GM Bankruptcy By Morning

Seems like a good time to review the wise investments by the TARP. Somehow, I get to share in the losses, but I never was able to participate in the gains. I never even wanted to get involved.



New CarCo is the new Chrysler acquisition vehicle.

Total = $55.80 billion

I'm not done yet: add another $30 billion in GM bankruptcy funding provided by the Federal Government.

60% of GM in return for the taxpayers. How 'bout eliminating the Federal Income Tax and let me decide how I want to set my money on fire.

What is Inflation?

Webster's Dictionary defines inflation as "a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services."

That's not a bad definition. In fact, Milton Friedman postulated that "inflation is always and everywhere a monetary phenomenon." Rising price levels result from inflation, a subtle but important distinction from how the topic is presented in the press.

Not too long ago, The Federal reserve considered money supply the gauge of monetary policy. The weekly release of the money supply numbers was a highly anticipated event on Wall Street. The Fed has since changed its policy to monitor and modify interest rates to control money supply.

So, it is clear that determining the supply of money is paramount to declaring inflationary or deflationary episodes. One more distinction before moving on: deflation would be described a a fall in money supply, disinflation would be described as a declining rate of inflation.

M1 is the most narrow measure of money supply.

M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.

M2 includes additional financial products.

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs).

M3 is an even broader measure of money supply.

M3 consists of M2 plus (1) balances in institutional money market mutual funds; (2) large-denomination time deposits (time deposits in amounts of $100,000 or more); (3) repurchase agreement (RP) liabilities of depository institutions, in denominations of $100,000 or more, on U.S. government and federal agency securities; and (4) Eurodollars held by U.S. addressees at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Large-denomination time deposits, RPs, and Eurodollars exclude those amounts held by depository institutions, the U.S. government, foreign banks and official institutions, and money market mutual funds.

The growth of the repurchase agreement market was a major component of the expansion of bank balance sheets. In addition, the other components of M3 provide insight into the behavior of corporations and the direction of major (and perhaps fickle) money flows.

On March 16, 2006, The Fed published its last tally of M3. An announcement was made the preceding November that the incremental guidance that M3 provided was not worth the cost of acquiring the additional data. According to the press release, M2 provided sufficient data and M3 had not played a roll in decision making for some time.

This struck some market watchers as odd. Some believed that The Fed wanted to obscure the true nature of its policies. Let's take a look at whether or not this is the case. To be continued....

Upcoming Economic Data

================================================================
                     Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
Pers Inc MOM%             6/1      April     -0.3%     -0.2%
Pers Spend MOM%           6/1      April     -0.2%     -0.2%
Construct Spending MOM%   6/1      April      0.3%     -1.5%
ISM Manu Index            6/1       May       40.1      42.0
ISM Prices Index          6/1       May       32.0      35.0
Pending Homes MOM%        6/2      April      3.2%      0.5%
ADP Payroll ,000’s        6/3       May       -491      -533
ISM NonManu Index         6/3       May       43.7      45.0
Factory Orders MOM%       6/3      April     -0.9%      0.8%
Productivity QOQ%         6/4        1Q       0.8%      1.2%
Labor Costs QOQ%          6/4       1Q F      3.3%      2.9%
Initial Claims ,000’s     6/4      30-May     623       620
Cont. Claims ,000’s       6/4      23-May     6788      6855
Nonfarm Payrolls ,000’s   6/5       May       -539      -521
Unemploy Rate %           6/5       May       8.9%      9.2%
Manu Payrolls ,000’s      6/5       May       -149      -150
Hourly Earnings MOM%      6/5       May       0.1%      0.1%
Hourly Earnings YOY%      6/5       May       3.2%      3.1%
Avg Weekly Hours          6/5       May       33.2      33.2
Cons. Credit $ Blns       6/5      April     -11.1      -6.0
================================================================

New Home Sales

New home sales budged a bit higher to an annualized level of 352,000. The March figure was revised lower from 356,000 to 351,000 (yep, more revision funny business).

The last time averaged this many new home sales was 1982. The time before that was in 1966. Granted, data only goes back to 1963. However, this is a major adjustment to our economy.

Jobless Claims

Initial jobless claims dropped to 623,000 last week, from an upwardly revised 636,000 level. While it is certainly possible that initial claims have peaked (I'll forget about measuring the initial claims number as a portion of the labor pool left for now), continuing claims continued their inexorable march to 7 million. The latest tally is 6,788,000: a 110,000 increase from the previous number (and new record).

