The week's economic reports

Soaring wholesale and consumer prices along with disappointing retail sales highlighted the week's economic reports. Stocks and bonds ended with the S&P 500 Index up 1.7 percent to 1,261 (for a year-to-date total return of –13.4 percent) and the yield of the 10-year U.S. Treasury note rose 15 basis points to 4.11 percent. Retail Sales: The Commerce Department reported lower than expected retail sales for the month of June, an indication that perhaps the effects of the rebate checks may have already dissipated.

The advance estimate for retail sales rose by 0.1 percent following a downwardly revised gain of 0.8 percent in May where much of the prior month's gain was attributed to the distribution of almost $50 billion in government stimulus.

On a year-over-year basis, overall retail sales are now up just 3.2 percent, well below the "official" annual inflation rate of 5.0 percent reported on Wednesday.
Auto sales plunged 3.6 percent last month, now down 10.5 percent from a year ago, while rising prices at the pump led gasoline station sales 4.6 percent higher, now up 24.5 percent from last year at this time.

Note that all of the increase in gas station sales is due to higher fuel prices as demand has declined over this same period.

Excluding automobile sales, overall retail sales rose 0.8 percent in June, however, if just gasoline sales are excluded, overall sales dropped.

Producer Prices: Following an increase of 1.4 percent in May, prices at the wholesale level rose 1.8 percent in June, the largest monthly increase since last November. The index was driven higher by a 6.0 percent surge in energy prices, gasoline spiking 9.0 percent, and a 1.5 percent gain in food prices. On a year-over-year basis, producer prices rose 9.1 percent with energy prices accounting for most of the increase.

NY and Philly Manufacturing Indexes: Manufacturing activity in the New York and Philadelphia areas improved over the last month, but both indexes continue to indicate contraction. The Empire State Index rose from -8.7 in June to -4.9 in July with substantial improvements in new orders and shipments, both moving back into positive territory indicating expansion. The overall index for the Mid-Atlantic region improved modestly from -17.1 in June to -16.3 in July with no meaningful improvement in either new orders or shipments.

Common to both indexes were soaring prices and weakening employment. Price readings rose from 66.3 to 77.9 in the New York Index and from 69.3 to 75.6 in the Philadelphia area while employment readings fell from +1.2 to -6.3 in New York and from -6.9 to -7.3 in Philadelphia. These changes largely reflect what is happening with the rest of the economy.

Consumer Prices: Government reported inflation rose a whopping 1.1 percent in June, a level that has been reached only one other time in the last 25 years when Hurricane Katrina shut down oil refineries in the Gulf Coast, causing energy prices to spike, leading to a gain of 1.3 percent in the CPI in September of 2005.

The annual inflation rate reached the psychologically important level of 5.0 percent, its highest rate since registering 5.6 percent in January of 1991.
Monthly gains were paced by energy, up 6.6 percent in June after rising 4.4 percent in May, with gasoline costs rising 10.1 percent after a 5.7 percent gain the month before.

Food costs rose 0.7 percent in June after a 0.3 percent gain in May with the "food at home category" now up 6.1 percent from last year at this time.

Core inflation, excluding food and energy, rose more than expected, up 0.3 percent in June, and has now risen 2.4 percent on a year-over-year basis.

A "food and energy only" index (not available at the Bureau of Labor Statistics but created last week for this post using BLS data) rose from an annual rate of 10.1 percent in May to 13.3. percent in June.

This index consisted of a 5.2 percent annual increase in food, a 13.8 percent gain in household energy, and a 33.3 percent rise in the cost of motor fuel, using weightings of 59 percent for food, 18 percent for household energy, and 23 percent for motor fuel, again, per BLS data.

Housing Starts: New home construction surged in June, the number of permits rising 12 percent and housing starts increasing by 9 percent, but the entire gain can be accounted for by an upcoming change to New York building codes that saw many homebuilders rushing to file permits before the July 1st deadline.
Housing starts rose to an annualized rate of 1.066 million units, the second best total so far this year, and permits for new construction soared to 1.099 million units, the best month so far in 2008, however, the entire monthly gain can be attributed to the 103 percent increase in housing starts and the 73 percent gain in housing permits for multi-family home construction in the New York area.

Excluding this activity, housing starts fell 4 percent.

Single-family construction statistics were unaffected by the building code changes and, across all geographic regions, single-unit housing starts fell 5.3 percent to a pace of 647,000 pace, the lowest level since early-1991.

