12/2/07 Reflate Or Bust Or Just Bust
Moody's downgraded or put on review debt totaling $119 billion that was issued by SIVs, including some tied to Citigroup.
According to the WSJ, Chávez threatened to cut off oil shipments to the U.S., alleging Washington was trying to destabilize Venezuela during this weekend's elections.
FedEx Corp. will raise its ground shipping rates by an average of 4.9% starting Jan. 7. The increase matches a rate increase by its main rival, United Parcel Service Inc.
Alan Abelson: "If the rally rolls on, it'll offer a great opportunity for prudent investors to unload."
Doug Noland: "The unfolding Credit Crisis has necessitated the sequel “Committee to Save the World Part Two.” Especially after the Credit system took a turn for the worst last week, I can understand Secretary Paulson’s urgency to have institutions renegotiate mortgage terms with troubled borrowers. But not only are we too far into the mortgage bust for such efforts to pay much in the way of dividends, I am skeptical that our securitization markets have the necessary infrastructure and legal structure to equitably adjust mortgage terms on millions of loans. Besides, there is simply not much time to sort through the various details. Examining the startling almost $92,000 two-month drop in California median prices, it becomes apparent that momentum generated by the The Great Housing Bust is not to be impeded by a program to check subprime mortgage resets.
Such efforts, however, obviously have major impacts on the markets. I can’t imagine more challenging market conditions or ones more fascinating. It was quite a “squeeze” this week in stocks, Credit instruments, currencies and commodities. The way I see it, there is today a great and destabilizing dichotomy. On the one hand, the Credit crisis and severe impairment of key sectors in the Credit system ensure major liquidity constraints, faltering asset markets, and an arduous economic adjustment period. On the other hand, years of egregious Credit Inflation have created an incredibly bloated financial apparatus (domestically and internationally) not keen to recognize new realities.
This “system”, importantly, is especially indisposed to succumbing to boom-turned-bust dynamics. Or, stated another way, our Wall Street dominated financial apparatus is keen on “Inflate or Die” dynamics and has no intention of relinquishing the tremendous power it has gathered over the years. This is understandable, although it certainly creates a very serious problem when it comes to the stock market refusing to adjust to rapidly deteriorating underlying fundamentals. And if market dynamics preclude an orderly stock market revaluation, expect it to come at some point violently and with great hardship. This is one aspect of the great costs associated with the Fed moving aggressively again to “reflate.” It won’t work and only worsens a perilous situation."
Gary Dorsch: "The Dubai-based Arabian Business magazine fed speculation of a UAE dirham revaluation of 3-5% as early as this weekend, pushing the Saudi riyal to a 21-year high and the Qatar riyal to a five-year high against the dollar, on ideas of a coordinated currency shift...“This is an economic decision and we’ve been proven right. Over time the dollar has got weaker and weaker,” explained Hojjatollah Ghanimifard, director of the National Iranian Oil Company. “Less than 20% of Iran’s oil export earnings are in yen and the rest in euros,” he said. Tehran is fetching $90 a barrel on oil sales of 2.4 million bpd.
Such a stunning move by King Abdullah to price Saudi oil in Euros or a basket of foreign currencies would knock the US dollar into a tailspin. “There will be journalists who will seize on this point and we don’t want the dollar to collapse instead of doing something good for OPEC,” whispered Saudi Prince Faisal al-Saud, during a key closed meeting, when microphones were not cut off...Ahamdinejad’s assertion that foreign central banks are printing worthless paper currency in exchange for OPEC’s oil is right on target, and fully understood by the political leaders, who control 75% of the world’s proven oil reserves. The Federal Reserve has allowed the MZM money supply to expand by $850 billion this year, up 13% from a year ago. The broader US M3 money supply is 15.8% higher, it’s fastest in history, monetizing the prices of crude oil and gold, key hedges against inflation, to all-time highs...China’s M2 money supply is 18.5% higher, and India’s M3 is up 21% this year. If the Chinese and Indians consumed as much oil per capita as Americans do, the world’s oil demand would be closer to 200 million bpd, instead of 86 million barrels today. That day is expected to arrive around 2030... Food-price inflation in the 13-nation Euro region accelerated to +3.8% in October, the highest rate since March 2002. Fuel was +9% higher in the past year. It’s easy to see how much EuroStat doctors up the Euro zone’s inflation rate. Crude oil has risen 60% in the last 12-months and the price of wheat has increased 43% this year. The cost of shipping dry goods across the sea, as measured by the Baltic Dry Index is up 150% from a year ago... Last week, the Saudi Arabian Monetary Agency (SAMA), reduced its reverse repo rate by 50 basis points to 4.25%, and the UAE’s central bank cut rates by as much as 20 basis points, despite inflation raging a decade highs, to relieve pressure on the weak dollar. But the dollar remains pinned at a 17-year low against the UAE dirham surged and a 21-year low against the Saudi Arabian riyal, as traders bet the Persian Gulf kingdoms would be unable to maintain their pegs to the dollar and fight inflation at the same time... Riyadh’s ability to keep the crude oil market under wraps, by pumping more oil might draw to an end by late 2008. The International Energy Agency is forecasting that global demand will climb by 2.1 million bpd to 88 million bpd next year. Global supply however, is forecast to rise a scant 200,000 bpd to 85.6 million bpd, leaving a growing shortfall that would exhaust all of Saudi’s spare capacity...In the short term, the direction of oil prices might depend upon the Federal Reserve. “Nobody should ask OPEC to do something to lower oil prices, because even if OPEC introduces another 500,000 barrels of oil next month, the price is not going to change unless the dollar corrects itself,” said Iranian Oil Company chief Hojatollah Ghanimifard. “The US Treasury should take measures to strengthen its currency if it doesn’t want oil prices to continue rising,” he said."
Peter Schiff: "As the losses mount, the credit crunch will spread from mortgages to auto loans and to all forms of consumer lending. The days of Americans borrowing to consume are finally coming to a long over due end. Although it seems like science fiction to Americans raised on credit cards, within a few years most will only be able to buy those goods they can afford to pay for with cash. In the long run of course, this will be a very positive development. Borrowing to consume is a waste of savings and undermines legitimate economic growth. Money loaned to consumers is unavailable to finance capital investment. By squandering savings on consumption, a society undermines its future standard of living. When businesses borrow to make investments, those investments generate returns which enable the principal and interest to be repaid. When individuals borrow to consume, no investment is made and the loans can only be repaid out of reduced future consumption. As a result, business loans, especially when collateralized by real assets, are likely to be repaid, while consumer loans, collateralized by nothing but a promise to consume less in the future are much more likely to end in default. As lenders finally figure this out, consumer credit will dry up, and the American economy will enter a prolonged and severe recession. Unfortunately, an economy that lives by consumer credit will die by it as well. Hopefully a more viable economy will eventually rise in its place."
President Vladimir Putin signed a law on Friday suspending Russia’s participation in a key post-cold war arms treaty, triggering an angry reaction from the US, which declared the move a “mistake”. In a significant new indication of the worsening diplomatic relationship between Moscow and Washington, Mr Putin personally ratified a law that means Moscow will suspend the Conventional Forces in Europe treaty (CFE) in a little under two weeks.
Tribune Co. said late Friday that the Federal Communications Commission -- in a move that could play a crucial role in the company's planned $8.2 billon leveraged buyout -- has approved "cross-ownership" waivers in markets where the company owns both a television station and a newspaper.
Tribune said its going-private transaction is "expected to close by year-end," following satisfaction of certain remaining closing conditions.
"We appreciate today's action by the FCC, which allows our transaction to move forward," said Chairman and Chief Executive Officer Dennis FitzSimons.
LA Times on the Ron Paul for President movement: "A Times reporter -- we'll call him James Rainey to protect his identity -- has managed to penetrate the Paul presidium. In his story he recounts for the very first time the shockingly ordinary details of a movement of thousands of disparate, dissatisfied people, some of whom want an end to the Iraq war, an end to gun controls and the IRS, an end to laws banning marijuana and a return to the gold standard, whatever that means. These Paulites believe the government has been hijacked by a bevy of big interests that threaten the freedoms of ordinary Americans. They're not going to take it anymore. Locally, they're even organizing a re-enactment of a brazenly defiant act, the BostonTea Party, except it'll be in Santa Monica and won't involve tea or white people dressed as Indians. And the protestors promise not to leave anything foreign floating in the water. These committed partisans, bonded by their suspicion of authority and venal influences like the mainstream media that ignored them until they did something, have united behind a 72-year-old..."
Brad Setser: "I have long believed that a fall in the dollar’s real value was a necessary part of a broader adjustment needed to bring the United States’ trade deficit – and the United States need for external financing -- down. And I have long argued that unprecedented intervention to support the dollar (in order to keep other currencies from rising) by the world’s central banks has impeded this correction, storing up problems for the future. Those basic views haven’t changed."
Between The Hedges: "Fed fund futures now imply a 40% chance for a 50 basis point rate cut and a 60% chance of a 25 basis point rate cut at the upcoming
meeting."
Michelle Leder: "Flipping through the 10-K that Bank United (BKUNA) filed late yesterday, I found myself doing a double-take when I got to this sentence on pg. 49:
Forty-two percent of our one-to four family residential loans were underwritten based on borrower stated income and asset verification and an additional 9% were underwritten with no verification of either borrower income or assets.
Beyond the shocking nature of the numbers, which it’s hard to get past given that over 50% of their residential loans were made on what some of us might call wishful thinking, is the fact that this appears to be the first time that Bank United is actually disclosing this in its public filings. Certainly seems like something that an investor might want to know, say, before the stock began its freefall — declining by more than 70% so far this year. The company goes on to say that “While these loans generally represent more risk than full documentation products we compensate by requiring higher credit scores, lower LTVs, lower-debt-to-income ratios and additional employment/ business information.” Still, I’d imagine it would be a lot easier to fake those sorts of documents, than, say, a W-2, or 1040."
OPEC countries will rival China in global oil demand growth through 2008 and beyond, according to a report released Friday by investment firm Lehman Brothers Inc. Consumption of oil in countries that are members of the Organization of Petroleum Exporting Countries should grow 4.4% to 370,000 barrels per day in 2008, putting the producer group behind only China in terms of incremental demand growth, according to the report.
Andrew Bary: "When markets get rocky and financial results suffer, private-equity investments can generate big losses. Looking ahead to 2008 and '09, private-equity firms could be in the uncomfortable position of telling their investors about impaired equity investments or complete wipe-outs."
Saturday, December 01, 2007
Welcome To December And Maintaining Illusions
12/1/07 Welcome To December And Maintaining Illusions
Satyajit Das: " There is no difference between a run on a bank and shutdown of access to funding from the capital markets. US mortgage lenders have faced old-fashioned runs. Northern Rock found itself requiring central bank support (in excess of £20 billion (US$ 40 billion)) as it was unable to raise required funding in money markets. The Chancellor of the UK Exchequer was forced to effectively guarantee the UK system of bank deposits to restore confidence Central banks, including the Fed and European Central Bank (“ECB”), have pumped money into the system in an effort to ease the liquidity crunch. In further regulatory debauchery, the Fed recently allowed banks to pledge ABS CP as well as highly rated asset-backed securities, corporate bonds and mortgage-backed instruments as collateral for funding at the discount window. Funding has been extended from overnight to 30 days. Other central banks have followed suit...In good times, financial markets embrace Capitalism. In bad times, financial markets re-discover Socialism. Currently, the US Federal Reserve is engaged in a dangerous strategy to look after its Wall Street friends...The US central bank’s strategy is clear. The current credit problems require a substantial reduction in the level of borrowings and leverage in the global financial system. Asset prices ramped up by excessive debt need to adjust. The adjustment can take place via a “crash”. This would be de-stabilizing and would wreak further havoc on already weakened banks. Alternatively, the de-leveraging and price adjustment can be achieved by creating inflation through loose monetary policy. If asset prices remain at current levels, higher inflation allows values to fall in real terms. Higher inflation also reduces the value of the borrowings that must be paid back allowing the required reduction in leverage...Central bankers have stated that “errant” banks and investors will not be “bailed out”. Actual actions suggest otherwise. Banks have played their “nuclear” option well. The specter of “systemic risk” – whether real or not - is one a central banker cannot ignore. The banks continue to privatize gains and socialize losses. These moves have attracted remarkably little scrutiny or comment. Central banks are effectively underwriting the credit risk and the liquidity of the financial system with public money but without any transparent political debate. Socialism for Wall Street prevails, once again.
According to the WSJ, the White House and the mortgage industry are near an agreement that would temporarily freeze interest rates on certain troubled subprime loans. This would negate many resets on rising ARM rates over the next two years...Central banks and regulators bear a serious responsibility for safeguarding the functioning and integrity of financial systems. At the moment they are being exposed like the Wizard of Oz – old desperate men (they are mainly men) behind the curtain running from one lever to another in a desperate attempt to maintain illusions."
Bill Bonner: "Meanwhile, I expect the formation of a pseudo-public ARM/CDO slush fund, like the Resolution Trust Coporation. Banks might even capitalize this entity a little, to make it less obvious bad loans are being transferred from the private sector the public balance sheet. "Heck, they might even sell shares in the thing. Why not an IPO and let people buy shares in the recovery of the housing market. Pay a dividend (those IO loans need to keep performing), and make it tax deductible. Don't just socialize the risk, make it investable!"
According to the WSJ, the White House and the mortgage industry are near a pact that would temporarily freeze interest rates on certain troubled subprime home loans. With over two million mortgages scheduled to jump over the next two years, an accord could reassure Wall Street and homeowners.
Big Lots said that it now expects fourth-quarter comparable sales to be slightly negative due to continued softness in several higher margin categories. Previously the firm has said it expects sales to rise by 1% to 3% on a comparable basis. For the fourth quarter, earnings are expected at between 81 cents to 86 cents a share, while fiscal-year earnings from continuing operations are expected in a range of $1.37 to $1.42 a share.
Equity strategists at Credit Suisse raised their rating on banks to benchmark from 30% underweight, noting that price-to-book of global banks is 19% below average and only 6% off recession lows. It added cyclicals and banks have decoupled by an abnormally large degree and that underlying profitability will improve with less mortgage market competition. It said the global and U.S. economies will avoid a hard landing and that short rates will fall significantly globally.
In early Friday trading, crude for January delivery dropped $1.61 to $89.40 a barrel.
U.K. consumer confidence fell to -10 in November, its lowest level since March 2003, according to research carried out by GfK NOP on behalf of the European Commission. Last month, the index showed a reading of -8.
The economic sentiment indicator in the euro area fell 1.2 points to 104.8 in November, the European Commission said Friday.
Bank of Japan Governor Toshihiko Fukui said Friday fallout from the U.S subprime crisis has shaken Japan's financial system more than expected, but the losses can be absorbed without enduring major system stress.
Japanese housing starts fell 35% to 76,920 units in October from a year earlier, easing from a 44% decline in September, the Ministry of Land, Infrastructure and Transport said Friday.
Inflation in the 13 nations that share the euro surged to 3 percent in November, the highest level since consumers began using the currency in 2002, the EU statistical agency Eurostat said Friday.
Bernanke said the housing downturn and mortgage turmoil are adding "greater than usual" uncertainty to the economic outlook.
ConocoPhillips plans to submit a proposal to build a $30 billion natural-gas pipeline from Alaska to the lower 48 states.
Dell stated it will "continue to incur costs as it restructures" and "these actions may adversely impact the company's performance." Dell's expenses are "still considerably higher than we want," Chief Financial Officer Don Carty said during the company's first conference call with analysts in a year.
At some point, possibly, Dell's fortunes will turnaround. In the meantime, I continue to believe there are better opportunities in the market.
Tiffany's CEO: "We are pleased with our overall businesses in the U.S. and internationally, as well as with product performance ranging from robust diamond jewelry sales to a healthy increase in silver jewelry sales," said Michael J. Kowalski, chairman and chief executive. "We are now one month into the all-important November-December holiday season and are pleased with overall sales growth that is meeting our expectations." Same-store sales, or sales at stores open at least a year, rose 8 percent at its U.S. stores in the quarter. Same-store sales are a key indicator of a retailer's health. U.S. retail sales rose 12 percent, while international sales rose 22 percent. For the first nine months of the year, net earnings were $185.5 million, or $1.33 per share, compared with $113.4 million, or 80 cents per share, in the year-ago period. Sales rose to $1.88 billion for the nine-month period, compared with $1.6 billion in the year-ago period. Tiffany lifted its outlook for fiscal 2007 to a range of $2.25 to $2.30 per share, excluding charges and gains, from prior guidance of $2.22 to $2.27 per share. Wall Street has predicted full-year profit of $2.29 per share.
U.K. natural gas for same-day delivery rose as lower flows of the fuel from Norway and the Netherlands were met by stronger-than-forecast demand. Same-day gas rose 4.2 percent to 45.85 pence a therm as of 8:55 a.m. U.K. time, according to broker ICAP Plc. That's equivalent to $9.48 a million British thermal units. A therm is 100,000 Btus. By comparison, it is cheaper by $2 a million thermal unit in the U.S. I don't believe this disparity will continue.
