Escalating

11/18/07 Escalating

Stephen Church: "Based on 3rd quarter, 2007 GDP information, the rate of housing investment has declined over 25% compared to 2005. Since we expect that 4th quarter housing investment will be worse, the rate of housing investment will likely have fallen at least 30% from 2005...2008 should be a residential investment disaster from a macro-economic perspective. Residential investment is about 2 years over-invested on the basis of housing units and renovations and repairs are about 9 months over-invested. In spite of lower interest levels, mortgage debt service levels during 2007 as a percent of income are the highest ever recorded. Finally, the motive to produce new units has disappeared as builder profits have evaporated... We expect that 2008 and 2009 will be a residential investment crater with the average residential investment 35% or more below 2005. 2008 and 2009 could be substantially worse if interest rates increase faster than we expect...In 2008, there will probably be no place for housing investment to hide. The macro-economic factors are all negative for demand and supply. We have not seen anything remotely like this since 1990. The primary micro-economic factors influencing individual housing investment choices should also work against housing. With no unfilled need, no reason to buy, and no reason to build, 2008 should be the worst residential investment year since 1991."

“There’s a greater than 50% probability that the financial system ‘will come to a grinding halt’ because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.

George Eliot: "“Speech is often barren; but silence also does not necessarily brood over a full nest. Your still fowl, blinking at you without remark, may all the while be sitting on one addled egg; and when it takes to cackling will have nothing to announce but that addled delusion.”

Doug Noland: "This historic Credit Crunch has passed the point of no return and will now escalate hastily... Keep in mind that since the beginning of 2001, financial sector borrowings (from the Fed’s Z.1 report) have inflated 83% to $14.9 TN. Moreover, during this six and one-half year period Total Mortgage Debt jumped 106% to $14.0 TN. It was, after all, the massive expansion of household and financial balance sheets that created the “cash-flows” that accumulated in unusual quantities in the non-financial corporate sector. The bulls are wont to fixate on the wherewithal of corporate America, yet the source of this seeming financial health is at the root of Acute Systemic Fragilities...And with major lenders such as Wells Fargo, Countrywide, and Rescap moving to tighter lending, it appears we are at the brink of only worsening Credit Availability and resulting housing market pressure...Purchase Mortgage Fundings actually remained quite strong at $18.7bn through the month of July. Purchase Fundings were down only marginally to $17.2bn during August. But these fundings then shank to $9.6bn in September and to $9.3bn in October. By October, Purchase Fundings were down 55% from July’s levels. Other categories were even worse. Countrywide’s ARM fundings were down 75% in three months; Home Equity Fundings were down 64%; and Subprime Fundings were down 98% to $42 million...With the securitization market severely impaired and Wall Street reeling, the Banking sector balance sheet has now ballooned $550bn (21% annualized) over the past 16 weeks. How can this not be a disaster? How can it be sustainable? The bottom line is that we have now entered a financial environment prone to serious accidents. The financial sector generally is under heightened strain, and I expect this predicament to increasingly feed into the rest of the (finance-driven) real economy. For one, expect huge finance-related job cuts over the coming weeks and months. Second, expect more broad-based tightening of Credit and Financial Conditions. Third, expect the severity of the unfolding housing bust to negatively impact holiday spending and consumer confidence more generally. In short, expect intensifying recessionary forces. And, importantly, expect all of the above to worsen markedly when the stock market Bubble succumbs."

Peter Schiff: "As the world surveys the landscape of the American economy, it will notice an industrial base too hollow to produce sufficient quantities of exportable consumer goods necessary to make good on our outstanding IOU’s (U.S. dollars). As those dollars continue to lose value, the losses will suddenly become increasingly apparent. Just as lenders eventually figured out that loaning money to borrowers who could not pay them back was a bad idea, nations will discover that selling products to Americans who can not afford to pay for them is just as foolish."

Nicolas Sarkozy: "The dollar cannot remain solely the problem of others," he said, adding "If we're not careful, monetary disarray could morph into economic war. We would all be its victims."

"For a while, European companies had wiggle room for the falling dollars to eat up their profit margins," said Alan Ahearan, an economist at Bruegel, a Brussels-based think tank. "But it's fallen so much it's no longer profitable to sell in the U.S. They can't compete with U.S. or Asian firms in the United States. So they're going to have to reduce European exports, and that implies layoffs and downward pressure to the European economy."


Bill Bonner: "The middle class will begin to come up a little short at the end of the month…companies will see their profits fall…investors will sell their stocks…and savers will begin to look at their dollars, pounds and euros and wonder what they are really worth. In the meantime, marginal investments dry up…while scarce resources - oil, gold and wheat - continue to sop up the extra liquidity."

Saturday's Washington Post: "The agent states that the investigation started two years ago. A year ago, the U.S. Mint issued a warning against using the Liberty Dollar, prompting a lawsuit by Norfed. But that has not kept Liberty Dollar fans from speculating online that the raid was prompted by Paul's strong campaign or by the precipitous recent decline in the value of the dollar. Von NotHaus said that he has known Paul for years because they "move in the same circles" but that he had expressly not talked with Paul about his plans for the special coins so as not to violate federal election laws. He posted a message on the organization's Web site urging Liberty Dollar supporters to respond to the raid by donating to Paul, saying that "in light of this assault on our financial freedom, it is clear that we need Ron Paul to lead this country more than ever." Should he be charged, he said, "I'll turn it into my golden opportunity to validate the Liberty Dollar as a legal, lawful currency and save the country from a monetary collapse." The seizure of the coins held an upside for those who have received their orders. On eBay, silver Ron Paul Dollars that were bought for $20 were selling for more than $300 last night." This contrasts with the U.S. Dollar, which continues to lose value for all Americans. In other words, "In Paul We Trust".

Brett Steenbarger: "Out of the past 250 trading sessions, fully 28 have qualified as herding days--far more than the average of 8.6. Indeed, going back to 1965, the only times we've had more than 20 days of herding in a 250-day period have been late 1974 into 1975 and late 1987 into 1988. Those were very important market lows. One possible implication of the data is that the current market weakness, which has extended episodically from March through the present but is clearest in the housing and financial sectors, represents a decline of historic proportions despite its mildness when measured by price action in the large cap indexes. If the historical pattern holds in the present case, we should see an explosion of buying (herding to the upside) once investors perceive it's safe to return to the water. To be sure, this could occur at lower price levels. Nonetheless, the dates of high herding noted above--late 1966, mid 1970, late 1974, late 1978, early 1980, late 1982, late 1987, late 1990, and early 2003--were times to be thinking about owning stocks for the long run, not disgorging them with the crowd."

Thomas Carlyle: “No sooner does a great man depart, and leave his character as public property, than a crowd of little men rushes towards it. There they are gathered together, blinking up to it with such vision as they have, scanning it from afar, hovering round it this way and that, each cunningly endeavoring, by all arts, to catch some reflex of it in the little mirror of himself.”

"Job losses in construction and financial activities are intensifying," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. "The ripple effect of these two sectors is showing up in every sector." California appears to be headed for a recession, defined as two consecutive quarters of job losses, Adibi said.

Marty Chenard: " In August and September, Margin Debt on the NYSE had their two largest drops since 2003. Clearly, there is now less margin in use, and that is buying fewer stocks shares. Unless margin debt levels increase fairly soon, the market will face a tough 2008 for those trying to play the long side of the market, and it would be a good market for those who go Short."

Global

11/17/07 Global

Monthly capital flows to U.S. fall $14.7 billion in September. The August decline was downwardly revised to $150.7 billion. In September, as in August, a drop in banks' net dollar-denominated liabilities accounted for much of the monthly decline. Official institutions like central banks bought $14.6 billion in Treasury bonds in September, after unloading $29.7 billion of those instruments in August. Private investors bought $11.6 billion in Treasury bonds and notes, slowing their purchases from a month before.

Business demand for U.K. commercial property fell for the first time in two years, according to the Royal Institution of Chartered Surveyors' quarterly commercial property market survey. A total of 13% of surveyors reported a fall in demand, compared to 12% who reported a rise, the survey said. "A weak retail sector has been the driving factor behind falls in demand, although office demand has also moderated," the survey said. It also noted that the recent credit market turmoil has had a negative impact on investment into commercial property assets, with capital values down across all sectors.

U.K. house price growth will drop from 9.7% to 0% by the same time next year, the Nationwide Building Society predicted Friday.

Moody's Investors Service said late Thursday it had cut Alcoa Inc.'s senior unsecured ratings to Baa1 from A2, while keeping its outlook stable. The ratings agency said the lowered debt rating reflects the ongoing challenges the company faces in managing its cost position, particularly in a softening aluminum price environment, and other factors.

The number of new condominium units on the Tokyo market declined 9.1% to 5,731 in October from a year earlier, falling for the second straight month, while average prices increased 8%, according to the Nikkei News. If the current trend continues, the supply of new condominiums in the greater Tokyo metropolitan this year will fall below 65,000 units, the weakest yearly supply since 1993 when the Japanese economy contracted after the bursting of the property and stock bubble, the report said, citing data released by the Real Estate Economic Institute.