The IUR increased to 5.1%, a continued sign that finding a job is exceedingly difficult. Don't forget, college graduates will be hitting the bricks too.

Durable Goods

I'm not sure about how to report on this, but here it goes:

Durable goods came in at $161.5 billion. The consensus estimate was a 0.4% increase from the previous month. March's number WAS $160.5 billion. Some math brings us to a figure of $161.1 billion as the dollar estimate for April. So indeed, the number exceeded estimates: 0.6% increase.

However, the increase is being reported as a 1.9% increase. Why? Well the Census Bureau revised the March number to $158.4 billion. This adjustment is causing the headfake.

Anyway, except for a one-time blip in Jan, 2002, durable goods orders are at late 1995/early 1996 levels.

The Ickey Asset Shuffle

http://online.wsj.com/article/SB124338836675757049.html

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_cSJOgFLwPs


The first link: WSJ story about banks wanting to effectively keep assets and let the government (us) eat the losses.

The second link: FDIC's response

Loyal reader JP should have a great laugh.

FDIC Quarterly Banking Profile

No real surprises here:

- The Deposit Insurance Fund (DIF) dropped to $13 billion at the end of the first quarter. The corresponding reserve ratio is only 0.27%, that $13 billion is backing $4.8 trillion in insured deposits. NOTE: these figure only include funds up to the $100,000 limit. However, the limit is $250,000 until 2013. Therefore, the reserve ratio is overstated.

- Assets of problem banks grew to $220 billion. Cuffing it, I would say that represents about $183 billion in deposits. That means the DIF could be wiped out by a 7.1% failure rate of these problem banks.

http://www2.fdic.gov/qbp/2009mar/qbp.pdf

UPDATED BAD BANKS LIST

- I have shortened the list to the 100 worst banks

- 130 banks have non-accrual ratios over 100%

- 218 banks have non-accrual ratios over 75%

- Please refer to the post made on May 8 for calculation method

Existing Home Sales

Headline number came in a hair above consensus: 4.68 million annual rate vs. expectations of 4.66 million.

Digging a little deeper:

- Inventory pushing higher, 10.2 months worth of supply. The March print was 9.6 months.

- Considerable revisions to mean sales prices: that February print of 235k was revised to 210k, other less dramatic downward revisions as well.

Back to The Fed: Bigger and Badder......

....that's bad meaning bad, not bad meaning good....that is.

The Term Asset-Backed Securities Loan Facility (TALF) was recently expanded to include commercial mortgage backed securities (CMBS). These loans are to be made on a a non-recourse basis: The Fed can't go after any other assets of the borrowing institutions aside from the pledged assets. In other words, if the assets that the borrower is funding tank, they can walk away and let The Fed clean up the mess. The Fed has all of the credit risk but limited profit potential. This is not what a central bank should be up to.

http://nreionline.com/finance/news/fed_extends_talf_0520/


As a result, CMBS have rallied off their lows since there will be a lender of last resort. However, there is smoke on the horizon:

Coming soon: a wave of CMBS downgrades

http://ftalphaville.ft.com/blog/2009/05/26/56245/brace-yourselves-for-a-wave-of-cmbs-downgrades/


http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/2,1,9,5,1204846937857.html

In order to be eligible, the CMBS must have a AAA rating from at least 2 rating agencies. From the way it sounds, S&P is prepared to dramatically reduce the number of AAA ratings they have assigned. So much for the TALF......

More On Home Prices

I have commented in the past that one should not expect home prices to outperform inflation in the long run. I stand by that comment.

The above graph tracks CPI versus the Case/Shiller 10 City index. Both indices have been reindexed to 100 on January, 1987 (start date of Case/Shiller). I think that the housing market bottoms when the 2 lines meet again.

Home Prices: Case/Shiller

March data out today: 10 City Composite down 18.65%, year over year & 20 City Composite down 18.70%, year over year.

These numbers were a bit worse than consensus, but the equity market has chosen to rally on the consumer confidence number.

Home prices are now back to levels last seen during the late Spring / early Summer of 2003. What does this mean? It effectively wipes out any lingering hope for mortgage equity withdrawal (MEW) continuing as a source of funds for consumer spending.

In fact, how many people still have ANY equity in their homes? Price drops are on the magnitude of down payments. Principal portions of monthly mortgage payments are quite small on relatively new loans. It is possible that, on average, 60% of the country is upside-down.

