11/11/07 Unraveling
Alan Abelson: "We're not suggesting, need we say, that every Level 3 security on a bank's books is at risk or will have to be written down. But in total, they represent one massive pile of uncertainty, of which the lenders and the credit markets already have more than a surfeit, thank you."
Tom Sullivan: "Many bond portfolios have yet to price their debt to the market, and some have bid prices "way too high," says Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management. Marking to the market will be "a painful process," he adds, while funds selling to meet redemptions may have to accept fire-sale prices."
Bespoke Investment Group: "The rally off August lows lacked meaningful conviction on the part of investors as they have been quick to sell." As I mentioned frequently, much of that rally was due to short covering.
China's central bank ordered commercial banks Saturday to keep more money on hand, raising a key reserve requirement yet again to try to rein in the rapid lending that is fueling torrid economic growth.The People's Bank of China said the reserve requirement will be raised half a percentage point, to 13.5 percent, as of Nov. 26. It was the ninth such increase this year. The move was intended to "strengthen liquidity management in the banking system and check excessive credit growth," the central bank said in a statement on its Web site.
Doug Noland: "Bank Credit surged $39.2bn during the week (10/31) to a record $9.109 TN. Bank Credit has now posted a 15-week gain of $466bn (18.7% annualized) and y-t-d rise of $812bn, a 11.6% pace. For the week, Securities Credit jumped $22.7bn. Loans & Leases increased $16.5bn to a record $6.685 TN (15-wk gain of $360bn). C&I loans rose $5.5bn, increasing 2007's growth rate to 20.8%. Real Estate loans grew $4.1bn. Consumer loans slipped $2.9bn. Securities loans dropped $13.1bn, while Other loans jumped $22.9bn. On the liability side, (previous M3) Large Time Deposits jumped $48.4bn (4-wk gain of $138bn).
M2 (narrow) “money” surged $44.5bn to a record $7.427 TN (week of 10/29). Narrow “money” has expanded $384bn y-t-d, or 6.4% annualized, and $478bn, or 6.9%, over the past year. For the week, Currency increased $1.2bn, while Demand & Checkable Deposits gained $5.0bn. Savings Deposits jumped $34.8bn (2-wk gain of $56.3bn), and Small Denominated Deposits added $1.7bn. Retail Money Fund assets increased $1.9bn...
I would imagine that only during the past couple of weeks has (Fannie Mae's) management begun to recognize the looming disaster confronting the GSEs. Sure, Fannie Mae has struggled (at times unsuccessfully) through past downturns. But never has a financial institution entered a historic housing bust with a “Book of Business” of mortgages, MBS and other Credit guarantees of $2.716 TN. This massive Credit exposure is backed by a $39.9bn sliver of Shareholder’s Equity...Fannie acquired 34,955 properties through foreclosure during the first nine months of the year, up 34% y-o-y. The “carrying value” of foreclosed properties during the nine months jumped 53% y-o-y to $2.913bn. And while the Midwest has the highest serious delinquency rate (1.14%), it is worth noting that the West showed the most rapid deterioration over the past year (doubling to .33%). This region also posted the fastest growth in foreclosed properties during Q3. The West accounts for 23% of Fannie’s exposure, and I’ll stick with my forecast that California and the West Coast will bankrupt the GSEs...Spreads (to Treasuries) on GSE debt and their MBS widened markedly this week. These perceived safe and liquid “money-like” debt instruments have for some time been an instrument of choice for highly leveraged speculation. I have no idea to what extent these instruments have been part of the infamous “yen carry” trade. But I do know that the yen rallied strongly this week, further pressuring the leveraged players and significantly exacerbating the unfolding Credit Crisis. And the beloved technology stocks - the favored long equities trade of the leveraged speculating community - were hammered. Meanwhile, the CDO market came under further stress and even the “emerging” debt markets reversed course. It is difficult for me to believe that the “sophisticated money” will not now attempt to be the first ones out of the hedge fund Bubble. Meanwhile, a backbreaking Credit Crunch is about to strangle the U.S. Bubble economy. “Structured finance” is a bust, while the major banks now recognize that this much more than a fleeting liquidity crisis. To survive, they will move aggressively to get their risk under control. If there were a more ominous scenario than the one developing, I’ve not thought of it."
Peter Schiff: "As Wall Street is beginning to fess up to huge losses, similar "write-downs" are becoming evident on Main Street. Just like the big banks padded earnings by collecting large fees on securitized loans they knew were riskier than advertised, U.S. GDP has been padded by consumers spending borrowed money. As the debts mount and servicing costs soar, there is simply no way for consumers to keep spending. Just like Wall Street's past profits sowed the seeds of today's losses, the boost to past GDP provided by excess consumption will lead to big declines in future GDP."
The Daily Reckoning: "Americans' most important asset - residential property - is going down at nearly 5% per year. Since property prices are in dollars, in world terms, the householder is losing about 15% per year. And yes, dear reader, housing will keep going down. There's another thing you can count on. The typical family doesn't earn enough money to buy the typical house. Either family incomes must rise, or housing prices will fall. Which will it be? Which is more likely? Here, we'll take a wild guess - uh…housing prices will fall."
According to the FT, BHP Billiton has lined up a $70bn financing package to bolster its £67bn ($140bn) takeover approach for rival miner Rio Tinto, as sources close to its target indicated on Friday the company was open to a takeover at the right price. As with many mergers of this size, there will be potential for big cost savings. However, one has to ask whether there is a possibility of a world-wide recession. Should that occur, and I believe it is quite likely, then the drop in many of the commodities handled by BHP and RTP, such as, copper, iron ore, coal, and aluminum, will decline in price and wipe out those cost savings. Both of these companies have seen their shares soar and each is up over 100% since I first mentioned them as being attractive. (I am removing the recent additional takeover premium for RTP to be conservative.)
The Federal Reserve Bank of Chicago named Madison Dearborn Partners LLC Chairman John Canning as its chairman for next year.
M.Scott Peck:“There can be no vulnerability without risk; there can be no community without vulnerability; there can be no peace, and ultimately no life, without community.”
Bloomberg reported the yen rose to the highest level since May 2006 against the dollar as concern over credit-market losses and tumbling stocks led investors to shun higher-yielding assets bought with loans in Japan.
Henry Paulson: "The dollar has been the world's reserve currency since World War II and there's a reason,'' he said. ``I put the U.S. economy up against any in the world in terms of competitiveness.'' We're so competitive that plant after plant has been shut down for years. Our manufacturing base has moved to China and ASEAN countries.
I keep reading where the decline in consumer sentiment and the decline in the dollar has reached the danger zone. The credit bubble has undermined the foundation of this nation's well-being. It is well past the danger zone. It is now in the unraveling stage.
24/7WallSt: "E*Trade (ETFC) are off 12% after hours to $7.55, below their 52-week low.The brokerage reported that it has observed continued declines in the fair value of its $3.0 billion asset-backed securities portfolio, predominantly within ABS CDO and second-lien securities. The total exposure to ABS CDO and second-lien securities at September 30, 2007 was approximately $450 million in amortized cost, including approximately $50 million of “AAA” rated asset-backed CDOs that were downgraded to below investment grade. Management believes the additional deterioration observed since September 30 will likely result in write downs that exceed the previous expectations included in the Company’s 2007 earnings outlook updated on October 17, and investors should no longer expect these earnings levels to be achieved. Actual securities-related losses will depend on future market developments, including the potential for future downgrades by rating agencies, which are extremely difficult to predict in this environment. Accordingly, management believes it is no longer beneficial to provide earnings expectations for the remainder of the year. That has to hurt."
Brett Steenbarger: "The good trader, like the good driver, is one who keeps an open mind to new information and can quickly change direction if needed. Such openness requires a non-defensive stance vis a vis one's ideas--a readiness to acknowledge being wrong--and an ability to be in the present and (like the jury member) impartially process fresh information."
Output of the largest source of lower-quality crude in the U.S. Gulf of Mexico has been partially curtailed, people familiar with the situation say.
Volumes for the Mars crude blend, which is produced on several platforms operated by Royal Dutch Shell PLC (RDSB.LN), may be down as much as 150,000 barrels a day, said one trader who spoke on the condition of anonymity. Mars production averaged 273,459 barrels a day in September, the most recent month where figures were provided by Shell.
San Francisco's average price for a gallon of regular reached $3.51 on Friday, 12 cents shy of the city's $3.63 record. San Jose is just 7 cents below its record of $3.50. California's statewide average is $3.35, up 33 cents in the last month. The state set its current record in May, at $3.49.
Bobby Scott: "If we have a crunch, we can only deal with it by cutting spending. We cannot deal with it any other kind of way. " The Administration and the Congress don't know the meaning of spending cuts.
Saturday, November 10, 2007
Friday, November 09, 2007
Diminishing Consumer Confidence
11/10/07 Diminishing Consumer Confidence
Consumer confidence plunged in early November to the lowest level since Hurricane Katrina battered the Gulf Coast and sent oil prices soaring in 2005. The RBC Cash Index showed consumer confidence fell to a reading of 64 this month, down sharply from an early October reading of 80.6, when consumer sentiment was on the upswing as the stock market stabilized temporarily following a turbulent August. "We have a perfect storm of negative factors affecting the consumer right now," said David Jones, chief economist at DMJ Advisors, a Denver consulting firm. "We have higher energy prices, declining home prices and a crisis-related tightening of credit."
UMich Nov. consumer sentiment 75.0 vs 80.9 in Oct.
Merck has deal to settle U.S. Vioxx suits for $4.85 billion.
Wachovia Corp.is anticipating loan losses between $500 million and $600 million in the fourth quarter, citing anticipated loan growth and the impact of continuing credit deterioration in its loan portfolio. Due to the October market deterioration, its asset-backed CDOs experienced further declines in value in the month of October 2007 by an amount it currently estimates to be approximately $1.1 billion pre-tax. Third quarter 2007 market disruption-related losses totaling $1.3 billion pre-tax included $347 million of subprime-related valuation losses, net of hedges, on ABS CDOs.
Clearwire Corp.and Sprint Nextel Corp.said they scrapped their agreement to jointly build a nationwide high-speed WiMax network.
The dollar plumbed fresh lows against the euro, yen and sterling Friday.
The Japanese economy may be tipping towards recession, with the odds of a contraction in coming months rising to between 40% to 50%, as weak construction starts, falling industrial production, slowing exports, and faltering employment growth weigh on the outlook for the world's second-largest economy, according to Credit Suisse.
The U.K. trade in goods deficit widened to a record 7.8 billion pounds in September from 6.9 billion pounds in August. The surplus in services stayed at 2.7 billion pounds.
A North Sea storm bore down on the British and Netherlands coasts. December oil futures touched a high of $96.48 earlier, coinciding with reports the storm is expected to bring the worst storm swells in 20 years, with forecast tidal surges up to 5 feet (1.5 meters) expected to hit at dawn Friday. Flood warnings were issued along the entire Dutch coast and along the eastern and northern coasts of Britain, the BBC reported.
The yen may rise to 100 per dollar by the end of 2008 as credit-market losses prompt investors to pare purchases of higher-yielding assets with loans from Japan, Lehman Brothers Holdings Inc. and Deutsche Bank AG said.
Slowing global growth will also cause traders to pare purchases of riskier securities in so-called carry trades, Jim McCormick, head of currency research in London at the fourth- largest U.S. securities firm, said in an interview in Tokyo. He predicts the yen will climb to 100 by the end of 2008. Deutsche Bank forecasts 97.5 per dollar within 12 months.
According to the WSJ, the credit-rating downgrade deluge that's been rocking financial markets isn't over. In the next few weeks, debt-rating services like Moody's Investors Service, Standard & Poor's and Fitch Ratings look poised to downgrade hundreds of mortgage-related investments worth tens of billions of dollars, creating the potential for more market unrest.
Shares in Barclays Plc, Britain's third-biggest lender, were temporarily suspended from trading after the stock fell as much as 9.1 percent in London. The suspension of trading in Barclays occurred when the shares were placed into a so-called volatility auction. Stocks may be placed into such an auction following sudden moves to stabilize the price by matching bids and orders in an orderly fashion. British bank Barclays Plc categorically denied rumors it was about to announce a $10 billion writedown and see its top management quit, after the market talk sent its shares tumbling over 9 percent.
Bloomberg reported "New York Mayor Michael Bloomberg ordered agency heads to freeze all city hiring and cut their budgets this year and next, anticipating less revenue as Wall Street profits drop and real estate sales slow." The net effect is that "New York state faces a budget gap of $4.3 billion next year, up from $3.6 billion estimated three months ago, as Wall Street job cuts and losses reduce tax revenue, the Division of Budget said. The state normally collects about 20% of its revenue from taxes on Wall Street companies and employees."
China called on Iran to ``positively respond'' to international concerns it may be using its nuclear program to develop an atomic weapon. Iran should show restraint and adopt a flexible attitude in talks on the program, China's official Xinhua news agency cited Liu Jianchao, the Foreign Ministry spokesman.
Barry Ritholtz:"And now, the next domino is falling: Retail Sales. Unless we see a notable uptick, Retail sales are in danger of slipping into a recession in Q4 2007 and Q1 2008. In the US, Retail has clearly softened. And, if we actually look beneath the headline numbers, we see what little growth that was reported yesterday for October was primarily the result of inflation -- and in particular, FOOD INFLATION."
Merrill Lynch said its total exposure to risky collateralized debt obligations and subprime mortgages is $27.2 billion, or about $6.3 billion more than what the company disclosed late last month.
Palatin Technologies, Inc. reported a net loss of $247,000, or $0.00 per basic and diluted share, for the quarter ended September 30, 2007, compared to a net loss of $8.4 million, or ($0.12) per basic and diluted share, for the same period in 2006. Total revenues for the quarter ended September 30, 2007 were $9.0 million, compared to $4.9 million for the same period in 2006. As of September 30, 2007, the Company had cash, cash equivalents and investments totaling $26.6 million. The decrease in the net loss for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006 was primarily attributable to the recognition of deferred license revenue pursuant to the termination of the collaboration agreement with King Pharmaceuticals, Inc. (King) on bremelanotide, the Company's drug under development for the treatment of erectile dysfunction and female sexual dysfunction. Prior to termination, the license revenue received from King had been deferred, and was being recognized as revenue over the estimated development period of the collaboration agreement. Upon termination, recognition was accelerated.
Allscripts traded down 25% after missing earnings estimates and after lower guidance for 2007 and 2008.
MMM was cut to Sell from Neutral at Goldman Sachs and the stock is indicated down 4%.
"Clouds have clearly gathered on the horizon with this summer's turbulence in the financial markets, the U.S. slowdown and the ever-rising oil prices," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said. The European Commission forecast that growth in the 27-nation bloc will slow to 2.4 percent in both 2008 and 2009, from 2.9 percent in 2007. In the euro zone -- the area of 13 nations using the euro as a common currency -- growth will slow to 2.2 percent in 2008 and even further to 2.1 percent in 2009, down from 2.6 percent in 2007, according to the forecast.
Brett Steenbarger: "In the end, there's just two settings on traders' current thermostats: risk seeking and risk aversion. And the two are playing themselves out daily."
According to AMG Data, Including ETF activity, equity funds report net cash outflows totaling -$7.006 billion in the week ended 11/7/07 with Domestic funds reporting net outflows of -$8.681 billion and Non-domestic funds reporting net inflows of $1.675 billion; Excluding ETF activity, equity funds report net cash outflows totaling -$1.568 billion with Domestic funds reporting net outflows of -$1.658 billion and Non-domestic funds reporting net inflows totaling $90 million
.
Restoration Hardware Inc., the Corte Madera home-furnishings chain, said Thursday that it has agreed to sell itself to a private-equity firm for $267 million. Catterton Partners of Greenwich, Conn., is paying $6.70 per share in cash - 2.5 times the stock's Wednesday closing price.
Fannie Mae EPS $1.17 for first 3 quarters of 2007 vs $3.16.
Prices that U.S. residents paid for imported goods rose 1.8% in October, the biggest increase since May 2006, the Labor Department reported Friday. Imported petroleum prices rose 6.9%, but prices of other goods rose a more moderate 0.5%. Excluding all fuels, import prices rose 0.3%. Meanwhile, export prices jumped 0.9% in October, including a 3.9% rise in agricultural prices. Excluding agriculture, export prices rose 0.5% in October. In the past year, import prices are up 9.6%, including a 41.4% increase in petroleum prices. Excluding petroleum, import prices are up 3.2%.
A surge in exports in September helped push the U.S. trade deficit down to $56.5 billion, the lowest in more than two years, the Commerce Department reported Friday. U.S. exports rose 1.1% to a record $140.1 billion on record shipments of capital goods, industrial materials and foods. Boosted by record imports of capital goods and an increase in the value of petroleum shipments, imports into the United States increased 0.6% to $196.6 billion, the second highest ever. Compared with a year ago, the trade deficit has fallen by about 14%, with exports up 14% and imports rising 4.9%. The figures are not adjusted for price changes.
Marsoft: "After reaching all-time highs in the second quarter, dry bulk freight rates rose by 25-30% during the third quarter. And the gains didn’t stop there, as rates rose by an additional 40-50% in October alone! The soaring Cape sector has attracted most of the attention in the recent rally, and deservedly so, given the astronomical numbers that have been seen. The Baltic Cape TC Index averaged an impressive $120,000 per day in the third quarter, up from $98,000 per day in the second quarter. But the real fireworks took place in October, with rates skyrocketing above $180,000 per day, close to triple their year-earlier level."
For the full year, Martin Marietta Materials said it expects to earn $6.10 to $6.45 per share. The stock at $123. Vulcan Materials is about to close on the Florida Rock acquisition. Vulcan will earn close to $5 a share and the stock is $79. Vulcan is the leader in the aggregate industry. One might consider going long Vulcan and shorting Martin.
Since the $60 buyout of SLM blew up some weeks back, the stock made a new 52-week low on Friday at $38+. That's not a misprint. It's down 20 points for you value investors.
