In case you are wondering about inflation, retail gasoline just hit a new high, breaking $4.10/gallon, even thoughoil prices backed off a little bit.
FWIW, it’s not just oil. BHP Billiton and China’s Baosteel just negotiated a 96.5%rate hike.
The currency markets are predicting that the ECB won’t raise rates again, so the dollar strengthened a bit.
Finally, in real estate, we are seeing soaring home equity line of credit delinquencies.
As expected, today was a busy day, we had the ECB raising its benchmark interest rate 25 basis points to 4.25%, though investors were heartened that the accompanying statement appeared to make further hikes less likely.
We also had 62,000 jobs lost in the US, though the statistical witches brew known as the official unemployment rate stayed at 5.5%.
Of course, the “adjustment” for April and May added another 52K lost jobs.
Once again, I have to point you to Barry Ritholtz, who notes that the adjustments to that number are sick:
June 2008 was 177k versus June 2007 155k
Construction Gains +29k
Professional & Business Services +22k
Leisure and Hospitality +86k
Construction gained workers? Leisure and hospitality picked up 86K jobs? When the number of people traveling is dropping?
We need a truth and reconciliation commission for our economic stats generating agencies.
I would also note, as Mr. Ritholtz does, that the number of new unemployment claims jumped to 404,000, which does not include those people who will now get an additional 13 weeks.
What’s more, the SM nonmanufacturing index fell to 48.2% from 51.7%, indicating the service sector is taking it on the chin too.
It appears, however, that investors expected worse, as the dollar actually strengthened after all this.
Behold the power of low expectations.
However, despite the dollar strengthening, oil hit a new record, hitting $145.85/bbl mid day, and retail gasoline hit a new record too.
In real estate, we are seeing home mortgage rates down for the first time in 3 weeks, and we have demand for office space shrinking.
Chart pr0n:
Given the poor fundamentals for the US dollar, trade and budget deficits, and the near certainty that the European Central Bank will bump rates to fight inflation, Citigroup Global Markets Inc. is predicting s major and abrupt fall for the dollar.
The trading pattern, including a so-called double-bottom that tested lows, resembles the one before Feb. 26 that preceded the surge to $1.6019 per euro, analysts Tom Fitpatrick in New York and Shyam Devani in London wrote in the note today.
They are right, the pattern looks similar.
In fact, you see it over longer periods:
It should be noted that the Canadian dollar is at a 2 month high too, so I expect things to be down tomorrow, and I agree with their prediction of $1.69:€1.00 by September.
It’s a pretty slow day news wise, because everyone is waiting on the ECB’s decision on interest rates, and the latest unemployment numbers.
That being said, both Oil and gasoline hit new records, and the dollar is mixed.
Of more interest is, and some alarm, is that the the National Employment Report from Automatic Data Processing shows that 79,000 private sector jobs were lost in June, worse than the expected 40K jobs, and the worst number since 2002.
We also have factory orders rising, which sounds like good news, until you look closer and realize it’s all energy costs.
Construction spending is still down, though at an 0.4% seasonally adjusted rate, which is better than the predicted 0.6% rate.
Both oil, still above $140/bbl, and retail gasoline hitting another record.
Part of this is because the dollar is getting pummeled and that tends to drive oil higher.
Consumer spending jumped 0.8% in May, largely driven by the income tax rebates, though one wonders how much of that spending went into people’s gas tanks.
What’s more, given that oil hitting a new record, even if retail gasoline is edging a bit lower, it’s highly unlikely that the giant sucking sound coming from our cars will change.
What’s more, this is continuing to drive the dollar lower.
At the core of the American economy, we have been living beyond our means for many years, and there will be some painful adjustments.
Which matters to us because it means that it is likely that their central bank will raise rates, placing further downward pressure on the dollar.
Of course, their CPI data shows a 1.5% inflation rate, and their central bank rate is ½%, so both are nowhere near the US rate.
It looks like the foreign currency markets thought the Fed was not aggressive enough regarding rate hikes, since the dollar is down against the Euro.
