through central bank intervention, can set one rate. But the banks have one of their own. And right now, banks are wary about lending a lot of money to each other - because they can't figure out what each other's real financial situation is."
Nouriel Roubini: "The utterly ugly employment figures for August (a fall in jobs for the first time in four years, downward revisions to previous months’ data, a fall in the labor participation rate, and an even weaker employment picture based on the household survey compared to the establishments survey) confirm what few of us have been predicting since the beginning of 2007: the U.S. is headed towards a hard landing."
Brett Steenbarger: "Fri. decline left us with 28% of SPX stocks above their 50 day MA, down from 50% earlier this week. Broad loss of momentum."
Seattle-based Nordstrom opened its first store Friday in Massachusetts. The store in the Boston suburb of Natick is 144,000 square feet, typical for a new Nordstrom, and features a men's grooming studio — another first for the retailer — eyebrow bar and sunglass boutique. Nordstrom now has 99 full-line department stores in 28 states. If I should ever get lost and visit an eyebrow bar, please kick me where it hurts.
A US federal judge declared in a ruling on Friday that Iran must pay $2.65 billion to nearly 1000 family members and a few survivors of the 1983 bombing of the US Marine barracks in Lebanon that killed 241 soldiers. I know the courts are backed up, but 24 years.
Sen. Dick Durbin (D-Ill.), the No. 2 leader in the Senate, said Friday that he will not vote for more supplemental war funding bills unless a strategy for withdrawal is attached, signaling a new level of conflict between the White House and Congress over the war. I wonder if gutless Pelosi and gutless Reid will choose the same Durbin strategy.
The 2-year Treasury yields 4.10%. The 3-month Libor rate is 5.72%. What does it matter if the Fed lowers fed funds to 5% on Sept.18? At least $329 billion, or 40% of all U.S. corporate bonds sold in 2007 used Libor as a benchmark.
Between The Hedges: "Moreover, the 10-week moving average of the percentage of bears is currently at 39.3%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear-market low during 2002. The 50-week moving average of the percentage of bears is currently 37.1%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March 2003-May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently very close to eclipsing the peak in bearish sentiment during the 2000-2003 market meltdown, which I still find astonishing, notwithstanding the recent correction. The S&P 500 is still 101.3% higher from October 2002 lows and is only 5.9% lower from its recent record set in July. "
Mike Shedlock: "The unemployment rates is based on the Household Survey. Notice how 340,000 civilian jobs were lost and total employment fell by 316,000 jobs, but magically unemployment fell by 24,000. Raise your hand if that makes sense to you."
India's Sensex equities index gained 1.8% (up 13.1% y-t-d). China's Shanghai Composite index added 1.1% to close at yet another record high (up 97% y-t-d and 218% over the past year).
Bloomberg reported that "IndyMac Bancorp Inc., the second-biggest U.S. mortgage company, plans to cut 10 percent of its workforce and lower the dividend as housing sales falter and home-loan defaults climb. It may post a loss for the first time in at least eight years."
Robin Bhar, of UBS in London, added that gold physical demand was accelerating in India, the world’s largest gold consumer, China and the Middle East. “Gold underlying fundamentals are improving,” Mr Bhar said.
Abraham Lincoln: “These capitalists generally act harmoniously and in concert, to fleece the people”
Saturday, September 08, 2007
Thursday, September 06, 2007
Insolvency
9/7/07 Insolvency
Bill Bonner: "The problem is not illiquidity, it’s insolvency – caused by too much credit, not too little. People, businesses, nations – debtors owe more than they can repay. Borrowing more may postpone the crisis...maybe even disguise it; it cannot solve it.
Chesapeake Energy will cut 6% of its natural gas output due to low prices.
Wal-Mart's August sales at stores open at least one year rose 3.1%. Including the impact of fuel sales same-store sales rose 3%. The company expects same-store sales of its U.S. operations for the September period to be between 1% and 3%. With the stock at $42+, one might consider buying the stock and selling a $45 call against the purchase. That seems like a low risk strategy to me.
The European Central Bank, on a day in which it injected $57 billion (42 billion euros) into the banking system, held interest rates steady Thursday. The European Central Bank said that 526 million euros ($715 million) was borrowed at its marginal lending facility, which is akin to the Federal Reserve's discount window, at 5%. The ECB separately conducted a one-day tender.
Nordstrom Inc.'s August same-store sales rose 6.6%.
China lifted the reserve requirement ratio by 0.5-percentage points Thursday, forcing domestic banks to increase the amount of funds they must set aside as reserves in relation to loans for the seventh time this year. Starting Sept. 25, banks must set aside 12.5% of deposits as reserves, the People's Bank of China said on its Website Thursday. The central bank statement said the policy change was targeted at "strengthening liquidity management in the banking system and checking excessive money and credit growth".
The Bank of England said it's too soon to tell how the disruption in financial markets will impair the availability of credit to companies and households, as it kept its key interest rate on hold at 5.75%.
Nippon Steel, the world's second-largest maker of the alloy, lifted its sales forecast for the fiscal year ending March 30 to 4.8 trillion yen, an increase of 0.8% from 4.76 trillion yen forecast earlier, the company said in a statement posted on its Website. The steel maker intends to pay an interim dividend of 5 yen per share, up from 4 yen a year earlier. Nippon Steel also said it would lift its first-half net profit forecast to 170 billion yen from 160 billion yen.
Monster Worldwide Inc.'s online-recruitment index showed its lowest-ever annual growth rate in August, "a further indication of softening employer demand for labor," the online recruiter said. The index rose 3 points in August from July, to 186, reflecting "a slight rebound" in the availability of jobs online across a majority of industries, occupations and regions. The index sat at 173 in August 2006. The index rise was smaller than usual for August and reduced the index's annual growth pace to roughly 7.5%, the lowest on record.
Anglo-Australian miner BHP Billiton and Brazilian miner Companhia Vale do Rio Doce, or CVRD, may team up to launch a takeover bid for mining rival Rio Tinto, according to reports citing market rumors.
Jeremy Grantham: "Even if the credit crunch passes without a major catastrophe, the prices of stocks, bonds and real estate have a long way to fall."
Thomas P. Au: "When Bill Gross of Pimco shocked the investment world by estimating the value of the Dow at 5000 in 2002, he was probably referring to its bond value. My own estimate of this metric, updated to 2007, is something like 6700. In a 1930s scenario, blue chip stocks won’t go to zero, but they will fall to the point where they (collectively) yield more on dividends than Treasury bonds will yield in interest. Then stocks will be trading like bonds, having lost all of the option premiums that characterized their valuations during the period of general belief in the new economy. And in worst case situations like 1932 and 1974, the Dow went to about half of its bond value, a valuation that would put it between 3000 and 3500."
The Energy Insider: "Solar costs about 25 cents a kilowatt hour. That's compared to about 9 cents a kilowatt hour for natural gas and 5 cents a kilowatt hour for modern coal-burning plants, as well as 6 cents a kilowatt hour for wind energy if tax considerations are included. The good news is that the cost of solar power is falling all the time. It once stood at $1 a kilowatt hour and advocates say that it could soon cost 12-16 cents a kilowatt hour."
Investment banks need to restore investor confidence by making a concerted effort to reveal the full extent of any losses arising from the credit market turmoil, Josef Ackermann, chief executive of Deutsche Bank, has urged. Mr Ackermann said investors lacked confidence in the financial markets and in the banking sector because they were uncertain of the size and location of the losses. He said investment banks should provide clarity by valuing their credit exposure to current market levels.
According to the FT, Kazakhstan on Thursday demanded greater control over the giant Kashagan oilfield in the Caspian Sea on Thursday, complaining that inadequate management of the project by a foreign consortium led by Italy’s Eni had damaged the Central Asian republic’s economy and reputation as a reliable global energy supplier. Karim Massimov, Kazakh prime minister, said that KazMunaigas, the state oil company, should be appointed as co-operator at Kashagan where Eni had proved “incapable of fulfilling some of its obligations. KazMunaigas currently holds an 8.33 per cent interest in Kashagan alongside partners Eni, Shell, ExxonMobil, Total, ConocoPhillips and Inpex of Japan.
Biogen Idec sees FY non-GAAP EPS $2.60 to $2.70.
The Reserve Bank of Australia has widened the range of securities it’s willing to buy in so-called repurchase agreements in order to boost the amount of money available in the nation’s banking system.
Countrywide Financial is laying off another 900 employees as a result of decreased lending and increased defaults resulting from the worst U.S. housing slump in two decades.
India's Ranbaxy Laboratories has submitted a preliminary bid for U.S.-based Bradley Pharmaceuticals, the Economic Times reported on Thursday, citing a source close to the development. Indian media had earlier reported Hyderabad-based Dr Reddy's Laboratories was in the race for Bradley.