Daily shipments of North Sea Brent crude, part of the price benchmark for almost two-thirds of the world's oil, will drop by about 21 percent in December. Tankers are set to load 161,677 barrels a day of Brent crude in December, down from 204,500 barrels a day scheduled for November, according to the loading program of field operator Royal Dutch Shell Plc, Europe's largest oil company. A total of 5.01 million barrels will be shipped next month, compared with 6.14 million barrels in November.
``There's so much money now that's seeking to get away from risk and toward riskless securities,'' said Walter Burke, a fixed-income technical strategist in New York at Merrill Lynch & Co., one of 21 firms that trade directly with the Federal Reserve. ``People are buying Treasuries like bananas as soon as stocks go down. I've never seen such a tight correlation.'' Yields of three-month bills decreased 14 basis points to 3.27 percent at 10:49 a.m. in New York. They dropped as low as 3.05 percent. Two-year note yields fell almost 3 basis points to 3.44 percent, after touching the lowest since February 2005.
I will pose some questions for the long weekend. Is the U.S. dollar a safe haven? Are U.S. treasuries priced in dollars? What makes you think an IOU from the U.S., backed by the full faith and credit of a nation with only a printing press and no equity, is a safe haven? Lower interest rates do not equate to safety. On the contrary. As I have said for 5 years, I'll give you the dollar and treasuries. I'll take gold and the Goldman Sachs Commodity Index.
Home Depot made a new 52-week low at $28+ and Lowe's is close to a 52-week low at $23+. The hedge has worked nicely--long Lowe's and short Home Depot.
In early Friday trading the VIX jumped to 28+. Volatility is alive and kicking.
Robert McHugh: "We got the ninth Hindenburg Omen signal observation Thursday, since October 16th. The dates for those H.O. observations, for those of you keeping score at home, are October 16th, 17th, 18th, 25th, November 1st, 2nd, 6th, 7th, and 8th."
Capital One, the largest independent MasterCard and Visa credit card issuer, said on Friday its rate of net charge-offs on a managed basis rose to 3.28 percent in October from 2.86 percent in the third quarter.
The charge-off rate in U.S. cards rose to 5.11 percent from 4.13 percent in the same periods, while card loans at least 30 days past due rose to 4.75 percent from 4.46 percent. "While management previously indicated that the U.S. card loss rate would trend north of 5 percent in the fourth quarter, we were surprised to see how fast this jumped," Credit Suisse analyst Moshe Orenbuch wrote.
Below are the top issuers of CDOs so far this year,
according to Bernstein Research (value in billions of
dollars):
TOP GLOBAL CDO ISSUERS
Bookrunners Value Market share (%)
1 Merrill Lynch $32.176 17.2
2 Citi 26.578 14.2
3 UBS 21.151 11.3
4 Wachovia 12.505 6.7
5 ABN AMRO 10.849 5.8
6 Goldman Sachs 10.075 5.4
7 Banc of America 8.634 4.6
8 Deutsche Bank 8.231 4.4
9 RBS 7.154 3.8
10 Lehman Brothers 6.575 3.5
11 Morgan Stanley 6.277 3.3
Sources: Corporate Reports, Bernstein Analysis
(Reporting by Joseph A. Giannone; Editing by John Wallace)
Refining margins are set to recover some lost ground as gasoline prices show unseasonal
strength and possibly top this summer's peak, Credit Suisse
said in a report on Friday.
Despite the anticipated recovery in margins, the brokerage
said it reiterates its "Underweight" position on the U.S.
independent refiners.
Gold for December delivery ended down $2.80 at $834.70 an ounce on the New York Mercantile Exchange. Gold gained $26.20 on the week from last Friday's closing level of $808.50.
The House on Friday voted 216-193 to pass a Democratic measure designed to shield middle-class taxpayers from the alternative minimum tax in the 2007 calendar year.
The current U.S. credit crisis is worse than the crisis of confidence experienced after the Long-Term Capital Collapse in 1998, said Jack Malvey, chief global fixed income strategist at Lehman Brothers. "This is the deepest correction we've ever seen in structured finance," Malvey said. "This is so dispersed, so interlocked… This is a painful lesson in financial engineering."
"Sentiment readings are now out of the caution area and into the DANGER zone," wrote Robert Brusca, chief economist at Fact and Opinion Economics. "Things do seem to be unraveling a bit faster."
Credit-card provider Visa Inc. on Friday filed for an initial public offering in a deal that may be worth $10 billion. The IPO is being handled by J.P. Morgan and Goldman, Sachs. I discussed MasterCard prior to its IPO. It has gone up almost 6 times in value. We'll take a look at the red herring for Visa and make a judgment.
Standard & Poor's said on Friday that it may cut ratings on 484 classes of residential mortgage securities backed by so-called Alt-A home loans. The influential agency also warned that it could downgrade ratings on 63 classes of net interest margin securities, a type of derivative that's tied to the Alt-A backed securities in question. "These actions reflect a persistent rise in the level of delinquencies among the Alt-A mortgage loans supporting these transactions," S&P said in a statement. Total delinquencies for Alt-A transactions issued during 2005 and 2006 have increased 43.27% to 9.90% since July 2007, the agency noted.
The Dow Jones Industrial Average fell 223.5 points, or 1.7%, to 13,042.7, a decline of 4.1% for the week. The S&P 500 dropped 21.07 points, or 1.4%, to 1,453.70, a weekly decline of 3.7%. The Nasdaq Composite shed 68.06 points, or 2.5%, to 2,627.94, a 6.5% drop from last week.
Bank of America Corp. said that dislocations in the market for collateralized debt obligations (CDOs) will knock the bank's fourth-quarter results. "It may take more time for the markets to return to a more normal environment with tighter credit spreads and greater liquidity," the bank said in its quarterly filing with the Securities and Exchange Commission. Bank of America disclosed that it provided more than $15 billion of liquidity support for commercial paper sold by CDOs. A net $9.8 billion of that is mainly backed by subprime residential mortgage securities, it added. The bank also has more than $3 billion of exposure to CDOs through its structuring, warehousing and trading activities, it said in the filing.
J.P. Morgan Chase & Co. said that some of its subprime-related positions could be hit by turbulent conditions in credit markets in the fourth quarter. "The firm's CDO and subprime mortgage warehouse and trading positions could also be negatively affected by market conditions during the fourth quarter of 2007," the bank said in its quarterly filing with the Securities and Exchange Commission. In the third quarter, J.P. Morgan noted that it took a $339 million write-down (net of risk management results) on $6.8 billion of collateralized debt obligation (CDO) warehouse and unsold positions.
Crude-oil futures closed up 86 cents, or 0.9%, at $96.32 a barrel on the New York Mercantile Exchange.
Elisabeth Kubler-Ross: " People are like stained-glass windows. They sparkle and shine when the sun is out, but when the darkness sets in their true beauty is revealed only if there is light from within. "
Consumer confidence plunged in early November to the lowest level since Hurricane Katrina battered the Gulf Coast and sent oil prices soaring in 2005. The RBC Cash Index showed consumer confidence fell to a reading of 64 this month, down sharply from an early October reading of 80.6, when consumer sentiment was on the upswing as the stock market stabilized temporarily following a turbulent August. "We have a perfect storm of negative factors affecting the consumer right now," said David Jones, chief economist at DMJ Advisors, a Denver consulting firm. "We have higher energy prices, declining home prices and a crisis-related tightening of credit."
UMich Nov. consumer sentiment 75.0 vs 80.9 in Oct.
Merck has deal to settle U.S. Vioxx suits for $4.85 billion.
Wachovia Corp.is anticipating loan losses between $500 million and $600 million in the fourth quarter, citing anticipated loan growth and the impact of continuing credit deterioration in its loan portfolio. Due to the October market deterioration, its asset-backed CDOs experienced further declines in value in the month of October 2007 by an amount it currently estimates to be approximately $1.1 billion pre-tax. Third quarter 2007 market disruption-related losses totaling $1.3 billion pre-tax included $347 million of subprime-related valuation losses, net of hedges, on ABS CDOs.
Clearwire Corp.and Sprint Nextel Corp.said they scrapped their agreement to jointly build a nationwide high-speed WiMax network.
The dollar plumbed fresh lows against the euro, yen and sterling Friday.
The Japanese economy may be tipping towards recession, with the odds of a contraction in coming months rising to between 40% to 50%, as weak construction starts, falling industrial production, slowing exports, and faltering employment growth weigh on the outlook for the world's second-largest economy, according to Credit Suisse.
The U.K. trade in goods deficit widened to a record 7.8 billion pounds in September from 6.9 billion pounds in August. The surplus in services stayed at 2.7 billion pounds.
A North Sea storm bore down on the British and Netherlands coasts. December oil futures touched a high of $96.48 earlier, coinciding with reports the storm is expected to bring the worst storm swells in 20 years, with forecast tidal surges up to 5 feet (1.5 meters) expected to hit at dawn Friday. Flood warnings were issued along the entire Dutch coast and along the eastern and northern coasts of Britain, the BBC reported.
The yen may rise to 100 per dollar by the end of 2008 as credit-market losses prompt investors to pare purchases of higher-yielding assets with loans from Japan, Lehman Brothers Holdings Inc. and Deutsche Bank AG said.
Slowing global growth will also cause traders to pare purchases of riskier securities in so-called carry trades, Jim McCormick, head of currency research in London at the fourth- largest U.S. securities firm, said in an interview in Tokyo. He predicts the yen will climb to 100 by the end of 2008. Deutsche Bank forecasts 97.5 per dollar within 12 months.
According to the WSJ, the credit-rating downgrade deluge that's been rocking financial markets isn't over. In the next few weeks, debt-rating services like Moody's Investors Service, Standard & Poor's and Fitch Ratings look poised to downgrade hundreds of mortgage-related investments worth tens of billions of dollars, creating the potential for more market unrest.
Shares in Barclays Plc, Britain's third-biggest lender, were temporarily suspended from trading after the stock fell as much as 9.1 percent in London. The suspension of trading in Barclays occurred when the shares were placed into a so-called volatility auction. Stocks may be placed into such an auction following sudden moves to stabilize the price by matching bids and orders in an orderly fashion. British bank Barclays Plc categorically denied rumors it was about to announce a $10 billion writedown and see its top management quit, after the market talk sent its shares tumbling over 9 percent.
Bloomberg reported "New York Mayor Michael Bloomberg ordered agency heads to freeze all city hiring and cut their budgets this year and next, anticipating less revenue as Wall Street profits drop and real estate sales slow." The net effect is that "New York state faces a budget gap of $4.3 billion next year, up from $3.6 billion estimated three months ago, as Wall Street job cuts and losses reduce tax revenue, the Division of Budget said. The state normally collects about 20% of its revenue from taxes on Wall Street companies and employees."
China called on Iran to ``positively respond'' to international concerns it may be using its nuclear program to develop an atomic weapon. Iran should show restraint and adopt a flexible attitude in talks on the program, China's official Xinhua news agency cited Liu Jianchao, the Foreign Ministry spokesman.
Barry Ritholtz:"And now, the next domino is falling: Retail Sales. Unless we see a notable uptick, Retail sales are in danger of slipping into a recession in Q4 2007 and Q1 2008. In the US, Retail has clearly softened. And, if we actually look beneath the headline numbers, we see what little growth that was reported yesterday for October was primarily the result of inflation -- and in particular, FOOD INFLATION."
Merrill Lynch said its total exposure to risky collateralized debt obligations and subprime mortgages is $27.2 billion, or about $6.3 billion more than what the company disclosed late last month.
Palatin Technologies, Inc. reported a net loss of $247,000, or $0.00 per basic and diluted share, for the quarter ended September 30, 2007, compared to a net loss of $8.4 million, or ($0.12) per basic and diluted share, for the same period in 2006. Total revenues for the quarter ended September 30, 2007 were $9.0 million, compared to $4.9 million for the same period in 2006. As of September 30, 2007, the Company had cash, cash equivalents and investments totaling $26.6 million. The decrease in the net loss for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006 was primarily attributable to the recognition of deferred license revenue pursuant to the termination of the collaboration agreement with King Pharmaceuticals, Inc. (King) on bremelanotide, the Company's drug under development for the treatment of erectile dysfunction and female sexual dysfunction. Prior to termination, the license revenue received from King had been deferred, and was being recognized as revenue over the estimated development period of the collaboration agreement. Upon termination, recognition was accelerated.
Allscripts traded down 25% after missing earnings estimates and after lower guidance for 2007 and 2008.
MMM was cut to Sell from Neutral at Goldman Sachs and the stock is indicated down 4%.
"Clouds have clearly gathered on the horizon with this summer's turbulence in the financial markets, the U.S. slowdown and the ever-rising oil prices," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said. The European Commission forecast that growth in the 27-nation bloc will slow to 2.4 percent in both 2008 and 2009, from 2.9 percent in 2007. In the euro zone -- the area of 13 nations using the euro as a common currency -- growth will slow to 2.2 percent in 2008 and even further to 2.1 percent in 2009, down from 2.6 percent in 2007, according to the forecast.
Brett Steenbarger: "In the end, there's just two settings on traders' current thermostats: risk seeking and risk aversion. And the two are playing themselves out daily."
According to AMG Data, Including ETF activity, equity funds report net cash outflows totaling -$7.006 billion in the week ended 11/7/07 with Domestic funds reporting net outflows of -$8.681 billion and Non-domestic funds reporting net inflows of $1.675 billion; Excluding ETF activity, equity funds report net cash outflows totaling -$1.568 billion with Domestic funds reporting net outflows of -$1.658 billion and Non-domestic funds reporting net inflows totaling $90 million
.
Restoration Hardware Inc., the Corte Madera home-furnishings chain, said Thursday that it has agreed to sell itself to a private-equity firm for $267 million. Catterton Partners of Greenwich, Conn., is paying $6.70 per share in cash - 2.5 times the stock's Wednesday closing price.
Fannie Mae EPS $1.17 for first 3 quarters of 2007 vs $3.16.
Prices that U.S. residents paid for imported goods rose 1.8% in October, the biggest increase since May 2006, the Labor Department reported Friday. Imported petroleum prices rose 6.9%, but prices of other goods rose a more moderate 0.5%. Excluding all fuels, import prices rose 0.3%. Meanwhile, export prices jumped 0.9% in October, including a 3.9% rise in agricultural prices. Excluding agriculture, export prices rose 0.5% in October. In the past year, import prices are up 9.6%, including a 41.4% increase in petroleum prices. Excluding petroleum, import prices are up 3.2%.
A surge in exports in September helped push the U.S. trade deficit down to $56.5 billion, the lowest in more than two years, the Commerce Department reported Friday. U.S. exports rose 1.1% to a record $140.1 billion on record shipments of capital goods, industrial materials and foods. Boosted by record imports of capital goods and an increase in the value of petroleum shipments, imports into the United States increased 0.6% to $196.6 billion, the second highest ever. Compared with a year ago, the trade deficit has fallen by about 14%, with exports up 14% and imports rising 4.9%. The figures are not adjusted for price changes.
Marsoft: "After reaching all-time highs in the second quarter, dry bulk freight rates rose by 25-30% during the third quarter. And the gains didn’t stop there, as rates rose by an additional 40-50% in October alone! The soaring Cape sector has attracted most of the attention in the recent rally, and deservedly so, given the astronomical numbers that have been seen. The Baltic Cape TC Index averaged an impressive $120,000 per day in the third quarter, up from $98,000 per day in the second quarter. But the real fireworks took place in October, with rates skyrocketing above $180,000 per day, close to triple their year-earlier level."
For the full year, Martin Marietta Materials said it expects to earn $6.10 to $6.45 per share. The stock at $123. Vulcan Materials is about to close on the Florida Rock acquisition. Vulcan will earn close to $5 a share and the stock is $79. Vulcan is the leader in the aggregate industry. One might consider going long Vulcan and shorting Martin.
Since the $60 buyout of SLM blew up some weeks back, the stock made a new 52-week low on Friday at $38+. That's not a misprint. It's down 20 points for you value investors.
Daily shipments of North Sea Brent crude, part of the price benchmark for almost two-thirds of the world's oil, will drop by about 21 percent in December. Tankers are set to load 161,677 barrels a day of Brent crude in December, down from 204,500 barrels a day scheduled for November, according to the loading program of field operator Royal Dutch Shell Plc, Europe's largest oil company. A total of 5.01 million barrels will be shipped next month, compared with 6.14 million barrels in November.
``There's so much money now that's seeking to get away from risk and toward riskless securities,'' said Walter Burke, a fixed-income technical strategist in New York at Merrill Lynch & Co., one of 21 firms that trade directly with the Federal Reserve. ``People are buying Treasuries like bananas as soon as stocks go down. I've never seen such a tight correlation.'' Yields of three-month bills decreased 14 basis points to 3.27 percent at 10:49 a.m. in New York. They dropped as low as 3.05 percent. Two-year note yields fell almost 3 basis points to 3.44 percent, after touching the lowest since February 2005.
I will pose some questions for the long weekend. Is the U.S. dollar a safe haven? Are U.S. treasuries priced in dollars? What makes you think an IOU from the U.S., backed by the full faith and credit of a nation with only a printing press and no equity, is a safe haven? Lower interest rates do not equate to safety. On the contrary. As I have said for 5 years, I'll give you the dollar and treasuries. I'll take gold and the Goldman Sachs Commodity Index.
Home Depot made a new 52-week low at $28+ and Lowe's is close to a 52-week low at $23+. The hedge has worked nicely--long Lowe's and short Home Depot.
In early Friday trading the VIX jumped to 28+. Volatility is alive and kicking.
Robert McHugh: "We got the ninth Hindenburg Omen signal observation Thursday, since October 16th. The dates for those H.O. observations, for those of you keeping score at home, are October 16th, 17th, 18th, 25th, November 1st, 2nd, 6th, 7th, and 8th."
Capital One, the largest independent MasterCard and Visa credit card issuer, said on Friday its rate of net charge-offs on a managed basis rose to 3.28 percent in October from 2.86 percent in the third quarter.
