12/20/07 The China Effect
In all, 201,950 foreclosure filings were reported last month, compared with 120,334 in November 2006, Irvine-based RealtyTrac Inc. said Wednesday. Last month's filings fell 10 percent from October's 224,451.
Utah-based Zions Bancorp said in a filing to the Securities and Exchange Commission it's taking a charge of $94 million before tax after significant declines in dealer price quotes in seven of 12 REIT trust preferred CDO securities. The hit amounts to 52 cents after tax.
Banks including Merrill Lynch and Bear Stearns are in talks to bail out over-the-counter-listed bond insurer ACA Capital, The New York Times reported.
The Bank of England's rate-setting committee voted 9-0 to cut its key interest rate in December, according to the minutes of the meeting published Wednesday. The bank cut its rate by a quarter-point to 5.5% at the meeting.
Edge Petroleum Corp., the Houston exploration and production company, said it retained Merrill Lynch to help assess strategic alternatives, including selling or merging the company.
European Central Bank President Jean-Claude Trichet said today the region's economy faced a ``more protracted'' period of elevated inflation than previously expected, signaling no imminent plan to cut interest rates to ease a credit squeeze in financial markets. European stocks dropped today.
According to the WSJ, as the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes. Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers -- ranging from free cars or furniture to cash rebates -- are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.
Steven Pearlstein: "The problem is that banks everywhere are suddenly short of cash. The traditional year-end demands of customers is part of it. But it's also that the banks with extra cash are reluctant to lend to the others because they're unsure of the borrowers' financial conditions. The banks also anticipate they will have to take more write-offs and reserves for bad loans when they close their books on the year. The result is that there's less money available for loans to businesses and consumers. So in an effort to forestall an economy-wide credit crunch, central banks are offering what amounts to unlimited funds at an interest rate of 4.25 percent, hoping banks will lend it out at 7.25 percent or more. So far, the results have been positive, but less than expected given the huge sums involved."
Robert J. Samuelson: "The subprime debacle also posed a question: What if it's not the only problem? Consider "credit default swaps" (CDS) as a possible sequel. CDS's are, in effect, insurance contracts on loans or bonds: The seller receives a payment and, in return, agrees to pay the buyer some or all of the amount of a designated loan or bond if the borrowing company (say, General Motors or IBM) defaults. But note, neither party to the CDS has to be the underlying lender or borrower. They usually are outsiders. They are simply betting on the creditworthiness of different borrowers. Since 2004, the volume of CDS's has increased about sevenfold. Possible losses could dwarf those on subprime mortgages, argues Ted Seides of Prot¿g¿ Partners, an investment fund."
According to the Chicago Tribune, Tribune Co. Chairman, President and Chief Executive Dennis FitzSimons announced his resignation today, as the media company finalizes its $8.2 billion deal to go private under Chicago billionaire Sam Zell, who is expected to take over as CEO. After some last minute wrangling, the four banks financing the transaction have told Tribune they will close the deal on Thursday as planned, said a source close to the transaction. The source also said a key positive solvency opinion needed as a condition of closing had been reviewed by Tribune's board.
J.C. Penney Co. stores will be open until midnight Friday and Saturday. At Mervyns, you'll be able to keep buying until 2 a.m. all weekend, and the chain will throw in $10 gift cards for the first 200 people through the doors each day at 5 a.m. In case you have nothing else to do, Kmart will stage a nonstop 64-hour sale beginning at 6 a.m. Saturday at most of its stores around the nation.
The record may be set on the East Coast, where many Macy's stores in the Greater New York area will remain open for 83 consecutive hours. The Macy's in Queens Center Mall will unlock its doors at 7 a.m. Thursday and not close them until 6 p.m. Monday -- 107 hours later.
Mastercard must drop fees it charges for cross-border transactions or face daily fines of 3.5 percent of daily global turnover, European Union regulators said Tuesday. The European Commission said that multilateral interchange fees charged to consumers for payments made in a different European country with either their MasterCard credit cards or Maestro debit cards unfairly inflated costs for retailers.
Brett Steenbarger: "Until we see some signs that measures from the Fed and Treasury are renewing confidence in the financial sector, I am not quick to be buying this market, particularly when we see sector performance deteriorating."
The Prudent Investor: "Liquidity" actions by central banks will only delay, rather than deter, the inevitable process of deflating the layers of debt created in this century. After all, what is a few hundred billions of Euros for all European banks when only the off-balance risk of the banking sector of tiny Austria reels under 2.1 trillion of derivatives risk, while having equity of only 73 billion Euros? (This is according to data compiled by Oesterreichische Nationalbank.)"
Morgan Stanley's $9.4 billion worth of writedowns reduced earnings by $5.80 per share in the fourth quarter. Morgan Stanley said it has entered into an agreement with China Investment Corp. to issue new capital of about $5 billion through equity units with mandatory conversion into common stock. China Investment Corp.'s total passive ownership in Morgan Stanley common shares, including the conversion of the equity units, will be 9.9% or less of total shares outstanding, the company said.
CNN Money writes that Hovnanian's (HOV) losses increased 4 times in the last quarter.
Exxon Mobil Corp. workers went on strike at a refinery in the southern French port of Fos-sur-Mer in a dispute over pay. The action has reduced output and production may be stopped entirely, a representative of France's CGT union said. The protest follows the end of a strike at five other refineries in France by employees of Total SA.
Frank Barbera: "All investors take heed, you are staring at a market that is NOT responding well to “Good News.” Markets that cannot rally on Good News tend to accelerate downward on any type of bad news, and that is the kind of market which appears to be taking shape."
Daily Reckoning: "Here's an article sent to us yesterday describing China's remarkable effect on world commodity prices, especially food (the following comes a recent issue of Mother Jones):
"Per-capita income in China is less than 1/10 of America's and its per-capita greenhouse gas emission is less than 1/5 of ours. But if 1.3 billion Chinese were to consume at the level Americans do, we'd need several more Earths. China's effect on world resources, quantified:
China is:
* The world's largest consumer of coal, grain, fertilizer, cell phones, refrigerators, and televisions
* The leading importer of iron ore, steel, copper, tin, zinc, aluminum, and nickel
* The top producer of coal, steel, cement, and 10 kinds of metal
* The No. 1 importer of illegally logged wood
* The third-largest producer of cars after Japan and the United States; by 2015, it could be the world's largest car producer. By 2020, there could be 130 million cars on its roads, compared to 33 million now.
More Facts:
* China produces half of the world's cameras, 1/3 of its television sets, and 1/3 of all the planet's garbage.
* There are towns in China that make 60% of the world's button supply, 1/2 of all silk neckties, and 1/2 of all fireworks.
* China uses half of the world's steel and concrete and will probably construct half of the world's new buildings over the next decade.
* Some Chinese factories can fit as many as 200,000 workers.
* China used 2.5 billion tons of coal in 2006, more than the next three highest-consuming nations-Russia, India, and the United States-combined.
* It has more than 2,000 coal-fired power plants and puts a new one into operation every 4 to 7 days.
* Between 2003 and 2006, worldwide coal consumption increased as much as it did in the 23 years before that. China was responsible for 90% of the increase.
* China became the world's top carbon dioxide emitter in 2006, overtaking the United States.
* Russia is China's largest timber supplier; half of all logging there is illegal. In Indonesia, another timber supplier to China, up to 80% of all logging takes place illegally.
* 90% of all wood products made in China are consumed in the country, including 45 billion pairs of wooden chopsticks each year.
* The value of China's timber-product exports exceeds $17 billion. About 40 percent go to the United States.
* More than 3/4 of China's forests have disappeared; 1/4 of the country's land mass is now desert.
* Until recently, China was losing a Rhode Island-sized parcel of land to desertification each year.
* 80% of the Himalayan glaciers that feed Chinese rivers could melt by 2035.
* In 2005, China's sulfur-dioxide emissions were nearly twice those of the United States.
* Acid rain caused by air pollution now affects 1/3 of China's land.
* Each year, at least 400,000 Chinese die prematurely of air-pollution-linked respiratory illnesses or diseases.
* A quarter of a million people die because of motor-vehicle traffic each year-6 times as many as in the United States, even though Americans have 18 times as many cars.
* Of the world's 20 most polluted cities, 16 are in China.
* Half of China's population-600 to 700 million people-drinks water contaminated with human and animal waste. A billion tons of untreated sewage is dumped into the Yangtze each year.
* 4/5 of China's rivers are too polluted to support fish.
* The Mi Yun reservoir, Beijing's last remaining reliable source of drinking water, has dropped more than 50 feet since 1993.
* Overuse of groundwater has caused land subsidence that cost Shanghai alone $12.9 billion in economic losses.
* Dust storms used to occur once a year. Now, they happen at least 20 times a year.
* Chinese dust storms can cause haziness and boost particulate matter in the United States, all the way over to Maine.
* In 2001, a huge Chinese storm dumped 50,000 metric tons of dust on the United States. That's 2.5 times as much as what U.S. sources produce in a typical day.
* Currently, up to 36 percent of man-made mercury emissions settling on America originated in Asia.
* Particulate matter from Asia accounts for nearly half of California's annual pollution limit.
* Environmental damage reportedly costs China 10 percent of its GDP. Pollution-related death and disability heath care costs alone are estimated at up to 4 percent of GDP.
* In 2005, there were 50,000 pollution-related disputes and protests in China.
* China's middle class is expected to jump from 100 million people today to 700 million people by 2020.
These statistics are drawn from "The Last Empire: Can the world survive China's rush to emulate the American way of life?" in the current issue of Mother Jones."
Rambus Inc. cut its fourth-quarter sales forecast amid delays in completing new license agreements for its computer-memory technology.
Chemtura Corporation announced that its Board of Directors has authorized management to consider a wide range of strategic alternatives available to the company to enhance shareholder value. In support of this ongoing initiative, a Special Committee of independent directors of the Board of Directors has been formed to oversee the process. To assist in this process, Chemtura has retained the services of Merrill Lynch & Co., which is acting as its exclusive financial advisor. Strategic alternatives to be considered may include, among others, select business divestitures, value-creating acquisitions, changes to the company’s capital structure, or a possible sale, merger or other business combination involving the entire company.There can be no assurance that this review will result in any specific transaction.
Sales at stores open more than a year increased 2.1 percent in the week through Dec. 15, the International Council of Shopping Centers and UBS Securities LLC said today in a joint statement. December sales at stores open more than 12 months may grow 1.5 percent from a year earlier, the group said, matching an earlier forecast.
India's savings rate, after stagnating for almost two decades, rose to a record 34 percent of the gross domestic product last year and the investment rate crossed 35 percent. "These high rates, which are based on improvements in both private and public savings, are likely to go up in future because of a young population profile," Singh said. About 54 percent of India's nearly 1.1 billion people are below 25 years of age, according to government statistics.
Randall Forsyth: "In the grown-up world of financial markets, what's not known is far more frightening than what is. And that's why money markets are nearly paralyzed with fear. According to Bridgewater Associates' chief Ray Dalio and his associate, Fred Post, the widely known problems are manageable while those beneath the surface are big and pose the potential problems. Rational or not, those "unknown unknowns," to use former Defense Secretary Donald Rumsfeld's tortured terminology, are keeping banks from lending to each other over the new year. On Dec. 31, banks and other financial institutions don't want to have any dealings with other parties that might prove an embarrassment to show up when their year-end accounts have to be revealed to the world."
U.S. banks have borrowed $20 billion from the Federal Reserve for 28 days at 4.65%, the Fed announced Wednesday. It was the first of several planned auctions of short-term credits to alleviate a liquidity crunch in credit markets. A total of 93 banks bid in the auction on Monday, asking for $61.6 billion. The bid-to-cover ratio was 3.08. At 4.65%, the stop-out interest rate for the auction offered a 10 basis point discount from the Fed's discount window rate of 4.75% and 28 basis points below the prevailing interbank lending rate of 4.93%. The loans are fully collateralized and will be repaid on Jan. 17.
U.S. crude inventories fell by 8.5 million barrels to 297.5 million barrels in the week ending Dec. 14, the American Petroleum Institute reported on Wednesday, according to Moody's Economy.com. Distillate stocks fell by 1.9 million barrels to 131.7 million barrels in the same period, while gasoline stocks rose by 2.9 million barrels to 208.4 million barrels, the API reported. Also on Wednesday, U.S. Energy Information Administration reported U.S. crude supplies fell by 7.6 million barrels to 296.9 million barrels in the same period.
Union Pacific Corp lowered its fourth-quarter outlook by roughly 20 cents per share due to rapidly rising fuel costs, sending its shares down as much as 6 percent. Union Pacific also said a recent, unexpected decline in freight volumes - which it blamed on severe winter storms in December - would eat into earnings.
The House passed a one-year "patch" for the alternative minimum tax on Wednesday, joining the Senate in acting to shield taxpayers from an average hike of about $2,000.
Accenture raised its full-year earnings-per-share forecast by 15 cents to a range of $2.36 to $2.41.
The Dow Jones Industrial Average fell 25.2 points to close at 13,207.3. The S&P 500 fell 1.98 points to 1,453. The Nasdaq Composite bucked the trend, with the technology-heavy index gaining 4.98 points to close at 2,601.01.
Excluding special items, Oracle said earnings for the quarter were 31 cents a share. Analysts polled by Thomson Financial had been estimating Oracle would post earnings of 27 cents a share.
Crude oil for February delivery ended the day up $1.16, or 1.3%, at $91.24 a barrel on the New York Mercantile Exchange. Gold for February delivery fell $2 to end at $805.40 an ounce on the New York Mercantile Exchange.
Richmond Fed President Jeffrey Lacker, a noted-inflation-hawk, said the economy wouldn't plunge into recession next year in part because consumers continue to spend. "I have learned not to underestimate the resilience of the American consumer, and here I see some reasonably encouraging signs," Lacker said in giving his economic outlook in Charlotte. He said growth would be very slow for the next several months, but the economy would improve as 2008 progresses. He agreed that the risks to his forecast were to the downside, but said his view wasn't based on a return to calm financial markets. Lacker said he was "uncomfortable" with the inflation picture, saying he was "disappointed that the improvement we saw earlier this year was not more lasting."
The Blackstone Group LP is planning a $9 billion commercial mortgage-backed securities offering backed by Hilton Hotels next quarter, according to a Credit Suisse research note. The deal would be the largest ever CMBS issue, according to analysts.
Wednesday, December 19, 2007
Tuesday, December 18, 2007
The Rally
12/19/07 The Rally
Mervyn King, governor of the Bank of England, told a Treasury committee that the rise in inter-bank spreads is not due to any shortage of cash, but rather to concerns about where derivative losses come to rest, and over the past four weeks, growing doubts about the health of the U.S. economy.
The U.K. Treasury said Tuesday that guarantee arrangements for lender Northern Rock are being extended, at the request of Northern Rock, to cover a wider range of wholesale products.
Royal Philips Electronics will buy clinical IT and service provider Visicu Inc. for $12 a share, or $430 million in total.
Platinum rose to a record on demand in China. Platinum advanced $10, or 0.7 percent, to $1,509 and earlier rose to a record $1,511, partly on speculation Russia, the world's second-biggest producer, won't approve export licenses for next year. Demand is also climbing in China as jewelers stock up for the lunar new year holidays in February, said John Reade, an analyst at UBS AG in London. China is the biggest user of platinum for jewelry.
``The people who think the dollar rally isn't coming to an end believe in Santa Claus,'' Nicholas Betsky, a partner at Moscow-based DBM Capital Partners, an investment company that owns $55 million of gold and gold shares, said by phone today. ``Gold has not fallen too much with the dollar rally and that's a really positive sign for gold.''
The People's Bank of China has instructed a number of banks and rural credit cooperatives they must place additional funds with it as reserves on Dec. 27, according to media reports. The special deposits will pay interest of 3.37% on three-month deposits and 3.99% on one year deposits, reports said. The moves were part of additional measures being draw up to help drain liquidity from the banking system, according to reports.
The World Trade Organization said Monday it will investigate if the $286 billion farm subsidy bill passed by the U.S. Senate violates international limits and offers too much support to farmers who grow crops used to make ethanol, according to a media report.
Jacques Diouf, head of the UN Food and Agriculture Organization, said the agency's food price index rose by more than 40 percent this year, compared with 9 percent the year before - a rate that was already unacceptable, he said. New figures show that the total cost of foodstuffs imported by the neediest countries rose 25 percent, to $107 million, in the last year.
Biopharmaceutical company Medarex Inc. said Tuesday it will receive an undisclosed milestone payment from licensing partner Amgen for advancing an antibody into human clinical trials. The antibody was developed using Medarex's UltiMAb technology and is the fifth UltiMAb-derived antibody in clinical development by Amgen, including two antibodies in Phase II clinical studies.
The United States is providing Turkey with real-time intelligence that has helped the Turkish military target a series of attacks this month against Kurdish separatists holed up in northern Iraq, including a large airstrike on Sunday, according to Pentagon officials.
Turkish troops began to withdraw from several areas in Iraq's Kurdish region after 700 soldiers crossed the frontier late yesterday to target Kurdish militants who have carried out cross-border attacks.
Turkey's forces started to pull back after they penetrated 8 kilometers (5 miles) into Iraq's majority-Kurdish north, Iraqi President Jalal Talabani's Patriotic Union of Kurdistan said on the party's Web site.
Copper declined to a nine-month low in London on concern that a deepening U.S. housing slump will curb demand for industrial metals in the world's second-largest user.
