VIX has hit 90 in October and November, now it is back to below 40 for the first time since early October. Before the turmoil in the stock market in October, VIX with higher than 35 has been considered record high and a turning point.
S&P is above 900, which is a critical resistance level for the S&P - 50DMA
1. Are we going to see high volatility again in 2009?
2. Is the market too dangerous to be short, and way too early to be long?
3. Has market priced in all the bad news already? How will the bad economy news (4th Quarter GDP, retail, unemployment, housing) and a fresh new round of corporate earnings effect the market?
4. Are we going to see a Bear Market Rally until Obama's inauguration? With hope in Obama, will his $1 Trillion Stimulus package help the U.S. and even global economy? Is it good to buy consumer staples and infrastructure stocks?
5. If market is up in January, then the chance of the stock market being positive in the whole year is quite high. Is January going to be a critical month? The economic data for 4Q, 2008 is going to be bleak. While the 1Q 2009 is going to be even worse, since it is often the slowest and weakest quarter of the year. Many analysts suggested the market is going to see a turnaround in the second half of 2009, true? Will cash finally come off and boost the stock market? Will 2009 be better or worse? Depending on housing, treasury, credit spread, unemployment, and etc.
6. What will be the 2009 Strategy, and how to rearrange portfolios to prepare for 2009?
7. Will technology section be the last to drop and first to recover?
8. Will American become the next Japan? A Nation Deep in Debt.
9. Is commodity going to be up in 2009? Oil? Gold? Good to buy UPL, DIG?
10. We are seeing a Treasury bubble right now, short Treasury. Are we going to see an inflation in the end of 2009?
Wednesday, December 31, 2008
Readings for the Day
From CNBC: Hard Time: Gift Cards are used for Cash, Necessities
From Bonddad: Wednesday Commodity Round-Up:
Bottom Line: Technically, the chart wants to rally. But there are no fundamental reasons to commit to the commodities market right now.
From Bonddad: Employment is looking grim
From Calculated Risk: Office rents off as much as 25% in New York
From Bonddad: Wednesday Commodity Round-Up:
Bottom Line: Technically, the chart wants to rally. But there are no fundamental reasons to commit to the commodities market right now.
From Bonddad: Employment is looking grim
From Calculated Risk: Office rents off as much as 25% in New York
“We have fallen further faster than any time in the last 20 years,” said Mitchell S. Steir, chief executive of Studley, a national brokerage firm that represents tenants. “There has been more damage to real estate values in the last four months than in any other four-month period. The pace with which it has occurred has been astonishing.”
...
[B]rokers say that actual rents have fallen much further than the data suggests. Studley said that the asking rents for 40 percent of the spaces included in its research are listed as “negotiable.”
“No one knows what the rents are, because there has been very little activity for the past three months,” said Ruth Colp-Haber, a partner at Wharton Property Advisors, which represents small to medium-size tenants. “No one is paying attention to the asking rents.”
...
[A]ctual rents have slipped as much as 25 percent since the summer, said Mitchell L. Konsker, a vice chairman of Cushman & Wakefield.
Mortgage rates drop to 37-year low
From Yahoo! Finance: Mortgage rates drop to 37-year low
Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week, reaching their lowest level in 37 years. Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Wednesday, down from the previous week's 5.14 percent, Freddie Mac said.
U.S. loan issuance in 2008 tumbled 55 percent to $764 billion, the lowest volume since 1994, as the global credit crunch choked off lending to American businesses, according to data from Reuters Loan Pricing Corp.
Loan issuance was down from $1.69 trillion in 2007 as banks focused on repairing balance sheets damaged by mortgage losses and had little interest in underwriting riskier deals, RLPC reported on Tuesday.
Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week, reaching their lowest level in 37 years. Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Wednesday, down from the previous week's 5.14 percent, Freddie Mac said.
It was the lowest rate for the 30-year fixed-rate mortgage since Freddie Mac started the Primary Mortgage Market Survey in 1971.
Mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises Fannie Mae and Freddie Mae, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
From Yahoo! Finance: 2008 loan issuance falls 55 percentU.S. loan issuance in 2008 tumbled 55 percent to $764 billion, the lowest volume since 1994, as the global credit crunch choked off lending to American businesses, according to data from Reuters Loan Pricing Corp.
Loan issuance was down from $1.69 trillion in 2007 as banks focused on repairing balance sheets damaged by mortgage losses and had little interest in underwriting riskier deals, RLPC reported on Tuesday.
Investment-grade loans fell to $319 billion, down 52 percent from 2007's 658 billion, while leveraged loan issuance slid to $294 billion, down 57 percent from $689 billion in 2007.
Lending will likely remain anemic in 2009, according to an RLPC quarterly survey of loan market participants. Nearly 54 percent of respondents said their lending will be limited to key relationships.
Institutional loans were especially hard hit as collateralized loan obligations disappeared from the market. Loans purchased by institutional investors slid to $69.6 billion, down 84 percent from 2007's $425.8 billion.
Loans backing leveraged buyouts, a key source of loan growth for the past several years, were down by 80 percent to just $41.3 billion from $209.9 billion.
From Big Picture: Low Mortgage Rates to Spur New Waves of Defaults
Case-Shiller: Home Prices Off Record 18% Last Year
From Yahoo! Finance: House Prices Plunge Again, Now Down 25%
House prices plunged again in October, with the rate of year-over-year decline accelerating to a new record high of 19%. The peak-to-trough decline in the Case Shiller 10-city index is now 25%; the 20-city index is down 23%.
Given the current rate of decline and the fact that house prices still have yet to reach their long-term historical average relative to incomes and rents, we remain comfortable with our prediction of a 35%-40% total decline. Unless the rate of price decline moderates soon, this could even prove conservative.
The Obama administration will throw the kitchen sink at this problem, but we still have yet to hear a plan that might actually work. It's just hard to see how already over-leveraged consumers can be induced to pay above-average prices for houses and take on more debt when layoffs and the recession are still gaining steam. The only solution to the house-price collapse, we think, is more price drops and time.From MarketWatch: Home Prices off Record 18% in Past Year, Case Shiller Says
Prices have fallen in all 20 cities compared with both the prior month and October 2007, and 14 of the 20 metro areas showed record rates of annual declines. Also, 14 of 20 areas sustained declines of more than 10% on a year-over-year basis. Retreating prices are likely to accelerate in coming months due to lower demand for housing.
For Case-Shiller's original 10-city index, prices fell a record 19.1% in the previous 12 months.
The largest price drop for October was seen in Detroit, with a fall of 4.5% amid growing troubles for the Big Three automakers.
For the year, Phoenix chalked up the biggest drop - 32.7%.
Here's how prices in the other 20 cities performed in the 12 months through October:
Las Vegas, down 31.7%; San Francisco, down 31%; Miami, down 29%; Los Angeles, down 27.9%; San Diego, down 26.7%; Detroit, down 20.4%; Tampa, down 19.8%, Washington, down 18.7%; Minneapolis, down 16.3%; Chicago, down 10.8%; Atlanta, down 10.5%; Seattle, down 10.2%; Portland, down 10.1%; New York, down 7.5%; Cleveland, down 6.2%; Boston, down 6%; Denver, down 5.2%; Charlotte, down 4.4%; and Dallas, down 3%.
From Bloomberg: Phoenix Leads U.S. Home Price Decline as Lenders Unload Houses
Phoenix, the desert city that three years ago led the U.S. in home price growth, had the nation’s worst housing market during October as sales of foreclosed properties depressed prices.