The impact of the U.S. mortgage market crisis on the underlying economy could be "dramatic" as leveraged investors may need to scale back lending by up to $2 trillion, according to investment bank Goldman Sachs . In a report dated November 15, Goldman's chief U.S. economist Jan Hatzius said a "back-of-the-envelope" estimate of credit losses on outstanding mortgages, based on past default experience, was around $400 billion.

"We are seeing tightness in fed funds with concerns about financial institutions' exposure to subprime," said Kenneth Kim, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey. "So long as the Fed's actions are adequate in getting fed funds back to target in short order within the next day or so, I don't see any prolonged problems," Kim added.

Chinese capital spending in urban areas on fixed assets such as factories and power plants increased 26.9 percent between January and October compared with the same period last year, the National Bureau of Statistics said. It was the fastest year-to-date pace since September 2006, eclipsing forecasts of a 26.3 percent rise and the 26.4 percent increase in the first nine months.

Russia's energy minister said in an interview that the country's oil output will grow only modestly over the next few years.

In California, a total of 24,832 homes were sold in October, down 40.9 percent from 43,720 in the year-ago month, according to DataQuick Information Systems. The drop marks the 25th consecutive month that statewide sales have fallen from the previous year. Sales rose 5.6 percent from September's total. "We're on the downslope in the housing cycle," said John Karevoll, a DataQuick analyst. "Much of the decline we're seeing is part of the cycle, in addition to that, we have the jumbo (loan) issue."

Bay Area home sales limped along at a decades-low pace in October, as buyers continued to find few mortgage options. A total of 5,486 new and existing houses and condos changed hands last month, down 35.7 percent from October 2006 and the lowest sales count since at least 1988, the year real estate research firm DataQuick first began tracking the market. Sales of existing, single-family homes in the nine counties that touch the bay slid 41.3 percent, from 5,761 last year to 3,384 in October, the firm reported Thursday.

According to the FT, Mubadala Development Co., an investment company owned by the Abu Dhabi government, will buy a 8.1% stake in Sunnyvale, California-based Advanced Micro Devices.

Barry Ritholtz: "Firms that have been absorbing their input cost increases can no longer do so. When they finally pass along these price increases, pinched customers have no choice but to cut back."

According to the FT, Iran has answered key questions about its nuclear programme, but has yet to resolve the fundamental issue of whether it sought nuclear weapons, the United Nations atomic energy watchdog said.

Venezuela's oil minister said OPEC shouldn't increase production at its next meeting in December. Prices are set by the market and ``OPEC can't do anything about the price,'' Rafael Ramirez told reporters before an OPEC heads of state summit in Riyadh this weekend.

Joseph Stiglitz said the U.S. economy risks tumbling into recession because of the subprime crisis and a ``mess'' left by former Federal Reserve Chairman Alan Greenspan. ``I'm very pessimistic,'' Stiglitz said in an interview in London. ``Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable-rate mortgages.'' Stiglitz said there is a 50 percent chance of a recession in the U.S. and that growth will certainly slow to less than half its 3 percent potential. A worldwide jump in credit costs following the collapse of the subprime mortgage market is choking off finance to American consumers.

According to AMG Data Services, Including ETF activity, Equity funds report net cash outflows totaling -$2.972 billion in the week ended 11/14/07 with Domestic funds reporting net outflows of -$371 million and Non-domestic funds reporting net outflows of -$2.601 billion;

Excluding ETF activity, Equity funds report net cash outflows totaling -$9.562 billion, the largest net outflows from Equity funds since 7/24/02 (Significant Capital Gain Distribution Cash Payouts Contributed to the Anomalously Large Number), with Domestic funds reporting net outflows of -$8.456 billion and Non-domestic funds reporting net outflows totaling -$1.107 billion, as net outflows are reported in all sectors except Gold and Natural Resources ($37 Mil).

Because of declining revenue, USA Today has asked 9% of the editorial staff to leave.

Nouriel Roubini: "So far banks and other financial institutions have recognized losses only in the $40-50 range. But market estimates by myself and other analysts (RBS, DB) suggest that total losses for investors from submprime and other mortgages (and their related securitized assets) could be in the $300 billion to $500 billion range. While many of these losses will be borne by banks and investment banks many will be borne by other financial institutions (hedge funds, insurance companies, asset managers, both in the US and abroad). Losses will be even larger once we including the looming disaster in commercial real estate (expected losses of $100 billion), credit cards, auto loans and other consumer credit (securitized or not)."

Brad Setser: "The second article in the Financial Times has the headline “US slowdown threatens Chinese export growth”. It reports that China’s commerce ministry has warned that a slowdown in the US economy could create a sharp enough drop in China’s exports to create what they called a “turning point” for economic growth. According to the article the PBoC estimates that every 1% drop in US GDP growth would be accompanied by a 6% drop in Chinese export growth – scary indeed, given that exports account for one-third of Chinese growth, and are probably the healthiest part of that growth. Of course this might just be the typical Chinese posturing before a series of important meetings (with Secretary Paulson and with President Sarkozy) later this month in which the currency is sure to come up, but perhaps it is also true."

Brett Steenbarger: "Notice that we've had absolutely no follow through to the Tuesday rally, which supports the notion that the rally was largely short covering feeding on itself...Still, even as we approach the recent lows, there are indications of relative strength. On Thursday we had 122 fresh 20-day highs and 794 new lows across the three major US exchanges. That is far fewer new lows that we saw either earlier this week or especially last week. If we just look at NYSE common stocks, we find that Thursday brought 14 new annual highs and 110 52-week lows. That is less than half the level of new lows registered last week...I also notice that we had only 27% of S&P 500 issues and 29% of NYSE stocks close above their 50-day moving averages. That's not far from the low figures registered just prior to the Tuesday rally. A move in this indicator to new lows would suggest continued broad weakness."

The United States and China are working on a pact to promote use of ethanol and other biofuels to reduce greenhouse gas emissions and could announce an agreement as early as next month, an American official said Friday.

China's exports of prebaked carbon anode, a component used in aluminium production, are likely to rise about 15 percent in 2008 from an expected 700,000 tonnes in 2007, an executive of a leading Chinese supplier said on Monday. "Chinese prebaked carbon anode makers have been receiving more orders from overseas aluminium smelters to supply their expanded facilities," said Lang Guanghui, board chairman of Sunstone International Industry and Trade Co Ltd. "International smelters are facing more obstacles, such as environmental barriers, to building more carbon anode plants for their own use," said Lang, whose company expects to export 170,000 tonnes in 2007, mainly to Alcoa.

Asphalt and concrete supplier Vulcan Materials Co. said Thursday it received clearance from the Department of Justice for its $4.6 billion takeover of Florida Rock Industries Inc. In order to get the regulatory approval for the deal, Vulcan said it agreed to sell some of its operations in Tennessee, Georgia and Virginia. Vulcan expects the Florida Rock deal to close Friday.

AnnTaylor lowered its full-year profit forecast to $2.05 to $2.15 a share from a previous projection of $2.15 to $2.25.

Garmin Ltd., the largest U.S. maker of car-navigation devices, withdrew its 2.3 billion-euro ($3.4 billion) offer for Tele Atlas NV, clearing the way for rival TomTom NV to acquire the unprofitable maker of digital maps. Garmin also extended a contract with map provider Navteq Corp. for an additional six years.

Copper fell to a three-month low in London. Zinc dropped to the lowest in almost 20 months.

With 3-month T-bills and 2-year Treasuries selling at essentially the same yield, what is the advantage to go beyond 3 months? You see 2-year yields dropping below 3.25%? By comparison, the 3-month Libor rate is 4.95%.

Federal Reserve Governor Randall Kroszner on Friday said "Looking further ahead, the current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate." You want to invest your money based on a Fed forecast?

I know the following is a long post from George Ure; however, I think it's vital for all Americans who cherish freedom and their rights under the Constitution read the following carefully:
Here's what's on the Liberty Dollar web site:

"Dear Liberty Dollar Supporters:
I sincerely regret to inform you that about 8:00 this morning a dozen FBI and Secret Service agents raided the Liberty Dollar office in Evansville.
For approximately six hours they took all the gold, all the silver, all the platinum and almost two tons of Ron Paul Dollars that where just delivered last Friday. They also took all the files, all the computers and froze our bank accounts.
We have no money. We have no products. We have no records to even know what was ordered or what you are owed. We have nothing but the will to push forward and overcome this massive assault on our liberty and our right to have real money as defined by the US Constitution. We should not to be defrauded by the fake government money.
But to make matters worse, all the gold and silver that backs up the paper certificates and digital currency held in the vault at Sunshine Mint has also been confiscated. Even the dies for mint the Gold and Silver Liberties have been taken.
This in spite of the fact that Edmond C. Moy, the Director of the Mint, acknowledged in a letter to a US Senator that the paper certificates did not violate Section 486 and were not illegal. But the FBI and Services took all the paper currency too.
The possibility of such action was the reason the Liberty Dollar was designed so that the vast majority of the money was in specie form and in the people’s hands. Of the $20 million Liberty Dollars, only about a million is in paper or digital form.
I regret that if you are due an order. It may be some time until it will be filled... if ever... it now all depends on our actions.
Everyone who has an unfulfilled order or has digital or paper currency should band together for a class action suit and demand redemption. We cannot allow the government to steal our money! Please don’t let this happen!!! Many of you read the articles quoting the government and Federal Reserve officials that the Liberty Dollar was legal. You did nothing wrong. You are legally entitled to your property. Let us use this terrible act to band together and further our goal – to return America to a value based currency."