A better indication of the current condition in residential construction came in the National Association of Home Builders' Housing Market Index that fell to 16, the lowest level since record-keeping began 23 years ago. The report showed that prospective buyer traffic has fallen off substantially in recent months.

Summary: The best economic news last week was the build-up in inventory across all energy commodities that contributed to a large sell-off in energy markets that may help to relieve some of the price pressure that was all too apparent in both the wholesale and consumer price inflation readings, both of which rose to multi-decade highs.

Retail sales were disappointing, particularly in light of the amount of rebate money that was distributed in June, and regional manufacturing reports indicated little improvement from the contractionary state that has persisted for months.

The June housing starts data had a grossly misleading headline number that is likely to see a wicked reversal next month and the homebuilders' index made a new all-time low. Much more will be known on the state of the nation's housing market over the next two weeks as new data for home sales and home prices will be released.

The Week Ahead: The coming week will be highlighted by two reports on the housing market, existing home sales on Thursday and new home sales on Friday. Also scheduled for release are leading economic indicators on Monday, and reports on durable goods and consumer sentiment on Friday.

Read more...

"Something went wrong" in the U.K.

This story in the Telegraph, with a very unflattering picture of Prime Minister Gordon Brown, provides one more indication that, although they got a late start, the U.K. is catching up to the U.S. very quickly in the economic woe/shattered confidence departments.

It seems there's a rapidly escalating budget problem across the pond. Though their £24.4 billion shortfall seems puny next to the one in the U.S., according this handy table in The Economist, theirs is one of the highest in the world as a percent of GDP.

You'd think that, after more than a decade of prosperity, pesky annoyances like deficits would have been set on a long stable course to weather any downturn. That's what they seem to think on the other side of the aisle in Parliament, that is, if they have an aisle.

David Cameron, the Conservative leader, criticised Mr Brown for having built up a mountain of debt despite having presided over an era of strong economic growth. He said: "Something went wrong. We need to make some very large changes in terms of economic policy."

A Conservative spokesman added: "This is a final nail in the coffin of Gordon Brown's reputation for economic competence. He repeatedly staked that reputation on his fiscal rules, and now we're told that the Treasury is having to re-write the rules because the Government has lost control of the public finances".

One of the other nails in his coffin must have been selling 395 tonnes of their gold - more than half of what they had at the time - at firesale prices of about $275 an ounce six or eight years ago.

Read more...

Money Magazine - still clueless on commodities

Anyone wondering whether we are closer to the middle or closer to the end of the current commodities boom need look no further than this story in the current issue of Money Magazine to be reassured that it is the former and not the latter.

The nation's most popular personal finance magazine is still largely clueless about commodities as an investment class, the most recent evidence provided in the current issue that recommends commodity stocks instead of commodities themselves as a second rate alternative to TIPS (Treasury Inflation Protected Securities) for those looking to "protect" themselves from inflation.

While acknowledging the hefty price increases in energy, agricultural goods, and metals, all of which are readily available to retail investors through a myriad of ETF offerings, the magazine maintains its aversion to anything black and gooey or yellow and shiny by recommending related stocks instead of the commodities.

Specifically, the T. Rowe Price New Era fund (PRNEX) and the iShares S&P North American Natural Resources ETF (AMEX:IGE) are both cited as good choices.

So, how have these stocks done against the commodity ETFs this year? Specifically, the iPath Crude Oil ETN (NYSEArca:OIL), the iShares Silver Trust (AMEX:SLV), the PowerShares DB Agriculture ETF (AMEX:DBA), and the SPDRS Gold Trust (NYSEArca:GLD)?

Not very good.
Of course they've done better than most other broad equity markets, so the Money Magzine staff is probably crowing about "beating the market".

And how is their number one inflation "protection" pick doing against mother nature's inflation protection?

As discussed here a few weeks ago, not very good either.
It seems that Money Magazine is no better than the government in helping to "protect" investors from inflation.

Full Disclosure: Long SLV, DBA, GLD, no position in OIL, PRNEX, IGE.

Read more...

Valuable lessons about debt (revisited)

The following comment was just left on a three-year old post:

I found this post whilst doing some research for an article. Looking back from 2008 it sure makes a lot of sense.

The piece was written just a few months after this blog began in early 2005. After reading through it again and, given what has happened since then, it seems worthy of a closer look today. It is reproduced in its entirely below:

Tuesday, June 28, 2005
Valuable Lessons About Debt

Since credit cards were first issued and automobiles were first financed, bankers and car salesman have been more than happy to assist individuals in realizing their full borrowing potential. Realizing their full potential, that is, by borrowing more money than they really should.

