8/18/07 The Discount Rate Cut
The Fed lowered the rate at the discount window by 50 basis points to 5.75%! According to Action Economics, the reduction was made to narrow the gap with the overnight Fed funds rate, which remains at 5.25%. The discount rate is offered to banks. "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth," the policy-setting Federal Open Market Committee said in a statement.
Borse Dubai has made a $4bn cash bid to buy OMX, clearing the way for a full takeover battle with Nasdaq which has offered $3.7bn for the Nordic stock market company.The battle for control of OMX began on August 9 after Borse Dubai acquired 4.9 per cent of OMX and obtained options from hedge fund investors in OMX to acquire a further 23.5 per cent at SKr230 a share.
Midwest Air Group reached agreement on a deal to be bought by TPG Capital for $450 million, or $17 a share. Northwest Airlines will be a passive investor in Midwest.
Darden Restaurants Inc. agreed to acquire Rare Hospitality International Inc. for $38.15 a share in cash, or roughly $1.4 billion, in a tender offer. The bid represents a 38.7% premium over Rare Hospitality's closing stock price on Thursday. With annual sales of $1 billion, Atlanta-based Rare Hospitality operates and franchises 317 restaurants, including 287 LongHorn Steakhouse restaurants and 28 Capital Grille restaurants. Orlando-based Darden expects to launch the tender offer on Aug. 31 and for the offer to close in October.
Goldman Sachs, in a note published before the half-point cut in the discount rate, said the Fed funds rate could hit 4.5% by year-end, with a cut of at least a quarter-point on or before Sept. 18. "Credit has crunched, and activity will slow. Rate cuts will follow," the Goldman analysts said.
Consumer sentiment weakened in mid-August, the University of Michigan and Reuters reported Friday. The UMich consumer sentiment index fell to 83.3 versus 90.4 in July, well below the reading of 88.0 forecast by analysts surveyed by MarketWatch.
The Fed also injected $6 billion thru a 3 day REPOS.
The benchmark rental rate for shipments to Asia, used to settle freight contracts between owners and oil companies, climbed 1.2 percent to 50.44 Worldscale points yesterday, its biggest one-day gain in six weeks. The rate was previously at its lowest since October 2003.
Gold for December delivery rose $8.80 to close at $666.80 an ounce on the New York Mercantile Exchange.
Mortgage lender NovaStar Financial Inc. said it plans to cut about 500 employees, or 37% of the workforce.
Crude oil for September delivery rose 98 cents to close at $71.98 a barrel on the New York Mercantile Exchange. The contract gained 51 cents on the week. New forecasts said Hurricane Dean will turn into the central Gulf of Mexico and threaten oil and gas installations.
Friday was only the third time that the Dow opened up 300 points or more. After getting to a plus 320 or so, it then drifted down to a plus 80 before closing 233 points higher. The Nasdaq was up about 54 points and the S&P 500 close to 35 points.Despite this impressive action, the VIX was only down a fraction at 30. There are many who believe this volatility will continue at high levels.
The Oil Drum: "The Tennessee Valley Authority shut down one of three units at the Browns Ferry nuclear plant Thursday because water drawn from a river to cool the reactor was too hot, a spokesman said. The nation's largest public utility shut down Unit 2 about 5:42 p.m. CDT because water drawn from the Tennessee River was exceeding a 90-degree average over 24 hours, amid a blistering heat wave across the Southeast. "We don't believe we've ever shut down a nuclear unit because of river temperature," said John Moulton, spokesman for the Knoxville, Tenn.-based utility.
California posted a net loss of jobs in July and the unemployment rate ticked up to 5.3%. The number of jobless Californians looking for work increased 18,000 to 960,000 in July. That was 98,000 more than a year earlier.
Rigzone: "ConocoPhillips is to shut in two of its four Ekofisk fields in the North Sea at the end of September to allow for a planned pipeline tie-in, it said Friday.The company plans to shut in the Eldfisk and Embla fields for approximately 21 days from Sept. 20, the director of communciations for ConocoNorge, Ingvar Solberg said. The estimated production to be shut in is approximately 1.3 million barrels of oil equivalent, Solberg said."
Between The Hedges: " The 50-week moving average of the percentage of bears is currently 36.5%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March 2003-May 2003, both of which were near major stock market bottoms."
According to Bloomberg, asset-backed commercial paper yields soared by the most since the Sept. 11, 2001, terrorist attacks after the Federal Reserve cut its discount rate to try to calm financial markets.Top-rated asset-backed commercial paper maturing Aug. 20 yielded 5.99 percent, up 39 basis points since yesterday and the most since a 45 basis point increase on Sept. 20 in the wake of the terrorist attacks in New York City and Washington.Issuers are offering the highest rates in almost seven years to entice lenders who are trying to avoid taking mortgage- backed securities as collateral to avoid exposure to losses from U.S. subprime mortgage delinquencies.
Friday, August 17, 2007
Thursday, August 16, 2007
The Big Reversal
8/7/07 The Big Reversal
China reduced its holdings of US Treasury securities for a third straight month, by $2.3 billion, to $405.1 billion.
The most recent monetary injections by the Fed lowered, at least on a temporary basis, the Fed funds rate to 4.5%, lower than the 5.25% target rate. Yet, volatility continued on the rise in equities as the VIX found a new high level at 30+. Risk aversion and the significant rise in the yen against the dollar have served to limit the effectiveness of the Fed actions. This should not come as a surprise. The flavor of the week remains short-term treasury bills.
Confidence among U.S. homebuilders fell more than forecast in August to the lowest since 1991, as cancellations and more restrictions on lending took a toll.
Brazil's portfolio of Treasury securities increased $41.5 billion to a record $93.6 billion in the first half of 2007, Treasury data showed.
"The turbulence in subprime mortgages has now spread to the commercial paper market -- a $2.2 trillion market in the USA that is the working capital lifeblood for the corporate sector," David Rosenberg, North American economist at Merrill Lynch, wrote in a note to clients on Wednesday. "This is looking worse than just another credit cycle."
St. Louis Federal Reserve Bank President William Poole said on Wednesday financial market turmoil had not undermined the U.S. economy and there was no need for the central bank to ride to the rescue with an emergency rate cut. "It's premature to say that this upset in the market is changing the course of the economy in any fundamental way," he said in an interview with Bloomberg. "Obviously, there could be an impact, but we have to rely on some real evidence."
Countrywide Financial Corp. drew down an $11.5 billion credit facility to boost its liquidity. Moody's and Fitch both lowered Countrywide's credit rating.
The Japanese yen's gains accelerated on Thursday as New York traders arrived, with the dollar going from above the 115 yen level to as low as 113.55 yen -- the greenback's worst level since August 2006. The dollar traded at 116.26 yen late Wednesday.
On Thursday morning the Fed added $5 billion in a RP operation and maintains its objective at a 5.25 Fed funds target rate although that rate is now 5%. Then the Fed injected another $12 billion a bit later.
U.S. home builders cut back again in July, starting construction on the fewest number of new homes in more than 10 years, the Commerce Department reported Thursday. Housing starts fell 6.1% in July to a seasonally adjusted annual rate of 1.381 million, the lowest since January 1997. The decline was larger than the expected fall to 1.40 million. Authorized building permits dropped 2.8% in July to a seasonally adjusted annual rate of 1.373 million, the lowest since October 1996 and less than the 1.40 million pace expected by economists surveyed by MarketWatch. Housing starts are down 21% in the past year, while permits have fallen 23%.
Initial claims for U.S. state unemployment benefits rose by 6,000 to 322,000 in the week ending Aug. 11, the Labor Department reported Thursday.
Financial markets remain stressed. The question remains how much that stress has spread throughout the economy as it tests the stability of our country's economic infrastructure.
Nouriel Roubini: “Risk is present when future events occur with measurable probability” while “Uncertainty is present when the likelihood of future events is indefinite or incalculable”. This distinction between risk and uncertainty helps to explain the recent market panic and turmoil. Today, the FT cites a market economist at Lehman who said: “We are in a minefield. No one knows where the mines are planted and we are just trying to stumble through it”. A few days ago another market participant put it this way: “It is not the corpses at the surface that are scary; it is the unknown corpses below the surface that may pop up unexpectedly”. Unknown minefield; unexpected corpses: this is “uncertainty” rather than “risk”. Risk can be measured and priced because it depends on know distributions of events to which investors can assign probabilities. Uncertainty cannot be priced by markets because it relates to “fat tail” distributions and extreme events that cannot be easily predicted or measured."
At the opening on Thursday, the Nasdaq had dropped 10% from the recent high.
Margin calls are becoming more frequent and creating heavy liquidation.
Will the Fed lower the rate at the discount window?
As the VIX approached 35, the buying in the yen has accelerated. At the same time, the money center banks found significant strength and profit taking took crude to $71 a barrel and natural gas, with the weather a factor, found some buying at 6.87. Meanwhile, the VIX closed below 31.
The 2-year note ended up 12/32 at 101 with yields at 4.082%.
Gold for December delivery tumbled $21.70, or 3%, to close at $658 an ounce on the New York Mercantile Exchange. Other metals futures also declined sharply, with silver selling off 8%, copper dropping 7% and palladium dropping 6%.
The financials paved the way for a big reversal from the Dow down 343 points to a small loss by the end of the day. The S&P 500 also showed a big reversal and closed with a small gain.
HP sees pro forma eps for the year of $2.86-2.87 with third quarter earnings 5 cents above expectations with margins moving up to 9%
Big fire at the Chevron Mississippi refinery.
The Bank of Canada injected C$370 million ($346 million) into financial markets on Thursday in a bid to lower the overnight interest rate toward the central bank's target and improve liquidity.The bank has been intervening almost every day in the last week through its Special Purchase and Resale Agreements in the wake of troubles in the U.S. subprime mortgage market. On Wednesday it injected C$350 million.
A group of 10 major financial players, including Quebec's giant provincial pension fund, said Thursday that, at a meeting in Montreal, they have reached an agreement to bail out the battered $40-billion market for so-called third-party asset-backed commercial paper (ABCP).
China reduced its holdings of US Treasury securities for a third straight month, by $2.3 billion, to $405.1 billion.
The most recent monetary injections by the Fed lowered, at least on a temporary basis, the Fed funds rate to 4.5%, lower than the 5.25% target rate. Yet, volatility continued on the rise in equities as the VIX found a new high level at 30+. Risk aversion and the significant rise in the yen against the dollar have served to limit the effectiveness of the Fed actions. This should not come as a surprise. The flavor of the week remains short-term treasury bills.
Confidence among U.S. homebuilders fell more than forecast in August to the lowest since 1991, as cancellations and more restrictions on lending took a toll.
Brazil's portfolio of Treasury securities increased $41.5 billion to a record $93.6 billion in the first half of 2007, Treasury data showed.
"The turbulence in subprime mortgages has now spread to the commercial paper market -- a $2.2 trillion market in the USA that is the working capital lifeblood for the corporate sector," David Rosenberg, North American economist at Merrill Lynch, wrote in a note to clients on Wednesday. "This is looking worse than just another credit cycle."
St. Louis Federal Reserve Bank President William Poole said on Wednesday financial market turmoil had not undermined the U.S. economy and there was no need for the central bank to ride to the rescue with an emergency rate cut. "It's premature to say that this upset in the market is changing the course of the economy in any fundamental way," he said in an interview with Bloomberg. "Obviously, there could be an impact, but we have to rely on some real evidence."
Countrywide Financial Corp. drew down an $11.5 billion credit facility to boost its liquidity. Moody's and Fitch both lowered Countrywide's credit rating.
The Japanese yen's gains accelerated on Thursday as New York traders arrived, with the dollar going from above the 115 yen level to as low as 113.55 yen -- the greenback's worst level since August 2006. The dollar traded at 116.26 yen late Wednesday.
On Thursday morning the Fed added $5 billion in a RP operation and maintains its objective at a 5.25 Fed funds target rate although that rate is now 5%. Then the Fed injected another $12 billion a bit later.
U.S. home builders cut back again in July, starting construction on the fewest number of new homes in more than 10 years, the Commerce Department reported Thursday. Housing starts fell 6.1% in July to a seasonally adjusted annual rate of 1.381 million, the lowest since January 1997. The decline was larger than the expected fall to 1.40 million. Authorized building permits dropped 2.8% in July to a seasonally adjusted annual rate of 1.373 million, the lowest since October 1996 and less than the 1.40 million pace expected by economists surveyed by MarketWatch. Housing starts are down 21% in the past year, while permits have fallen 23%.
Initial claims for U.S. state unemployment benefits rose by 6,000 to 322,000 in the week ending Aug. 11, the Labor Department reported Thursday.
Financial markets remain stressed. The question remains how much that stress has spread throughout the economy as it tests the stability of our country's economic infrastructure.
Nouriel Roubini: “Risk is present when future events occur with measurable probability” while “Uncertainty is present when the likelihood of future events is indefinite or incalculable”. This distinction between risk and uncertainty helps to explain the recent market panic and turmoil. Today, the FT cites a market economist at Lehman who said: “We are in a minefield. No one knows where the mines are planted and we are just trying to stumble through it”. A few days ago another market participant put it this way: “It is not the corpses at the surface that are scary; it is the unknown corpses below the surface that may pop up unexpectedly”. Unknown minefield; unexpected corpses: this is “uncertainty” rather than “risk”. Risk can be measured and priced because it depends on know distributions of events to which investors can assign probabilities. Uncertainty cannot be priced by markets because it relates to “fat tail” distributions and extreme events that cannot be easily predicted or measured."
At the opening on Thursday, the Nasdaq had dropped 10% from the recent high.
Margin calls are becoming more frequent and creating heavy liquidation.
Will the Fed lower the rate at the discount window?
As the VIX approached 35, the buying in the yen has accelerated. At the same time, the money center banks found significant strength and profit taking took crude to $71 a barrel and natural gas, with the weather a factor, found some buying at 6.87. Meanwhile, the VIX closed below 31.
The 2-year note ended up 12/32 at 101 with yields at 4.082%.
Gold for December delivery tumbled $21.70, or 3%, to close at $658 an ounce on the New York Mercantile Exchange. Other metals futures also declined sharply, with silver selling off 8%, copper dropping 7% and palladium dropping 6%.
The financials paved the way for a big reversal from the Dow down 343 points to a small loss by the end of the day. The S&P 500 also showed a big reversal and closed with a small gain.
HP sees pro forma eps for the year of $2.86-2.87 with third quarter earnings 5 cents above expectations with margins moving up to 9%
Big fire at the Chevron Mississippi refinery.
The Bank of Canada injected C$370 million ($346 million) into financial markets on Thursday in a bid to lower the overnight interest rate toward the central bank's target and improve liquidity.The bank has been intervening almost every day in the last week through its Special Purchase and Resale Agreements in the wake of troubles in the U.S. subprime mortgage market. On Wednesday it injected C$350 million.
A group of 10 major financial players, including Quebec's giant provincial pension fund, said Thursday that, at a meeting in Montreal, they have reached an agreement to bail out the battered $40-billion market for so-called third-party asset-backed commercial paper (ABCP).
Wednesday, August 15, 2007
The Bell Rings
8/16/07 The Bell Rings
Monthly capital flows to the U.S. including short-term securities fell back in June, to $58.8 billion from a revised $107.3 billion in May, as private investors bought smaller amounts of Treasury bonds, notes and other investments. Net foreign purchases of long-term U.S. securities were $148.6 billion for the month, falling back from$163.7 billion a month earlier. Private investors bought $94.8 billion in long-term securities, down from $152.2 billion worth of those securities in May. Meanwhile, central banks and other official institutions bought more securities in June including $32.5 billion in Treasury bonds and notes.
The benchmark subprime mortgage index linked to home loans made in last year's second half fell to a record low on Wednesday, as nervous investors sold risky bonds and liquidity fears rose, traders said. The ABX 07-1 "BBB-" index fell to a record low 34.66 on Wednesday, versus 36.75 at the prior close and a record low close of 35.14, traders said.
The Treasury will auction and issue about $1 billion in 8-day cash management bills on Wednesday, the department announced. The auction and issuance of the bills was previously unscheduled.
The Labor Department said consumer prices rose 0.1% last month, the slowest inflation rate in eight months. The core rate, which removes volatile food and energy prices, increased 0.2%
The British Bankers' Association said that the overnight sterling LIBOR rate -- the interest rate banks charge each other when lending money -- fell again on Wednesday, suggesting that banks' immediate concerns about short-term volatility in the markets are abating. The sterling rate dropped to 6.01% from 6.12% on Tuesday.
U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added.
WCI Communities expects to record pretax asset impairment charges of $34 million to $54 million for the quarter. In an Aug. 10 filing, WCI said it expected to post a loss of about $16.9 million for the quarter, which included $14 million of pretax impairment charges. The company also said it continues to believe that its cash flow from operating activities and investing activities for 2007 will range from $530 million to $730 million. Additionally, WCI said it's finalizing negotiations with its lenders for an amendment of its bank covenants beginning in the quarter ended June 30.
Real average weekly earnings fell by 0.1 percent from June to July after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3 percent increase in
average hourly earnings was offset by a 0.3 percent decrease in average weekly
hours and a 0.1 percent increase in the Consumer Price Index for Urban Wage
Earners and Clerical Workers.
Crude oil for September delivery rose 95 cents, or 1%, to close at
$73.33 a barrel on the New York Mercantile Exchange. September heating
oil rose 4.44 cents, or 2%, to end at $2.0269 a gallon. September
reformulated gasoline gained 3.50 cents, or 1.8%, at $2.0088 a gallon.
September natural gas, which had rallied earlier in the session, fell
7.60 cents to close at $6.864 per million British thermal units. The
contract hit an intraday high of $7.192.
The S&P 500 is now given up all its gains for 2007. We have now dropped from 14,000
on the Dow to 12,800+.
Countrywide Financial 30-day paper going for 12% as the stock drops to $20.
Amgen Inc. will cut 12% to 14% of its workforce, or 2,200
to 2,600 jobs, as part of a restructuring, and the biotech company cut
its 2007 adjusted earnings forecast to a range of $4.13 to $4.23 a
share from its earlier view of $4.28 a share. Amgen said its lower earnings outlook for
2007 is due to lower Aranesp revenues.
David Walker, GAO head: "time to learn from history and take steps to ensure the American Republic is the first to stand the test of time."
Grimly, in Walker's vision of the country's future a government driven to financial crisis will need to dramatically raise taxes, cut programs, and brace for a currency crash as foreign debt holders dump U.S. bonds and notes.
"I’m trying to sound an alarm and issue a wake-up call." He says the country is not taking the challenges to the long-term sustainability of the nation "seriously enough."
In the report, Walker cites Bush administration policy on energy, education, environment, immigration, and Iraq as leading the country along an "unsustainable path."
"Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call. They need to make fiscal responsibility and inter-generational equity one of their top priorities. If they do, I think we have a chance to turn this around but if they don’t, I think the risk of a serious crisis rises considerably."
Monthly capital flows to the U.S. including short-term securities fell back in June, to $58.8 billion from a revised $107.3 billion in May, as private investors bought smaller amounts of Treasury bonds, notes and other investments. Net foreign purchases of long-term U.S. securities were $148.6 billion for the month, falling back from$163.7 billion a month earlier. Private investors bought $94.8 billion in long-term securities, down from $152.2 billion worth of those securities in May. Meanwhile, central banks and other official institutions bought more securities in June including $32.5 billion in Treasury bonds and notes.
