6/10/10 MACD
A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according to Paul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.
“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”
Barry Ritholtz: ": Bush Treasury Secretary Hank Paulson and then NY Fed President Tim Geithner misled the public as to how bad AIG’s position actually was.
The two failed to disclose to the public that the AIG problem was even worse than reported. They described AIG’s problems as a “cash squeeze” when it was in fact a full blown bailout of AIG. WHat was supposedly a loan to a distressed company in fact was a bailout of dubious legality.
Had the reality of the situation been properly disclosed, the $185 billion rescue might not have been made. Hence, the fraud."
China's total exports rose 48.5 percent in May from a year earlier and imports were up 48.3 percent, the General Administration of Customs said on Thursday, giving China a trade surplus of $19.5 billion, up from just $1.7 billion in April.
JPM pointed out yesterday, not only do European banks use more leverage, but the "the larger size of Europe’s banks argue against using simple GDP weights to assess potential risks to global markets. Due to a buyer’s strike over the last month, European banks now have 3.5x as much debt to issue than U.S. banks over the remainder of the year."
New Zealand's central bank hikes key rate to 2.75%.
Brazilian monetary policy makers late Wednesday voted unanimously to raise the country's key interest rate to 10.25% from 9.5%. The decision met widely held expectations. The bank said in an accompanying statement that it will continue the process of adjusting monetary conditions to ensure the convergence of inflation to its target. The bank started its latest rate-tightening campaign in April by lifting the Selic rate from the historic low of 8.75%. Earlier Wednesday, the country's Census Bureau reported a 0.43% rise in May consumer prices from April, below the Dow Jones Newswires estimate for a rise of 0.46%. Annual inflation now stands at 5.22%, above the central bank's target of 4.5%.
BP said it had the resources to deal with its liabilities.
"BP faces this situation as a strong company," the company said in a statement on Thursday.
"The company is not aware of any reason which justifies this share price movement," it said of the ADR drop.
ING analyst Jason Kenney said the stock was "materially oversold" but added he didn't see any likelihood of investor sentiment toward Bp improving anytime soon.
Analysts at Bank of America Merrill Lynch said the company could afford to pay its $28 billion estimate of spill costs but added there was massive uncertainty around the overall impact with a possible dividend cut, management changes and more limited growth opportunities in future.
Five-year BP credit default swaps rose 140 basis points (bps) to 520 bps, making a rise of 250 bps in two days, one trader said, implying that the cost of insuring BP's debt against default had almost doubled in recent days.
The cost of the response effort to date has been around $1.43 billion, BP said.
BP shares opened down 11% in London Thursday, taking the company's value to a 13-year low, following a 16% fall in its U.S.-listed shares Wednesday. Shares, however, rebounded and were recently 3.8% lower at 377 pence ($5.48), on a slightly higher London market.
Fund managers at Allianz SE unit Pimco, including Bill Gross of Pimco Total Return Fund, have begun buying Treasury bonds in recent weeks after months of deriding Treasurys, according to Thursday's Wall Street Journal.
The number of people applying for initial unemployment benefits fell 3,000 to 456,000 in the week ended June 5, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 445,000. The four-week average of initial claims - a better gauge of employment trends than the volatile weekly number - rose 2,500 to 463,000. Continuing claims in the week ended May 29 - the latest data available - decreased 255,000 to 4.46 million - the lowest level since December 2008. The four-week average of these continuing claims fell 49,250 to 4.62 million - the lowest level since January 2009. States did not explain to the Labor Department why continuing claims dropped, and it may take a couple of weeks to understand the volatility of the data. The total number of people collecting some type of unemployment benefits in the week ended May 22 was about 9.8 million, up 40,000 from the prior week.
Trade of goods and services across U.S. borders softened in April and the trade deficit rose to the highest level in more than a year, the Commerce Department estimated Thursday. Imports of goods and services dropped 0.4% to a seasonally adjusted $189.1 billion while exports declined 0.7% to $148.8 billion. The trade deficit (the difference between exports and imports) rose to $40.3 billion in April from a downwardly revised $40 billion in March. It was the largest deficit since December 2008.
Investors spooked by choppy markets continued to pull out of U.S. stock mutual funds, which saw outflows of $1.1 billion for the week ending June 2 while international mutual funds gained $463 million, according to the Investment Company Institute, a fund industry trade group. Flows to bond funds continued, with taxable and municipal bonds up $3.4 billion and $869 million, respectively.
The European Central Bank on Thursday left its key lending rate unchanged at a record low 1%.
The Bank of England's Monetary Policy Committee on Thursday left its key interest rate unchanged at a record low 0.5%. Policy makers also left the central bank's 200 billion pound ($292 billion) program of bond purchases on pause. Both decisions were widely expected.
The International Energy Agency revised up its 2010 global oil demand forecast by 60,000 barrels a day to 86.4 million barrels, citing better-than-expected preliminary economic data from the OECD countries. The new demand view implies yearly demand growth is seen up by 2%, or 1.7 million barrels, from 2009 levels. Total oil supply fell 575,000 barrels a day to 86.3 million barrels in May. The IEA also commented on the Deepwater Horizon drilling rig sinking, saying the U.S. is now delatedly following the steps taken by the U.K. after the 1988 Piper Alpha disaster -- but it noted that scores of new offshore fields were developed in the subsequent demand. "The longer-lasting impact of Deepwater Horizon on U.S. oil supplies may depend on whether operational negligence on the part of companies or regulators, or rather shortcomings in current operating procedures and regulatory structures, were the key cause. The former might suggest a less profound impact on future oil supply than the latter," the agency said.
The top Nato commander in Afghanistan says a military operation to drive militants out of Kandahar will move at a slower pace than planned.
Congressional anger over China's currency and trade practices boiled over on Wednesday as senators vowed to pass legislation soon and lashed out at President Barack Obama's administration for failing to get tough with Beijing.
39 percent of BP shareholders live in the U.S. “They’re penalizing people that are innocent by cutting the dividend at this point, when they don’t even need to. It seems very political.” “It’s a horrible thing that happened, but how do you decide a fisherman has priority over a grandmother who needs a pension to sustain herself?” said Christine Tiscareno, an analyst at Standard & Poor’s in London. “The company’s not running away from any of its obligations, and if it were up to Tony, they would pay the dividend.” In the U.S., pension funds holding BP shares include the California Public Employees Retirement System, New Jersey Division of Investment and the Texas Teachers Retirement System, Bloomberg data show. U.S. institutions own 25 percent of BP shares, while individual investors in the country hold 14 percent, according to the company’s website. A group of 43 lawmakers led by Peter Welch, a Democrat from Vermont, and Lois Capps, a Democrat from California, this week told Hayward to suspend the dividend to “put progress before profits.” Many pension funds in the U.K. hold stocks in proportion to the FTSE Index and so haven’t sold as 50 billion pounds ($73 billion) was wiped off BP’s market value since the accident, according to the National Association of Pension Funds. BP’s weighting in the index implies that the company accounts for about 1.5 percent of all U.K. pension fund holdings, the NAPF said. “If you’re on a pension, it needs to be stable,” said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo. “Tony Hayward wants to deliver. But maybe they’ll pay a lower dividend to get some goodwill from Obama.”
“The biggest risks to China remain external, of a deterioration in Europe,” Christina Chung, senior portfolio manager at RCM, which oversees $146 billion in assets worldwide, said in an interview in Shanghai yesterday. “Valuations look reasonable but are based on earnings assumptions and there’s the risk of downside if the external economy rolls over.” “Unless there is a double dip in the global economy, the government is likely to maintain a tight policy on the property industry,” Chung said. “The correction in property stocks may take a longer time to play out.”
UK industry expressed alarm yesterday at the “inappropriate” and increasingly aggressive rhetoric being deployed against BP by Barack Obama, US president, and warned that the attacks on the oil company could damage transatlantic relations.
Read the ZeroHedge piece under the headline "Chairman of Goldman Sachs International Was - Until Last Year - Also Chairman of BP"
RealtyTrac reported that even as foreclosure filings declined marginally, by 3% in May, to 322,920 (1% higher YoY), bank repossessions (REOs) hit a record monthly high for the second month in a row, with 93,777 properties repossessed by lenders.
The European Central Bank should slash its benchmark interest rate to zero and expand government bond purchases to offset the recessionary effects of euro-area austerity measures, New York University economist Nouriel Roubini said.
“That has to be the policy mix: tight fiscal, but much more easy money, looser monetary policy, more quantitative easing and also a weakening of the euro,” said Roubini, who predicted the financial crisis, in an interview in Rome today.
ZeroHedge: "Remember that alleged Diamond Offshore Ocean Saratoga rig "spill" that CNBC made such a big hoopla over and which we were quite skeptical about? Score one for the propaganda disinformation station... at least temporarily. DO just went on the record confirming there are no leaks from the Ocean Saratoga. From the press release: "As reported by Taylor Energy, the wells were covered by more than 100 feet of mud and sediment and only four wells were capable of production without pressure assistance. The associated surface sheen was minimal and never made landfall. As a result of deploying three subsurface containment domes and performing six successful well interventions, the initial average observed sheen volume of nine gallons per day has been substantially reduced." But at least in the media frenzy, which coincided with Goldman's downgrade of the entire sector, the Goldman prop team succeeded in buying up all the DO stock on the cheap it wanted. Congratulations CNBC, you were blatantly used once again."
The euro rose sharply on Thursday, pushing the shared currency to its highest level against the dollar in almost a week, after European Central Bank President Jean-Claude Trichet said the central bank would maintain its liquidity measures but not increase or add any. The dollar index , which tracks the U.S. unit against a basket of six major currencies, fell to 87.047, down from 87.911 in North American trade late Wednesday. The euro jumped to $1.2129, up from $1.1982 on Wednesday. "One of the other main reasons why the euro appreciated following Trichet's press conference is because the central bank did not increase their bond purchase program," said Kathy Lien, director of currency research at GFT. The ECB will also continue their unlimited 3-month tenders, she noted. "The lack of new measures has been received positively by the market because it suggests that the ECB does not believe market conditions have deteriorated enough to warrant fresh emergency action," Lien said.
EIA Natural Gas Storage Change Forecast
For Week Ending 6/4/2010
Surveys and Analysts Forecasts
Stor. Change
Type
Bentek
97
Build
Survey
BNP Paribas
93
Build
Survey
Dow Jones Average
94
Build
Survey
PIRA
96
Build
Survey
Working gas in storage was 2,456 Bcf as of Friday, June 4, 2010, according to EIA estimates. This represents a net increase of 99 Bcf from the previous week. Stocks were 28 Bcf higher than last year at this time and 310 Bcf above the 5-year average of 2,146 Bcf. In the East Region, stocks were 98 Bcf above the 5-year average following net injections of 53 Bcf. Stocks in the Producing Region were 121 Bcf above the 5-year average of 775 Bcf after a net injection of 28 Bcf. Stocks in the West Region were 91 Bcf above the 5-year average after a net addition of 18 Bcf. At 2,456 Bcf, total working gas is above the 5-year historical range.
The U.S. government ran a $136 billion budget deficit in May, the Treasury Department reported Thursday. A year ago in May the deficit was $190 billion. Income was $147 billion in May, the Treasury said, about $30 billion higher than receipts in May 2009. The increase came as there were fewer individual income tax receipts in the month. More refunds than usual were made in April this year. Spending was $283 billion in May. This is $24 billion lower compared with a year earlier as a large amount of payments were shifted to April. The May deficit was $6 billion below a congressional estimate and marked the 20th consecutive monthly budget shortfall. For the first eight months of the fiscal year, the government incurred a budget deficit of about $936 billion, $56 billion less than the deficit recorded during the same period last year.
The Dow Jones industrial average jumped 273.28 points, or 2.76 percent, to 10,172.53. The Standard & Poor's 500 Index rose 31.15 points, or 2.95 percent, to 1,086.84. The Nasdaq Composite Index gained 59.86 points, or 2.77 percent, to 2,218.71.
The S&P 500 posted a bullish technical alert as its daily moving average convergence-divergence, or MACD, a widely followed momentum indicator, generated a "buy" signal. The S&P and the Dow closed above their 14-day moving average, another short-term bullish sign.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 7 to 1, while on the Nasdaq, about 11 stocks rose for every two that fell.
Crude for July delivery ended $1.10, or 1.5%, higher at $75.48 a barrel on the New York Mercantile Exchange. Crude last settled above $75 on May 12.
The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday. The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.
"Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," he added.
The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer," according to Taleb, who is now relived that public attention has shifted to debt, instead of growth.
The world needs to prepare itself for austerity, he warned. "We need to slash debt. Unfortunately, that's the only solution," Taleb said.
Thursday, June 10, 2010
Wednesday, June 09, 2010
Oil Shares Spill Red
6/9/10 Oil Shares Spill Red
Societe Generale analysts Evgeny Solovyov and Aymeric de-Villaret said in a note to clients on Wednesday they see a 50% probability that BP PLC will skip its upcoming quarterly dividend, which will be the subject of a directors meeting by the embattled oil giant on July 27. "This is no longer a question of the strength of its balance sheet (which we think is strong enough) but of whether BP will be able to take the situation under sufficient control by the time it has to decide on the dividend...to come up with a story palatable for U.S. politicians and public opinion," the analysts said. "BP has been recovering an average of 11,000 barrels a day in the past few days and it expects to increase the rate further. There is a reasonable chance therefore the mood will change by late July." BP PLC's market value has been halved since April 22, the day the Deepwater Horizon drilling platform sank off Louisiana. BP's U.S.-traded shares slumped 15% to $29.18 in afternoon trading Wednesday on heavy volume. The stock traded above $60 before the disaster. For those with some patience and looking for value. one might consider an investment in BP at these prices. As an alternative, the June $20 puts are selling at 44 cents and expire in 7 trading days. If the stock is put to you, the cost of your investment is $19.56. The last time the shares traded at $20 was the winter of 1994.
BP Plc's bond prices dropped on Wednesday, pushing yields higher, which analysts attributed to reports of the rising possibility that BP will have to declare bankruptcy as financial pressure from the oil spill in the Gulf of Mexico keeps building. The talk is "stupid," said Andrew Brenner, head of emerging markets at Guggenheim Securities. "Their liquidity positions are solid." Yields on BP's 2013 bonds with a 5.25% coupon jumped above 8% during the session, he said.
Fadel Gheit, energy analyst with Oppenheimer & Co. said shareholders are worried that BP will stop paying its dividend, either to conserve cash or because of political pressure from U.S. lawmakers. The company is scheduled to make a $2.63 billion payout on June 21. BP hasn't said whether it would approve a payout for the second quarter. Meanwhile, cost estimates grow with every barrel that BP's failed well belches into the Gulf of Mexico.
In Washington, the point man for the U.S. government's response to the oil spill said BP is now capturing more than 630,000 gallons per day from the gushing well.
Gheit said investors are overlooking the fact that BP has deep enough pockets to pay for the spill, fines and damages. It's also able to borrow another $15 billion if needed, he said.
ZeroHedge: "A casual glance at the BP annual report reveals the following suddenly relevant tidbit:"OTC contracts: These contracts are typically in the form of forwards, swaps and options. Some of these contracts are traded bilaterally between counterparties; others may be cleared by a central clearing counterparty. These contracts can be used for both trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. Highly developed markets exist in North America and the UK where gas and power can be bought and sold for delivery in future periods." While we are positive that BP's risk management department has done a terrific job at evaluating the viability and credit risk of its own counterparties (thank you Federal Reserve), the question now becomes, is the inverse also true (ahem, collateral calls on increasing rating agency, ahem)? As the firm likely has tens of billions in open OTC positions in various commodity and currency markets, is it time that speculators shifted their attention from BP to the Morgan Stanleys (wink wink), Deutsche Banks, and Goldmans of the world?"
BP on Wednesday played down government reports of undersea oil plumes from the spill in the Gulf of Mexico, insisting that it has not found any significant concentration of crude under the surface.
The cost to protect BP Plc’s bonds against default soared to a record, more than nine times the level before one of its wells exploded in the Gulf of Mexico, as pressure on the company to suspend its dividend intensified.
Credit-default swaps on BP climbed 126.1 basis points to 386.9 basis points, according to CMA DataVision prices. More than 40 U.S. lawmakers called today for the London-based company to suspend its dividend and Interior Secretary Ken Salazar told a Senate committee that “significant additional” safety requirements will be imposed on oil and gas companies drilling in the Gulf.
Economic activity improved nationwide last month, but worries about Europe's debt crisis dented confidence, the Federal Reserve said in its Beige Book collection of anecdotal reports.
"Economic activity continued to improve since the last report across all 12 Federal Reserve districts, although many districts described the pace of growth as 'modest,'" the central bank said.
Allscripts-Misys Healthcare Solutions Inc., the Chicago provider of software and solutions for physicians, definitively agreed to acquire Eclipsys, the Atlanta provider of solutions and services for hospitals and clinicians, for $1.3 billion in stock. In a Wednesday statement, the companies said that Allscripts would pay 1.2 shares for each share of Eclipsys. The deal price is nearly a fifth more than the $18.51 closing price of Eclipsys on Tuesday. As part of the deal, Misys PLC has agreed to sell the majority of its 54.6% interest in Allscripts and return the proceeds to Misys shareholders. The combination of Allscripts and Eclipsys provides health-care organizations of every size with a comprehensive technology package, "a single platform of clinical, financial, connectivity and information solutions," the companies said in the statement. The combined company's client base will cover more than 180,000 U.S. physicians, 1,500 hospitals and nearly 10,000 nursing homes and related facilities. The deal should add to Allscripts' adjusted earnings beginning in calendar 2011, they said. UBS, Barclays Capital and J.P. Morgan advised Allscripts. Perella Weinberg Partners advised Eclipsys. Credit Suisse advised Misys.
Santander said it agreed to buy back Bank of America's 24.9% stake in its Mexican unit for $2.5 billion, as the Spanish bank moves to strengthen its position in Latin America's second-largest market.
The French government says it's selling off 1,700 properties including chateaux, barracks and Parisian mansions, in part to cut the country's heavy debt.
George Ure: "We could observe that the decline from all-time levels in 1929 to the depths of the Great Depression came out to 148 weeks. Since the market peak in October of 2007 (14,093 and change) 148 weeks is something to look at...and for what it's worth, 148 weeks brings us to July 9th, right around our July 11th change period in Clif's work."
China’s stocks rose the most in more than two weeks after Reuters reported a surge in the nation’s exports and higher-than-estimated new loans in May, signaling Europe’s debt crisis hasn’t derailed the economy.
The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” “After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Shinohara said. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
Medicaid: States' $24 Billion Black Hole. Governors and state lawmakers are anxiously waiting to see whether Congress will send them another $24 billion to help cover their ever-expanding Medicaid rolls.
