Saturday, March 08, 2008

Monster

3/9/08 Monster

Friedrich Nietzsche: “Battle not with monsters lest you become one.”

John Brummett: "With about half the caucuses counted, Obama appeared to have picked up seven delegates, erasing his four-delegate deficit from the primary. That moved him ahead of Hillary in Texas by three delegates. If the trend generally holds for the other half of the caucuses, he'll move up three more delegates, putting him up on her in Texas by six." A record 4 million voters showed up for the primary, and a record 1.1 million also stayed for the caucuses at more than 8,000 sites around the Lone Star state. And in these caucuses, Obama won handily.

The obstacles to a do-over election to pick Michigan's delegates to the Democratic National Convention seemed to grow Friday, after Sen. Barack Obama's presidential campaign officials told the state's top party official that they wouldn't accept Gov. Jennifer Granholm's idea of a party-sponsored primary.

Andre Gide: “There are very few monsters who warrant the fear we have of them.”

According to the WSJ, Countrywide faces an FBI inquiry into whether officials misrepresented its financial position and the quality of its mortgage loans in filings. People familiar with the matter said its losses may be much greater than it has said.

Doug Noland: "We’re now poised for a year of significantly slower debt growth – a serious dilemma for both the highly over-leveraged financial sector and the deeply mal-adjusted U.S. Bubble Economy... The interplay between weak Credit and income growth will be of major consequence this year and going forward...for the year, Money Funds rose $740bn, or 32%... The downside of the Credit Bubble will have Households taking on additional debt (though at a slower pace), as asset values decline precipitously. Evaporating Net Worth is now having a meaningful impact on confidence, consumption and investment decisions, and this effect will only escalate over the coming weeks and months...Well, the entire world has become aware of our situation and will be less than keen to accumulate more of our debt. The Fed’s willingness to cut rates so drastically in the midst of faltering confidence and heightened inflationary pressures is certainly exacerbating the very dangerous dislocation that has erupted in the agency, MBS and investment-grade corporate markets."

Amy Grant: “If a politician isn't doing it to his wife , then he's doing it to his country.”

The Clinton Presidential Library withheld more than a thousand pages about clemency the former president granted during his last days in office — including a pardon to fugitive financier Marc Rich — from a batch of documents recently released to the public.The library released 2,830 pages of documents this week on pardons President Bill Clinton considered for Rich and others during his last months in office. But the library withheld another 1,114 pages that archivists said would disclose confidential discussion of advice the former president received from advisers or would violate someone's personal privacy.

Remittances to Mexico were down nearly 6 percent in January, the biggest drop in 13 years, which experts attributed to a downturn in the U.S. economy and anti-immigrant policies.

Thornburg Mortgage said falling mortgage prices together with liquidity imperiled by a surge of margin calls from its own lenders “have raised substantial doubt about the company’s ability to continue as a going concern.”

Horace Mann: “Ignorance breeds monsters to fill up the vacancies of the soul that are unoccupied by the verities of knowledge”

Alliance Data Systems completed a new financing facility with Barclays Capital to accommodate the upcoming maturity in the spring of $600 million in bonds backed by credit card assets.

Charles Evans, president of the Federal Reserve Bank of Chicago: "Officials can make clear their commitment to stable prices by 'promptly' reversing interest-rate cuts when 'insurance' against growth risks is no longer needed."

After Blackstone's IPO, the shares traded at $38. On Friday, the shares made a new low at $14+. On Monday, the company releases quarterly numbers. If equities continue to get hammered, Blackstone may weaken further. Should the stock break below the teens, nibbling could prove profitable for the long term investor.

Umberto Eco: “The ideology of this America wants to establish reassurance through Imitation. But profit defeats ideology, because the consumers want to be thrilled not only by the guarantee of the Good but also by the shudder of the Bad.”

Bush on why he will veto the ban on water boarding: "Limiting the CIA's interrogation methods to those in the Army Field Manual would be dangerous because the manual is publicly available and easily accessible on the Internet. Shortly after 9/11, we learned that key al Qaida operatives had been trained to resist the methods outlined in the manual. And this is why we created alternative procedures to question the most dangerous al Qaida operatives, particularly those who might have knowledge of attacks planned on our homeland. The best source of information about terrorist attacks is the terrorists themselves. If we were to shut down this program and restrict the CIA to methods in the Field Manual, we could lose vital information from senior al Qaida terrorists, and that could cost American lives." We could have save almost 4000 American lives had Bush not lied about the weapons of mass destruction.

Obama had 59 percent, or 4,459 votes, to Clinton's 40 percent, or 3,081 votes, with 22 of 23 Wyoming counties reporting. Obama won seven delegates and Clinton won five. In the overall race for the nomination, Obama led 1,578-1,468, according to the latest tally by The Associated Press. It will take 2,025 delegates to win the Democratic nomination. "Especially in the intermountain West, people are hungry for something different, people are hungry for someone who's a uniter, who can bring together a coalition of change," said Gabe Cohen, Obama's state director in Wyoming.

Consumer Confidence and Employment

3/8/08 Consumer Confidence And Employment

According to the RBC Cash Index, confidence sank to a mark of 33.1 in early March, down from 48.5 in February. The new reading was the worst since the index began in 2002 and surpassed the previous low reached in February."The U.S. consumer is definitely in full defensive mode," said T.J. Marta, a fixed-income strategist at RBC Capital Markets.

Republican presidential candidate Ron Paul is hinting that his run for the White House is about to end, saying the "presidential campaign will soon wind down.

The dollar fell to the weakest in three years against the yen and near a record low versus the euro. Japan's foreign currency reserves crossed the trillion-dollar level for the first time at the end of February, according to data released by the Ministry of Finance Friday. The country's reserves rose to $1.01 trillion from $996 billion at the end of January, making it the only country after China to have more than a trillion dollars worth in foreign reserves.

The Fed increased the size of auctions of four- week funds to banks planned for March 10 and March 24, to $50 billion each from $30 billion previously. The Fed also said in a statement in Washington today that it will make $100 billion available through repurchase agreements.

Washington Mutual Inc.and other banks are looking for possible cash infusions from private-equity firms and sovereign wealth funds as a result of the credit crunch, The Wall Street Journal reported Friday.

Baker Hughes said Friday worldwide rig count for February rose to 3,417, up 121 from the 3,296 counted in January 2008 and up 65 from the 3,352 counted in February. International rig count fell 21 from January and the U.S. rig count rose 16 in February. The Canadian rig count for February was 620, up 126 from the 494 counted in January and down 15 from the 635 counted in the year-ago period.

According to AMG Data Services, including ETF activity, Equity funds report net cash outflows totaling -$1.772 billion in the week ended 3/5/08 with Domestic funds reporting net outflows of -$1.100 billion and Non-domestic funds reporting net outflows of -$671 million; Excluding ETF activity, Equity funds report net cash outflows totaling -$1.066 billion with Domestic funds reporting net outflows of -$664 million and Non-domestic funds reporting net outflows totaling -$402 million.