The charge-off rate in U.S. cards rose to 5.11 percent from 4.13 percent in the same periods, while card loans at least 30 days past due rose to 4.75 percent from 4.46 percent. "While management previously indicated that the U.S. card loss rate would trend north of 5 percent in the fourth quarter, we were surprised to see how fast this jumped," Credit Suisse analyst Moshe Orenbuch wrote.
Below are the top issuers of CDOs so far this year,
according to Bernstein Research (value in billions of
dollars):
TOP GLOBAL CDO ISSUERS
Bookrunners Value Market share (%)
1 Merrill Lynch $32.176 17.2
2 Citi 26.578 14.2
3 UBS 21.151 11.3
4 Wachovia 12.505 6.7
5 ABN AMRO 10.849 5.8
6 Goldman Sachs 10.075 5.4
7 Banc of America 8.634 4.6
8 Deutsche Bank 8.231 4.4
9 RBS 7.154 3.8
10 Lehman Brothers 6.575 3.5
11 Morgan Stanley 6.277 3.3
Sources: Corporate Reports, Bernstein Analysis
(Reporting by Joseph A. Giannone; Editing by John Wallace)
Refining margins are set to recover some lost ground as gasoline prices show unseasonal
strength and possibly top this summer's peak, Credit Suisse
said in a report on Friday.
Despite the anticipated recovery in margins, the brokerage
said it reiterates its "Underweight" position on the U.S.
independent refiners.
Gold for December delivery ended down $2.80 at $834.70 an ounce on the New York Mercantile Exchange. Gold gained $26.20 on the week from last Friday's closing level of $808.50.
The House on Friday voted 216-193 to pass a Democratic measure designed to shield middle-class taxpayers from the alternative minimum tax in the 2007 calendar year.
The current U.S. credit crisis is worse than the crisis of confidence experienced after the Long-Term Capital Collapse in 1998, said Jack Malvey, chief global fixed income strategist at Lehman Brothers. "This is the deepest correction we've ever seen in structured finance," Malvey said. "This is so dispersed, so interlocked… This is a painful lesson in financial engineering."
"Sentiment readings are now out of the caution area and into the DANGER zone," wrote Robert Brusca, chief economist at Fact and Opinion Economics. "Things do seem to be unraveling a bit faster."
Credit-card provider Visa Inc. on Friday filed for an initial public offering in a deal that may be worth $10 billion. The IPO is being handled by J.P. Morgan and Goldman, Sachs. I discussed MasterCard prior to its IPO. It has gone up almost 6 times in value. We'll take a look at the red herring for Visa and make a judgment.
Standard & Poor's said on Friday that it may cut ratings on 484 classes of residential mortgage securities backed by so-called Alt-A home loans. The influential agency also warned that it could downgrade ratings on 63 classes of net interest margin securities, a type of derivative that's tied to the Alt-A backed securities in question. "These actions reflect a persistent rise in the level of delinquencies among the Alt-A mortgage loans supporting these transactions," S&P said in a statement. Total delinquencies for Alt-A transactions issued during 2005 and 2006 have increased 43.27% to 9.90% since July 2007, the agency noted.
The Dow Jones Industrial Average fell 223.5 points, or 1.7%, to 13,042.7, a decline of 4.1% for the week. The S&P 500 dropped 21.07 points, or 1.4%, to 1,453.70, a weekly decline of 3.7%. The Nasdaq Composite shed 68.06 points, or 2.5%, to 2,627.94, a 6.5% drop from last week.
Bank of America Corp. said that dislocations in the market for collateralized debt obligations (CDOs) will knock the bank's fourth-quarter results. "It may take more time for the markets to return to a more normal environment with tighter credit spreads and greater liquidity," the bank said in its quarterly filing with the Securities and Exchange Commission. Bank of America disclosed that it provided more than $15 billion of liquidity support for commercial paper sold by CDOs. A net $9.8 billion of that is mainly backed by subprime residential mortgage securities, it added. The bank also has more than $3 billion of exposure to CDOs through its structuring, warehousing and trading activities, it said in the filing.
J.P. Morgan Chase & Co. said that some of its subprime-related positions could be hit by turbulent conditions in credit markets in the fourth quarter. "The firm's CDO and subprime mortgage warehouse and trading positions could also be negatively affected by market conditions during the fourth quarter of 2007," the bank said in its quarterly filing with the Securities and Exchange Commission. In the third quarter, J.P. Morgan noted that it took a $339 million write-down (net of risk management results) on $6.8 billion of collateralized debt obligation (CDO) warehouse and unsold positions.
Crude-oil futures closed up 86 cents, or 0.9%, at $96.32 a barrel on the New York Mercantile Exchange.
Elisabeth Kubler-Ross: " People are like stained-glass windows. They sparkle and shine when the sun is out, but when the darkness sets in their true beauty is revealed only if there is light from within. "
Thursday, November 08, 2007
Big Offer
11/9/07 Big Offer
Rio Tinto said BHP Billiton was offering to swap each Rio share for three BHP shares -- at Wednesday's close, valuing it at 5,268 pence, or 52.3 billion pounds ($109 billion). Rio Tinto said the offer "significantly undervalued" it and said it will puts that I have sold. Meanwhile, Freeport McMoran is up 46 to $114+ in early market trading.
The U.S. economy not only faces the risks of a sharp slowdown from the housing market contraction, but also of a surge of inflation from sharply higher crude oil prices and the weaker dollar, Federal Reserve chairman Ben Bernanke said Thursday. Overall in prepared testimony to the Joint Economic Committee of Congress, Bernanke painted a picture of an economy in a perilous position, even though it has shown remarkable resilience so far this year, with third quarter gross domestic product rising at a solid 3.9% annual pace. Bernanke said that he and his colleagues at the FOMC expect the economy to slow "noticeably" from the Q3 growth rate and remain sluggish in the first half of 2008. And there were "downside" risks to this subdued forecast, Bernanke said.
John F. Kennedy: “Liberty without learning is always in peril and learning without liberty is always in vain.”
Veterans make up one in four homeless people in the United States, though they are only 11 percent of the general adult population, according to a report released Thursday.
A container ship traveling through dense fog Wednesday bumped into a tower supporting the San Francisco-Oakland Bay Bridge but appeared not to have structurally damaged the span, US Coast Guard officials said. the container ship still spilled 58,000 gallons of fuel oil into S.F. Bay by afternoon.
Asian markets traded lower early Thursday. Japan's Nikkei 225 Index was down 1.8% and South Korea's Composite Index was off 1.4%.
The Bank of England left U.K. interest rates on hold for the fourth month in a row Thursday as it remained unconvinced that the crisis in global credit markets is causing any significant slowdown in economic growth.
The ECB, the central bank of the 13 countries from Germany to Slovenia that use the euro as their currency, held its base rate at 4% as expected.
South Korea Thursday left its short-term interest rates unchanged as consumer prices were "broadly stable", but sounded a note of caution over future economic developments due to rising oil prices and "prolonged international financial market unrest." The Bank of Korea wrote in a statement that its Monetary Policy Committee has decided to leave the call rate target, the rate at which banks borrow short-term funds, at 5%.
Here's a dynamite report: Costco Wholesale Corp. reported that for October, total sales rose 13% to $5.21 billion while same-store sales rose 9%.
European shares moved sharply lower in early trading on Thursday, as investors took on yesterday's heavy U.S. share losses, more bad news in the banking sector, and a slew of corporate earnings ahead of the day's two central bank interest rate meetings.
BNP Paribas said Thursday that its third-quarter net profit rose 21% to 2.03 billion euros as revenue for the period rose 12.6% to 7.69 billion euros. The group said the credit market crisis only had a limited impact because of its low exposure to the assets that are under pressure. On its leveraged buyout commitments, the group took a fair-value adjustment of 194 million euros. The total impact on revenue and the cost of risk was a hit of 301 million euros, BNP Paribas said. The bank added its capital markets business saw revenue rise around 24% due to the high volatility in the period.
Japanese machinery orders logged a second straight month of declines in September, edging down 7.6% from the previous month, spurring some economists to caution capital expenditure may be about to slow. The delcines come on top of a 7.7% drop in August. Orders by manufacturers rose 5.5% in September, but those by non manufacturers fell 14.8%, according to data released by Japan's Cabinet office in Tokyo Thursday.
Japanese brewer Kirin Holdings plans to buy all shares in Australian dairy and fruit juice producer National Foods from San Miguel Corp. for A$2.8 billion ($2.6 billion).
Ford posted a third-quarter net loss of $380 million, or 19 cents per share, compared with a loss of $5.2 billion, or $2.79 a share, a year earlier. Ford's loss from continuing operations, excluding one-time items, was 1 cent per share. On that basis, the average Wall Street forecast was a loss of 48 cents per share.
Toll Brothers Inc. said home-building revenue in the fiscal fourth quarter fell 36% to $1.17 billion while signed contracts slumped 33% in terms of units amid a weak housing market.
Lennar Corp. is slowing development of two major projects in Irvine and Anaheim, holding some homes back from the market until conditions and prices improve, a company official said.
Reggie Middleton: "The homebuilders, the lenders and the insurers are the industries at ground zero of one of the worst burst bubbles that we have seen in some time. The home building industry is a staid cyclical industry that garnered practically no sell side analyst coverage until we had a residential real estate bubble. Now, it appears as if many actually believe the industry to be a growth industry, in lieu of a cyclical industry and are advising accordingly. What we have experienced over the last 8 years was a bubble, not a normal business cycle. We will probably never see performance numbers like that again in this lifetime. It's gone, outta here, vamoosed, vanished... Let me state it again different terms. The real estate boom has nearly doubled gross margins for the builders. Net margins are now negative in the bust. For those builders who survive the bust there will be a prolonged lull in building then a return to the mean, which will be a staid, cyclical 12% to 16% GROSS margin and low single digit net margins - no more multi-billion+ dollar quarters. It appears that many investors fail to study their history and believe that the housing bubble performance of the builders makes them a growth industry. As you will easily see, they are not. They are a average yielding slow growth cyclical industry - very similar to the utilities, albeit a bit more risky. Even if the homebuilders were to somehow make all of their current problems vanish into thin air (nigh impossible, but let's just imagine), they would still take 2 to 10 years to return to single digit net margins, not the 30+% returns that we have seen during the boom."
First Solar Inc., a maker of power- modules whose shares have surged more than eightfold in a year, said third-quarter profit soared on demand for its thin-film technology. First Solar gained in after-market trading.
Barry Ritholtz: "According to Dick Bove of Punk Ziegel, the five largest U.S. brokers and banks -- Citigroup, J.P. Morgan Chase and Bank of America -- have $4.1 trillion of these Level 2 assets on their balance sheets.That's almost 10 times their shareholder equity."
The Daily Reckoning: ""Liquidate labor…liquidate the banks…liquidate the stock market…" that was Andrew Mellon's response to the credit crunch of the early '30s. He thought a good house cleaning would straighten things out. But 75 years later, the 'liquidate' was transformed into 'liquefy.' And now, with the central banks' 'open bar' policy, it looked for a while as though the party might keep going for a while longer. Stocks rallied. The problem was "contained," said U.S. Treasury Secretary Henry Paulson." It's contained just as inflation is contained.
This may be a clue to the future. Country Garden Holdings, a Chinese property developer, was forced to scrap its planned $1bn-plus bond issue.
“Everybody was basically using their house as an A.T.M. machine,” said Dave Simonsen, a senior vice president for NAI Alliance, an industrial real estate firm in Reno. “Now they are upside down on their house without that piggy bank to go back to.” Will the slide in home equity withdrawals impact holiday spending?
Only a year ago, money taken out of houses was still more than 9 percent of the nation’s disposable income, Mark Zandi, chief economist at Moody’s Economy.com., calculated, using a sampling of Equifax credit reports to supplement Fed data. By this fall, it had dropped to about 5 percent, a difference of about $350 billion a year. That's not chump change.
A storm forced ConocoPhillips and BP Plc to shut 220,000 barrels a day of production in the North Sea.
Wal-Mart's total net sales for the third quarter of fiscal year 2008 ended October 31, 2007 were approximately $91 billion. Wal-Mart now expects the comparable store sales of its U.S. operations for the November four-week reporting period to be FLAT to +2%.
Residential builder WCI Communities Inc. reported a third-quarter loss of $69.7 million, or $1.66 a share, compared with net income of $10.7 million, or 25 cents a share, the previous year. Quarterly revenue dropped 61% to $166 million, the Bonita Springs, Fla.-based company said. ``Demand continues to be unpredictable from week to week and we saw an increase in defaults and cancellations during the third quarter,'' said Jerry Starkey, WCI's chief executive, in the earnings release. The company's latest quarter included pretax real estate inventory impairment charges and write-offs of $35.9 million. "The Northeast and Mid-Atlantic Tower Homebuilding divisions will also be combined and will report directly to the company's CEO. This restructuring will result in a net reduction in force of about 575 employees and is expected to generate annual savings of approximately $46 million in salaries and benefits."
The number of U.S. residents filing for unemployment benefits decreased by 13,000 last week to 317,000, the lowest level in a month, the Labor Department reported Thursday. The wild fires in California added 3,000 to jobless claims for the week ended Nov. 3, a Labor Department official said. The four-week average of new claims rose by 2,000 to 329,750, the highest level since the week of April 21. As we move into the holiday season, one should remember that a great many hires are simply part-time through part of January.
Target Corp.'s October same-store sales rose 4.1%, aided in part by strength in its electronics and healthcare business. When results are adjusted for the extra selling week in 2006, the company pegs November same-store sales up 2% to 4%. On an adjusted basis, Target is forecasting December same-store sales to be up 3% to 5%.
Russia's lower house of parliament, the State Duma, voted 418 to 0 to suspend the country's compliance with the Conventional Forces in Europe Treaty.The unanimous decision confirms a suspension plan announced in July by President Vladimir Putin in response to a U.S. proposal to build a missile defense system in Central Europe. Washington says the system is designed as a defense against Iran, but Moscow views it as a threat to Russian security.
Analysts at Wachovia Securities on Thursday downgraded shares of Goldman Sachs Group Inc. to market perform from outperform on valuation concerns. "We think Goldman Sachs is best positioned as it relates to mortgages right now and has the most fixed-income exposure to non-warehouse type businesses like currencies, commodities, and rates," the analysts wrote in a research note. However, Wachovia said Goldman trades at about 2.5 times book value, a valuation that's not sustainable as the stock is trading at a 61% premium to its peers. "A substantial premium is warranted in our view, but, with sustained credit fears emerging, potentially slower global growth and a permanent valuation adjustment likely being factored into broker stocks, we believe that it should trade in a [lower] valuation range," the analysts said. Also, Wachovia reiterated its outperform rating on Lehman Brothers Holdings Inc. "Lehman has the biggest exposure to mortgages. However, we believe that when considering valuation, exposure to equities, asset management and their execution capabilities, Lehman offers the most value in the space right now," the analysts wrote. "Lehman has proven its ability to execute last quarter and we are cautiously optimistic it can do so this quarter."
Washington Mutual gets a downgrade from FBR to a $14 target. FBR cut its 2008 profit estimate for Washington Mutual to $1.60 from $2 a share on higher credit cost and slower asset growth.
Nordstrom, Inc. reported preliminary sales of $625.7 million for the four-week period ending November 3, 2007, an increase of 0.5 percent compared to sales of $622.5 million for the four-week period ending October 28, 2006. Same-store sales decreased 2.4 percent.
Cisco Systems Inc.was downgraded to a market perform rating Thursday morning by Raymond James. In a note to clients, analyst Todd Koffman said the company's first fiscal quarter results, which were reported late Wednesday, shows that Cisco's revenue growth trends "may be moderating." Cisco's results for the quarter came in above Wall Street's estimates, but the company's forecast for the current period was below analysts' expectations. "As such, multiple expansion has likely run its course and we would expect some multiple contraction as growth rates moderate," Koffman wrote.
Kohl's Corp.'s October same-store sales fell 3.8%, hurt by "significant declines" in weather-sensitive businesses such as outerwear, fleece and sweaters.
Asset-backed commercial paper falls $29.5 bln, or 3.4%.
Natural gas supplies rose by 36 billion cubic feet to 3,545 billion cubic feet as of Nov. 2, the Energy Department reported on Thursday, matching an estimate from analysts at MF Global. After the data, natural gas for December delivery rose 6.2 cents, or 0.8%, to $7.686 per million British thermal units.
Europe's biggest bank HSBC Holdings said it had stopped selling and trading mortgage-backed securities in the United States, as part of 120 job cuts in its investment bank unit on Thursday.
Gold futures surged to finish at a record closing high of $837.50 an ounce on Thursday. Crude for December delivery closed down 91 cents, or 0.9%, at $95.46 a barrel on the New York Mercantile Exchange.
Robert McHugh: "We got the eighth Hindenburg Omen signal observation today( Wed.), the eighth since October 16th. The dates for those H.O. observations, for those of you keeping score at home, are October 16th, 17th, 18th, 25th, November 1st, 2nd, 6th, and 7th. The continuing observations means this market remains extremely unhealthy."
Under pressure to support the troops but end the war, House Democrats said Thursday they would send President Bush $50 billion for combat operations on the condition that he begin withdrawing troops from Iraq.
Brazil's state oil company Petrobras unveiled on Thursday a giant crude reserve, sending its shares soaring and prompting the government to withdraw 41 oil blocks from an upcoming auction in a bid to keep potential natural resources out of foreign hands. The stock zoomed 24 points to $117+.
Harry S. Truman: "When even one American - who has done nothing wrong - is forced by fear to shut his mind and close his mouth - then all Americans are in peril."
Rio Tinto said BHP Billiton was offering to swap each Rio share for three BHP shares -- at Wednesday's close, valuing it at 5,268 pence, or 52.3 billion pounds ($109 billion). Rio Tinto said the offer "significantly undervalued" it and said it will puts that I have sold. Meanwhile, Freeport McMoran is up 46 to $114+ in early market trading.
