Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Fri 05.30.2008
High flying U.S. Silver Eagle Bullion coin sales grounded by U.S. Mint Silver’s growing popularity as an investment vehicle has stymied the U.S. Mint, which stopped taking orders for its American Eagle Silver Bullion coin, and rationed sales for the remainder of this year. The 2008 Silver Eagle dollar coins have become so wildly popular, the U.S Mint stopped taking orders for the bullion coins in March, and late last month began limiting how many coins the exclusive group of 13 authorized buyers globally can purchase. On Thursday, Michael DiRienzo, Executive Director of the Silver Institute, asked Edmund Moy, Director of the United States Mint, to meet with institute members to discuss immediate remedies to the shortage.
The bubble of all US bubbles Two great issues define this moment in America: war in Iraq and economic turbulence dominate debates, fears and campaigns. Optimistic pitches can be heard about the effectiveness of the "surge" in Iraq and policy responses to subprime-driven economic pain. Many and influential voices loudly tout economic and military success. Public perception on both fronts lags pundit wisdom. Polling data suggests that more and more Americans oppose staying in Iraq and believe the US is already in recession. There is an unusual disconnect between general opinion, policy and reality. All we can know for sure is that either the general public or leading voices are very, very wrong.
Inflation wipes out income gains in April Inflation erased all the gains in disposable personal income in April, while U.S. consumer spending was flat after adjusting for higher prices, the Commerce Department estimated Friday. Nominal personal incomes, nominal consumer spending and consumer prices all increased 0.2% in April, the government said. The report suggests the economy weakened further in the second quarter of the year even as the first tax-rebate checks began arriving. Economists surveyed by MarketWatch expected incomes to be flat. Only a large increase in rental incomes and the extra transfer payments from the economic stimulus package kept nominal personal incomes rising at all in the month.
Dow Chemical Raises Prices, Paving Way for Hershey, Monsanto Dow Chemical Co., the largest U.S. chemical maker, may not be the last to raise prices this year because of soaring raw materials costs. Monsanto Co., Hershey Co., General Mills Inc. and Avery Dennison Corp. may follow suit, according to data compiled by Bloomberg. They're among 11 companies in the Standard & Poor's 500 Index that increased their so-called LIFO reserve, which captures rising inventory costs, by at least 20 percent over the past four quarters. With oil and commodity prices at record highs, companies will be forced to pass on higher costs, analysts said after Dow Chemical announced yesterday it will raise prices by the most in its 111-year history. That will contribute to inflation, and may prompt the Federal Reserve to raise interest rates for the first time in four years.
Huntsman to increase prices on all products U.S. chemical maker Huntsman Corp, which is being bought by Apollo's Hexion unit, said on Thursday it will raise prices up to 25 percent and impose an energy surcharge across a wide range of products. The move, which is driven by a sustained increase in costs for energy, transportation and raw materials, mirrors similar actions taken by other U.S. chemical makers like Dow Chemical and Rohm and Haas. Huntsman said the amount of each price increase and energy surcharge will vary by product, in accordance with costs attributed to each product. The price increase and any surcharges will be effective immediately, or as soon as applicable contracts allow, the Woodlands, Texas-based company said in a statement.
Kohn Signals Wall Street May Get Permanent Access to Fed Loans Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies. Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open ``either on a standby basis or operating at a very low level,'' he said in a speech in New York yesterday. The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed's rescue of Bear Stearns Cos. in March.
Agency sounds an alarm on U.S. banks' shaky outlooks The Federal Deposit Insurance Corporation warned Thursday that the nation's ailing banking industry was likely to weaken further. The FDIC said the combined profit of the financial institutions it regulates plunged 46 percent, to $19.3 billion, during the first three months of the year. During that time, banks and savings institutions set aside more money to cover future losses than in any quarter in the last 20 years, the regulator said. Reserves totaled $37.1 billion — four times their level a year earlier. Even so, the percentage of troubled loans covered by such reserves, a measure of the industry's strength known as the coverage ratio, sank to its lowest level since 1993. The number of borrowers who fell behind on loan payments increased sharply during the quarter.
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Thur 05.29.2008
Gold seen as safest investment option Gold is seen as a safe bet, with 28 per cent of people claiming to feel most confident investing in gold during the current economic uncertainty. According to research published by specialist insurance broker Aon Private Clients today (29 May), gold was seen as the safest bet, compared to 20 per cent of people feeling confident in property investment. However, of the 2,031 adults surveyed, a third (34 per cent) said they were not confident of investing in anything at all. Women are much more cautious, with 38 per cent not willing to take the risk compared to just 24 per cent of men. The results are dramatically different to those on Aon's 2006 research, which showed that 58 per cent of people favoured property investment to supplement a pension, followed by 50 per cent preferring shares.
Gold: Get some sun, stop worrying Gold down, silver down, oil down (maybe), copper down, sugar down, cotton down, rice down, wheat down, CRB Commodity Index down -- what the devil is going on? Is the world deflating? Or is the world just taking a "time out?" My guess -- a time out. There were too many up-spikes, too much leverage, too much hysteria, too much hype. Give it a rest. Gold -- Worried about gold? Don't be. Like most of the commodities, gold is "cooling it." The correction continues in gold, and we can see it clearly on the weekly gold chart below. At its March high gold got too far away from its 40-week moving average, and now it's letting the 40-week MA catch up to its current price. The weekly histograms are now close to turning up, and the slow stochastics at the bottom of the chart appear to be scraping the bottom.
Real estate losses hurt banks in first quarter, FDIC says Falling asset quality in real estate loan portfolios hit bank earnings in the first quarter of 2008, the FDIC said Thursday. Earnings for the quarter totaled only $19.3 billion compared to $35.6 billion a year ago, the FDIC said in its first-quarter banking profile. Meanwhile, the agency said, the number of banks on its "problem list" rose to 90 from 76. Assets rose by 2.6% even as loan growth slowed.
First-quarter GDP revised up to 0.9%, as expected The U.S. economy grew at a sluggish pace in the first quarter, held back by the biggest slump in housing in 26 years and the first decline in final domestic sales in 17 years, the Commerce Department reported Thursday. The nation's real gross domestic product increased at a 0.9% annual rate in the first three months of the year, slightly faster than the 0.6% rate originally estimated a month ago. The revision matched the consensus expectation of economists surveyed by MarketWatch. "The economy was on firmer footing heading into the second quarter than imagined a month ago," wrote Stephen Gallagher, economist for Societe Generale.
Worldwide food and crop prices to remain strong through 2017 Worldwide prices for food crops and agricultural commodities over the next decade will be as much as 80% higher than they have averaged over the last decade, according to an annual report. The study was released by the Organisation for Economic Co-operation and Development and the Food and Agriculture Organization of the United Nations. Prices are projected to be 20% higher for beef and pork, 30% higher for raw and white sugar, 40-60% higher for wheat, maize and skim milk powder, more than 60% higher for butter and oilseeds and more than 80% higher for vegetable oils, the study found.
Fed's Fisher sees rate shift even if growth weakens A change in the Federal Reserve's monetary policy will likely occur "sooner rather than later" if inflation expectations worsen, even if the economy languishes, said Dallas Federal Reserve President Richard Fisher late Wednesday. Fisher, who voted against the Fed's last three rate cuts, held fast to his reputation as one of the U.S. central bank's most hawkish policymakers, calling inflation "the most insidious enemy of capitalism." "If inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario," read the text prepared for a speech at San Francisco's Commonwealth Club of California.
Investigate Big Congress, Not Big Oil With gasoline prices exceeding $4 a gallon in some states, politicians are responding as usual: Blame Big Oil First. Several prominent senators have once again summoned industry leaders to Capitol Hill, subjecting them to yet another barrage of rhetorical questions, interruptions, accusations, and sermons. The lawmakers' goal, claims Sen. Patrick Leahy, is to identify "causes of the rising price of oil on which Congress can act." But the foregone conclusion is that "price gouging," "collusion," and "market manipulation" by Big Oil, or speculation by financiers, is responsible.
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Wed 05.28.2008
Gold May Rise to More Than $1,100 This Year, GFMS Chairman Says Gold may rise to more than $1,100 an ounce this year because of increasing investment demand, GFMS Ltd. Chairman Philip Klapwijk said. ``The effects of the sub-prime credit crisis continue to provide a strong investment case for gold,'' Klapwijk said today at a conference in Shanghai. Increasing inflation concerns and declining U.S. interest rates will put ``an already weak dollar under further pressure,'' he said. Bullion soared to a record $1,032.70 an ounce on March 17, as a falling U.S. dollar and declining equities led investors to buy alternative assets. Gold mine production and central bank sales will remain flat this year, Klapwijk said. Overall gold supply may rise by between 1 and 2 percent due to higher scrap recycling, he said.
Choosing Bankruptcy to Stay Afloat Danielle Lancaster makes $28,000 a year as a bank employee in Richmond. She owes almost twice that on her credit cards, student and car loans. Add to that day-care expenses for her 2-year-old daughter, rent and utilities, and she uses up every cent she brings in. She has cut costs any way she can, suspending luxuries such as restaurant meals and movies. But that didn't stop her car from getting repossessed. "I work to live," she said. "I see my check, and it's gone right away." Lancaster is 26 and bankrupt. Two weeks ago, she filed for Chapter 13 bankruptcy protection, which will restructure her debt. She will have five years to pay it off under a plan that lowers her monthly payments. "Everything just got to be too much," said the Richmond resident who recently earned an undergraduate degree from Norfolk State University.
Dow Chemical Hikes Prices 20%, Citing Energy Costs Dow Chemical, the biggest U.S. chemical manufacturer, said on Wednesday it would hike prices for all its products by up to 20 percent next month, the latest signal that escalating energy prices were stoking inflation. Citing a sharp rise in the costs of energy, raw materials and transportation, Dow will raise prices globally on its broad slate of products that range from plastics and films to paints and agricultural supplies from June 1. Dow's move came as little surprise to industry watchers, since prices for natural gas, a key feedstock for the chemical industry, have jumped by 56 percent since the end of 2007, and crude oil prices have rallied 32 percent to more than $125 per barrel.
Ford to Cut Up to 12% of Salaried Jobs Ford Motor plans to cut its U.S. salaried work force by up to 12 percent after its turnaround plan stalled because of the downturn in the U.S. economy, the Detroit News reported Wednesday. Ford warned last week it would not achieve its long-standing goal of returning to profitability in 2009 because of the U.S. economic downturn and a permanent shift in demand toward cars and crossovers and away from large trucks and SUVs. The automaker also told employees in a memo last week that it expected to make cuts in hourly and salaried employees by Aug. 1 and would detail those steps in July. The cuts would be involuntary and were still being worked out by Ford, the newspaper reported.
SEC examining Bear trading records Securities regulators investigating the fall of Bear Stearns Cos. are examining documents provided by the firm that detail how trading partners cut exposure ahead of its collapse, the Wall Street Journal reported Wednesday. Investigators are looking for any signs of whether improper manipulation or coordination contributed to the demise of Bear Stearns , according to unnamed sources familiar with the situation cited in the report. The probe is focused on credit-default swaps, financial contracts in which one side pays another to assume the risk that a bond or loan will go bad.