The sharp rise in food prices seen in 2007 is expected to be followed by another higher-than-normal jump next year, the USDA said Monday. And 2008's punch will be to the bread basket...This year is expected to go on record as having one of the largest increases in food prices since 1990 – a jump of 4 percent, according to economists at the U.S. Department of Agriculture. And 2008 will bring another rise of at least 3 percent, according to the USDA forecast. Both rates are substantially higher than the 2.4 percent gains seen each year in 2005 and 2006 and the 1.8 percent rise in 2002. Meanwhile, the Energy Information Administration forecasts a 17.7 percent jump in crude oil prices next year, with a corresponding 10.7 percent boost in the price of a gallon of regular gasoline.
Home prices in San Diego County tumbled nearly 10 percent last month from year-ago levels, taking the median down to $440,000, the lowest in more than three years, DataQuick Information Systems reported Monday. The latest price represents a 15 percent fallback from the all-time record of $517,500 set in November 2005. It was a bigger decline than the 11.7 percent peak-to-trough drop from 1992 to 1996, when the San Diego economy slid into a deep, prolonged recession.
China is studying extra lending curbs to prevent overheating in the world's fastest-growing major economy, according to a central bank official. The People's Bank of China is considering requiring a larger proportion of new deposits to be set aside as reserves, said a central bank official who declined to be named because he's not authorized to speak publicly. It's also studying larger reserve requirements for bigger banks with faster loan growth, he said.
Rep. Ron Paul: "The fact is we have huge trade imbalances, massive deficits, and a $9 trillion national debt, which balloons to $60 trillion if unfunded future liabilities in social security and other promises we have made to Americans are included. We are at a crucial point in history right now. We must think very carefully about our next moves. There is coming a time, if we continue on this path, when all that our tax dollars and government revenues will be able to do is pay interest on the mountain of debt we have compiled in the past few decades. That will mean no government programs or services of any kind will be funded, yet future generations of Americans will still struggle under a crushing tax burden with nothing to show for it. That is why fiscal restraint and common sense with the budget are so vitally important in government. The difference now is that our printing presses at the Federal Reserve are getting worn out as we have expanded our money supply to the breaking point with yet another rate cut this week. As the dollar falls, it is losing its reserve currency status as many countries are shifting to the Euro or the Chinese yuan or other currencies. The more that trend continues, the weaker we become on the world stage. Those foreign governments and entities that enabled us to spend so much for so long are wearing thin and cutting us off. The truth is our enemies won't need a nuclear weapon to harm us if we keep spending phantom dollars at the current rate. In fact, they won't need to do anything but sit back and watch as we spend ourselves into oblivion. Historically, empires fail because they run out of money, or more accurately, run out of the ability to spend or inflate. Unfortunately, that is exactly the direction we are headed. We need to control spending, immediately, before it is too late."
Illinois Tool Works Inc., which makes automotive parts, construction supplies and food service equipment, lowered its fourth-quarter earnings estimate Monday due to what it said is weakness in North American markets. Its stock tumbled.
The company said it now expects to earn between 82 cents and 86 cents per share for the final quarter of 2007, down 4 cents per share from previous guidance. Based on the company's earlier estimate, analysts polled by Thomson Financial had been forecasting earnings of 88 cents per share for the quarter.
North American base revenues grew less than 1 percent during the three-month period ending Nov. 30, Illinois Tool Works said, while international revenues increased 5 percent. The company now anticipates earnings growth of approximately 9 percent for the quarter and 11 percent for the year.
Forest Laboratories Inc. and Mylan Inc. won U.S. approval for a new medicine for high blood pressure after 2 1/2 years of delays. The Food and Drug Administration will permit the companies to market the drug, Bystolic, the agency said.
Bloomberg writes that the world economy is facing the risk of both recession and faster inflation.
Voracious demand for books and a crackdown on small, polluting paper mills have caused a paper crunch in China, pushing up the price of paper by 10 percent so far this year and forcing printers to delay books and publishers to raise prices. So far, the problems have been largely confined to China, but experts say that if the trend is unchecked, publishers worldwide could find themselves paying higher costs — and consumers facing higher book prices.
Rigzone: "We think $100 per barrel oil is on the horizon in 2008, perhaps in the spring," said Brian Hicks, co-manager of the Global Resources Fund. "Our forecast sees an average oil price around $80-$85, up from about an average of $70 in 2007." He's far from alone. About 54% of a Barclays survey of 150 commodity investors expect the average price of oil over the next five years to top $100 a barrel, with 27% responding that it would be $80-$100 a barrel and 16% expecting $60-$80 a barrel. This view is largely backed up by the Energy Information Administration, the official statistics center of the U.S., which just upped its oil price outlook to an average of $84.93 in 2008, from its earlier view of $80 a month earlier. "Expectations that tight market conditions will persist into 2008 are keeping oil prices high," the EIA said in its latest short-term outlook. "Despite the OPEC decision...to hold production quotas steady and downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations."
According to Bloomberg, the cost of shipping Middle East crude to Asia, at its highest since 2004, may rise as refineries hire ships for longer-haul shipments to Europe and the U.S., crimping vessel supply.There are 21 modern double-hull tankers available for hire within the next 30 days, according to a report today from Paris- based Barry Rogliano Salles. Two months ago there were 40 such ships competing for cargoes, according to the shipbroker.
Wireless carrier Sprint Nextel Corp. named Daniel Hesse as president and chief executive Tuesday, ending a two-month search to replace Gary Forsee, who was forced out in October over falling subscriber numbers. Hesse previously served as president and chief executive of Embarq Corp., Sprint's former local-phone unit that was spun off as a public company last year.
Brad Setser: "Who provided the most financing to the US in October? Simple: the Kremlin. Russian short-term claims rose by $18.5b, mostly from a rise in short-term Agency holdings. Russia also bought $4.4b in long-term claims (mostly Agencies).The Gulf also chipped in, though not on as large a scale. The Gulf added $4.3b to its short-term holdings, about $3b of long-term securities (mostly equities)."
Best Buy raised its full-year per-share profit forecast to as much as $3.20 from a previous estimate of as much as $3.15.
The Goldman Sachs Group, Inc. reported net revenues of $45.99 billion and net earnings of $11.60 billion for the year ended November 30, 2007. Diluted earnings per common share were $24.73, an increase of 26% compared with $19.69 for the year ended November 24, 2006. Return on average tangible common shareholders’ equity (1) (ROTE) was 38.2% and return on average common shareholders’ equity (ROE) was 32.7% for 2007. Fourth quarter net revenues were $10.74 billion and net earnings were $3.22 billion. Diluted earnings per common share were $7.01 compared with $6.59 for the same 2006 quarter and $6.13 for the third quarter of 2007. Annualized ROTE (1) was 40.1% and annualized ROE was 34.6% for the fourth quarter of 2007.
Goldman Sachs Chief Financial Officer David Viniar said the subprime market is closer to reaching a bottom, but is not there yet. Viniar said he expected there would be many leveraged buyouts in 2008, but not the "mega public-to-private" deals in the prior years.
Despite fourth-quarter profit that topped Wall Street's expectations, Goldman Sachs Group Inc.suffered through a "horrible" November, in a signal that the credit crunch may continue, CNBC reported Tuesday, citing an unnamed Goldman senior executive. Additionally, the business channel reported that Goldman recently endured the worst two weeks in the company's history.
New construction of single-family homes slowed to the weakest pace in 16 years in November as U.S. home builders scrambled to reduce their inventories of unsold homes, the Commerce Department reported Tuesday. Starts of single-family homes fell 5.4% to a seasonally adjusted annual rate of 829,000, the lowest since April 1991. Total starts, including the 0.6% rise for multifamily units, fell 3.7% to an annual rate of 1.19 million, the government said. Authorized building permits fell 1.5% in November to a seasonally adjusted annual rate of 1.15 million, the lowest in 14 years. Single-family permits fell 5.6% to 764,000, the lowest in 16 years.
"The fourth quarter of GDP is going to have a substantial drag from the second leg down in construction, but the bright spot is that it's unlikely that we're going to see this rate of decline continue," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
The most recent government data show that households spent $524, on average, on cell phone bills in 2006, compared with $542 for residential and pay-phone services.
More consumers are planning to spend less this holiday season than a year ago, according to a survey released on Tuesday that adds a fresh note of caution to what is shaping up to be a ho-hum holiday shopping season. The survey, conducted between December 4 and December 11, found that 33.4 percent of shoppers said they intend to spend less this year, compared with 29 percent who said the same thing a year ago. Meanwhile, 16.4 percent of survey respondents said they plan to spend more this holiday, down from the 20.4 percent who indicated last year that they would spend more.
U.S. lenders would have to determine that a borrower can afford a mortgage before making the loan under a Federal Reserve staff proposal on new regulations released on Tuesday.
The U.S. Federal Communications Commission voted today to allow media companies to own both daily newspapers and broadcast stations in the 20 largest U.S. markets, defying opposition from Congress and consumer groups. In a party line vote, Chairman Kevin Martin and the other two Republicans on the panel supported the plan, which modifies a ban on cross-ownership adopted in 1975. Both Democratic panel members voted against the rule, first presented on Nov. 13.
Natural gas for January delivery rose 11.5 cents, or 1.6 percent, to $7.15 per million British thermal units at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices have advanced 1.9 percent this week and are 1.1 percent higher than a year ago. Meanwhile, crude declined 14 cents to $90.49.
Gold futures for February delivery rose $6.60, or 0.8 percent, to $805.90 an ounce at 10:56 a.m. on the Comex division of the New York Mercantile Exchange, after earlier rising to $811.40. Silver futures for March delivery rose 10.5 cents, or 0.8 percent, to $14.085 an ounce on the Comex. Before today, the metal had gained 8.1 percent this year.
Insurance company Allstate Corp. said Tuesday that the wildfires that blanketed southern California in October have resulted in over 7,000 claims, and up to $335 million in "catastrophe losses" to be recorded in the fourth quarter of 2007.
Palm Inc. told analysts Tuesday that it expects a "tight component supply" that could strain shipments of its smartphones for the current third fiscal quarter. In a conference call to discuss the company's second-quarter results, Palm officers said the component supply situation is "mostly" centered on its popular Centro device, a $99 smartphone the company sells through an exclusive deal with carrier Sprint. Palm Inc. swung to a net loss for its second fiscal quarter ended Nov. 30. The maker of wireless smartphone devices reported a net loss of $9.6 million, or 9 cents a share, compared to earnings of $12.8 million, or 12 cents a share, for the same period last year. The company said net loss on a non-GAAP basis, which exclude certain charges, would have been $7.8 million, or 7 cents a share. Revenue fell 11% to $349.6 million.
Japan's government slashed its economic growth forecast by a third after stricter rules for obtaining building permits caused housing starts to plummet to a four-decade low. The world's second-biggest economy will probably grow 1.3 percent in the year ending March 31 and 2 percent in the following 12 months, the Cabinet Office said in Tokyo today. It had previously expected a 2.1 percent expansion for this year.
Mervyn King, governor of the Bank of England, told a Treasury committee that the rise in inter-bank spreads is not due to any shortage of cash, but rather to concerns about where derivative losses come to rest, and over the past four weeks, growing doubts about the health of the U.S. economy.
The U.K. Treasury said Tuesday that guarantee arrangements for lender Northern Rock are being extended, at the request of Northern Rock, to cover a wider range of wholesale products.
Royal Philips Electronics will buy clinical IT and service provider Visicu Inc. for $12 a share, or $430 million in total.
Platinum rose to a record on demand in China. Platinum advanced $10, or 0.7 percent, to $1,509 and earlier rose to a record $1,511, partly on speculation Russia, the world's second-biggest producer, won't approve export licenses for next year. Demand is also climbing in China as jewelers stock up for the lunar new year holidays in February, said John Reade, an analyst at UBS AG in London. China is the biggest user of platinum for jewelry.
``The people who think the dollar rally isn't coming to an end believe in Santa Claus,'' Nicholas Betsky, a partner at Moscow-based DBM Capital Partners, an investment company that owns $55 million of gold and gold shares, said by phone today. ``Gold has not fallen too much with the dollar rally and that's a really positive sign for gold.''
The People's Bank of China has instructed a number of banks and rural credit cooperatives they must place additional funds with it as reserves on Dec. 27, according to media reports. The special deposits will pay interest of 3.37% on three-month deposits and 3.99% on one year deposits, reports said. The moves were part of additional measures being draw up to help drain liquidity from the banking system, according to reports.
The World Trade Organization said Monday it will investigate if the $286 billion farm subsidy bill passed by the U.S. Senate violates international limits and offers too much support to farmers who grow crops used to make ethanol, according to a media report.
Jacques Diouf, head of the UN Food and Agriculture Organization, said the agency's food price index rose by more than 40 percent this year, compared with 9 percent the year before - a rate that was already unacceptable, he said. New figures show that the total cost of foodstuffs imported by the neediest countries rose 25 percent, to $107 million, in the last year.
Biopharmaceutical company Medarex Inc. said Tuesday it will receive an undisclosed milestone payment from licensing partner Amgen for advancing an antibody into human clinical trials. The antibody was developed using Medarex's UltiMAb technology and is the fifth UltiMAb-derived antibody in clinical development by Amgen, including two antibodies in Phase II clinical studies.
The United States is providing Turkey with real-time intelligence that has helped the Turkish military target a series of attacks this month against Kurdish separatists holed up in northern Iraq, including a large airstrike on Sunday, according to Pentagon officials.
Turkish troops began to withdraw from several areas in Iraq's Kurdish region after 700 soldiers crossed the frontier late yesterday to target Kurdish militants who have carried out cross-border attacks.
Turkey's forces started to pull back after they penetrated 8 kilometers (5 miles) into Iraq's majority-Kurdish north, Iraqi President Jalal Talabani's Patriotic Union of Kurdistan said on the party's Web site.
Copper declined to a nine-month low in London on concern that a deepening U.S. housing slump will curb demand for industrial metals in the world's second-largest user.
The sharp rise in food prices seen in 2007 is expected to be followed by another higher-than-normal jump next year, the USDA said Monday. And 2008's punch will be to the bread basket...This year is expected to go on record as having one of the largest increases in food prices since 1990 – a jump of 4 percent, according to economists at the U.S. Department of Agriculture. And 2008 will bring another rise of at least 3 percent, according to the USDA forecast. Both rates are substantially higher than the 2.4 percent gains seen each year in 2005 and 2006 and the 1.8 percent rise in 2002. Meanwhile, the Energy Information Administration forecasts a 17.7 percent jump in crude oil prices next year, with a corresponding 10.7 percent boost in the price of a gallon of regular gasoline.
Home prices in San Diego County tumbled nearly 10 percent last month from year-ago levels, taking the median down to $440,000, the lowest in more than three years, DataQuick Information Systems reported Monday. The latest price represents a 15 percent fallback from the all-time record of $517,500 set in November 2005. It was a bigger decline than the 11.7 percent peak-to-trough drop from 1992 to 1996, when the San Diego economy slid into a deep, prolonged recession.
China is studying extra lending curbs to prevent overheating in the world's fastest-growing major economy, according to a central bank official. The People's Bank of China is considering requiring a larger proportion of new deposits to be set aside as reserves, said a central bank official who declined to be named because he's not authorized to speak publicly. It's also studying larger reserve requirements for bigger banks with faster loan growth, he said.
Rep. Ron Paul: "The fact is we have huge trade imbalances, massive deficits, and a $9 trillion national debt, which balloons to $60 trillion if unfunded future liabilities in social security and other promises we have made to Americans are included. We are at a crucial point in history right now. We must think very carefully about our next moves. There is coming a time, if we continue on this path, when all that our tax dollars and government revenues will be able to do is pay interest on the mountain of debt we have compiled in the past few decades. That will mean no government programs or services of any kind will be funded, yet future generations of Americans will still struggle under a crushing tax burden with nothing to show for it. That is why fiscal restraint and common sense with the budget are so vitally important in government. The difference now is that our printing presses at the Federal Reserve are getting worn out as we have expanded our money supply to the breaking point with yet another rate cut this week. As the dollar falls, it is losing its reserve currency status as many countries are shifting to the Euro or the Chinese yuan or other currencies. The more that trend continues, the weaker we become on the world stage. Those foreign governments and entities that enabled us to spend so much for so long are wearing thin and cutting us off. The truth is our enemies won't need a nuclear weapon to harm us if we keep spending phantom dollars at the current rate. In fact, they won't need to do anything but sit back and watch as we spend ourselves into oblivion. Historically, empires fail because they run out of money, or more accurately, run out of the ability to spend or inflate. Unfortunately, that is exactly the direction we are headed. We need to control spending, immediately, before it is too late."
Illinois Tool Works Inc., which makes automotive parts, construction supplies and food service equipment, lowered its fourth-quarter earnings estimate Monday due to what it said is weakness in North American markets. Its stock tumbled.
The company said it now expects to earn between 82 cents and 86 cents per share for the final quarter of 2007, down 4 cents per share from previous guidance. Based on the company's earlier estimate, analysts polled by Thomson Financial had been forecasting earnings of 88 cents per share for the quarter.
North American base revenues grew less than 1 percent during the three-month period ending Nov. 30, Illinois Tool Works said, while international revenues increased 5 percent. The company now anticipates earnings growth of approximately 9 percent for the quarter and 11 percent for the year.
Forest Laboratories Inc. and Mylan Inc. won U.S. approval for a new medicine for high blood pressure after 2 1/2 years of delays. The Food and Drug Administration will permit the companies to market the drug, Bystolic, the agency said.
Bloomberg writes that the world economy is facing the risk of both recession and faster inflation.