From Bloomberg: Phoenix Leads U.S. Home Price Decline as Lenders Unload Houses
Phoenix, the desert city that three years ago led the U.S. in home price growth, had the nation’s worst housing market during October as sales of foreclosed properties depressed prices.
The cost of a single-family home plunged 33 percent from a year earlier, according to an S&P/Case Shiller index. The decline was worse than Las Vegas, where prices fell 32 percent, and San Francisco, where they dropped 31 percent. U.S. house prices fell 18 percent in October, a record in eight years of data.
Arizona had 11,000 notices in October of so-called trustee sales, or foreclosure auctions. Foreclosure sales reduce the value of similar properties in the same area as sellers who aren’t in distress are forced to drop their prices to compete. “This was a case of the higher they climb, the faster and harder they fell.” Phoenix home prices at their 2006 peak had almost tripled within nine years, he said.
Nationally, the fall in home prices has accelerated since the October period covered by the Case Shiller report. Sales of single-family homes in November dropped 7.6 percent from the prior month, the most in two decades. Resale prices fell 13 percent from a year earlier, the biggest collapse since the Great Depression of the 1930s.
Home sales might rise in 2009, but we are going to see a continue deterioration in the prices, and we might even seen an overshoot downward in the housing price.
Weekly Jobless Claims drop due to Holiday
From Yahoo! Finance: Jobless claims drop by much more than expected
The number of U.S. workers filing new claims for jobless benefits slumped 94,000 last week, government data on Wednesday showed, but seasonal factors were likely behind this unexpectedly large decline with the labor market remaining very soft.
The number of U.S. workers filing new claims for jobless benefits slumped 94,000 last week, government data on Wednesday showed, but seasonal factors were likely behind this unexpectedly large decline with the labor market remaining very soft.
Initial claims for state unemployment insurance benefits fell to a seasonally adjusted 492,000 in the week ended Dec 27 from an unrevised 586,000 the prior week, the Labor Department said. It was the lowest reading for initial claims since the week ended November 1, 2008, and the steepest decline since 1992.
A Labor Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.
The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.
The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended December 20, the most recent week for which data is available.
This was the highest since the week ended December 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.
U.S. Weekly Store Traffic Fell 4.9%
From Bloomberg: U.S. Weekly Store Traffic Fell 4.9%
U.S. retail store traffic fell last week as steeper discounts failed to lure shoppers before and after Christmas during what may be the worst holiday-shopping season in four decades.
U.S. retail store traffic fell last week as steeper discounts failed to lure shoppers before and after Christmas during what may be the worst holiday-shopping season in four decades.
Traffic declined 4.9 percent in the week ended Dec. 27 from a year earlier, ShopperTrak RCT Corp. said today in a statement. Total holiday sales will decrease 2.3 percent and traffic will drop 16 percent, the Chicago-based research firm estimated, lowering its previous predictions on both.
U.S. retailers’ sales at stores open at least a year declined 1.8 percent in the week ended Dec. 27, the largest year- over-year drop in almost six years, the International Council of Shopping Centers and Goldman Sachs Group Inc. said yesterday.The ICSC’s forecast last week of a same-store sales decrease of as much as 2 percent in November and December is more than its previously projected decline of 1 percent. It would be the largest decrease since at least 1970, when the trade group started tracking shifts from the previous year.
2008 The Year in Markets
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As of Monday's Close (December 29, 2008):
Major Indices
Dow Industrials -36.04%
Dow Transports -27.04%
Dow Utilities -32.66%
S&P 500 -40.79%
Nasdaq Composite -43.06%
Russell 2000 -39.15%
Major Indices
Dow Industrials -36.04%
Dow Transports -27.04%
Dow Utilities -32.66%
S&P 500 -40.79%
Nasdaq Composite -43.06%
Russell 2000 -39.15%
S&P 500 Sectors
Cons. Staples -19.47%
Healthcare -26.78%
Utilities -33.79%
Telecom -35.35%
Cons. Discretionary -37.70%
Energy -37.86%
Industrials -44.27%
Tech -45.41%
Materials -49.20%
Financials -59.81%
Other Major Sector Indices
Biotech -21.53%
Drugs -21.71%
Gold Stocks -22.34%
Consumer -27.93%
Airlines -31.72%
Retailers -34.44%
Defense -35.87%
Natural Gas Stocks -36.45%
Oil Stocks -39.28%
Housing -43.68%
REITs -46.69%
Semis -50.51%
Banks -53.23%
Cyclicals -55.40%
Healthcare -56.86%
Oil Services -61.02%
Insurance -61.56%
Brokers -65.94%
December Consumer Confidence Record Low
From Yahoo! Finance: December consumer confidence drops to all-time low
Consumer confidence hit a more than 40-year low in December in the face of rising layoffs, while home prices in 10 major U.S. cities dropped in October by the sharpest amount in 21 years.
Consumer confidence hit a more than 40-year low in December in the face of rising layoffs, while home prices in 10 major U.S. cities dropped in October by the sharpest amount in 21 years.
Consumers have been nervous about spending for months -- putting off big-ticket purchases, forgoing new clothes and choosing store brands at the grocery store -- all of which may make this the worst holiday season for retailers in decades.
The Consumer Confidence Index measured by the Conference Board, a private research group, fell to 38 in December from a revised 44.7 in November. That is its lowest point since the group began compiling the index in 1967, and below the previous low of 38.8 in October. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.
The unemployment rate hit a 15-year high in November, and economists expect additional job losses in the first half of 2009. Those saying in the Conference Board survey that jobs are "hard to get" rose to 42 percent in December from 37.1 percent in November, when the unemployment rate stood at 6.7 percent.
Those claiming business conditions are "bad" increased to 46 percent in December from 40.6 percent in November.
The Conference Board's Present Situation index, which measures how respondents feel about current business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.
Tuesday, December 30, 2008
Readings for the Day
Monday, December 29, 2008
Recommand to Watch - Jim Roger - the Founder of Rogers Commodity Index Fund
From Big Picture: Rogers "Prepared for the worst"
How to invest in Roger's Commodity Index Fund? ETF?
He talked about Economy, Currency (don't hold the U.S. dollar), Commodity (Gold, Metal, Oil, Energy, and Agriculture - long commodity), long-term bond (short long-term bond, bond bubble) in 2009. Best way to buy Chinese shares is buying commodities, infrastructure.
How to invest in Roger's Commodity Index Fund? ETF?
He talked about Economy, Currency (don't hold the U.S. dollar), Commodity (Gold, Metal, Oil, Energy, and Agriculture - long commodity), long-term bond (short long-term bond, bond bubble) in 2009. Best way to buy Chinese shares is buying commodities, infrastructure.
Triangle Formation in DIA - similar in S&P
From Afraid to Trade: Triangle Formation in DIA
There’s much discussion occurring regarding the triangle formation occurring in the major US Equity Indexes. Let’s focus for a moment on the DIA (Dow Jones ETF) and see this triangle in action.DIA Daily chart:
The structure is still the same - price is in a confirmed downtrend with price making lower lows and lower highs, and the orientation of the key daily moving averages is in the most bearish position possible (20 beneath the 50 which is beneath the 200).
There are two interesting divergences playing out and perhaps resolving: First is the positive momentum divergence that set-in on the November price lows which preceded the current ‘rally,’ while the second divergence is the non-confirmation from volume into the recent rally - albeit we are experiencing “holiday volume” which throws off volume analytics for the time being.
The 50 day EMA continues to supply price resistance, while price meanders through its flat 20 day EMA. Moving averages have less significance generally when they are ‘flat,’ or the market is in a consolidation phase (as is evidenced by the current price contraction which resembles a triangle formation).