The benchmark subprime mortgage index linked to home loans made in last year's second half fell to a record low on Wednesday, as nervous investors sold risky bonds and liquidity fears rose, traders said. The ABX 07-1 "BBB-" index fell to a record low 34.66 on Wednesday, versus 36.75 at the prior close and a record low close of 35.14, traders said.
The Treasury will auction and issue about $1 billion in 8-day cash management bills on Wednesday, the department announced. The auction and issuance of the bills was previously unscheduled.
The Labor Department said consumer prices rose 0.1% last month, the slowest inflation rate in eight months. The core rate, which removes volatile food and energy prices, increased 0.2%
The British Bankers' Association said that the overnight sterling LIBOR rate -- the interest rate banks charge each other when lending money -- fell again on Wednesday, suggesting that banks' immediate concerns about short-term volatility in the markets are abating. The sterling rate dropped to 6.01% from 6.12% on Tuesday.
U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added.
WCI Communities expects to record pretax asset impairment charges of $34 million to $54 million for the quarter. In an Aug. 10 filing, WCI said it expected to post a loss of about $16.9 million for the quarter, which included $14 million of pretax impairment charges. The company also said it continues to believe that its cash flow from operating activities and investing activities for 2007 will range from $530 million to $730 million. Additionally, WCI said it's finalizing negotiations with its lenders for an amendment of its bank covenants beginning in the quarter ended June 30.
Real average weekly earnings fell by 0.1 percent from June to July after
seasonal adjustment, according to preliminary data released today by the Bureau
of Labor Statistics of the U.S. Department of Labor. A 0.3 percent increase in
average hourly earnings was offset by a 0.3 percent decrease in average weekly
hours and a 0.1 percent increase in the Consumer Price Index for Urban Wage
Earners and Clerical Workers.
Crude oil for September delivery rose 95 cents, or 1%, to close at
$73.33 a barrel on the New York Mercantile Exchange. September heating
oil rose 4.44 cents, or 2%, to end at $2.0269 a gallon. September
reformulated gasoline gained 3.50 cents, or 1.8%, at $2.0088 a gallon.
September natural gas, which had rallied earlier in the session, fell
7.60 cents to close at $6.864 per million British thermal units. The
contract hit an intraday high of $7.192.
The S&P 500 is now given up all its gains for 2007. We have now dropped from 14,000
on the Dow to 12,800+.
Countrywide Financial 30-day paper going for 12% as the stock drops to $20.
Amgen Inc. will cut 12% to 14% of its workforce, or 2,200
to 2,600 jobs, as part of a restructuring, and the biotech company cut
its 2007 adjusted earnings forecast to a range of $4.13 to $4.23 a
share from its earlier view of $4.28 a share. Amgen said its lower earnings outlook for
2007 is due to lower Aranesp revenues.
David Walker, GAO head: "time to learn from history and take steps to ensure the American Republic is the first to stand the test of time."
Grimly, in Walker's vision of the country's future a government driven to financial crisis will need to dramatically raise taxes, cut programs, and brace for a currency crash as foreign debt holders dump U.S. bonds and notes.
"I’m trying to sound an alarm and issue a wake-up call." He says the country is not taking the challenges to the long-term sustainability of the nation "seriously enough."
In the report, Walker cites Bush administration policy on energy, education, environment, immigration, and Iraq as leading the country along an "unsustainable path."
"Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call. They need to make fiscal responsibility and inter-generational equity one of their top priorities. If they do, I think we have a chance to turn this around but if they don’t, I think the risk of a serious crisis rises considerably."
Returning close to normal
8/15/07 Returning Close To Normal?
The European Central Bank made its fourth consecutive unscheduled one-day tender operation, for 7.5 billion euros. The ECB said market conditions were "close to normal." The weekly tender operation was for 310 billion euros.
The euro-zone economy grew at a 2.5% annualized, or 0.3% quarterly, rate during the second quarter, the Eurostat statistics agency.
The July U.K. consumer price index fell 0.6% month-on-month, according to data from the Office of National Statistics. Ecnomists had been expecting CPI to dip by 0.2% in the month. On an annual basis, the CPI showed a rise of 1.9%. It is now below the Bank of England's 2% inflation target. The ONS said that falling food prices was the biggest contributor to the fall in monthly CPI. The retail price index showed that inflation fell to 3.8% in July, down from 4.4% in June.
UBS fell 3% after it said that the current market turbulence could lead to a weak third quarter.
The Bank of Japan Tuesday drained 600 billion yen ($5.08 billion) from the money market to suck out excess liquidity, after injecting 1.6 trillion yen over the previous two days, according to reports. Wire service reports said the move came after the overnight call rate - the interest rate on interbank borrowings - dipped to 0.1% Tuesday, falling well below the BOJ's target of 0.5%.
Wal-Mart Stores Inc.'s Japanese retail unit Seiyu Ltd. said on Tuesday it now expects to post its sixth straight annual loss in 2007 on sluggish sales, but dismissed speculation that the results would prompt Wal-Mart to pull out of Japan.
Wal-Mart's earnings per share from continuing operations were 72 cents per share before a gain of 4 cents. Analysts on average were expecting 76 cents, according to Reuters Estimates. Chief Executive Lee Scott blamed the disappointing performance on economic pressure around the world. "It is no secret that many customers are running out of money toward the end of the month," Scott said on a recorded conference call, citing consumer pressures ranging from high gas prices to the U.S. housing slump. For its third-quarter, Wal-Mart forecast earnings per share of 62 cents to 65 cents from continuing operations, while analysts on average were expecting 68 cents. For the fiscal third quarter, Wal-Mart estimates U.S. same-store sales to rise 1% to 3%. For the full year, the company said it expected earnings of $3.05 to $3.13 per share from continuing operations, down from an earlier view of $3.15 to $3.23. Analysts were expecting $3.16.
Home Depot Inc. reported a 15 percent fall in second-period profit on Tuesday as sales fell short of expectations amid the softer U.S. housing market. The company still expects per-share profit to decline as much as 18 percent this year and reiterated that it was in talks that could lower the price or possibly derail the sale of its HD Supply wholesale business. Earnings fell to $1.59 billion, or 81 cents a share, in the second quarter ended on July 29, from $1.86 billion, or 90 cents a share, a year earlier. Excluding discontinued operations, earnings for the latest period were 77 cents a share, better than the 72 cents expected by analysts, according to Reuters Estimates. Sales fell 1.8 percent to $22.18 billion, below the $22.3 billion analysts expected. Sales at stores open at least a year fell 5.2 percent. The average purchase fell 2.8 percent to $58.30.
Countrywide Financial said Tuesday that its total July mortgage fundings rose 6% from year-ago levels, to $39 billion, but they fell 14% from June 2007 levels. "Mortgage funding volume declined 14% on a sequential month basis, which reflects our tighter lending guidelines that have significantly curtailed total production," Countrywide president and CFO David Sambol said in a press release.
The British Bankers' Association said Tuesday that the overnight sterling LIBOR rate -- the interest rate banks charge each other when lending money -- fell to 6.12% from 6.5% on Monday. The fall "suggests banks' worst fears about credit markets are receding, at least for now," the industry association said in a statement. "Today's change does not mean a return to normality by any means," the BBA said. "But it does mean banks are lending with more confidence than they have been in recent days."
VMware, a subsidiary of computer storage and software company EMC , is selling 33 million shares in an IPO on the New York Stock Exchange. VMware said late on Aug. 13 that shares will go for $29 apiece, at the high end of the company's forecast range. The stock opened at $50. Intel on July 9 invested $218.5 million for a 2.5% stake in VMware, and will add an executive to VMware's board. On July 27, Cisco Systems said it's paying $150 million for 1.6% of the software maker. VMware technology helps IT departments make more economical use of servers, the powerful computers that run Web sites and corporate data networks.
Paul Kasriel: "From 1929 through 2006, there were only 13 years in which households incurred deficits – i.e., spent more in total than they earned after taxes. Two of these household-deficit years occurred during the Great Depression of the 1930s, three occurred shortly after the end of World War II and one occurred in 1955. The remaining seven household-deficit years occurred in 1999 and 2001 through 2006. Three things to note: (1) that households have run deficits in six out of the past seven years is unprecedented; (2) the magnitude of the 2004, 2005 and 2006 household deficits are unprecedented, and; (3) the household deficits starting in 1999 occurred in a period when asset prices showed extraordinary increases."
Addison Wiggin: "Milk was, once again, more expensive than ever last month. The average American paid $3.80 per gallon, up 50 cents from January, said the USDA's latest report. The government agency predicts a 46% increase in international prices during roughly the same period. The USDA also estimates China's dairy consumption will increase at least 15-20% annually in the next few years."
Led by a 2.5% increase in energy prices, wholesale prices increased a larger-than-expected 0.6% in July, the Labor Department reported Tuesday. Wholesale food prices fell 0.1%, the third straight decline after hefty increases at the beginning of the year. Excluding food and energy prices, the core producer price index increased 0.1%, as expected. Producer prices are up 4% in the past year, while core prices are up 2.3%, the biggest gain in nearly two years.
The U.S. trade deficit narrowed unexpectedly by 1.7% in June to $58.1 billion, the Commerce Department said Tuesday. Exports rose faster than imports in June. The U.S. trade deficit with China widened to $21.2 billion in compared with $19.6 billion in the same month last year.
Sanford Bernstein says Citi could have $3 bln credit losses.
The Oil Drum: "1) Crude oil - Production of crude oil decreased by 503,000 b/d from April to May. Total production in May was estimated at 73.06 million b/d by the Energy Information Administration (EIA), which is 1.21 million b/d lower than all time high crude oil production of 74.27 million b/d reached in May 2005.
2) Total Liquids- Production of all Liquid fuels decreased by 550,000 barrels per day from May to June, according to the latest figures of the International Energy Agency (IEA). Resulting in total world liquids production of 84.28 million b/d, which is 564,000 b/d lower year on year from June 2006 to June 2007 and 1.85 million b/d lower than all time maximum liquids production of 86.13 million b/d reached in July 2006.
3) OPEC - Total crude oil production of the OPEC cartel decreased by 50,000 b/d to a level of 30.16 million b/d from May to June, according to the latest estimates of the IEA. Preliminary figures from the EIA show an increase of 370,000 b/d from June to July resulting in OPEC crude production of 30.37 million b/d.
4) Non-OPEC - Total liquids production of non-OPEC decreased by 460,000 b/d from May to June, according to the latest figures of the IEA. Production has dropped from 50.57 million b/d in February to 49.31 million b/d in June. The overall production decrease in June resulted mainly from declining production in Canada (130,000 b/d), the United Kingdom (140,000 b/d) and Norway (370,000 b/d). Mexican production increased with 30,000 b/d in June.
In a University of Michigan customer satisfaction survey scheduled for release Tuesday, consumers gave Google a score of 78 out of a possible 100 points, down three points from last year. It was the first time Google slipped below 80 points since 2002, when the company was added to the survey. Meanwhile, Yahoo gained three points to 79 to secure the top spot.
The Federal Reserve didn't inject any liquidity into the financial system during its normal 9:30 a.m. open market operation, the New York Federal Reserve said Tuesday. It was the first workday since May 11 that the Fed didn't conduct any temporary repurchases of Treasurys from banks, although the Fed said it stood ready to lend money later in the day if needed.
Gold for December delivery ended down $1.20 at $679.70 an ounce on the New York Mercantile Exchange.
According to Reuters, Sam Zell remains committed to taking Tribune Co. private, a source close to the transaction said on Tuesday, as shares of the U.S. newspaper publisher and broadcaster fell because of concerns that the deal might not go through. Zell's perspective on Tribune "as an investment and as a company has not changed," said the source, who requested anonymity because the source was not authorized to speak for Zell.
Crude oil inventories fell by 2.5 million barrels to 333.90 million barrels in the week ending August 10, the American Petroleum Institute reported Wednesday. Gasoline supplies fell by 800,000 barrels to 202.3 million barrels in the latest week, while distillate stocks declined 200,000 barrels to 128 million barrels, API said. In a separate report, the Energy Department said that crude oil supplies fell 5.2 million barrels to 335.2 million barrels in the latest week. Gasoline stocks declined 1.1 million barrels to 201.9 million barrels, while distillate stocks rose by 200,000 barrels to 127.7 million barrels, the Energy Department said. Refineries operated at 91.8% of their operable capacity last week, the government said.
The European Central Bank made its fourth consecutive unscheduled one-day tender operation, for 7.5 billion euros. The ECB said market conditions were "close to normal." The weekly tender operation was for 310 billion euros.
The euro-zone economy grew at a 2.5% annualized, or 0.3% quarterly, rate during the second quarter, the Eurostat statistics agency.
The July U.K. consumer price index fell 0.6% month-on-month, according to data from the Office of National Statistics. Ecnomists had been expecting CPI to dip by 0.2% in the month. On an annual basis, the CPI showed a rise of 1.9%. It is now below the Bank of England's 2% inflation target. The ONS said that falling food prices was the biggest contributor to the fall in monthly CPI. The retail price index showed that inflation fell to 3.8% in July, down from 4.4% in June.
UBS fell 3% after it said that the current market turbulence could lead to a weak third quarter.
The Bank of Japan Tuesday drained 600 billion yen ($5.08 billion) from the money market to suck out excess liquidity, after injecting 1.6 trillion yen over the previous two days, according to reports. Wire service reports said the move came after the overnight call rate - the interest rate on interbank borrowings - dipped to 0.1% Tuesday, falling well below the BOJ's target of 0.5%.
Wal-Mart Stores Inc.'s Japanese retail unit Seiyu Ltd. said on Tuesday it now expects to post its sixth straight annual loss in 2007 on sluggish sales, but dismissed speculation that the results would prompt Wal-Mart to pull out of Japan.
Wal-Mart's earnings per share from continuing operations were 72 cents per share before a gain of 4 cents. Analysts on average were expecting 76 cents, according to Reuters Estimates. Chief Executive Lee Scott blamed the disappointing performance on economic pressure around the world. "It is no secret that many customers are running out of money toward the end of the month," Scott said on a recorded conference call, citing consumer pressures ranging from high gas prices to the U.S. housing slump. For its third-quarter, Wal-Mart forecast earnings per share of 62 cents to 65 cents from continuing operations, while analysts on average were expecting 68 cents. For the fiscal third quarter, Wal-Mart estimates U.S. same-store sales to rise 1% to 3%. For the full year, the company said it expected earnings of $3.05 to $3.13 per share from continuing operations, down from an earlier view of $3.15 to $3.23. Analysts were expecting $3.16.
Home Depot Inc. reported a 15 percent fall in second-period profit on Tuesday as sales fell short of expectations amid the softer U.S. housing market. The company still expects per-share profit to decline as much as 18 percent this year and reiterated that it was in talks that could lower the price or possibly derail the sale of its HD Supply wholesale business. Earnings fell to $1.59 billion, or 81 cents a share, in the second quarter ended on July 29, from $1.86 billion, or 90 cents a share, a year earlier. Excluding discontinued operations, earnings for the latest period were 77 cents a share, better than the 72 cents expected by analysts, according to Reuters Estimates. Sales fell 1.8 percent to $22.18 billion, below the $22.3 billion analysts expected. Sales at stores open at least a year fell 5.2 percent. The average purchase fell 2.8 percent to $58.30.
Countrywide Financial said Tuesday that its total July mortgage fundings rose 6% from year-ago levels, to $39 billion, but they fell 14% from June 2007 levels. "Mortgage funding volume declined 14% on a sequential month basis, which reflects our tighter lending guidelines that have significantly curtailed total production," Countrywide president and CFO David Sambol said in a press release.
The British Bankers' Association said Tuesday that the overnight sterling LIBOR rate -- the interest rate banks charge each other when lending money -- fell to 6.12% from 6.5% on Monday. The fall "suggests banks' worst fears about credit markets are receding, at least for now," the industry association said in a statement. "Today's change does not mean a return to normality by any means," the BBA said. "But it does mean banks are lending with more confidence than they have been in recent days."
VMware, a subsidiary of computer storage and software company EMC , is selling 33 million shares in an IPO on the New York Stock Exchange. VMware said late on Aug. 13 that shares will go for $29 apiece, at the high end of the company's forecast range. The stock opened at $50. Intel on July 9 invested $218.5 million for a 2.5% stake in VMware, and will add an executive to VMware's board. On July 27, Cisco Systems said it's paying $150 million for 1.6% of the software maker. VMware technology helps IT departments make more economical use of servers, the powerful computers that run Web sites and corporate data networks.
Paul Kasriel: "From 1929 through 2006, there were only 13 years in which households incurred deficits – i.e., spent more in total than they earned after taxes. Two of these household-deficit years occurred during the Great Depression of the 1930s, three occurred shortly after the end of World War II and one occurred in 1955. The remaining seven household-deficit years occurred in 1999 and 2001 through 2006. Three things to note: (1) that households have run deficits in six out of the past seven years is unprecedented; (2) the magnitude of the 2004, 2005 and 2006 household deficits are unprecedented, and; (3) the household deficits starting in 1999 occurred in a period when asset prices showed extraordinary increases."
Addison Wiggin: "Milk was, once again, more expensive than ever last month. The average American paid $3.80 per gallon, up 50 cents from January, said the USDA's latest report. The government agency predicts a 46% increase in international prices during roughly the same period. The USDA also estimates China's dairy consumption will increase at least 15-20% annually in the next few years."
Led by a 2.5% increase in energy prices, wholesale prices increased a larger-than-expected 0.6% in July, the Labor Department reported Tuesday. Wholesale food prices fell 0.1%, the third straight decline after hefty increases at the beginning of the year. Excluding food and energy prices, the core producer price index increased 0.1%, as expected. Producer prices are up 4% in the past year, while core prices are up 2.3%, the biggest gain in nearly two years.
The U.S. trade deficit narrowed unexpectedly by 1.7% in June to $58.1 billion, the Commerce Department said Tuesday. Exports rose faster than imports in June. The U.S. trade deficit with China widened to $21.2 billion in compared with $19.6 billion in the same month last year.
Sanford Bernstein says Citi could have $3 bln credit losses.
The Oil Drum: "1) Crude oil - Production of crude oil decreased by 503,000 b/d from April to May. Total production in May was estimated at 73.06 million b/d by the Energy Information Administration (EIA), which is 1.21 million b/d lower than all time high crude oil production of 74.27 million b/d reached in May 2005.
2) Total Liquids- Production of all Liquid fuels decreased by 550,000 barrels per day from May to June, according to the latest figures of the International Energy Agency (IEA). Resulting in total world liquids production of 84.28 million b/d, which is 564,000 b/d lower year on year from June 2006 to June 2007 and 1.85 million b/d lower than all time maximum liquids production of 86.13 million b/d reached in July 2006.
3) OPEC - Total crude oil production of the OPEC cartel decreased by 50,000 b/d to a level of 30.16 million b/d from May to June, according to the latest estimates of the IEA. Preliminary figures from the EIA show an increase of 370,000 b/d from June to July resulting in OPEC crude production of 30.37 million b/d.
4) Non-OPEC - Total liquids production of non-OPEC decreased by 460,000 b/d from May to June, according to the latest figures of the IEA. Production has dropped from 50.57 million b/d in February to 49.31 million b/d in June. The overall production decrease in June resulted mainly from declining production in Canada (130,000 b/d), the United Kingdom (140,000 b/d) and Norway (370,000 b/d). Mexican production increased with 30,000 b/d in June.