Voracious demand for books and a crackdown on small, polluting paper mills have caused a paper crunch in China, pushing up the price of paper by 10 percent so far this year and forcing printers to delay books and publishers to raise prices. So far, the problems have been largely confined to China, but experts say that if the trend is unchecked, publishers worldwide could find themselves paying higher costs — and consumers facing higher book prices.
Rigzone: "We think $100 per barrel oil is on the horizon in 2008, perhaps in the spring," said Brian Hicks, co-manager of the Global Resources Fund. "Our forecast sees an average oil price around $80-$85, up from about an average of $70 in 2007." He's far from alone. About 54% of a Barclays survey of 150 commodity investors expect the average price of oil over the next five years to top $100 a barrel, with 27% responding that it would be $80-$100 a barrel and 16% expecting $60-$80 a barrel. This view is largely backed up by the Energy Information Administration, the official statistics center of the U.S., which just upped its oil price outlook to an average of $84.93 in 2008, from its earlier view of $80 a month earlier. "Expectations that tight market conditions will persist into 2008 are keeping oil prices high," the EIA said in its latest short-term outlook. "Despite the OPEC decision...to hold production quotas steady and downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations."
According to Bloomberg, the cost of shipping Middle East crude to Asia, at its highest since 2004, may rise as refineries hire ships for longer-haul shipments to Europe and the U.S., crimping vessel supply.There are 21 modern double-hull tankers available for hire within the next 30 days, according to a report today from Paris- based Barry Rogliano Salles. Two months ago there were 40 such ships competing for cargoes, according to the shipbroker.
Wireless carrier Sprint Nextel Corp. named Daniel Hesse as president and chief executive Tuesday, ending a two-month search to replace Gary Forsee, who was forced out in October over falling subscriber numbers. Hesse previously served as president and chief executive of Embarq Corp., Sprint's former local-phone unit that was spun off as a public company last year.
Brad Setser: "Who provided the most financing to the US in October? Simple: the Kremlin. Russian short-term claims rose by $18.5b, mostly from a rise in short-term Agency holdings. Russia also bought $4.4b in long-term claims (mostly Agencies).The Gulf also chipped in, though not on as large a scale. The Gulf added $4.3b to its short-term holdings, about $3b of long-term securities (mostly equities)."
Best Buy raised its full-year per-share profit forecast to as much as $3.20 from a previous estimate of as much as $3.15.
The Goldman Sachs Group, Inc. reported net revenues of $45.99 billion and net earnings of $11.60 billion for the year ended November 30, 2007. Diluted earnings per common share were $24.73, an increase of 26% compared with $19.69 for the year ended November 24, 2006. Return on average tangible common shareholders’ equity (1) (ROTE) was 38.2% and return on average common shareholders’ equity (ROE) was 32.7% for 2007. Fourth quarter net revenues were $10.74 billion and net earnings were $3.22 billion. Diluted earnings per common share were $7.01 compared with $6.59 for the same 2006 quarter and $6.13 for the third quarter of 2007. Annualized ROTE (1) was 40.1% and annualized ROE was 34.6% for the fourth quarter of 2007.
Goldman Sachs Chief Financial Officer David Viniar said the subprime market is closer to reaching a bottom, but is not there yet. Viniar said he expected there would be many leveraged buyouts in 2008, but not the "mega public-to-private" deals in the prior years.
Despite fourth-quarter profit that topped Wall Street's expectations, Goldman Sachs Group Inc.suffered through a "horrible" November, in a signal that the credit crunch may continue, CNBC reported Tuesday, citing an unnamed Goldman senior executive. Additionally, the business channel reported that Goldman recently endured the worst two weeks in the company's history.
New construction of single-family homes slowed to the weakest pace in 16 years in November as U.S. home builders scrambled to reduce their inventories of unsold homes, the Commerce Department reported Tuesday. Starts of single-family homes fell 5.4% to a seasonally adjusted annual rate of 829,000, the lowest since April 1991. Total starts, including the 0.6% rise for multifamily units, fell 3.7% to an annual rate of 1.19 million, the government said. Authorized building permits fell 1.5% in November to a seasonally adjusted annual rate of 1.15 million, the lowest in 14 years. Single-family permits fell 5.6% to 764,000, the lowest in 16 years.
"The fourth quarter of GDP is going to have a substantial drag from the second leg down in construction, but the bright spot is that it's unlikely that we're going to see this rate of decline continue," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
The most recent government data show that households spent $524, on average, on cell phone bills in 2006, compared with $542 for residential and pay-phone services.
More consumers are planning to spend less this holiday season than a year ago, according to a survey released on Tuesday that adds a fresh note of caution to what is shaping up to be a ho-hum holiday shopping season. The survey, conducted between December 4 and December 11, found that 33.4 percent of shoppers said they intend to spend less this year, compared with 29 percent who said the same thing a year ago. Meanwhile, 16.4 percent of survey respondents said they plan to spend more this holiday, down from the 20.4 percent who indicated last year that they would spend more.
U.S. lenders would have to determine that a borrower can afford a mortgage before making the loan under a Federal Reserve staff proposal on new regulations released on Tuesday.
The U.S. Federal Communications Commission voted today to allow media companies to own both daily newspapers and broadcast stations in the 20 largest U.S. markets, defying opposition from Congress and consumer groups. In a party line vote, Chairman Kevin Martin and the other two Republicans on the panel supported the plan, which modifies a ban on cross-ownership adopted in 1975. Both Democratic panel members voted against the rule, first presented on Nov. 13.
Natural gas for January delivery rose 11.5 cents, or 1.6 percent, to $7.15 per million British thermal units at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices have advanced 1.9 percent this week and are 1.1 percent higher than a year ago. Meanwhile, crude declined 14 cents to $90.49.
Gold futures for February delivery rose $6.60, or 0.8 percent, to $805.90 an ounce at 10:56 a.m. on the Comex division of the New York Mercantile Exchange, after earlier rising to $811.40. Silver futures for March delivery rose 10.5 cents, or 0.8 percent, to $14.085 an ounce on the Comex. Before today, the metal had gained 8.1 percent this year.
Insurance company Allstate Corp. said Tuesday that the wildfires that blanketed southern California in October have resulted in over 7,000 claims, and up to $335 million in "catastrophe losses" to be recorded in the fourth quarter of 2007.
Palm Inc. told analysts Tuesday that it expects a "tight component supply" that could strain shipments of its smartphones for the current third fiscal quarter. In a conference call to discuss the company's second-quarter results, Palm officers said the component supply situation is "mostly" centered on its popular Centro device, a $99 smartphone the company sells through an exclusive deal with carrier Sprint. Palm Inc. swung to a net loss for its second fiscal quarter ended Nov. 30. The maker of wireless smartphone devices reported a net loss of $9.6 million, or 9 cents a share, compared to earnings of $12.8 million, or 12 cents a share, for the same period last year. The company said net loss on a non-GAAP basis, which exclude certain charges, would have been $7.8 million, or 7 cents a share. Revenue fell 11% to $349.6 million.
Japan's government slashed its economic growth forecast by a third after stricter rules for obtaining building permits caused housing starts to plummet to a four-decade low. The world's second-biggest economy will probably grow 1.3 percent in the year ending March 31 and 2 percent in the following 12 months, the Cabinet Office said in Tokyo today. It had previously expected a 2.1 percent expansion for this year.
Monday, December 17, 2007
Retail
12/18/07 Retail
SpendingPulse said that over the first 20 days of the holiday shopping season, from November 23 to December 12, sales at U.S. specialty apparel chains, which include Gap Inc , Aeropostale Inc and Urban Outfitters Inc , rose 0.5 percent this year, down from a 5.1 percent gain last year. "Across the board we've had a regression in growth since Black Friday to moderate levels or somewhat flat levels," said Michael McNamara, SpendingPulse's vice president of research and analysis.
So far, online spending is up 18% this holiday season, compared with the same days in 2006, according to data from comScore.
Between Nov. 1 and Dec. 14, online sales totaled $22.7 billion, the online measuring firm reported on Sunday. That's up from $19.2 billion in 2006.
From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company. The drop-off, which the credit card company described Sunday as “surprising,” bodes poorly for chains like Chico’s FAS and Ann Taylor, which specialize in women’s clothing, and could result in steeper-than-expected discounts on their merchandise in the final week before Christmas.
"We are beginning to get not stagflation, but the early symptoms of it," Greenspan said.
Jas Jain: "On Wednesday, December 12, 2007, leading Central Banks surprised the markets by promising to "rain money" on American and European banks. After years of Fed facilitating the pushing of debt on households by private financial institutions, including turning blind-eye to obvious abuses in the mortgage market, it suddenly is pushing debt on banks (ready money, or reserves, in exchange for questionable collateral) with the hope that they would continue lending to households. Would it work? Hell no. How do I know? I happened to listen to Alan Greenspan, during a question answer season in London few weeks ago, midnight California time, in which he said, "During early 1990s the money supply numbers stopped working [money supply was growing but banks were reluctant to lend]. We [Fed] put buckets of money out there [in the banks, similar to what the Fed is trying to do now] and it didn't work. It was only after Wall Street came up with more [or newer] CDO products ["innovations" in securitization of debt] and took debt off the banks' balance sheets that banks started to lend again and the economy began to respond." Presently, the securitization of debt is in trouble due to its abuses. The process that took debt off banks' balance sheets is clogged. Pouring rapid water in a clogged sink doesn't work too well. It makes a mess...There is nothing else that the Fed can do to keep the economy from slipping into recession, or depression, than to keep the debt-push going at an elevated pace. Unfortunately, Fed can't directly push debt on households (no helicopter drops!). It needs banks as conduits and banks are in trouble. As Schumpeter noted, bankers' mischief leads to catastrophes (his term for depressions). And he was talking about the private bankers. The role of the private bankers in causing the Great Depression is kept very quiet. Federal Reserve exists to get the blame! We have arrived at the juncture where the Fed becomes impotent. It has reached level of impotence beyond the economic equivalent of VIAGRA. That is what gross abuse of a function can lead to...
For those of you who are worried about inflation, the total household debt growth below $300B annual rate will lead to outright deflation within months (inflation always lags). Household debt growth is inflationary in the present and deflationary in the future. Fed has been fighting deflation for the past five years by maintaining elevated rate of household debt growth! Controlled inflation, around 3%, has been Fed's policy for the past 25 years, after Volcker tamed inflation. There is no such thing as "corrosive deflation," Mr. Greenspan; there is only corrosive inflation. The policy of controlled corrosion in purchasing power is a bad one for the American workers and, especially, the poor. Sen. Bernie Sanders was right when he said to Greenspan, "that you see your major function in your position as the need to represent the wealthy and large corporations." Who helped Greenspan get the appointment?!
It Is the Debt, Stupid!"
Plains Exploration & Production Company said it would sell oil and gas properties to Occidental Petroleum and XTO Energy for $1.75 billion. The Houston energy firm also set plans to buy back $1 billion in stock and spend $1.15 billion on its 2008 capital budget.
Compton Petroleum said it's "puzzled" by a request from a shareholder representing 19.8% of its capital -- Centennial Energy Partners, according to an SEC filing -- to consider strategic alternatives. "The current business environment for Compton and the Canadian natural gas industry at large is challenging to say the least. Our current share price reflects the depressed state of the natural gas industry, particularly in Alberta, resulting from (a) low natural gas prices, (b) the rapid appreciation of the Canadian dollar, (c) the high cost structure of the basin, and (d) regulatory issues including uncertainties relating to the proposed new Crown royalty structure in Alberta," it said. The company said it is bullish on the outlook for natural gas and is confident that its longer-term strategy is sound and achievable.
Trane Inc., the Piscataway, N.J., producer of heating, ventilation and air-conditioning systems, definitively agreed to be acquired for cash and stock by Ingersoll Rand, Ingersoll Rand said on Monday. IR is the Hamilton, Bermuda, provider of solutions in fields including transportation of food and perishables, property security and more. Ingersoll Rand said it agreed to pay $36.50 a share cash plus 0.23 share for each share of Trane, which used to be known as American Standard Cos. Based on Friday's closing prices, the deal is valued at $47.81 a share, a 29% premium for Trane holders.
The wheat Price Surges Above $10 for First Time on Supply Concerns.
Mike Burk: "Since 1929 the S&P 500 (SPX) has been up 79% of the time in the last 10 trading days of the year and 84% of the time during the 3rd year of the Presidential Cycle. The market is oversold. As of Friday's close the SPX had given back 40% of its gains off the November 26 low, the Russell 2000 (R2K) had given up 61.8% of its gains, both at or close to Fibonacci numbers. The NASDAQ composite (OTC) is 52% off its December 10 high. If, as new lows indicate, there was an intermediate term low on November 26, the market should be at or near its low for this move...Historically next week has been up a little over half of the time with modest gains. I expect the major indices to be higher on Friday December 21 than they were on Friday December 14."
John Hussman: " But every time the Federal government issues more debt to finance its deficits, the new issuance cancels out any beneficial increase in liquidity the Fed could possibly provide."
National Oilwell Varco will acquire all of the outstanding shares of Grant Prideco. The total consideration will equate to $58.00 per share in cash and stock. Based on December 14, 2007 closing share prices for each company, the $58.00 per share consideration represents a premium of 22% for Grant Prideco holders. The breakdown is being put at $23.20 in cash and 0.4498 shares of National Oilwell Varco per share of Grant Prideco. This is a $7.5 billion deal. Grant Prideco, Inc. is engaged in drill stem technology development, drill pipe manufacturing, sales and service, and drill bit technology and specialty tools, manufacturing, sales and service. It is also a provider of performance engineered connections and premium tubular products and services.
Loews Corp.'s board approved a spinoff of its interest in Lorillard Inc., one of the nation's largest cigarette makers, into a separate publicly traded company. Lorillard makes Newport, True and Kent cigarettes. Loews, which is led by the Tisch family, owns CNA Financial Corp., Loews Hotels, Bulova Corp. and Diamond Offshore Drilling Inc. Loews' interest in Lorillard will be spun off to Carolina Group shareholders and Loews shareholders in a tax-free transaction, the company said. Carolina Group is a tracking stock designed to reflect the performance of the tobacco business. Under terms of the deal, Loews will redeem all outstanding Carolina shares in exchange for Lorillard shares. Carolina stockholders will get one Lorillard share for each share they own. The Lorillard stock being distributed makes up about 62 percent of the company's outstanding shares. Loews will then sell the remaining 38 percent of Lorillard outstanding stock in exchange for some of its own outstanding shares if deemed appropriate. If Loews does not view this as a proper transaction, it will distribute the remaining Lorillard stock to Loews shareholders as a dividend.The spinoff is expected to close in mid-2008.
Manufacturing activity in New York State factories declined sharply in December to a seventh-month low with falling new order and shipment indexes, New York Federal Reserve said Monday. Empire State" general business conditions index fell to 10.31 in December from 27.37 in November. It was the lowest reading since May and below the 20.00 forecast by economists polled by Reuters. The index on new orders dropped to 14.26 in December from 24.49 in November, while the reading on shipments fell to 21.08 in December from 32.19 in November. The inventories component fell to -10.00 in December from -1.19 in November, while the prices paid component fell to 35.00 in December from 42.86 in November.
The Commerce Department said on Monday the U.S. current account deficit contracted in the third quarter to $178.5 billion, from a downwardly revised gap of $188.9 billion in the second quarter. Stronger U.S. exports and a rise in income earned on U.S.-assets held abroad helped trim the deficit to its lowest since third quarter 2005, when it was $173.4 billion. October's inflows of $97.8 billion in October from a revised $32.8 billion outflow in September, were more than sufficient to cover the month's U.S. trade deficit of $57.8 billion.
Aon, one of the world's largest insurance brokers, said on Monday it has agreed to sell two units for about $2.75 billion and will devote the proceeds of the deal to a share buyback. The company said it sold its Combined Insurance unit to ACE for $2.4 billion in cash and that Munich Re is buying its Sterling Life Insurance unit for $352 million.
Republican presidential hopeful Ron Paul's supporters raised over $6 million Sunday to boost the 10-term Texas congressman's campaign for the White House. Called a "Money Bomb," the goal was to raise as much money as possible on the Internet in one day. The campaign's previous fundraiser brought in $4.2 million.At midnight EST, donations were over $6 million, according to the campaign Web site.
Moody's Investors Services warned it could lower bond insurer credit ratings because of subprime losses.
According to Bloomberg, coal prices at Australia's Newcastle port stayed near a record on concern that congestion at the harbor will worsen after a regulator rejected plans to change the way shipping capacity is allocated. Power station coal excluding shipping cost for delivery within three months settled at $88.35 a metric ton in the week ended Dec. 14, down $1.41 from a record $89.76 the previous week, according to the globalCOAL NEWC Index, an Asian benchmark calculated each Friday. Bottlenecks at Australian ports, unusually heavy rain in Indonesia and increased imports by China have constrained the supply of the fuel to Asian customers. Ship queues will grow as Rio Tinto Group, Xstrata Plc and other mining companies are left with no plan to share port and rail capacity, Newcastle coal terminal operator Port Waratah Coal Services Ltd. said.
Natural gas in New York advanced on speculation winter storms in the Midwest and Northeast will prompt above-average withdrawals from U.S. inventories. The winter-weather systems blanketed an areas from Michigan to Maine with freezing rain, sleet and snow. ``This week we expect another substantial storage withdrawal'' for the seven days ended Dec. 14, Mike Dane, gas analyst at SunTrust Robinson Humphrey in Houston, said in a note today.
