12/16/07 The Needed Adjustment Period
Andrew Bary: "Berkshire Hathaway looks overpriced, even after factoring in the legendary talents of its CEO. For better value, consider AIG and Wells Fargo."
In my view, that's comparing apples to oranges. There are some similarities, but many differences.
Here's an interesting comparison. Three-month Treasury bill rates fell 18 bps this week to 2.87%. Meanwhile, 30-year Treasury bond yields rose to 4.66%.
Doug Noland: "This week the market came face-to-face with the reality that inflation is not only a major issue; inflation is in the process of significantly limiting the Fed’s flexibility and capacity to orchestrate another Wall Street bailout...Last week’s Z.1 “flow of funds” data go far in illuminating today’s Market and Federal Reserve Dilemma: The enormous scope of Credit expansion necessary to sustain Wall Street’s bloated securities markets – to keep the contemporary Credit mechanisms generally liquid and functioning – has become patently inflationary for the system overall... inflationary policies ensured the interrelated operations of Wall Street’s asset-based lending, securitization, and leveraged securities speculation ballooned in unimaginable excess. Resulting Monetary Disorder saw wildly destabilizing price inflation and distortion, especially in housing, securities and asset markets generally. U.S. CPI may have remained tame, but massive Credit-induced Current Account Deficits and the depreciating dollar set in motion Credit and asset Bubble dynamics in economies around the globe...First of all, “money-like” financial sector liabilities (i.e. agencies, “repos”, and bank/money fund deposits) are proving thus far sufficient to sustain Bubble economy excesses. Second, the global recycling of ongoing massive Current Account Deficits and speculative outflows ensures over-liquefied markets (and artificially low interest rates!) for key debt instruments, certainly including Treasuries, agencies and other perceived low-risk securities. Bubble dynamics proliferate in the face of a Wall Street bust...The extreme divergence in liquidity conditions between bursting Bubbles in Wall Street finance and still rapidly inflating Bubbles in “money-like” Financial Sector Liabilities poses both a major quandary and policy dilemma...The outcry for an audacious policy response to avert a recession is misguided. Importantly, today’s rampant Financial Sector expansion is unsustainable. There are today acute inflationary risks to go with major financial system stability issues. While the dislocation will be substantial, the sooner the Bubble in Financial Credit is reined in the better. We are today in the midst of dangerous “blow-off” excesses in “money-like” Financial Sector liability issuance. Few seem to appreciate that such a circumstance places the stability of the “bedrock” of the entire U.S. and global financial system at considerable risk. Wall Street is clamoring for a rate collapse and bold inflation in “money” to bailout its faltering securitization markets. At this point, this would equate to throwing massive (relatively) good “money” after bad - ensuring that a dreadful situation festers into a historic calamity. The least bad course for central bank policymaking would be to hold the line on rates, while injecting liquidity as necessary as part of a program to check Credit excess and permit the economy to commence its desperately needed adjustment period."
Floyd Norris: "The rate of increase in imports has begun to decline, and is now at its lowest level since 2002, when the economy was only slowly emerging from a recession. At the same time, export growth has remained strong, thanks to a buoyant world economy and a weaker dollar that has made American goods seem cheaper to overseas buyers. From August through October, the most recently reported three months, the quantity of American imports, adjusted for inflation, was up just 1.1 percent from the same period of 2006. Over the same period, the volume of exports was up by 9.6 percent."
Peter Schiff: "This week's announcement by the Fed that it will create a new mechanism to provide funding for credit challenged banks has been lauded by Wall Street as an innovative approach to solving the credit crisis. In truth, it is really just the same response the Fed has had for all problems great and small: crank up the printing presses, shower money on the problem, and hope that financial pain can be obscured by the balm of inflation. Both the Fed and Washington politicians are completely clueless regarding the ill effects of the plan, and are simply acting in desperation to keep a ticking time bomb from exploding before the next election."
Nouriel Roubini: "The current global financial crisis is due to insolvency on top of illiquidity and due to fundamental problems in a world of financial globalization; and monetary policy easing will not – in my view – avoid a hard landing of the US economy and a sharp slowdown of global economic growth. Notice that the analysis that this is a financial crisis of insolvency - not just illiquidity is shared by very distinguished commentators such as Martin Wolf, Paul Krugman and George Magnus.
While aggressive monetary policy easing will not prevent a hard landing – as it did not prevent one in 2001 – the length and depth of an economic downturn is affected by monetary policy. And it is both the duty and responsibility of central banks to reduce partly avoidable severe economic downturn that lead to massive losses of jobs, welfare and incomes. The job of a central bank is not to bail out the financial system and/or investors but that of bailing out the real economy. Having millions of workers lose their jobs only to teach a lesson to reckless investors and lenders on Wall Street and the City does not make sense."
Paul Krugman: "The problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency."
IBM revealed Friday that it now has 73,000 employees in India, almost a 40 percent leap from last year. In essence, about 20% of IBM's total workforce is now in India.
Single family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service. Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty Web site, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes."There's a real 'Wow' factor here for Canadians," said Morielli, who now lives in Phoenix. "When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now." Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the American housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors. This is the result of the Canadian dollar reaching parity with the U.S. dollar for the first time since 1976. Foreign buyers will find values in U.S. housing-- especially at sharply reduced prices when the purchaser does not have a financing contingency.
George Ure points out that there is a maximum order size of $1000.00 that can be purchased within a 14-day period with respect to American Express Travelers Cheques. Why would that be?
Dow Jones Newswires: "While all the oil majors have been raising their capital budgets in recent years, the most dramatic mover has been Chevron Corp. (CVX), which spent $8.3 billion in 2004. The California company last week announced it would spend $22.9 billion next year, up 15% from this year's level. The increase, company officials note, reflects that Chevron has hit the spending phase of a multi-year campaign to build capacity. Chevron now has about 30 projects of $1 billion or more under development, whereas five years ago it had fewer than 10 that size. In 2008, Chevron expects major new production to come on line from the Gulf of Mexico, Nigeria and Kazakhstan that will enable the company to average 3% long-term annual production growth. But Chevron's spending ramp-up - a more extreme version of an industry-wide trend - also is a sign of the company's comparatively bullish outlook for commodity prices, analysts said. That philosophy marks an extension of the outlook that led Chevron to spend $17.5 billion to acquire Unocal Corp. in 2005, when energy prices were above historic norms - but below today's levels. While declining to disclose Chevron's long-term price assumptions, Chevron Chief Economist Edgard Habib expressed confidence in the second-largest U.S. oil company's ability to fund a 2008 capital budget that he concedes is "hefty." "I can tell you Chevron is confident of its ability to exercise this budget," Habib said Wednesday on the sidelines of a Houston energy conference. "There is a lot of confidence behind it."
The IEA said global demand will rise by 2.1 million barrels per day (bpd) next year, up 200,000 bpd from its previous forecast. "A lot of this demand is in the non-OECD countries, where we don't have any downgrades in economic growth forecasts," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.
John Mauldin: "We are now seeing a de-leveraging that is unprecedented in the modern era. This is increasing risk premiums (which I think is good), but it is also deflating the total money supply. We are seeing two bubbles, the housing market and the credit markets, deflate before our eyes.
These are two hugely deflationary forces that if not checked could be very troublesome."
The amount of equity homeowners hold is equal to the percentage of a home's market value minus mortgage-related debt, and this figure fell to an average of 50.4% at the end of the third quarter, down from 62% at the end of 1990, even as the average home value surged, the Federal Reserve reported.
Walter Benjamin: “The adjustment of reality to the masses and of the masses to reality is a process of unlimited scope, as much for thinking as for perception.”
Saturday, December 15, 2007
Developments
12/15/07 Developments
Barry Ritholtz: "Advertisers are well on the way to spend $21.4 billion on the Internet in 2007, says eMarketer’s new online ad spending report. By 2011, spending on advertisements online is expected to reach $42 billion. One big trend is that the nation’s largest advertisers are shifting more of their budgets from traditional media to the Internet, according to eMarketer’s calculations."
Citigroup Inc.will take $49 billion of assets from structured investment vehicles (SIVs) it advises onto its balance sheet. The bank said it's committed to supporting the SIVs to resolve concerns about the vehicles' ability to repay debt. "Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Vikram Pandit, Citi's new chief executive, said in a statement.
Business sentiment of large Japanese manufacturers was worse than expected during the quarter that ends December 31, and was forecast to deteriorate further in the coming quarter, according to the result of a survey released by the Bank of Japan Friday. The central bank's quarterly tankan survey showed sentiment, as measured by the diffusion index, of large manufacturers dropped to plus 19, as compared with plus 23 at the end of the previous quarter.
Palm, which has a worldwide staff of 1,150, is eliminating more than 100 jobs. The person spoke with Business Week on condition of anonymity because Palm did not publicly disclose the number of layoffs.
Euro area inflation was 3.1% in November, up from 2.6% in October, final data from the Eurostat statistics body showed Friday. Last year, inflation was 1.9%.
The International Energy Agency revised down its forecast for global oil product demand in 2007 by 60,000 barrels a day to an average of 88.7 million barrels a day in its oil market report on Friday. However, the agency revised up its demand forecast for 2008 by 115,000 barrels a day to 87.8 million barrels a day following a reappraisal of ethane prospects in the Middle East. November world oil supply rose 55,000 barrels a day to 86.5 million barrels a day as output recovery in Mexico, China and Brazil offset lower OPEC supply. OPEC crude supply averaged 31.1 million barrels a day, down 180,000 barrels a day from October.
OPEC said on Friday there were risks an economic slowdown could worsen in 2008 and forecast that weaker growth and easing political tension could take the heat out of near-record oil prices. OPEC, in its December Monthly Oil Market Report, estimated world economies will grow by 4.8 percent next year, down from 5.2 percent in 2007, and said there were "considerable downside risks" to the outlook.
ComScore Inc. said Internet holiday retails sales are growing at the slowest pace on record. Online sales in November and December may rise 20 percent, a record low for the industry, and slower than the 26 percent pace a year earlier.
Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent in 2008, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.``We're only halfway through the housing shock,'' said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth-biggest U.S. securities firm by market value. ``It's just a matter of time before the weakness spreads to the rest of the economy.''
Rep. Ron Paul: " Even those Americans who receive a higher nominal amount in transfer payments than they pay in income taxes suffer from Big Government. Their standard of living is eroded by inflation, their wages are garnished by income and payroll taxes, their civil liberties are under constant assault, and their economic prospects are limited because of the drag the welfare-warfare state places on the economy. Furthermore, unless we reverse course quickly, future generations will suffer a declining standard of living and loss of liberty. Thus, I expect many Americans to vote for me not only out of concern for their own well-being, but out of concern for their children."
The Oil Drum: "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.7 million barrels compared to the previous week. At 304.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.6 million barrels last week, but are near the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories decreased by 0.8 million barrels, but are in the lower half of the average range for this time of year."
The American Chamber of Commerce in Shanghai says that rising prices for doing business in China may be driving companies to move business to India and Vietnam.
According to Bloomberg, Tiffany, Nordstrom and Coach may see December sales growth slow in what the National Retail Federation is predicting will be the worst U.S. holiday shopping season since 2002. Retailers that cater to America's richest consumers are losing their least-affluent customers — those who buy jewelry and designer scarves only when flush with cash — during the biggest selling season of the year. Falling home values are discouraging purchases in the fourth quarter, a period that accounts for a third of retailers' annual earnings, according to the International Council of Shopping Centers. Neiman Marcus said it faces "somewhat challenging" client demand. The average annual household income of luxury shoppers, says Citigroup analyst Deborah Weinswig, ranges from $100,000 at Nordstrom to $250,000 at Neiman Marcus.
Credit Suisse Group lowered its 2008 forecast for U.S. natural gas prices because an investment boom will create excess gas supply. The forecast for Henry Hub gas futures on the New York Mercantile Exchange was lowered by 10 percent to $6.75 per million British thermal units, from $7.50, Credit Suisse analysts including Jonathan Wolff in New York said in the report today. The change reflects ``an imbalanced market that appears poised for continued weakness without a reduction in U.S. onshore supply growth,'' the report said.
U.S. consumer prices jumped a bigger-than-expected 0.8 percent in November, the sharpest climb in more than two years and driven by surging energy costs, a government report released on Friday showed. Core prices, which strip out volatile food and energy costs, were up 0.3 percent, the biggest jump since the same increase in January. Consumer prices were also 4.3 percent higher than a year ago, the steepest increase since a matching gain in June 2006. One might ask whether your income after all taxes has matched the 4.3% gain in consumer prices. If not, then your standard of living has gone down. That should not come as a surprise. Take it a step further. Has your quality of life gone down in 2007?
Real average weekly earnings fell by 0.4 percent from October to November
after seasonal adjustment, according to preliminary data released today by the
Bureau of Labor Statistics of the U.S. Department of Labor. A 0.5 percent
increase in average hourly earnings was more than offset by a 0.9 percent
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). Average weekly hours were unchanged.
Here's an example of what's wrong in corporate America: "For fiscal year 2008, bonus targets for our executive officers will be based on corporate performance, specifically earnings per share objectives. Cash bonus awards are based on a percentage of a participant's December 1st base salary. There are three bonus award levels for each executive officer: entry level (minimum), expected value (target) and over achievement. Each level represents the percentage of base salary that the executive officer will receive as a bonus if that particular bonus award level is met for the fiscal year... If we fail to meet the entry-level earnings per share objective, no bonus will be paid." In 2007, the objective for earnings per share was not met. The shares have declined 30% in value. Despite that fact, stock awards were provided, at no cost, to top management personnel. I feel confident that this type of Board of Directors lack of oversight exists all over corporate America. It's no wonder our ability to compete, or lack of, outside of our borders has been on the decline for years.