The cost of borrowing euros for three months rose to the highest since May 2001, according to the British Bankers' Association. The London interbank offered rate, the amount banks charge each other for such loans, rose 3 basis points to 4.81 percent, its 13th straight day of gains. That's 81 basis points more than the European Central Bank's benchmark rate, the biggest gap ever. The overnight euro rate rose for a second day, up 9 basis points to 4.08 percent, the BBA said today. By comparison, treasuries headed for their best month in 12 years as Federal Reserve Chairman Ben S. Bernanke signaled he may lower interest rates because of ``turbulence'' in financial markets. An index of Treasury securities returned 3.2 percent in November, according to Merrill Lynch & Co. Something has to give here.
According to AMG Data, ncluding ETF activity, Equity funds report net cash inflows totaling $3.245 billion in the week ended 11/28/07 with Domestic funds reporting net inflows of $6.702 billion and Non-domestic funds reporting net outflows of -$3.457 billion;
Excluding ETF activity, equity funds report net cash outflows totaling -$3.552 billion with Domestic funds reporting net outflows of -$1.480 billion and Non-domestic funds reporting net outflows totaling -$2.073 billion.
"You're looking at a very slow profile for the fourth quarter, particularly with regards to consumer spending," said Carey Leahey, senior managing director at Decision Economics in New York. "This is another reason for the Fed to lower interest rates." The personal consumption expenditure price index, a key measure of inflation, rose 0.3 percent. Core PCE prices, which strip out food and energy items, rose at a 0.2 percent rate, matching economists' expectations.
Nominal incomes rose just 0.2% last month despite strong job growth. But after accounting for a 0.3% rise in prices, October's real after-tax incomes fell 0.1%.
Meanwhile, consumer spending increased 0.2% in nominal terms and was flat after adjusting for inflation. Spending was the weakest since March.
According to the Chicago Tribune, Sam Zell's $8.2 billion effort to take Tribune Co. private apparently has cleared a regulatory hurdle. The three Republicans on the five-member Federal Communications Commission have signed off on temporary waivers from media cross-ownership rules, according to a source with knowledge of the situation. Approval would enable the company to continue to own newspapers and broadcast outlets in five markets, including Chicago, where its properties include the Chicago Tribune, WGN-Ch. 9 and WGN-AM 720.
Spending on U.S. construction projects resumed a decline in October, reversing two months of gains as outlays on homes and other private building projects fell. Overall, spending on construction projects dropped by 0.8% in October, following a revised gain of 0.2% in September. September's gain was previously estimated to be 0.3%. Year over year, construction spending is down by 0.6%. Spending on private housing projects marked its 20th consecutive decline, dropping by 2.0% in October. That spending is down 15.8% from a year ago.
The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise for a 15th day because the supply of modern tankers has fallen by almost half in two months. The number of two-hulled very large crude carriers, or VLCCs, that could be available for hire at the region's ports within the next 30 days has dropped to 22 from 43 in September, Mathieu Philippe, a Dubai-based broker for Barry Rogliano Salles, said by telephone today. Refineries prefer such ships because they cut the risk of an oil spill.
Citigroup Inc.has reduced the assets of so-called structured investment vehicles (SIVs) the bank sponsors. Assets in the SIVs the company advises have declined to $66 billion as of Nov. 30 from $83 billion at the end of September, a Citigroup spokesman said in an e-mailed statement.
Metals processor Ryerson, Inc.'s restructuring will result in the loss of about 600 manufacturing and office jobs in the Chicago area by the end of 2008, spokeswoman Patti Buckland said Friday.
Brink's Co. is in the process of re-examining its strategic alternatives to boost shareholders' value and has retained Monitor Group to oversee the process. The company also confirmed that it has received notice that MMI Investments LP intends to nominate four candidates for election to the board of directors at Brink's upcoming annual meeting. MMI holds about about 4.06 million shares, or 8.4% of the business and security services providers' outstanding shares.
Gold for February delivery fell $13.20 to end at $789.10 an ounce on the New York Mercantile Exchange. Gold futures posted a weekly loss of $42.70.
Three of the five members of the Federal Communications Commission have agreed to allow the Tribune Co. to continue owning print and broadcast outlets in the same market for at least two years, the Chicago paper reports, citing a source "with knowledge of the situation." Tribune shareholders, who approved the deal in August, will receive $34 per share, upon completion of the deal, which faces a Dec. 31 deadline. Tribune stock will be held in an employee stock ownership plan.
Satyajit Das: " There is no difference between a run on a bank and shutdown of access to funding from the capital markets. US mortgage lenders have faced old-fashioned runs. Northern Rock found itself requiring central bank support (in excess of £20 billion (US$ 40 billion)) as it was unable to raise required funding in money markets. The Chancellor of the UK Exchequer was forced to effectively guarantee the UK system of bank deposits to restore confidence Central banks, including the Fed and European Central Bank (“ECB”), have pumped money into the system in an effort to ease the liquidity crunch. In further regulatory debauchery, the Fed recently allowed banks to pledge ABS CP as well as highly rated asset-backed securities, corporate bonds and mortgage-backed instruments as collateral for funding at the discount window. Funding has been extended from overnight to 30 days. Other central banks have followed suit...In good times, financial markets embrace Capitalism. In bad times, financial markets re-discover Socialism. Currently, the US Federal Reserve is engaged in a dangerous strategy to look after its Wall Street friends...The US central bank’s strategy is clear. The current credit problems require a substantial reduction in the level of borrowings and leverage in the global financial system. Asset prices ramped up by excessive debt need to adjust. The adjustment can take place via a “crash”. This would be de-stabilizing and would wreak further havoc on already weakened banks. Alternatively, the de-leveraging and price adjustment can be achieved by creating inflation through loose monetary policy. If asset prices remain at current levels, higher inflation allows values to fall in real terms. Higher inflation also reduces the value of the borrowings that must be paid back allowing the required reduction in leverage...Central bankers have stated that “errant” banks and investors will not be “bailed out”. Actual actions suggest otherwise. Banks have played their “nuclear” option well. The specter of “systemic risk” – whether real or not - is one a central banker cannot ignore. The banks continue to privatize gains and socialize losses. These moves have attracted remarkably little scrutiny or comment. Central banks are effectively underwriting the credit risk and the liquidity of the financial system with public money but without any transparent political debate. Socialism for Wall Street prevails, once again.
According to the WSJ, the White House and the mortgage industry are near an agreement that would temporarily freeze interest rates on certain troubled subprime loans. This would negate many resets on rising ARM rates over the next two years...Central banks and regulators bear a serious responsibility for safeguarding the functioning and integrity of financial systems. At the moment they are being exposed like the Wizard of Oz – old desperate men (they are mainly men) behind the curtain running from one lever to another in a desperate attempt to maintain illusions."
Bill Bonner: "Meanwhile, I expect the formation of a pseudo-public ARM/CDO slush fund, like the Resolution Trust Coporation. Banks might even capitalize this entity a little, to make it less obvious bad loans are being transferred from the private sector the public balance sheet. "Heck, they might even sell shares in the thing. Why not an IPO and let people buy shares in the recovery of the housing market. Pay a dividend (those IO loans need to keep performing), and make it tax deductible. Don't just socialize the risk, make it investable!"
According to the WSJ, the White House and the mortgage industry are near a pact that would temporarily freeze interest rates on certain troubled subprime home loans. With over two million mortgages scheduled to jump over the next two years, an accord could reassure Wall Street and homeowners.
Big Lots said that it now expects fourth-quarter comparable sales to be slightly negative due to continued softness in several higher margin categories. Previously the firm has said it expects sales to rise by 1% to 3% on a comparable basis. For the fourth quarter, earnings are expected at between 81 cents to 86 cents a share, while fiscal-year earnings from continuing operations are expected in a range of $1.37 to $1.42 a share.
Equity strategists at Credit Suisse raised their rating on banks to benchmark from 30% underweight, noting that price-to-book of global banks is 19% below average and only 6% off recession lows. It added cyclicals and banks have decoupled by an abnormally large degree and that underlying profitability will improve with less mortgage market competition. It said the global and U.S. economies will avoid a hard landing and that short rates will fall significantly globally.
In early Friday trading, crude for January delivery dropped $1.61 to $89.40 a barrel.
U.K. consumer confidence fell to -10 in November, its lowest level since March 2003, according to research carried out by GfK NOP on behalf of the European Commission. Last month, the index showed a reading of -8.
The economic sentiment indicator in the euro area fell 1.2 points to 104.8 in November, the European Commission said Friday.
Bank of Japan Governor Toshihiko Fukui said Friday fallout from the U.S subprime crisis has shaken Japan's financial system more than expected, but the losses can be absorbed without enduring major system stress.
Japanese housing starts fell 35% to 76,920 units in October from a year earlier, easing from a 44% decline in September, the Ministry of Land, Infrastructure and Transport said Friday.
Inflation in the 13 nations that share the euro surged to 3 percent in November, the highest level since consumers began using the currency in 2002, the EU statistical agency Eurostat said Friday.
Bernanke said the housing downturn and mortgage turmoil are adding "greater than usual" uncertainty to the economic outlook.
ConocoPhillips plans to submit a proposal to build a $30 billion natural-gas pipeline from Alaska to the lower 48 states.
Dell stated it will "continue to incur costs as it restructures" and "these actions may adversely impact the company's performance." Dell's expenses are "still considerably higher than we want," Chief Financial Officer Don Carty said during the company's first conference call with analysts in a year.
At some point, possibly, Dell's fortunes will turnaround. In the meantime, I continue to believe there are better opportunities in the market.
Tiffany's CEO: "We are pleased with our overall businesses in the U.S. and internationally, as well as with product performance ranging from robust diamond jewelry sales to a healthy increase in silver jewelry sales," said Michael J. Kowalski, chairman and chief executive. "We are now one month into the all-important November-December holiday season and are pleased with overall sales growth that is meeting our expectations." Same-store sales, or sales at stores open at least a year, rose 8 percent at its U.S. stores in the quarter. Same-store sales are a key indicator of a retailer's health. U.S. retail sales rose 12 percent, while international sales rose 22 percent. For the first nine months of the year, net earnings were $185.5 million, or $1.33 per share, compared with $113.4 million, or 80 cents per share, in the year-ago period. Sales rose to $1.88 billion for the nine-month period, compared with $1.6 billion in the year-ago period. Tiffany lifted its outlook for fiscal 2007 to a range of $2.25 to $2.30 per share, excluding charges and gains, from prior guidance of $2.22 to $2.27 per share. Wall Street has predicted full-year profit of $2.29 per share.
U.K. natural gas for same-day delivery rose as lower flows of the fuel from Norway and the Netherlands were met by stronger-than-forecast demand. Same-day gas rose 4.2 percent to 45.85 pence a therm as of 8:55 a.m. U.K. time, according to broker ICAP Plc. That's equivalent to $9.48 a million British thermal units. A therm is 100,000 Btus. By comparison, it is cheaper by $2 a million thermal unit in the U.S. I don't believe this disparity will continue.
The cost of borrowing euros for three months rose to the highest since May 2001, according to the British Bankers' Association. The London interbank offered rate, the amount banks charge each other for such loans, rose 3 basis points to 4.81 percent, its 13th straight day of gains. That's 81 basis points more than the European Central Bank's benchmark rate, the biggest gap ever. The overnight euro rate rose for a second day, up 9 basis points to 4.08 percent, the BBA said today. By comparison, treasuries headed for their best month in 12 years as Federal Reserve Chairman Ben S. Bernanke signaled he may lower interest rates because of ``turbulence'' in financial markets. An index of Treasury securities returned 3.2 percent in November, according to Merrill Lynch & Co. Something has to give here.
According to AMG Data, ncluding ETF activity, Equity funds report net cash inflows totaling $3.245 billion in the week ended 11/28/07 with Domestic funds reporting net inflows of $6.702 billion and Non-domestic funds reporting net outflows of -$3.457 billion;
Excluding ETF activity, equity funds report net cash outflows totaling -$3.552 billion with Domestic funds reporting net outflows of -$1.480 billion and Non-domestic funds reporting net outflows totaling -$2.073 billion.
"You're looking at a very slow profile for the fourth quarter, particularly with regards to consumer spending," said Carey Leahey, senior managing director at Decision Economics in New York. "This is another reason for the Fed to lower interest rates." The personal consumption expenditure price index, a key measure of inflation, rose 0.3 percent. Core PCE prices, which strip out food and energy items, rose at a 0.2 percent rate, matching economists' expectations.
Nominal incomes rose just 0.2% last month despite strong job growth. But after accounting for a 0.3% rise in prices, October's real after-tax incomes fell 0.1%.
Meanwhile, consumer spending increased 0.2% in nominal terms and was flat after adjusting for inflation. Spending was the weakest since March.
According to the Chicago Tribune, Sam Zell's $8.2 billion effort to take Tribune Co. private apparently has cleared a regulatory hurdle. The three Republicans on the five-member Federal Communications Commission have signed off on temporary waivers from media cross-ownership rules, according to a source with knowledge of the situation. Approval would enable the company to continue to own newspapers and broadcast outlets in five markets, including Chicago, where its properties include the Chicago Tribune, WGN-Ch. 9 and WGN-AM 720.
Spending on U.S. construction projects resumed a decline in October, reversing two months of gains as outlays on homes and other private building projects fell. Overall, spending on construction projects dropped by 0.8% in October, following a revised gain of 0.2% in September. September's gain was previously estimated to be 0.3%. Year over year, construction spending is down by 0.6%. Spending on private housing projects marked its 20th consecutive decline, dropping by 2.0% in October. That spending is down 15.8% from a year ago.
The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise for a 15th day because the supply of modern tankers has fallen by almost half in two months. The number of two-hulled very large crude carriers, or VLCCs, that could be available for hire at the region's ports within the next 30 days has dropped to 22 from 43 in September, Mathieu Philippe, a Dubai-based broker for Barry Rogliano Salles, said by telephone today. Refineries prefer such ships because they cut the risk of an oil spill.
Citigroup Inc.has reduced the assets of so-called structured investment vehicles (SIVs) the bank sponsors. Assets in the SIVs the company advises have declined to $66 billion as of Nov. 30 from $83 billion at the end of September, a Citigroup spokesman said in an e-mailed statement.
Metals processor Ryerson, Inc.'s restructuring will result in the loss of about 600 manufacturing and office jobs in the Chicago area by the end of 2008, spokeswoman Patti Buckland said Friday.
Brink's Co. is in the process of re-examining its strategic alternatives to boost shareholders' value and has retained Monitor Group to oversee the process. The company also confirmed that it has received notice that MMI Investments LP intends to nominate four candidates for election to the board of directors at Brink's upcoming annual meeting. MMI holds about about 4.06 million shares, or 8.4% of the business and security services providers' outstanding shares.
Gold for February delivery fell $13.20 to end at $789.10 an ounce on the New York Mercantile Exchange. Gold futures posted a weekly loss of $42.70.
Three of the five members of the Federal Communications Commission have agreed to allow the Tribune Co. to continue owning print and broadcast outlets in the same market for at least two years, the Chicago paper reports, citing a source "with knowledge of the situation." Tribune shareholders, who approved the deal in August, will receive $34 per share, upon completion of the deal, which faces a Dec. 31 deadline. Tribune stock will be held in an employee stock ownership plan.
Thursday, November 29, 2007
Widening Interest Rate Spreads
11/30/07 Widening Interest Rate Spreads
Mark Gilbert: "The gap between the Federal Reserve's key rate and what banks charge each other to borrow dollars for three months has widened to about 58 basis points, the most in 2 1/2 months. The cost of overnight money is now more than a quarter-point higher than the Fed's target. There's a similar picture in borrowing costs for euros and British pounds. The European Central Bank said last week there's a ``re- emerging risk of volatility'' and that it will supply cash ``for as long as it is needed.'' This week, the Fed said it would ``counter the re-emerging risk of volatility'' in money markets and will ``provide sufficient reserves to resist upward pressure'' on borrowing costs around the turn of the year. You know there's a credit crunch when central banks use identical words to name their pain."
Bill Bonner: "It appears that we are reaching a "pushing on a string" problem. The expression is famous in economics. It describes what happens when a deflationary spiral gets out of control. The financial authorities can offer more money on better terms - but the banks and the borrowers turn up their noses. They're already having trouble paying off the debt they've got; they don't want any more. Besides, they're not too sure that others will be able to pay their debts either, which makes them suspicious of both sides of the credit/debt equation. On the one side, the debtors may not be able to pay. On the other side, the creditors may not be able to collect. Whichever side you're on, you're looking for shelter. When this happens, the financial authorities want to put cash and credit in the system. But they are pushing on a string; the system won't take it."
Fyodor Dostoyevsky: “It is not the brains that matter most, but that which guides them -- the character, the heart, generous qualities, progressive ideas.”