Advanced Micro Devices Inc has delayed shipments of a key, high-end microprocessor until the first quarter of next year and does not expect to break even until the second quarter, the chipmaker said on Thursday. Meanwhile, the company still expects fourth-quarter revenue to increase in line with seasonality. On Monday, the stock made another 52-week low at $7.94
The home builders' housing market index stayed at 19 for the third straight month in December, matching the lowest reading ever in the 22-year history of the index released by the National Association of Home Builders and Wells Fargo.
Crude oil for January delivery ended the session down 64 cents, or 0.7%, at $90.63 a barrel on the New York Mercantile Exchange.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange.
The European Central Bank will offer unlimited funds at a fixed rate to eurozone financial institutions for a two-week period, according to a media report Monday. The central bank's move is intended to encourage banks to make loans and to reduce potential end-of-year tensions, The Wall Street Journal reported in its online edition. It is the second time in the bank's nine-year history and the second time since August, when overnight-lending rates peaked on fears of European exposure to U.S. subprime mortgage problems, that the bank has made such an offer, according to the report.
Range Resources Corp.will replace Tribune Co.in the S&P 500 index after the close of trading on Thursday, Standard & Poor's said late Monday. Tribune is being taken private in a deal expected to close on or about that date, pending final approvals.
The Dow has lost 560 points in the last five trading sessions.
Russia delivered nuclear fuel for an Iranian power plant that is at the center of the dispute over Iran’s nuclear program.
Barbara Ehrenreich: “A free-enterprise economy depends only on markets, and according to the most advanced mathematical macroeconomic theory, markets depend only on moods: specifically, the mood of the men in the pinstripes, also known as the Boys on the Street. When the Boys are in a good mood, the market thrives; when they get scared or sullen, it is time for each one of us to look into the retail apple business.”
SpendingPulse said that over the first 20 days of the holiday shopping season, from November 23 to December 12, sales at U.S. specialty apparel chains, which include Gap Inc , Aeropostale Inc and Urban Outfitters Inc , rose 0.5 percent this year, down from a 5.1 percent gain last year. "Across the board we've had a regression in growth since Black Friday to moderate levels or somewhat flat levels," said Michael McNamara, SpendingPulse's vice president of research and analysis.
So far, online spending is up 18% this holiday season, compared with the same days in 2006, according to data from comScore.
Between Nov. 1 and Dec. 14, online sales totaled $22.7 billion, the online measuring firm reported on Sunday. That's up from $19.2 billion in 2006.
From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company. The drop-off, which the credit card company described Sunday as “surprising,” bodes poorly for chains like Chico’s FAS and Ann Taylor, which specialize in women’s clothing, and could result in steeper-than-expected discounts on their merchandise in the final week before Christmas.
"We are beginning to get not stagflation, but the early symptoms of it," Greenspan said.
Jas Jain: "On Wednesday, December 12, 2007, leading Central Banks surprised the markets by promising to "rain money" on American and European banks. After years of Fed facilitating the pushing of debt on households by private financial institutions, including turning blind-eye to obvious abuses in the mortgage market, it suddenly is pushing debt on banks (ready money, or reserves, in exchange for questionable collateral) with the hope that they would continue lending to households. Would it work? Hell no. How do I know? I happened to listen to Alan Greenspan, during a question answer season in London few weeks ago, midnight California time, in which he said, "During early 1990s the money supply numbers stopped working [money supply was growing but banks were reluctant to lend]. We [Fed] put buckets of money out there [in the banks, similar to what the Fed is trying to do now] and it didn't work. It was only after Wall Street came up with more [or newer] CDO products ["innovations" in securitization of debt] and took debt off the banks' balance sheets that banks started to lend again and the economy began to respond." Presently, the securitization of debt is in trouble due to its abuses. The process that took debt off banks' balance sheets is clogged. Pouring rapid water in a clogged sink doesn't work too well. It makes a mess...There is nothing else that the Fed can do to keep the economy from slipping into recession, or depression, than to keep the debt-push going at an elevated pace. Unfortunately, Fed can't directly push debt on households (no helicopter drops!). It needs banks as conduits and banks are in trouble. As Schumpeter noted, bankers' mischief leads to catastrophes (his term for depressions). And he was talking about the private bankers. The role of the private bankers in causing the Great Depression is kept very quiet. Federal Reserve exists to get the blame! We have arrived at the juncture where the Fed becomes impotent. It has reached level of impotence beyond the economic equivalent of VIAGRA. That is what gross abuse of a function can lead to...
For those of you who are worried about inflation, the total household debt growth below $300B annual rate will lead to outright deflation within months (inflation always lags). Household debt growth is inflationary in the present and deflationary in the future. Fed has been fighting deflation for the past five years by maintaining elevated rate of household debt growth! Controlled inflation, around 3%, has been Fed's policy for the past 25 years, after Volcker tamed inflation. There is no such thing as "corrosive deflation," Mr. Greenspan; there is only corrosive inflation. The policy of controlled corrosion in purchasing power is a bad one for the American workers and, especially, the poor. Sen. Bernie Sanders was right when he said to Greenspan, "that you see your major function in your position as the need to represent the wealthy and large corporations." Who helped Greenspan get the appointment?!
It Is the Debt, Stupid!"
Plains Exploration & Production Company said it would sell oil and gas properties to Occidental Petroleum and XTO Energy for $1.75 billion. The Houston energy firm also set plans to buy back $1 billion in stock and spend $1.15 billion on its 2008 capital budget.
Compton Petroleum said it's "puzzled" by a request from a shareholder representing 19.8% of its capital -- Centennial Energy Partners, according to an SEC filing -- to consider strategic alternatives. "The current business environment for Compton and the Canadian natural gas industry at large is challenging to say the least. Our current share price reflects the depressed state of the natural gas industry, particularly in Alberta, resulting from (a) low natural gas prices, (b) the rapid appreciation of the Canadian dollar, (c) the high cost structure of the basin, and (d) regulatory issues including uncertainties relating to the proposed new Crown royalty structure in Alberta," it said. The company said it is bullish on the outlook for natural gas and is confident that its longer-term strategy is sound and achievable.
Trane Inc., the Piscataway, N.J., producer of heating, ventilation and air-conditioning systems, definitively agreed to be acquired for cash and stock by Ingersoll Rand, Ingersoll Rand said on Monday. IR is the Hamilton, Bermuda, provider of solutions in fields including transportation of food and perishables, property security and more. Ingersoll Rand said it agreed to pay $36.50 a share cash plus 0.23 share for each share of Trane, which used to be known as American Standard Cos. Based on Friday's closing prices, the deal is valued at $47.81 a share, a 29% premium for Trane holders.
The wheat Price Surges Above $10 for First Time on Supply Concerns.
Mike Burk: "Since 1929 the S&P 500 (SPX) has been up 79% of the time in the last 10 trading days of the year and 84% of the time during the 3rd year of the Presidential Cycle. The market is oversold. As of Friday's close the SPX had given back 40% of its gains off the November 26 low, the Russell 2000 (R2K) had given up 61.8% of its gains, both at or close to Fibonacci numbers. The NASDAQ composite (OTC) is 52% off its December 10 high. If, as new lows indicate, there was an intermediate term low on November 26, the market should be at or near its low for this move...Historically next week has been up a little over half of the time with modest gains. I expect the major indices to be higher on Friday December 21 than they were on Friday December 14."
John Hussman: " But every time the Federal government issues more debt to finance its deficits, the new issuance cancels out any beneficial increase in liquidity the Fed could possibly provide."
National Oilwell Varco will acquire all of the outstanding shares of Grant Prideco. The total consideration will equate to $58.00 per share in cash and stock. Based on December 14, 2007 closing share prices for each company, the $58.00 per share consideration represents a premium of 22% for Grant Prideco holders. The breakdown is being put at $23.20 in cash and 0.4498 shares of National Oilwell Varco per share of Grant Prideco. This is a $7.5 billion deal. Grant Prideco, Inc. is engaged in drill stem technology development, drill pipe manufacturing, sales and service, and drill bit technology and specialty tools, manufacturing, sales and service. It is also a provider of performance engineered connections and premium tubular products and services.
Loews Corp.'s board approved a spinoff of its interest in Lorillard Inc., one of the nation's largest cigarette makers, into a separate publicly traded company. Lorillard makes Newport, True and Kent cigarettes. Loews, which is led by the Tisch family, owns CNA Financial Corp., Loews Hotels, Bulova Corp. and Diamond Offshore Drilling Inc. Loews' interest in Lorillard will be spun off to Carolina Group shareholders and Loews shareholders in a tax-free transaction, the company said. Carolina Group is a tracking stock designed to reflect the performance of the tobacco business. Under terms of the deal, Loews will redeem all outstanding Carolina shares in exchange for Lorillard shares. Carolina stockholders will get one Lorillard share for each share they own. The Lorillard stock being distributed makes up about 62 percent of the company's outstanding shares. Loews will then sell the remaining 38 percent of Lorillard outstanding stock in exchange for some of its own outstanding shares if deemed appropriate. If Loews does not view this as a proper transaction, it will distribute the remaining Lorillard stock to Loews shareholders as a dividend.The spinoff is expected to close in mid-2008.
Manufacturing activity in New York State factories declined sharply in December to a seventh-month low with falling new order and shipment indexes, New York Federal Reserve said Monday. Empire State" general business conditions index fell to 10.31 in December from 27.37 in November. It was the lowest reading since May and below the 20.00 forecast by economists polled by Reuters. The index on new orders dropped to 14.26 in December from 24.49 in November, while the reading on shipments fell to 21.08 in December from 32.19 in November. The inventories component fell to -10.00 in December from -1.19 in November, while the prices paid component fell to 35.00 in December from 42.86 in November.
The Commerce Department said on Monday the U.S. current account deficit contracted in the third quarter to $178.5 billion, from a downwardly revised gap of $188.9 billion in the second quarter. Stronger U.S. exports and a rise in income earned on U.S.-assets held abroad helped trim the deficit to its lowest since third quarter 2005, when it was $173.4 billion. October's inflows of $97.8 billion in October from a revised $32.8 billion outflow in September, were more than sufficient to cover the month's U.S. trade deficit of $57.8 billion.
Aon, one of the world's largest insurance brokers, said on Monday it has agreed to sell two units for about $2.75 billion and will devote the proceeds of the deal to a share buyback. The company said it sold its Combined Insurance unit to ACE for $2.4 billion in cash and that Munich Re is buying its Sterling Life Insurance unit for $352 million.
Republican presidential hopeful Ron Paul's supporters raised over $6 million Sunday to boost the 10-term Texas congressman's campaign for the White House. Called a "Money Bomb," the goal was to raise as much money as possible on the Internet in one day. The campaign's previous fundraiser brought in $4.2 million.At midnight EST, donations were over $6 million, according to the campaign Web site.
Moody's Investors Services warned it could lower bond insurer credit ratings because of subprime losses.
According to Bloomberg, coal prices at Australia's Newcastle port stayed near a record on concern that congestion at the harbor will worsen after a regulator rejected plans to change the way shipping capacity is allocated. Power station coal excluding shipping cost for delivery within three months settled at $88.35 a metric ton in the week ended Dec. 14, down $1.41 from a record $89.76 the previous week, according to the globalCOAL NEWC Index, an Asian benchmark calculated each Friday. Bottlenecks at Australian ports, unusually heavy rain in Indonesia and increased imports by China have constrained the supply of the fuel to Asian customers. Ship queues will grow as Rio Tinto Group, Xstrata Plc and other mining companies are left with no plan to share port and rail capacity, Newcastle coal terminal operator Port Waratah Coal Services Ltd. said.
Natural gas in New York advanced on speculation winter storms in the Midwest and Northeast will prompt above-average withdrawals from U.S. inventories. The winter-weather systems blanketed an areas from Michigan to Maine with freezing rain, sleet and snow. ``This week we expect another substantial storage withdrawal'' for the seven days ended Dec. 14, Mike Dane, gas analyst at SunTrust Robinson Humphrey in Houston, said in a note today.
Advanced Micro Devices Inc has delayed shipments of a key, high-end microprocessor until the first quarter of next year and does not expect to break even until the second quarter, the chipmaker said on Thursday. Meanwhile, the company still expects fourth-quarter revenue to increase in line with seasonality. On Monday, the stock made another 52-week low at $7.94
The home builders' housing market index stayed at 19 for the third straight month in December, matching the lowest reading ever in the 22-year history of the index released by the National Association of Home Builders and Wells Fargo.
Crude oil for January delivery ended the session down 64 cents, or 0.7%, at $90.63 a barrel on the New York Mercantile Exchange.
Gold for February delivery gained $1.30 to end at $799.30 an ounce on the New York Mercantile Exchange.
The European Central Bank will offer unlimited funds at a fixed rate to eurozone financial institutions for a two-week period, according to a media report Monday. The central bank's move is intended to encourage banks to make loans and to reduce potential end-of-year tensions, The Wall Street Journal reported in its online edition. It is the second time in the bank's nine-year history and the second time since August, when overnight-lending rates peaked on fears of European exposure to U.S. subprime mortgage problems, that the bank has made such an offer, according to the report.
Range Resources Corp.will replace Tribune Co.in the S&P 500 index after the close of trading on Thursday, Standard & Poor's said late Monday. Tribune is being taken private in a deal expected to close on or about that date, pending final approvals.
The Dow has lost 560 points in the last five trading sessions.
Russia delivered nuclear fuel for an Iranian power plant that is at the center of the dispute over Iran’s nuclear program.
Barbara Ehrenreich: “A free-enterprise economy depends only on markets, and according to the most advanced mathematical macroeconomic theory, markets depend only on moods: specifically, the mood of the men in the pinstripes, also known as the Boys on the Street. When the Boys are in a good mood, the market thrives; when they get scared or sullen, it is time for each one of us to look into the retail apple business.”
Sunday, December 16, 2007
90% Odds
12/17/07 90% Odds
Ford Motor Co is poised to name India's Tata Motors as preferred bidder for its Jaguar and Land Rover brands, Britain's Sunday Times newspaper reported.
Two offers for ailing airline Alitalia under serious consideration by Italy are both well below market price with that of domestic minnow Air One just one euro cent per share, a source close to the talks said on Friday. Air France-KLM has bid 35 euro cents per share, the source added -- giving the carrier a value of about 485 million euros ($712.4 million), less than half its market worth. Alitalia also carries about 1.2 billion euros of debt.
Airbus plans to agree in the coming week to sell four of its European factories to U.S. group Spirit AeroSystems Holdings , a German newspaper reported on Saturday.The Internet edition of the Frankfurter Allgemeine Sonntagszeitung reported that Airbus chief Tom Enders believed it was possible the company could decide by next Friday to sell three plants in Germany and one in Britain to Spirit.
According to a report released by the International Energy Agency, Iraq is producing 2.3 million barrels of oil a day, up from 1.9 million at the outbreak of war in 2003 and substantially higher than January this year, when it dipped to a low of 1.7 million barrels. It is estimated that there have been nearly 500 attacks on oil-related targets since 2003. The current rise is due to increased production in the north, where the oil is exported to Turkey. The south of Iraq provides the mainstay of its oil exports, running at about two million barrels a day.
Laura Tyson: "The economy faces a vicious downward spiral of foreclosures, declining property values and mounting losses on mortgage-backed securities and related financial assets. The resetting of interest rates on more than 2 million subprime loans will prompt a large number of foreclosures, perhaps a million a year in both 2008 and 2009. These huge waves of foreclosures will depress the price of residential real estate still further. Plummeting real estate values and escalating foreclosures will cause further losses on mortgage-related securities and will further burden American consumers already dealing with higher energy prices and substantial debt. Given the dampening effects of these developments on both consumption and investment spending, it is increasingly likely that the economy will slip into recession next year. The Federal Reserve should continue to cut interest rates and to experiment with new ways to pump liquidity into the financial system."
Abraham Lincoln: "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
Tim Wood: "The primary bear market confirmation that occurred on November 21st when the Industrials confirmed the Transport's break below the August closing low remains in place in spite of the recent rally. In fact, the rally that began out of the November 26th low was anticipated and I stated before this rally began that it was going to cause many to question the integrity surrounding the November 21st Dow Theory primary bear market confirmation. That has definitely proven correct...As I read the averages the last primary bearish trend change in which the averages forecasted stormy conditions occurred on February 25, 2000 and following that confirmed primary trend change the Industrials ultimately fell by over 27% from that date and by over 37% from their January 2000 closing high. According to Richard Russell's read of the Dow theory at that time, the primary trend change occurred on September 23, 1999, which was prior to a final unconfirmed push to new highs by the Industrials. In either case, regardless of whether the last bearish primary trend change occurred on September 23, 1999 or on February 25, 2000, the outcome ultimately ended very badly...As for the current case, it is my read that a primary trend change occurred on November 21, 2007 and I have spoken with Richard Russell in regard to this matter and he too agrees with this assessment. In my December newsletter I examined every primary bearish primary trend change since 1896. I cannot share all of these details here, but I will tell you that of the 30 previous bearish primary trend changes only 3 were "false." When I say false, I mean that nothing material develop following the trend change. However, the remaining 27 primary bearish tend changes were meaningful. Thus, history has proven that 90% of the primary bearish trend changes since 1896 were indeed worth respecting. I for one will not bet against 90% odds...It is my opinion we are already in a recession and the Dow theory is confirming it. Of course it seems that few believe the Dow theory. In any event, you have been warned."