The U.S. economy not only faces the risks of a sharp slowdown from the housing market contraction, but also of a surge of inflation from sharply higher crude oil prices and the weaker dollar, Federal Reserve chairman Ben Bernanke said Thursday. Overall in prepared testimony to the Joint Economic Committee of Congress, Bernanke painted a picture of an economy in a perilous position, even though it has shown remarkable resilience so far this year, with third quarter gross domestic product rising at a solid 3.9% annual pace. Bernanke said that he and his colleagues at the FOMC expect the economy to slow "noticeably" from the Q3 growth rate and remain sluggish in the first half of 2008. And there were "downside" risks to this subdued forecast, Bernanke said.
John F. Kennedy: “Liberty without learning is always in peril and learning without liberty is always in vain.”
Veterans make up one in four homeless people in the United States, though they are only 11 percent of the general adult population, according to a report released Thursday.
A container ship traveling through dense fog Wednesday bumped into a tower supporting the San Francisco-Oakland Bay Bridge but appeared not to have structurally damaged the span, US Coast Guard officials said. the container ship still spilled 58,000 gallons of fuel oil into S.F. Bay by afternoon.
Asian markets traded lower early Thursday. Japan's Nikkei 225 Index was down 1.8% and South Korea's Composite Index was off 1.4%.
The Bank of England left U.K. interest rates on hold for the fourth month in a row Thursday as it remained unconvinced that the crisis in global credit markets is causing any significant slowdown in economic growth.
The ECB, the central bank of the 13 countries from Germany to Slovenia that use the euro as their currency, held its base rate at 4% as expected.
South Korea Thursday left its short-term interest rates unchanged as consumer prices were "broadly stable", but sounded a note of caution over future economic developments due to rising oil prices and "prolonged international financial market unrest." The Bank of Korea wrote in a statement that its Monetary Policy Committee has decided to leave the call rate target, the rate at which banks borrow short-term funds, at 5%.
Here's a dynamite report: Costco Wholesale Corp. reported that for October, total sales rose 13% to $5.21 billion while same-store sales rose 9%.
European shares moved sharply lower in early trading on Thursday, as investors took on yesterday's heavy U.S. share losses, more bad news in the banking sector, and a slew of corporate earnings ahead of the day's two central bank interest rate meetings.
BNP Paribas said Thursday that its third-quarter net profit rose 21% to 2.03 billion euros as revenue for the period rose 12.6% to 7.69 billion euros. The group said the credit market crisis only had a limited impact because of its low exposure to the assets that are under pressure. On its leveraged buyout commitments, the group took a fair-value adjustment of 194 million euros. The total impact on revenue and the cost of risk was a hit of 301 million euros, BNP Paribas said. The bank added its capital markets business saw revenue rise around 24% due to the high volatility in the period.
Japanese machinery orders logged a second straight month of declines in September, edging down 7.6% from the previous month, spurring some economists to caution capital expenditure may be about to slow. The delcines come on top of a 7.7% drop in August. Orders by manufacturers rose 5.5% in September, but those by non manufacturers fell 14.8%, according to data released by Japan's Cabinet office in Tokyo Thursday.
Japanese brewer Kirin Holdings plans to buy all shares in Australian dairy and fruit juice producer National Foods from San Miguel Corp. for A$2.8 billion ($2.6 billion).
Ford posted a third-quarter net loss of $380 million, or 19 cents per share, compared with a loss of $5.2 billion, or $2.79 a share, a year earlier. Ford's loss from continuing operations, excluding one-time items, was 1 cent per share. On that basis, the average Wall Street forecast was a loss of 48 cents per share.
Toll Brothers Inc. said home-building revenue in the fiscal fourth quarter fell 36% to $1.17 billion while signed contracts slumped 33% in terms of units amid a weak housing market.
Lennar Corp. is slowing development of two major projects in Irvine and Anaheim, holding some homes back from the market until conditions and prices improve, a company official said.
Reggie Middleton: "The homebuilders, the lenders and the insurers are the industries at ground zero of one of the worst burst bubbles that we have seen in some time. The home building industry is a staid cyclical industry that garnered practically no sell side analyst coverage until we had a residential real estate bubble. Now, it appears as if many actually believe the industry to be a growth industry, in lieu of a cyclical industry and are advising accordingly. What we have experienced over the last 8 years was a bubble, not a normal business cycle. We will probably never see performance numbers like that again in this lifetime. It's gone, outta here, vamoosed, vanished... Let me state it again different terms. The real estate boom has nearly doubled gross margins for the builders. Net margins are now negative in the bust. For those builders who survive the bust there will be a prolonged lull in building then a return to the mean, which will be a staid, cyclical 12% to 16% GROSS margin and low single digit net margins - no more multi-billion+ dollar quarters. It appears that many investors fail to study their history and believe that the housing bubble performance of the builders makes them a growth industry. As you will easily see, they are not. They are a average yielding slow growth cyclical industry - very similar to the utilities, albeit a bit more risky. Even if the homebuilders were to somehow make all of their current problems vanish into thin air (nigh impossible, but let's just imagine), they would still take 2 to 10 years to return to single digit net margins, not the 30+% returns that we have seen during the boom."
First Solar Inc., a maker of power- modules whose shares have surged more than eightfold in a year, said third-quarter profit soared on demand for its thin-film technology. First Solar gained in after-market trading.
Barry Ritholtz: "According to Dick Bove of Punk Ziegel, the five largest U.S. brokers and banks -- Citigroup, J.P. Morgan Chase and Bank of America -- have $4.1 trillion of these Level 2 assets on their balance sheets.That's almost 10 times their shareholder equity."
The Daily Reckoning: ""Liquidate labor…liquidate the banks…liquidate the stock market…" that was Andrew Mellon's response to the credit crunch of the early '30s. He thought a good house cleaning would straighten things out. But 75 years later, the 'liquidate' was transformed into 'liquefy.' And now, with the central banks' 'open bar' policy, it looked for a while as though the party might keep going for a while longer. Stocks rallied. The problem was "contained," said U.S. Treasury Secretary Henry Paulson." It's contained just as inflation is contained.
This may be a clue to the future. Country Garden Holdings, a Chinese property developer, was forced to scrap its planned $1bn-plus bond issue.
“Everybody was basically using their house as an A.T.M. machine,” said Dave Simonsen, a senior vice president for NAI Alliance, an industrial real estate firm in Reno. “Now they are upside down on their house without that piggy bank to go back to.” Will the slide in home equity withdrawals impact holiday spending?
Only a year ago, money taken out of houses was still more than 9 percent of the nation’s disposable income, Mark Zandi, chief economist at Moody’s Economy.com., calculated, using a sampling of Equifax credit reports to supplement Fed data. By this fall, it had dropped to about 5 percent, a difference of about $350 billion a year. That's not chump change.
A storm forced ConocoPhillips and BP Plc to shut 220,000 barrels a day of production in the North Sea.
Wal-Mart's total net sales for the third quarter of fiscal year 2008 ended October 31, 2007 were approximately $91 billion. Wal-Mart now expects the comparable store sales of its U.S. operations for the November four-week reporting period to be FLAT to +2%.
Residential builder WCI Communities Inc. reported a third-quarter loss of $69.7 million, or $1.66 a share, compared with net income of $10.7 million, or 25 cents a share, the previous year. Quarterly revenue dropped 61% to $166 million, the Bonita Springs, Fla.-based company said. ``Demand continues to be unpredictable from week to week and we saw an increase in defaults and cancellations during the third quarter,'' said Jerry Starkey, WCI's chief executive, in the earnings release. The company's latest quarter included pretax real estate inventory impairment charges and write-offs of $35.9 million. "The Northeast and Mid-Atlantic Tower Homebuilding divisions will also be combined and will report directly to the company's CEO. This restructuring will result in a net reduction in force of about 575 employees and is expected to generate annual savings of approximately $46 million in salaries and benefits."
The number of U.S. residents filing for unemployment benefits decreased by 13,000 last week to 317,000, the lowest level in a month, the Labor Department reported Thursday. The wild fires in California added 3,000 to jobless claims for the week ended Nov. 3, a Labor Department official said. The four-week average of new claims rose by 2,000 to 329,750, the highest level since the week of April 21. As we move into the holiday season, one should remember that a great many hires are simply part-time through part of January.
Target Corp.'s October same-store sales rose 4.1%, aided in part by strength in its electronics and healthcare business. When results are adjusted for the extra selling week in 2006, the company pegs November same-store sales up 2% to 4%. On an adjusted basis, Target is forecasting December same-store sales to be up 3% to 5%.
Russia's lower house of parliament, the State Duma, voted 418 to 0 to suspend the country's compliance with the Conventional Forces in Europe Treaty.The unanimous decision confirms a suspension plan announced in July by President Vladimir Putin in response to a U.S. proposal to build a missile defense system in Central Europe. Washington says the system is designed as a defense against Iran, but Moscow views it as a threat to Russian security.
Analysts at Wachovia Securities on Thursday downgraded shares of Goldman Sachs Group Inc. to market perform from outperform on valuation concerns. "We think Goldman Sachs is best positioned as it relates to mortgages right now and has the most fixed-income exposure to non-warehouse type businesses like currencies, commodities, and rates," the analysts wrote in a research note. However, Wachovia said Goldman trades at about 2.5 times book value, a valuation that's not sustainable as the stock is trading at a 61% premium to its peers. "A substantial premium is warranted in our view, but, with sustained credit fears emerging, potentially slower global growth and a permanent valuation adjustment likely being factored into broker stocks, we believe that it should trade in a [lower] valuation range," the analysts said. Also, Wachovia reiterated its outperform rating on Lehman Brothers Holdings Inc. "Lehman has the biggest exposure to mortgages. However, we believe that when considering valuation, exposure to equities, asset management and their execution capabilities, Lehman offers the most value in the space right now," the analysts wrote. "Lehman has proven its ability to execute last quarter and we are cautiously optimistic it can do so this quarter."
Washington Mutual gets a downgrade from FBR to a $14 target. FBR cut its 2008 profit estimate for Washington Mutual to $1.60 from $2 a share on higher credit cost and slower asset growth.
Nordstrom, Inc. reported preliminary sales of $625.7 million for the four-week period ending November 3, 2007, an increase of 0.5 percent compared to sales of $622.5 million for the four-week period ending October 28, 2006. Same-store sales decreased 2.4 percent.
Cisco Systems Inc.was downgraded to a market perform rating Thursday morning by Raymond James. In a note to clients, analyst Todd Koffman said the company's first fiscal quarter results, which were reported late Wednesday, shows that Cisco's revenue growth trends "may be moderating." Cisco's results for the quarter came in above Wall Street's estimates, but the company's forecast for the current period was below analysts' expectations. "As such, multiple expansion has likely run its course and we would expect some multiple contraction as growth rates moderate," Koffman wrote.
Kohl's Corp.'s October same-store sales fell 3.8%, hurt by "significant declines" in weather-sensitive businesses such as outerwear, fleece and sweaters.
Asset-backed commercial paper falls $29.5 bln, or 3.4%.
Natural gas supplies rose by 36 billion cubic feet to 3,545 billion cubic feet as of Nov. 2, the Energy Department reported on Thursday, matching an estimate from analysts at MF Global. After the data, natural gas for December delivery rose 6.2 cents, or 0.8%, to $7.686 per million British thermal units.
Europe's biggest bank HSBC Holdings said it had stopped selling and trading mortgage-backed securities in the United States, as part of 120 job cuts in its investment bank unit on Thursday.
Gold futures surged to finish at a record closing high of $837.50 an ounce on Thursday. Crude for December delivery closed down 91 cents, or 0.9%, at $95.46 a barrel on the New York Mercantile Exchange.
Robert McHugh: "We got the eighth Hindenburg Omen signal observation today( Wed.), the eighth since October 16th. The dates for those H.O. observations, for those of you keeping score at home, are October 16th, 17th, 18th, 25th, November 1st, 2nd, 6th, and 7th. The continuing observations means this market remains extremely unhealthy."
Under pressure to support the troops but end the war, House Democrats said Thursday they would send President Bush $50 billion for combat operations on the condition that he begin withdrawing troops from Iraq.
Brazil's state oil company Petrobras unveiled on Thursday a giant crude reserve, sending its shares soaring and prompting the government to withdraw 41 oil blocks from an upcoming auction in a bid to keep potential natural resources out of foreign hands. The stock zoomed 24 points to $117+.
Harry S. Truman: "When even one American - who has done nothing wrong - is forced by fear to shut his mind and close his mouth - then all Americans are in peril."
Wednesday, November 07, 2007
When They Raid...
11/8/07 When They Raid....
The hottest home market in the U.S. has been in King County, Wa. However, in the month of October, the median price of homes sold in King County declined compared with a year ago. It was the first decline since he nationwide recession in the early 1990s. According to the Northwest Multiple Listing Service, the number of single-family houses and condos on the market in King County jumped 44% compared with last year. For each of the past six months, the supply has been at least 40% higher than a year ago. In sum, when they raid the whore house, they take all the girls-- even if your sister, the best looking of the bunch, is the last to go.
In early Wednesday trading, January-dated platinum futures rose as high as $1,498.80 an ounce and silver futures rose as high as $16.275 an ounce. Gold rose to a 27-year high. Crude traded above $98. Meanwhile, The dollar fell the most since September against the currencies of its six biggest trading partners after Chinese officials signaled plans to diversify the nation's $1.43 trillion of foreign exchange reserves. The dollar fell against all 16 of the most-active currencies, declining to the weakest versus the Canadian dollar since the end of a fixed exchange rate in 1950, a 26-year low against the pound and a 23-year low versus the Australian dollar. The New York Board of Trade's dollar index dropped to 75.21 today, the lowest since the gauge started in March 1973. In other words, the purchasing power on Main Street got crushed.
Navigation device maker TomTom said it intends to make a new offer for digital map provider Tele Atlas of 30 euros a share in cash. The new offer values the company at 2.9 billion euros, trumping a 24.50 euro-a-share bid from Garmin received last week. TomTom's new offer represents an 81% premium to the Tele Atlas closing price on July 20, the last day before the first bid for the company emerged.
Australia raised its key interest rates by a quarter percentage point Wednesday, its second hike in 2007, to contain inflation. The Reserve Bank of Australia's cash rate target stands at 6.75% following the increase.
GM posted a $38.96 billion quarterly net loss, hurt by a large charge related to tax accounting, though it narrowed its loss at its core North American operations.
Richard Daughty: "So Mr. Mishkin joins Alan Greenspan, running around saying, "It's not my fault! It's not my fault!", when the whole world spent all that time watching him and the Fed bludgeoning the dollar, then standing over the prostrate, bloody body of the dollar, holding the murder weapon in his hands! Not his fault? There is nobody else whose fault it could be!"
The president of the Federal Reserve Bank of Philadelphia said he already expected growth to slow to an annual pace of 1.5 percent or less. But he said he would not support another rate cut unless the slowdown appeared to be even sharper than that.
"We will favor stronger currencies over weaker ones, and will readjust accordingly," said Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. At the same conference, Xu Jian, a central bank vice director, said the dollar is losing its exclusive status. "The world's currency structure has changed; the dollar is losing its status as the world currency," Xu said.
At $3.05, heating oil price sets a Mass. record. Only 7 percent of U.S. households use heating oil, also known as "red diesel," to heat their homes, but in the cold Northeastern states about 32 percent of households do. Maine has the highest usage with about 80 percent.
Capital One Financial Corp. said it could record several hundred million dollars more in charge-offs in 2008 than previously forecast, due to persistent loan delinquencies and the troubled housing market. The stock got crushed.
Washington Mutual, the largest U.S. savings and loan, said on Wednesday it expects credit losses in the first quarter of 2008 similar to those in the current quarter as the slumping U.S. housing market makes it more difficult for people to pay their bills. The Seattle-based thrift maintained its Oct. 17 forecast for 2007 credit losses of $2.7 billion to $2.9 billion, nearly twice as high as it projected in July. The stock got crushed and traded below $20.
Six in 10 U.S. consumers say a recession is likely in the next three to six months, a new survey on holiday spending said Wednesday.
Dorothy Thompson: "There is nothing to fear except the persistent refusal to find out the truth, the persistent refusal to analyze the causes of happenings."
The FT says that the "super-fund" to bail out financial instruments tied to mortgage-backed securities may be dead. Speaking about the fund to the paper: “As far as we can see, it appears dead in the water right now,” said one senior Wall Street banker. According to the FT, "some observers fear it might now prove impossible to create the superfund quickly enough to help banks deal with the funding problems dogging SIVs – off-balance sheet entities that use short-term debt to fund longer-dated investments."
According to the FT, there have been 76 abandoned buyout deals worth $202.3 billion so far in 2007. That's not chicken feed.
The productivity of the U.S. nonfarm workplace jumped at an annual rate of 4.9% in the third quarter, the fastest growth in four years, the Labor Department reported Wednesday. Unit labor costs, a key gauge of inflationary pressures from wages, fell at an annual rate of 0.2% in the period between July and September, the lowest in a year. Economists were forecasting a 3.6% increase in productivity and a 0.8% rise in unit labor costs. In the past year, productivity increased 2.4%, the largest four-quarter growth since early 2005. Unit labor costs have risen 4.3%. Downward revisions to the second quarter took some of the luster off the third-quarter results. Productivity was revised lower to 2.2% from 2.6%, while unit labor costs were revised up to 2.2% from 1.4%. Overall, the above numbers reveal the average employee has worked his/her butt off and not received commensurate compensation. That's why so many believe life sucks in the slow lane.
The risk of companies defaulting on their debt rose to the highest since August on concern banks face more writedowns on bonds linked to subprime mortgages, according to traders of credit-default swaps. Contracts on the iTraxx Crossover Series 8 Index of 50 European companies with mostly high-risk, high-yield credit ratings increased 12 basis points to 357 basis points, the highest since Aug. 16 when mortgage lender Countrywide Financial Corp. drew on emergency funding to stay afloat. Contracts on the CDX North America Investment-Grade Series 9 index also rose.
