In's & Out's 07/07/09

From JP Morgan's latest In's & Out's...

Cost-cutting should remain a tailwind for corporate profits, but only up to a point.

The 467,000 jobs lost in June were more than during any month of the prior recession...

the 6.5 million jobs lost in the recession to date (4.7% of the starting level of employment) are the most of any downturn since the Great Depression.

Were this a normal recession, the steep yield curve would be inducing lenders to expand credit sufficiently to help the recovery take root.

But unfortunately, credit conditions are anything but normal today as banks struggle to rebuild their balance sheets...

and avoid taking on new risky loans in an economy that is still contracting.

With household net worth still shrinking, this may not change meaningfully until income starts growing again...

and lenders can be more confident that their loans will be repaid.

A material proportion of the near-term support from federal fiscal stimulus is likely to be offset by state and local government cuts.

The Nattering One Muses… corporate cost cutting means: less capex spending and more layoffs.

Banks rebuilding their balance sheets means: overstating asset values and hoarding cash, which means small business suffers.

State & local government cuts are the anathema of any durable economic recovery.

More spending on infrastructure is necessary to rebuild the durable economic base and repatriate the millions of jobs outsourced to labor at the margin.

Economic Reports 07/06/09

Vehicle Sales Jun

Declining again, 9.7M vs 9.9M; incentives are heavy but consumers are not interested in making major purchases.

Construction Spending May

-0.9% vs +0.6% Yoy -11.6%; Bad news: Total Private -1%; Yoy -17.4%; Residential outlays -3.4%; Yoy -33%.

Construction is still is in recession as homebuilders wait for unsold supply to dwindle...

commercial builders are still hamstrung by reduced corporate profits, and public outlays have been curtailed by a decline in government revenues.

S&P Case Schiller Home Price Index April

Home prices declining again… Comp 20 -0.6% at 139.18 vs 139.99; Yoy -18.1%

Chicago PMI June

Slight improvement in the headline number 39.9 vs 34.9. New orders still very weak at 41.6; Contraction in backlogs slowed as did price contraction.

ISM Manufacturing June

Good news? Headline reading up 2 pts 44.8 vs 42.8. However, new orders declined 2 pts to 49.2.

Destocking continues with slight improvement in employment at 40.7. Inventories are drawing down while production is picking up in the manufacturing sector.

Factory Orders May

+1.2%; durable orders +1.8%; non durable +0.7% on higher oil prices. Outside of new orders the news isn’t good. Shipments -0.6%.

Deepening rates of destocking in June. Optimists say inventories will have to be restocked given the strength in new orders and wider outlook for economic recovery.

But pessimists can warn that businesses are drawing down stocks in case demand does not improve.

ADP Non Farm Private Payroll Employment June

Good news? May revised to -485K vs -532K; June -473K. Services -223K; Goods Producing -250K; Manufacturing -146K; the 40th consecutive decline.

Large -91K; medium -205K; small -177K; since Jan 08 peak small business has shed 2.3M jobs.

Construction -97K; the 29th consecutive decline; shedding 1.4M jobs since Jan 07 peak

Initial Jobless Claims 06/27

-16K at 614K; 4 week MA -2.75K at 615.25K; Continuing claims -53K at 6.702M; 4 week MA -13.75K at 6.751M. States with increases over 1K reveals the continued carnage.

Non Farm Payrolls June

Again accelerating -467K vs -322K vs 519K. Unemployment jumped to 9.5% with the number unemployed hitting an all time record at 14.7 million.

Goods producing -223K; Manufacturing -136K; Construction -79K; Services -244K; Professional Business Services -118K.

We've Turned The Corner?

Shhhh don’t tell anyone…

The California budget deficit just grew another $3.4 Billion by missing yesterdays budget deadline and issuing IOU’s good until Oct 1st…

Can you say FURLOUGH???

California Governor Arnold Schwarzenegger said he’ll force state workers to take a third unpaid day off every month...

to conserve cash and will order lawmakers into an emergency session to tackle the state’s growing budget deficit.

Double Digits Anyone? June Non Farm Payrolls -467K jobs, unemployment “officially” at 9.5%.... we will be at 12% by year end.

Bottom?? The peak of the interest- rate resets on adjustable-rate mortgages won’t hit until 2011.

It’s a dead cat… this quarters stock market rally, and the reason why?

The stated book values vs the stock prices (which is a measure of TRUST) are way out of line….

As of June 30, there were 336 U.S.-listed financial companies trading for less than 60% of their book value...

including Citigroup, SunTrust Banks.and Marshall & Ilsley…

Just a few… Colonial BancGroup., with $26.4 billion of “assets”, is down to a $126 million market cap, or 10% of its book value.

Citizens Republic Bancorp, with $13 billion of “assets”, has a $91 million market value, or 7% of book.