So What Do Those Previous Posts Mean?

What they are intended to reflect is the uber-shuffle of borrowing that is underway. The reason why inflation will not be a problem is because Treasury issuance is replacing private sector borrowing. The Fed and Treasury Department have become the last resting place of the junk that was sitting on bank balance sheets.

These assets are still over priced, there is no private sector bid at current marks. Interbank financing has only rebounded because the banks have guaranteed financing, not because they want to play nice.

Meanwhile, Back at The Fed (II)....

The above graph tracks data as of April month end. The ratio stands at $16.69 as of 5/20/09.

Meanwhile, Back at The Fed....

From the Federal Reserve statistical release H.4.1 (5/21/09):

• Leverage
• The Federal Reserve System holds $49.84 in assets for each dollar of capital

• Securities Holdings
• Holdings of U.S. Treasury Debt have decreased by $80.4 billion in 1 year
• Holdings of GSE debt have increased by $76.7 billion in 1 year
• Holdings of GSE /Agency MBS have increased by $431.5 billion in year

• Liquidity Programs
• Term Auction Credit totaled $428.8 billion
• Commercial Paper Funding Facility totaled $157.1 billion
• Other Loans totaled $126.3 billion (of which $45.7 billion is their loan to AIG)

• Non Recourse, Secured Loans
• Maiden Lane LLC: $25.7 billion
• Maiden Lane LLC II: $16.2 billion
• Maiden Lane LLC III: $20.4 billion

On the liability front: deposits from depository institutions (The Fed’s liability) totaled $955.2 billion, a $927.5 billion increase from a year ago. These deposits account for 72.4% of the growth on the liability side of the Fed's balance sheet.

8 Month Ban on Shorting Financials Ends

http://www.bloomberg.com/apps/news?pid=20601087&sid=aILPLIutkS_Y&refer=home

I am embarrassed to admit that I didn't know those Aussies were still gumming up the works.

Next Week's Economic Data

================================================================
                     Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
Case Shiller Monthly YO   5/26     March     -18.6%    -18.4%
Consumer Conf Index       5/26      May       39.2      43.0
Exist Homes Mlns          5/27     April      4.57      4.66
Exist Homes MOM%          5/27     April     -3.0%      2.0%
Durables Orders MOM%      5/28     April     -0.8%      0.4%
Durables Ex-Trans MOM%    5/28     April     -0.7%     -0.3%
Initial Claims ,000’s     5/28     23-May     631       630
Cont. Claims ,000’s       5/28     16-May     6662      6740
New Home Sales ,000’s     5/28     April      356       360
New Home Sales MOM%       5/28     April     -0.6%      1.1%
GDP Annual QOQ%           5/29      1Q P     -6.1%     -5.5%
Personal Consump. QOQ%    5/29      1Q P      2.2%      2.0%
GDP Prices QOQ%           5/29      1Q P      2.9%      2.9%
Core PCE Prices QOQ%      5/29      1Q P      1.5%      1.5%
Chicago PM Index          5/29      May       40.1      42.0
U of Mich Conf. Index     5/29     May F      67.9      68.0

Failure Friday

Two more banks shut down today, 2009 total is now at 36. The FDIC also released its new assessment plan. According to my calculations, it will bring a whopping $5.7 billion into the fund. That would cover this week's failures. I am not impressed.

One may ask: won't this assessment plan hurt the banks that are in most need of the insurance? The answer is: of course.

Raising expenses during a crisis is not a great idea. Maybe charging ZERO premiums from 1995 - 2005 wasn't such a good idea either.

http://www.fdic.gov/news/news/press/2009/pr09074.html

Stand Fast

These are the times that try men's souls: The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value."

Thomas Paine, The Crisis

Failure Thursday?

(2 tables above: bad banks on the left, failures on the right. please click to expand)

It has finally happened:

BankUnited, FSB Closed

http://www.fdic.gov/news/news/press/2009/pr09072.html

BankUnited will be the successor bank, acquired and run by a private equity consortium. WE PAID FOR THIS PEOPLE. PRIVATE EQUITY GETS A SWEETHEART DEAL ON OUR BACKS.

The Deposit Insurance Fund is estimated to take a hit of $4.9 billion on this one. That brings the 2009 loss to over $10.3 billion. The FDIC reported a balance of just under $19 billion at the end of 2008.

It is a good thing Congress approved a credit line of up to $500 billion for the FDIC. That is what I mean about insuring your own deposit. If (When) the FDIC taps that line, the Treasury must issue debt to front the cash.

