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Friday, August 3, 2007

S&P500: The 'Buy the Dip' Crowd is Now Trapped

Yesterday: Blogpost: (S&P500: Critical Support and Rising Volatility)

ISM Services Index Falls to 55.8 from 60.7

" Growth in U.S. service industries slowed more than forecast in July, a sign businesses that make up most of the economy may be contributing less to the expansion in the second half.

The Institute for Supply Management's index of non- manufacturing businesses, including banks, builders and retailers fell to 55.8 last month, from 60.7 in June, the biggest drop in almost two years, the Tempe, Arizona-based group said today. Readings above 50 point to growth.

Weakening consumer demand, the prospect of increased limits on borrowing and evidence of slower economic growth are leading companies to hold off on their own spending and expansion. Payrolls grew less than expected last month, and the unemployment rate rose, the Labor Department said in an earlier report today. "

Source: U.S. ISM Services Index Falls More Than Forecast (Update2) (

U.S. Payrolls Rose 92,000 in July; Jobless Rate at 4.6%

" Employers in the U.S. added a fewer-than-forecast 92,000 workers to payrolls last month and the jobless rate unexpectedly rose, a sign the labor market is cooling.

The increase in jobs followed a 126,000 gain in June that was smaller than previously reported, the Labor Department said today in Washington. The jobless rate rose to 4.6 percent, the first increase since April, from 4.5 percent. Wages gained 3.9 percent from a year earlier. "

Source: U.S. Payrolls Rose 92,000 in July; Jobless Rate at 4.6% (

Make Your Mortgage Payments with Your Credit Card

This is so unbelievably ridiculous and significant that it must be emphasized: You can now charge your monthly mortgage payments DIRECTLY to your credit card.

Oh sweet sweet credit bubble!

" American Express Co. will allow consumers to charge monthly mortgage payments, making them eligible for perks including rewards points on airline travel and hotels. "

That sure sounds good. Put it on the card, collect points and miles, and then pay it off that billing cycle thereby avoiding punishing credit card interest rates. However, in reality the individuals charging to their cards will be exactly the kind of individual you wish did not even have a credit card. They will be the ones already in a financial death spiral and will be using their cards as one final sad little postponement of inevitable foreclosure.

Now for the fun stuff:

May 23rd 2007: " The American Express Rewards Mortgage program with American Home Mortgage Corp. starts today, Christine Elliott, a spokeswoman for American Express said."

August 2nd 2007: " American Home Mortgage Investment Corp. plans to halt operations, becoming the second-biggest residential lender to fail this year as bad loans spread to people with good credit records. "

That was quick.

If I can't pay my monthly mortgage payment @ 6.5% and therefore charge it to my card, what happens when I get THAT monthly bill @ 19.9%?

Brilliant. Just brilliant. All of it.

Source: American Home Will Close as Loan Demand Collapses (Update4) (
Source: American Express Allows Mortgage Payments on Cards (Update3)(
Source: Credit Brothel Raided, Even Piano Player Not Safe: Mark Gilbert (

Germany Rescues German Subprime Lender

US subprime problems have far reaching consequences in this global economy of ours...

" Shares of IKB Deutsche Industriebank AG plunged as German banking associations and state-owned KfW Group agreed to provide 3.5 billion euros ($4.8 billion) to cover potential losses from the U.S. subprime mortgage rout.

The shares fell 6.83 euros, or 40 percent, to 10.35 euros at 4:28 p.m. in Frankfurt today. The stock tumbled as much as 43 percent before the BdB banking association head Manfred Weber, who represents private banks such as Deutsche Bank AG and Commerzbank AG, said in a statement that the BdB will contribute as much as 500 million euros to ``stabilize the bank and prevent market disruption.''

Dusseldorf-based IKB on July 30 replaced its chief executive officer and said it'll miss its full-year profit target because of losses on U.S. subprime holdings. The rescue package covered as much as one-fifth of IKB's roughly 17.5 billion-euro exposure to the U.S. subprime mortgage market, Reuters reported, citing an unidentified person close to the plan. "

Subprime problems are contained. Don't even worry about it. Have another drink. This party is just getting started. >grin<

Source: IKB Shares Fall as German Banks Agree on Bailout (Update1) (

Thursday, August 2, 2007

CRB: Commodities Index Flashing Warning Signs

S&P500: Critical Support and Rising Volatility

Bank of England Leaves Interest Rate at Six-Year High

" The Bank of England left its benchmark interest rate at a six-year high today as policy makers assess whether five quarter-point increases in the past year are enough to quell inflation.

The Monetary Policy Committee, led by Governor Mervyn King, left the Bank Rate at 5.75 percent, the highest since April 2001, the central bank said today in London. The decision was predicted by all 60 economists surveyed by Bloomberg News. "

Source: Bank of England Leaves Interest Rate at Six-Year High (Update3) (

ECB Leaves Rate at 4 Percent, May Raise in September

" The European Central Bank left its benchmark interest rate at a six-year high of 4 percent today after eight increases since late 2005.