Henry To: "As of Friday at the close, the ratio between money market fund assets and the market cap of the S&P 500 rose to 26.71% - a level not seen since February 2003, and is now at a significantly higher level than where it was in October 1990 - the last time the U.S. stock market gave us a once-in-a-decade buying opportunity. While this indicator is usually not a great short-term timing indicator, it is to be noted that this reading is now extremely high on a historical basis and should be supportive for stock prices not only for over the next few years, but over the next few months as well. Even though the stock market can do anything over the short-run, my guess is that we have already seen the bottom in late January - which means that we will continue to remain 100% long in our DJIA Timing System for the time being, unless the Fed backs away from its current easing campaign, or if the MBIA/Ambac issues are not resolved as promptly as possible."

In Friday pre-opening activity, U.S. stock futures dropped sharply and Treasury prices soared after the government reported payrolls fell by 63,000 in February, and after the Fed moved to bolster liquidity. It was the largest drop in payrolls since March 2003. Payrolls for December and January were revised down by 46,000. The unemployment rate fell unexpectedly to 4.8% in February from 4.9%, due to a 450,000 decline in the labor force, the largest drop in nearly five years. Average hourly earnings rose 5 cents, or 0.3%, to $17.80 an hour.
Some 52,000 jobs were lost in the manufacturing industries, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 jobs on top of 25,000 that were cut in January, a reflection of the housing industry's deepening woes.The department said that since the housing boom peaked in September 2006, construction businesses have cut 331,000 jobs. The government added 38,000 jobs in February on top of 4,000 new-hires in January. The CES Birth/Death model contributed 135,000 jobs to the reported numbers.

Timothy F. Geithner, the president of the Federal Reserve Bank of New York: “The rational actions taken by even the strongest financial institutions to reduce exposure to future losses have caused significant collateral damage to market functioning,” Mr. Geithner said in a speech to the Council on Foreign Relations. “This, in turn, has intensified the liquidity problems for a wide range of bank and non-bank financial institutions.”

George Ure: "We're at dark of the moon, which is when night-vision equipped forces have maximum advantage in conflict."

Merrill Lynch strategist Brian Belski: "However, investors are placing too much emphasis on the Fed's ability to turn around certain parts of the market, in our opinion," he writes. "We continue to believe that the housing and credit unwind are in their early stages and a recovery is at least several months away."

Saudi Aramco, the world's largest oil company, raised prices for its crude oil for export to the U.S. in April, according to a statement from the company.

The Bank of Korea set its new benchmark interest rate at 5 percent Friday amid data showing that risks from rising inflation have begun to outweigh those from a slowing economy. The central bank said in a statement that it set the seven-day repurchase rate at 5 percent, the same as the previous benchmark overnight call rate target for loans to commercial banks.

Rob Hanna: "Thursday was the 7th day in a row where the total put/call ratio has closed at 1.10 or above. Going back to 1995 the only other time this has happened was August 3, 2007. That led to a 3-day rally before the final leg down of that sell off began."

The U.S. economy is now in a recession that will be more painful than either of the recessions in 1990 or 2001, said Ethan Harris, chief U.S. economist at Lehman Bros. "The economy is likely to experience an extended period of very weak growth, a rising unemployment rate and significant further Fed rate cuts," Harris wrote Friday in a note to clients. The federal funds rate will likely drop to 1.5% by next year from 3% currently.

Nouriel Roubini: "Risk of a systemic crisis is rising: the markets are becoming “utterly unhinged”, the financial system is “broken” and “everybody's in de-levering mode."

According to Bloomberg, the cost of borrowing euros for three months rose to the highest level in seven weeks, adding to evidence central bank attempts to ease a shortage of cash in the money markets are misfiring. The euro interbank offered rate, or Euribor, for the loans climbed 7 basis points to 4.50 percent today, the European Banking Federation said. It was the biggest gain since Jan. 25. The one-week rate was little changed at 4.11 percent.

In the first hour of trading, big tech stocks bucked the overall down trend.

The April fed funds futures contract on the Chicago Board of Trade rose to 97.74 from a settlement Thursday of 97.69, with the most recent contract implying about a 96% chance of a 75 basis-point cut.

In mid-morning trading, crude oil futures rose on Friday to above $106 a barrel for the first time as the dollar fell anew against the euro.with the euro hitting a new high of $1.5459.

Freddie and Fannie can now purchase loans worth as much as $793,000, while the FHA can insure loans for up to $729,000.

Goldman Sachs analyst Richard Safran, in a research note citing unnamed sources, said Boeing's 787 power-on schedule could be delayed to the end of June from March. Further, final assembly for three of the aircraft was also delayed, significant because Boeing will need six aircraft for test flights over 11 months. As such, first deliveries could be pushed out to the third quarter, 2009, Safran said. A Boeing spokeswoman said the company is improving the aircraft's assembly rate and will provide an update on its delivery target at the end of the first quarter.

Gold for April delivery fell $2.90 to end at $974.20 an ounce on the New York Mercantile Exchange.

"We are going to have a weak growth quarter, whether you call that a recession or not is something we won't know" for months, said Ed Lazear, head of the Council of Economic Advisers, speaking to reporters after the Labor Department reported the second straight month of job losses.

Marc Faber: "We may now have a hostile environment for all asset classes, with the exception of some real estate and commodities," said the editor of The Gloom, Doom and Boom Report, pointing out that since 2002 all asset classes have been rising -- a phenomenon that hasn't been seen for 200 years.
"The current synchronized global economic boom and universal all-encompassing asset bubble will lead to a colossal bust," he said.
Financial markets, currently in the grips of a credit bubble that worsens by the day, will see a protracted period of high volatility, in which 20% movements either up or down become common and the chances of making a lot of money become very difficult, he said.
He heaps much of the blame for global troubles on years of expansionary U.S. monetary policy that had a flawed fixation on U.S. consumption rather than boosting capital infrastructure and spending. Federal Reserve Chairman Ben Bernanke and his colleagues are clearly backed into a corner now as they cannot tighten money policy without causing a collapse of the entire financial system, he said.

Fitch downgraded Washington Mutual Inc.'s long-term issuer default rating to BBB from A- and Wells Fargo's individual rating to A/B from A. At the same time, Fitch placed Bank of America Corp.and Citigroup Inc.on Watch Negative, indicating the possibility of a downgrade in the future.

The Dow Jones Industrial Average fell 146.70 points to 11,893.69, losing 3% on the week and more than 10% so far this year. The S&P 500 declined 10.99 points to 1,293.35, a weekly decline of 2.8%. The Nasdaq Composite shed 8.01 points to 2,212.49, dropping 2.6% from a week ago.

Crude oil for April delivery closed down 32 cents, or 0.3%, at $105.15.

Thursday, March 06, 2008

Fire Sale And Margin Calls

3/7/08 Fire Sale And Margin Calls

UBS AG fell to a five-year low in Swiss trading after JPMorgan Chase & Co. analysts said it probably sold 25 billion francs ($24 billion) of mortgage-backed securities in a ``fire sale'' and may have more writedowns.

According to the Associated Press, "Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak."

Fears that investors would be forced to liquidate holdings resurfaced Thursday.

Chinese Proverb: “Everyone pushes a falling fence”

Returns from Texas caucuses showed Obama reclaiming some of the ground in the delegate competition that he lost Tuesday night as Clinton's victories piled up. Overall, she showed a gain of 12 delegates for the contests on the ballot, according to The Associated Press count, with another dozen to be awarded. In all 370 were at stake. Texas Democrats were still counting ballots from the Tuesday night caucuses. In addition, Obama gained endorsements from superdelegates in Georgia, Vermont, Ohio, the District of Columbia and Puerto Rico. Clinton picked up two superdelegates during the day but lost one, for a gain of one. Obama's overall delegate lead stood at 1,567 to 1,462 as the rivals looked ahead to the final dozen contests on the calendar. It takes 2,025 to win the nomination.