For young adults, perhaps living independently and with their first full-time job, this could lead to important life lessons about managing debt and living within their means. After many months or years of credit card and automobile payments, the initial thrill having long since worn off leaving only the payments, valuable lessons about borrowing too much money have often been learned - lessons that are not quickly forgotten.

When purchasing homes, on the other hand, it used to be quite difficult to take on more debt than would seem reasonable - there, the bar was set higher. Years ago, couples would walk out of their mortgage broker's office disappointed and dejected because their dreams had been thwarted by a loan officer without a heart.

These too were valuable lessons about debt.

Maybe it seemed unfair, but someone who was presumably older and wiser had determined that the dream home so coveted by the young couple was simply beyond their means. Maybe when the couple later reflected on their denied attempt to purchase their dream home, they realized that the lender probably knew best.

But, the financing of real estate purchases has changed dramatically in recent years. Now that home financing has become as easy as getting a credit card or buying a car, valuable lessons about debt learned early on, are being unlearned later in life - this is probably not a good thing.

Credit Cards

Everyone has stories of their first credit cards or a friend’s initial experience with credit cards. It is probably still fairly common for young adults to get a new VISA or MasterCard with a $1000 credit limit, immediately go out and spend the $1000, then begin paying $20 per month to service this debt. Of course the debt never seems to get paid down - but, initially at least, it is easily serviced.

After a while a new credit card would be acquired - You're Pre-Approved!

The process would then be repeated. Another $1000 in debt and another $20 debt service. Many young adults have ended up going back to their parents when this process had been repeated many more times - when the debt service rose much more rapidly than their income and the funds to service the debt began coming up short at the end of the month.

The debt service payment had been multiplying along with the number of credit cards, and was now in the hundreds of dollars per month. Then an emergency arose, and it was game-over - back to the parents, a little groveling, some stern warnings, a few promises, and problem solved.

A valuable lesson was learned.

Automobiles

The purchase of a first automobile can result in a similar learning experience. This one, however can be much more personal - the memory of the car salesman may accompany the monthly payments. Many years ago, a roommate car salesman would occasionally come home and announce, "We buried this guy!” This was invariably a reference to some poor schmuck that came in off the street, and despite his best effort to resist, ended up driving off the lot with a car that he really couldn't afford.

Apparently, there is something both magical and legal about driving the vehicle off the dealer's lot - even if the paperwork was not quite right or the loan wasn't quite approved, you just bought a car - one way or another. You've just made a multi-year commitment to repay many thousands of dollars in both principle and interest in return for that shiny new car that maybe you really can't afford.

Missing too many car payments carries serious consequences - this could be an excellent learning experience if a new car owner needs to be taught this lesson. However, most borrowers who buy more car than they should just live with the strain of seemingly never ending monthly payments until the loan is paid in full. Then they can look back and reconsider the decision that was made on that fateful day. Was it a good decision? Was it worth it?

Another lesson was learned.

[Unfortunately, automobile leases today have given many people the impression that it is completely normal to make car payments forever. Individuals who will never experience the joy of owning automobiles outright and not having any car payments - these people do not know what they are missing.]

Houses

That brings us to today's wild world of home mortgage finance and housing appreciation. If either of the above two lessons about debt were learned earlier in life, it is understandable how they may be quickly forgotten when confronted with a force as powerful as today's global real estate boom.

With lending standards relaxed and home prices rising, debt has taken on an entirely new character - monthly payments now have a much friendlier air about them. Much friendlier in that the underlying asset seems to rise in value at a rate many times the debt service payment.

That never happened with credit cards or automobiles!

If you pay $2000 per month in debt service, and the home value rises by $5000 or $10,000 during that month, and this gets repeated month after month, and you also get a nice place to live in - this seems like an excellent kind of debt.

What lessons are there to learn here? Maybe the lesson is that more debt would be better.

But we are reminded that these are not normal times. We are living in what The Economist magazine calls "the biggest financial bubble in history" - the global real estate bubble. What happens if current trends do not continue? What happens when real estate appreciation regresses to the mean - slowly with stagnating prices or quickly with price declines?

Would there perhaps be some valuable lesson about debt to be learned at that time?

Is the entire Anglo Saxon world about to be taught a valuable lesson about debt?

Read more...