Crude-oil futures rallied over $2 a barrel in electronic trading, reversing much of the losses in the last session after U.S. inventory data. Crude futures were up $2.56 to $93.18 a barrel. The rise took place after two Enbridge employees were killed on Wednesday afternoon in an explosion and fire on an Enbridge Energy Partners crude-oil pipeline. Enbridge Inc. and its Enbridge Energy Partners LP subsidiary said in a statement late on Wednesday that the explosion occurred three miles southeast of Enbridge's Clearbrook, Minn., terminal. During the third quarter, the pipeline had carried around 1.5 million barrels per day of Canadian crude, or around 15 percent, of U.S. imports.There was no word on when line 4, the biggest of the connected pipes, which ships nearly 700,000 barrels per day (bpd), would restart. Line 3, with capacity of nearly 450,000 barrels per day (bpd) had been shut earlier to inspect a leak and was also still out of action.The system's No. 3 pipeline, which caught fire as it was being refilled after maintenance, may take two to three days to return to service, Enbridge said in a statement. "Two of the four pipelines have restarted," Larry Springer, a spokesman for Canadian operator Enbridge said on Thursday. "The fire in line three in the last hour has been extinguished, but there could be other fires around it." He did not specify how much throughput had been restored. Canada is the biggest supplier of foreign crude to the United States, with most of that oil delivered via the Enbridge system. A lasting disruption to Lines 3 and 4 -- which together pump more than 1.1 million bpd of heavy and medium crude -- would put a strain on landlocked Midwest refiners, which have few immediate alternatives to the Canadian supplies. Canada was the largest exporter of oil to the U.S. in August, delivering 1.9 million barrels a day, according to the U.S. Energy Department.
The cost of borrowing euros for a month rose by a record and loans in dollars climbed the most in more than a decade as banks sought funds to cover their commitments through to the start of 2008 amid a credit squeeze. The London interbank offered rate that banks charge each other for euro loans due after the end of the year jumped 64 basis points to 4.81 percent, the highest since May 2001, the British Bankers' Association said. The rate charged for dollars jumped 40 basis points to 5.23 percent, the highest since Sept. 18, when policy makers cut the target rate for overnight loans for the first time in 4 1/2 years.
VeraSun Energy Corp.and U.S. BioEnergy Corp. signed a definitive merger agreement, which has been unanimously approved by each company's board. Under the agreement, 0.81 of a VeraSun common share will be issued for each U.S. Energy common share, representing a premium of about 11% based on Nov. 23 closing prices, the companies said Thursday. Upon completion of the merger, the combined company will have nine ethanol production facilities in operation and seven additional facilities under construction. By the end of 2008, the company is expected to have a total production capacity of more than 1.6 billion gallons per year. Holders of a "significant" percentage of the outstanding shares of each company have agreed to vote in favor of the deal.
Citadel Investment Group will lift its stake in E-Trade Financial Corp.to nearly 20% from 3% and infuse $2.55 billion into the New York online brokerage, E-Trade said. Under the terms, Citadel, Chicago, will buy E-Trade's $3 billion of asset-backed securities for about $800 million. And it will buy $1.75 billion of 10-year notes paying annual interest of 12.5%.
Sears Holdings Corp. reported net income of $2 million, or 1 cent a share, for the third quarter ended Nov. 3, down from $196 million, or $1.27 a share, earned in the same period a year ago. The Hoffman Estates, Ill.-based retailer's quarterly merchandise sales and service revenue fell to $11.55 billion from the prior year's $11.94 billion, as domestic comparable-store sales declined 4.6% for the Sears and Kmart chains. Gross margin fell $223 million in the latest quarter -- a performance that left management "very disappointed," said Aylwin Lewis, Sears Holdings' chief executive and president. In addition, the company said that domestic comp-store sales for Nov. 4 through Nov. 27 were down 0.4%, reflecting weakness at Kmart. The company had cash and cash equivalents of $1.1 billion as of Nov. 3, down from $2.6 billion balance at the end of the company's second quarter.
Russia plans to allocate about $118 billion to foreign currencies as part of a reserve fund, and $18 billion to investments in foreign stocks, corporate bonds, sovereign bonds and other fixed-income products, the report said, citing finance ministry official Peter A. Kazakevitch.
Bank of England governor Mervyn King told the U.K. parliament's Treasury Select Committee Thursday that a widening in interest rates spreads in the last few weeks has more to do with worries about credit worthiness than a lack of liquidity.
Shares of National Australia Bank Ltd. fell 0.8% Thursday after the bank announced it had agreed to pay $798 million to acquire privately-owned U.S. lender Great Western Bank, according to reports. Acquisition of the Sioux Falls, South Dakota-based Great Western reportedly fit with NAB's strategy to expand its banking services into farming regions of the U.S. "Great Western offers an ideal springboard to accelerate the organic growth strategy for our agribusiness relationship banking model into the USA," newswires cited NAB Chief Executive John Stewart as saying in a statement.
The WSJ reported that the buyout of the Tribune Co. was back on schedule to be completed by year end after FCC Chairman Kevin Martin proposed a vote tomorrow to grant waivers needed to close the deal.
Jon Markman: "Investors have jumped at shadows before and lost out on profits. But not all shadows are cast by imaginary monsters. Earnings reports will get worse soon, so don't get too excited by this week's rally."
Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm, dropped after CIBC World Markets Inc. cut its share-price estimate by 17 percent, saying credit turmoil will last.
A total of 224,451 foreclosure filings were reported in October, up 94 percent from 115,568 in the same month a year ago, Irvine-based RealtyTrac Inc. said Thursday.The number of filings in October rose 2 percent from September's 223,538. The U.S. had one foreclosure filing for every 555 households in October, RealtyTrac said. In my view, there is plenty of potential for this ratio to get much worse.
U.S. business bankruptcies rose 35% in the third quarter from a year earlier and are likely to climb further in the current period as the slumping housing market and rising energy prices take a toll, according to a study released Wednesday.
The study, by credit insurer Euler Hermes ACI, found that 7,167 U.S. businesses filed for bankruptcy protection during the quarter, up 7% from the second quarter and bringing the total number of filings for the first nine months of the year to 20,152.
Federal Reserve Bank of Dallas President Richard Fisher said he's "very concerned" about the chance of faster inflation, and policy makers are weighing that risk against having "healthy, working" financial markets. "The decision will have to be based on these two counter- forces" at the next interest-rate meeting on Dec. 11, Fisher said today in Amarillo, Texas. "There are people at the table," including Fisher, who have inflation concerns, he said.
China's foreign-exchange reserves rose to a record $1.46 trillion in October. The reserves were $1.43 trillion a month earlier. They're the world's biggest. The trade surplus jumped to $27 billion last month.
Chris Puplava: " Despite the market's two-day rally, don’t be fooled into thinking that the pain of the summer credit crisis is behind us. Quite the contrary, it’s really just picking up steam. The leverage taken on by both consumer and bank alike during the past several years in the housing boom is coming home to roost as both are paying the piper."
Peter Goodman: "The combined value of two leading sources of credit — outstanding commercial and industrial bank loans, and short-term loans known as commercial paper — peaked at about $3.3 trillion in August, according to data from the Federal Reserve. By mid-November, such credit was down to $3 trillion, a drop of nearly 9 percent. Not once in the years since the Fed began tracking such numbers in 1973 has this artery of finance constricted so rapidly. Smaller declines preceded three recessions going back to 1975; at other times such declines tended to occur in conjunction with an economic downturn."
In California, sales volume fell 40.2 percent in October compared with a year ago, while the median price slumped 9.9 percent, the California Association of Realtors said Wednesday. Sales in the Bay Area, which the group defines as Alameda, Contra Costa, Marin, San Francisco, Santa Clara, San Mateo and Solano counties, fell 41.5 percent. The median price in the region was up 8.9 percent to $810,490, compared with $744,300 a year ago. Median price is strongly affected by the composition of homes sold; in the Bay Area the median has been buoyed because a greater number of more-expensive homes have been sold.
Continuing jobless claims rose by 112,000 in the week ending Nov. 17, to 2.66 million, the highest mark since Dec. 24, 2005, the Labor Department said. Initial jobless claims also shot up in the latest week, the data show. Those claims rose by 23,000 to 352,000 during the week ending Nov. 24, their highest level since Feb. 10.
A total of 728,000 new houses were purchased at annual rate, compared with a median forecast of 750,000 of economists surveyed by Bloomberg News. The figure was up from a revised 716,000 pace in September that was the lowest in almost 12 years, the Commerce Department reported today in Washington.
The U.S. Energy Information Administration reported on Thursday U.S. natural gas storage fell 12 billion cubic feet in the week ending Nov. 23. Natural gas inventories stood at 3,528 billion cubic feet in the latest week, 106 billion cubic feet higher than last year at this time and 301 billion cubic feet above the 5-year average, the EIA said.
The Administration only trimmed slightly its growth forecast for 2008 to 2.7% from the previous estimate this summer of a 3.1% growth rate. The unemployment rate will tick up to 4.9% next year from 4.7% currently. Job gains will average 109,000 over the twelve months of next year. Inflation will remain contained. In this case, fairy tales do not come true.
Andersons raises 2007 EPS target to $3.40-$3.60.
Freddie Mac priced its $6 billion fixed-to-floating rate non-convertible non-cumulative perpetual preferred stock at $25 a share. The shares have a fixed dividend rate of 8.375% through Dec. 31, 2012. The dividend will then rise to 416 basis points over 3-month London Interbank Offered Rate or 7.875%, Freddie Mac said. The shares are expected to be issued on Dec. 4.
J. Crew lifted its 2007 earnings target to a range of $1.50 to $1.52 a share, as compared to its previous target of $1.42 to $1.46.
Sprint Nextel Corp. rejected a $5 billion investment offer by South Korea's SK Telecom and private equity firm Providence Equity Partners, the Wall Street Journal reported Thursday on its website, citing people familiar with the matter.
Crude-oil futures for January delivery closed up 39 cents, or 0.4%, at $91.01 a barrel on the New York Mercantile Exchange. To say the least, that was disappointing after rising $4.55 to an intraday high of $95.17 a barrel in electronic trading overnight.
Florida halted withdrawals from a $15 billion local government fund on Thursday after concerns about subprime-mortgage-related losses prompted investors to pull roughly $10 billion out of the fund in recent weeks.
Gold for December delivery fell $5.0 to finish at $795.30 an ounce on the New York Mercantile Exchange.
Alexander Medvedev, deputy chairman of the managing committee of Russia's Gazprom, said the world's largest natural gas company is on track to hit $1 trillion in market capitalization in the next few years.
Karl Marx: “The meaning of peace is the absence of opposition to socialism.”
Mark Gilbert: "The gap between the Federal Reserve's key rate and what banks charge each other to borrow dollars for three months has widened to about 58 basis points, the most in 2 1/2 months. The cost of overnight money is now more than a quarter-point higher than the Fed's target. There's a similar picture in borrowing costs for euros and British pounds. The European Central Bank said last week there's a ``re- emerging risk of volatility'' and that it will supply cash ``for as long as it is needed.'' This week, the Fed said it would ``counter the re-emerging risk of volatility'' in money markets and will ``provide sufficient reserves to resist upward pressure'' on borrowing costs around the turn of the year. You know there's a credit crunch when central banks use identical words to name their pain."
Bill Bonner: "It appears that we are reaching a "pushing on a string" problem. The expression is famous in economics. It describes what happens when a deflationary spiral gets out of control. The financial authorities can offer more money on better terms - but the banks and the borrowers turn up their noses. They're already having trouble paying off the debt they've got; they don't want any more. Besides, they're not too sure that others will be able to pay their debts either, which makes them suspicious of both sides of the credit/debt equation. On the one side, the debtors may not be able to pay. On the other side, the creditors may not be able to collect. Whichever side you're on, you're looking for shelter. When this happens, the financial authorities want to put cash and credit in the system. But they are pushing on a string; the system won't take it."
Fyodor Dostoyevsky: “It is not the brains that matter most, but that which guides them -- the character, the heart, generous qualities, progressive ideas.”
Crude-oil futures rallied over $2 a barrel in electronic trading, reversing much of the losses in the last session after U.S. inventory data. Crude futures were up $2.56 to $93.18 a barrel. The rise took place after two Enbridge employees were killed on Wednesday afternoon in an explosion and fire on an Enbridge Energy Partners crude-oil pipeline. Enbridge Inc. and its Enbridge Energy Partners LP subsidiary said in a statement late on Wednesday that the explosion occurred three miles southeast of Enbridge's Clearbrook, Minn., terminal. During the third quarter, the pipeline had carried around 1.5 million barrels per day of Canadian crude, or around 15 percent, of U.S. imports.There was no word on when line 4, the biggest of the connected pipes, which ships nearly 700,000 barrels per day (bpd), would restart. Line 3, with capacity of nearly 450,000 barrels per day (bpd) had been shut earlier to inspect a leak and was also still out of action.The system's No. 3 pipeline, which caught fire as it was being refilled after maintenance, may take two to three days to return to service, Enbridge said in a statement. "Two of the four pipelines have restarted," Larry Springer, a spokesman for Canadian operator Enbridge said on Thursday. "The fire in line three in the last hour has been extinguished, but there could be other fires around it." He did not specify how much throughput had been restored. Canada is the biggest supplier of foreign crude to the United States, with most of that oil delivered via the Enbridge system. A lasting disruption to Lines 3 and 4 -- which together pump more than 1.1 million bpd of heavy and medium crude -- would put a strain on landlocked Midwest refiners, which have few immediate alternatives to the Canadian supplies. Canada was the largest exporter of oil to the U.S. in August, delivering 1.9 million barrels a day, according to the U.S. Energy Department.
The cost of borrowing euros for a month rose by a record and loans in dollars climbed the most in more than a decade as banks sought funds to cover their commitments through to the start of 2008 amid a credit squeeze. The London interbank offered rate that banks charge each other for euro loans due after the end of the year jumped 64 basis points to 4.81 percent, the highest since May 2001, the British Bankers' Association said. The rate charged for dollars jumped 40 basis points to 5.23 percent, the highest since Sept. 18, when policy makers cut the target rate for overnight loans for the first time in 4 1/2 years.
VeraSun Energy Corp.and U.S. BioEnergy Corp. signed a definitive merger agreement, which has been unanimously approved by each company's board. Under the agreement, 0.81 of a VeraSun common share will be issued for each U.S. Energy common share, representing a premium of about 11% based on Nov. 23 closing prices, the companies said Thursday. Upon completion of the merger, the combined company will have nine ethanol production facilities in operation and seven additional facilities under construction. By the end of 2008, the company is expected to have a total production capacity of more than 1.6 billion gallons per year. Holders of a "significant" percentage of the outstanding shares of each company have agreed to vote in favor of the deal.
Citadel Investment Group will lift its stake in E-Trade Financial Corp.to nearly 20% from 3% and infuse $2.55 billion into the New York online brokerage, E-Trade said. Under the terms, Citadel, Chicago, will buy E-Trade's $3 billion of asset-backed securities for about $800 million. And it will buy $1.75 billion of 10-year notes paying annual interest of 12.5%.
Sears Holdings Corp. reported net income of $2 million, or 1 cent a share, for the third quarter ended Nov. 3, down from $196 million, or $1.27 a share, earned in the same period a year ago. The Hoffman Estates, Ill.-based retailer's quarterly merchandise sales and service revenue fell to $11.55 billion from the prior year's $11.94 billion, as domestic comparable-store sales declined 4.6% for the Sears and Kmart chains. Gross margin fell $223 million in the latest quarter -- a performance that left management "very disappointed," said Aylwin Lewis, Sears Holdings' chief executive and president. In addition, the company said that domestic comp-store sales for Nov. 4 through Nov. 27 were down 0.4%, reflecting weakness at Kmart. The company had cash and cash equivalents of $1.1 billion as of Nov. 3, down from $2.6 billion balance at the end of the company's second quarter.
Russia plans to allocate about $118 billion to foreign currencies as part of a reserve fund, and $18 billion to investments in foreign stocks, corporate bonds, sovereign bonds and other fixed-income products, the report said, citing finance ministry official Peter A. Kazakevitch.
Bank of England governor Mervyn King told the U.K. parliament's Treasury Select Committee Thursday that a widening in interest rates spreads in the last few weeks has more to do with worries about credit worthiness than a lack of liquidity.
Shares of National Australia Bank Ltd. fell 0.8% Thursday after the bank announced it had agreed to pay $798 million to acquire privately-owned U.S. lender Great Western Bank, according to reports. Acquisition of the Sioux Falls, South Dakota-based Great Western reportedly fit with NAB's strategy to expand its banking services into farming regions of the U.S. "Great Western offers an ideal springboard to accelerate the organic growth strategy for our agribusiness relationship banking model into the USA," newswires cited NAB Chief Executive John Stewart as saying in a statement.
The WSJ reported that the buyout of the Tribune Co. was back on schedule to be completed by year end after FCC Chairman Kevin Martin proposed a vote tomorrow to grant waivers needed to close the deal.
Jon Markman: "Investors have jumped at shadows before and lost out on profits. But not all shadows are cast by imaginary monsters. Earnings reports will get worse soon, so don't get too excited by this week's rally."
Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm, dropped after CIBC World Markets Inc. cut its share-price estimate by 17 percent, saying credit turmoil will last.
A total of 224,451 foreclosure filings were reported in October, up 94 percent from 115,568 in the same month a year ago, Irvine-based RealtyTrac Inc. said Thursday.The number of filings in October rose 2 percent from September's 223,538. The U.S. had one foreclosure filing for every 555 households in October, RealtyTrac said. In my view, there is plenty of potential for this ratio to get much worse.
U.S. business bankruptcies rose 35% in the third quarter from a year earlier and are likely to climb further in the current period as the slumping housing market and rising energy prices take a toll, according to a study released Wednesday.
The study, by credit insurer Euler Hermes ACI, found that 7,167 U.S. businesses filed for bankruptcy protection during the quarter, up 7% from the second quarter and bringing the total number of filings for the first nine months of the year to 20,152.