Making a good living, but still feeling strapped Only a few years ago, Americans who considered themselves middle class were scrimping to pay for their kids' college education. Now, many of them are struggling to cover far more basic needs - gas and groceries. Take Stacy and Chuck Burris. The Pittsburgh, Pa., couple view themselves as solidly middle class. In recent months, however, they've felt anything but. Burdened by high cost of food and fuel, they are having trouble balancing their budget even though Chuck Burris earns a "comfortable salary" as a software engineer. The parents of five children, three of whom are grown, have essentially stopped eating out and entertaining and are considering canceling the annual family vacation to Maine. They keep to a Spartan shopping list and have planted a larger garden. Instead of buying their 12-year-old daughter summer clothes, they are turning her pants into shorts by cutting off the legs and getting hand-me-downs from family.
Banks Choking Home Sales– Should Have Done It Earlier Darn those banks, anyway. More and more they are insisting that buyers be able to afford the homes they purchase, and that the homes be worth what is being paid. This isn’t sitting well with everyone: It’s not that people don’t want homes, it’s that they can’t buy them under the stricter lending standards. That’s how the National Association of Realtors explains the 17.5 percent drop in sales from April 2007, and eight percent drop in housing prices. But the problem is worse than even the NAR says it is. Lenders are turning the clock back to 1975, requiring larger downpayments and higher credit scores to qualify for low interest rates. That’s only prudent, but what they’re also doing is tightening appraisals on properties that are being sold or refinanced.
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Tues 05.27.2008
Decline in home prices accelerates in March The pace of home price declines accelerated in March and there are no hints that the decline might be ending soon, economists said. Home prices in 20 major U.S. metropolitan areas have dropped a record 14.4% in the past year, Standard & Poor's said Tuesday. The 20-city Case-Shiller home price index fell 2.2% from February to March. This is the 16th consecutive decline in prices. And for 10 major cities, prices fell by 2.4% in March and by 15.3% for the past 12 months. S&P's Case-Shiller index tracks sales of the same homes over time, so it's not influenced by the mix of homes sold in a period. However, it closely tracks only 20 cities, many of which had participated in the housing bubble earlier in the decade.
Bank failures to surge in coming years By April, Gary Holloway was almost three years into retirement. He'd built a new home by a lake in Texas, bought a boat and was working on his golf game. While taking on some part-time work, Holloway also traveled for months across the U.S. with his wife, from Seattle to Washington D.C., catching up with old friends and family. That life of leisure abruptly changed about six weeks ago when Holloway got a phone call from his former employer, the Federal Deposit Insurance Corp., or FDIC, which regulates U.S. banks and insures deposits. Holloway, a 30-year FDIC veteran, had worked extensively with failed lenders in Houston during the savings and loan crisis in the late 1980s and early 1990s, when thousands of thrifts collapsed.
Banking's Miracles Of Lourdes: HSBC Calls For Higher Interest Rates The head of HSBC (HBC) had an epiphany. Unlike most bankers who constantly advocate lower interest rates, the head of Europe's largest firm thinks rates must go higher. Michael Geoghegan, CEO of HSBC, told Reuters that "Inflation is a long-term problem because there is no long-term will to solve it." He sees the solution as moving rates back up at central banks. The issue may be that trying to slow the economies in the US or Europe will not push down inflation. One theory, a theory with some sane adherents, posits that rising demand in Asia and flat or falling supply of food and crude worldwide make bringing down inflation though monetary policy difficult.
Some US farms outsourced to Mexico Antonio Martinez used to pay smugglers thousands of dollars each year to sneak him into the United States to manage farm crews. Now, the work comes to him. Supervising lettuce pickers in central Mexico, Martinez earns just half of the $1,100 a week he made in the U.S. But the job has its advantages, including working without fear of immigration raids. Martinez, now a legal employee of U.S.-owned VegPacker de Mexico, is exactly the kind of worker more American farm companies are seeking. Many have moved their fields to Mexico, where they can find qualified people, often with U.S. experience, who can't be deported. "Because I never moved my family to the U.S., I was always alone there," said Martinez, 45, who could never get a work permit, even after 16 years in agriculture in California and Arizona. "When I got the opportunity to be close to my family, doing similar work, I didn't even have to think about it."
Fed Keeps Watch on Wall St. -- From the Inside In the two months since the government rescue of Bear Stearns, the Federal Reserve has built on the fly a new system of monitoring investment banks, radically redefining the central bank's role overseeing Wall Street. New York Fed employees are working inside major investment banks every day, alongside the Securities and Exchange Commission staff members who are the firms' main regulators. The Fed employees are trying to gather information the central bank can use to make sure the billions of dollars it is lending the investment firms, through a special emergency loan program enacted in March, are not being put at undue risk. This new approach, which is still at a relatively small scale, offers a window into how the nation's system of regulating financial firms might evolve as policymakers sift through the financial wreckage of the past nine months.
Economist challenges government data Oakland economist John Williams doesn't seem like the kind of guy to pick fights with the government. He's slow moving and soft spoken, conservative in politics and personal habits, a pale and portly 59-year-old who favors Oxford shirts, Rep ties and sensible shoes. Williams is the sort who pays his taxes on time, waits when the signal says "Don't Walk" and snaps to attention when the national anthem is played. But don't be fooled. The New Jersey native is leading a one-man crusade to expose official economic data as grossly misleading at best and, at worst, a pack of lies. His Shadow Government Statistics Web site (shadowstats.com) has become a magnet for those convinced that official data put a happy-talk gloss on the nation's economy.
Buffett: US recession to become 'longer, deeper' The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday. He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth. "But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think." But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.
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Fri 05.23.2008
Inflation & Gold-Silver Breakout The gold and silver prices have broken out on the upside, not to register new highs but rather to emerge from a clear bullish wedge pattern in their daily charts. The stage is set for assaults on the 1000 gold high and the 21 silver high. Furthermore, and more boldly stated, the stage was set last January for tremendous moves in gold toward 2000 and silver toward 50 in the next 18 to 24 months, give or take. The crude oil price surged past 100. Next the gold price will surge through 1000, as in SURGE. The key commercial commodity is crude oil. The key financial commodity is gold (silver also). Unprecedented monetary inflation invites unprecedented reaction in the crude oil and precious metal prices, where justice still is enforced. This key cause and effect is sorely missed by slick Wall Street conmen and carnival barkers. They invest privately in secrecy, while they promote publicly with deception, fraud, and influence of public media networks.
Losing a Mint: Curb on Coin Sales Angers Collectors The government rationed food during World War II and gasoline in the 1970s. Now, it's imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles. The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can't make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase.
Unsold houses rise to 23-year high in April The U.S. housing market weakened further in April with a flood of homes coming on the market even as sales and prices declined, the National Association of Realtors reported Friday. Resales of U.S. houses and condos dropped 1% to a seasonally adjusted annualized rate of 4.89 million from 4.94 million in March. Economists expected sales to fall to 4.83 million. Resales have sunk 17.5% in the past year and are down 33% from the peak in 2005. The pace of sales has been relatively stable since August at around a 5 million annual pace. The inventory of unsold homes jumped 10.5% to 4.55 million, an "uncomfortably high" level, said Lawrence Yun, chief economist for the real estate trade group.
High gas prices force cops to walk the beat more With gasoline climbing toward $4 a gallon, police officers around the country are losing the right to take their patrol cars home and are being forced to double up in cruisers and walk the beat more. The gas crunch could also put an end to the time-honored way cops leave their engines running when they get out to investigate something. Some police chiefs think the moneysaving measures are not all bad, and might actually help them do a better job. But they worry about the loss of take-home cars, saying the sight of a cruiser parked in a driveway or out in front of a home deters neighborhood crime. In Newberry, population 10,000, Chief Jackie Swindler is telling his officers to turn off the ignition whenever they are stopped for more than a minute or so, and to get out and walk around more.
A Dollar Crash Will Have Disastrous Implications for Global Financial Markets The dollar’s slump is of great and immediate concern because, while the dollar has been slipping only gradually in the recent past, the rate of decline has picked up momentum. A dollar crash will have disastrous implications for global financial markets. At the end of 2001, the euro was worth $ 0.8915, but it has been on a steady upward march since then. On the last trading day of the third quarter in 2007, the euro hit a high of 1.4282. A target of 1.50 is very much within range. How do all of those surplus countries play into this falling dollar picture? Remember, former Fed chairman Alan Greenspan observed that in economics, the sum of all surpluses equals the sum of all deficits.
Surging inflation will stoke riots and conflict between nations, says report Riots, protests and political unrest could multiply in the developing world as soaring inflation widens the gap between the "haves" and the "have nots", an investment bank predicted yesterday. Economists at Merrill Lynch view inflation as an "accident waiting to happen". As prices for food and commodities surge, the bank expects global inflation to rise from 3.5% to 4.9% this year. In emerging markets, the average rate is to be 7.3%. The cost of food and fuel has already been cited as a factor leading to violence in Haiti, protests by Argentinian farmers and riots in sub-Saharan Africa, including attacks on immigrants in South African townships. Merrill's chief international economist, Alex Patelis, said this could be the tip of the iceberg, warning of more trouble "between nations and within nations" as people struggle to pay for everyday goods. "Inflation has distributional effects.
JP Morgan Chase Launches Major Round of Layoffs Officials at JP Morgan Chase have launched a major round of layoffs in the firm's vaunted investment banking department, axing dozens of executives in an attempt to downsize the unit amid a massive slowdown in business, CNBC has learned. People at the firm say at least two hundred executives were laid off over the past two days - a move unrelated to the firm's recent purchase of Bear Stearns. A spokeswoman for JP Morgan confirmed the cuts and said many of the people leaving were junior bankers. Still, the layoffs are some of the stiffest on Wall Street amid the current profit drought. Most firms have been cutting between 5 percent and 10 percent of their staff; the JP Morgan cuts may run deeper even though the bank hasn't been stung as hard as other firms with losses related to investments in subprime bonds.
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Thur 05.22.2008
Fed losing appetite for more rate cuts As they have watched oil and food prices swirl ever higher, Federal Reserve officials have lost their appetite for more interest-rate cuts, even if the economy sinks into recession, according to the minutes of their last policy meeting released Wednesday. Surging prices for gasoline, food and other commodities forced the Fed to sharply boost its inflation outlook for this year, but not for next year. At the same time, their forecast for economic growth this year was revised much lower this year, with a rebound next year still in the cards. The minutes echoed the comments of Fed policymakers in recent days. Fed Vice Chairman Donald Kohn said Tuesday that policy was "appropriately calibrated," while San Francisco Fed President Janet Yellen had said that current policy was appropriate. Fed Gov. Kevin Warsh said Wednesday that the Fed would resist bringing out "the hammer" again.
Report: IEA set to cut oil-supply forecast The Paris-based International Energy Agency is getting ready to issue a sharp downward revision of its oil-supply forecast, according to a published report. A story in the online edition of the Wall Street Journal early Thursday reported IEA's forecast revision signals growing pessimism about whether oil companies can keep abreast of booming demand. The Journal reported the IEA is attempting to assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but it is clear that future crude supplies could be far tighter than previously thought, the report notes. The IEA has predicted previously that supplies of crude and other liquid fuels will keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently, according to the report, which added that the agency now is concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.