A powerful nor'easter may bring more than a foot (0.3 meter) of snow tomorrow evening from central New York to northwestern Maine and flooding in the northern mid- Atlantic and the Interstate 95 corridor.
More than one in five U.S. homeowners expect their home to fall in value in the coming year, a Reuters-University of Michigan consumer survey said on Friday
Cotton acreage is falling sharply in California, down 50 percent in just the last seven years, as California farmers switch to more profitable crops.
Over the past week or so we have seen a big rally in the U.S. Dollar Index. It had broken 75 on the downside and on Friday rose to 77.39, a meaningful display of strength in a bear market. As such, gold had a bad week or so and the yield on treasury bonds rose considerably with the 10-year at 4.25% and the 30-year at 4.66%. In sum, the dollar advanced the most against the euro since June 2004 after the biggest increase in consumer inflation in two years prompted traders to pare expectations for interest-rate reductions. The U.S. currency has risen 1.5 percent against the euro over the past five days, the biggest weekly increase since August. If you are wondering whether a threat of inflation will stop rate cuts, don't fret. It won't.
Starbucks made a new 52-week low on Friday and is approaching the $21 level or 20 times the estimated earnings for 2008. Given the international growth prospects for the company and the high return on equity, giving some shares as a present for holidays could prove rewarding for the recipient. At $21, I prefer the stock to the gift card.
Albert L. Lord, chairman of student-loan giant SLM Corp., commonly known as Sallie Mae, sold 1.2 million shares of the company, or more than 90% of his stock in the company. Friday, the company said the sale was "required under Mr. Lord's borrowing arrangements," suggesting Mr. Lord had borrowed against his stockholdings and faced a margin call as the value of his holdings declined.
Barry Ritholtz: "Advertisers are well on the way to spend $21.4 billion on the Internet in 2007, says eMarketer’s new online ad spending report. By 2011, spending on advertisements online is expected to reach $42 billion. One big trend is that the nation’s largest advertisers are shifting more of their budgets from traditional media to the Internet, according to eMarketer’s calculations."
Citigroup Inc.will take $49 billion of assets from structured investment vehicles (SIVs) it advises onto its balance sheet. The bank said it's committed to supporting the SIVs to resolve concerns about the vehicles' ability to repay debt. "Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Vikram Pandit, Citi's new chief executive, said in a statement.
Business sentiment of large Japanese manufacturers was worse than expected during the quarter that ends December 31, and was forecast to deteriorate further in the coming quarter, according to the result of a survey released by the Bank of Japan Friday. The central bank's quarterly tankan survey showed sentiment, as measured by the diffusion index, of large manufacturers dropped to plus 19, as compared with plus 23 at the end of the previous quarter.
Palm, which has a worldwide staff of 1,150, is eliminating more than 100 jobs. The person spoke with Business Week on condition of anonymity because Palm did not publicly disclose the number of layoffs.
Euro area inflation was 3.1% in November, up from 2.6% in October, final data from the Eurostat statistics body showed Friday. Last year, inflation was 1.9%.
The International Energy Agency revised down its forecast for global oil product demand in 2007 by 60,000 barrels a day to an average of 88.7 million barrels a day in its oil market report on Friday. However, the agency revised up its demand forecast for 2008 by 115,000 barrels a day to 87.8 million barrels a day following a reappraisal of ethane prospects in the Middle East. November world oil supply rose 55,000 barrels a day to 86.5 million barrels a day as output recovery in Mexico, China and Brazil offset lower OPEC supply. OPEC crude supply averaged 31.1 million barrels a day, down 180,000 barrels a day from October.
OPEC said on Friday there were risks an economic slowdown could worsen in 2008 and forecast that weaker growth and easing political tension could take the heat out of near-record oil prices. OPEC, in its December Monthly Oil Market Report, estimated world economies will grow by 4.8 percent next year, down from 5.2 percent in 2007, and said there were "considerable downside risks" to the outlook.
ComScore Inc. said Internet holiday retails sales are growing at the slowest pace on record. Online sales in November and December may rise 20 percent, a record low for the industry, and slower than the 26 percent pace a year earlier.
Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent in 2008, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.``We're only halfway through the housing shock,'' said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth-biggest U.S. securities firm by market value. ``It's just a matter of time before the weakness spreads to the rest of the economy.''
Rep. Ron Paul: " Even those Americans who receive a higher nominal amount in transfer payments than they pay in income taxes suffer from Big Government. Their standard of living is eroded by inflation, their wages are garnished by income and payroll taxes, their civil liberties are under constant assault, and their economic prospects are limited because of the drag the welfare-warfare state places on the economy. Furthermore, unless we reverse course quickly, future generations will suffer a declining standard of living and loss of liberty. Thus, I expect many Americans to vote for me not only out of concern for their own well-being, but out of concern for their children."
The Oil Drum: "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.7 million barrels compared to the previous week. At 304.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.6 million barrels last week, but are near the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories decreased by 0.8 million barrels, but are in the lower half of the average range for this time of year."
The American Chamber of Commerce in Shanghai says that rising prices for doing business in China may be driving companies to move business to India and Vietnam.
According to Bloomberg, Tiffany, Nordstrom and Coach may see December sales growth slow in what the National Retail Federation is predicting will be the worst U.S. holiday shopping season since 2002. Retailers that cater to America's richest consumers are losing their least-affluent customers — those who buy jewelry and designer scarves only when flush with cash — during the biggest selling season of the year. Falling home values are discouraging purchases in the fourth quarter, a period that accounts for a third of retailers' annual earnings, according to the International Council of Shopping Centers. Neiman Marcus said it faces "somewhat challenging" client demand. The average annual household income of luxury shoppers, says Citigroup analyst Deborah Weinswig, ranges from $100,000 at Nordstrom to $250,000 at Neiman Marcus.
Credit Suisse Group lowered its 2008 forecast for U.S. natural gas prices because an investment boom will create excess gas supply. The forecast for Henry Hub gas futures on the New York Mercantile Exchange was lowered by 10 percent to $6.75 per million British thermal units, from $7.50, Credit Suisse analysts including Jonathan Wolff in New York said in the report today. The change reflects ``an imbalanced market that appears poised for continued weakness without a reduction in U.S. onshore supply growth,'' the report said.
U.S. consumer prices jumped a bigger-than-expected 0.8 percent in November, the sharpest climb in more than two years and driven by surging energy costs, a government report released on Friday showed. Core prices, which strip out volatile food and energy costs, were up 0.3 percent, the biggest jump since the same increase in January. Consumer prices were also 4.3 percent higher than a year ago, the steepest increase since a matching gain in June 2006. One might ask whether your income after all taxes has matched the 4.3% gain in consumer prices. If not, then your standard of living has gone down. That should not come as a surprise. Take it a step further. Has your quality of life gone down in 2007?
Real average weekly earnings fell by 0.4 percent from October to November
after seasonal adjustment, according to preliminary data released today by the
Bureau of Labor Statistics of the U.S. Department of Labor. A 0.5 percent
increase in average hourly earnings was more than offset by a 0.9 percent
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). Average weekly hours were unchanged.
Here's an example of what's wrong in corporate America: "For fiscal year 2008, bonus targets for our executive officers will be based on corporate performance, specifically earnings per share objectives. Cash bonus awards are based on a percentage of a participant's December 1st base salary. There are three bonus award levels for each executive officer: entry level (minimum), expected value (target) and over achievement. Each level represents the percentage of base salary that the executive officer will receive as a bonus if that particular bonus award level is met for the fiscal year... If we fail to meet the entry-level earnings per share objective, no bonus will be paid." In 2007, the objective for earnings per share was not met. The shares have declined 30% in value. Despite that fact, stock awards were provided, at no cost, to top management personnel. I feel confident that this type of Board of Directors lack of oversight exists all over corporate America. It's no wonder our ability to compete, or lack of, outside of our borders has been on the decline for years.
A powerful nor'easter may bring more than a foot (0.3 meter) of snow tomorrow evening from central New York to northwestern Maine and flooding in the northern mid- Atlantic and the Interstate 95 corridor.
More than one in five U.S. homeowners expect their home to fall in value in the coming year, a Reuters-University of Michigan consumer survey said on Friday
Cotton acreage is falling sharply in California, down 50 percent in just the last seven years, as California farmers switch to more profitable crops.
Over the past week or so we have seen a big rally in the U.S. Dollar Index. It had broken 75 on the downside and on Friday rose to 77.39, a meaningful display of strength in a bear market. As such, gold had a bad week or so and the yield on treasury bonds rose considerably with the 10-year at 4.25% and the 30-year at 4.66%. In sum, the dollar advanced the most against the euro since June 2004 after the biggest increase in consumer inflation in two years prompted traders to pare expectations for interest-rate reductions. The U.S. currency has risen 1.5 percent against the euro over the past five days, the biggest weekly increase since August. If you are wondering whether a threat of inflation will stop rate cuts, don't fret. It won't.
Starbucks made a new 52-week low on Friday and is approaching the $21 level or 20 times the estimated earnings for 2008. Given the international growth prospects for the company and the high return on equity, giving some shares as a present for holidays could prove rewarding for the recipient. At $21, I prefer the stock to the gift card.
Albert L. Lord, chairman of student-loan giant SLM Corp., commonly known as Sallie Mae, sold 1.2 million shares of the company, or more than 90% of his stock in the company. Friday, the company said the sale was "required under Mr. Lord's borrowing arrangements," suggesting Mr. Lord had borrowed against his stockholdings and faced a margin call as the value of his holdings declined.
Thursday, December 13, 2007
Squeeze
12/14/07 Squeeze
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday.Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets.Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
Henry To: "The NYSE Common Stock Only Advance/Decline Line did not confirm the new highs in the Dow Industrials or the S&P 500 in early October - a development that has not occurred since the bull market began in October 2002. In fact, the NYSE CSO A/D Line had already topped out in early July - three months prior to the most recent high. A non-confirmation of the NYSE CSO A/D Line of a new high in either the Dow Industrials or the S&P 500 usually signals selectivity, or in other words, a lack of general buying power. Over the last 50 years, such non-confirmations have always resulted in a correction in the Dow Industrials or the S&P 500 of 12 % or more - and sometimes, much more, such as during the 1973 to 1974 bear market or those fateful two months from late August to late October 1987. In other words, this is a classic warning sign of, at the very least, a more severe-than-normal stock market correction. If this were your typical "10% bull market correction," then in all probability, there would not have been such a flagrant non-confirmation by the NYSE CSO A/D Line...More ominously, the latest uptick in the NYSE CSO A/D line has been rather muted despite the impressive gains in both the Dow Industrials and the S&P 500. Furthermore, this weakness in the A/D line is also confirmed by the weakness in the NYSE CSO A/D Volume Line (which is the cumulative daily differences in NYSE CSO Advancing Volume and NYSE CSO Declining Volume) - suggesting that the most recent rally is very weak from both a breadth and a volume standpoint... Should the Dow Industrials move higher over the next several weeks, and should we continue to see a negative divergence in terms of weak breadth or a lower low in the NYSE CSO A/D line, there is a good chance we would shift to a fully (100%) short position in our DJIA Timing System...Given that the TED spread (The TED spread is defined as the difference between the three-month LIBOR rate and the yield of the three-month Treasury bill, and is usually interpreted as the willingness of banks to lend to high-grade corporate borrowers or fellow banks. ) is now at a 20-year high, and given that the stock market did not get that oversold during the latest decline in late November, my guess is that the major market indices will eventually break their November 26th lows - whether it is later this month or early next year."
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Novartis to cut 2,200 jobs.
Honeywell expects 2008 sales of $36.1 billion to $36.7 billion and earnings of $3.65-$3.80 a share.
Costco Wholesale Corp. reported fiscal first-quarter net income rose 11%, meeting analysts' expectations, on 12% higher sales and 8% higher same-store sales. Earnings for the quarter ended Nov. 25 reached $262 million, or 59 cents a share, from $236.9 million, or 51 cents, in the year-earlier period. Sales reached $15.47 billion from $13.85 billion.
China's value-added industrial production climbed 17.3% in November from a year earlier, easing from a 17.9% gain in October, the National Bureau of Statistics said in a statement.
Countrywide Financial Corp.said Thursday that mortgage loan fundings for the month of November 2007 totaled $23 billion, a 40 percent decline from November 2006. However, total mortgage loan fundings were up 5 percent from the prior month.
Lehman Brothers Q4 earnings $1.54 per share vs $1.72.
U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years. Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said. Meanwhile, U.S. retail sales rose a better-than-expected 1.2% in November, the best gain in six months, the Commerce Department estimated Thursday. Take your pick on retail outlook.
Sam Zell is hopeful that the $8.2 billion deal he's leading to take Tribune Co. private will close Dec. 20.
Responding to a question at the Executives' Club of Chicago luncheon Wednesday about whether there was news about the Tribune deal, Zell responded by saying: "Hopefully it will close next Thursday."
Brett Steenbarger: "By cumulating the volume at offer vs. bid over the course of the day and by cumulating the NYSE TICK values through the course of a market session, we can see how market sentiment is shifting over time.