Projections released Wednesday afternoon by the Texas Democratic Party based on still-incomplete caucus returns indicated that Obama would receive 98 delegates elected Tuesday to Clinton's 95.

Thucydides: “The secret of happiness is freedom. The secret of freedom is courage.”

Wal-Mart Inc. February same-store sales ex-fuel up 2.6%. Sam's Club February same-store sales ex-fuel up 2.8%. Wal-Mart ups annual dividend 8% to 95 cents per share.

The Bank of England's Monetary Policy Committee on Thursday voted to leave its key interest rate unchanged at 5.25%.

Online job recruitment rose in February, snapping a three-month losing streak, but remained 7% below its level in the year-earlier month, the Monster Employment Index showed. The index, compiled by the New York employment-solutions provider Monster Worldwide, rose 5 points in February to 165 from 160 in January. It sat at 177 in February 2007.

Wilbur Ross gave a lift to the municipal-bond market by buying $1 billion of the securities, The Wall Street Journal reported. Ross, who runs WL Ross & Co., a $10 billion investment firm, took advantage of the difficulties at a number of hedge funds that were forced to sell such bonds, the Journal reported. After just three days since he made his purchases, his on-paper profit from the bonds is estimated at more than $100 million, the Journal reported.

Carlyle Capital Corp., the Guernsey, Channel Islands, affiliate of the private-equity firm Carlyle Group, said late on Wednesday that it did not meet margin calls from four repo financing counterparties. Carlyle Capital said it received a notice of default from one of the four and expects at least one more.

Thornburg Mortgage Inc.failed to meet a margin call of about $28 million which in turn triggered a string of cross-defaults, the company said Wednesday in a regulatory filing. It also said that JP Morgan Chase Bank, which had extended the original margin call, has notified the mortgage company that it will exercise its right. The total amount lent to Thornburg is about $320 million, according to the filing.

Prices may drop 53 percent for flash chips, which store data such as digital photos and music, Intel's Chief Executive Officer Paul Otellini said.

Merrill Lynch & Co. will eliminate 650 jobs, record a $60 million charge and stop making new home loans through First Franklin Financial, the subprime lender that former Chief Executive Officer Stan O'Neal bought in 2006.

Federal Reserve Chairman Ben S. Bernanke will ``destroy the U.S. dollar'' by cutting interest rates, investor Marc Faber said.

John Crudele: "The BLS will suddenly begin assuming improvement in the labor market in the months ahead. That's because the government believes, but can't prove, that a lot of new companies come into existence and start hiring in anticipation of spring. And while these foolishly optimistic assumptions will start with tomorrow's number they won't really peak until the April employment figures come out May 4."

According to Business Week, China faces growing pressure for prices to rise due to food shortages and a credit boom but is confident inflation can be held to its 4.8 percent target this year, financial officials said Thursday. "We will face increasing pressure for price rises and they need to have our full attention, becuse they have a direct bearing on the performance of our economy," the chairman of China's planning agency, Ma Kai, said at a news conference during the annual session of the national legislature. Inflation "will be the No. 1 item on our agenda," Ma said. "We have the means to achieve the targets."

Yields on $5.12 trillion of corporate bonds tracked by Merrill Lynch & Co. average 2.05 percentage points more than U.S. Treasuries, the most since at least 1997.

``The credit-default swap market is completely distorting reality,'' said Henner Boettcher, treasurer of HeidelbergCement in Heidelberg, Germany, the country's biggest cement maker. ``Given what these spreads imply about defaults, we should be in a deep depression, and we are not.''

According to the Wood Mackenzie report, companies found the equivalent of 553 million barrels of oil in the Gulf last year, half as much as in 2006 and the lowest figure in a decade. The number of exploration wells drilled in 2007 was also down and close to the 10-year-low. Only 29 percent of the new exploration wells drilled in 2007 were in the deepest parts of the Gulf versus 53 percent in 2006. The Gulf of Mexico will continue to be a huge source of energy for years to come as it accounts for 25 percent of U.S. oil production and 15 percent of natural gas production.

Ziff Davis Media Inc. filed for bankruptcy protection Wednesday.

Rob Hanna: "When the market is below its 200ma the easy money is typically made not by fading the large gap up, but by looking to go long. Fading large gaps up appears to be more fruitful in uptrending markets than down. These results seem to go against conventional wisdom and provide another example of a lesson that many traders may need to “un-learn”.

For 2008, Joy Global expects sales of $3.1 billion to $3.3 billion and earnings of $3.15 to $3.45 a share, up from its prior estimate of earnings of $3.10 to $3.35 a share.

Brad Setser: "China's reserves increased by $61.6b in January alone. That is a stunning sum. $60b is roughly the size of the US monthly trade deficit. Annualized, the implied increase in China's reserves tops $700b.
And the real increase in China's foreign exchange holdings could be even bigger."

Initial filings for state unemployment benefits fell to their lowest level since the latter half of January in the latest week, the Labor Department reported Thursday, even as continuing claims reached their highest level since September 2005. Initial claims for the week ended March 1 fell by 24,000 to 351,000, hitting their lowest mark since Jan. 19. The four-week average of those claims, meanwhile, dropped to 359,500, the lowest since Feb. 9.
Meanwhile, continuing claims climbed by 29,000 to 2.83 million during the week ended Feb. 23. That was the highest since Sept. 24, 2005.

Nordstrom Inc. reported that in February, same-store sales fell 5.8%.

Target Corp said sales at stores open at least a year rose 0.5 percent in February.

J.C. Penney Co Inc said on Thursday its February sales at department stores open at least a year fell 6.7 percent, and it forecast another decline in March.

Euro hits new highs at $1.54. European Central Bank President Jean- Claude Trichet said policy makers are focused on keeping expectations about future price increases in check.``The firm anchoring of medium- to long-term inflation expectations is of the highest priority to the Governing Council,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``The current monetary policy stance will contribute to achieving'' this goal.

China's central bank Governor Zhou Xiaochuan said he'll consider raising interest rates to tame the fastest inflation in 11 years. ``There is still room for further interest-rate increases,'' Zhou said.

New Zealand's dollar advanced after the central bank said the nation's benchmark interest rate will remain at a record high. The local dollar gained after Reserve Bank of New Zealand Governor Alan Bollard kept borrowing costs unchanged at 8.25 percent, saying that inflation will ensure rates stay at ``current levels for a significant time.''

The risk of Tata Motors Ltd., India's biggest truckmaker, defaulting on its bonds rose to a record after the company sought to borrow $3 billion to fund the planned purchase of Ford Motor Co.'s Jaguar and Land Rover units.

Living conditions in the Gaza Strip are the worst since Israel occupied the area in 1967, a group of eight human rights and humanitarian organizations said. Israel accused Hamas, which controls Gaza, of blocking aid.

Nippon Steel Corp., the world's second-biggest maker of the metal, expects surging raw material costs to keep pressure on earnings after forecasting the first full-year profit drop in five years.

In a sign that home sales may be stabilizing, an index of sales contracts on previously owned U.S. homes was flat in January, the National Association of Realtors reported Thursday, though the level was down almost 20% from the prior year.