Friday morning links

TOP STORIES
Freddie Mac mulling $10 billion share offer: report - Reuters
Jim Bunning's Capitalism Pitch Is in Strike Zone - Bloomberg
Jim Rogers: Hot on China, cold on India - Commodity Online
Fannie Mae, Freddie Mac spent millions on lobbying - AP
Anti-Energy Speculation Bill Stirs Fear - NY Times
Worst-case scenario? Canadian hard assets would skyrocket - Globe & Mail

MARKETS
Gold slips on steady dollar, softer oil - Reuters
Oil prices edge up after 3-day decline - AP
Grains weak as commodities sell off - Reuters

ECONOMY
New Stimulus Plan on Tap - Washington Post
Inflation threatens global economy, IMF warns - USA Today
Fed's Hoenig Finds Bitter Inflation in Colorado Chocolate Plant - Bloomberg

HOUSING
States battle mortgage foreclosure threat; see chart - USA Today
Fannie Mae and Freddie Mac: End of illusions - Economist
O.C. office construction plummets 91% - O.C. Register

FED/TREASURY
America’s economy: Boxed-in Ben - Economist
Got a Fix? Please, Call the Fed - NY Times
Concern grows over a fiscal crisis for U.S. - SF Gate
Lawmakers Want Fannie-Freddie Aid Tied to Debt Limit - Bloomberg

INTERNATIONAL
UK Budget deficit soars to the worst since records began - Telegraph UK
Japan: Land of the rising price - Economist
Trichet says euro zone growth to hit trough in Q2, Q3 - Reuters
You wanted a 'deep, dark recession', Michael? - Guardian
China's Economic Fortunes Swing Toward Recession - Bloomberg

INTERESTING
Automakers offer hybrids for NYC taxi fleet - AP
Starbucks names all 600 stores to be closed; see list - AP

Read more...

Pakistanis should ban short selling

The Pakistani government should take a cue from the U.S. and ban short-selling on things they don't to go down and limit long positions on things they don't want to go up. It seems to be working wonders here in the U.S. for financials and oil - they could have avoided this:
This report from the BBC has all the details:

Hundreds of angry investors, upset by plunging Pakistani share prices, smashed windows of Karachi Stock Exchange and scuffles broke out during a protest to demand a temporary closure of the market.
...
The KSE-index is down 14% since Monday after the relaxation of curbs on daily movements that had been tightened in late June to halt a precipitate fall in values.

From Monday, daily circuit breakers reverted to 5% up or down, having been amended to 1% down or 10% up in late June, a move that stifled trading volume.

Apparently the curbs intended to "guide" the market higher didn't work as intended.

This may have been a joke (it's not easy to get information on the Karachi stock market), but, according to this item at the Deal Journal WSJ blog, Pakistan had the best stock market performance as of April 1st.

Read more...

Stupid "taxpayer funded" bailout talk

What's all this talk about Fannie and Freddie (and who knows who else) getting bailed out and the U.S. taxpayer having to foot the bill?

Since when did the U.S. ever pay off old debt with anything other than new debt and why should anyone think that taxpayers would be involved with saving the GSEs?

Some say that the average American is "on the hook" for tens of thousands of dollars in U.S. debt, but does anyone really think that this debt is ever going to be paid off?
Just like the $150 billion stimulus, any Fannie and Freddie bailout will just get tacked on to the national debt and lawmakers will hope that things will return to "normal", which, in this case means continuing to rack up even more debt that we, as a nation, have no reasonable expectation of ever paying down.

At some point, the debt holders will balk and then there will be hell to pay.

The U.S. government is setting the worst of all possible examples for its citizenry by continuing to dig a deeper and deeper hole - no wonder things are such a mess.

Read more...

Where is Marshall Prentice?

Yesterday, DataQuick released the Southern California real estate sales data for the month of June and, once again, President Marshall Prentice was nowhere to be found.

In fact, Dataquick has apparently hired a new president in one John Walsh, who has taken over the duty of providing commentary with each month's data release.

Where is Marshall "almost all if not all of those gains are here to stay" Prentice, whose late-2005 assurances about high real estate prices have appeared here repeatedly, nearly every month, for years?
The June report from DataQuick was much like every other report over the last year or two with the exception that home sales are now picking up in the most depressed areas where foreclosures make up an outsized proportion of the transactions.

Look at those sales in the Inland Empire counties of Riverside and San Berdu!
Of course, the main reason why sales volume has increased is because sales prices have been dropping like a rock.