Daily Reckoning: "Let's get this straight. China holds the price of fuel down so that its factories can continue making cheap products for the United States. The United States, meanwhile, prints dollars so that its consumers can continue buying cheap products from China. Then, China accumulates dollars - its trade surplus is nearly a quarter of a trillion this year. Then what happens? What do they do with the money? Ah, this is where it gets interesting. There's a new trend in global finance. Both the exporters - like China - and the oil producers - such as Saudi Arabia - have to figure out what to do with the loot. They need to find a way to use it without destroying its value. So, they are creating their own Sovereign Wealth Funds."
Brett Steenbarger: "Small caps and value are behaving as though we're in the midst of a bear market. Large caps and growth act more in a corrective mode. As the odds of recession have grown and credit concerns have not diminished, large cap growth has been a haven for those seeking stability and earnings. Even in the last week, the loss in large cap growth was less than half that in small cap value. Such a defensive mindset does not speak well for overall market sentiment."
Personal spending in the U.S. probably rose in November by the most in 10 months, fueled by income gains that will help the economy weather a deepening slump in homebuilding, economists said reports this week may show. A 0.7 percent rise in purchases would follow a 0.2 percent October increase, according to the median estimate of economists surveyed by Bloomberg News ahead of the Commerce Department's Dec. 21 report. A separate Commerce report may show builders broke ground last month on the fewest houses in 14 years.
James Bovard: "With attention deficit democracy, I am trying to wake up people to how the combination of mass ignorance, fear mongering by the government, and lying politicians is putting our entire system of government to a death
spiral."
Ford Motor Co is poised to name India's Tata Motors as preferred bidder for its Jaguar and Land Rover brands, Britain's Sunday Times newspaper reported.
Two offers for ailing airline Alitalia under serious consideration by Italy are both well below market price with that of domestic minnow Air One just one euro cent per share, a source close to the talks said on Friday. Air France-KLM has bid 35 euro cents per share, the source added -- giving the carrier a value of about 485 million euros ($712.4 million), less than half its market worth. Alitalia also carries about 1.2 billion euros of debt.
Airbus plans to agree in the coming week to sell four of its European factories to U.S. group Spirit AeroSystems Holdings , a German newspaper reported on Saturday.The Internet edition of the Frankfurter Allgemeine Sonntagszeitung reported that Airbus chief Tom Enders believed it was possible the company could decide by next Friday to sell three plants in Germany and one in Britain to Spirit.
According to a report released by the International Energy Agency, Iraq is producing 2.3 million barrels of oil a day, up from 1.9 million at the outbreak of war in 2003 and substantially higher than January this year, when it dipped to a low of 1.7 million barrels. It is estimated that there have been nearly 500 attacks on oil-related targets since 2003. The current rise is due to increased production in the north, where the oil is exported to Turkey. The south of Iraq provides the mainstay of its oil exports, running at about two million barrels a day.
Laura Tyson: "The economy faces a vicious downward spiral of foreclosures, declining property values and mounting losses on mortgage-backed securities and related financial assets. The resetting of interest rates on more than 2 million subprime loans will prompt a large number of foreclosures, perhaps a million a year in both 2008 and 2009. These huge waves of foreclosures will depress the price of residential real estate still further. Plummeting real estate values and escalating foreclosures will cause further losses on mortgage-related securities and will further burden American consumers already dealing with higher energy prices and substantial debt. Given the dampening effects of these developments on both consumption and investment spending, it is increasingly likely that the economy will slip into recession next year. The Federal Reserve should continue to cut interest rates and to experiment with new ways to pump liquidity into the financial system."
Abraham Lincoln: "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."
Tim Wood: "The primary bear market confirmation that occurred on November 21st when the Industrials confirmed the Transport's break below the August closing low remains in place in spite of the recent rally. In fact, the rally that began out of the November 26th low was anticipated and I stated before this rally began that it was going to cause many to question the integrity surrounding the November 21st Dow Theory primary bear market confirmation. That has definitely proven correct...As I read the averages the last primary bearish trend change in which the averages forecasted stormy conditions occurred on February 25, 2000 and following that confirmed primary trend change the Industrials ultimately fell by over 27% from that date and by over 37% from their January 2000 closing high. According to Richard Russell's read of the Dow theory at that time, the primary trend change occurred on September 23, 1999, which was prior to a final unconfirmed push to new highs by the Industrials. In either case, regardless of whether the last bearish primary trend change occurred on September 23, 1999 or on February 25, 2000, the outcome ultimately ended very badly...As for the current case, it is my read that a primary trend change occurred on November 21, 2007 and I have spoken with Richard Russell in regard to this matter and he too agrees with this assessment. In my December newsletter I examined every primary bearish primary trend change since 1896. I cannot share all of these details here, but I will tell you that of the 30 previous bearish primary trend changes only 3 were "false." When I say false, I mean that nothing material develop following the trend change. However, the remaining 27 primary bearish tend changes were meaningful. Thus, history has proven that 90% of the primary bearish trend changes since 1896 were indeed worth respecting. I for one will not bet against 90% odds...It is my opinion we are already in a recession and the Dow theory is confirming it. Of course it seems that few believe the Dow theory. In any event, you have been warned."
Daily Reckoning: "Let's get this straight. China holds the price of fuel down so that its factories can continue making cheap products for the United States. The United States, meanwhile, prints dollars so that its consumers can continue buying cheap products from China. Then, China accumulates dollars - its trade surplus is nearly a quarter of a trillion this year. Then what happens? What do they do with the money? Ah, this is where it gets interesting. There's a new trend in global finance. Both the exporters - like China - and the oil producers - such as Saudi Arabia - have to figure out what to do with the loot. They need to find a way to use it without destroying its value. So, they are creating their own Sovereign Wealth Funds."
Brett Steenbarger: "Small caps and value are behaving as though we're in the midst of a bear market. Large caps and growth act more in a corrective mode. As the odds of recession have grown and credit concerns have not diminished, large cap growth has been a haven for those seeking stability and earnings. Even in the last week, the loss in large cap growth was less than half that in small cap value. Such a defensive mindset does not speak well for overall market sentiment."
Personal spending in the U.S. probably rose in November by the most in 10 months, fueled by income gains that will help the economy weather a deepening slump in homebuilding, economists said reports this week may show. A 0.7 percent rise in purchases would follow a 0.2 percent October increase, according to the median estimate of economists surveyed by Bloomberg News ahead of the Commerce Department's Dec. 21 report. A separate Commerce report may show builders broke ground last month on the fewest houses in 14 years.
James Bovard: "With attention deficit democracy, I am trying to wake up people to how the combination of mass ignorance, fear mongering by the government, and lying politicians is putting our entire system of government to a death
spiral."
Saturday, December 15, 2007
The Needed Adjustment Period
12/16/07 The Needed Adjustment Period
Andrew Bary: "Berkshire Hathaway looks overpriced, even after factoring in the legendary talents of its CEO. For better value, consider AIG and Wells Fargo."
In my view, that's comparing apples to oranges. There are some similarities, but many differences.
Here's an interesting comparison. Three-month Treasury bill rates fell 18 bps this week to 2.87%. Meanwhile, 30-year Treasury bond yields rose to 4.66%.
Doug Noland: "This week the market came face-to-face with the reality that inflation is not only a major issue; inflation is in the process of significantly limiting the Fed’s flexibility and capacity to orchestrate another Wall Street bailout...Last week’s Z.1 “flow of funds” data go far in illuminating today’s Market and Federal Reserve Dilemma: The enormous scope of Credit expansion necessary to sustain Wall Street’s bloated securities markets – to keep the contemporary Credit mechanisms generally liquid and functioning – has become patently inflationary for the system overall... inflationary policies ensured the interrelated operations of Wall Street’s asset-based lending, securitization, and leveraged securities speculation ballooned in unimaginable excess. Resulting Monetary Disorder saw wildly destabilizing price inflation and distortion, especially in housing, securities and asset markets generally. U.S. CPI may have remained tame, but massive Credit-induced Current Account Deficits and the depreciating dollar set in motion Credit and asset Bubble dynamics in economies around the globe...First of all, “money-like” financial sector liabilities (i.e. agencies, “repos”, and bank/money fund deposits) are proving thus far sufficient to sustain Bubble economy excesses. Second, the global recycling of ongoing massive Current Account Deficits and speculative outflows ensures over-liquefied markets (and artificially low interest rates!) for key debt instruments, certainly including Treasuries, agencies and other perceived low-risk securities. Bubble dynamics proliferate in the face of a Wall Street bust...The extreme divergence in liquidity conditions between bursting Bubbles in Wall Street finance and still rapidly inflating Bubbles in “money-like” Financial Sector Liabilities poses both a major quandary and policy dilemma...The outcry for an audacious policy response to avert a recession is misguided. Importantly, today’s rampant Financial Sector expansion is unsustainable. There are today acute inflationary risks to go with major financial system stability issues. While the dislocation will be substantial, the sooner the Bubble in Financial Credit is reined in the better. We are today in the midst of dangerous “blow-off” excesses in “money-like” Financial Sector liability issuance. Few seem to appreciate that such a circumstance places the stability of the “bedrock” of the entire U.S. and global financial system at considerable risk. Wall Street is clamoring for a rate collapse and bold inflation in “money” to bailout its faltering securitization markets. At this point, this would equate to throwing massive (relatively) good “money” after bad - ensuring that a dreadful situation festers into a historic calamity. The least bad course for central bank policymaking would be to hold the line on rates, while injecting liquidity as necessary as part of a program to check Credit excess and permit the economy to commence its desperately needed adjustment period."
Floyd Norris: "The rate of increase in imports has begun to decline, and is now at its lowest level since 2002, when the economy was only slowly emerging from a recession. At the same time, export growth has remained strong, thanks to a buoyant world economy and a weaker dollar that has made American goods seem cheaper to overseas buyers. From August through October, the most recently reported three months, the quantity of American imports, adjusted for inflation, was up just 1.1 percent from the same period of 2006. Over the same period, the volume of exports was up by 9.6 percent."
Peter Schiff: "This week's announcement by the Fed that it will create a new mechanism to provide funding for credit challenged banks has been lauded by Wall Street as an innovative approach to solving the credit crisis. In truth, it is really just the same response the Fed has had for all problems great and small: crank up the printing presses, shower money on the problem, and hope that financial pain can be obscured by the balm of inflation. Both the Fed and Washington politicians are completely clueless regarding the ill effects of the plan, and are simply acting in desperation to keep a ticking time bomb from exploding before the next election."
Nouriel Roubini: "The current global financial crisis is due to insolvency on top of illiquidity and due to fundamental problems in a world of financial globalization; and monetary policy easing will not – in my view – avoid a hard landing of the US economy and a sharp slowdown of global economic growth. Notice that the analysis that this is a financial crisis of insolvency - not just illiquidity is shared by very distinguished commentators such as Martin Wolf, Paul Krugman and George Magnus.
While aggressive monetary policy easing will not prevent a hard landing – as it did not prevent one in 2001 – the length and depth of an economic downturn is affected by monetary policy. And it is both the duty and responsibility of central banks to reduce partly avoidable severe economic downturn that lead to massive losses of jobs, welfare and incomes. The job of a central bank is not to bail out the financial system and/or investors but that of bailing out the real economy. Having millions of workers lose their jobs only to teach a lesson to reckless investors and lenders on Wall Street and the City does not make sense."
Paul Krugman: "The problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency."
IBM revealed Friday that it now has 73,000 employees in India, almost a 40 percent leap from last year. In essence, about 20% of IBM's total workforce is now in India.
Single family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service. Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty Web site, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes."There's a real 'Wow' factor here for Canadians," said Morielli, who now lives in Phoenix. "When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now." Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the American housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors. This is the result of the Canadian dollar reaching parity with the U.S. dollar for the first time since 1976. Foreign buyers will find values in U.S. housing-- especially at sharply reduced prices when the purchaser does not have a financing contingency.
George Ure points out that there is a maximum order size of $1000.00 that can be purchased within a 14-day period with respect to American Express Travelers Cheques. Why would that be?
Dow Jones Newswires: "While all the oil majors have been raising their capital budgets in recent years, the most dramatic mover has been Chevron Corp. (CVX), which spent $8.3 billion in 2004. The California company last week announced it would spend $22.9 billion next year, up 15% from this year's level. The increase, company officials note, reflects that Chevron has hit the spending phase of a multi-year campaign to build capacity. Chevron now has about 30 projects of $1 billion or more under development, whereas five years ago it had fewer than 10 that size. In 2008, Chevron expects major new production to come on line from the Gulf of Mexico, Nigeria and Kazakhstan that will enable the company to average 3% long-term annual production growth. But Chevron's spending ramp-up - a more extreme version of an industry-wide trend - also is a sign of the company's comparatively bullish outlook for commodity prices, analysts said. That philosophy marks an extension of the outlook that led Chevron to spend $17.5 billion to acquire Unocal Corp. in 2005, when energy prices were above historic norms - but below today's levels. While declining to disclose Chevron's long-term price assumptions, Chevron Chief Economist Edgard Habib expressed confidence in the second-largest U.S. oil company's ability to fund a 2008 capital budget that he concedes is "hefty." "I can tell you Chevron is confident of its ability to exercise this budget," Habib said Wednesday on the sidelines of a Houston energy conference. "There is a lot of confidence behind it."
The IEA said global demand will rise by 2.1 million barrels per day (bpd) next year, up 200,000 bpd from its previous forecast. "A lot of this demand is in the non-OECD countries, where we don't have any downgrades in economic growth forecasts," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.
John Mauldin: "We are now seeing a de-leveraging that is unprecedented in the modern era. This is increasing risk premiums (which I think is good), but it is also deflating the total money supply. We are seeing two bubbles, the housing market and the credit markets, deflate before our eyes.
These are two hugely deflationary forces that if not checked could be very troublesome."
The amount of equity homeowners hold is equal to the percentage of a home's market value minus mortgage-related debt, and this figure fell to an average of 50.4% at the end of the third quarter, down from 62% at the end of 1990, even as the average home value surged, the Federal Reserve reported.
Walter Benjamin: “The adjustment of reality to the masses and of the masses to reality is a process of unlimited scope, as much for thinking as for perception.”
Andrew Bary: "Berkshire Hathaway looks overpriced, even after factoring in the legendary talents of its CEO. For better value, consider AIG and Wells Fargo."
In my view, that's comparing apples to oranges. There are some similarities, but many differences.
Here's an interesting comparison. Three-month Treasury bill rates fell 18 bps this week to 2.87%. Meanwhile, 30-year Treasury bond yields rose to 4.66%.
Doug Noland: "This week the market came face-to-face with the reality that inflation is not only a major issue; inflation is in the process of significantly limiting the Fed’s flexibility and capacity to orchestrate another Wall Street bailout...Last week’s Z.1 “flow of funds” data go far in illuminating today’s Market and Federal Reserve Dilemma: The enormous scope of Credit expansion necessary to sustain Wall Street’s bloated securities markets – to keep the contemporary Credit mechanisms generally liquid and functioning – has become patently inflationary for the system overall... inflationary policies ensured the interrelated operations of Wall Street’s asset-based lending, securitization, and leveraged securities speculation ballooned in unimaginable excess. Resulting Monetary Disorder saw wildly destabilizing price inflation and distortion, especially in housing, securities and asset markets generally. U.S. CPI may have remained tame, but massive Credit-induced Current Account Deficits and the depreciating dollar set in motion Credit and asset Bubble dynamics in economies around the globe...First of all, “money-like” financial sector liabilities (i.e. agencies, “repos”, and bank/money fund deposits) are proving thus far sufficient to sustain Bubble economy excesses. Second, the global recycling of ongoing massive Current Account Deficits and speculative outflows ensures over-liquefied markets (and artificially low interest rates!) for key debt instruments, certainly including Treasuries, agencies and other perceived low-risk securities. Bubble dynamics proliferate in the face of a Wall Street bust...The extreme divergence in liquidity conditions between bursting Bubbles in Wall Street finance and still rapidly inflating Bubbles in “money-like” Financial Sector Liabilities poses both a major quandary and policy dilemma...The outcry for an audacious policy response to avert a recession is misguided. Importantly, today’s rampant Financial Sector expansion is unsustainable. There are today acute inflationary risks to go with major financial system stability issues. While the dislocation will be substantial, the sooner the Bubble in Financial Credit is reined in the better. We are today in the midst of dangerous “blow-off” excesses in “money-like” Financial Sector liability issuance. Few seem to appreciate that such a circumstance places the stability of the “bedrock” of the entire U.S. and global financial system at considerable risk. Wall Street is clamoring for a rate collapse and bold inflation in “money” to bailout its faltering securitization markets. At this point, this would equate to throwing massive (relatively) good “money” after bad - ensuring that a dreadful situation festers into a historic calamity. The least bad course for central bank policymaking would be to hold the line on rates, while injecting liquidity as necessary as part of a program to check Credit excess and permit the economy to commence its desperately needed adjustment period."
Floyd Norris: "The rate of increase in imports has begun to decline, and is now at its lowest level since 2002, when the economy was only slowly emerging from a recession. At the same time, export growth has remained strong, thanks to a buoyant world economy and a weaker dollar that has made American goods seem cheaper to overseas buyers. From August through October, the most recently reported three months, the quantity of American imports, adjusted for inflation, was up just 1.1 percent from the same period of 2006. Over the same period, the volume of exports was up by 9.6 percent."
Peter Schiff: "This week's announcement by the Fed that it will create a new mechanism to provide funding for credit challenged banks has been lauded by Wall Street as an innovative approach to solving the credit crisis. In truth, it is really just the same response the Fed has had for all problems great and small: crank up the printing presses, shower money on the problem, and hope that financial pain can be obscured by the balm of inflation. Both the Fed and Washington politicians are completely clueless regarding the ill effects of the plan, and are simply acting in desperation to keep a ticking time bomb from exploding before the next election."