The percentage of mortgages that were in foreclosure hit a record high in the fourth quarter, while mortgage delinquencies rose to a 23-year high, the Mortgage Bankers Association said Thursday. A record 2.04% of U.S. mortgages were somewhere in the foreclosure process at the end of the year, while a record-high 0.83% of loans entered foreclosure in the fourth quarter, the trade group's quarterly survey found. More homeowners fell behind on payments as well, with 5.82% of loans past due in the quarter.

Pfizer Inc. reiterated its 2008 forecast of earnings of $1.78 to $1.93 a share, on revenue of $47 billion to $49 billion. Adjusted revenue is expected to come in between $2.35 to $2.45 a share.

JP Morgan made a new 52-week low and yields over 4%.

U.S. natural gas inventories fall 135 Bcf last week. The five-year average change for the week is a decline of 111 billion. At 1,484 billion cubic feet, U.S. stocks were 169 billion cubic feet less than last year at this time and 63 billion cubic feet above the five-year average.

Boston Federal Reserve Bank President Eric Rosengren indicated falling property prices may strain credit markets and delay an economic rebound.

Standard & Poor's Ratings Services downgraded its long-term counterparty credit rating on Washington Mutual Inc.to BBB from BBB+, and its long-term counterparty credit rating on Washington Mutual Bank to BBB+ from A-. S&P placed all of Washington Mutual's ratings on a negative credit watch. "These rating actions reflect our expectations for a more severe residential mortgage credit cycle than we had anticipated at the start of 2008," said Victoria Wagner, an S&P credit analyst, in a statement. "We now believe that the severity of losses on all residential mortgages will be higher that we had thought and that the weak housing market will now be a longer cycle."

There are more than 150,000 U.S. troops in Iraq, with about 34,500 deployed in the Iraqi capital. A planned draw down is expected to cut the overall total by about 20,000.

Benjamin Franklin: “Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one.”

Lehman Brothers has suspended two traders in its London office relating to a probe on how trades were handled or priced in its equities unit, The Wall Street Journal reported on its Web site, citing people familiar with the situation. The inquiry is focused on the valuation of securities, likely those tied to equity derivatives, in markets that have seen a significant drop in liquidity, the report said. The Financial Services Authority is aware of the situation, and Lehman is cooperating with its inquiry, the report added.

Fed Reserve Bank of NY President Geithner: "Global financial meltdown was not preventable." Losers never take responsibility.

Fed funds futures Thursday priced in a higher chance of a 75 basis-point cut in March, bringing short-term interest rates to 2.25%. The April contract rose to 97.70, implying a 76% chance of a 75 basis point cut.

The net worth of U.S. households fell by $533 billion, or a 3.6% annual rate, in the fourth quarter of 2007, the first time total wealth had fallen since late 2002, the Federal Reserve reported Thursday. For all of 2007, household net worth rose 3.4% to $57.7 trillion, the slowest growth in five years. After the effects of inflation are included, real net worth fell for the year. In sum, the Federal Reserve is acknowledging that inflation was at least 3.5% for all of 2007. That means they lied about inflation being contained. You knew that any way. However, by saying inflation was 2.3% in 2007, the government screwed those on social security on their cost of living adjustments. You knew that any way. When was the last time your Bush administration told the truth? You know the answer to that question.
NEVER.

Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.

Crude-oil futures closed above $105 a barrel for the first time, after hitting a record high of $105.97 earlier in the session. Crude oil for April delivery rose 95 cents, or 0.9%, to settle at $105.47 a barrel on the New York Mercantile Exchange. Gold for April delivery fell $11.40 to end at $977.10 an ounce on the New York Mercantile Exchange.

Sen. Barack Obama raised a record $55 million in February for his presidential campaign. All told, Mr. Obama has raised $193 million during his yearlong bid for the White House. Winners have a way of raising funds.

Abraham Lincoln: "The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew."

Prime Minister Stephen Harper's chief of staff said someone in Hillary Rodham Clinton's campaign gave Canada back-channel assurances that her harsh words about the North American Free Trade Agreement were for political show, according to a report by the Canadian Press.

Wednesday, March 05, 2008

The Day After

3/6/08 The Day After

Yahoo Inc.and Time Warner have stepped up talks on creating an alternative to Microsoft Corp.'s unsolicited Yahoo bid, The Wall Street Journal reported Wednesday, citing people familiar with the matter. The talks center on a deal that would fold Time Warner's AOL Internet unit into Yahoo, the report said.

Douglas A. McIntyre: "Unfortunately, an AOL deal makes no sense. AOL and Yahoo! are both in the online display advertising business. Revenue from this source is not growing quickly at either company. Yahoo! has about 22% of the US search market, which had been a faster growing ad environment. AOL has 5%. Google (GOOG) has 60% and Microsoft about 10%. Putting together two slow-growing companies might allow for some cost cutting, but it would come mostly from personnel. In a Microsoft buy-out, a number of costs for redundant search technologies can be taken out. Microsoft can also use Yahoo!'s huge user base to sell its online software products. Microsoft has the technology and capital to have a chance of making a combined internet operation work. It also has a $31 offer on the table. Putting Yahoo! and AOL together does not do much for either company beyond creating a larger display ad platform. If Yahoo! walks away from Microsoft, there is no reason for its shares not to drop back below $20."

Yahoo said the deadline for nominations will be extended from March 14 to 10 days following the announcement of the date for Yahoo's annual shareholders' meeting, the company said. It has not announced a date for the shareholders' meeting. Microsoft had been preparing to nominate a slate of directors to the board of Yahoo by March 13, the deadline for mounting a proxy contest. Under the laws of Delaware, where Yahoo is incorporated, a public company cannot go more than 13 months without holding an annual meeting. Last year's annual meeting was on June 12, and this year's meeting has not been set.

Ministers of the Organization of Petroleum Exporting Countries held output steady, wire services reported from Vienna. The decision was expected.

Odds at U.K. spread-betting firm Cantor Index show that Sen. Barack Obama is still the favorite to secure the nomination to be the Democratic nominee, despite the strong showing from Sen. Hillary Clinton on Tuesday. Odds to win the president are 4-to-5 for Obama, 6-to-4 for Sen. John McCain and 5-to-1 for Clinton. "Our clients feel that Clinton has too many enemies and too much old baggage," said David Buik, a strategist at Cantor Index.

The battle for delegates in Texas remained in doubt late in the night. The vote totals were incomplete in many of the 31 state Senate districts, the basis for about two-thirds of the delegates. In addition, many Democrats were still in caucuses selecting about a third of the delegates. Other so-called superdelegates will declare their support at the state convention.

Michael Gerson: "So now Clinton herself is the most effective agent of the vast right-wing conspiracy -- proving just how devious and subtle that conspiracy really is. And this is not Agent Clinton's only contribution. By raising questions about Obama's foreign policy judgment, she has identified a potent issue -- an issue she cannot fully exploit because of the liberalism of her own party. But John McCain could. As a thought experiment, consider the foreign policy achievements of Obama's first 100 days in office.

According to CNN exit polling, an impressive 59 percent of the voters in Ohio's Democratic primary were women. And those female voters favored Clinton over Obama, 58 percent to 40 percent.

Cosco's net income grew to $327.9 million, or 74 cents per share, from $249.5 million, or 54 cents per share, in a year-ago period which included $53.4 million in charges.Sales increased 12 percent to $16.62 billion from $14.80 billion a year ago.