FedEx: fiscal Q2 forecast cut as fuel costs up more than 8%. FedEx cuts fiscal Q2 EPS forecast to $1.45-$1.55. FedEx previous fiscal Q2 EPS forecast was $1.60-$1.75.

The output of the nation's factories, mines and utilities fell 0.5% in October, the biggest decline since January, the Federal Reserve said Friday. The factory sector was weak across the board, with civilian aircraft as one of the few bright spots. Factory output fell 0.4%. Output of business equipment fell 0.1%. Capacity utilization - a gauge of inflationary pressures -- fell to 81.7% from 82.2%.

The U.S.Dollar Index could not take the lofty 76+ level, and dropped back to 75.80.

According to the WSJ, the credit crunch has moved to muni bonds.

While many sectors of the market are struggling, P&G, Altria, and Coke are making new highs. By comparison, the Dow transports made a high on July 18, and now are about 16% below that level.

Dec. crude ends up $1.67 at $95.10 a barrel on Nymex and natural gas rises to $8. Gold for December delivery ended down 30 cents at $787.0 an ounce on the New York Mercantile Exchange. For the week, gold futures declined $47.70 from last Friday's closing level of $834.70.

Chrysler is considering cutting up to 1,000 dealers and retooling its model line in an effort to return to profitability by 2009, the Wall Street Journal reported on its website late Friday.

Protests

11/16/07 Protests

Close to 50 people were arrested Tuesday night after anti-war protesters tried to block shipments of military gear at Olympia, Washington's port for an Army Stryker Brigade recently returned from Iraq. The state's capital rarely have seen a protest turn violent. The group call themselves the Olympia Port Militarization Resistance.

According to the WSJ, UBS could face fourth quarter write-downs of up to $7.11 billion, while Citigroup could incur additional write-downs.

The Barclays Capital investment banking division of U.K. bank Barclays is taking 1.3 billion pounds ($2.7 billion) in write-downs during the third quarter and October, on a combination of the impact of rating agency downgrades on a broad range of collateralized debt obligations and the subsequent market downturn. In the update, brought forward by two weeks, Barclays says it has 7.3 billion pounds of exposure from unsold underwriting positions in leveraged finance and 19 billion pounds of exposure to its own, on-balance-sheet conduits.

John Thain takes over the reins at Merrill Lynch. He told CNBC on Wednesday that there will likely be more losses for the banking industry from subprime mortgages and collateralized debt obligations over the next three to six months. "I don't think we've seen the bottom," the former New York Stock Exchange CEO and Goldman Sachs executive said in an interview.

A short-term bond fund run by General Electric Co.'s GE Asset Management returned money to investors at 96 cents on the dollar after losing about $200 million, mostly on mortgage-backed securities.

Ralcorp Holdings Inc. anticipates that the "significant increases" in costs of raw materials that hurt the company's fourth-quarter results will "remain at elevated levels in fiscal 2008 compared to fiscal 2007 levels." Specifically, Ralcorp now expects to incur a net year-over-year increase in unit costs for ingredients, packaging and transportation of more than $75 million. However, the packaged-foods company noted that the effects of any efforts to offset the impact of higher costs, such as pricing changes and spending reductions, could be delayed, citing the nature of its private-label business. Accordingly, "results of operations could be negatively affected, especially in the short run." At the same time, Ralcorp management said earnings per share for fiscal 2008 will be 5% or so above the $3.27 a share reported for fiscal 2007. Ralcorp Holdings Inc said on Thursday that it would acquire Kraft Foods Inc's Post cereals in an all-stock transaction.
Ralcorp said the deal is valued at $2.6 billion, including the issuance and assumption of debt.

"The home furnishings environment in the third quarter continued to be very challenging, particularly in the areas of the country where housing-related macro issues have had the greatest impact," Chairman and Chief Executive Howard Lester said in a statement. The San Francisco-based company reiterated its fourth quarter revenue and non-GAAP diluted earnings per share target in the ranges of about $1.39 billion to $1.42 billion and $1.20 to $1.26 a share, respectively. "We believe that the macro environment is weakening and that retail traffic is slower than we would have expected at this time in November," Lester said. "Therefore, absent a change in the current environment, we would expect our most likely outcome to be at the low end of our guidance ranges."

Frontline, the fuel tanker operator, said third-quarter net income fell 75% to $24.2 million, with revenue down 32% to $276 million, which it said reflected a weaker spot market market. The tanker market is still weak in the fourth quarter, the company said, as the crude forward price being in backwardation has led to inventory drawdown rather than stock building. Reduced refinery margins also have led to lower import volumes of crude oil. Its profit from operations in the fourth quarter should be in line with the third quarter, though net income will rise on $92 million in stock sales.

Oracle Corp. Chief Executive Larry Ellison: "It looks like no one is going to buy BEA," Ellison told a group of analysts at a briefing. "If their goal was to stay independent, I think they're doing a good job." Ellison said that Oracle has done further research on BEA since initially offering to buy it, but did not like what it saw. "We had a look at some things they've done recently, and clearly the $17 price seems too high right now."

According to the WSJ, pressure is mounting on Cerberus Capital Management LP and General Motors Corp. to prod GMAC Financial Services into fixing its ailing mortgage unit, as the credit-market shakeout ripples beyond the lending industry. The troubles concern GMAC's Residential Capital LLC, once a big source of profit but now burdened with a portfolio of loans rapidly declining in value. That has put the unit, known as ResCap, in danger of violating terms of loan agreements, triggering concerns that its lenders will demand immediate payment or force the unit into bankruptcy protection if GMAC or its owners don't step in with an equity infusion.

Cerberus letter to United Rentals: "If URI is interested in exploring a transaction between our companies on revised terms, we would be happy to engage in a constructive dialogue with you and representatives of your choosing at your earliest convenience. We could be available to meet in person or telephonically with URI and its representatives for this purpose immediately. In order to pursue this path, we would need to reach resolution on revised terms within a matter of days. If, however, you are not interested in pursuing such discussions, we are prepared to make arrangements, subject to appropriate documentation, for the payment of the $100 million Parent Termination Fee. We look forward to your response." One should not ignore one fact-- Cerberus requested on August 29 to renegotiate the transaction. URI declined to do so. That was their perfect right.

John Lee: " Fed data pegs the total US residential value at US $20 trillion and the US residential mortgage market at US $10 trillion. This number is substantial, as it eclipses the US treasury market of US $9 trillion. Of the US $10 trillion mortgage market, GSE (Government Sponsored Enterprises) hold about $1.5 trillion, leaving $8.5 trillion in private hands. Within this US $8.5 trillion, we have various grades and categories, with grades ranging from AAA, AA, Alt-A, BBB, and categories such as the traditional 30 year fixed, and non-traditional ARM, ARM with teaser rate, interest only, and negative-amortization...We have valued the subprime market at $2 trillion. This is in line with an estimate by MSNBC reporter and research firm First American Loan Performance."

The median price paid for a home in Southern California in October fell to $444,000, down 8 percent from a year earlier and the lowest level since April 2005, according to the report by DataQuick Information Systems, a real estate information service. The median price was down 3.9 percent from September, DataQuick said.

The FT reports that Benedikt Germanier at UBS says the bank's FX Risk index suggests the market is once again close to fear levels last seen in mid-August at the start of the recent turmoil. "Financial stocks in the US and Europe have weakened substantially," he says. "Spillover into other sectors and ultimately into the real economy is looming. This doesn't bode well for carry trades, which typically perform in an environment of stable or rising growth expectations and low market volatility." Mr Germanier says the UBS Risk Index has remained in risk averse territory since the end of July, but has started to spike higher since November 5, signalling that participants are about to take risky bets off the table.

The industry(housing) is "going to be a shadow of itself once we get through this downturn," said Mark Zandi, chief economist at Moody's Economy.com, who predicts home prices won't rebound until late 2009 or early 2010. "Everyone was too optimistic."

The United Arab Emirates may end the dirham's 30-year-old peg to the dollar and link it instead to a basket of currencies, central bank Governor Sultan Bin Nasser al- Suwaidi said. The falling dollar will trigger a ``review'' of the U.A.E.'s dollar peg, al-Suwaidi said in an interview in Gwacheon, South Korea today, signaling for the first time that the U.A.E. may drop the dirham's link to the U.S. currency in the near future. A switch by the U.A.E. would follow Kuwait, which ended the fixed exchange rate for the dinar in May. The dollar has fallen 10 percent against euro this year, making imports for the Gulf Arab states more expensive and helping push inflation in the U.A.E. to the second-highest in the region.

Initial jobless claims rose by 20,000 to 339,000 in the week ended Nov. 10, from a revised 319,000 the prior week, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, held at 330,000.