WCI will cut about 575 workers and this reduction is expected to generate annual savings of roughly $46 million in salary and benefits. Restructuring costs are forecast at $5.4 million, with about $1 million booked in the third quarter and the rest in the fourth quarter."This prolonged downturn requires that we continue to assess our overhead and make reductions in order to remain viable through the trough of this cycle," said Jerry Starkey, chief executive, in the statement.
"Our remaining workforce of roughly 2,100 employees represents a 46% reduction from our peak employment in mid-2006 of 3,889 employees," the CEO added.
AOL agreed to buy online advertising company Quigo for an undisclosed sum. Quigo's technology lets advertisers buy Web ads based on specific pages, sections, topics or keywords. Its FeedPoint search engine marketing business helps advertisers manage their relationships with search engines and comparison shopping sites. Quigo will be the fourth advertising company AOL bought this year. Earlier, the company acquired mobile advertising company Third Screen Media, German ad platform ADTECH AG, and TACODA, a behavioral targeting company.
The U.S. Energy Department said U.S. crude oil inventories in the week ending Nov. 2 fell by 800,000 million barrels, gasoline inventories fell by 800,000 barrels last week, and distillate stocks increased by 100,000 barrels. Meanwhile, crude supplies rose by 2.3 million barrels to 313.3 million barrels in the week ending Nov. 2, the American Petroleum Institute reported on Wednesday. Distillate stocks rose by 0.5 million barrels to 136.7 million barrels in the same period, while gasoline stocks fell by 2.5 million barrels to 193.6 million barrels, API said.
Federal Reserve Bank of St. Louis President William Poole said the housing industry's woes may not end soon and policy makers might need to consider ``additional rate cuts'' should the problems spread.
This pertains to FASB 157, a subject I wrote about yesterday. U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc. The Financial Accounting Standards Board's rule 157 will make it harder for companies to avoid putting market prices on securities considered hardest to value, known as Level 3 assets, Royal Bank's chief credit strategist Bob Janjuah in London wrote in a note today. The new rule is effective Nov. 15.
Morgan Stanley expects fourth-quarter earnings to be reduced by about $2.5 billion from a write-down of its U.S. subprime exposure.The Wall Street investment bank said revenue has been reduced by $3.7 billion for the two months ended Oct. 31 because of the write-down. It said the actual impact on quarterly results will be determined by market events. Some observers had expected a larger write-down.
In mid-morning trading on Wed., the VIX rallied sharply to back over 25. By the end of the day it had jumped to 26.49, a rise of 5 points for the day.
Gold at record closing high of $833.50 an ounce on Nymex. Crude oil for December delivery closed on Wednesday down 33 cents, or 0.3%, at $96.37 a barrel on the New York Mercantile Exchange.
It was just a matter of time. Too many Hindenburg Omens. The Dow dropped 361, the Nasdaq 76, and the S&P 500 declined 45 points.
Bertrand Russell: "Collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd."
American International Group's third-quarter net income came in at $3.09 billion, or $1.19 a share, down 27% from a year earlier when the insurance giant made $4.22 billion or $1.61 a share. Adjusted net income, which excludes net realized investment gains and losses and other items, was $3.49 billion, or $1.35 a share, the company reported. AIG was expected to make $1.62 a share, according to the average estimate of 19 analysts in a Thomson Financial survey. AIG's mortgage guaranty business reported an operating loss in the quarter amid continued deterioration in the U.S. housing market. The company's derivatives unit, AIG Financial Products, also reported an operating loss in the quarter due mainly to unrealized market valuation losses in its credit default swap portfolio.
The stock got crushed for 6 points to $56.
Cisco's CEO Chambers: "We continue to believe with caveats that long term growth 12-17% guidance year over year.... Cisco will always be affected by spending patterns etc.... GUIDANCE for fiscal 2008 is middle of long-term rate and the 13-16% was right in middle of range. Revenue guidance for Q2 2008 revenue growth of 16% year over year. "We will execute similar stratgey for the next decade that we did in early 1990's...."We too see some of the same problems evident in US market, but believes Cisco is in a unique position. The US enterprise is experiencing some softness, and it sees lumpy growth from U.S. enterprises....." "We believe that in Web 2.0, WE ARE IN THE FIRST INNING OF A NINE INNING GAME....." Profit taking hit the shares for $4 and they traded at $29+. Wall Street is not for the faint of heart these days.
Consumer credit rose at an annual rate of 1.8% in September as credit card debt and non-revolving debt like auto loans both grew at a slower pace. The overall increase of $3.7 billion pushed total outstanding consumer credit up to $2.48 trillion in September, the Federal Reserve said. Revolving credit like credit card debt climbed by 4.4% versus 9.3% in August, while non-revolving credit rose by 0.3% compared to 6.4% in September.
Moody's Investors Service said on Wednesday that it has cut or may downgrade ratings on structured investment vehicles (SIVs) with roughly $33 billion in debt. SIVs are a type of fund that borrow short term in asset-backed commerical paper markets and then invest that money in longer-term assets such as mortgage-backed securities and collateralized debt obligations.
More than 6,800 properties in the 13 core counties of metro Atlanta were advertised for auction Tuesday — a record setting number, up 49 percent from the same month last year.
According to the WSJ, Fitch Ratings says downgrades of corporate bonds rose in the third quarter to $92.1 billion, their highest level in two years. Meantime, interest rates on junk bonds have risen, potentially straining the ability of low-grade issuers to tap the credit markets for fresh loans or to refinance existing debt. Fitch predicts a jump in corporate defaults, from less than 1% of all debt outstanding in 2007 to more than 4% in 2008. If this happens, it will become harder still for companies to borrow.
Wally Amos: "There are two reasons why people fail. One is irresponsibility. The second is fear."
The hottest home market in the U.S. has been in King County, Wa. However, in the month of October, the median price of homes sold in King County declined compared with a year ago. It was the first decline since he nationwide recession in the early 1990s. According to the Northwest Multiple Listing Service, the number of single-family houses and condos on the market in King County jumped 44% compared with last year. For each of the past six months, the supply has been at least 40% higher than a year ago. In sum, when they raid the whore house, they take all the girls-- even if your sister, the best looking of the bunch, is the last to go.
In early Wednesday trading, January-dated platinum futures rose as high as $1,498.80 an ounce and silver futures rose as high as $16.275 an ounce. Gold rose to a 27-year high. Crude traded above $98. Meanwhile, The dollar fell the most since September against the currencies of its six biggest trading partners after Chinese officials signaled plans to diversify the nation's $1.43 trillion of foreign exchange reserves. The dollar fell against all 16 of the most-active currencies, declining to the weakest versus the Canadian dollar since the end of a fixed exchange rate in 1950, a 26-year low against the pound and a 23-year low versus the Australian dollar. The New York Board of Trade's dollar index dropped to 75.21 today, the lowest since the gauge started in March 1973. In other words, the purchasing power on Main Street got crushed.
Navigation device maker TomTom said it intends to make a new offer for digital map provider Tele Atlas of 30 euros a share in cash. The new offer values the company at 2.9 billion euros, trumping a 24.50 euro-a-share bid from Garmin received last week. TomTom's new offer represents an 81% premium to the Tele Atlas closing price on July 20, the last day before the first bid for the company emerged.
Australia raised its key interest rates by a quarter percentage point Wednesday, its second hike in 2007, to contain inflation. The Reserve Bank of Australia's cash rate target stands at 6.75% following the increase.
GM posted a $38.96 billion quarterly net loss, hurt by a large charge related to tax accounting, though it narrowed its loss at its core North American operations.
Richard Daughty: "So Mr. Mishkin joins Alan Greenspan, running around saying, "It's not my fault! It's not my fault!", when the whole world spent all that time watching him and the Fed bludgeoning the dollar, then standing over the prostrate, bloody body of the dollar, holding the murder weapon in his hands! Not his fault? There is nobody else whose fault it could be!"
The president of the Federal Reserve Bank of Philadelphia said he already expected growth to slow to an annual pace of 1.5 percent or less. But he said he would not support another rate cut unless the slowdown appeared to be even sharper than that.
"We will favor stronger currencies over weaker ones, and will readjust accordingly," said Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. At the same conference, Xu Jian, a central bank vice director, said the dollar is losing its exclusive status. "The world's currency structure has changed; the dollar is losing its status as the world currency," Xu said.
At $3.05, heating oil price sets a Mass. record. Only 7 percent of U.S. households use heating oil, also known as "red diesel," to heat their homes, but in the cold Northeastern states about 32 percent of households do. Maine has the highest usage with about 80 percent.
Capital One Financial Corp. said it could record several hundred million dollars more in charge-offs in 2008 than previously forecast, due to persistent loan delinquencies and the troubled housing market. The stock got crushed.
Washington Mutual, the largest U.S. savings and loan, said on Wednesday it expects credit losses in the first quarter of 2008 similar to those in the current quarter as the slumping U.S. housing market makes it more difficult for people to pay their bills. The Seattle-based thrift maintained its Oct. 17 forecast for 2007 credit losses of $2.7 billion to $2.9 billion, nearly twice as high as it projected in July. The stock got crushed and traded below $20.
Six in 10 U.S. consumers say a recession is likely in the next three to six months, a new survey on holiday spending said Wednesday.
Dorothy Thompson: "There is nothing to fear except the persistent refusal to find out the truth, the persistent refusal to analyze the causes of happenings."
The FT says that the "super-fund" to bail out financial instruments tied to mortgage-backed securities may be dead. Speaking about the fund to the paper: “As far as we can see, it appears dead in the water right now,” said one senior Wall Street banker. According to the FT, "some observers fear it might now prove impossible to create the superfund quickly enough to help banks deal with the funding problems dogging SIVs – off-balance sheet entities that use short-term debt to fund longer-dated investments."
According to the FT, there have been 76 abandoned buyout deals worth $202.3 billion so far in 2007. That's not chicken feed.
The productivity of the U.S. nonfarm workplace jumped at an annual rate of 4.9% in the third quarter, the fastest growth in four years, the Labor Department reported Wednesday. Unit labor costs, a key gauge of inflationary pressures from wages, fell at an annual rate of 0.2% in the period between July and September, the lowest in a year. Economists were forecasting a 3.6% increase in productivity and a 0.8% rise in unit labor costs. In the past year, productivity increased 2.4%, the largest four-quarter growth since early 2005. Unit labor costs have risen 4.3%. Downward revisions to the second quarter took some of the luster off the third-quarter results. Productivity was revised lower to 2.2% from 2.6%, while unit labor costs were revised up to 2.2% from 1.4%. Overall, the above numbers reveal the average employee has worked his/her butt off and not received commensurate compensation. That's why so many believe life sucks in the slow lane.
The risk of companies defaulting on their debt rose to the highest since August on concern banks face more writedowns on bonds linked to subprime mortgages, according to traders of credit-default swaps. Contracts on the iTraxx Crossover Series 8 Index of 50 European companies with mostly high-risk, high-yield credit ratings increased 12 basis points to 357 basis points, the highest since Aug. 16 when mortgage lender Countrywide Financial Corp. drew on emergency funding to stay afloat. Contracts on the CDX North America Investment-Grade Series 9 index also rose.
WCI will cut about 575 workers and this reduction is expected to generate annual savings of roughly $46 million in salary and benefits. Restructuring costs are forecast at $5.4 million, with about $1 million booked in the third quarter and the rest in the fourth quarter."This prolonged downturn requires that we continue to assess our overhead and make reductions in order to remain viable through the trough of this cycle," said Jerry Starkey, chief executive, in the statement.
"Our remaining workforce of roughly 2,100 employees represents a 46% reduction from our peak employment in mid-2006 of 3,889 employees," the CEO added.
AOL agreed to buy online advertising company Quigo for an undisclosed sum. Quigo's technology lets advertisers buy Web ads based on specific pages, sections, topics or keywords. Its FeedPoint search engine marketing business helps advertisers manage their relationships with search engines and comparison shopping sites. Quigo will be the fourth advertising company AOL bought this year. Earlier, the company acquired mobile advertising company Third Screen Media, German ad platform ADTECH AG, and TACODA, a behavioral targeting company.
The U.S. Energy Department said U.S. crude oil inventories in the week ending Nov. 2 fell by 800,000 million barrels, gasoline inventories fell by 800,000 barrels last week, and distillate stocks increased by 100,000 barrels. Meanwhile, crude supplies rose by 2.3 million barrels to 313.3 million barrels in the week ending Nov. 2, the American Petroleum Institute reported on Wednesday. Distillate stocks rose by 0.5 million barrels to 136.7 million barrels in the same period, while gasoline stocks fell by 2.5 million barrels to 193.6 million barrels, API said.
Federal Reserve Bank of St. Louis President William Poole said the housing industry's woes may not end soon and policy makers might need to consider ``additional rate cuts'' should the problems spread.
This pertains to FASB 157, a subject I wrote about yesterday. U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc. The Financial Accounting Standards Board's rule 157 will make it harder for companies to avoid putting market prices on securities considered hardest to value, known as Level 3 assets, Royal Bank's chief credit strategist Bob Janjuah in London wrote in a note today. The new rule is effective Nov. 15.
Morgan Stanley expects fourth-quarter earnings to be reduced by about $2.5 billion from a write-down of its U.S. subprime exposure.The Wall Street investment bank said revenue has been reduced by $3.7 billion for the two months ended Oct. 31 because of the write-down. It said the actual impact on quarterly results will be determined by market events. Some observers had expected a larger write-down.
In mid-morning trading on Wed., the VIX rallied sharply to back over 25. By the end of the day it had jumped to 26.49, a rise of 5 points for the day.
Gold at record closing high of $833.50 an ounce on Nymex. Crude oil for December delivery closed on Wednesday down 33 cents, or 0.3%, at $96.37 a barrel on the New York Mercantile Exchange.
It was just a matter of time. Too many Hindenburg Omens. The Dow dropped 361, the Nasdaq 76, and the S&P 500 declined 45 points.
Bertrand Russell: "Collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd."
American International Group's third-quarter net income came in at $3.09 billion, or $1.19 a share, down 27% from a year earlier when the insurance giant made $4.22 billion or $1.61 a share. Adjusted net income, which excludes net realized investment gains and losses and other items, was $3.49 billion, or $1.35 a share, the company reported. AIG was expected to make $1.62 a share, according to the average estimate of 19 analysts in a Thomson Financial survey. AIG's mortgage guaranty business reported an operating loss in the quarter amid continued deterioration in the U.S. housing market. The company's derivatives unit, AIG Financial Products, also reported an operating loss in the quarter due mainly to unrealized market valuation losses in its credit default swap portfolio.
The stock got crushed for 6 points to $56.
Cisco's CEO Chambers: "We continue to believe with caveats that long term growth 12-17% guidance year over year.... Cisco will always be affected by spending patterns etc.... GUIDANCE for fiscal 2008 is middle of long-term rate and the 13-16% was right in middle of range. Revenue guidance for Q2 2008 revenue growth of 16% year over year. "We will execute similar stratgey for the next decade that we did in early 1990's...."We too see some of the same problems evident in US market, but believes Cisco is in a unique position. The US enterprise is experiencing some softness, and it sees lumpy growth from U.S. enterprises....." "We believe that in Web 2.0, WE ARE IN THE FIRST INNING OF A NINE INNING GAME....." Profit taking hit the shares for $4 and they traded at $29+. Wall Street is not for the faint of heart these days.
Consumer credit rose at an annual rate of 1.8% in September as credit card debt and non-revolving debt like auto loans both grew at a slower pace. The overall increase of $3.7 billion pushed total outstanding consumer credit up to $2.48 trillion in September, the Federal Reserve said. Revolving credit like credit card debt climbed by 4.4% versus 9.3% in August, while non-revolving credit rose by 0.3% compared to 6.4% in September.
Moody's Investors Service said on Wednesday that it has cut or may downgrade ratings on structured investment vehicles (SIVs) with roughly $33 billion in debt. SIVs are a type of fund that borrow short term in asset-backed commerical paper markets and then invest that money in longer-term assets such as mortgage-backed securities and collateralized debt obligations.
More than 6,800 properties in the 13 core counties of metro Atlanta were advertised for auction Tuesday — a record setting number, up 49 percent from the same month last year.
According to the WSJ, Fitch Ratings says downgrades of corporate bonds rose in the third quarter to $92.1 billion, their highest level in two years. Meantime, interest rates on junk bonds have risen, potentially straining the ability of low-grade issuers to tap the credit markets for fresh loans or to refinance existing debt. Fitch predicts a jump in corporate defaults, from less than 1% of all debt outstanding in 2007 to more than 4% in 2008. If this happens, it will become harder still for companies to borrow.
Wally Amos: "There are two reasons why people fail. One is irresponsibility. The second is fear."
Tuesday, November 06, 2007
Tougher Times
11/7/07 Tougher Times
Central bankers past and present warned on Tuesday of more pain to come for the U.S. economy and that banks worldwide could take several months yet to reveal full losses from U.S. subprime mortgage lending.
Nouriel Roubini: "It is now clear that the delusional hope that the severe credit and liquidity crunch that hit US and global financial markets would ease has been shattered by the events of the last few weeks. This credit crunch is getting much worse and its financial and real fallout will be severe.The amount of losses that financial institutions have already recognized - $20 billion – is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. At stake – in subprime alone – is about a trillion of sub-prime related RMBS and hundreds of billions of mortgage related CDOs. But calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze: CDOs issuance is near dead; the LBO market – and the related leveraged loans market – is piling deals that have been postponed, restructured or cancelled; the liquidity squeeze in the interbank market – especially at the one month to three months maturities - is continuing; the losses that banks and investment banks will experience in the next few quarters will erode their Tier 1 capital ratio; the ABCP and related SIV sectors are near dead and unraveling; and since the Super-conduit will flop the only options are those of bringing those SIV assets on balance sheet (with significant capital and liquidity effects) or sell them at a large loss; similar problems and crunches are emerging in the CLO, CMO and CMBS markets; junk bonds spreads are widening and corporate default rates will soon start to rise. Every corner of the securitization world is now under severe stress, including so called highly rated and “safe” (AAA and AA) securities."