For the quarter, WCI Communities generated $160 million to $170 million of cash flow from operating and investing activities.

According to the WSJ, Brazilian meatpacker JBS agreed to buy National Beef for $560 million and is in advanced talks to buy Smithfield's beef business. The deal would combine the U.S.'s third-, fourth- and fifth-largest meatpackers into the nation's largest beef processor.

Stephen Roach: "The current recession has been set off by the simultaneous bursting of property and credit bubbles. The unwinding of these excesses is likely to exact a lasting toll on both homebuilders and American consumers. Those two economic sectors collectively peaked at 78 percent of gross domestic product, or fully six times the share of the sector that pushed the country into recession seven years ago."

Financial Times: "At $100 a barrel, the total proven reserves of the oil exporting countries is about $104,000bn – equivalent to the combined total value of publicly-traded equities and bonds in the world. About $48,000bn of this belongs to the Gulf Co-operation Council member countries – which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The rest of Opec owns another $44,000bn, while non-Opec countries (Canada, Norway, Mexico and Russia) own some $12,000bn worth of oil reserves."

The Oil Drum: "Saudi Aramco is no longer the world’s leading crude oil producer. Saudi Aramco’s statement of 260 billion barrels of remaining recoverable reserves is almost certainly false. Instead, the remaining recoverable crude oil reserves are probably less than 100 Gb, instead of 260 Gb. It is time to call on Saudi Aramco and the other OPEC members to tell the truth about their reserves."

Australia said Wednesday it canceled a contract to buy 11 navy Seasprite helicopters from U.S.-based Kaman Corp., claiming the aircraft are unsafe.

An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier, according to Automated Access to Court Electronic Records, a bankruptcy data and management company.

The Organization for Economic Cooperation and Development cut its forecast for growth this year and now expects expansion of ``less than'' 2 percent in its 30 member nations, Secretary General Angel Gurria said.

Almost 70 percent of the periodic auctions in the $330 billion market failed this week as investment banks stopped buying the securities investors didn't want. Yields on the debt averaged 6.52 percent as of Feb. 28, up from 3.63 percent before demand evaporated in January, according to Bloomberg. States from New York to California and lawmakers including House Financial Services Committee Chairman Barney Frank are attempting to revive the market. Rising yields are pinching state and local governments just as a slowing economy and falling property values slash tax revenue by more than $6.6 billion, according to a report by the U.S. Conference of Mayors.

Unit labor costs rose 2.6% in the fourth quarter, revised up from 2.1%, the biggest increase since the first quarter.

Companies in the U.S. private sector shed 23,000 jobs in February, according to the ADP employment report released Wednesday. The report comes two days before the Labor Department reports on nonfarm payroll growth for February. Adding in some 25,000 jobs typically created by government, the ADP report suggests nonfarm payrolls grew by about 2,000, compared to the 20,000 expected by Wall Street economists. The ADP reported job growth among medium-sized businesses declined for the first time since June 2003.

Exxon Mobil Corp. expects to spend about $25 billion in 2008 on capital expenditures, up from about $20 billion in 2007.

Hedge fund Elliott Associates LP said Wednesday that it offered an unsolicited bid for information technology company Packeteer in a letter to the company's board of directors. Under the terms suggested, Elliott would acquire Packeteer for $5.50 a share, a 42% premium over Tuesday's closing price and a 95% premium over the company's enterprise value. The hedge fund currently owns close to 10% of the common stock of Packeteer and said it made the bid after the board refused to address concerns voiced by investors.

"I ultimately think the American people are going to want a clear break from the Bush-Cheney foreign policies of the past because they haven't made us more safe and more secure," he said. "If she thinks that longevity in Washington is the primary criteria for winning the White House, then John McCain is going to beat her."

After dropping sharply in January, nonmanufacturing sectors of the U.S. economy contracted at a slower pace during February, the Institute for Supply Management reported Wednesday. The ISM nonmanufacturing index rose to 49.3% from 44.6% in January. The index stood at 53.2% in December.

New orders for manufactured goods fell 2.5% in January as orders for durable goods dropped. Durable goods orders fell a revised 5.1%, compared with a prior estimate of a 5.3% decline. Core capital equipment orders in January fell 1.5%. Orders for nondurable goods rose 0.3%.

U.S. crude inventories fell unexpectedly, down 3.1 million barrels to 305.4 million barrels in the week ending Feb. 29, U.S. Energy Information Administration reported on Wednesday. After the data, crude-oil futures for April delivery surged $3.28, or 3.3%, to $102.80 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 1.7 million barrels in the latest week, while distillate stocks fell by 2.7 million barrels, EIA reported.

Money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning.
According to Bloomberg, the three-month London interbank offered rate, or Libor, for euros advanced 1 basis point to 4.40 percent today, the highest since Jan. 18, the British Bankers' Association said. The rate for pounds gained half a basis point to 5.77 percent, the 12th straight daily increase and the highest since Jan. 7, according to the BBA.

Gold for April delivery rallied $22.20 to end at $988.50 an ounce on the New York Mercantile Exchange. Earlier it surged to a record high of $995.20 an ounce.

Below-normal temperatures are expected in the Midwest and Northeast, the regions of highest natural gas consumption, through March 14, according to MDA Federal Inc.'s EarthSat Energy Weather.

Ambac Financial plans to raise at least $1.5 billion selling new common stock and equity units as the troubled bond insurer tries to keep its crucial AAA rating. Ambac shares dropped 10% to $9.64 after the announcement. The company is aiming to raise at least $1 billion selling common stock and another $500 million selling equity units. Ambac also said it will stop guaranteeing several different types of structured products, including collateralized debt obligations, all mortgage-backed securities and auto loan and credit card securitizations. Ambac also said that it has written "virtually" no new business so far in 2008.

The euro rose to a new record high against the dollar of $1.5301 Wednesday.

Crude oil, gold and corn prices surged to records, leading a rebound in commodities on renewed concern that a slumping dollar and lower borrowing costs will spur inflation and increase demand for raw materials. The UBS Bloomberg Constant Maturity Commodity Index of 26 futures contracts jumped 39.11, or 2.6 percent, to 1,546.74 at 1:20 p.m. New York time. The gauge has jumped 21 percent this year.

Crude for April delivery rallied $5, or 5%, to settle at $104.52 a barrel on the New York Mercantile Exchange. Wednesday's gain in crude was the biggest in value since crude futures started trading on the New York Mercantile Exchange in 1983. Also on Nymex, heating-oil futures hit a new high. Natural gas rose 40 cents to $9.76.

Texas has a total 228 Democratic delegates, 126 of which will be awarded proportionally based on the amount of votes a candidate received during the primary, and 67 based on votes from the caucus. Twelve are super delegates. Caucus results as of Wednesday afternoon showed Obama ahead of Clinton, 52 percent to 48 percent. Unofficial results may be released by the Texas Democratic party by Friday, according to the Caller-Times. Caucus results were supposed to be reported to the party via telephone but high turnout made calling in with the latest tally impossible for many precincts.

Tuesday, March 04, 2008

Bankruptcy Filings

3/5/08 Bankruptcy Filings

American consumers' bankruptcy filings jumped 15 percent in February from the previous month and a steeper rise is looming because of the subprime mortgage crisis, the American Bankruptcy Institute said. Consumer bankruptcy filings in February totaled 76,120, up from 66,050 recorded in January, the non-partisan bankruptcy research group said. The February number was 37 percent higher than in the same month a year ago, according to the institute.