Federal Reserve Bank of Dallas President Richard Fisher said he's "very concerned" about the chance of faster inflation, and policy makers are weighing that risk against having "healthy, working" financial markets. "The decision will have to be based on these two counter- forces" at the next interest-rate meeting on Dec. 11, Fisher said today in Amarillo, Texas. "There are people at the table," including Fisher, who have inflation concerns, he said.
China's foreign-exchange reserves rose to a record $1.46 trillion in October. The reserves were $1.43 trillion a month earlier. They're the world's biggest. The trade surplus jumped to $27 billion last month.
Chris Puplava: " Despite the market's two-day rally, don’t be fooled into thinking that the pain of the summer credit crisis is behind us. Quite the contrary, it’s really just picking up steam. The leverage taken on by both consumer and bank alike during the past several years in the housing boom is coming home to roost as both are paying the piper."
Peter Goodman: "The combined value of two leading sources of credit — outstanding commercial and industrial bank loans, and short-term loans known as commercial paper — peaked at about $3.3 trillion in August, according to data from the Federal Reserve. By mid-November, such credit was down to $3 trillion, a drop of nearly 9 percent. Not once in the years since the Fed began tracking such numbers in 1973 has this artery of finance constricted so rapidly. Smaller declines preceded three recessions going back to 1975; at other times such declines tended to occur in conjunction with an economic downturn."
In California, sales volume fell 40.2 percent in October compared with a year ago, while the median price slumped 9.9 percent, the California Association of Realtors said Wednesday. Sales in the Bay Area, which the group defines as Alameda, Contra Costa, Marin, San Francisco, Santa Clara, San Mateo and Solano counties, fell 41.5 percent. The median price in the region was up 8.9 percent to $810,490, compared with $744,300 a year ago. Median price is strongly affected by the composition of homes sold; in the Bay Area the median has been buoyed because a greater number of more-expensive homes have been sold.
Continuing jobless claims rose by 112,000 in the week ending Nov. 17, to 2.66 million, the highest mark since Dec. 24, 2005, the Labor Department said. Initial jobless claims also shot up in the latest week, the data show. Those claims rose by 23,000 to 352,000 during the week ending Nov. 24, their highest level since Feb. 10.
A total of 728,000 new houses were purchased at annual rate, compared with a median forecast of 750,000 of economists surveyed by Bloomberg News. The figure was up from a revised 716,000 pace in September that was the lowest in almost 12 years, the Commerce Department reported today in Washington.
The U.S. Energy Information Administration reported on Thursday U.S. natural gas storage fell 12 billion cubic feet in the week ending Nov. 23. Natural gas inventories stood at 3,528 billion cubic feet in the latest week, 106 billion cubic feet higher than last year at this time and 301 billion cubic feet above the 5-year average, the EIA said.
The Administration only trimmed slightly its growth forecast for 2008 to 2.7% from the previous estimate this summer of a 3.1% growth rate. The unemployment rate will tick up to 4.9% next year from 4.7% currently. Job gains will average 109,000 over the twelve months of next year. Inflation will remain contained. In this case, fairy tales do not come true.
Andersons raises 2007 EPS target to $3.40-$3.60.
Freddie Mac priced its $6 billion fixed-to-floating rate non-convertible non-cumulative perpetual preferred stock at $25 a share. The shares have a fixed dividend rate of 8.375% through Dec. 31, 2012. The dividend will then rise to 416 basis points over 3-month London Interbank Offered Rate or 7.875%, Freddie Mac said. The shares are expected to be issued on Dec. 4.
J. Crew lifted its 2007 earnings target to a range of $1.50 to $1.52 a share, as compared to its previous target of $1.42 to $1.46.
Sprint Nextel Corp. rejected a $5 billion investment offer by South Korea's SK Telecom and private equity firm Providence Equity Partners, the Wall Street Journal reported Thursday on its website, citing people familiar with the matter.
Crude-oil futures for January delivery closed up 39 cents, or 0.4%, at $91.01 a barrel on the New York Mercantile Exchange. To say the least, that was disappointing after rising $4.55 to an intraday high of $95.17 a barrel in electronic trading overnight.
Florida halted withdrawals from a $15 billion local government fund on Thursday after concerns about subprime-mortgage-related losses prompted investors to pull roughly $10 billion out of the fund in recent weeks.
Gold for December delivery fell $5.0 to finish at $795.30 an ounce on the New York Mercantile Exchange.
Alexander Medvedev, deputy chairman of the managing committee of Russia's Gazprom, said the world's largest natural gas company is on track to hit $1 trillion in market capitalization in the next few years.
Karl Marx: “The meaning of peace is the absence of opposition to socialism.”
Wednesday, November 28, 2007
The ABX Index
11/29/07 The ABX Index
Citigroup dismissed a call from an unnamed prominent investment banker pitching a merger with Bank of America, The Wall Street Journal reported Wednesday, citing a person familiar with the matter. The overture came while the bank was dealing with billions of dollars in mortgage-related losses and the departure of Chief Executive Charles Prince, the report said. Citi dismissed the informal approach "totally out of hand," the newspaper said. What would take place if a Chinese bank offered $40 a share, for example, for a 24.9% interest in Citigroup?
Banc of America Securities cut its rating on the New York Times Co. to sell from neutral, and it cut the newspaper publisher's price target cut to $14 from $21.
In early Wednesday trading, gold futures for December delivery fell $18.80 to $795.20 an ounce, while the euro slipped 0.6% at $1.4746. The dollar index, which measures the greenback against a basket of six major currencies, was at 75.38, up from 75.210 late Tuesday.
BHP Billiton Chairman Don Argus said at the annual meeting in Adelaide Wednesday that he would continue to try and win support for the merger by going over the benefits in direct talks with Rio Tinto's management. "We believe that a combination of the two would deliver more shareholder value than either is capable of delivering alone," Argus said, according to archived notes. "The combination presents an opportunity to create the world's premier diversified natural-resources company, and in our view no other combination is as logical and compelling." BHP Billiton Chief Executive Marius Kloppers said the merger would reduce production costs and lead to sharing of infrastructures that would deliver more ore to customers faster. "These two companies are worth more together than apart," Kloppers said. "It is not a question of us needing them, or them needing us." BHP Billiton got financing for its $120 billion proposal to buy rival Rio Tinto Group from seven banks with a loan of as much as $70 billion.
Online retail sales on so-called "Cyber Monday" hit a record of $733 million, according to data released Tuesday by comScore Inc. ComScore (SCOR) said sales on what is reputed to be the busiest online shopping day of the year represented a 21% increase over the same day a year earlier. ComScore also said more than $10.7 billion has been spent during the holiday season since Nov. 1, a 17% increase over the same period a year earlier.
John Lee: "The (ABX) index shows collectively, that mortgages GSE's (Fannie and Freddie) guarantee are selling at .70 cents on the dollar. Freddie's $120 billion and Fannie's $42 billion of exposure to GSE-qualified mortgages means a write-down of over $30 billion and $10 billion respectively. Given that both outfits have about $1 billion in excess capital, they are now technically insolvent, especially when the ABX index is showing no signs of reversing. Freddie has hired Goldman Sachs and Lehman Brothers as advisors to help it raise capital in the very near term, but our take is that no sane institution will lend money to Freddie. If left to their own devises by the government, Fannie and Freddie are doomed...Not only are mortgage-backed securities distressed, but auto-loan backed securities and credit-backed securities are now beginning to experience pressure. The world had a love affair with the Dollar, and happily ate up any Dollar-denominated package that threw a 5% interest at them. This $30 trillion+ affair has ended and the aftermath is not pretty."
Meanwhile, an analysis of the ABX indices by Goldman Sachs last week showed the index was pricing in cumulative losses of $402 billion, or 29% of the subprime mortgage market, roughly double the $211 billion it has estimated. This figure assumes 32% of the losses priced into the ABX will come from loans issued in 2007, and 39% of losses will come from loans issued in 2006, with the balance relating to prior years. Goldman said the AAA-rated slice of the index had fallen too far, and should have no losses, regain their 22% losses and trade at par.
Federal Reserve Vice Chairman Donald Kohn said on Wednesday he factored some tightening of credit from the financial turmoil into his policy decisions, but recent turbulence may restrict credit more than previously thought. "The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and October," he said in remarks prepared for delivery to the Council on Foreign Relations in New York. "Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said
"Uncertainties about the economic outlook are unusually high right now. In my view, these uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago," Kohn said
.
RV shipments fell 11.1 percent through Sept. 30. Shipments will probably end the year down 10 percent, said Mack Bryan, vice president of administration at the RV industry trade group, which is holding this week's Louisville show."This is an industry highly sensitive to consumer spending," said Bryan. The University of Michigan forecast of a decline through 2008 comes on the heels of the industry's best year in three decades. In 2006, RV shipments rose 1.6 percent to 390,500 trailers and motor homes, capping five straight years of growth. That streak broke a 20-month decline
.
Federal Communications Commission Chairman Kevin Martin suffered a rare defeat yesterday, when fellow commissioners refused to support his proposal to tighten regulation of the cable industry. The result is a victory for cable companies, which had vociferously objected to Mr. Martin's plans. It means consumers probably won't soon be able to buy cable channels individually.
According to Bloomberg, the cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise for a 13th day, its longest winning streak since March, as owners' confidence strengthens. A rally in rental rates that started Nov. 12 began because of a lack of vessels on specific dates and has now become ``sentiment driven,'' Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. Refineries will ship as many as 115 cargoes in December, he said. That would mean the number of ships that can reach the region's ports will be about double demand, based on data today from Paris-based shipbroker Barry Rogliano Salles.
Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, plans to cut 1,300 jobs in the U.S. in its fiscal second quarter as the worst housing recession for 16 years hurts profit.
Brett Steenbarger: "Among NYSE common stocks, we had 15 new 52-week highs, against 193 new lows. Interestingly, that's an expansion of new lows relative to Tuesday. We saw a marginal expansion of new 20-day lows across the three exchanges: 220 new 20-day highs and 1793 new lows. Among the stocks in my basket, we had 4 that were technically strong at the close, 6 that were neutral, and 30 that were weak, a bit of improvement from Tuesday. Until we see a drying up of new lows and sharply stronger momentum figures (Demand/Supply was 59/41 on Tuesday), I will continue to keep powder dry."
With demand for high-technology goods weakening, orders for U.S.-made durable goods fell for the third straight month in October, falling 0.4%, the Commerce Department reported Wednesday. As orders for volatile defense capital goods rose 16.1%, led by demand for military ships. Excluding defense goods, orders dropped 0.9%. The report provides more evidence that the manufacturing sector is slowing despite booming exports. Demand for core capital investment goods fell 2.3%, the biggest drop since February.
Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday. Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999. The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since 1999. For single-family homes alone, the inventory of 10.5 months is the highest since July 1985.
According to Bloomberg, natural gas in New York declined on an outlook that above-average supplies are ample for winter. The month may end with 3.447 trillion cubic feet of gas in storage, which would be the second highest on record ``with 1990 holding the title at 3.472 trillion,'' said Martin King, an analyst at FirstEnergy Capital in Calgary. King anticipates a total heating season withdrawal of 2.09 trillion cubic feet by the end of March, leaving stockpiles at 1.444 trillion. The U.S. typically draws about 2 trillion cubic feet from inventories during winter.
I continue to believe that, at $7.20, natural gas offers a favorable risk/reward.
U.S. crude inventories fell by 400,000 million barrels to 313.2 million barrels in the week ending Nov. 23, EIA said on Wednesday. Gasoline supplies rose by 1.4 million barrels in the latest week, while distillate stocks fell by 100,000 barrels, EIA said.
Shares in Rohm and Haas Co. rallied Wednesday after the specialty-chemical maker warned investors that high raw-material costs would cut into fourth-quarter results but forecast price hikes that would offset some of this inflation next year.
President Bush's economic adviser Al Hubbard announced his resignation.
Bloggingstocks.com: "The market currently trades at a PE of 16 -- but based on adjustments to remove short term spikes by Yale market guru Robert Schiller -- Fortune uses a PE of 22 -- which is the inverse of the market's earnings yield of 4.5%. Investors expect equity returns of 7% -- calculated by adding expected inflation of 2.5% to that 4.5%. To get the equity risk premium of 3% Fortune subtracted the 10-year treasury rate of 4% from that 7% expected return. Got that? But we're not there yet. Over the past 50 years, the risk premium has averaged around 5%. Given the ease of diversifying portfolios and the Fed's ability to smooth economic cycles, investors only need 4%. To get from the current equity risk premium of 3% to long run level of 4%, Fortune calculates that stocks still need to drop an additional 18%."
Bear Stearns Cos. will cut 650 positions, or about 4 percent of its work force, in further attempts to reduce costs at the battered investment bank, according to an internal memo obtained Wednesday by The Associated Press.
The economic slowdown has begun, according to the Federal Reserve's latest report on conditions across the country released Wednesday. The economy continued to grow, but at a reduced pace, according to the report, known informally as the Beige Book. The glut of available homes for sale is keeping downward pressure on house prices and construction activity. No turnaround is on the horizon until well into 2008, contacts said. Two of the few bright spots were manufacturing and tourism which benefit from the weaker dollar. The report found soft retail sales, pessimism about the holiday season and concern that goods are piling up on shelves. The financial market turmoil is impacting the market for credit. Business loans are down and standards for consumer loans are up.
It's a "close call" whether the U.S. economy can avoid recession in 2008, economists for Credit Suisse said Wednesday in an updated forecast. They expect the Federal Reserve to cut interest rates by another full percentage point by the end of 2008 to 3.5%.
Crude got hit by $3.80 and closed at $90.62. Natural gas dropped 35 cents to $7.20. Overall crude supplies fell during the week ended Nov. 23 by 400,000 barrels, in line with the 500,000 barrel decrease analysts had expected. But that decline was overshadowed by a 600,000 barrel increase in inventories in Cushing, Okla. Cushing inventories are up 13.4 percent in two weeks. Prices were also pressured by a surprising jump in refinery activity last week of 2.4 percent, to 89.4 percent of capacity, much more than the 0.6 percent rise analysts had expected. At the pump, meanwhile, gas prices rose 0.5 cent overnight to a national average of $3.096 a gallon, according to AAA and the Oil Price Information Service. It was the second increase in as many days, though prices remain 1.6 cents below their most recent peak. Demand for gasoline continues to rise, but at a slow pace, analysts say. Gasoline demand rose last week by 134,000 barrels, and is up 0.4 percent over the last four weeks compared with the same period last year, the Energy Department's Energy Information Administration said in its weekly inventory report.
Despite the bad news, equities had one of their best days ever. Even the dogs participated in the Dow rising 331, the Nasdaq 82, and the S&P 40. The shorts could not cover quickly enough. Can you imagine if the news had been good? Then the market would have gone down. Why? Because then the Fed would not cut interest rates at their December meeting.
The futures market moved to price in a 94 per cent chance that the Fed will cut rates by 25bp to 4.25 per cent at its next policy meeting on December 11.
Oliver Wendell Holmes: “The great thing in the world is not so much where we stand, as in what direction we are moving.”
Citigroup dismissed a call from an unnamed prominent investment banker pitching a merger with Bank of America, The Wall Street Journal reported Wednesday, citing a person familiar with the matter. The overture came while the bank was dealing with billions of dollars in mortgage-related losses and the departure of Chief Executive Charles Prince, the report said. Citi dismissed the informal approach "totally out of hand," the newspaper said. What would take place if a Chinese bank offered $40 a share, for example, for a 24.9% interest in Citigroup?
Banc of America Securities cut its rating on the New York Times Co. to sell from neutral, and it cut the newspaper publisher's price target cut to $14 from $21.
In early Wednesday trading, gold futures for December delivery fell $18.80 to $795.20 an ounce, while the euro slipped 0.6% at $1.4746. The dollar index, which measures the greenback against a basket of six major currencies, was at 75.38, up from 75.210 late Tuesday.
BHP Billiton Chairman Don Argus said at the annual meeting in Adelaide Wednesday that he would continue to try and win support for the merger by going over the benefits in direct talks with Rio Tinto's management. "We believe that a combination of the two would deliver more shareholder value than either is capable of delivering alone," Argus said, according to archived notes. "The combination presents an opportunity to create the world's premier diversified natural-resources company, and in our view no other combination is as logical and compelling." BHP Billiton Chief Executive Marius Kloppers said the merger would reduce production costs and lead to sharing of infrastructures that would deliver more ore to customers faster. "These two companies are worth more together than apart," Kloppers said. "It is not a question of us needing them, or them needing us." BHP Billiton got financing for its $120 billion proposal to buy rival Rio Tinto Group from seven banks with a loan of as much as $70 billion.
Online retail sales on so-called "Cyber Monday" hit a record of $733 million, according to data released Tuesday by comScore Inc. ComScore (SCOR) said sales on what is reputed to be the busiest online shopping day of the year represented a 21% increase over the same day a year earlier. ComScore also said more than $10.7 billion has been spent during the holiday season since Nov. 1, a 17% increase over the same period a year earlier.