Henry Miller: “Actually we are a vulgar, pushing mob whose passions are easily mobilized by demagogues, newspaper men, religious quacks, agitators and such like. To call this a society of free peoples is blasphemous. What have we to offer the world besides the superabundant loot which we recklessly plunder from the earth under the maniacal delusion that this insane activity represents progress and enlightenment?”
Citigroup Inc. may have to write down an additional $2.7 billion worth of subprime-mortgage backed and related securities, boosting its losses from asset-backed bonds to as much as $13.7 billion, CreditSights Inc. said. That would wipe out its reported profit so far this year.
In early Tuesday trading, the U.S. dollar slumped to a new record low against the euro, with the euro rising as high as $1.4555. Gold futures surged $10.90 to $821.80 an ounce. Silver topped $15. December oil futures pushed to $97 a barrel, a record.
IndyMac Bancorp Inc., a major mortgage lender, swung to a third-quarter net loss from a year-earlier profit. The loss reflects credit costs, wider spreads in the secondary mortgage market, and severance costs, offset in part by hedging efforts and the sale and leaseback of a property, IndyMac said. The loss was $202.7 million, or $2.77 a share, compared with net income of $86.2 million, or $1.19, in the year-earlier period.
CIBC analyst Meredith Whitney -- whose downgrade of Citi last week triggered a sharp drop in the stock and the retirement of CEO Charles Prince -- told the Daily Telegraph newspaper the only way forward is to carve the bank up and sell it off. "That's really the only thing they can do. They don't have the capital to manage it as an ongoing entity," she told the paper.
Hovnanian Enterprises Inc. reported that for the fourth quarter ended Oct. 31, it delivered 3,969 homes, 19% fewer than in the year-earlier period. In the quarter, Hovnanian signed contracts on 2,781 homes, down 10% from a year earlier. Tighter mortgage-underwriting standards led to an increase in the quarter's cancellation rate to 40% from 35%. Contract backlog at Oct. 31 was 5,938 homes, down 30% from a year earlier. The company said that it reduced the debt on its balance sheet by $390 million in the period. Ara Hovnanian, chief executive of home builder Hovnanian Enterprises Inc., said U.S. housing won't likely get back to a "balanced marketplace" until 2010. Meanwhile, 2008 will be "another challenging year" and he's not looking for strong earnings from home builders. "By the tail end of 2008 we should get some positive momentum in sales, setting up a recovery in 2009," Hovnanian said. Home builders by then should return to profitability, although earnings will be more meager than the recent boom years.
Beazer Homes USA will cut 650 positions, or 25% of its workforce, and halted its 10-cents a share dividend. Preliminary figures showed home closings down 39% and new home orders down 53% on a 68% cancellation rate. The company is still working to complete restatements.
U.K. Chancellor Alistair Darling made the final decision to rule out a potential takeover of stricken lender Northern Rock by Lloyds TSB said Bank of England governor Mervyn King, according to a BBC report.
Shares of Alibaba.com jumped 129% in early trade amid strong retail interest in the online export facilitator. Shares of Alibaba.com were quoted at HK$31.00 in early trade, up from its initial offering price of HK$13.50.
Overall, ICSC continues to expect that October sales will increase by about 2%, on a year-over-year basis.
The average pump price for diesel fuel in the U.S. soared to an all-time high -- even when adjusted for inflation -- of $3.303 a gallon over the last week, the Energy Department said. What impact will this record price have on the trucking company margins or will they simply tack on a fuel surcharge to customers? Either way, it's more inflation in the pipeline(no pun intended).
Japan's broadest indicator of the outlook for the economy fell to the lowest level in a decade, signaling growth may stall. The leading index was zero percent in September, the Cabinet Office said.
"Everyone is being very risk-averse," says Bill Larkin, fixed-income portfolio manager at Cabot Money Management, who notes Treasury bond prices are so high they offer "ridiculously low yields." Taking inflation into account, they barely offer any real return at all, he says.
John Adams: “These bickerings of opposite parties, and their mutual reproaches their declamations, their sing-song, their triumphs and defiance, their dismal and prophecies, are all delusion.”
China may become a net exporter of stainless steel next year as output rises faster than demand growth, said Baoshan Iron & Steel, the nation’s second-largest producer of the alloy.
Gov. Arnold Schwarzenegger ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market.
State officials have warned the governor that the likely deficit for next year has jumped from a few billion dollars to as much as $10 billion, threatening to wipe out the progress Schwarzenegger has claimed in getting the state's accounts in order.
George Soros forecast on that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending.
Valero Energy's third-quarter earnings fell 20 percent as the margins to make gasoline fell sharply from the record levels reached in the second quarter. Net income fell to $1.27 billion, or $2.09 a share, from $1.60 billion, or $2.55 a share, in the year-ago period. Excluding items, Valero posted quarterly earnings from continuing operations of $1.40 a share.
"We've only begun to see the pain from the standpoint of the homeowner in terms of those monthly payments," said Bill Gross, chief investment officer of Pacific Investment Management or Pimco. "Defaults and delinquencies will increase as we extend throughout 2007 and into 2008."
According to The Chicago Tribune "sources close to the situation said Gannett Co (GCI)., Tribune Co (TRB)., Hearst Corp., Media News Group and Cox Newspapers may band together to form a common ad sales force that could offer national advertisers "one-stop shopping" for ad space on big-market Web sites across the nation.
Microsoft was removed from Conviction Buy List at Goldman Sachs.
Brett Steenbarger: "The wise trader told me that there are only two types of trades: winning trades and trades where you pay for information."
The Oil Drum: "The Organization of Petroleum Exporting Countries raised production 1.6 percent in October in advance of the group's pledge to increase supplies starting this month, a Bloomberg News Survey showed. OPEC pumped an average 31.16 million barrels a day last month, up 495,000 barrels from September, according to the survey of oil companies, producers and analysts. The 10 members with production quotas, all except Angola and Iraq, increased output by 305,000 barrels to 27.135 million barrels a day, the highest since October 2006."
China's two main oil companies have promised to step up diesel production, the government said Tuesday, following two weeks of shortages blamed on price controls that have disrupted trucking and caused long lines at filling stations.
Will Hutton
Sunday November 4, 2007
The Observer : "I have been following the financial markets for more than 30 years. Crises have come and gone, but the one unfolding since August and which intensified last week is the most serious. It is not just that its impact is cascading around the world because of the new interconnectedness of global finance, it is that the authorities, particularly in Britain and America, have lost control and do not have the means to regain it as quickly as we might hope. With an oil price approaching $100 a barrel, we are in an uncharted and dangerous place."
Peabody forecast EBITDA from continuing operations of $900 million to $1 billion with earnings of $1.50 to $1.75 a share.
Emerson Electric Co. said Tuesday it expects its fiscal 2008 earnings per share to be up 10 percent to 15 percent from its 2007 results. Based on the company's 2007 profit of $2.66 per share, the outlook implies a profit of $2.93 per share to $3.06 per share for the year. Analysts polled by Thomson Financial expect a 2008 profit of $2.98. The company also projected reported sales growth of 7 percent to 10 percent for 2008.
Ryland CEO Chad Dreier said shaky consumer confidence is still the biggest issue impacting the housing market. Buyers are nervous they will buy a house only to see the price fall later, the CEO said at an investment conference hosted by UBS. Although he said price incentives from builders aren't likely to get any bigger than they currently are, he said there was nothing in the housing market to make him "feel good" at the moment.
The last time Nordstrom's traded at $33+ was early in the third quarter of 2006. The last time Starbucks traded at $24+ was in the third quarter of 2005. The last time Citigroup sold at $34+ was in the first quarter of 2003. The latter maintains they will keep paying the dividend. Thus the stock now yields 6%+.
A judge Monday set a tentative July trial date in the dispute between Sallie Mae and an investor group seeking to terminate its proposed $25 billion buyout of the student lender. Vice Chancellor Leo Strine Jr. said the trial date could be pushed back if Sallie Mae wants a preliminary ruling on whether legislation enacted after it agreed in April to be bought out represents a material adverse effect, nullifying the deal.
On Nov. 15, FASB 157 goes into effect. Here is a link telling you about these new accounting standards:
http://www.fasb.org/st/summary/stsum157.shtml
Crude oil futures closed up $2.72, or 2.9%, at a new record closing high of $96.70 a barrel on the New York Mercantile Exchange.
Gold futures rallied Tuesday to their highest level since 1980. Gold for December delivery rose $12.60 to end at $823.40 an ounce on the New York Mercantile Exchange.
The U.S. Dollar Index fell to another new low at 76.02.
In favor and out of favor: Gamestop has a market cap of $9.4 billion. Nordstrom's has a market cap of $8.1 billion. How long will that disparity continue?
The VIX dropped almost $3 to just below $22.
Will Rogers: “If we ever pass out as a great nation we ought to put on our tombstone 'America died from a delusion that she had moral leadership'.”
Central bankers past and present warned on Tuesday of more pain to come for the U.S. economy and that banks worldwide could take several months yet to reveal full losses from U.S. subprime mortgage lending.
Nouriel Roubini: "It is now clear that the delusional hope that the severe credit and liquidity crunch that hit US and global financial markets would ease has been shattered by the events of the last few weeks. This credit crunch is getting much worse and its financial and real fallout will be severe.The amount of losses that financial institutions have already recognized - $20 billion – is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. At stake – in subprime alone – is about a trillion of sub-prime related RMBS and hundreds of billions of mortgage related CDOs. But calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze: CDOs issuance is near dead; the LBO market – and the related leveraged loans market – is piling deals that have been postponed, restructured or cancelled; the liquidity squeeze in the interbank market – especially at the one month to three months maturities - is continuing; the losses that banks and investment banks will experience in the next few quarters will erode their Tier 1 capital ratio; the ABCP and related SIV sectors are near dead and unraveling; and since the Super-conduit will flop the only options are those of bringing those SIV assets on balance sheet (with significant capital and liquidity effects) or sell them at a large loss; similar problems and crunches are emerging in the CLO, CMO and CMBS markets; junk bonds spreads are widening and corporate default rates will soon start to rise. Every corner of the securitization world is now under severe stress, including so called highly rated and “safe” (AAA and AA) securities."
Henry Miller: “Actually we are a vulgar, pushing mob whose passions are easily mobilized by demagogues, newspaper men, religious quacks, agitators and such like. To call this a society of free peoples is blasphemous. What have we to offer the world besides the superabundant loot which we recklessly plunder from the earth under the maniacal delusion that this insane activity represents progress and enlightenment?”
Citigroup Inc. may have to write down an additional $2.7 billion worth of subprime-mortgage backed and related securities, boosting its losses from asset-backed bonds to as much as $13.7 billion, CreditSights Inc. said. That would wipe out its reported profit so far this year.
In early Tuesday trading, the U.S. dollar slumped to a new record low against the euro, with the euro rising as high as $1.4555. Gold futures surged $10.90 to $821.80 an ounce. Silver topped $15. December oil futures pushed to $97 a barrel, a record.
IndyMac Bancorp Inc., a major mortgage lender, swung to a third-quarter net loss from a year-earlier profit. The loss reflects credit costs, wider spreads in the secondary mortgage market, and severance costs, offset in part by hedging efforts and the sale and leaseback of a property, IndyMac said. The loss was $202.7 million, or $2.77 a share, compared with net income of $86.2 million, or $1.19, in the year-earlier period.
CIBC analyst Meredith Whitney -- whose downgrade of Citi last week triggered a sharp drop in the stock and the retirement of CEO Charles Prince -- told the Daily Telegraph newspaper the only way forward is to carve the bank up and sell it off. "That's really the only thing they can do. They don't have the capital to manage it as an ongoing entity," she told the paper.
Hovnanian Enterprises Inc. reported that for the fourth quarter ended Oct. 31, it delivered 3,969 homes, 19% fewer than in the year-earlier period. In the quarter, Hovnanian signed contracts on 2,781 homes, down 10% from a year earlier. Tighter mortgage-underwriting standards led to an increase in the quarter's cancellation rate to 40% from 35%. Contract backlog at Oct. 31 was 5,938 homes, down 30% from a year earlier. The company said that it reduced the debt on its balance sheet by $390 million in the period. Ara Hovnanian, chief executive of home builder Hovnanian Enterprises Inc., said U.S. housing won't likely get back to a "balanced marketplace" until 2010. Meanwhile, 2008 will be "another challenging year" and he's not looking for strong earnings from home builders. "By the tail end of 2008 we should get some positive momentum in sales, setting up a recovery in 2009," Hovnanian said. Home builders by then should return to profitability, although earnings will be more meager than the recent boom years.
Beazer Homes USA will cut 650 positions, or 25% of its workforce, and halted its 10-cents a share dividend. Preliminary figures showed home closings down 39% and new home orders down 53% on a 68% cancellation rate. The company is still working to complete restatements.
U.K. Chancellor Alistair Darling made the final decision to rule out a potential takeover of stricken lender Northern Rock by Lloyds TSB said Bank of England governor Mervyn King, according to a BBC report.
Shares of Alibaba.com jumped 129% in early trade amid strong retail interest in the online export facilitator. Shares of Alibaba.com were quoted at HK$31.00 in early trade, up from its initial offering price of HK$13.50.
Overall, ICSC continues to expect that October sales will increase by about 2%, on a year-over-year basis.
The average pump price for diesel fuel in the U.S. soared to an all-time high -- even when adjusted for inflation -- of $3.303 a gallon over the last week, the Energy Department said. What impact will this record price have on the trucking company margins or will they simply tack on a fuel surcharge to customers? Either way, it's more inflation in the pipeline(no pun intended).
Japan's broadest indicator of the outlook for the economy fell to the lowest level in a decade, signaling growth may stall. The leading index was zero percent in September, the Cabinet Office said.
"Everyone is being very risk-averse," says Bill Larkin, fixed-income portfolio manager at Cabot Money Management, who notes Treasury bond prices are so high they offer "ridiculously low yields." Taking inflation into account, they barely offer any real return at all, he says.
John Adams: “These bickerings of opposite parties, and their mutual reproaches their declamations, their sing-song, their triumphs and defiance, their dismal and prophecies, are all delusion.”
China may become a net exporter of stainless steel next year as output rises faster than demand growth, said Baoshan Iron & Steel, the nation’s second-largest producer of the alloy.
Gov. Arnold Schwarzenegger ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market.
State officials have warned the governor that the likely deficit for next year has jumped from a few billion dollars to as much as $10 billion, threatening to wipe out the progress Schwarzenegger has claimed in getting the state's accounts in order.
George Soros forecast on that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending.
Valero Energy's third-quarter earnings fell 20 percent as the margins to make gasoline fell sharply from the record levels reached in the second quarter. Net income fell to $1.27 billion, or $2.09 a share, from $1.60 billion, or $2.55 a share, in the year-ago period. Excluding items, Valero posted quarterly earnings from continuing operations of $1.40 a share.
"We've only begun to see the pain from the standpoint of the homeowner in terms of those monthly payments," said Bill Gross, chief investment officer of Pacific Investment Management or Pimco. "Defaults and delinquencies will increase as we extend throughout 2007 and into 2008."
According to The Chicago Tribune "sources close to the situation said Gannett Co (GCI)., Tribune Co (TRB)., Hearst Corp., Media News Group and Cox Newspapers may band together to form a common ad sales force that could offer national advertisers "one-stop shopping" for ad space on big-market Web sites across the nation.
Microsoft was removed from Conviction Buy List at Goldman Sachs.
Brett Steenbarger: "The wise trader told me that there are only two types of trades: winning trades and trades where you pay for information."
The Oil Drum: "The Organization of Petroleum Exporting Countries raised production 1.6 percent in October in advance of the group's pledge to increase supplies starting this month, a Bloomberg News Survey showed. OPEC pumped an average 31.16 million barrels a day last month, up 495,000 barrels from September, according to the survey of oil companies, producers and analysts. The 10 members with production quotas, all except Angola and Iraq, increased output by 305,000 barrels to 27.135 million barrels a day, the highest since October 2006."
China's two main oil companies have promised to step up diesel production, the government said Tuesday, following two weeks of shortages blamed on price controls that have disrupted trucking and caused long lines at filling stations.
Will Hutton
Sunday November 4, 2007
The Observer : "I have been following the financial markets for more than 30 years. Crises have come and gone, but the one unfolding since August and which intensified last week is the most serious. It is not just that its impact is cascading around the world because of the new interconnectedness of global finance, it is that the authorities, particularly in Britain and America, have lost control and do not have the means to regain it as quickly as we might hope. With an oil price approaching $100 a barrel, we are in an uncharted and dangerous place."
Peabody forecast EBITDA from continuing operations of $900 million to $1 billion with earnings of $1.50 to $1.75 a share.
Emerson Electric Co. said Tuesday it expects its fiscal 2008 earnings per share to be up 10 percent to 15 percent from its 2007 results. Based on the company's 2007 profit of $2.66 per share, the outlook implies a profit of $2.93 per share to $3.06 per share for the year. Analysts polled by Thomson Financial expect a 2008 profit of $2.98. The company also projected reported sales growth of 7 percent to 10 percent for 2008.
Ryland CEO Chad Dreier said shaky consumer confidence is still the biggest issue impacting the housing market. Buyers are nervous they will buy a house only to see the price fall later, the CEO said at an investment conference hosted by UBS. Although he said price incentives from builders aren't likely to get any bigger than they currently are, he said there was nothing in the housing market to make him "feel good" at the moment.
The last time Nordstrom's traded at $33+ was early in the third quarter of 2006. The last time Starbucks traded at $24+ was in the third quarter of 2005. The last time Citigroup sold at $34+ was in the first quarter of 2003. The latter maintains they will keep paying the dividend. Thus the stock now yields 6%+.