When we rose sharply yesterday (WED) in response to the Fed announcement of coordinated action, the market looked very bullish. As Rennie Yang observed in his excellent Market Tells newsletter, however, the NYSE TICK action was telling a different story. Relative to the 20-day average, we were actually seeing reduced buying interest. The TICK told us that traders were selling into the strength, which ended up being a great market tell.
Seasonally adjusted initial jobless claims fell 7,000 to 333,000 in the week ended Dec. 8, the government reported Thursday. The four-week moving average for initial jobless claims fell 2,000 to 338,750, according to the Labor Department. Continuing jobless claims increased 38,000 to 2.64 million for the week ended Dec. 1. The four-week moving average for continuing jobless claims rose 18,750 to 2.61 million -- the highest level since early January 2006.
Wholesale prices rose 3.2% in November - the largest change since 3.5% in August 1973 -- as energy price growth hit a new record, the Labor Department reported Thursday. Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Growth in gasoline prices of 34.8% also hit a new record - beating the prior record of 28.8% in April 1999. Food prices had 0.0% growth, compared with a gain of 1.0% in the prior month. Excluding volatile food and energy, the core producer prices grew 0.4%.
Dow Chemical Co. agreed to create a joint petrochemicals venture together with Petrochemical Industries Co. of Kuwait [PCI] in exchange for $9.5 billion. The venture will be split 50/50 between the two companies and will be fully integrated.
Robert McHugh: "In the aftermath of the Fed's decision to only drop short-term rates by a quarter percent, they announced Wednesday that they are going to increase the money supply by 3 percent over the next week. It will be the largest one-time admitted injection since 9/11/01. By loaning it, there will be a velocity of money growth logarithmic impact, meaning M-3 will rise much more than just 3 percent. Hyperinflation to the rescue.
The banks are going to get this money, at below market interest rates, so they can lend it and make a bunch of money. Why? It means the Fed is worried about bank earnings, about bank capital levels, and is going to give them a lay-up to earn billions of losses back. Again, this does nothing for mom and pop, who are getting killed by a dead real estate market, job losses, fixed incomes, a doubling of the cost of living, and debt up to their ears. This will accomplish nothing other than to increase inflation, increase the cost of living. More for Wall Street and nothing for Main Street. This recession requires direct help to Main Street. Another "F" for the Master Planners. Good luck with that."
"Officials forecast US wheat stocks would shrink to their lowest level in 60 years, dropping from 312m bushels to 280m by the end of the 2007-08 crop year. "
Gold for February delivery dropped $14.80 to finish at $804 an ounce on the New York Mercantile Exchange. Silver for March delivery tumbled 58.80 cents, or 4%, to end at $14.237 an ounce.
JetBlue Airways Group Inc.said Thursday Deutsche Lufthansa had agreed to take a 19% equity stake in the New York carrier and get a seat on the board. The German carrier is buying 42 million newly issued common shares of JetBlue in a private placement at a price of $7.27 a share, or a total of about $300 million.
Crude oil for January delivery closed down $2.14, or 2.3%, at $92.25 a barrel on the New York Mercantile Exchange. Natural-gas futures for January delivery erased earlier gains, fell 22.9 cents to $7.179 per million British thermal units. Earlier in the day natural gas had rallied to $7.49 after the U.S. Energy Information Administration reported U.S. inventories fell 146 billion cubic feet to 3,294 billion cubic feet in the week ending Dec. 7. Inventories have fallen 246 billion cubic feet since the week ending Nov. 16, EIA data showed.
Advanced Micro Devices Inc. CFO Bob Rivet said Thursday that the struggling chipmaker will become profitable again in 2008 vowing, "Every business will swing back to the black." The company also said it will spend $1.1 billion on capital expenditures in 2008, down from $1.7 billion in 2007.
John Bogle, the Vanguard founder, just put the chances at 75% that the U.S. is heading for recession during a CNBC interview.
Sun Tzu: "The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim."
Nouriel Roubini: "The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.)."
Rigzone: " Nigeria pumps about 2.1 million barrels a day, or about 2.5% of the world's daily oil needs...Nigeria is beginning the deepest overhaul of its petroleum industry in decades, a move expected to make it tougher for big operators such as Royal Dutch Shell PLC to profit from tapping Africa's biggest oil-producing country... Unlike some other countries, the Nigerian government has no plans to seize private assets...In addition to profit-shaving pressure from rising costs for drilling rigs and raw materials, companies have lost hundreds of millions of dollars in oil revenue in the past two years because of violence in the Niger Delta, where most of the country's oil is produced. The violence has shut about 20% of Nigeria's oil production capacity. Early indications are that once the offshore contracts are renegotiated, profits for companies may end up "at least" 5% to 10% lower, translating into hundreds of millions of dollars over time, according to a senior Nigerian oil official."
Marc Faber: "The decline in volume of freight shipped is also confirmed by the Cass Freight Index, which peaked out in June 2006. According to contraryinvestor.com, Cass Freight Systems is a “freight payable processor” that deals with 1,200 divisions of 400 individual companies representing a broad spectrum of industries; therefore, the company has a very good feel for the flow and character of the US freight industry (part of the decline in the Cass Freight Index since June 2006 may have been due to the decline in energy prices in the second half of last year, but with energy prices now back to peak levels the index has failed to approach its 2006 high. Shipments by Canada’s largest railway, Canadian National Railways, which derives 33% of its revenues from the US, are down 12% year-on-year). In theory, it could be that trucks and railroads are suddenly carrying fewer but higher-value goods, but a more likely explanation is that volumes are down but prices in retail stores are up, which explains the surprisingly strong September retail sales. But even if this were the case, it doesn’t tally entirely with the declining trend in states’ sales tax receipts. In California, September’s sales tax receipts were down 7%, compared to the previous year. One possibility we shouldn’t exclude is that the economic condition of US households has deteriorated to the point where they are curtailing the purchase of discretionary items, which are subject to sales taxes, but increasing the dollar sales of groceries, due to price increases (not because of an increase in volume)."
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday.Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets.Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
Henry To: "The NYSE Common Stock Only Advance/Decline Line did not confirm the new highs in the Dow Industrials or the S&P 500 in early October - a development that has not occurred since the bull market began in October 2002. In fact, the NYSE CSO A/D Line had already topped out in early July - three months prior to the most recent high. A non-confirmation of the NYSE CSO A/D Line of a new high in either the Dow Industrials or the S&P 500 usually signals selectivity, or in other words, a lack of general buying power. Over the last 50 years, such non-confirmations have always resulted in a correction in the Dow Industrials or the S&P 500 of 12 % or more - and sometimes, much more, such as during the 1973 to 1974 bear market or those fateful two months from late August to late October 1987. In other words, this is a classic warning sign of, at the very least, a more severe-than-normal stock market correction. If this were your typical "10% bull market correction," then in all probability, there would not have been such a flagrant non-confirmation by the NYSE CSO A/D Line...More ominously, the latest uptick in the NYSE CSO A/D line has been rather muted despite the impressive gains in both the Dow Industrials and the S&P 500. Furthermore, this weakness in the A/D line is also confirmed by the weakness in the NYSE CSO A/D Volume Line (which is the cumulative daily differences in NYSE CSO Advancing Volume and NYSE CSO Declining Volume) - suggesting that the most recent rally is very weak from both a breadth and a volume standpoint... Should the Dow Industrials move higher over the next several weeks, and should we continue to see a negative divergence in terms of weak breadth or a lower low in the NYSE CSO A/D line, there is a good chance we would shift to a fully (100%) short position in our DJIA Timing System...Given that the TED spread (The TED spread is defined as the difference between the three-month LIBOR rate and the yield of the three-month Treasury bill, and is usually interpreted as the willingness of banks to lend to high-grade corporate borrowers or fellow banks. ) is now at a 20-year high, and given that the stock market did not get that oversold during the latest decline in late November, my guess is that the major market indices will eventually break their November 26th lows - whether it is later this month or early next year."
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Novartis to cut 2,200 jobs.
Honeywell expects 2008 sales of $36.1 billion to $36.7 billion and earnings of $3.65-$3.80 a share.
Costco Wholesale Corp. reported fiscal first-quarter net income rose 11%, meeting analysts' expectations, on 12% higher sales and 8% higher same-store sales. Earnings for the quarter ended Nov. 25 reached $262 million, or 59 cents a share, from $236.9 million, or 51 cents, in the year-earlier period. Sales reached $15.47 billion from $13.85 billion.
China's value-added industrial production climbed 17.3% in November from a year earlier, easing from a 17.9% gain in October, the National Bureau of Statistics said in a statement.
Countrywide Financial Corp.said Thursday that mortgage loan fundings for the month of November 2007 totaled $23 billion, a 40 percent decline from November 2006. However, total mortgage loan fundings were up 5 percent from the prior month.
Lehman Brothers Q4 earnings $1.54 per share vs $1.72.
U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years. Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said. Meanwhile, U.S. retail sales rose a better-than-expected 1.2% in November, the best gain in six months, the Commerce Department estimated Thursday. Take your pick on retail outlook.
Sam Zell is hopeful that the $8.2 billion deal he's leading to take Tribune Co. private will close Dec. 20.
Responding to a question at the Executives' Club of Chicago luncheon Wednesday about whether there was news about the Tribune deal, Zell responded by saying: "Hopefully it will close next Thursday."
Brett Steenbarger: "By cumulating the volume at offer vs. bid over the course of the day and by cumulating the NYSE TICK values through the course of a market session, we can see how market sentiment is shifting over time.
When we rose sharply yesterday (WED) in response to the Fed announcement of coordinated action, the market looked very bullish. As Rennie Yang observed in his excellent Market Tells newsletter, however, the NYSE TICK action was telling a different story. Relative to the 20-day average, we were actually seeing reduced buying interest. The TICK told us that traders were selling into the strength, which ended up being a great market tell.
Seasonally adjusted initial jobless claims fell 7,000 to 333,000 in the week ended Dec. 8, the government reported Thursday. The four-week moving average for initial jobless claims fell 2,000 to 338,750, according to the Labor Department. Continuing jobless claims increased 38,000 to 2.64 million for the week ended Dec. 1. The four-week moving average for continuing jobless claims rose 18,750 to 2.61 million -- the highest level since early January 2006.
Wholesale prices rose 3.2% in November - the largest change since 3.5% in August 1973 -- as energy price growth hit a new record, the Labor Department reported Thursday. Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Growth in gasoline prices of 34.8% also hit a new record - beating the prior record of 28.8% in April 1999. Food prices had 0.0% growth, compared with a gain of 1.0% in the prior month. Excluding volatile food and energy, the core producer prices grew 0.4%.
Dow Chemical Co. agreed to create a joint petrochemicals venture together with Petrochemical Industries Co. of Kuwait [PCI] in exchange for $9.5 billion. The venture will be split 50/50 between the two companies and will be fully integrated.
Robert McHugh: "In the aftermath of the Fed's decision to only drop short-term rates by a quarter percent, they announced Wednesday that they are going to increase the money supply by 3 percent over the next week. It will be the largest one-time admitted injection since 9/11/01. By loaning it, there will be a velocity of money growth logarithmic impact, meaning M-3 will rise much more than just 3 percent. Hyperinflation to the rescue.
The banks are going to get this money, at below market interest rates, so they can lend it and make a bunch of money. Why? It means the Fed is worried about bank earnings, about bank capital levels, and is going to give them a lay-up to earn billions of losses back. Again, this does nothing for mom and pop, who are getting killed by a dead real estate market, job losses, fixed incomes, a doubling of the cost of living, and debt up to their ears. This will accomplish nothing other than to increase inflation, increase the cost of living. More for Wall Street and nothing for Main Street. This recession requires direct help to Main Street. Another "F" for the Master Planners. Good luck with that."
"Officials forecast US wheat stocks would shrink to their lowest level in 60 years, dropping from 312m bushels to 280m by the end of the 2007-08 crop year. "
Gold for February delivery dropped $14.80 to finish at $804 an ounce on the New York Mercantile Exchange. Silver for March delivery tumbled 58.80 cents, or 4%, to end at $14.237 an ounce.
JetBlue Airways Group Inc.said Thursday Deutsche Lufthansa had agreed to take a 19% equity stake in the New York carrier and get a seat on the board. The German carrier is buying 42 million newly issued common shares of JetBlue in a private placement at a price of $7.27 a share, or a total of about $300 million.
Crude oil for January delivery closed down $2.14, or 2.3%, at $92.25 a barrel on the New York Mercantile Exchange. Natural-gas futures for January delivery erased earlier gains, fell 22.9 cents to $7.179 per million British thermal units. Earlier in the day natural gas had rallied to $7.49 after the U.S. Energy Information Administration reported U.S. inventories fell 146 billion cubic feet to 3,294 billion cubic feet in the week ending Dec. 7. Inventories have fallen 246 billion cubic feet since the week ending Nov. 16, EIA data showed.
Advanced Micro Devices Inc. CFO Bob Rivet said Thursday that the struggling chipmaker will become profitable again in 2008 vowing, "Every business will swing back to the black." The company also said it will spend $1.1 billion on capital expenditures in 2008, down from $1.7 billion in 2007.
John Bogle, the Vanguard founder, just put the chances at 75% that the U.S. is heading for recession during a CNBC interview.
Sun Tzu: "The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim."
Nouriel Roubini: "The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.)."