John Lee: "The (ABX) index shows collectively, that mortgages GSE's (Fannie and Freddie) guarantee are selling at .70 cents on the dollar. Freddie's $120 billion and Fannie's $42 billion of exposure to GSE-qualified mortgages means a write-down of over $30 billion and $10 billion respectively. Given that both outfits have about $1 billion in excess capital, they are now technically insolvent, especially when the ABX index is showing no signs of reversing. Freddie has hired Goldman Sachs and Lehman Brothers as advisors to help it raise capital in the very near term, but our take is that no sane institution will lend money to Freddie. If left to their own devises by the government, Fannie and Freddie are doomed...Not only are mortgage-backed securities distressed, but auto-loan backed securities and credit-backed securities are now beginning to experience pressure. The world had a love affair with the Dollar, and happily ate up any Dollar-denominated package that threw a 5% interest at them. This $30 trillion+ affair has ended and the aftermath is not pretty."
Meanwhile, an analysis of the ABX indices by Goldman Sachs last week showed the index was pricing in cumulative losses of $402 billion, or 29% of the subprime mortgage market, roughly double the $211 billion it has estimated. This figure assumes 32% of the losses priced into the ABX will come from loans issued in 2007, and 39% of losses will come from loans issued in 2006, with the balance relating to prior years. Goldman said the AAA-rated slice of the index had fallen too far, and should have no losses, regain their 22% losses and trade at par.
Federal Reserve Vice Chairman Donald Kohn said on Wednesday he factored some tightening of credit from the financial turmoil into his policy decisions, but recent turbulence may restrict credit more than previously thought. "The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and October," he said in remarks prepared for delivery to the Council on Foreign Relations in New York. "Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said
"Uncertainties about the economic outlook are unusually high right now. In my view, these uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago," Kohn said
.
RV shipments fell 11.1 percent through Sept. 30. Shipments will probably end the year down 10 percent, said Mack Bryan, vice president of administration at the RV industry trade group, which is holding this week's Louisville show."This is an industry highly sensitive to consumer spending," said Bryan. The University of Michigan forecast of a decline through 2008 comes on the heels of the industry's best year in three decades. In 2006, RV shipments rose 1.6 percent to 390,500 trailers and motor homes, capping five straight years of growth. That streak broke a 20-month decline
.
Federal Communications Commission Chairman Kevin Martin suffered a rare defeat yesterday, when fellow commissioners refused to support his proposal to tighten regulation of the cable industry. The result is a victory for cable companies, which had vociferously objected to Mr. Martin's plans. It means consumers probably won't soon be able to buy cable channels individually.
According to Bloomberg, the cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may rise for a 13th day, its longest winning streak since March, as owners' confidence strengthens. A rally in rental rates that started Nov. 12 began because of a lack of vessels on specific dates and has now become ``sentiment driven,'' Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. Refineries will ship as many as 115 cargoes in December, he said. That would mean the number of ships that can reach the region's ports will be about double demand, based on data today from Paris-based shipbroker Barry Rogliano Salles.
Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, plans to cut 1,300 jobs in the U.S. in its fiscal second quarter as the worst housing recession for 16 years hurts profit.
Brett Steenbarger: "Among NYSE common stocks, we had 15 new 52-week highs, against 193 new lows. Interestingly, that's an expansion of new lows relative to Tuesday. We saw a marginal expansion of new 20-day lows across the three exchanges: 220 new 20-day highs and 1793 new lows. Among the stocks in my basket, we had 4 that were technically strong at the close, 6 that were neutral, and 30 that were weak, a bit of improvement from Tuesday. Until we see a drying up of new lows and sharply stronger momentum figures (Demand/Supply was 59/41 on Tuesday), I will continue to keep powder dry."
With demand for high-technology goods weakening, orders for U.S.-made durable goods fell for the third straight month in October, falling 0.4%, the Commerce Department reported Wednesday. As orders for volatile defense capital goods rose 16.1%, led by demand for military ships. Excluding defense goods, orders dropped 0.9%. The report provides more evidence that the manufacturing sector is slowing despite booming exports. Demand for core capital investment goods fell 2.3%, the biggest drop since February.
Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday. Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999. The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since 1999. For single-family homes alone, the inventory of 10.5 months is the highest since July 1985.
According to Bloomberg, natural gas in New York declined on an outlook that above-average supplies are ample for winter. The month may end with 3.447 trillion cubic feet of gas in storage, which would be the second highest on record ``with 1990 holding the title at 3.472 trillion,'' said Martin King, an analyst at FirstEnergy Capital in Calgary. King anticipates a total heating season withdrawal of 2.09 trillion cubic feet by the end of March, leaving stockpiles at 1.444 trillion. The U.S. typically draws about 2 trillion cubic feet from inventories during winter.
I continue to believe that, at $7.20, natural gas offers a favorable risk/reward.
U.S. crude inventories fell by 400,000 million barrels to 313.2 million barrels in the week ending Nov. 23, EIA said on Wednesday. Gasoline supplies rose by 1.4 million barrels in the latest week, while distillate stocks fell by 100,000 barrels, EIA said.
Shares in Rohm and Haas Co. rallied Wednesday after the specialty-chemical maker warned investors that high raw-material costs would cut into fourth-quarter results but forecast price hikes that would offset some of this inflation next year.
President Bush's economic adviser Al Hubbard announced his resignation.
Bloggingstocks.com: "The market currently trades at a PE of 16 -- but based on adjustments to remove short term spikes by Yale market guru Robert Schiller -- Fortune uses a PE of 22 -- which is the inverse of the market's earnings yield of 4.5%. Investors expect equity returns of 7% -- calculated by adding expected inflation of 2.5% to that 4.5%. To get the equity risk premium of 3% Fortune subtracted the 10-year treasury rate of 4% from that 7% expected return. Got that? But we're not there yet. Over the past 50 years, the risk premium has averaged around 5%. Given the ease of diversifying portfolios and the Fed's ability to smooth economic cycles, investors only need 4%. To get from the current equity risk premium of 3% to long run level of 4%, Fortune calculates that stocks still need to drop an additional 18%."
Bear Stearns Cos. will cut 650 positions, or about 4 percent of its work force, in further attempts to reduce costs at the battered investment bank, according to an internal memo obtained Wednesday by The Associated Press.
The economic slowdown has begun, according to the Federal Reserve's latest report on conditions across the country released Wednesday. The economy continued to grow, but at a reduced pace, according to the report, known informally as the Beige Book. The glut of available homes for sale is keeping downward pressure on house prices and construction activity. No turnaround is on the horizon until well into 2008, contacts said. Two of the few bright spots were manufacturing and tourism which benefit from the weaker dollar. The report found soft retail sales, pessimism about the holiday season and concern that goods are piling up on shelves. The financial market turmoil is impacting the market for credit. Business loans are down and standards for consumer loans are up.
It's a "close call" whether the U.S. economy can avoid recession in 2008, economists for Credit Suisse said Wednesday in an updated forecast. They expect the Federal Reserve to cut interest rates by another full percentage point by the end of 2008 to 3.5%.
Crude got hit by $3.80 and closed at $90.62. Natural gas dropped 35 cents to $7.20. Overall crude supplies fell during the week ended Nov. 23 by 400,000 barrels, in line with the 500,000 barrel decrease analysts had expected. But that decline was overshadowed by a 600,000 barrel increase in inventories in Cushing, Okla. Cushing inventories are up 13.4 percent in two weeks. Prices were also pressured by a surprising jump in refinery activity last week of 2.4 percent, to 89.4 percent of capacity, much more than the 0.6 percent rise analysts had expected. At the pump, meanwhile, gas prices rose 0.5 cent overnight to a national average of $3.096 a gallon, according to AAA and the Oil Price Information Service. It was the second increase in as many days, though prices remain 1.6 cents below their most recent peak. Demand for gasoline continues to rise, but at a slow pace, analysts say. Gasoline demand rose last week by 134,000 barrels, and is up 0.4 percent over the last four weeks compared with the same period last year, the Energy Department's Energy Information Administration said in its weekly inventory report.
Despite the bad news, equities had one of their best days ever. Even the dogs participated in the Dow rising 331, the Nasdaq 82, and the S&P 40. The shorts could not cover quickly enough. Can you imagine if the news had been good? Then the market would have gone down. Why? Because then the Fed would not cut interest rates at their December meeting.
The futures market moved to price in a 94 per cent chance that the Fed will cut rates by 25bp to 4.25 per cent at its next policy meeting on December 11.
Oliver Wendell Holmes: “The great thing in the world is not so much where we stand, as in what direction we are moving.”
Tuesday, November 27, 2007
Correction
11/28/07 Correction
Monday’s declines took all three major U.S. indexes down 10% from their recent highs, into so-called correction territory.
Philadelphia Fed President Charles Plosser strongly suggested that he is not in favor of an additional rate cut at the next policy meeting on Dec. 11. "It is important to recognize that the Fed cannot resolve this price discovery problem. The markets will have to figure this out," Plosser said in his prepared remarks. "Arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks," Plosser said. Indeed, rate cuts might only delay the painful process, he said.
Chicago Fed Bank President Charles Evans said Tuesday he remained content with the current level of short-term interest rates. "As of today, I feel that the stance of monetary policy is consistent with achieving our dual mandate objectives and will help promote well-functioning financial markets," he said.
In early Tuesday trading, Seoul's Kospi index was down 2.8% lat 1,803.52 while Tokyo's Nikkei was down 1.8% at 14,863.21 while the Topix index eased 1.9% at 1,438.92. Elsewhere around the region, the S&P/ASX fell 1.8% to 6,358.2 and New Zealand's NZX 50 fell 0.2% to 4,067.154. In Seoul trading, shares of Posco fell 4.3%, Samsung Electronics eased 3.4%. In Tokyo, shares of Canon eased 2.3% while Nikon Corp fell 2.9% and banking giant Mitsubishi UFJ Group was down 2%.
Robin Williams: “When in doubt, go for the dick joke.”
Citigroup Inc. is to receive a $7.5 billion capital injection from the investment arm of the Abu Dhabi government, the bank said in a statement Tuesday. Citi said it would sell $7.5 billion in equity units convertible into common shares to the Abu Dhabi Investment Authority, with the capital injection equivalent to 4.9% of Citi's total shares outstanding. ADIA will receive convertible stock in Citigroup yielding 11% annually. Shares are required to be converted into common stock at a conversion price of between $31.83 and $37.24 a share over a period of time between March 2010 and September 2011. With all the hoopla, Citigroup shares were only able to gain a small fraction on Tuesday.
European shares moved off early lows on Tuesday, boosted by gains from the financial sector after a $7.5 billion capital injection for U.S. lender Citigroup and gains of around 5% from Barclays as the latter expects 2007 profit to meet expectations.
Japanese financial cooperative Norinchukin Bank has written off almost 40 billion yen ($369.15 million) related to investments in U.S. subprime-mortgage securities for the half fiscal year ending Sept. 30, according to reports. The financial institution, which caters to agriculture, forestry and fishery cooperatives, has another 500 billion yen in investments tied in some way to the troubled U.S. mortgage market, the Nikkei News reported in its Tuesday evening edition. The report said the bank may have to write off an additional 10 billion yen to 20 billion yen to account for the financial term ending March 2008.
George W. Bush, US president, and Nouri al-Maliki, Iraqi prime minister, have signed a declaration that paves the way for a possible long-term US presence in Iraq in addition to the restoration of full Iraqi sovereignty.
At the end of September, Countrywide had borrowed $51.1 billion from the Federal Home Loan Bank system -- a government-sponsored program.
Between The Hedges: "I still think an imminent recession in the U.S. is virtually impossible if not accompanied by a significant slowdown overseas. Investors continue to price in this scenario, despite little evidence its occurrence...The AAII Bull Ratio 4-week Average is a depressed .42. It has only been lower during 6 other periods the last ten years. Moreover, the 10-week moving average of the percentage of bears is currently at 39.1%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. The 50-week moving average of the percentage of bears is currently 37.6%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990 to July 1991 and March 2003 to May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently still close to eclipsing the peak in long-term bearish sentiment during the 2000 to 2003 market meltdown. I find this astonishing, notwithstanding the recent pullback, given that the S&P 500 is 97.6% higher from the October 2002 major bear market lows and just 7.7% off a record high. It is also noteworthy that as pessimism grows ever thicker, corporate insider activity remains very bullish. Prior to the 2000 economic downturn, insiders were bailing in droves. Sales rose 8.3 percent on "Black Friday" compared with the same day a year ago, according to the National Retail Sales Estimate from ShopperTrak. Moreover, online retail spending on “Black Friday” soared 22% over last year."
Mining group Rio Tinto on Monday attempted to bolster its defences against a proposed £64bn ($133bn) takeover by rival BHP Billiton, promising to sell up to $30bn of non-core assets and raise its dividend by 30 per cent.
BHP Billiton Ltd., the world's largest mining company, is losing the support of investors and steelmakers for its proposed $128 billion takeover of Rio Tinto Group. The hostile bid by Chief Executive Officer Marius Kloppers has wiped out $32 billion of market value at Melbourne-based BHP in two weeks, while angering customers Posco, Korea's biggest steelmaker, and JFE Steel Corp., ranked third worldwide. The record commodities acquisition will raise iron ore prices and should be blocked by regulators, the steelmakers say.
Woody Allen: "The only time my wife and I had a simultaneous orgasm was when the judge signed the divorce papers."
According to Seeking Alpha, Office Depot described Black Friday's sales as "okay," and said an earnings decline is likely in the current quarter in an SEC filing Monday. The company said to date, fourth quarter sales have been softer than the previous quarter, and referred to the holiday retail outlook as "uncertain." Office Depot went on to say it sees the first quarter of 2008 to remain challenging.
Staples Inc. said third-quarter net income for the three months ended Nov. 3 fell 5% to $275 million, or 38 cents a share, from $290 million, or 39 cents a share in the year-ago period. Adjusted earnings rose to 42 cents a share in the latest period. Sales rose to $5.17 billion from $4.76 billion.
Oil fell below $95 a barrel in early Tuesday trading as investors bet that the OPEC exporter group will boost supply for a second time this year at a meeting next week to cool near-record prices. Recently, Saudi Arabia boosted production to 9 million barrels per day (bpd).
The property value of U.S. homes will fall by $1.2 trillion, and "at least" 1.4 million homeowners will lose their properties to foreclosure in 2008, according to a study released Tuesday by the U.S. Conference of Mayors and the Council for the New American City.
The subprime mortgage fiasco stands to cost the Bay Area economy more than $5.4 billion next year, according to the latest report intending to put a dollar figure on the rising wave of real estate foreclosures.
Home prices fell in September in all 20 major cities covered by the Case-Shiller price index, even in cities that had been holding up, Standard & Poor's reported.
For the national Case-Shiller home price index, prices fell 1.7% in the third quarter compared with the second quarter, and were down a record 4.5% in the past year. It was the largest quarter-to-quarter price decline in the 20 years covered by the index.
In the 20-city index, prices fell a record 4.9% year-over-year. Prices were down 5.5% year-over-year in the original 10-city index, the largest drop in the 10-city index since 1991.
The last time prices fell so much, it took more than eight years for home prices to return to their peak level.
Mike Shedlock: "Curve watchers continue to point out that mortgage rates on 30-yr fixed and 1 year arms are above where they were a year ago in spite of 75 basis points in cuts by the Fed...LIBOR rates are lower than they were a year ago, but take a look at the spreads between LIBOR and the Fed Funds Rate. Six months ago the spread between the 1 month LIBOR and the Fed Funds Rate was a mere 7 basis points. The spread between the 3 month LIBOR and the Fed Funds Rate was a mere 11 basis points. Today, the spreads are 30 basis points and 55 basis points respectively. They are also headed the wrong way compared to a month ago. This is a sign that banks are reluctant to lend overnight to one another. They are holding onto to cash and treasuries which is driving up costs of overnight lending. Real cash is in short supply. The situation is worse in Europe with the ECB set to pump cash into money markets over liquidity concerns. Another sign of stress is talk about intervention in the Euro to help exports."
Iran said Tuesday it has manufactured a new missile with a range of 1,200 miles capable of reaching Israel and U.S. bases in the Mideast, the official news agency IRNA reported.
According to Bloomberg, the cost of shipping Middle East crude to Asia, which more than doubled in 11 trading days, may be constrained because refineries have already hired most of the ships they need for December. Refineries hired 82 ships to load in December, leaving about 30 to 40 outstanding cargoes, according to a report today from Paris-based broker Barry Rogliano Salles. Fifty-five available very large crude carriers, or VLCCs, can reach the region's ports by Dec. 27, according to the shipbroker. ``Activity might be tapering off,'' Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. Sentiment among owners is ``still strong'' and ``further increases should be possible,'' he said.
"[W]e remain committed to our previous guidance for fourth quarter pre-impairment earnings and cash position, and we continue to improve our already strong balance sheet," said Pulte CEO Richard J. Dugas, Jr. in a release. He said the company is "selling and closing standing inventory and lowering overall land investment levels, all in an effort to generate cash and give Pulte maximum flexibility entering 2008."
China will tighten controls on bank lending to avoid measures that could result in a "hard landing" for the world's fourth-largest economy, Dow Jones Newswires reported Tuesday, citing a memorandum of a meeting between regulators and bank executives. Banks in China, both foreign and domestic, were told to submit lending plans for next year, while authorities recommended quarterly lending quotas, according to a memo of the meeting seen by Dow Jones Newswires.
According to Business Week, China plans to build a strategic oil reserve near the southwestern industrial city of Chongqing to help assure supplies to its inland and western regions, officials said Tuesday. The reserves would be part of a second phase of building up such strategic stockpiles. The program started with oil stored in eastern China near Shanghai, and other reserves are planned for the northeast and the south.