Target Corp. expects September sales at stores open at least one year to rise in a range of 4% to 6%. Its August same-store sales rose 6.1%
Unit labor costs increased at a 1.4% annual rate, down from the earlier estimate of 2.1%. Over the past four quarters, the output per hour of American businesses has increased 0.9%, up from the initial estimate of a 0.6% rise. Unit labor costs was up 4.9% over the past year, the fastest pace since the third quarter of 2000.
The number of initial claims in the week ending September 1 fell 19,000 to 318,000. It's the lowest level since the week ended Aug. 4.
Credit derivatives awarded the top ratings by Moody's Investors Service and Standard & Poor's may be as vulnerable to default as high-risk, high-yield bonds, according to independent research firm CreditSights Inc.
According to the Morgage Bankers Association's quarterly delinquency survey, a seasonally adjusted 0.65% of loans on one- to four-unit residential properties entered the foreclosure process during the period, the highest level in the survey's 55-year history. In the first quarter, when the previous record was set, 0.58% of loans entered the process; a year ago, 0.43% entered the process.
The ISM non-manufacturing index was unchanged at 55.8% in August.
U.S. natural gas supply up 36 bln cubic feet: Energy Dept.
The American Petroleum Institute reported a fall of 4.8 million barrels in crude supplies for the week ended August 31. The Energy Department had reported a decline of 3.9 million barrels for the latest week. Motor gasoline supplies were up 1.6 million barrels, the API said. The government reported that supplies were down 1.5 million barrels. Distillate supplies climbed 3.3 million barrels, the API said. They were up 2.3 million barrels, according to the Energy Department.
The outstanding volume of commercial paper fell by $54.1 billion to $1.93 trillion, or 2.7%, last week, the Fed reported Thursday. Outstanding paper dropped by a record $259 billion, or 11.9%, in August.
Syria has said its air defenses opened fire on Israeli warplanes after they violated its airspace in the north of the country.
Dallas Fed President Richard Fisher said recent economic data has been "rather positive," and pointed specifically to the August ISM services index, which was unchanged at 55.8%. Fisher said anecdotal reports from throughout his district and across the country point to "a labor shortage." "People are having trouble finding everything from day workers to bank tellers," Fisher said. "The good news is the financial turmoil that we have recently seen came against a background of a very strong economy. I don't see the dynamics of that growth changing overnight," he said.
October crude climbed 57 cents to close at $76.30 a barrel Thursday. December natural gas retreated from a high near $6 to close at $5.65 per million British thermal units, down 2.7%.
December gold climbed $13.90, or 2%, Thursday to close at $704.60 an ounce. December silver gained 17.8 cents, or 1.4%, to finish at $12.533 an ounce and December copper tacked on 1.2% to close at $3.3025 a pound.
Atlanta Fed President Dennis Lockhart: "So far, I have not seen hard or soft data that provide conclusive signs that housing problems are spilling over into the broad economy."
Baker Hughes Inc. filed to sell up to $2 Billion in a mixed securities. The "Use of Proceeds": acquisitions; working capital; capital expenditures; repayment of debt; and repurchases and redemptions of securities. I continue to believe that an acquisition of BJ Services makes a lot of sense to me.
Bill Bonner: "The problem is not illiquidity, it’s insolvency – caused by too much credit, not too little. People, businesses, nations – debtors owe more than they can repay. Borrowing more may postpone the crisis...maybe even disguise it; it cannot solve it.
Chesapeake Energy will cut 6% of its natural gas output due to low prices.
Wal-Mart's August sales at stores open at least one year rose 3.1%. Including the impact of fuel sales same-store sales rose 3%. The company expects same-store sales of its U.S. operations for the September period to be between 1% and 3%. With the stock at $42+, one might consider buying the stock and selling a $45 call against the purchase. That seems like a low risk strategy to me.
The European Central Bank, on a day in which it injected $57 billion (42 billion euros) into the banking system, held interest rates steady Thursday. The European Central Bank said that 526 million euros ($715 million) was borrowed at its marginal lending facility, which is akin to the Federal Reserve's discount window, at 5%. The ECB separately conducted a one-day tender.
Nordstrom Inc.'s August same-store sales rose 6.6%.
China lifted the reserve requirement ratio by 0.5-percentage points Thursday, forcing domestic banks to increase the amount of funds they must set aside as reserves in relation to loans for the seventh time this year. Starting Sept. 25, banks must set aside 12.5% of deposits as reserves, the People's Bank of China said on its Website Thursday. The central bank statement said the policy change was targeted at "strengthening liquidity management in the banking system and checking excessive money and credit growth".
The Bank of England said it's too soon to tell how the disruption in financial markets will impair the availability of credit to companies and households, as it kept its key interest rate on hold at 5.75%.
Nippon Steel, the world's second-largest maker of the alloy, lifted its sales forecast for the fiscal year ending March 30 to 4.8 trillion yen, an increase of 0.8% from 4.76 trillion yen forecast earlier, the company said in a statement posted on its Website. The steel maker intends to pay an interim dividend of 5 yen per share, up from 4 yen a year earlier. Nippon Steel also said it would lift its first-half net profit forecast to 170 billion yen from 160 billion yen.
Monster Worldwide Inc.'s online-recruitment index showed its lowest-ever annual growth rate in August, "a further indication of softening employer demand for labor," the online recruiter said. The index rose 3 points in August from July, to 186, reflecting "a slight rebound" in the availability of jobs online across a majority of industries, occupations and regions. The index sat at 173 in August 2006. The index rise was smaller than usual for August and reduced the index's annual growth pace to roughly 7.5%, the lowest on record.
Anglo-Australian miner BHP Billiton and Brazilian miner Companhia Vale do Rio Doce, or CVRD, may team up to launch a takeover bid for mining rival Rio Tinto, according to reports citing market rumors.
Jeremy Grantham: "Even if the credit crunch passes without a major catastrophe, the prices of stocks, bonds and real estate have a long way to fall."
Thomas P. Au: "When Bill Gross of Pimco shocked the investment world by estimating the value of the Dow at 5000 in 2002, he was probably referring to its bond value. My own estimate of this metric, updated to 2007, is something like 6700. In a 1930s scenario, blue chip stocks won’t go to zero, but they will fall to the point where they (collectively) yield more on dividends than Treasury bonds will yield in interest. Then stocks will be trading like bonds, having lost all of the option premiums that characterized their valuations during the period of general belief in the new economy. And in worst case situations like 1932 and 1974, the Dow went to about half of its bond value, a valuation that would put it between 3000 and 3500."
The Energy Insider: "Solar costs about 25 cents a kilowatt hour. That's compared to about 9 cents a kilowatt hour for natural gas and 5 cents a kilowatt hour for modern coal-burning plants, as well as 6 cents a kilowatt hour for wind energy if tax considerations are included. The good news is that the cost of solar power is falling all the time. It once stood at $1 a kilowatt hour and advocates say that it could soon cost 12-16 cents a kilowatt hour."
Investment banks need to restore investor confidence by making a concerted effort to reveal the full extent of any losses arising from the credit market turmoil, Josef Ackermann, chief executive of Deutsche Bank, has urged. Mr Ackermann said investors lacked confidence in the financial markets and in the banking sector because they were uncertain of the size and location of the losses. He said investment banks should provide clarity by valuing their credit exposure to current market levels.
According to the FT, Kazakhstan on Thursday demanded greater control over the giant Kashagan oilfield in the Caspian Sea on Thursday, complaining that inadequate management of the project by a foreign consortium led by Italy’s Eni had damaged the Central Asian republic’s economy and reputation as a reliable global energy supplier. Karim Massimov, Kazakh prime minister, said that KazMunaigas, the state oil company, should be appointed as co-operator at Kashagan where Eni had proved “incapable of fulfilling some of its obligations. KazMunaigas currently holds an 8.33 per cent interest in Kashagan alongside partners Eni, Shell, ExxonMobil, Total, ConocoPhillips and Inpex of Japan.
Biogen Idec sees FY non-GAAP EPS $2.60 to $2.70.
The Reserve Bank of Australia has widened the range of securities it’s willing to buy in so-called repurchase agreements in order to boost the amount of money available in the nation’s banking system.
Countrywide Financial is laying off another 900 employees as a result of decreased lending and increased defaults resulting from the worst U.S. housing slump in two decades.
India's Ranbaxy Laboratories has submitted a preliminary bid for U.S.-based Bradley Pharmaceuticals, the Economic Times reported on Thursday, citing a source close to the development. Indian media had earlier reported Hyderabad-based Dr Reddy's Laboratories was in the race for Bradley.