U.S. home buying applications sank for a fifth straight week to a fresh 13-year low, the Mortgage Bankers Association said on Wednesday, suggesting that tax credits had robbed more from future sales than expected. Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.
Addison Wiggin: "
Recent S&P research declared that since 1946, 80% of the time the index has fallen 15%, its gone on to a technical bear market – a drop of 20% or more.
In short, if the S&P falls over 15%, there’s a high probability it will fall much further."
The Oil Drum : "NOAA Administrator Jane Lubchenco said that the tests conducted at three sites by a University of South Florida research vessel confirmed oil as far as 3,300 feet below the surface 42 miles northeast of the well site. Oil also was found in a sub-surface sample 142 miles southeast of the spill, but further tests showed that oil is "not consistent" with oil from the spill. "Lubchenco said the water analysis "indicate there is definitely oil sub surface. It's in very low concentrations" of less than 0.5 parts per million. Additional samples from another research vessel are being tested, she said."
Shares of Ambac Financial Group Inc. were down nearly 20% in early action Wednesday as the stock again fell below $1. The bond insurer late Tuesday warned it has "insufficient capital to finance its debt service and operating expense requirements beyond the second quarter of 2011 and may need to seek bankruptcy protection." The company's senior debtholders have formed a committee and will attempt to steer the company toward a prepackaged bankruptcy filing, Reuters reported.
The government's recently expired home buyer tax credits likely pulled some sales into April that would otherwise have occurred in May or later. Buyers seeking to take advantage of the tax credits had to sign purchase contracts by April 30 and have until June 30 to close on the sales.
The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, decreased 3.3 percent, its third straight weekly drop, reaching the lowest since April 1997.
A further decline in the coming weeks would point to potentially bigger effects on home sales and construction.
Paul Volcker: "
There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.
The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.”
Crude oil for July delivery rose $2.24, or 3%, to $74.23 a barrel. Gold for August fell $12.40, or 1%, to $1,233.30 an ounce.
BP says they are capable of processing 28,000 bpd and now process 15,000 bpd.
Mexico’s share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn.
The lower labor costs may help the U.S. companies build smaller cars profitably amid demand for fuel-efficient vehicles in the wake of last year’s recession. Mexico’s gains will come at the expense of workers in the U.S. and Canada, said Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc.
Crude oil prices added to their gains Wednesday after a government report on inventories came in within expectations. Crude for July delivery, the most active contract, rose $2.21, or 3.1%, to $74.21 a barrel at the New York Mercantile Exchange. The Energy Information Administration said oil stockpiles decreased by 1.8 million barrels in the week ended June 4. Refineries operated at 89.1% of their capacity. Gasoline inventories were unchanged from last week, while distillate stockpiles increased by 1.8 million barrels, the EIA said.
Coast Guard Adm. Thad Allen on Wednesday said BP PLC may be able to contain all the oil coming from the leak at the bottom of the Gulf of Mexico once a second containment system gets put into place in the next two to three weeks. The current containment cap captured 15,000 barrels of oil in the past day, Allen said in a press briefing.
Adam Brochert: "
Debt-backed paper currency is always a castle made of sand but "eventually" corresponds with debt saturation. Once debt can't be paid back and everyone knows it, what happens? Default or aggressive debasement. There is no "Goldilocks" in between just as there wasn't when CNBC said there was all throughout 2007 (the big boyz needed someone to buy their stocks...). Two options. Literally default or default "in spirit" by paying back the nominal amounts owed using a fresh pile of counterfeited monopoly money that everyone knows you just counterfeited.
Not much of a choice, really. Default nominally or default in real terms. The truth can be a mixture of the two and that's why the inflation-deflation debate is more nuanced than it seems. You don't have to pick a side. This isn't a democrat versus republican debate here. There are practical implications of not realizing this debate is just an intellectual distraction for Gold investors. Many get caught up in the cognitive dissonance of buying into the deflation theme without recognizing that Gold is the money of choice when the sky gets too dark economically."
A suspension of dividend payments would have a big impact on the UK investment community as BP accounts for 12-13 percent of dividend payments from companies in the FTSE 100 index of the largest UK companies.
After an earlier triple digit gain, the Dow Jones Industrial Average fell 40.73 points to 9,899.25. The S&P 500 Index declined 6.35 points to 1,055.65. The Nasdaq Composite Index was off 11.72 points at 2,158.85.
ZeroHedge: "BP stock getting hit with a variety of rumors as to the cause - one is that the culprit is a Fortune article, which quotes Matt Simmons (whom we have quoted before as being supportive of nuking the leak) that BP "has about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11." The other rumor which is gaining traction, is that BP has hired a bankruptcy lawyer. Then again, seeing how today was the 1,293,498th time the Radioshack LBO rumor pushed the stock higher, all this media rumormongering should certainly be taken with a blob of oil."
Anadarko Petroleum Corp., which owns a 25% share of the leaking well in the Gulf of Mexico, fell 19% to $34.83.
Societe Generale analysts Evgeny Solovyov and Aymeric de-Villaret said in a note to clients on Wednesday they see a 50% probability that BP PLC will skip its upcoming quarterly dividend, which will be the subject of a directors meeting by the embattled oil giant on July 27. "This is no longer a question of the strength of its balance sheet (which we think is strong enough) but of whether BP will be able to take the situation under sufficient control by the time it has to decide on the dividend...to come up with a story palatable for U.S. politicians and public opinion," the analysts said. "BP has been recovering an average of 11,000 barrels a day in the past few days and it expects to increase the rate further. There is a reasonable chance therefore the mood will change by late July." BP PLC's market value has been halved since April 22, the day the Deepwater Horizon drilling platform sank off Louisiana. BP's U.S.-traded shares slumped 15% to $29.18 in afternoon trading Wednesday on heavy volume. The stock traded above $60 before the disaster. For those with some patience and looking for value. one might consider an investment in BP at these prices. As an alternative, the June $20 puts are selling at 44 cents and expire in 7 trading days. If the stock is put to you, the cost of your investment is $19.56. The last time the shares traded at $20 was the winter of 1994.
BP Plc's bond prices dropped on Wednesday, pushing yields higher, which analysts attributed to reports of the rising possibility that BP will have to declare bankruptcy as financial pressure from the oil spill in the Gulf of Mexico keeps building. The talk is "stupid," said Andrew Brenner, head of emerging markets at Guggenheim Securities. "Their liquidity positions are solid." Yields on BP's 2013 bonds with a 5.25% coupon jumped above 8% during the session, he said.
Fadel Gheit, energy analyst with Oppenheimer & Co. said shareholders are worried that BP will stop paying its dividend, either to conserve cash or because of political pressure from U.S. lawmakers. The company is scheduled to make a $2.63 billion payout on June 21. BP hasn't said whether it would approve a payout for the second quarter. Meanwhile, cost estimates grow with every barrel that BP's failed well belches into the Gulf of Mexico.
In Washington, the point man for the U.S. government's response to the oil spill said BP is now capturing more than 630,000 gallons per day from the gushing well.
Gheit said investors are overlooking the fact that BP has deep enough pockets to pay for the spill, fines and damages. It's also able to borrow another $15 billion if needed, he said.
ZeroHedge: "A casual glance at the BP annual report reveals the following suddenly relevant tidbit:"OTC contracts: These contracts are typically in the form of forwards, swaps and options. Some of these contracts are traded bilaterally between counterparties; others may be cleared by a central clearing counterparty. These contracts can be used for both trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. Highly developed markets exist in North America and the UK where gas and power can be bought and sold for delivery in future periods." While we are positive that BP's risk management department has done a terrific job at evaluating the viability and credit risk of its own counterparties (thank you Federal Reserve), the question now becomes, is the inverse also true (ahem, collateral calls on increasing rating agency, ahem)? As the firm likely has tens of billions in open OTC positions in various commodity and currency markets, is it time that speculators shifted their attention from BP to the Morgan Stanleys (wink wink), Deutsche Banks, and Goldmans of the world?"
BP on Wednesday played down government reports of undersea oil plumes from the spill in the Gulf of Mexico, insisting that it has not found any significant concentration of crude under the surface.
The cost to protect BP Plc’s bonds against default soared to a record, more than nine times the level before one of its wells exploded in the Gulf of Mexico, as pressure on the company to suspend its dividend intensified.
Credit-default swaps on BP climbed 126.1 basis points to 386.9 basis points, according to CMA DataVision prices. More than 40 U.S. lawmakers called today for the London-based company to suspend its dividend and Interior Secretary Ken Salazar told a Senate committee that “significant additional” safety requirements will be imposed on oil and gas companies drilling in the Gulf.
Economic activity improved nationwide last month, but worries about Europe's debt crisis dented confidence, the Federal Reserve said in its Beige Book collection of anecdotal reports.
"Economic activity continued to improve since the last report across all 12 Federal Reserve districts, although many districts described the pace of growth as 'modest,'" the central bank said.
Allscripts-Misys Healthcare Solutions Inc., the Chicago provider of software and solutions for physicians, definitively agreed to acquire Eclipsys, the Atlanta provider of solutions and services for hospitals and clinicians, for $1.3 billion in stock. In a Wednesday statement, the companies said that Allscripts would pay 1.2 shares for each share of Eclipsys. The deal price is nearly a fifth more than the $18.51 closing price of Eclipsys on Tuesday. As part of the deal, Misys PLC has agreed to sell the majority of its 54.6% interest in Allscripts and return the proceeds to Misys shareholders. The combination of Allscripts and Eclipsys provides health-care organizations of every size with a comprehensive technology package, "a single platform of clinical, financial, connectivity and information solutions," the companies said in the statement. The combined company's client base will cover more than 180,000 U.S. physicians, 1,500 hospitals and nearly 10,000 nursing homes and related facilities. The deal should add to Allscripts' adjusted earnings beginning in calendar 2011, they said. UBS, Barclays Capital and J.P. Morgan advised Allscripts. Perella Weinberg Partners advised Eclipsys. Credit Suisse advised Misys.
Santander said it agreed to buy back Bank of America's 24.9% stake in its Mexican unit for $2.5 billion, as the Spanish bank moves to strengthen its position in Latin America's second-largest market.
The French government says it's selling off 1,700 properties including chateaux, barracks and Parisian mansions, in part to cut the country's heavy debt.
George Ure: "We could observe that the decline from all-time levels in 1929 to the depths of the Great Depression came out to 148 weeks. Since the market peak in October of 2007 (14,093 and change) 148 weeks is something to look at...and for what it's worth, 148 weeks brings us to July 9th, right around our July 11th change period in Clif's work."
China’s stocks rose the most in more than two weeks after Reuters reported a surge in the nation’s exports and higher-than-estimated new loans in May, signaling Europe’s debt crisis hasn’t derailed the economy.
The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” “After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Shinohara said. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
Medicaid: States' $24 Billion Black Hole. Governors and state lawmakers are anxiously waiting to see whether Congress will send them another $24 billion to help cover their ever-expanding Medicaid rolls.
U.S. home buying applications sank for a fifth straight week to a fresh 13-year low, the Mortgage Bankers Association said on Wednesday, suggesting that tax credits had robbed more from future sales than expected. Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.
Addison Wiggin: "
Recent S&P research declared that since 1946, 80% of the time the index has fallen 15%, its gone on to a technical bear market – a drop of 20% or more.
In short, if the S&P falls over 15%, there’s a high probability it will fall much further."
The Oil Drum : "NOAA Administrator Jane Lubchenco said that the tests conducted at three sites by a University of South Florida research vessel confirmed oil as far as 3,300 feet below the surface 42 miles northeast of the well site. Oil also was found in a sub-surface sample 142 miles southeast of the spill, but further tests showed that oil is "not consistent" with oil from the spill. "Lubchenco said the water analysis "indicate there is definitely oil sub surface. It's in very low concentrations" of less than 0.5 parts per million. Additional samples from another research vessel are being tested, she said."
Shares of Ambac Financial Group Inc. were down nearly 20% in early action Wednesday as the stock again fell below $1. The bond insurer late Tuesday warned it has "insufficient capital to finance its debt service and operating expense requirements beyond the second quarter of 2011 and may need to seek bankruptcy protection." The company's senior debtholders have formed a committee and will attempt to steer the company toward a prepackaged bankruptcy filing, Reuters reported.
The government's recently expired home buyer tax credits likely pulled some sales into April that would otherwise have occurred in May or later. Buyers seeking to take advantage of the tax credits had to sign purchase contracts by April 30 and have until June 30 to close on the sales.
The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, decreased 3.3 percent, its third straight weekly drop, reaching the lowest since April 1997.
A further decline in the coming weeks would point to potentially bigger effects on home sales and construction.
Paul Volcker: "
There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.
The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.”
Crude oil for July delivery rose $2.24, or 3%, to $74.23 a barrel. Gold for August fell $12.40, or 1%, to $1,233.30 an ounce.
BP says they are capable of processing 28,000 bpd and now process 15,000 bpd.
Mexico’s share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn.
The lower labor costs may help the U.S. companies build smaller cars profitably amid demand for fuel-efficient vehicles in the wake of last year’s recession. Mexico’s gains will come at the expense of workers in the U.S. and Canada, said Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc.
Crude oil prices added to their gains Wednesday after a government report on inventories came in within expectations. Crude for July delivery, the most active contract, rose $2.21, or 3.1%, to $74.21 a barrel at the New York Mercantile Exchange. The Energy Information Administration said oil stockpiles decreased by 1.8 million barrels in the week ended June 4. Refineries operated at 89.1% of their capacity. Gasoline inventories were unchanged from last week, while distillate stockpiles increased by 1.8 million barrels, the EIA said.
Coast Guard Adm. Thad Allen on Wednesday said BP PLC may be able to contain all the oil coming from the leak at the bottom of the Gulf of Mexico once a second containment system gets put into place in the next two to three weeks. The current containment cap captured 15,000 barrels of oil in the past day, Allen said in a press briefing.
Adam Brochert: "
Debt-backed paper currency is always a castle made of sand but "eventually" corresponds with debt saturation. Once debt can't be paid back and everyone knows it, what happens? Default or aggressive debasement. There is no "Goldilocks" in between just as there wasn't when CNBC said there was all throughout 2007 (the big boyz needed someone to buy their stocks...). Two options. Literally default or default "in spirit" by paying back the nominal amounts owed using a fresh pile of counterfeited monopoly money that everyone knows you just counterfeited.
Not much of a choice, really. Default nominally or default in real terms. The truth can be a mixture of the two and that's why the inflation-deflation debate is more nuanced than it seems. You don't have to pick a side. This isn't a democrat versus republican debate here. There are practical implications of not realizing this debate is just an intellectual distraction for Gold investors. Many get caught up in the cognitive dissonance of buying into the deflation theme without recognizing that Gold is the money of choice when the sky gets too dark economically."
A suspension of dividend payments would have a big impact on the UK investment community as BP accounts for 12-13 percent of dividend payments from companies in the FTSE 100 index of the largest UK companies.
After an earlier triple digit gain, the Dow Jones Industrial Average fell 40.73 points to 9,899.25. The S&P 500 Index declined 6.35 points to 1,055.65. The Nasdaq Composite Index was off 11.72 points at 2,158.85.
ZeroHedge: "BP stock getting hit with a variety of rumors as to the cause - one is that the culprit is a Fortune article, which quotes Matt Simmons (whom we have quoted before as being supportive of nuking the leak) that BP "has about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11." The other rumor which is gaining traction, is that BP has hired a bankruptcy lawyer. Then again, seeing how today was the 1,293,498th time the Radioshack LBO rumor pushed the stock higher, all this media rumormongering should certainly be taken with a blob of oil."
Anadarko Petroleum Corp., which owns a 25% share of the leaking well in the Gulf of Mexico, fell 19% to $34.83.
Tuesday, June 08, 2010
BP
6/8/10 BP
Late Monday 10-year treasury at 3.15% and 5-year at 1.93%. The Dow industrials lost more than 100 points to end below the lows hit during last month's "flash crash". (The Dow fell 115.48, or 1.2%, to 9816.49, a seven-month low and below the May 6 trough of 9869.62.)
BP PLC plans to replace the containment cap that is siphoning off some oil from the spewing well in the Gulf of Mexico next month, the Associated Press reported Monday. The current cap is collecting about 11,000 barrels of oil a day from the more than 25,000 a day estimated from the spill. BP told the AP that the new cap is intended to be larger than the current one and provide a tighter fit.
A natural gas pipeline explosion in North Texas killed three people on Monday afternoon, according to local media reports. Bloomberg reports: "Enterprise Products Partners LP shut a portion of its 36-inch natural gas pipeline after the line was struck by a fire. The line stretches from Waha in West Texas to the Carthage Hub in Panola, Rick Rainey, a company spokesman said in a telephone interview."
EVTN makes something called a Voraxial Separator. John DiBella, COO of EVTN, says the Voraxial Separator, or perhaps 20 of them, should be deployed on ships in the Gulf of Mexico, in response to the BP oil spill. The Voraxial Separater is a machine that comes in several different sizes and can separate large volumes of oil and water, or liquids and solids, at a rapid rate.
Today's corporate profits reflect a production and income shift away from 2011, when tax rates will rise, into 2010, Arthur Laffer says. The result will be plunging profits and stocks next year. Remembering surging growth rates when Reagan's tax cuts took effect, Laffer says "Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011."
Peter Schiff: "We can't simultaneously grow the economy and grow government. The latest jobs report shows that we are just growing government. If that trend doesn't soon reverse, investors will start betting on the collapse of the dollarzone."
China will likely embark on a new five-year plan soon to boost internal consumption as the country adjusts to a post-crisis world in which external demand from the U.S. and Europe remains sluggish, Stephen Roach, chairman of Morgan Stanley, Asia, said during a speech Monday.
The new plan, to be unveiled by China's leaders in early 2011, will support rural household incomes, promote growth of large-scale services industries and develop social safety nets to reduce precautionary saving, Morgan Stanley's Roach said.
McDonald's Corp. said Tuesday its global comparable store sales rose 4.8%. Same-store sales rose 3.4% in the U.S., and 5.7% in Europe. Same-store sales in Asia/Pacific, Middle East and Africa rose 3.8%.
Obama will allow shallow-water drilling. The decision comes amid anger on the Gulf over the loss of jobs from a moratorium on deepwater drilling.
"We are asking each agency to develop a list of their bottom 5 percent performing discretionary programs, as measured by their impact in furthering the agency's mission," White House budget director Peter Orszag said in excerpts from remarks he is to deliver later at the Center for American Progress think tank.
"In addition, to ensure that we can meet the president's insistence on a freeze for non-security agencies while funding priority areas, we are asking non-security agencies to specify how they would reduce their budgets by 5 percent," Orszag said.
Britain faces a "formidable" challenge to cut government borrowing and needs more ambitious plans to reduce the deficit over the medium term, ratings agency Fitch said on Tuesday.