Nouriel Roubini: "The current global financial crisis is due to insolvency on top of illiquidity and due to fundamental problems in a world of financial globalization; and monetary policy easing will not – in my view – avoid a hard landing of the US economy and a sharp slowdown of global economic growth. Notice that the analysis that this is a financial crisis of insolvency - not just illiquidity is shared by very distinguished commentators such as Martin Wolf, Paul Krugman and George Magnus.
While aggressive monetary policy easing will not prevent a hard landing – as it did not prevent one in 2001 – the length and depth of an economic downturn is affected by monetary policy. And it is both the duty and responsibility of central banks to reduce partly avoidable severe economic downturn that lead to massive losses of jobs, welfare and incomes. The job of a central bank is not to bail out the financial system and/or investors but that of bailing out the real economy. Having millions of workers lose their jobs only to teach a lesson to reckless investors and lenders on Wall Street and the City does not make sense."
Paul Krugman: "The problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency."
IBM revealed Friday that it now has 73,000 employees in India, almost a 40 percent leap from last year. In essence, about 20% of IBM's total workforce is now in India.
Single family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service. Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty Web site, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes."There's a real 'Wow' factor here for Canadians," said Morielli, who now lives in Phoenix. "When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now." Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the American housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors. This is the result of the Canadian dollar reaching parity with the U.S. dollar for the first time since 1976. Foreign buyers will find values in U.S. housing-- especially at sharply reduced prices when the purchaser does not have a financing contingency.
George Ure points out that there is a maximum order size of $1000.00 that can be purchased within a 14-day period with respect to American Express Travelers Cheques. Why would that be?
Dow Jones Newswires: "While all the oil majors have been raising their capital budgets in recent years, the most dramatic mover has been Chevron Corp. (CVX), which spent $8.3 billion in 2004. The California company last week announced it would spend $22.9 billion next year, up 15% from this year's level. The increase, company officials note, reflects that Chevron has hit the spending phase of a multi-year campaign to build capacity. Chevron now has about 30 projects of $1 billion or more under development, whereas five years ago it had fewer than 10 that size. In 2008, Chevron expects major new production to come on line from the Gulf of Mexico, Nigeria and Kazakhstan that will enable the company to average 3% long-term annual production growth. But Chevron's spending ramp-up - a more extreme version of an industry-wide trend - also is a sign of the company's comparatively bullish outlook for commodity prices, analysts said. That philosophy marks an extension of the outlook that led Chevron to spend $17.5 billion to acquire Unocal Corp. in 2005, when energy prices were above historic norms - but below today's levels. While declining to disclose Chevron's long-term price assumptions, Chevron Chief Economist Edgard Habib expressed confidence in the second-largest U.S. oil company's ability to fund a 2008 capital budget that he concedes is "hefty." "I can tell you Chevron is confident of its ability to exercise this budget," Habib said Wednesday on the sidelines of a Houston energy conference. "There is a lot of confidence behind it."
The IEA said global demand will rise by 2.1 million barrels per day (bpd) next year, up 200,000 bpd from its previous forecast. "A lot of this demand is in the non-OECD countries, where we don't have any downgrades in economic growth forecasts," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.
John Mauldin: "We are now seeing a de-leveraging that is unprecedented in the modern era. This is increasing risk premiums (which I think is good), but it is also deflating the total money supply. We are seeing two bubbles, the housing market and the credit markets, deflate before our eyes.
These are two hugely deflationary forces that if not checked could be very troublesome."
The amount of equity homeowners hold is equal to the percentage of a home's market value minus mortgage-related debt, and this figure fell to an average of 50.4% at the end of the third quarter, down from 62% at the end of 1990, even as the average home value surged, the Federal Reserve reported.
Walter Benjamin: “The adjustment of reality to the masses and of the masses to reality is a process of unlimited scope, as much for thinking as for perception.”
Developments
12/15/07 Developments
Barry Ritholtz: "Advertisers are well on the way to spend $21.4 billion on the Internet in 2007, says eMarketer’s new online ad spending report. By 2011, spending on advertisements online is expected to reach $42 billion. One big trend is that the nation’s largest advertisers are shifting more of their budgets from traditional media to the Internet, according to eMarketer’s calculations."
Citigroup Inc.will take $49 billion of assets from structured investment vehicles (SIVs) it advises onto its balance sheet. The bank said it's committed to supporting the SIVs to resolve concerns about the vehicles' ability to repay debt. "Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Vikram Pandit, Citi's new chief executive, said in a statement.
Business sentiment of large Japanese manufacturers was worse than expected during the quarter that ends December 31, and was forecast to deteriorate further in the coming quarter, according to the result of a survey released by the Bank of Japan Friday. The central bank's quarterly tankan survey showed sentiment, as measured by the diffusion index, of large manufacturers dropped to plus 19, as compared with plus 23 at the end of the previous quarter.
Palm, which has a worldwide staff of 1,150, is eliminating more than 100 jobs. The person spoke with Business Week on condition of anonymity because Palm did not publicly disclose the number of layoffs.
Euro area inflation was 3.1% in November, up from 2.6% in October, final data from the Eurostat statistics body showed Friday. Last year, inflation was 1.9%.
The International Energy Agency revised down its forecast for global oil product demand in 2007 by 60,000 barrels a day to an average of 88.7 million barrels a day in its oil market report on Friday. However, the agency revised up its demand forecast for 2008 by 115,000 barrels a day to 87.8 million barrels a day following a reappraisal of ethane prospects in the Middle East. November world oil supply rose 55,000 barrels a day to 86.5 million barrels a day as output recovery in Mexico, China and Brazil offset lower OPEC supply. OPEC crude supply averaged 31.1 million barrels a day, down 180,000 barrels a day from October.
OPEC said on Friday there were risks an economic slowdown could worsen in 2008 and forecast that weaker growth and easing political tension could take the heat out of near-record oil prices. OPEC, in its December Monthly Oil Market Report, estimated world economies will grow by 4.8 percent next year, down from 5.2 percent in 2007, and said there were "considerable downside risks" to the outlook.
ComScore Inc. said Internet holiday retails sales are growing at the slowest pace on record. Online sales in November and December may rise 20 percent, a record low for the industry, and slower than the 26 percent pace a year earlier.
Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent in 2008, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.``We're only halfway through the housing shock,'' said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth-biggest U.S. securities firm by market value. ``It's just a matter of time before the weakness spreads to the rest of the economy.''
Rep. Ron Paul: " Even those Americans who receive a higher nominal amount in transfer payments than they pay in income taxes suffer from Big Government. Their standard of living is eroded by inflation, their wages are garnished by income and payroll taxes, their civil liberties are under constant assault, and their economic prospects are limited because of the drag the welfare-warfare state places on the economy. Furthermore, unless we reverse course quickly, future generations will suffer a declining standard of living and loss of liberty. Thus, I expect many Americans to vote for me not only out of concern for their own well-being, but out of concern for their children."
The Oil Drum: "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.7 million barrels compared to the previous week. At 304.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.6 million barrels last week, but are near the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories decreased by 0.8 million barrels, but are in the lower half of the average range for this time of year."
The American Chamber of Commerce in Shanghai says that rising prices for doing business in China may be driving companies to move business to India and Vietnam.
According to Bloomberg, Tiffany, Nordstrom and Coach may see December sales growth slow in what the National Retail Federation is predicting will be the worst U.S. holiday shopping season since 2002. Retailers that cater to America's richest consumers are losing their least-affluent customers — those who buy jewelry and designer scarves only when flush with cash — during the biggest selling season of the year. Falling home values are discouraging purchases in the fourth quarter, a period that accounts for a third of retailers' annual earnings, according to the International Council of Shopping Centers. Neiman Marcus said it faces "somewhat challenging" client demand. The average annual household income of luxury shoppers, says Citigroup analyst Deborah Weinswig, ranges from $100,000 at Nordstrom to $250,000 at Neiman Marcus.
Credit Suisse Group lowered its 2008 forecast for U.S. natural gas prices because an investment boom will create excess gas supply. The forecast for Henry Hub gas futures on the New York Mercantile Exchange was lowered by 10 percent to $6.75 per million British thermal units, from $7.50, Credit Suisse analysts including Jonathan Wolff in New York said in the report today. The change reflects ``an imbalanced market that appears poised for continued weakness without a reduction in U.S. onshore supply growth,'' the report said.
U.S. consumer prices jumped a bigger-than-expected 0.8 percent in November, the sharpest climb in more than two years and driven by surging energy costs, a government report released on Friday showed. Core prices, which strip out volatile food and energy costs, were up 0.3 percent, the biggest jump since the same increase in January. Consumer prices were also 4.3 percent higher than a year ago, the steepest increase since a matching gain in June 2006. One might ask whether your income after all taxes has matched the 4.3% gain in consumer prices. If not, then your standard of living has gone down. That should not come as a surprise. Take it a step further. Has your quality of life gone down in 2007?
Real average weekly earnings fell by 0.4 percent from October to November
after seasonal adjustment, according to preliminary data released today by the
Bureau of Labor Statistics of the U.S. Department of Labor. A 0.5 percent
increase in average hourly earnings was more than offset by a 0.9 percent
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). Average weekly hours were unchanged.
Here's an example of what's wrong in corporate America: "For fiscal year 2008, bonus targets for our executive officers will be based on corporate performance, specifically earnings per share objectives. Cash bonus awards are based on a percentage of a participant's December 1st base salary. There are three bonus award levels for each executive officer: entry level (minimum), expected value (target) and over achievement. Each level represents the percentage of base salary that the executive officer will receive as a bonus if that particular bonus award level is met for the fiscal year... If we fail to meet the entry-level earnings per share objective, no bonus will be paid." In 2007, the objective for earnings per share was not met. The shares have declined 30% in value. Despite that fact, stock awards were provided, at no cost, to top management personnel. I feel confident that this type of Board of Directors lack of oversight exists all over corporate America. It's no wonder our ability to compete, or lack of, outside of our borders has been on the decline for years.
A powerful nor'easter may bring more than a foot (0.3 meter) of snow tomorrow evening from central New York to northwestern Maine and flooding in the northern mid- Atlantic and the Interstate 95 corridor.
More than one in five U.S. homeowners expect their home to fall in value in the coming year, a Reuters-University of Michigan consumer survey said on Friday
Cotton acreage is falling sharply in California, down 50 percent in just the last seven years, as California farmers switch to more profitable crops.
Over the past week or so we have seen a big rally in the U.S. Dollar Index. It had broken 75 on the downside and on Friday rose to 77.39, a meaningful display of strength in a bear market. As such, gold had a bad week or so and the yield on treasury bonds rose considerably with the 10-year at 4.25% and the 30-year at 4.66%. In sum, the dollar advanced the most against the euro since June 2004 after the biggest increase in consumer inflation in two years prompted traders to pare expectations for interest-rate reductions. The U.S. currency has risen 1.5 percent against the euro over the past five days, the biggest weekly increase since August. If you are wondering whether a threat of inflation will stop rate cuts, don't fret. It won't.
Starbucks made a new 52-week low on Friday and is approaching the $21 level or 20 times the estimated earnings for 2008. Given the international growth prospects for the company and the high return on equity, giving some shares as a present for holidays could prove rewarding for the recipient. At $21, I prefer the stock to the gift card.
Albert L. Lord, chairman of student-loan giant SLM Corp., commonly known as Sallie Mae, sold 1.2 million shares of the company, or more than 90% of his stock in the company. Friday, the company said the sale was "required under Mr. Lord's borrowing arrangements," suggesting Mr. Lord had borrowed against his stockholdings and faced a margin call as the value of his holdings declined.
Barry Ritholtz: "Advertisers are well on the way to spend $21.4 billion on the Internet in 2007, says eMarketer’s new online ad spending report. By 2011, spending on advertisements online is expected to reach $42 billion. One big trend is that the nation’s largest advertisers are shifting more of their budgets from traditional media to the Internet, according to eMarketer’s calculations."
Citigroup Inc.will take $49 billion of assets from structured investment vehicles (SIVs) it advises onto its balance sheet. The bank said it's committed to supporting the SIVs to resolve concerns about the vehicles' ability to repay debt. "Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Vikram Pandit, Citi's new chief executive, said in a statement.
Business sentiment of large Japanese manufacturers was worse than expected during the quarter that ends December 31, and was forecast to deteriorate further in the coming quarter, according to the result of a survey released by the Bank of Japan Friday. The central bank's quarterly tankan survey showed sentiment, as measured by the diffusion index, of large manufacturers dropped to plus 19, as compared with plus 23 at the end of the previous quarter.
Palm, which has a worldwide staff of 1,150, is eliminating more than 100 jobs. The person spoke with Business Week on condition of anonymity because Palm did not publicly disclose the number of layoffs.
Euro area inflation was 3.1% in November, up from 2.6% in October, final data from the Eurostat statistics body showed Friday. Last year, inflation was 1.9%.
The International Energy Agency revised down its forecast for global oil product demand in 2007 by 60,000 barrels a day to an average of 88.7 million barrels a day in its oil market report on Friday. However, the agency revised up its demand forecast for 2008 by 115,000 barrels a day to 87.8 million barrels a day following a reappraisal of ethane prospects in the Middle East. November world oil supply rose 55,000 barrels a day to 86.5 million barrels a day as output recovery in Mexico, China and Brazil offset lower OPEC supply. OPEC crude supply averaged 31.1 million barrels a day, down 180,000 barrels a day from October.
OPEC said on Friday there were risks an economic slowdown could worsen in 2008 and forecast that weaker growth and easing political tension could take the heat out of near-record oil prices. OPEC, in its December Monthly Oil Market Report, estimated world economies will grow by 4.8 percent next year, down from 5.2 percent in 2007, and said there were "considerable downside risks" to the outlook.
ComScore Inc. said Internet holiday retails sales are growing at the slowest pace on record. Online sales in November and December may rise 20 percent, a record low for the industry, and slower than the 26 percent pace a year earlier.
Existing home sales will drop 12 percent and existing home prices will fall 4.5 percent in 2008, Washington-based Fannie Mae says. Lehman analysts estimate almost 1 million mortgage loans will default in 2008, up from about 300,000 this year.``We're only halfway through the housing shock,'' said Ethan Harris, chief U.S. economist at New York-based Lehman, the fourth-biggest U.S. securities firm by market value. ``It's just a matter of time before the weakness spreads to the rest of the economy.''
Rep. Ron Paul: " Even those Americans who receive a higher nominal amount in transfer payments than they pay in income taxes suffer from Big Government. Their standard of living is eroded by inflation, their wages are garnished by income and payroll taxes, their civil liberties are under constant assault, and their economic prospects are limited because of the drag the welfare-warfare state places on the economy. Furthermore, unless we reverse course quickly, future generations will suffer a declining standard of living and loss of liberty. Thus, I expect many Americans to vote for me not only out of concern for their own well-being, but out of concern for their children."
The Oil Drum: "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.7 million barrels compared to the previous week. At 304.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.6 million barrels last week, but are near the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories decreased by 0.8 million barrels, but are in the lower half of the average range for this time of year."
The American Chamber of Commerce in Shanghai says that rising prices for doing business in China may be driving companies to move business to India and Vietnam.
According to Bloomberg, Tiffany, Nordstrom and Coach may see December sales growth slow in what the National Retail Federation is predicting will be the worst U.S. holiday shopping season since 2002. Retailers that cater to America's richest consumers are losing their least-affluent customers — those who buy jewelry and designer scarves only when flush with cash — during the biggest selling season of the year. Falling home values are discouraging purchases in the fourth quarter, a period that accounts for a third of retailers' annual earnings, according to the International Council of Shopping Centers. Neiman Marcus said it faces "somewhat challenging" client demand. The average annual household income of luxury shoppers, says Citigroup analyst Deborah Weinswig, ranges from $100,000 at Nordstrom to $250,000 at Neiman Marcus.
Credit Suisse Group lowered its 2008 forecast for U.S. natural gas prices because an investment boom will create excess gas supply. The forecast for Henry Hub gas futures on the New York Mercantile Exchange was lowered by 10 percent to $6.75 per million British thermal units, from $7.50, Credit Suisse analysts including Jonathan Wolff in New York said in the report today. The change reflects ``an imbalanced market that appears poised for continued weakness without a reduction in U.S. onshore supply growth,'' the report said.
U.S. consumer prices jumped a bigger-than-expected 0.8 percent in November, the sharpest climb in more than two years and driven by surging energy costs, a government report released on Friday showed. Core prices, which strip out volatile food and energy costs, were up 0.3 percent, the biggest jump since the same increase in January. Consumer prices were also 4.3 percent higher than a year ago, the steepest increase since a matching gain in June 2006. One might ask whether your income after all taxes has matched the 4.3% gain in consumer prices. If not, then your standard of living has gone down. That should not come as a surprise. Take it a step further. Has your quality of life gone down in 2007?
Real average weekly earnings fell by 0.4 percent from October to November
after seasonal adjustment, according to preliminary data released today by the
Bureau of Labor Statistics of the U.S. Department of Labor. A 0.5 percent
increase in average hourly earnings was more than offset by a 0.9 percent
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). Average weekly hours were unchanged.
Here's an example of what's wrong in corporate America: "For fiscal year 2008, bonus targets for our executive officers will be based on corporate performance, specifically earnings per share objectives. Cash bonus awards are based on a percentage of a participant's December 1st base salary. There are three bonus award levels for each executive officer: entry level (minimum), expected value (target) and over achievement. Each level represents the percentage of base salary that the executive officer will receive as a bonus if that particular bonus award level is met for the fiscal year... If we fail to meet the entry-level earnings per share objective, no bonus will be paid." In 2007, the objective for earnings per share was not met. The shares have declined 30% in value. Despite that fact, stock awards were provided, at no cost, to top management personnel. I feel confident that this type of Board of Directors lack of oversight exists all over corporate America. It's no wonder our ability to compete, or lack of, outside of our borders has been on the decline for years.