Rigzone: " Nigeria pumps about 2.1 million barrels a day, or about 2.5% of the world's daily oil needs...Nigeria is beginning the deepest overhaul of its petroleum industry in decades, a move expected to make it tougher for big operators such as Royal Dutch Shell PLC to profit from tapping Africa's biggest oil-producing country... Unlike some other countries, the Nigerian government has no plans to seize private assets...In addition to profit-shaving pressure from rising costs for drilling rigs and raw materials, companies have lost hundreds of millions of dollars in oil revenue in the past two years because of violence in the Niger Delta, where most of the country's oil is produced. The violence has shut about 20% of Nigeria's oil production capacity. Early indications are that once the offshore contracts are renegotiated, profits for companies may end up "at least" 5% to 10% lower, translating into hundreds of millions of dollars over time, according to a senior Nigerian oil official."
Marc Faber: "The decline in volume of freight shipped is also confirmed by the Cass Freight Index, which peaked out in June 2006. According to contraryinvestor.com, Cass Freight Systems is a “freight payable processor” that deals with 1,200 divisions of 400 individual companies representing a broad spectrum of industries; therefore, the company has a very good feel for the flow and character of the US freight industry (part of the decline in the Cass Freight Index since June 2006 may have been due to the decline in energy prices in the second half of last year, but with energy prices now back to peak levels the index has failed to approach its 2006 high. Shipments by Canada’s largest railway, Canadian National Railways, which derives 33% of its revenues from the US, are down 12% year-on-year). In theory, it could be that trucks and railroads are suddenly carrying fewer but higher-value goods, but a more likely explanation is that volumes are down but prices in retail stores are up, which explains the surprisingly strong September retail sales. But even if this were the case, it doesn’t tally entirely with the declining trend in states’ sales tax receipts. In California, September’s sales tax receipts were down 7%, compared to the previous year. One possibility we shouldn’t exclude is that the economic condition of US households has deteriorated to the point where they are curtailing the purchase of discretionary items, which are subject to sales taxes, but increasing the dollar sales of groceries, due to price increases (not because of an increase in volume)."
Wednesday, December 12, 2007
Day After
12/13/07 Day After
Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets. Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility (approved by the Board of Governors of the Federal Reserve System) and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank (approved by the Federal Open Market Committee). Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.
Although there was this effort to improve liquidity, the big bank stocks actually declined while the S&P rose by 20 points in early trading. Meanwhile, the brokerage stocks have trouble holding any rally. In addition, after the Dow opened up 240 points, by mid-morning that had declined to only a plus 50 points.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
Office Depot Inc.sees erosion of sales and earnings in the fourth quarter of 2007 due to housing problems, especially in Florida and California. Those states account for 28% of Office Depot's North American sales.
J.P. Morgan Chase and Bank of America were downgraded to hold from buy, and Wachovia was cut to sell from hold at Merrill Lynch.
U.S. home repossessions in November totalled 72,101, up 31.8% from the previous month, according to data from Foreclosures.com. For the first 11 months of the year, around 527,000 homes ended up back in the hands of lenders, up 41% from the same time last year.
The Federal Reserve may take action on its discount rate within days, The Wall Street Journal reported Wednesday. Fed officials continue to consider ways of using various tools -- including the discount rate -- to combat banks' unwillingness to lend even to each other, which they view as a threat to economic growth. The central bank could take action within days, the report said. A variety of steps, widely discussed in the markets, are likely to be on the table, including another cut in the discount rate, longer-term loans to money-market dealers, easier collateral rules for loans from the Fed, and other steps last taken in 1999 to alleviate funding pressures ahead of the year 2000, when many feared a "Y2K" computer bug would disrupt markets and create economic havoc, the report said.
Maguire Properties Inc., the Los Angeles real-estate investment trust focused on Southern California, said a panel of its outside directors would consider alternatives to build value for holders, including possibly selling the company.
China retail sales surged 18.8% to 810.5 billion yuan ($109.92 billion) in November, accelerating from an 18.1% rise in October, the National Bureau of Statistics said in a statement Wednesday.
3M Co expects double-digit sales and earnings growth in 2008, and estimated 2008 earnings per share in a range of $5.44 to $5.47. Analysts polled by Reuters Estimates were expecting 3M to earn $5.42 per share next year.
Goldman Sachs Group Inc. raised its 12-month price forecast for agricultural commodities, including cotton, soybeans, corn, wheat, coffee and sugar. ``We are raising our agriculture returns forecast to 5 percent,'' a team of analysts led by Jeffrey Currie, head of global commodities research at Goldman in London, said in a report.
Charge-off and delinquency rates continued to rise in November at Capital One Financial, the financial services company said in regulatory filings Wednesday.
Net charge-offs of managed loans increased to 3.52 percent in November, from 3.36 the previous month and 3.27 during the same month a year ago. Charge-offs are loans being written off as not being repaid.
Loans at least 30 days past due increased slightly to 3.68 percent in November from 3.64 in October. During Nov. 2006, 3.49 percent of loans managed were 30 days past due. Thirty-day delinquency rates were as low as 2.77 percent in April.
The U.S. trade deficit grew in October compared to the previous month, according to the government's latest reading that showed the gap between imports and exports was slightly larger than Wall Street expectations.The Commerce Department said imports were $57.8 billion above exports, even as a weak dollar helped to lift exports to record levels. That is up from a gap of $57.2 billion in September, which was revised higher, although it's below the $58.2 billion level in October 2006.
Wachovia Corp said on Wednesday in a federal filing that it now sees a loan loss provision in the fourth quarter of about $1 billion in excess of charge-offs.The bank said it had previously seen a loan loss provision in the fourth quarter of $500 million to $600 million in excess of charge-offs.
The Bush administration's decision to add more oil to the Strategic Petroleum Reserve has added as much as 10 percent to the price of crude, an oil consultant told a Senate panel Tuesday."The rise in light, sweet crude prices to almost $100 a barrel in November came about because the U.S. Department of Energy has been removing a significant share of the daily volume of this type of crude from the market for storage in the Strategic Petroleum Reserve," said Philip Verleger of Aspen, Colo.-based PKVerleger.
SLM Corp. said the investment group led by J.C. Flowers, Bank of America and JP Morgan Chase is unwilling to make a new takeover proposal. SLM, known as Sallie Mae, also reported in a PR Newswire statement today that fourth-quarter ``core'' earnings would be 52 cents to 57 cents a share, lower than analysts' estimates of 71 cents.
The Bank of America said the fourth quarter will be disappointing.
The Norwegian Petroleum Safety Authority has set up an emergency response center on Wednesday following a leak of crude oil from the Statfjord A loading buoy in the Norwegian North Sea, which is operated by StatoilHydro. Provisionally estimated at 21,750 barrels, or 3,840 cubic meters, the Statfjord leak is the second biggest discharge of oil in Norwegian petroleum history, the authority said in a statement on its website on Wednesday.
Crude inventories fell by 700,000 barrels to 304.5 million barrels in the week ending Dec. 7, U.S. Energy Information Administration reported on Wednesday. After the data, crude-oil futures for January delivery rose $1.40, or 1.6%, to $91.42 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 1.6 million barrels in the latest week, while distillate stocks decreased by 800,000 barrels, EIA reported. On Nymex, January reformulated gasoline rose 3.39 cents to $2.3253 a gallon and January heating oil rallied 5.68 cents to $2.5798 a gallon.
The three-month dollar London Interbank Offered Rate was trading at 5.05% Wednesday, down from 5.11% Tuesday, after news that the U.S. Federal Reserve and four other central banks will take coordinated liquidity-boosting steps which could add as much as $40 billion into global money markets to ease a credit crisis.
Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year 12 percent on concerns that investment costs and weaker demand may prompt producers to limit supply. Goldman increased its average 2008 forecast for West Texas Intermediate crude oil to $95 a barrel from $85. West Texas Intermediate oil futures, traded on New York Mercantile Exchange, may rise to as much as $105 a barrel by the end of next year, the bank said in an report.
Biogen shares were last down 27% at $55.30. The Cambridge, Mass., firm said it will remain an independent company after not having received any purchase offers during its review of strategic alternatives to maximize shareholder value
Crude oil for January delivery closed up $4.37, or 4.9%, at $94.39 a barrel on the New York Mercantile Exchange, the highest closing price since Nov. 28. Gold for February delivery rose $1.70 to end at $818.80 an ounce on the New York Mercantile Exchange.
The U.S. posted a budget deficit of $98.21 billion in November, the Treasury Department reported Wednesday. The deficit is lower than the $101 billion estimated earlier by the Congressional Budget Office. The deficit is 34% above the $73.8 billion deficit in November 2006.
Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets. Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility (approved by the Board of Governors of the Federal Reserve System) and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank (approved by the Federal Open Market Committee). Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.
Although there was this effort to improve liquidity, the big bank stocks actually declined while the S&P rose by 20 points in early trading. Meanwhile, the brokerage stocks have trouble holding any rally. In addition, after the Dow opened up 240 points, by mid-morning that had declined to only a plus 50 points.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
Office Depot Inc.sees erosion of sales and earnings in the fourth quarter of 2007 due to housing problems, especially in Florida and California. Those states account for 28% of Office Depot's North American sales.
J.P. Morgan Chase and Bank of America were downgraded to hold from buy, and Wachovia was cut to sell from hold at Merrill Lynch.
U.S. home repossessions in November totalled 72,101, up 31.8% from the previous month, according to data from Foreclosures.com. For the first 11 months of the year, around 527,000 homes ended up back in the hands of lenders, up 41% from the same time last year.
The Federal Reserve may take action on its discount rate within days, The Wall Street Journal reported Wednesday. Fed officials continue to consider ways of using various tools -- including the discount rate -- to combat banks' unwillingness to lend even to each other, which they view as a threat to economic growth. The central bank could take action within days, the report said. A variety of steps, widely discussed in the markets, are likely to be on the table, including another cut in the discount rate, longer-term loans to money-market dealers, easier collateral rules for loans from the Fed, and other steps last taken in 1999 to alleviate funding pressures ahead of the year 2000, when many feared a "Y2K" computer bug would disrupt markets and create economic havoc, the report said.
Maguire Properties Inc., the Los Angeles real-estate investment trust focused on Southern California, said a panel of its outside directors would consider alternatives to build value for holders, including possibly selling the company.
China retail sales surged 18.8% to 810.5 billion yuan ($109.92 billion) in November, accelerating from an 18.1% rise in October, the National Bureau of Statistics said in a statement Wednesday.
3M Co expects double-digit sales and earnings growth in 2008, and estimated 2008 earnings per share in a range of $5.44 to $5.47. Analysts polled by Reuters Estimates were expecting 3M to earn $5.42 per share next year.
Goldman Sachs Group Inc. raised its 12-month price forecast for agricultural commodities, including cotton, soybeans, corn, wheat, coffee and sugar. ``We are raising our agriculture returns forecast to 5 percent,'' a team of analysts led by Jeffrey Currie, head of global commodities research at Goldman in London, said in a report.
Charge-off and delinquency rates continued to rise in November at Capital One Financial, the financial services company said in regulatory filings Wednesday.
Net charge-offs of managed loans increased to 3.52 percent in November, from 3.36 the previous month and 3.27 during the same month a year ago. Charge-offs are loans being written off as not being repaid.
Loans at least 30 days past due increased slightly to 3.68 percent in November from 3.64 in October. During Nov. 2006, 3.49 percent of loans managed were 30 days past due. Thirty-day delinquency rates were as low as 2.77 percent in April.
The U.S. trade deficit grew in October compared to the previous month, according to the government's latest reading that showed the gap between imports and exports was slightly larger than Wall Street expectations.The Commerce Department said imports were $57.8 billion above exports, even as a weak dollar helped to lift exports to record levels. That is up from a gap of $57.2 billion in September, which was revised higher, although it's below the $58.2 billion level in October 2006.
Wachovia Corp said on Wednesday in a federal filing that it now sees a loan loss provision in the fourth quarter of about $1 billion in excess of charge-offs.The bank said it had previously seen a loan loss provision in the fourth quarter of $500 million to $600 million in excess of charge-offs.
The Bush administration's decision to add more oil to the Strategic Petroleum Reserve has added as much as 10 percent to the price of crude, an oil consultant told a Senate panel Tuesday."The rise in light, sweet crude prices to almost $100 a barrel in November came about because the U.S. Department of Energy has been removing a significant share of the daily volume of this type of crude from the market for storage in the Strategic Petroleum Reserve," said Philip Verleger of Aspen, Colo.-based PKVerleger.
SLM Corp. said the investment group led by J.C. Flowers, Bank of America and JP Morgan Chase is unwilling to make a new takeover proposal. SLM, known as Sallie Mae, also reported in a PR Newswire statement today that fourth-quarter ``core'' earnings would be 52 cents to 57 cents a share, lower than analysts' estimates of 71 cents.
The Bank of America said the fourth quarter will be disappointing.
The Norwegian Petroleum Safety Authority has set up an emergency response center on Wednesday following a leak of crude oil from the Statfjord A loading buoy in the Norwegian North Sea, which is operated by StatoilHydro. Provisionally estimated at 21,750 barrels, or 3,840 cubic meters, the Statfjord leak is the second biggest discharge of oil in Norwegian petroleum history, the authority said in a statement on its website on Wednesday.
Crude inventories fell by 700,000 barrels to 304.5 million barrels in the week ending Dec. 7, U.S. Energy Information Administration reported on Wednesday. After the data, crude-oil futures for January delivery rose $1.40, or 1.6%, to $91.42 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 1.6 million barrels in the latest week, while distillate stocks decreased by 800,000 barrels, EIA reported. On Nymex, January reformulated gasoline rose 3.39 cents to $2.3253 a gallon and January heating oil rallied 5.68 cents to $2.5798 a gallon.