Debka.com is reporting in this must-read article that "Osama bin Laden and top aides are hiding in Sabzevar, Iran."
John Crudele: "The BLS thinks small businesses that it hopes -- but again can't confirm -- exist created 215,000 jobs this May, compared with 186,000 in the same month a year ago. I'll repeat, those 186,000 jobs did not exist last May. So why should the BLS be any more right with this year's guess of 215,000?
The real employment situation may not be improving much, but there's a noticeable boom in the make-believe job market."
Aluminum prices in China have fallen below the cost of production, Luo Jianchuan, president of Aluminum Corp. of China Ltd., said in Shanghai today. U.S. purchases accounted for 19% of China's overseas aluminum sales last year.
Gold for August delivery added $4, or 0.3%, to $1,244.80 an ounce on Comex. The contract hit an intraday high of $1,254.50 an ounce earlier, according to FactSet Research. Gold closed at a record $1,243.10 an ounce on May 12.
U.S. April job openings rise to 3.1 million. Openings at 16 month high.
BMO's Quant/Tech desk: "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital...We advocate a zero weight toward equity, and that investors convert their equity positions to cash." (hat tip to ZeroHedge)
The Energy Information Administration on Tuesday said it expects about 26,000 barrels of oil a day in the fourth quarter and 70,000 barrels a day in 2011 to be shut in as a result of the deep water drilling moratorium announced by President Obama. The figures represent the EIA's first estimates of reductions in production resulting from the six-month deepwater drilling moratorium announced on May 27. The EIA said it will refine its moratorium impacts as additional information becomes available.
The American Petroleum Institute on Tuesday reported a surprise decline of 4.54 million barrels in oil inventories in the week ended June 4. Analysts polled by Platts had expected a decline around 1.3 million barrels. The Washington-based trade group's data comes ahead of a more closely watched report by the Department of Energy's Energy Information Administration, scheduled for release Wednesday at 10:30 a.m. Eastern. Crude oil futures settled marginally higher on Tuesday, at $71.99 a barrel on the New York Mercantile Exchange.
The Dow Jones Industrial Average gained 123.49 points, or 1.3%, to 9,939.98, as 26 of its 30 components ended higher. The S&P 500 index rose 11.53 points, or 1.1%, to 1,062. The materials sector led the gains, up 2.5%, closely followed by financials and telecoms, both up 2%. However, the tech-heavy Nasdaq Composite remained underwater, losing 0.2%.
Late Monday 10-year treasury at 3.15% and 5-year at 1.93%. The Dow industrials lost more than 100 points to end below the lows hit during last month's "flash crash". (The Dow fell 115.48, or 1.2%, to 9816.49, a seven-month low and below the May 6 trough of 9869.62.)
BP PLC plans to replace the containment cap that is siphoning off some oil from the spewing well in the Gulf of Mexico next month, the Associated Press reported Monday. The current cap is collecting about 11,000 barrels of oil a day from the more than 25,000 a day estimated from the spill. BP told the AP that the new cap is intended to be larger than the current one and provide a tighter fit.
A natural gas pipeline explosion in North Texas killed three people on Monday afternoon, according to local media reports. Bloomberg reports: "Enterprise Products Partners LP shut a portion of its 36-inch natural gas pipeline after the line was struck by a fire. The line stretches from Waha in West Texas to the Carthage Hub in Panola, Rick Rainey, a company spokesman said in a telephone interview."
EVTN makes something called a Voraxial Separator. John DiBella, COO of EVTN, says the Voraxial Separator, or perhaps 20 of them, should be deployed on ships in the Gulf of Mexico, in response to the BP oil spill. The Voraxial Separater is a machine that comes in several different sizes and can separate large volumes of oil and water, or liquids and solids, at a rapid rate.
Today's corporate profits reflect a production and income shift away from 2011, when tax rates will rise, into 2010, Arthur Laffer says. The result will be plunging profits and stocks next year. Remembering surging growth rates when Reagan's tax cuts took effect, Laffer says "Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011."
Peter Schiff: "We can't simultaneously grow the economy and grow government. The latest jobs report shows that we are just growing government. If that trend doesn't soon reverse, investors will start betting on the collapse of the dollarzone."
China will likely embark on a new five-year plan soon to boost internal consumption as the country adjusts to a post-crisis world in which external demand from the U.S. and Europe remains sluggish, Stephen Roach, chairman of Morgan Stanley, Asia, said during a speech Monday.
The new plan, to be unveiled by China's leaders in early 2011, will support rural household incomes, promote growth of large-scale services industries and develop social safety nets to reduce precautionary saving, Morgan Stanley's Roach said.
McDonald's Corp. said Tuesday its global comparable store sales rose 4.8%. Same-store sales rose 3.4% in the U.S., and 5.7% in Europe. Same-store sales in Asia/Pacific, Middle East and Africa rose 3.8%.
Obama will allow shallow-water drilling. The decision comes amid anger on the Gulf over the loss of jobs from a moratorium on deepwater drilling.
"We are asking each agency to develop a list of their bottom 5 percent performing discretionary programs, as measured by their impact in furthering the agency's mission," White House budget director Peter Orszag said in excerpts from remarks he is to deliver later at the Center for American Progress think tank.
"In addition, to ensure that we can meet the president's insistence on a freeze for non-security agencies while funding priority areas, we are asking non-security agencies to specify how they would reduce their budgets by 5 percent," Orszag said.
Britain faces a "formidable" challenge to cut government borrowing and needs more ambitious plans to reduce the deficit over the medium term, ratings agency Fitch said on Tuesday.
Debka.com is reporting in this must-read article that "Osama bin Laden and top aides are hiding in Sabzevar, Iran."
John Crudele: "The BLS thinks small businesses that it hopes -- but again can't confirm -- exist created 215,000 jobs this May, compared with 186,000 in the same month a year ago. I'll repeat, those 186,000 jobs did not exist last May. So why should the BLS be any more right with this year's guess of 215,000?
The real employment situation may not be improving much, but there's a noticeable boom in the make-believe job market."
Aluminum prices in China have fallen below the cost of production, Luo Jianchuan, president of Aluminum Corp. of China Ltd., said in Shanghai today. U.S. purchases accounted for 19% of China's overseas aluminum sales last year.
Gold for August delivery added $4, or 0.3%, to $1,244.80 an ounce on Comex. The contract hit an intraday high of $1,254.50 an ounce earlier, according to FactSet Research. Gold closed at a record $1,243.10 an ounce on May 12.
U.S. April job openings rise to 3.1 million. Openings at 16 month high.
BMO's Quant/Tech desk: "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital...We advocate a zero weight toward equity, and that investors convert their equity positions to cash." (hat tip to ZeroHedge)
The Energy Information Administration on Tuesday said it expects about 26,000 barrels of oil a day in the fourth quarter and 70,000 barrels a day in 2011 to be shut in as a result of the deep water drilling moratorium announced by President Obama. The figures represent the EIA's first estimates of reductions in production resulting from the six-month deepwater drilling moratorium announced on May 27. The EIA said it will refine its moratorium impacts as additional information becomes available.
The American Petroleum Institute on Tuesday reported a surprise decline of 4.54 million barrels in oil inventories in the week ended June 4. Analysts polled by Platts had expected a decline around 1.3 million barrels. The Washington-based trade group's data comes ahead of a more closely watched report by the Department of Energy's Energy Information Administration, scheduled for release Wednesday at 10:30 a.m. Eastern. Crude oil futures settled marginally higher on Tuesday, at $71.99 a barrel on the New York Mercantile Exchange.
The Dow Jones Industrial Average gained 123.49 points, or 1.3%, to 9,939.98, as 26 of its 30 components ended higher. The S&P 500 index rose 11.53 points, or 1.1%, to 1,062. The materials sector led the gains, up 2.5%, closely followed by financials and telecoms, both up 2%. However, the tech-heavy Nasdaq Composite remained underwater, losing 0.2%.
Monday, June 07, 2010
Debt Restructure
6/7/10 Debt Restructure
John Hussman: "From our perspective, the essential difficulty of the market here is not Greece, it is not the Euro, it is not Hungary, and it is really not even the slow pace of job growth in the latest report. The fundamental problem is that we have not, as a global economy, accepted the word "restructuring" into our dialogue. Instead, we have allowed our policy makers to borrow and print extraordinarily large band-aids to temporarily cover an open wound that will not heal until we close the gap. That gap is the difference between the face value of debt securities and the actual cash flows available to service them. The way to close the gap is to restructure the debt. This will require those who made the bad loans to accept the associated losses. By failing to do that, we have failed to address the essential problem faced by the world, which is that we have created more debt than we are able to service. ... We have no inclination to buy dips here, because we have no support from either valuations nor market action. ."
Robert McHugh: " We can say that the risk of a stock market crash is high at this time. That said, stocks can extend their recent rally and push back a major sell-off for several weeks before a plunge begins, so shorting is risky business and we suggest readers consult with their financial advisors before conducting any shorting transactions. Appropriate risk management controls should be put in place. Conservative investors may opt to simply sit on the sidelines during this high risk period."
Rob Hanna: "The NYSE Up Volume % came in under 1% on Friday. In other words, over 99% of the volume was in declining securities. Breadth this extreme is remarkable. According to my database there have only been 4 other days since 1970 where the NYSE Up Volume % came in at under 1%. ... all either marked an intermediate-term low, or were very close to one. "
Copper has fallen 23 percent since reaching a 20-month high in April on signs that growth is slowing in the U.S., China and Europe.
China’s imports of refined zinc shipments dropped 71 percent in the first four months of this year compared with the same period last year, according to customs data.
Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues. That's up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn't likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga. ``The second wave of toxic loans is about to hit,'' said Sharga.
The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 .
Public criticism of Goldman Sachs has come to China, where the investment bank has been lambasted in articles in state-controlled media. Parts of the media, apparently emboldened by congressional inquiries and public anger in the west, have openly slated Goldman, arguably the most successful foreign investment bank in China. “Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week.
DAVID CAMERON has warned that the UK economy is in a far worse state than previously thought and signalled that Britain faces years of “pain” as the spending axe falls. The prime minister indicated a sharp downgrade in official growth forecasts and revealed that welfare and public sector pay would bear the brunt of budget cuts.
Bloomberg:“…the government’s total debt [...] rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.”
Japan was down 3.84% overnight and the Hang Seng was down a shade more than 2%.
Marsh & McLennan Cos Inc said on Monday that it plans to sell Kroll, a risk consulting firm, to Altegrity in a $1.13 billion deal.
Kroll, put up for sale by the No. 2 global insurance broker MMC, attracted interest from a number of private equity firms, with Altegrity emerging as the winner.
Altegrity, which is owned by Providence Equity Partners, plans to acquire Kroll in an all-cash transaction. The deal is expected to close by late September.
The Coca-Cola Co. will pay $715 million to Dr Pepper Snapple Group Inc. for the rights to distribute Dr Pepper and Canada Dry in the U.S. after Coke acquires its largest bottler.
Coca-Cola also will distribute Canada Dry, C' Plus and Schweppes in Canada.
Gold futures on Monday rose nearly 2% to end just a couple of dollars short of their May 12 record amid lingering concerns about the health of the world economy. Gold for August delivery, the most active contract, rose $23.10, or 1.9%, to settle at $1,240.80 an ounce. Silver for July delivery tracked gold to settle 5% up at $18.16 an ounce. Copper for July delivery settled 5 cents lower, or 1.9%, to $2.7660 a pound on Comex.
Goldman Sachs Group Inc was subpoenaed by a U.S. panel investigating the financial crisis after allegedly failing to hand over documents in a “timely manner.”
Roughly 1.1 million workers have given up hope of finding employment.
The G-20 cannot make meaningful progress in co-ordinating global economic policies as it currently stands, said Mohamed El-Erian, chief executive and investment officer of bond-investment giant Pimco, a unit of Allianz SE. While the G-20 communiqué, issued Saturday, recognized "financial reform priorities" and the "enormous difference in the soundness and sustainability of public finances" among countries, it "opens the door even wider for country differentiation" with "weak paragraphs" on financial and environmental issues, El-Erian wrote in the Financial Times on Saturday. "Investors should keep their seat belts on and tight," he said.
Oil for July delivery settled 7 cents lower, or 0.1%, at $71.44 a barrel on the New York Mercantile Exchange. Natural-gas futures kept their gains and momentum from Friday's rally. Natural gas for July delivery added 12 cents, or 2.5%, to $4.91 per million British thermal units - the highest price since mid-February.
U.S. consumers took on $1 billion more in debts in April, even as credit-card balances declined for the 19th straight month, the Federal Reserve reported Monday. U.S. consumer credit -- excluding real estate loans -- rose by $1 billion to $2.44 trillion in April, a 0.5% annualized growth rate. It was only the second increase in outstanding debt in the past 14 months. Revolving credits, such as credit cards, declined by $8.5 billion to $838 billion in April, or a 12% annualized decrease. Nonrevolving credit, such as auto loans, student loans and personal loans, rose $9.4 billion in April, or a 7.1% annualized growth rate.
The Dow Jones industrials were off 115 points, or 1.2% to 9,816 after tumbling 323 points on Friday. The Nasdaq Composite Index had lost 45 points, 2%, to 2,174, and the Standard & Poor's 500 Index was down 14 points, 1.4%, to 1,050.
John Hussman: "From our perspective, the essential difficulty of the market here is not Greece, it is not the Euro, it is not Hungary, and it is really not even the slow pace of job growth in the latest report. The fundamental problem is that we have not, as a global economy, accepted the word "restructuring" into our dialogue. Instead, we have allowed our policy makers to borrow and print extraordinarily large band-aids to temporarily cover an open wound that will not heal until we close the gap. That gap is the difference between the face value of debt securities and the actual cash flows available to service them. The way to close the gap is to restructure the debt. This will require those who made the bad loans to accept the associated losses. By failing to do that, we have failed to address the essential problem faced by the world, which is that we have created more debt than we are able to service. ... We have no inclination to buy dips here, because we have no support from either valuations nor market action. ."
Robert McHugh: " We can say that the risk of a stock market crash is high at this time. That said, stocks can extend their recent rally and push back a major sell-off for several weeks before a plunge begins, so shorting is risky business and we suggest readers consult with their financial advisors before conducting any shorting transactions. Appropriate risk management controls should be put in place. Conservative investors may opt to simply sit on the sidelines during this high risk period."
Rob Hanna: "The NYSE Up Volume % came in under 1% on Friday. In other words, over 99% of the volume was in declining securities. Breadth this extreme is remarkable. According to my database there have only been 4 other days since 1970 where the NYSE Up Volume % came in at under 1%. ... all either marked an intermediate-term low, or were very close to one. "
Copper has fallen 23 percent since reaching a 20-month high in April on signs that growth is slowing in the U.S., China and Europe.
China’s imports of refined zinc shipments dropped 71 percent in the first four months of this year compared with the same period last year, according to customs data.
Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues. That's up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn't likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga. ``The second wave of toxic loans is about to hit,'' said Sharga.
The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 .
Public criticism of Goldman Sachs has come to China, where the investment bank has been lambasted in articles in state-controlled media. Parts of the media, apparently emboldened by congressional inquiries and public anger in the west, have openly slated Goldman, arguably the most successful foreign investment bank in China. “Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week.
DAVID CAMERON has warned that the UK economy is in a far worse state than previously thought and signalled that Britain faces years of “pain” as the spending axe falls. The prime minister indicated a sharp downgrade in official growth forecasts and revealed that welfare and public sector pay would bear the brunt of budget cuts.
Bloomberg:“…the government’s total debt [...] rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.”
Japan was down 3.84% overnight and the Hang Seng was down a shade more than 2%.
Marsh & McLennan Cos Inc said on Monday that it plans to sell Kroll, a risk consulting firm, to Altegrity in a $1.13 billion deal.
Kroll, put up for sale by the No. 2 global insurance broker MMC, attracted interest from a number of private equity firms, with Altegrity emerging as the winner.
Altegrity, which is owned by Providence Equity Partners, plans to acquire Kroll in an all-cash transaction. The deal is expected to close by late September.
The Coca-Cola Co. will pay $715 million to Dr Pepper Snapple Group Inc. for the rights to distribute Dr Pepper and Canada Dry in the U.S. after Coke acquires its largest bottler.
Coca-Cola also will distribute Canada Dry, C' Plus and Schweppes in Canada.
Gold futures on Monday rose nearly 2% to end just a couple of dollars short of their May 12 record amid lingering concerns about the health of the world economy. Gold for August delivery, the most active contract, rose $23.10, or 1.9%, to settle at $1,240.80 an ounce. Silver for July delivery tracked gold to settle 5% up at $18.16 an ounce. Copper for July delivery settled 5 cents lower, or 1.9%, to $2.7660 a pound on Comex.
Goldman Sachs Group Inc was subpoenaed by a U.S. panel investigating the financial crisis after allegedly failing to hand over documents in a “timely manner.”
Roughly 1.1 million workers have given up hope of finding employment.
The G-20 cannot make meaningful progress in co-ordinating global economic policies as it currently stands, said Mohamed El-Erian, chief executive and investment officer of bond-investment giant Pimco, a unit of Allianz SE. While the G-20 communiqué, issued Saturday, recognized "financial reform priorities" and the "enormous difference in the soundness and sustainability of public finances" among countries, it "opens the door even wider for country differentiation" with "weak paragraphs" on financial and environmental issues, El-Erian wrote in the Financial Times on Saturday. "Investors should keep their seat belts on and tight," he said.
Oil for July delivery settled 7 cents lower, or 0.1%, at $71.44 a barrel on the New York Mercantile Exchange. Natural-gas futures kept their gains and momentum from Friday's rally. Natural gas for July delivery added 12 cents, or 2.5%, to $4.91 per million British thermal units - the highest price since mid-February.
U.S. consumers took on $1 billion more in debts in April, even as credit-card balances declined for the 19th straight month, the Federal Reserve reported Monday. U.S. consumer credit -- excluding real estate loans -- rose by $1 billion to $2.44 trillion in April, a 0.5% annualized growth rate. It was only the second increase in outstanding debt in the past 14 months. Revolving credits, such as credit cards, declined by $8.5 billion to $838 billion in April, or a 12% annualized decrease. Nonrevolving credit, such as auto loans, student loans and personal loans, rose $9.4 billion in April, or a 7.1% annualized growth rate.
The Dow Jones industrials were off 115 points, or 1.2% to 9,816 after tumbling 323 points on Friday. The Nasdaq Composite Index had lost 45 points, 2%, to 2,174, and the Standard & Poor's 500 Index was down 14 points, 1.4%, to 1,050.
Sunday, June 06, 2010
G20
6/6/10 G20
Tiernan Ray: "Friday was the worst decline on record going back to 1998 for the Standard & Poor’s 500 following a monthly jobs report, observe our friends at Bespoke Investment Group this afternoon.