``We were disappointed to see sales weaken dramatically in September and October,'' Chief Executive Officer Myron Ullman said today in a statement, citing higher housing and fuel costs for consumers and ``unseasonable'' weather.
Those pressures prompted the lower fourth-quarter profit forecast, J.C. Penney said. J.C. Penney expects fourth-quarter profit of $1.65 to $1.80 a share, down from a previous forecast of $2.41.

Soybeans rose to a 19-year high on expectations that China, the world's biggest importer of the oilseed, may increase purchases of beans and oils to ease domestic shortages and cool inflation.

The Organization of Petroleum Exporting Countries forecast that demand for oil in the current quarter would rise 1.97 percent, down from expectations of 2.1 percent a month ago."Late winter in North America along with the high price of transport fuels appears to be reducing regional oil consumption in the fourth quarter, leading to a downward revision of 0.1 million barrels a day for that quarter," the group said in its monthly oil market report.

Pitney Bowes to cut 1,500 jobs.

Kohl's Corp.'s fiscal third-quarter net income dropped 13% amid weak fall sales.

Crude inventories rose by 2.8 million barrels in the week ending Nov. 9, the Energy Department said. Gasoline supplies rose by 700,000 barrels in the latest week, while distillate fuel stocks decreased by 2 million barrels, the Energy Department said. Meanwhile, crude supplies rose by 3.2 million barrels to 316.5 million barrels in the week ending Nov. 9, American Petroleum Institute reported on Thursday. Distillate stocks fell by 1.1 million barrels to 135.6 million barrels in the same period, while gasoline stocks rose by 1.8 million barrels to 195.3 million barrels, API said.
The Energy Information Administration reported U.S. natural gas inventories fell by 9 billion cubic feet to 3,536 billion cubic feet as of Nov. 9. The U.S. draws about 2 trillion cubic feet from storage during a typical winter.

Due to losses, Van der Moolen is terminating its operation as a U.S. specialist on the exchange trading floors.

Gold for December delivery ended down $27.40, or 3.4% to $787.30 an ounce on the New York Mercantile Exchange. December copper slumped 21.55 cents, or 6.5%, to end at $3.0810 a pound. Silver for December delivery slid 58.3 cents, or 3.9%, at $14.482 an ounce.

Crude-oil futures ended the session down 66 cents, or 0.7%, at $93.43 a barrel on the New York Mercantile Exchange. Natural gas declined by 14 cents to $7.70.

The US. Dollar Index rallied a bit to 76.09.

The Philly Fed diffusion index rose to 8.2 in November from 6.8 in October. The New York Fed reported that its Empire State factory index slipped to 27.4 in November from 28.2 in October.

Wells Fargo & Co believes the nation's housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said. Stumpf nevertheless said the second-largest U.S. mortgage lender and fifth-largest U.S. bank is well-positioned to ride out the storm, despite expectations for "elevated" credit losses from home equity loans into 2008. He also said the bank has only "minimal" exposure to collateralized debt obligations and asset-backed commercial paper conduits.

John Bogle believes there is a 75% chance of the U.S. entering a recession.

Fed's Hoenig says U.S. economic outlook uncertain.

According to Bloomberg, "SIVs have been forced to sell about $75 billion of investments since July as record U.S. home foreclosures caused investors to withdraw from asset-backed commercial paper."

According to the WSJ, Rio Tinto is considering making a bid for Billiton. I give that a zero probability.

Starbucks Chief Executive Jim Donald:"It is apparent that our customers are feeling the impact of the economic slowdown," Donald said. "We believe the combination of this slowdown and the price increases we implemented in 2007 to help mitigate significant cost pressures . . . have impacted the frequency of customer visits to our stores."
Same-store sales, or sales at stores open at least one year, rose 4%. The gain was attributed to a 4% increase in the average value per transaction, which was lifted by product price increases taken this year to offset higher milk prices.
At its U.S. stores, Starbucks said the number of customer transactions -- a closely watched metric of traffic at its stores -- fell 1%. Volume of customer transactions at its international stores rose 5%.
In its international segment, same-store sales growth stood at 6%, driven by the increase in the number of customer transactions coupled with a 1% increase in the average value per transaction.
The stock declined to $22.10, a new 52-year low. As a matter of interest, the last time the stock traded at $20 or below was in mid-2004.

Bank of Japan Deputy Governor Toshiro Muto said the U.S. housing recession and financial- market turmoil could hurt Japan's economy, making it ``difficult'' to decide when to raise interest rates.

The Dow industrials fell 121 points, or 0.9%, to 13,110.0. The S&P 500 declined 19.41 points, or 1.3%, to 1,451.17, while the Nasdaq Composite shed 25.81 points, or 1%, to 2,618.51.

Herbert Hoover: “It is a paradox that every dictator has climbed to power on the ladder of free speech. Immediately on attaining power each dictator has suppressed all free speech except his own.”

The Decider

11/15/07 The Decider

Nobel Laureate, Joseph E. Stiglitz "The economic effects of Bush's presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting...Our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush." I would add that the Congress should be viewed in the same regard. Bush didn't create this nightmare on his own. He was the "Decider" though.

According to the WSJ, Nelson Peltz's Triac submitted a bid to buy Wendy's for less than the $37 to $41 a share it originally indicated it would pay. Why am I not surprised?

United Rentals, Inc. announced that Cerberus Capital Management, L.P. informed it that Cerberus is not prepared to proceed with the purchase of United Rentals on the terms set forth in its merger agreement, dated July 22, 2007. Under that agreement, Cerberus agreed to acquire United Rentals for $34.50 per share in cash, in a transaction valued at approximately $7.0 billion. The Company noted that Cerberus has specifically confirmed that there has not been a material adverse change at United Rentals. United Rentals views this repudiation by Cerberus as unwarranted and incompatible with the covenants of the merger agreement. Having fulfilled all the closing conditions under the merger agreement, United Rentals is prepared to complete the transaction promptly.The Company also pointed out that Cerberus has received binding commitment letters from its banks to provide financing for the transaction through required bridge facilities. The Company currently believes that Cerberus’ banks stand ready to fulfill their contractual obligations.United Rentals shares got clipped for close to $10 and dropped to $24+. United Rentals said free cash flow in the third quarter was $43 million, compared with $123 million in the year-ago period. The company said the drop in free cash was due to increased use of working capital. This deal was expected to close in November at $34.50.

Goldman Sachs Group Inc., Citigroup Inc. and RBS Greenwich are lowering the price of loans used to finance the leveraged buyout of Alltel Corp., the Wall Street Journal reported on their Web site Wednesday. The Journal said the banks are selling the loans as low as 96 cents on the dollar, for roughly a $200 million loss.

The Bank of America said it planned to set aside $600 million to cover potential losses in its money market funds and an institutional cash management fund. As I have previously noted, money funds are not federally insured. A total of $3 trillion reside in the industry's money market funds. A couple of months ago I warned of the investments in structured investment vehicles, SIVs, that have found their way into money market funds.

"Fundamentals point toward writedowns being worse than those listed today," CIBC World Markets analyst Meredith Whitney said Wednesday. "Everyday credit gets worse and the value of securities gets worse."

Aldous Huxley: "Facts do not cease to exist because they are ignored."

Mylan said it priced its 1.86 million convertible preferred stock offering at $1,000 per share and its 53.5 million common stock offering at $14 a share. Each share of preferred stock will automatically convert on November 15, 2010, into between approximately 58.5480 shares and 71.4286 shares of MYL common stock. The offerings will generate net proceeds of approximately $2.5 billion after underwriters discounts and expenses, without giving effect to the exercise of the over-allotment options. Mylan intends to use the net proceeds of the offerings to prepay a portion of the bridge loans that were borrowed to finance in part its acquisition of Merck KGaA's generics business. For those with patience, Mylan at $14 has an interesting risk/reward potential.

The U.S.Dollar Index has had trouble holding even a tiny rally and sits at 75.51.

The Bank of England, in its quarterly inflation report, said the risks to economic growth are on the downside, while the risks to inflation are balanced. It expects inflation to pick up next year on higher energy and import price inflation, but then ease back as capacity moderates, settling around the 2% target in the medium term.

HSBC Holdings said it's taking a $3.4 billion loan impairment charge in its U.S. consumer finance business during the third quarter, which it said was $1.4 billion higher than would have been implied by extrapolating first-half trends. Stephen Green, chief executive, said that problems with bad debts were spreading from the mortgage business to other loans, such as credit cards and for car purchases, as consumers found it harder to get credit and delinquency rose.

German GDP rose 2.5% during the third quarter from last year, or up 0.7% from the last quarter, according to the Federal Statistics Office.

An expected surge in home foreclosures will cause U.S. property values to sink by $223 billion, with the most severe impact in minority communities, according to a report released Tuesday.
The report by the Center for Responsible Lending estimates that roughly one in three households will see their property values drop by $5,000 on average as mortgages made to borrowers with weak credit in 2005 and 2006 reset at higher interest rates, accelerating the pace of foreclosures.
Also Tuesday, Countrywide Financial Corp., the nation's biggest mortgage lender, said foreclosures doubled in October and new loans declined 47 percent, adding to evidence that the worst U.S. housing slump in 16 years is continuing.