The three-month dollar London Interbank Offered Rate was trading at 5.05% Wednesday, down from 5.11% Tuesday, after news that the U.S. Federal Reserve and four other central banks will take coordinated liquidity-boosting steps which could add as much as $40 billion into global money markets to ease a credit crisis.
Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year 12 percent on concerns that investment costs and weaker demand may prompt producers to limit supply. Goldman increased its average 2008 forecast for West Texas Intermediate crude oil to $95 a barrel from $85. West Texas Intermediate oil futures, traded on New York Mercantile Exchange, may rise to as much as $105 a barrel by the end of next year, the bank said in an report.
Biogen shares were last down 27% at $55.30. The Cambridge, Mass., firm said it will remain an independent company after not having received any purchase offers during its review of strategic alternatives to maximize shareholder value
Crude oil for January delivery closed up $4.37, or 4.9%, at $94.39 a barrel on the New York Mercantile Exchange, the highest closing price since Nov. 28. Gold for February delivery rose $1.70 to end at $818.80 an ounce on the New York Mercantile Exchange.
The U.S. posted a budget deficit of $98.21 billion in November, the Treasury Department reported Wednesday. The deficit is lower than the $101 billion estimated earlier by the Congressional Budget Office. The deficit is 34% above the $73.8 billion deficit in November 2006.
Tuesday, December 11, 2007
Sell On The News
12/12/07 Sell On The News
The Federal Open Market Committee on Tuesday cut its benchmark federal funds rate by a quarter of one percentage point to 4.25%. The Fed statement was more downbeat about the outlook for growth. ``Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,'' the FOMC said. ``The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.'' The central bank also said some ``inflation risks remain.'' In a related action, the Fed trimmed the discount rate by a quarter point to 4.75%. There was one dissent. Boston Fed president Eric Rosengren wanted a bigger rate cut.
Dennis Wholey: "Expecting the world to treat you fairly because you are a good person is a little like expecting a bull not to attack you because you are a vegetarian”
China's inflation surged to its highest rate in 11 years last month while its trade surplus swelled, the government said Tuesday, adding to pressure for the central bank to raise interest rates and loosen currency controls.
Rising food and oil prices lifted November's consumer price index 6.9 percent from the same period last year, the National Bureau of Statistics said. That is well above the government's inflation target of 3 percent and was the biggest increase since 1996, according to Xinhua News Agency.
China's crude oil imports rose for a 13th month in November as refiners in the fastest-growing major economy expanded production in a bid to end the worst fuel shortage in two years. Imports climbed 0.5 percent from a year earlier to 13.61 million metric tons, about 3.3 million barrels a day, the Customs General Administration of China said in Beijing today. Purchases in the first 11 months jumped 12.5 percent to 150.3 million tons. Exports dropped 41 percent to 3.19 million tons in January to November and were 280,000 tons last month.
Goldman Sachs analyst Steven Kron cut his rating on Starbucks Corp. to neutral from buy, and removed the coffee-shop operator from its Americas buy list.
H&R Block Inc.expects to report a second-quarter loss of $502.3 million, or $1.55 cents a share.
Citigroup has slashed the size of its off-balance-sheet investment funds by more than $15 billion in two months through side deals with junior investors, the Financial Times reported Tuesday.
STMicroelectronics agreed to buy Genesis Microchip Inc for $336 million, or $8.65 a share.
According to FT blog site Alpahville, JP Morgan might be a good buyer for Citigroup.
Mike Shedlock: "Summary Recap
The US is on the precipice of its first consumer led recession since 1991.
A wave of US Bank failures is coming.
LIBOR rates are rising in the US and UK smack in the face of interest rate reductions.
The ECB continues with hawkish rhetoric.
German businesses paid back more than they borrowed for the first time since the 1980s.
Three-month Euribor rates are 93 basis points over ECB rates.
One-month LIBOR rates are 74 basis points over the Fed Funds Rate.
The Fed and BOE easing actions simply are not working to restore faith in the credit markets. Credit conditions based on LIBOR are worse now than in the August and November stock market swoons. Banks remain reluctant to lend to one another in spite of central bank efforts to provide liquidity. Neither central bank appears to be in control of anything at the moment. Of course it was only an illusion that made it seem like central bankers ever were in control in the first place."
U.S. economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, a survey showed.
Economists cut their estimates for the expansion this quarter from November's 1.5 percent forecast, according to the median of 63 estimates in a Bloomberg News survey taken Dec. 3 to Dec. 10. Gross domestic product in the first three months of next year will also be less than previously projected.
Spending, which accounts for more than two-thirds of the economy, will grow in 2008 at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers' buying power. The Federal Reserve will probably lower interest rates today and again early next year to fend off recession, the survey said.
AT&T will increase its quarterly dividend by 12.7 percent Tuesday and also said it plans to buy back 400 million of its shares.
Shareholders will now receive a dividend of 40 cents a share, on a quarterly basis, up from the previous dividend of 35.5 cents. On an annual basis, the dividend will rise to $1.60 a share from $1.42 a share.
WaMu said it expects to put aside anywhere from $7.2 billion to $8 billion next year for bad loans, compared with an estimated $3.1 billion to $3.2 billion this year and $816 million in 2006. Nearly 3,300 of WaMu's 50,000 workers will lose their jobs by the time the restructuring is complete at the end of March, including 380 in metro Seattle and 160 elsewhere in Washington state.
China's global trade surplus totaled $26.28 billion in November, the government announced Tuesday. For the first 11 months of the year, China's trade surplus has reached $238.9 billion, 53 percent more than the same period a year ago.
Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange, is forecasting a 9 percent decline in average home prices on the California statewide level in 2008. And he said an additional 15 to 20 percent drop in 2009 would not be out of the question.
"We disproportionately enjoyed much higher home price appreciation over the last several years with the uses of subprime and Alt-A loans," Adibi said. "This is going to come to haunt us." In the last steep housing downturn, Adibi said, it took 54 months for San Francisco home prices to fall from peak to trough; in San Jose it was 60 months, and in Oakland it was 51 months. To get back to the previous peak price levels took another 3 years, roughly.
"I don't see anything that would suggest the current downtrend is going to level off soon," said Michael Carney, executive director of the Real Estate Research Council of Northern California. "In fact, I think we might be seeing a gathering of momentum in the downward direction. I think we're more toward the beginning of a process than toward the end of it."
Genworth Financial Inc. said 2008 profit will be below analysts' expectations because of possible losses related to the U.S. housing slump.
Kroger Co. forecast full-year earnings that may miss some analysts' estimates.
According to Bloomberg, direct loans by the Federal Reserve to banks jumped to the highest in almost three months amid a surge in demand for funds spurred by concerns about losses on securities linked to U.S. mortgages.
Lending at the Fed's so-called discount window rose by $302 million in the week that ended yesterday from the previous period, to an average of $309 million. The amount of loans outstanding yesterday was $2.1 billion, the highest since Sept. 12, when they hit $7.2 billion.
U.S. natural gas inventories in the week ended Nov. 30 fell 88 billion cubic feet, above the average 60 billion for that week of the year, an Energy Department report on Dec. 6 showed. Supplies declined to 3.44 trillion cubic feet, or 1 percent above year- earlier levels, the department said. ``This is going to be our first three-digit withdrawal and if we get 130 billion, that will erase the year-over-year surplus,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. The five-year average withdrawal for the first week of December is 132 billion cubic feet, according to the department.
Low temperatures last week in Chicago and New York City were 13 to 15 degrees below normal, according to data from AccuWeather.com.
Boeing said it's on course to fly its first 787 Dreamliner aircraft in the first quarter of 2008 and deliver the plane to its first customer by year's end.
The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise.
S&P now expects operating earnings per share growth of 2.6% in 2007 from the S&P 500, down from 9.6% growth estimated earlier in the year, with the largest deceleration seen from consumer discretionary, financial, energy and telecommunications services stocks.
Keefe, Bruyette & Woods downgraded its rating on J.P. Morgan Chase to market perform from outperform. The broker cut J.P. Morgan's price target to $51 from $57, and also shaved Citigroup's price target to $38 from $43. The analysts are factoring in a consumer-led U.S. recession in the first half of 2008.
The U.S. government increased its estimate for crude-oil prices in 2008, citing consumption that exceeds output by non-OPEC producers. Oil will average $84.83 in 2008, up 6.1 percent from $79.92 in last month's forecast. Homeowners in the U.S. can expect to pay an average 33 percent more for heating oil this winter than they did a year earlier, as higher crude prices are passed along, according to the report. Costs will average $1,955 this winter, up from $1,841 estimated a month ago. The fuel heats about one-third of homes in the Northeast.
Michael Krause: "The market with the fastest overall population growth between now and 2032 is not in the emerging markets but rather the United States, which is expected to grow 23% from 301 million now to 357 million in the next quarter century."
Antitrust regulators have cleared InfoSpace Inc.'s sale of its mobile services division to privately held Motricity for $135 million, a government agency said Tuesday.
Gold for February delivery gained $3.60 to end at $817.10 an ounce on the New York Mercantile Exchange.
Citigroup Inc. named Vikram Pandit, the head of its investment banking business, as its chief executive officer. Win Bischoff, the acting CEO, will be the new chairman, replacing Robert Rubin, the former U.S. Treasury secretary who stepped in to the role when Prince resigned Nov. 4.
Soybeans rose, extending their rally to a 34-year high, after the U.S. government reduced its estimate of unsold supplies before next year's harvest to the lowest in four years.
Inventories will drop to 185 million bushels by Aug. 31, 12 percent less than estimated in November and 68 percent less than the record 573 million bushels in reserve at the end of August this year, the U.S. Department of Agriculture said in a report.
Crude oil for January delivery rose $2.20, or 2.5 percent, to $90.06 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Cushing is where New York-traded West Texas Intermediate oil is stored. Supplies at Cushing rose 4.3 percent to 15.9 million barrels in the week ended Nov. 30, leaving inventories 34 percent lower than a year earlier, according to the Energy Department.
General Electric Co said earnings per share may rise at least 10 percent to $2.42 a share in 2008 from this year. GE was forecast to earn $2.49 next year, based on the average estimates of 16 analysts in a Bloomberg survey. The lowest estimate in the survey was $2.44 a share.
Bewteen The Hedges: "The Fed did not cut the discount rate 50 basis points as I had expected. As well, the tone of their language in the ensuing policy statement was a bit more hawkish than expected. The Fed said energy, commodity prices may push inflation up. I continue to believe high energy prices are having a much more negative impact on the broad US stock market than is commonly perceived. Fed fund futures now imply a 21.3% chance for a 50 basis point fed funds rate cut and a 65.4% chance for another 25 basis point fed funds rate cut at the January 30 meeting. The US dollar is strengthening on the news, which is pressuring most commodity prices. The 10-year yield is dropping 19 basis points to 3.97%. The Fed’s actions will likely result in even greater outperformance by true “growth” stocks over “value” stocks over the coming months."
Despite a big down day for equities, Cisco traded up for the entire Tuesday. We'll watch to see whether there is follow through tomorrow. The Dow closed down almost 300 points, the Nasdaq got pummeled for 2 1/2%, and the S&P 500 got knocked for 38+ points.
BlackRock Inc. Chief Executive Laurence Fink said Tuesday the economy is unlikely to fall into a recession in 2008, and a new wave of capital will be invested at some point during the upcoming year.
"By cutting by only 25 basis points, the Fed effectively conveys its sense that recession risks are not as great as what market participants believe. In other words, the Fed sees recession risk as being less than 40 percent whereas the market sees recession risk as at least 40 percent," Moody's chief economist John Lonski said.
Molly Ivins:"In Texas, we do not hold high expectations for the [governor's] office; it's mostly been occupied by crooks, dorks and the comatose.”
Reggie Middleton: "Of course commercial real estate is going to fall. Why? For the exact same reason residential real estate is falling. But, there hasn't been an oversupply of commercial real estate, you say. Well, the oversupply is not the core reason why residential is falling right now. Residential RE's problem is that easy, cheap money brought upon wreckless, imprudent speculation from players who were not well versed in the real estate game - and even those who should have known better. The current oversupply is a byproduct of that liquidity induced speculation. Why split hairs? Because the devil is in the details. The downfall of CRE is the rampant speculation that caused many to significantly overpay for assets that are quite illiquid and take significant expertise and time to improve (or even sell), even incrementally. Not only did they overpay, but they applied significant leverage as well, much more than the industry norm."
The Federal Open Market Committee on Tuesday cut its benchmark federal funds rate by a quarter of one percentage point to 4.25%. The Fed statement was more downbeat about the outlook for growth. ``Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,'' the FOMC said. ``The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.'' The central bank also said some ``inflation risks remain.'' In a related action, the Fed trimmed the discount rate by a quarter point to 4.75%. There was one dissent. Boston Fed president Eric Rosengren wanted a bigger rate cut.
Dennis Wholey: "Expecting the world to treat you fairly because you are a good person is a little like expecting a bull not to attack you because you are a vegetarian”
China's inflation surged to its highest rate in 11 years last month while its trade surplus swelled, the government said Tuesday, adding to pressure for the central bank to raise interest rates and loosen currency controls.
Rising food and oil prices lifted November's consumer price index 6.9 percent from the same period last year, the National Bureau of Statistics said. That is well above the government's inflation target of 3 percent and was the biggest increase since 1996, according to Xinhua News Agency.