President Jean-Claude Trichet will hold a press conference at 2:30 p.m. in Frankfurt, in a break with normal procedure during the bank's summer recess. Some economists say he will signal another rate increase next month. Trichet's comments will be embargoed until no later than 3:30 p.m. local time, the ECB said.

Trichet has typically announced plans to increase borrowing costs one month in advance by pledging ``strong vigilance'' on inflation. The ECB says it must contain price increases as the economy of the 13 nations using the euro expands at close to the fastest pace since 2000. "

Source: ECB Leaves Rate at 4 Percent, May Raise in September (Update1) (

Wednesday, August 1, 2007

GM, Ford, Toyota, Honda Say U.S. Sales Fell in July

" Automakers reported their biggest monthly decline in U.S. sales in a year as a housing slump and rising gasoline prices reduced demand for cars and trucks from General Motors Corp., Ford Motor Co. and Toyota Motor Corp.

GM and Ford, the two biggest, said July sales plunged at least 19 percent. Toyota and Honda Motor Co., Japan's biggest automakers, each posted a drop of more than 7 percent from a year earlier, while DaimlerChrysler AG fell 9.1 percent.

The five largest U.S. automakers by sales hadn't posted declines in the same month since May 2005. Industrywide sales were off 12 percent, and U.S.-based automakers' market share went below 50 percent for the first time. "

Source: GM, Ford, Toyota, Honda Say U.S. Sales Fell in July (Update7) (

Yen Jumps to Three-Month High as Investors Unwind Carry Trades

" The yen fell versus the euro and dollar after U.S. stock futures trimmed declines.

The Japanese currency earlier touched a three-month high versus the euro as investors cut riskier assets funded by loans in Japan, a practice known as the carry trade. At 0.5 percent, Japan has the lowest interest rate among industrialized nations. The yen rallied as the U.S. subprime debacle led traders to sell stocks and bonds in countries such as Turkey, Iceland and Brazil.

"I think the market is reassessing the contagion from the credit market,'' said Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Bank of New York Mellon. "It isn't clear how bad the subprime problem is and its impact on other sectors. Some people are coming back to buy other currencies against the yen at cheaper levels. It doesn't mean the unwinding is over.'' "

Source: Yen Declines Versus Euro, Dollar as Stock Futures Pare Losses (

DOW: Failed To Bounce, Pierced Support.

ADP Employer Services Says U.S. Added 48,000 Jobs in July

" Companies in the U.S. added fewer jobs in July than forecast, a private report based on payroll data showed today.

The 48,000 increase followed a revised gain of 143,000 for the prior month that was less than previously estimated, ADP Employer Services said. "

Source: ADP Employer Services Says U.S. Added 48,000 Jobs in July (

Oddo to Shut Three Funds `Caught Out' by Credit Rout

" Oddo & Cie, a French stockbroker and money manager, plans to close three funds totaling 1 billion euros ($1.37 billion), citing the "unprecedented'' crisis in the U.S. asset-backed securities market.

Oddo said it will wind down the funds within the "shortest possible time frame'' because of a plunge in prices for collateralized debt obligations, notes backed by other bonds, loans and their derivatives. "

Source: Oddo to Shut Three Funds `Caught Out' by Credit Rout (Update2) (

Bear Stearns Halts Redemptions on Third Hedge Fund

" Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back. "

Source: Bear Stearns Halts Redemptions on Third Hedge Fund (Update1) (

Tuesday, July 31, 2007

Half Of Hedge Funds Worldwide May Close In Credit Rout

" Jeremy Grantham, the money manager who oversees $150 billion as chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said a credit crisis may force as many as half of hedge funds worldwide to close in the next five years.

The loss of investors' appetite for risk also may cause at least one global bank and ``one or two'' of the largest private- equity firms to go out of business, Grantham, known for his pessimistic outlook, said in a July 30 interview from his Boston office. The 68-year-old investor said he's still bullish on emerging-markets stocks.

Hedge-fund firms such as Boston-based Sowood Capital Management LP have collapsed as investors shun riskier debt including subprime mortgages and loans to fund buyouts. Bill Gross of Pacific Investment Management Co. in Newport Beach, California, said on July 24 he sees "severe ramifications'' for some investors who had benefited from cheap borrowing costs.

"Probably the most stretched silly credit that ever walked the face of the earth was subprime, and that was the start of it,'' Grantham said. ``And then you started to see more of the fixed-income market getting contagion.'' "

Source: Grantham Says Hedge Funds, LBO Funds to Collapse in Credit Rout (

U.S. Consumer Confidence Index Climbs More Than Forecast

" Consumer confidence in the U.S. climbed more than forecast in July to the highest in almost six years, spurred by job and income growth and lower gasoline prices.

The New York-based Conference Board's index of consumer confidence rose to 112.6 in July from a revised 105.3 the prior month. The index averaged 105.9 in 2006.