China's retail sales rose at the fastest pace in eight years as consumers in the world's fastest- growing major economy got richer and inflation accelerated. The 18.1 percent increase in October from a year earlier to 826.3 billion yuan ($111 billion) topped 17 percent growth in September, the statistics bureau said today. It was the biggest gain since 1999, when the government started releasing the data.

The Guardian.co.uk reports of, "Food riots in West Bengal and Mexico. Empty shelves in Caracas. Warnings of hunger in Jamaica, Nepal, the Philippines and sub-Saharan Africa. Soaring prices for basic foods are beginning to lead to political instability, with governments being forced to step in to artificially control the cost of bread, maize, rice and dairy products."

George Ure: "Up to 6.8 million humans could be displaced by foreclosures over the next 24 - 30 months. The cost of just the residential foreclosures could be as high at $583 billion - although I can see the case that Deutsche Bank laid out yesterday that a $400-billion impact would be coming. There's also the case where the impact goes over $1 trillion which we'll go over in a minute..
To get to the half trillion residential mortgage figure, I use a 'ripple effect' multiplier of 2X. In other words, for every primary foreclosure, there will be secondary/tertiary foreclosures as the service businesses that are afloat because of primary jobs, have to scale back.
One of my sources says no, don't do that, it makes the analysis less credible, not more. OK, so then the residential downside (no ripple multiplier) is only $192 billion, but again, not including other impacts such as the CDO and commercial real estate failures. Even so, cautions my source, just mention there's some kind of multiplier and let people guess it for themselves. Fair enough. ONLY 3.4 million homeless in the next 30-months. Over a half trillion, then, if you're as purist."

McDonald's Corp. said Tuesday it will move full-scale into the specialty coffee market, serving up mochas and cappucinos that it says will rival those made by coffee houses.

According to the Washington Post, after Bush rejects Democrats' domestic spending bill, Sen. Reid threatens to withhold war funding unless White House accepts Iraq withdrawal plan.
For the Iraq and Afghanistan wars so far, those costs total about $1.6 trillion, the report found -- almost double the direct appropriations of $804 billion in fiscal years 2002 to 2008. Of that, $1.3 trillion, or more than twice the $607 billion appropriated, is for Iraq alone.
The report by the Joint Economic Committee Democrats -- Republicans on the panel did not participate -- comes as the House and the Senate prepare to vote, probably this week, on a $50-billion spending bill for operations in Iraq and Afghanistan. The bill would provide the funding on the condition that the Bush administration begins immediate withdrawal of U.S. troops, with a goal of complete withdrawal by Dec. 15, 2008.
If Bush does not agree to the conditions and vetoes the bill, then he "won't get his $50 billion," Reid said, and the Pentagon would have to use its own budget to cover the costs of the conflicts. On Tuesday Bush signed a $470-billion Defense Department appropriations bill that mainly covers costs unrelated to the wars.

Nouriel Roubini: "The next shoe to drop - in the mortgage and credit crunch saga - will be commercial real estate (CRE); indeed investors’ worries and panic are now shifting towards CRE and its related securitized products (CMBS and CMBX)."

Brett Steenbarger: "In short, we had a significant rally no doubt fueled by short covering following a couple of days in which lower prices in the major indexes were not confirmed by indicator weakness. Now we're seeing significant upside momentum. I will need to see weakness in the indicators before trading from the short side as a primary strategy."

BEAR STEARNS PEGS SIZE OF FOURTH-QUARTER WRITE-DOWN AT ABOUT $1.2 BILLION.

Macy's expects earnings, excluding items, of $1.70 to $1.80 a share for the fourth-quarter. The company expects same-store sales in the range of down 2% to up 1% for the fourth-quarter and expects November same-store sales to be "significantly" higher and December to be "below last year." Macy's expects total sales for the fourth quarter of $8.7 billion to $8.9 billion. The company expects same-store sales to be down 0.3% to 1.3% for the year. Total sales for the year are expected at $26.4 billion to $26.6 billion.

According to the WSJ, after years of debate, the head of the Federal Communications Commission proposed a relatively modest change in media-ownership rules that appeared tailored to ensure the completion of Tribune Co.'s deal with real-estate magnate Sam Zell. FCC Chairman Kevin Martin said he wants to allow a company to own both one newspaper and a radio or television station in the top 20 media markets -- with conditions. The proposal fell short of scrapping the 32-year-old ban on cross-media ownership, and is certain to trigger further discussions within the five-member commission.
I have said from the start I felt strongly this deal would get done. At 28+, it sells at a sharp discount from the $34 buyout price. In my view, this is the best risk/reward in the arbitrage arena.

Sam Zell: "In my case, if one out of five opportunities is interesting enough to work on, maybe one in five of those ends up being worth doing. That might be a function of risk. That might be a function of price. There are all the variables. But you have to be constantly sorting and choosing and prioritizing."

SIA sees global chip sales up 3.8% in 2007 to $257 bln.

In the fourth quarter of 2006 after last year's holiday season, Nordstrom recorded $8 million in income from unclaimed gift cards unused for five years or more. Massachusetts-based research service TowerGroup estimates that nearly $8 billion was lost last year because of unredeemed, expired or lost gift cards.

Before seasonal adjustment, the Producer Price Index for Finished Goods moved up 0.7 percent in October to 168.6 (1982 = 100). From October 2006 to October 2007, finished goods prices advanced 6.1 percent. Over the same period, the index for finished energy goods climbed 16.6 percent, prices for finished consumer foods rose 7.1 percent, and the index for finished goods other than foods and energy increased 2.5 percent. At the earlier stages of processing, prices received by intermediate goods producers advanced 5.6 percent, while the crude goods index jumped 25.7 percent for the 12 months ended in October.

Gold for December delivery rose $15.70, or 2%, at $814.70 an ounce on the New York Mercantile Exchange. Other metals prices were also mostly higher, with copper rallying nearly 6% and silver rising 3%.

Crude-oil futures finished the session up $2.92, or 3.2%, to $94.09 on the New York Mercantile Exchange on Wednesday

Delta Airlines believes the right consolidation transaction can generate significant value for its shareholders and it is evaluating strategic options. It also said the company is factoring in current oil prices in its long-term planning.

Applied Materials Q4 net profit unchanged at 30c a share.

PetSmart Q3 net income flat at 23c.

Late in the trading session, there was a big reversal to the downside as the Dow closed down 92, the Nasdaq 29, and the S&P 500 down 11+.

Douglas MacArthur: “I am concerned for the security of our great Nation; not so much because of any threat from without, but because of the insidious forces working from within."

Retail

11/14/07 Retail

For the all important fourth quarter, Wal-Mart Stores Inc.said it now anticipates generating earnings from continuing operations of 99 cents to $1.03 a share. This pegs the retailing giant's earnings from continuing operations for the full fiscal year ending next January in a range of $3.13 to $3.17 a share. Analysts' average estimates as compiled by Thomson Financial stand at $1.02 and $3.09 a share, respectively. In addition, Wal-Mart is estimating that U.S. comparable-store sales will be flat to 2% higher for the fourth quarter. U.S. comp-store sales were up 1.5% in the third quarter ended Oct. 31. Wal-Mart Stores Inc.reported net income of $2.86 billion, or 70 cents a share, for the third quarter ended Oct. 31, up from $2.65 billion, or 63 cents, earned in the same period last year. At $43+, there does not appear to be much risk in Wal-Mart shares.

Home Depot's earnings fell to $1.1 billion, or 60 cents a share, in the third quarter ended on October 28 from $1.5 billion, or 73 cents a share, a year earlier. Sales at stores open at least a year fell 6.2 percent. "We are facing a tough environment as housing indicators continue to deteriorate. Our financial performance in the third quarter reflects these tough conditions," Home Depot's CEO said in a statement. "But we are making significant improvements in our business and we will continue to invest thoughtfully for the long-term health of the company." Home Depot's average purchase fell 1.5 percent to $57.48 in the third quarter as the number of customer transactions eased 1.8 percent. Home Depot said earnings per share from continuing operations could drop as much as 11 percent for the fiscal year, compared with the 7 percent to 9 percent decline it had forecast in September, as it expects the housing market softness to continue through the period.The company said its outlook was based on a 52-week year but added that the period had 53 weeks. The extra week should add about 5 cents per share to earnings.

After rising for two years, U.S. consumer satisfaction dipped in the third quarter because of higher food prices, according to a poll by the University of Michigan released on Tuesday. The American Consumer Satisfaction Index declined 0.1 percentage point to 75.2 from the previous quarter on a 100-point scale, although it was still 1 percentage point higher than a year earlier.

Ralph Waldo Emerson: “The greatest difficulty is that men do not think enough of themselves, do not consider what it is that they are sacrificing when they follow in a herd, or when they cater for their establishment."

The euro rose 0.5% at $1.4588 and the British pound gained 0.6% at $2.0675. The dollar rose 0.3% at 109.90 yen after the Bank of Japan held interest rates at 0.5%.

Bank of Japan Governor Toshihiko Fukui signaled the central bank was not in a position to raise interest rates in the short term Tuesday, emphasizing the central bank considered the global economy at risk to a slowdown if the current turmoil in U.S. housing market were to spread, potentially dampening consumption.