In a University of Michigan customer satisfaction survey scheduled for release Tuesday, consumers gave Google a score of 78 out of a possible 100 points, down three points from last year. It was the first time Google slipped below 80 points since 2002, when the company was added to the survey. Meanwhile, Yahoo gained three points to 79 to secure the top spot.
The Federal Reserve didn't inject any liquidity into the financial system during its normal 9:30 a.m. open market operation, the New York Federal Reserve said Tuesday. It was the first workday since May 11 that the Fed didn't conduct any temporary repurchases of Treasurys from banks, although the Fed said it stood ready to lend money later in the day if needed.
Gold for December delivery ended down $1.20 at $679.70 an ounce on the New York Mercantile Exchange.
According to Reuters, Sam Zell remains committed to taking Tribune Co. private, a source close to the transaction said on Tuesday, as shares of the U.S. newspaper publisher and broadcaster fell because of concerns that the deal might not go through. Zell's perspective on Tribune "as an investment and as a company has not changed," said the source, who requested anonymity because the source was not authorized to speak for Zell.
Crude oil inventories fell by 2.5 million barrels to 333.90 million barrels in the week ending August 10, the American Petroleum Institute reported Wednesday. Gasoline supplies fell by 800,000 barrels to 202.3 million barrels in the latest week, while distillate stocks declined 200,000 barrels to 128 million barrels, API said. In a separate report, the Energy Department said that crude oil supplies fell 5.2 million barrels to 335.2 million barrels in the latest week. Gasoline stocks declined 1.1 million barrels to 201.9 million barrels, while distillate stocks rose by 200,000 barrels to 127.7 million barrels, the Energy Department said. Refineries operated at 91.8% of their operable capacity last week, the government said.
Monday, August 13, 2007
Some Surprises And Some Expected
8/14/07 Some Surprises And Some Expected
Karl Rove plans to leave the White House at the end of August.
Sunni politicians maintained a hard line Monday after Iraqi Prime Minister Nouri al-Maliki invited key Sunni and Kurdish allies to a crisis conference in a desperate bid to reach a compromise among Iraq's divided factions.
Goldman Sachs Group on Monday said a group of investors that includes Eli Broad and Hank Greenberg will sink $3 billion into one of its biggest hedge funds that has seen its value plunge amid market volatility.
The European Central Bank injected an additional $65.3 billion into the banking system on Monday to soothe rattled credit markets, while insisting that market conditions are "normalizing."
The Bank of Japan said it had injected 600 billion yen (5.0 billion dollars) into the money market to avert liquidity shortages as a result of problems in the US subprime mortgages sector for risky borrowers. The BoJ had already pumped one trillion yen into the financial system on Friday.
The New York Federal Reserve injected just $2 billion in liquidity into the market on Monday, well below the $52 billion requested by banks and other institutions, according to a posting on the New York Fed's website. The $2 billion was injected in the form of overnight repurchase agreements and purchases of Treasuries and agency debt.
The Bank of Canada added C$670 million, or $638 million in U.S. dollars, down from C$1.685 billion on Friday.
Blackstone Group said second-quarter net income surged to $774.4 million from $224.1 million in the second quarter of 2006.
Several leading natural gas companies will gather in Denver this week at a natural gas and climate change conference beginning Monday.
Among the companies presenting on topics including climate change and pipeline transportation are: Questar Corp., Halliburton Co., Anadarko Petroleum Corp., Whiting Petroleum Corp., EnCana Corp. and BJ Services Co. Goldman Sachs analyst Brian Singer recently upgraded the exploration and production sector to "Attractive" from "Neutral." Singer expects exploration and production stocks to bottom by the end of September, if they haven't already.
"We believe risk to our already bullish views on crude prices and refining margins is skewed to the upside which gives us greater confidence in our above-consensus natural gas view for 2008 and 2009," Singer wrote in a client note.
China's National Bureau of Statistics on Monday said its consumer price index jumped by 5.6% in July from the same month last year, the highest rate of increase since 1997. Food prices were the main culprit, led by a 45% rise in some meat prices.
Brad Setser: "The release of China’s July trade data was overshadowed by far more dramatic developments in the markets. What is a $24.4b surplus accumulated over a month compared to the decision of the world’s central banks to inject over $200b into the world’s banking system over two days? But China’s July surplus is still remarkable. Some had expected that the end of certain export rebates would have pulled some July exports forward, increasing the June surplus and cutting the July surplus. But that didn’t seem to happen. Others expected that concerns about the safety of Chinese products would cut into China’s export growth. That too didn’t happen."
Sears Holdings Corp. said Monday its second-quarter profit may decline more than it previously forecast, hurt by weakness at both its Kmart and Sears chains and increased discounts for apparel.
The company also said it will repurchase as much as $1.5 billion in additional shares. The company had $19 million remaining for repurchase under an existing plan.
John Hussman: " Contrary to the apparent belief of investors, the Fed did not shift its policy, nor did it “bail out” the mortgage-backed securities market by “buying” them from banks. What actually happened is that the Federal Funds rate shot to about 6% on Friday morning, and the FOMC brought it down to its target rate by entering into 3-day repurchase agreements . The banks sold securities to the Fed on Friday, and are obligated to buy them back from the Fed on Monday at the sale price, plus interest. Such open market operations are designed to ease the immediate demand for liquidity, and to give the banks and dealers more time to find buyers in the open market for the securities they are trying to liquidate...Now, the size of the operation ($38 billion) was unusual, as was the scale with which the Fed allowed dealers to submit mortgage-backed securities as collateral, rather than simply Treasury and agency securities. My impression is that in doing so, the Fed had no intent of “bailing out” the mortgage backed market, or of creating a huge “moral hazard” by absorbing losses for the irresponsible behavior of lenders. Rather, the Fed had to allow submission of mortgage-backed securities because that's what the banks actually own, and it's precisely the collateral for which the banks can't find a buyer...Given that about $1.4 trillion of interest-only adjustable-rate mortgages were issued in 2005 and 2006, and hundreds of billions in sub-prime mortgages are already delinquent, a $38 billion repurchase operation by the Fed, where the securities posted as collateral have to be bought back by the banks unless the banks default, is hardly a “rescue operation.”
Excluding autos and gas, retail sales rose 0.6% in July after remaining unchanged in the previous month. Excluding autos, sales rose 0.4% in July after a 0.2% fall in June. The increase was in line with expectations. Excluding gasoline, sales increased 0.4% in July after falling 0.7% in the previous month.
Homebuilder Hovnanian Enterprises delivered 3,179 new homes in the third quarter, down 31% from a year earlier. Net contracts decreased 24% to 2,539, excluding 255 net contracts for unconsolidated joint ventures. Contract backlog as of July 31 stood at 7,126 homes, down 31% from the year-ago period. As a result of the continued deterioration in demand and pricing in certain communities since the end of the second quarter, the company said it expects to take pre-tax charges of $90 million to $110 million related to land impairment and write-offs of development costs and land deposits in the third quarter.
Japan's economy expanded 0.1% during the April-June period over the previous quarter after adjusting for inflation, according to official data released Monday. The growth is Japan's slowest in three quarters, and increases chances that its central bank may hold short-term interest rates unchanged after a two-day meeting next week, according to reports.
Amgen filed a 10-Q report with the Securities and Exchange Commission stating it was exploring cost-cutting measures in order to offset the impact of weaker sales of its top-selling anemia drugs.
Crude oil for September delivery rose 15 cents to close at $71.62 a barrel on the New York Mercantile Exchange, after earlier hitting an intraday high of $73.19. Natural gas dipped 3 cents to $6.79.
Gold for December delivery closed down 70 cents at $680.90 an ounce on the New York Mercantile Exchange. The Dollar Index, which tracks the greenback against a basket of the world's major currencies, rose 0.4% at 81.035.
Karl Rove plans to leave the White House at the end of August.
Sunni politicians maintained a hard line Monday after Iraqi Prime Minister Nouri al-Maliki invited key Sunni and Kurdish allies to a crisis conference in a desperate bid to reach a compromise among Iraq's divided factions.
Goldman Sachs Group on Monday said a group of investors that includes Eli Broad and Hank Greenberg will sink $3 billion into one of its biggest hedge funds that has seen its value plunge amid market volatility.
The European Central Bank injected an additional $65.3 billion into the banking system on Monday to soothe rattled credit markets, while insisting that market conditions are "normalizing."
The Bank of Japan said it had injected 600 billion yen (5.0 billion dollars) into the money market to avert liquidity shortages as a result of problems in the US subprime mortgages sector for risky borrowers. The BoJ had already pumped one trillion yen into the financial system on Friday.
The New York Federal Reserve injected just $2 billion in liquidity into the market on Monday, well below the $52 billion requested by banks and other institutions, according to a posting on the New York Fed's website. The $2 billion was injected in the form of overnight repurchase agreements and purchases of Treasuries and agency debt.
The Bank of Canada added C$670 million, or $638 million in U.S. dollars, down from C$1.685 billion on Friday.
Blackstone Group said second-quarter net income surged to $774.4 million from $224.1 million in the second quarter of 2006.
Several leading natural gas companies will gather in Denver this week at a natural gas and climate change conference beginning Monday.
Among the companies presenting on topics including climate change and pipeline transportation are: Questar Corp., Halliburton Co., Anadarko Petroleum Corp., Whiting Petroleum Corp., EnCana Corp. and BJ Services Co. Goldman Sachs analyst Brian Singer recently upgraded the exploration and production sector to "Attractive" from "Neutral." Singer expects exploration and production stocks to bottom by the end of September, if they haven't already.
"We believe risk to our already bullish views on crude prices and refining margins is skewed to the upside which gives us greater confidence in our above-consensus natural gas view for 2008 and 2009," Singer wrote in a client note.
China's National Bureau of Statistics on Monday said its consumer price index jumped by 5.6% in July from the same month last year, the highest rate of increase since 1997. Food prices were the main culprit, led by a 45% rise in some meat prices.
Brad Setser: "The release of China’s July trade data was overshadowed by far more dramatic developments in the markets. What is a $24.4b surplus accumulated over a month compared to the decision of the world’s central banks to inject over $200b into the world’s banking system over two days? But China’s July surplus is still remarkable. Some had expected that the end of certain export rebates would have pulled some July exports forward, increasing the June surplus and cutting the July surplus. But that didn’t seem to happen. Others expected that concerns about the safety of Chinese products would cut into China’s export growth. That too didn’t happen."
Sears Holdings Corp. said Monday its second-quarter profit may decline more than it previously forecast, hurt by weakness at both its Kmart and Sears chains and increased discounts for apparel.
The company also said it will repurchase as much as $1.5 billion in additional shares. The company had $19 million remaining for repurchase under an existing plan.
John Hussman: " Contrary to the apparent belief of investors, the Fed did not shift its policy, nor did it “bail out” the mortgage-backed securities market by “buying” them from banks. What actually happened is that the Federal Funds rate shot to about 6% on Friday morning, and the FOMC brought it down to its target rate by entering into 3-day repurchase agreements . The banks sold securities to the Fed on Friday, and are obligated to buy them back from the Fed on Monday at the sale price, plus interest. Such open market operations are designed to ease the immediate demand for liquidity, and to give the banks and dealers more time to find buyers in the open market for the securities they are trying to liquidate...Now, the size of the operation ($38 billion) was unusual, as was the scale with which the Fed allowed dealers to submit mortgage-backed securities as collateral, rather than simply Treasury and agency securities. My impression is that in doing so, the Fed had no intent of “bailing out” the mortgage backed market, or of creating a huge “moral hazard” by absorbing losses for the irresponsible behavior of lenders. Rather, the Fed had to allow submission of mortgage-backed securities because that's what the banks actually own, and it's precisely the collateral for which the banks can't find a buyer...Given that about $1.4 trillion of interest-only adjustable-rate mortgages were issued in 2005 and 2006, and hundreds of billions in sub-prime mortgages are already delinquent, a $38 billion repurchase operation by the Fed, where the securities posted as collateral have to be bought back by the banks unless the banks default, is hardly a “rescue operation.”
Excluding autos and gas, retail sales rose 0.6% in July after remaining unchanged in the previous month. Excluding autos, sales rose 0.4% in July after a 0.2% fall in June. The increase was in line with expectations. Excluding gasoline, sales increased 0.4% in July after falling 0.7% in the previous month.
Homebuilder Hovnanian Enterprises delivered 3,179 new homes in the third quarter, down 31% from a year earlier. Net contracts decreased 24% to 2,539, excluding 255 net contracts for unconsolidated joint ventures. Contract backlog as of July 31 stood at 7,126 homes, down 31% from the year-ago period. As a result of the continued deterioration in demand and pricing in certain communities since the end of the second quarter, the company said it expects to take pre-tax charges of $90 million to $110 million related to land impairment and write-offs of development costs and land deposits in the third quarter.
Japan's economy expanded 0.1% during the April-June period over the previous quarter after adjusting for inflation, according to official data released Monday. The growth is Japan's slowest in three quarters, and increases chances that its central bank may hold short-term interest rates unchanged after a two-day meeting next week, according to reports.
Amgen filed a 10-Q report with the Securities and Exchange Commission stating it was exploring cost-cutting measures in order to offset the impact of weaker sales of its top-selling anemia drugs.
Crude oil for September delivery rose 15 cents to close at $71.62 a barrel on the New York Mercantile Exchange, after earlier hitting an intraday high of $73.19. Natural gas dipped 3 cents to $6.79.
Gold for December delivery closed down 70 cents at $680.90 an ounce on the New York Mercantile Exchange. The Dollar Index, which tracks the greenback against a basket of the world's major currencies, rose 0.4% at 81.035.
Sunday, August 12, 2007
This Week
8/13/07 This Week
Robin Williams: "Politicians are like diapers. They need to be changed often and for the same reason."
Five American soldiers were killed south of Baghdad, including four in a single roadside bombing, the military said Sunday. The deaths announced Sunday raised to at least 3,690 members of the U.S. military have died since the Iraq war started in March 2003, according to an Associated Press count.
LA Times: ""We're going to have a bear market in housing for a while," said Christopher Cagan, director of research for First American CoreLogic in Santa Ana. "It's going to be bad to be a seller or someone forced to refinance in the impact zone." Lenders' inventories in the counties of Los Angeles, Riverside and San Bernardino grew by 5,829 during the second quarter, according to data compiled for The Times by First American, a real estate tracking firm.
Cagan said Southern California's hardest-hit areas -- the impact zone -- will be the Inland Empire, the high desert and the northern reaches of L.A. County. These are where foreclosures are the greatest and, as a result, the market is weakest."
"U.S. dollar assets, including American government bonds, are an important component of China's foreign exchange reserves as the dollar enjoys a major position in the international monetary system based on the large capacity and high liquidity of U.S. financial markets," Xinhua quoted the official as saying.
Mike Burk: "Volatility is relatively high and both upside and downside volume are at or near all time highs. The last time we had similar conditions was in early 2001 and we had a bear market rally that lasted about a month. The market is beginning a rally which should last about a month. I expect the major indices to be higher on Friday August 17 than they were on Friday August 10."
Matt McCracken: "The next market cycle is shaping up to be an Inflationary Bear Market (IBM) that will provide a once-in-a-lifetime profit opportunity for those who know how to invest in this type of market environment. Unfortunately, the ensuing IBM will lead to significant losses for the majority of individuals who have implemented a traditional asset allocation of stocks, bonds and REITs."
A spokesman of the Shiite cleric Moqtada al-Sadr in Iraq's holy city of Najaf dismissed the US military claims on his presence in Iran. Col. John Castles, commander of the 82 Airborne Division's 2nd Brigade Combat Team, said on Friday that al-Sadr had returned to Iran, where he had spent several months earlier this year.Al-Sadr's office said he was still in Iraq. The spokesman in al-Sadr's headquarters in Najaf, south of Baghdad, called the US assertion a "baseless rumor."
China's oil imports to fuel its booming economy jumped to a new monthly high in July, rising 39 percent over the same month a year ago, according to data released Friday. China imported 103.8 million barrels of oil in July, or an average of about 3.4 million barrels a day, according to the General Administration of Customs.
The Egyptian Prime Minister announced that India's largest private sector company, Reliance Industries, is planning to invest $10 billion in Egypt to produce petrochemicals and oil products for the growing markets of Europe and United States, Bahrain Tribune reported.
The Iraqi Oil Minister said that several Russian companies have recently shown their eagerness to take part in the overall development of oil fields throughout the south of Iraq, IDP reported. He further added that since the fall of Iraq's former regime, the Russian government has been attempting to renegotiate the $4 billion deal signed by LUKOIL in West Qurna. It is of significance that the Iraqi government will deal with the Russian companies in accordance with Iraq's new oil law and ways that best serve the Iraqi economy.
Robin Williams: "Politicians are like diapers. They need to be changed often and for the same reason."
Five American soldiers were killed south of Baghdad, including four in a single roadside bombing, the military said Sunday. The deaths announced Sunday raised to at least 3,690 members of the U.S. military have died since the Iraq war started in March 2003, according to an Associated Press count.
LA Times: ""We're going to have a bear market in housing for a while," said Christopher Cagan, director of research for First American CoreLogic in Santa Ana. "It's going to be bad to be a seller or someone forced to refinance in the impact zone." Lenders' inventories in the counties of Los Angeles, Riverside and San Bernardino grew by 5,829 during the second quarter, according to data compiled for The Times by First American, a real estate tracking firm.
Cagan said Southern California's hardest-hit areas -- the impact zone -- will be the Inland Empire, the high desert and the northern reaches of L.A. County. These are where foreclosures are the greatest and, as a result, the market is weakest."
"U.S. dollar assets, including American government bonds, are an important component of China's foreign exchange reserves as the dollar enjoys a major position in the international monetary system based on the large capacity and high liquidity of U.S. financial markets," Xinhua quoted the official as saying.
Mike Burk: "Volatility is relatively high and both upside and downside volume are at or near all time highs. The last time we had similar conditions was in early 2001 and we had a bear market rally that lasted about a month. The market is beginning a rally which should last about a month. I expect the major indices to be higher on Friday August 17 than they were on Friday August 10."
Matt McCracken: "The next market cycle is shaping up to be an Inflationary Bear Market (IBM) that will provide a once-in-a-lifetime profit opportunity for those who know how to invest in this type of market environment. Unfortunately, the ensuing IBM will lead to significant losses for the majority of individuals who have implemented a traditional asset allocation of stocks, bonds and REITs."
A spokesman of the Shiite cleric Moqtada al-Sadr in Iraq's holy city of Najaf dismissed the US military claims on his presence in Iran. Col. John Castles, commander of the 82 Airborne Division's 2nd Brigade Combat Team, said on Friday that al-Sadr had returned to Iran, where he had spent several months earlier this year.Al-Sadr's office said he was still in Iraq. The spokesman in al-Sadr's headquarters in Najaf, south of Baghdad, called the US assertion a "baseless rumor."
China's oil imports to fuel its booming economy jumped to a new monthly high in July, rising 39 percent over the same month a year ago, according to data released Friday. China imported 103.8 million barrels of oil in July, or an average of about 3.4 million barrels a day, according to the General Administration of Customs.
