Wednesday, November 30, 2011

Just your run of the mill 7% jump in 3 days...

This morning I had a sense that something could be coming.  I didn't know what but there was plenty of chatter around the intertubes that something was in the works.  Well, this morning stocks were doused in fuel and lit aflame on news that the Fed was joining forces with the ECB, the Bank of Canada, the Bank of Switzerland, etc to manage the currency markets.  The goal seems to be to strengthen the Euro, and weaken the $. 

There are many different takes on this action but the consensus seems to be that this will buy Europe some time but it doesn't change the fundamental debt situation for Europe.  There was a fairly strong rumor that a major European bank almost pulled a Lehman last night (possibly French?) but they were potentially saved at the last moment.  Perhaps the most interesting bit of information was that the Fed actually voted on this plan on Monday.  So while the major news channels reported that stocks surged on Monday because of some vague shopping traffic stats perhaps someone leaked information regarding this vote to a few key players?  That's a little tinfoil hat for my taste but the move has been so violent that it feels like something was off.

The best rally in years, follows the worst Thanksgiving week for stocks in 80 years, which followed the best October in years, which.....well, you get the point.  Healthy markets don't act like this...


Talk about timing

So earlier this morning I said it looked like Europe was broken again but we could see another Mother of all bailouts proposed at any time.

Well, about 15 minutes later the Fed basically announced that they are willing to bailout the world and stock markets have rocketed higher as a result (Europe is up 3-4% as I write this).  I'm oversimplifying the situation but you get the point.

In essence, this latest effort is designed to weaken the US dollar relative to the Euro.  They'll say that they have other motives, but at it's core this is a currency move.  The problem with this is that most people think the Euro needs to move much lower (not higher as the central banks are moving it now) in order to stabilize the Eurozone.

So, in the interim this means more of the same for those of us in the US -  weaker $ = higher commodity prices (stocks are up, oil is over $101).

Remember when the Fed just dealt with inflation and employment?  Yeah, neither do I.  I think they've become addicted to seeing green on their Bloomberg terminals.


Wash, Rinse, Repeat

We continue to oscillate between Europe is saved and Europe is broke.  Today feels like a Europe is broken day after details started to emerge around their latest funding efforts.  I'm not convinced anything will change in the near-term but I've been surprised by monster bailouts in the past so we'll see if the pattern changes.

What is particularly disconcerting is the impact that all of these sovereign debt issues are having on real companies.  From yesterday's Washington Post "there are signs that manufacturing in Europe is imploding — new industrial orders plunged 6.4 percent in September — and it’s unlikely that the U.S. can escape the downward drag."  This dovetails with reports from Germany, France and Spain that seem to indicate businesses are really tightening their belts.

S&P cut the ratings on 37 banks last night after applying new ratings criteria to the banks.  This has cast a pretty dark cloud over an already weak sector.  Take note of Bank of America which is now struggling to keep it's head above $5 a share.  The current price is roughly 15% below where the Warren Buffett made his latest investment which is interesting to watch.

Another interesting data point came from Corning which indicated that while consumers still seem to be buying LCDs the price points have fallen so far it's increasingly difficult to make money.  Thus, their customers are cutting back on glass orders which led Corning to idle ~25% of total capacity.

And people wonder why the economy is sluggish.  You can't have $200 LCDs AND jobs --- you get to have one or the other :(


Sunday, November 27, 2011

Did I miss anything last week?

Well, it was just the worst Thanksgiving week for markets in 80 years but all is forgiven now because...stop me if you've heard this one before "Hopes that European Leaders will do more to stop the debt crisis."

There's no real new plan, it's just hopes that Europe will get it's act together.  I'm in the camp that says Europe has crossed their event horizon and it's just a matter of time until we see some more real fireworks.

There were plenty of stories on the madness that was Black Friday.  The ESTIMATES indicate that this was the biggest Black Friday since 2008 to which I'll say 2 things:

1) These estimates are based on foot traffic not transactions (in the next few day's you'll hear better estimates from Visa or Mastercard which should be more accurate).

2) The last time Black Friday peaked was in 2008 at the HEIGHT of the economic crisis so US consumers tend to be pretty terrible indicators of the health of the economy. 