It would be significant if price could break above the $90 level or beneath support at the $80 level.
DIA Weekly Chart (with selected Elliott Waves):
I’ve simplified this chart because I want you to focus closely on the triangle pattern that has formed on the chart - it’s much more evident in the weekly chart than the daily.
Whatever you want to call this move, it is clear that it is a consolidation pattern that can also be known as a “corrective” or ‘counter-trend’ structure.
Going back to the price structure, price remains in a persistent downtrend which is confirmed by the structure of the key weekly moving averages (again, now in the ‘most bearish orientation’ possible).
This Elliott Wave count assumes that we are still in the larger scale Wave 3 down which has been horrendously destructive to investors, and that fractal Wave 5 is perhaps yet to come… and soon.
Should price manage to break to the upside, it would find key resistance via the falling 20 week EMA around $95 per share (Dow 9,500)… but the odds seem to favor a potential downside break which would take price to new lows into 2009 perhaps to the $70 to $73 level (Dow 7,000 to 7,300).
We’re at a critical cross-roads, and just a push in either direction could send funds scrambling… to buy or to sell together. Watch the market very closely, and be prepared for a trend move (impulse… or breakout of consolidation) at any time now.
Three Month Sector Rotation Insight
From Afraid to Trade: Three Month Sector Rotation Insights
Often, the Sector Rotation model can give us insights into a deeper structure of the market, and can highlight possible clues for the pathway ahead. Let’s take a look at the absolute and relative performance of the major AMEX Sectors and see what they might be hinting to us.
In the first graph, we ‘zero-out’ the S&P 500 and then compare the outperformance or underperformance of the nine major sector ETFs to see where opportunities might exist. Keep in mind that we can have a sector outperform the S&P 500 return over a period of time, yet still decline - as is the case currently.
The three best - in fact only - relative outperformers come from “Defensive” sectors in Consumer Staples, Health Care, and the Utilities. Traditionally, money managers ‘rotate’ positions here during down markets or contractionary economic cycles. Remember that many money managers are required to be ‘long’ the market at all times - they attempt to outperform the market by ‘losing less’ than the market during difficult (down) periods.
Sector Rotation can help in determining “Hedged” positions or portfolios, in terms of selecting strong stocks in the strongest sectors and then countering them by ’shorting’ weak stocks in the weakest sectors.
Let’s turn now to Absolute Performance measures (percentages) over the same three-month period.
Virtually everything money managers have touched in the stock market has declined - there are so very few pockets of resilience. If you aren’t required to be long in this environment, do not do so. There’s no need to be a hero.
What does this tell us?
We’re not out of the woods by any means yet and the market is still likely to remain in a downtrend. Money tends to flow from left to right on the Sector Rotation model, the way the graph is drawn. This means we could expect the next source of strength to come from the Financials and Consumer Discretionary (Retail), and when we see those sectors ‘perk up,’ we will have a clue that investors are seeing better times ahead.
We’re not there yet. The Sector Rotation model continues to hint at defensive postures or perhaps avoidance of the market completely (in terms of investment horizons)… although bonds do not offer much of a respite (in terms of very low yields).
Stay safe and continue to compare sectors for signs of emerging strength or continued weakness.
Readings for the Day
From Mish: Krugman still wrong after all these years
From Big Picture: For Sale: 5 BR Detroit Manse, $8995
Here’s an update on the Detroit Housing situation:
-226 homes for sale at $1,000 or under;
-21 homes for sale at $1,00 or under;
-4 homes for sale at $1.
From Big Picture: For Sale: 5 BR Detroit Manse, $8995
Here’s an update on the Detroit Housing situation:
-226 homes for sale at $1,000 or under;
-21 homes for sale at $1,00 or under;
-4 homes for sale at $1.
S&P 500 Review
From Big Picture: Fusion S&P500 Review
The rally started in November is over with light trading volume, and prices are below all DMA. We are also seeing a strong technical support area at 820-840. With light volume, there is no clear direction.
The market is still is well off the lows yet it has remained rather lethargic of late with many rally attempts fading pretty easily. While we have had some interesting days on the upside over the last several months the market still has not been able to display any consistency on the upside. There is a minor, yet significant, short-term downtrend (red line) that comes into play near 900.From Bonddad: Market Monday'sA close above 900 could lead to a move back towards the 1,000 level (a nice move from present levels) where the market peaked in early November (next serious upside resistance level). For the S&P to make any headway higher it needs to eclipse that level. Minor trading supports exist below the marker near 850 (green line) and 820 (lower red line). If we break these levels we can expect a retest of the mid November lows.
Given volume was so anemic leading up to the Christmas holiday we can’t really say whether that last two days were good or bad since there just was no volume and the “C” teams were in control of the trading desks. So we will just have to see this week if the “A” teams are back or larger firms are content to call 2008 closed and leave the substitutes at the controls. Our guess is we can expect the market to be volatile since trading should likely be thin (typical this time of year) with this being a shortened trading week and staff at major investment houses thinned for the holidays. That said we would continue to be to play small here until the market unfurls it next directional move a little better vis-à-vis better internals.
The rally started in November is over with light trading volume, and prices are below all DMA. We are also seeing a strong technical support area at 820-840. With light volume, there is no clear direction.
Holiday Sales Drop to Force Bankruptcies, Closings
From Bloomberg: Holiday Sales Drop to Force Bankruptcies, Closings
U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.
Probably 50,000 stores could close without any effect on consumer choice. Only retailers with healthy balance sheets will survive the recession.
The dismal holiday shopping season may sink some retailers and could take down some U.S. malls struggling with rising vacancies, softening rents and their own large debt loads.
At the end of the October, the International Council of Shopping Centers (ICSC) forecast that national chains would announce 6,100 store closings in 2008 and 3,100 in the first half of 2009.
"If it's one of the anchor tenants, typically that has a disproportionate effect on the overall revenue streams of the location given that the anchors are involved in a lot of foot traffic to the center." Bankruptcies among retailers are likely to rise in the first quarter of 2009.
U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.
Retailers will close 12,000 stores in 2009. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports.
Probably 50,000 stores could close without any effect on consumer choice. Only retailers with healthy balance sheets will survive the recession.
About 200,000 stores may close in 2009, compared with a record 160,000 in 2008. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.
From CNBC: As More US Retailers Fail, Malls Could Be Next VictimThe dismal holiday shopping season may sink some retailers and could take down some U.S. malls struggling with rising vacancies, softening rents and their own large debt loads.
At the end of the October, the International Council of Shopping Centers (ICSC) forecast that national chains would announce 6,100 store closings in 2008 and 3,100 in the first half of 2009.
That was before stores such as Circuit City and KB Toys filed for bankruptcy.
But factoring in nonchain stores and others classified as retail by the Census Bureau, ICSC predicted 148,000 retail stores would close in 2008 and 73,000 would do so in the first half of 2009.
During this holiday season until Christmas, retail chains, which are among the best bankable mall tenants, saw apparel sales fall 19.7 percent, according to SpendingPulse, which tracks holiday sales.
A general rule of thumb is that a mall can stay afloat if 30 to 40 percent of its tenants remain in business. But that percentage will have to be higher to sustain those malls that are burdened with debt, such as General Growth Properties, the No. 2 U.S. mall owner.
Reis forecasts that the fourth-quarter mall vacancy rate could top 7 percent, the highest since Reis began tracking regional mall performance in the start of 2000. It sees fourth-quarter mall rents falling by 0.1 to 0.4 percent. All retail properties, not just large malls, may see their rents fall by an average of 3.5 percent in 2008 and 5.5 percent in 2009. Economic vacancy now stands at about 13.5 percent and is expected to peak at 17.3 percent in the third quarter of 2009."If it's one of the anchor tenants, typically that has a disproportionate effect on the overall revenue streams of the location given that the anchors are involved in a lot of foot traffic to the center." Bankruptcies among retailers are likely to rise in the first quarter of 2009.