Intel cuts Q1 gross margin est. to 54%, plus or minus 1 pt.

Microsoft have launched a bid to capture a segment of the growing market for rich web content on mobile phones. The software firm has signed a deal with handset manufacturer Nokia to bring its Silverlight platform to millions of mobile phones.

Staples Inc. said sales at North American retail stores decreased 4 percent, while North American delivery sales rose 4 percent. International sales rose 13 percent.

Citigroup and Wachovia are facing lawsuits from a hedge fund charging the banking giants with improperly requiring the fund to pay out more money from specialized derivative contracts called credit-default swaps, The Wall Street Journal reported.

Australia's central bank increased its benchmark interest rate for the second time in four weeks and said there are signs the highest borrowing costs in 12 years are prompting consumers and companies to temper spending. Governor Glenn Stevens and his board raised the overnight cash rate target by a quarter point to 7.25 percent in Sydney today to stem the fastest inflation since 1991. Stevens said rates have risen ``substantially'' since mid-2007.

David Yu: "Yes, there's no shortage of negative news, and, yes, the market had begun a long-term downtrend. But, the selloff on Friday as well as the downfall since December seem quite excessive. Everything from credit problem to commodity price inflation and economic contraction should've been discounted already. The short-term weakness, as indicated by i-TIC Index (Chart 1), may carry on for a few more sessions, but it shouldn't come as a surprise if the market were to make a big move to the upside after that."

According to Bloomberg, Credit Suisse Group increased its price forecasts for coal used in power plants in 2008 by 50 percent because of supply shortages. The price of benchmark Australia's Newcastle contract thermal coal is raised to $120 a metric ton from a previous estimate of $80 a ton, Credit Suisse analysts led by Hong Kong- based Trina Chen and Bangkok-based Pawaramon Suvarnatemee said in a report.

Citigroup's job cuts could reach 30,000 or more over the next year and a half because of increasing writedowns from subprime related debt, CNBC has learned.

California stops insuring municipal bonds.

Tony Allison: "Money supply growth in Russia is up 44%, India up 23%, Australia up 23%, Brazil up 18%, U.S. up 16% (M3), UK up 12%, etc."

SAP and Intel will jointly offer servers pre-packaged with SAP software aimed at medium-sized firms, the two companies said.

Russia and China on Tuesday scuttled a Western attempt to introduce a resolution on Iran's nuclear defiance at a meeting of the International Atomic Energy Agency, diplomats said.

Crude oil may rise to $120 a barrel within six months due to the dollar weakness and global political tensions, the chief executive officer of Abu Dhabi National Energy Co. said.

April platinum futures surged to a record high of $2,308.80 an ounce early Tuesday, surpassing the record set in the previous session. The platinum contract was last up $28.40 at $2,270.0 an ounce.

Economic uncertainty is forcing U.S. shoppers to consider low prices and bargains above all else for the first time in a decade, according to results of a survey released on Tuesday by AlixPartners.That means retailers with the lowest prices will perform relatively better than more upscale rivals over the next few quarters, said Frederick Crawford, a managing director with AlixPartners, a turnaround consulting firm.

Australia, the world's largest shipper of coal, iron ore and wool, forecast the biggest gain in commodity exports in 29 years, driven by demand in China. Sales may rise 30 percent to a fifth straight record of A$189.1 billion ($178 billion) in the year ending June 30, 2009, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today. That compares with a revised A$145.6 billion this fiscal year and is the biggest gain since 1979-1980.

General Motors Corp. says it expects to bring its first lithium-ion battery powered hybrid engine system to market in North America in 2010.

Federal Reserve Chairman Ben Bernanke on Tuesday warned mortgage delinquencies and foreclosures were likely to rise and that more house price declines could be expected, and called for active measures to ease strains in housing markets.

China's biggest bank said Tuesday it has bought a 20 percent stake in South Africa's largest lender for $4.75 billion, sharply expanding China's financial presence in Africa.

Bay Area business leaders' confidence in the region's economy is at its lowest point since 2001, according to a quarterly index released Tuesday.

The Bank of Canada on Tuesday cut rates by a half-point, as central banks around the world try to insulate themselves from the struggling U.S. economy.

The dollar was trading at 102.98 yen, down from 103.51 yen late Monday.

Applied Materials agreed to sell an unspecified non-U.S. company $1.9 billion in solar manufacturing equipment and services to build “multiple solar factories” which it says collectively are expected to produce solar photovoltaic modules “capable of generating electricity on a gigawatt scale.”

Executive Intelligence Review: "Non-current loans—loans 90 days or more behind in payments—rose by $27 billion, or 33% in the last three months of the year, the largest percentage rise in the 24 years the FDIC has been tracking the figure, and net charge-offs jumped sharply. The banks as a whole added a net $15 billion to loan loss reserves, despite which, the level of reserves fell to just 93 cents for every dollar of reported non-current loans, the first time since 1993 that non-current loans have exceeded reserves. In a development of significant interest, the level of derivatives reported by the banks fell during the quarter, to $165 trillion at year-end from $173 trillion on Sept. 30. The level of derivatives for 2007 was still up 25% over 2006, and quarterly drops in derivatives holdings have happened before, but in dollar terms, the $8 trillion drop in the fourth quarter was the largest quarterly drop ever, and in percentage terms, at 5%, it was second only to the $6 trillion (12%) drop in the fourth quarter of 2001, the quarter following 9/11. If the derivatives markets have peaked, then the problems facing the banks are far worse than anything the banks and their regulators have admitted."

According to a Federal Trade Commission study, Napa, California, earned the title of worst town for identity theft, with over 300 consumer complaints per 100,000 residents in 2007.

Robert Kiyosaki: "In less than three years, the first of approximately 75 million American baby boomers will turn 65. No government can change that, so until someone discovers the fountain of youth the end is not far away. In a few years, the U.S. government will begin to operate in the red, paying for campaign promises made years ago by politicians who are no longer in power. Do the math. If 75 million baby boomers begin collecting $1,000 a month in Social Security and Medicare benefits, that comes to $75 billion in additional monthly spending. That's a lot more than the one-time $168 billion stimulus package due out in May."

Brett Favre, the longstanding quarterback of the Green Bay Packers, has decided to retire after 17 seasons.

Nouriel Roubini: "Indeed, there is now evidence that many state/local governments are under serious fiscal and debt strains and that default rates on muni bonds will start to surge."

Crude oil for April delivery lost $2.93, or 2.9%, to settle at $99.52 a barrel on the New York Mercantile Exchange. Gold for April delivery dropped $17.90 to end at $966.30 an ounce on the New York Mercantile Exchange.

Cisco's CEO Chambers: "I am even more comfortable with the long-term 12 to 17 percent growth than I was a month or two ago."

CNBC said a deal to bail out bond insurer Ambac Financial Group Inc. is progressing.

Monday, March 03, 2008

The Primaries

3/4/08 The Primaries

Barack Obama: "If we do well in Texas and Ohio, I think the math is such where it's going to be hard for her to win the nomination, and they'll have to make a decision about how much longer they want to pursue it." "I would assume that there are going to be people who want to bring this to an end one way or another, because [Arizona Sen.] John McCain's out there — the reputed Republican nominee — and he's given a little bit of a free pass."