Failure #34 is a big one folks, another one off the Bad Banks list.

Jobless Claims: Green Shoots My A$$

16th week in a row initial claims topped 600,000

6th week in a row continuing claims topped 6,000,000 (and another new record)

IUR hits 5.0%

Early guess for May non-farm: -592,000

What I Would Pay For Stocks

I've gotten a few requests for this (even though my advice as of late stinks!):

S & P 500 Index


- Standard & Poor's estimates for 2010 1 year trailing earnings

3/31/2010	$29.48
6/30/2010	$32.32
9/30/2010	$34.61
12/31/2010	$35.67

Average: $33.02


- Average earnings yield since 1988:

4.796%


- Current earnings yield using 2010 forecast:

3.655%


- Implied correction

Drop of 23.795%


- What I would pay for the S & P 500:

688.49


This roughly corresponds to a 6,400.00 Dow Jones Industrial Average.

Taxpayers To The Rescue......Again

http://www.nytimes.com/2009/05/21/business/economy/21pension.html?_r=1&8au&emc=au

Please refer to the 4/8/09 post. This is getting out of hand. We are insuring our own assets. The FDIC is done, the PBGC is done, the NCUA is done.

Corporations are getting a free ride, it is just not right.


More on the NCUA:

http://www.reuters.com/article/gc04/idUSTRE54J67120090520

GMAC To Get More of Our Money

http://www.detnews.com/article/20090520/AUTO01/905200376/1025/POLITICS03/Feds-to-ante-up-$7.5B-to-help-GMAC


Please refer back to posts made on 5/10 & 5/11, it was only a matter of time.

More on Japan

For good measure: consumer prices in Japan today are no different then they were in 1993.

Japanese GDP Plummets

I simply don't know what to write about this. The casual nature with which the press is treating this topic is astounding. Japan trails only the USA in terms of GDP: this is a major economy going through a major restructuring.

Real GDP fell at an annualized rate of 15.2% after falling 14.4% in the fourth quarter of 2008. I will be back with comments once I wrap my head around this.

Housing Starts

So much for homebuilder optimism. Housing starts fell to a seasonally adjusted, annualized rate of 458,000 from 525,000 last month. The below graph tracks the unadjusted monthly number, to attain a sense of the seasonal peaks & valleys.



On average, starts peak in May and bottom in December. No surprise there. What should be troubling to the "green shooters" is how the number may be turning over. A peak in March would certainly dampen the case for a recovering housing market.

Bad Banks 2009 Q1: Preview

The last few call reports have come in and I have taken a look at the 10 largest banks (by Tier 1 capital) on the 2008 Q4 list:

- I really do not know why Corus Bank, Frontier Bank and BankUnited have not been closed. They either have or are approaching negative equity and are exposed to the hardest hit geographic locations.

- I don't understand how the bank's domiciled in Puerto Rico are hanging on. They have small branch networks and are supported by mainly brokered deposits. R-G Premier, WesternBank and Doral Bank are not improving to put it mildly.

- AmTrust is not long for this world either. Despite a few run-ins with regulators, capital adequacy continues to fall.

Charge-Offs & Delinquencies

The Fed published the first quarter's stats today:

- Delinquency rate for all real estate loans hit 7.88%

- Delinquency rate for all consumer loans hit 4.91%

How does this translate to losses? The above graph tracks actual net charge offs since 1985 and projections for the next 5 quarters. The model is a simple regression of 3 quarter lagging delinquencies versus charge offs. The model is not robust, but it is statistically significant. It also has predicted a lower amount of charge-offs than were realized for the last few quarters. I am trying to find another variable to capture the difference.

Anyway, based on the data, I would be hesitant to say the worst of marking to market is over.

Up or Down For BAC ?