'Squawk Box' Guest Warns of $12-15-a-Gallon Gas It may be the mother of all doom and gloom gas price predictions: $12 for a gallon of gas is "inevitable."Robert Hirsch, Management Information Services Senior Energy Advisor, gave a dire warning about the potential future of gas prices on CNBC’s May 20 "Squawk Box". He told host Becky Quick there was no single thing that would solve the problem, due to the enormity of the problem. "[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon," Hirsch said. "And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it."
Top banks call for relaxed writedown rules The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the "downward spiral" of huge writedowns, emergency fundraisings and fire-sales of assets. The proposals on "fair value" accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices. Under the plan, which has been obtained by the Financial Times, banks that decided to keep assets on their balance sheet would also be freed from the requirement to hold them to maturity and would be able to sell them after two years.
More questions raised about Moody's ratings practices Moody's is investigating whether it assigned top-flight credit ratings to certain securities because of computer errors, raising new questions about the credibility of its assessments. News that Moody's might have made such mistakes emboldened the company's many critics and sent its stock price tumbling. Its shares closed down 15.9 percent Wednesday, to $36.91, their biggest one-day decline in almost a decade. The attorney general of Connecticut, Richard Blumenthal, who has criticized the practices of Moody's and other ratings firms, said that he was investigating how Moody's had dealt with the possible errors in its computer models. "One of the areas that most concerns us is the potential favoritism and abusive and illegal practices that involve dealings with the companies that they rate," Blumenthal said.
Prices soar for Memorial Day fixins' for barbecues Hamburgers and hot dogs? Check. Lighter fluid? Check. Beer? Check. More money? Americans are about to fire up their barbecues for the start of the summer cookout season, and one thing has become painfully apparent: It's going to cost a lot more than it did last year to roast a burger, or just about any other barbecue favorite, on the grill. Food inflation is the highest in almost two decades, driven by record prices for oil, gas and mounting global demand for staples such as wheat and corn, and for proteins such as chicken. And that's reaching into Americans' backyards. The price of an average barbecue -- with burgers, hot dogs, beer, soda, condiments, salad, paper plates and lighter fluid -- could run families about 6 percent more than last year.
Ford cuts truck production, profit view Ford Motor Co. said Thursday that it will cut production and expects to be about breakeven in 2009 on a pretax basis, excluding items, citing a delay in North America Automotive profitability. "Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American Automotive profitability goal," said Ford President and CEO Alan Mulally. "Overall, we expect to be about break-even companywide in 2009 -- with continued strong results in Europe and South America." In late April, Ford had handed in a surprise first-quarter profit.
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Wed 05.21.2008
Gold price may double in long-term: Citigroup Profit-taking by investors on a firmer U.S. dollar and a seasonal slowdown in fabrication may be working against gold, but spot prices continue to remain strong near the US$920 per ounce mark. And bullion could climb much higher if things don’t change significantly, according to a new report from Citigroup.Mining and metals analyst John Hill said the mix of macro and supply/demand factors, along with the same forces that have pushed gold higher for the last five years, give him good reason to remain bullish on gold. He sees prices climbing through 2009 and 2010, but a significant lift may not come until the fall when fabrication constrains supplies.
Goldcorp confident of 4-digit gold price this year Goldcorp President and CEO Kevin McArthur Tuesday said he is certain that investors will again see four-digit gold prices this year with the potential to "go well into the four digits." However, during Goldcorp's AGM Tuesday, the question-and-answer session was dominated by environmental and human rights NGOs, anxious to declare their strong beliefs that Goldcorp should stop doing business in Honduras and Guatemala. Before the Goldcorp AGM had even commenced, two UK-based charities urged pensioners in the United Kingdom to put pressure on their pension fund managers to in turn influence more than 130 mining companies listed on the LSE. Among their targets was Goldcorp's San Martin mine in Honduras.
Palladium may see renaissance from funds Lured by a relatively low price and cheaper investment costs, investors could well warm again to palladium, left in the cold by investors after market restrictions and price volatility in the early 2000s. Palladium rose in March to its highest level since 2001, renewing investor confidence in the precious metal, and analysts say a bullish outlook for its sister metal, platinum, could help spark yet another rally. Cash-rich investment funds could see palladium, used in car exhausts, jewellery and dental equipment, as an alternative to gold or platinum as both metals have hit lifetime highs. "I see potential in palladium. It is still far behind the value of platinum and gold," said Akira Doi, director at Daiichi Commodities Co Ltd. "As long as platinum is strong, palladium will be supported.
Oil futures top $130 a barrel ahead of supply data Crude-oil futures broke through another key level on Wednesday, this time topping $130 a barrel on the familiar fears that supplies can't keep up with growing demand from emerging markets. Crude oil for July delivery, the new front-month contract, rose 26 cents to $129.24 a barrel on the New York Mercantile Exchange. Earlier Wednesday, crude surged to a record high of $130.47 in electronic trading. The U.S. Energy Department and American Petroleum Institute will release two separate reports on oil inventories in the latest week. Supply "data comes out later today, but we doubt this will dent the bullish spiral; the market seems to have moved beyond the week-to-week changes in inventories," said Edward Meir, an analyst at MF Global, in a research note.
Shortage fears push oil futures near $140 Fears of a shortage within five years propelled long-term oil futures prices to almost $140 a barrel, further stoking inflationary pressures in the global economy. The spot price of Nymex West Texas Intermediate hit a record $130.30 a barrel on Wednesday. On Tuesday investors had rushed to buy oil futures contracts as far forward as December 2016, pushing their prices as high as $139.50 a barrel, up more than $9.50 on the day. Veteran traders said they had never seen such a jump and said investors were increasingly betting that oil production would soon peak because of geopolitical and geological constraints. Neil McMahon, of Sanford Bernstein, said: "Peak oil views – regardless of whether right or wrong – are seeping into the market and supporting high prices."
Credit crunch to stretch into 2009 Shares of large-cap U.S. banking stocks traded lower Tuesday after analysts at Oppenheimer & Co. said they see the turmoil in credit markets lingering at least into next year. "Our view is that the credit crisis will extend well into 2009 and perhaps beyond, and although the complexion will change, the net effect will be the same: three years of multibillion-dollar revenue reversals," the Oppenheimer analysts wrote in a note, led by Meredith Whitney. Whitney has built up credibility for her bearish and prescient calls on Citigroup Inc. and other Wall Street giants during the credit storm. Oppenheimer warns of billions of dollars of additional asset write-downs and loan-loss reserves as a result of underwriting excesses.
Central Banks are Free to Create as Much Inflation as They Want Over the past few months, we have heard numerous times in the media that the Federal Reserve and the other central banks have a choice between economic growth and rising prices (wrongly defined as inflation). In fact, most investors have been brainwashed into believing that the policies that stimulate strong economic growth automatically result in higher prices within the economy. For example, in our current situation, it is now widely believed that by slashing rates and adding liquidity to the financial system, the Federal Reserve is opting for strong economic growth in the United States. which in turn is causing the consumer price levels to rise. In other words, most people are being hoodwinked into believing that the prices are rising due to strong growth.
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Tues 05.20.2008
Gold ETF demand doubles in the first quarter Demand for gold exchange-traded funds doubled from the first quarter of last year, but demand for the precious metal in terms of tonnage dropped 16% to its lowest quarterly figure in five years, the World Gold Council said Tuesday. "Continuing instability in the equities markets, ongoing fears over the dollar and rising inflation and increased understanding of gold's investment attributes helped spur demand" for ETFs, the Gold Demand Trends report, complied by precious-metals consultancy GFMS Ltd. for the WGC, showed. Gold ETF demand climbed to 73 metric tons for the first quarter of this year to represent $2.2 billion in dollar terms.
Crude soars to new highs on demand worries Crude-oil futures on Tuesday traveled to a new record high above $129 a barrel after hedge fund manager and Texas oil man T. Boone Pickens said he expects oil will hit $150 a barrel before the year is through. Speaking on CNBC-TV, Pickens said world oil supplies are declining and prices will continue to rise because output is not keeping pace with demand. Speculators, Pickens said, have "nothing" to do with record prices. The June crude contract, which expires at the end of trading Tuesday, was recently up $1.79, or 1.4%, at 128.84 a barrel on the New York Mercantile Exchange, after hitting a high of $129.31 earlier on. July crude futures climbed $1.63, or 1.3%, at $128.35 a barrel on Nymex.
Producer prices rise tame 0.2% in April Wholesale prices rose a smaller-than-expected 0.2% in April after seasonable adjustments, with food prices flat and energy prices falling, the Labor Department reported Tuesday. The producer price index has risen 6.5% in the past year, the government said. The PPI had risen 1.1% in March. The core PPI - which excludes food and energy prices - rose 0.4% in April, more than expected. Core prices are up 3% in the past year, the biggest year-over-year rise since late 1991. "The trend in core PPI inflation remains uncomfortably high," wrote Zach Pandi, an economist for Lehman Bros. "This release is likely to keep inflation concern relatively high" at the Federal Reserve.
'Numbers racket' exposes potential disaster for economy, markets Remember that big ah-ha moment in the 1939 classic "The Wizard of Oz?" Dorothy wants to see the Wizard. His voice booms: "Do not arouse the wrath of the Great and Powerful Oz! Come back tomorrow!" Afraid, Lion, Tin Man, Scarecrow shake. Dorothy's dog runs up, tugs on a curtain. She chases Toto, pulls curtain open: "Who are you?" Dr. Marvel stutters: "Well, I - I - I am the Great and Powerful, Wizard of Oz." Dorothy: "You are? I don't believe you!" He replies: "No, it's true. There's no other Wizard except me." Dorothy's miffed: "Oh, you're a very bad man!" Wizard: "Oh, no, my dear. I'm a very good man. I'm just a very bad Wizard."
Economic Tide Is Rising for Repo Man So many people have so many things they can no longer afford. This is an excellent time to be a repo man. When a boat owner defaults on his loan, the bank hires Jeff Henderson to seize its property. The former Army detective tracks the boat down in a backyard or a marina or a garage and hauls it to his storage area and later auctions it off. After nearly 20 years in the repossession business, Mr. Henderson has never been busier. "I used to take the weak ones," he said. "Now I’m taking the whole herd." Boating was traditionally the pastime of the well-off, but the long housing boom and its gusher of easy credit changed that. People refinanced their homes and used the cash for down payments on a cruiser, miniyacht or sailboat.
US denies report on plan to attack Iran The White House on Tuesday flatly denied an Army Radio report that claimed US President George W. Bush intends to attack Iran before the end of his term. It said that while the military option had not been taken off the table, the Administration preferred to resolve concerns about Iran's push for a nuclear weapon "through peaceful diplomatic means." Army Radio had quoted a top official in Jerusalem claiming that a senior member in the entourage of President Bush, who concluded a trip to Israel last week, had said in a closed meeting here that Bush and Vice President Dick Cheney were of the opinion that military action against Iran was called for. The official reportedly went on to say that "the hesitancy of Defense Secretary Robert Gates and Secretary of State Condoleezza Rice" was preventing the administration from deciding to launch such an attack on the Islamic Republic for the time being.
Citigroup Hedge-Fund Loss Weighs on Three Banks The downward spiral of a Citigroup Inc. hedge fund has caused steep losses for at least three large U.S. banks that hoped it would rev up returns on a controversial type of employee life insurance. Besides triggering a lawsuit against an insurer and brokerage firm that arranged the hedge-fund investment for Fifth Third Bancorp, the losses may pressure Citigroup to give the banks some of their money back, as it has agreed to do for individual investors. Such a bailout would be costly, because the clobbered banks sank more than $1.6 billion into the hedge fund, according to the lawsuit and people familiar with the matter.