In just a few short years, these once high-flying counties went from annual price increases of 30-40 percent to annual price declines of the same magnitude, the latest data indicating a 34 percent drop in San Bernardino and a 31 percent decline for Riverside.
Just in case something untoward has happened to Marshall, here's one last look at his commentary from the April sales report, in remembrance.

Marshall "almost all if not all of those gains are here to stay" Prentice, President of DataQuick, had these comments on the April data:

Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market's short-lived peak. It's no surprise, given the magnitude of the price declines in inland areas and the fact sales have been so amazingly low for so long. We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast. If the higher conforming loan limits are making a difference in those areas it's certainly not a large one, at least not as of the end of April.

John Walsh - you have big shoes to fill.

----------------------------------------

UPDATE: Thursday July 17th, 8:50 AM

Well, it seems one of the first orders of business for new President John Walsh was to wipe clean the online record of DataQuick forecasts. None of the old data at DataQuick is available anymore, at least not at the old locations - the second link above to the November 2005 report takes you to the main DataQuick page as do all the other links from around that time period that were sampled here.

Fortunately, this blog post from almost three years (with multiple non-functioning links to DataQuick) is still available and it is dutifully excerpted below:

Regarding Southern California, DataQuick President Marshall Prentice seems particularly intent on shaping public opinion about what the future holds:

"The big question is still whether or not the real estate market will end this cycle with a crash, or with a soft landing. Right now the latter scenario is still the most likely. Home values have doubled in the past four years and almost all, if not all, of those gains are here to stay," said Marshall Prentice, DataQuick president.

So, that second sentence is passable as sound analysis of the current situation - no evidence of anything crashing yet. But that third sentence is really very prescient, no? Divine omniscience? Didn't know that you had that in you Marshall - how else to explain stating as fact that an early 1990s style pull back in price levels is out of the question?

As it turns out, it wasn't very prescient.

Read more...

Don't get too excited about the housing starts

There's probably going to be a lot of "clunking around at the bottom" in the home construction statistics, perhaps going on for years, and the June report on housing starts from the Census Bureau is a good example of how optimists (are there still housing optimists out there?) are being set up for many months of repeated disappointment.

It's one thing to reach a bottom, which may now be forming in both the construction and sales statistics (certainly not in the price statistics), but it's an entirely different thing to make a substantive move up from the bottom.

Due to an upcoming change to New York building codes that saw homebuilders rushing to file permits and start construction on multi-family homes, the 9.1 percent overall increase in housing starts shown below was not such a substantive move.
Housing starts rose to an annualized rate of 1.066 million, the second best total so far this year, and permits for new construction soared 12 percent to 1.099 million units, the best month so far in 2008. However, the entire gain can be attributed to the 103 percent increase in housing starts and the 73 percent gain in housing permits for multi-family home construction in the New York area.

Excluding this activity in the Northeast, overall housing starts fell 4 percent.

Single-family construction statistics were unaffected by the building code changes and single-unit housing starts fell 5.3 percent to a 647,000 pace, the lowest level since January 1991.

A better indication of the current condition in residential construction came in yesterday's National Association of Home Builders' Housing Market Index which fell to 16, the lowest level since record-keeping began 23 years ago.

Read more...

Thursday morning links

TOP STORIES
FBI 'probes US mortgage lender' - BBC
States eye cycle of retiring, rehiring - USA Today
Struggling Americans raiding 401(k)s - AP
US Airways pilots: We're pressured to cut fuel - AP
Fraud, identity theft grow at ATMs - Bankrate
Waits improve at IndyMac bank branches - LA Times

MARKETS
Gold turns lower as equities rally, dollar firms - Reuters
Oil Falls for Third Day as Slowing Economic Growth Curbs Demand - Bloomberg
NYMEX oil down on demand concerns, easing tensions - Reuters

ECONOMY
Manufacturing falls in Philly region for 8th month - MarketWatch
Single-family home starts drop to 17-year low - MarketWatch
U.S. jobless claims rise to 366,000 last week - Reuters
It costs what?! Calculating the CPI requires a lot of shopping around - LA Times

HOUSING
Bargain hunting picks up as Southern California home values fall further - LA Times
Home auctions surge nearly 47% since 2003 - AP
Home Prices Unchanged in Queens, Long Island as Loans Tighten - Bloomberg

FED/TREASURY
Fed's Crisis Role Spurs Questions of Overreach - Washington Post
U.S. Treasury optimistic on GSE proposals - Reuters
Republicans Push Back As Paulson Urges Aid For Mortgage Giants - Washington Post

INTERNATIONAL
America is lone bright spot as fund managers flee stocks - Telegraph UK
Protest over Pakistan share slump - BBC
Nations with vast oil wealth gaining clout - LA Times
Slowing exports curb China growth - BBC
Bank of England chief sees rocky ride ahead for economy - Telegraph UK

INTERESTING
Cemeteries have new problem: metal theft - AP
1 in 4 California high school students drop out, state says - LA Times

Read more...