The Egyptian Prime Minister announced that India's largest private sector company, Reliance Industries, is planning to invest $10 billion in Egypt to produce petrochemicals and oil products for the growing markets of Europe and United States, Bahrain Tribune reported.
The Iraqi Oil Minister said that several Russian companies have recently shown their eagerness to take part in the overall development of oil fields throughout the south of Iraq, IDP reported. He further added that since the fall of Iraq's former regime, the Russian government has been attempting to renegotiate the $4 billion deal signed by LUKOIL in West Qurna. It is of significance that the Iraqi government will deal with the Russian companies in accordance with Iraq's new oil law and ways that best serve the Iraqi economy.
Saturday, August 11, 2007
Commercial Paper
8/12/07 Commercial Paper
WCI Communities release: "We anticipate reporting total revenues of approximately $241.8 million and a net loss of approximately $16.9 million for the three months ended June 30, 2007 as compared to total revenues of $527.7 million and net income of $22.7 million for the three months ended June 30, 2006. The decreases are a result of the continuing softening in demand for new homes in our markets, as well as recognition of real estate impairment losses. We have not completed our analysis related to real estate impairments; therefore, our actual results of operations could materially differ from our anticipated results. (Quarterly revenue consensus is $244.05 million)."
According to the WSJ, Beazer is delaying its quarterly filing, citing possible problems with how its former accounting chief recorded liabilities.
Goldman Sachs' largest hedge fund is Global Alpha. It is down 26% this year.
On Tuesday, Tribune shareholders vote on the proposed $34 a share going private transaction.
Randall Forsyth of Barron's: "Now, so-called asset-backed commercial paper is backed by all matter of things, from credit cards and auto loans to collateralized debt obligations, and comprises over half the CP outstanding. Moreover, notes MacroMavens' Stephanie Pomboy, money-market funds own 27% of CP outstanding...A Fed rate cut that sends the dollar tumbling could have a perverse effect...If there is an exodus of foreign capital fleeing the a declining dollar, credit could tighten even as the Fed eases. Be careful of what you wish for."
The Financial Times: "The CP market plays a crucial role in the financial system, since it is where banks and other investment vehicles normally raise funds. In recent days, it appears that some CP investors have quietly stopped funding various investment vehicles, such as structured investment vehicles linked to European banks that hold asset-backed securities."
According to the WSJ, asset-backed commercial paper accounts for about half the $2.2 trillion commercial-paper market.
Balestra Capital's James Melcher: "The equity market is just a sideshow to the main event, which is the bursting of the credit-market bubble."
LA Times: "As foreclosures and default warnings pile up across Southern California, thousands of people are losing their homes because they can't pay their mortgages. Thousands more are losing their jobs or seeing their incomes shrink. Realtors, plumbers, loan officers, truck drivers -- the effects of the stumbling housing market are widespread and, by many accounts, growing."
Brett Steenbarger: "Anyway, I went back to 1996 (N = 2891 trading days) and found only four occasions in which we had a prior overnight session down by 1% or more followed by a day session down by 1% or more and a current overnight session down by 1% or more. Interestingly, these short-term waterfall declines tended to occur at key junctures near intermediate lows in bear markets: 9/21/01 (after the 9/11 incident); 10/28/97; 4/17/2000; and 10/1/98. Three of the four occasions rose very sharply during the subsequent day session (over 3%) after dipping very little after the open. The one occasion that was down during the day session (by a little over 1%), recovered to a gain the following day.
I relaxed the criteria to look for occasions in which the prior overnight session, prior day session, and most recent overnight session were each down .50% or more (N = 16). When we look two days out (to the close of the *following* day's trade), the market was up 12 times, down 4 for an average gain of 2.20%--much stronger than the average gain of .01% for the market overall during the remainder of the sample."
The IEA keep its forecast for production and demand unchanged from June report. It expects consumption in 2007 of 86.0m b/d, rising in 2008 to 88.2m b/d. Non-Opec output this year will be at 50.0m b/d and next year will increase to 51.0m b/d.
According to The Financial Times, Citigroup "lost more than $500m in credit business in recent weeks, making it one of the biggest casualties of the crisis." The paper added "the losses were made largely in the structured credit business run by Michael Raynes."
According to Bloomberg, emerging-market stocks fell a second day, sending the benchmark index more than 10 percent below its July 23 peak, on concern a widening credit crunch in the developed world will crimp demand for exports.
Doug Noland: "The longer Credit excesses inflate asset prices, corporate earnings, and household incomes - the more seductive the Myth that the underlying Credit instruments are increasingly safe and liquid...Each near crisis surmounted leads to only greater confidence in the underlying Credit system and the capacity for the authorities to sustain the expansion - each period of greater excess layers more dangerous layers of risk on top of an increasingly fragile pyramid of risk...And, let there be no doubt, the sophisticated leveraged speculating community took complete advantage of this extraordinary liquidity backdrop. I really believe that if there had been no extended GSE boom – there would have been no Mortgage Finance Bubble – no Wall Street "Structured Finance" Bubble – no derivatives Bubble – and no protracted economic consumption-based U.S. economic boom. Unavoidable liquidity crisis would have nipped all in the bud some years ago...de-leveraging these days has quickly incited contagious marketplace illiquidity and a highly disruptive reversal of speculative flows from mortgage-related instruments, along with the very real risk of a mortgage Credit collapse and financial markets liquidity dislocation... Key facets of “contemporary finance” are on the line. The entire process of Wall Street Credit and Risk Intermediation is today in jeopardy...There are literally Trillions of dollars of impaired debt instruments – previously “top-rated” securities that will never live up to their (fallacious) billing...The bottom line is that these securities were misconceived as “money-like” from day one, and the marketplace has shifted to the recognition that they are instead highly risky and inappropriate for most investment vehicles, as well as for leveraged strategies. This radical change in market perceptions is wreaking bloody havoc on the untested Credit derivatives marketplace...As much as I recognize the traditional role of central banks as liquidity providers of last resort, I just sense that being forced to move this early – with global stock markets at near record highs – provides confirmation of the Acute Fragility of the global Credit system. Such moves would appear to risk further destabilizing already highly unstable global markets, especially currency markets. This does look to me as a Run on Wall Street Finance – and an absolute mess."
Mike Shedlock: "And if banks are extremely unwilling to lend money right now, what makes anyone think banks would be willing to lend more money after a measly 25 or 50 basis point cut in an economy that is clearly slowing rapidly?"
WCI Communities release: "We anticipate reporting total revenues of approximately $241.8 million and a net loss of approximately $16.9 million for the three months ended June 30, 2007 as compared to total revenues of $527.7 million and net income of $22.7 million for the three months ended June 30, 2006. The decreases are a result of the continuing softening in demand for new homes in our markets, as well as recognition of real estate impairment losses. We have not completed our analysis related to real estate impairments; therefore, our actual results of operations could materially differ from our anticipated results. (Quarterly revenue consensus is $244.05 million)."
According to the WSJ, Beazer is delaying its quarterly filing, citing possible problems with how its former accounting chief recorded liabilities.
Goldman Sachs' largest hedge fund is Global Alpha. It is down 26% this year.
On Tuesday, Tribune shareholders vote on the proposed $34 a share going private transaction.
Randall Forsyth of Barron's: "Now, so-called asset-backed commercial paper is backed by all matter of things, from credit cards and auto loans to collateralized debt obligations, and comprises over half the CP outstanding. Moreover, notes MacroMavens' Stephanie Pomboy, money-market funds own 27% of CP outstanding...A Fed rate cut that sends the dollar tumbling could have a perverse effect...If there is an exodus of foreign capital fleeing the a declining dollar, credit could tighten even as the Fed eases. Be careful of what you wish for."
The Financial Times: "The CP market plays a crucial role in the financial system, since it is where banks and other investment vehicles normally raise funds. In recent days, it appears that some CP investors have quietly stopped funding various investment vehicles, such as structured investment vehicles linked to European banks that hold asset-backed securities."
According to the WSJ, asset-backed commercial paper accounts for about half the $2.2 trillion commercial-paper market.
Balestra Capital's James Melcher: "The equity market is just a sideshow to the main event, which is the bursting of the credit-market bubble."
LA Times: "As foreclosures and default warnings pile up across Southern California, thousands of people are losing their homes because they can't pay their mortgages. Thousands more are losing their jobs or seeing their incomes shrink. Realtors, plumbers, loan officers, truck drivers -- the effects of the stumbling housing market are widespread and, by many accounts, growing."
Brett Steenbarger: "Anyway, I went back to 1996 (N = 2891 trading days) and found only four occasions in which we had a prior overnight session down by 1% or more followed by a day session down by 1% or more and a current overnight session down by 1% or more. Interestingly, these short-term waterfall declines tended to occur at key junctures near intermediate lows in bear markets: 9/21/01 (after the 9/11 incident); 10/28/97; 4/17/2000; and 10/1/98. Three of the four occasions rose very sharply during the subsequent day session (over 3%) after dipping very little after the open. The one occasion that was down during the day session (by a little over 1%), recovered to a gain the following day.
I relaxed the criteria to look for occasions in which the prior overnight session, prior day session, and most recent overnight session were each down .50% or more (N = 16). When we look two days out (to the close of the *following* day's trade), the market was up 12 times, down 4 for an average gain of 2.20%--much stronger than the average gain of .01% for the market overall during the remainder of the sample."
The IEA keep its forecast for production and demand unchanged from June report. It expects consumption in 2007 of 86.0m b/d, rising in 2008 to 88.2m b/d. Non-Opec output this year will be at 50.0m b/d and next year will increase to 51.0m b/d.
According to The Financial Times, Citigroup "lost more than $500m in credit business in recent weeks, making it one of the biggest casualties of the crisis." The paper added "the losses were made largely in the structured credit business run by Michael Raynes."
According to Bloomberg, emerging-market stocks fell a second day, sending the benchmark index more than 10 percent below its July 23 peak, on concern a widening credit crunch in the developed world will crimp demand for exports.
Doug Noland: "The longer Credit excesses inflate asset prices, corporate earnings, and household incomes - the more seductive the Myth that the underlying Credit instruments are increasingly safe and liquid...Each near crisis surmounted leads to only greater confidence in the underlying Credit system and the capacity for the authorities to sustain the expansion - each period of greater excess layers more dangerous layers of risk on top of an increasingly fragile pyramid of risk...And, let there be no doubt, the sophisticated leveraged speculating community took complete advantage of this extraordinary liquidity backdrop. I really believe that if there had been no extended GSE boom – there would have been no Mortgage Finance Bubble – no Wall Street "Structured Finance" Bubble – no derivatives Bubble – and no protracted economic consumption-based U.S. economic boom. Unavoidable liquidity crisis would have nipped all in the bud some years ago...de-leveraging these days has quickly incited contagious marketplace illiquidity and a highly disruptive reversal of speculative flows from mortgage-related instruments, along with the very real risk of a mortgage Credit collapse and financial markets liquidity dislocation... Key facets of “contemporary finance” are on the line. The entire process of Wall Street Credit and Risk Intermediation is today in jeopardy...There are literally Trillions of dollars of impaired debt instruments – previously “top-rated” securities that will never live up to their (fallacious) billing...The bottom line is that these securities were misconceived as “money-like” from day one, and the marketplace has shifted to the recognition that they are instead highly risky and inappropriate for most investment vehicles, as well as for leveraged strategies. This radical change in market perceptions is wreaking bloody havoc on the untested Credit derivatives marketplace...As much as I recognize the traditional role of central banks as liquidity providers of last resort, I just sense that being forced to move this early – with global stock markets at near record highs – provides confirmation of the Acute Fragility of the global Credit system. Such moves would appear to risk further destabilizing already highly unstable global markets, especially currency markets. This does look to me as a Run on Wall Street Finance – and an absolute mess."
Mike Shedlock: "And if banks are extremely unwilling to lend money right now, what makes anyone think banks would be willing to lend more money after a measly 25 or 50 basis point cut in an economy that is clearly slowing rapidly?"
Friday, August 10, 2007
Volatility And Liquidity
8/11/07 Volatility And Liquidity
French insurance giant AXA SA on Thursday reported owning a 13 percent passive stake in private-equity firm Blackstone Group LP through its U.S. subsidiary, according to a regulatory filing. The Paris-based conglomerate, Europe's second-largest by market value, beneficially owns roughly 30.4 million shares of Blackstone, according to a filing with the Securities and Exchange Commission.
The RBC Cash Index showed that consumer confidence rose to 89.3 in August. That marked a bounceback from July's 76.1, the worst reading in almost a year. The new reading was the best since March. The index is based on the results of the international polling firm Ipsos.
Brady Willett: "The central bank support that Cramer was crying for last week arrived, and it didn't work. A funny thing happened during today’s central bank bailout attempt: the markets plunged. Is it just me, or when central bankers unite and throw money at a problem isn’t that problem supposed to go away...But what if central bank bailouts fail again and the markets tank?"
The European Central Bank again moved to boost liquidity in markets suffering from the subprime credit crisis Friday by lending banks a further 61 billion euros ($84 billion) in a three-day tender offer. The move comes on top of the roughly 95 billion euros the central bank provided on Thursday. The Bank of Japan infused one trillion yen ($8.48 billion) into the local money market, after the overnight call rate, the interest rate on inter-bank borrowings, rose above the central bank's target rate of 0.5%, according to wire service reports. The Reserve Bank of Australia, on the other hand, injected A$4.95 billion ($4.17 billion) into Australia's financial system, double the A$2.44 billion needed and other foreign central bankers joined in on the thrust of liquidity. Meanwhile, the British Bankers' Association said that the dollar overnight London interbank offered rate -- a measure of the interest rate at which banks lend money to each other -- rose to 5.96% Friday from 5.86% the previous day. Overnight rates had previously jumped from around 5.35% on Wednesday.
In a statement, the Fed said it will provide reserves "as necessary" through open market operations to promote trading in the federal funds market at rates close to 5.25%. Earlier Friday, the New York Federal Reserve said the Fed bought $19 billion in three-day repurchase agreements in mortgage-backed securities. In its statement, the Fed said banks may experience "unusual funding needs because of dislocations in money and credit markets." Then, in a second move, the Fed made a second round of 3-day repurchase agreement, totaling $16 billion. The Federal Reserve added $3 billion of funds to the U.S. financial system, making the third injection of reserves for the day and bringing the Friday total to $38 billion.The Federal Reserve added $3 billion of funds to the U.S. financial system, making the third injection of reserves for the day and bringing the Friday total to $38 billion. By comparison, the Fed added $7.5 billion through 3-day repurchase agreements last Friday. The last time the central bank made a similar statement was after the September 11, 2001, terror attacks, when it also said it would do what was necessary to keep markets functioning normally. The Fed had made a similar vow in October 1987 following a precipitous decline in U.S. stock markets.
Stocks in Japan and Hong Kong and Europe fell by more than 2.5 percent.
Nouriel Roubini: "But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode. Let me explain why. Economists distinguish between liquidity crises and insolvency/debt crises. An agent (household, firm, financial corporation, country) can experience distress either because it is illiquid or because it is insolvent; of course insolvent agents are – in most cases - also illiquid, i.e. they cannot roll over their debts. Illiquidity occurs when the agent is solvent – i.e. it could pay its debts over time as long as such debts can be refinanced or rolled over - but he/she experiences a sudden liquidity crisis, i.e. its creditors are unwilling to roll over or refinance its claims. An insolvent debtor does not only face a liquidity problem (large amounts of debts coming to maturity, little stock of liquid reserves and no ability to refinance). It is also insolvent as it could not pay its claim over time even if there was no liquidity problem; thus, debt crises are more severe than illiquidity crises as they imply that the debtor is insolvent, i.e. bankrupt, and its debt claims will be defaulted and reduced. In emerging market crises of the last decade, we had liquidity crises (i.e. a solvent but illiquid sovereign) in Mexico, Korea, Brazil, Turkey; we had debt/insolvency crises (a sovereign that was both illiquid and insolvent) in Russia, Ecuador, Argentina...
Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble.
First, you have hundreds of thousands of US households who are insolvent on their mortgages...You also have lots of insolvent mortgage lenders...You will also have – soon enough – plenty of insolvent home builders...Now that we are observing a liquidity and credit crunch and a vast widening of credit spread you will observe a sharp increase in corporate defaults and a further risk in corporate risk spreads.
Insolvent and bankrupt households, mortgage lenders, home builders, leveraged hedge funds and asset managers, and non-financial corporations. This is not just a liquidity crisis like in the 1998 LTCM episode. This is rather a liquidity crisis that signals a more fundamental debt, credit and insolvency crisis among many economic agents in the US and global economy. Liquidity runs can be resolved by the liquidity injections by a lender of last resort: in the cases of the liquidity crises of Mexico, Korea, Turkey, Brazil that international lender of last resort was the IMF; but in the insolvency crises of Russia, Argentina, and Ecudaor the provision of the liquidity by the lender of last resort – the IMF – only postponed the inevitable default and made the eventual crisis deeper and uglier. And provision of liquidity during an insolvency crisis causes moral hazard as it creates expectations of investors’ bailout. Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only postpone and exacerbate the eventual and unavoidable insolvencies."
Brett Steenbarger: "I went back to 1996 (N = 2891 trading days) and found only four occasions in which we had a prior overnight session down by 1% or more followed by a day session down by 1% or more and a current overnight session down by 1% or more. Interestingly, these short-term waterfall declines tended to occur at key junctures near intermediate lows in bear markets: 9/21/01 (after the 9/11 incident); 10/28/97; 4/17/2000; and 10/1/98. Three of the four occasions rose very sharply during the subsequent day session (over 3%) after dipping very little after the open. The one occasion that was down during the day session (by a little over 1%), recovered to a gain the following day."
U.S. import prices rose 1.5% in July, the sixth straight monthly increase and the biggest gain since March, the Labor Department said Friday. Economists were expecting import prices to rise 1.1%. Imported petroleum prices rose 7.0% in July, also the largest gain since March. Imported natural gas prices fell 7.6%, the largest drop since January. Prices of imported foods rose 1.6% and are up 9.8% year-on-year, the largest yearly increase since May 1995. Prices of imports excluding petroleum rose 0.2%. Import prices excluding all fuels rose 0.3% and are up 2.2% in the past 12 months. Meanwhile, prices of U.S. exports rose 0.2%.
Singapore's economy expanded by 8.6% in the second quarter from a year ago, on robust growth in the financial services and construction sectors, government data showed Friday.
China reported its second biggest monthly trade surplus on record. The surplus in July was $24.36bn, down from June’s record high of $26.91bn, but above forecasts of $22.5bn and dwarfing the July 2006 figure of $14.6bn.
U.S. stocks are at the beginning of a bear market in which benchmark indexes may fall more than 30 percent, Marc Faber said.
Eugene Robinson: "Bush doesn't care what anybody else thinks. He doesn't care that the Iraqi government has failed to meet its political benchmarks. He doesn't care that Maliki is getting so cozy with the mullahs in Tehran. He doesn't care that Republicans in Washington are getting so nervous about having to face an election with the war still raging and no end in sight. Bush laid out his Iraq policy yesterday in plain language, with none of his recent gibberish about al-Qaeda in Pakistan being the same as al-Qaeda in Iraq, only different, but really the same, kind of. This time we heard the classic neocon analysis -- the same grand vision that got us into this mess. If Bush hasn't changed his mind by now, he ain't gonna."