China's crude oil imports rose for a 13th month in November as refiners in the fastest-growing major economy expanded production in a bid to end the worst fuel shortage in two years. Imports climbed 0.5 percent from a year earlier to 13.61 million metric tons, about 3.3 million barrels a day, the Customs General Administration of China said in Beijing today. Purchases in the first 11 months jumped 12.5 percent to 150.3 million tons. Exports dropped 41 percent to 3.19 million tons in January to November and were 280,000 tons last month.
Goldman Sachs analyst Steven Kron cut his rating on Starbucks Corp. to neutral from buy, and removed the coffee-shop operator from its Americas buy list.
H&R Block Inc.expects to report a second-quarter loss of $502.3 million, or $1.55 cents a share.
Citigroup has slashed the size of its off-balance-sheet investment funds by more than $15 billion in two months through side deals with junior investors, the Financial Times reported Tuesday.
STMicroelectronics agreed to buy Genesis Microchip Inc for $336 million, or $8.65 a share.
According to FT blog site Alpahville, JP Morgan might be a good buyer for Citigroup.
Mike Shedlock: "Summary Recap
The US is on the precipice of its first consumer led recession since 1991.
A wave of US Bank failures is coming.
LIBOR rates are rising in the US and UK smack in the face of interest rate reductions.
The ECB continues with hawkish rhetoric.
German businesses paid back more than they borrowed for the first time since the 1980s.
Three-month Euribor rates are 93 basis points over ECB rates.
One-month LIBOR rates are 74 basis points over the Fed Funds Rate.
The Fed and BOE easing actions simply are not working to restore faith in the credit markets. Credit conditions based on LIBOR are worse now than in the August and November stock market swoons. Banks remain reluctant to lend to one another in spite of central bank efforts to provide liquidity. Neither central bank appears to be in control of anything at the moment. Of course it was only an illusion that made it seem like central bankers ever were in control in the first place."
U.S. economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, a survey showed.
Economists cut their estimates for the expansion this quarter from November's 1.5 percent forecast, according to the median of 63 estimates in a Bloomberg News survey taken Dec. 3 to Dec. 10. Gross domestic product in the first three months of next year will also be less than previously projected.
Spending, which accounts for more than two-thirds of the economy, will grow in 2008 at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers' buying power. The Federal Reserve will probably lower interest rates today and again early next year to fend off recession, the survey said.
AT&T will increase its quarterly dividend by 12.7 percent Tuesday and also said it plans to buy back 400 million of its shares.
Shareholders will now receive a dividend of 40 cents a share, on a quarterly basis, up from the previous dividend of 35.5 cents. On an annual basis, the dividend will rise to $1.60 a share from $1.42 a share.
WaMu said it expects to put aside anywhere from $7.2 billion to $8 billion next year for bad loans, compared with an estimated $3.1 billion to $3.2 billion this year and $816 million in 2006. Nearly 3,300 of WaMu's 50,000 workers will lose their jobs by the time the restructuring is complete at the end of March, including 380 in metro Seattle and 160 elsewhere in Washington state.
China's global trade surplus totaled $26.28 billion in November, the government announced Tuesday. For the first 11 months of the year, China's trade surplus has reached $238.9 billion, 53 percent more than the same period a year ago.
Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange, is forecasting a 9 percent decline in average home prices on the California statewide level in 2008. And he said an additional 15 to 20 percent drop in 2009 would not be out of the question.
"We disproportionately enjoyed much higher home price appreciation over the last several years with the uses of subprime and Alt-A loans," Adibi said. "This is going to come to haunt us." In the last steep housing downturn, Adibi said, it took 54 months for San Francisco home prices to fall from peak to trough; in San Jose it was 60 months, and in Oakland it was 51 months. To get back to the previous peak price levels took another 3 years, roughly.
"I don't see anything that would suggest the current downtrend is going to level off soon," said Michael Carney, executive director of the Real Estate Research Council of Northern California. "In fact, I think we might be seeing a gathering of momentum in the downward direction. I think we're more toward the beginning of a process than toward the end of it."
Genworth Financial Inc. said 2008 profit will be below analysts' expectations because of possible losses related to the U.S. housing slump.
Kroger Co. forecast full-year earnings that may miss some analysts' estimates.
According to Bloomberg, direct loans by the Federal Reserve to banks jumped to the highest in almost three months amid a surge in demand for funds spurred by concerns about losses on securities linked to U.S. mortgages.
Lending at the Fed's so-called discount window rose by $302 million in the week that ended yesterday from the previous period, to an average of $309 million. The amount of loans outstanding yesterday was $2.1 billion, the highest since Sept. 12, when they hit $7.2 billion.
U.S. natural gas inventories in the week ended Nov. 30 fell 88 billion cubic feet, above the average 60 billion for that week of the year, an Energy Department report on Dec. 6 showed. Supplies declined to 3.44 trillion cubic feet, or 1 percent above year- earlier levels, the department said. ``This is going to be our first three-digit withdrawal and if we get 130 billion, that will erase the year-over-year surplus,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. The five-year average withdrawal for the first week of December is 132 billion cubic feet, according to the department.
Low temperatures last week in Chicago and New York City were 13 to 15 degrees below normal, according to data from AccuWeather.com.
Boeing said it's on course to fly its first 787 Dreamliner aircraft in the first quarter of 2008 and deliver the plane to its first customer by year's end.
The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise.
S&P now expects operating earnings per share growth of 2.6% in 2007 from the S&P 500, down from 9.6% growth estimated earlier in the year, with the largest deceleration seen from consumer discretionary, financial, energy and telecommunications services stocks.
Keefe, Bruyette & Woods downgraded its rating on J.P. Morgan Chase to market perform from outperform. The broker cut J.P. Morgan's price target to $51 from $57, and also shaved Citigroup's price target to $38 from $43. The analysts are factoring in a consumer-led U.S. recession in the first half of 2008.
The U.S. government increased its estimate for crude-oil prices in 2008, citing consumption that exceeds output by non-OPEC producers. Oil will average $84.83 in 2008, up 6.1 percent from $79.92 in last month's forecast. Homeowners in the U.S. can expect to pay an average 33 percent more for heating oil this winter than they did a year earlier, as higher crude prices are passed along, according to the report. Costs will average $1,955 this winter, up from $1,841 estimated a month ago. The fuel heats about one-third of homes in the Northeast.
Michael Krause: "The market with the fastest overall population growth between now and 2032 is not in the emerging markets but rather the United States, which is expected to grow 23% from 301 million now to 357 million in the next quarter century."
Antitrust regulators have cleared InfoSpace Inc.'s sale of its mobile services division to privately held Motricity for $135 million, a government agency said Tuesday.
Gold for February delivery gained $3.60 to end at $817.10 an ounce on the New York Mercantile Exchange.
Citigroup Inc. named Vikram Pandit, the head of its investment banking business, as its chief executive officer. Win Bischoff, the acting CEO, will be the new chairman, replacing Robert Rubin, the former U.S. Treasury secretary who stepped in to the role when Prince resigned Nov. 4.
Soybeans rose, extending their rally to a 34-year high, after the U.S. government reduced its estimate of unsold supplies before next year's harvest to the lowest in four years.
Inventories will drop to 185 million bushels by Aug. 31, 12 percent less than estimated in November and 68 percent less than the record 573 million bushels in reserve at the end of August this year, the U.S. Department of Agriculture said in a report.
Crude oil for January delivery rose $2.20, or 2.5 percent, to $90.06 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Cushing is where New York-traded West Texas Intermediate oil is stored. Supplies at Cushing rose 4.3 percent to 15.9 million barrels in the week ended Nov. 30, leaving inventories 34 percent lower than a year earlier, according to the Energy Department.
General Electric Co said earnings per share may rise at least 10 percent to $2.42 a share in 2008 from this year. GE was forecast to earn $2.49 next year, based on the average estimates of 16 analysts in a Bloomberg survey. The lowest estimate in the survey was $2.44 a share.
Bewteen The Hedges: "The Fed did not cut the discount rate 50 basis points as I had expected. As well, the tone of their language in the ensuing policy statement was a bit more hawkish than expected. The Fed said energy, commodity prices may push inflation up. I continue to believe high energy prices are having a much more negative impact on the broad US stock market than is commonly perceived. Fed fund futures now imply a 21.3% chance for a 50 basis point fed funds rate cut and a 65.4% chance for another 25 basis point fed funds rate cut at the January 30 meeting. The US dollar is strengthening on the news, which is pressuring most commodity prices. The 10-year yield is dropping 19 basis points to 3.97%. The Fed’s actions will likely result in even greater outperformance by true “growth” stocks over “value” stocks over the coming months."
Despite a big down day for equities, Cisco traded up for the entire Tuesday. We'll watch to see whether there is follow through tomorrow. The Dow closed down almost 300 points, the Nasdaq got pummeled for 2 1/2%, and the S&P 500 got knocked for 38+ points.
BlackRock Inc. Chief Executive Laurence Fink said Tuesday the economy is unlikely to fall into a recession in 2008, and a new wave of capital will be invested at some point during the upcoming year.
"By cutting by only 25 basis points, the Fed effectively conveys its sense that recession risks are not as great as what market participants believe. In other words, the Fed sees recession risk as being less than 40 percent whereas the market sees recession risk as at least 40 percent," Moody's chief economist John Lonski said.
Molly Ivins:"In Texas, we do not hold high expectations for the [governor's] office; it's mostly been occupied by crooks, dorks and the comatose.”
Reggie Middleton: "Of course commercial real estate is going to fall. Why? For the exact same reason residential real estate is falling. But, there hasn't been an oversupply of commercial real estate, you say. Well, the oversupply is not the core reason why residential is falling right now. Residential RE's problem is that easy, cheap money brought upon wreckless, imprudent speculation from players who were not well versed in the real estate game - and even those who should have known better. The current oversupply is a byproduct of that liquidity induced speculation. Why split hairs? Because the devil is in the details. The downfall of CRE is the rampant speculation that caused many to significantly overpay for assets that are quite illiquid and take significant expertise and time to improve (or even sell), even incrementally. Not only did they overpay, but they applied significant leverage as well, much more than the industry norm."
Monday, December 10, 2007
Deals
12/11/07 Deals
China Petroleum and Chemical Corp., or Sinopec, and Iran have signed an agreement for development of the Yadavaran oilfield in southwestern Iran, the official Xinhua News Agency and Iranian reports said Monday. "The initial estimation of the project's cost is about 2 billion U.S. dollars," Xinhua quoted Iranian Oil Minister Gholam Hossein Nozari as telling reporters at the signing ceremony in Tehran. Zhou Baixiu, head of Sinopec's International Exploration and Production Unit, and Hossein Noqreka-Shirazi, head of international affairs for the Iranian Petroleum Ministry, signed the agreement, the Iranian Republic News Agency reported.
Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling substantial stakes to Singapore and an unnamed investor in the Middle East.
UBS will now record a loss for the fourth quarter and said "it is now possible that UBS will record a net loss attributable to shareholders for the full year 2007."
UBS said that the government of Singapore Investment Corp., or GIC, is investing 11 billion francs ($9.75 billion), while an undisclosed strategic investor in the Middle East is contributing the other 2 billion francs ($1.77 billion).
Japanese drugmaker Eisai Co. said Monday it will buy U.S. biopharmaceutical company MGI Pharma Inc. for $3.9 billion in cash in a move aimed at boosting its cancer drug business and sustain sales growth.
MGI Pharma's board unanimously approved the deal after examining a number of strategic options. Eisai expects to complete the deal in the first quarter of 2008.
Eisai agreed to pay $41.00 in cash for each of MGI Pharma's shares, the companies said. That is a 22.6 percent premium over Friday's close and a 38.7 percent premium over MGI Pharma's closing price of $29.55 on Nov. 28, the last business day prior to its announcement that it was exploring strategic alternatives, the statement said.
France's Lafarge , the world's biggest cement maker, has agreed to buy Egypt's Orascom Cement for 8.8 billion euros ($12.81 billion) to boost its earnings and exposure to high-growth emerging markets.
China's producer price index climbed 4.6% in November from a year earlier, the National Bureau of Statistics said Monday in Beijing. The monthly figure was up from a 3.2% rise in October and marks the fourth straight month the rate of growth in prices has hit new highs.
Reckitt Benckiser agreed to buy specialty pharmaceutical company Adams Respiratory Therapeutics, maker of Mucinex, for $2.3 billion, giving the British conglomerate entry into the U.S. health-care market.
Under the terms of the deal, London-based Reckitt Benckiser will pay $60 a share in cash for Adams. The offer is a 37% premium to Adams' Friday closing price of $43.68 a share.
Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
China's money-supply growth exceeded the central bank's annual target for a 10th straight month as a ballooning trade surplus pumped cash into the world's fastest- growing major economy. M2, the broadest measure of money supply, rose 18.5 percent to 40 trillion yuan ($5.4 trillion) in November from a year earlier, the People's Bank of China said today on its Web site. The pace was the same as in October and more than the 18.2 percent median estimate of 19 economists surveyed by Bloomberg.
McDonald's same-store worldwide sales rose 8.2% in November. Systemwide sales, including all stores, increased 16.3%. In the U.S., comparable sales increased 4.4% for the month.
December 6 was the biggest online sales day in history, at least according to comScore. Online buyers spent $803 million dollars that day. up 28% from the same day last year.