Not surprising, since the ECB, the Fed’s counterpart, is already raising rates, and has signaled that it will continue to do so.
Consumer confidence plunges to the 5th lowest level ever, 50.4, as opposed to the predicted 57, from 58.1 last month.
Considering that home prices are down yet again, this time the Case-Shiller index was down 1.4% from March, and 15.3% year over year, it’s natural that people won’t feel confident.
These numbers spooked the currency markets too, with the dollar trending down.
Oil prices are up again, largely because of concerns of instability in Nigeria, though retail gas prices are down $0.003 from yesterday.
And just in case you are wondering, energy inflation is hitting prices more generally, with Dow Chemical raising prices 25%, even though it raised prices 20% last month, and UPDATE: Lowe’s is seeing “unprecedented” price hikes from its suppliers.
Stagflation, here we come.
As to the “stag” part, the fact that Toyota is scaling back its sales goals because of weakness in the economy, even though there are are months long waiting lists for the Prius, would indicate that no one is making good sales right now.
In the interest of fairness though, there are reports that Toyota is cutting back on Prius shipments to the US, because they can get more money in Europe.
I’m lazy, so let’s just say, Oil up, retail gasoline up, and dollar down.
I’m beginning if I should stop covering the above swings daily….day-to-day has too much noise to signal.
On the other hand, the rumors of massive writedowns at Citi over mortgages, LBO loans, CDOs, etc. is probably more significant, as is the fact that Moody’s finally cut MBIA’s credit rating.
Moody’s Investors Service on Thursday stripped the insurance arms of Ambac Financial Group and MBIA of their AAA ratings, citing their impaired ability to raise capital and write new business.
….
Moody’s cut Ambac Assurance three notches to “Aa3,” the fourth highest investment grade, and downgraded Ambac Financial three notches to “A3,” the seventh highest investment grade, from “Aa3.”
MBIA Insurance was cut five notches to “A2,” the sixth highest investment grade, and MBIA Inc was cut five notches to “Baa1,” three steps above junk, from “Aa2.”
This is actually more significant than just making their borrowing money more expensive, it means that some of the holders of insurance contracts the right to terminate or require the additional collateral from the company.
It’s what Atrios calls, “Another Jenga Piece” coming out.
Weekly unemployment claims fell 5000 to 381,000 from the week before, though predictions had been for 375,000. It’s noisy, but the number is still too damn high, even if the leading indicators are up for the 3rd straight month (though not by much).
I would be more concerned that the Philadelphia Business Outlook Survey by the Federal Reserve went down when the experts predicted an improvement. (As Philly goes, so goes the nation’s economy, at least that’s how the Fed sees it).
Energy news was generally good though. Oil dropped because the Chinese are going to stop subsidising retail gasoline and diesel purchases, which should reduce demand considerably, and retail gasoline prices fell for the 3rd day in a row to $4.073 a gallon.
For some reason, the dollar fell too, though conventional wisdom would say that it should have risen.
On a day to day basis, there is more noise than data, you get a better picture on (at least) a weekly look.
In any case, I would not be hoping for a quick real estate turn around. Mortgage rates just hit a 9 month high, and all indications are that it will go higher, particularly since Triad Guaranty’s mortgage insurance subsidiary is shutting down, which is the first time that I’ve heard about a mortgage insurer shutting down.
If this becomes more common, it will force mortgage rates up, and home sales and prices further down.
But it wouldn’t be fair for me to talk about insurers without talking about the monoline insurers, who are insolvent, but still have AAA ratings from the agencies…at least from some of the agencies.
Ambac Financial, the second largest of the monoline insurers, is terminating its contract with Fitch Ratings, because Fitch dropped their ratings.
They are the 4th monoliner to drop a ratings agency because they don’t like the truth, and it screams out for meaningful regulation.
Well, I’d be worried if I had to job search, because about 1/3 of employers surveyed by the Business Roundtable expect layoffs in the next 6 months.