Target Corp. expects September sales at stores open at least one year to rise in a range of 4% to 6%. Its August same-store sales rose 6.1%
Unit labor costs increased at a 1.4% annual rate, down from the earlier estimate of 2.1%. Over the past four quarters, the output per hour of American businesses has increased 0.9%, up from the initial estimate of a 0.6% rise. Unit labor costs was up 4.9% over the past year, the fastest pace since the third quarter of 2000.
The number of initial claims in the week ending September 1 fell 19,000 to 318,000. It's the lowest level since the week ended Aug. 4.
Credit derivatives awarded the top ratings by Moody's Investors Service and Standard & Poor's may be as vulnerable to default as high-risk, high-yield bonds, according to independent research firm CreditSights Inc.
According to the Morgage Bankers Association's quarterly delinquency survey, a seasonally adjusted 0.65% of loans on one- to four-unit residential properties entered the foreclosure process during the period, the highest level in the survey's 55-year history. In the first quarter, when the previous record was set, 0.58% of loans entered the process; a year ago, 0.43% entered the process.
The ISM non-manufacturing index was unchanged at 55.8% in August.
U.S. natural gas supply up 36 bln cubic feet: Energy Dept.
The American Petroleum Institute reported a fall of 4.8 million barrels in crude supplies for the week ended August 31. The Energy Department had reported a decline of 3.9 million barrels for the latest week. Motor gasoline supplies were up 1.6 million barrels, the API said. The government reported that supplies were down 1.5 million barrels. Distillate supplies climbed 3.3 million barrels, the API said. They were up 2.3 million barrels, according to the Energy Department.
The outstanding volume of commercial paper fell by $54.1 billion to $1.93 trillion, or 2.7%, last week, the Fed reported Thursday. Outstanding paper dropped by a record $259 billion, or 11.9%, in August.
Syria has said its air defenses opened fire on Israeli warplanes after they violated its airspace in the north of the country.
Dallas Fed President Richard Fisher said recent economic data has been "rather positive," and pointed specifically to the August ISM services index, which was unchanged at 55.8%. Fisher said anecdotal reports from throughout his district and across the country point to "a labor shortage." "People are having trouble finding everything from day workers to bank tellers," Fisher said. "The good news is the financial turmoil that we have recently seen came against a background of a very strong economy. I don't see the dynamics of that growth changing overnight," he said.
October crude climbed 57 cents to close at $76.30 a barrel Thursday. December natural gas retreated from a high near $6 to close at $5.65 per million British thermal units, down 2.7%.
December gold climbed $13.90, or 2%, Thursday to close at $704.60 an ounce. December silver gained 17.8 cents, or 1.4%, to finish at $12.533 an ounce and December copper tacked on 1.2% to close at $3.3025 a pound.
Atlanta Fed President Dennis Lockhart: "So far, I have not seen hard or soft data that provide conclusive signs that housing problems are spilling over into the broad economy."
Baker Hughes Inc. filed to sell up to $2 Billion in a mixed securities. The "Use of Proceeds": acquisitions; working capital; capital expenditures; repayment of debt; and repurchases and redemptions of securities. I continue to believe that an acquisition of BJ Services makes a lot of sense to me.
Wednesday, September 05, 2007
Conduits
9/6/07 Conduits
The London interbank offered rate, or Libor, increased to 5.72 percent, the highest since January 2001, from 5.70 percent yesterday and 5.36 percent at the end of July, the British Bankers' Association said. Other short-term rates also rose, including the three-month rate for the euro, which climbed to 4.76 percent from 4.75 percent, its highest since 2001.
Boeing's first Dreamliner 787 flight might be pushed back until November. There are continue delays in building the plane. The fact is the company does not have the necessary fasteners.
The WSJ reports that the housing slump strains budgets for states and cities. It has cut into fees, taxes, and other related income.
Yahoo agreed to buy online advertising company BlueLithium for about $300 million. BlueLithium is the fifth largest ad network in the US and second largest in the UK with 145 million unique visitors each month.
"Higher Libor rates affect the whole economy by tightening the budgets of borrowers large and said small," said Lou Crandall, chief economist with Wrightson ICAP in NY.
BlackRock's Larry Fink: "I don't believe the Federal Reserve should ease. It's a foolish, foolish statement for people to make with the economy performing in line with the Fed's current forecast. It's a good thing for regulators to see risk premiums become more appropriate."
Forbes: "As lenders tighten their standards more Americans chose to rent, not own. That's good news for landlords."
Minyanville: "Remember, the dollar is not backed by real money, but by debt. When that debt is destroyed, the dollar becomes worth much less.
This is when gold will rise precipitously against the dollar and other currencies as well. Those currencies backed by real savings will do relatively better."
WSJ: "Though few investors realize it, banks such as Citigroup Inc. could find themselves burdened by affiliated investment vehicles that issue tens of billions of dollars in short-term debt known as commercial paper. The investment vehicles, known as "conduits" and SIVs, are designed to operate separately from the banks and off their balance sheets. Citigroup, for example, owns about 25% of the market for SIVs, representing nearly $100 billion of assets under management. The largest Citigroup SIV is Centauri Corp., which had $21 billion in outstanding debt as of February 2007, according to a Citigroup research report. There is no mention of Centauri in its 2006 annual filing with the Securities and Exchange Commission."
Citigroup Inc. will close its $2.4 billion Tribeca hedge fund and return money to clients five months after it agreed to buy investment manager Old Lane LP, which uses a similar strategy.
Greg IP: "Federal and state banking regulators urged lenders and investors to restructure the loans of millions of borrowers at risk of losing their homes as their adjustable-rate mortgages reset to a higher rate. Lenders should "review to determine the full extent of their authority to identify borrowers at risk of default" and find a way to keep the borrower in a home, the regulatory bodies said in a joint statement."
According to the FT, market turmoil and the woes in the US subprime mortgage market will crimp world economic growth this year, the Organisation of Economic Co-Operation and Development said on Wednesday, as it called for better regulation to address the “serious imperfections” in US housing markets and credit markets worldwide.
Costco Wholesale Corp. said Wednesday its August same-store sales rose 2 percent primarily on strong international sales. For the month, international same-store sales increased 8 percent while U.S. same-store sales edged up 1 percent.
U.K. consumer confidence fell to a four-month low in August as Britons became less willing to spend after interest rates rose, Nationwide Building Society said.
Canadian Pacific Railway Ltd has agreed to buy the Dakota, Minnesota & Eastern Railroad Corp for at least $1.5 billion cash to expand its network and increase access to U.S. Midwest markets. Canada's number two railway will expand by about 2,500 miles of track by acquiring DM&E, the largest U.S. regional railroad, from London-based Electra Private Equity , which originally invested in the company more than 20 years ago.
Cognos Inc.said Wednesday it'll pay $17.87 a share in cash to buy Applix Inc. in a deal valued at about $306 million net of Applix cash on hand.
The Bank of England said it's upped its aggregate reserves target by 6%, which it says should help to "relieve some pressure on interest rates for overnight borrowing which have, at times during the maintenance period over the past month, been unusually high relative to the bank rate."
Japanese bank minister Yoshimi Watanabe: "There is a risk that players who had invested by borrowing Japan's low interest rate currency would unwind such yen carry trades," he said, adding that he'll be watching Japanese banks on their exposure to U.S. subprime losses.
Announced lay-offs surged 85 percent to 79,459 in August from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August's job cuts were the highest since February, when they totaled 84,014. "Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market," Challenger, Gray & Christmas said in a statement. Financial job cuts totaled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.
Mortgage insurer MGIC Investment Corp. won't proceed with its acquisition of credit risk management provider Radian Group Inc. because of the challenging conditions in the mortgage markets, the companies said Wednesday.
Prices of U.S. commercial real estate could fall up to 15% in what would be the worst decline since the 2001 recession, Bloomberg reported Wednesday. "People aren't willing to do deals right now," said Howard Michaels, chairman of Carlton Advisory Services. "The expectation is that prices will come down." In July, investors bought the fewest commercial properties in almost a year and apartment building purchases were down 50% from June. Last month, the Archstone-Smith Trust postponed its $13.5 billion sale to a group led by Tishman Speyer Properties until October. Mission West, which owns commercial properties in Silicon Valley, said two weeks ago that its $1.8 billion sale might collapse because a bank has withdrawn funding. "There are so many deals falling apart," said David Lichtenstein, CEO of commercial property owner Lightstone Group. "People who can get out are getting out." Morgan Stanley industry analyst Matthew Ostrower forecast that average prices for commercial properties could fall 5-15% in the next two years.
GM says it will sell a million cars in China this year. According to Reuters, the Chinese market will buy 8.5 million new cars this year, putting GM's share at 12%.