A judge Monday set a tentative July trial date in the dispute between Sallie Mae and an investor group seeking to terminate its proposed $25 billion buyout of the student lender. Vice Chancellor Leo Strine Jr. said the trial date could be pushed back if Sallie Mae wants a preliminary ruling on whether legislation enacted after it agreed in April to be bought out represents a material adverse effect, nullifying the deal.
On Nov. 15, FASB 157 goes into effect. Here is a link telling you about these new accounting standards:
http://www.fasb.org/st/summary/stsum157.shtml
Crude oil futures closed up $2.72, or 2.9%, at a new record closing high of $96.70 a barrel on the New York Mercantile Exchange.
Gold futures rallied Tuesday to their highest level since 1980. Gold for December delivery rose $12.60 to end at $823.40 an ounce on the New York Mercantile Exchange.
The U.S. Dollar Index fell to another new low at 76.02.
In favor and out of favor: Gamestop has a market cap of $9.4 billion. Nordstrom's has a market cap of $8.1 billion. How long will that disparity continue?
The VIX dropped almost $3 to just below $22.
Will Rogers: “If we ever pass out as a great nation we ought to put on our tombstone 'America died from a delusion that she had moral leadership'.”
Monday, November 05, 2007
More Write Offs?
11/6/07 More Write Offs?
The Citigroup board of directors named Sir Win Bischoff, chairman of Citi's European operations, as interim CEO, and senior advisor Robert Rubin as chairman. In addition, the company will write off between $8 billion and $11 billion to reflect additional subprime losses since Sept. 30.
Citigroup said "while significant uncertainty continues to prevail in financial markets, it expects, taking into account maintaining its current dividend level, that its capital ratios will return within the range of targeted levels by the end of the second quarter of 2008." As a result, the company "has no plans to reduce its current dividend level."
According to the WSJ, Kraft is close to selling Post cereals to Ralcorp for $2.8 billion.
Gramercy Capital agreed to buy American Financial in a $3.4 billion cash and stock deal, including assumed debt.
Film and television writers struck the production studios, their first job action in almost two decades, on Monday when labor negotiations broke down, The Wall Street Journal Online reported. Members of the Writers Guild of America are set to picket TV networks and movie studios in New York and Los Angeles on Monday, the Journal reported.
Oil and gas company EnCana Corp. said it will pay $2.55 billion for the Deep Bossier natural gas and land interests of privately owned Leor Energy.
Pakistani shares staged their biggest one-day fall in history Monday amid reports police used tear gas to break up a demonstration by lawyers against the state of emergency rule imposed by the country's president and head of the army over the weekend.
EADS is going to have to take between 1.2 billion and 1.4 billion euros ($2 billion) in charges during the third quarter on delivery delays to the A400M military transdport plane.
Shares of PetroChina Co. began trading in Shanghai Monday at nearly thrice its initial public offering price, on heavy demand from local retail and institutional investors. The energy major began trading at 48.60 yuan ($6.48), compared to its IPO price of 16.70 yuan.
Bob Hoye: "The Fed has little influence on the curve, or credit spreads, and the concept of a national credit market is nonsense."
``Rising risk aversion related to concerns over the subprime issue is playing for some Japanese yen strength,'' said Daragh Maher, London-based senior currency strategist at Calyon, the investment-banking arm of Credit Agricole SA, France's second- biggest bank. ``That's a counterpoint to an exit from some of the riskier assets.''
The median family income in San Diego County is $69,400, according to the latest data from the U.S. Department of Housing and Urban Development. That puts us slightly below the median family income of $73,700 in Madison, Wis.; $71,400 in Denver; $72,600 in Norwich, Conn.; or $72,800 in Worcester, Mass. – to cite some examples from HUD's database...In San Diego, the median sale price of an existing single-family home in the second quarter was $614,000, according to the National Association of Realtors. Compare that with $223,500 in Madison, $255,200 in Denver, $276,600 in Norwich and $278,900 in Worcester.
China's Premier Wen Jiabao has warned his government will do what it takes to prevent bubbles and fluctuations in the stock market, state media said Monday.
"The government will take measures to prevent asset bubbles and avoid huge fluctuations in the stock market," Premier Wen Jiabao told reporters, according to the China Daily website. "Preventing asset bubbles is like preventing inflation and it is the government's responsibility to ensure a fair, healthy and transparent stock market," Wen said.
Qatar dropped its 10.5 billion-pound ($21.9 billion) bid for J Sainsbury Plc after ``deterioration'' in the credit markets and demands by the U.K. supermarket chain's pension fund made the deal too expensive.
Floyd Norris: "Over the last 12 months, the government’s current numbers indicate that the private sector added an average of 115,000 jobs a month. But 80 percent of those jobs came from the statistical adjustments."
Arab Gulf states offered to provide enriched uranium to Iran, aiming to resolve the international standoff over the country’s nuclear program, citing a top Saudi official. Under the plan, Saudi Arabia, Bahrain, Kuwait, Oman, the United Arab Emirates and Qatar will set up a nuclear enrichment plant in a “neutral” country, citing Saudi Arabian Foreign Minister Prince Saud Al-Faisal.
China and the U.S. will set up a military hotline, hold high-level nuclear strategy talks and increase joint exercises, U.S. Defense Secretary Robert Gates and his Chinese counterpart, General Cao Gangchuan, said.
Barry Ritholtz: "Watch the August 9th lows. A break on any volume on the Dow and the Transports will issue a major sell signal. For the Industrials, thats Dow 12846; The Transports are not too far the low of 4672. These are your lines in the sand. A break of both gives a Dow Theory Sell Signal."
The average price of regular gasoline on Friday was $2.96 a gallon, mid-grade was $3.08, and premium was $3.19, oil industry analyst Trilby Lundberg said.
PetroChina passed Exxon as the world's largest company by market cap.
The head of Japan's central bank hinted Monday that interest rates in the world's second largest economy should rise if Japan wants to keep prices in line with economic growth. The Bank of Japan last raised a benchmark interest rate to 0.5 percent in February from 0.25 percent. But the bank since has kept interest rates steady amid lingering concerns about slower growth in the U.S. economy, a key export market for Japan.
As reported in today’s FT, for example, Merrill Lynch, has written down mid-quality ABX debt to 63 cents in the dollar, even though the bank’s own analysts say its worth only 40. UBS, meanwhile, assumes the same debt to be worth 90 cents in the dollar. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill themselves had the cheek to point out in a report on their rival.
Citigroup Inc.in a quarterly regulatory filing Monday said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess. The investment bank said its total liabilities related to level 3 assets at quarter-end were $40.36 billion, according to the Form 10-Q. Citigroup said it often hedges its level 3 positions.
According to FT's Alphaville, as noted in Monday's blog by Sam Jones:
"Here’s a breakdown of the main CDO exposures:
Citi
$10bn senior rated CDO debt
$8bn mezzanine CDO debt
$2.7bn “warehoused” CDOs
£200m CDO squared
Merrill Lynch
$8.3bn senior rated CDO debt
$5.3bn mezzanine CDO debt
$1bn “warehoused” CDO debt
$600m CDO squared
UBS
$20.2bn senior rated CDO debt
$1.8bn warehoused CDO debt
Total exposure undisclosed:
Bank of America
Undisclosed
Barclays
Q3s due November 27
Deutsche
$1.6bn on “trading activities in relative value trading in both debt and equity, CDO correlation trading and residential mortgage-backed securities.”
JPMorgan
$339m (net of hedges) “on collateralized debt obligation (CDO) warehouses and unsold positions.”
Lehman Brothers
Undisclosed
Morgan Stanley
Undisclosed
Wachovia
$534m writedown on CDOs"
John Hussman: "Last week, the Associated Press reported: “The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch." The truth is that the entire $41 billion was nothing more than a predictable rollover of existing repurchases...The Fed has injected no “liquidity” at all into the banking system for months...the shrinkage in the commercial paper market will be matched by an expansion in bank financing. This will not be new “money creation” but replacement financing through an alternative intermediary. Moreover, the apparent “money on the sidelines” in banks and money market funds will not represent cash waiting to be deployed. It will represent claims on money that has already left the building and has long been spent."
IAC says to separate into five publicly traded companies. IAC to spin off HSN, Ticketmaster, Interval, LendingTree.
AK Steel will increase by about 6% transaction prices for all hot-rolled and cold-rolled stainless steel sheet, strip, tubular quality and continuous mill plate products, effective with shipments on Nov. 12.
Dell has entered into a definitive agreement to acquire EqualLogic, a leading provider of high-performance iSCSI storage area network (SAN) solutions uniquely optimized for virtualization. The acquisition will strengthen Dell’s product and channel leadership in simplifying and virtualizing IT for customers globally. iSCSI SAN technology represents the fastest growing part of the storage business. Under the terms of the agreement, Dell will purchase EqualLogic for approximately $1.4 billion in cash. The acquisition of EqualLogic is expected to close late in the fourth quarter of Dell's fiscal year 2008 or early in the first quarter of fiscal 2009.
Retailers are forecast to have their worst holiday season in five years amid credit and housing market woes, according to trade group National Retail Federation.
Global Research's Debbie Lewis: "When will United States Citizens ever decide enough is enough and fire Washington?
Congress is pulling another fast one and no one is paying attention. As if wanting to control the entire population via the latest proposed commission, H.R. 1955, otherwise known as the “Violent Radicalization and Homegrown Terrorism Prevention Act of 2007,” is a slick piece of legislation. The way it reads, we are heading straight for an Authoritarian style government (like we are not in one already!).
This new bill is to be added to Title VIII of the Homeland Security Act of 2002, another questionable piece of legislation. Where, may one ask, is representation for “We the People?” The vote for passage in the House of Representatives was 404 ayes to 6 nays and 22 representatives not voting. People on the right or the left think their representation is the best, but quite frankly, there is clearly little difference. Of the fifteen sponsors for this bill, eleven of them are Democrats. The bill has now moved to the Senate for approval, with its two sponsors being Republican."
The Institute for Supply Management's index gauging the health of non-manufacturing industries registered 55.8, up from 54.8 in September. The closely-watched employment index fell to 51.8% from 52.7% in September. New orders rose to 55.7% from 53.4% in the prior month. The price index declined to 63.5% from 66.1%.
CNBC is saying the Richard Parsons will step down as CEO of Time Warner effective the end of the year, and that the announcement will be made today. He will remain as Chairman. Jeff Bewkes, current president, will move to the CEO job.
Sweet, light crude for December delivery closed down $1.95, or 2%, to 93.98 a barrel on New York Mercantile Exchange.
Major banks made it much tougher for all types of customers to get loans over the past three months, the Fed reported, providing some fresh details on how bad the credit crunch was. As credit standards toughened, demand for loans also fell. Residential mortgages were harder to get than at any time in the 17-year history of the Fed's survey of banks' senior loan officers, the Fed said. Credit standards tightened for borrowers with the best credit, with 40% of banks requiring prime borrowers to jump over a higher bar before receiving mortgages.
The rate of deliquencies and foreclosures in the subprime mortgage market could get worse before getting better, said Federal Reserve Governor Randall Kroszner on Monday. "All indications are that housing activity is continuing to weaken," and therefore house prices are likely to remain sluggish, Kroszner said in a speech to the Consumer Bankers Association. In addition, many of the initial teaser rates of subprime mortgages have yet to expire, and once they do that will boost the monthly minimum payment for many financially strapped homeowners.
Leo Tolstoy: “Laws are rules, made by people who govern by means of organized violence, for non-compliance with which the non-complier is subjected to blows, to loss of liberty, or even to being murdered.”
The Citigroup board of directors named Sir Win Bischoff, chairman of Citi's European operations, as interim CEO, and senior advisor Robert Rubin as chairman. In addition, the company will write off between $8 billion and $11 billion to reflect additional subprime losses since Sept. 30.
Citigroup said "while significant uncertainty continues to prevail in financial markets, it expects, taking into account maintaining its current dividend level, that its capital ratios will return within the range of targeted levels by the end of the second quarter of 2008." As a result, the company "has no plans to reduce its current dividend level."
According to the WSJ, Kraft is close to selling Post cereals to Ralcorp for $2.8 billion.
Gramercy Capital agreed to buy American Financial in a $3.4 billion cash and stock deal, including assumed debt.
Film and television writers struck the production studios, their first job action in almost two decades, on Monday when labor negotiations broke down, The Wall Street Journal Online reported. Members of the Writers Guild of America are set to picket TV networks and movie studios in New York and Los Angeles on Monday, the Journal reported.
Oil and gas company EnCana Corp. said it will pay $2.55 billion for the Deep Bossier natural gas and land interests of privately owned Leor Energy.
Pakistani shares staged their biggest one-day fall in history Monday amid reports police used tear gas to break up a demonstration by lawyers against the state of emergency rule imposed by the country's president and head of the army over the weekend.
EADS is going to have to take between 1.2 billion and 1.4 billion euros ($2 billion) in charges during the third quarter on delivery delays to the A400M military transdport plane.
Shares of PetroChina Co. began trading in Shanghai Monday at nearly thrice its initial public offering price, on heavy demand from local retail and institutional investors. The energy major began trading at 48.60 yuan ($6.48), compared to its IPO price of 16.70 yuan.
Bob Hoye: "The Fed has little influence on the curve, or credit spreads, and the concept of a national credit market is nonsense."
``Rising risk aversion related to concerns over the subprime issue is playing for some Japanese yen strength,'' said Daragh Maher, London-based senior currency strategist at Calyon, the investment-banking arm of Credit Agricole SA, France's second- biggest bank. ``That's a counterpoint to an exit from some of the riskier assets.''
The median family income in San Diego County is $69,400, according to the latest data from the U.S. Department of Housing and Urban Development. That puts us slightly below the median family income of $73,700 in Madison, Wis.; $71,400 in Denver; $72,600 in Norwich, Conn.; or $72,800 in Worcester, Mass. – to cite some examples from HUD's database...In San Diego, the median sale price of an existing single-family home in the second quarter was $614,000, according to the National Association of Realtors. Compare that with $223,500 in Madison, $255,200 in Denver, $276,600 in Norwich and $278,900 in Worcester.
China's Premier Wen Jiabao has warned his government will do what it takes to prevent bubbles and fluctuations in the stock market, state media said Monday.
"The government will take measures to prevent asset bubbles and avoid huge fluctuations in the stock market," Premier Wen Jiabao told reporters, according to the China Daily website. "Preventing asset bubbles is like preventing inflation and it is the government's responsibility to ensure a fair, healthy and transparent stock market," Wen said.
Qatar dropped its 10.5 billion-pound ($21.9 billion) bid for J Sainsbury Plc after ``deterioration'' in the credit markets and demands by the U.K. supermarket chain's pension fund made the deal too expensive.
Floyd Norris: "Over the last 12 months, the government’s current numbers indicate that the private sector added an average of 115,000 jobs a month. But 80 percent of those jobs came from the statistical adjustments."
Arab Gulf states offered to provide enriched uranium to Iran, aiming to resolve the international standoff over the country’s nuclear program, citing a top Saudi official. Under the plan, Saudi Arabia, Bahrain, Kuwait, Oman, the United Arab Emirates and Qatar will set up a nuclear enrichment plant in a “neutral” country, citing Saudi Arabian Foreign Minister Prince Saud Al-Faisal.
China and the U.S. will set up a military hotline, hold high-level nuclear strategy talks and increase joint exercises, U.S. Defense Secretary Robert Gates and his Chinese counterpart, General Cao Gangchuan, said.
Barry Ritholtz: "Watch the August 9th lows. A break on any volume on the Dow and the Transports will issue a major sell signal. For the Industrials, thats Dow 12846; The Transports are not too far the low of 4672. These are your lines in the sand. A break of both gives a Dow Theory Sell Signal."
The average price of regular gasoline on Friday was $2.96 a gallon, mid-grade was $3.08, and premium was $3.19, oil industry analyst Trilby Lundberg said.
PetroChina passed Exxon as the world's largest company by market cap.
The head of Japan's central bank hinted Monday that interest rates in the world's second largest economy should rise if Japan wants to keep prices in line with economic growth. The Bank of Japan last raised a benchmark interest rate to 0.5 percent in February from 0.25 percent. But the bank since has kept interest rates steady amid lingering concerns about slower growth in the U.S. economy, a key export market for Japan.
As reported in today’s FT, for example, Merrill Lynch, has written down mid-quality ABX debt to 63 cents in the dollar, even though the bank’s own analysts say its worth only 40. UBS, meanwhile, assumes the same debt to be worth 90 cents in the dollar. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill themselves had the cheek to point out in a report on their rival.
Citigroup Inc.in a quarterly regulatory filing Monday said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess. The investment bank said its total liabilities related to level 3 assets at quarter-end were $40.36 billion, according to the Form 10-Q. Citigroup said it often hedges its level 3 positions.
According to FT's Alphaville, as noted in Monday's blog by Sam Jones:
"Here’s a breakdown of the main CDO exposures:
Citi
$10bn senior rated CDO debt
$8bn mezzanine CDO debt
$2.7bn “warehoused” CDOs
£200m CDO squared
Merrill Lynch
$8.3bn senior rated CDO debt
$5.3bn mezzanine CDO debt
$1bn “warehoused” CDO debt
$600m CDO squared
UBS
$20.2bn senior rated CDO debt
$1.8bn warehoused CDO debt
Total exposure undisclosed:
Bank of America
Undisclosed
Barclays
Q3s due November 27
Deutsche
$1.6bn on “trading activities in relative value trading in both debt and equity, CDO correlation trading and residential mortgage-backed securities.”
JPMorgan
$339m (net of hedges) “on collateralized debt obligation (CDO) warehouses and unsold positions.”