Ron Paul: Federal Reseve is a predatory lender

Rep. Ron Paul (R - Texas) in his opening remarks today at the House Financial Services Committee meeting on monetary policy.

Read more...

Betting big on $1,000 gold in September

Have a look at the open interest in September $100 call options for the SPDR Gold Shares ETF (NYSEArca:GLD). Open interest at this strike price for other months is a little high, but nothing like September where it is more than 10-to-1 versus any other price.
Options for the world's most popular gold ETF began trading just one month ago and, according to the Chicago Board Options Exchange, they were the most actively traded call options last week.

Full Disclosure: Long GLD at time of writing.

To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research. Or, sign up for a free trial.

Read more...

The California SUV Fill Up Index at $4.50 per gallon

Given the 33 percent year-over-year increase in the price of gasoline as reported in this morning's inflation data, an update of the California SUV Fill Up Index seemed appropriate (if not long overdue).
I hear you can get a Dodge Ram for half off the MSRP in Arizona. Though trucks do not appear on the list above, if they did, the Dodge Ram with the 34 or 35 gallon tank would place third with a fill-up price of about $155 in California or about $15 less in Arizona where gas is a little cheaper less expensive.

Read more...

Non-core inflation at almost a three year high

The Labor Department reported year-over-year "non-core inflation" reached almost a three-year high in June, rising from 10.1 percent in May to 13.3. percent.
This level, for what is more commonly known as the "food and energy only" index, was surpassed only two times in recent years, in September and October of 2005 after Hurricanes Katrina and Rita struck the Gulf Coast.

Other measures of inflation were much lower, the traditional measure of consumer prices rising 5.0 percent from year-ago levels, now at a 17-year high, and economists' preferred measure of inflation that strips out the "non-core" components (also known as "core inflation") rose just 2.4 percent on a year-over-year basis.
Monthly gains were paced by energy (up 6.6 percent) and food (up 0.7 percent) with the "food at home category" now up 6.1 percent from last year at this time.

One other alternative measure of inflation, "non-OER" inflation - where the now discredited and completely useless owners' equivalent rent component is removed from the index - rose to a new high for the decade at an annual rate of 5.6 percent.
Owners' equivalent rent is widely believed to have been the cause of the unwarranted, freakishly low interest rates earlier in the decade that are cited as one of the root causes of the current problems in today's economy and financial markets.

Read more...

Wednesday morning links

TOP STORIES
Consumer prices jump 1.1 percent in June - AP
Fed Chief Bleak on Economic Outlook - NY Times
SEC Subpoenas Wall Street in Hunt for `Manipulators' - Bloomberg
Fannie Mae, Freddie Mac: Investors Flee - AP
IMF sticks by $1 trillion U.S. subprime fallout - Reuters

MARKETS
Oil extends decline after big drop a day earlier - AP
Gold Falls for First Time in Six Sessions as Crude Oil Drops - Bloomberg
How much money, Gold does the world hold? - Commodity Online

ECONOMY
June CPI rise biggest in 26 yrs on energy surge - Reuters
Democrats See a Need for Further Economic Stimulus - NY Times
Economic pain: 'Payback' for debt-fueled growth? - USA Today
Confidence drops in U.S. economic policy - Reuters
Inflation, deflation: Two side virus in economy - Commodity Online

HOUSING
Fannie, Freddie Have Worn Out Their Independence - Bloomberg
Opposition, From Both Parties, Over Bailout Plan - NY Times
New 20% Down Payment Makes Savers From Profligate U.S. Spenders - Bloomberg

FED/TREASURY
Fed Steps Back From Imaginary Tightening Ledge - Bloomberg
Bernanke: Senators give Fed chief a rough ride over economy - Guardian
Bush Attempts to Allay Fears About the Economy - Washington Post
Paulson Pounded by Investors as He Seeks to Halt Market Crisis - Bloomberg

INTERNATIONAL
UK unemployment rises for 5th consecutive month - Guardian
Fannie, Freddie Troubles Are Ominous for Asia - Bloomberg
'Safe and sound' Canadian banks hurt - Globe & Mail
Zimbabwe's economy in freefall - Reuters
Britain Is in No Shape to Cope With a Recession - Bloomberg

INTERESTING
In bad economy, life is good for the repo man - AP
The next Internet-sized boom - MSN Money
Five Signs That You're Living Beyond Your Means - Investopedia

Read more...