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Mon 05.19.2008
Time to Buy Gold Last week I wrote an article titled: "The Fuse Has Been Lit!" Because of the article, I received a number of E-mails from nonbelievers. It’s amazing how many people out there still do not understand the basic bullish fundamentals of the gold market. Even a large number of analysts are providing their clients with erroneous advice, by telling them to ‘wait for a bottom.’ Many of these clients could well be facing the problem of looking back ruefully at the bottom, long after it is in place. In order for gold to drop, here are some of the things that need to happen:
Dollar Bind: Gulf Rethinks Currency Ties If there's one message the Bush administration has been trying to hammer home to Chinese leaders, it is this: A major country with a huge trade surplus and rising prices should let its currency strengthen with market forces.So why is the administration nearly silent about the fixed exchange rates of Saudi Arabia and other Persian Gulf oil fiefdoms? After all, like China, the big powers in the Gulf -- Saudi Arabia and the United Arab Emirates -- link their currencies to the U.S. dollar, export far more than they buy abroad, and now face inflation imported from overseas. "Given the huge current-account surpluses and reserve accumulation in the Gulf states, it's getting harder and harder for the U.S. Treasury to justify putting pressure on China
Gloom & Doom Economist: Credit Crunch Will Spread The credit crunch is far from over and is likely to hit sectors other than housing, Marc Faber, Editor and Publisher of "The Gloom, Boom & Doom Report", told "Squawk Box Europe."Consumers will cut spending because of the high oil and energy prices, and all that the recent rally in stocks has shown is that investors think shares offer a better cushion against inflation than bonds, Faber added. "I personally think we are just starting the credit crunch and it is going to be worse," he said. "I think the economy really stinks and the next sector to be hit, in America and elsewhere, is retail." The strength of oil and energy stocks has offset some of the current market weakness, and many people believe we are moving into an environment like the one in the 1970s, with high inflation, Faber added.
$4 a gallon not the end of rising gas prices Drivers will likely need to become comfortable with gas at $4 a gallon, as oil experts say an era of historic pain at the pump will endure well beyond the Memorial Day weekend, when prices traditionally peak. You might trade in that GMC Yukon for a Honda Civic, skip the highway for the bike lane and redefine that time-honored tradition of the road trip. Americans are already reordering their Memorial Day weekends, with AAA predicting a decrease in travel for the first time since 2002. But those changes might not be enough to immediately pull down a gasoline market that follows the whims of the world economy. Newfound wealth fills pockets of the globe once known for overwhelming poverty, and for the first time prices are responding to their thirst for fuel as much as demand in America.
Banks Keep $35 Billion Markdown Off Income Statements Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show. Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income. The balance-sheet adjustments are in addition to $344 billion of writedowns and credit losses already reported on the income statements of more than 100 banks.
Credit crunch fallout not over yet: Buffett The fallout from the global credit crisis is not over yet, U.S. investor Warren Buffett said on Monday. "I'll talk about the United States. I don't think the effects of the credit crunch are far from over at all," he told a news conference in response to a question. "I think there will be rippling secondary, tertiary effects...It is really more an effect of the residential real estate bubble which led to the credit crunch in some degree," he said.
Continued weakness in housing seen in data U.S. consumers won't really feel comfortable until home values stop falling. They could be in for a rough year because there's no sign that home-price declines are letting up. And with home prices falling, fewer buyers are willing to take the plunge. Fresh data on housing to be released in the coming week should show further declines in both sales and prices, economists said. None of the top-tier economic indicators are on the calendar, so investors will turn their attention away from the economy and back toward markets, especially commodities, currencies and interest rates. We'll also get a better idea of what the Federal Reserve's policy committee is thinking. On Wednesday, the Federal Open Market Committee will release the truncated minutes of its April 30 meeting.
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Fri 05.16.2008
Fed's Direct Loans to Banks Climb to Record Level The Federal Reserve's direct loans of cash to commercial banks climbed to the highest level on record in the past week as money-losing lenders increasingly turn to the central bank for funds. Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14, the central bank said today in Washington. Separately, the Fed's loans to Wall Street bond dealers rose by $75 million to $16.6 billion. Policy makers have increased the attractiveness of direct loans as they seek to alleviate the impact of the credit crunch. Fed Chairman Ben S. Bernanke said two days ago that while markets have improved, they remain ``far from normal,'' adding that the central bank is prepared to increase its twice monthly auctions of funds to banks.
China forex policy escapes manipulation tag The Bush administration refused again Thursday to identify China's currency practice as manipulative. In a semi-annual report, the Treasury Department said that China's current account surplus of $111 billion and $1.68 trillion in foreign exchange reserves were not enough to qualify as signs of manipulation under the language of the statute passed by Congress. But the report said China's foreign exchange policy remains a threat to global economic stability and urged the Chinese government to loosen its tight control over the yuan to allow "rapid" appreciation. Neither the Clinton nor Bush administrations ever had any appetite for naming China as a manipulator, despite heated rhetoric - especially from lawmakerrs -- bubbling up from time to time. Using the term would give Congress a whip hand to pass stiff protectionist measures against Chinese imports, analysts said.
Goldman raises oil price forecast by 32% to $141 a barrel Goldman Sachs on Friday raised its forecast for the average price of West Texas Intermediate oil in the second half of 2008 by 32% to $141 a barrel from $107 a barrel. "We believe that the market is not defying fundamentals but rather experiencing a structural repricing much like it did in 2004, searching for a new equilibrium against an uncertain long-term supply environment," the broker said. It added that long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth, which stands at around 1% a year. It added that long-dated prices will need to rise on average by 14% above current levels to $148 a barrel.
Chavez Says Attack by the U.S. Would Cause $500 Oil Venezuelan President Hugo Chavez said crude oil would rise to ``$400 or $500'' a barrel in the event of a U.S. attack on his country, the biggest petroleum exporter in the Americas. The reactivation of the U.S. Fourth Fleet in the Caribbean on July 1 and what he said is a possible U.S. base on the Guajira Peninsula, shared by Venezuela and Colombia, are both threats, Chavez said in a speech broadcast last night from the military academy. Colombian Defense Minister Juan Manuel Santos said his country doesn't plan to give the U.S. a base on the Guajira, EFE newswire reported yesterday. Chavez, who has long criticized the U.S. role in Latin America and warned that oil could rise to $200 a barrel in the case of an attack on Venezuela or Iran, said that given recent price increases in the crude market, his previous estimate was too low.
What if gas cost $10 a gallon? Forget pizza delivery. And cheap airfares. And bottled water. In fact, forget a way of life that looks much like today's. But would that be so bad? In four years, U.S. gas prices have doubled to more than $3.70 a gallon, and crude oil has tripled to around $125 a barrel. Allowing for inflation, that's higher than prices were during the 1978–83 oil shock that triggered a recession and sky-high interest rates. But . . . What if gas cost $10 a gallon? Thousands of truckers would go bankrupt. Airplanes would sit idle in hangars. Restaurants and stores would shut down. Car-pooling, hybrid vehicles, scooters and inline skates would swing into vogue. And telecommuting, rooftop vegetable gardens, home cooking and recycling would proliferate.
Dollar rally, leaks put fresh focus on G7 meetings Currency traders now suspect U.S. and European finance officials of some atypical arm-twisting to support the U.S. dollar at last month's G7 meeting, a gathering that initially made little splash in currency markets. Gains of 2% to 5% in the U.S. dollar from a key low point last month, combined with recent press statements from anonymous senior finance officials, have fostered suspicions that the group of industrialized nations backed up their public statements with some backdoor negotiations. "Talking doesn't really impact the market," said Greg Anderson, head of foreign exchange strategy at ABN AMRO. But pressure on some large foreign currency holders may have done what the official G7 communication, which raised a red flag over recent currency fluctuations, failed to do.
Californians leading the way to consumer bust As it did when the housing bubble began to burst, California is leading the way in the next leg: a consumer bust. Squeezed by rising unemployment, inflation in food and energy costs and plunging home values, Californians are cutting back on spending. Besides causing woes for state and local government, the cutback is giving California's economy another knock and makes further job losses, home repossessions and banking problems more likely. The figures are pretty bad. The median home price has fallen by 29 percent in the year to March, according to the California Association of Realtors, and repossessions are increasing. Unemployment hit 6.2 percent in March, up 1.2 percentage points from the same month last year.
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Thur 05.15.2008
Four Proofs of Silver Manipulation! So, the CFTC says that there is no evidence that the silver futures market has moved silver prices to the downside? If you are willfully blind, or complicit in the manipulation, you won't see anything, or you will say that. Here is my proof that there has been manipulation, especially recently. Over nineteen major coin shops around the world ran out of silver as the price fell from $21 to $16, as I documented here: from March 19th to April 2, and there are many reports even now that it will take a month or longer to get silver! Some of the big name shops included the Canadian Mint, the U.S. Mint, the Perth Mint, Kitco, Amark who is Johnson Matthey's number one silver distributor to the public, and Johnson Matthey is the largest silver refiner in the U.S. Other major online dealers popular with investors who ran out included Tulving, NWT Mint, CNI Numismatics, APMEX, bulliondirect.com and more.
Bernanke urged financial firms to raise more capital Banks and securities firms should continue to raise capital to help them navigate the treacherous waters of the financial market turmoil, Federal Reserve Board Chairman Ben Bernanke said Thursday. "I strongly urge financial institutions to remain proactive in their capital-raising efforts," Bernanke said in a speech to the Chicago Fed Bank's annual banking conference. Bernanke couldn't quite bring himself to criticize federal oversight of financial institutions, saying only that supervisors must redouble their efforts. Earlier this week, San Francisco Fed president Janet Yellen bluntly said that the Fed "missed" some of the risky developments as they were unfolding.
Gasoline prices jump 12% in one month to $3.78 a gallon The average U.S. gasoline price rose about 2 cents to $3.78 a gallon in the last day, according to the Daily Fuel Gauge Report from the Automobile Association of America. The cost of gasoline has risen 22% from its year-ago price of $3.10 a gallon. It's up 11.5% from its price of $3.39 a gallon a month ago.
Industrial output plunges 0.7% in April Industrial output of the nation's factories, mines and utilities dropped 0.7% in April in a broad-based decline led by falling production of motor vehicles, the Federal Reserve reported Thursday. Output of factories fell 0.8%, the biggest decline since September 2005, when Hurricane Katrina disrupted the economy. Industrial production has risen 0.2% in the past year, and is down 1.2% since January. The decline in output was worse than the 0.6% drop expected by economists surveyed by MarketWatch. In another sign of weakness in the factory sector, the New York Fed said its Empire State sentiment index fell to negative 3.2 in May. Readings under zero show more firms are contracting than expanding.
If inflation is up 3.9 percent, why does it feel worse? Between the gas pump and the grocery checkout, Americans have plenty of reasons to list inflation as Economic Enemy No. 1. But how bad is it, really? The short answer: bad enough, but don't judge the problem only by what it costs to fill a fuel tank.It's not surprising that many people feel as if inflation is running hotter than the government's consumer price index (CPI) suggests: just under 4 percent over the past year. Many Americans are paying more, especially if they commute long distances or are putting two kids through college. A perception factor is also at work. The prices now rising fastest are the ones people see the most. Gas prices hit a record $3.76 a gallon Wednesday, according to AAA, up 39 cents in the past month. Food prices in April notched the biggest monthly jump since 1990. So while the prices of some important items bought less frequently – cellphone service, clothing, a house – have fallen or stayed flat, the view at the checkout counter is grim.