But given the long leases and lengthy process of closing a store and winding down operations, its effect on the mall owners may not kick in until next year and 2010 when landlords are unable to release shuttered spaces.
Sunday, December 28, 2008
Readings for the Day
From Big Picture: "If you were dead, they would still give you a loan"
From Big Picture: Words from the (investment) wise 12.28.2008
According to Jeffrey Hirsch, the “Santa Claus Rally” normally occurs during the last five trading days of a year and the ensuing first two trading sessions of the new year. During this seven-day period stocks historically tended to advance (by 1.5% on average since 1950), but when recording a loss, they frequently traded much lower in the new year. Christmas Eve trading on Wednesday marked the start of this year’s Santa Claus Rally period, which ends on Monday, January 5. So far so good, as the combined gain for the S&P 500 Index for the first two days (Wednesday and Friday) was 1.1%.
The debate regarding the outlook for the stock market is still concerned with what represents good value. Comstock Partners comented that the S&P 500’s reported (GAAP) earnings estimate for 2009 had dropped to just over $42. “In the past, secular bear markets troughed at 8 to 10 times reported earnings, NOT operating earnings, which didn’t even exist until 1984. In terms of timing, on average the market bottomed five months before the end of the recession. Therefore the odds are that unless the economy starts to recover five months from the November 2008 bottom, the market decline is not over, although a bear market rally is always a possibility between now and the eventual low,” said Comstock.
From Big Picture: Words from the (investment) wise 12.28.2008
According to Jeffrey Hirsch, the “Santa Claus Rally” normally occurs during the last five trading days of a year and the ensuing first two trading sessions of the new year. During this seven-day period stocks historically tended to advance (by 1.5% on average since 1950), but when recording a loss, they frequently traded much lower in the new year. Christmas Eve trading on Wednesday marked the start of this year’s Santa Claus Rally period, which ends on Monday, January 5. So far so good, as the combined gain for the S&P 500 Index for the first two days (Wednesday and Friday) was 1.1%.
The debate regarding the outlook for the stock market is still concerned with what represents good value. Comstock Partners comented that the S&P 500’s reported (GAAP) earnings estimate for 2009 had dropped to just over $42. “In the past, secular bear markets troughed at 8 to 10 times reported earnings, NOT operating earnings, which didn’t even exist until 1984. In terms of timing, on average the market bottomed five months before the end of the recession. Therefore the odds are that unless the economy starts to recover five months from the November 2008 bottom, the market decline is not over, although a bear market rally is always a possibility between now and the eventual low,” said Comstock.
Economic Data Next Week
Tuesday: Release of the S&P/Case-Shiller Home Price Index, a manufacturing survey for the Chicago region, and a reading of consumer confidence.
Wednesday: Weekly jobless-claims data, an update on mortgage applications and crude-oil inventories.
Friday: Survey of the national manufacturing sector
Friday: Survey of the national manufacturing sector
Chipmakers Faces more Issues
From Mish: When the chips are down, chipmakers resort to other means
Economic pain that has been hitting the financial economy and the brick and mortar retailers is hitting Silicon Valley as well. Many chip companies are short of cash and layoffs are increasing. Memory chipmakers are among the hardest hit.
Technology companies with headquarters in Silicon Valley -- a corridor of office parks stretching between San Francisco and San Jose -- have announced at least 38,000 job cuts since September. Hewlett-Packard Co., Yahoo! Inc., Adobe Systems Inc., Sun Microsystems Inc. and Palm Inc. are among the firms paring their workforces.
The fourth quarter earnings reports are going to be miserable. If you thought the fourth quarter was bad, wait until you see the first quarter. It's almost always true in the tech sector that Q1 is the worst quarter of the year, and Q4 is the best. This year, it may be that even after an unthinkably bad fourth quarter, the first quarter will be nastier still.
PC and mobile-phone sales could be even worse than most people imagine. Peter Misek, an analyst with Canaccord Adams, last week predicted that '09 PC sales are likely to be down 10%-15%, much worse than the consensus view of down 5%-6%, and that mobile-phone sales are likely to be down as much as 20%, rather than the 4%-6% decline the Street expects.
Some of these companies may be trading at book value, but those book values are falling fast. This recession will be longer and deeper than most think, and "values" are likely to become "bigger values". Caution is in order.
Economic pain that has been hitting the financial economy and the brick and mortar retailers is hitting Silicon Valley as well. Many chip companies are short of cash and layoffs are increasing. Memory chipmakers are among the hardest hit.
Technology companies with headquarters in Silicon Valley -- a corridor of office parks stretching between San Francisco and San Jose -- have announced at least 38,000 job cuts since September. Hewlett-Packard Co., Yahoo! Inc., Adobe Systems Inc., Sun Microsystems Inc. and Palm Inc. are among the firms paring their workforces.
The fourth quarter earnings reports are going to be miserable. If you thought the fourth quarter was bad, wait until you see the first quarter. It's almost always true in the tech sector that Q1 is the worst quarter of the year, and Q4 is the best. This year, it may be that even after an unthinkably bad fourth quarter, the first quarter will be nastier still.
PC and mobile-phone sales could be even worse than most people imagine. Peter Misek, an analyst with Canaccord Adams, last week predicted that '09 PC sales are likely to be down 10%-15%, much worse than the consensus view of down 5%-6%, and that mobile-phone sales are likely to be down as much as 20%, rather than the 4%-6% decline the Street expects.
Some of these companies may be trading at book value, but those book values are falling fast. This recession will be longer and deeper than most think, and "values" are likely to become "bigger values". Caution is in order.
Saturday, December 27, 2008
Retails are facing more closings and bankruptcies
Now we face the worst economic times since the Great Depression. The coming year will bring more job losses, bankruptcies, foreclosures, cutbacks. Consumers and companies will spend less, dig out of debt, save what they can. The incoming administration of President-elect Barack Obama will try to do its part -- keeping interest rates low, funding job-creating projects and printing money to stimulate the contracting economy. Recovery will take not months, but probably years.
From Calculated Risk: WSJ: Retailers Brace for Major Change
More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.
Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing.
Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009.January is usually the busiest month for retailer bankruptcies ... and 2009 will probably be especially busy.
Commercial Real Estate Sector is going to be more bleak in the coming 2009!
From Calculated Risk: WSJ: Retailers Brace for Major Change
More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.
Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing.
Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009.January is usually the busiest month for retailer bankruptcies ... and 2009 will probably be especially busy.
Commercial Real Estate Sector is going to be more bleak in the coming 2009!
After Christmas Shopping
It took massive discounts, longer store hours and promotional giveaways to even get shoppers to the mall this season. Still that last minute rush could not save stores from double-digit sales declines across virtually every category.A packed parking lot doesn't always translate into holiday cheer for stores. As I went to shopping on Friday, the mall was crowed on the day after Christmas. However, not many people are holding shopping bags (less than 50%).
As stores offered rock-bottom prices and extended return policies, shoppers returned to the malls the day after Christmas. However, everyone was on the hunt for big bargains on specific items or hoping to return unwanted gifts -- not looking to splurge.
Some stores offered sales of up to 50-75% off, and most retailers offered sales of 20-25% on top of the existing sales off clothing and other items. However, they were not enticing enough. Most of the sales were seen before Christmas too.