A powerful nor'easter may bring more than a foot (0.3 meter) of snow tomorrow evening from central New York to northwestern Maine and flooding in the northern mid- Atlantic and the Interstate 95 corridor.
More than one in five U.S. homeowners expect their home to fall in value in the coming year, a Reuters-University of Michigan consumer survey said on Friday
Cotton acreage is falling sharply in California, down 50 percent in just the last seven years, as California farmers switch to more profitable crops.
Over the past week or so we have seen a big rally in the U.S. Dollar Index. It had broken 75 on the downside and on Friday rose to 77.39, a meaningful display of strength in a bear market. As such, gold had a bad week or so and the yield on treasury bonds rose considerably with the 10-year at 4.25% and the 30-year at 4.66%. In sum, the dollar advanced the most against the euro since June 2004 after the biggest increase in consumer inflation in two years prompted traders to pare expectations for interest-rate reductions. The U.S. currency has risen 1.5 percent against the euro over the past five days, the biggest weekly increase since August. If you are wondering whether a threat of inflation will stop rate cuts, don't fret. It won't.
Starbucks made a new 52-week low on Friday and is approaching the $21 level or 20 times the estimated earnings for 2008. Given the international growth prospects for the company and the high return on equity, giving some shares as a present for holidays could prove rewarding for the recipient. At $21, I prefer the stock to the gift card.
Albert L. Lord, chairman of student-loan giant SLM Corp., commonly known as Sallie Mae, sold 1.2 million shares of the company, or more than 90% of his stock in the company. Friday, the company said the sale was "required under Mr. Lord's borrowing arrangements," suggesting Mr. Lord had borrowed against his stockholdings and faced a margin call as the value of his holdings declined.
Thursday, December 13, 2007
Squeeze
12/14/07 Squeeze
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday.Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets.Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
Henry To: "The NYSE Common Stock Only Advance/Decline Line did not confirm the new highs in the Dow Industrials or the S&P 500 in early October - a development that has not occurred since the bull market began in October 2002. In fact, the NYSE CSO A/D Line had already topped out in early July - three months prior to the most recent high. A non-confirmation of the NYSE CSO A/D Line of a new high in either the Dow Industrials or the S&P 500 usually signals selectivity, or in other words, a lack of general buying power. Over the last 50 years, such non-confirmations have always resulted in a correction in the Dow Industrials or the S&P 500 of 12 % or more - and sometimes, much more, such as during the 1973 to 1974 bear market or those fateful two months from late August to late October 1987. In other words, this is a classic warning sign of, at the very least, a more severe-than-normal stock market correction. If this were your typical "10% bull market correction," then in all probability, there would not have been such a flagrant non-confirmation by the NYSE CSO A/D Line...More ominously, the latest uptick in the NYSE CSO A/D line has been rather muted despite the impressive gains in both the Dow Industrials and the S&P 500. Furthermore, this weakness in the A/D line is also confirmed by the weakness in the NYSE CSO A/D Volume Line (which is the cumulative daily differences in NYSE CSO Advancing Volume and NYSE CSO Declining Volume) - suggesting that the most recent rally is very weak from both a breadth and a volume standpoint... Should the Dow Industrials move higher over the next several weeks, and should we continue to see a negative divergence in terms of weak breadth or a lower low in the NYSE CSO A/D line, there is a good chance we would shift to a fully (100%) short position in our DJIA Timing System...Given that the TED spread (The TED spread is defined as the difference between the three-month LIBOR rate and the yield of the three-month Treasury bill, and is usually interpreted as the willingness of banks to lend to high-grade corporate borrowers or fellow banks. ) is now at a 20-year high, and given that the stock market did not get that oversold during the latest decline in late November, my guess is that the major market indices will eventually break their November 26th lows - whether it is later this month or early next year."
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Novartis to cut 2,200 jobs.
Honeywell expects 2008 sales of $36.1 billion to $36.7 billion and earnings of $3.65-$3.80 a share.
Costco Wholesale Corp. reported fiscal first-quarter net income rose 11%, meeting analysts' expectations, on 12% higher sales and 8% higher same-store sales. Earnings for the quarter ended Nov. 25 reached $262 million, or 59 cents a share, from $236.9 million, or 51 cents, in the year-earlier period. Sales reached $15.47 billion from $13.85 billion.
China's value-added industrial production climbed 17.3% in November from a year earlier, easing from a 17.9% gain in October, the National Bureau of Statistics said in a statement.
Countrywide Financial Corp.said Thursday that mortgage loan fundings for the month of November 2007 totaled $23 billion, a 40 percent decline from November 2006. However, total mortgage loan fundings were up 5 percent from the prior month.
Lehman Brothers Q4 earnings $1.54 per share vs $1.72.
U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years. Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said. Meanwhile, U.S. retail sales rose a better-than-expected 1.2% in November, the best gain in six months, the Commerce Department estimated Thursday. Take your pick on retail outlook.
Sam Zell is hopeful that the $8.2 billion deal he's leading to take Tribune Co. private will close Dec. 20.
Responding to a question at the Executives' Club of Chicago luncheon Wednesday about whether there was news about the Tribune deal, Zell responded by saying: "Hopefully it will close next Thursday."
Brett Steenbarger: "By cumulating the volume at offer vs. bid over the course of the day and by cumulating the NYSE TICK values through the course of a market session, we can see how market sentiment is shifting over time.
When we rose sharply yesterday (WED) in response to the Fed announcement of coordinated action, the market looked very bullish. As Rennie Yang observed in his excellent Market Tells newsletter, however, the NYSE TICK action was telling a different story. Relative to the 20-day average, we were actually seeing reduced buying interest. The TICK told us that traders were selling into the strength, which ended up being a great market tell.
Seasonally adjusted initial jobless claims fell 7,000 to 333,000 in the week ended Dec. 8, the government reported Thursday. The four-week moving average for initial jobless claims fell 2,000 to 338,750, according to the Labor Department. Continuing jobless claims increased 38,000 to 2.64 million for the week ended Dec. 1. The four-week moving average for continuing jobless claims rose 18,750 to 2.61 million -- the highest level since early January 2006.
Wholesale prices rose 3.2% in November - the largest change since 3.5% in August 1973 -- as energy price growth hit a new record, the Labor Department reported Thursday. Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Growth in gasoline prices of 34.8% also hit a new record - beating the prior record of 28.8% in April 1999. Food prices had 0.0% growth, compared with a gain of 1.0% in the prior month. Excluding volatile food and energy, the core producer prices grew 0.4%.
Dow Chemical Co. agreed to create a joint petrochemicals venture together with Petrochemical Industries Co. of Kuwait [PCI] in exchange for $9.5 billion. The venture will be split 50/50 between the two companies and will be fully integrated.
Robert McHugh: "In the aftermath of the Fed's decision to only drop short-term rates by a quarter percent, they announced Wednesday that they are going to increase the money supply by 3 percent over the next week. It will be the largest one-time admitted injection since 9/11/01. By loaning it, there will be a velocity of money growth logarithmic impact, meaning M-3 will rise much more than just 3 percent. Hyperinflation to the rescue.
The banks are going to get this money, at below market interest rates, so they can lend it and make a bunch of money. Why? It means the Fed is worried about bank earnings, about bank capital levels, and is going to give them a lay-up to earn billions of losses back. Again, this does nothing for mom and pop, who are getting killed by a dead real estate market, job losses, fixed incomes, a doubling of the cost of living, and debt up to their ears. This will accomplish nothing other than to increase inflation, increase the cost of living. More for Wall Street and nothing for Main Street. This recession requires direct help to Main Street. Another "F" for the Master Planners. Good luck with that."
"Officials forecast US wheat stocks would shrink to their lowest level in 60 years, dropping from 312m bushels to 280m by the end of the 2007-08 crop year. "
Gold for February delivery dropped $14.80 to finish at $804 an ounce on the New York Mercantile Exchange. Silver for March delivery tumbled 58.80 cents, or 4%, to end at $14.237 an ounce.
JetBlue Airways Group Inc.said Thursday Deutsche Lufthansa had agreed to take a 19% equity stake in the New York carrier and get a seat on the board. The German carrier is buying 42 million newly issued common shares of JetBlue in a private placement at a price of $7.27 a share, or a total of about $300 million.
Crude oil for January delivery closed down $2.14, or 2.3%, at $92.25 a barrel on the New York Mercantile Exchange. Natural-gas futures for January delivery erased earlier gains, fell 22.9 cents to $7.179 per million British thermal units. Earlier in the day natural gas had rallied to $7.49 after the U.S. Energy Information Administration reported U.S. inventories fell 146 billion cubic feet to 3,294 billion cubic feet in the week ending Dec. 7. Inventories have fallen 246 billion cubic feet since the week ending Nov. 16, EIA data showed.
Advanced Micro Devices Inc. CFO Bob Rivet said Thursday that the struggling chipmaker will become profitable again in 2008 vowing, "Every business will swing back to the black." The company also said it will spend $1.1 billion on capital expenditures in 2008, down from $1.7 billion in 2007.
John Bogle, the Vanguard founder, just put the chances at 75% that the U.S. is heading for recession during a CNBC interview.
Sun Tzu: "The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim."
Nouriel Roubini: "The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.)."
Rigzone: " Nigeria pumps about 2.1 million barrels a day, or about 2.5% of the world's daily oil needs...Nigeria is beginning the deepest overhaul of its petroleum industry in decades, a move expected to make it tougher for big operators such as Royal Dutch Shell PLC to profit from tapping Africa's biggest oil-producing country... Unlike some other countries, the Nigerian government has no plans to seize private assets...In addition to profit-shaving pressure from rising costs for drilling rigs and raw materials, companies have lost hundreds of millions of dollars in oil revenue in the past two years because of violence in the Niger Delta, where most of the country's oil is produced. The violence has shut about 20% of Nigeria's oil production capacity. Early indications are that once the offshore contracts are renegotiated, profits for companies may end up "at least" 5% to 10% lower, translating into hundreds of millions of dollars over time, according to a senior Nigerian oil official."
Marc Faber: "The decline in volume of freight shipped is also confirmed by the Cass Freight Index, which peaked out in June 2006. According to contraryinvestor.com, Cass Freight Systems is a “freight payable processor” that deals with 1,200 divisions of 400 individual companies representing a broad spectrum of industries; therefore, the company has a very good feel for the flow and character of the US freight industry (part of the decline in the Cass Freight Index since June 2006 may have been due to the decline in energy prices in the second half of last year, but with energy prices now back to peak levels the index has failed to approach its 2006 high. Shipments by Canada’s largest railway, Canadian National Railways, which derives 33% of its revenues from the US, are down 12% year-on-year). In theory, it could be that trucks and railroads are suddenly carrying fewer but higher-value goods, but a more likely explanation is that volumes are down but prices in retail stores are up, which explains the surprisingly strong September retail sales. But even if this were the case, it doesn’t tally entirely with the declining trend in states’ sales tax receipts. In California, September’s sales tax receipts were down 7%, compared to the previous year. One possibility we shouldn’t exclude is that the economic condition of US households has deteriorated to the point where they are curtailing the purchase of discretionary items, which are subject to sales taxes, but increasing the dollar sales of groceries, due to price increases (not because of an increase in volume)."
A plan to establish a fund to prevent banks' potential losses on structured investment vehicles, or SIVs, appears to be losing steam, The Wall Street Journal reported Thursday. The so-called super-SIV fund was conceived by Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co. with the backing of the U.S. Treasury to head off fire sales and SIV losses.
The eurozone’s 21 largest banks hold €244bn (£175bn, $359bn) in off-balance sheet assets that may have to be brought back on to their balance sheets and could trigger a credit squeeze in the wider economy, the European Central Bank warned on Wednesday.Fears that banks could be forced to take these assets on to their books have fuelled the liquidity squeeze.
Interest rates on loans in euros stayed at a seven-year high, a day after central banks in Europe and North America teamed up in an attempt to end gridlock in money markets.Three-month borrowing costs held at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. It averaged 25 basis points in the first half of the year, before U.S. subprime-mortgage losses contaminated money markets.
Henry To: "The NYSE Common Stock Only Advance/Decline Line did not confirm the new highs in the Dow Industrials or the S&P 500 in early October - a development that has not occurred since the bull market began in October 2002. In fact, the NYSE CSO A/D Line had already topped out in early July - three months prior to the most recent high. A non-confirmation of the NYSE CSO A/D Line of a new high in either the Dow Industrials or the S&P 500 usually signals selectivity, or in other words, a lack of general buying power. Over the last 50 years, such non-confirmations have always resulted in a correction in the Dow Industrials or the S&P 500 of 12 % or more - and sometimes, much more, such as during the 1973 to 1974 bear market or those fateful two months from late August to late October 1987. In other words, this is a classic warning sign of, at the very least, a more severe-than-normal stock market correction. If this were your typical "10% bull market correction," then in all probability, there would not have been such a flagrant non-confirmation by the NYSE CSO A/D Line...More ominously, the latest uptick in the NYSE CSO A/D line has been rather muted despite the impressive gains in both the Dow Industrials and the S&P 500. Furthermore, this weakness in the A/D line is also confirmed by the weakness in the NYSE CSO A/D Volume Line (which is the cumulative daily differences in NYSE CSO Advancing Volume and NYSE CSO Declining Volume) - suggesting that the most recent rally is very weak from both a breadth and a volume standpoint... Should the Dow Industrials move higher over the next several weeks, and should we continue to see a negative divergence in terms of weak breadth or a lower low in the NYSE CSO A/D line, there is a good chance we would shift to a fully (100%) short position in our DJIA Timing System...Given that the TED spread (The TED spread is defined as the difference between the three-month LIBOR rate and the yield of the three-month Treasury bill, and is usually interpreted as the willingness of banks to lend to high-grade corporate borrowers or fellow banks. ) is now at a 20-year high, and given that the stock market did not get that oversold during the latest decline in late November, my guess is that the major market indices will eventually break their November 26th lows - whether it is later this month or early next year."
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
Novartis to cut 2,200 jobs.
Honeywell expects 2008 sales of $36.1 billion to $36.7 billion and earnings of $3.65-$3.80 a share.
Costco Wholesale Corp. reported fiscal first-quarter net income rose 11%, meeting analysts' expectations, on 12% higher sales and 8% higher same-store sales. Earnings for the quarter ended Nov. 25 reached $262 million, or 59 cents a share, from $236.9 million, or 51 cents, in the year-earlier period. Sales reached $15.47 billion from $13.85 billion.
China's value-added industrial production climbed 17.3% in November from a year earlier, easing from a 17.9% gain in October, the National Bureau of Statistics said in a statement.
Countrywide Financial Corp.said Thursday that mortgage loan fundings for the month of November 2007 totaled $23 billion, a 40 percent decline from November 2006. However, total mortgage loan fundings were up 5 percent from the prior month.
Lehman Brothers Q4 earnings $1.54 per share vs $1.72.
U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years. Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said. Meanwhile, U.S. retail sales rose a better-than-expected 1.2% in November, the best gain in six months, the Commerce Department estimated Thursday. Take your pick on retail outlook.
Sam Zell is hopeful that the $8.2 billion deal he's leading to take Tribune Co. private will close Dec. 20.
Responding to a question at the Executives' Club of Chicago luncheon Wednesday about whether there was news about the Tribune deal, Zell responded by saying: "Hopefully it will close next Thursday."
Brett Steenbarger: "By cumulating the volume at offer vs. bid over the course of the day and by cumulating the NYSE TICK values through the course of a market session, we can see how market sentiment is shifting over time.
When we rose sharply yesterday (WED) in response to the Fed announcement of coordinated action, the market looked very bullish. As Rennie Yang observed in his excellent Market Tells newsletter, however, the NYSE TICK action was telling a different story. Relative to the 20-day average, we were actually seeing reduced buying interest. The TICK told us that traders were selling into the strength, which ended up being a great market tell.
Seasonally adjusted initial jobless claims fell 7,000 to 333,000 in the week ended Dec. 8, the government reported Thursday. The four-week moving average for initial jobless claims fell 2,000 to 338,750, according to the Labor Department. Continuing jobless claims increased 38,000 to 2.64 million for the week ended Dec. 1. The four-week moving average for continuing jobless claims rose 18,750 to 2.61 million -- the highest level since early January 2006.
Wholesale prices rose 3.2% in November - the largest change since 3.5% in August 1973 -- as energy price growth hit a new record, the Labor Department reported Thursday. Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Growth in gasoline prices of 34.8% also hit a new record - beating the prior record of 28.8% in April 1999. Food prices had 0.0% growth, compared with a gain of 1.0% in the prior month. Excluding volatile food and energy, the core producer prices grew 0.4%.
Dow Chemical Co. agreed to create a joint petrochemicals venture together with Petrochemical Industries Co. of Kuwait [PCI] in exchange for $9.5 billion. The venture will be split 50/50 between the two companies and will be fully integrated.
Robert McHugh: "In the aftermath of the Fed's decision to only drop short-term rates by a quarter percent, they announced Wednesday that they are going to increase the money supply by 3 percent over the next week. It will be the largest one-time admitted injection since 9/11/01. By loaning it, there will be a velocity of money growth logarithmic impact, meaning M-3 will rise much more than just 3 percent. Hyperinflation to the rescue.