Just in case you were starting to develop a soft spot in your heart for the big banks consider this story from Bloomberg that highlights how little the US public and Congress knew about the bailouts in 2008.  I'm sure the next time around they'll tell us the whole truth....

"The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he“wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed“one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day."

A smart politician (is that an oxymoron?) could utilize news like this to work toward unifying the tea party and occupy movements.


FACT OF THE DAY:  Apple's new $1 Billion data facility in Maiden, NC will have just 50 full-time employees.  To get those 50 jobs local authorities cut Apple's property tax bill by 50% and personal income tax bill by 85%.

Monday, November 21, 2011

Sea of Red

This should be a relatively uneventful week in the US given the light data docket but Europe continues to stir the pot.  Talk of a Moody's downgrade of France spooked much of Europe and when coupled with the failure of the US Super committee has taken roughly 2-3% out of most European markets.

The market will get fairly interesting again at these levels as the chart readers will be dismayed by the failure of stocks to break through previous trading range highs. 

The failure of the Super committee is not really surprising but the ramifications could be huge (particularly for our local economy which is so tied to Federal spending). 

Sorry for the sporadic posting lately.  Lots of irons in the fire....

Thursday, November 17, 2011

Have you ever played Jenga?

You know when you take out that one piece that really destabilizes the whole tower?  Well, right now it feels like there are about 15 different pieces of the global economy that could be pulled out and destabilize us at any moment.

Ever since 2008, the best predictor of economic events has been the debt markets and their related instruments (CDS, etc).  Thus, when Italian debt suddenly shot over 7% last week it was clear that change was coming.  Well, today's French and Spanish bond auctions seem to signal things could be dicey in Europe again.  As a reminder, we're talking about FRANCE AND SPAIN.  These are major components of the EU economy and if things start to unwind in Spain the EU's life span could be shortened considerably.

Also, consider these headlines from the two countries that were "fixed" in the past 2 weeks -

* Greek police fired tear gas at black-clad youths on Thursday as thousands marched through Athens chanting "EU, IMF out" in the first public test for a new national unity government charged with imposing painful tax rises and spending cuts to avert bankruptcy.

* Italian students also threw eggs and fake dollar banknotes at the building of the Italian banking association. "We don't want the banks to rule" and "Monti's government is not the solution," the students chanted."

But, just in case you thought it was just an "over there" issue, remember Detroit?

"Mayor Bing is expected to discuss a confidential Ernst & Young report obtained by the Detroit Free Press that suggests Detroit could run out of cash by April without steep cuts to staff and public services.

That's a grim prognosis, but according to Brown, the city actually could be unable to make payroll "as early as December."

"I know the report says April, but there are certain risk assumptions that when you take those into consideration, worst case scenario you could run out (of cash) in December," Brown said this morning on WJR-AM 760."

But, but I thought all of those funky Chrysler ads said that Detroit was back?

Fact of the day:  1 out of every 5 Americans is taking a prescription for a mental disorder!

The spread among the sexes is pretty eye popping as well. 

Sunday, November 13, 2011

Just a few thoughts...

* There's some interesting talk re: the Chinese Yuan.  It appears that as growth has begun to slow in China there is money flowing out of the Yuan and toward the dollar.  For all of the table pounding in Washington, imagine the reaction if China allowed its currency to float versus the $ and it FELL in value rather than rose.  Something to ponder.

* Stat of the week - It currently takes Groupon $1.43 to make $1.00.  BRILLIANT!!  Why isn't that company worth $100 Trillion?!?!

* Eric Sprott, who has a reputation as a bit of Nervous Nellie, made some news over the weekend predicting governments will "break their promises to their citizens".  This obviously is a reference to future pension obligations but I think that's a bit alarmist.

* Oil and gas prices are at their highest prices EVER in October and November.  Will $3.65 gas finally curb the holiday shopping in the US?

* California said revenues in October came in about $810 million below projections.  If that trend continues it's going to mean steeper cuts in state and local governments.  These comments mirrored what we are hearing in NY about missing our budget goals.  This will be something to watch.