San Francisco-based mortgage investor Luminent Mortgage Capital Inc. said Tuesday it received a notice of default on its $90 million convertible senior notes, related to the company's delay in filing its quarterly report.
Brad Setser: "Using the BP data, I estimate that a $10 a barrel increase in the price of oil would:
* Increase the US trade deficit by about $50b over the course of the year.
* Lead to a $46b (euro 31b) deterioration in the EU-25 trade balance. The EU-25 imports a bit less oil than the US (12.6 mbd v 13.7 mbd) even though it produces less oil than the US and has a somewhat larger economy.
And conversely, each $10 increase in the barrel of oil means:
* An additional $57b for the GCC states (Saudi Arabia, Abu Dhabi, Dubai and the other emirates, Kuwait, Qatar and Oman) to spend or invest.
* An additional $25-26b for Russia.
* An additional $10b for the Iranian government.
* An additional $9.5 or so for the socially conscious burghers of Norway to stash away in their already quite substantial sovereign wealth fund.
* An additional $8b or so for Venezuela."
Jeff Saut: "What we may be dealing with is more of a solvency rather than a liquidity issue. Recently, many articles have dealt with certain financial institutions’ “Equity Base” being smaller than their exposure to “Level 3 Assets.” Plainly, all these folks’ Level 3 Assets are not going to go bad, but the new FASB #157 accounting rule forces financial institutions to divide assets into three categories called Level 1, Level 2, and Level 3. Under FASB’s terminology, Level 1 assets can be marked-to-market (valued on real prices). Level 2 assets are marked-to-model (an estimate based on observable inputs). Level 3 assets, however, have been marked-to-myth until now. With FASB 157’s implementation it appears these assets will be much more stringently valued on the balance sheet, potentially raising “solvency” questions. Because the central banks are much less effective at dealing with “solvency issues” than they are with “liquidity issues” this too makes me cautious."
In early Tuesday trading, Dec. gold is down $9.40 at $817.10 an ounce on the Nymex.
Goldman Sachs on Tuesday downgraded the U.S. automobile sector to "cautious," in part due to growing concerns about the U.S. macro outlook and its implication for auto sales
Tracinda Corp. said Tuesday it's withdrawing its cash tender offer of $64 a share for up to 21.875 million shares of Tesoro after the latter put in a poison pill. The poison pill would have been triggered if any shareholder acquired more than 20% of Tesoro. It would not have applied, however, if Tracinda had followed through with its tender offer, which would have raised its total stake in the Houston firm to nearly 20%.
Goldman Sachs economists on Tuesday said they now expect the U.S. Federal Open Market Committee to cut interest rates to 3% by mid-2008, down from its earlier forecast of 4%. "The main reason is that the worsening housing downturn has pushed the risk of a U.S. recession in 2008 to 40%-45%, from around 30% previously," Goldman said.
Tribune says revs down 9.3% in Oct Co announces its summary of revs and newspaper advertising volume for period 10, ended Oct. 28, 2007. Consolidated revs for the period were $383 mln, down 9.3% from last year's $422 mln. Publishing revs in October were $287 mln compared with $311 mln last year, down 7.9%. Advertising revs decreased 10.6% to $222 mln, compared with $249 mln in Oct.
A director of Allstate Corp., an insurance company, bought 10,000 shares of stock, according to a Securities and Exchange Commission filing Friday. In a Form 4 filed with the SEC, Robert D. Beyer reported he bought the shares for $49.66 apiece to $49.70 apiece on Wednesday.
Shares of drug maker Mylan Inc. gained ground Tuesday after a Goldman Sachs analyst upgraded the stock, placing it on a list of recommended securities due to Mylan's growth prospects.
U.S. Nov. consumer confidence falls to 87.3 vs. 95.2. U.S. Nov.. expectations index falls to 68.7, 4-year low. The present situation index fell modestly to 115.4 from 118.0.
The conforming loan limit for single-family mortgages eligible for purchase by Fannie Mae and Freddie Mac will remain at $417,000 in 2008, the companies' regulator said Tuesday.
The euro was at $1.4868, compared with $1.4870 late Monday despite stronger-than-expected German business confidence data. The dollar index, which measures the greenback against a basket of six major currencies, was at 74.945, up from 74.815 Monday.
Nabors Industries is selling at the lowest price since the Spring of 2005.
Sprint sold at its lowest price since the fourth quarter of 2003. My thought was to purchase the Jan. 14 calls for $1 with the stock at $14.48. That appears to offer an attractive risk/reward potential.
In the first two hours of trading on Tuesday, Google had a range of $650 to $676 and yet was up only $1 during the same time the Dow was up 155 points. Let's keep an eye on this comparison in the days ahead.
Gold for December delivery finished down $12.50 at $814 an ounce on the New York Mercantile Exchange. Crude-oil futures for January delivery closed down $3.28, or 3.4%, at $94.42 on the New York Mercantile Exchange, the lowest closing price since Nov. 19.
The equity market reversed Monday's downdraft. The Dow closed up 220, the Nasdaq about 40, and the S&P 21 points.
George Carlin: “Not only do I not know what's going on, I wouldn't know what to do about it if I did”
Marvell Tech to cut about 400 employees in restructuring.
Freddie Mac halved its dividend and unveiled plans to sell $6 billion of preferred stock to bolster the mortgage investor's finances in anticipation of more losses, the company said Tuesday.
Wells Fargo & Co. will take a $1.4 billion provision in the fourth quarter for loan losses, the bank said Tuesday.
In a filing with the Securities and Exchange Commission, the San Francisco-based bank said it will create an $11.9 billion portfolio of the company's riskiest mortgages, which it plans to liquidate. The portfolio consists of three types of home-equity loans, or additional money lent to homeowners who already have mortgages. The portfolio represents about 3 percent of Wells Fargo's loan balance, and the bank said the debt poses the biggest risk to its balance sheet. The bank's decision to sell these loans hinges on an expectation that the housing market will continue to deteriorate.
Monday’s declines took all three major U.S. indexes down 10% from their recent highs, into so-called correction territory.
Philadelphia Fed President Charles Plosser strongly suggested that he is not in favor of an additional rate cut at the next policy meeting on Dec. 11. "It is important to recognize that the Fed cannot resolve this price discovery problem. The markets will have to figure this out," Plosser said in his prepared remarks. "Arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks," Plosser said. Indeed, rate cuts might only delay the painful process, he said.
Chicago Fed Bank President Charles Evans said Tuesday he remained content with the current level of short-term interest rates. "As of today, I feel that the stance of monetary policy is consistent with achieving our dual mandate objectives and will help promote well-functioning financial markets," he said.
In early Tuesday trading, Seoul's Kospi index was down 2.8% lat 1,803.52 while Tokyo's Nikkei was down 1.8% at 14,863.21 while the Topix index eased 1.9% at 1,438.92. Elsewhere around the region, the S&P/ASX fell 1.8% to 6,358.2 and New Zealand's NZX 50 fell 0.2% to 4,067.154. In Seoul trading, shares of Posco fell 4.3%, Samsung Electronics eased 3.4%. In Tokyo, shares of Canon eased 2.3% while Nikon Corp fell 2.9% and banking giant Mitsubishi UFJ Group was down 2%.
Robin Williams: “When in doubt, go for the dick joke.”
Citigroup Inc. is to receive a $7.5 billion capital injection from the investment arm of the Abu Dhabi government, the bank said in a statement Tuesday. Citi said it would sell $7.5 billion in equity units convertible into common shares to the Abu Dhabi Investment Authority, with the capital injection equivalent to 4.9% of Citi's total shares outstanding. ADIA will receive convertible stock in Citigroup yielding 11% annually. Shares are required to be converted into common stock at a conversion price of between $31.83 and $37.24 a share over a period of time between March 2010 and September 2011. With all the hoopla, Citigroup shares were only able to gain a small fraction on Tuesday.
European shares moved off early lows on Tuesday, boosted by gains from the financial sector after a $7.5 billion capital injection for U.S. lender Citigroup and gains of around 5% from Barclays as the latter expects 2007 profit to meet expectations.
Japanese financial cooperative Norinchukin Bank has written off almost 40 billion yen ($369.15 million) related to investments in U.S. subprime-mortgage securities for the half fiscal year ending Sept. 30, according to reports. The financial institution, which caters to agriculture, forestry and fishery cooperatives, has another 500 billion yen in investments tied in some way to the troubled U.S. mortgage market, the Nikkei News reported in its Tuesday evening edition. The report said the bank may have to write off an additional 10 billion yen to 20 billion yen to account for the financial term ending March 2008.
George W. Bush, US president, and Nouri al-Maliki, Iraqi prime minister, have signed a declaration that paves the way for a possible long-term US presence in Iraq in addition to the restoration of full Iraqi sovereignty.
At the end of September, Countrywide had borrowed $51.1 billion from the Federal Home Loan Bank system -- a government-sponsored program.
Between The Hedges: "I still think an imminent recession in the U.S. is virtually impossible if not accompanied by a significant slowdown overseas. Investors continue to price in this scenario, despite little evidence its occurrence...The AAII Bull Ratio 4-week Average is a depressed .42. It has only been lower during 6 other periods the last ten years. Moreover, the 10-week moving average of the percentage of bears is currently at 39.1%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. The 50-week moving average of the percentage of bears is currently 37.6%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990 to July 1991 and March 2003 to May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently still close to eclipsing the peak in long-term bearish sentiment during the 2000 to 2003 market meltdown. I find this astonishing, notwithstanding the recent pullback, given that the S&P 500 is 97.6% higher from the October 2002 major bear market lows and just 7.7% off a record high. It is also noteworthy that as pessimism grows ever thicker, corporate insider activity remains very bullish. Prior to the 2000 economic downturn, insiders were bailing in droves. Sales rose 8.3 percent on "Black Friday" compared with the same day a year ago, according to the National Retail Sales Estimate from ShopperTrak. Moreover, online retail spending on “Black Friday” soared 22% over last year."
Mining group Rio Tinto on Monday attempted to bolster its defences against a proposed £64bn ($133bn) takeover by rival BHP Billiton, promising to sell up to $30bn of non-core assets and raise its dividend by 30 per cent.
BHP Billiton Ltd., the world's largest mining company, is losing the support of investors and steelmakers for its proposed $128 billion takeover of Rio Tinto Group. The hostile bid by Chief Executive Officer Marius Kloppers has wiped out $32 billion of market value at Melbourne-based BHP in two weeks, while angering customers Posco, Korea's biggest steelmaker, and JFE Steel Corp., ranked third worldwide. The record commodities acquisition will raise iron ore prices and should be blocked by regulators, the steelmakers say.
Woody Allen: "The only time my wife and I had a simultaneous orgasm was when the judge signed the divorce papers."
According to Seeking Alpha, Office Depot described Black Friday's sales as "okay," and said an earnings decline is likely in the current quarter in an SEC filing Monday. The company said to date, fourth quarter sales have been softer than the previous quarter, and referred to the holiday retail outlook as "uncertain." Office Depot went on to say it sees the first quarter of 2008 to remain challenging.
Staples Inc. said third-quarter net income for the three months ended Nov. 3 fell 5% to $275 million, or 38 cents a share, from $290 million, or 39 cents a share in the year-ago period. Adjusted earnings rose to 42 cents a share in the latest period. Sales rose to $5.17 billion from $4.76 billion.
Oil fell below $95 a barrel in early Tuesday trading as investors bet that the OPEC exporter group will boost supply for a second time this year at a meeting next week to cool near-record prices. Recently, Saudi Arabia boosted production to 9 million barrels per day (bpd).
The property value of U.S. homes will fall by $1.2 trillion, and "at least" 1.4 million homeowners will lose their properties to foreclosure in 2008, according to a study released Tuesday by the U.S. Conference of Mayors and the Council for the New American City.
The subprime mortgage fiasco stands to cost the Bay Area economy more than $5.4 billion next year, according to the latest report intending to put a dollar figure on the rising wave of real estate foreclosures.
Home prices fell in September in all 20 major cities covered by the Case-Shiller price index, even in cities that had been holding up, Standard & Poor's reported.
For the national Case-Shiller home price index, prices fell 1.7% in the third quarter compared with the second quarter, and were down a record 4.5% in the past year. It was the largest quarter-to-quarter price decline in the 20 years covered by the index.
In the 20-city index, prices fell a record 4.9% year-over-year. Prices were down 5.5% year-over-year in the original 10-city index, the largest drop in the 10-city index since 1991.
The last time prices fell so much, it took more than eight years for home prices to return to their peak level.
Mike Shedlock: "Curve watchers continue to point out that mortgage rates on 30-yr fixed and 1 year arms are above where they were a year ago in spite of 75 basis points in cuts by the Fed...LIBOR rates are lower than they were a year ago, but take a look at the spreads between LIBOR and the Fed Funds Rate. Six months ago the spread between the 1 month LIBOR and the Fed Funds Rate was a mere 7 basis points. The spread between the 3 month LIBOR and the Fed Funds Rate was a mere 11 basis points. Today, the spreads are 30 basis points and 55 basis points respectively. They are also headed the wrong way compared to a month ago. This is a sign that banks are reluctant to lend overnight to one another. They are holding onto to cash and treasuries which is driving up costs of overnight lending. Real cash is in short supply. The situation is worse in Europe with the ECB set to pump cash into money markets over liquidity concerns. Another sign of stress is talk about intervention in the Euro to help exports."
Iran said Tuesday it has manufactured a new missile with a range of 1,200 miles capable of reaching Israel and U.S. bases in the Mideast, the official news agency IRNA reported.
According to Bloomberg, the cost of shipping Middle East crude to Asia, which more than doubled in 11 trading days, may be constrained because refineries have already hired most of the ships they need for December. Refineries hired 82 ships to load in December, leaving about 30 to 40 outstanding cargoes, according to a report today from Paris-based broker Barry Rogliano Salles. Fifty-five available very large crude carriers, or VLCCs, can reach the region's ports by Dec. 27, according to the shipbroker. ``Activity might be tapering off,'' Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. Sentiment among owners is ``still strong'' and ``further increases should be possible,'' he said.
"[W]e remain committed to our previous guidance for fourth quarter pre-impairment earnings and cash position, and we continue to improve our already strong balance sheet," said Pulte CEO Richard J. Dugas, Jr. in a release. He said the company is "selling and closing standing inventory and lowering overall land investment levels, all in an effort to generate cash and give Pulte maximum flexibility entering 2008."
China will tighten controls on bank lending to avoid measures that could result in a "hard landing" for the world's fourth-largest economy, Dow Jones Newswires reported Tuesday, citing a memorandum of a meeting between regulators and bank executives. Banks in China, both foreign and domestic, were told to submit lending plans for next year, while authorities recommended quarterly lending quotas, according to a memo of the meeting seen by Dow Jones Newswires.
According to Business Week, China plans to build a strategic oil reserve near the southwestern industrial city of Chongqing to help assure supplies to its inland and western regions, officials said Tuesday. The reserves would be part of a second phase of building up such strategic stockpiles. The program started with oil stored in eastern China near Shanghai, and other reserves are planned for the northeast and the south.
San Francisco-based mortgage investor Luminent Mortgage Capital Inc. said Tuesday it received a notice of default on its $90 million convertible senior notes, related to the company's delay in filing its quarterly report.
Brad Setser: "Using the BP data, I estimate that a $10 a barrel increase in the price of oil would:
* Increase the US trade deficit by about $50b over the course of the year.
* Lead to a $46b (euro 31b) deterioration in the EU-25 trade balance. The EU-25 imports a bit less oil than the US (12.6 mbd v 13.7 mbd) even though it produces less oil than the US and has a somewhat larger economy.
And conversely, each $10 increase in the barrel of oil means:
* An additional $57b for the GCC states (Saudi Arabia, Abu Dhabi, Dubai and the other emirates, Kuwait, Qatar and Oman) to spend or invest.
* An additional $25-26b for Russia.
* An additional $10b for the Iranian government.
* An additional $9.5 or so for the socially conscious burghers of Norway to stash away in their already quite substantial sovereign wealth fund.
* An additional $8b or so for Venezuela."
Jeff Saut: "What we may be dealing with is more of a solvency rather than a liquidity issue. Recently, many articles have dealt with certain financial institutions’ “Equity Base” being smaller than their exposure to “Level 3 Assets.” Plainly, all these folks’ Level 3 Assets are not going to go bad, but the new FASB #157 accounting rule forces financial institutions to divide assets into three categories called Level 1, Level 2, and Level 3. Under FASB’s terminology, Level 1 assets can be marked-to-market (valued on real prices). Level 2 assets are marked-to-model (an estimate based on observable inputs). Level 3 assets, however, have been marked-to-myth until now. With FASB 157’s implementation it appears these assets will be much more stringently valued on the balance sheet, potentially raising “solvency” questions. Because the central banks are much less effective at dealing with “solvency issues” than they are with “liquidity issues” this too makes me cautious."
In early Tuesday trading, Dec. gold is down $9.40 at $817.10 an ounce on the Nymex.