BAC turned in a nice trading session today on the back of mixed news:

- Goldman Sachs Upgrades BAC Shares

http://blogs.wsj.com/marketbeat/2009/05/18/goldman-sachs-says-buy-bank-of-america/


- Temasek Sells Stake in BAC

http://www.nytimes.com/2009/05/15/business/15bank.html


- Fitch Downgrades Certain BAC Issues

http://www.fitchratings.com/corporate/events/press_releases_detail.cfm?pr_id=475816

Economic Data This Week

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
May 19	8:30 AM	Building Permits	Apr	-	NA	530K	516K	-
May 19	8:30 AM	Housing Starts	Apr	-	NA	527K	510K	-
May 20	10:30 AM	Crude Inventories	05/15	-	NA	NA	-4.63M	-
May 20	10:35 AM	Crude Inventories	05/15	-	NA	NA	NA	-
May 20	2:00 PM	FOMC Minutes	04/29	-	NA	NA	NA	-
May 21	8:30 AM	Initial Claims	05/16	-	NA	NA	610K	-
May 21	10:00 AM	Leading Indicators	Apr	-	NA	0.6%	-0.3%	-
May 21	10:00 AM	Philadelphia Fed	May	-	NA	-18.0	NA	-

More On Prices: CPI

Most measures in today's CPI report were either slightly higher or flat versus the previous month.

A note about the above graph: for CPI, the headline number is not seasonally adjusted. For PPI, the headline number is seasonally adjusted. Therefore, I have been tracking seasonally adjusted for both measures.

On that basis:

- The year over year change has been negative for the PPI for the last five months

- The year over year change has been negative for the CPI for four of the last five months

Full report:

http://www.bls.gov/news.release/pdf/cpi.pdf

Jobless Claims & PPI

Initial jobless claims moved higher form the previous report: 605,000 was the revised number for 5/2/09 and 637,000 was the number for 5/9/09. Several pundits claimed that the previous report marked the bottom in claims. This is a volatile series, but in any case, one month does not a trend make. Not even three months can always be trusted to mark a new direction.

This was the first report to include idled Chrysler workers, expect more in the next few weeks. In addition, a GM bankruptcy is all but certain.

Continuing claims skyrocketed over 6.5 million and he IUR rose to 4.9%, the job market is still sick. As I mentioned last week, it is possible that initial claims will taper off. However, job GROWTH is non-existent.




PPI rose month over month, but are still 3.5% lower than they were 12 months ago. Already, the press is claiming that this ends the deflation discussion. When will they learn?

JIM CRAMER KNOWS NOTHING, HE KNOWS NOTHING

I HEARD THAT JIM CRAMER RECOMMENDED BUYING HUNTINGTON BANCSHARES (HBAN) BECAUSE OF THEIR NEW MANAGEMENT TEAM. ANOTHER NEW MANAGEMENT TEAM.

I DON'T CARE IF THEY DUG UP BEN FRANKLIN, KING SOLOMON, CONFUCIUS AND PLATO TO RUN THE BANK.

PLEASE EXERCISE CAUTION WHEN ACTING ON WHAT THIS GUY SAYS.

Foreclosures March On

Realtytrac's numbers came out this morning: April was another 300k+ month.

Too many homes were built, it is that simple.  If home building outstrips net household creation, this is what you get.

Retail Sales

Retail sales for April came in lower than expected. The market consensus was a drop of 0.1% from March, the actual drop was 0.37%.

Whether by force or by choice, the individual is doing the right thing. It is the "wrong" thing for the economy, in the short run. The improving savings rate will fortify consumer balance sheets so the next expansion, probably another year away, will have legs.

The numbers are staggering. Retail sales for 2008 decreased by 0.72% from 2007. That doesn't look like a large drop, but:

- this is a nominal number, unadjusted for inflation

- the average growth rate from 1992 - 2007 was about 5.13%

2009 is running about 9.17% below 2008. Although I only have data going back to 1992, I can't imagine a similar run occurring during anything other than a depression.

Freddie Mac "Earnings"

Freddie lost another $9.85 billion in the first quarter.  As a result, the company had a negative net worth on 3/31/2009.  No problem, the taxpayers are willing to pay for it.  The FHFA submitted its request for another $6.1 billion from the Treasury.

Home Prices Drop in Q1

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKkPN8keugMw&refer=home

http://www.realtor.org/files/research/8f65e2804c8e3c9aabaeaf2e4ec772bd/rel09q1t.pdf


No new information here, but the second link has some interesting information about specific locations.

News Briefs

http://www.nytimes.com/2009/05/13/business/global/13yuan.html?_r=1&hp

Chinese Exports Weaker Than Expected


http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_FhoI2A4ZsM

Lender Halts Credit Card Program


http://www.ft.com/cms/s/05a02882-3eeb-11de-ae4f-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F05a02882-3eeb-11de-ae4f-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus

German Bad Bank Plan

U.S. Federal Budget Update

The Obama Administration put forth the revised 2010 budget today. Please click on the above tables and graph for a review. No real surprise, the projected deficit grew larger. The forecasts were all taken from the Budget.