Photo of the day

From this report about today's Senate hearing from the Associated Press.

Read more...

Ambrose piles on

Is there any U.S. equivalent to the U.K.'s Ambrose Evans Pritchard? Nouriel Roubini is certainly more bearish, but he's an economist, not a writer for a major news organization.

Floyd Norris perhaps? Somebody at MarketWatch, Barrons?

Anyway, in his never ending quest to instill fear into the global economy and raise questions about the longevity of the late 20th century American financial juggernaut that went stumbling into the new century and which, according to Ambrose and his interview subjects, may have just taken a big step away from hegemon toward world pariah, we get the image of the once-mighty U.S. dollar going down the drain in his latest offering.

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst.
...
Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.
...
Hiroshi Watanabe, Japan's chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.

But the lion's share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.

Everyone knew that, one day, foreign investors would cool to the whole idea of buying even more U.S. debt, purchases to date having enabled hundreds of millions of Americans along with its government to spend beyond their means for so long.

That day seems to have drawn a bit nearer since the Fannie and Freddie problems began to flower just a couple weeks ago.

Read more...

More eery similarities to the Great Depression

Many blamed the short-sellers for the stock market crash in 1929 and for difficulties in the following years in staging a rebound in equity markets. It looks like the SEC is trying to avoid that this time around.

Read more...

Sen. Jim Bunning fixated on Fed messes

Senator Jim Bunning (R-Kentucky) joins Ron Paul (R-Texas) as one of the few elected officials who understand one of the major reasons that financial markets and the economy are in the condition they are in today - the Federal Reserve.

In prepared remarks made earlier today as part the Senate Banking Committee hearing (hat tip hardwinterwheat) , Sen. Bunning made the following comments:

I'm deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan's easy money in the late 90s and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke's easy money in the last year has undermined the dollar and sent oil to a new high every day and an almost doubling since the rate cuts started.
...
The Fed is asking for more power but the Fed has proven that they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it farther than it was supposed to go in the first place. As I said a moment ago, their monetary policy is the leading cause of the mess we are in. As regulators, it took until yesterday to use the power we gave them in 1994 to regulate all mortgage lenders and then they stretched their authority by buying $29 billion worth of Bear Stearns assets so J.P. Morgan could buy Bear Stearns at a deep discount.

Now the Fed wants to be a systemic risk regulator, but the Fed is a systemic risk. Giving the Fed more power is like giving a neighborhood kid who broke a window playing baseball on the street a bigger bat and thinking that will fix the problem.

Yes, this is one of the more important "Greenspan mess" sightings.

Read more...

Retail sales disappoint

The Commerce Department reported lower than expected retail sales for the month of June, an indication that the effects of the rebate checks may have already dissipated.
The advance estimate for June sales rose by just 0.1 percent following a downwardly revised gain of 0.8 percent in May where much of the prior month's gain was attributed to the distribution of almost $50 billion in government stimulus.

Auto sales plunged 3.6 percent last month, now down 10.5 percent on a year-over-year basis while rising prices at the pump led gasoline station sales 4.6 percent higher lin June, now up 24.5 percent from year ago levels, all of this increase due to higher fuel prices amid weakening demand.

Excluding automobile sales, overall sales rose 0.8 percent in June, however, if just gasoline sales are excluded, overall sales dropped.

Read more...