Since June, the amount of distressed bonds has risen more than fivefold to $24.8 billion, according to an index Merrill Lynch & Co. began compiling in 1997.
Wilfred Hahn: "Central banks are really not well equipped to fix liquidity (much less solvency) problems in the non-bank financial world. That's exactly where the major crises are hitting...Unfortunately, the wrong indicator is being observed. The crash was in credit markets, not equities. Assuredly, the effects of this crunch are now working their way into the real economy. As in a tsunami, the after waves must be anticipated. Usually, the second and third waves are the largest. Equity markets at present are therefore falsely comforted during this quiet period in between, even as the backwash has already carried out its first victims. Important to realize is that the financial market topography is very different from that which present-generation analysts are accustomed. To assume that just because stock markets may not have crashed as perhaps in October 1987, that therefore significant damage has not occurred to financial markets and future economic prospects is likely to be wrong...Much of North America's financial system now lies outside of the official monetary system...Therefore, the powers of the "lender of last resort" -- a central bank -- during a period of liquidity crisis are greatly diminished. Today, the member commercial banks of the 12 reserve districts of the US central monetary system represent only a small portion of total credit assets (now well less than a third.) Most credit, therefore, is manufactured outside of the banking system and is not subject to fractional reserve constraints. It is only banks that have access to the credit window of the Federal Reserve System...At the present time, virtually all indicators continue to confirm not only a continuing deleveraging process but also a broad-based consumer retrenchment. Coincident with the broader impact upon securitized credit structures, is a compression of the household sector balance sheet in the US. It is highly unlikely that this latter development is anywhere near ending in the foreseeable future. This is not a third-world debt situation. For now, at its very epicenter are the deteriorating balance sheets of the richest households in the world, who happen to live mostly in the largest economy in the world. We also conclude that complacency and confidence are still far too high. Given the nature of the forces at play and the extent of the damage to credit markets over the past month or so, it would be a serious error to gloss over realities with simple and optimistic "happy talk."
Employee confidence plunged in August, falling to the lowest level since Hurricane Katrina hit, according to the Hudson employment index released Wednesday. The Hudson index fell by 6.6 points (the most ever) to 99.2. "August's business news took a heavy toll on workers' perceptions of their finances," Hudson said. The percentage of workers who said their finances were improving fell from 43% to 37%. Employees were also slightly more concerned about layoffs at their company and about losing their own job. "With news of dramatic declines in stock averages and continued downturns in the housing and mortgage markets, August proved to be an incredibly tough month on workers' psyches," said Robert Morgan, president of Talent Solutions at Hudson, a recruiting company.
Employment in the U.S. private sector grew by 38,000 in August, the weakest in four years, according to the ADP employment report released Wednesday. Adding in some 27,000 government jobs typically added but not covered by the ADP report, it suggests nonfarm payrolls grew by about 65,000. The goods-producing sector fell by 49,000 jobs in August, including 33,000 in manufacturing. The services sector added 87,000 jobs in August.
Demand from India, South Korea, Egypt, Taiwan and Japan is sapping global supplies of wheat. Australia said it may produce 29 percent less of the grain than expected.
No one was in favor of cutting the Federal Reserve's discount lending rate during a key Fed meeting on Aug. 6, just 11 days before it did cut the rate in an emergency move, according to a meeting summary released Tuesday.
Tyson foods now expects full-year 2007 EPS of $0.72-0.80, down from its previous guidance of $0.82-0.90.
Contract signings on existing homes fell by 12.2% in July -- the largest drop since the pending homes sales index started in 2001, the National Association of Realtors reported Wednesday. The index hit its lowest level since September 2001. Pending sales are 16.1% below July 2006.
Wal-Mart traded at a new 52-week low on Wednesday.
Home Depot Inc.'s Chief Executive Frank Blake characterized the rest of 2007 as "tough," and said much of 2008 will "face headwinds."
Petraeus, in an interview with ABC News, signaled he was looking at March for reducing troop levels.
John Dugan, Comptroller of the Currency: "The worst problems we have seen in the markets ... have occurred outside the commercial banking sector."
A B-52 bomber mistakenly loaded with five nuclear warheads flew from Minot Air Force Base, N.D, to Barksdale Air Force Base, La., on Aug. 30, resulting in an Air Force-wide investigation, according to three officers who asked not to be identified because they were not authorized to discuss the incident.
Dick Cheney has ordered top Neo-Con media outlets, including Fox News and the Wall Street Journal, to unleash a PR blitz to sell a war with Iran from today, according to Barnett Rubin, the highly respected Afghanistan expert at New York University. The New Yorker magazine reports that Rubin had a conversation with a member of a top neoconservative institution in Washington, who told him that "instructions" had been passed on from the Office of the Vice-President to roll out a campaign for war with Iran in the week after Labor Day.
Starbucks Corp. expects dairy prices to be a "negative" in 2008. Peter Bocian, Starbucks' executive vice president and chief financial officer backed the company's fiscal 2007 profit forecast in the range of 87 cents to 89 cents a share and net revenue growth of about 20%. He said hitting the high end of the range will be "challenging." For fiscal 2008, the company also said it expects revenue growth of about 18%.
October crude climbed 65 cents to close at $75.73 a barrel Wednesday. October natural gas gained 3.1%, or 17.6 cents to finish at $5.805 per million British thermal units.
December gold fell 80 cents to close at $690.70 an ounce Wednesday. December silver fell 9.3 cents to close at $12.355 an ounce. December copper was the biggest loser, down 4.3 cents, or 1.3%, to close at $3.263 a pound.
"Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited," the Fed said in the survey, which concluded before Aug. 27. "Economic activity has continued to expand nationwide", the Fed said.
On Wednesday there were few bright spots in the equity market. In particular, the financial sectors weakness stood out.
The London interbank offered rate, or Libor, increased to 5.72 percent, the highest since January 2001, from 5.70 percent yesterday and 5.36 percent at the end of July, the British Bankers' Association said. Other short-term rates also rose, including the three-month rate for the euro, which climbed to 4.76 percent from 4.75 percent, its highest since 2001.
Boeing's first Dreamliner 787 flight might be pushed back until November. There are continue delays in building the plane. The fact is the company does not have the necessary fasteners.
The WSJ reports that the housing slump strains budgets for states and cities. It has cut into fees, taxes, and other related income.
Yahoo agreed to buy online advertising company BlueLithium for about $300 million. BlueLithium is the fifth largest ad network in the US and second largest in the UK with 145 million unique visitors each month.
"Higher Libor rates affect the whole economy by tightening the budgets of borrowers large and said small," said Lou Crandall, chief economist with Wrightson ICAP in NY.
BlackRock's Larry Fink: "I don't believe the Federal Reserve should ease. It's a foolish, foolish statement for people to make with the economy performing in line with the Fed's current forecast. It's a good thing for regulators to see risk premiums become more appropriate."
Forbes: "As lenders tighten their standards more Americans chose to rent, not own. That's good news for landlords."
Minyanville: "Remember, the dollar is not backed by real money, but by debt. When that debt is destroyed, the dollar becomes worth much less.
This is when gold will rise precipitously against the dollar and other currencies as well. Those currencies backed by real savings will do relatively better."
WSJ: "Though few investors realize it, banks such as Citigroup Inc. could find themselves burdened by affiliated investment vehicles that issue tens of billions of dollars in short-term debt known as commercial paper. The investment vehicles, known as "conduits" and SIVs, are designed to operate separately from the banks and off their balance sheets. Citigroup, for example, owns about 25% of the market for SIVs, representing nearly $100 billion of assets under management. The largest Citigroup SIV is Centauri Corp., which had $21 billion in outstanding debt as of February 2007, according to a Citigroup research report. There is no mention of Centauri in its 2006 annual filing with the Securities and Exchange Commission."
Citigroup Inc. will close its $2.4 billion Tribeca hedge fund and return money to clients five months after it agreed to buy investment manager Old Lane LP, which uses a similar strategy.
Greg IP: "Federal and state banking regulators urged lenders and investors to restructure the loans of millions of borrowers at risk of losing their homes as their adjustable-rate mortgages reset to a higher rate. Lenders should "review to determine the full extent of their authority to identify borrowers at risk of default" and find a way to keep the borrower in a home, the regulatory bodies said in a joint statement."
According to the FT, market turmoil and the woes in the US subprime mortgage market will crimp world economic growth this year, the Organisation of Economic Co-Operation and Development said on Wednesday, as it called for better regulation to address the “serious imperfections” in US housing markets and credit markets worldwide.
Costco Wholesale Corp. said Wednesday its August same-store sales rose 2 percent primarily on strong international sales. For the month, international same-store sales increased 8 percent while U.S. same-store sales edged up 1 percent.
U.K. consumer confidence fell to a four-month low in August as Britons became less willing to spend after interest rates rose, Nationwide Building Society said.