It is interesting to note the anticipated Fannie & Freddie preferred stock draw-downs. To review:

3rd Quarter 2008: Freddie issues $13.8 billion in stock to the Treasury

4th Quarter 2008: Freddie issues $30.8 billion in stock to the Treasury

4th Quarter 2008: Fannie issues $15.2 billion in stock to the Treasury

May 8, 1009: Fannie requests $19 billion in stock be issued to the Treasury

Each time, the stock was issued to cover negative net worth.

The Budget includes the following:

$27.1 billion more in 2009 issuance

$41.3 billion more in 2010 issuance

$23.7 billion more in 2011 issuance

.......and the real estate market has found bottom ?

More on GMAC

http://dealbook.blogs.nytimes.com/2009/05/11/gmac-could-get-75-billion-from-us-report-says/


Update on GMAC's capital raising.

Economic Data Calendar

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
May 12	8:30 AM	Trade Balance	Mar	-	-$29.5B	-$29.2B	-$26.0B	-
May 12	2:00 PM	Treasury Budget	Apr	-	NA	-$63.0B	$159.3B	-
May 13	8:30 AM	Export Prices ex-ag.	Apr	-	NA	NA	0.1%	-
May 13	8:30 AM	Import Prices ex-oil	Apr	-	NA	NA	-0.6%	-
May 13	8:30 AM	Retail Sales	Apr	-	-0.2%	-0.1%	-1.2%	-
May 13	8:30 AM	Retail Sales ex-auto	Apr	-	0.0%	0.0%	-1.0%	-
May 13	10:00 AM	Business Inventories	Mar	-	-1.0%	-1.1%	-1.3%	-
May 13	10:30 AM	Crude Inventories	05/08	-	NA	NA	+605K	-
May 13	10:35 AM	Crude Inventories	05/08	-	NA	NA	NA	-
May 14	8:30 AM	Core PPI	Apr	-	0.0%	0.1%	0.0%	-
May 14	8:30 AM	Initial Claims	05/09	-	580k	NA	601K	-
May 14	8:30 AM	PPI	Apr	-	0.2%	0.1%	-1.2%	-
May 15	8:30 AM	Core CPI	Apr	-	0.1%	0.1%	0.2%	-
May 15	8:30 AM	CPI	Apr	-	0.0%	0.0%	-0.1%	-
May 15	8:30 AM	Empire Manufacturing	May	-	-14.0	-15.0	-14.65	-
May 15	9:00 AM	Net Long-Term TIC Flows	-	-	NA	NA	$22.0B	-
May 15	9:15 AM	Capacity Utilization	Apr	-	69.1%	68.9%	69.3%	-
May 15	9:15 AM	Industrial Production	Apr	-	-0.4%	-0.6%	-1.5%	-
May 15	9:55 AM	Mich Sentiment-Prel	May	-	65.2	65.0	65.1	-

*** This is also option expiration week. ***

Also, BankUnited saga should be resolved. Regulator's extension expires this week.

Other fun:

http://www.telegraph.co.uk/finance/economics/5307345/China-suffers-defaltion-for-third-month-in-a-row.html

China Deflation Continues


http://www.reuters.com/article/marketsnews/idINPEK5258120090511?rpc=33

Krugman is Fearful

Auto Related TARP Transactions

General Motors Corp.	$16,284,024,131
GMAC LLC	$5,000,000,000
Chrysler Holding LLC	$4,780,130,642
Chrysler LLC	$3,034,000,000
Chrysler Financial Services Americas LLC	$1,500,000,000
Total	$30,598,154,773

Please remember that GMAC LLC is a bank holding company. They were instructed to raise $11.5 billion based on the stress test. GMAC LLC is not a public company and is highly leveraged as a result of a private equity acquisition. Would you like to guess where they will get the additional capital?

http://news.yahoo.com/s/ap/us_gm_inevitable_bankruptcy

GM is not far behind Chrysler in going under. Prepare to kiss $42 billion good-bye.