Wednesday, November 09, 2011

From Euphoria to Panic in 1 easy step

It always amazes me how the markets can go from perfect rally mode to full on panic in a heartbeat.  The situation in Italy is very fluid but suffice to say that this is not Greece and the bailout funds aren't prepared to deal with an Italian crisis.  If we get a full Eurozone meltdown the impacts could be far reaching as the US would appreciate - cheaper gas, lower stock prices - but we're getting ahead of ourselves.


Weird news of the week (and it's only Wednesday) ---

1) Fake Weapons Parts are a Ticking Time Bomb - I'll give you three guesses where the fake parts might be coming from but I bet you'll only need one guess.

Re: sprinkling - "It's a process of mixing authentic electronic parts with fake ones in hopes that the counterfeits will not be detected when companies test the components for multimillion-dollar missile systems, helicopters and aircraft. It was just one of the brazen steps described Tuesday at a Senate Armed Services Committee hearing examining the national security and economic implications of suspect counterfeit electronics — mostly from China — inundating the Pentagon's supply chain."

"Counterfeiting performed in Shantou (a Chinese city) was not regarded as IP theft or improper in any way," Sharpe said. "It was seen as a positive 'green initiative' for the repurposing of discarded electronic component material."

2) Fact of the day:  Take note of the increased volatility of the stock market lately.  From 1947 to 1972 - 25 years - the stock market had 15 days where it swung up or down 3% in a day.  This year we've had 8 such days.

3) College Grads say salary is less important than Facebook Freedom at work?  Okay, this is a survey of 2,800 global college grads by Cisco and I'm just stunned by the results.

* More than 40% went so far as to say that they would accept less money for a job that was down with social media at work on a device of their choosing if it also included telework.
* Not surprisingly, they overwhelmingly wanted flexible work hours and remote access, with about one-third of college students saying that once they begin working, it will be their right – not a privilege – to be able to work remotely with a flexible schedule.
* Over half of college students globally (56%) said that if they were offered a job at a company that banned access to social media, they would either turn it down, or ignore it.

* Two-thirds said they will ask about social media usage policies during job interviews.

4) What happens when you flush a toilet in the world's tallest building?  This is so typical of Dubai - build it fast, coat it in gold and forget to install the plumbing.

"A variety of buildings there, some can access a municipal system but many of them actually use trucks to take the sewage out of individual buildings and then they wait on a queue to put it into a waste water treatment plant. So it's a fairly primitive system.  I'm told they can wait up to 24 hours before they get to the head of the queue."


It's a busy day....

So I don't have much to offer but here's the quick and dirty:

Overnight someone decided that the collapse of the Italian government may not be good thing (remember that was the rationale for the end of the day rally yesterday) and Italy is rumored to be at a point of no return. 

Okay, Greece, Ireland, Iceland, etc.  These were troublesome but in the global market they played a very minor role.  Italy on the other hand represents the world 3rd largest bond market and the ramifications are very broad if things go sour in Italy.

Rumors are now floating of an emergency ECB meeting to stop the free fall of the Euro.  Stop me if you've heard this one before :)

I'll try to provide a more comprehensive update later today.

Saturday, November 05, 2011

Weekend follies

First, thanks to all of those that have passed along info re: propane suppliers in NNY.  I think my days of living in the "Suburbs" are numbered :)

1) I am a sucker for cool design and innovative architecture.  Well, this new building in Belgium has both design and unique architecture in spades.

You'll really have to check out the website where this was originally posted - here - to get a feel for different perspectives the building offers from different angles.  I'm not sure this would meet code in the US :)

2) Today's overreaction brought to you by W. Virginia - OMG! A light bulb blew!  EVERYBODY PANIC!!

"A reported exploding package and spray of white powder that sent emergency units rushing to a small-town post office turned out to be just the pop of a malfunctioning fluorescent light bulb, authorities said Friday.
The scare Friday morning triggered an evacuation of the building and the temporary quarantine of 15 people inside a school bus. Hazardous materials and bomb experts, State Police units, fire crews and more responded to the scene at a strip mall.

The Berkeley County Sheriff's Department sent a robot into the building to test the air. It found no chemical agents or evidence of an explosion."

Am I the only one struck by the fact that Berkeley County West Virginia has a bomb robot?  Did I miss the day when we were handing those things out to everyone with a pulse?