The S&P fell 38 points, or 3.44%, to close at 1,064.88.
According to Bespoke’s data, on a day when the S&P falls following a jobs report, whether the report was better or worse than expected, the average return on the S&P the following week is a decline of 0.75%.
But take heart: the average gain in the month following the jobs day decline is 1.19%!"
"There's not Democrats and Republicans, there's one party: the Big Government party. And it's not here to protect human liberties but its own power," said Judge Napolitano.
Adam Hamilton: "But in this latest correction, the CCI plunged to 0.976x its 200dma. This is the lowest we've seen in this cyclical bull since the CCI's 200dma turned higher again. A 12-month relative low is very rare technically, and a very powerful buy signal. By definition something can only grow this oversold once per year. So in late May per this metric, we just witnessed the best buying opportunities in commodities seen in a year!"
BP reported Sunday that its containment cap is now collecting 420000 gallons a day, saying that was a 'majority' of the oil.
Mike Burk: "By all measures average returns have been negative over the coming week and the 2nd year of the Presidential Cycle has been the worst of all. The OTC has only been up once (1978) and the SPX has not been up since 1986....The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. The end of May - beginning of June rally was disappointing and now the seasonal pattern calls for an unpleasant 2-3 weeks.
I expect the major averages to be lower on Friday June 11 than they were on Friday June 4."
BP PLC Chief Executive Tony Hayward said Sunday that a containment cap being used on a ruptured well in the Gulf of Mexico is now funneling off 10,000 barrels of oil a day, and called for higher safety standards for the company and the industry.
"At the moment it is difficult to say, but we would expect it to be the majority, probably the vast majority of the oil," Mr. Hayward said in an interview on BBC, referring to the amount of oil being collected. "We have a further containment system to implement in the course of this coming week which will be in place by next weekend. So when those two are in place we would very much hope to be containing the vast majority of the oil," he added.
Hungary's situation is stable, say government officials. Recent comments about a possible default "are exaggerated and if they come from colleagues that’s unfortunate."
Arthur Brooks: "Today, the average federal worker earns 77% more than the average private-sector worker, according to a USA Today analysis of data from the federal Office of Personnel Management. To pay for bigger government, the private sector will bear a heavier tax burden far into the future, suppressing the innovation and entrepreneurship that creates growth and real opportunity, not to mention the revenue that pays for everything else in the first place.
If these trends are not reversed, it is hard to see how our culture of free enterprise will not change. More and more Americans, especially younger Americans, will grow accustomed to a system in which the government pays better wages, offers the best job protection, allows the earliest retirement, and guarantees the most lavish pensions. Against such competition, more and more young, would-be entrepreneurs will inevitably choose the safety and comfort of government employment—and do so with all the drive that is generally thought to be "good enough" for that kind of work.
What will happen as our increasing number of state employees confront a shrinking private-sector tax base? Just look to the streets of Athens."
Not surprisingly, The last four weeks were actually the worst 1-month equity outflows since Lehman collapsed in 2008.
"Noble continues to work closely with customers to identify opportunities to continue operations that are allowable under the current deepwater drilling moratorium or relocate the units outside of the U.S., as is customarily done with deepwater units," said David W. Williams, Chairman, President and Chief Executive Officer of Noble Corporation. "These units and the more than 1,000 individuals that operate and support them have exemplary safety and environmental records. Our goal is to minimize the impact of the moratorium on our shareholders and our team members – who are among the best trained, safest and most experienced in the industry."
UK insurer Prudential is not considering a renewed attempt to buy AIG's Asian life unit, a spokesman for the company said on Sunday, denying a media report that a fresh takeover proposal was in the works.
"There is substantial concern about what's been occurring in Europe of late and the risks associated with that. That was reflected not only in the communique but in the discussions we had in the room together," Canadian Finance Minister Jim Flaherty said.
"Those countries with serious fiscal challenges need to accelerate the pace of consolidation," read the key line in the communique.
Details of the Spanish government's reform plans have been leaking into the media, and on Friday newspapers said the latest draft includes a proposal for companies to offer only 20 days' severance pay per year worked, versus 45 days at present, if they could prove they had financial difficulties.
Tiernan Ray: "Friday was the worst decline on record going back to 1998 for the Standard & Poor’s 500 following a monthly jobs report, observe our friends at Bespoke Investment Group this afternoon.
The S&P fell 38 points, or 3.44%, to close at 1,064.88.
According to Bespoke’s data, on a day when the S&P falls following a jobs report, whether the report was better or worse than expected, the average return on the S&P the following week is a decline of 0.75%.
But take heart: the average gain in the month following the jobs day decline is 1.19%!"
"There's not Democrats and Republicans, there's one party: the Big Government party. And it's not here to protect human liberties but its own power," said Judge Napolitano.
Adam Hamilton: "But in this latest correction, the CCI plunged to 0.976x its 200dma. This is the lowest we've seen in this cyclical bull since the CCI's 200dma turned higher again. A 12-month relative low is very rare technically, and a very powerful buy signal. By definition something can only grow this oversold once per year. So in late May per this metric, we just witnessed the best buying opportunities in commodities seen in a year!"
BP reported Sunday that its containment cap is now collecting 420000 gallons a day, saying that was a 'majority' of the oil.
Mike Burk: "By all measures average returns have been negative over the coming week and the 2nd year of the Presidential Cycle has been the worst of all. The OTC has only been up once (1978) and the SPX has not been up since 1986....The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. The end of May - beginning of June rally was disappointing and now the seasonal pattern calls for an unpleasant 2-3 weeks.
I expect the major averages to be lower on Friday June 11 than they were on Friday June 4."
BP PLC Chief Executive Tony Hayward said Sunday that a containment cap being used on a ruptured well in the Gulf of Mexico is now funneling off 10,000 barrels of oil a day, and called for higher safety standards for the company and the industry.
"At the moment it is difficult to say, but we would expect it to be the majority, probably the vast majority of the oil," Mr. Hayward said in an interview on BBC, referring to the amount of oil being collected. "We have a further containment system to implement in the course of this coming week which will be in place by next weekend. So when those two are in place we would very much hope to be containing the vast majority of the oil," he added.
Hungary's situation is stable, say government officials. Recent comments about a possible default "are exaggerated and if they come from colleagues that’s unfortunate."
Arthur Brooks: "Today, the average federal worker earns 77% more than the average private-sector worker, according to a USA Today analysis of data from the federal Office of Personnel Management. To pay for bigger government, the private sector will bear a heavier tax burden far into the future, suppressing the innovation and entrepreneurship that creates growth and real opportunity, not to mention the revenue that pays for everything else in the first place.
If these trends are not reversed, it is hard to see how our culture of free enterprise will not change. More and more Americans, especially younger Americans, will grow accustomed to a system in which the government pays better wages, offers the best job protection, allows the earliest retirement, and guarantees the most lavish pensions. Against such competition, more and more young, would-be entrepreneurs will inevitably choose the safety and comfort of government employment—and do so with all the drive that is generally thought to be "good enough" for that kind of work.
What will happen as our increasing number of state employees confront a shrinking private-sector tax base? Just look to the streets of Athens."
Not surprisingly, The last four weeks were actually the worst 1-month equity outflows since Lehman collapsed in 2008.
"Noble continues to work closely with customers to identify opportunities to continue operations that are allowable under the current deepwater drilling moratorium or relocate the units outside of the U.S., as is customarily done with deepwater units," said David W. Williams, Chairman, President and Chief Executive Officer of Noble Corporation. "These units and the more than 1,000 individuals that operate and support them have exemplary safety and environmental records. Our goal is to minimize the impact of the moratorium on our shareholders and our team members – who are among the best trained, safest and most experienced in the industry."
UK insurer Prudential is not considering a renewed attempt to buy AIG's Asian life unit, a spokesman for the company said on Sunday, denying a media report that a fresh takeover proposal was in the works.
"There is substantial concern about what's been occurring in Europe of late and the risks associated with that. That was reflected not only in the communique but in the discussions we had in the room together," Canadian Finance Minister Jim Flaherty said.
"Those countries with serious fiscal challenges need to accelerate the pace of consolidation," read the key line in the communique.
Details of the Spanish government's reform plans have been leaking into the media, and on Friday newspapers said the latest draft includes a proposal for companies to offer only 20 days' severance pay per year worked, versus 45 days at present, if they could prove they had financial difficulties.
Saturday, June 05, 2010
Government Cpntrols
6/5/10 Government Controls
Bloomberg (Shobhana Chandra): "Unemployed Americans are facing the longest wait on record to find work... The average duration of unemployment jumped to 34.4 weeks in May from 33 weeks the prior month and 16.5 weeks in December 2007... The number of unemployed has almost doubled to 15 million since the start of worst slump since the 1930s."
John Mauldin: "On May 27th the BEA released its first revision to its 1st Quarter 2010 GDP growth rate measurement, lowering the number from a 3.2% annualized growth rate to 3.0% annualized growth. One day later the Consumer Metrics Institute's 'Daily Growth Index' was signaling what we should expect the BEA's measurement of the 3rd Quarter 2010 GDP growth rate to be contracting at about a 2.0% rate.
"The prior BEA estimate of 1st Quarter 2010 GDP growth trailed our 'Daily Growth Index' by 127 days, and because of the rapid rate that the economy was cooling when the measurements were being made the newly adjusted estimate is now trailing our 'Daily Growth Index' by 125 days. Since the 3rd Quarter of 2010 ends 125 days after May 28th (when our 'Daily Growth Index' was recording a 'growth' rate of -1.99%), if the BEA estimates continue to trail our 'Daily Growth Index' in a consistent manner we should expect that the 3rd Quarter's GDP 'growth' rate will be in the -2.0% neighborhood."
TierOne Bank is 81st U.S. bank failure of 2010. TierOne Bank had $2.2 billion in deposits. The failure of TierOne Bank in Lincoln, Neb., means an estimated $297.8M hit to the FDIC's Deposit Insurance Fund. Along with closings in Mississippi and Illinois, that makes 81 failed institutions in 2010.
TierOne was the fourth-largest bank in Nebraska with approximately $2.8 billion in assets as of March 31. It lost $300 million last year on real estate-related loans in Florida, Nevada and other states.
Great Western Bank, of Sioux Falls, South Dakota, agreed to purchase TierOne and assume its $2.2 billion in deposits. TierOne's 69 branch offices will reopen on Saturday as branches of Great Western, said the Federal Deposit Insurance Corp.
Israeli soldiers boarded a ship carrying pro-Palestinian activists, with the military saying there was no violence and the ship was now under Israeli control.
Capital Economics' Paul Dales says that a 39% four-week plunge in mortgage applications signals what's around the corner. With the homebuyers credit now finished, "it is only a matter of time before the underlying weakness of the housing market becomes uncomfortably clear.
Guy Lerner: "I believe natural gas is putting in a bottom, and it has the potential for an extended bullish run. "
Bloomberg (Kate Haywood): "Credit-default swaps on sovereign bonds surged to a record on speculation Europe's debt crisis is worsening after Hungary said it's in a 'very grave situation' because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt jumped 107.5 bps to a record 416... Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 21 bps higher to an-all time high of 174.4."
The dollar index rose 2.0% to 88.239 (up 13.3% y-t-d).
Doug Noland: "When confidence is running high, financial conditions run loose. The marginal borrower - Greece, a highly-leveraged U.S. corporation, or perhaps a private-equity fund - enjoys easy Credit Availability. The tendency of things is for finance to expand, asset prices to inflate and economic "output" to increase. And they all feed merrily on themselves. But - in this unstable financial world - the Credit noose begins a rapid tightening the moment confidence is shaken. And the inevitable reversal of financial flows and attendant speculator deleveraging ensures vicious contagion effects, acute fragility, and destabilizing crises of confidence.
One can say that reflations fueled by marketable-based finance are prone to be dynamic and powerful. Unfortunately, once unleashed, these forces are just as powerful on the downside as during expansionary periods. Payback time comes when greed turns to fear and bull falls victim to bear. Finance proves fickle and unreliable. I fear U.S. financial and economic recoveries were built upon inflated expectations and unjustified confidence. Fleeting confidence now creates myriad risks associated with unmet expectations, disappointment and disillusionment."
Early data suggest home sales dropped far more than expected in May, even accounting for the expiration of the homebuyer tax credit - with some markets showing declines of 25-30%.
BP Plc said it aims to siphon off most of the oil gushing from the ruptured deep-sea wellhead within days.
South Korea's leader on Saturday ruled out going to war with North Korea, hours after his government asked the United Nations to punish the communist nation over the sinking of a warship.
Copper traded down to its lowest level since October 2009.
Barron's: "Barclays Capital analyst Douglas Anmuth this morning trimmed his EPS estimates for Google (GOOG) to reflect the impact of the weakening of the Euro against the dollar, as well as the recent decision to change distribution strategy for the Nexus One smart phone.
For 2010, Anmuth now sees profits of $27.67, down from $27.89; for 2011, he goes to $31.61, from $32.36.
Nonetheless, he maintains his Overweight rating and $650 price target."
First, Obama wanted to decide on salaries and bonuses. Now, he wants to determine a public corporation's right to declare dividends to its shareowners. When you voted for Obama, did you know a fascist dictator was coming into power in this land of the free and the brave?
Turning to BP's financial position, Svanberg said, "It remains our aim as always to strike the right balance for shareholders between current returns through the dividend, sustained investment for long term growth and maintaining a prudent gearing level. We will do all we can to protect and grow the value of the company in which you have invested.
"We fully understand the importance of our dividend to our shareholders. Future decisions on the quarterly dividend will be made by the Board, as they always have been, on the basis of the circumstances at the time. All factors will be considered and the decision taken in the long term interests of the shareholders."
In commenting on the significant financial costs of the incident, the company pointed out that:
* BP has already spent over $1 billion in gross direct costs for the response, clean up and relief wells.
* Spending at this rate is expected to continue for some time beyond successful completion of work to stop the flow of oil from the damaged well. Any fines and penalties would present additional costs.
* The costs of containment, removal and clean up are likely to be largely complete in 2010.
* The longer-term costs of environmental remediation, claims and litigation are not predictable at this stage, but they will be sizable and are likely to be spread over many years. Hayward assured shareholders that the company was prepared to meet those costs. "We will also meet our obligations to our employees, and to our other stakeholders, including hundreds of thousands of shareholders, and millions more savers in mutual and pension funds, who rely on their investment in BP as part of their financial security and in many cases their retirement income. The financial consequences of this incident will undoubtedly be severe, but BP is a strong company and we have weathered many storms before."
G20 drops support for fiscal stimulus. European officials said today that budget tightening needs to come next year, and German Chancellor Angela Merkel said that growth can’t come at the price of high state budget deficits.
The civilian labor force fell by 322,000 May.
Rebecca Howard: "New Zealand has emerged as an oil-exploration hotspot for some of the world's top energy companies, but the surprise rush of interest is intensifying concerns among environmentalists about a local version of the catastrophic Gulf of Mexico oil spill.
Brazil's state-owned giant Petroleo Brasileiro this week secured a five-year permit to explore the Raukumara Basin, located off the North Island's East Coast.
The move comes a few months after Anadarko of the U.S. acquired acreage off the coast of New Zealand for the first time, while ExxonMobil is hoping to strike oil or gas in the Great South Basin.
"I'm sure that all Petrobras' competitors will be looking with some interest at their involvement here," said Energy and Resources Minister Gerry Brownlee. "It's verification New Zealand is a very prospective country."
Ashok Shah, the CIO at London & Capital: "There is a risk that the sovereign debt crisis could morph into another run on undercapitalized banks in Europe," Shah said. "The IMF can support liquidity but do nothing about solvency."
With swap spreads negative in the U.S., UK and Japan, Shah says this is not just a euro zone problem and is increasingly worried about the politicians' response to the crisis.
Bloomberg (Shobhana Chandra): "Unemployed Americans are facing the longest wait on record to find work... The average duration of unemployment jumped to 34.4 weeks in May from 33 weeks the prior month and 16.5 weeks in December 2007... The number of unemployed has almost doubled to 15 million since the start of worst slump since the 1930s."
John Mauldin: "On May 27th the BEA released its first revision to its 1st Quarter 2010 GDP growth rate measurement, lowering the number from a 3.2% annualized growth rate to 3.0% annualized growth. One day later the Consumer Metrics Institute's 'Daily Growth Index' was signaling what we should expect the BEA's measurement of the 3rd Quarter 2010 GDP growth rate to be contracting at about a 2.0% rate.
"The prior BEA estimate of 1st Quarter 2010 GDP growth trailed our 'Daily Growth Index' by 127 days, and because of the rapid rate that the economy was cooling when the measurements were being made the newly adjusted estimate is now trailing our 'Daily Growth Index' by 125 days. Since the 3rd Quarter of 2010 ends 125 days after May 28th (when our 'Daily Growth Index' was recording a 'growth' rate of -1.99%), if the BEA estimates continue to trail our 'Daily Growth Index' in a consistent manner we should expect that the 3rd Quarter's GDP 'growth' rate will be in the -2.0% neighborhood."
TierOne Bank is 81st U.S. bank failure of 2010. TierOne Bank had $2.2 billion in deposits. The failure of TierOne Bank in Lincoln, Neb., means an estimated $297.8M hit to the FDIC's Deposit Insurance Fund. Along with closings in Mississippi and Illinois, that makes 81 failed institutions in 2010.
TierOne was the fourth-largest bank in Nebraska with approximately $2.8 billion in assets as of March 31. It lost $300 million last year on real estate-related loans in Florida, Nevada and other states.
Great Western Bank, of Sioux Falls, South Dakota, agreed to purchase TierOne and assume its $2.2 billion in deposits. TierOne's 69 branch offices will reopen on Saturday as branches of Great Western, said the Federal Deposit Insurance Corp.
Israeli soldiers boarded a ship carrying pro-Palestinian activists, with the military saying there was no violence and the ship was now under Israeli control.
Capital Economics' Paul Dales says that a 39% four-week plunge in mortgage applications signals what's around the corner. With the homebuyers credit now finished, "it is only a matter of time before the underlying weakness of the housing market becomes uncomfortably clear.
Guy Lerner: "I believe natural gas is putting in a bottom, and it has the potential for an extended bullish run. "
Bloomberg (Kate Haywood): "Credit-default swaps on sovereign bonds surged to a record on speculation Europe's debt crisis is worsening after Hungary said it's in a 'very grave situation' because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt jumped 107.5 bps to a record 416... Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 21 bps higher to an-all time high of 174.4."
The dollar index rose 2.0% to 88.239 (up 13.3% y-t-d).
Doug Noland: "When confidence is running high, financial conditions run loose. The marginal borrower - Greece, a highly-leveraged U.S. corporation, or perhaps a private-equity fund - enjoys easy Credit Availability. The tendency of things is for finance to expand, asset prices to inflate and economic "output" to increase. And they all feed merrily on themselves. But - in this unstable financial world - the Credit noose begins a rapid tightening the moment confidence is shaken. And the inevitable reversal of financial flows and attendant speculator deleveraging ensures vicious contagion effects, acute fragility, and destabilizing crises of confidence.