Canadian Pacific Railway Ltd has agreed to buy the Dakota, Minnesota & Eastern Railroad Corp for at least $1.5 billion cash to expand its network and increase access to U.S. Midwest markets. Canada's number two railway will expand by about 2,500 miles of track by acquiring DM&E, the largest U.S. regional railroad, from London-based Electra Private Equity , which originally invested in the company more than 20 years ago.
Cognos Inc.said Wednesday it'll pay $17.87 a share in cash to buy Applix Inc. in a deal valued at about $306 million net of Applix cash on hand.
The Bank of England said it's upped its aggregate reserves target by 6%, which it says should help to "relieve some pressure on interest rates for overnight borrowing which have, at times during the maintenance period over the past month, been unusually high relative to the bank rate."
Japanese bank minister Yoshimi Watanabe: "There is a risk that players who had invested by borrowing Japan's low interest rate currency would unwind such yen carry trades," he said, adding that he'll be watching Japanese banks on their exposure to U.S. subprime losses.
Announced lay-offs surged 85 percent to 79,459 in August from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August's job cuts were the highest since February, when they totaled 84,014. "Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market," Challenger, Gray & Christmas said in a statement. Financial job cuts totaled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.
Mortgage insurer MGIC Investment Corp. won't proceed with its acquisition of credit risk management provider Radian Group Inc. because of the challenging conditions in the mortgage markets, the companies said Wednesday.
Prices of U.S. commercial real estate could fall up to 15% in what would be the worst decline since the 2001 recession, Bloomberg reported Wednesday. "People aren't willing to do deals right now," said Howard Michaels, chairman of Carlton Advisory Services. "The expectation is that prices will come down." In July, investors bought the fewest commercial properties in almost a year and apartment building purchases were down 50% from June. Last month, the Archstone-Smith Trust postponed its $13.5 billion sale to a group led by Tishman Speyer Properties until October. Mission West, which owns commercial properties in Silicon Valley, said two weeks ago that its $1.8 billion sale might collapse because a bank has withdrawn funding. "There are so many deals falling apart," said David Lichtenstein, CEO of commercial property owner Lightstone Group. "People who can get out are getting out." Morgan Stanley industry analyst Matthew Ostrower forecast that average prices for commercial properties could fall 5-15% in the next two years.
GM says it will sell a million cars in China this year. According to Reuters, the Chinese market will buy 8.5 million new cars this year, putting GM's share at 12%.
Since June, the amount of distressed bonds has risen more than fivefold to $24.8 billion, according to an index Merrill Lynch & Co. began compiling in 1997.
Wilfred Hahn: "Central banks are really not well equipped to fix liquidity (much less solvency) problems in the non-bank financial world. That's exactly where the major crises are hitting...Unfortunately, the wrong indicator is being observed. The crash was in credit markets, not equities. Assuredly, the effects of this crunch are now working their way into the real economy. As in a tsunami, the after waves must be anticipated. Usually, the second and third waves are the largest. Equity markets at present are therefore falsely comforted during this quiet period in between, even as the backwash has already carried out its first victims. Important to realize is that the financial market topography is very different from that which present-generation analysts are accustomed. To assume that just because stock markets may not have crashed as perhaps in October 1987, that therefore significant damage has not occurred to financial markets and future economic prospects is likely to be wrong...Much of North America's financial system now lies outside of the official monetary system...Therefore, the powers of the "lender of last resort" -- a central bank -- during a period of liquidity crisis are greatly diminished. Today, the member commercial banks of the 12 reserve districts of the US central monetary system represent only a small portion of total credit assets (now well less than a third.) Most credit, therefore, is manufactured outside of the banking system and is not subject to fractional reserve constraints. It is only banks that have access to the credit window of the Federal Reserve System...At the present time, virtually all indicators continue to confirm not only a continuing deleveraging process but also a broad-based consumer retrenchment. Coincident with the broader impact upon securitized credit structures, is a compression of the household sector balance sheet in the US. It is highly unlikely that this latter development is anywhere near ending in the foreseeable future. This is not a third-world debt situation. For now, at its very epicenter are the deteriorating balance sheets of the richest households in the world, who happen to live mostly in the largest economy in the world. We also conclude that complacency and confidence are still far too high. Given the nature of the forces at play and the extent of the damage to credit markets over the past month or so, it would be a serious error to gloss over realities with simple and optimistic "happy talk."
Employee confidence plunged in August, falling to the lowest level since Hurricane Katrina hit, according to the Hudson employment index released Wednesday. The Hudson index fell by 6.6 points (the most ever) to 99.2. "August's business news took a heavy toll on workers' perceptions of their finances," Hudson said. The percentage of workers who said their finances were improving fell from 43% to 37%. Employees were also slightly more concerned about layoffs at their company and about losing their own job. "With news of dramatic declines in stock averages and continued downturns in the housing and mortgage markets, August proved to be an incredibly tough month on workers' psyches," said Robert Morgan, president of Talent Solutions at Hudson, a recruiting company.
Employment in the U.S. private sector grew by 38,000 in August, the weakest in four years, according to the ADP employment report released Wednesday. Adding in some 27,000 government jobs typically added but not covered by the ADP report, it suggests nonfarm payrolls grew by about 65,000. The goods-producing sector fell by 49,000 jobs in August, including 33,000 in manufacturing. The services sector added 87,000 jobs in August.
Demand from India, South Korea, Egypt, Taiwan and Japan is sapping global supplies of wheat. Australia said it may produce 29 percent less of the grain than expected.
No one was in favor of cutting the Federal Reserve's discount lending rate during a key Fed meeting on Aug. 6, just 11 days before it did cut the rate in an emergency move, according to a meeting summary released Tuesday.
Tyson foods now expects full-year 2007 EPS of $0.72-0.80, down from its previous guidance of $0.82-0.90.
Contract signings on existing homes fell by 12.2% in July -- the largest drop since the pending homes sales index started in 2001, the National Association of Realtors reported Wednesday. The index hit its lowest level since September 2001. Pending sales are 16.1% below July 2006.
Wal-Mart traded at a new 52-week low on Wednesday.
Home Depot Inc.'s Chief Executive Frank Blake characterized the rest of 2007 as "tough," and said much of 2008 will "face headwinds."
Petraeus, in an interview with ABC News, signaled he was looking at March for reducing troop levels.
John Dugan, Comptroller of the Currency: "The worst problems we have seen in the markets ... have occurred outside the commercial banking sector."
A B-52 bomber mistakenly loaded with five nuclear warheads flew from Minot Air Force Base, N.D, to Barksdale Air Force Base, La., on Aug. 30, resulting in an Air Force-wide investigation, according to three officers who asked not to be identified because they were not authorized to discuss the incident.
Dick Cheney has ordered top Neo-Con media outlets, including Fox News and the Wall Street Journal, to unleash a PR blitz to sell a war with Iran from today, according to Barnett Rubin, the highly respected Afghanistan expert at New York University. The New Yorker magazine reports that Rubin had a conversation with a member of a top neoconservative institution in Washington, who told him that "instructions" had been passed on from the Office of the Vice-President to roll out a campaign for war with Iran in the week after Labor Day.
Starbucks Corp. expects dairy prices to be a "negative" in 2008. Peter Bocian, Starbucks' executive vice president and chief financial officer backed the company's fiscal 2007 profit forecast in the range of 87 cents to 89 cents a share and net revenue growth of about 20%. He said hitting the high end of the range will be "challenging." For fiscal 2008, the company also said it expects revenue growth of about 18%.
October crude climbed 65 cents to close at $75.73 a barrel Wednesday. October natural gas gained 3.1%, or 17.6 cents to finish at $5.805 per million British thermal units.
December gold fell 80 cents to close at $690.70 an ounce Wednesday. December silver fell 9.3 cents to close at $12.355 an ounce. December copper was the biggest loser, down 4.3 cents, or 1.3%, to close at $3.263 a pound.
"Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited," the Fed said in the survey, which concluded before Aug. 27. "Economic activity has continued to expand nationwide", the Fed said.
On Wednesday there were few bright spots in the equity market. In particular, the financial sectors weakness stood out.
Expectations
9/5/07 Expectations
Jean-Pierre Mustier, chief executive of corporate and investment banking at Société Générale, said investors were in the grip of an “irrational mistrust” of credit ratings.(The proof will be in the pudding.)
The Semiconductor Industry Association said in a statement that despite severe competition in the sector in the early part of the year, worldwide chip sales were on track with its forecast of 1.8 percent growth in 2007.