Needless to say oil heading back up, and the dollar heading down would indicate that those 1/3 of executives surveyed are being prudent, even if retail gasoline prices fell for the 2nd day in a row, which hasn’t happened in quite a long time.
Currency gets even more interesting when one realizes that the Chinese Yuan has gained 20% vs the dollar since it’s been allowed to “kind of sort of float” against the dollar by pegging to a basket of currency, it’s gone from 1 Yuan= $0.1208 to 1 Yuan=$0.1453.
What’s more, it looks like a strong Yuan may be the only way for the Chinese to keep their inflation down, by cooling off exports and lowering the cost of imports, particularly food and fuel, so they may continue to take actions to strengthen their currency, essentially exporting their inflation to us.
Real estate continues to suck too, with mortgage application volume falling last week and the Architecture Billings Index dropping two points.
The Empire State Manufacturing Index droppeed 5 points, to -8.7 (0 is neutral), indicating further weakness.
Oil is down for the day by a quarter, but it hit a new record of $139.89/bbl before settling, and retail gasoline hit another record, now having hit a record on something like 25 days of going back a month.
It’s not surprising that the dollar was down today, though I’m not sure if this drove oil, or oil drove this.
In banking, we have Barclays looking at selling shares to raise capital to cover losses in the US mortage market, and Lehman had some sort of hush-hush weekend meeting, which might indicate some problems, though it’s reassuring that they reduced their mortgage holdings by 20%, which indicates a bit of common sense.
Well, the Federal Reserve’s beige book is reporting that economic growth is generally weak, though better than the last one two months ago, but James Bullard, President of the Federal Reserve Bank of St. Louis is saying that inflation is their primary worry right now, joining Bernanke and Federal Reserve Bank of New York president Timothy Geithner.
Canada is concerned about inflation too, with their central bank holding rates steady instead of lowering rates, as was expected, which pushed the Canadian dollar up.
I think that it’s likely that we will see inflation concerns in Japan driving central bank policy there too, as they just raised their 1Q GDP estimate to 4%, which is high enough to raise inflation concerns.
This would imply interest rates going up in the relatively new future, which would undoubtedly force another dip in house prices.
Of course, the resets coming in option ARMs may do this before rates get raised:
This is a scary picture.
There is some not bad news in real estate, Mortgage applications rose 10.9% last week, though one wonders how much of this is driven by bargain hunters REOs*, which was what drove the recent increase in existing housing sales.
More generally, the lack of confidence is not limited to real estate, as evidenced by the concerns that the LIBOR† is still not trusted, and that the proposed changes to it are largely viewed as inadequate.
In brighter news, rates are falling onauction rate securities, those financial instruments that were supposed to be as good as a cash account, but have locked up investor money.
This implies that some confidence in the auctions is returning to the market, and as a result, governments are redeeming fewer of the bonds, about $2 billion a week, down from over $5 billion/week for the past few months.
Still, we have problems in energy, with oil prices up over $5/bbl, and gasoline hitting a new record, $4.052/gallon.
*Real Estate Owned. Property which is in the possession of a lender as a result of foreclosure or forfeiture.
†London interbank offered rate, a critical measure used to do things like set credit card rates and mortgage rates adjustments.
The big news, though I’m not sure if it’s significant, is that, “The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months.”
We are starting to see bargain hunters, but prices are still falling, and that is at the core of the housing bubble collapse. People are under water, and can’t sell to get out from under.
Review this article on , the price collapse of exurban McMansions. There is still a lot of pain to go, particularly since many of these homes are poorly built.
I wonder how many will end up multi-residential dwellings.
The dollar is down today, which implies further energy price increases and, eventually, higher interest rates.
Oil fell $4.19 today, which is not surprising after Friday’s spike, but retail gasoline prices rose again, to above $4.00/bbl. I filled up on the weekend at $3.93….I never knew that I lived in a low cost gas area.
Finally, Lehman lost $2.8 billion in Q1 of 2008, so this investment banks have a long way down to go.