That was a common refrain among shoppers Friday, who appeared to be searching for a deal unlike any they had seen so far this year.
That kind of focus by shoppers could spell deep trouble for the nation's stores, which are facing the worst holiday shopping season in decades.Holiday sales -- which typically account for 30 percent to 50 percent of a retailer's annual total -- have been less than jolly.
Many stores are likely to report a loss for the fourth quarter, said NPD senior retail analyst Marshal Cohen. The weak spending through Christmas Eve brought overall holiday sales to levels unseen since the 1980s.
Stores were hoping that big discounts the day after Christmas could lure people out and help stem those losses. And although some malls appeared to be busy with bargain-hunters and gift-returners, analysts said traffic appeared to be lighter than in years past.
It is much worse and more difficult than anyone could expect.
Readings for the Day
From Market Watch: Ten Investment Ideas for 2009
From Mish: Asian Economic Crisis: Spotlight on Japan, China, Korea, Vietnam
Bank of Japan considers extraordinary steps, and Japan announces record budget:
Extraordinary measures are a way of life for Japan. From currency intervention to building bridges to nowhere, Japan has taken extraordinary measures for decades. In that timeframe, Japan went from being the largest creditor nation to a nation deep in debt.
As of November 17th, 2008, BusinessMirror notes "Japan's public debt that exceeds 180% of the GDP, limiting the government's ability to stimulate growth".
China Needs More Policies to Spur Consumption:
Economic policies have failed to rebalance growth away from trade and investment, with the share of consumption in gross domestic product falling to less than 50 percent from 60 percent a decade ago.
Premier Wen Jiabao may unveil a second stimulus package as early as next month aimed at spurring consumer spending as the economy is set for its slowest growth in two decades. The government has already increased subsidies for farmers to buy household electronics, cut taxes on property and is preparing policies to revive slumping car sales in the world’s second- biggest auto market.
Consumer spending represents more than two-thirds of the U.S. economy while household consumption’s share of China’s gross domestic product slumped to slightly more than 35 percent last year from 45 percent a decade ago, according to Chinese government data.
“This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said. Does anyone learn? Credit bubbles caused the great depression, and the great recession that we are in. One might think that someone in authority would learn something from this. But they never do. China wants to follow the US to ruin.
It it not possible to have too much savings. It is possible however to have too much debt and that is where the US is right now.
From Mish: Asian Economic Crisis: Spotlight on Japan, China, Korea, Vietnam
Bank of Japan considers extraordinary steps, and Japan announces record budget:
Extraordinary measures are a way of life for Japan. From currency intervention to building bridges to nowhere, Japan has taken extraordinary measures for decades. In that timeframe, Japan went from being the largest creditor nation to a nation deep in debt.
As of November 17th, 2008, BusinessMirror notes "Japan's public debt that exceeds 180% of the GDP, limiting the government's ability to stimulate growth".
China Needs More Policies to Spur Consumption:
Economic policies have failed to rebalance growth away from trade and investment, with the share of consumption in gross domestic product falling to less than 50 percent from 60 percent a decade ago.
Premier Wen Jiabao may unveil a second stimulus package as early as next month aimed at spurring consumer spending as the economy is set for its slowest growth in two decades. The government has already increased subsidies for farmers to buy household electronics, cut taxes on property and is preparing policies to revive slumping car sales in the world’s second- biggest auto market.
Consumer spending represents more than two-thirds of the U.S. economy while household consumption’s share of China’s gross domestic product slumped to slightly more than 35 percent last year from 45 percent a decade ago, according to Chinese government data.
“This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said. Does anyone learn? Credit bubbles caused the great depression, and the great recession that we are in. One might think that someone in authority would learn something from this. But they never do. China wants to follow the US to ruin.
It it not possible to have too much savings. It is possible however to have too much debt and that is where the US is right now.
Friday, December 26, 2008
Credit Default Swap Update
From Big Picture: Credit Crisis - Signs of Progress
Junk bond yields remain at high levels, as shown by the Merrill Lynch US High Yield Index. However, a slight decline of 200 basis points has taken place since the Index’s record high of 2,182 on December 15. This means the spread between high-yield debt and comparable US Treasuries was 1,982 basis points by the close of business on Tuesday. With the US 10-year Treasury Note yield at 2.18%, high-yield borrowers have to pay 22.00% per year to borrow money for a ten-year period. At these rates it is practically impossible for companies with a less-than-perfect credit status to conduct business profitably.
Barron’s Confidence Index: This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. A declining ratio indicates that investors are demanding a higher premium in yield for increased risk. The Index is at an all-time low, indicating a lack of confidence in the economy.
The graphs of the CDX indices are shown below:
CDX (North America - High Yield) Index
Since a month ago the cost of insuring against government bankruptcy through CDSs has risen for all but nine countries in Bespoke’s list of 38 countries. The table below shows the current
CDS prices, together with month-ago and start-of-year prices.
Argentina, Venezuela and Iceland have the highest default risk. Interestingly, Germany, Japan and France all have a lower default risk than the US at the moment. It now costs $67 per year to insure $10,000 against US default for the next five years. “While this may not seem high, it was at $8 earlier in the year, and $36 one month ago,” said Bespoke.
Junk bond yields remain at high levels, as shown by the Merrill Lynch US High Yield Index. However, a slight decline of 200 basis points has taken place since the Index’s record high of 2,182 on December 15. This means the spread between high-yield debt and comparable US Treasuries was 1,982 basis points by the close of business on Tuesday. With the US 10-year Treasury Note yield at 2.18%, high-yield borrowers have to pay 22.00% per year to borrow money for a ten-year period. At these rates it is practically impossible for companies with a less-than-perfect credit status to conduct business profitably.
The graphs of the CDX indices are shown below:
CDX (North America - High Yield) Index
Since a month ago the cost of insuring against government bankruptcy through CDSs has risen for all but nine countries in Bespoke’s list of 38 countries. The table below shows the currentCDS prices, together with month-ago and start-of-year prices.
Argentina, Venezuela and Iceland have the highest default risk. Interestingly, Germany, Japan and France all have a lower default risk than the US at the moment. It now costs $67 per year to insure $10,000 against US default for the next five years. “While this may not seem high, it was at $8 earlier in the year, and $36 one month ago,” said Bespoke.As shown in Bespoke’s table below, the UK, Greece, the US, Austria and Australia have seen default risk rise the most over the last month. Notably, the US has risen by 87%.
More on Commercial Real Estate
From Mish: Economic Potpourri December 26, 2008
Metlife Drops as Commercial Mortgage Defaults Loom
MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.
The industry, which puts about 10 percent of its invested assets in commercial mortgages, may see losses rise to the highest levels since the early 1990s.
Commercial mortgage defaults are “certainly on the forefront of the radar screen."
The Commercial Real Estate is overleveraged. There is rampant overcapacity in restaurants, furniture stores, appliance stores, nail salons, clothing stores, and anything else you can think of. The way to solve it if for a wave of bankruptcies to shake out the weak.
As retail sales shrank on record, more and more retailers are going to close stores, file bankruptcies. Mall owners need to reduce the rents to prevent losing leases, vacancies are going to soar, empty malls with no tenants will file bankruptcy, all these definitely won't help the commercial real estate market.
Metlife Drops as Commercial Mortgage Defaults Loom
MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.
The industry, which puts about 10 percent of its invested assets in commercial mortgages, may see losses rise to the highest levels since the early 1990s.
Commercial mortgage defaults are “certainly on the forefront of the radar screen."
The Commercial Real Estate is overleveraged. There is rampant overcapacity in restaurants, furniture stores, appliance stores, nail salons, clothing stores, and anything else you can think of. The way to solve it if for a wave of bankruptcies to shake out the weak.
