They are threatening to, “cut off financing for as-yet-unspecified programs in Iraq that are not directly in support of U.S. troops,” but in the end, they will once again collapse like a bunch of overcooked broccoli to George W. “@9% Approval” Bush.
Even though it is clear that these deals would “deepen political tensions in Iraq and put our service members in even greater danger,” when push comes to shove, I expect more capitulation from the Dems.
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.
Well, it looks like the Iraqi oil ministry, likely on the advice of the American advisers who work there, have cut some deals with some oile companies for field maintenance
Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for No-Bid Contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat.
(emphasis mine)
No bid contracts…says it all.
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.
We now have the Fed’s report on national industrial activity, and the may disappoints, with activity falling 0.2% when an 0.1% increase had been predicted by economists.
I’m not sure if it factors in inflation, but if it does not, then those numbers are absolutely horrific, as the producer price index rose 1.4% in May, which is grim….Over the last year, the PPI has gone up 7.2%.
Note that this is going on while housing starts fell 3.3%, which is the lowest rate since March of 1991, 17 years.
No wonder that the builders’ confidence survey just hit a record low, matching the record established in December of last year.
Of course, that doesn’t take into account that the National Association of Realtors isn’t getting the numbers that they report right. They claimed that NJ home sales were up 4% in the Q1 when they were down 30%….that’s a hell of a “mistake”.
It’s no wonder that Goldman Sachs is suggesting that banks may need to raise another $65 billion to cover mortgage losses.
It’s even less of a wonder that investors are waiting for more dividend cuts from banks. No profit should mean no dividends.
Of course, the Fed is continuing to let banks get free money for sh%$ pile assets, this time to the tune of $75 billion.
There is good news in energy though, with both oil and retail gasoline coming down a bit today.
The standard wisdom would suggest that this was because of a strengthening dollar, but the greenback fell today.
More accurately, it’s something very similar to diesel fuel produced by genetically altered microbes.
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.
It looks like Cuban may be pumping over half a million barrels a day in the next few years, and this may change minds about the embargo.
There are a number of reasons, the first being that US oil companies will want to be in the game, the second is that will mean that there will be oil rigs in spill distance of the Florida coast, and the tourist industry there may not be so sanguine about, for example, a Brazilian firm drilling.
And once again, it’s the folks at McClatchy who call him on it, and no one else seems to notice.
This time, he’s claiming that the Chinese are drilling off the Cuban coast, and using that as a justification for drilling in the Arctic National Wildlife Refuge (ANWR).
Well, not true, and not just the Chinese:
Yet no one can prove that the Chinese are drilling anywhere off Cuba’s shoreline. The China-Cuba connection is “akin to urban legend,” said Sen. Mel Martinez, a Republican from Florida who opposes drilling off the coast of his state but who backs exploration in ANWR.
“China is not drilling in Cuba’s Gulf of Mexico waters, period,” said Jorge Pinon, an energy fellow with the Center for Hemispheric Policy at the University of Miami and an expert in oil exploration in the Gulf of Mexico. Martinez cited Pinon’s research when he took to the Senate floor Wednesday to set the record straight.
It’s not just Cheney. It’s also John Boehner, and George Radanovich.
If a Republican says that the sky is blue, bring a damn unbrella.
Rising gas prices are leading more people to get out of their cars and use mass transit.
Shocking, huh?
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.
China, in response to inflationary pressures, and the fact that a number of their banks are insolvent by western standards, just hiked their reserve requirements, meaning that they have to keep more in reserve, and lend less out of their deposits, which, not surprisingly has tanked Asian markets.
Given that the US trade deficit widened under the pressure of rising oil prices, there may be another purpose: to slow things down before US demand drops off a cliff, particularly when Ben Bernanke is signaling rate hike strongly.
In any case, oil fell a bit, but gasoline is still hitting new records, which implies that a lot of money is still going to petro-economies.
It looks like the British Bankers Association may be taking steps to fix the problems with LIBOR reporting, where this critical rate looks increasingly to have been gamed by member banks, by tightening scrutiny on the transactions, though they are still whining about how it will hurt, “What we do here in the U.K. must match others … maintaining competitiveness is essential to the U.K. industry.”
If you crank out phony numbers, it will hurt your bank more than any other thing that you can do.
Meanwhile, back in the good old USA, Q1 delinquencies rose 62% over a year ago.
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.
Weekly initial unemployment claims were less than expected, though the 4 week moving average of people receiving unemployment benefits was up.