Countrywide Financial Plummets On 'Unprecedented Disruptions' In Secondary Mortgage Market.
Richard Daughty: "With all the losses in mortgage securities, I guess it is surprising that Required Reserves in the banks are still hovering at the same measly $41 billion in Total Reserves that the banks have been reporting since 1999. In short, reported Bank Reserves have not increased by so much as a thin dime in eight years of rampant additions to the levels of deposits, levels of loans, levels of debt, and levels of the money supply created by the banks, mostly because they found that they can get away with it simply because nobody ever tried to stop them!"
Yahoo Inc. President Susan Decker purchased about $1.1 million of the Internet company's shares this week just after the stock hit a three-year low. The buy was Decker's first ever open-market stock purchase.
For the first 10 months of the fiscal year, the federal deficit has totaled $157 billion.
Gold for December delivery rose $8.80 to close at $681.60 an ounce on the New York Mercantile Exchange.
Crude oil for September delivery closed down 12 cents at $71.47 a barrel on the New York Mercantile Exchange. Natural gas gained 25 cents and closed at $6.84.
James Picerno: "Tactically, Thursday's efforts to ease anxieties by effectively printing more money are really just more of the same policy biases that have been in effect for years. Arguably, the Fed and ECB don't have much choice at the moment. But that raises questions anew: How did we get pushed into a corner where printing money is at once the problem and the solution? More importantly, what does the constraint imply for the future?"
As we enter the weekend, one might consider the problems surrounding the ability to rollover commercial paper. Yields on asset-backed commercial paper rated A1, the second-highest short-term rating by Standard & Poor's, and maturing the next day rose 20 basis points to 5.56 percent, the highest since March 2001, according to data compiled by Bloomberg. The increase is the biggest since September 2005. National Australia Bank has told some issuers of promissory notes and other forms of commercial paper that it will not be able to support programs that fail to secure backing from institutional investors. In a letter to clients yesterday, the bank warns that prospective issuers of commercial paper should "expect volume and pricing challenges".
Between the Hedges: "Investor angst is at levels normally associated with meaningful market bottoms. The NYSE Arms hit a very elevated 2.97 this morning. The VIX is at the highest level since early 2003. The ISE Sentiment Index 10-day moving average is at the second lowest reading on record. The CBOE total put/call 10-day moving average is also at the second highest reading on record. Money market funds, this week, saw $36 billion in inflows, the most since 2005."
I continue to ponder how much forced selling has resulted from the unwinding of risk in leveraged products. How much is left? That's a big question mark.
Peter Schiff: "For years, Americans have been able to pay for enormous trade deficits by exchanging IOU's for imported consumer goods. Unfortunately for foreign creditors, a substantial percentage of those IOU's have recently taken the form of mortgaged backed securities. Sporting higher yields than Treasury bonds, investment grade ratings from reputable agencies, and juicy commissions for the investment banks that packaged them, these structured mortgage bonds have quickly become America's greatest export. Ironically, amid all the recent hoopla about defective Chinese exports, America has proved that when it comes to flooding the world with shoddy merchandise, nobody beats the good old USA."
French insurance giant AXA SA on Thursday reported owning a 13 percent passive stake in private-equity firm Blackstone Group LP through its U.S. subsidiary, according to a regulatory filing. The Paris-based conglomerate, Europe's second-largest by market value, beneficially owns roughly 30.4 million shares of Blackstone, according to a filing with the Securities and Exchange Commission.
The RBC Cash Index showed that consumer confidence rose to 89.3 in August. That marked a bounceback from July's 76.1, the worst reading in almost a year. The new reading was the best since March. The index is based on the results of the international polling firm Ipsos.
Brady Willett: "The central bank support that Cramer was crying for last week arrived, and it didn't work. A funny thing happened during today’s central bank bailout attempt: the markets plunged. Is it just me, or when central bankers unite and throw money at a problem isn’t that problem supposed to go away...But what if central bank bailouts fail again and the markets tank?"
The European Central Bank again moved to boost liquidity in markets suffering from the subprime credit crisis Friday by lending banks a further 61 billion euros ($84 billion) in a three-day tender offer. The move comes on top of the roughly 95 billion euros the central bank provided on Thursday. The Bank of Japan infused one trillion yen ($8.48 billion) into the local money market, after the overnight call rate, the interest rate on inter-bank borrowings, rose above the central bank's target rate of 0.5%, according to wire service reports. The Reserve Bank of Australia, on the other hand, injected A$4.95 billion ($4.17 billion) into Australia's financial system, double the A$2.44 billion needed and other foreign central bankers joined in on the thrust of liquidity. Meanwhile, the British Bankers' Association said that the dollar overnight London interbank offered rate -- a measure of the interest rate at which banks lend money to each other -- rose to 5.96% Friday from 5.86% the previous day. Overnight rates had previously jumped from around 5.35% on Wednesday.
In a statement, the Fed said it will provide reserves "as necessary" through open market operations to promote trading in the federal funds market at rates close to 5.25%. Earlier Friday, the New York Federal Reserve said the Fed bought $19 billion in three-day repurchase agreements in mortgage-backed securities. In its statement, the Fed said banks may experience "unusual funding needs because of dislocations in money and credit markets." Then, in a second move, the Fed made a second round of 3-day repurchase agreement, totaling $16 billion. The Federal Reserve added $3 billion of funds to the U.S. financial system, making the third injection of reserves for the day and bringing the Friday total to $38 billion.The Federal Reserve added $3 billion of funds to the U.S. financial system, making the third injection of reserves for the day and bringing the Friday total to $38 billion. By comparison, the Fed added $7.5 billion through 3-day repurchase agreements last Friday. The last time the central bank made a similar statement was after the September 11, 2001, terror attacks, when it also said it would do what was necessary to keep markets functioning normally. The Fed had made a similar vow in October 1987 following a precipitous decline in U.S. stock markets.
Stocks in Japan and Hong Kong and Europe fell by more than 2.5 percent.
Nouriel Roubini: "But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode. Let me explain why. Economists distinguish between liquidity crises and insolvency/debt crises. An agent (household, firm, financial corporation, country) can experience distress either because it is illiquid or because it is insolvent; of course insolvent agents are – in most cases - also illiquid, i.e. they cannot roll over their debts. Illiquidity occurs when the agent is solvent – i.e. it could pay its debts over time as long as such debts can be refinanced or rolled over - but he/she experiences a sudden liquidity crisis, i.e. its creditors are unwilling to roll over or refinance its claims. An insolvent debtor does not only face a liquidity problem (large amounts of debts coming to maturity, little stock of liquid reserves and no ability to refinance). It is also insolvent as it could not pay its claim over time even if there was no liquidity problem; thus, debt crises are more severe than illiquidity crises as they imply that the debtor is insolvent, i.e. bankrupt, and its debt claims will be defaulted and reduced. In emerging market crises of the last decade, we had liquidity crises (i.e. a solvent but illiquid sovereign) in Mexico, Korea, Brazil, Turkey; we had debt/insolvency crises (a sovereign that was both illiquid and insolvent) in Russia, Ecuador, Argentina...
Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble.
First, you have hundreds of thousands of US households who are insolvent on their mortgages...You also have lots of insolvent mortgage lenders...You will also have – soon enough – plenty of insolvent home builders...Now that we are observing a liquidity and credit crunch and a vast widening of credit spread you will observe a sharp increase in corporate defaults and a further risk in corporate risk spreads.
Insolvent and bankrupt households, mortgage lenders, home builders, leveraged hedge funds and asset managers, and non-financial corporations. This is not just a liquidity crisis like in the 1998 LTCM episode. This is rather a liquidity crisis that signals a more fundamental debt, credit and insolvency crisis among many economic agents in the US and global economy. Liquidity runs can be resolved by the liquidity injections by a lender of last resort: in the cases of the liquidity crises of Mexico, Korea, Turkey, Brazil that international lender of last resort was the IMF; but in the insolvency crises of Russia, Argentina, and Ecudaor the provision of the liquidity by the lender of last resort – the IMF – only postponed the inevitable default and made the eventual crisis deeper and uglier. And provision of liquidity during an insolvency crisis causes moral hazard as it creates expectations of investors’ bailout. Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only postpone and exacerbate the eventual and unavoidable insolvencies."
Brett Steenbarger: "I went back to 1996 (N = 2891 trading days) and found only four occasions in which we had a prior overnight session down by 1% or more followed by a day session down by 1% or more and a current overnight session down by 1% or more. Interestingly, these short-term waterfall declines tended to occur at key junctures near intermediate lows in bear markets: 9/21/01 (after the 9/11 incident); 10/28/97; 4/17/2000; and 10/1/98. Three of the four occasions rose very sharply during the subsequent day session (over 3%) after dipping very little after the open. The one occasion that was down during the day session (by a little over 1%), recovered to a gain the following day."
U.S. import prices rose 1.5% in July, the sixth straight monthly increase and the biggest gain since March, the Labor Department said Friday. Economists were expecting import prices to rise 1.1%. Imported petroleum prices rose 7.0% in July, also the largest gain since March. Imported natural gas prices fell 7.6%, the largest drop since January. Prices of imported foods rose 1.6% and are up 9.8% year-on-year, the largest yearly increase since May 1995. Prices of imports excluding petroleum rose 0.2%. Import prices excluding all fuels rose 0.3% and are up 2.2% in the past 12 months. Meanwhile, prices of U.S. exports rose 0.2%.
Singapore's economy expanded by 8.6% in the second quarter from a year ago, on robust growth in the financial services and construction sectors, government data showed Friday.
China reported its second biggest monthly trade surplus on record. The surplus in July was $24.36bn, down from June’s record high of $26.91bn, but above forecasts of $22.5bn and dwarfing the July 2006 figure of $14.6bn.
U.S. stocks are at the beginning of a bear market in which benchmark indexes may fall more than 30 percent, Marc Faber said.
Eugene Robinson: "Bush doesn't care what anybody else thinks. He doesn't care that the Iraqi government has failed to meet its political benchmarks. He doesn't care that Maliki is getting so cozy with the mullahs in Tehran. He doesn't care that Republicans in Washington are getting so nervous about having to face an election with the war still raging and no end in sight. Bush laid out his Iraq policy yesterday in plain language, with none of his recent gibberish about al-Qaeda in Pakistan being the same as al-Qaeda in Iraq, only different, but really the same, kind of. This time we heard the classic neocon analysis -- the same grand vision that got us into this mess. If Bush hasn't changed his mind by now, he ain't gonna."
Countrywide Financial Plummets On 'Unprecedented Disruptions' In Secondary Mortgage Market.
Richard Daughty: "With all the losses in mortgage securities, I guess it is surprising that Required Reserves in the banks are still hovering at the same measly $41 billion in Total Reserves that the banks have been reporting since 1999. In short, reported Bank Reserves have not increased by so much as a thin dime in eight years of rampant additions to the levels of deposits, levels of loans, levels of debt, and levels of the money supply created by the banks, mostly because they found that they can get away with it simply because nobody ever tried to stop them!"
Yahoo Inc. President Susan Decker purchased about $1.1 million of the Internet company's shares this week just after the stock hit a three-year low. The buy was Decker's first ever open-market stock purchase.
For the first 10 months of the fiscal year, the federal deficit has totaled $157 billion.
Gold for December delivery rose $8.80 to close at $681.60 an ounce on the New York Mercantile Exchange.
Crude oil for September delivery closed down 12 cents at $71.47 a barrel on the New York Mercantile Exchange. Natural gas gained 25 cents and closed at $6.84.
James Picerno: "Tactically, Thursday's efforts to ease anxieties by effectively printing more money are really just more of the same policy biases that have been in effect for years. Arguably, the Fed and ECB don't have much choice at the moment. But that raises questions anew: How did we get pushed into a corner where printing money is at once the problem and the solution? More importantly, what does the constraint imply for the future?"
As we enter the weekend, one might consider the problems surrounding the ability to rollover commercial paper. Yields on asset-backed commercial paper rated A1, the second-highest short-term rating by Standard & Poor's, and maturing the next day rose 20 basis points to 5.56 percent, the highest since March 2001, according to data compiled by Bloomberg. The increase is the biggest since September 2005. National Australia Bank has told some issuers of promissory notes and other forms of commercial paper that it will not be able to support programs that fail to secure backing from institutional investors. In a letter to clients yesterday, the bank warns that prospective issuers of commercial paper should "expect volume and pricing challenges".
Between the Hedges: "Investor angst is at levels normally associated with meaningful market bottoms. The NYSE Arms hit a very elevated 2.97 this morning. The VIX is at the highest level since early 2003. The ISE Sentiment Index 10-day moving average is at the second lowest reading on record. The CBOE total put/call 10-day moving average is also at the second highest reading on record. Money market funds, this week, saw $36 billion in inflows, the most since 2005."
I continue to ponder how much forced selling has resulted from the unwinding of risk in leveraged products. How much is left? That's a big question mark.
Peter Schiff: "For years, Americans have been able to pay for enormous trade deficits by exchanging IOU's for imported consumer goods. Unfortunately for foreign creditors, a substantial percentage of those IOU's have recently taken the form of mortgaged backed securities. Sporting higher yields than Treasury bonds, investment grade ratings from reputable agencies, and juicy commissions for the investment banks that packaged them, these structured mortgage bonds have quickly become America's greatest export. Ironically, amid all the recent hoopla about defective Chinese exports, America has proved that when it comes to flooding the world with shoddy merchandise, nobody beats the good old USA."
Thursday, August 09, 2007
Storm Clouds Remain
8/10/07 Storm Clouds Remain
BNP Paribas said it was freezing three of its asset-backed securities funds that have had struggled to find liquidity in the U.S. subprime mortgage market. BNP Paribas said Thursday that it will temporarily stop valuing three of its funds and won't allow customers to withdraw their investments after U.S. subprime-mortgage woes led to the "complete evaporation of liquidity."
The European Central Bank took emergency action on Thursday to stabilise money markets amid broadening fears of a liquidity crunch. It injected €94.8bn as part of an unlimited cash offer to borrowers at its main lending rate of 4 per cent after overnight rates shot up to 4.7 per cent, their highest in nearly six years.
"Overall, July sales were negatively impacted by soft mall traffic," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "The consumer is holding up, but certainly feeling the pinch of the housing market and higher gasoline price."
Wal-Mart's July sales at stores open at least one year rose 1.9%. Analysts, on average, had expected the same-store sales to rise 1.5%.
Nordstrom Inc.'s July sales at stores open at least a year surged 9.4%.
July same-store sales rose 6% in the U.S. and 10% internationally, Costco said.
The high volatility continues with the VIX, the yen, the 10-year Treasury, and the highs and lows in the S&P. We have not nearly found a comfortable equilibrium.
The Bank of Korea unexpectedly raised its benchmark interest rate for a second time in two months to curb lending that may fuel asset-price bubbles.
Governor Lee Seong Tae and his board increased the overnight call rate by a quarter point to 5 percent, the highest since July 2001, the central bank said in Seoul today. None of the 14 economists surveyed by Bloomberg News predicted the move. Central Banks all over the globe continue to raise interest rates. It would be irrational to think our Fed would lower rates in this environment.
Mark Hulbert: "Appel has said that a good entry point to get back into the stock market will be when the 10-day moving average of the NYSE new high new low indicator rises to 20%. Another firm that pays close attention to the new high-new low indicator is Dorsey Wright & Associates of Pasadena, Calif. Unlike Appel, that firm considers the indicator to be bullish just by dropping to as low as it is today, though the firm reports that it is even more bullish when it turns back up from very low levels. In a release sent out Tuesday night by Mike Moody, senior portfolio manager at Dorsey Wright, wrote that "Research conducted by Dorsey, Wright Money Management indicates that the NYSE high-low index is one of the very few highly reliable indications of a general market bottom. It is indicating a very favorable opportunity in the market right now."
Wilbur Ross: "We don't think those problems are over with at all. In the second half of 2007, $170 billion of adjustable rate mortgages will go from teaser rates to normal market rate. Next year $400 billion will go. We're into the storm, but the peak problem period is more likely to be sometime into next year. You have some individual months in 2008 when $40 billion will reset. Now there's no liquidity in the subprime market. No one is making teaser loans. The rate shock is going to become quite severe, and people aren't going to be able to afford the payments. Typically, payments were more than 40% of borrower's income and generally will be going from 45% to 55% or 60% of their income, (so) it's just not going to be possible for people to pay that...The whole loan market is very, very weak right now. At the moment there is still tremendous liquidity in the overall financial market, but really none in subprime. There's a theory I have that there are two kinds of liquidity, one is physical and that continues to be strong. There's a lot of cash sloshing around. The more important is psychological liquidity, people's willingness to take risk, and that is drying up. There's a snap back away from the extremely permissive credit practices."
Speaking before a meeting Thursday with Russia's energy minister Viktor Khristenko, Husayn al-Shahristani suggested that their experience working to tap Iraq's oil wealth might give them an edge.
He referred to leading oil producer OAO Lukoil, which had an agreement with Saddam Hussein's government to drill at the giant West Qurna field.
"Bearing in mind that Russia has developed the field before, it may have a certain advantage and make a more competitive bid than others," al-Shahristani was quoted as saying by the Interfax news agency. "However, it depends on Lukoil -- whether it offers the best terms to Iraq or not."
Target forecasts August same-store sales to rise 4% to 6%. July same-store sales up 6.1%.
Chevron Corp. made a "significant" oil discovery in Block 14, offshore Angola.
In the week ending Aug. 4, initial jobless claims rose by 7,000 to 316,000, the highest since June 30. The four-week average of initial claims also rose in the latest week, by 1,750, to 307,750. The number of people continuing to collect unemployment benefits continued to rise, increasing by 39,000 to 2.55 million in the week ending July 28. The four-week average of continuing claims rose to 2.54 million, up by 2,000.
Mark Zandi: "The catalyst for the global financial turmoil is investors coming to terms with the reality of the massive losses on their housing and mortgage-related investments. Of the approximately $2.5 trillion in subprime, Alt-A, and jumbo IO and option ARMs outstanding—equal to almost one-fourth of all mortgage debt outstanding—some $1.3 trillion is at serious risk of default (see chart). These at-risk loans were originated between late 2004 and early this year with less than 10% equity at time of origination. House prices are expected to decline 10% from their late 2005 peak to their nadir later next year. Of those at-risk loans, nearly $425 billion worth will actually default, ultimately resulting in losses to investors who purchased securities backed by those mortgages of well over $100 billion."
Justice Litle: "While we grudgingly respect Chairman Bernanke's savvy thus far, we feel there is no way he can win a rigged game... the Austrian End Game, that is, in which the ultimate decision is to "destroy the economy or destroy the currency" as Von Mises put it. For Fed Chairmen and heads of state, the Hobson's choice outlined by Von Mises is really no choice at all. It's a no-brainer for governments to gradually debase their currencies in service to false stability, as they have been doing consistently since Roman times...We've been banging the "long Yen" drum with enthusiasm... not just as a speculative play, but a risk management one. The nature of the carry trade is such that the Yen was bound to go up in a credit crunch, as it has done. If things get really bad, it could skyrocket."
Martin Weiss: "Indeed, the yen has been forcefully depressed for so long, it will have to surge by leaps in bounds just to catch up with the rising euro — not to mention catching up with other major currencies, like the Australian dollar or the Brazilian real, both which have been going up even faster. This is no trivial matter. Nor is it a sideshow to the drama unfolding in the U.S. credit markets. Quite to the contrary, it's of vital importance, and you must not underestimate it."