Goldman Sachs on Tuesday downgraded the U.S. automobile sector to "cautious," in part due to growing concerns about the U.S. macro outlook and its implication for auto sales
Tracinda Corp. said Tuesday it's withdrawing its cash tender offer of $64 a share for up to 21.875 million shares of Tesoro after the latter put in a poison pill. The poison pill would have been triggered if any shareholder acquired more than 20% of Tesoro. It would not have applied, however, if Tracinda had followed through with its tender offer, which would have raised its total stake in the Houston firm to nearly 20%.
Goldman Sachs economists on Tuesday said they now expect the U.S. Federal Open Market Committee to cut interest rates to 3% by mid-2008, down from its earlier forecast of 4%. "The main reason is that the worsening housing downturn has pushed the risk of a U.S. recession in 2008 to 40%-45%, from around 30% previously," Goldman said.
Tribune says revs down 9.3% in Oct Co announces its summary of revs and newspaper advertising volume for period 10, ended Oct. 28, 2007. Consolidated revs for the period were $383 mln, down 9.3% from last year's $422 mln. Publishing revs in October were $287 mln compared with $311 mln last year, down 7.9%. Advertising revs decreased 10.6% to $222 mln, compared with $249 mln in Oct.
A director of Allstate Corp., an insurance company, bought 10,000 shares of stock, according to a Securities and Exchange Commission filing Friday. In a Form 4 filed with the SEC, Robert D. Beyer reported he bought the shares for $49.66 apiece to $49.70 apiece on Wednesday.
Shares of drug maker Mylan Inc. gained ground Tuesday after a Goldman Sachs analyst upgraded the stock, placing it on a list of recommended securities due to Mylan's growth prospects.
U.S. Nov. consumer confidence falls to 87.3 vs. 95.2. U.S. Nov.. expectations index falls to 68.7, 4-year low. The present situation index fell modestly to 115.4 from 118.0.
The conforming loan limit for single-family mortgages eligible for purchase by Fannie Mae and Freddie Mac will remain at $417,000 in 2008, the companies' regulator said Tuesday.
The euro was at $1.4868, compared with $1.4870 late Monday despite stronger-than-expected German business confidence data. The dollar index, which measures the greenback against a basket of six major currencies, was at 74.945, up from 74.815 Monday.
Nabors Industries is selling at the lowest price since the Spring of 2005.
Sprint sold at its lowest price since the fourth quarter of 2003. My thought was to purchase the Jan. 14 calls for $1 with the stock at $14.48. That appears to offer an attractive risk/reward potential.
In the first two hours of trading on Tuesday, Google had a range of $650 to $676 and yet was up only $1 during the same time the Dow was up 155 points. Let's keep an eye on this comparison in the days ahead.
Gold for December delivery finished down $12.50 at $814 an ounce on the New York Mercantile Exchange. Crude-oil futures for January delivery closed down $3.28, or 3.4%, at $94.42 on the New York Mercantile Exchange, the lowest closing price since Nov. 19.
The equity market reversed Monday's downdraft. The Dow closed up 220, the Nasdaq about 40, and the S&P 21 points.
George Carlin: “Not only do I not know what's going on, I wouldn't know what to do about it if I did”
Marvell Tech to cut about 400 employees in restructuring.
Freddie Mac halved its dividend and unveiled plans to sell $6 billion of preferred stock to bolster the mortgage investor's finances in anticipation of more losses, the company said Tuesday.
Wells Fargo & Co. will take a $1.4 billion provision in the fourth quarter for loan losses, the bank said Tuesday.
In a filing with the Securities and Exchange Commission, the San Francisco-based bank said it will create an $11.9 billion portfolio of the company's riskiest mortgages, which it plans to liquidate. The portfolio consists of three types of home-equity loans, or additional money lent to homeowners who already have mortgages. The portfolio represents about 3 percent of Wells Fargo's loan balance, and the bank said the debt poses the biggest risk to its balance sheet. The bank's decision to sell these loans hinges on an expectation that the housing market will continue to deteriorate.
Monday, November 26, 2007
Online Retail
11/27/09 Online Retail
Retail spending on the Internet during the Thanksgiving weekend is up markedly from a year ago, according to data compiled by comScore Inc. Online spending was higher over the actual holiday, up 29% to $272 million from last year's Thanksgiving Day. For so-called Black Friday, e-commerce sales amounted to $531 million, a 22% gain from 2006. ComScore expects "Cyber Monday," the first workday after the holiday weekend, to post sales exceeding $700 million. The most popular items in online retail include video games, consoles and accessories, the firm said.
The National Retail Federation said 147 million people shopped at stores or online, up 4.8% from 2006. However, the average amount they spent was down 3.%% from a year ago.
Nearly half of all consumers shopped online last year for holiday gifts, completing about 30 percent of their buying on the Internet, according to the federation. A Consumer Reports poll shows 65 percent of consumers this year plan to do at least some holiday shopping online.
Iran has produced its own nuclear fuel pellets of enriched uranium for the first time to power its under construction heavy water research reactor, Vice President Gholam Reza Aghazadeh said Saturday according to the state news agency.
On Monday, Airbus said it signed contracts to sell 160 commercial passenger jets to China in a deal worth about $14.8 billion.
George Ure: "The weak-dollar is played as 'good for exports'. If anyone tells you that, they are victims of first order thinking. You pay more as a consumer, and maybe make a tiny bit more on exports like grains, but major corporations are probably well hedged. Which is why Airbus beat Boeing, I suspect. And why the falling dollar should scare the hell out of you."
HSBC Holdings said it would move two of its structured investment vehicles onto its balance sheet and provide up to $35 billion in funding, saying it doesn't expect a near-term resolution of the funding problems faced by the vehicles that it and other banks hold. Though the two vehicles are fully funded beyond the end of 2007, "HSBC believes there is not likely to be a near term resolution of the funding problems faced by the SIV sector."
The yield on the 30-year bond fell the most in six years after Goldman Sachs Group Inc. analysts said HSBC Holdings Plc may have to set aside a further $12 billion for bad debts.
Royal Philips Electronics said it will buy U.S. lighting-fixtures manufacturer Genlyte Group for $95.50 a share in cash, or $2.7 billion. Genlyte's board unanimously recommended the offer. The tie-up will create North America's largest lighting company, Philips said.
Chinese fixed-asset investment in urban areas in October climbed 30.7% from a year earlier, suggesting little stemming of investment flows despite repeated efforts by Chinese officials to cool the investment boom. Spending on factories, land and other assets in urban areas totaled 1.07 trillion yuan for the month, the National Development and Reform Commission said Monday.
China's sovereign wealth fund, the China Investment Corp., denied a report Monday that the group has joined a consortium bidding for London-based Rio Tinto PLC, according to wire reports.
In early morning trading, the U.S. Dollar Index made a new low at 75, crude closed in on $99, and natural gas approached $8. Gold for December delivery rose $3.80 at $828.50 an ounce on the New York Mercantile Exchange.
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'.”
Using the dollar to pay for purchases of currencies with higher yields is proving to be the most profitable trade in the foreign-exchange market. A basket of currencies including the British pound, Brazilian real and Hungarian forint financed with dollars returned 17 percent this year, compared with 9 percent when funded in yen and 7 percent in Swiss francs, according to data compiled by Bloomberg.
Dubai International Capital said it bought a "substantial" stake in Sony.
The Bank of England's chief economist has warned that the impact of the credit crunch on the banks may only be the tip of the iceberg. Charles Bean said that the banks have so far reported "only a relatively small fraction of the likely losses associated with the US sub-prime market." "It is quite likely that, over the coming months, there will be more revelations to come out, not necessarily just in this country," he added.
Richard Daughty: "If you think that having the government try to postpone an inevitable economic cataclysm through incurring more backbreaking debt and jumping through hoops of monetary and fiscal fire, thus devaluing the currency and causing price inflation, makes it any better, then you are even more stupid than I thought, and when I conquer and take over this stupid planet you call Earth and impose the Tyrannical Will Of The Mogambo (TWOTM) upon you, I will take special notice of low-IQ people like you and prevent you from breeding by neutering the whole stinking glob of you with some kind of Mogambo Neutering Ray (MNR), which is painful as hell if nothing else, and so the next time you think something stupid like that, perhaps you will stop and think again."
S&P thinks builders’ asset writedowns may have peaked.
Freddie Mac will raise $5 billion in a preferred stock sale.
Kelda Group Plc, the water supplier to British cities including Leeds and Sheffield, agreed to be bought by a group including Citigroup Inc. and HSBC Holdings Plc for 3.04 billion pounds ($6.3 billion.) Kelda shareholders will receive 1,100.65 pence a share, including a dividend of 10.65 pence, the Bradford-based company said.
CNBC says that a senior official at Citigroup has said that the bank is preparing for huge lay-offs.
Nouriel Roubini: "There is now increasing evidence that the liquidity and credit crunch in international financial markets is back to its summer peaks of August and, in most dimensions, even worse than in the summer; financial markets are now in a “virtual panic mode” according to a market participant (as reported by the FT). This worsening of the financial markets turmoil has occurred in spite of the hundreds of billions of dollars and euros that have been injected in the financial system by the Fed, the ECB and other central banks and in spite of the 75bps cut in the Fed Funds rate by the Fed. This massive easing of liquidity – both its quantity and price - has miserably failed to stem a severe liquidity crunch that is now back to the summer peaks, as evidenced for example in the interbank markets – both in US and Europe - by the sharp widening of Libor rates - at a variety of maturities – relative to equivalent maturity government yields and/or policy rate; such sharp rise of spreads to summer levels signals a worsening of the liquidity crunch."
John Hussman: "It is crucial to recognize that the market downturns associated with recessions are never one-way movements. The basic feature of bear markets is that they maintain the hope of investors all the way down. The stock market often “rides the Bollinger band” lower, becoming more and more oversold, but will then unpredictably clear those oversold conditions by producing explosive advances that are “fast, furious, and prone-to-failure.” The 2000-2002 bear market, which took the S&P 500 down by half and the Nasdaq down by more than three-quarters, included three separate 20% trough-to-peak advances in the S&P 500, and many more 5-7% rallies. When valuations are stretched (on normalized earnings) and both market action and economic measures have turned negative (as they have at present), you can expect that “buying-the-dip” will result in a brief feeling of genius and success followed by profound regret. The other factor to remember is that is extremely difficult to make up large losses in the stock market. Despite a 5-year bull market in stocks, the S&P 500 is currently 5% below its 2000 high. Including dividends, the average annual total return of the S&P 500 over the past 7 years has been just 1%. Risk taken when valuations are rich and market action is poor can produce losses that entirely cancel the successful investment actions of other periods. Though periods of unfavorable valuation and market action can occasionally produce positive returns as well, they don't produce positive returns reliably enough to justify the risk. As of Friday, the S&P 500 has lagged Treasury bills year-to-date. Longer-term, the S&P 500 has lagged Treasury bills for what is now nine full years...The real issue is to consider now how you would react to a 20%-30% overall loss in the stock market. If that sort of event would produce unacceptable harm or would prompt you to abandon your investment strategy, it is better to adjust your exposure sooner rather than later. As usual, make larger adjustments on favorable prices and smaller adjustment on unfavorable prices, but act immediately and consistently, in steps, until you are comfortable that you can maintain your investment discipline over the full course of a market cycle."
Sears offering $6.75 a share for Restoration Hardware.
Antal E. Fekete: "By this fall we have reached the threshold, we have crossed the continental divide, we have passed the 'point of no return' as it is becoming obvious that bad debt in the system has reached and surpassed 'critical mass.' The chain reaction has started. In the fullness of time the nuclear explosion is bound to occur...The fact that the people have lost control over the public purse constitutes a mortal danger threatening the well-being of the United States -- and that of the world as shown, for example, by the usurpation of war-making powers by the president. The proof, if one is still needed, that the removal of gold corpuscles from the monetary bloodstream ultimately leads to cancer, is the exploding derivatives market. Its size has exceeded the $ ½ quadrillion (500 trillion) mark. Compare this with the annual GDP of the U.S. at about $ 14 trillion. Worse still, the derivatives market is growing at a pace of 40 percent per annum, roughly doubling in size every other year. This is cancer, which mainstream economists and politicians want you to ignore.What is the solution? The answer is obvious. Put the gold coins back into circulation. Restore a healthy monetary bloodstream. Unfortunately, this is easier said than done."
A consortium led by Richard Branson's Virgin Group has been picked as the preferred bidder to rescue Northern Rock and plans to repay 11 billion pounds ($22.6 billion) quickly to the Bank of England.
Kirk Kerkorian's Tracinda Corp. on Monday said a poison pill adopted by Tesoro violates its pending $64 a share tender offer and that it's considering alternatives. The offer still stands, but Tracinda objects to aspects of the poison pill, which gets triggered if any shareholder accumulates more than 20% of Tesoro.
Chevron said it's evaluating options for its 5% stake in India's Reliance Petroleum.
Mick P : "The US consumer has used credit to replace the lack of growth in real cash, the consequence of a lack of paycheck rises coupled with a boom in asset prices, especially housing. Inflation is being caused by an expansion of credit which, when coupled with demand, is causing asset prices to rise...Not only are financial markets having to deal with the continuing destruction of wealth caused by the current batch of defaulting consumers but now access to credit is becoming problematic for many. The next batch of defaulters will arrive at the tipping point into insolvency at a much quicker pace due to the inability to refinance but also with a higher debt burden. Lenders, of whatever type, will have to raise capital reserves as debt gets downgraded as well as setting aside reserves to cover defaults. Add to this a raising of lending standards and credit doesn't just get squeezed, it stops."
The Federal Reserve Bank of New York said Monday it will conduct a series of term repurchase agreements that will extend into the new year "in response to heightened pressure in money markets for funding through the year-end." The first operation will be arranged and settle on Nov. 28 and mature on Jan. 10 next year for an amount of about $8 billion, the bank said.
The Chicago Fed National Activity Index dropped to negative 0.73 in October, from negative 0.30 in September, which was revised up from negative 0.45. The October figure is the lowest mark for the index since January.
Citigroup analyst Stephen Kim downgraded his near-term outlook on home-builders and said that he doesn't anticipate optimistic data on residential housing until the second quarter of 2008.
"While we continue to believe that long-term investors will do well owning the home builders over the next few years, the current overhang of resale inventory and subprime-rate resets appear to make historical trading and valuation analyses of limited utility for predicting near-term performance in the group," he wrote in a research note.
Crude-oil futures for January delivery ended the session down 48 cents, or 0.5%, at $97.70 a barrel on the New York Mercantile Exchange. Gold closed up $1.80 at $826.50 and silver also rose 9 cents. Copper, lead, nickel, and zinc had big up days.
The U.S. Dollar Index made another new low at 74.89. On Monday, the People's Bank of China set its official parity rate for yuan trading at a record high the third consecutive trading day. The yuan finished at a fresh high of 7.3969 to the dollar on the over-the-counter market, up from a record of 7.4060 on Friday, according to XFN-Asia.
Citigroup shares fall under $30 for first time in 5 years. At this level, it would not surprise me to see a Chinese bank look to take a large equity interest.
Doctors detected that Cheney has an irregular heart beat.
Another bleak day on Wall St.-- Dow down 237, Nasdaq 55, and S&P 33. The last 15 to 20 minutes looked horrendous. Then again, wipe outs are not pretty.
Retail spending on the Internet during the Thanksgiving weekend is up markedly from a year ago, according to data compiled by comScore Inc. Online spending was higher over the actual holiday, up 29% to $272 million from last year's Thanksgiving Day. For so-called Black Friday, e-commerce sales amounted to $531 million, a 22% gain from 2006. ComScore expects "Cyber Monday," the first workday after the holiday weekend, to post sales exceeding $700 million. The most popular items in online retail include video games, consoles and accessories, the firm said.
The National Retail Federation said 147 million people shopped at stores or online, up 4.8% from 2006. However, the average amount they spent was down 3.%% from a year ago.
Nearly half of all consumers shopped online last year for holiday gifts, completing about 30 percent of their buying on the Internet, according to the federation. A Consumer Reports poll shows 65 percent of consumers this year plan to do at least some holiday shopping online.
Iran has produced its own nuclear fuel pellets of enriched uranium for the first time to power its under construction heavy water research reactor, Vice President Gholam Reza Aghazadeh said Saturday according to the state news agency.
On Monday, Airbus said it signed contracts to sell 160 commercial passenger jets to China in a deal worth about $14.8 billion.
George Ure: "The weak-dollar is played as 'good for exports'. If anyone tells you that, they are victims of first order thinking. You pay more as a consumer, and maybe make a tiny bit more on exports like grains, but major corporations are probably well hedged. Which is why Airbus beat Boeing, I suspect. And why the falling dollar should scare the hell out of you."
HSBC Holdings said it would move two of its structured investment vehicles onto its balance sheet and provide up to $35 billion in funding, saying it doesn't expect a near-term resolution of the funding problems faced by the vehicles that it and other banks hold. Though the two vehicles are fully funded beyond the end of 2007, "HSBC believes there is not likely to be a near term resolution of the funding problems faced by the SIV sector."
The yield on the 30-year bond fell the most in six years after Goldman Sachs Group Inc. analysts said HSBC Holdings Plc may have to set aside a further $12 billion for bad debts.
Royal Philips Electronics said it will buy U.S. lighting-fixtures manufacturer Genlyte Group for $95.50 a share in cash, or $2.7 billion. Genlyte's board unanimously recommended the offer. The tie-up will create North America's largest lighting company, Philips said.