The banks are going to get this money, at below market interest rates, so they can lend it and make a bunch of money. Why? It means the Fed is worried about bank earnings, about bank capital levels, and is going to give them a lay-up to earn billions of losses back. Again, this does nothing for mom and pop, who are getting killed by a dead real estate market, job losses, fixed incomes, a doubling of the cost of living, and debt up to their ears. This will accomplish nothing other than to increase inflation, increase the cost of living. More for Wall Street and nothing for Main Street. This recession requires direct help to Main Street. Another "F" for the Master Planners. Good luck with that."
"Officials forecast US wheat stocks would shrink to their lowest level in 60 years, dropping from 312m bushels to 280m by the end of the 2007-08 crop year. "
Gold for February delivery dropped $14.80 to finish at $804 an ounce on the New York Mercantile Exchange. Silver for March delivery tumbled 58.80 cents, or 4%, to end at $14.237 an ounce.
JetBlue Airways Group Inc.said Thursday Deutsche Lufthansa had agreed to take a 19% equity stake in the New York carrier and get a seat on the board. The German carrier is buying 42 million newly issued common shares of JetBlue in a private placement at a price of $7.27 a share, or a total of about $300 million.
Crude oil for January delivery closed down $2.14, or 2.3%, at $92.25 a barrel on the New York Mercantile Exchange. Natural-gas futures for January delivery erased earlier gains, fell 22.9 cents to $7.179 per million British thermal units. Earlier in the day natural gas had rallied to $7.49 after the U.S. Energy Information Administration reported U.S. inventories fell 146 billion cubic feet to 3,294 billion cubic feet in the week ending Dec. 7. Inventories have fallen 246 billion cubic feet since the week ending Nov. 16, EIA data showed.
Advanced Micro Devices Inc. CFO Bob Rivet said Thursday that the struggling chipmaker will become profitable again in 2008 vowing, "Every business will swing back to the black." The company also said it will spend $1.1 billion on capital expenditures in 2008, down from $1.7 billion in 2007.
John Bogle, the Vanguard founder, just put the chances at 75% that the U.S. is heading for recession during a CNBC interview.
Sun Tzu: "The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim."
Nouriel Roubini: "The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.)."
Rigzone: " Nigeria pumps about 2.1 million barrels a day, or about 2.5% of the world's daily oil needs...Nigeria is beginning the deepest overhaul of its petroleum industry in decades, a move expected to make it tougher for big operators such as Royal Dutch Shell PLC to profit from tapping Africa's biggest oil-producing country... Unlike some other countries, the Nigerian government has no plans to seize private assets...In addition to profit-shaving pressure from rising costs for drilling rigs and raw materials, companies have lost hundreds of millions of dollars in oil revenue in the past two years because of violence in the Niger Delta, where most of the country's oil is produced. The violence has shut about 20% of Nigeria's oil production capacity. Early indications are that once the offshore contracts are renegotiated, profits for companies may end up "at least" 5% to 10% lower, translating into hundreds of millions of dollars over time, according to a senior Nigerian oil official."
Marc Faber: "The decline in volume of freight shipped is also confirmed by the Cass Freight Index, which peaked out in June 2006. According to contraryinvestor.com, Cass Freight Systems is a “freight payable processor” that deals with 1,200 divisions of 400 individual companies representing a broad spectrum of industries; therefore, the company has a very good feel for the flow and character of the US freight industry (part of the decline in the Cass Freight Index since June 2006 may have been due to the decline in energy prices in the second half of last year, but with energy prices now back to peak levels the index has failed to approach its 2006 high. Shipments by Canada’s largest railway, Canadian National Railways, which derives 33% of its revenues from the US, are down 12% year-on-year). In theory, it could be that trucks and railroads are suddenly carrying fewer but higher-value goods, but a more likely explanation is that volumes are down but prices in retail stores are up, which explains the surprisingly strong September retail sales. But even if this were the case, it doesn’t tally entirely with the declining trend in states’ sales tax receipts. In California, September’s sales tax receipts were down 7%, compared to the previous year. One possibility we shouldn’t exclude is that the economic condition of US households has deteriorated to the point where they are curtailing the purchase of discretionary items, which are subject to sales taxes, but increasing the dollar sales of groceries, due to price increases (not because of an increase in volume)."
Wednesday, December 12, 2007
Day After
12/13/07 Day After
Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets. Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility (approved by the Board of Governors of the Federal Reserve System) and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank (approved by the Federal Open Market Committee). Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.
Although there was this effort to improve liquidity, the big bank stocks actually declined while the S&P rose by 20 points in early trading. Meanwhile, the brokerage stocks have trouble holding any rally. In addition, after the Dow opened up 240 points, by mid-morning that had declined to only a plus 50 points.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
Office Depot Inc.sees erosion of sales and earnings in the fourth quarter of 2007 due to housing problems, especially in Florida and California. Those states account for 28% of Office Depot's North American sales.
J.P. Morgan Chase and Bank of America were downgraded to hold from buy, and Wachovia was cut to sell from hold at Merrill Lynch.
U.S. home repossessions in November totalled 72,101, up 31.8% from the previous month, according to data from Foreclosures.com. For the first 11 months of the year, around 527,000 homes ended up back in the hands of lenders, up 41% from the same time last year.
The Federal Reserve may take action on its discount rate within days, The Wall Street Journal reported Wednesday. Fed officials continue to consider ways of using various tools -- including the discount rate -- to combat banks' unwillingness to lend even to each other, which they view as a threat to economic growth. The central bank could take action within days, the report said. A variety of steps, widely discussed in the markets, are likely to be on the table, including another cut in the discount rate, longer-term loans to money-market dealers, easier collateral rules for loans from the Fed, and other steps last taken in 1999 to alleviate funding pressures ahead of the year 2000, when many feared a "Y2K" computer bug would disrupt markets and create economic havoc, the report said.
Maguire Properties Inc., the Los Angeles real-estate investment trust focused on Southern California, said a panel of its outside directors would consider alternatives to build value for holders, including possibly selling the company.
China retail sales surged 18.8% to 810.5 billion yuan ($109.92 billion) in November, accelerating from an 18.1% rise in October, the National Bureau of Statistics said in a statement Wednesday.
3M Co expects double-digit sales and earnings growth in 2008, and estimated 2008 earnings per share in a range of $5.44 to $5.47. Analysts polled by Reuters Estimates were expecting 3M to earn $5.42 per share next year.
Goldman Sachs Group Inc. raised its 12-month price forecast for agricultural commodities, including cotton, soybeans, corn, wheat, coffee and sugar. ``We are raising our agriculture returns forecast to 5 percent,'' a team of analysts led by Jeffrey Currie, head of global commodities research at Goldman in London, said in a report.
Charge-off and delinquency rates continued to rise in November at Capital One Financial, the financial services company said in regulatory filings Wednesday.
Net charge-offs of managed loans increased to 3.52 percent in November, from 3.36 the previous month and 3.27 during the same month a year ago. Charge-offs are loans being written off as not being repaid.
Loans at least 30 days past due increased slightly to 3.68 percent in November from 3.64 in October. During Nov. 2006, 3.49 percent of loans managed were 30 days past due. Thirty-day delinquency rates were as low as 2.77 percent in April.
The U.S. trade deficit grew in October compared to the previous month, according to the government's latest reading that showed the gap between imports and exports was slightly larger than Wall Street expectations.The Commerce Department said imports were $57.8 billion above exports, even as a weak dollar helped to lift exports to record levels. That is up from a gap of $57.2 billion in September, which was revised higher, although it's below the $58.2 billion level in October 2006.
Wachovia Corp said on Wednesday in a federal filing that it now sees a loan loss provision in the fourth quarter of about $1 billion in excess of charge-offs.The bank said it had previously seen a loan loss provision in the fourth quarter of $500 million to $600 million in excess of charge-offs.
The Bush administration's decision to add more oil to the Strategic Petroleum Reserve has added as much as 10 percent to the price of crude, an oil consultant told a Senate panel Tuesday."The rise in light, sweet crude prices to almost $100 a barrel in November came about because the U.S. Department of Energy has been removing a significant share of the daily volume of this type of crude from the market for storage in the Strategic Petroleum Reserve," said Philip Verleger of Aspen, Colo.-based PKVerleger.
SLM Corp. said the investment group led by J.C. Flowers, Bank of America and JP Morgan Chase is unwilling to make a new takeover proposal. SLM, known as Sallie Mae, also reported in a PR Newswire statement today that fourth-quarter ``core'' earnings would be 52 cents to 57 cents a share, lower than analysts' estimates of 71 cents.
The Bank of America said the fourth quarter will be disappointing.
The Norwegian Petroleum Safety Authority has set up an emergency response center on Wednesday following a leak of crude oil from the Statfjord A loading buoy in the Norwegian North Sea, which is operated by StatoilHydro. Provisionally estimated at 21,750 barrels, or 3,840 cubic meters, the Statfjord leak is the second biggest discharge of oil in Norwegian petroleum history, the authority said in a statement on its website on Wednesday.
Crude inventories fell by 700,000 barrels to 304.5 million barrels in the week ending Dec. 7, U.S. Energy Information Administration reported on Wednesday. After the data, crude-oil futures for January delivery rose $1.40, or 1.6%, to $91.42 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 1.6 million barrels in the latest week, while distillate stocks decreased by 800,000 barrels, EIA reported. On Nymex, January reformulated gasoline rose 3.39 cents to $2.3253 a gallon and January heating oil rallied 5.68 cents to $2.5798 a gallon.
The three-month dollar London Interbank Offered Rate was trading at 5.05% Wednesday, down from 5.11% Tuesday, after news that the U.S. Federal Reserve and four other central banks will take coordinated liquidity-boosting steps which could add as much as $40 billion into global money markets to ease a credit crisis.
Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year 12 percent on concerns that investment costs and weaker demand may prompt producers to limit supply. Goldman increased its average 2008 forecast for West Texas Intermediate crude oil to $95 a barrel from $85. West Texas Intermediate oil futures, traded on New York Mercantile Exchange, may rise to as much as $105 a barrel by the end of next year, the bank said in an report.
Biogen shares were last down 27% at $55.30. The Cambridge, Mass., firm said it will remain an independent company after not having received any purchase offers during its review of strategic alternatives to maximize shareholder value
Crude oil for January delivery closed up $4.37, or 4.9%, at $94.39 a barrel on the New York Mercantile Exchange, the highest closing price since Nov. 28. Gold for February delivery rose $1.70 to end at $818.80 an ounce on the New York Mercantile Exchange.
The U.S. posted a budget deficit of $98.21 billion in November, the Treasury Department reported Wednesday. The deficit is lower than the $101 billion estimated earlier by the Congressional Budget Office. The deficit is 34% above the $73.8 billion deficit in November 2006.
Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets. Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility (approved by the Board of Governors of the Federal Reserve System) and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank (approved by the Federal Open Market Committee). Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window. All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible to participate in TAF auctions. All advances must be fully collateralized. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.
Although there was this effort to improve liquidity, the big bank stocks actually declined while the S&P rose by 20 points in early trading. Meanwhile, the brokerage stocks have trouble holding any rally. In addition, after the Dow opened up 240 points, by mid-morning that had declined to only a plus 50 points.
China's vice minister of commerce, Chen Deming, said a weakening US dollar was a bigger global economic concern than the value of the yuan. Vice Premier Wu Yi, also told the United States bluntly to fix its own problems rather than complain about China.
"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach which would only harm the interest of the United States itself," Wu said.
Office Depot Inc.sees erosion of sales and earnings in the fourth quarter of 2007 due to housing problems, especially in Florida and California. Those states account for 28% of Office Depot's North American sales.
J.P. Morgan Chase and Bank of America were downgraded to hold from buy, and Wachovia was cut to sell from hold at Merrill Lynch.
U.S. home repossessions in November totalled 72,101, up 31.8% from the previous month, according to data from Foreclosures.com. For the first 11 months of the year, around 527,000 homes ended up back in the hands of lenders, up 41% from the same time last year.
The Federal Reserve may take action on its discount rate within days, The Wall Street Journal reported Wednesday. Fed officials continue to consider ways of using various tools -- including the discount rate -- to combat banks' unwillingness to lend even to each other, which they view as a threat to economic growth. The central bank could take action within days, the report said. A variety of steps, widely discussed in the markets, are likely to be on the table, including another cut in the discount rate, longer-term loans to money-market dealers, easier collateral rules for loans from the Fed, and other steps last taken in 1999 to alleviate funding pressures ahead of the year 2000, when many feared a "Y2K" computer bug would disrupt markets and create economic havoc, the report said.
Maguire Properties Inc., the Los Angeles real-estate investment trust focused on Southern California, said a panel of its outside directors would consider alternatives to build value for holders, including possibly selling the company.
China retail sales surged 18.8% to 810.5 billion yuan ($109.92 billion) in November, accelerating from an 18.1% rise in October, the National Bureau of Statistics said in a statement Wednesday.
3M Co expects double-digit sales and earnings growth in 2008, and estimated 2008 earnings per share in a range of $5.44 to $5.47. Analysts polled by Reuters Estimates were expecting 3M to earn $5.42 per share next year.
Goldman Sachs Group Inc. raised its 12-month price forecast for agricultural commodities, including cotton, soybeans, corn, wheat, coffee and sugar. ``We are raising our agriculture returns forecast to 5 percent,'' a team of analysts led by Jeffrey Currie, head of global commodities research at Goldman in London, said in a report.
Charge-off and delinquency rates continued to rise in November at Capital One Financial, the financial services company said in regulatory filings Wednesday.
Net charge-offs of managed loans increased to 3.52 percent in November, from 3.36 the previous month and 3.27 during the same month a year ago. Charge-offs are loans being written off as not being repaid.
Loans at least 30 days past due increased slightly to 3.68 percent in November from 3.64 in October. During Nov. 2006, 3.49 percent of loans managed were 30 days past due. Thirty-day delinquency rates were as low as 2.77 percent in April.
The U.S. trade deficit grew in October compared to the previous month, according to the government's latest reading that showed the gap between imports and exports was slightly larger than Wall Street expectations.The Commerce Department said imports were $57.8 billion above exports, even as a weak dollar helped to lift exports to record levels. That is up from a gap of $57.2 billion in September, which was revised higher, although it's below the $58.2 billion level in October 2006.
Wachovia Corp said on Wednesday in a federal filing that it now sees a loan loss provision in the fourth quarter of about $1 billion in excess of charge-offs.The bank said it had previously seen a loan loss provision in the fourth quarter of $500 million to $600 million in excess of charge-offs.
The Bush administration's decision to add more oil to the Strategic Petroleum Reserve has added as much as 10 percent to the price of crude, an oil consultant told a Senate panel Tuesday."The rise in light, sweet crude prices to almost $100 a barrel in November came about because the U.S. Department of Energy has been removing a significant share of the daily volume of this type of crude from the market for storage in the Strategic Petroleum Reserve," said Philip Verleger of Aspen, Colo.-based PKVerleger.
SLM Corp. said the investment group led by J.C. Flowers, Bank of America and JP Morgan Chase is unwilling to make a new takeover proposal. SLM, known as Sallie Mae, also reported in a PR Newswire statement today that fourth-quarter ``core'' earnings would be 52 cents to 57 cents a share, lower than analysts' estimates of 71 cents.
The Bank of America said the fourth quarter will be disappointing.
The Norwegian Petroleum Safety Authority has set up an emergency response center on Wednesday following a leak of crude oil from the Statfjord A loading buoy in the Norwegian North Sea, which is operated by StatoilHydro. Provisionally estimated at 21,750 barrels, or 3,840 cubic meters, the Statfjord leak is the second biggest discharge of oil in Norwegian petroleum history, the authority said in a statement on its website on Wednesday.
Crude inventories fell by 700,000 barrels to 304.5 million barrels in the week ending Dec. 7, U.S. Energy Information Administration reported on Wednesday. After the data, crude-oil futures for January delivery rose $1.40, or 1.6%, to $91.42 a barrel on the New York Mercantile Exchange. Gasoline supplies rose by 1.6 million barrels in the latest week, while distillate stocks decreased by 800,000 barrels, EIA reported. On Nymex, January reformulated gasoline rose 3.39 cents to $2.3253 a gallon and January heating oil rallied 5.68 cents to $2.5798 a gallon.
The three-month dollar London Interbank Offered Rate was trading at 5.05% Wednesday, down from 5.11% Tuesday, after news that the U.S. Federal Reserve and four other central banks will take coordinated liquidity-boosting steps which could add as much as $40 billion into global money markets to ease a credit crisis.
Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year 12 percent on concerns that investment costs and weaker demand may prompt producers to limit supply. Goldman increased its average 2008 forecast for West Texas Intermediate crude oil to $95 a barrel from $85. West Texas Intermediate oil futures, traded on New York Mercantile Exchange, may rise to as much as $105 a barrel by the end of next year, the bank said in an report.
Biogen shares were last down 27% at $55.30. The Cambridge, Mass., firm said it will remain an independent company after not having received any purchase offers during its review of strategic alternatives to maximize shareholder value
Crude oil for January delivery closed up $4.37, or 4.9%, at $94.39 a barrel on the New York Mercantile Exchange, the highest closing price since Nov. 28. Gold for February delivery rose $1.70 to end at $818.80 an ounce on the New York Mercantile Exchange.
The U.S. posted a budget deficit of $98.21 billion in November, the Treasury Department reported Wednesday. The deficit is lower than the $101 billion estimated earlier by the Congressional Budget Office. The deficit is 34% above the $73.8 billion deficit in November 2006.
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