Guaranty Financial Group, with $15.4 billion of “assets”, this week said it may not survive and that it may revise its 2008 net loss to $2.2 billion from $444 million.

Yeah, the economy has turned the corner, flipped over three times, struck a tree and burst into flames…

Inflation & Muni Debt Risks

From the latest JPMorgan In’s & Out’s…

On the one hand, they (The Fed) will be keen to remove the excess banking sector reserves that they have created...

with their special lending facilities and asset purchase measures...

as deflation risks subside and higher inflation becomes a risk…

But on the other hand, they will not want to withdraw their support too quickly...

for fear of undermining what promises to be only a weak economic recovery.

From the LA Times…

The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.

State agencies began preparing 31,000 workers to be temporarily out of a job.

Gov. Mitch Daniels has warned residents that most of the state's services including its parks...

the Bureau of Motor Vehicles and state-regulated casinos; would be shuttered unless a budget is passed today.

Indiana is one of five states -- along with Arizona, California, Mississippi and Pennsylvania -- bracing for possible shutdowns this week.

If lawmakers and the Guvenator cannot agree on a way to close a $24-billion shortfall…

IOUs would go to local governments, vendors, taxpayers and college students receiving state financial aid.

California has issued such IOUs only one other time -- in 1992 -- since the Great Depression.

The Nattering One muses… we warned as to when the “other” shoe would drop.

Expect it soon, with any or all of these states shuttering and defaulting on their debt.

The shockwaves throughout the debt markets from a California default (the 8th largest global economic entity) would be immense.

Expect the market for governmental refinancing to dry up with any remaining lenders charging outrageous premiums.

Said expense will be borne by the taxpayer, in full.

Economic Reports 06/30/09

Existing Home Sales May

Good news… existing home sales up +2.9% with supply falling to 9.6 vs 10.1 months.

Bad news… sales of existing homes are off 3.6% from May 2008 with 33% of all sales being distressed.

Worse news… The median price of an existing home is down 16.8% from a year earlier.

NAR paid liar, er chief economist Lawrence Yun: “the increase in sales is less than expected because poor appraisals are stalling transactions.”

Apparently, Mr. Yun is un-familiar with the concept of a deflating bubble which was caused by widespread greed and appraisal fraud.

New Home Sales May

Good news?? New home sales slipped 0.6%, which was the 2nd contraction in the past three months.

Bad news… the median sales price of a new home fell 3.4%

Worse news… sales of new homes are nearly 33.0% lower than in May 2008.

Durable Goods Orders May

Good news… Orders +1.8%; ex transport +1.1%

Better news… Nondefense capital goods orders +10%; ex aircraft increased at the fastest rate since September 2004, surging 4.8%.

Bad news… Yoy new orders for durable goods were down 23.3%, which was the 6th consecutive yoy reduction of more than 20.0%.

Worse news… Ex transportation, new orders for all other durables dipped 22.4% from May 2008.

Personal Income & Spending May

Good news… income +1.4%; Yoy +0.3%.

However, The advance in personal income was led by one-time payments under the American Recovery and Reinvestment Act of 2009.

Bad news… spending +0.3% vis a vis higher gasoline costs witnessed by Core PCE Yoy +1.8%

Worse news… spending Yoy -1.8% as wages and salaries or real take home pay slipped -0.1%

GDP Q1:09 Final

Good news?? BEA said that Q1 2009 real (inflation adjusted) gross domestic product tumbled at a 5.5% annualized rate. Less than the 5.7% anticipated.

Corporate profits are -21.8 % on a year-on-year basis, compared to down 36.3% in Q4.

Bad news… the reduction reflected an upturn in PCE and a larger decrease in imports.

Worse news… the higher prices & lower consumption were partly offset by...

larger decreases in private inventory investment and in nonresidential structures. Can you say destocking and a pull back in commercial structures?

Even worse news… the situation is worsening… Yoy growth for real GDP contracted by 2.5%, after falling 0.8% in Q4.

Initial Jobless Claims 06/20

+15K at 627K; 4 week MA +500 at 617.25. Continuing claims +29K at 6.738M; 4 week MA 3.25K at 6.759M. States with >+1K claims shows the carnage.

Quarter End Push

From a Naybob of Transport...

We have certainly seen a dramatic uptick in business this past week and a half.

In fact we are buried with all of our guys running over the weekend and into Tuesday of next week..

However I also believe that this is a serious push for quarter end numbers more than anything and that July will revert right back to what it always does. Dead.

However having said that, dealers inventories really have been declining and if people are buying they surely need cars.

I hope I am dead wrong about July being slow in that regard, but there is so much emphasis on getting cars delivered by the 30th of this month...

i.e. from nothing to buried while the economy appears to teeter and with so many cars pushed out so quickly its hard for me to come to other conclusions.

But because nothing is as it was, maybe July were turn out ok. We need it. Anyway, I read the attached (economic report) with guarded optimism.