The Japanese economy returned to the growth path in the July-September period, expanding 0.6% over the previous quarter after adjusting for prices, data released by the Cabinet Office showed Tuesday.

The German ZEW indicator of economic sentiment showed a much worse-than-expected reading of -32.5 points in November, down from a reading of -18.1 in October.

U.K. consumer prices rose 2.1% in October compared to last year, up from the 1.8% rise in September and above the Bank of England's 2% target for the first time since June.

Morgan Stanley: "We share the strategists' belief that the deepening of the ongoing financial crisis could have a serious impact on the economy and see greater risk of the current credit crunch leading to a recession in the U.S. - our U.S. economists themselves see a 40% risk of a US recession," said Huw van Steenis, an analyst at the brokerage.

Crude oil fell for a second day after the International Energy Agency cut its global demand forecast for the rest of this year and 2008 as record prices curb energy consumption. Demand next year is forecast at 87.69 million barrels a day, the IEA said today, 300,000 barrels a day less than a previous estimate. Fourth-quarter consumption will be 500,000 barrels a day less than expected.

Robert Shiller, a Yale University economist and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices, told Reuters that declines in home values in the most vulnerable markets could well double the losses recorded thus far. What's more, Shiller said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year. "There is a probability of a continuing decline for a period of years, bringing prices in many cities down in the 10s of percent," Shiller said in an exclusive interview. "The bottom is hard to predict," he said. "I do not see it imminent and it could be five or 10 years too."

China's consumer prices rose 6.5 percent from a year earlier, matching the decade high in August, the National Bureau of Statistics said today, after gaining 6.2 percent in September.

Soybeans rose to a three-year high in Chicago on speculation that China, the world's biggest oilseed consumer, may boost imports of the commodity to help ease decade-high inflation partly caused by edible oil shortages.

Barry Ritholtz: "Oil costs about 60 percent more than it did two years ago, but natural gas is selling for about a third less than it was during the winter of 2005-6, when there were fears of natural gas shortages. It has been more than a decade since the United States headed into a winter with natural gas this cheap relative to oil." I'm glad to see I am not the only voice out there with an optimistic view on natural gas. We are near the $8 level. It's taken many months to rise there from $6. Instant gratification is not part of investing. I believe there is plenty of upside
potential.
Let's take a look at natural gas in the U.k. where natural gas for delivery this week rose to a 19-month high as forecasters predicted colder weather, potentially boosting demand for the fuel to heat homes and businesses. Gas for delivery in the rest of the working week advanced 7.9 percent to 54.50 pence a therm at 9:17 a.m. local time, according to broker ICAP Plc. That's the highest since March 22, 2006, and equivalent to $11.28 a million British thermal units. A therm is 100,000 Btus. The U.K.'s Met Office said temperatures may fall to 3 degrees Celsius (37 Fahrenheit) this week in London, down from a low of 7 degrees on Nov. 11.

Bill Bonner: "When you make loans to people who can't pay the money back, trouble is only a couple standard deviations away. So far, during the first eight months of 2007, some 1.7 million houses have been caught up in foreclosure proceedings in the United States. That is just the beginning. According to Congressional estimates, up to 2 million families are expected to lose their homes over the next two years."The individual amounts of money weren't very large, not by Wall Street standards. But when the money didn't show up, it had an alarming effect. Last week's press brought estimates of total losses of over $13 billion at Citi. Morgan Stanley is said to be facing $8 billion in losses. Merrill Lynch set records with estimated losses of $18 billion. The cat still has Goldman Sachs' tongue. But when the losses are toted up, they will probably be spectacular. Altogether, there is more than $1 trillion in subprime debt outstanding; much of it will go bad."

Blackstone's President and COO: “The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier. [The banks] are now looking at new reserves and my sense . . . is they don’t have a clear picture of how this will play out and confidence is low.”

The dollar dropped 12 percent so far in 2007, based on the Federal Reserve's U.S. Trade Weighted Major Currency Index, and fell against 15 of the 16 most-traded currencies, according to data compiled by Bloomberg. The Canadian dollar and Brazil's real both gained about 20 percent against the dollar. Only Mexico's peso has depreciated compared with the U.S. currency. A 12% decline in less than one year is not orderly. It is a cause for alarm.

U.S. gift card sales could rise 6 percent to $26.3 billion this holiday, according to a survey released Tuesday by the National Retail Federation. But the 6 percent expected growth in gift card sales is a moderation from last year, when consumers were expected to spend $24.8 billion on the cards -- up 34.1 percent from $18.5 billion in 2005.

Kellwood Co. rejected Sun Capital Securities Group LLC's reiterated $21-a-share, all-cash unsolicited bid for the company. The marketer of apparel and consumer soft goods said the proposal isn't in the best interest of shareholders. In addition, Kellwood's board said it believes in the company's ability to successfully execute its strategic plan and provide greater value to shareholders.

French insurer AXA has a total exposure to asset-backed securities of 2.9 billion euros ($4.3 billion), which the insurer terms as "limited." If it were top management's personal exposure, maybe it would be termed "limited".

Bloomberg reported HSBC Holdings Plc, Europe's biggest bank by market value, may say third-quarter bad loans in the U.S. almost doubled as higher interest rates triggered defaults on adjustable-rate mortgages. U.S. loan-loss provisions for the three months ending Sept. 30 may rise 83 percent to $2.52 billion, according to the median of three estimates compiled by Bloomberg for provisions at HSBC Finance Corp., the subprime consumer-finance unit based in Prospect Heights, Illinois.

Goldman CEO says firm is not going to take big writedown. Goldman CEO says firm is net short in mortgage markets.

Bank of America sees $3 Bln CDO pre-tax writedown in 4Q.

The U.S. government began its new fiscal year with a $55.5 billion deficit, as both receipts and outlays hit record highs, the Treasury Department said Tuesday. Receipts rose to $178.2 billion in October, while outlays climbed to $233.7 billion, the Treasury said. In October 2006, the deficit totaled $49.3 billion. For the first month of the fiscal year, the on-budget deficit -- which excludes Social Security, Medicare and other trust funds that have dedicated revenues -- totaled $58.1 billion.
In October, receipts from individual income taxes amounted to $95.5 billion, up 11% from a year ago. Corporate income taxes fell about 36% to come in at $5.9 billion. Outlays were up about 7.7% in October, with spending on national defense rising 14.5%.

An index of contract signings on existing homes fell to 85.7 in September -- a steep drop from the year-ago reading of 107.6, the National Association of Realtors reported Tuesday.

December crude-oil futures closed down $3.45, or 3.7%, at $91.17 a barrel on the New York Mercantile Exchange, the lowest close since Oct. 31. Natural gas for December delivery declined 1.2 cents to settle at $7.949 per million British thermal units .

Laurence Fink, who helped create the market for mortgage-backed securities, said the credit losses that have already cost banks and securities firms $45 billion are about to get worse. ``Many institutions don't understand what the credit crunch is going to do to earnings and their balance sheet,'' Fink, chief executive officer of New York-based fund manager BlackRock Inc., said today at an investor conference.
I find it interesting that a leading group Monday and Tuesday was the financial sector. Investors cannot indiscriminately buy across the spectrum on the dips.
One would have thought lessons might have been learned buying the housing stocks on the way down. Larry Fink has forgotten more about mortgage-backed securities than 99% of the fund managers know.

Airbus has most of its costs in euros and it gets paid in dollars for the aircraft. That is a recipe destined to kill the bottom line.

What a day! The Dow rise 319, the Nasdaq about 90, the S&P 42, and the Russell 2000 jumped up 22. Meanwhile the VIX gets clobbered for 7 points to 24.

Will Rogers: “If you're ridin' ahead of the herd, take a look back every now and then to make sure it's still there."

Gold for December delivery fell $8.70 to end at $799 an ounce on the New York Mercantile Exchange.

Ongoing disruptions in the credit markets since August have reduced the fair value of Morgan Stanley's subprime exposure by $3.7 billion in the company's trading portfolio as of Oct. 31, the company said Tuesday. "The markets will take several quarters to return to more normal operating levels," Chief Financial Officer Colm Kelleher said.

Iran has met a key demand of the U.N. nuclear agency, handing over long-sought blueprints showing how to mold uranium metal into the shape of warheads, diplomats said Tuesday.

Napoleon Bonaparte: “The herd seek out the great, not for their sake but for their influence; and the great welcome them out of vanity or need.”

Hard Landing

11/13/07 Hard Landing

International Business Machines Corp. agreed to buy Cognos Inc. for $4.9 billion, gaining programs that help companies analyze their performance. The per-share price is $58, or 9.5 percent higher than Ottawa-based Cognos's closing price Nov. 9.

Saudi Arabian Airlines, the country's national airline, on Monday said it's signed a memorandum of understanding for 22 Airbus A320s as part of its plan to modernize its fleet. The agreement includes eight options. The deal marks the first time the airline has placed an order with Airbus in some two decades.

Wendy's International's effort to sell itself may be jeopardized by the difficult credit-market situation, The New York Times reported. Bids for the Dublin, Ohio, restaurant chain are due on Monday, the paper said. A person briefed on the sale told the Times that buyers are concerned that the financing Wendy's has arranged is highly conditional.