Tuesday morning links

TOP STORIES
Scramble Led to Rescue Plan on Mortgages - New York Times
Bush Rescinds Father's Offshore Oil Ban - Washington Post
Fannie Plan a `Disaster' to Rogers; Goldman Says Sell - Bloomberg
Banking Stocks Take a Lashing - Washington Post
State considers pay-as-you-drive auto insurance - LA Times

MARKETS
Euro hits all-time high as dollar plunges - MarketWatch
Gold Rises to Four-Month High in London on Flight to Safety - Bloomberg
Oil rises above $146 a barrel - AP

ECONOMY
Retail Sales in U.S. Rose Less Than Forecast in June - Bloomberg
U.S. Producer Prices Rise 1.8% in June; Core Rate Gains 0.2% - Bloomberg
GM readies for new round of job cuts - Reuters

HOUSING
Fed slaps new rules on mortgage lenders - LA Times
Fannie and Freddie: wards of the state - Globe & Mail
ZipRealty.com Unveils "Price Me Now" Real Estate Prediction Game - MarketWire

FED/TREASURY
Bernanke Forecasts Foiled by Fannie-Freddie Rescue - Bloomberg
Paulson should consider receivership for Fannie, Freddie: report - Reuters
Confidence Ebbs for Bank Sector and Stocks Fall - NY Times
Fed Chief Bernanke to brief Congress on economy - AP

INTERNATIONAL
U.K. Property sales slump to lowest level ever recorded - Guardian
French Manufacturing Confidence Slips to 5-Year Low - Bloomberg
UK inflation hits record high as gloom deepens - Reuters
Japan keeps interest rate on hold - BBC
China's Economic Growth Probably Slowed on Exports - Bloomberg

INTERESTING
Lawmakers want US-made flags - AP
Airlines turn boarding passes into ad space - USA Today

Read more...

Things could be much, much worse

It just occurred to me that things could be much, much worse than they are with the current credit market meltdown marathon.

John Snow could still be Treasury Secretary.

At least with Hank Paulson you get the feeling that someone is in charge.

The outcome is not likely to be any different than it would with the former Treasury Secretary, but we'll all probably feel just a little bit better along the way.

Read more...

We're hunting wabbits!

Sometimes the two in the middle below remind me of Elmer Fudd in the Bugs Bunny cartoons where the hunter never quite gets the upper hand on the "wascally wabbit".
Rabbits, bears - close enough.

The middle image is from today's WSJ story($) by E.S. Browning that asks if the hunters are running low on ammunition. The Looney Tunes characters are from Warner Brothers.

Read more...

We need a new financial bubble ... seriously

If it weren't so sad and, to some extent at least, true, this story in The Onion (hat tip RC) would be much funnier than it already is.

Or maybe it would be less funny...

Anyway, the ideas in Eric Janszen's very serious article in Harper's from a couple months ago which postulated that the nation needs another financial bubble (preferably something like alternative energy that might actually leave something good behind), met up with the very real world of satire this morning at The Onion with the predictable results:

A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.
...
"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

Read the whole thing, then make your own very personal decision to laugh or cry.

Read more...

A less-than-comforting gaffe at ABC Evening News

Anyone looking for a little reassurance that the U.S. banking system is not about to implode sure didn't get it from last night's edition of the ABC Evening News.

In a somewhat disturbing sequence of reports while discussing the FDIC takeover of IndyMac Bank, the second largest bank failure in U.S. history, host Dan Harris turned to ABC's "in-house voice of reason and calm" Mellody Hobson, President of Chicago-based investment firm Ariel Capital Management, and asked an important question.

In light of this huge bank failure, should Americans be concerned about the money they have on deposit at U.S. banking institutions?

Mellody replied:

I would not be concerned. The American banking system is sound and the main reason for that is for 75 years we've had the Federal Deposit Insurance Corporation, otherwise known as the FDIC, that stands behind the money you put in your bank up to $100,000 per individual in their deposit, so, most Americans have to know that that money is safe.

A reasonable reply - everyone seems to know about the Depression-era FDIC and their role in guaranteeing $100,000 held on deposit by individuals at member banks.

But, considering that the IndyMac failure will reportedly consume a full 10 percent of the FDIC's available funds and that many more bank failures expected, Dan then asked whether depositors should be concerned whether their bank might be involved in risky loans that could lead to their failure.

Mellody answered:

The FDIC and other government agencies actually go and monitor banks in a very detailed way. They have a watch list, believe it or not, that has about 90 banks on it and they're watching those banks very closely. But, they don't release any information about what they're doing or who they're watching, because that might lead to a run on the bank ... you have nothing to worry about.

While this sounded good (despite the very slow, sometimes almost baby-talk delivery), there was just one problem.

In the prior segment just one minute before, Yunji de Nies revealed an important bit of information about the FDIC "watch list" that so comforted Mellody and (probably) most viewers.

The government keeps a private list of financial institutions at risk. Two years ago, there were 50 on the list, today it stands at 90. The government now acknowledges that IndyMac wasn't even on the list.

Oh dear.

Read more...