Great Reads: Sucker's Rally

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5301123/bEnjoy-the-rally-while-it-lasts---but-expect-to-take-a-sucker-punchb.html

"Our delicious spring rally is nearing the limits. The 40pc rise on global bourses since March assumes that central banks have conjured away the debt overhang by slashing rates to zero and printing money. Nothing of the sort has occurred. Two thirds of the world economy will be in deflation by July."

http://dealbook.blogs.nytimes.com/2009/05/08/hedge-fund-sees-disaster-brewing/


Disaster Brewing



http://dealbook.blogs.nytimes.com/2009/05/08/fund-manger-thinks-bank-stocks-are-priced-to-perfection/


Shorting Financials



http://online.wsj.com/article/SB124139532998281787.html#mod=loomia?loomia_si=t0:a16:g2:r1:c0.0141778:b24326894


Looming Mortgage Catastrophe

The Biggest Stress Test Lie

In past posts, I have written about the bogus Stress Test economic assumptions (4/24/09) and the chosen benchmark capital ratio (5/9/09). Today, I would like to highlight the biggest fraud of the report: expected net income.

The report states that over 2009 & 2010, the Fed expects the 19 banks to generate adjusted net income of $362.9 billion. This would enable the institutions to survive on the meager capital additions that the report demanded. This amount is utterly unreasonable. Of that $362.9 billion, I will allocate $145.16 billion to 2009 and $217.74 billion to 2010.

The ENTIRE Banking Industry:

Total Assets on 12/31/2008: $13.898 trillion





Based on the above graph, I will be generous and forecast a 2% growth rate for 2009 and a 5% growth rate for 2010. That would bring average 2009 total assets to $14.176 trillion.

Using data for the last 10 years, I created the following scenarios. Click on graphs to review recent return on asset data:

ROA	Net Income
Duplicating Best Year	$ 195,630,429,780
Dream World	$ 226,817,889,600
Average	$ 156,066,172,901
Average, Excluding 2008	$ 170,538,700,743
Trend	$ 102,540,587,590

So, based on historic trends, the Fed is forecasting that those 19 banks will make as much as one would expect the entire industry to make.

In fact, even adjusting the record 2006 numbers for inflation, the best year for banking was worth $154.7 billion.

Caveat emptor.

The Mystery Starts To Unfold....

The Wall Street Journal reported earlier tonight that the Stress Test capital benchmark was not the expected ratio:

"On Friday, some analysts questioned the yardstick, known as Tier 1 common capital, that regulators chose to assess capital levels. Many experts had assumed the Fed would use a better-known metric called tangible common equity."

http://online.wsj.com/article/SB124182311010302297.html#mod%3DtestMod%26articleTabs%3Darticle

When is enough, enough?

Failure Friday Fun

Please click on tables to expand.

Westsound Bank was the only one closed today. It was at the top of the Bad Banks list. How do you get to the top of the Bad Banks list?

Net Bad Loans Ratio

bad loans = assets at least 30 days delinquent + non-accrual assets

ratio = (bad loans - bad loans guaranteed by Federal Gov't) / (loan loss allowance + Tier 1 capital)

Net Non-Accrual Ratio

ratio = (non-accrual assets - non-accrual assets guaranteed by Federal Gov't) / (loan loss allowance + Tier 1 capital)


I modified the last column of the failure list:

ratio = (total deposits - FDIC loss) / total assets

Anyone Remember Fannie Mae?

Well, you should America. Another huge loss in the 1st quarter: $23.168 billion down the drain. Since and including the 3rd quarter of 2007, Fannie Mae(Day) has lost $88.2 billion.

This latest loss puts them into the negative net worth area again: their assets are worth less than their liabilities. This is only possible of course because the Federal government (YOU, TAXPAYER !!!!) is back-stopping the whole derelict operation.

As a result, Mae(Day) has requested that YOU pony up another $19 billion to buy its preferred stock.

The bulk of the losses stem from increased their reserves for credit losses (paying out on guarantees) and foreclosure expenses. This accounted for $20.9 billion of the loss.

- Non-performing loans totaled $114.9 billion, up from $10.9 billion a year ago

- Carrying values of $6.4 billion in foreclosed properties, up from $4.6 billion a year ago

Fannie Mae(Day) and Freddie Muck represent over 40% of the mortgage universe. Buy bank stocks if you like, I wish you luck.

WE WILL GET STIFFED ON THESE JUST LIKE WE GOT STIFFED ON CHRYSLER. WHY IS NOBODY TALKING ABOUT THE $7 BILLION THAT WILL NEVER BE REPAID BY CHRYSLER!

Non-Farm Payroll

My guess was pretty close: 539,000 jobs were lost in April. The unemployment rate moved higher, 8.9% for April as well.