Inflation may be worse than consumer price index shows Technical factors held down the government's consumer price index in April, but economists say inflation isn't whipped. The measure of prices rose 0.2% in April, down from 0.3% in March, the Bureau of Labor Statistics said Wednesday. The CPI is up 3.9% from a year earlier. The government's inflation formula dampened April's increase in gasoline costs, which rose 5.8% on an unadjusted basis. The government's formula adjusted that gain to a 0.2% drop because gasoline usually rises this time of year, the government says. "We don't think these favorable inflation numbers will stick around in May," says Jeoff Hall, senior economist for Thomson IFR. "Does anyone believe the May energy index will be unchanged the way the April one was?"
Volcker Says Fed Interventions Risk Political Battles Former Federal Reserve Chairman Paul Volcker warned that Ben S. Bernanke's interventions in securities markets opened the door to political interference that may threaten the Fed's independence in setting interest rates. ``Intervention in a broad range of credit-market instruments may imply official support for a particular sector of the market or the economy,'' Volcker said in testimony to the congressional Joint Economic Committee in Washington today. Support for specific markets ``throws them into political battles,'' he said in an interview, referring to the Fed. Volcker's comments are his most detailed warning yet about the consequences of the Fed's rescue of Bear Stearns Cos. and taking on mortgage securities from bond dealers. He joins former Fed chief Alan Greenspan in anticipating greater meddling with the central bank at a time of rising inflation pressures.
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Wed 05.14.2008
Inflation pressures ease despite food price jump Inflation pressures eased a bit in April despite the biggest jump in food prices in 18 years. The Labor Department reported Wednesday that consumer prices edged up 0.2 percent last month, compared to a 0.3 percent rise in March. The lower inflation reflected a flat reading for energy, which helped offset a 0.9 percent jump in food costs as prices climbed for many basic items, from bread and milk to coffee and fresh fruits. The unchanged reading for energy reflected a big 4.8 percent jump in natural gas prices, offset by a 2 percent decline in gasoline costs. The reported drop in gasoline prices reflected the government's accounting process, which discounts expected seasonal price changes.
Home Foreclosures Continued to Soar in April U.S. home foreclosure filings in April rose 4 percent from March and were a whopping 65 percent higher than a year earlier, real estate data firm RealtyTrac said on Wednesday. Home foreclosure filings in April totaled 243,353, up 4 percent from March, RealtyTrac, an online market of foreclosure properties, said in its U.S. Foreclosure Market Report. The figure is a total of default notices, auction sale notices and bank repossessions. "The total number of U.S. properties with foreclosure activity in April was the highest monthly total we've seen since we began issuing the report in January 2005," James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.
Greenspan sees U.S. house price bottom in '09 U.S. home prices will likely bottom out in early 2009 after the market absorbs excess inventories, former U.S. Federal Reserve Chairman Alan Greenspan told audiences in Asia Wednesday, according to news reports. Greenspan, who spoke by video link to audiences in Hong Kong and Singapore, said the current pace of liquidation will accelerate, but excess supply won't be eliminated until early 2009, according to Dow Jones Newswires, which cited prepared remarks provided to investors by Deutsche Bank, which sponsored the conference. Greenspan told the audience U.S. economy is showing resilience and flexibility. He also said high oil prices are structural and will likely continue due to a lack of investment in capacity and infrastructure, the report said.
My check? It's going to pay off bills Consumers pinched by soaring prices for gasoline, granola and green grapes are increasingly looking at their stimulus checks as a means of making ends meet for at least a month or so. A growing number of consumers told pollsters in at least three separate surveys recently that they will use the money the government is sending them in coming weeks to pay down debt, fill up the family car and stock the kitchen pantry. That smacks at the government's objective to kindle economic growth with frivolous spending on electronics, clothing or a night out on the town. More important, however, is that it underscores the incredibly tight financial condition many Americans are finding themselves in as prices for day-to-day living expenses reach unparalleled levels.
Tax Rebate Will Only Stall, Not Stop Recession The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending, a Merrill Lynch economist said on Wednesday. U.S. households will get tax rebates next month as part of a $152 billion stimulus package passed earlier this year, aimed at propping up an economy hit by the subprime mortgage crisis, losses at top banks and a credit crunch. "I still maintain the business cycle is bigger than the government," Merrill's North American economist David Rosenberg said at a client conference in Singapore. He said the world's largest economy was already in recession as consumer spending and confidence had fallen and jobs losses were rising, with the number of hours worked having fallen sharply.
Indians bristle at U.S. criticism on food prices Instead of blaming India and other developing nations for the rise in food prices, Americans should rethink their energy policy and go on a diet, say a growing number of politicians, economists and academics here. Criticism of the United States has ballooned in India recently, particularly after the Bush administration seemed to blame India's increasing middle class and prosperity for rising food prices. Critics from India seem to be asking one underlying question: "Why do Americans think they deserve to eat more than Indians?" The food problem has "clearly" been created by Americans, who are eating 50 percent more calories than the average person in India, said Pradeep Mehta, the secretary general of CUTS Center for International Trade, Economics and Environment, a private economic research organization based in India with offices in Kenya, Zambia, Vietnam and Britain.
Foreclosure flood: 1,000 auctions per day in California California's foreclosure crisis passed another ominous milestone in April, when more than 1,000 foreclosed homes were auctioned off every weekday at courthouses across the state, the auction tracking firm ForeclosureRadar reported today. The April total of foreclosure sales at auction -- 22,838 for the state -- represents a jump of 44% over March totals and the highest level ever in California, ForeclosureRadar reports. A separate estimate of foreclosures by DataQuick Information Systems had counted 47,171 foreclosures in the first quarter, a rate of more than 500 per day from January to March. The new statistics show every category of foreclosure statistics rose in April.
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Tues 05.13.2008
Why gold remains a valuable hedge for investors A little less than 12 months ago, the world's biggest financial players suddenly found they could not turn some $1.3 trillion of their assets into cash. These assets – bonds backed by US home-buyers with low (or no) incomes – had become utterly illiquid. No one would buy or lend against them, not at any price. And an asset you can't sell or borrow against is worth precisely nothing. The resulting mayhem? It would have sounded frivolous two years ago. But the subprime crisis caused the first run on a British bank run in 130 years, a forced collapse in US interest rates, and the fire-sale of Wall Street's fifth largest investment bank for just 16¢ on the dollar.
U.S. retail sales drop for third month in five U.S. retail sales fell for the third time in the past five months, with April undermined by a big decline in auto sales, the Commerce Department reported Tuesday. Retail sales fell 0.2% on a seasonally adjusted basis, a reversal after a 0.2% gain in March. Sales over the past three months were down 0.4% compared with the prior three months. And for the past year, sales were up 2%. The figures are not adjusted for price changes. Excluding a 2.8% drop in motor vehicles, retail sales rose 0.5% last month, stronger than the 0.1% gain expected and the biggest increase since January. Sales excluding autos were also revised higher for March.
US has April surplus but budget strained The US government posted a $US159.3 billion ($A169.52 billion) surplus in April, helped by the mid-month deadline for individuals meeting 2007 tax obligations, but it was down from the prior year's surplus, the Treasury Department reported on Monday.In April 2007, the surplus was $US177.7 billion ($A189.1 billion). In the first seven months of fiscal 2008, which ends on September 30, the government's budget deficit swelled by 88.4 per cent to $US152.2 billion ($A161.97 billion), from $US80.8 billion ($A85.98 billion) in the first seven months of fiscal 2007. The latest figures point to growing strain on the budget, which is poised to face a deeper deficit as payments under an economic stimulus program agreed by Congress and the Bush administration get into full swing.
China to Shut Mines, Oil Wells, Plants, After Quake China ordered coal mines, chemical plants and oil and gas wells to halt production to avoid further casualties after the country's strongest earthquake in 58 years killed almost 10,000 people. Companies in affected areas must evacuate workers and can't resume output until conditions allow for safe operations, the Beijing-based State Administration of Work Safety said on its Web site today. Sichuan province, where yesterday's 7.9 magnitude temblor struck, holds about 40 percent of China's natural gas reserves and accounted for 22 percent of its output in 2006. The earthquake damaged power plants and transmission lines and may cut the nation's energy demand. The State Electricity Regulatory Commission, China's power industry regulator, today ordered ``24-hour'' monitoring at generation and distribution networks and asked utilities to report accidents immediately.
Credit crisis makes Americans sell possessions Americans who have lost their homes in the property crisis are starting to lose their possessions too as even the cost of storage proves too much for them. Auctioneers across the United States are conducting sales at self-storage facilities, selling off the contents of units belonging to people who have fallen behind with their payments. Thousands of Americans have lost their homes in the sub-prime mortgage meltdown and many have turned to putting their belongings in storage ready for a day when they could buy another home. There are 51,000 self-storage facilities across the US and business has been booming since the recession.
Broker Earnings Estimates Cut by Oppeheimer Oppenheimer cut its earnings estimates on some U.S. brokers based on its outlook on the capital markets and sizable estimated revenue reversals due to an accounting rule that lets companies elect to use fair value for certain assets and liabilities. "We expect that most of the gains booked in the first quarter will be reversed in the second quarter," analyst Meredith Whitney said in a note to clients. The Financial Accounting Standards Board (FASB), which sets accounting rules in the United States, adopted a fair value option in February 2007 that allows companies to irrevocably choose to record the value of certain financial instruments on their balance sheets based on what that instrument could be traded for in a current market transaction
Bank of America: Customers Feel "Significant" Pressure Bank of America says it is seeing rising credit costs, as it continues to wade through a challenging economic cycle. At an investor conference in New York on Tuesday, Liam McGee, Bank of America's president of global consumer and small business banking, said customers are feeling "significant economic pressure" as deflating home prices leaves little equity for consumers to borrow against. The Charlotte-based company says it expects losses in its home equity portfolio to go higher in the near-term and projected future losses in that area that exceed the bank's earlier range of 2 percent to 2.5 percent. "It will be higher than 2.5 percent," McGee said. "I think we are doing all the right things to mitigate it and we will just have to manage through it.
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Mon 05.12.2008
Gold will top $1,000 on US economy and fundamentals THE gold price can top $1,000/oz because of the US economy and supply/demand fundamentals, said Nick Holland, CEO of Gold Fields. "I’m bullish on the gold price - I think it can certainly go over $1,000 an ounce. I’m really bullish," Holland said on Summit Business, a daily television broadcast. "The US economy still needs to be corrected, and certainly there are going to be some changes there - I think the dollar probably is the only that that economy can respond because clearly monetary policy is going the other way," he said. "The natural consequence is that there should be positive outcomes for gold," he said. "The supply demand fundamentals in the sector are good for gold," he said.