One can say that reflations fueled by marketable-based finance are prone to be dynamic and powerful. Unfortunately, once unleashed, these forces are just as powerful on the downside as during expansionary periods. Payback time comes when greed turns to fear and bull falls victim to bear. Finance proves fickle and unreliable. I fear U.S. financial and economic recoveries were built upon inflated expectations and unjustified confidence. Fleeting confidence now creates myriad risks associated with unmet expectations, disappointment and disillusionment."
Early data suggest home sales dropped far more than expected in May, even accounting for the expiration of the homebuyer tax credit - with some markets showing declines of 25-30%.
BP Plc said it aims to siphon off most of the oil gushing from the ruptured deep-sea wellhead within days.
South Korea's leader on Saturday ruled out going to war with North Korea, hours after his government asked the United Nations to punish the communist nation over the sinking of a warship.
Copper traded down to its lowest level since October 2009.
Barron's: "Barclays Capital analyst Douglas Anmuth this morning trimmed his EPS estimates for Google (GOOG) to reflect the impact of the weakening of the Euro against the dollar, as well as the recent decision to change distribution strategy for the Nexus One smart phone.
For 2010, Anmuth now sees profits of $27.67, down from $27.89; for 2011, he goes to $31.61, from $32.36.
Nonetheless, he maintains his Overweight rating and $650 price target."
First, Obama wanted to decide on salaries and bonuses. Now, he wants to determine a public corporation's right to declare dividends to its shareowners. When you voted for Obama, did you know a fascist dictator was coming into power in this land of the free and the brave?
Turning to BP's financial position, Svanberg said, "It remains our aim as always to strike the right balance for shareholders between current returns through the dividend, sustained investment for long term growth and maintaining a prudent gearing level. We will do all we can to protect and grow the value of the company in which you have invested.
"We fully understand the importance of our dividend to our shareholders. Future decisions on the quarterly dividend will be made by the Board, as they always have been, on the basis of the circumstances at the time. All factors will be considered and the decision taken in the long term interests of the shareholders."
In commenting on the significant financial costs of the incident, the company pointed out that:
* BP has already spent over $1 billion in gross direct costs for the response, clean up and relief wells.
* Spending at this rate is expected to continue for some time beyond successful completion of work to stop the flow of oil from the damaged well. Any fines and penalties would present additional costs.
* The costs of containment, removal and clean up are likely to be largely complete in 2010.
* The longer-term costs of environmental remediation, claims and litigation are not predictable at this stage, but they will be sizable and are likely to be spread over many years. Hayward assured shareholders that the company was prepared to meet those costs. "We will also meet our obligations to our employees, and to our other stakeholders, including hundreds of thousands of shareholders, and millions more savers in mutual and pension funds, who rely on their investment in BP as part of their financial security and in many cases their retirement income. The financial consequences of this incident will undoubtedly be severe, but BP is a strong company and we have weathered many storms before."
G20 drops support for fiscal stimulus. European officials said today that budget tightening needs to come next year, and German Chancellor Angela Merkel said that growth can’t come at the price of high state budget deficits.
The civilian labor force fell by 322,000 May.
Rebecca Howard: "New Zealand has emerged as an oil-exploration hotspot for some of the world's top energy companies, but the surprise rush of interest is intensifying concerns among environmentalists about a local version of the catastrophic Gulf of Mexico oil spill.
Brazil's state-owned giant Petroleo Brasileiro this week secured a five-year permit to explore the Raukumara Basin, located off the North Island's East Coast.
The move comes a few months after Anadarko of the U.S. acquired acreage off the coast of New Zealand for the first time, while ExxonMobil is hoping to strike oil or gas in the Great South Basin.
"I'm sure that all Petrobras' competitors will be looking with some interest at their involvement here," said Energy and Resources Minister Gerry Brownlee. "It's verification New Zealand is a very prospective country."
Ashok Shah, the CIO at London & Capital: "There is a risk that the sovereign debt crisis could morph into another run on undercapitalized banks in Europe," Shah said. "The IMF can support liquidity but do nothing about solvency."
With swap spreads negative in the U.S., UK and Japan, Shah says this is not just a euro zone problem and is increasingly worried about the politicians' response to the crisis.
Friday, June 04, 2010
Miserable Employment Report
6/4/10 Miserable Employment Report
U.S. nonfarm payrolls expanded by a seasonally adjusted 431,000 in May, but virtually all the new jobs were temporary jobs at the U.S. Census, leaving private-sector hiring very weak in May, the Labor Department reported Friday. Excluding 411,000 temporary Census workers, payrolls rose by 20,000 in May. According to the survey of 400,000 business establishments, private-sector payrolls increased by 41,000, the fifth straight gain. The unemployment rate fell to a seasonally adjusted 9.7% in May from 9.9% in April, according to a separate survey of 60,000 households. 31,000 gain in temp help and 215k birth-death adjustment. This is a miserable report and clearly not surprising on my part. There are now more than 15 million unemployed, including 6.8 million who have been jobless for more than six months.
Off about 60 points before the report, futures for the Dow Jones Industrial Average were down 212 points at 10,046.00. S&P 500 futures were down 24.50 points at 1,079.00. Nasdaq 100 futures were off 40 points at 1,857.75.
The euro drops to 1.1960 vs. the dollar and to an all-time low vs the swiss franc.
Hungary's BUX index fell 3.4% to 21,286.80 on Friday. "Comments from the PM's spokesman, Peter Szijjarto, raised the possibility that Hungary could default on its debts and that the new government would (bizarrely) not implement austerity measures," said analysts at RBC Capital Markets. "The new right-wing government said that the previous administration had lied about the true state of the fiscal accounts and the deficit was double the officially agreed IMF target of 3.8%of GDP," they added.
Leading policymakers were unusually candid on Friday in voicing fears that the euro zone's financial and banking woes could derail the global economic recovery.
ZeroHedge: "Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best."
The troubles of Greece and other heavily indebted European governments dominated conversations ahead of a meeting of finance ministers and central bankers of the Group of 20 of the world's top developed and emerging economies, Canadian Finance Minister Jim Flaherty said.
"It is essential to ensure continued recovery that Europe fix its banks. It is essential that certain vulnerable European nations follow through with major fiscal consolidation, and get the job done," Flaherty told reporters in Busan, South Korea.
Rob Hanna: 'Thursday’s market action was marked by low volume and a narrow range. Both came in at the lowest levels in over a month, Such uninspired action has often led to pullbacks in the past. "
Crude oil futures for July delivery fell $1.58, or 2.1%, to $73.03 a barrel. Gold for August dropped $7, or 0.6%, to $1,203.10 an ounce.
A report by Reuters that a growing number of Chinese exporters turn down euro payment.
Rumors have been spreading this morning that French bank Societe Generale SA is having some problems with its derivatives situation, the Financial Times’s Neil Dennis reports. SocGen declined to comment, notes Dennis. SocGen shares fell 8% in Paris.
The Federal Reserve said that U.S. commercial paper outstanding fell to the lowest on record. The U.S. market for short-term IOUs, commercial paper, declined $10.2 billion to $1.06 trillion in the week ended June 2, the lowest since at least 1999, data compiled by Bloomberg show.
Wal-Mart Stores Inc. said it plans to buy back as much as $15 billion of shares in a new program announced Friday at its annual shareholders meeting. The plan replaces the existing $15 billion program, which had about $5 billion remaining, Chief Financial Officer Tom Schoewe said. Wal-Mart has bought back $18.5 billion of shares the past three years and said it plans to pay more than $4.5 billion in dividends this year. Its annual dividend rose 11% to $1.21 a share this year from $1.09 a share last year.
The Dow Jones Industrial Average fell 323 points, or 3.2%, to end at 9,931.97, its worst one-day drop since May 20. The S&P 500 index fell 37.95 points, or 3.4%, to 1,064.88. Of the S&P's 10 sectors, industrials fell the hardest, off 4.6%, followed by financials and materials, both down 3.9%. The Nasdaq Composite fell 83.86 points, or 3.6%, to 2,219.17. For the week, the Dow fell 2%, the S&P was down 2.3%, and the Nasdaq dropped 1.7%.
Crude for July delivery lost $3.10 to $71.51 a barrel - the largest-single day drop for a most-active contract since February 4, when prices dropped 5%. Gold for August delivery added $7.70, or 0.6%, to settle at $1,217.70. Other metals ended lower, with palladium and copper the worst hit.
David Rosenberg: "Real organic income is still not growing and down nearly $500 billion from pre-recession levels."
U.S. nonfarm payrolls expanded by a seasonally adjusted 431,000 in May, but virtually all the new jobs were temporary jobs at the U.S. Census, leaving private-sector hiring very weak in May, the Labor Department reported Friday. Excluding 411,000 temporary Census workers, payrolls rose by 20,000 in May. According to the survey of 400,000 business establishments, private-sector payrolls increased by 41,000, the fifth straight gain. The unemployment rate fell to a seasonally adjusted 9.7% in May from 9.9% in April, according to a separate survey of 60,000 households. 31,000 gain in temp help and 215k birth-death adjustment. This is a miserable report and clearly not surprising on my part. There are now more than 15 million unemployed, including 6.8 million who have been jobless for more than six months.
Off about 60 points before the report, futures for the Dow Jones Industrial Average were down 212 points at 10,046.00. S&P 500 futures were down 24.50 points at 1,079.00. Nasdaq 100 futures were off 40 points at 1,857.75.
The euro drops to 1.1960 vs. the dollar and to an all-time low vs the swiss franc.
Hungary's BUX index fell 3.4% to 21,286.80 on Friday. "Comments from the PM's spokesman, Peter Szijjarto, raised the possibility that Hungary could default on its debts and that the new government would (bizarrely) not implement austerity measures," said analysts at RBC Capital Markets. "The new right-wing government said that the previous administration had lied about the true state of the fiscal accounts and the deficit was double the officially agreed IMF target of 3.8%of GDP," they added.
Leading policymakers were unusually candid on Friday in voicing fears that the euro zone's financial and banking woes could derail the global economic recovery.
ZeroHedge: "Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best."
The troubles of Greece and other heavily indebted European governments dominated conversations ahead of a meeting of finance ministers and central bankers of the Group of 20 of the world's top developed and emerging economies, Canadian Finance Minister Jim Flaherty said.
"It is essential to ensure continued recovery that Europe fix its banks. It is essential that certain vulnerable European nations follow through with major fiscal consolidation, and get the job done," Flaherty told reporters in Busan, South Korea.
Rob Hanna: 'Thursday’s market action was marked by low volume and a narrow range. Both came in at the lowest levels in over a month, Such uninspired action has often led to pullbacks in the past. "
Crude oil futures for July delivery fell $1.58, or 2.1%, to $73.03 a barrel. Gold for August dropped $7, or 0.6%, to $1,203.10 an ounce.
A report by Reuters that a growing number of Chinese exporters turn down euro payment.
Rumors have been spreading this morning that French bank Societe Generale SA is having some problems with its derivatives situation, the Financial Times’s Neil Dennis reports. SocGen declined to comment, notes Dennis. SocGen shares fell 8% in Paris.
The Federal Reserve said that U.S. commercial paper outstanding fell to the lowest on record. The U.S. market for short-term IOUs, commercial paper, declined $10.2 billion to $1.06 trillion in the week ended June 2, the lowest since at least 1999, data compiled by Bloomberg show.
Wal-Mart Stores Inc. said it plans to buy back as much as $15 billion of shares in a new program announced Friday at its annual shareholders meeting. The plan replaces the existing $15 billion program, which had about $5 billion remaining, Chief Financial Officer Tom Schoewe said. Wal-Mart has bought back $18.5 billion of shares the past three years and said it plans to pay more than $4.5 billion in dividends this year. Its annual dividend rose 11% to $1.21 a share this year from $1.09 a share last year.
The Dow Jones Industrial Average fell 323 points, or 3.2%, to end at 9,931.97, its worst one-day drop since May 20. The S&P 500 index fell 37.95 points, or 3.4%, to 1,064.88. Of the S&P's 10 sectors, industrials fell the hardest, off 4.6%, followed by financials and materials, both down 3.9%. The Nasdaq Composite fell 83.86 points, or 3.6%, to 2,219.17. For the week, the Dow fell 2%, the S&P was down 2.3%, and the Nasdaq dropped 1.7%.
Crude for July delivery lost $3.10 to $71.51 a barrel - the largest-single day drop for a most-active contract since February 4, when prices dropped 5%. Gold for August delivery added $7.70, or 0.6%, to settle at $1,217.70. Other metals ended lower, with palladium and copper the worst hit.
David Rosenberg: "Real organic income is still not growing and down nearly $500 billion from pre-recession levels."
Thursday, June 03, 2010
ADP
6/3/10 ADP
ADP said U.S. companies hired 55,000 additional workers in May, short of the 100,000 forecast by economists.
The report comes one day before the government releases its estimates of nonfarm payrolls and the unemployment rate. The MarketWatch concensus looks for a gain of 513,000 in May, including about 400,000 workers hired temporarily to conduct the 2010 Census. Service-producing industries added 78,000 jobs, the fifth straight increase, ADP said. Goods-producing industries shed 23,000 jobs, despite a gain of 15,000 in manufacturing.
Costco reported. Excluding higher gasoline prices and stronger foreign currencies, comparable-store sales rose 5% in May, reflecting increases of 5% in the U.S. and 9% internationally, Costco reported.
BP said Thursday that it supports the U.S. government's decision to construct six sand barriers to protect Louisiana marshes and that the company will fund the estimated $360 million cost of the project. "BP is committed to implementing the most effective measures to protect the coastline of Louisiana and reduce the impact of the oil and gas spill in the Gulf of Mexico," said CEO Tony Hayward. BP said it has already provided $170 million to Louisiana, Alabama, Mississippi and Florida to help with their response costs and has paid around $42 million in compensation to people and companies affected by the spill.
Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.
The number of Americans receiving food stamps in March topped 40 million for the first time as the jobless rate hovered near a 26-year high.
"In the week ending May 29, the advance figure for seasonally adjusted initial claims was 453,000, a decrease of 10,000 from the previous week's revised figure of 463,000. The 4-week moving average was 459,000, an increase of 1,750 from the previous week's revised average of 457,250.
The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending May 22, unchanged from the prior week's unrevised rate of 3.6 percent.
The advance number for seasonally adjusted insured unemployment during the week ending May 22 was 4,666,000, an increase of 31,000 from the preceding week's revised level of 4,635,000. The 4-week moving average was 4,654,000, an increase of 9,750 from the preceding week's revised average of 4,644,250.
Marty Chenard: "Institutional Distribution levels are decreasing. If they converge more, with Institutional selling dropping below the 9000 level, then the market's bias will start shifting to short term positive."
Rob Hanna: "The CBI closed Wednesday at 10, which is as low as it has been lately. This is now the 9th trading day in a row with a close of 10 or higher - a very long stretch for such an extreme reading. This raises the question of whether having such strongly oversold stocks take so long to bounce suggests anything. Is this failure of the CBI to drop back down a sign of more market weakness to come? Or does it suggest that perhaps it is just taking some time to carve out a meaningful bottom?
I ran some tests and frankly there weren’t enough instances to tell. The only two other instances where the CBI managed to stay above 10 for at least 9 days were 12/16/96 and 9/28/01. In both cases we saw strong rallies that lasted at least a couple of months. If I loosen the requirement to only requiring the CBI to remain at 10 or above for at least 6 days rather than 9, then two more instances arise. They were on 9/4/98 and 7/25/02. These didn’t mark bottoms but they were followed by powerful 1-month rallies.
This isn’t decisive proof that a rally is about to emerge. Still, the stubbornly high CBI certainly doesn’t appear to be bad news."
The U.S. economy is almost strong enough to allow the Fed to begin raising interest rates, but we're not quite there yet, Atlanta Fed President Dennis Lockhart says. "As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability."
Natural gas is poised for a rally to $4.80 per million British thermal units this month, according to a technical analysis by Chris Kostas, a senior analyst at Energy Security Analysis Inc.
A momentum indicator known as MACD suggests the July gas contract on the New York Mercantile Exchange is in a “bullish divergence” that will send the futures higher, according to Kostas, based in Wakefield, Massachusetts.
Buffett Expects ‘Terrible Problem’ for Municipal Debt.
“‘The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,’ said Li Daokui, a member of the bank’s monetary policy committee.
“‘It is more than (just) a bubble problem,’ he told the Financial Times in an interview published Tuesday. The property market in the United States collapsed as too many people were unable to repay their high-risk, or sub-prime mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up…
“…He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home. ‘When prices go up, many people, especially young people, become very anxious,’ he said. ‘It is a social problem.’”
China warns US over a decision to slap duties on imports of Chinese steel gratings.
Natural-gas futures added to gains on Thursday after a report showed a smaller-than-expected increase in the nation's stockpiles. Natural gas for July delivery rose 9 cents, or 2.1%, to $4.52 per million British thermal units. The Energy Information Administration reported Thursday an increase of 88 billion cubic feet in natural gas in storage. Analysts polled by Platts had predicted an increase between 90 and 94 billion cubic feet.
Orders for U.S.-made factory goods increased a seasonally adjusted 1.2% in April, led by a tripling in orders for civilian airplanes and parts, the Commerce Department estimated Thursday. Excluding transportation goods, orders fell 0.5%. Shipments rose 0.6%. Orders for core capital equipment goods fell 2.6% after rising 6.7% in March. Inventories declined 0.2%. The inventory-to-sales ratio remained at 1.24, the lowest since July 2008 and a sign that inventories may be too low. Economists surveyed by MarketWatch were expecting factory orders to rise 1.8%. March orders were revised higher to a 1.7% gain from 1.1% earlier.
Services industries in the United States were growing for the fifth straight month in May, the Institute for Supply Management reported Thursday. The ISM non-manufacturing index was unchanged at 55.4% in May. Economists surveyed by MarketWatch were looking for the index to slide to 55.2% in May. Readings over 50% indicate more firms were expanding than contracting. In May, 16 of 18 industries were growing. The new orders index fell 1.1 percentage points to 57.1%, and the employment index rose above 50% for the first time in 29 months.
EIA: Oil inventories decrease by 1.9 mln barrels. Crude oil for July delivery added $1.75 to settle at $74.61 a barrel on the New York Mercantile Exchange. Natural gas prices jumped 6% as a separate report showed a smaller-than-expected increase in natural gas in storages. Natural gas for July delivery added 27 cents to $4.69 per million British thermal units.
The Dow Jones industrials closed up 6 points to 10,255. Trading was volatile: The blue chips had been up as many as 66 points during the day -- and down as many as 74 points. The Standard & Poor's 500 Index was up 4 points to 1,103. The Nasdaq Composite Index was up 22 points to 2,303.