John Hussman: " As with tech stocks in 2000, it may take some time before Wall Street's expectations catch up with the reality that profit margins are cyclical and that early declines off of overvalued peaks do not constitute bargains. My impression is that in the next year or two, we will observe at least one quarter, and more likely a full year, in which the entire profit of the U.S. banking sector is consumed by loan losses...As of June 30, 2007, the net income of all FDIC insured banking institutions totaled $36.8 billion. At an annual rate, that represents about 2% of all loans outstanding. Meanwhile, net charge-offs for bad loans were already running at an annual rate of about 0.50% in June. That's in a strong economy, before the recent problems, and loan loss reserves didn't even budge from a 32-year low. Net charge offs could easily quadruple in a mild recession...Historically, strong buying points for financial stocks have generally occurred when the group has traded at about book value. Currently, the typical multiples are two and often three times that level. That isn't to imply that financials must retreat to those lower valuations in this instance, but it's important to recognize that many financials are only “cheap” based on comparisons with very recent norms, and on the assumption that the high profitability levels of recent years will be sustained indefinitely."
Franklin Templeton Investments, which manages $621 billion in assets, has bought 25 percent of Dubai's Algebra Capital Ltd and wants to grow its business in Arab markets, it said on Tuesday. Algebra expects the value of assets in the professionally managed funds in the Middle East and North Africa to triple over the next five years to more than $200 billion, it said in a statement announcing the deal.
Merrill Lynch cut earnings estimates on 12 of 15 services stocks it covers, as its economists see a 65% chance of a U.S. recession.
Australia's economy expanded 0.9% in the second quarter from the first, beating out economists' forecasts for a 0.6% rise on a quarterly basis, driven by household consumption and construction spending. The economy expanded 4.3% in the quarter from a year earlier, the fastest pace in three years, the Australian Bureau of Statistics said Tuesday.
Natural gas is trading in the UK at $5.52 a million British thermal units. A therm is 100,000 Btus, while in the early Tuesday pits in the U.S. we are seeing trading at $5.26.
Allan Sloan: "Don't believe the hype: The deficit is much bigger than you think. There will be lots of celebrating in Washington next month when the Treasury announces that the federal budget deficit for fiscal 2007, which ends Sept. 30, will have dropped to a mere $158 billion, give or take a few bucks. That will be $90 billion below the reported 2006 deficit, and will be toasted by the White House and Treasury as a great accomplishment. But I have a nasty little secret for you, folks: If you use realistic numbers rather than what I call WAAP -- Washington accepted accounting principles -- the real federal deficit for this fiscal year is more than 2 1/2 times the stated deficit." Why am I not surprised?
Russia’s government may raise its forecast for economic growth in 2007 by the end of September, citing Economy Minister German Gref.
The three-bank consortium led by the Royal Bank of Scotland might invoke a material adverse change [MAC] clause and lower its offer for Dutch bank ABN Amro, the Times of London reported Tuesday.
The economic expansion that began six years ago has failed to benefit most workers, according to a report from the nonpartisan Economic Policy Institute, released Monday. After rising quickly in the second half of the 1990s, most workers real wages have been stagnant in the 2000s, especially since 2003.
"It's no secret that many customers are running out of money by the end of the month," Wal-Mart Chief Executive Lee Scott said. "The paycheck cycle is more pronounced now than it's ever been."
According to the FT, a continuing liquidity crunch in Canada’s asset-backed commercial paper market is triggering a sharp contraction in the availability of credit, threatening to cut short the economy’s robust growth.
Lehman Brothers on Tuesday began a three-day energy conference in New York. Companies presenting at the conference include: Patterson-UTI Energy Inc., Xcel Energy Inc., Anadarko Petroleum Corp., Noble Energy Inc., Quicksilver Resources Inc., Marathon Oil Corp., El Paso Corp., Questar Corp., Peabody Energy Corp., Duke Energy Corp., BJ Services Co. and Exxon Mobil Corp.
First American to cut full-time workforce by 1,300 in Q3.
Copper, lead, zinc, and aluminum had big down days in early Tuesday trading. In fact, zinc was at a 14-month low. On the other hand, soybeans are trading over $9 a bushel, wheat is over $8 a bushel, and corn is trading at $3.44. As we approach Fall, heating oil is $2.07 a gallon.
Discount wireless phone service provider MetroPCS Communications Inc. on Tuesday offered to buy rival Leap Wireless International Inc. in a stock deal valued at about $5.12 billion. MetroPCS, which offers prepaid phone plans, said it would also assume or refinance $2 billion of Leap debt as part of the transaction.The company offered to pay 2.75 shares of its stock for each share of Leap.
MEMC Electronic Materials cut its revenue guidance for the third-quarter due to a construction incident last week at a polysilicon plant undergoing an expansion in Texas. MEMC said it expects Q3 revenue to be about 5% less than its prior forecast of $500 million.
Home Depot said it will buy back about 289.6 million shares at $37 each, based on the preliminary results of Dutch auction tender. The price is at the low end of its $37 to $42 range.
U.S. Aug. ISM manufacturing index 52.9% vs 53.8% in July. New orders fell to 55.3% in August from 57.5% in July. The employment index rose to 51.3% from 50.2%. The price index fell to 63.0% from 65.0%.
Spending on U.S. construction projects fell 0.4% in July to an annual rate of $1.17 trillion, with a 1.4% decline in spending on private residential projects leading the way, the Commerce Department reported Tuesday. Compared to this time last year, construction spending is off 2%. During the first seven months of 2007, construction spending was 3.4% below the same period in 2006.
The U.S. Federal Reserve said on Tuesday it added $5 billion of temporary reserves to the banking system through 2-day repurchase agreements. The Fed said the collateral accepted on the 2-day repurchase was made up of $4.125 billion of Treasuries and $875 million of agencies. A total of $42.9 billion in bids were submitted for the 2-day repurchase.
A Bear Stearns analyst named Yahoo a "top pick," saying strategic initiatives are likely to boost shares. Analyst Robert S. Peck, in a client note, kept an "Outperform" rating and $30 target price on shares.
NovaStar Financial Inc. canceled a rights offering designed to raise $101.2 million for the subprime mortgage lender and said its auditor expressed doubt about the company's survival.
Michael E. Lewitt: "Investors and lenders convinced themselves that financial alchemy would turn illiquid securities into liquid securities in all market conditions. But leverage and liquidity require two participants. A borrower needs a lender, and a buyer needs a seller. Otherwise each is just a ship at sea. Liquidity is a human phenomenon, a psychological phenomenon. Investors made the mistake of believing that financial technology had repealed the laws of human nature. But, as Bill Gross wisely pointed out in his September Investment Commentary, "[n]othing within the current marketplace allows for the hedging of liquidity risk and that is the problem at the moment."5 This point is so obvious that it can be overlooked. Wall Street spends so much of its intellectual and financial resources trying to figure out how to hedge every kind of risk it can imagine. But the one kind of risk that repeatedly brings down markets and the biggest and boldest players in those markets is liquidity risk. The only true hedge against liquidity risk would be to cut out man's greed gland. You can't hedge human nature."
iSuppli said that the iPhone was the top-selling smart phone in the U.S. in July, accounting for 1.8% of all U.S. mobile-handset sales during the month. ISuppli now estimates Apple will sell 4.5 million iPhones in 2007, with that figure rising to more than 30 million by 2011.
December gold climbed $9.60 to close at $691.50 an ounce Tuesday.. December silver was also up 1.8%, or 21.8 cents, to close at $12.448 an ounce, but December copper closed at $3.306 a pound, down 2.7%.
The Government Accountability Office determined that four benchmarks — instead of two — had been partially met. But the GAO stuck with its original contention that only three goals out of the 18 had been achieved. The goals met include establishing joint security stations in Baghdad, ensuring minority rights in the Iraqi legislature and creating support committees for the Baghdad security plan.
Forecasters at Colorado State University said the rest of the 2007 Atlantic hurricane season would be busy. They expect three major hurricanes to form in the Atlantic Ocean from September through November, maintaining an earlier outlook.The Atlantic hurricane season began June 1 and ends Nov. 30. The peak of the season is typically between mid-August and mid- October. Two significant hurricanes have formed so far.
October crude climbed 1.4%, or $1.04, to close at a one-month high of $75.08 a barrel Tuesday. Natural gas reversed course and closed up 24 cents at $5.71.
Retail diesel fuel has increased 9.3 percent this year, to an average of $2.93 a gallon as of yesterday, according to the American Automobile Association.
In an SEC filing, Berkshire Hathaway Inc. said it may raise its stake in Burlington Northern Santa Fe Corp. to 25 percent or more from the present 15% level.
Epictetus: “We cannot choose our external circumstances, but we can always choose how we respond to them.”
Jean-Pierre Mustier, chief executive of corporate and investment banking at Société Générale, said investors were in the grip of an “irrational mistrust” of credit ratings.(The proof will be in the pudding.)