Beijing and Riyadh will call the shots on ailing dollar's future Only a month ago the dollar slumped to an all-time low against the euro. And it's just five weeks since the greenback hit a 12-year low against the yen. But now, the US currency has started to strengthen - with the markets talking about a "turning point". On Wednesday, the dollar reached a six-week high against the European single currency, closing in on $1.53 - an improvement of more than 5 cents. And on the same day, the greenback climbed to a 10-week peak against the pound. But does the dollar remain in danger? Could "the rope slip" and the world's pivotal currency still go into freefall? That would plunge America beyond recession and into depression - as inflation ballooned amid soaring import costs, forcing the Federal Reserve to raise rates in the teeth of shuddering slowdown.
Get ready for more bank failures A small bank in Arkansas was recently shut down for "unsafe and unsound practices." More banks are probably going to meet the same fate. Bear Stearns may have been deemed to big to fail. But ANB Financial, a small bank in Arkansas, wasn't. And we might need to brace for even more bank shutdowns. ANB, a privately held bank based in Wal-Mart's home town of Bentonville with $2.1 billion in assets, was closed on Friday by the Office of the Comptroller of the Currency. The OCC is a division of the Treasury Department that regulates banks. Apparently, ANB got into trouble by making bad loans for construction projects in Idaho, Wyoming and Utah in addition to Arkansas.
Why HSBC didn't say 'the worst is behind us' HSBC Holdings did not say "the worst is behind us." But after $3.2 billion in loan impairments from the U.S consumer finance business, and a $2.6 billion write-off from its admittedly second-tier investment banking operation, that's how the market is treating the banking giant's statement. That market cap disparity is no accident -- HSBC has the biggest exposure of the banking giants to emerging markets, where growth continues to be stellar, U.S. recession or not. Still, it's worth noting the lender itself was more cautious. "The outlook for the rest of the year remains unusually difficult to foresee in the current environment," the bank said. Unusually for a bank, it's sounded worries about inflation. HSBC's concerns are worth flagging, because it was one of the first to reveal problems from the subprime crisis.
MBIA Swings to Huge Loss of $2.4 Billion Troubled bond insurer MBIA said on Monday unrealized losses on insured derivatives skyrocketed in the first quarter, pushing the world's largest bond insurer into a sharp quarterly loss. The 2008 figure included unrealized losses on insured derivatives, such as credit default swaps, of $3.58 billion. Factoring in the unrealized losses, MBIA reported negative revenue of $2.95 billion, versus revenue of $729.9 million a year before. In February, MBIA warned investors it could face write-downs on its credit derivative positions. It recorded $3.7 billion of losses from the change in credit derivatives' value in all of 2007, which resulted in net losses for the year of $1.9 billion.
The global slump of 2008-09 has begun as poison spreads The avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year. As a "non-believer" in the instant rebound story, I am not easily shocked by gloomy reports. But the latest note by Standard & Poor's - The Bust After The Boom - gave me a fright. As the Fed's latest loan survey makes clear, lenders have dropped the guillotine. With the usual delay, the poison is spreading from banks to the real world. Diane Vazza, S&P's credit chief, says defaults are rising at almost twice the rate of past downturns. "Companies are heading into this recession with a much more toxic mix. Their margin for error is razor-thin," she said.
New mortgage crisis looms Steep price declines and interest-rate resets will have even prime borrowers simply walking away from their mortgage obligations. California is to mortgage lending what Chicago is to pork bellies. For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast. Riverside County, outside Los Angeles, may be the foreclosure capital of the country, with a rate close to six times the national average. And housing prices are in free fall. California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity.
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Fri 05.09.2008
Citigroup to trim $500 billion in non-core assets Citigroup Inc. plans to reduce about $500 billion of non-core, "legacy" assets over the next several years in a bid to shore up its capital base and divest itself of riskier investments, the banking giant said Friday. CEO Vikram Pandit announced the move during a presentation to investors and analysts at Citigroup's midtown Manhattan headquarters. "These reductions will release capital that we could use in our other businesses," Pandit said. Citigroup's shares, part of the Dow Jones Industrial Average, moved up almost 0.8% in early trading, bucking a broad selling trend on Wall Street. Pandit said the $500 billion figure represents about 22% of the firm's total assets.
AIG shares fall on insurer's huge loss American International Group Inc. shares were under pressure Friday morning, retreating after the blue-chip insurer reported a quarterly loss of nearly $8 billion triggered by huge write-downs on credit investments gone sour. AIG's shares, part of the Dow Jones Industrial Average, traded at $40.90 ahead of the open of trading on the New York Stock Exchange, down 7.4% from the Thursday close. Ratings agency Standard & Poor's downgraded the company and several subsidiaries to AA- from AA. AIG's big aircraft-leasing business was cut to A+ from AA- as well. "Although we expected that AIG would have some losses in the first quarter, the level of the additional losses exceeds these expectations," S&P credit analyst Rodney Clark said.
Oil futures touch an all-time high above $126 Crude-oil futures climbed past $126 a barrel Friday, poised to score a weekly gain of more than 7% with strong demand for diesel fuel and concerns about global crude supplies sending prices to a fresh all-time high. Crude oil for June delivery climbed as high as $126.25 a barrel on the New York Mercantile Exchange. It was last up $1.06 at $124.75. "The poplar theme has now recognized the inordinate advance in heating oil as demand for middle distillates, especially diesel fuel, persists," said Fitzpatrick, in a note to clients. "Traditionally, refiners made more profits at this time of year making gasoline. This, too, has changed." U.S. refiners have been increasing their diesel production in recent weeks, while limiting gasoline output.
Oil Rises to Record Above $125 as Nigeria Cuts Curb U.S. Supply Oil rose to a record above $125 and was set for the biggest weekly gain in more than a year on speculation reduced exports from Nigeria will curb U.S. supplies during the peak summer driving season Nigeria production, which fell to the lowest level in a decade in April, has been cut further this month by rebel assaults on Royal Dutch Shell Plc pipelines. OPEC said yesterday it doesn't need to increase supplies, even as its president warned prices may reach $200 a barrel. ``In the last couple of weeks attacks in Nigeria have been getting worse,'' said Andy Sommer, an analyst with HSH Nordbank in Hamburg. ``Also, the view that oil can go to $200, even though everyone knows it's not the base-case scenario, is bringing in investor flows.''
US shoppers slash spending at end of month Wal-Mart, the world's biggest retailer, today said that many of its customers were forced to cease spending towards the end of each month as high fuel and food costs left Americans penniless in the run up to pay-day. Eduardo Castro-Wright, head of Wal-Mart's US store division, said: "The economy continues to get tougher and the ’paycheck cycle’ is more pronounced for customers than in past months. As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past." He explained that increasingly Wal-Mart customers were trading down and buying cheaper cuts of meat and more pasta to feed themselves.
Barely surviving on credit cards No longer able to turn their homes for cash, Americans are increasingly using plastic to meet their basic living expenses. But many can't afford to pay the bills. These days, more and more people are saying "Charge it." Finding themselves strapped for cash and unable to use their home as an ATM, Americans are increasingly turning to credit cards to cover gas, groceries and other living expenses. But many find themselves struggling to pay the burgeoning bills at a time when even the basic needs are growing costlier. "Other sources of money for a lot of Americans are drying up," said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. "Consumers just don't have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt."
Boats, Motor Homes Get Caught in Credit Squeeze General Electric's decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry. While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won't significantly worsen the industry's admittedly dismal fundamental outlook. Even before GE , which operates one of the country's biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales.
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Thur 05.08.2008
Higher silver prices fail to put a dent in demand Industrial demand for silver rose for the sixth year in a row, and jewellery fabrication slipped by only 2% last year, as high and volatile prices for the metal failed to deter buyers, according to an industry report published on Wednesday. In their World Silver Survey 2008, launched in New York, GFMS and the Silver Institutue report that the average silver price last year, at $13,38/oz, was 16% higher than in 2006. Further, investment demand, which has played a key role in driving prices upwards, had continued to grow since, and had sent silver prices to fresh highs above $20/oz, earlier this year. However, despite the higher prices, industrial demand for silver increased by 7%, to 455,3-million ounces.
Steel Cents Debated in House, No Decision Yet The debate to change the metal composition of U.S. coinage was waged on the House floor Tuesday. With the surging prices of metals like zinc and copper, it now costs more than a penny to make a penny and about 7.5 cents to make a nickel. A new House bill entitled "H.R. 5512, the Coin Modernization and Taxpayer Savings Act of 2008" would seek to change that and it was that bill, which was in debate. The proposed legislation would give the Treasury Secretary the power to change the composition of coins and use less expensive metals. It also would require the United States Mint to produce steel pennies within six months of the bill’s enactment.
Calendar shift lifts April sales; tough trends ahead Consumers seeking value and buying groceries and other necessities bolstered April sales at discounters, and a tighter hold on wallets led to cautious spending in discretionary items, yielding mixed results for apparel retailers. Overall, retailers' sales in April rebounded from a downbeat March, boosted by warmer weather in the first half of the month and a calendar shift in Easter that resulted in an extra selling day. Record-high oil prices and declining housing and credit markets have curtailed consumer spending and sentiment, making spending on discretionary items, such as apparel, not a priority. While the calendar shift lifted April results, and economic stimulus checks may provide some lift to sales in the next two months, retailers are not out of the woods and it may be too early to predict what impact those check may have, retailers and analysts said.
Vallejo Votes For Bankruptcy After nearly five hours, the Vallejo City Council voted unanimously late Tuesday night to file Chapter 9 bankruptcy protection. The city faces a $16 million deficit in the 2008-2009 budget starting July 1 and unsuccessfully negotiated with its police, firefighter and electrical workers unions for contract concessions through 2012. Public safety salaries comprise 74 percent of the city's general fund budget. Most of Tuesday night's 30 speakers urged the council to file bankruptcy so the city can restructure its finances. John Riley, president of the International Association of Firefighters, said he is disappointed by the 7-0 vote to file bankruptcy. "I think it was premature. I don't think they exhausted all their options," Riley said.
Inflation, Wages & The Consumer Shutdown Of 2008 "...Now that cheap money's vanished, where will consumers find enough cash to pay the bills...?" THE CHEAP MONEY BUBBLE might have gone pop. But everywhere we look, the mischief of cheap money continues to cause mayhem for investors, savers, retirees, even school children."I've been in school service for 27 years and this is the worst it's ever been," said Sara Gasiorowski, a food services director for the school board in Indianapolis, to CNN Money on Wednesday. "I have never seen food prices jump up so far." Ms. Gasiorowski is now shuffling ingredients and switching menus to make her budgetary dollars stretch where they used to. But with each dollar buying ever less stuff, "there isn't enough money to go around," grumbles Lynnelle Grumbles, the wonderfully-named food service director of Visalia Unified School District in central California.
U.S. Consumer Debt Rises More Than Forecast in March U.S. consumer borrowing jumped more than double the amount economists forecast in March, indicating a slowing economy is forcing Americans to accumulate credit-card and other forms of debt. Consumer credit increased by $15.3 billion for the month to $2.56 trillion, the biggest monthly rise since November, the Federal Reserve said today in Washington. In February, credit rose by $6.5 billion, previously reported as an increase of $5.2 billion. The Fed's report doesn't cover borrowing secured by real estate, such as home-equity loans. Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.