I would not use the euphoric words as written to describe the economy but at least the overall trend for a couple months now is better than it has been.

In's & Out's 06/24/09

From the latest JPMorgan In's & Out's...

Gross exports (which still make up around 40% of Chinese GDP) were down by 26% yoy in May...

while foreign direct investment into China reportedly dropped by 18% over the same period.

We are cognizant of the fact that over-capacity remains a risk while global and domestic Chinese demand conditions remain relatively weak.

Development typically starts with urbanization, which leads to manufacturing growth and infrastructure demand...

ultimately paving the way to rising incomes and thereby changes in consumption patterns.

Each of these phenomena has been clearly observable within developing markets over the past decade.

Urbanization rates are exploding and, as a result, infrastructure demand and scheduled spending on it are substantial – and growing.

If anything, the pace of this expenditure will only be quickened by the global downturn.

Consumption also is evolving in a natural shift from “production” economies to “consumption” economies as incomes rise.

The Nattering One muses… we are cognizant that urbanization is growing in emerging markets such as China.

However we question this “evolution” as being “natural”.

Vis-à-vis the “natural” shift from production (durable economic activity such as manufacturing & infrastructure) to consumption...

or an emasculated or vapor based economy (creating capital from capital (brokering) without any durable economic activity)…

If all economies evolve or mutate in said fashion, then in the end, who is left to be the producer?

Are we left with a world dearth of manufacturing or durable economic activity?

The Nattering One thinks not. This so-called “natural evolution” is nothing more than another conjuring of the pro globalization crowd.

Again, globalization being a euphemism for unchecked global corporate rape and pillage.

INDEPENDENT economies do not “evolve” is such a manner as it is UN-BALANCED, UN-NATURAL and promotes DEPENDENCIES & DEFICIENCIES.

As the corporate inflicted petroleum based energy dependencies have already amply proven…

We should strive to remain independent in our supply chain economics lest we AGAIN fall prey to the "for profit" corporate con artists.

Economic Reports 06/22/09

TIC Foreign Inflows April

Net $11.2B vs $55.8B; long term investment inflow slowed. Foreign purchases of Treasuries were very solid at a net $41.9B...

but foreigners turned sellers of U.S. corporate bonds, at a net -$9.7B.

NAHB/WF Housing Market Index June

Declining to 15 vs 16 as rising mortgage rates and foreclosures are strong headwinds that are holding back recovery in the housing market.

The NAHB says credit remains tight and buyers who want to move are having a hard time selling their existing homes.

Housing Starts & Permits May

Headline reads starts +17.2% at 532K & SFR starts +7.5%. However, YOY -45.2% with SFR -40.9%; YTD -50% with SFR – 47.7%.

Permits +4% at 518K & SFR +7.9%. However, YOY -47% with SFR -35.1%; YTD -47.8% with SFR -42.5%.

PPI May

+0.2% vs +0.3%; despite energy +2.9%?? Absolute fraud as necessities such as perfume, cologne & household laundry equipment led the decline.

Bottom line marking a stagflated recession, the overall PPI yoy showed a 6th straight decline at -4.7% with the core rate +3%.

The truckload PPI contracted 8.7% yoy, which was the 6th consecutive drop and the largest yoy reduction since the data series began a few years ago.

CPI May

Despite gasoline approaching $3 and food costs booming again, +0.1% with Core +0.1%; gasoline +3.1%.

The perpetration of this double digit fraud on the public continues.

Empire State Mfg June

-9.4 vs -4.6 the rate of destocking picking up a bit to -25.29 vs. -21.59. Contraction in employment is deep at -21.84.

Until current new orders pick up and destocking comes to an end, there will be no improvement.

Industrial Production May

The 3rd straight decline with no improvement since Oct 08; -1.1% vs -0.7%.

Accelerating to the downside with manufacturing -1%; motor vehicles -7.9%; ex auto manufacturing -0.9%.

Yoy total production -15.2% with capacity utilization hitting a new all time low at 68.3%, meaning that 31.7% of capacity is idle.

The ATA manufacturing index plummeted 15.9% Yoy, which marked its 18th consecutive yoy decrease...

and tied April 2009 for the largest contraction in the history of the index (dating back to 1986).

(ATA re-weights manufacturing output based on its importance to truck tonnage, as opposed to value.)

Philly Fed June

-2.2 vs -22.6; Month-to-month contraction in new orders slowed substantially, to -4.8 vs. -25.9. Contraction in factory employment remains severe, at -21.8 vs. -26.8.

Destocking is continuing with prices received contracting at a slower rate.

Initial Jobless Claims 06/13

+3K at 608K; 4 week MA -7K at 615.75K. Continuing claims -148K at 6.687M; 4 week MA +2.25K at 6.757M.

On the surface an improving report, however a glance at the long list of states with increases gives pause.

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