After 5 straight months of non-farm payroll job cuts, we are finally seeing an increase in the unemployment rate, ½% to 5.5%. It’s the biggest rise in 22 years, and it appears that the we’ve run out of discouraged workers, who are not counted as unemployed, to keep the rates low.
Oil, which had been trending down since May 22, reversed itself and hit a new record, peaking at $138.36/bbl. Retail gasoline, however, finally fell a bit (scroll down), down to $3.986 yesterday’s record of $3.989.
That’s the first time that gasoline prices have fallen in nearly a month.
Not surprisingly, all this has pummeled the dollar which has weakened to $1.5751 from $1.5592 yesterday to the Euro.
BTW, it’s not just monoliner insurers that are hurting, Fitch has downgraded mortgage insurers MGIC and PMI ratings, two of the larger mortgage insurers to to BBB+ from A.
If they go under, millions of people will technically be in default on their mortgage until they find another insurer.
Given all this, it’s no surprise that Federal Deposit Insurance Corp Chairman Sheila Bair is saying that we may see some failures of larger banks.
Well, retail gas prices set a new record high again, $3.978/gallon, making 26 new records in 27 days, and yesterday was flat, even though oil fell just under $4 to $123.99/bbl, and it’s $11.19 lower than the record on May 22.
Lehman is expected to post a loss of around 1/3 billion, and is making noises about selling more stock to raise about $4 billion in capital, which has driven the dollar down a bit.
The fact that the dollar has fallen today is odd, given that Bernanke has said that he is concerned about the weak dollar and that further rate cuts are unlikely, both of which should serve to strengthen the dollar, at least in the short term.
In the mean time the Fed shoveled another $75 billion to banks as a part of their sh&^pile for cash scheme, so perhaps someone is noticing the sound of printing presses at the Bureau of Engraving and Printing going to warp 9.
Finally, we have Thornburg Mortgage delaying its earnings report to the SEC, which in these times almost always means bad news.
CNN is reporting that Consumer spending was flat relative to inflation, which really is not true, since the CPI is crap, and because consumer spending includes food and energy, which are going through the roof, so everything else was down.
It looks like there will be more downward pressure on the dollar, as Euro-zone inflation is at 3.6%, which means that the ECB will definitely not cut rates, and might raise them, though the dollar strengthened slightly today.
BTW, the report of the improved growth in the intermediate report on US GDP? It’s really a contraction, as Barry Righoltz notes, the gains weredefense spending, inventory builds, and exports, with the rest of the economy at -0.4%.
Go to his site for the chart pr0n.
In energy, oil rebounded a bit from yesterday’s fall to $127.35/bbl, and retail gasoline hit a record yet again.
Well, the Oracle of Omaha very bearish on the economy. Warren Buffett is predicting a long and deep recessions.
This is not all that surprising a conclusion seeing as how consumer confidence index fell to 57.2, well below the prediction of 60, and the lowest number since October 1992.
On the brighter side, the dollar has strengthened a bit, and crude prices have fallen, though Gas prices hit a new all time high for the 20th time in 20 days.
Even if oil prices moderate, the bond prices are falling because of inflation fears.
Basically, if you expect inflation, you don’t want to hold a bond with a fixed interest rate, and so if you want to sell your bond, the buyer wants a bigger discount.
In real estate, we have home prices falling an eye popping 14.1% year over year:
The S&P/Case Shiller composite index of 20 metropolitan areas fell 2.2 percent in March from February and plummeted a record 14.4 percent from March 2007.
Economists expected prices for the 20-city index to fall 2.0 percent on month and 14.0 percent from a year earlier, according to the median forecast in a Reuters survey.
This is ugly for anyone who wants to buy a home, and the fact that we are seeing skyrocketing property tax delinquencies means that people who want to stay in their houses may find that municipal services are shrinking.
In banking, we have UBS saying that the mortgage bloodletting is not over, and US savings & loans setting aside $7.6 billion against potential losses in the home market, so if anyone is telling you that this has bottomed out, don’t believe them.
Already covered the real story, but this cartoon was too good not to show.