3) I'll present the following information without comment but I think you know where I stand on this....

Last year's Healthy Hunger-Free Kids' Act required changes to the school lunch program to make it healthier (and to lessen the overall federal subsidy). What it didn't do was define exactly what changes would achieve the goal of better nutrition. The Department of Agriculture created a proposal that fit within its budget and pleased nutritionists, public health experts and many school lunch officials, but it didn't please the American Frozen Food Institute or the companies that provide much of the food served to kids at lunch—companies like Coca-Cola, Del Monte, and the makers of frozen pizza. According to the NYT, those companies have spent $5.6 million in successfully lobbying their congress members to object to the guidelines.


Friday, November 04, 2011

That will teach me to complain

I got a little taste of karma today after my rant on propane prices.  My first propane bill came in at a tidy $4.42/gallon!!! More than 30% higher than what NYSERDA says the average price in actually is in Northern NY and the highest price I've ever seen on a bill in 8 years living in NNY.

My supplier is "outside of the city" and will have one chance to make that right or I'll be shopping for a new propane supplier.  Anyone have any suggestions?

Do you think I can sell my 400 gallons back to them at $4.42/gallon :)

I'm working a little commodity arbitrage in Clayton.....

Thursday, November 03, 2011

Powerball Players LOSE $780 MILLION last night!

You are going to see lots of headlines taunting you because you didn't win the $235 million powerball lottery last night.  However, while one winning ticket was sold, the reality is that since the last jackpot roughly 780 million ticket were bought that turned out to be losers. 

The best stat of the day regarding the powerball drawing: If you have to drive 1 mile to get to the store to buy your ticket you are 4 times more likely to be killed in a car accident in that 2 mile round trip than you are to win the powerball jackpot.

However, states know a good tax when they see it - it's voluntary and the poor (a politically weak group) participate at a disproportionate level - so it's game on for lotteries.  In fact, while pulling some powerball stats I saw they are raising the price of a ticket to $2 in Jan 2012.  This will mean more GIANT jackpots and more GIANT losses for the bulk of the public.


Would you buy Groupon if you could?

If you're unfamiliar with groupon you're going to get a full rundown of the company over the next 24 hours.  Here's the concept: Joe's coffee shop wants to drum up business so they sell a $10 gift certificate to customers for $5 through Groupon.  Groupon gets to keep about 30-40% of the $5 (so call it $1.50) and the other $3.50 goes to Joe's coffee shop.  Now Joe has to sell $10 of his coffee for $3.50 which is basically his cost, but if 200 new customers make Joe's part of their morning routine it was a smart piece of marketing.

Well, that's when everything goes right.  The more likely scenario is that Joe is swamped with 1,000 coupon users on the week after his Groupon but most of those customers never come back because the next week they bought a $10 gift certificate for coffee from Jan's Coffee down the street.  The problems with this company are so numerous that I'm stunned that they are bothering to go public when they should be focused on trying to stay in business.

Groupon has a chance to be the of the Web 2.0 era in my opinion.

Now, with all of that said, there is a chance that the financial media will lose their minds talking about this stock tomorrow. You see Groupon is offering less than 5% of the company for sale so there will be some demand for the stock and with everyone chasing those scarce shares there could be a bit of a feeding frenzy. I liken this to the frenzy that breaks out in clubs when a DJ tosses a t-shirt into the crowd.  Everyone in the club could afford 1,000 cheap t-shirts but people would practically kill themselves to get $5 shirt. It makes little sense to chase Groupon tomorrow, but people will clearly try to get that t-shirt.

It's that time of year again to start complaining about home heating costs and the penalty we pay for living off the natural gas grid.  New discoveries of natural gas and advanced recovery techniques have held the price of natural gas in check in recent years.

However, the price of propane is tied directly to the cost of its inputs - namely crude.  Thus, the average price of propane is up 14% in NYS vs. this time last year.  However, we get the ultimate raw deal in the North Country where the average cost per gallon was $3.32 last week (up 19.8% from last year!!).  It's also interesting to note the wide spread in propane prices across the state.  The low is just $2.69/gallon in Western New York to a high of $3.40/gallon in Long Island (just slightly above our $3.32 price).  In the North Country we're paying 23% more than the current price of propane in Western NY. 