Euripides: "A man who has been in danger, When he comes out of it forgets his fears, And sometimes he forgets his promises."

BHP Billiton CEO Marius Kloppers said there are no plans to sell the group's oil and gas division.

HSBC is expected to report a huge writedown of more than $1 billion on its portfolio of high-risk subprime mortgages in the U.S., the Times of London reported on Monday.

China' s trade surplus climbed 13.5% to a record $27.05 billion in October from a year earlier, according to data released by the General Administration of Customs Monday.

The U.S. dollar Monday fell below the psychologically important 110 yen mark for the first time since May 2006 in Asian currency trading, as investors continued to unwind the yen carry trades, a practice where they borrow in low-yielding yen to invest in high-yielding assets.

Japan's current account surplus rose 40.4 percent in September from a year earlier, marking ninth months of growth, the government said Monday. The surplus in the current account stood at 2.883 trillion yen ($26.07 billion) in September before seasonal adjustment, the Finance Ministry said. The data recorded a 42.1 percent increase in August.

Boris Sobolev: "What is going on? In our opinion, the banking problems are old news. What is new is the significant strength of the Japanese yen. The yen has now reached an 18-month high against the US dollar, a level which caused serious yen carry trade unwinding in May 2006. The yen is actually rising against almost every major currency. The highly leveraged market participants (who have borrowed tremendous amounts of cheap funds in Japan) have already significantly reduced their exposure to the financial sector in August and September. Instead they have made their bets on NASDAQ 100 companies, which were viewed as beneficiaries of the weaker dollar."

Aristotle: "Fear is pain arising from the anticipation of evil."

According to Bloomberg, losses stemming from falling values of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said. Banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, based on a ``seat-of-the-pants'' estimate the firms will account for a third of total mark downs, Mike Mayo, a New York-based analyst at the bank, wrote in a report today. Banks may have to write off $60 billion to $70 billion this year, he wrote.

The Pentagon is not preparing a pre-emptive attack on Iran in spite of an increase in bellicose rhetoric from Washington, according to senior officers. Admiral William Fallon, head of Central Command, which oversees military operations in the Middle East, told the Financial Times that while dealing with Iran was a “challenge”, a strike was not “in the offing”.

Secretary of State Condoleezza Rice said Sunday she does not believe a Senate resolution authorizes President Bush to take military action against Iran. "There is nothing in this particular resolution that would suggest that from our point of view. And, clearly, the president has also made very clear that he's on a diplomatic path where Iran comes into focus," Rice said.

According to the FT, Marius Kloppers, BHP Billiton chief executive, is using the enticement of a US$30bn share buy-back to help force Rio Tinto’s board back to the negotiating table after it last week rejected an all-share merger proposal to create a $380bn mining giant. Mr Kloppers said on Monday that BHP would now start contacting both sets of shareholders after publishing details of its merger proposal, which included a forecast of US$3.7bn a year in cost savings that would result over time from the combination.
“These synergies are very rare. It unlocks value for both sets of shareholders,” Mr Kloppers said. “The bottom line is that these two companies are worth more together than apart.”

Blackstone reported a net loss of $113.2 million, compared with net income of $372.5 million a year earlier. The loss includes the impact of $802.6 million of non-cash charges associated with compensation arising from IPO unit awards and the amortization of intangibles, Blackstone said. Revenue rose to $526.7 million from $461.5 million. The company's CEO remarked "While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable. Additionally, Blackstone's marketable alternatives and advisory businesses continue to grow and are not dependent on access to the lending markets."

Wal-Mart Stores Inc., the nation's biggest retailer, said it will employ between 20,000 and 25,000 seasonal workers nationally, half the number the company said it would hire last year.

Coal prices at Australia's Newcastle port, the world's biggest export harbor for the fuel, rose to a record because port and rail facilities limit shipments, adding to expectations annual contract prices are set to gain. Power station coal for delivery within the next three months climbed for a third week, by $1.43 to $83.51 a metric ton in the week ended Nov. 9, according to the globalCOAL NEWC Index, an Asian benchmark calculated each Friday.

Coal for shipment from South Africa's Richards Bay, site of the world's largest export terminal for the fuel, climbed to a record driven by buyers from India. Richards Bay is the biggest single coal source for European power generators. They face increased competition for the fuel as demand from Asia rises and Australian supplies into the Pacific region are snagged by supply bottlenecks. That's led to greater South Korean and Indian buying of South African coal. Coal from Richards Bay rose $1.85, or 2.3 percent, to $84.10 a metric ton for the week ended Nov. 9, according to McCloskey. That's a record for the data carried on Bloomberg, which runs back to Aug. 11, 2000. With transport costs included, delivered coal to northwest Europe rose to $129.75 a ton in the week ending Nov. 2, the data showed.

Countrywide has filed with the SEC that if its credit ratings are cut any further, its ability to raise money could be damaged.

Nouriel Roubini: "The Coming US Consumption Slowdown that Will Trigger an Economy-Wide Hard Landing.
Any recession call for the U.S. is clearly dependent on US consumption faltering. Since residential investment is only 5% of even a worsening housing recession cannot – by itself – trigger an economy-wide recession. Rather, since private consumption is over 70% of aggregate demand a sharp and persistent slowdown in consumption growth – below 1% or even negative - is necessary to trigger a full blown recession.
In this regard, evidence is mounting that a debt-burdened and saving-less US consumer – that until recently used its home as an ATM and borrowed against its housing wealth - is now on the ropes and at its tipping point. Let us consider first the factors that will lead to such a consumption slowdown and then the evidence that such a slowdown is already starting in earnest."

"People are using their credit cards because they don't have enough money to make it day-to-day," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Service in Fort Lauderdale, Fla. "It's driving the American consumer deeper and deeper into debt." What happens, he says, is that "eventually they hit a wall — and then they call me." Susan C. Keating, president and CEO of the National Foundation for Credit Counseling, said the nonprofit agencies in her organization dealt with a million consumers in 2005, 2.2 million in 2006 and are on their way toward seeing a record 2.8 million this year.

Charles Kirk: "I think the market sent us a message this week that not all is well. I'm not just talking about the rumors of more writedowns, high oil prices, consumer confidence, falling dollar, or the state of the housing market. Most of us have seen this coming for awhile. In fact, we've looked like idiots for thinking that these issues actually do matter. But, eventually all chickens come home to roost. This week we've only seen a small glimmer of what happens when they do. I personally think many more will come, which is why I'm staying patient and away from the fray until I think it is time to take aggressive action. That time will surely come, I just don't think it was this week."

John Hussman: "In recent months, I've repeatedly noted that while recession risks were gradually increasing, there was not sufficient evidence to expect an imminent economic downturn. Most economists still believe this. On Saturday, the consensus of economists surveyed by Blue Chip Economic Indicators indicated expectations that growth will be sluggish into next year, but that there will be no recession. Unfortunately, the economic consensus has never accurately anticipated a recession. For my part, the outlook has changed. I expect that a U.S. economic recession is immediately ahead. This conclusion is based on the combined weight of several classes of indicators, including asset prices, reliable survey measures, and measures of labor market activity. One way to understand this change in outlook is to examine our 4-indicator “rule of thumb” – a simple composite of readily obtainable indicators that have been observed in every U.S. recession. It is a syndrome of conditions that are logically and historically related to economic weakness, none particularly informative when observed individually, but important when they occur together. They are: widening credit spreads, a moderate or flat yield curve, falling stock prices, and a weak ISM Purchasing Managers Index. Notice that we are not interested in the behavior of any single indicator, but rather in a group of indicators that collectively indicate deteriorating growth expectations and rising credit risks."

The Nakhichevan was one of two freighters that broke up as 18-foot waves and high winds battered ships throughout the region. As many as 10 ships sank or ran aground in the northern Black Sea region during the fierce storm, including the Volganeft-139, an oil tanker loaded with nearly 1.3 million gallons of fuel oil.
Nearly half its cargo spilled into the strait and was washing up on nearby shorelines in what officials said it could be the worst environmental disaster in the region in years.

OPEC, the producer of more than 40 percent of the world's oil, has no plan to discuss raising production targets at its Heads of State Summit in Riyadh on Nov. 17-18, oil officials from Iran and a Persian Gulf state said. The Organization of Petroleum Exporting Countries won't discuss raising supply at the summit and will instead discuss that during a Dec. 5 ministerial-level meeting in Abu Dhabi, United Arab Emirates, Iran's OPEC governor, Hossein Kazempour Ardebili, told the state-run Islamic Republic News Agency today.

According to Bloomberg, Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar. In Colombia, international investors buying stocks and bonds must leave a 40 percent deposit at Banco de la Republica for six months. The Reserve Bank of India created a bureaucratic thicket to curb speculation by foreign money managers. The Bank of Korea is investigating trading of currency forward contracts to limit gains in the won, now at a 10-year high.

Gold for December delivery dropped $27, or 3.2%, to end at $807.70 an ounce on the New York Mercantile Exchange. Other metals prices also posted sharp losses, with silver selling off 5%.