My forecast was a loss of 557,000. I will note the following:

- February job loss was reported to be 651,000: revised to a loss of 681,000

- March job loss was reported to be 663,000: revised to a loss of 699,000

This marks the 16th consecutive month of job losses and the 6th straight month of losses of at least 500,000 jobs. Since and including the December, 2007 report, the economy has lost 5,697,000 jobs.

GM Earnings

Yuck.

Another $5.9 billion in losses. This marks the 7th consecutive quarterly loss for the company, a whopping $76.4 billion cumulative loss.

Weekly Jobless Claims

Initial claims dropped to 601,000 last week, marking the 14th consecutive week above 600,000. This number was below expectations, adding more fuel to the "this must be the bottom" fire. As I mentioned earlier, this number is bound to decelerate as more people file. That 600,000 becomes a larger percentage of the pie as more jobs are lost.

Continuing claims continued their inexorable march to 6.5 million. This week's total came to 6,351,000: another record high. In addition, the IUR rose to 4.8%, another record.

So, there may be fewer people filing for initial benefits, but they can't get off the dole.

Jobs Data

Way late in this, but I have not been in the mood for posting. My post (4/27/09) about not buying stocks after looking at S & P's earnings forecast was dead wrong. Financial stocks have continued to rally well past where I though they should have tired out. It also appears that my post (3/30/09) about a major bank being nationalized by tomorrow was wrong. In either case, perception is reality. When an economy losing 500,000 jobs in a month is considered good news, anything is possible. I genuinely don't know if the market is getting lulled into a sense of false comfort or the things that I have been writing about simply don't matter. Does the amount of debt matter? Does fractional reserve banking matter? Does a mounting tax burden matter? Do high earnings multiples matter? Do continuing job losses matter? Do falling prices matter? I really shouldn't say "matter", it should be "matter as much as I think it matters."

Anyway, the ADP jobs report came out this morning: 491,000 jobs lost in the month of April. Including the 12/2007 report, the economy has lost 5,218,000 jobs since the recession started. Based on ADP's numbers: 5,115,000 jobs were created from 11/2004 to 11/2007. So we are basically back to the same amount of jobs that we had 4 and a half years ago.

My forecast for Friday's BLS number is a loss of 557,000 jobs. This is based on claims data and the ADP number.



Please click to expand.

Bank of America Capital

http://bloomberg.com/apps/news?pid=20601087&sid=aA5X3dkyymvw&refer=home

Bank of America Said to Need About $34 Billion in New Capital

http://www.nytimes.com/2009/05/06/business/06stress.html?hp

U.S. Says Bank of America Needs $33.9 Billion Cushion

"Mr. Alphin said since the government figure is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government."

This almost makes it sound like BoA has too much capital. Based on this paragraph, I am not certain about what the bank has to do. I'm sure clarification will drip out. This dissemination of information is a joke.

*** BANK OF AMERICA NEEDS $33.9 BILLION ***

http://www.nytimes.com/2009/05/06/business/06stress.html?_r=1&hp=&adxnnl=1&adxnnlx=1241583126-4q9FGUUnO/1OBEWHyECsQQ

U.S. Says Bank of America Needs $33.9 Billion

Boy, Bailing Out The Auto Companies Was A Great Idea..

http://online.wsj.com/article/BT-CO-20090505-714780.html

GMAC 1Q Loss Widens On Credit Woes, Weak Economy


http://www.reuters.com/article/marketsNews/idINN0548672220090505?rpc=44

GM details plans to wipe out current shareholders


http://money.cnn.com/2009/05/05/news/companies/chrysler_loans/index.htm?postversion=2009050519

Chrysler won't repay bailout money


This is just the beginning of the massive failure of ALL OF THE BAILOUT PLANS. Prepare for more job losses, prepare to take it on the chin for corporate America, prepare for higher taxes.

Items of Note This Week

Wednesday, 8:15 AM: ADP Employment Report____Consensus -643,000

Thursday, 8:30AM: Initial Jobless Claims________Consensus 620,000

Friday, 8:30AM: Non-Farm Payroll____________Consensus -620,000

Friday, 8:30 AM: Unemployment Rate__________Consensus 8.9%

Also:

- Thursday: Release of Bank Stress Test Findings

- BankUnited: Possibly an end to the saga, will it find a buyer or will it be shut down?

- Corus Bank: Condo lender, teetering on the brink, will it be closed?

- Over the last week or so: Bonds down, stocks up, oil up..........end of the deflation trade? How close are we to an inflationary problem?

May Showers?

Updated: Failure Friday & recent bankruptcy filings