I'll be glad today when I walk by my giant pile of pellets in the garage :)

Wednesday, November 02, 2011

Busy day...

The market started off on the upside after it seemed like Europe had stabilized their Greek situation (more on that in a moment).  Throughout the day the bulk of the news flow was what one would consider to be negative for stocks - the FOMC minutes didn't save the day and Chairman Bernanke's outlook continues to deteriorate.

Consider that in January of this year, the Fed was predicting US GDP growth of 3.75% for 2011 and 3.95% for next year.  Well, today that prediction was lowered to 1.65% for 2011 and just 2.75% in 2012.  This is why I always say long-term economic projections are so difficult.  The Federal Reserve has access to more data than any other institution in the world and yet they missed their GDP prediction by a huge margin for the current year.  If this is the variability in current year predictions how can you place any weight on forecasts for GDP and budgets that go out 15-20 years.

The Fed also offered their first outlook for 2014 unemployment - 7.25% in 2014.  If this holds true it will make for a very difficult stretch for American employees.

I was going to post a series of photos detailing this man's conversion of a 4 wheel bike into a crazy, human powered Porsche look-a-like, but there were just too many pictures.  Do yourself a favor and click through to check out this project.  I can picture a couple of design geeks building one of those over the weekend :)


Tuesday, November 01, 2011

Things going bump in the night...

Greece remains a very fluid situation tonight as it seems the Prime Minister is moving forward with the idea of having a referendum on the bailout.  There may be additional fireworks on Friday when a confidence vote is planned.  If the government should fail it would lead to further uncertainty because 1) a new pro-bailout government could emerge or 2) a more hardline government could take charge.

But, you're saying - why is one tiny economy holding the world's equity markets hostage?  Well, it's less about Greece and more about the Euro.  When the deal looked like it was good to go the Euro surged, rising about 8% in a month.  Well, as confidence in the deal has been shaken it's lead to a 3.5% decline in the Euro (relative to the $).  Remember a falling $ = higher stocks and a rising $ = falling stocks in the US. 

I can't imagine the pain these currency swings are causing for Global CFOs trying to source materials around the world with currencies that are swinging 5-10% every month.

US markets might try to get a little bounce in front of the Fed's minutes tomorrow but it's hard to remember what their mindset was like when minutes where written :)

It's interesting to see that the little spike in new car registrations we saw in the North Country last month was not just a local trend but part of a larger national trend. 

"Based on an estimate from Autodata Corp, light vehicle sales were at a 13.26 million SAAR in October. That is up 9.2% from October 2010, and up 1.7% from the sales rate last month (13.04 million SAAR in Sept 2011)."

"This was just above the February sales and the highest sales rate since August 2009 ("Cash-for-clunkers")."

I'm not really sure how to read this data - buyers buying at the end of the model year?  Loose financing? Or a real increase in demand?  It's hard to process auto sales hitting post-recession peaks, while the number of individuals on food stamps continues to set all-time records.

The worst story of the night comes out of Japan where Xenon was detected at the crippled Fukishima plant.  So what, you might say.  Well, Xenon is a bi-product of nuclear fission and indicates that a new meltdown could be occurring right now.  The plant operator - who has been nothing but upfront with all of the details surrounding the plant (sarcasm - off) - has said it was a relatively small amount of Xenon detected but still they were flooding the plant with boric acid in an effort to suppress any further reactions.  Stay tuned.


Greek's pull the rug out from under the rally

Well, the market's don't know what to think.  Talk that the Greek parliament is going to hold a referendum on the latest European bailout sent markets into a tailspin this morning.  There has been some discussion the the referendum is DOA and if that turns out to be the case the snap back could be violent (as I write this the markets are back to their highs of the day based on rumors coming out of Greece).  I don't think any of us have ever dedicated so much time to analyzing the political leanings of the Greek parliament. 

This news prompted the Royal Bank of Scotland to issue the following note to clients that included one classic typo: ""...major negative for Greece and the rest of the momentary union".  Renaming the European Union a Momentary Union is good work even if it was unintentional.

Stay tuned....