Merrill Expects U.S. Consumer Loan Defaults to Rise Merrill Lynch & Co. expects defaults on U.S. consumer loans and credit cards will rise, putting strain on the world's largest economy, Chief Executive Officer John Thain said. ``Continuation of falling home prices, rising food prices, rising energy prices and higher unemployment will result in a pull back on the part of U.S. consumers,'' Thain said at a press briefing in Mumbai today. That ``will continue to drag the U.S. economy for the next 6 to 12 months.'' The largest U.S. brokerage has no immediate plans to raise more capital, Thain said. Merrill has written down $31.7 billion in assets while its stock plunged 45 percent since the beginning of 2007 as the meltdown in the U.S. subprime-mortgage market spawned a global credit squeeze.
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Wed 05.07.2008
World gold supply trend 'tragic' – Barrick founder Munk The failure of the gold-mining industry to find and exploit large new deposits of the yellow metal was "tragic", Barrick Gold chairperson and acting CEO Peter Munk said on Tuesday. "The supply side is tragic...it is the very challenge that keeps a company like Barrick and the remaining few major gold companies totally preoccupied," he said at the company's annual shareholders meeting."We're running out of major gold deposits, and the deposits we do have become increasingly difficult to come on stream." Opposition from nongovernmental organisations, as well as increasing, "yet understandable" demands from host countries that they receive a bigger share of profits from mines, was making it difficult to develop successful new operations.
AngloGold to Reduce Gold Hedge Book by 45% New CEO Mark Cutifani is not all talk. After months of openly expressing his distaste for AngloGold’s massive gold hedge book, he announced plans during the company’s quarterly results presentation on Tuesday to sell $1.6 billion worth of shares to cut the company’s hedge book down by about 45%. The company said it would issue about 69.4 million new shares next month under a fully underwritten rights offer, underwritten by Goldman Sachs Group Inc., UBS AG and Morgan Stanley. The shares will be sold for at least 172 rand each, a 35% discount to yesterday's closing price. Existing investors will be offered one new share for every four they hold.
Opportunity on a Silver Platter Once every several months, an opportunity is presented on a silver platter to purchase a spectacular investment in a strong uptrend, with loud indications of continued upward trend in price. Gold is heading well past $1200 and silver is heading well past $25 in the next several months, despite the orchestrated annihilation of honest valid reporting. How many times have the clowns on Wall Street and the financial subservient media networks claimed that the worst was over for the USDollar, gold, the USEconomy, the housing market, and bank bond losses? My guess is about once per year for the last five years, all wrong, and still wrong, just louder wrong now in tone. Has anything been fixed on the economy, housing, mortgages, or banks? No! The flow of USFed repo money to banks has improved, that is all. That is not a remedy, but a bandage tourniquet, grossly misinterpreted.
Credit crisis over? Not likely Short-term rallies and wishful thinking have buyers ready to pounce, but the end of the credit mess isn't yet here. In the meantime, here's some speculation on bank stocks. The major stock indexes blasted to two-month highs last week in defiance of wretched news on the economy, one of those reverso-world moves that the market gods use to keep the public wrong-footed. It seems negative sentiment is so pronounced right now that every time the news is one lumen brighter than total blackness, buyers emerge from their foxholes to nibble. Yet Satyajit Das, an independent debt derivatives expert who for years has warned of an impending disaster in credit markets, doesn't buy it.
Seeing inflation only in the prices that go up Next week, the Bureau of Labor Statistics will release its monthly report on inflation, and it sure is going to sound strange. Wall Street is expecting the bureau to announce that the Consumer Price Index rose just three-tenths of a percentage point in April. Over the last year, the index has risen only about 4 percent. I'm guessing that doesn't square with your sense of reality. In my household, we just broke the $60 barrier for filling up our gas tank. Nationwide, the price of bananas is up almost 20 percent over the last year, while eggs are up 35 percent. Costco and Sam's Club recently began rationing rice, to prevent hoarding. All the while, some of the big-ticket items that have been getting more expensive for years — like health care and college — just keep on getting more so.
Did Fed rate cuts help boost food prices? The Federal Reserve's seven interest rate cuts in as many months, which helped protect the U.S. economy from the full effects of the housing crisis and the resulting credit crunch, also contributed to the spike in raw material costs that has been felt across the globe, experts said. In short, the integration of world markets means that subprime mortgage fraud in Las Vegas is linked to food riots in emerging economies. Booming demand from China, India and other emerging economies as well as high energy costs and a weak dollar pushed up commodity prices, which in turn boosted prices of rice, wheat, corn, soybeans and other staples. Rice prices have doubled in the past year, and in some parts of Africa, local staples are two or three times as costly.
Numbers Racket If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is. The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity.
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Tues 05.06.2008
Credit expenses take toll on Fannie Mae earnings Mortgage-finance giant Fannie Mae reported a much wider-than-expected first-quarter loss of $2.2 billion, as credit-related expenses took a bite out of its bottom line, and said it's planning to raise $6 billion in new capital. On a per-share basis, Fannie Mae lost $2.57 in the first quarter, much more than the 81-cents-a-share loss expected by Wall Street analysts surveyed by FactSet. In the same period a year ago, Fannie Mae earned 85 cents a share. The company said fair value losses and credit-related expenses due to adverse market conditions hit its first-quarter earnings. The planned new capital, Fannie Mae said, will enable the company to "maintain a strong, conservative balance sheet, enhance long-term shareholder value and provide stability to the secondary mortgage market."
UBS to cut 5,500 jobs, sell assets to BlackRock fund Troubled Swiss banking group UBS said Tuesday that it plans to cut 5,500 jobs and sell a $15 billion chunk of its risky mortgage assets to BlackRock Inc. as it reported a first-quarter loss broadly in line with an earlier warning. The group posted a loss of 11.54 billion Swiss francs ($10.99 billion), compared to a profit of 3.03 billion francs a year earlier, driven by write-downs of $19 billion. The bank had disclosed the write-downs at the start of April and said it would report a loss of around 12 billion francs. UBS said it's planning to cut 2,600 jobs in its investment banking unit by the end of the year and around 5,500 -- or 7% of its workforce -- across the group by the middle of 2009.
Merrill cooperating in auction-rate probe Merrill Lynch & Co. said on Tuesday that government agencies have asked the brokerage firm for information about the failure of the auction-rate securities market earlier this year and is cooperating with the investigations. Auction-rate debt carries yields similar to long-term debt but acts like short-term investments because investors can sell at weekly or monthly auctions, when rates reset. The $330 billion market was used a lot by municipalities to borrow money, but it collapsed earlier this year, sending yields on some auction-rate securities soaring. Several regulators have launched investigations into why the market failed.
Bernanke gives green light to Frank foreclosure bill Federal Reserve Chairman Ben Bernanke gave the green light Monday to congressional efforts to prevent foreclosures of homeowners caught in the recent sharp nationwide decline in home prices. "Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," Bernanke said in a speech at the Columbia School of Business in New York. Legislation to aid strapped homeowners is making its way through the House of Representatives. The bill has been pushed by House Financial Services Committee Chairman Barney Frank, D-Mass. It would allow the Federal Housing Administration to back as much as $300 billion in refinanced loans for homeowners facing foreclosure.
Las Vegas used to be a recession-proof oasis. Not anymore. On the third weekend of every April, Emily Ann Frankston and her family—spread out over five states—meet up in Las Vegas for their annual family vacation. This year was different. The only ones to show up were Frankston, her husband and her brother-in-law, and they stayed just two nights instead of the traditional three. "My two sisters back east said airfares were too high, my mother-in-law lost her job in January, and some of the others said they were busy, but we think they didn't want to spend the money," says Frankston, 37, who drove in from the Phoenix area. "We've done this for the past nine years. Even after 9/11 we all came. But this year's it's just us. This recession is really hurting everyone."
Crude hits new high of $121.49 on weak dollar Crude-oil futures gained for a third day Tuesday, rising more than $1.5 to a new record of $121.49 a barrel, as weakness in the U.S. dollar boosted dollar-denominated oil prices. Crude oil for June delivery rallied $1.52 to the new record in early morning trading. It was last seen up $1.23, or 1%, to $121.20 a barrel on the New York Mercantile Exchange. Crude's new record followed the previous session's record closing of $119.97 a barrel. On the currency markets Tuesday, the U.S. dollar traded lower against most of its major rivals. The dollar index fell 0.4% to 72.93. A weak dollar makes oil more attractive as an investment alternative.
Goldman's Murti Says Oil `Likely' to Reach $150-$200 Crude oil may rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report. New York-based Murti first wrote of a ``super spike'' in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record $120.93 today on speculation demand will rise during the peak U.S. summer driving season. ``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.
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Mon 05.05.2008
Demand for gold surges despite rising prices This price rise has raised no heckles, on the contrary the market is as glittering as ever with both buyers and sellers scrambling to make maximum out of the prevailing situation. Yes, we are talking about the bullion market where gold prices have zoomed by about 35 per cent in a shot span of five months. But such a sharp jump in prices astonishingly have not had any dent in physical buying of the metal. Jewellers say age-old notion of high prices deterring sales have been proven wrong in the case of gold. They said high prices are attracting even more buyers as they see gold as the safest investment options with attractive returns.
"It" Might Be a Signal for Higher Gold Prices The government media complex has put a full-court press attack on the precious metals and commodities markets in the past month. Everywhere you turn in the main-stream media lately—CNBC, Bloomberg, CNN, Fox and the like—you hear about the death of the gold and the commodities bull markets. But when you look at the price of gold versus the value of the dollar, another truth becomes evident...The amount of disinformation, outright lies, and complete non-sense being spewed to the public by these manipulative vermin gives you a sense on just how desperate things have become. Not to worry though. Every time the media has started a campaign like this in the past seven years, it's usually been a sign that precious metals are ready to make another move higher.
Tiger economies are snapping at US heels China and India and are moving toward becoming the biggest economies in the world: with 2,4-billion people, or 40% of the world's population and annual GDP growth rates of between 8% and 10%, experts say that they could one day overtake the United States. Professor Pieter Bottelier, of the Centre for Strategic International Studies, says: "If these two countries continue to grow at the current rate, they will overtake America, although that probably won't happen for a number of decades." The countries are very different politically: India is the world's biggest democracy, but China is under tight communist government control. Economically, China has had a head start. Bill Emmott, former editor of the Economist, says in his book Rivals that India's time has yet to come; to date it has been constrained by a poor infrastructure, social divisions, a caste system and mind-boggling poverty. But it is fast making up for lost time and no doubt Emmott wouldn't disagree with Steven Roach at US investment bank Morgan Stanley that "India is on the cusp of something big".
BofA may lower Countrywide bid to $2/share or below Bank of America Corp. is highly likely to negotiate a sharply lower price for Countrywide Financial Corp. , and should just walk away from the deal altogether, an analyst said Monday. Bank of America could face $20 billion to $30 billion in write-downs of Countrywide's mortgage loans after it closes its acquisition of the troubled mortgage lender, FBR Capital Markets analyst Paul J. Miller Jr. told clients in a research note. "BAC should completely walk away from the CFC deal, as CFC's loan portfolio will prove a drag on earnings and could force BAC to raise additional capital," Miller wrote. Even if Bank of America sticks with the deal, it's likely that it will cut its offer "down to the $0 to $2 level," and force Countrywide's bondholders to absorb the remainder of any write-downs, the analyst said.