ZeroHedge: "The Fed lent out $6.6 billion in liquidity swaps this week to foreign banks, of which the biggest beneficiary was the ECB, with a 1 week swap of $5.4 billion and an 84 day swap of $1.0 billion. The only other bank receiving Fed aid was the Bank of Japan, which got $210 million. What is funny is that the ECB is now an example of just how large the FX imbalance in Europe is: the ECB has had to lend out $6.4 billion in dollars even as banks have hoarded €320 billion in euro deposits with the ECB, a new all time record. In other words, nobody wants euros, and everybody is dying to get their hands on dollars. But somehow the market is supposed to believe the funding situation in Europe is ok. Lastly, the $6.6 billion in total Fed liquidity swaps $5.4 billion greater than the prior week's $1.2 billion. We wonder what spin will be applied to explain the 500% increase in world dollar funding requirements."
ADP said U.S. companies hired 55,000 additional workers in May, short of the 100,000 forecast by economists.
The report comes one day before the government releases its estimates of nonfarm payrolls and the unemployment rate. The MarketWatch concensus looks for a gain of 513,000 in May, including about 400,000 workers hired temporarily to conduct the 2010 Census. Service-producing industries added 78,000 jobs, the fifth straight increase, ADP said. Goods-producing industries shed 23,000 jobs, despite a gain of 15,000 in manufacturing.
Costco reported. Excluding higher gasoline prices and stronger foreign currencies, comparable-store sales rose 5% in May, reflecting increases of 5% in the U.S. and 9% internationally, Costco reported.
BP said Thursday that it supports the U.S. government's decision to construct six sand barriers to protect Louisiana marshes and that the company will fund the estimated $360 million cost of the project. "BP is committed to implementing the most effective measures to protect the coastline of Louisiana and reduce the impact of the oil and gas spill in the Gulf of Mexico," said CEO Tony Hayward. BP said it has already provided $170 million to Louisiana, Alabama, Mississippi and Florida to help with their response costs and has paid around $42 million in compensation to people and companies affected by the spill.
Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.
The number of Americans receiving food stamps in March topped 40 million for the first time as the jobless rate hovered near a 26-year high.
"In the week ending May 29, the advance figure for seasonally adjusted initial claims was 453,000, a decrease of 10,000 from the previous week's revised figure of 463,000. The 4-week moving average was 459,000, an increase of 1,750 from the previous week's revised average of 457,250.
The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending May 22, unchanged from the prior week's unrevised rate of 3.6 percent.
The advance number for seasonally adjusted insured unemployment during the week ending May 22 was 4,666,000, an increase of 31,000 from the preceding week's revised level of 4,635,000. The 4-week moving average was 4,654,000, an increase of 9,750 from the preceding week's revised average of 4,644,250.
Marty Chenard: "Institutional Distribution levels are decreasing. If they converge more, with Institutional selling dropping below the 9000 level, then the market's bias will start shifting to short term positive."
Rob Hanna: "The CBI closed Wednesday at 10, which is as low as it has been lately. This is now the 9th trading day in a row with a close of 10 or higher - a very long stretch for such an extreme reading. This raises the question of whether having such strongly oversold stocks take so long to bounce suggests anything. Is this failure of the CBI to drop back down a sign of more market weakness to come? Or does it suggest that perhaps it is just taking some time to carve out a meaningful bottom?
I ran some tests and frankly there weren’t enough instances to tell. The only two other instances where the CBI managed to stay above 10 for at least 9 days were 12/16/96 and 9/28/01. In both cases we saw strong rallies that lasted at least a couple of months. If I loosen the requirement to only requiring the CBI to remain at 10 or above for at least 6 days rather than 9, then two more instances arise. They were on 9/4/98 and 7/25/02. These didn’t mark bottoms but they were followed by powerful 1-month rallies.
This isn’t decisive proof that a rally is about to emerge. Still, the stubbornly high CBI certainly doesn’t appear to be bad news."
The U.S. economy is almost strong enough to allow the Fed to begin raising interest rates, but we're not quite there yet, Atlanta Fed President Dennis Lockhart says. "As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability."
Natural gas is poised for a rally to $4.80 per million British thermal units this month, according to a technical analysis by Chris Kostas, a senior analyst at Energy Security Analysis Inc.
A momentum indicator known as MACD suggests the July gas contract on the New York Mercantile Exchange is in a “bullish divergence” that will send the futures higher, according to Kostas, based in Wakefield, Massachusetts.
Buffett Expects ‘Terrible Problem’ for Municipal Debt.
“‘The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,’ said Li Daokui, a member of the bank’s monetary policy committee.
“‘It is more than (just) a bubble problem,’ he told the Financial Times in an interview published Tuesday. The property market in the United States collapsed as too many people were unable to repay their high-risk, or sub-prime mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up…
“…He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home. ‘When prices go up, many people, especially young people, become very anxious,’ he said. ‘It is a social problem.’”
China warns US over a decision to slap duties on imports of Chinese steel gratings.
Natural-gas futures added to gains on Thursday after a report showed a smaller-than-expected increase in the nation's stockpiles. Natural gas for July delivery rose 9 cents, or 2.1%, to $4.52 per million British thermal units. The Energy Information Administration reported Thursday an increase of 88 billion cubic feet in natural gas in storage. Analysts polled by Platts had predicted an increase between 90 and 94 billion cubic feet.
Orders for U.S.-made factory goods increased a seasonally adjusted 1.2% in April, led by a tripling in orders for civilian airplanes and parts, the Commerce Department estimated Thursday. Excluding transportation goods, orders fell 0.5%. Shipments rose 0.6%. Orders for core capital equipment goods fell 2.6% after rising 6.7% in March. Inventories declined 0.2%. The inventory-to-sales ratio remained at 1.24, the lowest since July 2008 and a sign that inventories may be too low. Economists surveyed by MarketWatch were expecting factory orders to rise 1.8%. March orders were revised higher to a 1.7% gain from 1.1% earlier.
Services industries in the United States were growing for the fifth straight month in May, the Institute for Supply Management reported Thursday. The ISM non-manufacturing index was unchanged at 55.4% in May. Economists surveyed by MarketWatch were looking for the index to slide to 55.2% in May. Readings over 50% indicate more firms were expanding than contracting. In May, 16 of 18 industries were growing. The new orders index fell 1.1 percentage points to 57.1%, and the employment index rose above 50% for the first time in 29 months.
EIA: Oil inventories decrease by 1.9 mln barrels. Crude oil for July delivery added $1.75 to settle at $74.61 a barrel on the New York Mercantile Exchange. Natural gas prices jumped 6% as a separate report showed a smaller-than-expected increase in natural gas in storages. Natural gas for July delivery added 27 cents to $4.69 per million British thermal units.
The Dow Jones industrials closed up 6 points to 10,255. Trading was volatile: The blue chips had been up as many as 66 points during the day -- and down as many as 74 points. The Standard & Poor's 500 Index was up 4 points to 1,103. The Nasdaq Composite Index was up 22 points to 2,303.
ZeroHedge: "The Fed lent out $6.6 billion in liquidity swaps this week to foreign banks, of which the biggest beneficiary was the ECB, with a 1 week swap of $5.4 billion and an 84 day swap of $1.0 billion. The only other bank receiving Fed aid was the Bank of Japan, which got $210 million. What is funny is that the ECB is now an example of just how large the FX imbalance in Europe is: the ECB has had to lend out $6.4 billion in dollars even as banks have hoarded €320 billion in euro deposits with the ECB, a new all time record. In other words, nobody wants euros, and everybody is dying to get their hands on dollars. But somehow the market is supposed to believe the funding situation in Europe is ok. Lastly, the $6.6 billion in total Fed liquidity swaps $5.4 billion greater than the prior week's $1.2 billion. We wonder what spin will be applied to explain the 500% increase in world dollar funding requirements."
Wednesday, June 02, 2010
Gulf of Mexico
6/2/10 Gulf of Mexico
BP hopes to place a cap on a fractured oil pipe and contain the Gulf of Mexico spill within the next 24 hours, a top company official said Tuesday.
"If everything goes well, within the next 24 hours, we could have this contained," BP's chief operating officer Doug Suttles told reporters in Louisiana.
The U.S. Food and Drug Administration approved on Tuesday the sale of Amgen Inc's osteoporosis drug Prolia to help prevent fractures in postmenopausal women just days after the medicine received European approval.
US Mint has run out of American Eagle silver coins and is also out of gold American Eagles.
FT: "The events of May 6 revealed that while getting rid of old-style “specialist” market makers has reduced the cost of trading by narrowing bid-ask spreads, the benefit has come at a cost. Now, no one has an obligation to provide prices for all shares all the time during a trading day, as trading has fragmented across an array of electronic trading venues and traders. The moment the markets grow too risky, many new electronic market makers appear only too willing to head for the exit.”
Martin Hutchinson: "In its simplest form as understood by leftist politicians and many of the dozier members of the general public, Keynes' theory is nothing more nor less than a fallacy. It fails to recognize that the stimulus money has to come from somewhere, and that withdrawing it from circulation will have an opposing effect on jobs that may cancel out the Keynesian effect of the spending. The Congressional Budget Office's scoring of the jobs created by the stimulus, for example, estimates the Keynesian multiplier for each item of spending and from this estimates job creation. It neither corrects its estimates by reference to newly released unemployment data, nor takes account of the economic effect of the government borrowing that funds the stimulus spending.
Keynes himself, a subtler economist than many of his followers, did not take account of the effect of interest rates on conditions generally, but he also did not recommend “stimulus” spending in every downturn. In his view, only when the economy had become trapped in a suboptimal equilibrium, with some available resources unused and output below the full employment level, should a burst of government spending be used to get it out. Such a suboptimal equilibrium is theoretically impossible under classical economics, but Keynes, recognizing the real world in the labor market if not the capital market, postulated that in a world with strong unions wages might be sticky on the downside, in which case the labor market could equilibrate at less than full employment."
Japanese Prime Minister Yukio Hatoyama will announce his resignation at an emergency meeting of ruling Democratic Party of Japan lawmakers later Wednesday, national broadcaster NHK reported. NHK said Hatoyama conveyed his intent to resign to DPJ leaders.
Employers announced 38,810 job cuts in the month, slightly more than the 38,326 unveiled in April, according to the report from global outplacement consultancy Challenger, Gray & Christmas.
Iran's central bank has announced it will sell 45 billion euros from its foreign exchange reserves to buy dollars and gold, Reuters reported Wednesday, citing China's official Xinhua news agency.
The market for corporate bond sales closed as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt.
No companies issued bonds in the U.S. yesterday, compared with $2.2 billion on the corresponding day following the Memorial Day weekend in 2009, according to data compiled by Bloomberg. In Europe, 1.35 billion euros ($1.66 billion) was raised from two sales of covered bonds, versus 6.5 billion euros a year earlier, Bloomberg data show.
China's Stocks Decline to 13-Month Low.
China Daily: "A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.
With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.
Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.
That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.
It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble."
Stephen Schork: " Last week spot Nymex Henry Hub futures traded up through and closed above (positively sloped) 14, 30 and 50 day moving averages. What’s more, as of Friday the RSI, 58.1, was also sloped to the upside. These are indeed bullish events, but with one caveat… volume was very weak last week.
Nevertheless, here at The Schork Report we remain cautiously bullish in gas as we approach the dog days of summer."
Americans make up 5 per cent of the world's population but guzzle 25 per cent of the oil supply. Were our demand for oil considerably less, then companies would not be drilling one mile down in the ocean. All Americans are responsible for this oil spill.
The pending home sales index rose 6% in April after an upwardly revsed 7.1% increase in March, the National Association of Realtors reported Wednesday. The index covers signed contracts, not final sales, which usually lag by a month or two. The federal government has been subsidizing home sales with tax credits of up to $8,000 for qualified buyers who signed a sales contract by the end of April. The sale must close by June 30 to qualify. The index is up 22% compared with April 2009.
UK insurer Prudential has abandoned its plan to buy AIG's Asian life unit for $35.5 billion, leaving management under fire and the company facing a $659 million bill for failure.
BP Plc successfully cut the riser pipe at the ruptured well in the bottom of the Gulf of Mexico, but the diamond wire blade got stuck during the second cut on Wednesday, Coast Guard Admiral Thad Allen said in a press conference. BP will attempt to work the blade out of the pipe or possibly lower a second saw down to the pipe. Allen said BP remains confident that it will make the cut in order to put a cap over the leaking pipe. The results of the effort should be known by the end of the day, he said. If it's a clean cut, BP will put a cap with a rubber seal on it to capture the leaking oil; if not, it'll use a looser-fitting top hat cap to capture the oil, he said.
Jim Letourneau: "While things are looking pretty grim for the Gulf of Mexico, it's no stranger to having oil contaminate its ecosystem. Indeed natural processes are responsible for more than 60% of the petroleum entering North American waters, according to the National Academies. I'm not saying the BP (BP) disaster is excusable but sometimes having some sense of proportion can lead informed discussion instead of a media circus. The NASA Earth Observatory scientists estimated in 2000 that oil seeps from the sea floor at more than 600 locations. In aggregate, the annual volume of natural seepage in the Gulf of Mexico is conservatively estimated to equal that of two Exxon (XOM) Valdez spills every year. The issue with the BP disaster is that all the oil is coming from a single source like a fire hose instead of hundreds of leaking faucets. The use of dispersants may help mitigate the damage and give hydrocarbon-degrading microbes a better chance to chow down on some of the spill."
The Financial Times on Monday reported that, according to several Google employees, Windows is on its way out in the company as a result of security concerns.
The Dow Jones industrials jumped 226 points, or 2.3%, to 10,250. The Nasdaq Composite Index added 59 points, or 2.6%, to 2,281. The Standard & Poor's 500 Index was up 28 points, or 2.6%, to 1,098.
Crude-oil stockpiles declined 1.4 million barrels in the week ended May 28, The American Petroleum Institute reported Wednesday. The trade group based in Washington. Analysts polled by Platts had predicted a decline of 1 million barrels. Gasoline inventories declined by 962,000 barrels, the API reported. That compared to expectations of a decrease around 750,000, according to Platts. Crude oil settled marginally higher on Wednesday, at $72.86 a barrel, and traded at $73.42 a barrel in after-hours electronic trading.
BP hopes to place a cap on a fractured oil pipe and contain the Gulf of Mexico spill within the next 24 hours, a top company official said Tuesday.
"If everything goes well, within the next 24 hours, we could have this contained," BP's chief operating officer Doug Suttles told reporters in Louisiana.
The U.S. Food and Drug Administration approved on Tuesday the sale of Amgen Inc's osteoporosis drug Prolia to help prevent fractures in postmenopausal women just days after the medicine received European approval.
US Mint has run out of American Eagle silver coins and is also out of gold American Eagles.
FT: "The events of May 6 revealed that while getting rid of old-style “specialist” market makers has reduced the cost of trading by narrowing bid-ask spreads, the benefit has come at a cost. Now, no one has an obligation to provide prices for all shares all the time during a trading day, as trading has fragmented across an array of electronic trading venues and traders. The moment the markets grow too risky, many new electronic market makers appear only too willing to head for the exit.”
Martin Hutchinson: "In its simplest form as understood by leftist politicians and many of the dozier members of the general public, Keynes' theory is nothing more nor less than a fallacy. It fails to recognize that the stimulus money has to come from somewhere, and that withdrawing it from circulation will have an opposing effect on jobs that may cancel out the Keynesian effect of the spending. The Congressional Budget Office's scoring of the jobs created by the stimulus, for example, estimates the Keynesian multiplier for each item of spending and from this estimates job creation. It neither corrects its estimates by reference to newly released unemployment data, nor takes account of the economic effect of the government borrowing that funds the stimulus spending.
Keynes himself, a subtler economist than many of his followers, did not take account of the effect of interest rates on conditions generally, but he also did not recommend “stimulus” spending in every downturn. In his view, only when the economy had become trapped in a suboptimal equilibrium, with some available resources unused and output below the full employment level, should a burst of government spending be used to get it out. Such a suboptimal equilibrium is theoretically impossible under classical economics, but Keynes, recognizing the real world in the labor market if not the capital market, postulated that in a world with strong unions wages might be sticky on the downside, in which case the labor market could equilibrate at less than full employment."
Japanese Prime Minister Yukio Hatoyama will announce his resignation at an emergency meeting of ruling Democratic Party of Japan lawmakers later Wednesday, national broadcaster NHK reported. NHK said Hatoyama conveyed his intent to resign to DPJ leaders.
Employers announced 38,810 job cuts in the month, slightly more than the 38,326 unveiled in April, according to the report from global outplacement consultancy Challenger, Gray & Christmas.
Iran's central bank has announced it will sell 45 billion euros from its foreign exchange reserves to buy dollars and gold, Reuters reported Wednesday, citing China's official Xinhua news agency.
The market for corporate bond sales closed as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt.
No companies issued bonds in the U.S. yesterday, compared with $2.2 billion on the corresponding day following the Memorial Day weekend in 2009, according to data compiled by Bloomberg. In Europe, 1.35 billion euros ($1.66 billion) was raised from two sales of covered bonds, versus 6.5 billion euros a year earlier, Bloomberg data show.
China's Stocks Decline to 13-Month Low.
China Daily: "A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.
With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.
Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.
That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.
It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble."
Stephen Schork: " Last week spot Nymex Henry Hub futures traded up through and closed above (positively sloped) 14, 30 and 50 day moving averages. What’s more, as of Friday the RSI, 58.1, was also sloped to the upside. These are indeed bullish events, but with one caveat… volume was very weak last week.
Nevertheless, here at The Schork Report we remain cautiously bullish in gas as we approach the dog days of summer."
Americans make up 5 per cent of the world's population but guzzle 25 per cent of the oil supply. Were our demand for oil considerably less, then companies would not be drilling one mile down in the ocean. All Americans are responsible for this oil spill.
The pending home sales index rose 6% in April after an upwardly revsed 7.1% increase in March, the National Association of Realtors reported Wednesday. The index covers signed contracts, not final sales, which usually lag by a month or two. The federal government has been subsidizing home sales with tax credits of up to $8,000 for qualified buyers who signed a sales contract by the end of April. The sale must close by June 30 to qualify. The index is up 22% compared with April 2009.
UK insurer Prudential has abandoned its plan to buy AIG's Asian life unit for $35.5 billion, leaving management under fire and the company facing a $659 million bill for failure.
BP Plc successfully cut the riser pipe at the ruptured well in the bottom of the Gulf of Mexico, but the diamond wire blade got stuck during the second cut on Wednesday, Coast Guard Admiral Thad Allen said in a press conference. BP will attempt to work the blade out of the pipe or possibly lower a second saw down to the pipe. Allen said BP remains confident that it will make the cut in order to put a cap over the leaking pipe. The results of the effort should be known by the end of the day, he said. If it's a clean cut, BP will put a cap with a rubber seal on it to capture the leaking oil; if not, it'll use a looser-fitting top hat cap to capture the oil, he said.