Brett Steenbarger: "We've moved back into the range from 7/26 - 8/06--a large false breakout."
Home Depot is in discussions with private equity firms Bain Capital, Caylyle, and with Clayton Dubilier & Rice over restructuring its previously agreed to sale of HD SUPPLY. This says the discussions could result in material change to the prior terms and financing of the sale of HD SUPPLY. That includes a reduction in the $10.325 Billion sale price. Obviously these firms are going to have to contribute more of their own capital and the amount of leverage available is ratcheting down drastically. The company is also modifiying its Dutch tender offer announced on July 10. The $39 to $44 price is being lowered to a $37 to $42 price range and is extending the date to August 31, 2007.
The U.S. Federal Reserve on Thursday said it added $12 billion of temporary reserves to the banking system through 14-day repurchase agreements. The amount was more than double the $5 billion of temporary reserves added via 14-day repurchases last Thursday.
Goldman Sachs analysts on Thursday upgraded the oil service and oil drilling sector to attractive from neutral. "We believe we are in the early stages of a multi-year investment period and believe the recent correction provides an attractive entry point," Goldman said in a note to clients. "We are bullish on the outlook for crude oil prices through 2008 and believe exploration and production spending growth estimates are conservative."
The market is now pricing in nearly 100% odds that the Federal Reserve will cut interest rates by the end of September, analysts at Action Economics said.
Natural gas supplies rose by 42 billion cubic feet to 2,882 billion cubic feet in the week ending August 3, the Energy Department reported Thursday. After the data, September natural gas rallied 37 cents, or 6%, at $6.60 per million British thermal units on the New York Mercantile Exchange.
Residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime, American International Group said on Thursday. In a presentation on its subprime exposure, AIG, the world's largest insurer and one of the biggest mortgage lenders, said total delinquencies in its $25.9 billion real estate portfolio were 2.5 percent. It said 10.8 percent of its subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading.
Robert McHugh: "We sit Wednesday with nine Hindenburg Omen observations since mid-June, getting another one Wednesday."
President Bush said Thursday that he's against letting Fannie Mae and Freddie Mac buy more home loans in an effort to prop up the sagging mortgage market, commenting that he prefers to reform the two entities first.
The Dow was down 387 points, or 2.8%, at 13,270 at the unofficial 4 p.m. close. The S&P 500 index fell 44 points, or 3%, to 1,453, while the Nasdaq Composite lost 56 points, or 2.2%, to 2,556. I guess Bush's talk on the economy didn't calm the markets. Maybe the markets realize he, by his own admission, only has enough knowledge to make generalizations about the economy. Here is a non-generalization:
In the past two weeks, another 13 corporate loan or bond deals have been postponed or reduced, representing just under $43 billion, in new research released Thursday by Baring Asset Management. The total number of deals pulled since June 22nd now stands at 46, analysts at the firm said, valued at more than $60 billion. That compares to last year where there were no pulled deals counted.
Kate Incontrera: "Don't worry about the housing market, Bush said in this speech. It's just a reaction to 'a flood of liquidity that came into the market in the past couple years.' Gee - really?" His familiarity with a "flood of liquidity" may be going back to his days in Texas.
Crude for September delivery closed down 56 cents at $71.59 a barrel on the New York Mercantile Exchange. Also on Nymex, September reformulated gasoline closed down 0.37 cent at $1.9340 a gallon, while September heating oil gained 2.24 cents at $1.9892 a gallon. September natural gas rose 36.60 cents, or 6%, at $6.586 per million British thermal units, boosted by bullish supply data from the Energy Department.
Gold for December delivery closed down $13.50, or 2%, at $672.80 an ounce on the New York Mercantile Exchange. Also on Nymex, September palladium fell $1.75 to $362.20 an ounce, October platinum dropped $15.80 to $1,275.30 an ounce, and September copper fell 7.80 cents to $3.3610 a pound.
Black Mesa Capital, a hedge fund firm that uses computer models to track down arbitrage opportunities, has told investors that at least one very large hedge fund or investment bank is liquidating "massive" trading portfolios, according to a letter the Santa Fe, NM-based firm sent to investors on Wednesday.
Although Asia has achieved unprecedented economic growth in the last three decades, hunger and poverty persist, with 600 million people living on less than $1 a day, the Asian Development Bank said Thursday.
Bill Bonner: "The symmetry of the system is simple: the East makes; the West takes. The East saves; the West spends. The East lends; the West borrows. The boom in the East is real; in the West it is a fraud."
Between The Hedges: " This is one of the most bifrucated days I have ever seen: I have literally hundreds of stocks on my monitor pages higher or barely down today with the DJIA down 300. This is highly unusual and indicates underlying strength, in my opinion. As well, Nasdaq breadth is -929, which is mild considering the headline losses. I still believe longer-term investors should use pullbacks to add to high-quality growth stocks at current levels and use strength to cut back on the most economically sensitive and emerging-market stocks."
The yen surged Thursday as investors bailed out of risky trades financed with the Japanese currency after one of Europe's biggest banks froze funds with links to the troubled U.S. subprime mortgage market.
The VIX closed up over 5 points at 26.48. Fear is alive in the trading arenas.
Lehman Brothers Holdings Inc. and Bear Stearns Cos., the fourth- and fifth-biggest U.S. securities firms, had their 2007 and 2008 profit estimates cut 7 percent by Sanford C. Bernstein & Co. analyst Brad Hintz.
Hintz expects Lehman, the largest underwriter of U.S. mortgage bonds, to earn $7.37 a share this year and $7.63 in 2008. That's down from his previous prediction of $7.87 a share and $8.20, respectively.
Bear Stearns may earn $12.99 a share in 2007 and $13.97 in 2008, Hintz said, down from his previous estimate of $14.10 and $15.10, respectively. He cut his estimates for Goldman Sachs by 5 percent and for Merrill Lynch and Morgan Stanley by between 3 and 4 percent.
BNP Paribas said it was freezing three of its asset-backed securities funds that have had struggled to find liquidity in the U.S. subprime mortgage market. BNP Paribas said Thursday that it will temporarily stop valuing three of its funds and won't allow customers to withdraw their investments after U.S. subprime-mortgage woes led to the "complete evaporation of liquidity."
The European Central Bank took emergency action on Thursday to stabilise money markets amid broadening fears of a liquidity crunch. It injected €94.8bn as part of an unlimited cash offer to borrowers at its main lending rate of 4 per cent after overnight rates shot up to 4.7 per cent, their highest in nearly six years.
"Overall, July sales were negatively impacted by soft mall traffic," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "The consumer is holding up, but certainly feeling the pinch of the housing market and higher gasoline price."
Wal-Mart's July sales at stores open at least one year rose 1.9%. Analysts, on average, had expected the same-store sales to rise 1.5%.
Nordstrom Inc.'s July sales at stores open at least a year surged 9.4%.
July same-store sales rose 6% in the U.S. and 10% internationally, Costco said.
The high volatility continues with the VIX, the yen, the 10-year Treasury, and the highs and lows in the S&P. We have not nearly found a comfortable equilibrium.
The Bank of Korea unexpectedly raised its benchmark interest rate for a second time in two months to curb lending that may fuel asset-price bubbles.
Governor Lee Seong Tae and his board increased the overnight call rate by a quarter point to 5 percent, the highest since July 2001, the central bank said in Seoul today. None of the 14 economists surveyed by Bloomberg News predicted the move. Central Banks all over the globe continue to raise interest rates. It would be irrational to think our Fed would lower rates in this environment.
Mark Hulbert: "Appel has said that a good entry point to get back into the stock market will be when the 10-day moving average of the NYSE new high new low indicator rises to 20%. Another firm that pays close attention to the new high-new low indicator is Dorsey Wright & Associates of Pasadena, Calif. Unlike Appel, that firm considers the indicator to be bullish just by dropping to as low as it is today, though the firm reports that it is even more bullish when it turns back up from very low levels. In a release sent out Tuesday night by Mike Moody, senior portfolio manager at Dorsey Wright, wrote that "Research conducted by Dorsey, Wright Money Management indicates that the NYSE high-low index is one of the very few highly reliable indications of a general market bottom. It is indicating a very favorable opportunity in the market right now."
Wilbur Ross: "We don't think those problems are over with at all. In the second half of 2007, $170 billion of adjustable rate mortgages will go from teaser rates to normal market rate. Next year $400 billion will go. We're into the storm, but the peak problem period is more likely to be sometime into next year. You have some individual months in 2008 when $40 billion will reset. Now there's no liquidity in the subprime market. No one is making teaser loans. The rate shock is going to become quite severe, and people aren't going to be able to afford the payments. Typically, payments were more than 40% of borrower's income and generally will be going from 45% to 55% or 60% of their income, (so) it's just not going to be possible for people to pay that...The whole loan market is very, very weak right now. At the moment there is still tremendous liquidity in the overall financial market, but really none in subprime. There's a theory I have that there are two kinds of liquidity, one is physical and that continues to be strong. There's a lot of cash sloshing around. The more important is psychological liquidity, people's willingness to take risk, and that is drying up. There's a snap back away from the extremely permissive credit practices."
Speaking before a meeting Thursday with Russia's energy minister Viktor Khristenko, Husayn al-Shahristani suggested that their experience working to tap Iraq's oil wealth might give them an edge.
He referred to leading oil producer OAO Lukoil, which had an agreement with Saddam Hussein's government to drill at the giant West Qurna field.
"Bearing in mind that Russia has developed the field before, it may have a certain advantage and make a more competitive bid than others," al-Shahristani was quoted as saying by the Interfax news agency. "However, it depends on Lukoil -- whether it offers the best terms to Iraq or not."
Target forecasts August same-store sales to rise 4% to 6%. July same-store sales up 6.1%.
Chevron Corp. made a "significant" oil discovery in Block 14, offshore Angola.
In the week ending Aug. 4, initial jobless claims rose by 7,000 to 316,000, the highest since June 30. The four-week average of initial claims also rose in the latest week, by 1,750, to 307,750. The number of people continuing to collect unemployment benefits continued to rise, increasing by 39,000 to 2.55 million in the week ending July 28. The four-week average of continuing claims rose to 2.54 million, up by 2,000.
Mark Zandi: "The catalyst for the global financial turmoil is investors coming to terms with the reality of the massive losses on their housing and mortgage-related investments. Of the approximately $2.5 trillion in subprime, Alt-A, and jumbo IO and option ARMs outstanding—equal to almost one-fourth of all mortgage debt outstanding—some $1.3 trillion is at serious risk of default (see chart). These at-risk loans were originated between late 2004 and early this year with less than 10% equity at time of origination. House prices are expected to decline 10% from their late 2005 peak to their nadir later next year. Of those at-risk loans, nearly $425 billion worth will actually default, ultimately resulting in losses to investors who purchased securities backed by those mortgages of well over $100 billion."
Justice Litle: "While we grudgingly respect Chairman Bernanke's savvy thus far, we feel there is no way he can win a rigged game... the Austrian End Game, that is, in which the ultimate decision is to "destroy the economy or destroy the currency" as Von Mises put it. For Fed Chairmen and heads of state, the Hobson's choice outlined by Von Mises is really no choice at all. It's a no-brainer for governments to gradually debase their currencies in service to false stability, as they have been doing consistently since Roman times...We've been banging the "long Yen" drum with enthusiasm... not just as a speculative play, but a risk management one. The nature of the carry trade is such that the Yen was bound to go up in a credit crunch, as it has done. If things get really bad, it could skyrocket."
Martin Weiss: "Indeed, the yen has been forcefully depressed for so long, it will have to surge by leaps in bounds just to catch up with the rising euro — not to mention catching up with other major currencies, like the Australian dollar or the Brazilian real, both which have been going up even faster. This is no trivial matter. Nor is it a sideshow to the drama unfolding in the U.S. credit markets. Quite to the contrary, it's of vital importance, and you must not underestimate it."
Brett Steenbarger: "We've moved back into the range from 7/26 - 8/06--a large false breakout."
Home Depot is in discussions with private equity firms Bain Capital, Caylyle, and with Clayton Dubilier & Rice over restructuring its previously agreed to sale of HD SUPPLY. This says the discussions could result in material change to the prior terms and financing of the sale of HD SUPPLY. That includes a reduction in the $10.325 Billion sale price. Obviously these firms are going to have to contribute more of their own capital and the amount of leverage available is ratcheting down drastically. The company is also modifiying its Dutch tender offer announced on July 10. The $39 to $44 price is being lowered to a $37 to $42 price range and is extending the date to August 31, 2007.
The U.S. Federal Reserve on Thursday said it added $12 billion of temporary reserves to the banking system through 14-day repurchase agreements. The amount was more than double the $5 billion of temporary reserves added via 14-day repurchases last Thursday.
Goldman Sachs analysts on Thursday upgraded the oil service and oil drilling sector to attractive from neutral. "We believe we are in the early stages of a multi-year investment period and believe the recent correction provides an attractive entry point," Goldman said in a note to clients. "We are bullish on the outlook for crude oil prices through 2008 and believe exploration and production spending growth estimates are conservative."
The market is now pricing in nearly 100% odds that the Federal Reserve will cut interest rates by the end of September, analysts at Action Economics said.
Natural gas supplies rose by 42 billion cubic feet to 2,882 billion cubic feet in the week ending August 3, the Energy Department reported Thursday. After the data, September natural gas rallied 37 cents, or 6%, at $6.60 per million British thermal units on the New York Mercantile Exchange.
Residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime, American International Group said on Thursday. In a presentation on its subprime exposure, AIG, the world's largest insurer and one of the biggest mortgage lenders, said total delinquencies in its $25.9 billion real estate portfolio were 2.5 percent. It said 10.8 percent of its subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading.
Robert McHugh: "We sit Wednesday with nine Hindenburg Omen observations since mid-June, getting another one Wednesday."
President Bush said Thursday that he's against letting Fannie Mae and Freddie Mac buy more home loans in an effort to prop up the sagging mortgage market, commenting that he prefers to reform the two entities first.
The Dow was down 387 points, or 2.8%, at 13,270 at the unofficial 4 p.m. close. The S&P 500 index fell 44 points, or 3%, to 1,453, while the Nasdaq Composite lost 56 points, or 2.2%, to 2,556. I guess Bush's talk on the economy didn't calm the markets. Maybe the markets realize he, by his own admission, only has enough knowledge to make generalizations about the economy. Here is a non-generalization:
In the past two weeks, another 13 corporate loan or bond deals have been postponed or reduced, representing just under $43 billion, in new research released Thursday by Baring Asset Management. The total number of deals pulled since June 22nd now stands at 46, analysts at the firm said, valued at more than $60 billion. That compares to last year where there were no pulled deals counted.
Kate Incontrera: "Don't worry about the housing market, Bush said in this speech. It's just a reaction to 'a flood of liquidity that came into the market in the past couple years.' Gee - really?" His familiarity with a "flood of liquidity" may be going back to his days in Texas.
Crude for September delivery closed down 56 cents at $71.59 a barrel on the New York Mercantile Exchange. Also on Nymex, September reformulated gasoline closed down 0.37 cent at $1.9340 a gallon, while September heating oil gained 2.24 cents at $1.9892 a gallon. September natural gas rose 36.60 cents, or 6%, at $6.586 per million British thermal units, boosted by bullish supply data from the Energy Department.
Gold for December delivery closed down $13.50, or 2%, at $672.80 an ounce on the New York Mercantile Exchange. Also on Nymex, September palladium fell $1.75 to $362.20 an ounce, October platinum dropped $15.80 to $1,275.30 an ounce, and September copper fell 7.80 cents to $3.3610 a pound.
Black Mesa Capital, a hedge fund firm that uses computer models to track down arbitrage opportunities, has told investors that at least one very large hedge fund or investment bank is liquidating "massive" trading portfolios, according to a letter the Santa Fe, NM-based firm sent to investors on Wednesday.
Although Asia has achieved unprecedented economic growth in the last three decades, hunger and poverty persist, with 600 million people living on less than $1 a day, the Asian Development Bank said Thursday.
Bill Bonner: "The symmetry of the system is simple: the East makes; the West takes. The East saves; the West spends. The East lends; the West borrows. The boom in the East is real; in the West it is a fraud."
Between The Hedges: " This is one of the most bifrucated days I have ever seen: I have literally hundreds of stocks on my monitor pages higher or barely down today with the DJIA down 300. This is highly unusual and indicates underlying strength, in my opinion. As well, Nasdaq breadth is -929, which is mild considering the headline losses. I still believe longer-term investors should use pullbacks to add to high-quality growth stocks at current levels and use strength to cut back on the most economically sensitive and emerging-market stocks."
The yen surged Thursday as investors bailed out of risky trades financed with the Japanese currency after one of Europe's biggest banks froze funds with links to the troubled U.S. subprime mortgage market.
The VIX closed up over 5 points at 26.48. Fear is alive in the trading arenas.
Lehman Brothers Holdings Inc. and Bear Stearns Cos., the fourth- and fifth-biggest U.S. securities firms, had their 2007 and 2008 profit estimates cut 7 percent by Sanford C. Bernstein & Co. analyst Brad Hintz.
Hintz expects Lehman, the largest underwriter of U.S. mortgage bonds, to earn $7.37 a share this year and $7.63 in 2008. That's down from his previous prediction of $7.87 a share and $8.20, respectively.
Bear Stearns may earn $12.99 a share in 2007 and $13.97 in 2008, Hintz said, down from his previous estimate of $14.10 and $15.10, respectively. He cut his estimates for Goldman Sachs by 5 percent and for Merrill Lynch and Morgan Stanley by between 3 and 4 percent.
Wednesday, August 08, 2007
The Turnaround
8/9/07 The Turnaround
The prime minister of Kazakhstan -- Karim Masimov -- stepped up rhetoric about cost overruns at the Kashagan oil field, saying "we are very disappointed with the execution of this project," the Wall Street Journal reported. However, many observers believe the most likely outcome will be that ENI will stay as operator of the field -- one of the largest in the world -- but that Kazakhstan will demand more of the field's revenue, according to the paper.
The Oil Drum: "More than a quarter of America's oil flows through southern Louisiana. Too bad the land is slowly sinking into the sea....Some 25 square miles of Louisiana have been collapsing into the gulf each year for three-quarters of a century. A total of 1,900 square miles, roughly the area of Delaware, disappeared between the 1930s and 2005, and another 217 square miles were pulverized into liquid by Katrina and Rita. And that land loss, says Ted Falgout, who has run Port Fourchon for 28 years, poses a growing threat not only to the people who live here but also to the U.S. energy supply. "We're on a train wreck here," says Falgout. "We have not designed the energy infrastructure - or any infrastructure - [to handle land loss]." The problem afflicts all of southern Louisiana. As land turns to water, it is exposing thousands of miles of oil and gas pipelines that were built underground and were not designed to withstand water or waves. "There are places where a pipeline that was laid in marsh, well protected, is now in five or six feet of water - in an open bay that is subject to a vessel coming across and hitting it," says Falgout. "That's the thing that [oil companies] are spending their money on right now. It's so huge that they're just putting out fires."