The combined punch of subprime mortgage defaults and heavy debt remains the biggest risk to the health of the U.S. economy, a panel of business economists said on Monday. "NABE members are increasingly concerned over the short-term risks associated with subprime mortgages and other forms of indebtedness, while they continue to cast a wary eye on inflation," said Ellen Hughes-Cromwick, president of the National Association for Business Economists.

Countrywide said rising monthly payments on adjustable-rate mortgage loans, also known as ARMs, could also prompt a rise in delinquencies.

Ahmadinejad said the foreign presence in Iraq was an "insult to the regional nations and a humiliation." "We believe that the major powers who have come to the region from thousands of kilometers away should respect the will of nations and leave this region. That's the best service they can offer these nations," the hard-line Iranian leader said after meeting with the Iraqi president, Jalal Talabani, on the final day of his two-day visit to Baghdad.

Robert Lynch of HSBC:"The dollar is basically being re-rated ... in much the same way many U.S. credit derivative securities have been re-rated."

Gold for April delivery hit a record of $992 an ounce.

According to Bloomberg, Volkswagen AG took control of Scania AB, buying the Wallenberg family stake in the Swedish truck company for 27 billion kronor ($4.37 billion) and clearing the way for a merger with MAN AG that would create the European market leader.

The Federal Reserve is wrong to lower interest rates while inflation is still a threat and shouldn't bail out investors who made wrong-way bets, economists said in a survey by the National Association for Business Economics.

April crude hits record high of $103.51 a barrel on Nymex.

By one estimate, over 1,000 days of e-mail are missing from various White House offices. "I would call this negligence," said Mark Epstein, director of technical services for Cataphora Inc., a California company that specializes in retrieval and analysis of electronic information. The White House's first mistake, Epstein and other technical experts say, was moving to a new e-mail setup without first setting up an archiving system that would allow speedy, reliable searches and recovery of electronic messages. "This is the first time I've personally run across this kind of process for archiving; the White House relied on human beings to do specific manual processes on a regular basis and I would not recommend it," said William Tolson, who has consulted on e-mail problems for hundreds of companies and state and local governments.

Spending on U.S. construction projects fell 1.7% in January.

The euro rose to a fresh historical high against the dollar of $1.5263 Monday.

U.S. Feb. ISM falls to 48.3% from 50.7 in January.

Shokri Ghanem, chairman of Libya's National Oil Corp., speaking in Vienna before the group's meeting this week, said he has ``no complaint'' with oil at $100 a barrel. Twenty-nine of 30 analysts polled by Bloomberg expect the Organization of Petroleum Exporting Countries will make no change to production targets. Oil prices were also supported as the dollar neared a record low against the euro.

Soybeans and corn in Chicago advanced for a third day, reaching records on speculation the weaker dollar will boost exports and higher crude oil costs will lead to increased demand for alternative fuels. Wheat futures also jumped.

The dollar index declined to 73.445 today on ICE Futures in New York, the lowest since its start in 1973.

China, the world's biggest buyer of soybeans and vegetable oils, plans to boost supplies of food to curb inflation which jumped 7.1 percent in January, the most in 11 years. Soybean imports jumped 41 percent to 3.4 million metric tons in January, compared with a year earlier, the customs office said Feb. 29.

Lehman Bros. traded at a new 52-week low. Goldman Sachs has dropped 85 points from the high reached last October.

The oil terminal operated by Chevron Corp.'s Caspian Pipeline Consortium in Russia's Black Sea port of Novorossiysk shipped 25 percent less crude in February compared with the same month last year. The Caspian Pipeline Consortium operates Russia's only foreign-owned oil export link, which ships crude from Kazakhstan to the Black Sea port.

Microsoft chief executive Steve Ballmer said Monday it was the right time for the company to put out a bid for Yahoo Inc. "The deal makes sense with the price and structure we announced. We hope it becomes reality," he told reporters at the annual CeBIT technology fair in Hanover. "There is a lot of merit for Microsoft and Yahoo, for Yahoo shareholders and for Microsoft shareholders, for advertisers and for consumers."

John Hussman: "Once a market becomes overvalued - in stocks, bonds, or housing - either falling prices or poor long-term returns become inevitable."

A 2-year U.S. treasury yields 1.68%. A 3-month T-bill yields 1.85%. Now factor in the inflation rate that exceeds 4% ( and that's being ultra conservative). You still think these Treasury instruments are safe havens or are they for schmucks?

Natural gas for April delivery rose 17.9 cents, or 1.9 percent, to $9.545 per million British thermal units at 11:52 a.m. on the New York Mercantile Exchange. Futures are the highest since February 2006 and have advanced 27 percent this year.

Hillary Clinton's top strategist Mark Penn said he had "no direct authority in the campaign."I have had no say or involvement in four key areas -- the financial budget and resource allocation, political or organizational sides," he said in an email to a newspaper.

Toyota Motor Corp.'s U.S. February sales fell to 182,169 vehicles, down from 187,330 last year. Ford Motor Co.reported a 6.9% decline in February U.S. sales to 196,681 cars and trucks as lower rental car sales offset a surge in retail sales. General Motors Corp. reported a 12.9% decline in February U.S. light vehicle sales to 308,411 cars and trucks. The car side fell 1.2% while light trucks dropped 19.2%.

Crude for April delivery rallied $2.11 to a new all-time high of $103.95 a barrel on the New York Mercantile Exchange in early morning trading. Gold for April delivery hit a record of $992 an ounce on the New York Mercantile Exchange. The contract finished up $9.20 at $984.20 an ounce.

Diebold Inc. said Monday its board unanimously rejected an unsolicited bid from United Technologies Corp. to buy the company. "The board strongly believes that UTC's proposal significantly undervalues the company and fails to reflect Diebold's strengths and significant upside potential," said John Lauer, Diebold's chairman, in a statement.

Porsche moved closer to taking over Volkswagen, after the sports-car maker won approval from its supervisory board to raise its Volkwagen stake to more than 50 percent.

Buffett's Remarks

3/3/08 Buffett's Remarks

Warren Buffett said on CNBC television that his offer to effectively bail out bond insurers is off the table, according to a transcript of the conversation on CNBC's Web site. Warren Buffett on Monday said the U.S. economy is in recession and that "stocks are not cheap."

Consumer price inflation in the 15 nations that make up the euro rose at an annual rate of 3.2% in February, according to a preliminary estimate released by Eurostat on Monday.

The RBS/NTC euro-zone purchasing managers index for manufacturing declined to 52.3 in February from a reading of 52.8 in the previous month, news reports said.

Japanese consumer finance firm Takefuji Corp. may report up to 30 billion yen ($290 million) in losses from derivative transactions linked to the U.S. mortgage market.

United Technologies Corp., continuing to broaden its security business and expand its presence in China, said Sunday it has made an offer to buy Diebold Inc. for $2.63 billion. Diebold, based in Canton, Ohio, makes ATMs, business security systems and voting machines. The $2.63 billion purchase price represents United Technologies' offer of $40 per outstanding share, about two-thirds higher than Diebold's closing stock price Friday of $24.12. United Technologies said the total enterprise value of the deal was about $3 billion.

According to the WSJ, U.S. commercial real-estate values are starting to slide, and Goldman Sachs analysts project a prolonged sharp decline, with steep losses for financial firms.