Lehman Brothers
Undisclosed
Morgan Stanley
Undisclosed
Wachovia
$534m writedown on CDOs"
John Hussman: "Last week, the Associated Press reported: “The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch." The truth is that the entire $41 billion was nothing more than a predictable rollover of existing repurchases...The Fed has injected no “liquidity” at all into the banking system for months...the shrinkage in the commercial paper market will be matched by an expansion in bank financing. This will not be new “money creation” but replacement financing through an alternative intermediary. Moreover, the apparent “money on the sidelines” in banks and money market funds will not represent cash waiting to be deployed. It will represent claims on money that has already left the building and has long been spent."
IAC says to separate into five publicly traded companies. IAC to spin off HSN, Ticketmaster, Interval, LendingTree.
AK Steel will increase by about 6% transaction prices for all hot-rolled and cold-rolled stainless steel sheet, strip, tubular quality and continuous mill plate products, effective with shipments on Nov. 12.
Dell has entered into a definitive agreement to acquire EqualLogic, a leading provider of high-performance iSCSI storage area network (SAN) solutions uniquely optimized for virtualization. The acquisition will strengthen Dell’s product and channel leadership in simplifying and virtualizing IT for customers globally. iSCSI SAN technology represents the fastest growing part of the storage business. Under the terms of the agreement, Dell will purchase EqualLogic for approximately $1.4 billion in cash. The acquisition of EqualLogic is expected to close late in the fourth quarter of Dell's fiscal year 2008 or early in the first quarter of fiscal 2009.
Retailers are forecast to have their worst holiday season in five years amid credit and housing market woes, according to trade group National Retail Federation.
Global Research's Debbie Lewis: "When will United States Citizens ever decide enough is enough and fire Washington?
Congress is pulling another fast one and no one is paying attention. As if wanting to control the entire population via the latest proposed commission, H.R. 1955, otherwise known as the “Violent Radicalization and Homegrown Terrorism Prevention Act of 2007,” is a slick piece of legislation. The way it reads, we are heading straight for an Authoritarian style government (like we are not in one already!).
This new bill is to be added to Title VIII of the Homeland Security Act of 2002, another questionable piece of legislation. Where, may one ask, is representation for “We the People?” The vote for passage in the House of Representatives was 404 ayes to 6 nays and 22 representatives not voting. People on the right or the left think their representation is the best, but quite frankly, there is clearly little difference. Of the fifteen sponsors for this bill, eleven of them are Democrats. The bill has now moved to the Senate for approval, with its two sponsors being Republican."
The Institute for Supply Management's index gauging the health of non-manufacturing industries registered 55.8, up from 54.8 in September. The closely-watched employment index fell to 51.8% from 52.7% in September. New orders rose to 55.7% from 53.4% in the prior month. The price index declined to 63.5% from 66.1%.
CNBC is saying the Richard Parsons will step down as CEO of Time Warner effective the end of the year, and that the announcement will be made today. He will remain as Chairman. Jeff Bewkes, current president, will move to the CEO job.
Sweet, light crude for December delivery closed down $1.95, or 2%, to 93.98 a barrel on New York Mercantile Exchange.
Major banks made it much tougher for all types of customers to get loans over the past three months, the Fed reported, providing some fresh details on how bad the credit crunch was. As credit standards toughened, demand for loans also fell. Residential mortgages were harder to get than at any time in the 17-year history of the Fed's survey of banks' senior loan officers, the Fed said. Credit standards tightened for borrowers with the best credit, with 40% of banks requiring prime borrowers to jump over a higher bar before receiving mortgages.
The rate of deliquencies and foreclosures in the subprime mortgage market could get worse before getting better, said Federal Reserve Governor Randall Kroszner on Monday. "All indications are that housing activity is continuing to weaken," and therefore house prices are likely to remain sluggish, Kroszner said in a speech to the Consumer Bankers Association. In addition, many of the initial teaser rates of subprime mortgages have yet to expire, and once they do that will boost the monthly minimum payment for many financially strapped homeowners.
Leo Tolstoy: “Laws are rules, made by people who govern by means of organized violence, for non-compliance with which the non-complier is subjected to blows, to loss of liberty, or even to being murdered.”
Sunday, November 04, 2007
The Merry Go Round
11/5/07 The Merry Go Round
According to the UK Observer, BT Group will cut 5,000 middle managers.
Pakistan's Musharraf suspended that country's Constitution and then replaced the Chief Justice. He didn't stop there. He filled the capital city with police officers, and this gives all the appearance of martial law. Since Bush picks his friends so well, he has chosen to provide Musharraf with more than $10 billion since 2001. Musharraf supposedly was one of Bush's foremost allies in fighting terrorism. In the meantime, this is an attempt to derail elections that were designed to return the nation to democracy after eight years of military-backed government.
Jack Handy: “In some places it's known as a tornado. In others, a cyclone. And in still others, the Idiot's Merry-go-round. But around here they'll always be known as screw-boys.”
Cargill Inc said on Saturday it was recalling more than 1 million pounds of ground beef distributed in the United States because of possible E. coli contamination. Is it any wonder many countries don't want our beef?
As there is a raised risk of E. coli O157:H7 contamination of 414000 cases of pizza products with pepperoni toppings, the makers, General Mills, has announced a voluntary recall of said pizzas.
More and more, the four scariest letters for parents and students across the country are MRSA, for methicillin-resistant Staphylococcus aureus.
Private equity firm Apax is looking at making an offer for ITV after the broadcaster's share price dropped below 100 pence in recent days, the Financial Mail reported on Sunday.
Mike Burk: "The good news is:
• The NYSE composite hit an all time high, NASDAQ 100 (NDX) and the NASDAQ composite (OTC) hit a multi year highs last week.
Short Term
The Hindenburg Omen, a signal developed by Jim Miekka, has received a lot of publicity lately. The signal has had some false positives, but it has also preceded every major decline. The parameters are:
NYSE new highs and new lows must both exceed 2.8% of NYSE issues traded (currently 93).
The NYSE composite must be above its level of 50 trading days earlier.
The McClellan Oscillator must be negative.
When the above conditions have been met the signal is in effect for 30 days.
On Friday all of the conditions were met. Even 10% trends (19 day EMA's) of NYSE new highs and new lows exceeded 93 (NYSE NH 148 and NYSE NL 102). The NYSE composite is 2 days off its all time high...Since late February every new high on the OTC has been accompanied by a progressively lower high in OTC NH...During the 3rd year of the Presidential Cycle the OTC has been up only 36% of the time. The SPX by all measures as well as the OTC over all years have been up slightly over half of the time...Most of the indicators deteriorated last week and seasonality is not an asset for the coming week.
I expect the major indices to be lower on Friday November 9 than they were on Friday November 2."
Alex Wallenwein: "With its oil backing largely gone, and no gold backing since '71,and the competition from the euro, and the outrageous trade deficit, and now the US subprime mortgage-induced worldwide credit crunch, there is little reason for other nations to keep using the dollar for settling their trade accounts. In economics, lower demand always means lower value - in this case forex (foreign exchange) value. That's where we are today...Well, as you know, inverted pyramids can't stand on their own. They must be held up. That which has held up the dollar-pyramid was oil - and oil is now migrating to the euro. The problem is that the euro is also just evidence of a debt. The volume of dollars now circulating in the world must eventually be replaced by euros if the world is to continue to function - and that will put the euro into the same dire straits as those the dollar is now in. That is the fiat-Titanic's iceberg."
Neil Diamond: "When you're on a merry-go-round, you miss a lot of the scenery."
Mike Shedlock: "The bond insurance industry has guaranteed more than $1 trillion of bonds issued by U.S. cities and states as well as bonds backed by mortgages, credit cards and other assets, and the guarantee allows borrowers to use the insurers' AAA rating. A loss of confidence by investors in the insurers' credit quality threatens the survival of the industry and the price of the thousands of bonds it guarantees."
Tens of thousands of residents in the Mexican state of Tabasco were still trapped in their houses on Saturday by floods that have put much of the state under
water.
"In the U.S. there will be huge additional worldwide demand falling on industries such as basic materials, industrial and transport companies," said James Paulsen, chief investment strategist with Wells Capital Management in Minneapolis. "I would argue that these companies, therefore, have a pretty good profile going forward."
In terms of market cap, Google has risen to the number 5 slot! According to Fortune, Google will announced its new mobile phone product on Monday with its first US partners being T-Mobile and Sprint.
A shipbuilder that is one of Whidbey Island's largest private employers, and one of three shipyards under contract to help build new vessels for Washington State Ferries, has closed its doors and laid off 250 workers, citing financial problems and a pending lawsuit. Nichols Bros. Boat Builders, with facilities in Freeland and Langley, had operated on Whidbey Island since 1964.
As of Sept. 30, the unpaid principal balance on WaMu's option ARMs exceeded the loans' original principal amount by $1.5 billion, meaning customers owed $1.5 billion more in principal than what they originally borrowed. By comparison, that figure was $681 million a year earlier, when WaMu had $67.14 billion, or 16 percent more, option ARMs on its books. For the nine months ended Sept. 30, WaMu recognized $1.05 billion in earnings as a result of neg-am within its option-ARM portfolio. That represented 7.2 percent of its $14.61 billion of total interest income year-to-date. By comparison, neg-am contributed 1.8 percent of the interest income for all of 2005 and just 0.2 percent for 2004. While the loan-loss allowance rose 22 percent to $1.89 billion during the 12 months ended Sept. 30, nonperforming assets rose 128 percent to $5.45 billion. So even if WaMu adds $1.3 billion in provisions next quarter, its loan-loss allowance still won't be close to catching up. In my view, this is a company that needs new management and an infusion of capital.
The European Central Bank and Bank of England are forecast to keep borrowing costs unchanged Nov. 8, which may entice investors away from U.S. assets.
Dubai port operator DP World has launched an initial public offering for 17 percent of its shares in one of the biggest ever flotations in the Gulf region. The company, one of the world's largest container-port operators, said at a news conference it was selling 2.822 bln shares, or 17 pct of its 16.6 bln shares, at an indicative price of 1-1.30 usd per share. The offer, which could be expanded to up to 20 pct of the firm's shares, is open to citizens and residents of the United Arab Emirates and its Gulf Arab partners Bahrain, Kuwait, Oman, Qatar and Saudi Arabia.
China will have to continue raising its domestic resources prices, even though the move could result in additional inflationary pressure, in order to correct the distortions in the economy caused by underpriced fuel, a senior official at the People's Bank of China (PBoC) said. Assistant governor Yi Gang said the Chinese government has to choose the 'lesser evil' -- inflation -- instead of allowing underpriced resources to cause a further imbalance in the economy. 'Inflation is the lesser evil compared to distortions in the economy,' Yi told a forum.
"We get pressured every single day to inflate our values," said Dan Tosh, principal at Tosh & Associates, an appraisal firm in Brentwood, Ca. "We get people telling us we'll never work again, or they won't pay us because we won't play ball."
The Oil Drum: "77 percent of the world’s oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries — the ones that exploited their oil first and generally have the most private oil — and are being found largely in developing countries, where oil tends to belong to the state."
Alexei Sayle: "There's a lot of stupid rules connected with eating out, like you should only ever drink white wine with fish. That's bloody stupid isn't it - have you ever tried getting pissed with a haddock?"
According to the UK Observer, BT Group will cut 5,000 middle managers.
Pakistan's Musharraf suspended that country's Constitution and then replaced the Chief Justice. He didn't stop there. He filled the capital city with police officers, and this gives all the appearance of martial law. Since Bush picks his friends so well, he has chosen to provide Musharraf with more than $10 billion since 2001. Musharraf supposedly was one of Bush's foremost allies in fighting terrorism. In the meantime, this is an attempt to derail elections that were designed to return the nation to democracy after eight years of military-backed government.
Jack Handy: “In some places it's known as a tornado. In others, a cyclone. And in still others, the Idiot's Merry-go-round. But around here they'll always be known as screw-boys.”
Cargill Inc said on Saturday it was recalling more than 1 million pounds of ground beef distributed in the United States because of possible E. coli contamination. Is it any wonder many countries don't want our beef?
As there is a raised risk of E. coli O157:H7 contamination of 414000 cases of pizza products with pepperoni toppings, the makers, General Mills, has announced a voluntary recall of said pizzas.
More and more, the four scariest letters for parents and students across the country are MRSA, for methicillin-resistant Staphylococcus aureus.
Private equity firm Apax is looking at making an offer for ITV after the broadcaster's share price dropped below 100 pence in recent days, the Financial Mail reported on Sunday.
Mike Burk: "The good news is:
• The NYSE composite hit an all time high, NASDAQ 100 (NDX) and the NASDAQ composite (OTC) hit a multi year highs last week.
Short Term
The Hindenburg Omen, a signal developed by Jim Miekka, has received a lot of publicity lately. The signal has had some false positives, but it has also preceded every major decline. The parameters are:
NYSE new highs and new lows must both exceed 2.8% of NYSE issues traded (currently 93).
The NYSE composite must be above its level of 50 trading days earlier.
The McClellan Oscillator must be negative.
When the above conditions have been met the signal is in effect for 30 days.
On Friday all of the conditions were met. Even 10% trends (19 day EMA's) of NYSE new highs and new lows exceeded 93 (NYSE NH 148 and NYSE NL 102). The NYSE composite is 2 days off its all time high...Since late February every new high on the OTC has been accompanied by a progressively lower high in OTC NH...During the 3rd year of the Presidential Cycle the OTC has been up only 36% of the time. The SPX by all measures as well as the OTC over all years have been up slightly over half of the time...Most of the indicators deteriorated last week and seasonality is not an asset for the coming week.
I expect the major indices to be lower on Friday November 9 than they were on Friday November 2."
Alex Wallenwein: "With its oil backing largely gone, and no gold backing since '71,and the competition from the euro, and the outrageous trade deficit, and now the US subprime mortgage-induced worldwide credit crunch, there is little reason for other nations to keep using the dollar for settling their trade accounts. In economics, lower demand always means lower value - in this case forex (foreign exchange) value. That's where we are today...Well, as you know, inverted pyramids can't stand on their own. They must be held up. That which has held up the dollar-pyramid was oil - and oil is now migrating to the euro. The problem is that the euro is also just evidence of a debt. The volume of dollars now circulating in the world must eventually be replaced by euros if the world is to continue to function - and that will put the euro into the same dire straits as those the dollar is now in. That is the fiat-Titanic's iceberg."
Neil Diamond: "When you're on a merry-go-round, you miss a lot of the scenery."
Mike Shedlock: "The bond insurance industry has guaranteed more than $1 trillion of bonds issued by U.S. cities and states as well as bonds backed by mortgages, credit cards and other assets, and the guarantee allows borrowers to use the insurers' AAA rating. A loss of confidence by investors in the insurers' credit quality threatens the survival of the industry and the price of the thousands of bonds it guarantees."
Tens of thousands of residents in the Mexican state of Tabasco were still trapped in their houses on Saturday by floods that have put much of the state under
water.
"In the U.S. there will be huge additional worldwide demand falling on industries such as basic materials, industrial and transport companies," said James Paulsen, chief investment strategist with Wells Capital Management in Minneapolis. "I would argue that these companies, therefore, have a pretty good profile going forward."
In terms of market cap, Google has risen to the number 5 slot! According to Fortune, Google will announced its new mobile phone product on Monday with its first US partners being T-Mobile and Sprint.
A shipbuilder that is one of Whidbey Island's largest private employers, and one of three shipyards under contract to help build new vessels for Washington State Ferries, has closed its doors and laid off 250 workers, citing financial problems and a pending lawsuit. Nichols Bros. Boat Builders, with facilities in Freeland and Langley, had operated on Whidbey Island since 1964.
As of Sept. 30, the unpaid principal balance on WaMu's option ARMs exceeded the loans' original principal amount by $1.5 billion, meaning customers owed $1.5 billion more in principal than what they originally borrowed. By comparison, that figure was $681 million a year earlier, when WaMu had $67.14 billion, or 16 percent more, option ARMs on its books. For the nine months ended Sept. 30, WaMu recognized $1.05 billion in earnings as a result of neg-am within its option-ARM portfolio. That represented 7.2 percent of its $14.61 billion of total interest income year-to-date. By comparison, neg-am contributed 1.8 percent of the interest income for all of 2005 and just 0.2 percent for 2004. While the loan-loss allowance rose 22 percent to $1.89 billion during the 12 months ended Sept. 30, nonperforming assets rose 128 percent to $5.45 billion. So even if WaMu adds $1.3 billion in provisions next quarter, its loan-loss allowance still won't be close to catching up. In my view, this is a company that needs new management and an infusion of capital.
The European Central Bank and Bank of England are forecast to keep borrowing costs unchanged Nov. 8, which may entice investors away from U.S. assets.
Dubai port operator DP World has launched an initial public offering for 17 percent of its shares in one of the biggest ever flotations in the Gulf region. The company, one of the world's largest container-port operators, said at a news conference it was selling 2.822 bln shares, or 17 pct of its 16.6 bln shares, at an indicative price of 1-1.30 usd per share. The offer, which could be expanded to up to 20 pct of the firm's shares, is open to citizens and residents of the United Arab Emirates and its Gulf Arab partners Bahrain, Kuwait, Oman, Qatar and Saudi Arabia.
China will have to continue raising its domestic resources prices, even though the move could result in additional inflationary pressure, in order to correct the distortions in the economy caused by underpriced fuel, a senior official at the People's Bank of China (PBoC) said. Assistant governor Yi Gang said the Chinese government has to choose the 'lesser evil' -- inflation -- instead of allowing underpriced resources to cause a further imbalance in the economy. 'Inflation is the lesser evil compared to distortions in the economy,' Yi told a forum.
"We get pressured every single day to inflate our values," said Dan Tosh, principal at Tosh & Associates, an appraisal firm in Brentwood, Ca. "We get people telling us we'll never work again, or they won't pay us because we won't play ball."
The Oil Drum: "77 percent of the world’s oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries — the ones that exploited their oil first and generally have the most private oil — and are being found largely in developing countries, where oil tends to belong to the state."
Alexei Sayle: "There's a lot of stupid rules connected with eating out, like you should only ever drink white wine with fish. That's bloody stupid isn't it - have you ever tried getting pissed with a haddock?"
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