Jim Letourneau: "While things are looking pretty grim for the Gulf of Mexico, it's no stranger to having oil contaminate its ecosystem. Indeed natural processes are responsible for more than 60% of the petroleum entering North American waters, according to the National Academies. I'm not saying the BP (BP) disaster is excusable but sometimes having some sense of proportion can lead informed discussion instead of a media circus. The NASA Earth Observatory scientists estimated in 2000 that oil seeps from the sea floor at more than 600 locations. In aggregate, the annual volume of natural seepage in the Gulf of Mexico is conservatively estimated to equal that of two Exxon (XOM) Valdez spills every year. The issue with the BP disaster is that all the oil is coming from a single source like a fire hose instead of hundreds of leaking faucets. The use of dispersants may help mitigate the damage and give hydrocarbon-degrading microbes a better chance to chow down on some of the spill."
The Financial Times on Monday reported that, according to several Google employees, Windows is on its way out in the company as a result of security concerns.
The Dow Jones industrials jumped 226 points, or 2.3%, to 10,250. The Nasdaq Composite Index added 59 points, or 2.6%, to 2,281. The Standard & Poor's 500 Index was up 28 points, or 2.6%, to 1,098.
Crude-oil stockpiles declined 1.4 million barrels in the week ended May 28, The American Petroleum Institute reported Wednesday. The trade group based in Washington. Analysts polled by Platts had predicted a decline of 1 million barrels. Gasoline inventories declined by 962,000 barrels, the API reported. That compared to expectations of a decrease around 750,000, according to Platts. Crude oil settled marginally higher on Wednesday, at $72.86 a barrel, and traded at $73.42 a barrel in after-hours electronic trading.
Tuesday, June 01, 2010
Oil Sector Losses
6/1/10 Oil Sector Losses
HP to cut 9,000 jobs.
BP shares down 19% in London.
The euro traded at $1.2118 versus the dollar in recent action.
Rob Hanna: "we’ve reached an area where risk has pretty much maxed out in the past under similar conditions – at least temporarily. "
Euro buying power is down over 10% against the yuan so far through this 2010 crisis.
Fadel Gheit, an analyst at Oppenheimer Research, notes Exxon originally set aside $5.4 billion to cover legal settlements and paid $3.4 billion in cleanup costs. The Exxon legal settlement was eventually reduced to just $507.5 million with $500 million in interest payments.
In a potentially early indicator of an economic slowdown in China, the country's purchasing managers' index fell more than expected in April. Hang Seng -1.4%, Nikkei -0.6%. China’s Purchasing Managers’ Index dropped to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists.
John Hussman: "My impression is that the main struggle of the stock market here is not about Europe, but rather centers on the likelihood that the U.S. will experience a second wave of credit strains. Clearly, the level of credit strains will be a function of mortgage delinquencies and foreclosure losses, both realized and anticipated. I've noted that we entered the primary window for these strains to emerge only a few months ago. Alt-A and Option-ARM mortgage resets will hit their stride between now and November, with a second, even higher peak in 2011, before finally trailing off in early 2012. I am most concerned about the "recognition phase" in which the current, very low estimates of credit strains are revised by investors....
I tend to get particularly concerned when the market begins to exhibit extremely large fluctuations at ten-minute intervals. This sort of increasing "micro-volatility" is troublesome, particularly when in the context of a leadership reversal coming off of overvalued, overbought, overbullish extremes. The last time we observed similar internal dispersion coupled with a leadership reversal was at the 2007 market peak.
As I noted in the July, 30 2007 comment (Market Internals Go Negative), "This is much like what happens when a substance goes through a “phase transition,” for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its “critical point,” you start to observe larger clusters as one phase takes precedence and the particles that have “made a choice” affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market's tendency to experience increasing volatility at 5-10 minute intervals prior to major declines."
The Bank of Canada raised its key interest rate from a record low today, the first Group of Seven country to do so since last year’s global recession, and said further moves will be “weighed carefully” against future growth in Canada and elsewhere.
The target rate on overnight loans between commercial banks rose to 0.5 percent from 0.25 percent, as predicted by 25 of 27 economists surveyed by Bloomberg News. It was Mark Carney’s first increase as governor and the bank’s first since July 2007.
Advanced economies face years of anemic growth and the risk of a double-dip recession as their citizens cope with sluggish employment and highly indebted governments, economist Nouriel Roubini said on Monday.
ately off nearly $2 a barrel, as worries about Europe's debt troubles had investors flocking to the U.S. dollar, helping push the euro to a four-year low. "A stronger U.S. dollar is undermining demand for oil as a hedge against inflation," noted analysts at Action Economics. The contract for July delivery fell $1.84, or 2.5%, to $72.13 a barrel on the Comex division of the New York Mercantile Exchange.
The problems in China's housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, said recent state measures to cool the property market needed to be part of a long-term push to bring high prices under control . He added there were still signs the economy was overheating and urged modest increases in interest rates and the level of the currency. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he said in an interview. "It is more than [just] a bubble problem."
ECB expects additional $239.26B in write-downs by European banks.
The Institute for Supply Management said its index of national factory activity slipped to 59.7 in May from 60.4 in April. The median forecast of 73 economists surveyed by Reuters was for a reading of 59.0. A reading above 50 indicates expansion in the sector.
The report's employment component rose to 59.8, the highest since May 2004, from 58.5, while new orders held steady at 65.7, suggesting slower growth in the euro zone has yet to have much effect on U.S. manufacturing.
Upward revisions to earnings estimates for the S&P 500 have been overly optimistic, said Adam Parker, chief investment strategist at BernsteinResearch, in a report Tuesday. Consensus estimates for 2010 imply 30% growth in earnings per share to $82 a share in 2010, and 18% growth to $97 a share in 2011. In contrast, Parker predicts 25% EPS growth for 2010, to $79 a share, and 9% growth in 2011 to $86 a share. "Our view is that the EPS estimates embedded in consensus are too high for 2011 and perhaps for the second half of this year," wrote Parker. The "record pace" of upward revisions has fueled too much optimism, he said. "The challenge is that you will likely not see any evidence of this in the first half of the year," he said. He recommended owning companies with lower EPS growth expectations.
The five key companies connected to the spill over the last six weeks--- BP, Anadarko Petroleum, Transocean Ltd., Cameron, and Halliburton--combined, the five companies have lost 36.6% of their market capitalization since the week in which Deepwater Horizon exploded and later sank, spewing millions of gallons of crude oil into the Gulf of Mexico. The market loss to date approximates $40 billion. That does not take into account the losses reflected in other companies within the oil service and oil-related sector.
The Dow Jones Industrial Average fell 112.61 points, or 1.1%, to 10,024.02, after it rose up to 10,218 during the session. The S&P 500 index fell 18.70 points, or 1.7%, to 10,024.71, pressured by a 4.3% drop in its energy sector. The Nasdaq Composite dropped 34.71 points, or 1.5%, to 2,222.33.
Reuters reports that "The U.S. mint sold 190,000 1-ounce American Eagle gold coins in May, the largest number since January 1999, and the most in any month so far in 2010, according to a spokesman for the U.S. agency."
HP to cut 9,000 jobs.
BP shares down 19% in London.
The euro traded at $1.2118 versus the dollar in recent action.
Rob Hanna: "we’ve reached an area where risk has pretty much maxed out in the past under similar conditions – at least temporarily. "
Euro buying power is down over 10% against the yuan so far through this 2010 crisis.
Fadel Gheit, an analyst at Oppenheimer Research, notes Exxon originally set aside $5.4 billion to cover legal settlements and paid $3.4 billion in cleanup costs. The Exxon legal settlement was eventually reduced to just $507.5 million with $500 million in interest payments.
In a potentially early indicator of an economic slowdown in China, the country's purchasing managers' index fell more than expected in April. Hang Seng -1.4%, Nikkei -0.6%. China’s Purchasing Managers’ Index dropped to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists.
John Hussman: "My impression is that the main struggle of the stock market here is not about Europe, but rather centers on the likelihood that the U.S. will experience a second wave of credit strains. Clearly, the level of credit strains will be a function of mortgage delinquencies and foreclosure losses, both realized and anticipated. I've noted that we entered the primary window for these strains to emerge only a few months ago. Alt-A and Option-ARM mortgage resets will hit their stride between now and November, with a second, even higher peak in 2011, before finally trailing off in early 2012. I am most concerned about the "recognition phase" in which the current, very low estimates of credit strains are revised by investors....
I tend to get particularly concerned when the market begins to exhibit extremely large fluctuations at ten-minute intervals. This sort of increasing "micro-volatility" is troublesome, particularly when in the context of a leadership reversal coming off of overvalued, overbought, overbullish extremes. The last time we observed similar internal dispersion coupled with a leadership reversal was at the 2007 market peak.
As I noted in the July, 30 2007 comment (Market Internals Go Negative), "This is much like what happens when a substance goes through a “phase transition,” for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its “critical point,” you start to observe larger clusters as one phase takes precedence and the particles that have “made a choice” affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market's tendency to experience increasing volatility at 5-10 minute intervals prior to major declines."
The Bank of Canada raised its key interest rate from a record low today, the first Group of Seven country to do so since last year’s global recession, and said further moves will be “weighed carefully” against future growth in Canada and elsewhere.
The target rate on overnight loans between commercial banks rose to 0.5 percent from 0.25 percent, as predicted by 25 of 27 economists surveyed by Bloomberg News. It was Mark Carney’s first increase as governor and the bank’s first since July 2007.
Advanced economies face years of anemic growth and the risk of a double-dip recession as their citizens cope with sluggish employment and highly indebted governments, economist Nouriel Roubini said on Monday.
ately off nearly $2 a barrel, as worries about Europe's debt troubles had investors flocking to the U.S. dollar, helping push the euro to a four-year low. "A stronger U.S. dollar is undermining demand for oil as a hedge against inflation," noted analysts at Action Economics. The contract for July delivery fell $1.84, or 2.5%, to $72.13 a barrel on the Comex division of the New York Mercantile Exchange.
The problems in China's housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, said recent state measures to cool the property market needed to be part of a long-term push to bring high prices under control . He added there were still signs the economy was overheating and urged modest increases in interest rates and the level of the currency. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he said in an interview. "It is more than [just] a bubble problem."
ECB expects additional $239.26B in write-downs by European banks.
The Institute for Supply Management said its index of national factory activity slipped to 59.7 in May from 60.4 in April. The median forecast of 73 economists surveyed by Reuters was for a reading of 59.0. A reading above 50 indicates expansion in the sector.
The report's employment component rose to 59.8, the highest since May 2004, from 58.5, while new orders held steady at 65.7, suggesting slower growth in the euro zone has yet to have much effect on U.S. manufacturing.
Upward revisions to earnings estimates for the S&P 500 have been overly optimistic, said Adam Parker, chief investment strategist at BernsteinResearch, in a report Tuesday. Consensus estimates for 2010 imply 30% growth in earnings per share to $82 a share in 2010, and 18% growth to $97 a share in 2011. In contrast, Parker predicts 25% EPS growth for 2010, to $79 a share, and 9% growth in 2011 to $86 a share. "Our view is that the EPS estimates embedded in consensus are too high for 2011 and perhaps for the second half of this year," wrote Parker. The "record pace" of upward revisions has fueled too much optimism, he said. "The challenge is that you will likely not see any evidence of this in the first half of the year," he said. He recommended owning companies with lower EPS growth expectations.
The five key companies connected to the spill over the last six weeks--- BP, Anadarko Petroleum, Transocean Ltd., Cameron, and Halliburton--combined, the five companies have lost 36.6% of their market capitalization since the week in which Deepwater Horizon exploded and later sank, spewing millions of gallons of crude oil into the Gulf of Mexico. The market loss to date approximates $40 billion. That does not take into account the losses reflected in other companies within the oil service and oil-related sector.
The Dow Jones Industrial Average fell 112.61 points, or 1.1%, to 10,024.02, after it rose up to 10,218 during the session. The S&P 500 index fell 18.70 points, or 1.7%, to 10,024.71, pressured by a 4.3% drop in its energy sector. The Nasdaq Composite dropped 34.71 points, or 1.5%, to 2,222.33.
Reuters reports that "The U.S. mint sold 190,000 1-ounce American Eagle gold coins in May, the largest number since January 1999, and the most in any month so far in 2010, according to a spokesman for the U.S. agency."
Monday, May 31, 2010
Memorial Day
5/31/10 Memorial Day
Although no sculptured marble should rise to their memory, nor engraved stone bear record of their deeds, yet will their remembrance be as lasting as the land they honored. ~Daniel Webster
China warned on Monday that Europe's struggle to contain ballooning debt posed a risk to global economic growth, raising the specter of a double-dip recession.
Premier Wen Jiabao, addressing business leaders during an official visit to Japan, issued his warnings a day after France admitted it will struggle to keep its top credit rating and days after a downgrade of Spain's credit status again jolted financial markets.
BP shares dropped more than 8% in Frankfurt trade, with more than 1 million shares changing hands.
Bloomberg: Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating.
Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings Ltd., Country Garden Holdings Co. and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage- point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan.
Israeli commandos stormed Gaza-bound aid ships on Monday and at least 10 pro-Palestinian activists on board were killed, unleashing a diplomatic crisis and charges of a "massacre" from the Palestinian president.
France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.
"Most of BP's fuel oil team, including the global head and the heads of the three trading centers, have left in the past month," a U.S.-based source said.
BP has been a major player over the past 15 years in the fuel oil market. In Asia, it regularly trades 500,000-600,000 tonnes of physical cargoes monthly.
The departures in the U.S. of fuel oil leader, Tim Gawne, another physical trader and the third who traded derivatives, left the team with one derivatives trader, the sources said.
German President Horst Koehler said on Monday he was resigning with immediate effect due to widespread criticism of comments he made about the country's military action and commercial interests.
The euro looks set to end the month of May around 7.5 percent lower against the dollar as ongoing debt problems in euro zone countries have rocked confidence in the euro system.
BP told regulators six weeks before its well in the Gulf of Mexico exploded that workers were having trouble maintaining control, according to e-mails.
The patriot's blood is the seed of Freedom's tree. ~Thomas Campbell
Interior Department Secretary Ken Salazar said Thursday a moratorium in place for 33 rigs in the Gulf only applies to exploratory, deepwater wells in 500 feet of water or more, not those that currently are producing oil.
Are they dead that yet speak louder than we can speak, and a more universal language? Are they dead that yet act? Are they dead that yet move upon society and inspire the people with nobler motives and more heroic patriotism? ~Henry Ward Beecher
Rigzone: The relief well is estimated to cost $100 million. The relief wells, in 5,000 ft of water, will be drilled to 16,000 ft below the seabed to seal the leak. The second well is intended to serve as a backup should BP encounter problems reaching the target with the first. BP anticipates that it will take approximately three months to complete each well from the commencement of drilling.
The dead soldier's silence sings our national anthem. ~Aaron Kilbourn
The Sunday Times reports that "three German-built Israeli submarines equipped with nuclear cruise missiles are to be deployed in the Gulf near the Iranian coastline."
The House of Representatives voted Friday to freeze looming Medicare physician payment cuts until 2011 as part of a two-piece benefits package.
The so-called "doc fix" section, separated from the rest of the bill amidst Democratic in-fighting, cleared by a 245-171 vote mostly split down party lines, with only a handful of Republicans supporting it.
The legacy of heroes is the memory of a great name and the inheritance of a great example. ~Benjamin Disraeli
Although no sculptured marble should rise to their memory, nor engraved stone bear record of their deeds, yet will their remembrance be as lasting as the land they honored. ~Daniel Webster
China warned on Monday that Europe's struggle to contain ballooning debt posed a risk to global economic growth, raising the specter of a double-dip recession.
Premier Wen Jiabao, addressing business leaders during an official visit to Japan, issued his warnings a day after France admitted it will struggle to keep its top credit rating and days after a downgrade of Spain's credit status again jolted financial markets.
BP shares dropped more than 8% in Frankfurt trade, with more than 1 million shares changing hands.
Bloomberg: Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating.
Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings Ltd., Country Garden Holdings Co. and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage- point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan.
Israeli commandos stormed Gaza-bound aid ships on Monday and at least 10 pro-Palestinian activists on board were killed, unleashing a diplomatic crisis and charges of a "massacre" from the Palestinian president.
France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.
"Most of BP's fuel oil team, including the global head and the heads of the three trading centers, have left in the past month," a U.S.-based source said.
BP has been a major player over the past 15 years in the fuel oil market. In Asia, it regularly trades 500,000-600,000 tonnes of physical cargoes monthly.
The departures in the U.S. of fuel oil leader, Tim Gawne, another physical trader and the third who traded derivatives, left the team with one derivatives trader, the sources said.
German President Horst Koehler said on Monday he was resigning with immediate effect due to widespread criticism of comments he made about the country's military action and commercial interests.
The euro looks set to end the month of May around 7.5 percent lower against the dollar as ongoing debt problems in euro zone countries have rocked confidence in the euro system.
BP told regulators six weeks before its well in the Gulf of Mexico exploded that workers were having trouble maintaining control, according to e-mails.
The patriot's blood is the seed of Freedom's tree. ~Thomas Campbell
Interior Department Secretary Ken Salazar said Thursday a moratorium in place for 33 rigs in the Gulf only applies to exploratory, deepwater wells in 500 feet of water or more, not those that currently are producing oil.
Are they dead that yet speak louder than we can speak, and a more universal language? Are they dead that yet act? Are they dead that yet move upon society and inspire the people with nobler motives and more heroic patriotism? ~Henry Ward Beecher
Rigzone: The relief well is estimated to cost $100 million. The relief wells, in 5,000 ft of water, will be drilled to 16,000 ft below the seabed to seal the leak. The second well is intended to serve as a backup should BP encounter problems reaching the target with the first. BP anticipates that it will take approximately three months to complete each well from the commencement of drilling.
The dead soldier's silence sings our national anthem. ~Aaron Kilbourn
The Sunday Times reports that "three German-built Israeli submarines equipped with nuclear cruise missiles are to be deployed in the Gulf near the Iranian coastline."
The House of Representatives voted Friday to freeze looming Medicare physician payment cuts until 2011 as part of a two-piece benefits package.
The so-called "doc fix" section, separated from the rest of the bill amidst Democratic in-fighting, cleared by a 245-171 vote mostly split down party lines, with only a handful of Republicans supporting it.