The Semiconductor Industry Association said in a statement that despite severe competition in the sector in the early part of the year, worldwide chip sales were on track with its forecast of 1.8 percent growth in 2007.
John Hussman: " As with tech stocks in 2000, it may take some time before Wall Street's expectations catch up with the reality that profit margins are cyclical and that early declines off of overvalued peaks do not constitute bargains. My impression is that in the next year or two, we will observe at least one quarter, and more likely a full year, in which the entire profit of the U.S. banking sector is consumed by loan losses...As of June 30, 2007, the net income of all FDIC insured banking institutions totaled $36.8 billion. At an annual rate, that represents about 2% of all loans outstanding. Meanwhile, net charge-offs for bad loans were already running at an annual rate of about 0.50% in June. That's in a strong economy, before the recent problems, and loan loss reserves didn't even budge from a 32-year low. Net charge offs could easily quadruple in a mild recession...Historically, strong buying points for financial stocks have generally occurred when the group has traded at about book value. Currently, the typical multiples are two and often three times that level. That isn't to imply that financials must retreat to those lower valuations in this instance, but it's important to recognize that many financials are only “cheap” based on comparisons with very recent norms, and on the assumption that the high profitability levels of recent years will be sustained indefinitely."
Franklin Templeton Investments, which manages $621 billion in assets, has bought 25 percent of Dubai's Algebra Capital Ltd and wants to grow its business in Arab markets, it said on Tuesday. Algebra expects the value of assets in the professionally managed funds in the Middle East and North Africa to triple over the next five years to more than $200 billion, it said in a statement announcing the deal.
Merrill Lynch cut earnings estimates on 12 of 15 services stocks it covers, as its economists see a 65% chance of a U.S. recession.
Australia's economy expanded 0.9% in the second quarter from the first, beating out economists' forecasts for a 0.6% rise on a quarterly basis, driven by household consumption and construction spending. The economy expanded 4.3% in the quarter from a year earlier, the fastest pace in three years, the Australian Bureau of Statistics said Tuesday.
Natural gas is trading in the UK at $5.52 a million British thermal units. A therm is 100,000 Btus, while in the early Tuesday pits in the U.S. we are seeing trading at $5.26.
Allan Sloan: "Don't believe the hype: The deficit is much bigger than you think. There will be lots of celebrating in Washington next month when the Treasury announces that the federal budget deficit for fiscal 2007, which ends Sept. 30, will have dropped to a mere $158 billion, give or take a few bucks. That will be $90 billion below the reported 2006 deficit, and will be toasted by the White House and Treasury as a great accomplishment. But I have a nasty little secret for you, folks: If you use realistic numbers rather than what I call WAAP -- Washington accepted accounting principles -- the real federal deficit for this fiscal year is more than 2 1/2 times the stated deficit." Why am I not surprised?
Russia’s government may raise its forecast for economic growth in 2007 by the end of September, citing Economy Minister German Gref.
The three-bank consortium led by the Royal Bank of Scotland might invoke a material adverse change [MAC] clause and lower its offer for Dutch bank ABN Amro, the Times of London reported Tuesday.
The economic expansion that began six years ago has failed to benefit most workers, according to a report from the nonpartisan Economic Policy Institute, released Monday. After rising quickly in the second half of the 1990s, most workers real wages have been stagnant in the 2000s, especially since 2003.
"It's no secret that many customers are running out of money by the end of the month," Wal-Mart Chief Executive Lee Scott said. "The paycheck cycle is more pronounced now than it's ever been."
According to the FT, a continuing liquidity crunch in Canada’s asset-backed commercial paper market is triggering a sharp contraction in the availability of credit, threatening to cut short the economy’s robust growth.
Lehman Brothers on Tuesday began a three-day energy conference in New York. Companies presenting at the conference include: Patterson-UTI Energy Inc., Xcel Energy Inc., Anadarko Petroleum Corp., Noble Energy Inc., Quicksilver Resources Inc., Marathon Oil Corp., El Paso Corp., Questar Corp., Peabody Energy Corp., Duke Energy Corp., BJ Services Co. and Exxon Mobil Corp.
First American to cut full-time workforce by 1,300 in Q3.
Copper, lead, zinc, and aluminum had big down days in early Tuesday trading. In fact, zinc was at a 14-month low. On the other hand, soybeans are trading over $9 a bushel, wheat is over $8 a bushel, and corn is trading at $3.44. As we approach Fall, heating oil is $2.07 a gallon.
Discount wireless phone service provider MetroPCS Communications Inc. on Tuesday offered to buy rival Leap Wireless International Inc. in a stock deal valued at about $5.12 billion. MetroPCS, which offers prepaid phone plans, said it would also assume or refinance $2 billion of Leap debt as part of the transaction.The company offered to pay 2.75 shares of its stock for each share of Leap.
MEMC Electronic Materials cut its revenue guidance for the third-quarter due to a construction incident last week at a polysilicon plant undergoing an expansion in Texas. MEMC said it expects Q3 revenue to be about 5% less than its prior forecast of $500 million.
Home Depot said it will buy back about 289.6 million shares at $37 each, based on the preliminary results of Dutch auction tender. The price is at the low end of its $37 to $42 range.
U.S. Aug. ISM manufacturing index 52.9% vs 53.8% in July. New orders fell to 55.3% in August from 57.5% in July. The employment index rose to 51.3% from 50.2%. The price index fell to 63.0% from 65.0%.
Spending on U.S. construction projects fell 0.4% in July to an annual rate of $1.17 trillion, with a 1.4% decline in spending on private residential projects leading the way, the Commerce Department reported Tuesday. Compared to this time last year, construction spending is off 2%. During the first seven months of 2007, construction spending was 3.4% below the same period in 2006.
The U.S. Federal Reserve said on Tuesday it added $5 billion of temporary reserves to the banking system through 2-day repurchase agreements. The Fed said the collateral accepted on the 2-day repurchase was made up of $4.125 billion of Treasuries and $875 million of agencies. A total of $42.9 billion in bids were submitted for the 2-day repurchase.
A Bear Stearns analyst named Yahoo a "top pick," saying strategic initiatives are likely to boost shares. Analyst Robert S. Peck, in a client note, kept an "Outperform" rating and $30 target price on shares.
NovaStar Financial Inc. canceled a rights offering designed to raise $101.2 million for the subprime mortgage lender and said its auditor expressed doubt about the company's survival.
Michael E. Lewitt: "Investors and lenders convinced themselves that financial alchemy would turn illiquid securities into liquid securities in all market conditions. But leverage and liquidity require two participants. A borrower needs a lender, and a buyer needs a seller. Otherwise each is just a ship at sea. Liquidity is a human phenomenon, a psychological phenomenon. Investors made the mistake of believing that financial technology had repealed the laws of human nature. But, as Bill Gross wisely pointed out in his September Investment Commentary, "[n]othing within the current marketplace allows for the hedging of liquidity risk and that is the problem at the moment."5 This point is so obvious that it can be overlooked. Wall Street spends so much of its intellectual and financial resources trying to figure out how to hedge every kind of risk it can imagine. But the one kind of risk that repeatedly brings down markets and the biggest and boldest players in those markets is liquidity risk. The only true hedge against liquidity risk would be to cut out man's greed gland. You can't hedge human nature."
iSuppli said that the iPhone was the top-selling smart phone in the U.S. in July, accounting for 1.8% of all U.S. mobile-handset sales during the month. ISuppli now estimates Apple will sell 4.5 million iPhones in 2007, with that figure rising to more than 30 million by 2011.
December gold climbed $9.60 to close at $691.50 an ounce Tuesday.. December silver was also up 1.8%, or 21.8 cents, to close at $12.448 an ounce, but December copper closed at $3.306 a pound, down 2.7%.
The Government Accountability Office determined that four benchmarks — instead of two — had been partially met. But the GAO stuck with its original contention that only three goals out of the 18 had been achieved. The goals met include establishing joint security stations in Baghdad, ensuring minority rights in the Iraqi legislature and creating support committees for the Baghdad security plan.
Forecasters at Colorado State University said the rest of the 2007 Atlantic hurricane season would be busy. They expect three major hurricanes to form in the Atlantic Ocean from September through November, maintaining an earlier outlook.The Atlantic hurricane season began June 1 and ends Nov. 30. The peak of the season is typically between mid-August and mid- October. Two significant hurricanes have formed so far.
October crude climbed 1.4%, or $1.04, to close at a one-month high of $75.08 a barrel Tuesday. Natural gas reversed course and closed up 24 cents at $5.71.
Retail diesel fuel has increased 9.3 percent this year, to an average of $2.93 a gallon as of yesterday, according to the American Automobile Association.