According to Bloomberg, economist Brian Sack, head of monetary and financial market analysis at the Fed in 2003 and 2004, uses a chart that plots forward rates measuring investor expectations for inflation in five years. The gauge is so accurate that Sack and his colleagues persuaded the central bank to use it to help set policy. The chart is autographed by former Fed Chairman Alan Greenspan.
Right now, it shows current Fed Chairman Ben S. Bernanke may have less room to lower borrowing costs than investors in Treasuries anticipate, potentially setting bondholders up for a fall. The expected inflation rate, which Sack says replicates what Fed officials use, reached 2.91 percent last week, the highest since 2004, when the central bank began the first of an unprecedented 17 rate increases. The measure was at 2.79 percent on Nov. 1.
``One of the defining features of the Bernanke Fed to date is its emphasis on measures of longer-term inflation expectations,'' said Sack, whose partners at Macroeconomic Advisors include former Fed Governor Laurence Meyer. ``The Fed is willing to tolerate short-run movements in inflation, but only as long as those movements don't appear to be dislodging long-run inflation expectations.''
John Hussman: "As I noted last week, “The market has now cleared the oversold condition that it established a week ago. Stocks aren't overbought here, but overbought conditions in unfavorable Market Climates tend to be rare. The steepest bear market losses tend to follow immediately on the heels of such overbought conditions.”
Presently, the market has established just that profile. This is one of the very few situations in which I ever have a pointed view about likely market direction. Although the likely Fed rate cut (no opinion on 25 vs. 50) this week adds some uncertainty, and the market would most likely celebrate a 50-basis point cut, there is currently not much evidence that suggests that even such a rally would be sustained for long. In my view, the probable risks are skewed to the downside. I don't believe there is such a thing as the Fed getting “ahead of the curve.” LIBOR continues to be “sticky” in the face of multiple cuts in the Federal Funds rate, credit spreads continue to push toward new highs, and there is no reason to believe that minuscule volumes of Fed repos will have any effect in ameliorating credit risks."
In early Monday trading, crude oil for January delivery gained $1.22 at $89.50 a barrel on the New York Mercantile Exchange. Crude is experiencing a "technical rebound partly because the dollar is under a little bit of pressure," said Phil Flynn, an analyst at Alaron Trading. There is also "short-covering in commodities ahead of the Fed decision tomorrow," Flynn said. Meanwhile, gold for February delivery gained $8.10 at $808.30 an ounce on the New York Mercantile Exchange.
A gauge of future home sales increased 0.6% in October, the second straight increase, a real estate trade group reported Monday. The pending home sales index is down 18.4% compared with October 2006, the National Association of Realtors said. The index increased a revised 1.4% in September. Pending sales increased 16% in the Northeast and 8.4% in the West. Pending home sales fell 7.8% in the South and 1.4% in the Midwest.
The $60 billion Qatar Investment Authority said on Monday it saw "tremendous opportunities" for sovereign wealth funds like itself to invest in U.S. financial-services firms battered by a mortgage market crisis. "There are tremendous opportunities for sovereign wealth groups which can react quickly and confidentially," Kenneth Chen, head of strategic and private equity at Qatar Investment Authority, said on Monday.
"The financial institutions sector should be one that investors should be looking at," Shen told reporters in Dubai on the sidelines of a private equity conference.
MBIA Inc. has entered into a definitive agreement with global private equity firm Warburg Pincus to invest up to $1 billion in MBIA through a direct purchase of MBIA common stock and a backstop for a shareholder rights offering.
Goldman Sachs analyst William Tanona cut his earnings estimates for Bear Stearns Cos., Lehman Brothers Holdings Inc. and Morgan Stanley Monday due to lowered expectations for fixed income sales and trading revenues in the fourth quarter.
Tanona cut his fiscal fourth-quarter earnings estimate for Morgan Stanley to a loss of 25 cents per share from a previous estimate of earnings of 32 cents per share.
He now expects Lehman Brothers to report earnings of $1.35 per share, down from his previous estimate of $1.85 per share.
Tanona lowered his estimate on Bear Stearns to a loss of $2.25 per share from a previous estimate for a loss of $1.60 per share.
Texas Instruments sees Q4 EPS of 50c to 54c.
Shares of Washingto Mutual were last down 6% at $18.70. The company said it cut its quarterly dividend to 15 cents from 56 cents and will raise $2.5 billion through a preferred stock offering in a move aimed at generating $3.7 billion in additional capital.
It also said it will cut $500 million in noninterest by reducing its Home Loans business and other expenses, and discontinue all remaining lending through its subprime mortgage channel, leading to the closure of 190 of 336 home loan centers and sales offices. About 22% of positions in its Home Loans staff will be eliminated.
Libya agreed to buy 21 Airbus planes during Libyan leader Moammar Gadhafi's visit to France, the Associated Press reported Monday.
Crude oil for January delivery fell 42 cents to end at $87.86 a barrel on the New York Mercantile Exchange. Earlier in the session, crude hit an intraday high of $89.75.
Gold for February delivery surged $13.30 to end at $813.50 an ounce on the New York Mercantile Exchange. Silver for March delivery rallied 34.50 cents, or over 2%, to end at $14.850 an ounce.
According to Bloomberg, Bank of America Corp will liquidate a $12 billion enhanced cash fund after losses on holdings that included debt sold by structured investment vehicles, or SIVs. The Columbia Strategic Cash Portfolio was closed last week and is being ``wound down,'' Robert Stickler, a spokesman for the Charlotte, North Carolina-based bank, said today in an interview. Investors with smaller amounts in the fund can get their money back at net asset value, while larger clients may take control of specific assets. The NAV of the fund, which had $33 billion two weeks ago, is 99.4 cents on the dollar today.
China Petroleum and Chemical Corp., or Sinopec, and Iran have signed an agreement for development of the Yadavaran oilfield in southwestern Iran, the official Xinhua News Agency and Iranian reports said Monday. "The initial estimation of the project's cost is about 2 billion U.S. dollars," Xinhua quoted Iranian Oil Minister Gholam Hossein Nozari as telling reporters at the signing ceremony in Tehran. Zhou Baixiu, head of Sinopec's International Exploration and Production Unit, and Hossein Noqreka-Shirazi, head of international affairs for the Iranian Petroleum Ministry, signed the agreement, the Iranian Republic News Agency reported.
Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling substantial stakes to Singapore and an unnamed investor in the Middle East.
UBS will now record a loss for the fourth quarter and said "it is now possible that UBS will record a net loss attributable to shareholders for the full year 2007."
UBS said that the government of Singapore Investment Corp., or GIC, is investing 11 billion francs ($9.75 billion), while an undisclosed strategic investor in the Middle East is contributing the other 2 billion francs ($1.77 billion).
Japanese drugmaker Eisai Co. said Monday it will buy U.S. biopharmaceutical company MGI Pharma Inc. for $3.9 billion in cash in a move aimed at boosting its cancer drug business and sustain sales growth.
MGI Pharma's board unanimously approved the deal after examining a number of strategic options. Eisai expects to complete the deal in the first quarter of 2008.
Eisai agreed to pay $41.00 in cash for each of MGI Pharma's shares, the companies said. That is a 22.6 percent premium over Friday's close and a 38.7 percent premium over MGI Pharma's closing price of $29.55 on Nov. 28, the last business day prior to its announcement that it was exploring strategic alternatives, the statement said.
France's Lafarge , the world's biggest cement maker, has agreed to buy Egypt's Orascom Cement for 8.8 billion euros ($12.81 billion) to boost its earnings and exposure to high-growth emerging markets.
China's producer price index climbed 4.6% in November from a year earlier, the National Bureau of Statistics said Monday in Beijing. The monthly figure was up from a 3.2% rise in October and marks the fourth straight month the rate of growth in prices has hit new highs.
Reckitt Benckiser agreed to buy specialty pharmaceutical company Adams Respiratory Therapeutics, maker of Mucinex, for $2.3 billion, giving the British conglomerate entry into the U.S. health-care market.
Under the terms of the deal, London-based Reckitt Benckiser will pay $60 a share in cash for Adams. The offer is a 37% premium to Adams' Friday closing price of $43.68 a share.
Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
China's money-supply growth exceeded the central bank's annual target for a 10th straight month as a ballooning trade surplus pumped cash into the world's fastest- growing major economy. M2, the broadest measure of money supply, rose 18.5 percent to 40 trillion yuan ($5.4 trillion) in November from a year earlier, the People's Bank of China said today on its Web site. The pace was the same as in October and more than the 18.2 percent median estimate of 19 economists surveyed by Bloomberg.
McDonald's same-store worldwide sales rose 8.2% in November. Systemwide sales, including all stores, increased 16.3%. In the U.S., comparable sales increased 4.4% for the month.
December 6 was the biggest online sales day in history, at least according to comScore. Online buyers spent $803 million dollars that day. up 28% from the same day last year.
According to Bloomberg, economist Brian Sack, head of monetary and financial market analysis at the Fed in 2003 and 2004, uses a chart that plots forward rates measuring investor expectations for inflation in five years. The gauge is so accurate that Sack and his colleagues persuaded the central bank to use it to help set policy. The chart is autographed by former Fed Chairman Alan Greenspan.
Right now, it shows current Fed Chairman Ben S. Bernanke may have less room to lower borrowing costs than investors in Treasuries anticipate, potentially setting bondholders up for a fall. The expected inflation rate, which Sack says replicates what Fed officials use, reached 2.91 percent last week, the highest since 2004, when the central bank began the first of an unprecedented 17 rate increases. The measure was at 2.79 percent on Nov. 1.
``One of the defining features of the Bernanke Fed to date is its emphasis on measures of longer-term inflation expectations,'' said Sack, whose partners at Macroeconomic Advisors include former Fed Governor Laurence Meyer. ``The Fed is willing to tolerate short-run movements in inflation, but only as long as those movements don't appear to be dislodging long-run inflation expectations.''
John Hussman: "As I noted last week, “The market has now cleared the oversold condition that it established a week ago. Stocks aren't overbought here, but overbought conditions in unfavorable Market Climates tend to be rare. The steepest bear market losses tend to follow immediately on the heels of such overbought conditions.”
Presently, the market has established just that profile. This is one of the very few situations in which I ever have a pointed view about likely market direction. Although the likely Fed rate cut (no opinion on 25 vs. 50) this week adds some uncertainty, and the market would most likely celebrate a 50-basis point cut, there is currently not much evidence that suggests that even such a rally would be sustained for long. In my view, the probable risks are skewed to the downside. I don't believe there is such a thing as the Fed getting “ahead of the curve.” LIBOR continues to be “sticky” in the face of multiple cuts in the Federal Funds rate, credit spreads continue to push toward new highs, and there is no reason to believe that minuscule volumes of Fed repos will have any effect in ameliorating credit risks."
In early Monday trading, crude oil for January delivery gained $1.22 at $89.50 a barrel on the New York Mercantile Exchange. Crude is experiencing a "technical rebound partly because the dollar is under a little bit of pressure," said Phil Flynn, an analyst at Alaron Trading. There is also "short-covering in commodities ahead of the Fed decision tomorrow," Flynn said. Meanwhile, gold for February delivery gained $8.10 at $808.30 an ounce on the New York Mercantile Exchange.
A gauge of future home sales increased 0.6% in October, the second straight increase, a real estate trade group reported Monday. The pending home sales index is down 18.4% compared with October 2006, the National Association of Realtors said. The index increased a revised 1.4% in September. Pending sales increased 16% in the Northeast and 8.4% in the West. Pending home sales fell 7.8% in the South and 1.4% in the Midwest.
The $60 billion Qatar Investment Authority said on Monday it saw "tremendous opportunities" for sovereign wealth funds like itself to invest in U.S. financial-services firms battered by a mortgage market crisis. "There are tremendous opportunities for sovereign wealth groups which can react quickly and confidentially," Kenneth Chen, head of strategic and private equity at Qatar Investment Authority, said on Monday.
"The financial institutions sector should be one that investors should be looking at," Shen told reporters in Dubai on the sidelines of a private equity conference.
MBIA Inc. has entered into a definitive agreement with global private equity firm Warburg Pincus to invest up to $1 billion in MBIA through a direct purchase of MBIA common stock and a backstop for a shareholder rights offering.
Goldman Sachs analyst William Tanona cut his earnings estimates for Bear Stearns Cos., Lehman Brothers Holdings Inc. and Morgan Stanley Monday due to lowered expectations for fixed income sales and trading revenues in the fourth quarter.
Tanona cut his fiscal fourth-quarter earnings estimate for Morgan Stanley to a loss of 25 cents per share from a previous estimate of earnings of 32 cents per share.
He now expects Lehman Brothers to report earnings of $1.35 per share, down from his previous estimate of $1.85 per share.
Tanona lowered his estimate on Bear Stearns to a loss of $2.25 per share from a previous estimate for a loss of $1.60 per share.
Texas Instruments sees Q4 EPS of 50c to 54c.
Shares of Washingto Mutual were last down 6% at $18.70. The company said it cut its quarterly dividend to 15 cents from 56 cents and will raise $2.5 billion through a preferred stock offering in a move aimed at generating $3.7 billion in additional capital.
It also said it will cut $500 million in noninterest by reducing its Home Loans business and other expenses, and discontinue all remaining lending through its subprime mortgage channel, leading to the closure of 190 of 336 home loan centers and sales offices. About 22% of positions in its Home Loans staff will be eliminated.
Libya agreed to buy 21 Airbus planes during Libyan leader Moammar Gadhafi's visit to France, the Associated Press reported Monday.
