Friday, July 30th, 2010

Daily Download for 9-30-09

September 30th, 2009 at 2:02 am by CB | No Comments

Good morning, readers!

Upcoming Economic Data for the Day (all times EST)

7:00 AM MBA Purchase Applications

8:15 AM ADP Employment Report

8:30 AM GDP

8:30 AM Corporate Profits

9:45 AM Chicago PMI

10:30 PM EIA Petroleum Status Report

News

Mixed Data Reflect Fragility of Economic Recovery – The Wall Street Journal

Summary: According to the S&P Case-Shiller home-price index, home prices increased in 18 of 20 markets for a non-seasonally adjusted gain of 1.6% in July from June. Yet, prices home prices remain 13.3% lower than July 2008. However, the housing market cannot be assumed to be stable until market forces replace the current government support. In other news, the Conference Board Consumer Confidence Index was reported at 53.1 in September, which was under expectations, showing a decrease in confidence from the 54.5 reported in August. This consumer weakness driven by (1) high unemployment rate, (2) tight credit, and (3) stagnant wages could reduce the probability of a sustained recovery. Also, the CEO Economic Outlook Survey reported that of the 107 chief executive officers surveyed 21% thought capital spending would increase and 13% expected hiring to increase.

Full Web Access is Pegged at $20 Billion – The Wall Street Journal

Summary: The Federal Communications Commission (the”FCC”) estimates that providing broadband Internet service to the 3 to 6 million households without access could cost up to $20 billion, while increasing Internet speed for approximately 10 million households with slower Internet could cost as much as $35 billion. At present, $7.4 billion of economic stimulus funds are marked to be used to increase the speed of slower Internet connections and provide Internet service to those households without service.

Bank-Bailout Fund Faces Years in Red as Failures Jolt System – The Wall Street Journal

Summary: After 95 bank failures this year and for the first time since 1991, government officials have determined that the bank-deposit-insurance fund is negative and will remain there until 2012. Furthermore, these government officials have also estimated that the bank failures from 2009 to 2013 will cost the Federal Deposit Insurance Corp. (the “FDIC”) $100 billion, an increase from an early estimate of $70 billion. Depositors should not worry about the fund’s current status because federally insured deposits are backed by the full faith and credit of the U.S. government. In order to provide liquidity for the fund, the FDIC has proposed that the banking industry prepay $45 billion in fees by year end. Also, the FDIC is taking steps to allow borrowing from the U.S. Treasury if the need arises.

Feeling Deflated About Gas – The Wall Street Journal

Summary: Pressure on gas prices appears to be driven by the risk of a large supply of shale-gas resources combined with low demand growth. According to Navigant Consulting, currently, there is 118 years of recoverable gas supply. Furthermore, historically, gas demand growth has primarily come from the power sector. However, with the Waxman-Markey bill rushed through the house, little attention was given to natural gas ( a cleaner source of energy than coal). Instead, coal companies received a break with the bill giving free carbon allowances to the utility sector to ease the transition to a low-carbon economy. Furthermore, energy officials expect electricity-demand to grow at an average .8% a year until 2020, a decrease from the 1.3% growth rate over the past decade. In addition, renewable energy sources are likely to fuel an increase portion of the electricity demand over time, thus potentially crowding out demand for natural gas.

Pickup Sales Fall in Another Blow to Automakers – The New York Times

Summary: As truck sales drop from a peak of 2.5 million pickups, representing nearly 15% of all new vehicles sold, in 2004 to approximately 1 million pickups, representing nearly 10% of all new vehicles sold, this year, many truck plants are closing down and laying off workers. While a portion of the decline in pickup sales can be attributed to slowdown in the housing and construction industries, the largest impact came from those who buy pickups for personal use. With the economy struggling these consumers have to make a choice regarding their needs and their wants. Consequently, it appears that most casual consumers have decided that they do not need the pickup truck along with its large gas bill.

Hopes for 2010 Overshadow Weak Earnings Season – Barrons.com

Summary: Third quarter earnings are expected to decline for the ninth consecutive quarter on a year-over-year basis; however, according to stock prices, investors are already betting on better results in the fourth quarter of 2009 and the full year of 2010. Since May the estimates for 2009 and 2010 have increased significantly. For 2009, Wall Street now expects to see full-year profits decline 16.7% from 2008, while, in 2010, Wall Street expects to see full-year profits increase 26% for the first time since 2006. The current market performance appears to fully reflect these expectations. Since March 9th the performance of the indices has been as follows: (1) the Standard & Poor’s 500 up 57%; (2) the Dow Jones Industrial Average up 49%; and (3) the Nasdaq up 67%. Furthermore, the energy, technology, materials, and consumer-discretionary sectors are expected to turn in solid earnings growth for 2010.

Wariness of Weakness Boosts Dollar – Financial Times

Summary: Supportive comments from foreign central banks helped to boost the U.S. dollar on Tuesday. Jean-Claude Trichet, president of the European Central Bank, stated that a strong U.S. dollar is very important for the global economy. For instance, a stronger euro relative to the U.S. dollar may have negative effects on the eurozone recovery. Furthermore, Hirohisa Fujii, Japan’s finance minister, denied favoring a stronger yen and indicated that intervention in the currency markets is a possibility whenever the action is necessary for the good of the nation.

Plenty More Bank Losses Expected Globally – The Wall Street Journal

Summary: The International Monetary Fund (the “IMF”) estimates that banks around the world will probably face an additional $1.5 trillion of write-downs by the end of 2010 for a total loss of $2.8 trillion for the credit crisis. Meanwhile, financial institutions will face a total of $3.4 trillion of losses from 2007 to 2010, which is less than the $4.0 trillion of losses the IMF estimated in April. The decrease in total losses results from an increase in the prices of securities held by financial institutions since April. Furthermore, the IMF stated that the U.S. has realized 60% of anticipated write-downs, while Europe has realized approximately 40% of potential write-downs. In addition, the IMF indicated that the global economy is slowly recovering and governments need to commence planning on reducing fiscal and monetary stimulus.

Japan Tips Ever Deeper into Deflation – Telegraph

Summary: Japan faces increasing deflation as core inflation dropped a record 2.4% in September, while the increasing strength of the yen is hurting the profits of many Japanese exporters. Consequently, Japan continues to face lower prices and lower wages, while corporate debt represents 180% of GDP. Since peaking, GDP has decreased 8% and exports have declined 36%.

CIT in Last-Ditch Rescue Bid – The Wall Street Journal

Summary: CIT is preparing an exchange with bondholders that would: (1) eliminate 30% to 40% of its current $30 billion of outstanding debt; (2) give bondholders new debt with later maturities than the current debt; and (3) give bondholders approximately all the equity in the restructured entity. This plan depends on the support of the bondholders. If the plan does not receive support, then CIT will file for Chapter 11 bankruptcy protection at the holding company level, becoming the 5th largest bankruptcy filing in U.S history in regards to assets. Historically, CIT has been one of the largest lenders to small and medium sized businesses, but put itself at risk when it entered into student lending and subprime mortgage loans several years ago. CIT sought and received $2.3 billion of federal aid last December, but was denied further aid in 2009 when officials realized the demise of CIT would not severely harm the economy. Despite the lack of federal aid in 2009, CIT managed to avoid bankruptcy as some of its bondholders provided $3 billion of additional financing.

Other Links of Note

Reasons to Remain Wary About Housing – Forbes

Beating the Odds – Susquehanna International – Jeff Yass – Philadelphia

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