Chinese fixed-asset investment in urban areas in October climbed 30.7% from a year earlier, suggesting little stemming of investment flows despite repeated efforts by Chinese officials to cool the investment boom. Spending on factories, land and other assets in urban areas totaled 1.07 trillion yuan for the month, the National Development and Reform Commission said Monday.
China's sovereign wealth fund, the China Investment Corp., denied a report Monday that the group has joined a consortium bidding for London-based Rio Tinto PLC, according to wire reports.
In early morning trading, the U.S. Dollar Index made a new low at 75, crude closed in on $99, and natural gas approached $8. Gold for December delivery rose $3.80 at $828.50 an ounce on the New York Mercantile Exchange.
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'.”
Using the dollar to pay for purchases of currencies with higher yields is proving to be the most profitable trade in the foreign-exchange market. A basket of currencies including the British pound, Brazilian real and Hungarian forint financed with dollars returned 17 percent this year, compared with 9 percent when funded in yen and 7 percent in Swiss francs, according to data compiled by Bloomberg.
Dubai International Capital said it bought a "substantial" stake in Sony.
The Bank of England's chief economist has warned that the impact of the credit crunch on the banks may only be the tip of the iceberg. Charles Bean said that the banks have so far reported "only a relatively small fraction of the likely losses associated with the US sub-prime market." "It is quite likely that, over the coming months, there will be more revelations to come out, not necessarily just in this country," he added.
Richard Daughty: "If you think that having the government try to postpone an inevitable economic cataclysm through incurring more backbreaking debt and jumping through hoops of monetary and fiscal fire, thus devaluing the currency and causing price inflation, makes it any better, then you are even more stupid than I thought, and when I conquer and take over this stupid planet you call Earth and impose the Tyrannical Will Of The Mogambo (TWOTM) upon you, I will take special notice of low-IQ people like you and prevent you from breeding by neutering the whole stinking glob of you with some kind of Mogambo Neutering Ray (MNR), which is painful as hell if nothing else, and so the next time you think something stupid like that, perhaps you will stop and think again."
S&P thinks builders’ asset writedowns may have peaked.
Freddie Mac will raise $5 billion in a preferred stock sale.
Kelda Group Plc, the water supplier to British cities including Leeds and Sheffield, agreed to be bought by a group including Citigroup Inc. and HSBC Holdings Plc for 3.04 billion pounds ($6.3 billion.) Kelda shareholders will receive 1,100.65 pence a share, including a dividend of 10.65 pence, the Bradford-based company said.
CNBC says that a senior official at Citigroup has said that the bank is preparing for huge lay-offs.
Nouriel Roubini: "There is now increasing evidence that the liquidity and credit crunch in international financial markets is back to its summer peaks of August and, in most dimensions, even worse than in the summer; financial markets are now in a “virtual panic mode” according to a market participant (as reported by the FT). This worsening of the financial markets turmoil has occurred in spite of the hundreds of billions of dollars and euros that have been injected in the financial system by the Fed, the ECB and other central banks and in spite of the 75bps cut in the Fed Funds rate by the Fed. This massive easing of liquidity – both its quantity and price - has miserably failed to stem a severe liquidity crunch that is now back to the summer peaks, as evidenced for example in the interbank markets – both in US and Europe - by the sharp widening of Libor rates - at a variety of maturities – relative to equivalent maturity government yields and/or policy rate; such sharp rise of spreads to summer levels signals a worsening of the liquidity crunch."
John Hussman: "It is crucial to recognize that the market downturns associated with recessions are never one-way movements. The basic feature of bear markets is that they maintain the hope of investors all the way down. The stock market often “rides the Bollinger band” lower, becoming more and more oversold, but will then unpredictably clear those oversold conditions by producing explosive advances that are “fast, furious, and prone-to-failure.” The 2000-2002 bear market, which took the S&P 500 down by half and the Nasdaq down by more than three-quarters, included three separate 20% trough-to-peak advances in the S&P 500, and many more 5-7% rallies. When valuations are stretched (on normalized earnings) and both market action and economic measures have turned negative (as they have at present), you can expect that “buying-the-dip” will result in a brief feeling of genius and success followed by profound regret. The other factor to remember is that is extremely difficult to make up large losses in the stock market. Despite a 5-year bull market in stocks, the S&P 500 is currently 5% below its 2000 high. Including dividends, the average annual total return of the S&P 500 over the past 7 years has been just 1%. Risk taken when valuations are rich and market action is poor can produce losses that entirely cancel the successful investment actions of other periods. Though periods of unfavorable valuation and market action can occasionally produce positive returns as well, they don't produce positive returns reliably enough to justify the risk. As of Friday, the S&P 500 has lagged Treasury bills year-to-date. Longer-term, the S&P 500 has lagged Treasury bills for what is now nine full years...The real issue is to consider now how you would react to a 20%-30% overall loss in the stock market. If that sort of event would produce unacceptable harm or would prompt you to abandon your investment strategy, it is better to adjust your exposure sooner rather than later. As usual, make larger adjustments on favorable prices and smaller adjustment on unfavorable prices, but act immediately and consistently, in steps, until you are comfortable that you can maintain your investment discipline over the full course of a market cycle."
Sears offering $6.75 a share for Restoration Hardware.
Antal E. Fekete: "By this fall we have reached the threshold, we have crossed the continental divide, we have passed the 'point of no return' as it is becoming obvious that bad debt in the system has reached and surpassed 'critical mass.' The chain reaction has started. In the fullness of time the nuclear explosion is bound to occur...The fact that the people have lost control over the public purse constitutes a mortal danger threatening the well-being of the United States -- and that of the world as shown, for example, by the usurpation of war-making powers by the president. The proof, if one is still needed, that the removal of gold corpuscles from the monetary bloodstream ultimately leads to cancer, is the exploding derivatives market. Its size has exceeded the $ ½ quadrillion (500 trillion) mark. Compare this with the annual GDP of the U.S. at about $ 14 trillion. Worse still, the derivatives market is growing at a pace of 40 percent per annum, roughly doubling in size every other year. This is cancer, which mainstream economists and politicians want you to ignore.What is the solution? The answer is obvious. Put the gold coins back into circulation. Restore a healthy monetary bloodstream. Unfortunately, this is easier said than done."
A consortium led by Richard Branson's Virgin Group has been picked as the preferred bidder to rescue Northern Rock and plans to repay 11 billion pounds ($22.6 billion) quickly to the Bank of England.
Kirk Kerkorian's Tracinda Corp. on Monday said a poison pill adopted by Tesoro violates its pending $64 a share tender offer and that it's considering alternatives. The offer still stands, but Tracinda objects to aspects of the poison pill, which gets triggered if any shareholder accumulates more than 20% of Tesoro.
Chevron said it's evaluating options for its 5% stake in India's Reliance Petroleum.
Mick P : "The US consumer has used credit to replace the lack of growth in real cash, the consequence of a lack of paycheck rises coupled with a boom in asset prices, especially housing. Inflation is being caused by an expansion of credit which, when coupled with demand, is causing asset prices to rise...Not only are financial markets having to deal with the continuing destruction of wealth caused by the current batch of defaulting consumers but now access to credit is becoming problematic for many. The next batch of defaulters will arrive at the tipping point into insolvency at a much quicker pace due to the inability to refinance but also with a higher debt burden. Lenders, of whatever type, will have to raise capital reserves as debt gets downgraded as well as setting aside reserves to cover defaults. Add to this a raising of lending standards and credit doesn't just get squeezed, it stops."
The Federal Reserve Bank of New York said Monday it will conduct a series of term repurchase agreements that will extend into the new year "in response to heightened pressure in money markets for funding through the year-end." The first operation will be arranged and settle on Nov. 28 and mature on Jan. 10 next year for an amount of about $8 billion, the bank said.
The Chicago Fed National Activity Index dropped to negative 0.73 in October, from negative 0.30 in September, which was revised up from negative 0.45. The October figure is the lowest mark for the index since January.
Citigroup analyst Stephen Kim downgraded his near-term outlook on home-builders and said that he doesn't anticipate optimistic data on residential housing until the second quarter of 2008.
"While we continue to believe that long-term investors will do well owning the home builders over the next few years, the current overhang of resale inventory and subprime-rate resets appear to make historical trading and valuation analyses of limited utility for predicting near-term performance in the group," he wrote in a research note.
Crude-oil futures for January delivery ended the session down 48 cents, or 0.5%, at $97.70 a barrel on the New York Mercantile Exchange. Gold closed up $1.80 at $826.50 and silver also rose 9 cents. Copper, lead, nickel, and zinc had big up days.
The U.S. Dollar Index made another new low at 74.89. On Monday, the People's Bank of China set its official parity rate for yuan trading at a record high the third consecutive trading day. The yuan finished at a fresh high of 7.3969 to the dollar on the over-the-counter market, up from a record of 7.4060 on Friday, according to XFN-Asia.
Citigroup shares fall under $30 for first time in 5 years. At this level, it would not surprise me to see a Chinese bank look to take a large equity interest.
Doctors detected that Cheney has an irregular heart beat.
Another bleak day on Wall St.-- Dow down 237, Nasdaq 55, and S&P 33. The last 15 to 20 minutes looked horrendous. Then again, wipe outs are not pretty.
Sunday, November 25, 2007
Finally Getting It Right
11/26/07 Finally Getting It Right
According to military and veterans records compiled by USA TODAY, at least 20,000 U.S. troops who were not classified as wounded during combat in Iraq and Afghanistan have been found with signs of brain injuries. The data was supplied by the Army, Navy, and Department of Veterans Affairs. These cases are not reflected in the Pentagon's official tally of wounded, which amounts to 30,227.
U.S. military officials said Saturday that overall American troop levels in Iraq would drop by about 5,000 next month when a combat brigade completed its withdrawal.
According to Reuters, Fannie Mae and Freddie Mac own or guarantee a combined $4.8 trillion of U.S. home mortgage loans of more than 40 percent of the total outstanding. That size, in part, explains why Fannie Mae and Freddie Mac are likely to survive the current housing and credit downturns.
Figures from the Federal Reserve Board show that the share of subprime mortgages in default is more than 14 percent. And researchers at the Center for Responsible Lending say that 64 percent of foreclosures filed during the 12 months ended June 30 involved subprime loans. A September report from Banc of America Securities said that 93 percent of completed foreclosures this year involved adjustable-rate loans that were made in 2006, pooled and sold to investors.
F. William Engdahl: "A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland, Ohio ruled to dismiss a claim by Deutsche Bank National Trust Company. DB�s US subsidiary was seeking to take possession of 14 homes from Cleveland residents living in them, in order to claim the assets. Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an �intent to convey the rights in the mortgages.� They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta of not longer. Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of �global securitization�, where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, �bundle� them into Jumbo new securities which then are rated by Moody�s or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their �bundle� of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated �sub-prime,� i.e. of dubious credit quality."
Bill Bonner: "You are either a contrarian, or you are a victim - especially in a credit deflation. When prices fall on most assets�you have to be a contrarian to own the few things that aren't going down. And when the basic financial formula that has guided a whole generation of Americans breaks down, you have to be a contrarian to find a new one. Since 1980, more or less, Americans have saved less and less of their earnings. Buy a bigger house�buy another car�burn more fossil fuel�spend more money. This spendthrift culture helped to speed up economic growth in Asia. Americans would buy anything, whether they needed it or not. The Asians began to make things, sell them to Americans, and bank the profits. As this process intensified, Asians ended up with more and more money�and more and more of the world's industry. In other words, America's middle class spending funded the rise of its most potent competitor. And now the U.S. lumpenhouseholder is in a fix. The obvious contrarian solution was to NOT do what the U.S. middle classes were doing: Don't spend; save. Don't borrow; lend. Don't consume; make do with what you've got. Don't buy a big house far from your work; rent a little house nearby. Don't live large; live small. Don't buy stocks; buy gold. During the past 27 years, doing these contrarian things was as unappealing to most people as a cheap hair transplant. They felt a little ridiculous driving around in an old car�or having a kitchen with linoleum on the counter tops. But fashions change. Maybe thrift is about to make a comeback."
China urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation, the state-run Xinhua News Agency reported.
While the yuan has risen about 5 percent against the dollar his year, it has weakened by almost 7 percent versus the euro, increasing the cost of European goods.
India's Finance Minister Palaniappan Chidambaram said the South Asian nation is confident of gaining control over record inflows of capital that have fueled advances in the rupee and the benchmark stock index. ``It's a new situation for us and I am confident that we will gain mastery over capital inflows,'' Chidambaram told a business conference in New Delhi today. ``India has remained largely insulated from the turbulence in the financial markets.''
Richard Suttmeier: "The DOW Transports are down 2.4% year to date and 18.9% off its all time high of 5,487.05 set in July. The Dow Transports would have to close above the July 19 close of 5,446.49 to negate the Dow Theory Sell Signal. The Russell 2000 Futures are down 4.8% year to date, and 12.4% from its all time high. The SOX is down 11.5% year to date, and 24.7% off its July multi-year high. Just because we confirmed a bear market does not mean there won�t be bear market corrections. The Dow Industrials and NASDAQ are still up year to date, and many traders don�t follow Dow Theory. They will call the 10% declines for the DOW, S&P & NASDAQ as normal 10% corrections. All major averages with the exception of Dow Utilities are extremely oversold on their daily charts."
According to military and veterans records compiled by USA TODAY, at least 20,000 U.S. troops who were not classified as wounded during combat in Iraq and Afghanistan have been found with signs of brain injuries. The data was supplied by the Army, Navy, and Department of Veterans Affairs. These cases are not reflected in the Pentagon's official tally of wounded, which amounts to 30,227.
U.S. military officials said Saturday that overall American troop levels in Iraq would drop by about 5,000 next month when a combat brigade completed its withdrawal.
According to Reuters, Fannie Mae and Freddie Mac own or guarantee a combined $4.8 trillion of U.S. home mortgage loans of more than 40 percent of the total outstanding. That size, in part, explains why Fannie Mae and Freddie Mac are likely to survive the current housing and credit downturns.
Figures from the Federal Reserve Board show that the share of subprime mortgages in default is more than 14 percent. And researchers at the Center for Responsible Lending say that 64 percent of foreclosures filed during the 12 months ended June 30 involved subprime loans. A September report from Banc of America Securities said that 93 percent of completed foreclosures this year involved adjustable-rate loans that were made in 2006, pooled and sold to investors.
F. William Engdahl: "A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland, Ohio ruled to dismiss a claim by Deutsche Bank National Trust Company. DB�s US subsidiary was seeking to take possession of 14 homes from Cleveland residents living in them, in order to claim the assets. Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an �intent to convey the rights in the mortgages.� They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta of not longer. Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of �global securitization�, where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, �bundle� them into Jumbo new securities which then are rated by Moody�s or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their �bundle� of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated �sub-prime,� i.e. of dubious credit quality."
Bill Bonner: "You are either a contrarian, or you are a victim - especially in a credit deflation. When prices fall on most assets�you have to be a contrarian to own the few things that aren't going down. And when the basic financial formula that has guided a whole generation of Americans breaks down, you have to be a contrarian to find a new one. Since 1980, more or less, Americans have saved less and less of their earnings. Buy a bigger house�buy another car�burn more fossil fuel�spend more money. This spendthrift culture helped to speed up economic growth in Asia. Americans would buy anything, whether they needed it or not. The Asians began to make things, sell them to Americans, and bank the profits. As this process intensified, Asians ended up with more and more money�and more and more of the world's industry. In other words, America's middle class spending funded the rise of its most potent competitor. And now the U.S. lumpenhouseholder is in a fix. The obvious contrarian solution was to NOT do what the U.S. middle classes were doing: Don't spend; save. Don't borrow; lend. Don't consume; make do with what you've got. Don't buy a big house far from your work; rent a little house nearby. Don't live large; live small. Don't buy stocks; buy gold. During the past 27 years, doing these contrarian things was as unappealing to most people as a cheap hair transplant. They felt a little ridiculous driving around in an old car�or having a kitchen with linoleum on the counter tops. But fashions change. Maybe thrift is about to make a comeback."
China urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation, the state-run Xinhua News Agency reported.
While the yuan has risen about 5 percent against the dollar his year, it has weakened by almost 7 percent versus the euro, increasing the cost of European goods.
India's Finance Minister Palaniappan Chidambaram said the South Asian nation is confident of gaining control over record inflows of capital that have fueled advances in the rupee and the benchmark stock index. ``It's a new situation for us and I am confident that we will gain mastery over capital inflows,'' Chidambaram told a business conference in New Delhi today. ``India has remained largely insulated from the turbulence in the financial markets.''
Richard Suttmeier: "The DOW Transports are down 2.4% year to date and 18.9% off its all time high of 5,487.05 set in July. The Dow Transports would have to close above the July 19 close of 5,446.49 to negate the Dow Theory Sell Signal. The Russell 2000 Futures are down 4.8% year to date, and 12.4% from its all time high. The SOX is down 11.5% year to date, and 24.7% off its July multi-year high. Just because we confirmed a bear market does not mean there won�t be bear market corrections. The Dow Industrials and NASDAQ are still up year to date, and many traders don�t follow Dow Theory. They will call the 10% declines for the DOW, S&P & NASDAQ as normal 10% corrections. All major averages with the exception of Dow Utilities are extremely oversold on their daily charts."
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