Buffett Says Credit Crisis Ebbs for Wall Street Firms Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns Cos. ``The worst of the crisis in Wall Street is over,'' Buffett said today on Bloomberg Television. ``In terms of people with individual mortgages, there's a lot of pain left to come.'' Buffett was interviewed before the Omaha, Nebraska-based company's annual meeting, attended by about 31,000 people. Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it arranged a $2.4 billion buyout in March of New York-based Bear Stearns by JPMorgan Chase & Co. The billionaire said he turned down the opportunity because he lacked enough capital and time to craft a solution. More failures and wider panic may have resulted if the regulators didn't halt the run on Bear Stearns, he said.
Fed `Rogue Operation' Spurs Further Bailout Calls A month after the Federal Reserve rescued Bear Stearns Cos. from bankruptcy, Chairman Ben S. Bernanke got an S.O.S. from Congress. There is ``a potential crisis in the student-loan market'' requiring ``similar bold action,'' Chairman Christopher Dodd of Connecticut and six other Democrats wrote Bernanke. They want the Fed to swap Treasury notes for bonds backed by student loans. In a separate letter, Pennsylvania Democratic Representative Paul Kanjorski and 31 House members said they want Bernanke to channel money directly to education-finance firms. Student loans are just the start. Former Fed officials and other Fed-watchers say that Bernanke's actions in saving Bear Stearns will expose the central bank to continuing pressure to use its $889 billion balance sheet to prop up companies or entire industries deemed important by politicians.
Oil Jumps $3 on US Economic Data, Iran, Nigeria Oil jumped more than $3 to over $119 a barrel on Monday on supply concerns from OPEC members Nigeria and Iran and as U.S. data eased worries about the health of the world's biggest economy. U.S. light, sweet crude gained was sharply higher, near the record $119.93 hit in April. That's got people putting money back in this market," said Jim Ritterbusch of Ritterbusch and Associates in Galena, Illinois. Further support came from Iran's announcement on Monday it would not consider any incentives offered by world powers that would constrain its right to nuclear technology. The comments come just three days after major powers said they would make a new offer to convince the Islamic republic to halt its nuclear plans, a process which the West believes Tehran wants to master so that it can build nuclear weapons.
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Fri 05.02.2008
Elliott Wave Gold Update XIX There is a strong probability that the correction in the gold market from the $1033 peak of 17 March 2008 is complete. This view is based on (i) the fact that the anticipated decline of 16% in this correction has been achieved and (ii) that all the minor waves required to complete the correction are now in place.The low in the cash gold market on 30 April 2008 was $861.8, a decline of 16.6% from the peak level of $1033.90 on 17 March 2008. In the Comex active month, gold declined from $1015.5 to $868.2, a decline of 14.5%. In the London PM fixings the decline has been from $1011.2 to $871.0, a fall of 13.9%. In Update 18 it was postulated that the current ongoing financial crisis might result in a slightly smaller decline than the anticipated 16% in the PM fixings, which seems to have occurred.
US Mint Accepting Higher Premiums for Bullion Coin Sales As precious metal prices fall, United States Mint bullion coin premiums rise. The differences make the proposition of purchasing the latest US Mint American Eagle bullion coins nearly overwhelming. The United States Mint appears to be happy to accept higher premiums in many of their bullion coin sales. While the Mint was quick to suspend and then readjust bullion coin prices upward when precious metal prices increased, the same quick but reverse adjustment has not been seen with key Mint bullion coins as precious metals decline. As one example highlights, the Mint announced the pricing of 2008 American Eagle Gold Uncirculated coins on March 19, 2008. The one ounce eagle coin was set at $1,119.95. The day of that announcement London gold closed at $958.50 an ounce.
Investment in Commodity Indexes Soars to $250 Billion Money in funds tracking the two most popular commodity indexes jumped 48 percent so far this year, showing investors have may have influenced record energy, food and metals prices, according to Sanford C. Bernstein & Co. Investments following the Standard & Poor's GSCI index and Dow Jones-AIG Commodity Index have risen to $250 billion from $169 billion at the start of the year, Ben Dell, an analyst at New York-based Bernstein, wrote in a report published yesterday. ``The role that financial funds flow plays in setting the price of commodities remains one of the most hotly debated topics,'' Dell said. ``While the debate was originally centered on the oil market, it is now spreading to the world of corn, wheat and rice, as soft commodities now surge.''
Job losses moderate in April Job losses decelerated in April, suggesting that the nation's economic downturn may be short and shallow rather than long and severe. Nonfarm payrolls fell by 20,000 -- far fewer than the average 80,000 jobs per month lost during the first quarter of the year, Labor Department data showed. The decline was much less than expected. Economists surveyed by MarketWatch expected job losses of 78,000. April's jobless rate inched down to 5.0% from 5.1% in March. Economists had been expected the jobless rate to tick higher to 5.2%. The report suggests that the U.S. labor market didn't continue to deteriorate in April. It may bolster the case that a pause by the Federal Reserve is in order following its aggressive campaign of lowering interest rates. But there will be another jobs report before the next Fed meeting at the end of June.
Fed expands funding, to accept more securities The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it provides to banks and that, for the first time, it was willing to accept bonds backed by auto loans and credit cards. "In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures," the Fed said in a statement. Three-month London interbank offered rate -- a benchmark for lending between banks -- was 2.78% Thursday, well above the 2% Fed funds rate. The Federal Reserve announced an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility to $75 billion from $50 billion, beginning with the auction on May 5.
U.S. Dollar Rally Not Based on Fundamentals "Commodities fell the most in six weeks as a rally in the dollar eroded demand for energy, metals, crops and livestock as alternative investments," reports Bloomberg. We take issue not with the facts-commodity prices have fallen-but with the analysis. The price of energy, metals, crops, and livestock are rising because the supply of those things is rising less fast than the supply of dollars (and U.S. government debt). The Bloomberg analysis casually suggests that investors rotate their portfolios out of greenbacks and into herds of Black Angus...and then back again when confidence in the dollar returns. Inflation, though, begins with the money supply. We reckon that as long as it remains the strategy of the U.S. government to inflate away its long-term debts, commodity prices will rise and the dollar will move lower toward its intrinsic worth.
Linens 'n Things files for bankruptcy protection Linens Holding Co., the operator of Linens 'n Things home furnishings retail chain, said Friday it filed for Chapter 11 bankruptcy protection with plans to shut 120 underperforming stores, becoming the latest retailer to fall under the weight of declining housing markets and other economic worries. The chain, which private equity firm Apollo Management LP bought for $1.3 billion in February 2006, will continue to operate without interruption. It also expects to be well stocked ahead of the back-to-school and holiday selling seasons as it secures $700 million in debtor in possession financing from General Electric Capital Corp.
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Thur 05.01.2008
"YOU AIN'T SEEN NOTHING, YET" When I first started investing I heard those words many times- "Don’t fight the Fed." In light of the bull market in the general markets that phrase generally meant that the Fed can affect interest rates, and interest rates can be very powerful motivators to the markets. Generally that phrase seems to be repeated during stock market bulls, but I guess it certainly also made a lot of sense when Volker raised rates back in the early 80’s, just in the reverse. Still, that phrase seems a bit arcane to me since the Bond markets really set rates with the Fed just confirming them with their official statements. Now, that makes a lot of sense to me since the investors in the Bond markets make their investment decisions based on the environment of the markets. Still, the concept works.
Gulf States May End Dollar Pegs, Kuwait Minister Says Gulf states are considering dropping their pegs to the dollar after the U.S. currency's decline stoked inflation across the region, Kuwaiti Finance Minister Mustafa al- Shimali said. ``Yes, there are some'' Gulf Cooperation Council states considering dropping their pegs to the dollar, which has fallen 13 percent against the euro in the last 12 months, al-Shimali said in an interview in Kuwait late yesterday without naming the countries. ``Some countries will do what we are doing.'' Al-Shimali's comments may restoke speculation of a change in Middle East currency systems that eased after the United Arab Emirates and Qatar last month ruled out any revaluation or dropping the dollar peg in the short term. The issue will remain a key issue as long as inflation remains high.
U.S. initial jobless claims surge 35,000 to 380,000 Erasing the drop reported in the prior week, first-time filings for state unemployment benefits surged 35,000 to 380,000 last week, the Labor Department said Thursday. That level is the highest seen since March. The prior week's claims were revised up by 3,000 to 345,000. The four-week moving average of initial claims fell 6,500 to stand at 363,750. The level of average initial claims is consistent with a weak labor market, wrote John Ryding, chief U.S. economist for Bear Stearns. Economists say claims readings running consistently higher than 350,000 signal significant weakening in the labor market. Claims have been hovering near that level, albeit sometimes falling below it, for a few months now, exacerbating jitters about recession in the U.S. economy. For the week ended April 19, continuing jobless claims rose 74,000 to 3.02 million -- the highest level since April 2004. The four-week average of continuing claims rose 16,750 to 2.98 million, marking the highest level since May 2004 and an indication that displaced workers are having a hard time finding new jobs.
Income gains eroded by inflation in March Higher prices took away all the income gains U.S. households received in March, the Commerce Department estimated Thursday. Consumer prices rose 0.3% during the month, matching the 0.3% rise in incomes that was expected by economists surveyed by MarketWatch. Real disposable incomes were unchanged in March after accounting for taxes and inflation. Real disposable incomes are up 0.9% in the past year. Consumer spending increased 0.4%, or just 0.1% after adjusting for rising prices. Economists expected a 0.3% rise in spending. The report on personal incomes fleshes out monthly details contained in the quarterly report on gross domestic product released on Wednesday. That report showed consumer spending rose at the slowest pace in seven years during the first three months of the year.
Mortgage Applications Drop to 2008 Low Applications for U.S. home mortgages last week slumped to their lowest since December in another sign the housing market is far from recovery, according to data reported by an industry group Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity dropped 11.1 percent to 567.0 in the week ended April 25, its lowest since the week ending Dec. 28. The MBA's index of applications for loan refinancings fell 16.7 percent last week to 1,905.2. The drop in applications follows data Tuesday that showed foreclosure filings more than doubled last quarter from a year earlier, adding to inventories and exacerbating price declines.
Home Depot cuts expansion plans Home Depot Inc., whose sales have been hurt by the declining U.S. housing market, said Thursday that it will slow its new-store growth, abandoning plans to open about 50 U.S. stores in its pipeline to save cash for existing stores. The company also will close 15 underperforming U.S. stores. The world's largest home improvement retailer will take charges totaling $586 million for the actions, most of which will be recognized in the first quarter of fiscal 2008, the Atlanta-based company said. The company will reduce its new store capital spending by about $1 billion over the next three years. It still plans to open 55 new stores this fiscal year, including 36 in the U.S. Beginning in fiscal 2009, it plans to grow square footage by about 1.5% a year. About 1,300 jobs will be affected as a result of the 15 store closings.
White House admits fault on 'Mission Accomplished' banner The White House said Wednesday that President Bush has paid a price for the "Mission Accomplished" banner that was flown in triumph five years ago but later became a symbol of U.S. misjudgments and mistakes in the long and costly war in Iraq. Thursday is the fifth anniversary of Bush's dramatic landing in a Navy jet on an aircraft carrier homebound from the war. The USS Abraham Lincoln had launched thousands of airstrikes on Iraq. "Major combat operations in Iraq have ended," Bush said at the time. "The battle of Iraq is one victory in a war on terror that began on Sept. 11, 2001, and still goes on." The "Mission Accomplished" banner was prominently displayed above him - a move the White House came to regret as the display was mocked and became a source of controversy.
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