Australian miner Oxiana Ltd. will buy Zinifex Ltd. through a 6.06 billion Australian dollar (US$5.64 billion) stock swap. to form the world's second-biggest zinc producer, and Australia's third-biggest diversified miner by market value at a combined A$12 billion, with Zinifex Chief Executive and former WMC Resources boss Andrew Michelmore at the helm.

Nobel economics laureate Joseph Stiglitz, author of a new book that claims the Iraq war will cost the U.S. more than $3 trillion, said the final tally is likely to climb much higher than that.``It's much more like five trillion,'' Stiglitz said yesterday in an interview with Bloomberg Radio. ``We were trying to make Americans understand how expensive this war was so we didn't want to quibble about a dime here or a dime there.''

The U.S. dollar fell to a three-year low against the yen.

HSBC's profits rose 10 percent last year as buoyant growth in Hong Kong and elsewhere in Asia helped Europe's biggest bank absorb $17.2 billion in bad debts as the U.S. housing crisis deepened.

Brett Steenbarger: "Markets are pricing in 50% chance of a 75 bp Fed rate cut at the next meeting and a full 1% cut by the April meeting."

John Hussman: "Although we have observed a significant widening of credit spreads and an increase in losses and write-offs among banks and other lenders, I continue to believe that the U.S. economy is quite early in the process of “deleveraging” from the excess debt creation of recent years. A large wave of mortgage interest-rate resets began to come due in October 2007, and will continue into 2009. Although Treasury interest rates have declined sharply due to a flight to safety by investors, mortgage rates have been fairly stubborn. More
importantly, recent rates of delinquency and foreclosure are not yet
representative of the high rates that can be expected in the coming years. In
the typical foreclosure event, there is first a burdensome reset, followed by
several months of attempted payments, followed by several months of
delinquency, and only then by foreclosure action. Given that the heavy resets
only started in October, the U.S. economy remains perhaps two or three
quarters away from serious credit losses, foreclosures and writedowns."

Sunday, March 02, 2008

Marching Into Panic

3/2/08 Marching Into Panic

Former President Bill Clinton has derided the Texas voting system as "the only time in your life that you'll get to vote twice without going to jail." But state party leaders pointed out that Sen. Clinton's Texas advisers helped write the rules two decades ago, and that Mr. Clinton twice won Texas's primaries.

The Financial Times: "Two huge forces remain at work: a slumping US real estate market and repricing of credit.”

The Australian dollar rose to its highest level in almost 24 years.

Peloton Partners: “Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls.”

Doug Noland: "In many respects, systemic stress from de-leveraging is more intense today than even during the LTCM fiasco. Many have been eagerly anticipating a LTCM-style Federal Reserve-orchestrated “reliquefication.” It’s not forthcoming. I will again remind readers to think in terms of this being the first Post-Credit Bubble “reflation” attempt. The Fed’s influence on risk asset prices has been dramatically diminished. Unlike LTCM (or 2002 for that matter), it is simply no longer a case of the Fed lowering the cost of funds for the leveraged players and in the process enticing them to increase holdings of mortgages, MBS, junk bonds, stocks and derivatives (all on leverage). There are these days much greater financial and economic forces at work... This is No LTCM. The current financial and economic backdrop is altogether different. Speculators that would typically seek to capitalize on depressed securities prices now confront enormous uncertainties. How bad will things get in California , Florida , and elsewhere? How many will walk away from underwater mortgages – for starter homes and million dollar-plus California bungalows? How badly will the U.S. “services” economy be hit by housing and financial woes? How bad are the unfolding Credit problems in state and local finance? Will pinched consumers also turn their backs on Credit card, auto and student loans? How long will the seizing up of the securitization markets last? How will corporate Credits hold up in the event of prolonged Credit restraint and economic tumult? What are the ramifications if the “monolines,” GSEs, private-label MBS/ABS, the Credit derivatives marketplace, and Wall Street “structured finance” (more generally) don’t recover? None of these pertinent questions were even remotely contemplated or relevant in 1998.
The problem today remains a highly leveraged Credit system now confronting massive – and unquantifiable - Credit losses. And Moody’s and S&P can continue to claim that the major “monolines” are “AAA” – while the GSEs can pretend they are adequately capitalized. But the marketplace is not buying it. Sinking securities valuations are not a “technical” market issue that will be resolved when the margin calls are satisfied. Indeed, the Credit crisis and the economic downturn are gaining significant momentum. Throughout the system, risk models have broken down. They will now be functionally inoperable for some time to come... the Bubble in leveraged speculation has burst. Today’s reality is one of a Credit system severely impaired, with the ABS, junk, and CDO markets basically closed for business. Now the huge muni and investment-grade bond markets are badly faltering. This week also saw the Swiss franc and the Japanese yen as the best performing currencies, gaining 4.7% and 4.2% respectively. For those borrowing in these low-yielding currencies to finance leveraged speculations in higher-yielding U.S. (and other) securities, there is now also recognition of acute currency risk. The stage is set for a panic out of the crowded leveraged trades."

Warren Buffett: "That party is over,” he wrote in his eagerly awaited annual letter to shareholders. “It is a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise.” He predicted that even with another disaster-free year, the industry's profitability will decline. “If the winds roar or the earth trembles, results could be far worse.” last year Buffett swung more often at derivative pitches that came his way. Buffett said he had accepted $7.7 billion in premiums on 94 derivative contracts by the end of 2007. That's up from 62 contracts at the end of 2006. Berkshire recorded a $6.9 billion liability for derivatives at yearend. Buffett predicted the derivatives will ultimately be profitable, but he warned they may make Berkshire's earnings more volatile in the future.

California lost 20,000 jobs in January.

Iran's Ahmadinejad arrived in Baghdad for the first-ever trip by an Iranian president to Iraq, a country that was once Iran's bitter enemy.

Ed Esterling: "Standard & Poor’s provides periodic updates to historical and estimated future earnings. As of December 31, 2007, the ‘as reported’ EPS estimate for the fourth quarter provided full-year EPS of $76.62. By January 23rd, the estimate for 2007 was $74.15. Then, on January 31st, the estimate was $72.86. Most recently, as of February 13th, it’s down again…to $71.56. Since 2006 EPS was $81.51, any of the EPS values clearly reflect a decline. So give me some news… What about a forecast for 2008? The progression of estimates across the four previous dates: $83.98, $83.70, $67.90, $71.20. WHAT! Are the last two numbers typos? Is the earnings estimate for 2008 almost 20% lower now than it was just about a month ago? Has the forward P/E, which was recently an inviting 16, suddenly become a much richer valuation near 20?"
The recently expected rebound in EPS is now a further decline—a second declining year for earnings after a five-year period of dramatic rise."

Mike Burk: "We will probably see a multi month low in the next few weeks...The NASDAQ composite (OTC) hit a new cycle low last Friday and there were "only" 164 new lows. Unless there is a large build up of new lows in the next few weeks the market should be near its low for this cycle...Another rally stalled last week and seasonally, March during the 4th year of the Presidential Cycle, has a spotty record at best. I expect the major indices to be lower on Friday March 7 than they were on Friday February 29."

"One of the most powerful market forces and the one we pay close attention to is traders' perception," said Adam Hewison, president of INO.com, a technical analysis site. "Traders' perception right now is to be long commodities, short the dollar, and short the equity markets. That's the way we think the markets are going right now."