After a triple digit gain for the Dow early in the trading day, the averages closed at the lows for the session. The Dow Jones Industrial Average fell 55.4 points, or 0.4%, to end at 12,987.3. The S&P 500 dropped 14.52 points, or 1%, to 1,439.18. The Nasdaq Composite declined 43.81 points, or 1.7%, to 2,584.13. The tech sector was weak all day and so were the big ag stocks, such as, Deere, Monsanto, and Bunge. Billiton lost $4.80 and Rio Tinto got hit by $42.48.

Crude-oil futures fell $1.7, or 1.8%, to $94.62 a barrel Monday and natural gas held its own at $7.91.

In a note to customers on its website, Jarrett Lilien, E-Trade president, said the group remained "well capitalised by regulatory standards". He added that E-Trade could withstand an immediate writedown of $1bn and remain well capitalised. "Nobody knows for certain what the ultimate impact will be from these markets, but it is our expectation that news in the market will get worse before it gets better and, armed with these expectations, we are taking prudent measures to effectively manage the company's balance sheet," said Mr Lilien. Citigroup's Mr Bhatia said 50 per cent of E-Trade's deposits, representing $15bn, are above the $100,000 level that is insured by the US government. The $15n in deposits, in turn, represents 25 per cent of E-Trade's funding. If investors start pulling out their non-insured money, it could force E-Trade to unload assets at fire-sale prices, he said. "We estimate that trying to liquidate E-Trade's loan and ABS portfolio would result in over $5bn of losses," said Mr Bhatia. He added that he expects E-Trade's $12.4bn home equity loan portfolio to experience "significant reduction" in value. He said he also expected E-Trade's $12.4bn home equity loan portfolio to experience "significant reduction" in value. Mr Bhatia said over 60 per cent of E-Trade's home equity portfolio came from loans lacking "full documentation." Such loans have experienced a high level of defaults. E-Trade shares lost 50% of their value on Monday.

Dorothy Bernard: "Courage is fear that has said its prayers."

Debt

11/12/07 Debt

Ross Perot: "Debt is like a crazy aunt we keep down in the basement. All the neighbours knows she's there, but nobody wants to talk about her."

The spread from producing two parts gasoline and one part heating oil approximates $8 for each barrel of crude, down 74 percent from a peak of $30.48 on May 17.

Dubai-based airline Emirates has picked Airbus's new A350 XWB mid-size airliner in preference to Boeing Co's rival 787, it was announced on Sunday, in a deal that could be worth almost $35 billion at list prices.

BHP Billiton , the world's biggest mining group, is considering the sale of one of its largest units, BHP Petroleum, to help finance a hostile takeover of Rio Tinto , the UK Sunday Times newspaper said.
BHP's financial advisers Goldman Sachs and Citigroup, have flown to China to sound out potential bidders for the subsidiary which could be worth more than 20 billion pounds ($42.2 billion). There would also be interest in the oil and gas fields from other international buyers, the paper said.
Rio won't consider any bid below 70 pounds ($146) a share, The Times of London said today, citing unidentified people close to the third-largest mining company. That's a 61 percent premium to the stock's price before Melbourne-based BHP said Nov. 8 Rio had rejected an indicative three-for-one share offer. In my view, my answer to a 61% premium is, if the Queen had cajones, she'd be King.

Mike Burk: "On August 16 there were 1132 NYSE new lows, close to a record. On Friday the Dow Jones Industrial Average (DJIA) closed 1.5% above its August low (close enough to be called a retest) and there were 434 new lows. 434 new lows is a lot, but also a lot fewer than 1132. In 1990 there were a high number of new lows on the retest and that was followed by another retest each at progressively lower prices...For bottom picking you want to see NYNL moving sharply upward for 5 consecutive days. The current value of the indicator is 214 so you want to see significantly fewer new lows than that for 5 consecutive days. There is a problem with looking for a bottom at this point and that is the DJIA hit an all time high between the lows and that has never happened before. It is easier to make a case for a developing top where you would expect the blue chips to be making new highs while the secondaries faded and new highs declined...I think there is likely to be a tradable rally before the August lows have been significantly penetrated. But, this will be a developing top until the secondaries begin outperforming the blue chips and new highs begin to make progressively higher highs...The market is oversold, but the indicators provide no suggestion of a bottom. I expect the major indices to be lower on Friday November 16 than they were on Friday November 9."

George Ure: "From Manti,Utah. The last time we went to Wal-Mart in Ephraim,UT about two weeks ago.(Seven miles from Manti) Black Plumbs were $.50 lb, yesterday (11-8-07) they were $2.24 lb up 348%. Cantaloupe was $.97 each, now $2.50 each up 158%,Cabbage was $.40 lb now $.58 lb up 45%, Sour Dough Bread 24 oz was $2.12, now $3.07 up 45%. Bananas were still $.54 lb. And I will get 2.13% raise on my Social Security, Oh and Gas went up $.24 to $3.05 in the last two weeks." It is well to remember the U.S. dollar has lost over 96% of its purchasing power since the creation of the Fed in 1913.

Even with a record low U.S. Dollar Index, our trade deficit is still rising at an annual rate of $675 billion. The on-going dollar decline has helped our exports, but not nearly enough to compensate for rising imports.

Ross Perot:“A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.”

Tens of thousands of South Korean farmers and workers clashed with riot police Sunday at a massive rally against a free trade agreement with the United States. "Farmers would be the biggest victim of the free trade deal," said Lee Young-soo, a farmer who attended the rally, adding that the agriculture industry will collapse.

The Bank of Korea plans to urge domestic shipbuilders to settle contracts in won and to spread hedging activities over time to curb the currency's gains against the dollar.``For the currency market's stability, we need to take multilateral efforts such as encouraging shipbuilders to settle deals in won and spread sales of currency forward contracts,'' the central bank said in a statement released today in Seoul. It just goes to show you. All the people cannot be fooled all the time.

A terrific observation by Brett Steenbarger: Looking at the trader as a warrior.
"We enact our warriorship or cowardice each trading day. Markets move, and it is only in space--the silence of our minds--that we can be open to what they are doing. The cowardly trader, in constant terror of that space, fills it with fantasies of what the markets might do. Thus it is that the cowardly trader fails to take trading signals, gets out of trades prematurely, or lurches into trades where no signals are present. The warrior trader, in Morita mode, engages in the doing that is not doing: silently observing each piece of information until the time is right for action, then letting positions go and do their thing.
So much of bad trading amounts to cowardice. So much of success amounts to sitting and doing nothing and feeling grounded in that space."

According to the U.S. Energy Information Agency, non-OPEC output remained nearly flat from 2004 to 2007, rising from 41.5 million barrels a day in 2004 to 41.9 million barrels a day this year despite the run- up in prices. The 2007 forecast from the International Energy Agency, the Paris-based energy watchdog for the Organization of Economic Cooperation and Development, for total non-OPEC oil production has fallen 4.1 percent since January, to 50.17 million barrels a day.

The Oil Drum provided the IEA chief economist Fatih Birol interview with the FT. here's the quick summary:

* we are beyond peak oil in the non-OPEC world;
* OPEC officially has lots of reserves - but we don't really know;
* even if they make all the investment plans announced are made and are on time, we'll still have a gap of 12.5mb/d (more than 10% of overall demand) by 2015; we now officially need to beg OPEC to invest more;
* oh, and by the way, that's the smaller of the two energy-related problems we have: climate change is a lot worse.

According to Rigzone, in a tightening of provisions for the seventh round of New Exploration Licensing Policy (NELP-VII), the Indian government has decided to make several changes in the model production sharing contract.
The changes proposed underline the government's role in sales of oil and gas as well as ensuring quicker decision making in deciding the pricing formula.
The empowered committee of secretaries, headed by petroleum secretary
M.S. Srinivasan has proposed that the production sharing contract should state that, "Until such time as the availability of natural gas from all petroleum production activities in India meets the total national demand as determined by the government, each company comprising the contractor, shall sell in the domestic market in India all of the company's entitlement to natural gas from the contract area."
In short, the contractor has a domestic sales obligation. The government sees natural gas as the fuel of the future and would prefer to see that the commitments to core sectors like power and fertilizer are fulfilled first.

Ryan Ratcliff, an economist with the UCLA Anderson Forecast and author of its recent California Report: "We've noticed that the hardest hit areas are those like Sacramento, where there's been an abundance of new construction," he explained. But in areas like San Francisco, where there's mostly existing housing, he says homeowners set prices based on their desires and aren't in a hurry to sell, which keeps prices high. "But builders don't look at things this way," he added. "For them, housing is inventory, like toys are at Toys R Us, so they cut prices to move homes."
Ratcliff says it's also the more modestly priced areas that have the most foreclosures. "Foreclosures have been most intense in areas where people took out adjustable rate mortgages to buy moderately priced homes," he said. "It's where first-time home buyers really stretched."

"We believe implied volatility is likely to ease across the market in the very near-term, but we do not believe the risk/reward favors the outright selling of volatility," Goldman Sachs' options strategists, Maria Grant and John Marshall advised clients in a late Thursday trading advisory.(Provided by Barron's)

Benjamin Disraeli: “Debt is a prolific mother of folly and of crime”