Home builder Toll Brothers Inc.'s fiscal third-quarter home building revenues fell 21% to $1.21 billion from $1.53 billion a year ago. The backlog at the end of the third quarter was $3.67 billion, down from $5.59 billion. Third quarter net signed contracts were approximately $727.1 million. "We are now in the twenty-third month of a down housing market. Hesitant customers remain on the sidelines, unsure of whether home prices have bottomed," said CEO Robert Toll. "We believe significant pent-up demand is building, based on solid demographics, a decent economy and still-strong employment. However, we caution that, with the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down," he added.
Core machinery orders from Japan's private sector fell 10.4% in June from the previous month, showing signs of a slowdown in corporate investment, according to data released by the country's Cabinet office Wednesday.
The Reserve Bank of Australia Wednesday raised a key interest rate by 0.25 percentage points to its highest level since November 1996, to contain inflation. The central bank said the decision to increase the cash rate to 6.5% was taken after its board judged that "a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term". The decision comes after data showed that the country's core inflation rose to 2.8% in the second quarter from a year ago, well above the RBA's 2.5% forecast in May, according to reports.
Andrew Kramer of the NY Times: "After gaining 20 percent in value against the dollar in the last few years, the ruble is even starting to displace the greenback as Russians’ currency of choice for both saving and spending...Russia is salting away oil money in a rainy day fund, called the Stabilization Fund, which holds more than $120 billion. In January, Moscow will split it into two funds: the Reserve Fund and the Fund of National Prosperity, the latter intended for state investments. Together with the Central Bank of Russia’s foreign reserves, Russian authorities have a currency reserve of $413 billion, the largest per capita foreign currency reserve of any major economy, including China’s. In an oil downturn, authorities could spend that reserve to protect the ruble."
Brad Setser: "At least to people like me, the argument that the dollar’s exchange rate – against all currencies, mind you, not just against the major currencies – is a market exchange rate simply isn’t credible.The US dollar’s value against most emerging currencies just isn’t determined in the market. Or rather it is determined in a market shaped by massive central bank intervention. And with emerging market central banks on track to sell $200b of dollars for euros and pounds (and probably substantially more; $400b isn’t out of the question if global reserve growth comes it at close to $1.2 trillion) to keep their portfolios balanced, I suspect that they are exercising some influence over a range of other exchange rates as well."
The Oil Drum: "In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels, saving $11 billion from being sent to foreign and often hostile countries...In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels, saving $11 billion from being sent to foreign and often hostile countries."
Japanese automakers widened their profit-making gap over the Detroit Three last year by 32 percent, according to a study released Tuesday. The profit gap, which already was significant in 2005 at $2,899 per vehicle sold in North America, widened by $915 to $3,814, according to a study of industry costs and profits by Laurie Harbour-Felax, managing director of Stout Risius Ross, a Chicago-based financial and operational advisory firm.
Nickel prices have plunged 44% since May 4.
China had a $120.9 billion increase in foreign reserves in the first half of 2007.
McDonald's same-store sales rose 6.5% in July.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug. 3 increased 8.1% to 656.5, its highest level since early June. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 1.2% to 626.0.
Wheat prices surged to a fresh 11 year highs on Tuesday amid concerns about further production losses after extreme weather damaged the Australian and European cereals crops.
Middle East and North African countries, such as Morocco, have rushed into the market to secure wheat supplies, underpinning prices, according to traders.
Chicago CBOT September wheat pushed above the $6.70 a bushel level for the first time since 1996 and later was trading up 5¼ cents to $6.69 ¼ a bushel.
Puru Saxena: "It is clear to me that over the coming years, the over-leveraged American society will have to undergo some sort of adjustment. Moreover, I suspect that this adjustment will not be easy. In other words, I expect the standard of living in the US to gradually decline in the years ahead."
Bank of England Signals That Interest Rate Needs to Increase to 6 Percent.
UK Telegraph: "Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress."
The National Association of Realtors trimmed its sales forecast for the sixth straight month but pared back its predicted drop in existing home values. Existing-home sales should hit a pace of 6.04 million units this year, down from the 6.11 million units it predicted last month. The national median sales price for existing homes should ease by 1.2 percent to $219,300 this year. Last month the trade group said prices should slip 1.4 percent. The median new-home price will probably fall 2.3 percent to $240,800 this year, the NAR said in its monthly economic outlook.
Sales of petroleum at the wholesale level have climbed 9.4% in the past year, but inventories haven't kept pace, rising only 2.4% in the past 12 months.
Business Week reports India's government has installed new curbs on overseas borrowing by local companies in a bid to counter inflation from a surge of foreign money into the country. The federal finance ministry has set a US$20 million (euro14.5 million) cap on the amount an Indian company can bring into the country in a full financial year from loans raised overseas. Companies bringing in less than that amount must satisfy the country's central bank that the money is needed to fund imports or other expenditures involving foreign exchange transactions, the ministry said in orders released late Tuesday. The new rules will not apply to companies that have already signed overseas loan agreements, it said.
Refineries operated at 91.3% of their operable capacity last week.
Crude-oil stocks fell by 3.6 million barrels to 336.4 million barrels in the week ending August 3, the American Petroleum Institute said Wednesday. Distillate stocks rose by 1.4 million barrels to 128.2 million barrels, while gasoline supplies fell by 5.4 million barrels to 203.1 million barrels, API said.
General Motors Corp. on Wednesday lowered its forecast for industry-wide U.S. sales in 2007 and said it would be "challenging" to achieve its target of selling 3 million vehicles at showrooms.
Bush said he opposed a proposal by Sen. Hillary Clinton of New York to create a $1 billion fund to help those at risk of foreclosure.
American Eagle Outfitters reported Wednesday that July sales at stores open at least a year decreased 6%.
Crude oil for September delivery closed down 27 cents at $72.15 a barrel on the New York Mercantile Exchange.
Gold for December delivery closed up $4 at $686.30 an ounce on the New York Mercantile Exchange. September silver rose 7.50 cents at $13.170 an ounce and September palladium gained 40 cents at $363.95 an ounce. In contrast, October platinum fell 20 cents to $1,291.10 an ounce and September copper fell 6.75 cents at $3.4390 a pound.
The prime minister of Kazakhstan -- Karim Masimov -- stepped up rhetoric about cost overruns at the Kashagan oil field, saying "we are very disappointed with the execution of this project," the Wall Street Journal reported. However, many observers believe the most likely outcome will be that ENI will stay as operator of the field -- one of the largest in the world -- but that Kazakhstan will demand more of the field's revenue, according to the paper.
The Oil Drum: "More than a quarter of America's oil flows through southern Louisiana. Too bad the land is slowly sinking into the sea....Some 25 square miles of Louisiana have been collapsing into the gulf each year for three-quarters of a century. A total of 1,900 square miles, roughly the area of Delaware, disappeared between the 1930s and 2005, and another 217 square miles were pulverized into liquid by Katrina and Rita. And that land loss, says Ted Falgout, who has run Port Fourchon for 28 years, poses a growing threat not only to the people who live here but also to the U.S. energy supply. "We're on a train wreck here," says Falgout. "We have not designed the energy infrastructure - or any infrastructure - [to handle land loss]." The problem afflicts all of southern Louisiana. As land turns to water, it is exposing thousands of miles of oil and gas pipelines that were built underground and were not designed to withstand water or waves. "There are places where a pipeline that was laid in marsh, well protected, is now in five or six feet of water - in an open bay that is subject to a vessel coming across and hitting it," says Falgout. "That's the thing that [oil companies] are spending their money on right now. It's so huge that they're just putting out fires."
Home builder Toll Brothers Inc.'s fiscal third-quarter home building revenues fell 21% to $1.21 billion from $1.53 billion a year ago. The backlog at the end of the third quarter was $3.67 billion, down from $5.59 billion. Third quarter net signed contracts were approximately $727.1 million. "We are now in the twenty-third month of a down housing market. Hesitant customers remain on the sidelines, unsure of whether home prices have bottomed," said CEO Robert Toll. "We believe significant pent-up demand is building, based on solid demographics, a decent economy and still-strong employment. However, we caution that, with the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down," he added.
Core machinery orders from Japan's private sector fell 10.4% in June from the previous month, showing signs of a slowdown in corporate investment, according to data released by the country's Cabinet office Wednesday.
The Reserve Bank of Australia Wednesday raised a key interest rate by 0.25 percentage points to its highest level since November 1996, to contain inflation. The central bank said the decision to increase the cash rate to 6.5% was taken after its board judged that "a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term". The decision comes after data showed that the country's core inflation rose to 2.8% in the second quarter from a year ago, well above the RBA's 2.5% forecast in May, according to reports.
Andrew Kramer of the NY Times: "After gaining 20 percent in value against the dollar in the last few years, the ruble is even starting to displace the greenback as Russians’ currency of choice for both saving and spending...Russia is salting away oil money in a rainy day fund, called the Stabilization Fund, which holds more than $120 billion. In January, Moscow will split it into two funds: the Reserve Fund and the Fund of National Prosperity, the latter intended for state investments. Together with the Central Bank of Russia’s foreign reserves, Russian authorities have a currency reserve of $413 billion, the largest per capita foreign currency reserve of any major economy, including China’s. In an oil downturn, authorities could spend that reserve to protect the ruble."
Brad Setser: "At least to people like me, the argument that the dollar’s exchange rate – against all currencies, mind you, not just against the major currencies – is a market exchange rate simply isn’t credible.The US dollar’s value against most emerging currencies just isn’t determined in the market. Or rather it is determined in a market shaped by massive central bank intervention. And with emerging market central banks on track to sell $200b of dollars for euros and pounds (and probably substantially more; $400b isn’t out of the question if global reserve growth comes it at close to $1.2 trillion) to keep their portfolios balanced, I suspect that they are exercising some influence over a range of other exchange rates as well."
The Oil Drum: "In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels, saving $11 billion from being sent to foreign and often hostile countries...In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels, saving $11 billion from being sent to foreign and often hostile countries."
Japanese automakers widened their profit-making gap over the Detroit Three last year by 32 percent, according to a study released Tuesday. The profit gap, which already was significant in 2005 at $2,899 per vehicle sold in North America, widened by $915 to $3,814, according to a study of industry costs and profits by Laurie Harbour-Felax, managing director of Stout Risius Ross, a Chicago-based financial and operational advisory firm.
Nickel prices have plunged 44% since May 4.
China had a $120.9 billion increase in foreign reserves in the first half of 2007.
McDonald's same-store sales rose 6.5% in July.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug. 3 increased 8.1% to 656.5, its highest level since early June. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 1.2% to 626.0.
Wheat prices surged to a fresh 11 year highs on Tuesday amid concerns about further production losses after extreme weather damaged the Australian and European cereals crops.
Middle East and North African countries, such as Morocco, have rushed into the market to secure wheat supplies, underpinning prices, according to traders.
Chicago CBOT September wheat pushed above the $6.70 a bushel level for the first time since 1996 and later was trading up 5¼ cents to $6.69 ¼ a bushel.
Puru Saxena: "It is clear to me that over the coming years, the over-leveraged American society will have to undergo some sort of adjustment. Moreover, I suspect that this adjustment will not be easy. In other words, I expect the standard of living in the US to gradually decline in the years ahead."
Bank of England Signals That Interest Rate Needs to Increase to 6 Percent.
UK Telegraph: "Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress."
The National Association of Realtors trimmed its sales forecast for the sixth straight month but pared back its predicted drop in existing home values. Existing-home sales should hit a pace of 6.04 million units this year, down from the 6.11 million units it predicted last month. The national median sales price for existing homes should ease by 1.2 percent to $219,300 this year. Last month the trade group said prices should slip 1.4 percent. The median new-home price will probably fall 2.3 percent to $240,800 this year, the NAR said in its monthly economic outlook.
Sales of petroleum at the wholesale level have climbed 9.4% in the past year, but inventories haven't kept pace, rising only 2.4% in the past 12 months.
Business Week reports India's government has installed new curbs on overseas borrowing by local companies in a bid to counter inflation from a surge of foreign money into the country. The federal finance ministry has set a US$20 million (euro14.5 million) cap on the amount an Indian company can bring into the country in a full financial year from loans raised overseas. Companies bringing in less than that amount must satisfy the country's central bank that the money is needed to fund imports or other expenditures involving foreign exchange transactions, the ministry said in orders released late Tuesday. The new rules will not apply to companies that have already signed overseas loan agreements, it said.
Refineries operated at 91.3% of their operable capacity last week.
Crude-oil stocks fell by 3.6 million barrels to 336.4 million barrels in the week ending August 3, the American Petroleum Institute said Wednesday. Distillate stocks rose by 1.4 million barrels to 128.2 million barrels, while gasoline supplies fell by 5.4 million barrels to 203.1 million barrels, API said.
General Motors Corp. on Wednesday lowered its forecast for industry-wide U.S. sales in 2007 and said it would be "challenging" to achieve its target of selling 3 million vehicles at showrooms.
Bush said he opposed a proposal by Sen. Hillary Clinton of New York to create a $1 billion fund to help those at risk of foreclosure.
American Eagle Outfitters reported Wednesday that July sales at stores open at least a year decreased 6%.
Crude oil for September delivery closed down 27 cents at $72.15 a barrel on the New York Mercantile Exchange.
Gold for December delivery closed up $4 at $686.30 an ounce on the New York Mercantile Exchange. September silver rose 7.50 cents at $13.170 an ounce and September palladium gained 40 cents at $363.95 an ounce. In contrast, October platinum fell 20 cents to $1,291.10 an ounce and September copper fell 6.75 cents at $3.4390 a pound.
Tuesday, August 07, 2007
Inflation?
8/8/07 Inflation?
Marsoft: "Dry bulk shipowners had reason to celebrate in the second quarter of 2007, as rates and prices zoomed to new heights. The Cape sector led the way during most of the quarter, but by June and July, Panamaxes and Handymaxes were also setting new records. The Cape rally gained momentum in the second quarter of 2007, as freight rates rose significantly for the fourth consecutive quarter. After averaging $77,000 per day in the first quarter, the Cape Baltic TC Index surged to a record-high above $110,000 per day in May. For the second quarter as a whole, rates averaged $98,000 per day and remained near this level during July."
Business Week blog: "When Wipro announced today that it has a deal to buy U.S. outsourcer Infocrossing for about $600 million, it signaled a major step up for India. This was the largest acquisition ever for the entire Indian IT industry."
Prices for milk and other dairy products have skyrocketed lately in Germany. Cream, cheese, curd, butter and ice cream have suddenly become up to 50 percent more expensive.
Christopher Hancock: "Last week we reported the inconvenient truth that M3 is increasing at 12% a year. M3 is the fullest measure of the U.S. money supply… and it is going up three to four times faster than the GDP itself."
Brad Setser: "China has stopped buying US mortgage-backed securities...A shift from PBoC buying of MBS toward PBoC buying of T-bills could explain the unusual surge in T-bill prices (and resulting fall in yields) in early June."
According to the WSJ, MORTGAGE-MARKET TURMOIL IS starting to hit buyers of high-end homes, as interest rates surge on jumbo loans. Archstone's acquisition by Tishman Speyer and Lehman will be delayed.
Nearly one-quarter of all U.S. flights arrived late to their destinations, the industry's worst on-time performance since the Bureau of Transportation Statistics began tracking such data in 1995.
Xstrata Plc met forecasts with a 47 percent rise in first-half profit on Tuesday and unveiled a $1 billion offer for South Africa's Eland Platinum in a bid to tap booming demand for the metal from Asia. The Swiss-based miner, which has failed to close two deals this year after a string of previous acquisitions, said it had secured the support of shareholders owning 51 percent of Eland.
Xstrata's six month net profit reached $3 billion, up 47% from a pro forma $2.04 billion a year earlier. Revenue was $14.23 billion, up 20% from the pro forma $11.89 billion and more than double the statutory result of $5.18 billion a year ago after integrating three major acquisitions during the period. The group said higher base metal prices and robust bulk commodity prices contributed to its increased profitability, with increased production volumes across the majority of its commodity business partially offset by lower production volumes from Xstrata Copper. The group said global demand for commodities remains strong and the operational issues which impacted volumes in the first half are now behind it.
China's inflation is likely to be kept under 4% this year, because rising food prices will be restrained in the second half, Chinese state media reported late Monday, citing a National Bureau of Statistics official.
Productivity in the U.S. non-farm business sector rose at a 1.8% annual rate in the second quarter, below economist expectations for an increase of 2.1%. Unit labor costs - a key inflationary signal - rose at an annual rate of 2.1%, above expectations for a 1.6% gain. Real hourly compensation fell 2.0%. In the first quarter, productivity was revised to a 0.7% increase from 1.0% previously. First quarter unit labor costs rose 3.0% rather than the 1.8% increase originally reported.Compared with the same quarter a year ago, productivity was up 0.6% while unit labor costs rose 4.5, the fastest pace since the third quarter of 2000.
What would it be like if public companies revised their numbers every quarter?
Brett Steenbarger: "Interestingly, Monday--the day of hitting a new price low for the S&P index--we had more stocks closing at 10 day highs than at 10 day lows... When you see stocks from different sectors closing at fresh highs and fewer closing at new lows on a day where you've made new lows in the overall index, it makes you wonder about how much steam the decline has left."
Impac Mortgage Holdings Inc. said Tuesday it will stop originating alt-A mortgages and is cutting staff in the wake of the deteriorating mortgage market, but added it has been able to meet all margin calls to date.
Sun Microsystems plans to cut its work force as part of a new restructuring plan. However, in a regulatory filing with the Securities and Exchange Commission, the server and software maker does not detail the job cuts.
Prevention Magazine Sept Issue Page 197: " First in a new class of drugs called melanocortin agonists, this nasal spray- just click once and breathe through a small inhaler, 15 to 30 minutes before sex- increases blood flow to the genitals. Unlike Viagra,it has no effect on the cardiovascular system (it works on the central Nervous System). In clinical trials of both pre-menopausal and post menopausal women with sexual dysfunction, it significantly increased desire and genital arousal. Expect FDA approval for women in 2011." This is Palatin's product.
Cisco reported fourth quarter net sales of $9.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.31 per share, and non-GAAP net income of $2.3 billion or $0.36 per share. Revenue grew 18% to $9.43 billion.
Crude oil futures for September delivery finished up 36 cents at $72.42 a barrel. "[The Fed] acknowledged the credit concerns out there, but said that predominant risk remains inflation," said Owen Fitzpatrick, head of U.S. equities at Deutsche Bank.
An increase in credit-card debt pushed outstanding U.S. consumer debt up at a 6.5% annual rate, or $13.2 billion, to $2.46 trillion in June, the Federal Reserve said Tuesday. In June, credit-card and other forms of revolving debt rose at an 8.4% annual rate, or by $6.3 billion. May's revolving credit gain was revised upward, to 12.2%.
Gold for December delivery closed down $1 at $682.30 an ounce on the New York Mercantile Exchange. September silver gained 6.20 cents at $13.095 an ounce, October platinum fell $7.70 at $1,291.30 an ounce and September palladium fell $3.05 at $363.55 an ounce. September copper gained 3.30 cents at $3.5065 a pound.
Marsoft: "Dry bulk shipowners had reason to celebrate in the second quarter of 2007, as rates and prices zoomed to new heights. The Cape sector led the way during most of the quarter, but by June and July, Panamaxes and Handymaxes were also setting new records. The Cape rally gained momentum in the second quarter of 2007, as freight rates rose significantly for the fourth consecutive quarter. After averaging $77,000 per day in the first quarter, the Cape Baltic TC Index surged to a record-high above $110,000 per day in May. For the second quarter as a whole, rates averaged $98,000 per day and remained near this level during July."