As retail sales shrank on record, more and more retailers are going to close stores, file bankruptcies. Mall owners need to reduce the rents to prevent losing leases, vacancies are going to soar, empty malls with no tenants will file bankruptcy, all these definitely won't help the commercial real estate market.
Holiday Sales Tumble as U.S. Consumers Cut Spending
From MarketWatch: Fresh Survey shows gloomy U.S. retail sales
Data released by MasterCard Inc.'s SpendingPulse unit showed total retail sales, excluding automobiles, fell by 5.5% in November over the year-earlier period and by 8% in December through Christmas Eve. 2008 holiday season is going to be one the worst in decades.
Data released by MasterCard Inc.'s SpendingPulse unit showed total retail sales, excluding automobiles, fell by 5.5% in November over the year-earlier period and by 8% in December through Christmas Eve. 2008 holiday season is going to be one the worst in decades.
Sales of luxury goods, including jewelry, plunged by 34.5%. Excluding gasoline sales, the fall in overall retail sales was more modest, with a 2.5% drop in November and a 4% decline in December.
Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
With the U.S. and global economies in recession, consumers have all but frozen their spending on anything nonessential, leading retailers to slash prices deeper and earlier than usual to attract sales during their biggest selling period.
Results have been lackluster to this point, with the International Council of Shopping Centers slashing its December forecast and projecting retailers' worst November-to-December period on record.
From Bloomberg: Holiday Sales Tumble as U.S. Consumers Cut Spending
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades.
From Nov. 1 through Dec. 24, women’s clothing sales dropped 23 percent and men’s fell 14 percent. Combined electronics and appliance sales tumbled 27 percent, with purchases over $1,000 suffering the most. Purchases over the Internet fared better, with a 2.3 percent decline. Historically, Web sales have posted 15 percent to 20 percent year-over-year sales gains.
But with gift card sales down this holiday season and consumers looking to save money rather than spend it, even the big discounts may not be enough to salvage what looks to be one of the most dismal holiday shopping seasons in years.
Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
Amazon.com Inc. said that the 2008 holiday season finished as its best ever, with over 6.3 million items ordered worldwide on the peak day, Dec. 15 -- a record-breaking 72.9 items per second.
Results have been lackluster to this point, with the International Council of Shopping Centers slashing its December forecast and projecting retailers' worst November-to-December period on record.
From Bloomberg: Holiday Sales Tumble as U.S. Consumers Cut Spending
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades.
Discounts of 70 percent off or more by Macy’s Inc., AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Including fuel, sales tumbled as much as 8 percent. The decline is the worst since MasterCard Advisors started tracking data in 2002 to provide the SpendingPulse service.
From Nov. 1 through Dec. 24, women’s clothing sales dropped 23 percent and men’s fell 14 percent. Combined electronics and appliance sales tumbled 27 percent, with purchases over $1,000 suffering the most. Purchases over the Internet fared better, with a 2.3 percent decline. Historically, Web sales have posted 15 percent to 20 percent year-over-year sales gains.
It took massive discounts, longer store hours and promotional giveaways to even get shoppers to the mall this season. Still that last minute rush could not save stores from double-digit sales declines across virtually every category. Sales above $300 were at a virtual standstill.
That weak spending through Christmas Eve brought overall holiday sales to levels unseen since the 1980s. The results are well below the plus 2.2 percent forecast made by the National Retail Federation in September.
The high-end stores were hit the hardest. Jewelry, handbags and other luxury items sat on shelves. Luxury results through December 24th were down minus 34.5 percent. Stripping out jewelry, sales dropped minus 21.2 percent. When shoppers did splurge, they mainly spent in the $500 to $800 range. How they buy will determine whether some stores have enough cash to survive through 2009.
From Yahoo! Finance: Retailers slash prices to entice holiday shoppers
But with gift card sales down this holiday season and consumers looking to save money rather than spend it, even the big discounts may not be enough to salvage what looks to be one of the most dismal holiday shopping seasons in years.
"The last week of December represents about 14 percent of Christmas sales," said C. Britt Beemer, chairman of America's Research Group. "You can't save a season with only one-seventh of the sales to go." The holiday season -- which typically accounts for 30 percent to 50 percent of a retailer's annual total sales -- has been less than jolly for most retailers.
Oil Could be on a way to $20 a Barrel
From CNBC: Oil Could be on Way to $20 a Barrel: Gulf CEO
The steep drop in oil prices may not be over yet, says the CEO of Gulf Oil.
The steep drop in oil prices may not be over yet, says the CEO of Gulf Oil.
The price of US light, sweet crude could yet move as low as $25, and even $20 if current conditions persist.
Several factors are critical in the move lower, particularly the pressure set against traders in the oil markets, and the control sovereign foreign governments, as opposed to private entities, have exerted on the market since the summer price shock that sent gasoline prices at the pump above $4 a gallon.
"They have a tendency to sell more on the way down, not less," Petrowski said of the governments ruling the energy trade.
In all, he thinks those who believe oil is due for a rebound aren't seeing the global economic factors that are playing into energy prices.
From CNBC: Oil Rises above $36 after UAE cuts supplies
Oil rose above $36 a barrel on Friday after the United Arab Emirates joined leading exporter Saudi Arabia in deepening supply curbs in line with OPEC's biggest ever output cut announced last week.
Abu Dhabi National Oil (ADNOC), the main producer in the UAE, the world's fifth-largest oil exporter, said it would cut supplies of February Murban and Upper Zakum allocations by 15 percent and Lower Zakum and Umm Shaif by 10 percent each.
From Yahoo! Finance: Retail gasoline prices drift to 58-month low
Retail gasoline prices tumbled Friday to the lowest level in nearly five years (58-month low). And while crude futures rose, analysts believed it was a temporary pause in an extended, downward arc as the recession spreads. "We're paying about a billion dollars per day less than we were in July" for gasoline.
Pump prices were driven down mostly because Americans are staying home more. The travel habits of Americans are "fundamentally changing" as drivers clocked 9 billion fewer miles in October, even as gas prices plunged.
Crude futures are down more than 60% so far this year, poised for their worst year on record since crude started futures trading on the New York Mercantile Exchange in 1983.
Japan's Recession Deepens
From Yahoo! Finance: Japan auto production marks worst drop since 1967
Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles. That marked the second straight month of one-year declines and the percentage slide was the biggest since the group began compiling such data in 1967.
Earlier this month, the Japan Automobile Manufacturers Association said it expected demand in Japan will dive next year to its lowest in about three decades. Sales of new autos are expected to stand at 4.86 million in 2009, down 4.9 percent from what it's projecting for this year at 5.11 million. New vehicle sales in Japan have never dipped below the 5 million mark since 1980. They reached 7.78 million in 1990, during this nation's heyday "bubble" economy.
From Bloomberg: Japan’s Recession Deepens as Factory Output Plummets
Japan’s recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.
Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles. That marked the second straight month of one-year declines and the percentage slide was the biggest since the group began compiling such data in 1967.
Earlier this month, the Japan Automobile Manufacturers Association said it expected demand in Japan will dive next year to its lowest in about three decades. Sales of new autos are expected to stand at 4.86 million in 2009, down 4.9 percent from what it's projecting for this year at 5.11 million. New vehicle sales in Japan have never dipped below the 5 million mark since 1980. They reached 7.78 million in 1990, during this nation's heyday "bubble" economy.
From Bloomberg: Japan’s Recession Deepens as Factory Output Plummets
Japan’s recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.