In an SEC filing, Berkshire Hathaway Inc. said it may raise its stake in Burlington Northern Santa Fe Corp. to 25 percent or more from the present 15% level.
Epictetus: “We cannot choose our external circumstances, but we can always choose how we respond to them.”
Monday, September 03, 2007
Back To Work
9/4/07 Back To Work
HSBC agreed to buy 51 percent of Korea Exchange Bank from private equity firm Lone Star for $6.3 billion, in a deal that could propel the UK-based bank into the top ranks of Asia's third-largest banking market.
According to the WSJ, Franco-Belgian utility Suez and French state-controlled gas company Gaz de France Monday announced their long-awaited merger, creating a major natural-gas and energy supplier called GDF Suez of which the French state will hold a 35% stake. The new entity will have a combined stock market capitalization of 90 billion euros ($122 billion) and revenues of €72 billion. Suez will be absorbed by Gaz de France via an exchange rate of 21 GdF shares for 22 Suez shares, the companies said. The deal involves the partial spin-off of Suez's environment activities.
The current turmoil in the financial markets has all the characteristics of a classic banking crisis, but one that is taking place outside the traditional banking sector, Axel Weber, president of the Bundesbank, said at the weekend.“What we are seeing is basically what we see underlying all banking crises,” said Mr Weber.
According to the FT, Russia is considering a ban on cereals exports in a move that exacerbates fears that wheat prices, already at an all-time high, could surge further on reduced supplies, European cereal traders said. Russia, the world’s fifth largest wheat exporter, is concerned about rising local bread prices and inflation ahead of legislative elections in December.
The LA Times: "I think we're beginning to see a much broader range of options and opportunities for mature workers," said Diane Piktialis, a specialist in older-worker issues with the Conference Board, a business research organization in New York. "This is an area where there's just enormous room for creativity in terms of how companies can adapt." Concerns are particularly acute in the areas of manufacturing, healthcare and government.
In the 3-million-member federal workforce, for example, 6 out of 10 employees could retire over the next decade, prompting a recent congressional proposal to lure retirees back to work with new financial incentives.
Brett Steenbarger: "We've seen impressive momentum/strength from the recent market, but we're also quite overbought in my Demand/Supply index."
General Electric Co. has agreed to buy British maker of oilfield services equipment Sondex Plc for 288.7 million pounds ($583.1 million) in cash, the two companies said on Monday.
China's $1.3 trillion stockpile of foreign exchange reserves has no exposure to assets backed by U.S. subprime mortgages, a senior Chinese government official said Monday, according to reports. Wei Benhua, deputy director of the State Administration of Foreign Exchange, said China's foreign exchange holdings are unaffected by the turmoil in U.S. credit markets because it has zero exposure to the troubled sector, according to a report by Dow Jones Newswires.
The Seattle Times reported American workers stay longer in the office, at the factory or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year. They also get more done per hour than everyone but the Norwegians, according to a new U.N. report that says the United States "leads the world in labor productivity." The average U.S. worker produces $63,885 of wealth per year, more than their counterparts in all other countries, the International Labor Organization (ILO) said in its report.
According to Bloomberg, the market fallout from the subprime mortgage slump is less severe than in 1998 after Russia's default and the collapse of Long-Term Capital Management LP, the Bank for International Settlements said. The assessment from the BIS, which monitors financial markets for central banks and regulates lenders, contrasts with analysis from Standard & Poor's, which last week said the outlook for securities firms is worse than in 1998.
IKB Deutsche Industriebank AG, the German bank that's being bailed out after investing in U.S. subprime loans, will post a loss of as much as 700 million euros ($954 million).
"I came to Jackson Hole thinking there would be no recession, but I'm leaving thinking we could well have one,'' said Susan Wachter, a professor at the University of Pennsylvania's Wharton School."
Mike Shedlock: "Meanwhile back at the BLS, I see the stats show more jobs in financial services are assumed to be created by new businesses as opposed to being lost by firms going out of business for the months of....
* February - 11,000
* March - 8,000
* April - 26,000
* May - 7,000
* June - 6,000
* July - 6,000
Gosh. That's quite an achievement by the BLS Birth / Death Model is it not? Are bankruptcy counseling services growing faster than mortgage lenders and originators are going bust? I doubt it, especially if one adds in all the small 2-5 person mortgage origination businesses that are now out of business as well."
"We are happy to be rid of the British," Iraqi army officer Sadoun Hami said on Monday after Britain pulled out its troops from its last base in the southern Iraqi.
Alexander Hamilton: “It's not tyranny we desire; it's a just, limited, federal government.”
HSBC agreed to buy 51 percent of Korea Exchange Bank from private equity firm Lone Star for $6.3 billion, in a deal that could propel the UK-based bank into the top ranks of Asia's third-largest banking market.
According to the WSJ, Franco-Belgian utility Suez and French state-controlled gas company Gaz de France Monday announced their long-awaited merger, creating a major natural-gas and energy supplier called GDF Suez of which the French state will hold a 35% stake. The new entity will have a combined stock market capitalization of 90 billion euros ($122 billion) and revenues of €72 billion. Suez will be absorbed by Gaz de France via an exchange rate of 21 GdF shares for 22 Suez shares, the companies said. The deal involves the partial spin-off of Suez's environment activities.
The current turmoil in the financial markets has all the characteristics of a classic banking crisis, but one that is taking place outside the traditional banking sector, Axel Weber, president of the Bundesbank, said at the weekend.“What we are seeing is basically what we see underlying all banking crises,” said Mr Weber.
According to the FT, Russia is considering a ban on cereals exports in a move that exacerbates fears that wheat prices, already at an all-time high, could surge further on reduced supplies, European cereal traders said. Russia, the world’s fifth largest wheat exporter, is concerned about rising local bread prices and inflation ahead of legislative elections in December.
The LA Times: "I think we're beginning to see a much broader range of options and opportunities for mature workers," said Diane Piktialis, a specialist in older-worker issues with the Conference Board, a business research organization in New York. "This is an area where there's just enormous room for creativity in terms of how companies can adapt." Concerns are particularly acute in the areas of manufacturing, healthcare and government.
In the 3-million-member federal workforce, for example, 6 out of 10 employees could retire over the next decade, prompting a recent congressional proposal to lure retirees back to work with new financial incentives.
Brett Steenbarger: "We've seen impressive momentum/strength from the recent market, but we're also quite overbought in my Demand/Supply index."
General Electric Co. has agreed to buy British maker of oilfield services equipment Sondex Plc for 288.7 million pounds ($583.1 million) in cash, the two companies said on Monday.
China's $1.3 trillion stockpile of foreign exchange reserves has no exposure to assets backed by U.S. subprime mortgages, a senior Chinese government official said Monday, according to reports. Wei Benhua, deputy director of the State Administration of Foreign Exchange, said China's foreign exchange holdings are unaffected by the turmoil in U.S. credit markets because it has zero exposure to the troubled sector, according to a report by Dow Jones Newswires.
The Seattle Times reported American workers stay longer in the office, at the factory or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year. They also get more done per hour than everyone but the Norwegians, according to a new U.N. report that says the United States "leads the world in labor productivity." The average U.S. worker produces $63,885 of wealth per year, more than their counterparts in all other countries, the International Labor Organization (ILO) said in its report.
According to Bloomberg, the market fallout from the subprime mortgage slump is less severe than in 1998 after Russia's default and the collapse of Long-Term Capital Management LP, the Bank for International Settlements said. The assessment from the BIS, which monitors financial markets for central banks and regulates lenders, contrasts with analysis from Standard & Poor's, which last week said the outlook for securities firms is worse than in 1998.
IKB Deutsche Industriebank AG, the German bank that's being bailed out after investing in U.S. subprime loans, will post a loss of as much as 700 million euros ($954 million).
"I came to Jackson Hole thinking there would be no recession, but I'm leaving thinking we could well have one,'' said Susan Wachter, a professor at the University of Pennsylvania's Wharton School."
Mike Shedlock: "Meanwhile back at the BLS, I see the stats show more jobs in financial services are assumed to be created by new businesses as opposed to being lost by firms going out of business for the months of....
* February - 11,000
* March - 8,000
* April - 26,000
* May - 7,000
* June - 6,000
* July - 6,000
Gosh. That's quite an achievement by the BLS Birth / Death Model is it not? Are bankruptcy counseling services growing faster than mortgage lenders and originators are going bust? I doubt it, especially if one adds in all the small 2-5 person mortgage origination businesses that are now out of business as well."
"We are happy to be rid of the British," Iraqi army officer Sadoun Hami said on Monday after Britain pulled out its troops from its last base in the southern Iraqi.
Alexander Hamilton: “It's not tyranny we desire; it's a just, limited, federal government.”
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