The legacy of heroes is the memory of a great name and the inheritance of a great example. ~Benjamin Disraeli
Sunday, May 30, 2010
Oil Spill
5/30/10 Oil Spill
The Oil Drum: "Top Kill Fails To Plug Oil Spill, BP Now To Try LMRP Cap
The oil giant immediately began readying its next attempted fix, using robot submarines to cut the pipe that's gushing the oil and cap it with funnel-like device, but the only guaranteed solution remains more than two months away.
The company determined the "top kill" had failed after it spent three days pumping heavy drilling mud into the crippled well 5,000 feet underwater. It's the latest in a series of failures to stop the crude that's fouling marshland and beaches, as estimates of how much oil is leaking grow more dire.
BP said preparations have been made for the possible deployment of the lower marine riser package (LMRP) cap containment system, which would be complex because of the depth of the oil leak.Deployment would first involve removing the damaged riser from the top of the failed BOP to leave a cleanly-cut pipe at the top of the BOP's LMRP.The cap, a containment device with a sealing grommet, will be connected to a riser from the Discoverer Enterprise drillship, 5,000 feet above on the surface, and placed over the LMRP with the intention of capturing most of the oil and gas flowing from the well. Mr Suttles said it should capture "most of the oil" and was expected to last at least four days but "we cannot guarantee success at this time."
Gretchen Morgenson: "Glass-Steagall was a 34-page document.
The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined.
Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises."
Mike Burk: "Indicators derived from downside volume and new lows offer the most timely indications of bottoms. Last week new lows all but disappeared but downside volume did not. When there is a discrepancy like this it is usually the other way around....Since 1963, over all years the OTC in June has been up 53% of the time with an average return of 0.3%. However, during the 2nd year of the Presidential Cycle June has been has been up only 27% time with an average loss of -1.4% (the last up June during the 2nd year of the Presidential Cycle was 1998)....
The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. That pattern calls for a rally through the end of next week followed by a resumption of the decline.
I expect the major averages to be higher on Friday June 4 than they were on Friday May 28."
Arnold Bock: "The magnitude of current private and government debt, coupled with massive unfunded contingent liabilities for promises of future services to their citizens, will prove to be impossible for many nations to fund. Massive inflation in the money supply will become the preferred vehicle to deflect the default monster and will result in vastly devalued currencies and price inflation as a prelude to default. Such action will be a desperate attempt to buy time to stave off the inevitable and will result in social unrest caused by persons whose comfortable lifestyle and elevated standard of living is about to disintegrate before their very eyes."
Guy Lerner: "The "Dumb Money" indicator is bearish and this is a bullish signal. This is the first bullish signal since March 8, 2009."
Payrolls climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years.
Seeking Alpha: "Thousands of Americans expecting to keep their homes after starting trial mortgage modifications could still wind up in foreclosure thanks to a technicality known as investor-based denial - which allows the final owner of the debt, usually invisible to the homeowner, to veto the conversion from trial to permanent mod."
“The technical damage that has been done to the charts is quite formidable," Gijsels said. "A lot of indices have turned the corner and are trading below their 200-day moving average. In many case we are not too far from a death cross," a bearish sign where a 50-day moving average drops below the 200-day moving average.
Tobacco company Reynolds American said Friday it will close two cigarette plants as it adjusts to declining demand for cigarettes.
Barry Ritholtz: "Matt Simmons says “Top Kill” is a sideshow, misses the big problem of a second leak 5 to 7 miles away releasing up to 120,000 barrels/day. Simmons goes on to say we might need nukes to seal the leak.
Bloomberg:
Today Matt Simmons, one of the largest investment bankers in the energy industry appeared on Bloomberg. The chairman of Simmons & Co. INTL went on to explain that there is much more to the oil leak than the news has been reporting. Last Sunday, NOAA confirmed reports of a second fissure about 5-7 miles from the original. This new fissure appears to be releasing a plume the size of Delaware and Maryland combined! He went on to state that “the plume from the riser is minor thing… the best estimate is about 120,000 barrels of oil per day”.
"The evil of the world is made possible by nothing but the sanction [that] you give it." ('John Galt Speech' 1957)
The Oil Drum: "Top Kill Fails To Plug Oil Spill, BP Now To Try LMRP Cap
The oil giant immediately began readying its next attempted fix, using robot submarines to cut the pipe that's gushing the oil and cap it with funnel-like device, but the only guaranteed solution remains more than two months away.
The company determined the "top kill" had failed after it spent three days pumping heavy drilling mud into the crippled well 5,000 feet underwater. It's the latest in a series of failures to stop the crude that's fouling marshland and beaches, as estimates of how much oil is leaking grow more dire.
BP said preparations have been made for the possible deployment of the lower marine riser package (LMRP) cap containment system, which would be complex because of the depth of the oil leak.Deployment would first involve removing the damaged riser from the top of the failed BOP to leave a cleanly-cut pipe at the top of the BOP's LMRP.The cap, a containment device with a sealing grommet, will be connected to a riser from the Discoverer Enterprise drillship, 5,000 feet above on the surface, and placed over the LMRP with the intention of capturing most of the oil and gas flowing from the well. Mr Suttles said it should capture "most of the oil" and was expected to last at least four days but "we cannot guarantee success at this time."
Gretchen Morgenson: "Glass-Steagall was a 34-page document.
The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined.
Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises."
Mike Burk: "Indicators derived from downside volume and new lows offer the most timely indications of bottoms. Last week new lows all but disappeared but downside volume did not. When there is a discrepancy like this it is usually the other way around....Since 1963, over all years the OTC in June has been up 53% of the time with an average return of 0.3%. However, during the 2nd year of the Presidential Cycle June has been has been up only 27% time with an average loss of -1.4% (the last up June during the 2nd year of the Presidential Cycle was 1998)....
The market has been following the average seasonal pattern for the 2nd year of the Presidential Cycle quite closely this year. That pattern calls for a rally through the end of next week followed by a resumption of the decline.
I expect the major averages to be higher on Friday June 4 than they were on Friday May 28."
Arnold Bock: "The magnitude of current private and government debt, coupled with massive unfunded contingent liabilities for promises of future services to their citizens, will prove to be impossible for many nations to fund. Massive inflation in the money supply will become the preferred vehicle to deflect the default monster and will result in vastly devalued currencies and price inflation as a prelude to default. Such action will be a desperate attempt to buy time to stave off the inevitable and will result in social unrest caused by persons whose comfortable lifestyle and elevated standard of living is about to disintegrate before their very eyes."
Guy Lerner: "The "Dumb Money" indicator is bearish and this is a bullish signal. This is the first bullish signal since March 8, 2009."
Payrolls climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years.
Seeking Alpha: "Thousands of Americans expecting to keep their homes after starting trial mortgage modifications could still wind up in foreclosure thanks to a technicality known as investor-based denial - which allows the final owner of the debt, usually invisible to the homeowner, to veto the conversion from trial to permanent mod."
“The technical damage that has been done to the charts is quite formidable," Gijsels said. "A lot of indices have turned the corner and are trading below their 200-day moving average. In many case we are not too far from a death cross," a bearish sign where a 50-day moving average drops below the 200-day moving average.
Tobacco company Reynolds American said Friday it will close two cigarette plants as it adjusts to declining demand for cigarettes.
Barry Ritholtz: "Matt Simmons says “Top Kill” is a sideshow, misses the big problem of a second leak 5 to 7 miles away releasing up to 120,000 barrels/day. Simmons goes on to say we might need nukes to seal the leak.
Bloomberg:
Today Matt Simmons, one of the largest investment bankers in the energy industry appeared on Bloomberg. The chairman of Simmons & Co. INTL went on to explain that there is much more to the oil leak than the news has been reporting. Last Sunday, NOAA confirmed reports of a second fissure about 5-7 miles from the original. This new fissure appears to be releasing a plume the size of Delaware and Maryland combined! He went on to state that “the plume from the riser is minor thing… the best estimate is about 120,000 barrels of oil per day”.
"The evil of the world is made possible by nothing but the sanction [that] you give it." ('John Galt Speech' 1957)
Saturday, May 29, 2010
Fragility
5/29/10 Fragility
Bloomberg: Some 17% of junk bonds yield at least 10 percentage points more than Treasuries, up from 9.2% last month…The jump is the biggest since the distress ratio rose 11 percentage points in November 2008.
Doug Noland: "Fundamentally, this Bubble’s main price distortions emanate from the market perception that synchronized global fiscal and monetary policies will sustain global financial and economic recoveries. This creates a dynamic where massive issuance of sovereign debt is generally priced in the marketplace with meager little risk premiums. Similarly, the perception that markets and economies are underpinned by government policies ensures that debt instruments throughout – certainly including U.S. corporates, municipal debt, agencies, and mortgages – trade at narrow risk spreads to sovereigns. It’s the ultimate “too big to fail.”....This dramatic loosening of financial conditions inflated global securities prices. Huge rallies in the risk markets played a significant role in bolstering confidence. This combination of loose finance and improved confidence was instrumental in fostering economic recovery. The bounce back in economic activity then supported the bubbling markets and emboldened the speculators. That’s where we’ve been.
Over the past month, markets have gone from close to euphoria to near panic. The global financial Bubble ran smack up against an expanding Greek debt crisis, a tightening of Chinese mortgage Credit, and a tightening regulatory noose around the U.S. financial sector and speculative finance more generally. Complacent, highly speculative and over-liquefied securities markets were bludgeoned by losses, contagion effects, de-leveraging, and general mayhem.....Well, I believe finance has tightened and this tightening will not prove fleeting. The global Bubble has been pierced, a result of Greece – although the catalyst could have as easily been developments in the U.S. or China. But since crisis erupted initially in the Eurozone, the dollar/Treasuries have benefited thus far from de-leveraging and some safehaven perceptions. Many are programmed to interpret this as good news for U.S. recovery, although the important news is that market perceptions have changed; markets have become hyper-volatile; and the backdrop is so uncertain that speculators and investors will choose - or be forced to - rein in risk-taking.
The waves of liquidity unleashed through speculator leveraging and the flight out of safehaven assets has run its course. As we’ve seen over the past few weeks, markets can go from seemingly over-liquefied to illiquid the moment speculators reverse course and head for the exits. The markets have been reminded of this harsh reality and behavior will change. Others would argue that there is no crisis in the U.S. Credit system and, with Treasury yields so low, financial conditions have actually loosened. I would counter that it’s a global financial Bubble and destabilizing contagion effects were unleashed with the big rally in Treasuries....And it’s rising risk aversion that will pressure financial conditions and fuel liquidity concerns. The markets have passed an important inflection point, and faltering markets are certainly not good for fragile confidence."
Life is good. Coney Island's new amusement park is open. On June 11 the movie of Atlas Shrugged goes into production.
WSJ: "Six banks in Washington have failed this year, while about one-fourth of the banks and savings institutions based in the state are operating under toughened regulatory scrutiny."
Seeking Alpha: "insiders' share sales of QQQQ components have outpaced share purchases 3,933 to 1."
Mike Santoli: "BP TAKES THE CONCEPT OF A "DEEP VALUE" investment into a new dimension, as the energy company's shares continue to get pounded to valuation depths rarely seen. The selling comes amid the catastrophic oil-well spill a mile under the Gulf of Mexico.
With BP shares (ticker: BP) at 42.95, down another 5% Friday and off from 60 before the well exploded, the market has relieved the stock of nearly $60 billion in market value.
David Steinberg of DLS Capital, an Illinois-based deep-value manager, says this has generated good value in the stock, even under conservative assumptions of future costs and penalties. Analysts have been cutting BP cash-flow estimates for 2011. The lowest forecast is now $40 billion. This places the company's ratio of enterprise value (market value plus net debt) to cash flow around 4. Its 10-year average multiple is above 6.5.
Viewed another way, BP's enterprise value Friday equaled $8.77 per barrel of oil-equivalent reserves, versus a five-year average of $12.25. Trading back up to that average over the next couple of years would mean a $13 rise in the share price, he notes, atop a dividend yield that now stands above 7% and appears secure."
There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back. But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain? We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. - Eric Sprott
Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to get its low-price mojo back.
The sharp cuts came ahead of Memorial Day weekend. They have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.
They're one of the boldest moves the world's largest retailer is making to turn around sluggish business and win back shoppers from rivals. The cuts target 22 foods and other essentials at an average savings of 30 percent -- splashy enough to get attention and perhaps change perceptions.
The world's largest retailer is also restoring items like certain soups and laundry detergent it stopped carrying when it tried to declutter its stores.
Tim W. Wood: "Yes, I think that the advance out of the March 2009 low has been crippled and obviously the events seen in May were not good. Nonetheless, I do not see any evidence in accordance with Dow theory that the bullish primary trend change, associated with the counter-trend bear market advance, has been reversed at this time.
In accordance with Dow theory it is the close that counts, not the intraday high or low. Also in accordance with Dow theory, the primary trend is considered to be in force until it is reversed by a joint move of the averages with a move above or below the previous secondary high or low point. In the case of an advance, a move below the previous secondary low point is required. I have received numerous e-mails asking me if the recent violation of the May 7th closing low constituted a bearish primary trend change. In my eyes, the answer is no. I believe that the move down into the May 7th closing low was part of the same move that carried the market to the most recent lows. In other words, I do not believe that the May 7th closing lows were of the proper degree to have marked a secondary low point....The Phase II decline is out there and it will be global in nature."
ZeroHedge: "BP Suspends "Top Kill" For Second Time After Trying Two Junk Shots. Less Than 10% of Injection Fluids are Staying Inside the Leaking Pipes."
Bloomberg: Some 17% of junk bonds yield at least 10 percentage points more than Treasuries, up from 9.2% last month…The jump is the biggest since the distress ratio rose 11 percentage points in November 2008.
Doug Noland: "Fundamentally, this Bubble’s main price distortions emanate from the market perception that synchronized global fiscal and monetary policies will sustain global financial and economic recoveries. This creates a dynamic where massive issuance of sovereign debt is generally priced in the marketplace with meager little risk premiums. Similarly, the perception that markets and economies are underpinned by government policies ensures that debt instruments throughout – certainly including U.S. corporates, municipal debt, agencies, and mortgages – trade at narrow risk spreads to sovereigns. It’s the ultimate “too big to fail.”....This dramatic loosening of financial conditions inflated global securities prices. Huge rallies in the risk markets played a significant role in bolstering confidence. This combination of loose finance and improved confidence was instrumental in fostering economic recovery. The bounce back in economic activity then supported the bubbling markets and emboldened the speculators. That’s where we’ve been.
Over the past month, markets have gone from close to euphoria to near panic. The global financial Bubble ran smack up against an expanding Greek debt crisis, a tightening of Chinese mortgage Credit, and a tightening regulatory noose around the U.S. financial sector and speculative finance more generally. Complacent, highly speculative and over-liquefied securities markets were bludgeoned by losses, contagion effects, de-leveraging, and general mayhem.....Well, I believe finance has tightened and this tightening will not prove fleeting. The global Bubble has been pierced, a result of Greece – although the catalyst could have as easily been developments in the U.S. or China. But since crisis erupted initially in the Eurozone, the dollar/Treasuries have benefited thus far from de-leveraging and some safehaven perceptions. Many are programmed to interpret this as good news for U.S. recovery, although the important news is that market perceptions have changed; markets have become hyper-volatile; and the backdrop is so uncertain that speculators and investors will choose - or be forced to - rein in risk-taking.
The waves of liquidity unleashed through speculator leveraging and the flight out of safehaven assets has run its course. As we’ve seen over the past few weeks, markets can go from seemingly over-liquefied to illiquid the moment speculators reverse course and head for the exits. The markets have been reminded of this harsh reality and behavior will change. Others would argue that there is no crisis in the U.S. Credit system and, with Treasury yields so low, financial conditions have actually loosened. I would counter that it’s a global financial Bubble and destabilizing contagion effects were unleashed with the big rally in Treasuries....And it’s rising risk aversion that will pressure financial conditions and fuel liquidity concerns. The markets have passed an important inflection point, and faltering markets are certainly not good for fragile confidence."
Life is good. Coney Island's new amusement park is open. On June 11 the movie of Atlas Shrugged goes into production.
WSJ: "Six banks in Washington have failed this year, while about one-fourth of the banks and savings institutions based in the state are operating under toughened regulatory scrutiny."
Seeking Alpha: "insiders' share sales of QQQQ components have outpaced share purchases 3,933 to 1."
Mike Santoli: "BP TAKES THE CONCEPT OF A "DEEP VALUE" investment into a new dimension, as the energy company's shares continue to get pounded to valuation depths rarely seen. The selling comes amid the catastrophic oil-well spill a mile under the Gulf of Mexico.
With BP shares (ticker: BP) at 42.95, down another 5% Friday and off from 60 before the well exploded, the market has relieved the stock of nearly $60 billion in market value.
David Steinberg of DLS Capital, an Illinois-based deep-value manager, says this has generated good value in the stock, even under conservative assumptions of future costs and penalties. Analysts have been cutting BP cash-flow estimates for 2011. The lowest forecast is now $40 billion. This places the company's ratio of enterprise value (market value plus net debt) to cash flow around 4. Its 10-year average multiple is above 6.5.
Viewed another way, BP's enterprise value Friday equaled $8.77 per barrel of oil-equivalent reserves, versus a five-year average of $12.25. Trading back up to that average over the next couple of years would mean a $13 rise in the share price, he notes, atop a dividend yield that now stands above 7% and appears secure."
There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back. But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain? We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. - Eric Sprott
Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to get its low-price mojo back.
The sharp cuts came ahead of Memorial Day weekend. They have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.
They're one of the boldest moves the world's largest retailer is making to turn around sluggish business and win back shoppers from rivals. The cuts target 22 foods and other essentials at an average savings of 30 percent -- splashy enough to get attention and perhaps change perceptions.
The world's largest retailer is also restoring items like certain soups and laundry detergent it stopped carrying when it tried to declutter its stores.
Tim W. Wood: "Yes, I think that the advance out of the March 2009 low has been crippled and obviously the events seen in May were not good. Nonetheless, I do not see any evidence in accordance with Dow theory that the bullish primary trend change, associated with the counter-trend bear market advance, has been reversed at this time.
In accordance with Dow theory it is the close that counts, not the intraday high or low. Also in accordance with Dow theory, the primary trend is considered to be in force until it is reversed by a joint move of the averages with a move above or below the previous secondary high or low point. In the case of an advance, a move below the previous secondary low point is required. I have received numerous e-mails asking me if the recent violation of the May 7th closing low constituted a bearish primary trend change. In my eyes, the answer is no. I believe that the move down into the May 7th closing low was part of the same move that carried the market to the most recent lows. In other words, I do not believe that the May 7th closing lows were of the proper degree to have marked a secondary low point....The Phase II decline is out there and it will be global in nature."
ZeroHedge: "BP Suspends "Top Kill" For Second Time After Trying Two Junk Shots. Less Than 10% of Injection Fluids are Staying Inside the Leaking Pipes."
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