Factory output plunged 8.1 percent from October, more than the 6.8 percent estimated by economists. The jobless rate climbed to 3.9 percent from 3.7 percent. Household spending slid 0.5 percent, a ninth drop.
The decline in production was the biggest since comparable figures were first made available in February 1953. Shipments also fell the most on record. Japan's exports plunged 26.7% in November, the sharpest drop since at least 1980.The yen’s 23 percent gain against the dollar this year is compounding exporters’ woes by eroding their profits. Japan’s currency surged to a 13-year high of 87.14 on Dec. 17.
The ratio of jobs available to each applicant dropped for a 10th month in November to 0.76, extending the longest losing streak since 1998. Wages fell 1.9 percent, the most in four years, underscoring why consumer sentiment slumped to a record low. Retail sales slid 0.9 percent from a year earlier, the biggest drop in 16 months. Weaker personal spending is prompting retailers to reconsider investments.
Thursday, December 25, 2008
Wednesday, December 24, 2008
Stock Market - The Icon of January
From CNBC: January Effect
Why? Because in 31 of the last 36 years, a rally in January was followed by a full-year of gains.
“January is the first month of the year when people set their forecasts. And there’s the state of union address and important agendas laid out,” he says. All those things set the tone for the year.
The January Effect is accurate 91% of the time.
Jan. Change Year Change
2004 +1.7% +9.0%
2005 -2.5% +3.0%
2006 +2.5% +13.6%
2007 +1.4% +3.5%
2008 -6.1% -40.31(YTD)
What’s the bottom line? As the S&P goes in January, so goes rest of year.
2009 Outlook continues to be ugly
From Mish: 2009: Already looking bleak
Destruction of household wealth, bleak employment situation and wage conditions
Housing plunges, declining corporate profits
Destruction of household wealth, bleak employment situation and wage conditions
Housing plunges, declining corporate profits
From CNBC: Outlook '09: Likely Bad, but Just How Ugly Will It Get?
Forget about the good. It’s about the bad and the ugly when it comes to the US economy next year. The big questions are how ugly things will get and how they’ll compare to recessions of the past.
Forget about the good. It’s about the bad and the ugly when it comes to the US economy next year. The big questions are how ugly things will get and how they’ll compare to recessions of the past.
Many economists now expect the economy to contract as much as 5 percent on an annualized basis in the first quarter, followed by a small contraction in the second quarter. Bank of America’s chief economist Mickey Levy is forecasting a decline in every quarter of 2009 and doesn’t see a return to trend, or normal, growth until early to mid 2010.
The recession we are experiencing is going to be at least as bad as 1973-1975 and 1980-1982 periods if not worse. Also, this recession is going to be long and deep, and we won't see recoveries soon.
“With another eight months of declines in home prices, you start to get some modest pickup in sales, followed by a stabilization in construction, not a bounceback,” warns Levy.
Another key yardstick of any recession is unemployment. The jobless rate is widely expected to rise steadily from its current rate of 6.7 percent to 9-percent (or 10%) in 2009 or early 2010. If so, that would be double the expansionary low of 4.4% set in December 2006, something that didn't happen in either of the past two recessions.
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Rich Pedroncelli / AP |
David Rosenberg, chief North American economist at Merrill Lynch, sees another 15 percent decline in house prices. “We don't have a lot of pent up demand,” he told CNBC. “The supply needs to go down.”
The MBA expects rates on 30-year fixed mortgages to plateau at about 5 ¼ percent in the first half of the year, but tighter credit borrowing standards will continue to keep would-be buyers out of the market. Meanwhile, prices will continue to decline, but more moderately.
Obama's stimulus package: "Six-hundred billion (dollars) is the minimum,” says Behravesh “If they can make it bigger -- $700-800 billion, even a $1 trillion. The latter might make sure we come out of it this summer”.
Thus far, a big part of the funds in what’s likely to be a two-year package appears to be earmarked for infrastructure spending, with the usual social safety net measures and some kind of tax cut for low-and middle-income earners.
“There's a limit to how much fiscal stimulus you can do,” says Resler, who, like other critics worries about waste, fraud and pork barrel politics in an infrastructure program.
One traditional worry missing from the list of many economists is inflation. At best, all the money and fiscal stimulus will succeed in stimulating demand, the thinking goes, without accompanying wage and price pressures.
"The increase (in money supply) is necessary but a not sufficient condition for inflation," says Levy. "The turbo-charged Fed easing prevents deflation."
That deflation worry is back on the list.
Allen Sinai of Decision Economics said the economy is in for another three to six months of dismal performance; real recovery will wait until 2010. The stimulus will work; lots of government spending will lift GDP, but the real question will be whether the health of the private section can be restored.U.S. Store Traffic Fell 24% on Pre-Christmas Weekend
From Bloomberg: U.S. Store Traffic Fell 24% on Pre-Christmas Weekend
From Yahoo! Finance: Holiday season magnifies shoppers' frugality
Over the past year, shoppers have drastically changed their spending habits in ways not seen since the 1970s, switching to store brands and discounters like Wal-Mart. During the holiday shopping season, they cut back on their spending, took advantage of big discounts and bought practical gifts.
One of the big worries for stores is what to do with the mounds of items they still have to sell. If 75 percent off before Dec. 25 didn't make people splurge, will even bigger deals afterward do the trick? Another problem is that shoppers shunned gift cards this season. That means they are less likely to return to the stores after the holiday. The new consumer mantra for this coming year is: If I don't need it, I won't buy it.
The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.
A full picture of the holiday season will not be known until Jan. 8, when major retailers report their sales figures.
U.S. retail store traffic fell 24 percent last weekend from a year earlier as deepened discounts failed to entice consumers to spend during what may be the worst holiday-shopping season in four decades. Retail sales declined 5.3 percent Dec. 19 through Dec. 21 because of inclement weather and a slowing U.S. economy.
Many retail stores have offered discounts of as much as 70 percent to lure shoppers seeking bargains, and retailers’ profit margins may suffer as a result.
Traffic decreased 6.5 percent for the week through Dec. 20 from a year earlier. U.S. customer traffic on Dec. 20, also known as “Super Saturday,” fell 17 percent from the corresponding day a year earlier, Dec. 22, 2007.
Same-store sales in November and December may drop as much as 2 percent, the International Council of Shopping Centers said yesterday, more than the previously projected 1 percent decline. That would make it the worst Christmas sales season in at least 40 years.
From Yahoo! Finance: Holiday season magnifies shoppers' frugality
Over the past year, shoppers have drastically changed their spending habits in ways not seen since the 1970s, switching to store brands and discounters like Wal-Mart. During the holiday shopping season, they cut back on their spending, took advantage of big discounts and bought practical gifts.
One of the big worries for stores is what to do with the mounds of items they still have to sell. If 75 percent off before Dec. 25 didn't make people splurge, will even bigger deals afterward do the trick? Another problem is that shoppers shunned gift cards this season. That means they are less likely to return to the stores after the holiday. The new consumer mantra for this coming year is: If I don't need it, I won't buy it.
The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.
A full picture of the holiday season will not be known until Jan. 8, when major retailers report their sales figures.
Oil = $35
From Calculated Risk: Oil Prices: Cliff Diving
Crude-oil futures fell for a third session Wednesday, tumbling 9.3% to close at $35.35 a barrel as government data showed inventories at a key delivery point hit a record.
Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19. It was the highest since at least April 2004, when the government started collecting Cushing data.
The low oil price definitely effected Gulf countries and Russia's economy.
Crude-oil futures fell for a third session Wednesday, tumbling 9.3% to close at $35.35 a barrel as government data showed inventories at a key delivery point hit a record.
Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19. It was the highest since at least April 2004, when the government started collecting Cushing data.
The low oil price definitely effected Gulf countries and Russia's economy.
Coforming Rates Fall Lure Refiance Applications
From CNBC: Mortgage Demand at 5-Year High as Rates Plunge
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Dec. 19 soared 48.0 percent to 1,245.4, the highest reading since the week ended July 18, 2003.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Dec. 19 soared 48.0 percent to 1,245.4, the highest reading since the week ended July 18, 2003.
Interest rates are sharply below the peak of 6.59 percent reached during the summer and below a mere month ago when they were at 5.99 percent, according to the trade group. Interest rates were also well below year-ago levels of 6.10 percent.
The MBA's seasonally adjusted purchase index rose 10.6 percent to 316.5. The index, however, came in well below its year-ago level of 394.5, a drop of 19.8 percent. Overall mortgage applications last week were 106.3 percent above their year-ago level. The four-week moving average of mortgage applications, was up 28.8 percent.
The group's seasonally adjusted index of refinancing applications jumped 62.6 percent to 6,758.6, the highest reading since the week ended July 4, 2003, when it reached 6,768.3. The index was up 252.9 percent from its year-ago level of 1,915.3. The refinance share of applications increased to 83.2 percent from 76.9 percent the previous week. The adjustable-rate mortgage share of activity decreased to 0.8 percent, down from 1.1 percent the previous week.
From Calculated Risk: Conforming Mortgage Rates Fall, Jumbo Spread at Record
The average 30-year fixed rate for home loans of more than $729,750 remains almost 2 percentage points above conforming rates and the spread between them may set a record this month. The difference between the two averaged 2.13 percentage points in December, 10 times the spread from 2000 to 2006 and above last month’s 1.95 percentage points that was the highest on record.
It's jumbos rates that matter for most of California and other higher priced markets.
GMAC approved as Bank for seeking aids
From Yahoo! Finance: Fed grants GMAC authority to seek bailout funds
The Federal Reserve approved GMAC Financial Services' request to become a bank holding company, allowing it to apply for a portion of the $700 billion bailout fund and get emergency loans directly from the Fed.
The Federal Reserve approved GMAC Financial Services' request to become a bank holding company, allowing it to apply for a portion of the $700 billion bailout fund and get emergency loans directly from the Fed.
Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival. The Fed cited "emergency conditions" in justifying its decision.
The move to rescue an auto financing company was just the latest extension of the federal bailout program, which has designed to shore up ailing banks but has grown to include insurers and credit card companies.
What Happened to Proshares ETFs Yesterday?
Stock Market dropped about 2% yesterday. However, SDS dropped $11, and SRS dropped $4. What happened?
Here is why:
From ProShares ETFs Declare Distributions
ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today.
Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.
Does this mean we are going to get the capital gain per share on 12/30/2008?
Here is why:
From ProShares ETFs Declare Distributions
ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today.
Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.
Does this mean we are going to get the capital gain per share on 12/30/2008?
Hotel Occupancy Rate falling
From Calculated Risk: Hotels: Occupancy Rate Falling, delinquencies Rising
Downtown Chicago hotels saw a 13.1 percent dive in the average occupancy rate, to 69 percent last month from a year earlier, according to Smith Travel Research. Nationwide, occupancy dropped 10.6 percent, to a 51.9 percent rate.
Pricing dropped as well, leading to double-digit declines in revenue per available room, a key measure of profitability. In downtown Chicago, the decline was 20.6 percent; nationally, it was 12.9 percent.
Also, Deutsche Bank reported in their Commercial Real Estate Outlook: Q4 2008 (no link), that "hotel loan deterioration now beginning to take-off" and that the 30-day delinquency rate has risen from 6bp to 55bp in just the last three months.
Downtown Chicago hotels saw a 13.1 percent dive in the average occupancy rate, to 69 percent last month from a year earlier, according to Smith Travel Research. Nationwide, occupancy dropped 10.6 percent, to a 51.9 percent rate.
Pricing dropped as well, leading to double-digit declines in revenue per available room, a key measure of profitability. In downtown Chicago, the decline was 20.6 percent; nationally, it was 12.9 percent.
Also, Deutsche Bank reported in their Commercial Real Estate Outlook: Q4 2008 (no link), that "hotel loan deterioration now beginning to take-off" and that the 30-day delinquency rate has risen from 6bp to 55bp in just the last three months.
Durable Goods drop 1% in November
From Yahoo! Finance: Durable Goods drop 1 percent in November
Orders to U.S. factories for big-ticket manufactured goods fell for the fourth consecutive month in November, and a steady rise in inventories suggests production will need to be cut further.
The drop in durable goods orders, while smaller than expected, revealed persistent weakness for the auto industry and a big decline in demand for commercial aircraft. Analysts believe manufacturing will not rebound until the broader economy does -- at the earliest, in the middle of next year.
The Commerce Department reported Wednesday that orders for durable goods fell 1 percent last month, a decline that was smaller than the 3 percent decrease economists had been expecting. However, the decrease was on top of an 8.4 percent plunge in orders in October, which had been the biggest decline in eight years.
The weakness in November reflected a big 37.7 percent fall in demand for commercial aircraft and a smaller 0.2 percent drop in orders for new vehicles and auto parts.
Total transportation orders dropped by 7.4 percent in November. Excluding the big decline in transportation, total orders rose by 1.2 percent in November, the best showing since last June. However, this gain was expected to be only a temporary upward blip as the prolonged recession continues to cut into demand for factory products.
Strength was shown in demand for machinery, which rose by 4.1 percent, and computers and other electronic products, which posted a 5.9 percent increase. But orders for primary metals such as steel fell by 2.9 percent.
Total inventories of durable goods rose by 0.5 percent in November, the 16th increase in the past 17 months. That is likely to spell trouble in the months ahead as manufacturers slash production further in an effort to get inventories more in line with falling sales.
Consumer Spending Drops fifth Month
From Yahoo! Finance: Consumer spending posts fifth monthly drop
U.S. consumers cut spending for a fifth straight month during November and their incomes shrank, according to a government report on Wednesday that pointed to deepening recessionary pressures.
The Commerce Department said spending contracted by 0.6 percent after falling even more steeply by 1 percent in October. Incomes contracted by 0.2 percent after a slight 0.1 percent gain in October, reflecting the strain that rising unemployment is putting on Americans' ability to spend.
Personal savings edged up in November to 2.8 percent of disposable income from 2.4 percent in October, still a low level but a possible sign that the year-old recession is causing wary consumers to put more into bank accounts rather than spending it.
New Jobless Claims 26-year high
From Yahoo! Finance: New Jobless claims jump more than expected
New claims for unemployment benefits rose more than expected last week. The Labor Department reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.
That's also the highest level of claims since November 1982, though the work force has grown by about half since then.
There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week. Wall Street economists had expected the number to increase to 4.4 million.
The elevated level of new jobless applications is just one of several signs that the labor market has deteriorated rapidly in recent months.
Tuesday, December 23, 2008
Readings for the Day
Recessions will be severe as companies adjust investment, production and labor:
From Mish: Fed Destined to become the world's largest auto dealership
From Mish: Consumer Demand for Nearly Everything Plunges
From Mish: Economic Potpourri December 22, 2008
From Calculated Risk: Philly Fed November State Coincident Indicators
From Mish: Fed Destined to become the world's largest auto dealership
From Mish: Consumer Demand for Nearly Everything Plunges
From Mish: Economic Potpourri December 22, 2008
From Calculated Risk: Philly Fed November State Coincident Indicators
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