Business Week blog: "When Wipro announced today that it has a deal to buy U.S. outsourcer Infocrossing for about $600 million, it signaled a major step up for India. This was the largest acquisition ever for the entire Indian IT industry."
Prices for milk and other dairy products have skyrocketed lately in Germany. Cream, cheese, curd, butter and ice cream have suddenly become up to 50 percent more expensive.
Christopher Hancock: "Last week we reported the inconvenient truth that M3 is increasing at 12% a year. M3 is the fullest measure of the U.S. money supply… and it is going up three to four times faster than the GDP itself."
Brad Setser: "China has stopped buying US mortgage-backed securities...A shift from PBoC buying of MBS toward PBoC buying of T-bills could explain the unusual surge in T-bill prices (and resulting fall in yields) in early June."
According to the WSJ, MORTGAGE-MARKET TURMOIL IS starting to hit buyers of high-end homes, as interest rates surge on jumbo loans. Archstone's acquisition by Tishman Speyer and Lehman will be delayed.
Nearly one-quarter of all U.S. flights arrived late to their destinations, the industry's worst on-time performance since the Bureau of Transportation Statistics began tracking such data in 1995.
Xstrata Plc met forecasts with a 47 percent rise in first-half profit on Tuesday and unveiled a $1 billion offer for South Africa's Eland Platinum in a bid to tap booming demand for the metal from Asia. The Swiss-based miner, which has failed to close two deals this year after a string of previous acquisitions, said it had secured the support of shareholders owning 51 percent of Eland.
Xstrata's six month net profit reached $3 billion, up 47% from a pro forma $2.04 billion a year earlier. Revenue was $14.23 billion, up 20% from the pro forma $11.89 billion and more than double the statutory result of $5.18 billion a year ago after integrating three major acquisitions during the period. The group said higher base metal prices and robust bulk commodity prices contributed to its increased profitability, with increased production volumes across the majority of its commodity business partially offset by lower production volumes from Xstrata Copper. The group said global demand for commodities remains strong and the operational issues which impacted volumes in the first half are now behind it.
China's inflation is likely to be kept under 4% this year, because rising food prices will be restrained in the second half, Chinese state media reported late Monday, citing a National Bureau of Statistics official.
Productivity in the U.S. non-farm business sector rose at a 1.8% annual rate in the second quarter, below economist expectations for an increase of 2.1%. Unit labor costs - a key inflationary signal - rose at an annual rate of 2.1%, above expectations for a 1.6% gain. Real hourly compensation fell 2.0%. In the first quarter, productivity was revised to a 0.7% increase from 1.0% previously. First quarter unit labor costs rose 3.0% rather than the 1.8% increase originally reported.Compared with the same quarter a year ago, productivity was up 0.6% while unit labor costs rose 4.5, the fastest pace since the third quarter of 2000.
What would it be like if public companies revised their numbers every quarter?
Brett Steenbarger: "Interestingly, Monday--the day of hitting a new price low for the S&P index--we had more stocks closing at 10 day highs than at 10 day lows... When you see stocks from different sectors closing at fresh highs and fewer closing at new lows on a day where you've made new lows in the overall index, it makes you wonder about how much steam the decline has left."
Impac Mortgage Holdings Inc. said Tuesday it will stop originating alt-A mortgages and is cutting staff in the wake of the deteriorating mortgage market, but added it has been able to meet all margin calls to date.
Sun Microsystems plans to cut its work force as part of a new restructuring plan. However, in a regulatory filing with the Securities and Exchange Commission, the server and software maker does not detail the job cuts.
Prevention Magazine Sept Issue Page 197: " First in a new class of drugs called melanocortin agonists, this nasal spray- just click once and breathe through a small inhaler, 15 to 30 minutes before sex- increases blood flow to the genitals. Unlike Viagra,it has no effect on the cardiovascular system (it works on the central Nervous System). In clinical trials of both pre-menopausal and post menopausal women with sexual dysfunction, it significantly increased desire and genital arousal. Expect FDA approval for women in 2011." This is Palatin's product.
Cisco reported fourth quarter net sales of $9.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.31 per share, and non-GAAP net income of $2.3 billion or $0.36 per share. Revenue grew 18% to $9.43 billion.
Crude oil futures for September delivery finished up 36 cents at $72.42 a barrel. "[The Fed] acknowledged the credit concerns out there, but said that predominant risk remains inflation," said Owen Fitzpatrick, head of U.S. equities at Deutsche Bank.
An increase in credit-card debt pushed outstanding U.S. consumer debt up at a 6.5% annual rate, or $13.2 billion, to $2.46 trillion in June, the Federal Reserve said Tuesday. In June, credit-card and other forms of revolving debt rose at an 8.4% annual rate, or by $6.3 billion. May's revolving credit gain was revised upward, to 12.2%.
Gold for December delivery closed down $1 at $682.30 an ounce on the New York Mercantile Exchange. September silver gained 6.20 cents at $13.095 an ounce, October platinum fell $7.70 at $1,291.30 an ounce and September palladium fell $3.05 at $363.55 an ounce. September copper gained 3.30 cents at $3.5065 a pound.
Monday, August 06, 2007
The Monday Rebound
8/7/07 The Monday Rebound
John Hussman: "As usual, I have no forecast of what the market will do in the coming weeks. Suffice it to say that both valuations and market internals are unfavorable, which demands a largely hedged position at present, but that short-term conditions are oversold, which invites the potential for a “fast, furious, prone-to-failure” advance to partially correct the recent market weakness. These “clearing rallies” are more vulnerable when they are on lighter trading volume (which we only observe as they unfold), and are typically more exploitable when interest rates and credit spreads are trending lower (which is unfortunately not the case at the moment). Again, we remain largely hedged at present...Overvalued, overbought, overbullish periods have historically left nothing on the table for speculative investors, on average, so I certainly don't believe the attempt to capture returns in such conditions is worth the risk. In any event, my impression is that little of the market's gain over-and-above Treasury bill yields since 2003 will make it through the next bear market, whenever it occurs."
The Pentagon has lost track of about 190,000 AK-47 assault rifles and pistols given to Iraqi security forces in 2004 and 2005, according to a new government report. If the Pentagon were a public company, would the CEO be ousted? Don't American citizens "own" the Pentagon?
Brett Steenbarger: "Over the past three weeks, we've seen the S&P 500 Index (SPY) shed more than 7% of its value. At the same time, we've seen 10-year Treasury yields drop more than 7% in a flight to quality. I went back to 1997 (N = 509 trading weeks) and found 15 occasions in which both SPY and 10-year yields had dropped more than 5% in a three-week period. These periods included late August/early September, 1998; December, 2000; March, 2001; June-July, 2002; September, 2002; and December, 2002. Interestingly, when we look 20 weeks forward, SPY was up on 11 of the 15 occasions, by an average of 5.95%. That compares quite favorably to the average 20-week gain of 2.18% for the remainder of the sample. The June, 2002 occasions were the most dangerous, showing a further double-digit drop during the next twenty trading weeks. Eight of the 15 occasions were up more than 5% twenty weeks later. Clearly there has been opportunity as well as crisis when investors flee risk."
Akzo Nobel has won access to Imperial Chemical Industries' books after raising its indicative bid for the British maker of Dulux paints to 8.0 billion pounds ($16.3 billion). The two firms said on Monday that Akzo, which has teamed up with German consumer goods firm Henkel for the bid proposal, was now offering 670 pence a share in cash, up 3 percent from the 650 pence a share rejected by ICI last week.
Countrywide Financial Corp. on Monday said it has immediate access to $46.2 billion through a variety of cash, credit lines and investments the mortgage lender can sell.
The NY Times will shrink the width of its newspaper by 1 ½ inches tomorrow to cut newsprint expenses, almost eight months ahead of schedule, according to a note to its readers.
The New York Times reports that Wal-Mart (WMT) and India's Bharti Enterprises will launch a joint venture in the country to build stores.
The dollar weakened across the board on Monday, hitting a 15-year low against a basket of currencies as investors speculated rising credit market risk and softening U.S. data could force a cut in U.S. interest rates.The dollar index fell below the psychologically key 80.0 level.
Tom Au: "But the real problem is that the Fed’s policies are now hostage to those of the Administration."
The Baltic Dry Index, the best gauge of the world’s dry bulk shipping costs, last week rose above 7,000 points for the first time – an increase of 103 per cent in the past year. The index, which closed at 7,007 on Friday, has jumped almost fivefold since 2000. The sharp increase threatens to add to already rising prices for agriculture, base metals and ore commodities.
``Despite the continued weakness in the homebuilding marketplace, WCI has received approximately $130 million of positive free cash flow already this year, including $25 million to $30 million in the second quarter,'' said Jerry Starkey, President and CEO of WCI Communities. ``And the company expects to generate an additional $400 million to $600 million of free cash flow during the remainder of the year.'' Free cash flow is net cash flow from operations plus or minus net cash flow from investments in property and equipment.
Temple-Inland Inc. agreed to sell 1.55 million acres of timberland to privately-held The Campbell Group Inc. for $2.38 billion. Net proceeds from the transaction are expected to be about $1.8 billion, the majority of which will be paid to shareholders in the form of a special dividend of about $10.25 a share, the company said. About another $700 million will be used to pay down debt. The deal is expected to close in the fourth quarter.
Mid-morning the VIX trading at a new high of 26.45. As the Dow rallied, the VIX weakened and closed near the day's low at 22.94.
Crude for September delivery ended down $3.42, or nearly 5%, at $72.06 a barrel on the New York Mercantile Exchange. September reformulated gasoline fell 10.31 cents, or nearly 5%, at $1.9259 a gallon. September heating oil closed down 9.47 cents, or more than 4%, at $1.9393 a gallon. Bucking the trend in energy futures, September natural gas rose 11.80 cents, or about 2%, at $6.208 per million British thermal units.
National City Home Equity unit has suspended approvals of addition loans or lines of credit in response to market conditions.
Gold for December delivery closed down $1.10 at $683.30 an ounce on the New York Mercantile Exchange. September silver fell 12.50 cents to $13.033 an ounce, October platinum gained $1 at $1,299 an ounce and September palladium fell 45 cents to $366.60 an ounce. September copper edged down 0.55 cent to $3.4735 a pound.
Fannie Mae’s chairman said the company was “prepared to step up and help the industry”.
John Hussman: "As usual, I have no forecast of what the market will do in the coming weeks. Suffice it to say that both valuations and market internals are unfavorable, which demands a largely hedged position at present, but that short-term conditions are oversold, which invites the potential for a “fast, furious, prone-to-failure” advance to partially correct the recent market weakness. These “clearing rallies” are more vulnerable when they are on lighter trading volume (which we only observe as they unfold), and are typically more exploitable when interest rates and credit spreads are trending lower (which is unfortunately not the case at the moment). Again, we remain largely hedged at present...Overvalued, overbought, overbullish periods have historically left nothing on the table for speculative investors, on average, so I certainly don't believe the attempt to capture returns in such conditions is worth the risk. In any event, my impression is that little of the market's gain over-and-above Treasury bill yields since 2003 will make it through the next bear market, whenever it occurs."
The Pentagon has lost track of about 190,000 AK-47 assault rifles and pistols given to Iraqi security forces in 2004 and 2005, according to a new government report. If the Pentagon were a public company, would the CEO be ousted? Don't American citizens "own" the Pentagon?
Brett Steenbarger: "Over the past three weeks, we've seen the S&P 500 Index (SPY) shed more than 7% of its value. At the same time, we've seen 10-year Treasury yields drop more than 7% in a flight to quality. I went back to 1997 (N = 509 trading weeks) and found 15 occasions in which both SPY and 10-year yields had dropped more than 5% in a three-week period. These periods included late August/early September, 1998; December, 2000; March, 2001; June-July, 2002; September, 2002; and December, 2002. Interestingly, when we look 20 weeks forward, SPY was up on 11 of the 15 occasions, by an average of 5.95%. That compares quite favorably to the average 20-week gain of 2.18% for the remainder of the sample. The June, 2002 occasions were the most dangerous, showing a further double-digit drop during the next twenty trading weeks. Eight of the 15 occasions were up more than 5% twenty weeks later. Clearly there has been opportunity as well as crisis when investors flee risk."
Akzo Nobel has won access to Imperial Chemical Industries' books after raising its indicative bid for the British maker of Dulux paints to 8.0 billion pounds ($16.3 billion). The two firms said on Monday that Akzo, which has teamed up with German consumer goods firm Henkel for the bid proposal, was now offering 670 pence a share in cash, up 3 percent from the 650 pence a share rejected by ICI last week.
Countrywide Financial Corp. on Monday said it has immediate access to $46.2 billion through a variety of cash, credit lines and investments the mortgage lender can sell.
The NY Times will shrink the width of its newspaper by 1 ½ inches tomorrow to cut newsprint expenses, almost eight months ahead of schedule, according to a note to its readers.
The New York Times reports that Wal-Mart (WMT) and India's Bharti Enterprises will launch a joint venture in the country to build stores.
The dollar weakened across the board on Monday, hitting a 15-year low against a basket of currencies as investors speculated rising credit market risk and softening U.S. data could force a cut in U.S. interest rates.The dollar index fell below the psychologically key 80.0 level.
Tom Au: "But the real problem is that the Fed’s policies are now hostage to those of the Administration."
The Baltic Dry Index, the best gauge of the world’s dry bulk shipping costs, last week rose above 7,000 points for the first time – an increase of 103 per cent in the past year. The index, which closed at 7,007 on Friday, has jumped almost fivefold since 2000. The sharp increase threatens to add to already rising prices for agriculture, base metals and ore commodities.
``Despite the continued weakness in the homebuilding marketplace, WCI has received approximately $130 million of positive free cash flow already this year, including $25 million to $30 million in the second quarter,'' said Jerry Starkey, President and CEO of WCI Communities. ``And the company expects to generate an additional $400 million to $600 million of free cash flow during the remainder of the year.'' Free cash flow is net cash flow from operations plus or minus net cash flow from investments in property and equipment.
Temple-Inland Inc. agreed to sell 1.55 million acres of timberland to privately-held The Campbell Group Inc. for $2.38 billion. Net proceeds from the transaction are expected to be about $1.8 billion, the majority of which will be paid to shareholders in the form of a special dividend of about $10.25 a share, the company said. About another $700 million will be used to pay down debt. The deal is expected to close in the fourth quarter.
Mid-morning the VIX trading at a new high of 26.45. As the Dow rallied, the VIX weakened and closed near the day's low at 22.94.
Crude for September delivery ended down $3.42, or nearly 5%, at $72.06 a barrel on the New York Mercantile Exchange. September reformulated gasoline fell 10.31 cents, or nearly 5%, at $1.9259 a gallon. September heating oil closed down 9.47 cents, or more than 4%, at $1.9393 a gallon. Bucking the trend in energy futures, September natural gas rose 11.80 cents, or about 2%, at $6.208 per million British thermal units.
National City Home Equity unit has suspended approvals of addition loans or lines of credit in response to market conditions.
Gold for December delivery closed down $1.10 at $683.30 an ounce on the New York Mercantile Exchange. September silver fell 12.50 cents to $13.033 an ounce, October platinum gained $1 at $1,299 an ounce and September palladium fell 45 cents to $366.60 an ounce. September copper edged down 0.55 cent to $3.4735 a pound.
Fannie Mae’s chairman said the company was “prepared to step up and help the industry”.
Sunday, August 05, 2007
The Truth And Observations
8/6/07 The Truth And Observations
Brett Steenbarger: "Stocks making new lows did not expand on Fri despite the drop. 16% of NYSE stocks trading above their 50-day MA."
Marcus Aurelius: “Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”
Mike Burk: "1987 was the last time a Presidential Cycle low was realized in the 3rd year...1987 stands out because it was the last time the 4 year Presidential Cycle was extended for a year. However, the conditions leading to the 1987 crash were different. The blue chips had been outperforming for quite a while prior to the 1987 crash while the small caps have been the leaders in recent years. The manic nature of the market recently has been reminiscent of late 1999 and early 2000, but there has not been the prolonged concentration in a single sector like there was in 1999. The high number of new lows and high value of the new low indicators suggests this bottom will take a little while to develop...During the 3rd year of the Presidential Cycle the OTC has been up 73% of the time during the coming week, but the SPX only 46% of the time. Average returns during the 3rd year of the Presidential Cycle have been ok, while the average over all years has been modest...I expect the major indices to be higher on Friday August 10 than they were on Friday August 3."
“Thirty-seven new high-rise condos and 20,000 new units are being built in Miami's 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida.”
“The peak month for resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt—a few billion dollars—was resetting each month.”
A senior Iranian diplomat said on Saturday that Tehran would hold meeting with the United States over the Iraq security issue in Baghdad on Monday, the state media reported. "Based on the agreement, the two sides would exchange ideas over details of a trilateral security committee on Monday," Iran's Ambassador to Iraq Hassan Kazemi Qomi, was quoted as saying by the official IRNA news agency.
According to the Chicago Tribune, Iraq's power grid is near collapse because of insurgent sabotage of infrastructure, rising demand, fuel shortages and provinces that are unplugging local power stations from the national grid, officials said Saturday. Electricity Ministry spokesman Aziz al-Shimari said there had been four nationwide blackouts over the past two days and the shortages are the worst since 2003.
Brett Steenbarger: "Stocks making new lows did not expand on Fri despite the drop. 16% of NYSE stocks trading above their 50-day MA."
Marcus Aurelius: “Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”
Mike Burk: "1987 was the last time a Presidential Cycle low was realized in the 3rd year...1987 stands out because it was the last time the 4 year Presidential Cycle was extended for a year. However, the conditions leading to the 1987 crash were different. The blue chips had been outperforming for quite a while prior to the 1987 crash while the small caps have been the leaders in recent years. The manic nature of the market recently has been reminiscent of late 1999 and early 2000, but there has not been the prolonged concentration in a single sector like there was in 1999. The high number of new lows and high value of the new low indicators suggests this bottom will take a little while to develop...During the 3rd year of the Presidential Cycle the OTC has been up 73% of the time during the coming week, but the SPX only 46% of the time. Average returns during the 3rd year of the Presidential Cycle have been ok, while the average over all years has been modest...I expect the major indices to be higher on Friday August 10 than they were on Friday August 3."
“Thirty-seven new high-rise condos and 20,000 new units are being built in Miami's 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida.”
“The peak month for resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt—a few billion dollars—was resetting each month.”
A senior Iranian diplomat said on Saturday that Tehran would hold meeting with the United States over the Iraq security issue in Baghdad on Monday, the state media reported. "Based on the agreement, the two sides would exchange ideas over details of a trilateral security committee on Monday," Iran's Ambassador to Iraq Hassan Kazemi Qomi, was quoted as saying by the official IRNA news agency.
According to the Chicago Tribune, Iraq's power grid is near collapse because of insurgent sabotage of infrastructure, rising demand, fuel shortages and provinces that are unplugging local power stations from the national grid, officials said Saturday. Electricity Ministry spokesman Aziz al-Shimari said there had been four nationwide blackouts over the past two days and the shortages are the worst since 2003.
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