If there is a “wealth effect”, then this might be the side effect of the not wealth effect, as household net worth dropped by $1.7 trillion in 2Q of 2008.
A lot of this drop is due to the real estate market, where there were over a million homes in foreclosure in Q1 of 2008, 2.5% (one in 40 for the mathematically challenged) of all loans being serviced by the Mortgage Bankers Association, which explains why Federal Reserve Vice Chairman Donald Kohn expects to see more write-downs and losses for banks.
Another day, another record for retail gasoline, $3.989/gal, and oil rose to $125.05/bbl, largely on the European Central Bank holding its interest rate at 4%, and it’s president publicly worrying about inflation, which implies rate hikes and a weaker dollar, which tends to push oil prices up.
Finally, monoline insurers MBIA and Ambac are delaying attempts to try and raise capital because of the prospect of a rate cut by Moody’s.
ADP’s private report suggests 40,000 new jobs, though it should be noted that , “U.S. companies’ planned layoffs rose 15 percent in May from April to the highest monthly total since December 2005” it has been noted that, “ADP has been inaccurate of late, overpredicting payrolls,” so I would wait for the government figures.
On the other hand, productivity rose more than predicted in Q1 of 2008, though all indications is that this was not more stuff to do, but simply less stuff doing it, “Aggressive cuts in worker hours will help shield corporate profits and keep wage-related cost pressures under control, helping to reassure the Fed.”
Personally, I’m inclined to take the pessimistic assessment of this, because the Institute for Supply Management’s (ISM) non-manufacturing index fell to 51.7, indicating a softness in the service sector.
Additionally, we have the forecasting a world wide growth rate of only 1.8% this year, and weekly mortgage applications fell to a 6-year low.
Inflation worries are now weighing down the dollar, though oil prices are down a bit more to $122.48/bbl, but retail gas prices rose to a new high again, $3.983/gal.
Lastly, we have a visit from our old friends, the monoline insurers, with Ambac and MBIA getting hammered because Moody’s is finally considering a downgrade on their debt.
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.
The current estimates for may have payrolls dropping by somewhere around 60,000. This number is rather more indicative than the unemployment rate, since those who have given up are not counted for the latter.
To my mind, the percentage of the population working is probably the best number, at least when compared to the BLS which increasingly appears to employ Tinkerbell as their chief statistician.
It’s been a busy time for real estate. We have The Economist noting that house prices are falling even faster than during the great depression, which is worse than it sounds, because we had deflation during the depression, which means that houses are falling even faster in real terms, see the pretty picture:
We are alsoseeing prices fall for houses above $5 million, the NY Daily News is declaring New York to be a renters’ market, and foreclosures in Boston 45% of all housing transactions are foreclosures.
What’s more, the popping of the real estate bubble is now now hitting property taxes, as counties raise rates to account for falling property values and foreclosures.
It’s no wonder that mortgage defaults are surging.
In energy, oil is still below the record, but oil increased to $128.25/bbl, though, for the first time in 25 days, gas did not hit a new record.
Gas didn’t fall either though, it stayed at Sunday’s level.
The dollar has strengthened somewhat, because the markets are expecting a Fed rate hike, which I doubt, given that the election is 6 months away.
In the real economy, the ISM manufacturing index increased to 49.6, the consensus was that it would fall to 48.0, but this is not good news, just less bad news, since any number under 50 is still a contraction.
In banking, S&P have noticed that some of the major investment banks are using funny accounting on their assets, and so they have cut the ratings or outlooks on Lehman Brothers, Merrill Lynch, Morgan Stanley, Bank of America, Citi, and JPMorgan Chase.
It’s no wonder bank losses are expanding, and you have the Financial Times wondering how much bank failures are likely to increase as more debt goes bad.
On the good news side of the equation, it appears that Wachovia has had a case of temporary sanity, and they fired CEO Kennedy Thompson after hemorrhaging profits and stock price over the last year.
Hopefully, there will be no golden parachute for him.
It appears taht the Commodities Futures Trading Commission (CFTC) is looking toward an investigation to see if market arbitrage has artificially inflated prices, while this is not regulation, the results of the study may result in new regulations.
In particular, they are looking at the role of commodities index funds on this process.
Interestingly enough, this was not brought on by the oil price run up, but by spikes in cotton prices, which have increased despite events which ordinarily would have lowered prices.
As a part of moving toward greater regulation of the commodities market, Senators Levin and Feinstein are moving toward granting the CFTC explicit regulatory authority on trades on the London Oil Bourse executed from the US, on the basis of the fact that the exchange has physical terminals here.