Robust confidence would help consumer spending, which accounts for more than two-thirds of the economy, pick up from a second-quarter slump. Greater job stability, cheaper gasoline and rising stock prices through most of the month outweighed concerns about falling home values. "

Source: U.S. Consumer Confidence Index Climbs More Than Forecast (

Chicago Purchasers Index Falls as Orders, Output Slow

" A measure of U.S. business activity fell more than forecast in July, adding to doubts that corporate investment will continue to grow.

The National Association of Purchasing Management-Chicago said today its business barometer fell to 53.4, from 60.2 in June. Readings greater than 50 signal expansion.

Measures of new orders and production both fell, indicating companies are curbing spending as consumer demand slows. That would be a further drag on the economy as it continues to confront weakness in the housing market. "

Source: Chicago Purchasers Index Falls as Orders, Output Slow (Update1) (

U.S. S&P/Case-Shiller Home Price Index Declined 2.8% in May

" Home values in 20 U.S. cities fell the most in at least six years as a glut of unsold properties, mounting defaults and higher mortgage rates suggest the housing recession has yet to touch bottom.

The S&P/Case-Shiller index of home prices in 20 metropolitan areas declined 2.8 percent in May from the same month a year earlier, led by Detroit and San Diego, according to the report issued today by Standard & Poor's and MacroMarkets LLC. It was the fifth straight year-on-year drop and the biggest decline since the index started in 2001. The drop was less than economists had forecast.

The declines suggest that housing will continue to hamstring the world's largest economy, economists say. Sluggish sales and falling prices prompt builders to scale back construction and hinder consumer spending as homeowners are less able to borrow against home equity. "

Source: U.S. S&P/Case-Shiller Home Price Index Declined 2.8% in May (

Crude: Probably Time To Take A Breather.

DOW: Oversold Bounce Time.

The Yen Carry Trade: Will They Put It Back On?

U.S. June Personal Spending Rises 0.1%; Core Prices Up 0.1%

" Consumer spending in the U.S. increased in June at the slowest pace in nine months as near-record gasoline prices and falling home values forced Americans to cut back.

The 0.1 percent rise in spending followed a 0.6 percent increase in May, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation rose less than forecast. "

Source: U.S. June Personal Spending Rises 0.1%; Core Prices Up 0.1% (

U.K. Consumers Cut Back on Beer, Shoes as Mortgage Crunch Looms

" About 2 million discounts will end during the next 18 months, the council said. The wave of refinancing threatens to slow consumer spending, which has boosted U.K. economic growth almost every quarter for the past decade, and may hurt stocks of retailers such as Tesco Plc and Marks & Spencer Group Plc. "

This is the exact same thing as in the US. The teaser rates are coming to an end with the same consequences...

" Ben Craster says he'll be drinking less beer this summer, and Christine Baines is cutting back on clothes and cosmetics. They're among the millions of Britons preparing for a mortgage crunch. "

UK home owneres went on a borrowing and spending binge that rivals the one in the US.

" Britain's borrowing binge has helped keep its economy growing for 60 consecutive quarters. The ratio of consumer debt to income in the U.K. is 1.62, the highest in the G-7, according to the National Institute for Economic and Social Research in London. "

This excess has to unwind. Real estate prices will fall sharply, but the debt burden will remain. The economic consequences will significant and it will take many years to work this debt off.

" Surging house prices have buoyed consumer spending as home- owners borrow against the value of their properties. Central bank policy makers, led by Governor Mervyn King, said the economy may cool, "possibly quite sharply,'' later this year, according to minutes of the July 4-5 rate meeting. "

Source: U.K. Consumers Cut Back on Beer, Shoes as Mortgage Crunch Looms (

Cheapest Stocks in 16 Years Draw Investors Amid Rout

What a great headline... until you read the article.

" Investors are preparing to snap up shares of telephone, health-care and computer companies after last week's $2.1 trillion global stock market rout left U.S. equities the cheapest in 16 years. "

Cheapest in 16 years? Easy money right? But wait, cheapest by what measure and why?

" The benchmark for American equity is valued at 15.5 times estimated profit, the lowest since January 1991, according to data compiled by Bloomberg. "

So its PE ratios we're talking about. More specifically forward PE ratios. Stocks are cheap based on current estimates of future earning's when compared to current prices. What if the 'E' part of the PE ratio is a little optimistic? These estimates are for growth far above trend and were made after record earnings growth over the last few years. A reversion to the mean alone would suddenly make a cheap market quite expensive. An actual recession, perhaps sparked by the capitulation of an over extended consumer, would really blow up this 'cheapest stocks' argument.

Where are the risks? With the largest real-estate correction since the 1930's and credit markets all shook up, where are the risks? Which surprises are most likely? To the upside or to the downside?

Factor in the possibility of a lost war in Iraq and things don't look nearly that 'cheap'.

Source: Cheapest Stocks in 16 Years Draw Investors Amid Rout (Update5) (