Crude oil for January delivery fell 42 cents to end at $87.86 a barrel on the New York Mercantile Exchange. Earlier in the session, crude hit an intraday high of $89.75.
Gold for February delivery surged $13.30 to end at $813.50 an ounce on the New York Mercantile Exchange. Silver for March delivery rallied 34.50 cents, or over 2%, to end at $14.850 an ounce.
According to Bloomberg, Bank of America Corp will liquidate a $12 billion enhanced cash fund after losses on holdings that included debt sold by structured investment vehicles, or SIVs. The Columbia Strategic Cash Portfolio was closed last week and is being ``wound down,'' Robert Stickler, a spokesman for the Charlotte, North Carolina-based bank, said today in an interview. Investors with smaller amounts in the fund can get their money back at net asset value, while larger clients may take control of specific assets. The NAV of the fund, which had $33 billion two weeks ago, is 99.4 cents on the dollar today.
Sunday, December 09, 2007
The Freeze
12/10/07 The Freeze
Sean Olender: "Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in."
Jack Chang: "Brazil soon could become one of the world's great oil powers — if its state-controlled energy company, Petrobras, can tap a potentially massive deposit beneath the southern Atlantic Ocean.
Experts believe the deposit, in the Tupi field 180 miles off southeastern Brazil, holds up to 8 billion barrels of light oil and natural gas. If confirmed, the deposit would be the largest petroleum find in seven years and would propel Brazil to the No. 12 position in oil reserves, after the United States and ahead of Canada and Mexico.
Analysts estimate that the deposit could be worth as much as $60 billion and predict that Brazil, which last year for the first time produced as much oil as it consumed, could become a major oil exporter."
According to the NY Times, the economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.
Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.
Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.
“It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years,” said Amy Myers Jaffe, an oil analyst at Rice University.
Rising internal demand may offset 40 percent of the increase in Saudi oil production between now and 2010, while more than half the projected decline in Iranian exports will be caused by internal consumption, said a recent report by CIBC World Markets.
The report said “soaring internal rates of oil consumption” in Russia, in Mexico and in member states of the Organization of the Petroleum Exporting Countries would reduce crude exports as much as 2.5 million barrels a day by the end of the decade.
Iran, the world's fourth largest oil exporter, has completely stopped selling its oil in U.S. dollars, the ISNA news agency reported on Saturday.
"In line with the policy of selling crude oil in non-dollar currencies, currently selling our country's oil in U.S. dollars has been completely stopped," Iran's Oil Minister Gholam Hossein Nozari was quoted as saying.
Eric Savitz points out Apple shares Friday hit an all-time high, gaining $4.35, or 2.3%, to $194.30. The stock is now up 129% for the year to date - it finished 2006 at $84.84. Apple now sports a market cap of $170 billion. Compare that to Cisco at $166 billion, Intel at $162 billion, IBM at $150 billion, Hewlett at $134 billion and Dell at $56 billion.
John Mauldin: "The longer that a critical state builds up in an economy, or in other words, the more "fingers of instability" that are allowed to develop a connection to other fingers of instability, the greater the potential for a serious "avalanche."...We have "players" of this game from all over the world tied inextricably together in a vast dance through investment, debt, derivatives, trade, globalization, international business and finance. Each player works hard to maximize his own personal outcome and to reduce their exposure to "fingers of instability." But the longer we go, asserts Minsky, the more likely and violent an "avalanche" is. The more the fingers of instability can build. The more that state of stable disequilibrium can go critical on us...In a paper from the August 2006 Journal of Mathematical Economics entitled "General Equilibrium with Endogenous Uncertainty and Default" written by Professor Graciela Chichilnisky of Columbia University and Ho-Mou Wu at the University of Taiwan, the authors demonstrate with some very serious mathematical proofs that the more of a certain type of assets (say insurance or derivatives) that are introduced into a market, while reducing the risks that individual's face, they increase overall systemic risks... Let's read the following paragraph from introduction to the Chichilnisky paper:
"Markets can magnify risk. As new assets [like CDS-JFM] are introduced, a creditor who is a victim of default in one transaction is unable to deliver in another, thereby causing default elsewhere. In this manner default by one individual leads, through a web of obligations, to a large number of defaults. Since new instruments create new webs of obligations, financial innovation is the precipitating factor. The transmission of default from one trader to another and from one market to another transmits individual risk and magnifies it into collective risk. Default by one individual leads to a collective risk of widespread default." And that is what we have seen in the subprime markets. We have taken the risk of a mortgage in California and spread them literally around the world. Now one default or a thousand is no big deal. Those defaults are priced into the bonds. But when we introduce extra risk by inserting mortgages which have little economic rationale (or are outright fraud, as more evidence mounts daily of massive fraudulent activities) then we change the equation of potential systemic risk."
Mike Burk: "The good news is: The market has come off a bottom and seasonally next week has a very positive bias. Short term: The market is overbought.
Historically this week has been very strong during the 3rd year of the Presidential cycle and weak in all of the other years.
The OTC has only been down once and the SPX down twice during the 3rd year of the Presidential cycle.
The averages over all years have been modestly positive only because of the very strong 3rd year.
The market is overbought and likely to stall for a few days before continuing to move upward.
I expect the major indices to be higher on Friday December 14 than they were on Friday December 7."
Richard Benson: "As 2007 wounds down, it’s time to reflect on how bogus government statistics along with Wall Street media hype have impacted the psychology and perception in the financial markets. Sheer disappointment is one way to describe what the financial markets will experience as the existing belief in a Goldilocks economy is challenged by sobering facts and a hard landing, yet to come.
Christmas is meant to be a festive and happy time of year spent with family and friends, but there is a dark side to this year’s holiday. The picture of the father, mother, son, or daughter pulling out the only credit card left that’s not maxed out in order to buy that special gift for a loved one, is not the face you’ll see portrayed in the media. The TV and newspapers show only affluent-looking preppy-faced Americans wearing pricey Italian shoes and sunglasses, shopping the malls and luxury stores for 50-inch flat screen TV’s, cashmere sweaters, Tiffany diamond rings and fancy chocolates. The media will avoid at all costs the large percentage of Americans on the brink of bankruptcy and foreclosure, living paycheck to paycheck, because there’s nothing Christmassy about that picture."
Hugo Chavez and six other Latin American leaders are launching a regional development bank Sunday that the Venezuelan leader is touting as South America's answer to U.S.-influenced international lenders.
With startup capital expected at up to $7 billion, backers say the Banco del Sur, or Bank of the South, will offer Latin American countries loans with fewer strings attached than those proffered by the World Bank, the International Monetary Fund or the Inter-American Development Bank.
"The Bank of the South is a strategy ... aimed at freeing us from the chains of dependence and underdevelopment," Chavez said upon arriving Sunday in the Argentine capital for the signing ceremony.
Delta Financial Corp. said on Thursday that it plans to file for bankruptcy protection, becoming the latest mortgage lender to succumb to the subprime crisis that's swept the industry this year.
The Federal Reserve is expected to cut interest rates on Tuesday for a third straight meeting, just days before government data are released showing some of the highest inflation rates in decades.
Benjamin Franklin: “Let honesty and industry be thy constant companions, and spend one penny less than thy clear gains; then shall thy pocket begin to thrive; creditors will not insult, nor want oppress, nor hungerness bite, nor nakedness freeze thee”
Sean Olender: "Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in."
Jack Chang: "Brazil soon could become one of the world's great oil powers — if its state-controlled energy company, Petrobras, can tap a potentially massive deposit beneath the southern Atlantic Ocean.
Experts believe the deposit, in the Tupi field 180 miles off southeastern Brazil, holds up to 8 billion barrels of light oil and natural gas. If confirmed, the deposit would be the largest petroleum find in seven years and would propel Brazil to the No. 12 position in oil reserves, after the United States and ahead of Canada and Mexico.
Analysts estimate that the deposit could be worth as much as $60 billion and predict that Brazil, which last year for the first time produced as much oil as it consumed, could become a major oil exporter."
According to the NY Times, the economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.
Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.
Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.
“It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years,” said Amy Myers Jaffe, an oil analyst at Rice University.
Rising internal demand may offset 40 percent of the increase in Saudi oil production between now and 2010, while more than half the projected decline in Iranian exports will be caused by internal consumption, said a recent report by CIBC World Markets.
The report said “soaring internal rates of oil consumption” in Russia, in Mexico and in member states of the Organization of the Petroleum Exporting Countries would reduce crude exports as much as 2.5 million barrels a day by the end of the decade.
Iran, the world's fourth largest oil exporter, has completely stopped selling its oil in U.S. dollars, the ISNA news agency reported on Saturday.
"In line with the policy of selling crude oil in non-dollar currencies, currently selling our country's oil in U.S. dollars has been completely stopped," Iran's Oil Minister Gholam Hossein Nozari was quoted as saying.
Eric Savitz points out Apple shares Friday hit an all-time high, gaining $4.35, or 2.3%, to $194.30. The stock is now up 129% for the year to date - it finished 2006 at $84.84. Apple now sports a market cap of $170 billion. Compare that to Cisco at $166 billion, Intel at $162 billion, IBM at $150 billion, Hewlett at $134 billion and Dell at $56 billion.
John Mauldin: "The longer that a critical state builds up in an economy, or in other words, the more "fingers of instability" that are allowed to develop a connection to other fingers of instability, the greater the potential for a serious "avalanche."...We have "players" of this game from all over the world tied inextricably together in a vast dance through investment, debt, derivatives, trade, globalization, international business and finance. Each player works hard to maximize his own personal outcome and to reduce their exposure to "fingers of instability." But the longer we go, asserts Minsky, the more likely and violent an "avalanche" is. The more the fingers of instability can build. The more that state of stable disequilibrium can go critical on us...In a paper from the August 2006 Journal of Mathematical Economics entitled "General Equilibrium with Endogenous Uncertainty and Default" written by Professor Graciela Chichilnisky of Columbia University and Ho-Mou Wu at the University of Taiwan, the authors demonstrate with some very serious mathematical proofs that the more of a certain type of assets (say insurance or derivatives) that are introduced into a market, while reducing the risks that individual's face, they increase overall systemic risks... Let's read the following paragraph from introduction to the Chichilnisky paper:
"Markets can magnify risk. As new assets [like CDS-JFM] are introduced, a creditor who is a victim of default in one transaction is unable to deliver in another, thereby causing default elsewhere. In this manner default by one individual leads, through a web of obligations, to a large number of defaults. Since new instruments create new webs of obligations, financial innovation is the precipitating factor. The transmission of default from one trader to another and from one market to another transmits individual risk and magnifies it into collective risk. Default by one individual leads to a collective risk of widespread default." And that is what we have seen in the subprime markets. We have taken the risk of a mortgage in California and spread them literally around the world. Now one default or a thousand is no big deal. Those defaults are priced into the bonds. But when we introduce extra risk by inserting mortgages which have little economic rationale (or are outright fraud, as more evidence mounts daily of massive fraudulent activities) then we change the equation of potential systemic risk."
Mike Burk: "The good news is: The market has come off a bottom and seasonally next week has a very positive bias. Short term: The market is overbought.
Historically this week has been very strong during the 3rd year of the Presidential cycle and weak in all of the other years.
The OTC has only been down once and the SPX down twice during the 3rd year of the Presidential cycle.
The averages over all years have been modestly positive only because of the very strong 3rd year.
The market is overbought and likely to stall for a few days before continuing to move upward.
I expect the major indices to be higher on Friday December 14 than they were on Friday December 7."
Richard Benson: "As 2007 wounds down, it’s time to reflect on how bogus government statistics along with Wall Street media hype have impacted the psychology and perception in the financial markets. Sheer disappointment is one way to describe what the financial markets will experience as the existing belief in a Goldilocks economy is challenged by sobering facts and a hard landing, yet to come.
Christmas is meant to be a festive and happy time of year spent with family and friends, but there is a dark side to this year’s holiday. The picture of the father, mother, son, or daughter pulling out the only credit card left that’s not maxed out in order to buy that special gift for a loved one, is not the face you’ll see portrayed in the media. The TV and newspapers show only affluent-looking preppy-faced Americans wearing pricey Italian shoes and sunglasses, shopping the malls and luxury stores for 50-inch flat screen TV’s, cashmere sweaters, Tiffany diamond rings and fancy chocolates. The media will avoid at all costs the large percentage of Americans on the brink of bankruptcy and foreclosure, living paycheck to paycheck, because there’s nothing Christmassy about that picture."
Hugo Chavez and six other Latin American leaders are launching a regional development bank Sunday that the Venezuelan leader is touting as South America's answer to U.S.-influenced international lenders.
With startup capital expected at up to $7 billion, backers say the Banco del Sur, or Bank of the South, will offer Latin American countries loans with fewer strings attached than those proffered by the World Bank, the International Monetary Fund or the Inter-American Development Bank.
"The Bank of the South is a strategy ... aimed at freeing us from the chains of dependence and underdevelopment," Chavez said upon arriving Sunday in the Argentine capital for the signing ceremony.
Delta Financial Corp. said on Thursday that it plans to file for bankruptcy protection, becoming the latest mortgage lender to succumb to the subprime crisis that's swept the industry this year.
The Federal Reserve is expected to cut interest rates on Tuesday for a third straight meeting, just days before government data are released showing some of the highest inflation rates in decades.
Benjamin Franklin: “Let honesty and industry be thy constant companions, and spend one penny less than thy clear gains; then shall thy pocket begin to thrive; creditors will not insult, nor want oppress, nor hungerness bite, nor nakedness freeze thee”
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